Greetings. And welcome to the Inotiv’s First Quarter Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Yedid. Thank you. You may begin.

Great, Camilla, and thank you for everyone for joining today’s quarterly call with Inotiv’s management team. Before we begin, I’d like to remind everyone that some of the statements that manage will make on the call are considered forward-looking statements, including statements about the company’s future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievement to be materially different from those projected. Any such statements represent management’s expectations as of today’s date. You should not place any undue reliance on these forward statements and the company does not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company’s SEC filings for further guidance on this matter. Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors. Definition of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in the company’s earnings release which has been posted to the Investors section of the company’s website and is also available in the Form 8-K filed today with the Securities and Exchange Commission. If you haven’t obtained a copy of today’s press release, you can do so by going to the Investors section of Inotiv’s website. Joining us from the company today are Bob Leasure, President and CEO; and Beth Taylor, Chief Financial Officer. Bob will begin with some opening remarks, after which Beth will present a discussion of the company’s financial results and then we’ll open the call for your questions. With that said, it’s my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead.

Thank you, Bob, and good afternoon to all of you joining us on our call today. As you saw from today’s financial news release, Inotiv began its fiscal 2024 making progress against important financial and operational metrics, while continuing to develop and solidify its business model. As noted in our year-end conference call, last quarter, our promise to shareholders, customers, employees has been to guide Inotiv towards becoming a leading midsize CRO in the marketplace through transformative acquisitions and build out new services, which ultimately will expand upon our contract research service capabilities. We continue to enhance and build an organization delivering innovation and solutions for drug discovery and development. It is significant that in the past 18 months, we have optimized our operational footprint from 33 to 23 locations by closing down nine RMS facilities and one DSA facility and transferring the work to existing facilities, which has been recently renovated and expanded, while simultaneously expanding three DSA existing facilities. This will allow us to better service our customers’ demand and new complementary services and create a platform, which will support growth and allow us to leverage our fixed cost structure and enhanced margins. Further, as noted in our prior quarter, we have also been restructuring our transportation services and logistics operations. As a result of all of these initiatives, once they are completed, Inotiv will have eliminated $20 million of annual operating expenses from the business. Approximately $5 million of these reductions were realized in fiscal 2023 and the remainder should be completed in the fourth quarter this year. In addition to the decrease in operating expenses for the site optimization and restructuring of our transportation, we have seen reductions in G&A expenses as well. We have also expanded our service offerings and capacity. As we near the…

Thank you, Bob. For the 2024 first quarter, total revenue increased 10.3% to $135.5 million from the $122.8 million recorded during the prior year period. DSA revenues increased by 8.8% to $44.7 million when compared to the prior year period of $41.1 million. As previously mentioned, the higher revenues experienced in our DSA segment were primarily driven by new services related to genetic toxicology and the mix and pricing of general toxicology services, which were partially offset by a decrease in medical device surgical services due to cancellations we experienced in the fourth quarter of fiscal 2023 and delayed projects. RMS revenue for the fiscal first quarter was up 11.1% to $90.8 million compared to the same quarter last year, mainly due to favorable pricing across several products, particularly NHP. These increases are partially offset by lower volume of NHP sales and a decrease in revenue for small research models due to lower demand. Consolidated net loss attributable to common shareholders in the first quarter of fiscal 2024 totaled $15.4 million or a $0.60 loss per diluted share. This compared to consolidated net loss attributable to common shareholders of $87.3 million or a $3.41 loss per diluted share in the first quarter of 2023. For the quarter, adjusted EBITDA improved $15.1 million compared to the prior year period to $9.6 million or 7.1% of total revenues from a negative $5.5 million or a negative 4.5% of total revenues in last year’s first quarter. Operating loss for the first quarter of fiscal 2024 was $9.4 million, compared to a loss of $90.6 million from last year’s first quarter, which included $66.4 million of goodwill impairment loss. Additionally, the current quarter had lower G&A and other operating expense, which was partially offset by higher selling expense and higher depreciation and amortization expense…

Operator, this is Bob. One clarification. My friend, Bob Yedid, pointed out that when I referred to the SG&A expense reduction year-over-year, I referred to $18.4 million reduction. It is an $8.4 million lower in Q1 2024 versus Q1 2023. That’s $8.4 million, not $18.4 million. I want to make sure I make that clarification, as Bob Yedid said, it was not clear when I read that the first time. But thank you.

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

Great. Thanks for taking the questions and congrats on all of the progress. I was hoping I could start with a question around the book-to-bill. It looked really solid. Maybe take us a little bit deeper into where some of this business came from, if there were any particular customer profiles that were bright spots. And then I heard the cautionary statement around kind of pent-up demand after a slow summer. Maybe explain the reasoning behind this, as well as we start to move into 2024.

Okay. Thank you, Frank. Yes. We -- it was a very good quarter and I believe last quarter was a 0.65, and then this was a 1.46 or 1.4 plus. And I didn’t -- I knew we had a lot of momentum going last quarter, but we just didn’t get the awards and it seemed to come in this quarter. So our trailing six months is over 1. But I didn’t think it was as bad as 0.65 last quarter and I think 1.47 sounds a little high compared to where the market may be and that’s why I’m trying to even out those two quarters. But very pleased with it, nonetheless. Because the conversion rate is going up and the backlog is shorter in duration and we’re still seeing that. I think as far as where we’re seeing -- where we had some increases, we actually had some increases in some of the new services. And in particular, I mentioned, Rockville and Maryland site is that, Rockville, Maryland site has negative margins right now. If we took out -- if we backed out Rockville sales and margins for this last quarter, we still had increasing sales and we actually would have improved our DSA margins. But -- and we know we’re building that site. We know we’re running probably 25% of the capacity of that site at the moment, we’re pleased with the way that it has come on Board and that we’re still validating those assays, and we’re very pleased with some of the backlog that we grew in that site last quarter, which is a real positive sign for us in that site going forward. So we’ll hope that, it would be nice to continue these trends, but 1.46 was a surprise, a very pleasant surprise and I think a great trend. But, again, over the six months, it’s really a little over 1 and I think that’s what we’ve got to build upon.

Got it. That’s a good color. Maybe moving on to cadence of revenues expected for the year. Fiscal Q1 typically a seasonally slower quarter, but seems you performed ahead of expectations. Maybe walk through how we should be thinking about getting to the guided ranges for 2024 on the revenue line and EBITDA line, given this stronger than anticipated fiscal Q1 performance?

I think we’ve had some steady growth in the DSA business and that -- and I like our backlog. I like where we are. But delays could impact that from quarter-to-quarter. But, overall, we’ll keep the guidance where it is. And the small animals and diet business are pretty consistent for us. Where I do think we could have some wide fluctuation is in the NHP market and last year, that market changed quite a bit when it went basically away from contracts to spot market. And people were -- the demand was pretty high, pricing went pretty steady, went up. I think this year the supply is much better than it was last year at this time and I think people now learned quite a bit from that and said, okay, we want to now have long-term suppliers over multiple years and that would work well for us, because we would have increased predictability and we could -- our capital needs -- working capital needs would be much more predictable. But I think the market’s going to have to revert back to that approach from where it was a year ago and we’re working with numerous customers at the moment, which I’m very pleased about. And I think over the course of the year, we still and going into 2025, we’re in a really pretty good position. However, it’s not -- that is a lot less predictable and we saw that last year. We had some quarters where we could fluctuate by $10 million to $15 million just with the number of NHPs that may go out one quarter versus another quarter, even at the end of a quarter, and when they come out of quarantine and things like that. And so that’s one of the reasons why we make sure we give annual guidance and not quarterly guidance, because I think we could see some significant fluctuations in the NHPs from quarter-to-quarter.

Okay. One more one more quick one for me. What’s your split of contracted NHPs versus spot market NHPs today and where do you see that going?

If you go back two years ago, most of it was all contracts, and in fact, if you -- we -- and that was -- and we inherited contracts that went back several years. And some of the challenges with those contracts is that they were fixed price contracts that we were buying on the spot market at the end of the last year. So that’s another reason why margins were down a little bit towards at the end of 2022. And now we don’t have any -- hope -- we have now, I would say less 15% of what we have is on contracts as we went away from that last year with predominantly the spot market. I think that is going to come back and I would guess flip back the other way that we actually could end up by the end of this fiscal year, we could end up instead of 20% of the contracts and 80% spot. I think we could go 80% contracts and 20% spot. And as I said, that would really help with the predictability and a lot of management issues in that business.

Got it. That’s helpful. Thanks for taking the questions and congrats on the quarter.

Thank you.

Thank you. Our next question comes from the line of Matt Hewitt with Craig-Hallum. Please proceed with your question.

Good afternoon. Thank you for taking the questions and I’ll reiterate the congratulations. Obviously, a lot of progress here over the past year. Maybe just to dig a little bit more into that book-to-bill. Was there -- it sounds like, you had a good quarter signing new customers and whatnot. But how much of that was just pent-up demand maybe from the summer versus how much of it is, and maybe this carries into this quarter, the fiscal Q2. How much of that is just, I guess, better visibility from your customers on their balance sheets, on the programs that they want to kick start and progress over the course of this year? So is there a way to kind of parse out the difference between the two?

All right. I’ll try my best here, Matt. And one, I would say that, we closed a much higher percent of what we quoted in the last quarter than we had been the previous quarters. So I think we’re doing a better job of posing what we are quoting for one. Two, I will say that, the quoting activity versus one of last year was much higher, especially in October, November, December, than it was a year ago. So I think that’s a real positive. And I will also tell you that, what could be driving that? Well, we -- at this time last year, we did not have a discovery translational sciences sales team, which we’ve been putting in place over the last three years or four years and some just hired in the last couple -- in the last eight weeks. We did not have a chemical crop business that we were selling to a year ago. We put that in place over the last two months, three months. We did not have a medical device salesperson. We put that in place over the last four months or five months. We had more safety assessment salespeople and we’re starting to do a better job of getting our brand and our brand recognition out there. So I think it’s a culmination of a lot of efforts and then we’re starting to do a better job of cross-selling. So I think we’re in -- I say that, and I would say, I still think we’re in the infancy of what we can do, because a lot of those things were put in place over the last four -- three months to four months and some of them just over the last two months, and those people take some time to get to know the market, to get to know us, to be trained and come up to speed. So I don’t know which one of those in particular -- it’s really, I think, a combination of all those things and we’re doing a much better job of involving our operations and scientific team in our sale process. And there is -- I’m really pleased with the collaboration. It’s something we started nine months to 12 months ago and I’m really pleased with the collaboration. And again, we sell mainly to biotechs and that’s what the biotech market is looking for. So that’s -- and that’s how we’re designing our business.

That’s super helpful. Thank you. And then, maybe kind of a tag on to this, where does your current sales and marketing headcount sit today? Where -- and I know that you plan to add a few more people, but where do you anticipate that exiting the year?

Oh! In terms of number of people, I don’t know, because it’s such a broad team between our sales team, our marketing team, our client services team and the scientist and scientist engagement team. We really are -- we sell as an organization. It’s just not a sales team of 10 or 20 people. So it’s pretty deep, and I would say that, we have well over 100 people that are out there. It probably could be over 150 people out there daily that are selling and articulating and working with other scientists. But even our project managers and our pathologists and toxicologists, they’re all involved in the sale, and our leadership team, they’re all involved in the sale process. So I don’t want to say we just have a -- it’s just not a sales team. It’s an organization that is designed to sell to the biotech customer.

Understood. And then maybe one last one and I will hop back...

… on the DSA side. On the RMS side now, we’re developing relationships with universities, CROs, large pharma and that’s a whole other sales and marketing team.

Got it. Understood. And then maybe last one. Regarding Rockville, obviously, you’re seeing some nice early returns from that expansion. When does that get to profitability? Is that later this year? Do you think it may take a little bit longer? Is there kind of a threshold or a sales amount when it kind of gets to that break-even level? Thank you.

Yeah. Well, that’s a great question and for me it’s not going to happen soon enough, because we still are investing in startup costs there and the margins are negative at the moment. I think that we’re currently probably about 25% of our capacity. I think we need to be closer to 40%, 45% of capacity to break even. So, I think, we still have -- we still may have a couple quarters to go. If we have a couple quarters like we did last quarter, we’re going to get there very quickly. But even when we ramp it up at that level, we -- sometimes I’ll tell you that we’ve even taken on so much work, we have -- even though we have the capability, we outsource it just not to be late with customers. We -- so we’re trying to -- we want to bring it up, but we’d like to bring it up faster, but I still think we’re probably -- we’re more than halfway there. Last year at this time, we were probably just getting started. And to get up to where we are today, 30%, and if we can get up to 40% over the next quarter or two and get that to at least a break even on the margins standpoint over the next three months or four months, that would be great. It would be significant.

That’s great. Thank you very much.

Thank you. We’ve reached the end of our question-and-answer session and I would like to turn the floor back over to CEO, Bob Leasure for closing comments.

Well, thank you everyone for joining today’s call and I look forward to updating the market as to the progress of our execution across all of our strategic objectives and this -- what I hope is an exciting year for us. With critical operational groundwork achieved in the past 18 months, we firmly expect to see success in our strategic initiatives in improving efficiency to positively impact our top and bottomlines. In the meantime, we will continue our efforts to grow our reputation, become a leading midsize CRO provider of choice. I’m very pleased also to have heard a lot of people and employees listen to these calls. They’ve done a tremendous job and I can’t thank them enough for what they do. So, thank you again everyone for your support as Inotiv enters this new stage of growth and possibilities. Have a good afternoon and we look forward to speaking with everyone on our next call.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.