Good day, everyone, and welcome to today's Inotiv Fiscal 2024 Fourth Quarter Financial Results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Steve Halper.

Thank you, Margery, and good afternoon, everyone. Thank you 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 management will make on this 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 achievements to be materially different from those projected. Any such statements represent management's expectations as of today's date. You should not place undue reliance on these forward-looking 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 www.inotivco.com and is also available in the Form 8-K filed with the Securities and Exchange Commission. If you haven't obtained a copy of today's press release yet, you can do so by going to the Investors section of Inotiv's website. Joining us from the company this afternoon are Bob Leasure, President and Chief Executive Officer; and Beth Taylor, Chief Financial Officer. John Sagartz, Chief Strategy Officer, will join us for the question-and-answer portion of this call. Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results for our fiscal fourth quarter and full-year ended September 30, 2024, and then we'll open the call for your questions. It is now my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead.

Thank you, Steve, and good afternoon to everyone joining our call today. Fourth quarter was again productive for Inotiv. We accomplished many of our goals during the quarter, and believe we are good position falling into 2025. As you are aware, during 2024, we experienced volatility within our earnings and cash flow. Volatility was mainly related to challenges in our NHP business within the RMS business model, but we also saw continued conservative spending within the biotech industry. The initiatives we put in place over the last year were designed to reduce risk and address volatility, improve the customer experience, and draw new customers to the business, all while enhancing our cash flow model in calendar 2025. I'd like to spend a few minutes on our fourth quarter '24 results and fiscal '24 highlights. For the fiscal 2024 fourth quarter, total revenue was $130.4 million compared to $105.8 million in the third quarter of 2024, representing a 23% increase in quarter-over-quarter revenue, though it was down 7.3% compared to the fourth quarter in fiscal 2023. During the fourth quarter of 2024, in the RMS business, we continue to make progress improving our North American transportation and distribution systems. We also completed the RMS site consolidation and facility improvements we announced almost two years ago as we completed the closure of our Blackthorn facility in the U.K. and the planned investments in our U.K. Hillcrest facility. We saw a significant increase in NHPs sold in Q4 compared to Q3 as we more than doubled the number sold in Q3. During Q4, we sold much of our higher cost NHP inventory, which impacted margins in the quarter, and will continue to impact margins in Q1 of fiscal 2025. We also already have strong commitments for purchases from both existing and new customers…

Thank you, Bob, and good afternoon, everyone. For the fiscal 2024 fourth quarter, total revenue was $130.4 million compared to $105.8 million in our third quarter 2024 and $140.7 million during the fiscal 2023 fourth quarter. Compared to Q3 of 2024, we saw our RMS revenue increased $24.2 million or 39.3% and our DSA revenue increased $0.4 million or 0.9%. Compared to Q4 of 2023, we saw a decrease in total revenue of 7.3%, primarily due to an 11.2% decrease in DSA revenue and a 5.2% decrease in RMS revenue. We actually saw a 177.9% increase in the number of NHPs sold in Q4 2024 compared to Q3 2024 and a 48.9% increase in the number of NHP sold versus Q4 of 2023. The NHP average selling price in Q4 2024 was 7.7% higher compared to Q3 of 2024 and the NHP average selling price in the current quarter compared to the prior year period was down approximately 33.4%. 2023 RMS revenue also included revenue of $1.7 million from our Israeli operation, which was sold in August of 2023. For the 12 months ended September 30, 2024, consolidated revenue was $490.7 million down 14.3% compared to $572.4 million for fiscal 2023, mainly due to the decrease in NHP sold in Q2 and Q3 of fiscal 2024 as well as a decrease in NHP pricing and the sale of the Israeli businesses in August of 2023. DSA revenue in the 2024 fourth quarter was $44.6 million compared to $44.2 million in Q3 of 2024 and $50.2 million in Q4 of 2023. The decrease in the DSA revenue from prior year period was primarily driven by a decrease in general toxicology services due to a change in study mix and a decrease in discovery services revenue as a result of lower overall…

Thank you so much. [Operator Instructions] We'll take our first question from Frank Takkinen from Lake Street Capital Markets. Please go ahead.

Hi. Thanks for taking the questions. Congrats on the all progress. Was hoping to start with one clarifying question really around gross margins in NHPs. Anything you can do to help quantify exactly how much of a headwind it was that quarter. The reason I'm asking is it seems like there was really good sequential improvement in both volume and units. And I think that that gross margin is just lagging because of some of that higher dollar old inventory, but anything you can quantify in there to give us a feel for what that gross margin may mature into once we get into a more normalized environment?

I don't have a way to do that off the top of my head. Beth, if you have a way that you can articulate those, but I'm guessing we were probably half -- at least half of what we would normally achieve. Beth can you see that?

Yes, if we look quarter-over-quarter this '24 fourth quarter to last year's, we were about half of the margin percentage and dollars.

Yes, and it was important for us to move that out when we needed to move the higher cost inventory, but too, from a space standpoint, we really needed to start bringing in additional lower cost inventory. And we really need to move that to make room as our bottleneck is how much boarding capacity we have. So, it was important that we could move that out. The market was there, demand was there, so we were able to move those out.

Okay, got it. And that was going to be my second-half, it feels like we're seeing that really stabilize. What can you say about 2025, can you maybe speak to just how much of the business is now contracted, any inventory commentary from your customers, just any other commentary around that to give us a feel for NHPs next year?

Well, yes, the NHP business is one we have definitely pre-sold more going into '25 than we did going into '24. And that includes multiple new customers. In addition, what we've really done a pretty good job with over the last couple years is growing our colony management services, and it's mainly boarding and services related around that. It's been growing the 20%-25% a year, which is very good reoccurring revenue for us. So, we've been expanding those boarding capabilities and services. So, we expect that will continue to grow next year. So, I think for us it's important that we see a more consistent reoccurring sales base as we have -- really we had two weak quarters. It was our fiscal Q2 and Q3 of last year that somewhat caught us by surprise and had lower demand. And we're working with our customers this year to make sure that that does not happen. And I think we're doing a better job of communicating with them. So, I think we'll see a much more consistent demand cycle. And I think what we sold last quarter should be more of a reoccurring quarter going forward. I think we will still have some depressed margins in our fiscal Q1, the quarter we're in today. But after that, I think we will be much more normalized base, much like we probably saw in '22 and early '23.

Okay, that's helpful. And then, maybe just for my last one, a bigger-picture question. I know, in the past, you've talked to adjusted EBITDA margins maturing over a longer period of time into the 18% to 22% range. In light of all the site optimizations you've done, the contracted NHP business, do you feel that that 18% to 22% target is still a reasonable, we'll call it, midterm target over time for the business to mature into?

I do. I think to get to the higher end of that, we'd have to see some recovery in the industry, because there's some pricing pressure right now and some volume issues, because I think of the overall demand in small animals in some of those areas. But if you look at where we're going to see our improvements next year because of some of the site optimization things that we did, what we're seeing in our diet enrichment business, what we're seeing in U.K. and Europe, what were the costs we're able to take out in transportation in the U.S., combined within our improvements in the NHP business and then what we're seeing in our DSA business currently. And I do expect we'll probably see some recovery in the DSA business next year, one from new services, and from some of the other things that we've been able to grow. So, anyway, I'm optimistic that we'll be able to get back to that 18% to 22%, but I think to get to the higher end of that, it's going to require recovery in the industry.

Perfect. That's helpful. I'll stop there. Thank you.

Thank you. Our next question comes from Matt Hewitt from Craig-Hallum. Please go ahead.

Good afternoon. Thank you for taking the questions. Maybe first up and I appreciate that you're not providing guidance, but is it safe to assume that we should anticipate growth in '25 off of 2024s kind of a low watermark?

Yes, yes, I think just on the NHPs, we'll see some growth. I think we'll also see it in diet, bedding and enrichment. We'll see continued growth I believe right now in U.S. and in, say, U.K, in Europe. So, those and it wouldn't surprise me completely that we see growth next year in the discovery. I think I believe that we're hopefully seeing the bottom of that and starting to see some maybe some recovery. So, I think we will see growth in all those areas. I don't think we'll see a lot of growth in pricing. I think it will be mainly in the NHP business. I think it will come mainly from volume.

Got it. That's helpful. Thank you. And then, I just want to maybe touch on the price. It's come up a couple of times. Obviously, you're seeing some price competition. Are you being forced to match to retain or even pick up some incremental share? Or are you able to kind of highlight your white glove treatment of customers and so you're not having to perfectly match? You can maybe have to come down a little bit, but you're still able to retain or pick up incremental share because of the treatment and your strong customer relationships?

Well, I think pricing is coming down for a couple of reasons. One, pricing is coming down because the NHP prices have come down and so people's costs have come down. And second of all, I think there's been some margin compression also. So, I think in general there's been some pricing. And that's mainly in the DSA business, more so than the other businesses. But I think the NHP business also drove some of that pricing down.

Got it. Okay. And maybe one last one for me and I'll hop back into the queue. But I just want to mesh a couple of comments. So, I think earlier in your prepared comments, Bobby, you had stated that the higher cost NHPs are going to impact gross margins for that segment in '25. And then, Beth, you commented that you're expecting RMS gross margins to improve over the course of '25. Is that kind of as you were just alluding to Bob, maybe first quarter, you've got some of that higher cost inventory that you have to kind of get through. Once you're through that, you should start to see some lift in gross margins over the remainder of the year. Am I hearing that correctly?

Yes, Matt. I think what we're saying is that we think that there'll be some margin pressure in this quarter, but what we will see in calendar 2025 should be much stronger.

Got it. All right. Thank you.

Yes, I think it was a calendar versus a fiscal issue. But we're fairly optimistic going into calendar '25, but we want to make sure that what we have left, we have kind of clear out in this quarter.

Got it. All right, thank you.

Thank you. And with no further questions, I'd like to turn the call back over to Mr. Bob Leasure for any closing remarks.

All right. Well, thank you everyone for joining today's call. I think our site optimization, integration, ability to reduce our third-party expenses and presales of NHPs have put us in a much better position going into our fiscal 2025. In 2025, we will continue to build Inotiv as a high-touch flexible provider with strong scientific capabilities focused on our customer needs. We will continue to pay attention to the details. Our metrics related to customer service, quality, and delivery are continuing to improve, and we continue to get better every day. We are still a young company in our industry, and believe our best days are ahead. And thank you for your time today.

Thank you. And ladies and gentlemen, that does conclude today's program. Thank you for your participation. You may disconnect at any time.