Good day, everyone, and welcome to the Inotiv First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I'd now like to turn the call over to Steven Halper with LifeSci Advisors.

Thank you, Jamie, and good morning, 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 close. 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 including risks and uncertainties that could cause results to differ from forward-looking statements. Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in the company's current and previous earnings releases, which have been posted to the Investors section of the company's website, www.inotiv.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 -- this morning 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 the call. Bob will begin with some opening comments, after which Beth will present a summary of the company's financial results for our first quarter of 2026, and then we'll open the call for questions. It is now my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead.

Thank you, Steve, and good morning, everyone. During the first quarter of fiscal 2026, despite the usually weaker seasonality, we saw very strong year-over-year revenue growth in our DSA business with both increased discovery and translational sciences revenue and increased safety assessment revenue, somewhat offset by weak performance of our NHPs and typical seasonal weakness in the rest of our RMS business. We're delighted to see the continued strength in our DSA business, building on several quarters of improvement against a backdrop of generally slow market demand. Q1 of 2026, DSA revenue increased 12% versus the same period last year. Within that, DTS revenues were up 26% and safety assessment revenues were up 7%. In addition to revenue growth, this quarter, we also saw strong growth in net awards with discovery awards up 44%, safety assessment awards up 22% versus the prior year period. With this, our trailing 12-month DSA awards have increased 34% over the prior 12-month period. This brought our book-to-bill for the quarter to 1.16:1 and for the trailing 12 months to 1.08:1. The revenue growth in DSA drove our strongest first quarter DSA margins in the last 3 years. The RMS business continued to be challenging, in particular, for NHPs, where lower volume sales impacted our RMS revenues and margins compared to last year. We remain on track with our site optimization, transportation, fleet optimization plans, which we believe will be positive for margins in future periods. In connection with the current phase of the RMS site optimization plan, we exited 2 leased facilities during the first fiscal quarter of 2026, one in October and the second in December. And this phase should be complete by the third quarter of fiscal 2026. Overall, our RMS revenue for the first quarter declined 5.4% compared to the prior…

Thank you, Bob, and good morning, everyone. For the first quarter of fiscal 2026 total revenue was $120.9 million compared to $119.9 million in the first quarter of fiscal 2025. This was an increase of $1 million or 0.8% in revenue from the prior year quarter, primarily driven by increased DSA revenue and partially offset by decreased RMS revenue. DSA revenue in the fiscal 2026, first quarter was $48 million compared to $42.8 million in Q1 fiscal 2025. The year-over-year increase in DSA revenue was primarily driven by an increase in discovery pharmacology service and surgical services revenue as well as an increased revenue at our Rockville facility. Overall, net new DSA awards during the quarter were $53.6 million, a 27% increase over Q1 of fiscal 2025 and a 34% year-over-year increase for the trailing 12-month period ended December 31, 2025. We have also seen strong quoting and awards for the month of January representing an encouraging start to our second fiscal quarter of 2026. The backlog conversion rate in the first quarter of fiscal 2026 was 33.2% compared to 32.8% in the prior year period. DSA cancellations and negative change orders in the first quarter of fiscal 2026 were approximately 51% lower than the prior year first quarter. Cancellations and negative change orders in the trailing 12-month period were approximately 17% lower than the prior trailing 12-month period. The book-to-bill ratio for DSA in the first quarter of fiscal 2026 was 1.16:1, and our trailing 12-month book-to-bill was 1.08:1. DSA backlog was $145.4 million at December 31, 2025, compared to $138.2 million at September 30, 2025 and $130.4 million at December 31, 2024. RMS revenue for the first quarter of fiscal 2026 of $72.9 million decreased $4.1 million or 5.4% compared to Q1 fiscal 2025. The decrease in RMS…

[Operator Instructions] We'll hear first from Frank Takkinen with Lake Street Capital Markets.

I was hoping to start with a little bit more color on profitability. It sounds like it was likely margins in RMS that weighed on adjusted EBITDA in the quarter, but I think there was maybe a little bit more OpEx than I was expecting in there, too. I was curious if you could unpack that at all and talk to some of the moving pieces around the adjusted EBITDA number. And then as a second part, how should we be thinking about adjusted EBITDA trending with seasonality through the rest of the fiscal year?

Okay. Frank. First, address seasonality. I think that the seasonality will be pretty much the same as last year. The first quarter has always been -- and we'd like to find a way to smooth that out. But unfortunately, the first quarter has always been a little bit tougher. As we go through the closures to the universities and some of our clients and Thanksgiving over the holiday season. The only other seasonality issue that we may really come across is if weather significantly can impact our business. And we did have some weather in January that affected the last week of January. But typically, we didn't make that up during February and March. But sometimes that can also impact shipping, if you will. In terms of our margins and OpEx, I do think we had some increase in expenses that have come through in some of our cost of goods sold, mainly if you look at some of the animal costs or tariffs that may have come through that we've not passed along. A lot of what we do in terms of our quotes, if you will. And we've alluded to the pricing stabilizing. But again, what we started quoting last summer in March, April, May, June, some of that pricing and some of those price increases that came through that we made amended in our pricing in the summer. We won't see that really come through until 9 to 12 months later. If you think about it, some of our quoting, we may quote 1 quarter, it may be 3 or 4 months before it's awarded, maybe another 3 or 4 months before that starts, which means you could be out 9 to 12 months before you start to see those margins. So I think we'll continue to see margins improve in the back half of this year also as I think some of the pricing and some of the cost increases got passed along. So, yes, I mean it was -- I think that we were a little -- I say, I think frustrated that we didn't maybe have more volume of the NHPs. It was, I thought, significantly less than we would have expected or significantly as it was prior year in terms of volume, but we were able to overcome quite a bit of that with some of the DSA growth and some of our services growth. And I think we'll be fine going forward, as I said, I think we'll make up the volume also before the year is over.

And then maybe just for my second one, I wanted to ask a little bit more on DSA awards. Obviously, that's been trending very positively, fourth quarter over 1 and highest, I think, since fiscal Q3 of 2020 or fiscal Q1 of 2024. So great to see it continue to trend positively. Maybe talk a little bit about why that has continued to be a little bit above where the industry is at and then how that should translate into DSA growth for 2026.

If you recall that when we talked last May at Investor Day, there are really a couple of key pieces to what our plan was longer term. One is -- and one was dependent on our DSA growth and then obviously the growth in margins. And the second one was in the site optimization cost. So again, on the DSA business, I would remind everybody, we are much smaller than some of the other people in the industry may be comparing us to. So our ability to move the needle may be a little easier because of our size. But I believe that we've done a couple of things that we focus on. One is really making sure that we're on time and have a high degree of communication with everything we do and develop a great deal of trust with our customers. So I think we see increasing reoccurring sales from existing customers. In addition, we're still a fairly young company. So we're still seeing new customers come to us. As they get to know us and introduce themselves to us. And sometimes it may take a year or 2 before we get to know them before we actually see some business. But we're starting to get, I think, increasing expansion of our brand name out there, and that came with some of the increase in the sales force that we started 2 years ago. So some of these things we initiated 2 years ago are starting to benefit. Then finally, we also have, I think, a great deal of scientific strength, a great pathology team, great scientific team. And I believe that we alluded to it in here, but some of the innovation and some of the things that we're doing in discovery. I think, are transformational. And I think that will really be one of our strengths going forward. And I think it's starting to show more and more. So I hope that we can continue to expand on that in future quarters.

We'll move now to Dave Windley with Jefferies.

I wanted to start on DSA revenue. Your -- and backlog, I guess, your conversion rate had been marching up pretty steadily over the last 6 quarters or so and took a step back in the first quarter. I wondered if that has to do with -- you mentioned kind of seasonality in holidays. I wondered if that has to do with that, if it has anything to do with where your orders are coming and where you have available capacity? And kind of related to that, you're calling out the growth in discovery services kind of more so than safety assessment. I know you've made some investments in the discovery area. But again, is that a function of where you have capacity as much as where the demand is?

Yes, you're correct, that discovery is where we probably have more capacity than some of our safety assessment. And we've grown a little bit of that capacity lately to get ready for next quarter and what we see coming down the road. So I think -- as far as the throughput, I think we are a little higher than -- conversion rate, I should say. I think we were a little higher than last year, just a point higher, and we've been trending higher quarter-over-quarter. I think some of that comes into the seasonality and the fact that the backlog just went up quite a bit. So hopefully, we'll start to see that conversion rate increase. And generally, yes, the discovery conversion rate comes a little quicker than the safety assessment conversion rate. Safety assessment usually starts a little a little bit sooner, may take 9 months once we get PO to get it through and the discovery can take a matter of weeks to fewer months. I also think something a little bit different in the discovery in the last quarter. Is that we were getting some discovery revenue that's much -- that may have a little bit longer lead time than normal and some blanket POs and some large reoccurring business that's taking place, and that may have dropped it down a little bit.

Flipping Bob, to the RMS business, you've taken over a period of time, you've taken significant amounts of operating costs out, lease exits, et cetera, you had a couple more of those. I guess 2 questions. The simple one would be, is there -- were those lease exits late in the quarter such that we should expect some additional incremental cost outs for the sequential quarter. And then two more, I guess, bigger picture, as you're taking that operating cost out, you're -- like at least in this quarter, and you talked about NHP activity, but we're not seeing the operating leverage benefits of that. Help me understand what is shading that or when we will begin to see that operating leverage in RMS from those cost outs?

I think some of the operating leverage didn't show up because of the significant reduced volume in the NHPs. So that overshadowed some of the leverage. But you're also correct that we will see some of those costs come out next quarter. It's not only the facility, but as you ramp up these new facilities, we're building out and expanding existing facilities that are going to be much more efficient than the facilities that we are closing. So we are not only closing. We're closing our oldest facilities. These are usually have very high maintenance cost, not as efficient, higher labor cost and then the related lease cost to it. So -- and at some point, as you're bringing these new facilities up before you close the other ones down, you're running duplicate facilities. So I think we are starting to see internally, we can see some of the costs starting to come out, and we can see the margins of the , I should say, small animal business improve, but some of that was overshadowed by the lack of volume in the NHP business this quarter.

So last question quickly. On the NHPs, can you give us order of magnitude? How much was that volume down year-over-year?

Probably about 25%. It was -- and the NHPs, we've had that before. Well, it's not a straight line in terms of when they go out. And I think we've done a nice job of really reducing our dependency on the importation of NHPs. But if we had to ship the additional 25% out like we did a year ago quarter or anywhere close to what we did in Q3 or Q4. I think we'd have probably seen a little bit more of those efficiencies come through, Dave. But hopefully, we'll see that in the future quarters throughout the year.

We'll turn next to Matt Hewitt with Craig-Hallum Capital Group.

Maybe first up, you noted in your prepared remarks that you've been making some progress in signing some new relationships on the NAM side. I'm just curious if you could provide a little bit more color on those relationships and how you expect those to kind of drive incremental revenues going forward?

Well, John is on the call, John may be able to help more in terms of if you're going to get into the science, but I think this is part of what we're doing from an innovation standpoint. And we've had -- I will say this, we've been doing some R&D. We had to have a line for R&D in our budget. We've been working on that and developing these relationships and I think this innovation and what we're -- is going to be a key part of our future and a key part of our industry. And we've got -- we don't want to become and we want to avoid becoming a commodity. And to do that, we've got to be able to lead with innovation. And I think we have some things that are going to be transformative as I said, in the future, and I think some of our customers see that. And I think that's really benefiting right now our brand and is benefiting where we're seeing some increased volume. But I'll let John, do you want to add anything more to that. We've been somewhat careful. And maybe, Matt, I would tell you, we may have an Investor Day in the future here where we can talk a little bit more about it. But right now, John, is there anything else you'd want to add to that?

Just that the announcements that we've made over the past couple of months have given us access to technologies and tools that allow us really to pursue a program to matching human or matching animal models to human disease through the ability to look at data differently in a big way. And as Bob mentioned, we've got some internal initiatives that are using specific therapeutic areas to integrate those technologies and really validate the overall approach, but we needed to have access to tools that weren't currently robust within our existing footprint, and that was the basis for the announced collaborations.

And then you touched on this a little bit, but with the weather that impacted shipping and whatnot later in January, maybe does that also impact your costs? I mean the cold temperatures, in particular, reached your facilities, I would think, in Texas. Does that translate into some higher cost to maintain proper heating and all of that for the NHPs in particular? Or how does that impact you?

Well, this last couple of weeks -- by the way, we also had that last year. Some cold weather comes through. But we're not transporting like we do. I should say, if the roads are going to have ice and the roads, and it's going to be dangerous. We're not transporting some of our research models and animals. So we're going to be very careful about that. And so that may -- and some of our customers are also going to be impacted and some of the universities are going to close and not be able to take orders. So that's one part of it. The second part is, yes, -- we have some great people that if it's going to be extra cold and we're concerned and you could have ice, where you could have electricity issue, we have generators, of course. But we're going to -- then we have people that volunteer and they stay at the facilities 24/7 to make sure that they're -- they can provide all the care that's needed and they do an extraordinary job. I wouldn't say it's a lot of -- it's not going to change the needle that much in terms of cost. But it is quite impressive to see the care and the culture that these people have throughout the organization. And this last cold spell went from, obviously, from Texas all the way all through the East. And there were some just extraordinary efforts in volunteering -- people volunteering their time and spending weekends and the week just 24/7, taking care of the facilities and the animals. And it's quite impressive. So to extent anybody listening, thank you once again for what you do and for caring for everything we do.

With no further questions in queue at this time. I'd like to turn the floor back over to Bob Leasure for any additional or closing comments.

Thank you. As I said, we are pleased with the recent growth in the DSA revenue quoting awards and continued focus on customer satisfaction, integration and efficiency and the cost reductions in the RMS business. We believe this progress has been made possible by our focus on execution and we'll maintain our commitment to client satisfaction and continued innovation. We're making progress on financial goals outlined last year. We're continuing to prioritize our strategic review of our capital structure and improving our balance sheet. I appreciate the support of our lenders and what they've provided to our management team and the company and for the shareholders who continue to support us. I continue to believe that we are a stronger company today, and I'm confident in our plan for continued improvement in the future. Thank you for joining us today.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.