Greetings. Welcome to Inotiv, Incorporated's Second Quarter Fiscal 2022 Financial Results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the call over to Kalle Ahl of The Equity Group. Kalle, you may now begin.

Thank you. Thank you everyone for your patience. We apologize for the delay in the call start time as Inotiv's second quarter fiscal 2022 financial results press release was delayed due to a technical issue. However, the Company has proceeded to file an 8-K with the second quarter fiscal 2022 financial results, which can be found on the SEC's website. A copy of the earnings press release will be available as soon as possible in the Investors section of the Company's website at inotivco.com. As a matter of formality, I need to remind you 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 also will discuss certain non-GAAP financial measures in an effort to provide additional information for investors. A definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures are included in the company's earnings release, which will be posted in the Investors section of the company's website at inotivco.com and is also filed in the 8-K. Joining us from the Company this afternoon are Bob Leasure, President and Chief Executive Officer; Beth Taylor, Chief Financial Officer; and John Sagartz, Chief Strategy Officer. Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results. Then we'll open the call for questions. Now it's my pleasure to turn the call over to Bob.

Right. Thank you, Kalle, and good afternoon to everyone and thank you for joining us today. I apologize for the delay, and we will find out the reasons later and try to remedy that. But in the meantime, we'll listen to what's renewed interest since you haven't seen the results yet. During the second quarter fiscal 2022, we achieved another period of very exceptional growth and are very pleased, driven by the positive impact of strategic acquisitions and strong ongoing demand across both of our segments: Discovery and Safety Assessment (DSA) and Research Model Services (RMS). Our DSA quoting levels, awards, and backlog have reached quarterly records. While total revenue grew year-over-year by more than seven-fold to approximately $140.3 million and adjusted EBITDA increased sharply to $25.3 million or 18%. This quarter's results highlight our progress in building Inotiv's world-class contract research organization with comprehensive end-to-end preclinical research services and complementary research model capabilities. Our foundational DSA business continues to perform very well with segment revenue more than doubling to $39.1 million from $18.8 million in the comparable prior year quarter. DSA benefited from $7.4 million or 36.5% of internal growth augmented by incremental revenue from strategic acquisitions of HistoTox Labs, Bolder BioPATH, BioReliance, Gateway Pharmacology, Plato BioPharma, and ILS that we've made to expand our suite of preclinical solutions. We continue to integrate our DSA operations. The ILS acquisition closed on January 10, and therefore contributed only partially to our results this quarter. ILS operates in a 50,000 square foot facility located near Research Triangle Park in North Carolina and brings immediate capacity and expertise to our developing genetic toxicology services including in vivo and in vitro toxicology, pathology, molecular biology, bioinformatics, and computational toxicology services. We believe ILS will eventually integrate with the assets we acquired from MilliporeSigma's BioReliance portfolio in July of 2021. Also in January, we announced collaboration with Synexa Life Sciences, a clinical biomarker and bioanalysis research services company that will accelerate our development of biomarkers essential to the understanding of safety and efficacy of novel biotherapeutics. After the quarter end, we further expanded our specialized pathology services with the April 25 tuck-in acquisition of Histion, which brings us core competencies in highly specialized plastics and medical device pathology. This acquisition supports the expansion of our surgical model and medical device services in Fort Collins, Colorado. This quarter, we continued to make internal investments to drive future growth in our DSA segment. In January, we completed our St. Louis Missouri facility expansion and are currently recruiting to meet growth opportunities. In Fort Collins, we are expanding operations to double the revenue run rate at this location. We anticipate this additional capacity will become available during the second quarter of fiscal 2023. We are increasing our recently acquired ILS capacity by 30%, and hope to have that available by the first quarter of fiscal 2023. We're in the process of building a new 48,000 square foot leased facility in Rockville, Maryland for the biotherapeutics and genetic toxicology group, which should be completed by April of 2023. We're starting to see some revenue from initial phases of establishing this business. And in Boulder, we are building out operations to provide 50% to 70% additional capacity. We anticipate this capacity will become available in January of 2023. We are making these investments in response to the strong demand and quoting activity we are experiencing for our preclinical services from current customers, customers acquired in recent acquisitions, and new clients. In the second quarter, in addition to record DSA sales in Q2, we had record new awards, and our DSA book-to-bill ratio remained a robust 1.52x. The period ended with the backlog for DSA totaling $133.6 million, which is up 147.9% from $53.9 million a year ago and an increase of 27.7% from $104.6 million as of December 31, 2021. Moving to our RMS segment. The integration and optimization of the recently acquired Research Model Services businesses are proceeding. These businesses contributed $101.2 million of incremental revenue this quarter, well ahead of the run rate when we announced the acquisitions. We have begun investing across the organization to improve facilities and animal welfare and streamline operations. We are also investing in locations to expand capacity in the U.S and in Europe. By adding capacity and resources, we anticipate supporting growth in services and consolidating existing RMS locations and the recently acquired RSI business and to the sites by calendar year-end. These investments are also part of our plans to enhance RMS margins and improve facilities. The examples of facility improvements we're making to enhance animal welfare include investments in water systems, air quality, electrical upgrades, enhanced sewer systems, housing, and veterinary care facilities. At the end of January, we announced the purchase of OBRC, a non-human primate importer and quarantine facility located near our existing facility in Dallas, Texas. This acquisition provides an opportunity to further expand our services and address client needs at a time when industry demand is outstripping supply. I'd like to note that we are beginning to experience tangible cross-selling opportunities between our RMS and DSA segments. The opportunities we are experiencing are driving some of our expansion decisions. We continue to invest in our people, systems, and infrastructure to support both business segments. On that note, in February, we're thrilled to recruit and appoint Mo Dastagir as Inotiv's Chief Technology Officer. Mo is passionate about applying technology—information technology—to enable more rewarding experiences for our clients and employees and has knowledge of the life sciences industry. In addition to leading and overseeing global technology operations, his key responsibilities will include continuing development of an industry-leading digital strategy practice, creating a strategic data analytics and insights platform, building a scalable technology platform to enable additional growth, continually upgrading our cybersecurity program, and creating solutions to improve quality and communication, accelerate speed to market, and drive efficiencies and profitability. In April, we're also very pleased to recruit and appoint Fernanda Beraldi as the Company’s General Counsel and Corporate Secretary. Fernanda brings with her approximately 15 years of corporate legal counsel ethics and compliance experience, including prior executive roles with public companies. Other critical positions were filled over the last four months as we have continued to recruit, upgrade, and build out our scientific team, veterinarian staff, sales, marketing, client experience, finance, technology, human resources, and accounting teams, with an eye towards creating best-in-class talent and a proactive contemporary organization to support future growth. The best client experience and continued improvements across both segments. During the second quarter of fiscal 2022, the company spent $9.5 million on capital expenditures, or approximately 6.8% of revenue. For the six months ended March 31, 2021, the company spent $15.2 million on capital expenditures or approximately 6.8% of revenue. In addition, we have made investments in our startup activities for new service offerings and expansion of existing services, which includes validation of new equipment, recruiting, and training. Based on the recent trends and backlogs, we're providing guidance for revenue of at least $290 million in total for Q3 and Q4 fiscal 2022, which will be at least $500 to $510 million of total revenue for fiscal '22, implying year-over-year internal growth of 30% or more. We expect our adjusted EBITDA for fiscal 2022 will not be less than our adjusted EBITDA for the six months ended March 31, 2022 of 15%. Our integration and optimization of acquired businesses is going very well. We anticipate additional operating leverage as we complete our investments and continue our expansions and consolidation plans. We are aware of the recent broader market concerns and commentary, so let me address a few of those. We have not seen any cancellations of orders. In the ordinary course of business, we are not aware of any cancellations due to lack of funding. We have not seen any collection issues due to lack of funding. We continue to monitor our top clients' liquidity, and we have not seen any fundamental changes. We believe our business is on solid footing, delivering both strong growth and positive cash flow, while we continue to invest in our future. We have developed a strong recurring client base and are the preferred primary supplier for many of our customers. While Inotiv has become a much larger organization over the last few years, we remain steadfast in our emphasis on exceptional client service, which we believe is paramount for our continued success. Our investments and recruiting are driven by responding to customer requests and to continually improve our service, enhance communication, expand the market, and improve the experience and environment for our employees and research models. With that, I'll turn it over to our Chief Financial Officer, Beth Taylor. Beth, please go ahead with the financial overview.

Thanks, Bob, and good afternoon. In the second quarter of fiscal 2022, our total revenue increased to $140.3 million from $18.8 million in the comparable prior year period, driven by a $20.3 million increase in DSA revenue and a $101.2 million increase of incremental RMS revenue. Our DSA segment revenue grew 108% year-over-year to $39.1 million, reflecting $12.9 million of incremental service revenue from the acquisitions of HistoTox Labs, Bolder BioPATH, Gateway Pharmacology, Plato BioPharma, BioReliance, and ILS, plus $7.4 million of higher service revenue from internal growth. Our RMS segment revenue totaled $101.2 million. We did not have any RMS revenue in the comparable prior year period. Orient BioResource, which was acquired on January 27, 2022, contributed two months of revenue to this quarter's results. In the second quarter of fiscal 2022, our total gross profit increased to $44.7 million or 31.9% of revenue, and that is up from $6.3 million or 33.5% of revenue in the comparable prior year period. DSA gross profit was $12.3 million or 31.5% of DSA revenue. Our DSA gross profit percentage was lower than the comparable prior year figure of 33.5%, due to our investment in capacity, recruiting, training, and capability to meet increasing customer demand. As we begin to utilize this recently added capacity, we anticipate a favorable impact on DSA gross profit margins. RMS gross profit in the second quarter of fiscal 2022 was $32.4 million, or 32% of RMS revenue. We did not have any RMS gross profit in the prior year comparable period. This quarter, we incurred $2.6 million of non-cash inventory step up amortization, which negatively impacted the RMS gross profit percentage by 2.6%. Operating income in the second quarter of fiscal 2022 totaled $7.9 million, compared to an operating loss of $0.5 million in the comparable prior year period, reflecting higher revenue and higher gross profit, partially offset by increased operating expenses. The increased operating expenses in the quarter reflect acquisition-related costs and higher strategic investment in unallocated corporate G&A to support future revenue growth. This includes additional headcount, recruiting, and relocation expenses, greater investment to build out new service offerings, higher selling expenses due to an increase in travel costs as our sales and marketing teams have traveled more as the COVID-19 pandemic has eased, and increased commissions due to higher sales awards. During the quarter, we continued to invest in internal capabilities to provide additional service offerings such as medical device pathology, pharmacology, biotherapeutics, and genetic toxicology. All combined, adjusted corporate unallocated G&A totaled approximately 10.8% of revenue in the second quarter of fiscal 2022, compared to approximately 21.5% of revenue in the second quarter of fiscal 2021. Our long-term objective is for unallocated corporate G&A to reach between 6% to 8% of revenue. I'd also like to point out that this quarter selling expenses were higher compared to the prior year period due to our increased book-to-bill ratio as we accrue commissions when we win new orders prior to the recognition of the corresponding revenue. Net loss in the second quarter of fiscal 2022 totaled $6.1 million or negative $0.24 per diluted share, compared to a net loss of $0.7 million or $0.06 per diluted share in the comparable prior year period. But we want to note that this quarter's reported figure was impacted by $6.8 million of tax expense, which was the result of a change in the company's forecasted effective annual tax rate primarily due to the favorable earnings impact of acquisitions. Adjusted EBITDA increased to $25.3 million or 18% in the second quarter of fiscal 2022 compared to $1.3 million or 6.9% in the comparable part of your period. The book-to-bill ratio for our DSA service business in the second quarter of fiscal 2022 was 1.52x. We continue to build our infrastructure for growth, which included additional headcount, transaction and integration costs, and internal investments in new service offerings, technology, and systems. Our DSA backlog at the end of the second quarter of fiscal 2022 was $133.6 million, up 27.7% from $104.6 million on December 31, 2021, and up 147.9% from $53.9 million on March 31, 2021. Cash flow from operations during the second quarter of fiscal 2022 totaled $5.2 million, compared to $2.9 million in the comparable prior year period. CapEx in the quarter totaled $9.5 million, or 6.8% of revenue, and for the six months, CapEx totaled $15.2 million or 6.8% of revenue which included investments in facility improvements, site expansions, enhancements to laboratory technology, and system improvements to elevate the client experience. Our balance sheet as of March 31, 2022, included cash and cash equivalents of $47 million and total debt of $337.6 million. At quarter end, we had a zero balance on a $15 million revolving credit facility and a zero balance on a new $35 million delayed draw term loan per our amended credit agreement in January 2022. We are pleased with the continued increase in our earnings, book-to-bill, and backlog, and the general direction our business is heading, and we feel confident in continuing to invest in our future. This concludes our prepared remarks. And with that, operator, please open the call for questions.

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

Great. Congrats Bob and Beth on another fantastic quarter. Bob wanted to circle back to your comments on the biotech market, and I appreciate the color, it's really helpful. And obviously the quarter and the guidance speaks for itself too in this category, but was hoping you could comment more on why your business may be seeming a little bit more insulated to some of the other market headwinds that other players and peers in the market are speaking to.

Thank you, Frank. I can't speak to our peers. I think that overall our DSA business is a very small part of a very big market. And we have done a lot of acquisitions over the last year. In those acquisitions, we've acquired many clients. So we have a lot of clients that are still not doing business with us and could be interested in doing business through those acquisitions. I think being a very small part of a very large market, and being acquisitive and having acquired many clients, gives us opportunities that may be a little different from a company that may not have been in that acquisitive mode. I'm not saying that we're completely insulated; I think some of the things that people were saying or predicting about the future may not reflect what we see right now. But I do know that we have a very good client base and many more opportunities that we could explore. We are still having new activity at this point because of capacity.

Great. That's good color. And then wanted to shift over to just the broader acquisition strategy. Obviously, a lot going on over the last couple of years. And the results again speak for themselves that you’ve done a nice job integrating and organically growing these acquisitions, but maybe just talk a little bit about the strategy as you look forward now that you've made as many acquisitions as you have. Do you continue to expect to be as active as you have been historically? Or do you think maybe you're going to start to digest what you have and work with what you currently have under the umbrella?

I like what we currently have, and I think some of these acquisitions are taking advantage of the scale opportunities we have within the sites and leverage that fixed cost structure, so we can see margins improve, the top line improve, and unallocated G&A, of course, come down. That being said, we obviously just did a small tuck-in acquisition which accelerated our move into the histopathology for medical device business, something we announced we would start last July. This acquisition allowed us to expedite that process a little quicker. We will continue to look for those opportunities, and we will stay active in the market in exploring those opportunities as they become available. How we finance them may change down the road, but we will continue to evaluate the market. I think we did a really nice job last year in planning for the opportunities that came in front of us and utilizing our strengths, and I believe we will be able to do that in the future.

Okay. And then just the last one for me on the balance sheet. We've gotten a number of questions just about the leverage profile and covenants that are out there. With this report, cash balance, and the EBITDA number out there, I think it puts much more breathing room between where it leverages right now and the covenant that is out there. Can you confirm that and just maybe comment about the financial position and your comfort with that at this point?

Yes, I think this is something we alluded to before. And I heard the same concerns when we did the transaction, and people were worried about the leverage based on a historical look back. When you look at this quarter, and you examine what we're now identifying as the run rates for the next two quarters, combined, it looks like our EBITDA run rate would be over $100,000 a year. I think that changes the debt profile and the leverage profile a little bit from where people anticipated. Our senior debt is $240 million, plus some cash, so we net debt would be what, 210 to 220. We have the convertible notes of maybe another 140. But I think the senior debt, when we evaluate it at a $100 million run rate, puts us at 2.2 times, and with the senior notes at that run rate, we're probably closer to 3.6. I think those are coming in line with where we identified six months ago when we started getting to where we needed to be.

Perfect. Congrats again on all the progress.

Thank you.

Our next question comes from the line of Matthew with Craig-Hallum. Please proceed with your question.

Good afternoon, Bob and Beth, and thank you for taking the questions. Maybe first one, and then kind of pegging back to last fall post the Envigo acquisition, Bob, one of the things that you mentioned was a concern regarding capacity standpoint and staying on top of hiring. I'm curious if you could provide us an update on your hiring process. Are you able to find the people that you need to stay in front of things from a capacity standpoint?

Yes. Hi, Matt. Thank you. In the last six months, we have made substantial efforts to build our human resource department and have made great hires. I think we are building a very strong team, which I’m very pleased with. Looking at the Envigo acquisition, for example, in the last six months, we added a net of 100 more people than they did in the six months prior to the acquisition. We've conducted considerable market research to ensure we're moving in line with market trends and providing merit increases. We've been much more proactive in doing that in the DSA and RMS business. I believe this is paying dividends in our recruitment. At any time, we're still always recruiting 10% to 15% of our workforce. So if we have 2,000 people now, we probably have 300 open jobs. We've been able to fill those. The most pressure and turnover currently seem to be related to entry-level positions; however, for the scientific, veterinary, and pathology positions, we’ve done a very nice job filling those roles. I think we are becoming, in some cases, a preferred place to work, which I’m very proud of. It’s a constant battle in today's market, and we remain vigilant, as probably not a week goes by that we don’t discuss it and monitor the metrics. Overall, we've made progress, and our turnover is down, with hopes of continuing improvements.

That's great. Thank you for that color. And thank you for the details regarding what you're seeing from a market perspective. Perhaps another way to look at it: Is there a way for you to break down what percentage of your revenues are coming from large versus medium pharma and biotech compared to small pharma companies and private equity? Any insights along those lines would be helpful.

With the recent questions that have come up, we have looked at our revenue sources from the pre-commercial customers and what our business base looks like right now. This has shifted significantly with the recent acquisitions. A couple of years ago, we were very heavily influenced by biotech. Now, if you examine our overall sales, we estimate that about 20% of our sales are from pre-commercial customers and biotechs. We do keep an eye on these customers, some of whom are publicly funded and some with private funding. As we observe the private funding, it appears to be staying very strong. I understand the comments regarding public funding, but over the last couple of years, the biotech funding market has remained extremely robust, and many of our customers currently have a solid supply of cash. I believe that funding entering the market has far surpassed the added capacity overall. As a result, I perceive that CRO backlogs remain strong, often extending through the summer of next year. If we look at the orders we have and evaluate the balance sheet, we find that these clients seem to maintain a strong financial position. We also have an opportunity to revisit our discovery pharmacology businesses acquired in the last year to see how they performed in prior downturns. Interestingly, some of those businesses thrived and expanded during those periods. While other companies may not build during downturns, opting instead to outsource more; hence, we remain vigilant with our observations and remain optimistic about the opportunities in front of us.

Thank you for that. That’s very helpful insight. Then perhaps one last question from me, and then I’ll hop back in the queue. Any update on the supply chain situation? Are there any issues you’re facing currently? I listened to another call this morning where there were questions about vials or blister packs. I realize that's less of an issue for you, but are you managing through any challenges? Any insights on that side? Thank you.

We're not seeing or hearing any concerns regarding supply chain challenges. A couple of years ago when the pandemic first started, we encountered more of that. By having multiple sites, when some were low on supplies, others were able to support them. We've probably built our PPE inventory a bit more than we previously had, but for the most part, that hasn’t been a concern for any of our sites or facilities over the last couple of quarters.

That's great. Thank you very much.

Thank you.

Thank you. At this time we've reached the end of the question-and-answer session. I'll turn the call over to Bob Leasure for closing remarks.

All right. Thank you everyone for participating on our call this afternoon. We look forward to reporting back to you in August when we release our third quarter fiscal 2022 financial results. I see that our press release may have just come out. So hope everybody has a great day. Thank you.

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