Inotiv, Inc. Q2 FY2024 Earnings Call

Good afternoon ladies and gentlemen and welcome to the Inotiv’s Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Wednesday, May 15, 2024. I would now like to turn the conference over to Bob Yedid. Please go ahead.

Thank you, Julie, 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 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-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. Definitions 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 the company's website. Joining us today 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 Q&A section. Bob will begin with some opening remarks, after which Beth will present a summary of the company’s financial results for the first quarter of fiscal 2024 and the six months ended March 31, 2024 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. Let's quickly run through the broad strokes of this quarter's results as we continue to operate in a mixed industry environment. Total revenue came in at $119 million for Q2 of fiscal 2024, which is down 21.5% year-over-year. Segment top line results consisted of DSA revenues of $46.6 million which was only down $400,000 or less than 1% versus the comparable period a year ago. Revenue from RMS included NHP sales, diets, bedding, small animal models was down $72.4 million in Q2, a decrease of $32 million or 31% from the prior year period. $26.2 million of the $32.1 million decrease was driven by substantially lower NHP revenue. In addition, we have a decrease in revenue of $3.1 million from the sale of our Israel business in August of 2023. Revenues this past quarter were well below our expectations. The lower revenue came in as a result of many of the potential risks we discussed in our last quarterly call coming to fruition, primarily weak demand for NHPs and slower DSA discovery related sales, which were somewhat offset by the growth in our new safety assessment services. 2023 was a challenging funding environment for the biopharma industry and we saw companies reprioritize their use of capital, resulting in product reprioritizations and some cancellations as companies rationalize their R&D spending. In addition, as we have discussed in the past, the industry faced challenges and volatility resulting from U.S. Attorney's Office criminally charging a Cambodian government official on alleged charges of conspiracy to illegally import NHP in the U.S. and our considered decision to suspend Cambodian imports and the subsequent effective industry ban on the importation of Cambodian NHPs into the U.S. in late 2022. This ultimately resulted in lower NHP availability in the U.S. and heightened concern among customers regarding the ability to access NHPs to develop their pipeline products, which together drove increased NHP pricing in 2023. The uncertainty and available supply to the U.S. also resulted in some discovery in preclinical studies moving outside the U.S., which further impacted drug discovery and development and overall demand for NHPs in the U.S. We indicated in our prior quarterly call that we expected this year could be choppy as it relates to NHP sales. We believe the industry continues to reset and refocus pipeline priorities and our second quarter results reflect the after effects and volatility caused by the NHP market dynamics at the end of 2022 through 2023 and the first half of fiscal 2024. We're currently witnessing some positive signs in this industry, such as marked improvement in the capital markets funding for biotech and small pharma companies during the first quarter of calendar 2024 as compared to the prior two years. While this is a positive sign for these companies and the CRM industry, we expect biopharma companies in the short-term to continue to take a restrained conservative approach to the pipeline products in order to prioritize the use of capital to the most important projects. Accordingly, Inotiv's sales cycle has been slow as customers continue to evaluate and rationalize their product pipelines. This has impacted us predominantly through a further reduction in Q2 discovery sales versus the prior year and in the RMS NHP business. In our research models and services or RMS business some of our major CRO NHP customers have seen delays and slowdowns in their ability to acquire new discovery and safety assessment studies requiring NHPs. In other cases, it also became apparent this quarter that certain customers mitigated supply chain risk in 2023 by purchasing NHPs well in advance of their needs and are now able to delay purchasing additional NHPs until they deplete their current inventories. So this year, unlike 2023, we are now seeing customers align their NHP purchases more closely to their immediate project needs. Taking these dynamics collectively, we believe these pressures will normalize later in the year, as customer NHP inventories are depleted and they focus on ordering to meet shorter-term needs. Internally, we remain encouraged by the results and benefits of many of the critical actions we took in 2023 or taking in 2024, such as the integration efforts of our acquisitions. We are seeing lower cost and improved service from our RMS site optimization projects. We anticipate the RMS site optimization and cost reduction initiatives we started last year are going to be completed by the end of July 2024 and the transportation initiatives, which we announced in December of 2023, are currently being implemented to create further cost and customer service benefits. Additionally, we are pleased to secure new contracts with two research organization customers who wish to occupy space within our UK RMS facilities. In addition to generating reoccurring income from the use of the space infrastructure and services, we are identifying opportunities to provide these customers with additional product and services to support their scientific research. In DSA, new service offerings are now contributing to increases in safety assessment revenues, which have helped offset some of the decreases we have seen in Discovery Services portion of that segment. In discovery, we believe the additional salespeople and initiatives we implemented in Q1 of fiscal 2024 will help to increase our market awareness and quoting activity as we go through the remainder of the year. With many of our announced projects now completed or nearing completion, we've also been able to reduce our overall operating expense. Further, due to current market conditions and certain efficiencies we've been able to achieve, we affected a small reduction in force in April, which will help further reduce expenses in future quarters. Overall, net new DSA orders for this quarter were $35 million versus the $44.6 million last year. For the year-to-date period ending March 31, 2024, we booked net new orders of $98.9 million versus $84.6 million for the six months ended March 31, 2023. The conversion rate this quarter was 30.1% versus 32% in the prior year. The DSA cancellations in Q2 were consistent with prior year period and in the first six months of fiscal 2024 were slightly less than they were in the same period in 2023. For the six months ended March 31, 2024, we generated positive cash from operating activities of $10.4 million and completed many of the investments and initiatives started almost 20 months ago. Capital investments were $7 million in the second quarter and $12.6 million in the year-to-date period. We expect these investments will be reduced further in the next two quarters until we see further recovery in revenue. In Q2, we completed the sale of Blackthorn, UK and Dublin, Virginia facilities. In April, we completed the sale of our Haslett, Michigan facility. We expect to complete the sale of our Cumberland, Virginia facility in the third quarter and have listed for sale an additional 85 excess acres of land we have in Pennsylvania. With the investments that we have completed in the DSA business, we believe that we have the physical capacity to accommodate increased DSA revenue of 40% over the $185 million recognized in 2023. This capacity still represents a substantial opportunity to improve our DSA sales and margins in the future. For these next two quarters, Inotiv remains on track to further achieve financial benefits from our investments and growth initiatives, increased sales and marketing, and the organic addition of new services and our consolidation integration projects with the related efficiency gains. I want to update you now briefly on material legal issues we previously disclosed. With respect to the Cambodian government official indicted by the U.S. government, that official was found not guilty on all counts and has now returned to Cambodia. At this time, we do not have any further updates related to the status of potential future imports of NHP into the U.S. from Cambodia. With respect to the investigation by the DOJ and other federal and state law enforcement agencies related to the Cumberland, Virginia facility, which we closed in September of 2022, we have been in discussions to resolve the open matters relating to the investigation. Since we believe this resolution is now probable and estimable, we have recorded an accrual as of March 31, 2024, of $26.5 million. We would expect to pay $6.5 million of this $26.5 million in fiscal year 2024, and the remaining $20 million would be a non-current liability to be paid over three to five years. This resolution is not finalized and not signed as of today. Until then, we cannot comment further. We have determined that in the last two years, we have incurred expenses of approximately $19 million for the investigation related so far to this Cumberland facility that we closed in 2022. The total expenses include third-party fees to comply with subpoena information requests, legal fees and the cost to close the facility. Some of these fees have been added back as restructuring costs and calculated in adjusted EBITDA, but if possible, we would like to resolve this matter and put it behind us. With that, I'll turn the call over to Beth, who will provide a detailed synopsis of Inotiv's results for the quarter.

Thank you, Bob, and good afternoon, everyone. Before I start, we have one correction to note. The incurred expenses for the investigation related to the Cumberland facility were $19 million not $22 million. Now for the current financial results, for the 2024 second quarter, total revenue was $119 million compared to $151.5 million during the prior year period, a decrease of 21.5% primarily due to a decrease in the number of NHPs sold in the current quarter. For the six months ended March 31, 2024, consolidated revenue was $254.5 million, down 7.2% compared to $274.2 million for the same period last year due to the decrease in NHPs sold, which was primarily offset by a 3.6% increase in DSA revenue. DSA revenues in the 2024 second quarter decreased by less than 1% to $46.6 million when compared to the prior year period of $47 million. The decrease in the DSA revenue was primarily driven by our discovery services as a result of the decline in overall biotech funding and separately a decrease in medical device surgical services due to cancellations we experienced in the fourth quarter of fiscal '23 and Q1 of 2024 and also delayed projects. Partially offsetting this, we continue to see increased revenue from our new service offerings in genetic toxicology and biotherapeutic analysis in connection with new business at our Rockville facility, plus the timing of general toxicology services. DSA revenue for the six months ended March 31, 2024 was $91.3 million or 3.6% higher compared to the prior year of $88.1 million. The increase in DSA revenue was primarily driven by the mix of general toxicology services and continued increases from value-added services in connection with new business at our Rockville facility, partially offset by a decrease in revenue related to our discovery services as a result of the decline in overall biotech funding and a decrease in medical device surgical services due to cancellations we experienced in the fourth quarter of '23 and the first quarter of '24 and delayed projects. RMS revenue for the fiscal second quarter was down 30.7% to $72.4 million compared to $104.5 million the same quarter last year, due primarily to the lower NHP-related product and service revenue. In addition, there was a decrease in revenue of $3.1 million as a result of the sale of our Israeli business in fiscal 2023 and a decrease in sales of small research models, which was partially offset by an increase in sales in diets and bedding. RMS revenue for the six months ended March 31, 2024 was down 12.3% to $163.2 million compared to $186.1 million in the same period last year. The decrease was due to the negative impact of lower volume of NHP sales, lower revenue as a result of the sale of our Israeli businesses in fiscal 2023 and lower sales of small research models. Partially offsetting these decreases in revenue, there were higher sales in diets and bedding. Regarding NHP pricing, we indicated on our last conference call that NHP prices were expected to come down from the highest we saw in Q4 of fiscal 2023. We did see NHP pricing in Q2 of fiscal 2024 on average come down roughly 2% from Q1 2024. This compared to the decrease in pricing in Q1 fiscal '24 of 18% compared to Q4 of fiscal 2023. Operating loss for the second quarter of fiscal 2024 was $43.1 million compared to a loss of $2.1 million from last year's second quarter, primarily due to lower margins relating to the decrease in revenue. The $26.5 million charge related to the agreement in principle with the DOJ and the impact of lower margins from the sale of our Israeli businesses. These items were partially offset by decreases in third-party fees and restructuring costs and favorable cost reductions related to the site closures and optimizations compared to the prior year period. In addition, gross margins for the new DSA services are still creating a headwind for overall margins. However, as we see these services revenues increase, we expect to see an associated margin improvement. Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2024 totaled $48.1 million or a $1.86 loss per diluted share. This compared to consolidated net loss attributable to common shareholders of $10 million or a $0.39 loss per diluted share in the second quarter of 2023. For the quarter, adjusted EBITDA was $3.1 million or 2.6% of total revenues compared to $17.1 million or 11.3% of total revenue for last year's second quarter. For the six months ended March 31, 2024, adjusted EBITDA improved by $1.1 million compared to the prior year period to $12.7 million or 5% of total revenues from $11.6 million or 4.2% of revenue in the same period last year. Non-GAAP operating income for our DSA segment in the second quarter increased to $8.2 million or 17.6% of segment revenue from $7.9 million or 16.8% of segment revenue in last year's second quarter. As our new DSA services are fully online and we began to fill newly added capacity, we continue to believe we will be able to boost our DSA operating margins. The book-to-bill ratio for DSA in the second quarter was 0.77 to 1, coming off the strong net awards in Q1 fiscal 2024. So our six-month year-to-date fiscal 2024 book-to-bill is 1.11 to 1 and our trailing 12-month net book-to-bill is 0.98 to 1. As we stated last quarter, we believe it is more meaningful to use book-to-bill ratios for six months or longer as better indicators of our DSA performance. Year-to-date March 31, 2024, we have booked net new orders of $98.9 million versus $84.6 million for the six months ended March 31, 2023. The DSA cancellations in the second quarter were consistent with the prior year period and year-to-date for the last six months were slightly less than the same period in the prior year. DSA backlog was $142.1 million at March 31, 2024, compared to $145.7 million at March 31, 2023. In our RMS segment, non-GAAP operating income in the second quarter of fiscal 2024 was $8.2 million or 11.3% of segment revenues compared to $24.4 million or 23.4% of segment revenues in last year's period. The lower operating income in Q2 fiscal 2024 was primarily the result of a decrease in RMS revenue and the $26.5 million charge related to the agreement in principle discussed above, partially offset by favorable cost reductions related to the site closures and optimizations compared to the prior year period and decreased third-party fees and restructuring costs. Interest expense in Q2 2024 increased by $11.1 million, up from $10.5 million in last year's second quarter due to higher interest rates. Our balance sheet as of March 31, 2024 included $32.7 million in cash and cash equivalents as compared to $35.5 million at September 30, 2023. Total debt, net of debt issuance costs as of March 31, 2024 was $380.6 million consistent with the $377.7 million at September 30, 2023. Net cash provided by operations for the six months ended March 31, 2024 was $10.4 million compared to cash provided by operations of $5.4 million in the same period last year. Cash provided by operations for the trailing 12 months was $32.8 million. Capital expenditures in the second quarter were $7 million or 5.9% of total revenue and $12.6 million or 5% of total revenue for the six months ended March 31, 2024 as compared to $16.8 million or 6.1% for the year-to-date period for 2023. The capital expenditures reflect investments in completing our DSA capacity expansions, infrastructure improvements in NHP facilities and renovations in the UK in order to complete the expansion of Hillcrest for the new customer contract and the consolidation of Blackthorn and enhancements in laboratory technology and improvements for animal welfare. Now let's turn to our guidance. With the significant impact that NHPs have on our revenue and margins and the current uncertainty in demand for NHPs, we are withdrawing financial guidance for fiscal year 2024. We expect to provide guidance once we have greater clarity on the NHP market and customer demand. We still believe in our long-term plan and our ability to achieve our financial goals. In the DSA segment, we are focusing on optimizing our market share and increasing awards to utilize new services and additional capacity to grow DSA segment revenue. We believe that our strategic initiatives to increase our sales force and optimize sales territory coverage and focus on sales and discovery services puts us in an advantageous position to gain market share and increase awards as biopharma companies begin to increase their level of investment in preclinical studies. We will continue to stay focused on client satisfaction through innovation and the development of nimble solutions and custom offerings. As the industry continues to face headwinds, we remain focused on executing our plan for long-term growth and sustainable margins. If revenue and margins do not improve in Q3 fiscal 2024, we could be in noncompliance with our covenants at June 30, 2024 and we will have approximately 55 days after the end of the quarter to cure. We have plans to remedy any non-compliance with our lenders through a credit agreement amendment.

Your first question comes from Dave Windley from Jefferies.

I wanted to start on NHPs. I heard you mention that pricing in the second quarter was just 2% lower than in the first quarter. Could you provide some specific numbers on that? Where was pricing at the peak of the third quarter of your last fiscal year? Where does that 2% decrease in the second quarter leave you? And considering the low volume you are highlighting, where is that price currently moving?

I think the peak was Q4 of last year and Q1 was down 18%. I think we said Q2 is down 2%. So I mean, we'd be down 20% from where it was Q4 of last year. More recently, I've not seen it slip since Q2, but it could. And one of the things that's keeping up is our costs are still high. So you've got to look on the world market to see where the pricing is, where's China, where's Cambodia, where's Vietnam, they're still selling across the world and some of those prices are staying a little bit stronger. But I expect we could see those come down in this quarter and next quarter, depending on what happens in Cambodia specifically. And so we'll just have to see how that goes.

Okay. Bob, so in terms of the revenue in the quarter, I just want to understand kind of your calculus around supply demand. Your revenue was down $26 million I forget the exact percentage, maybe 30% or something like that. Only 2% of that is price, so volume is down a lot. You mentioned costs. I mean the customer.

Our average cost would be higher than last year's average cost and the supply is down significantly and our inventory is also down. But we do have plenty of inventory right now to meet our customers' needs.

Please continue. I'm sorry for interrupting.

So we did see a very weak second quarter in terms of the units, the number of NHP sold.

And so that's a provocative question. I guess, why not drop price to sell more volume?

I'm not sure that would do it. The challenge is they don't need the volume right now. So could price become an issue? It could. It's not been an issue. The issue has been people have inventory. And so, some that have recurring monthly or quarterly shipments did not need any or needed very few just in the last quarter. I believe that we do have some visibility on some of the inventory and the levels. I think they are coming down and I think we're starting to see some of that rebound in some customers, not all customers yet. We also see some customers that have lower demand probably because they have lower orders.

And on the stocking point, these animals have an age window in which they are applicable. They're usable for research studies. So they can't, they being the client cannot stock them indefinitely. Help us understand a little bit. I know you talked about selling and then contract boarding for some clients, but in those cases, you would know what you have on property. Help us to understand a little bit how this advance buying and inventory stockpiling of live animals works or worked?

Well, they can always take first in inventory, be the first out of inventory. So they're quite adaptive managing the age limits that they need. And also remember some animals need mature or some studies need mature animals and some need more immature animals. So there are different ages that may be needed at different times. But that is a customer by customer decision. And we've been able to manage our inventory accordingly.

One more question on NHP and our yield. In your press release this afternoon, you disclosed the NHP-related revenue decline and then the cost of revenue in the $7.2 million range. So that works out to about a 72% gross margin. Is that the right gross margin to be thinking about on NHP-related revenue?

No. I think that is not. That just shows some of those indications of that cost didn't go down as much because the average cost per NHP sold went up was higher.

Your next question comes from Matt Hewitt from Craig-Hallum.

Maybe just a couple more on the NHPs. Regarding Cambodia, it's still unknown what's going to happen there, but let's assume for sake of argument that that market opens back up to U.S. importation. What does that do to the supply-demand dynamics and ultimately the pricing?

We are uncertain about when or if that market will reopen, and I'm not in a position to forecast the future of commodities. Anything is possible in the global market. It's important to remember that Cambodians have been utilized everywhere except for the U.S., and that could potentially lower costs. However, I can't say for certain how it would affect margins. Right now, predicting commodity prices isn't something we can do. Our focus is on transforming our business into more of a service model rather than just selling NHPs, and we are actively pursuing that through boarding and breeding. Currently, we are selling significantly fewer NHPs than we used to, so our revenue is really driven by the margin per NHP, which is also heavily influenced by the volume of NHPs sold.

And then kind of transitioning from there. So I guess, and you just touched on it a little bit, but as you transition more customers to the contracts versus the prior year and a half of buying at the spot market, have you had success with that? When do you start to see that materialize from a margin perspective? And I guess maybe that has something to do with inventory, but when does that start to help on the margin front having a more consistent or better visibility via the contracts into the costs associated with those?

We have seen some success and are currently working on contracts for 2025. Right now, we are also planning for the latter half of the year as inventories begin to decrease. Some companies have more inventory than others, and we expect to see some changes there. Looking ahead, we aim to build a business that is less reliant on NHPs and their margins, compared to two years ago. We will continue to focus on improving margins in our small animal tech lab and DSA business. However, we do not anticipate that margins will return to the levels we experienced over the last two years; if that happens, it would be a bonus, but it is not the direction we are heading. Additionally, we want DSA to represent a larger portion of our business, ideally over 50%, and closer to 70%. We will keep working in that direction, building our services segment, and becoming less dependent on NHP margins. If those margins improve, that would be great, but they will not be the foundation of our business model for the next five years. Other margins need to grow consistently. Therefore, increasing our DSA business is crucial, as I believe that the next $60 million we generate could contribute over $30 million to our profits. With the RMS costs we are eliminating, we project to save over $20 million, along with reductions in SG&A costs. When we add those savings together, it totals around $40 million to $60 million, which is why it’s essential to reduce our dependence on NHP margins moving forward.

And then maybe last one for me and I'll hop back into the queue. But regarding the early-stage discovery work, the delay that you saw this quarter, you're not alone, others have kind of talked about how the funding environment improved or has improved yet these companies are a little bit slower to deploy that capital. We're now into the third quarter for a month and a half into the quarter. Are you starting to see some of those dollars flow at this point or anything that you can provide from a color perspective for how Q3 is shaping up?

Yes. I think we've seen safety assessment for ourselves stay relatively strong. I think we sell safety assessment actually has increased probably 8% or 9% year-over-year. It's the discovery that's down 10% plus year-over-year that's really hurting us. And that we saw and we were down from weak comparisons from a year ago. So the discovery is the area where I think where we're seeing the greatest impact in our business and to our margins and our top line. And so we started making those sales changes and how we operate six months ago. Now, I think what we are seeing now is an increase in the amount of customers who are starting to work with us, and then we should hopefully, we'll start seeing an increase in the amount of awards and the size of the awards. But I'm pleased with the progress that the sales team is making. It's not going to happen overnight but they've been very focused. They've done a great job. We are seeing incremental new customers. We're starting to see some of the size increase. Will that happen overnight? Will we see that next quarter or two quarters out? That's hard for us. That's why we're not giving that guidance right now. But we are seeing some momentum.

Your next question comes from Frank Takkinen from Lake Street Capital Markets.

I'll also start with one on the NHP business. Maybe just from a higher level Bob, trying to market. Obviously, supply is constrained and some heard the comments about some of the business moving overseas. If we're thinking about just the U.S. market, what's kind of the quantity change of NHP is being used in the U.S. last year versus maybe kind of thinking about projections for this year? And I know it's going to be tough to track exactly, but maybe a percentage reduction estimate would be a good way to be thinking about it.

Frank, the information we rely on comes from the USDA. If you look at the broader picture, over 30,000 NHPs were imported in 2022, but that number dropped to around 19,000 in 2023 in the U.S. That's a significant reduction. Additionally, we've noticed that some inventories did not decrease, and in fact, some of our customers' inventories may have increased. This probably reflects what has moved overseas and how people are becoming more efficient by redesigning studies, possibly using fewer NHPs and conducting fewer studies overall. While I don't have precise numbers, I can say that our internal safety assessment business remains very busy, and we are pleased to have maintained our usage of NHPs. However, we are a relatively small user compared to the overall market and other CROs. Despite this, the reduction I mentioned is substantial, and even a slight recovery in those numbers would have a significant impact.

And I know you pulled the guide and are reluctant to kind of comment forward, but is it, how are we thinking about where we are in the destocking process? I think I heard some comments that maybe some of your customers are getting ready to reorder, but do we feel like the worst of the destocking is over? Or is there still a decent slug of customers that have good inventory and we should expect kind of this level or this run rate from the RMS business for the next couple of quarters?

Well, Frank, if I had that specific answer, we wouldn't have withdrawn it. We would have issued new guidance. I'm going to be cautious; I don't have a clear understanding of the situation right now. We are seeing some customers returning and placing orders, but we are meeting with them on-site at their facilities. Hopefully, we will gain a better understanding. As we do and have a clearer picture, I believe we'll be able to provide guidance again. But at this moment, one of our concerns is the overall status of the process. Last quarter was quite weak, and I hope we don't get any weaker than that.

And then last one for me. In relation to the DOJ matters, if the agreement in principle is signed in its current form, just a clarifying question, does this resolve all outstanding DOJ matters? Or is there still pending investigation ongoing beyond what's in that agreement in principle?

As far as I know, the last time we received a subpoena related to the Virginia matter was in June 2021 concerning the NHP issues. I’m not sure if we ever got a resolution on that. They could potentially ask more questions. The last subpoena we received about the NHP matter, which took place in Miami, Florida, was in June 2021. This was the only active subpoena we currently have. We've also referenced other cases, such as SEC inquiries, and we have been cooperating with those, but I am not aware of any other DOJ matters at this time. Over the past three years, we've faced three significant challenges: the DOJ Virginia matter has been considerable for us, along with the DOJ NHP matter where we've spent several million dollars over the past two years, and then there's the decline in the biotech funding market. I look forward to seeing the resolution of all three issues, understanding the costs involved, and moving ahead. Overall, I acknowledge that our sales have faced challenges. It's been an expensive situation; I mentioned legal fees of about $20 million or $19 million, with the total including the closure of the facility coming to $22 million, while the $19 million is for third-party expenses. Is that correct, Beth?

No, I think the total is $19 million.

Okay. If you consider our spending and the current state of our sales margins, we've fallen short of our cash and liquidity expectations. However, I believe we've managed the balance sheet well, generating $32 million in cash. The team has effectively handled the balance sheet and successfully completed cost-cutting and optimization projects, which are nearing completion. We've invested over $22 million in infrastructure and animal welfare improvements at the facilities we acquired, and most of those initiatives have been achieved. Overall, I think we've done well managing our balance sheet, selling some assets at better prices than expected and maintaining strong support from our lenders. I'm grateful for their responsiveness to our needs, especially as we worked quickly to secure an amendment recently. Although we've faced some challenges, we've navigated through them while keeping our long-term focus. I'm also happy to note that we've seen some significant successes along the way. We will overcome these issues and determine how to move forward effectively.

And there are no further questions at this time. I will turn the call back over to Bob Leasure for closing remarks.

Well, thank you everyone for joining today's call, and I want to close today by reiterating our thinking on the long-term future for our industry, our company, the investments we've made to position ourselves for the future. The new spending on research and development for new medicines historically ebb and flow based on either the industry-specific factors, such as timing of patent expirations or macroeconomic or geopolitical factors. But over any long-term analysis, the trend has always been robustly up over time. Our global population is getting older and people are looking for higher quality of life as they age, and there's still a multitude of largely unmet medical needs. The companies that work in this space, our customers are committed to providing that and have historically reinvested more strongly after every down cycle. Within the broader industry context, we believe we're building ourselves a high-touch flexible provider that is really attractive to biotech customers who appreciate personal service and attention to detail they can get from Inotiv. We've done a lot of work over the last couple of years in an effort to both drive our top line for the long-term with investments and additional capacity, new service lines and stronger sales and marketing efforts and drive our bottom line through operating leverage gained from optimizing our site footprint, transportation and logistics. I feel very positive about our team, what we've accomplished, our ability to navigate through our current challenges and how the next 12 months look for our industry and our company. And thank you for your time today.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.