Good day, everyone, and welcome to today's Inotiv First Quarter Fiscal 2025 Earnings Conference Call. 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. Today's conference is being recorded. It is now my pleasure to turn the floor over to Mr. Steve Halper. Please go ahead, sir.

Thank you, Jass, 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, 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. 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 first fiscal quarter of 2025, 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. During the first quarter, we moved forward with many of our objectives, which included improving the company's liquidity position, reducing revenue volatility, maintaining a focus on client satisfaction and client relationships, and continued integration efforts as one company. I'll spend a few minutes on our first quarter results and highlights. To enhance liquidity, our recent equity offering provided net proceeds of $27.5 million. We're very pleased with the investor interest in this offering. The additional equity will help to reduce liquidity risk going forward and allow us to continue to make long-term strategic decisions while providing additional stability. To reduce RMS volatility, we have expanded our NHP client base for calendar 2025 and pre-sold much of our NHP inventory, which we anticipate should deliver more consistent revenue streams. We also expect to continue to see an increase in our revenue from Colony Management Services in calendar 2025 as we did in 2024, and we continue to invest in NHP facilities in order to maintain this momentum. We continue to make progress integrating and improving our North America transportation distribution systems, which we brought in-house about a year ago. We believe this has helped to improve the client experience as well as our efficiency. Last quarter, we announced that we will continue our site optimization program in North America for the RMS business, which included closing three additional sites, of which two are owned and one is leased, while expanding an existing lease location. This expansion is expected to be approximately a $5 million investment, and we intend to use tenant improvement funds along with proceeds from the sale of the two owned facilities to pay for this consolidation project. Once completed, we expect to save approximately $4 million to $5 million a year from reduced repair and maintenance expenses on facilities, lower cost of production, along with improved service for clients while production capacity is expected to remain unchanged. For the first quarter of fiscal 2025, total revenue was $119.9 million compared to $135.5 million in the first quarter of fiscal 2024, representing a decrease of $15.6 million, or 11.5%. This decrease was mainly due to a $13.5 million reduction in NHP revenue, which was driven primarily by pricing. The lower pricing and some lingering high cost inventory again negatively impacted NHP margins during Q1 of fiscal 2025. In Q2 of fiscal 2025, we expect to see these margins improve compared to Q4 of fiscal year 2024 and Q1 fiscal year 2025. DSA revenue decreased slightly from $44.7 million in Q1 of fiscal 2024 to $42.8 million in Q1 of fiscal 2025. While DSA operating margins have remained stable, the decrease in DSA revenue was mainly due to a decline in our Discovery Services revenue. We had a strong quarter for new DSA awards, which was partially offset by cancellations. We saw a continued trend of strong awards for our new safety assessment services that were added over the last two years, and we saw a 16% increase in discovery service awards in Q1 of fiscal 2025 versus Q1 of fiscal 2024. This was the first quarter of reported growth for Discovery Service Awards in the last two years. For the trailing 12 months, Discovery Service Awards are still down 17% compared to the prior 12-month period, so it is still too early to say whether this is truly a trend, but it is encouraging, and we believe that some of the changes we've made to our Discovery Services sales team, marketing team, and their sales approach a year ago are beginning to have an important impact. Now let me provide some comments on what we are seeing in the market today and some forward-looking thoughts on our different business segments. Going into calendar year 2025, we will continue to focus on process optimization innovation, meeting client expectations. We expect to see year-over-year revenue and adjusted EBITDA growth each quarter for the remainder of fiscal 2025, as well as reduced NHP revenue volatility compared to fiscal 2024. In the DSA business, we are emphasizing growing our existing client base through cross-selling our broad portfolio of products and services and attracting new clients to gain market share. We believe the additional investments we've made in our sales team in 2024 and planned investments for 2025 will continue to benefit us in fiscal 2025 and 2026. In the RMS segment, we've added new clients, and based on our NHP pre-sales, current purchase orders, and demand for quality management services, we are optimistic about our goals for increasing RMS revenue in calendar 2025. Overall, we remain confident going into 2025. We're also preparing for 2026 and 2027. The geopolitical and market conditions, risks, and uncertainties will remain with us, as they do for all companies. However, we are committed to building a business that will create value for our clients, employees, and our shareholders, and we look forward to our future. I'll now turn the call over to Beth, who will provide a more detailed synopsis of Inotiv's results for the quarter.

Thank you, Bob, and good afternoon, everyone. For the first quarter of fiscal 2025, total revenue was $119.9 million compared to $135.5 million in the first quarter of fiscal 2024. This was a $15.6 million or 11.5% reduction in sales from the prior year's quarter. As Bob said earlier, most of this reduction was a result of reduced NHP pricing in the U.S. within our RMS segment. RMS revenue for the first quarter of fiscal 2025 decreased $13.7 million, or 15.1% compared to Q1 of fiscal 2024. As discussed earlier, the decrease in RMS revenue was due to the lower NHP-related product and service revenue, mainly as a result of a lower average selling price for NHPs in the U.S. We sold approximately the same number of NHPs in fiscal Q1 2025 compared to fiscal Q1 of 2024. However, the NHP average selling price in the U.S. in Q1 of fiscal 2025 was approximately 30.3% lower than in Q1 of fiscal 2024 and 1.6% lower than that in Q4 of fiscal 2024. We have indicated on previous conference calls that NHP sell prices declined from the highs we saw in Q4 of fiscal 2023 and the first half of fiscal 2024. The lower pricing and higher-cost inventory again negatively impacted NHP margins during Q1 of fiscal 2025, and we believe RMS margins for the remainder of calendar 2025 should improve from here. DSA revenue in the fiscal 2025 first quarter was $42.8 million compared to $44.7 million in Q1 of fiscal 2024. The quarter-over-quarter decrease in DSA revenue was primarily driven by a decrease in Discovery Services revenue. Overall, net new DSA orders this quarter were $42.3 million versus $33.7 million last quarter and $63.8 million in Q1 of fiscal 2024. The conversion rate in the first quarter of fiscal 2025 was 32.8%, slightly up from 32.6% in the prior year period. The DSA cancellations and negative change orders in the first quarter of fiscal 2025 were approximately 54% higher compared to the prior year period, which had the lowest cancellations in the last two years. Cancellations in the trailing 12-month period were approximately 1% less than the prior period. Overall, our operating loss for the first quarter of fiscal 2025 was $15.5 million compared to an operating loss of $9.4 million in the first quarter of fiscal 2024, primarily due to lower NHP margins as previously discussed. Partially offsetting the decreases in NHP margins were decreases in restructuring costs, transportation costs, and costs related to the sites closed in connection with our optimization plan. There were slightly lower DSA sales, which resulted in relatively flat DSA operating margin. Consolidated net loss attributable to common shareholders in the first quarter of fiscal 2025 totaled $27.6 million, or a $1.02 loss per diluted share. This compared to consolidated net loss attributable to common shareholders of $15.4 million, or a $0.60 loss per diluted share in the first quarter of fiscal 2024. For the first quarter of 2025, adjusted EBITDA was $2.6 million, or 2.2% of total revenue, compared to $9.6 million, or 7.1% of total revenue, for the first fiscal quarter of 2024. Non-GAAP operating income for our DSA segment in the first quarter was $7.1 million, or 5.9% of total revenue, compared to $6.9 million, or 5.1% of total revenue in the last fiscal year's first quarter. As we continue to fill recently added capacity, we believe we will see margin improvement through operating leverage. The net book-to-bill ratio for DSA in the first quarter of fiscal 2025 was 1.01 times to 1. Our trailing 12-month book to bill was 0.87 times to 1. DSA backlog was $130.4 million at December 31, 2024, compared to $129.9 million at September 30, 2024 and $152.3 million at December 31, 2023. In our RMS segment, non-GAAP operating income in the first quarter of fiscal 2025 was $9.4 million, or 7.9% of total revenue, compared to $16.9 million, or 12.5% of total revenue in the first quarter of fiscal 2024. Interest expense in Q1 of fiscal 2025 increased to $13.8 million from $11.4 million in the first fiscal quarter of 2024 due to an increase in interest rates, interest associated with the second lien note issued in September 2024, and periodic draw on our revolving credit facility. Our balance sheet as of December 31, 2024, included $38 million in cash and cash equivalents as compared to $21.4 million on September 30, 2024. Our quarter-end cash balance includes the net proceeds from our recent equity offering. Total debt, net of debt issuance costs, as of December 31, 2024 was $396 million compared to $393.3 million on September 31, 2024. This includes $111.6 million of convertible notes as of December 31, 2024, and our second lien notes of $19.2 million. Net cash used in operations for the three months ended December 31, 2024, was $4.5 million compared to cash used in operations of $6.5 million in the three months ended December 31, 2023. In October of 2024, we entered into a third amendment with the seller of OVRC and extended the payable to January 27, 2026. Capital expenditures in the first quarter of fiscal 2025 were $4.5 million, or approximately 3.7% of total revenue. The first quarter of fiscal 2024 capital expenditures were $5.6 million, or 4.1% of revenue. We expect to spend less than 4% of revenue for CapEx in fiscal 2025. With respect to guidance, as you know, we withdrew our fiscal 2024 guidance after we reported Q2 2024 results. While we continue to feel good about the progress we have made in recent quarters, we are not providing fiscal 2025 guidance at this time. As we have stated previously, we hope to provide guidance once we have greater clarity on the market and client demand. Management has developed a comprehensive fiscal 2025 annual operating plan designed to continue to optimize our capital allocation and expense base and improve our operating results as discussed earlier. The plan forecasts compliance with the updated covenants under our latest amendment to the credit agreement entered into in September of 2024. And with that financial overview, we will turn the call over to our operator for questions.

We will now take questions starting with Frank Takkinen from Lake Street Capital Markets.

Bob, Beth, thanks for taking the questions. I was hoping to start with maybe a little bit more of an update around NHPs. I was hoping to kind of ask two parts to it. One, have we worked through some of the higher cost NHPs throughout the first quarter or do we still have some of that to work through in the remainder of the year? And then two, just any update from ordering patterns from customers would be good to hear as well? Thanks.

Going into calendar 2025, we have worked through all the higher cost NHPs at this point. So, I think that headwind has passed. As far as ordering patterns, we have significantly changed our approach this year compared to last February. We entered the year without any real commitment and were selling most on the open market—which was still fairly volatile. Now, as prices have normalized a little bit and stayed relatively stable over the last two or three quarters, we do have more solid commitments for this year. We know what people's expectations are and we can deliver, adjusting schedules when needed. Additionally, we now have some customers board their own inventory with us, reducing volatility. I believe we will be more consistent this year, although we may see some large shipments that shift sales from one quarter to the next by a week or two. However, I project we are in a much better position going into this year. I think it will show in Q2, Q3, and Q4.

Okay. That's helpful. And then I was hoping I could ask one about the site’s development. I know it's a little bit challenging to predict exactly how it's going to go. But, with the contemplation of Cambodia NHP not being able to be exported worldwide, how could that impact your dynamic? I realize it was pushed to the following year, but clearly there’s some skepticism around that supply base. So maybe just talk through theoretically how that could impact the global NHP supply-demand dynamic?

Obviously, Cambodia is an important part of the global supply base, and while they’re still exporting out of Cambodia, I think in the range of 9,000 NHPs a year, if that stops, it creates significant pressure on existing supply bases. They had a meeting this week, and they're likely to revisit that decision in November of 2025. We’ve prepared for either event, and we have a lot of sales contracts starting this year. Whatever the authorities decide, we will adapt. We have worked hard in the past few years to diversify our sources and maintain relationships with farms in Cambodia. I am proud of how our team has adapted, and I believe we can help our customers mitigate risks as the situation continues to evolve.

Okay. That's helpful. And then just last one for me. I was hoping you could help us out a little bit with maybe adjusted EBITDA cadence throughout the year. I heard your comments around staying in compliance with the covenants. But now that we're through some of the higher cost NHPs and expecting a gross margin lift, how should we expect that to flow into adjusted EBITDA for the fiscal second quarter ending in March?

While we have not given formal guidance, to comply with our covenants, we need to grow sales. We expect sales to grow year-over-year and I believe I alluded to that in my comments. We see a positive Q2, Q3, and Q4 ahead. Our original covenant suite required us to maintain a trailing twelve-month EBITDA, and we’re pleased to be coming out of this quarter at closer to $8 million, ahead of our expectations. I see strong opportunities in front of us, with margins improving as we right-size our facilities, and I anticipate significant growth in the DSA business. I expect adjusted EBITDA to see improvement in the latter half of the year as sales increase and margins improve.

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

Good afternoon. Thanks for taking the questions. And maybe to follow-up on one of the things you said earlier, Bob, you kind of noted how there tends to be some lumpiness particularly at the end of quarters with NHP sales. Did you have any of that this quarter? Did any of those sales slip out of Q1 into Q2?

Yes, we likely had some sales shift. We could see $3 million to $4 million of sales slip easily. However, if these shifts occur, it will not cause significant concern. Last year was very different, with inventory reductions impacting sales. This year, we expect that will not happen again; we even have deposits backing up some of those sales and orders. I believe we are managing volatility more effectively and focusing on customer satisfaction. Last year was challenging with turnover and uncertainty, but I am optimistic about seeing some customers return.

Got it. And then shifting gears a little bit, the book-to-bill and a couple of the other metrics have been bouncing around a little bit. The one in particular that I wanted to mention was the cancellations. It seemed like in the last couple of quarters you were seeing some improvement that those cancellations were declining, kind of getting back to a normalized level. It seems like that bounced back up here a little bit. Is that just a function of what's going on with pharma companies kind of re-prioritizing pipelines and acting quicker on their decisions, or is there some other reason that you saw that number elevated here in Q1?

The elevated cancellations were largely due to one significant project, about $4 million, that got canceled. Large POs can significantly impact our numbers. That said, I view this as an anomaly, and usually we do not see such large cancellations. I’m not overly concerned because we have implemented many changes to our sales organization that are yielding positive results, as evidenced by recent growth in our discovery awards. Over the past few years, we’ve faced declines, but the recent success is promising for our future.

Got it. All right. One last one for me and then I'll hop back in the queue. But as you look at the remainder of this year, and given some of your success with some of the newer tests or services that have been rolled out here recently, do you envision rolling out some additional services over the course of this year, or is it more about just selling more of your existing portfolio? Thank you.

Matt, we'll continue to be very customer-driven. If our customers look for additional services, we will consider those. Right now, though, I want our focus on delighting our existing clients and improving communication. We have a good set of services already, and we have a couple of small add-ons we are looking at, but they are not significant enough to require new investments in infrastructure. We're focusing on training and improving upon our existing capabilities.

We will now turn to David Windley with Jefferies.

Hi, good afternoon. Thanks for taking my questions. I wanted to understand the accounting revenue recognition cadence on presales of inventory. Are these essentially commitments or are you—are you carrying out transactions that trigger revenue recognition in the first quarter when you pre-sell inventory?

No, we don't recognize any revenue until there's a transfer of ownership. We do not recognize revenue of orders when they come in, only when they're sold and the transaction is completed. So, none of that has been recognized.

So, when you say you're pre-selling inventory, you have more orders in hand than you did entering last fiscal year, but those have not materialized in sales?

That is correct. We have signed orders and deposits, but we do not recognize revenue until the inventory is sold.

Okay. In cases like Colony Management Services, if I understand correctly, the client has already purchased the animal, and you're boarding them, thus the title has changed hands. Is that right?

Yes, if we are boarding for a client, then the title has passed, and we would be providing those services.

Okay. Can you give me a sense of proportion? How much of your RMS revenue, or I guess Colony Management Services, are included in RMS? Is that right? And then how much of RMS revenue do Colony Management Services represent?

Colony Management Services for the RMS business was approximately $22 million a couple of years ago, and last year it was probably closer to $27 million. I anticipate a 20% increase moving forward. Our clients are looking to mitigate risks by owning NHPs, and we aim to support them throughout that process.

Do you have enough capacity—like for Colony Management Services? Do you need a dedicated base, or can this be carried out in Dallas, Texas? Do you have plenty of room to grow that business without expansion?

We have about 700 acres and have built a significant amount of infrastructure over the past few years, which supports our Colony Management Services. We are currently utilizing about 250 acres, but we have plenty of room to grow that business without needing an immediate facility expansion.

Understood. On your NHP sourcing comments, you mentioned you're through the high-cost inventory. Should we expect a step function down or more of a gradual decline in costs over the next couple of quarters?

I expect a step function down, as most of the higher cost NHPs are behind us and pricing is set for next year. We should see an increase in sales each quarter.

Last one for me. It does sound like DSA gross bookings improved. Can you provide more details on what clients are engaging you on and the types of services they are requesting?

Our DSA backlog consists of over 95% biotech clients. We are receiving requests for unique services, including genetic toxicology and the discovery stage assessments. We are seeing growth in these areas as well as blanket purchase orders as clients feel more confident working with us. The biopharmaceutical industry is where we expect to see most of the upcoming growth.

It appears we have no further questions at this time. I will now turn the program back over to Mr. Bob Leasure for any additional or closing remarks.

Thank you, everyone, for joining today's call. We're very pleased with the events and results from this past quarter. As I indicated, we made progress towards reducing our revenue volatility, improving our cash flow and liquidity. Going forward, we'll continue to build Inotiv as a client-focused provider with strong scientific capabilities while generating positive returns for our shareholders. We'll focus on the details and strive to improve every day as we move into 2025. Thank you for your time today.

Thank you. Ladies and gentlemen, this does conclude today's program. We thank you for your participation. You may disconnect at any time. Goodbye.