Inotiv, Inc. Q3 FY2024 earnings call

• Reached resolution of Virginia DOJ investigation and related settlement; Florida DOJ no longer investigating procurement of NHPs from foreign suppliers or importation practices. • Completed UK site construction and RMS consolidation projects, reducing expenses and enhancing revenue potential. • Transport operations optimized with improved service levels, reduced costs, and increased efficiencies. • Diet business had year-to-date and quarter-over-quarter sales increases and margin improvements. • European and UK RMS business lines (except NHPs) had year-to-date and quarter-over-quarter sales increases and margin improvements. • NHP boarding and breeding service revenues saw approx 32% year-over-year year-to-date increase. • New safety assessment service offerings like genetic toxicology and biotherapeutic bioanalytical had year-over-year revenue and backlog growth. • Implemented integration initiatives and organizational changes to reduce G&A expenses. • Saw early signs of NHP market recovery and increased purchase orders, expecting Q4 2024 NHP volume to double from Q3 and exceed Q4 2023. • Amended loan agreement with senior debt holders for DOJ settlement, received waiver for non-compliance with financial covenants. • Finalized sale of listed assets. • Faced headwinds like pricing pressures in DSA, discovery business sales decline, NHP sales and cost issues. • Over past 4 years, Inotiv grew and added offerings, integrated and optimized acquired business, focused on facility integration, cost reduction, and service improvement.

For the fiscal 2024 third quarter, total revenue was $105.8 million. DSA revenues in the third quarter decreased by approximately 6% to $44.2 million, with DSA revenues for the 9 months ended June 30, 2024 being $135.5 million, slightly higher than the prior year period. RMS revenue for the fiscal third quarter was down 44.4% to $61.6 million, with 9 months ended June 30, 2024 RMS revenue at $224.8 million, down 24.3% year-over-year. Non-NHP RMS business had solid demand in small animal and service business in the UK and Europe and globally for diets and bedding. NHP boarding and breeding service revenues had an approximate year-over-year year-to-date 32% increase. DSA net new orders this quarter were $40.4 million versus $48.6 million in the same quarter last year; year-to-date net new orders for DSA were $139.2 million versus $133.3 million in the prior year period. RMS non-GAAP operating income in Q3 2024 was $6.5 million or 10% of segment revenues, compared to $35 million or 31.6% in the prior year period.

• Withdrew financial guidance for fiscal 2024. • Plan to provide guidance for fiscal 2025 once there is greater clarity on the market and customer demand. • Guidance will primarily be influenced by the conclusion of NHP contracts as they will provide more stable guidance going forward.

• Pricing pressures in DSA impacting revenue growth and margins. • Year-over-year declines in sales in discovery business due to market softness. • NHP sales and cost volatility, with sale price and acquisition cost down, and margins impacted in the short-term. • Legal expenses related to past investigations still being a factor until fully resolved. • Uncertainty in the market regarding biopharma companies' conservative approach to preclinical pipeline products.

Q: What does the resolution of the Florida DOJ situation mean for legal expenses?

A: Beth Taylor mentioned they hadn't received a subpoena since June 2021 but were incurring expenses monitoring the situation, and legal expenses for those matters should come down by about $2 million to $3 million a quarter.

Q: When will Inotiv provide guidance for fiscal 2025?

A: Beth Taylor said they will focus to provide guidance as early as possible, primarily influenced by the conclusion of NHP contracts, and could do it on the next quarterly call once contracts are finalized.

Q: Can you provide details on the growth in the diet business?

A: Bob Leasure said the diet business has had consistent growth since 2022, with growth in volume, pricing, and is pleased with the performance, driven by factors like better transport, gaining market share, and delivering quality products.

Q: What about the volume of NHPs sold?

A: Bob Leasure stated that this quarter volume was down, but next quarter volume could be up 120%-130% from this quarter, and could be 15%-20% more than a year ago, representing the first quarter-over-quarter increase in quite a while.