Inotiv, Inc. Q3 FY2025 earnings call

• On May 29, 2025, addressed industry issues like tariffs, NIH funding, and FDA comments on NAMs at Investor Day, and outlined progress in business building, integration, optimization, and goals to improve cash flow and margins.
• On June 2, 2025, SEC division of enforcement concluded no intent to recommend enforcement action related to nonhuman primate importation. Recorded a $10 million accrual for lawsuits and a $10 million receivable due to expected recovery under insurance policies, but final settlement terms not yet agreed.
• In June 2025, NHP facilities in Texas received updated ALAC accreditation and were noted for exemplary animal care.
• Third quarter fiscal 2025 revenue increased 23.5% year-over-year to $130.7 million. RMS revenue growth due to higher NHP volumes and prices. DSA revenue growth due to increases in general toxicology, biotherapeutic, and medical device services. Net new DSA awards were $50.4 million, a 25% increase over Q3 of fiscal 2024.
• RMS site optimization plan announced in December 2024 now anticipates net annual savings of $6 million to $7 million on capital investments of ~$6.5 million. One property sold in June, second property expected to close in Q4 fiscal year 2025, plan on track to complete by March 2026.
• Company has integrated 14 acquired companies from 2018 - 2022 into a fully integrated nonclinical drug discovery and development company, with 30% fewer sites, more licensed veterinarians, fewer software platforms, and strengthened scientific group.

For the third quarter of fiscal 2025, total revenue was $130.7 million. RMS segment revenue was $82.5 million, an increase of $21 million or 34.1% compared to Q3 fiscal year 2024. DSA segment revenue was $48.2 million, an increase of $3.9 million or 8.9% compared to Q3 fiscal year 2024. RMS revenue contributed approximately 63.1% of total revenue ($82.5 million / $130.7 million), and DSA revenue contributed approximately 36.9% of total revenue ($48.2 million / $130.7 million). Q3 fiscal year 2025 consolidated net loss was $17.6 million compared to $26.1 million in Q3 of fiscal 2024. EBITDA was $11.6 million compared to $0.1 million in Q3 of fiscal 2024. DSA operating margins improved 4.6% over Q2 fiscal year '25 but were still 0.8% lower compared to Q3 of 2024. RMS operating margins for Q3 fiscal year 2025 were 19.8% higher than the prior year quarter, but 6.7% lower compared to Q2 fiscal year '25 (excluding a $7.6 million litigation settlement from Q2, RMS operating margins in Q3 were the strongest since Q1 fiscal year 2024).

• Not providing formal fiscal 2025 guidance at this time. Prioritizing a strategic review of the balance sheet and capital structure and plan to hire a third party to assist with this process. Will provide more information at appropriate time.

• Litigation risk: Recorded a $10 million accrual for securities class action and shareholders' derivative lawsuits, but must still reach final settlement and actual amounts may change.
• Macro-economic and geopolitical risks: Geopolitical and macroeconomic conditions and uncertainties are likely to remain with the industry for the foreseeable future, which could impact the business.

Q: It sounds like cancellations or negative change orders are still a little bit elevated. Is it the expectation that they could start to see that decline as we get into the back half of the year, maybe into fiscal year '26?

A: Can't predict exactly. Cancellations were elevated last quarter. This quarter started off better but wait and see. Cancellations are a new normal and need to prepare for it by having higher gross book-to-bill and selling through it.

Q: What's next on the site optimization side?

A: Focus less on brick-and-mortar changes and more on fine-tuning existing facilities. Fine-tuning to get more capacity out of existing facilities, relocating work without moving brick-and-mortar, and improving client service. No more significantly old facilities to close, focus on tweaks to existing facilities.

Q: Talk about the mix of bookings relative to the book of business and momentum in biotherapeutics and medical device.

A: Discovery business is a large fixed cost business. Incremental bottom line in Discovery could be as high as 70% to 80% due to its fixed cost nature. Safety Assessment has a variable contribution of 50% to 60%. Seen momentum in biotherapeutics and medical device with increasing sales from existing accounts and new bookings.

Q: Recap customer satisfaction metrics and their importance to new business awards.

A: Have better metrics now to track on-time delivery. When customers use multiple sites, importance is to act like one company and deliver seamlessly. Significantly better on-time delivery than a year ago, which helps in having a reoccurring and stable customer base as existing customers have positive experiences.

Q: Talk about cash flow expectations going forward as some NHPs convert to revenue and its impact on cash balance.

A: May maintain a higher level of NHPs than in the past. If needed, could convert some NHPs to cash. Looking to have a stable environment to take care of customers' needs and evaluate balance sheet accordingly.