NOTV

· Bob mentioned that during the first quarter of fiscal 2026, DSA business had strong year-over-year revenue growth with increased discovery and translational sciences revenue and safety assessment revenue. · RMS business was challenged with lower NHP sales, but site optimization plan continued with exiting 2 leased facilities in the first fiscal quarter, and expected to be complete by the third quarter of fiscal 2026. · Company engaged Perella Weinberg Partners to explore debt refinancing alternatives and received a waiver for noncompliance with financial covenant ratios. · Focus on improving revenue and margins in DSA business, reducing costs, diversifying revenue sources, and enhancing NAMs strategy with collaborations for machine learning tools and access to disease-relevant human tissue

· The company is not providing formal financial guidance for fiscal year 2026. · Hopes to resume providing guidance once there is greater clarity on the market and client demand and on the impact of tariff policies

For the first quarter of fiscal 2026, DSA revenue was $48 million compared to $42.8 million in Q1 fiscal 2025, an increase of 12%. Net new DSA awards during the quarter were $53.6 million, a 27% increase over Q1 of fiscal 2025 and a 34% year-over-year increase for the trailing 12-month period. The book-to-bill ratio for DSA in the first quarter of fiscal 2026 was 1.16:1, and the trailing 12-month book-to-bill was 1.08:1. RMS revenue for the first quarter of fiscal 2026 was $72.9 million, a decrease of 5.4% compared to Q1 fiscal 2025, primarily due to lower NHP volumes sold. The overall operating loss for the first quarter of fiscal 2026 increased to $16.3 million from $15.5 million in the first quarter of fiscal 2025. Non-GAAP operating income for the DSA segment in the first quarter was $8.2 million or 6.8% of total revenue, while non-GAAP operating income for the RMS segment was $7.2 million or 5.9% of total revenue

· Forward-looking statements are subject to risks and uncertainties that could cause actual performance to differ from projections. · RMS business is affected by seasonality, weather, and NHP volume sales. · Debt refinancing efforts have uncertainties

Q: I was hoping to start with a little bit more color on profitability. It sounds like it was likely margins in RMS that weighed on adjusted EBITDA in the quarter, but I think there was maybe a little bit more OpEx than I was expecting in there, too. I was curious if you could unpack that at all and talk to some of the moving pieces around the adjusted EBITDA number. And then as a second part, how should we be thinking about adjusted EBITDA trending with seasonality through the rest of the fiscal year?

A: Okay. Frank. First, address seasonality. I think that the seasonality will be pretty much the same as last year. The first quarter has always been -- and we'd like to find a way to smooth that out. But unfortunately, the first quarter has always been a little bit tougher. As we go through the closures to the universities and some of our clients and Thanksgiving over the holiday season. The only other seasonality issue that we may really come across is if weather significantly can impact our business. And we did have some weather in January that affected the last week of January. But typically, we didn't make that up during February and March. But sometimes that can also impact shipping, if you will. In terms of our margins and OpEx, I do think we had some increase in expenses that have come through in some of our cost of goods sold, mainly if you look at some of the animal costs or tariffs that may have come through that we've not passed along. A lot of what we do in terms of our quotes, if you will. And we've alluded to the pricing stabilizing. But again, what we started quoting last summer in March, April, May, June, some of that pricing and some of those price increases that came through that we made amended in our pricing in the summer. We won't see that really come through until 9 to 12 months later. If you think about it, some of our quoting, we may quote 1 quarter, it may be 3 or 4 months before it's awarded, maybe another 3 or 4 months before that starts, which means you could be out 9 to 12 months before you start to see those margins. So I think we'll continue to see margins improve in the back half of this year also as I think some of the pricing and some of the cost increases got passed along. So, yes, I mean it was -- I think that we were a little -- I say, I think frustrated that we didn't maybe have more volume of the NHPs. It was, I thought, significantly less than we would have expected or significantly as it was prior year in terms of volume, but we were able to overcome quite a bit of that with some of the DSA growth and some of our services growth. And I think we'll be fine going forward, as I said, I think we'll make up the volume also before the year is over.

Q: I wanted to start on DSA revenue. Your -- and backlog, I guess, your conversion rate had been marching up pretty steadily over the last 6 quarters or so and took a step back in the first quarter. I wondered if that has to do with -- you mentioned kind of seasonality in holidays. I wondered if that has to do with that, if it has anything to do with where your orders are coming and where you have available capacity? And kind of related to that, you're calling out the growth in discovery services kind of more so than safety assessment. I know you've made some investments in the discovery area. But again, is that a function of where you have capacity as much as where the demand is?

A: Yes, you're correct, that discovery is where we probably have more capacity than some of our safety assessment. And we've grown a little bit of that capacity lately to get ready for next quarter and what we see coming down the road. So I think -- as far as the throughput, I think we are a little higher than -- conversion rate, I should say. I think we were a little higher than last year, just a point higher, and we've been trending higher quarter-over-quarter. I think some of that comes into the seasonality and the fact that the backlog just went up quite a bit. So hopefully, we'll start to see that conversion rate increase. And generally, yes, the discovery conversion rate comes a little quicker than the safety assessment conversion rate. Safety assessment usually starts a little a little bit sooner, may take 9 months once we get PO to get it through and the discovery can take a matter of weeks to fewer months. I also think something a little bit different in the discovery in the last quarter. Is that we were getting some discovery revenue that's much -- that may have a little bit longer lead time than normal and some blanket POs and some large reoccurring business that's taking place, and that may have dropped it down a little bit.

Q: Flipping Bob, to the RMS business, you've taken over a period of time, you've taken significant amounts of operating costs out, lease exits, et cetera, you had a couple more of those. I guess 2 questions. The simple one would be, is there -- were those lease exits late in the quarter such that we should expect some additional incremental cost outs for the sequential quarter. And then two more, I guess, bigger picture, as you're taking that operating cost out, you're -- like at least in this quarter, and you talked about NHP activity, but we're not seeing the operating leverage benefits of that. Help me understand what is shading that or when we will begin to see that operating leverage in RMS from those cost outs?

A: I think some of the operating leverage didn't show up because of the significant reduced volume in the NHPs. So that overshadowed some of the leverage. But you're also correct that we will see some of those costs come out next quarter. It's not only the facility, but as you ramp up these new facilities, we're building out and expanding existing facilities that are going to be much more efficient than the facilities that we are closing. So we are not only closing. We're closing our oldest facilities. These are usually have very high maintenance cost, not as efficient, higher labor cost and then the related lease cost to it. So -- and at some point, as you're bringing these new facilities up before you close the other ones down, you're running duplicate facilities. So I think we are starting to see internally, we can see some of the costs starting to come out, and we can see the margins of the , I should say, small animal business improve, but some of that was overshadowed by the lack of volume in the NHP business this quarter.

Q: Last question quickly. On the NHPs, can you give us order of magnitude? How much was that volume down year-over-year?

A: Probably about 25%. It was -- and the NHPs, we've had that before. Well, it's not a straight line in terms of when they go out. And I think we've done a nice job of really reducing our dependency on the importation of NHPs. But if we had to ship the additional 25% out like we did a year ago quarter or anywhere close to what we did in Q3 or Q4. I think we'd have probably seen a little bit more of those efficiencies come through, Dave. But hopefully, we'll see that in the future quarters throughout the year.

Q: Maybe first up, you noted in your prepared remarks that you've been making some progress in signing some new relationships on the NAM side. I'm just curious if you could provide a little bit more color on those relationships and how you expect those to kind of drive incremental revenues going forward?

A: Well, John is on the call, John may be able to help more in terms of if you're going to get into the science, but I think this is part of what we're doing from an innovation standpoint. And we've had -- I will say this, we've been doing some R&D. We had to have a line for R&D in our budget. We've been working on that and developing these relationships and I think this innovation and what we're -- is going to be a key part of our future and a key part of our industry. And we've got -- we don't want to become and we want to avoid becoming a commodity. And to do that, we've got to be able to lead with innovation. And I think we have some things that are going to be transformative as I said, in the future, and I think some of our customers see that. And I think that's really benefiting right now our brand and is benefiting where we're seeing some increased volume. But I'll let John, do you want to add anything more to that. We've been somewhat careful. And maybe, Matt, I would tell you, we may have an Investor Day in the future here where we can talk a little bit more about it. But right now, John, is there anything else you'd want to add to that? John Sagartz: Just that the announcements that we've made over the past couple of months have given us access to technologies and tools that allow us really to pursue a program to matching human or matching animal models to human disease through the ability to look at data differently in a big way. And as Bob mentioned, we've got some internal initiatives that are using specific therapeutic areas to integrate those technologies and really validate the overall approach, but we needed to have access to tools that weren't currently robust within our existing footprint, and that was the basis for the announced collaborations.

Q: And then you touched on this a little bit, but with the weather that impacted shipping and whatnot later in January, maybe does that also impact your costs? I mean the cold temperatures, in particular, reached your facilities, I would think, in Texas. Does that translate into some higher cost to maintain proper heating and all of that for the NHPs in particular? Or how does that impact you?

A: Well, this last couple of weeks -- by the way, we also had that last year. Some cold weather comes through. But we're not transporting like we do. I should say, if the roads are going to have ice and the roads, and it's going to be dangerous. We're not transporting some of our research models and animals. So we're going to be very careful about that. And so that may -- and some of our customers are also going to be impacted and some of the universities are going to close and not be able to take orders. So that's one part of it. The second part is, yes, -- we have some great people that if it's going to be extra cold and we're concerned and you could have ice, where you could have electricity issue, we have generators, of course. But we're going to -- then we have people that volunteer and they stay at the facilities 24/7 to make sure that they're -- they can provide all the care that's needed and they do an extraordinary job. I wouldn't say it's a lot of -- it's not going to change the needle that much in terms of cost. But it is quite impressive to see the care and the culture that these people have throughout the organization. And this last cold spell went from, obviously, from Texas all the way all through the East. And there were some just extraordinary efforts in volunteering -- people volunteering their time and spending weekends and the week just 24/7, taking care of the facilities and the animals. And it's quite impressive. So to extent anybody listening, thank you once again for what you do and for caring for everything we do