Greetings. Welcome to Inotiv, Inc's First Quarter Fiscal 2022 Financial Results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, Kalle Ahl of The Equity Group. Thank you. You may begin.

Thank you, Alex. And good afternoon, everyone. Inotiv Inc's First Quarter Fiscal 2022, financial results were released today after the market close. A copy of the earnings release can be found in the Investors section of the Company's website at inotivco.com. As a matter of formality, I need to remind you 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. Management also will discuss certain non-GAAP financial measures in an effort to provide additional information for investors. A definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in the company's financial results, press release, and corresponding Form 8-K. Joining us from the Company this afternoon are Bob Leasure, President and Chief Executive Officer Beth Taylor, Chief Financial Officer, and John Sagartz, Chief Strategy Officer. We'll begin with some opening remarks, after which Beth will present a summary of the company's financial results. Then we'll open the call for questions. Now it's my pleasure to turn the call over to Bob.

Thank you, Kalle, and good afternoon to everyone. Thank you for joining us today. We're really pleased with the way we've started fiscal '22. We continued our momentum building Inotiv into a comprehensive provider, preclinical research services, while adding a very highly complementary research model platform through the strategic acquisition Envigo. Our Full-Spectrum solutions now span two segments: discovery and safety assessment or DSA and research models and services, which we also refer to as our RMS. The acquisition of Envigo was transformative to our company and we have now grown from 240 employees in 2018 to over 2000 employees today. In addition, our revenue's grown from approximately $26 million at fiscal '18 to a pro forma revenue of fiscal 2021, reflecting the acquisition of Vigo of approximately $395.8 million. Since the start of the fiscal year, we've further bolstered our DSA capabilities through the acquisition of Plato BioPharma and October of 2021, the purchase of integrated Laboratory systems and January of 2022, a new collaboration with some extra life sciences in January of 2022, and so ongoing investments in internal startups and capabilities. Plato BioPharma provides our DSA segment within Vivo pharmacology, research, drug discovery expertise in the areas of cardiovascular, renal, pulmonary, and hepatic therapies. Plato's integrated approach to functional and physiological measurements, histological evaluations and biomarker analysis complements our existing suite of services. Plato's located near our Boulder, Colorado [Indiscernible] operation. And Plato and Boulder operations are now both operating synergistically and we're adding additional lease space to both locations in order to support a strong demand we're currently seeing. Integrated Laboratory systems or ILS, brings our DSA segment immediate scale. Genetic toxicology, building on the genetic toxicology assets we acquired in 2021 from MilliporeSigma’s BioReliance portfolio. We've essentially accelerated by a few years our in-house can…

Thanks, Bob. Good afternoon. In the first quarter of Fiscal 2022 our total revenue increased 370.4% to $84.2 million from $17.9 million in the comparable prior year period, driven by a $14.9 million increase in DSA revenue and $51.4 million of incremental RMS revenue. RMS revenue reflected a partial quarter contribution from Envigo, which was acquired on November 5th, 2021. Our DSA segment revenue grew 83.2% year-over-year to $32.8 million driven by $10 million of incremental service revenue from the acquisitions of HistoTox Labs, Bolder BioPATH, Gateway Pharmacology, and Plato BioPharma, and $4.9 million of higher service revenue from internal growth. Our acquisition of Envigo contributed $45.1 million of product revenue and $6.3 million of service revenue to our RMS segment this quarter. We did not have any RMS revenue in the comparable prior-year period. In the first quarter of fiscal 2022, our total gross profit increased to $19.3 million or 22.9% of revenue, and that was up from $5.9 million or 33% of revenue in the comparable prior year period. The decrease in the gross profit as a percent of revenue reflects the introduction of IMS products to our overall business mix starting this quarter. RMS products have lower gross profit as a percent of revenue compared to DSA services. In addition, total gross profit included non-cash amortization for a step-up in the value of RMS inventory of 3.7 million for the acquisition of Envigo, which has a negative impact on the gross profit percentage of 4.4%. Our DSA segment gross profit excluding amortization of the intangible assets was $12.2 million or 37.2% of DSA revenue. And this is compared to $5.9 million or 33% of DSA revenue in comparable prior year period. The year-over-year increase in gross profit percentage was primarily driven by higher margins on incremental revenue…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kyle Bauser with Colliers. Please proceed with your question.

Great. Thanks so much and congrats on the phenomenal results here again. Maybe starting with the -- some of the recent acquisitions, so specifically ILS and OBRC. Just curious how those came about. Were they situations where you were able to quickly act and, say, popped onto your radar somehow or had you been in discussions with the companies for a while? Just curious how it played out.

OBRC had historically been a supplier to in Envigo or to Inotiv for several years. So we'd started talking to them prior to the Envigo deal being closed or announced. So that had been in the works for some time. It was part of our strategy. We knew that there was an opportunity to continue building our services and expand our boarding capability. A board for breeding, a boarding for maturing, for our customers. And that's been an increasing revenue source for Envigo, being increasing force going forward. We looked at other alternatives and how we could expand in our property in Texas. And knowing our supplier, we had an idea that they wanted to sell, and we were able to get involved before anybody else did get involved. They -- in an agreement with us and we were able to complete that transaction. So really pleased that it opens up some capacity for us. And I think it will be synergistic with our current Alice facility and provide some additional room for and services for our customers. As far as the RSI that was a company that Envigo had identified prior to us closing. They told us about it. They initiated those conversations with them and visits. And then in early October we were able to struck a deal with them, again prior to properly closing transaction and we knew that was something that we had capacity internally. They were going to get out of the business and it was an opportunity for us to gain market share and new some of our existing capacity. So one of our key strategies is scale, making sure we utilize unutilized capacity. And we knew that the customer base -- some of that is the sticky customer base with -- which we've talked about before. So acquiring customer base there made sense to us. And I thought it would not put too much more burden because they were going to be somewhat add - ons to what we already had. So, I know that there are a lot of acquisitions at one time and we've been able to complete these, and I'm really pleased with what the team has done. But it's -- they -- we've got a group of people put in some extraordinary effort and really pleased with the results so far. But it's still a lot of work to do.

Great, certainly highly accretive. And I realize that Envigo deal only closed in early November, but given your track record of quick turnaround, so I was just wondering what changes or improvements have been made so far as it relates to the organizational and operating structure? And what are some other opportunities here to drive synergies in that business?

First of these results, in these results, we are only owned Envigo seven weeks. And out of those seven weeks, three weeks were holiday weeks, so there's four, only four or five weeks really to do much at the end of the year. But we've been pretty aggressive, I think, in transforming the corporate culture. We've made several changes in identifying who the leaders will be from a corporate standpoint and it unfortunately that means that some -- we don't need duplicate corporate leaders. Those changes have occurred, or being announced, or in process. And the other thing that is interesting is a year-ago and it's it was $50 million company growing up to be a $100 million company. And Indego was not sure what it was doing, but it was about a $300 million company. Now we're at a run rate of over $500 million growing again. So instead of building a company to be a $100 million [Indiscernible], we're building a company be much bigger than $500 million. That question. Again, further changes in infrastructure and technologies and. And some skill sets. So we've been making those changes pleased with the team that's coming together. And I think you'll see us do some additional things in the future. So I'm looking forward to seeing what this team can do. But I also think we're testing them out quick. It was a lot in the last 4-5 weeks.

Definitely not. Appreciate that. And then lastly, housekeeping item. That's -- just kind of wondering. So you kind of walk through a little bit, but just to verify, can you provide kind of the current cash levels and debt, including converts and basic shares outstanding. After kind of all these recent acquisitions.

Yeah. We -- our current cash level is down slightly from that $42 million level, but we expect strong receipts, so we're not expecting a significant change in cash. It will not be lower by the end of the quarter. And our current debt level is the $260 million reported plus the $40 million in term loans that we borrowed for the OBRC acquisition. And then the basic shares currently outstanding, which we reported in the proxy last week, around $24.8 million. And then fully diluted, including the convertible notes, would be around $30.5 million.

Perfect. Thanks so much and congratulations on another great quarter

Thanks, Kyle.

Our next question comes from the line of Matt Hewitt with Craig-Hallum. Please proceed with your question.

Good afternoon. Congratulations on the strong quarter. Maybe first up and they realize it's still early need for some of the recently acquired properties. But could you talk a little bit about the cross-selling synergies that you're seeing already and how you think those could progress over the course of the year?

Yes, Hewitt. I don't have a metric for you on the cross-selling. Obviously by the book-to-bill of 1.78 to 1, we're not having trouble selling our services at the moment, and so --but we do get -- I do get reports on the cross-selling and we're seeing probably a lot right now, mainly in the discovery and small animal models. And we're seeing that develop and we're seeing relationships develop. I couldn't tell you what the revenue is, but there's a long list of relationships that are starting to develop and expand. And fortunately, this is also taking advantage of some of the new capabilities we're building and brought on board with PLAY-DOH and the Bolder acquisitions and with the recent expansion in St. Louis.

That's great. And NHP pricing. I'm wondering if you could walk through maybe where that was pre -pandemic? Where it is today? And maybe talk a little bit about how you've positioned yourself to be the source for your customers, where others have -- maybe facing challenges because of the supply disruptions and the issues? But where you stand on that point, as far as being able to meet your customers and maybe even how far out you've booked some of those contracts?

Yes. It's a little -- big question. But I think pre -pandemic, at one point, the open market was probably in 3,000 range. I think it's doubled every year, doubled to 6,000, 12,000. I think this year we'll see it double again. I think the spot market is probably in the 20s now and we don't see that going away. Most of what we have coming in for the year and have available for the year have been pre -sold and we want to make sure we honor any contracts that we have with all of our customers. But there has been obviously a lot of cost pressure and pricing pressure. So our cost has increased significantly and so has the pricing. And our margins are doing well so far. There'll be some synergies with what we just did, with some of our important and transportations. Will be further synergies with feed and what we have. So I think there additional services now that has as a result of the condition in terms of some customers wanting to do their own breeding, or their own boarding, and their own maturing, if you will. So we're going to expand those services, make sure those are available. So those are new services, they're expanding rapidly. As far as the overall market condition, I believe this is something that's been going on, not just pandemic-related. I think it's a trend that occurred started 10 years ago. And I think you can bring down to CDC reports, but you can see that at one point China was exporting 90% of what they were producing. And today they don't want to export any. And that was a trend that started ten years ago and saw the trend that started just when COVID hit. When COVID hit, it did happen coincide with when they stopped exporting. So that has put a large pressure on the supply and the demand continues to increase with biotherapeutics and selling gene therapy. So it's still many of the drugs are going to get FDA approval, but many of them are going to require NHP's for their studies. So, I don't see that trend changing anytime in the next few years. So, we'll continue to build up our services and our capacity. And right now, I think we have a good market share -- [Indiscernible] NHP s.

That's really helpful. Thank you so much. And then maybe one last one. Beth, this might be for you. Thank you for walking us through the product gross margin and the puts and takes there. If I heard you correctly, that the adjusted, if you will, product gross margin should have been something closer to 17% for the quarter, will it bounce up to that here starting this quarter? Or how does Is that play out over the next couple of quarters, especially given some of the price increases that you've seen? Thank you.

Yes, you are correct. It would be closer to that 17% without the non-cash amortization. There will be a little bit more of that amortization that will hit Q2 for the step-up of inventory. But that will not continue after Q2.

Got it. All right. Thank you so much.

Thank you.

Thank you, Matt.

Our final question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

Hi Bob, hi Beth. Thanks for taking my questions. Wanted to continue on for Matt line on that NHP pricing. I was hoping you could just give us a little bit more color into what some of the contracts look like right now. And if there is an opportunity just to as contracts expire and new contracts come in, have some step-up in pricing over the next couple of years with the different spilt Indego as well as OBRC.

The contracts -- our contracts are generally -- even though we may have multiple year contracts for -- from our suppliers, they set -- reset pricing annually, and so we reset pricing annually also with our customers. I don't know that anybody has a real good fix on what 2023 pricing is at this point. We'll talk to our suppliers and we'll make that decision probably in the -- closer to September, October of this year. And we're -- it's going to be in '23 when we get more feedback from them. Hopefully, the markets throughout the year will be open, we'll be able to visit them and meet them in-person before that. It's been -- we haven't been able to do that lately. But we -- as I said, we'll continue to honor what we have there. And what we have in place right now is -- will be through the rest of the year.

And then just wanted --

Fiscal year or calendar year contracts.

Got it. Okay. And then --

We also have some will, so we do have some we sell on the stock market. If we have extra capacity, extra available, we will sell some on the spot market but a great deal of what we have coming in as accounted for.

Got it. That makes sense. Just wanted to take a little bit higher view and wanted to get some anecdotal feedback you've been hearing in the field now that you've been offering the full suite of pre -clinical plus research models since November. What has been this broad industry feedback? How have people been digesting this change in the market?

Well, we're on the DSA side, so we're a buyer, and a user, and discovery and safety assessment side. And we've been -- all of our customers are well aware of what's taking place, and as a result, we've been able to pass that through. I believe all of our customers have been able to pass that through. So, they do understand it's part of doing business, that I don't think it's been a problem for any of us that I'm hearing out here push back. And they're more concerned right now about their supply, which is increasing some of the request for boarding, or breeding, and boarding contracts so that they can start to to have their own colony, or their own resources and that's where I think we'll see some increase in services. And so we'll be making some further investments in our facilities in order to expand their services. But I think they're more worried about -- at this time, I would say I hear more worry about access to supply than I hear about necessarily the pricing.

Got it. Okay. That's perfect. Then just last one from me. Can you comment on acquisition pipeline at all? Obviously heard your comments about just a lot to digest right now, but I'm sure that the acquisition team isn't sitting around right now. So just any update on that front you can provide us would be great.

Well, we really don't comment on go-forward acquisitions. I've always been very open that we're expanding internally. And that's obviously very viable for us to continue to grow internally. That's what our current employees like to see, investment facilities into internal growth, but we are constantly looking at external acquisitions. I would say, with our growth over the last four or five months, we probably have shown up on more radar screens than we did before. And we can look at probably a broader array of potential assets and acquisitions going forward. But this -- so I won't comment on anything going forward, but we're always going to remain active. But I'll have to balance that again with our team and our ability to build our corporate team. And are they ready to really digest and continue to move forward. But we keep eye on a few things and we will continue to do so. And I hope that that's continues to be part of our strategy. And again, our corporate team and our acquisition team, our people, they like that. What's really rewarding for us right now as we have some people reach out to us. And they like to be part of our organization. They're looking for an exit strategy or to be part of a full-service organization and it's very rewarding to have them calling, so we would like to be part of your organization, not necessarily going through a process. So we continue to take those calls and we look forward to looking at those opportunities.

Got it. Okay. I'll stop there. Thanks for taking my questions and congrats on all the progress.

Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Bob Leasure for closing remarks.

Well, thank you for participating in our call this afternoon. In closing, I'd really like to thank all of our employees and everyone involved and the extraordinary efforts that they bring every day to make this an exceptional company and achieving the transformation that has occurred over the last four month to six months. Please reach out to our Investor relations firm, The Equity Group, if you're interested in scheduling a follow-up call. I look forward to reporting back to you in May when we release our second quarter fiscal 2022 financial results. Have a great day.

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.