Great. Good morning, everybody. Appreciate the attendance here in the room. I'm Dave Windley at Jefferies with Jefferies Healthcare Equity Research. I'm based in the States. Again, thanks for your attendance here in the room and for those who may be listening online. Welcome to our 2025 London Healthcare Conference. It seems to grow and get tighter and tighter in the hallways every year, so we're gratified by that. We wish there was a bigger hotel in London, but we make do with what we have. I'm here with Bob Leasure, the Inotiv CEO, Inotiv being our company, our next presenting company here. So Bob, thank you for making the trip. Sounds like you've made it quite a European tour here over the last week or so.
Thank you for inviting us. Yes, we have some facilities here, so I was able to combine it with some stops along the way.
Great, great. We noticed that you did put out a release or an 8-K in the last 24 hours updating on your recent performance. Maybe we'd start there with some of those preliminary updates for your quarter.
Yes, thank you. Yes, something we'd actually drafted last week and have been waiting for approval to send out. We were able to send out last night. We are very encouraged, actually, by the Q4 results that we did and can talk about right now. We had a good increase in our revenue. We had a very substantial increase in our awards, our DSA awards, up over 60% quarter over quarter. We were coming from a weak quarter a year ago, but still very gratified to see that kind of momentum. We now have a positive book to bill for the 12 months. We had a positive book to bill on a nice increase in revenue, quarter over quarter revenue for the quarter. Some good momentum, I think, that we saw we were able to maintain from Q2 and Q3 going into Q4.
Great. Within that, I think just to highlight the revenue upside to what looked to be our number, I think we were pretty close to consensus was $3.5 million. As you just said, a good performance in the quarter. I'm guessing that some of the other details are waiting on the audit for audit completion, like profitability and mix and things like that.
Yes, we felt we should probably wait till the completion of the audit and hopefully typically we usually release those sometime in the early part of December. Hopefully we'll do that again this year.
Okay. Can you give us a sense of the mix of the performance short of numbers? Like, was the strength in DSA or RMS or both?
I think we saw, once again, we've seen very good trends this year between Q1, Q2, Q3, and Q4 in DSA revenue. I think our Q1 was $42 million, our Q2 was maybe $45 million, went up to $48 million. I think we'll see good growth again in our Q4 in DSA. That's very gratifying. RMS also saw some improvements, obviously, then going into Q4 year over year and over some prior quarters.
Okay. Let's dig in by segment a little bit. In DSA, over the course of the year, your mix kind of between discovery and safety, I think, has been stronger on the safety side, weaker on the discovery side in revenue, but discovery bookings had been improving. You were kind of what looked like building some tailwind for the discovery business. What's a driver there?
For the year, I think we'll see that discovery was one of our growth drivers in revenue. Discovery awards were very strong again in Q4 year over year, especially. We had had a couple of years of declining discovery revenue and awards, and it was nice to see that significant reversal in that last year. Second of all, probably where we see strength is in biotherapeutics, bioanalytical business. I think that some of the changes we made in December a year ago, we talked about developing a discovery translational science to sales team, how we go to market. I think that's had an impact and a significant impact. We've increased our DSA sales team probably 15% over the last 18 months. One of the things that I pay a lot of attention to is our customer metrics and focus.
Over the last two years, we've spent an enormous amount of time, as you know, in 2022 we had acquired all these companies and we were 14 different companies and starting up some of the services. In the last two or three years, we were really able to focus on integration and customer metrics and customer performance and science. As we've done that, I've seen those customer metrics improve significantly. As they improve, I think we've seen our quoting improve, our awards improve, the rate of awards that we're winning, and our conversion rate all improving this year. In the integration, significant. We went from 260 to 150 software platforms, but in the last 18 months, we now have one toxicology system, one pathology system, one project management system, one human resource system, just recently one CRM system.
We now have a new tool that we're developing for production planning resources for RMS. These systems have significantly helped develop our culture and our ability to integrate and sell as one company. I think that has a positive impact with the customer.
As you just said, you've been focused after a period of a lot of acquisitions, you've been focused on integration. As you get, well, first of all, do you believe that you're close to stable, close to the end of that kind of cleanup process, so to speak?
I think we've got some substantial things done. I don't know that we'll ever be to the end of improving, but I do think we got some of the really critical areas done. On the RMS side, as you know, the integration consisted of closing what will be half of the RMS sites. We're going to go from, as far as our breeding facilities, 20 down to 10. We will have closed over 50% of our sites over two years. I think we should be complete with those by February. That's going along quite well. I think that cost is coming out as our production and efficiency and quality continue to improve. That's another very important initiative as far as integration goes for us.
Where I wanted to go next was having integrated, when you look at your, you know, maybe all of DSA, but I was going to start with discovery, do you feel like your service offerings are complete there?
In the DSA, yeah, I think we're much more complete than we have been in the past. I think there are areas, yes, that we don't have that we could add down the road. Right now, I think we're focusing on how to integrate and grow what we have, not add additional services at this time. I do feel we're pretty solid at the moment. We have some capacity where we can actually grow what we have without adding brick and mortar at this point.
Okay. So then in the areas that you're choosing to compete, it brings me to the question of how do you win? You mentioned a number of these metrics that you have focused on improving. From a customer standpoint, are there some that you could highlight? Like, are you tracking NPS score? Are you tracking some other type of customer satisfaction metric? What are some of the areas where you see progress?
I will go back. Our value, I think when we went back to our investor day, we talked about the key thing is speed, and we talked about the integration of sciences in order to create value. As we do that, then we are not competing on individual services and price. The integration and the speed, I think, are critical to being able to maintain the pricing and deliver the best value. I think some of the critical metrics to look at, one everybody else would be customer complaints. Another one we have just paid a lot of attention to is how we manage the projects, the customer expectations, the delivery points, the communication, and meeting those delivery points and those communication expectations. We look at, but we even look at accuracy of keystrokes, everything that involves a client experience.
We want to be able to track that metric and see how we're improving. As we can track it, that data gets better, but also we can talk about it within the company. That really helps the culture understand how important that customer metric is. We continue to drive that. I would prefer not to give all the ones. I think there are a couple that we have that are critical that I think we've identified as, if we do well, can be a real competitive advantage. I prefer not to share all of those.
Sure. How about from a cross-selling or bundling standpoint, one of the advantages of having the businesses that you've acquired and now having them integrated is the ability to capture increasing quote sizes, essentially increasing order sizes by bundling in more services. How does that progress?
Yeah, there are two ways. We really have a large customer base between the two. We recently have implemented one CRM system. We've been operating off six or seven systems. It's been a challenge to try to figure out how to communicate where our opportunities are and get those metrics. We now have the ability to do a much better job integrating that. Where we can also see real opportunities right now is that if we—when we win a client, sometimes we're winning a new client because they're dissatisfied with the current provider. They're leaving because of that service. If we can win on service, then I think we can see that we can also increase our revenue with the existing clients that we have. In addition, then start selling them other services and introduce them to other parts of our business.
We have got to be fully integrated and communicate internally well to do that. That is where these integration and these systems and common systems really are helping us be much more efficient, I think. If you look at our quoting per salesperson or awards per salesperson, you see those increases. We get more efficient. Those are some of the things we want to see.
Let's spend a minute on the environment. You're primarily calling on smaller biotechs as a customer base. The funding environment has been volatile, to say the least, up in the pandemic, down for a couple of years, back up last year, down a little bit this year, and then back up. Do you see that the demand quotient from those clients kind of follows that funding environment or not?
Right now, I'd say or not for us. I found that, and by design, we want to take that excuse away from our team. We need to grow and do a good job and grow our customer base here regardless of the biotech funding. That biotech funding market is a much bigger market than we are, by the way. I think we have opportunities to grow regardless. We saw good growth in Q2 and Q3 and Q4. I think now I note that biotech funding has improved much more in the last, what, month or two. Where I think we get the greatest benefit from that is if we can see our competitors fill up. I think that would be helpful. I'd like to see the entire industry have a positive book to bill. That would be encouraging.
How would you describe pricing trends of late?
I believe the biggest discounting was taking place probably 18 months ago. I think over the last 18 months, I think we've seen some capacity come out of the market. I think pricing has firmed up quite a bit. You don't see that right away in the margins. Because remember, we may quote something this quarter. You may get an award next quarter. It may start in three to six months. Before you see the revenue, it could be three to four quarters out. I think in the industry, it wouldn't be surprised that you start to see some of the margins improve from reduced discounting. I think that's something we heard as we listen to other people too. I don't see the discounting as near what it was a year ago.
I think if you look at our margins in Q2, that's probably the weakest margins on DSA. In Q3, they came back. Some of that's pricing. Some of that was also probably cost of research models that also came back down. Hopefully those margins for us and everybody else will continue to improve.
There was something you said I was going to key on. I already forgot it. Let's move to RMS, where NHP volume and price were both higher in Q3. While I know that's not all of RMS, but NHPs have been quite volatile, let's talk about trajectory of NHP activity.
Trajectory. The NHP activity in the last, I would say probably in the last year, has been a lot more calm, a lot less volatile than it was in 2023 and 2024. Since late 2022, we saw a lot of volatility in 2023 and then late 2024. I think it has calmed down quite a bit in the last year. Pricing has stayed fairly consistent. Cost has stayed fairly consistent. It looks like volumes have stayed fairly consistent of what is coming in the country. I think we are probably seeing more domestic breeding than we have seen before. As prices stay at this level, I think that, you know, I think what we could see in the future is we could see imports from Cambodia again. That would not surprise me. Those things have been exported on the world market.
The U.S. is the only one that's not taking it. On the world supply, it may shift where it is. I don't see a big shift in pricing right now for next year.
Okay. That comment about you might see imports from Cambodia is provocative. What makes you think that might reopen?
The U.S. has not been the bottleneck in the last year to imports from Cambodia. It's been Cambodia issuing CITES. I think Cambodia is now ready to issue CITES. There's a CITES meeting coming up here in the next couple of weeks, which may have people feel more comfortable. We'll see how that goes. I wouldn't be surprised to see that take place. We maintain relationships with multiple farms there. We don't have anything planned at this point that I'm ready to announce. We do maintain relationships. If that's something that we can get comfortable with, then that's something we'll also consider.
Yeah. Kind of consistent with your general push to expand services, you've added this colony management services revenue stream in the RMS business. How is that progressing? Are you seeing adoption by clients there?
Yes. We've seen some progress over the last three years. That's been a good source of revenue. We can actually board and breed for third parties. As people want to have their own inventory available now, we can have that. We'll keep it on our site so they do not have to keep it in their own vivarium. It gives people, our customers and pharma and others, a way to reduce the risk by having access to non-human primates that we can keep at our farm for them.
As you have thought about creating more visibility in your revenue streams, the broader business, but in RMS, you have kind of talked to me about being willing to trade some pricing for stability and visibility in NHPs and long-term, kind of long-term supply contracts where you have got better visibility to the volume that your customers want. Any progress there?
Yes. That was something we talked about probably last year at this conference quite a bit, I think. We made a lot of progress this year, I think, to try to create some stability in that market for ourselves and for our customers and our suppliers. Hopefully, that is something we can continue to do going into next year.
Any metrics you could put around that in terms of percentage of the business that's under? I don't know if we'd call them long-term contracts or not, but.
No, I don't think we've—I would hate to talk off the top of my head on those metrics right now.
Okay. While we're in RMS, and you mentioned this earlier, but reducing sites has been a continual strategy, operational execution for the last several years. I think there's still one ongoing that's targeted to be completed by March of 2026, $6 million-$7 million in annualized cost savings.
Yes. This last one is we're expanding a facility in Indianapolis where it allows us to close three sites. We've already sold two of those three sites. We've come out of one of those three. The final two we'll probably start doing in December, January, February, and get out of those by February or March. That has been important. It has allowed us, one, we're going to much newer, much more efficient facilities, much more energy efficient, much better for the animal welfare. Looking forward to getting this stage completed. The other thing that we did when we did the way we do this is we took over a transportation system. We used more of a hub-and-spoke system. We're able to transport on our own. Since we've taken that over, we've also redesigned the transportation system.
We've taken out, but between now and when we took it over in January, we've reduced 25% of the transportation units. We're making some real progress on being a much more efficient RMS organization.
Okay. Let's transition to balance sheet. You have maturities in 2026 and 2027. I think you've talked about, and I think you've even announced a third party to help you evaluate balance sheet management options. Can you give us an update there?
I don't have anything to announce publicly at this point. We did announce that we were going to focus on refinancing and restructuring the debt. We did hire a third party to help us. We did announce that. At this point, I don't have—those efforts are ongoing. I don't have anything to announce publicly today.
Okay. I think you also are maybe managing through or in the aftereffects of a cyber IT event.
Don't wish that on anybody. Yes, we did have a cyber event in the fourth quarter. In early August, we announced. We were able to recover fairly rapidly, I would say. It did disrupt our operations, disrupt some of our timing. It did put a lot of pressure on the organization for communication. It is very disruptive. We're still trying to evaluate what took place and doing our due diligence. The recovery has gone obviously very well. We're fully operational. Recovery is more than just recovery. It's recovering and then what did we learn and how can we improve and what we can do to make sure we strengthen those systems. That, I think, will go on. That'll go on for a little while. We have recovered and we are operational.
Are the systems fully restored at this point?
Yes.
Yeah. Your bookings numbers were better than expected for the quarter. It would not appear to have had a significant impact on sales.
You know, I think that we'd be naive to think that it didn't have some impact on our sales. I was very—if you'd asked me the second week of August, could we have had those kind of bookings for the quarter, I would have never guessed. There was a lot of communication, customer communication taking place regarding the cyber event. I think it would be naive to think that it didn't have some sort of impact on us. I was pleased that we were able to maintain quite a bit of the momentum we had and the momentum we have going into Q4.
Yep. All right. I think that brings us to time. Thank you for being here again.
Thank you, Dave.
I hope you have a great set of meetings. Thank you for our audience's attention.
Appreciate it. Thank you.
Have a good week.