Inotiv Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 7, 2024

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Innovative First Quarter Fiscal Year 20 24 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Yedid, thank you.

Operator

You may begin.

Speaker 1

Thank you, Camilla, and thank you for everyone for joining today's quarterly call with Initiv's management team. Before we begin, I'd like to remind everyone 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 results, operating and financial results and plans. Such statements are subject to risks and uncertainties that can 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 for further guidance on this matter.

Speaker 1

Management will also discuss certain non GAAP financials in an effort to provide Additional information for investors. Definition of these non GAAP measures and reconciliations The most comparable GAAP measures are included in the company's earnings release, which has been posted to the Investors section of the company's website And is also available in the Form 8 ks filed today with the Securities and Exchange Commission. If you haven't obtained a copy of today's Press release, you can do so by going to the Investors section of Inativ's website. Joining us from the company today are Bob Leisure, President and CEO and Beth Taylor, Chief Financial Officer. Bob will begin with some opening remarks, after which Beth will present a discussion of the company's Financial results and then we'll open up the call to your questions.

Speaker 1

With that said, it's my pleasure to turn the call over to Bob Leisure, CEO. Bob, please go ahead.

Speaker 2

Thank you, Bob, and good afternoon to all of you joining us on our call today. As you saw from today's financial news release, Innovative began its fiscal 2024 making progress against important financial and operational metrics, while continuing To develop and solidify its business model, as noted in our year end conference call last quarter, our promise Shareholders, customers, employees has been to guide Inotiv towards becoming a leading mid sized CRO in the marketplace through transformative acquisitions And build out new services, which ultimately will expand upon our contract research service capabilities. We continue to enhance and build organization delivering innovation and solutions for drug discovery and development. It is significant that in the past 18 months, we have optimized Our operational footprint from 33 to 23 locations by closing now 9 RMS facilities and 1 DSA facility and transferring the work to existing facilities, which have been recently renovated and expanded, while simultaneously expanding 3 DSA existing facilities. This will allow us to better service our customers' demand Add new complementary services and create a platform which will support growth and allow us to leverage our fixed cost structure and enhance margins.

Speaker 2

Further, as noted in our prior quarter, we have also been restructuring our transportation services and logistics operations. As a result Of all of these initiatives, once they are completed, Innovative will have eliminated $20,000,000 of annual operating expenses from the business. Approximately $5,000,000 of these reductions were realized in fiscal 2023 and the remainder Should be completed in the Q4 this year. In addition to the decrease in operating expenses For the site optimization restructuring of our transportation, we have seen reductions in G and A We have also expanded our service offerings and capacity. As we near the completion of these infrastructure projects, We have shifted to a renewed focus on sales and marketing by adding additional salespeople and focusing on improving our brand awareness.

Speaker 2

We believe that our strategic efforts will enable us to broaden our customer base and better serve these customers through innovation and development of Nimble Solutions and Custom Offerings. We have remained focused and accomplished a significant transformation, while our industry has faced headwinds over the past 2 years. As we go forward, we are focused on executing our plan to become a stronger company Now let us turn to the highlights of our financial results. Beth will go through these in more detail shortly. We are pleased to report revenue of $135,500,000 For Q1 of fiscal 2024, up 10.3% compared to the same period a year ago.

Speaker 2

It's worth noting that all year Over year growth is now organic as we have not completed an acquisition in the past 18 months. These top line results consisted of DSA revenues $44,700,000 were up 8.8 percent in Q1 2024 compared to $41,100,000 In the prior year period, revenue from RMS was $90,800,000 in Q1, an increase of 11.1% from the prior year period. Overall, adjusted EBITDA was $9,600,000 as compared to consensus $8,300,000 Adjusted EBITDA improved $15,100,000 compared to a negative adjusted EBITDA in Q1 Fiscal 2023, which as a reminder, was primarily driven by the initial negative impact on revenue and gross margins From the company's decision to refrain from selling or delivering any of its Cambodian NHPs held in the U. S. In Q1 2023 until our staff and external experts could reasonably determine those NHP's inventory from Cambodia will purpose spread.

Speaker 2

The year over year improvement in adjusted EBITDA of $15,100,000 is important as our bank loan covenants is calculated on A trailing 12 month basis, and therefore, Innovative has further improved its financial flexibility for the quarter starting January 1, 2024. Our net book to bill ratio for DSA business for the Q1 of 2024 1.46:one as net new order bookings were up to 63,800,000 Versus $40,700,000 a year ago. This represented a 57% year over year Increase in net new business signings. Cancellation rates in Q1 2024 were less than half That we observed in the immediately prior quarter and the lowest we have seen since Q3 of fiscal 2022. We are still seeing some projects get delayed, which can impact our quarterly revenue.

Speaker 2

Initiv's conversion rate was up to 32.5% in Q1 fiscal 2024 versus 27% in Q1 of last year. Our backlog at December 31, 2023 Was $152,300,000 versus a prior year backlog of $147,900,000 and a September 30, 2023 backlog of $132,100,000 Our DSA operating income was down for the quarter compared to the Same quarter in 2023 due to increased costs associated with the development of new services. These new services are not yet seeing positive gross margins and therefore have created a headwind for overall margins. As revenue for those services increases, we expect to see an associated margin improvement. For Research Model Services, revenue increased over Q1 2023, mainly due to pricing in the NHP business.

Speaker 2

In the 1st fiscal quarter of 2024, the total number of NHPs we sold was down 20% compared to the same period a year ago. However, pricing for NHP's was still much stronger, so overall NHP sales and margins and therefore RMS sales and margins remained higher than a year ago. In last quarter's conference call, we indicated that NHP prices were expected to come down from the highs We saw in Q4 of fiscal 2023. We did see the NXP pricing on average come down roughly 18% In Q1 of fiscal 2024 versus Q4 of fiscal 2023, with q1 of 2024 closer to the average unit price for all of fiscal 2023, including the fiscal quarter The 1st fiscal quarter of last year. We believe it is important to understand We expect to see a transition in the marketplace by customers seeking more long term supply contracts for NHP versus buying on the spot market as we experienced last year.

Speaker 2

This means that over time, we could sell Fewer NHPs on the spot prices and more under fixed contract pricing. We believe this shift would be favorable for our NHP business as we could increase the predictability of our NHP revenue and improve the management of our working capital. However, in the near term, We may experience some variability in our NHP revenues quarter to quarter. We believe the level of these fluctuations will depend on our customers' current Inventory of NHP changes the amount of their preclinical work and when they transition to these supply agreements. For our SG and A in Q1 of 2024, we did see the benefits of some of the changes we have implemented, Such that G and A expenses were $3,700,000 less than Q4 of fiscal 2023 And approximately 16% expense reduction sequentially and $18,400,000 or approximately 30% less than the same quarter a year ago.

Speaker 2

Controlling our SG and A in line with our overall revenue is another significant area of focus as we integrate and improve our business model. Last year, we made substantial efforts towards increasing our focus on execution, site optimization Integration. Additionally, the planned closures of Alloghan facilities over the last 18 months created substantial severance costs, Significant start up costs related to transfer of production between sites, starting new services and expanding facilities. However, these are vital projects to our future. We were pleased with how these projects were executed generally in line with the original budgets and timeframes.

Speaker 2

We look forward to completing the last major consolidation and expansion efforts still in process. We believe we are now positioned more strongly for the current macro environment and well positioned to participate in a wider recovery in our industry, which will allow us to further accelerate our growth and improve margins on an incremental basis. To briefly update On the recent major projects activity from the end of fiscal 2023 spilling over into fiscal 2024. These projects include the sale of our French and Spanish facilities, which were completed In the quarter ended December 31, 2024, our facilities in Hazlett, Michigan Dublin and Cumberland, Virginia And Blackthorn UK are now currently all under contract to be sold. Our original Hillcrest expansion is in process and is on track with our original timeframe.

Speaker 2

However, we are pleased to have entered into 2 new customer contracts, which will require further expansion at Hillcrest Operations. In order to accommodate one of these customers In early fiscal Q3 of 2024, we are planning to move the transfer of work from Black Florin to Hillcrest To fiscal 4 of 2024, we estimate that once the expansion of Hillcrest With the consolidation of Blackthorn and the renovations for the 2 new customer contracts are complete, We expect a small research model and services in Europe to see annual revenue growth of approximately 15 And revenue growth and approximately 15% improvement in our margins. We have now completed The expansion of our Fort Collins facility. We did experience some delays during Q1 in completing this expansion and validating this new facility. We also experienced client delays in studies for this facility and therefore did not realize any revenue from the expanded facility In fiscal Q1 of this year, we anticipate beginning to realize revenue from this facility during fiscal Q2 of this year.

Speaker 2

We have continued to complete new assays and are pleased with the continued growth and start up of our new genetic toxicology and biotherapeutics business And our Rockville, Maryland facility. Although these start up services still carry negative margins, These new services help drive our growing backlog in fiscal Q1. At the end of Fiscal Q1, we also announced we entered into a transition service agreement with Vanguard Supply Chain Solutions, the company's main outsourced provider of transportation services To enable the in house integration of Enanta's North America Transportation operations, we have now completed this transition. By taking direct control of our transportation operations, we expect to further reduce cost and achieve key efficiencies to strengthen internal operations, In fiscal 2024, we'll continue with critical improvement projects. And these include The conclusion of our site optimization plan, continuing site infrastructure and animal welfare improvements in our RMS business, Continuing to evaluate and improve our RMS transportation operations and service based on our new site footprint, which should allow us to further reduce expenses and improve client services, further expand our NHT supply and customer base, Focus on expanding our customer base while continuing to improve and provide exceptional client services, Continuing to further leverage our scale and capabilities to reduce outsourcing costs, to enhance our competitive profile and increase the speed of innovation for the discovery and development process for our customers.

Speaker 2

We see our ability to expand our service business and take advantage of recent expansion efforts and leveraging our fixed cost structure As one of the biggest opportunities for future margins and earning improvements, we have put in DSA capacity to accommodate approximately a 40% increase And DSA revenue or up to $70,000,000 in additional revenue compared to our current run rate annualized. In fiscal 2024, we will continue to grow our DSA sales team by dedicating resources to increase our market share. As I said on our last call with the recent capacity and new services that have been added, we are growing our customer base by increasing our sales effort In chemical and crop protection markets, recently adding medical device salesperson, increasing our discovery and translational sciences Services sales team and building our drug development and safety assessment sales team. While we believe we are in much better position than we were a year ago, we feel we can continue to make further improvements. We believe we are well positioned to increase our sales volume in 2024, driven by greater cross selling To our existing customers, expanding our sales team, focusing our market efforts, building our brand recognition.

Speaker 2

Our first quarter Awesome, very good awards and positive momentum, and the improvements in the DSA backlog exceeded our expectations. We expect some of this may reflect the pent up demand after a slow summer, but we do remain encouraged. We look forward to our future and seeing the next 2 quarter turns. And with that, I'd like to turn the call over to Beth to review EDSA's financial results in detail.

Speaker 3

Thank you, Bob. For the 2024 Q1, total revenue increased 10.3% to $135,500,000 from the $122,800,000 recorded during the prior year period. GSA revenues increased by 8.8 percent to $44,700,000 when compared to the prior year period $41,100,000 As previously mentioned, the higher revenues experienced in our DSA segment We're primarily driven by new services related to genetic toxicology and the mix and pricing of general toxicology services, which were partially offset by a decrease in medical device surgical services due to cancellations we experienced In the Q4 of fiscal 2023 and delayed projects, RMS revenue for the Fiscal first quarter was up 11.1 percent to $90,800,000 compared to the same quarter last year, mainly due to favorable pricing across several products, particularly NHP. These increases are partially offset by lower volume of NHP Sales and a decrease in revenue for small research models due to lower demand. Consolidated net loss attributable to Common shareholders in the Q1 of fiscal 2024 totaled $15,400,000 or a $0.60 loss per diluted share.

Speaker 3

This compared to consolidated net loss attributable to common shareholders of $87,300,000 or $3.41 loss per diluted share in the Q1 of 2023. For the quarter, adjusted EBITDA improved $15,100,000 compared to the prior year period to $9,600,000 or 7.1 percent of total revenues from a negative $5,500,000 or a negative 4.5 percent of total revenues in last year's Q1. Operating loss for the Q1 of fiscal 2024 was $9,400,000 compared to a loss of $90,600,000 from last year's Q1, which included 60 $6,400,000 of goodwill impairment loss. Additionally, the current quarter had lower G and A And other operating expense, which was partially offset by higher selling expense and higher depreciation and amortization expense compared to Q1 of 2023. The decrease in G and A of $8,400,000 And other operating expenses was driven primarily by decreases in compensation and benefits, acquisition and integration expenses, Bad debt expense and a decrease in other third party expenses, which was partially offset by higher restructuring expenses related to site closures, site optimization costs and the announced transition of transportation for our RMS business in North America.

Speaker 3

Non GAAP operating income for our DSA segment in the Q1 decreased to $6,900,000 or 15.5 percent of segment revenue from $7,900,000 or 19.1 percent of segment revenue in last year's Q1. By the increased cost at our new facility in Rockville, Maryland as this facility is close to being fully operational And general price increases seen for research models, operating supplies and compensation and benefits. As our new services start to come online and we begin to sell newly added capacity, we believe we will be able to boost our DSA margins From the mid-thirty percent range in 2024 to a level in line with our long term targets of going consistently into the upward 30% range. The net book to bill ratio for DSA in the first quarter was 1.46:one, coming off weaker net awards in Q4 fiscal 2023. This brought our trailing 6 month net book to bill to 1.03:one and our trailing 12 month net book to bill Also return to slightly over 1.

Speaker 3

The higher net book to bill in Q1 fiscal 2024 was primarily due to higher awards and we saw about half the cancellations in the Q1 of fiscal 2024 compared to previous quarters. GSA backlog was $152,300,000 At December 31, 2023, compared to $147,900,000 at December 31, 2022. Additionally, our conversion rate, which is our ability to convert our backlog to sales, has improved over Q1 fiscal 2023. Non GAAP operating income for our RMS segment in the Q1 of fiscal 2024 was $15,900,000 or 18.6 percent of segment revenues compared to $5,600,000 or 6.8 percent of segment Revenues in last year's period. The increase in RMS revenue was due primarily to favorable pricing, particularly for NHPs, partially offset by the negative impact of lower volume of NHP sales and lower sales of small animal models due to lower demand.

Speaker 3

We also saw a decrease in cost as a result of site optimizations. Interest expense in Q1 2024 increased to $11,400,000 up from $10,500,000 in last year's Q1 due to higher interest rates. Our balance sheet as of December 31, 2023 included $22,000,000 in cash and cash equivalents as compared to $35,500,000 at September 30, 2023. Total debt, net of debt issuance costs as of December 31, 2023 was $379,300,000 consistent with the $377,700,000 at September 30, 2023. The balance She also includes assets held for sale of $1,900,000 as of December 31, 2023.

Speaker 3

Net cash used in operations for the Q1 was $6,500,000 compared to cash used operations of $7,400,000 in the same period last year. The decrease in cash used in operations was primarily driven by a lower operating loss in Q1 2024 versus Q1 2023. Cash provided by operations for the trailing 12 months was $28,700,000 Capital expenditures in the Q1 were $5,600,000 or 4.1 percent of total revenue and reflected investments in completing our DSA capacity expansions in Fort Collins, Colorado, Infrastructure improvements in NHP facilities and renovations in the U. K. In order to complete the expansion of Hillcrest for the new customer contracts and the consolidation of Blackbaud enhancements in laboratory technology and improvements for animal welfare.

Speaker 3

Regarding our guidance, we are reiterating our fiscal 2024 revenue guidance. We expect revenues to be in the range of $580,000,000 to $590,000,000 We expect increases in DSA revenue and flat expected to be in the range of $75,000,000 to $80,000,000 The increase in adjusted EBITDA over fiscal 2023 is expected to be driven By increased margins from the DSA segment and cost reductions we initiated in fiscal 2023, offset By the projected reduction in future NHP margins. We expect to continue to remain in compliance with our financial covenants for the fiscal year. We expect capital expenditures to be approximately 4.5 percent of revenue in fiscal 2024 as compared to An annual average of 10.3% over the last 5 years as we expanded sites and grew The DSA service capacity. We are pleased that we were able to improve adjusted EBITDA by 15,100,000 dollars over the last year's quarter and with the progress that was made to complete the capacity expansions for the DSA segment To increase revenue and improve margins and the significant progress made on the site optimization plans for the RMS segment.

Speaker 3

And with that financial overview, we will turn the call over to our operator for questions.

Speaker 2

Operator, this Bob, one clarification. My friend Bob Yetta pointed out that when I referred to the SG and A expense reduction year over year, I've referred to $18,400,000 reduction. It is an $8,400,000 lower in Q1 'twenty four versus Q1 23, that's 8.4, not 18.4. I want to make sure I make that clarification as Bob said, it was not clear when I read that the first time. Thank you.

Operator

Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Thank you. Our first question comes from the line of Frank Tikhonnen with Lake Street Capital Markets.

Operator

Please proceed with your question. Great.

Speaker 4

Thanks for taking the questions and congrats on all of the progress. I was hoping I could start with a Question around the book to bill, it looks really solid. Maybe take us a little bit deeper into where some of this business came from, if there were any particular Customer profiles that were bright spots and then I heard the cautionary statement around kind of pent up demand after a slow summer, maybe I'll explain the reasoning behind this as well as we start to move into 2024.

Speaker 2

Okay. Thank you, Frank. Yes, it was a very good quarter. And I believe last quarter It was a 0.65 and then this was 1.46 or 1.4 plus. And I didn't I knew we had a lot of momentum going last quarter, but we just didn't get the awards and it seemed to come in this quarter.

Speaker 2

So our trailing 6 months is over 1. But I didn't think it was as bad as 0.65 last quarter, and I think 1.47 sounds a little high compared to where the market may be. That's why I'm trying to even have those 2 quarters, but very pleased with it nonetheless, Because the conversion rate is going up and the backlog is shorter in period and duration, and we're still seeing that. I think as far as where we're seeing where we had some increases, we actually had some increases in some of the new services. And in particular, I mentioned Rockville And Maryland site is that, Rockville, Maryland site is has negative margins right now.

Speaker 2

If we took out if we backed out Rockville Sales and margins for this last quarter, we still had increasing sales and we actually would have improved our DSA margins. But we know we're building that site. We know we're running probably 25% of what the capacity of that site at the moment. We're pleased with the way that it has come on board and that we're still validating these assays. And we're very pleased with some of the backlog We grew in that site last quarter, which is a real positive sign for us in that site going forward.

Speaker 2

So, we'll hope that it would be nice to Continue these trends, but 1.46 was a surprise, a very pleasant surprise and I think A great trend. But again, over the 6 months, it's really it's a low over one, and I think that's what we've got to build upon.

Speaker 4

Got it. That's good color. Maybe moving on to cadence of revenues expected for the year. Fiscal Q1 typically a seasonally slower quarter, but seems you performed ahead of expectations. Maybe walk through how we should be thinking about getting To the guided ranges for 2024 on the revenue line and EBITDA line given this stronger than

Speaker 2

I think we've had some steady growth in the DSA business and That and I like our backlog and I like where we are, but delays could impact that from quarter to quarter. But overall, as we said, we'll keep the guidance where it is. And the small animals and diet business Are pretty consistent for us. Where I do think we could have some wide fluctuation is in the HP market. And last year, That market changed quite a bit when it went basically away from contracts to spot market and people, the demand was pretty high, pricing was pretty steady, It went up.

Speaker 2

I think this year, the supply is much better than it was last year at this time. And I think people now learned quite a bit from that and said, okay, we want to now have long term suppliers over multiple years. And that would work well for us because we would have increased predictability and we could our capital needs and working capital needs to be much more predictable. But I think the market is going to have to revert back to that approach from where it was a year ago. And we're working with numerous customers at the moment, which I'm very pleased about.

Speaker 2

And I think over the course of the year, We're still and going into 'twenty five, we're in a really pretty good position. However, it's not that is a lot less predictable and we saw that last year. We had some quarters where we could fluctuate by $10,000,000 to $15,000,000 Just with the number of NHPs that may go out 1 quarter versus another quarter, even at the end of the quarter, And when they come out of quarantine and things like that. And so that's one of the reasons why we make sure we give annual guidance and Not quarterly guidance, because I think we could see some significant fluctuations in the NHPs from quarter to quarter.

Speaker 4

Okay. One more quick one for me. What's your split of contracted NHPs versus spot market NHPs today and where do you see that going?

Speaker 2

If you go back 2 years ago, most of it was all contracts. And matter of fact, if you We inherited contracts that went back several years. And some of the challenges with those contracts They were fixed price contracts, but we were buying on the spot market at the end of the last year. So that's another reason why margins were down a little bit towards at the end of 2022. And now, we don't have any I'd say less 15% of what we have is on contracts as we went away from that last year and went predominantly the spot market.

Speaker 2

I think that is going to come back. And I would guess flip back the other way that we actually could end up by the end of this fiscal year, we could end up instead of 20% On the contracts in 80% spot, I think we could go 80% contracts in 20% spot. And as I said, that would really help Predictability and a lot of management issues in that business.

Speaker 4

Got it. That's helpful. Thanks for taking the questions and congrats on the quarter.

Speaker 2

Thank you.

Operator

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

Speaker 5

Good afternoon. Thank you for taking the questions and I'll reiterate Congratulations. Obviously, a lot of progress here over the past year. Maybe just to dig a little bit more into that book to bill, Was there it sounds like you had a good quarter signing new customers and whatnot, but How much of that was just pent up demand maybe from the summer versus how much of it is and maybe this carries into this Quarter, the fiscal Q2, how much of that is just, I guess, better visibility from your customers on their balance sheets, on the Programs that they want to kick start and progress over the course of this year. So is there a way to kind of parse out the difference between the two?

Speaker 2

I'll turn my best here, Matt. And one, I would say that We closed a much higher percent of what we quoted in the last quarter than we had been in the previous quarters. So I think we're doing a better job of closing what we are quoting for 1. 2, I will say that the quoting activity versus Q1 of last year was much higher, Especially in October, November, December than it was a year ago. So, I think that's a real positive.

Speaker 2

And I will also tell you that what could be driving that, while we at this time last year, We did not have a Discovery Translational Sciences sales team, which we've been putting in place over the last 3 or 4 years and some were just hired In the last 8 weeks, we did not have a chemical crop ag business That we are selling to a year ago. We put that in place over the last 2 months, 3 months. We did not have a medical device salesperson. We put that in place over the last 4 or 5 months. We have more safety assessment salespeople, and we're starting to do a better job of getting our brand And are getting recognition out there.

Speaker 2

So I think it's a combination of a lot of efforts and then we're starting to do a better job of cross selling. So I think we're in I say that and I would tell you, I still think we're in the infancy of what we can do because a lot of those things were put in place Over the last 3 to 4 months and some of them just over the last 2 months. And those people take some time to get to know the market, to get to know us, To be trained and come up to speed. So I don't know which one of those in particular. It's really, I think, a combination of all those things.

Speaker 2

And We are doing a much better job of involving our operations and scientific team in our sale process. And there's I'm really pleased with the collaboration. It's something we started 9 to 12 months ago. I'm really pleased with the collaboration. And again, we sell mainly the biotechs and that's what the biotech market is looking for.

Speaker 2

So that's and that's how we're designing our business.

Speaker 5

That's super helpful. Thank you. And then maybe kind of a tags onto this, Where does your current sales and marketing headcount sit today? And I know that you plan to add a few more people, but where do you anticipate that exiting the year?

Speaker 2

In terms of number of people, I don't know because it's such a broad team between Our sales team, our marketing team, our client services team and the scientists and then scientists engagement team, we really We sell as an organization. It's just not a sales team of 10 or 20 people. So, it's Pretty deep. And I would say that we have well over 100 people. They're out there.

Speaker 2

It probably well could be over 150 people out there daily that are selling and articulating and working with other scientists, but even our project managers and our pathologists And toxicologists, they're all involved in the sale and our leadership team, they're all involved in the sale process. So I don't want to say we just have a it's just not a sales team. It's an organization that is designed to sell to the biotech customer.

Speaker 5

Understood. And then maybe one last thing I'll hop back.

Speaker 2

I'll pass on the DSA side. On the RMS side, we're developing relationships with universities, CROs, large pharma, and that is a whole another sales and marketing team.

Speaker 5

Got it. Understood. And then maybe last one. Regarding Rockville, obviously, you're seeing some nice early Returns from that expansion, when does that get to profitability? Is that later this year?

Speaker 5

Do you think it might take a little bit longer? Is there kind of a threshold or sales amount when it kind of gets to that breakeven level? Thank you.

Speaker 2

Yes. Well, that's a great question. And for me, it's not going to happen soon enough because we still are investing And start up costs there and the margins are negative at the moment. I think that We are currently probably about 25% of our capacity. I think we need to be closer to 40%, 45% of capacity to breakeven.

Speaker 2

So I think we still have we still may have a couple of quarters to go. We have more couple of quarters like we did last quarter, we're going to get there very quickly. But even when we ramp it up at that level, we sometimes I will tell you that we've even Taken on so much work, we've even though we have the capability, we outsourced it just not to be late with customers. So we're trying to we want to bring it up, But we'd like to bring it up faster, but I still think we're probably more than halfway there. Last year at this time, We were probably just getting started.

Speaker 2

And to get up to where we are today, 30%, and if we can get up to 40% over the next quarter or 2 And get that to at least a breakeven on the margin standpoint over the next 3 or 4 months, that would be great. It would be significant.

Speaker 5

That's great. Thank you very much.

Operator

Thank you. We've reached the end of our question and answer session. And I would like to turn the floor back over to CEO, Bob Leisure for closing comments.

Speaker 2

Well, thank you everyone for joining today's call and look forward to updating the market as to the progress of our execution across All our strategic objectives in this what I hope is an exciting year for us. With critical operational groundwork achieved In the past 18 months, we firmly expect to see success in our strategic initiatives and improving efficiency to positively impact Top and bottom lines. In the meantime, we will continue our efforts to grow our reputation, become a leading midsized CRO provider choice. Very pleased also to refer to a lot of people, employees listen to these calls. They've done a tremendous job and can't thank them enough for what they do.

Speaker 2

Well, thank you again everyone for your support as Innovative enters this new stage of growth and possibilities. Have a good afternoon. We look forward to speaking with everyone on our next call.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Over the past 18 months, the company reduced its operational footprint from 33 to 23 sites—closing 9 RMS and 1 DSA facility while expanding three DSA locations—ultimately targeting $20 million in annualized cost savings (with $5 million realized in FY 2023 and the balance by Q4 2024).
  • In Q1 FY 2024, revenues rose 10.3% year-over-year to $135.5 million on an all-organic basis, with DSA up 8.8% ($44.7 million) and RMS up 11.1% ($90.8 million), driving adjusted EBITDA of $9.6 million versus a negative $5.5 million in Q1 2023.
  • DSA net new bookings jumped 57% year-over-year to $63.8 million, pushing the Q1 net book-to-bill ratio to 1.46:1 (versus 0.65 last quarter), while backlog climbed to $152.3 million and conversion rates improved to 32.5%.
  • RMS saw a 20% drop in NHP volumes but maintained higher overall NHP sales and margins thanks to favorable pricing; the average NHP spot price in Q1 fell ~18% from Q4 2023 back toward FY 2023 averages, as customers shift toward longer-term supply contracts for revenue predictability.
  • With major site sales (France, Spain, UK) closed and Hillcrest & Fort Collins expansions underway, the company is in‐housing transportation logistics, adding new DSA services (e.g., genetic toxicology, biotherapeutics) and sales hires to support up to a 40% DSA capacity increase (≈+$70 million revenue) while reaffirming FY 2024 revenue guidance of $580–590 million.
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