Inotiv(NOTV) - 2025 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related management discussion for the period Item 1 Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2025, show a decrease in total assets and equity, a reduction in net loss, and significant changes in cash flows, particularly from operating and financing activities. The accompanying notes provide detailed insights into the company's business, revenue, segments, debt structure, and contingencies Condensed Consolidated Balance Sheets The balance sheets show a decrease in total assets and equity, alongside changes in cash, inventories, and liabilities - Total assets decreased from $781,361 thousand in September 2024 to $759,737 thousand in June 2025, while total equity decreased from $170,504 thousand to $143,785 thousand[10] Condensed Consolidated Balance Sheets (Amounts in thousands) | Metric | June 30, 2025 (Unaudited) | September 30, 2024 | Change | | :-------------------------------- | :------------------------ | :------------------- | :------- | | Cash and cash equivalents | $6,215 | $21,432 | $(15,217) | | Total current assets | $175,585 | $163,413 | $12,172 | | Inventories, net | $45,074 | $18,173 | $26,901 | | Total assets | $759,737 | $781,361 | $(21,624) | | Total current liabilities | $136,596 | $119,042 | $17,554 | | Total liabilities | $615,952 | $610,857 | $5,095 | | Total equity | $143,785 | $170,504 | $(26,719) | Condensed Consolidated Statements of Operations The statements reflect increased revenue and reduced net losses for both the three and nine months ended June 30, 2025 - For the three months ended June 30, 2025, total revenue increased by 23.5% year-over-year, leading to a reduced operating loss and consolidated net loss. For the nine months ended June 30, 2025, total revenue increased by 4.0% year-over-year, also resulting in a significantly reduced operating loss and consolidated net loss[12] Condensed Consolidated Statements of Operations (Amounts in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | YoY Change (%) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Total revenue | $130,683 | $105,786 | 23.5% | $374,882 | $360,322 | 4.0% | | Operating loss | $(5,675) | $(20,752) | 72.7% (improvement) | $(24,120) | $(73,239) | 67.1% (improvement) | | Consolidated net loss | $(17,577) | $(26,087) | 32.7% (reduction) | $(60,073) | $(89,994) | 33.3% (reduction) | | Basic loss per common share | $(0.51) | $(1.00) | 49.0% (reduction) | $(1.89) | $(3.46) | 45.4% (reduction) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss significantly decreased due to reduced net loss and positive foreign currency translation adjustments - The consolidated comprehensive loss significantly decreased for both the three and nine months ended June 30, 2025, compared to the prior year periods, primarily due to a reduction in consolidated net loss and positive foreign currency translation adjustments in the current quarter[14] Condensed Consolidated Statements of Comprehensive Loss (Amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | YoY Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Consolidated net loss | $(17,577) | $(26,087) | $(8,510) | $(60,073) | $(89,994) | $(29,921) | | Foreign currency translation | $2,385 | $(284) | $2,669 | $1,375 | $133 | $1,242 | | Other comprehensive income (loss), net of tax | $2,509 | $(313) | $2,822 | $1,361 | $127 | $1,234 | | Consolidated comprehensive loss | $(15,068) | $(26,400) | $(11,332) | $(58,712) | $(89,867) | $(31,155) | Condensed Consolidated Statements of Shareholders' Equity and Noncontrolling Interest Total shareholders' equity decreased due to net losses, partially offset by common share issuances and stock-based compensation - Total shareholders' equity decreased from $170,504 thousand at September 30, 2024, to $143,785 thousand at June 30, 2025, primarily due to consolidated net losses, partially offset by common share issuances and stock-based compensation[17] Condensed Consolidated Statements of Shareholders' Equity and Noncontrolling Interest (Amounts in thousands, except share data) | Metric | September 30, 2024 | June 30, 2025 | Change | | :------------------------------------ | :------------------- | :------------ | :------- | | Common Shares (Number) | 26,015,129 | 34,354,251 | 8,339,122 | | Common Shares (Amount) | $6,466 | $8,550 | $2,084 | | Additional paid-in capital | $724,789 | $754,723 | $29,934 | | Accumulated deficit | $(562,163) | $(622,261) | $(60,098) | | Accumulated other comprehensive income | $1,412 | $2,773 | $1,361 | | Total shareholders' equity | $170,504 | $143,785 | $(26,719) | - Issuance of common shares contributed $27,524 thousand to equity during the nine months ended June 30, 2025[17] Condensed Consolidated Statements of Cash Flows Cash flows show a significant increase in cash used in operating activities, offset by substantial cash provided by financing activities - Net cash used in operating activities increased significantly to $24,760 thousand for the nine months ended June 30, 2025, from $4,433 thousand in the prior year, primarily due to changes in working capital, particularly a large increase in inventory[21] Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | Metric | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :------- | | Consolidated net loss | $(60,073) | $(89,994) | $29,921 | | Net cash used in operating activities | $(24,760) | $(4,433) | $(20,327) | | Net cash used in investing activities | $(12,416) | $(11,583) | $(833) | | Net cash provided by (used in) financing activities | $22,083 | $(4,889) | $26,972 | | Net decrease in cash and cash equivalents | $(15,217) | $(21,058) | $5,841 | | Cash and cash equivalents at end of period | $6,215 | $14,434 | $(8,219) | - Financing activities provided a substantial net cash inflow of $22,083 thousand, mainly from common share issuance and revolving credit facility activities[21] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed information on the company's business, revenue, segments, debt, and contingencies 1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION This note outlines Inotiv's business as a CRO, its operating segments, and addresses the going concern uncertainty - Inotiv, Inc. is a contract research organization (CRO) providing nonclinical and analytical drug discovery and development services, and selling research-quality animals and diets[24] - The company reports its results in two segments: Discovery and Safety Assessment (DSA) and Research Models and Services (RMS)[25] - The Company had negative operating cash flows, operating losses, and net losses for the nine months ended June 30, 2025, raising substantial doubt about its ability to continue as a going concern[31][37] - Management plans to optimize capital allocation, improve operating results through increased NHP-related revenue and long-term colony management service contracts, and is discussing business conditions with lenders[35] 2. REVENUE FROM CONTRACTS WITH CLIENTS This note details revenue recognition policies and contract balances for the DSA and RMS segments - The DSA segment generates service revenue through drug discovery and development services and product revenue through internally-manufactured scientific instruments[49] - The RMS segment generates product revenue through the commercial production and sale of research models, diet, bedding, and enrichment products, and service revenue through Genetically Engineered Models and Services (GEMS) and colony management[50] Contract Assets and Liabilities (Amounts in thousands) | Metric | June 30, 2025 | September 30, 2024 | Change | | :-------------------------------- | :------------ | :------------------- | :------- | | Contract assets: Trade receivables | $74,576 | $65,867 | $8,709 | | Contract assets: Unbilled revenue | $10,614 | $14,624 | $(4,010) | | Contract liabilities: Client deposits | $21,724 | $24,898 | $(3,174) | | Contract liabilities: Deferred revenue | $18,527 | $17,088 | $1,439 | 3. SEGMENT AND GEOGRAPHIC INFORMATION This note provides a breakdown of revenue and operating income by business segment and geographic region Segment Revenue and Operating Income (Loss) (3 Months Ended June 30, Amounts in thousands) | Segment Revenue (3 Months Ended June 30) | 2025 | 2024 | YoY Change (%) | | :--------------------------------------- | :----- | :----- | :------------- | | DSA Service revenue | $46,895 | $43,086 | 8.8% | | DSA Product revenue | $1,255 | $1,133 | 10.8% | | RMS Service revenue | $12,684 | $11,278 | 12.5% | | RMS Product revenue | $69,849 | $50,289 | 38.9% | | Total Revenue | $130,683 | $105,786 | 23.5% | | Segment Operating Income (Loss) (3 Months Ended June 30) | 2025 | 2024 | YoY Change (%) | | :------------------------------------------------------- | :----- | :------- | :------------- | | DSA | $2,149 | $2,325 | (7.6)% | | RMS | $6,378 | $(7,447) | 185.6% (improvement) | | Unallocated Corporate | $(14,202) | $(15,630) | 9.1% (reduction in loss) | Segment Revenue and Operating Income (Loss) (9 Months Ended June 30, Amounts in thousands) | Segment Revenue (9 Months Ended June 30) | 2025 | 2024 | YoY Change (%) | | :--------------------------------------- | :----- | :----- | :------------- | | DSA Service revenue | $132,834 | $131,951 | 0.7% | | DSA Product revenue | $3,470 | $3,597 | (3.5)% | | RMS Service revenue | $36,430 | $33,237 | 9.6% | | RMS Product revenue | $202,148 | $191,537 | 5.5% | | Total Revenue | $374,882 | $360,322 | 4.0% | | Segment Operating Income (Loss) (9 Months Ended June 30) | 2025 | 2024 | YoY Change (%) | | :------------------------------------------------------- | :----- | :------- | :------------- | | DSA | $4,039 | $6,771 | (40.3)% | | RMS | $16,625 | $(32,973) | 150.4% (improvement) | | Unallocated Corporate | $(44,784) | $(47,037) | 4.8% (reduction in loss) | Geographic Revenue (9 Months Ended June 30, Amounts in thousands) | Geographic Revenue (9 Months Ended June 30) | 2025 | 2024 | YoY Change (%) | | :------------------------------------------ | :----- | :----- | :------------- | | United States | $326,024 | $303,905 | 7.3% | | Netherlands | $26,714 | $36,331 | (26.4)% | | Other | $22,144 | $20,086 | 10.2% | | Total | $374,882 | $360,322 | 4.0% | 4. DEBT This note details the company's debt structure, including various notes and term loans, and recent amendments to credit agreements - Total debt before unamortized debt issuance costs increased slightly to $409,179 thousand at June 30, 2025, from $405,289 thousand at September 30, 2024[59] Debt (Amounts in thousands) | Debt Type | June 30, 2025 | September 30, 2024 | Change | | :------------------------------------------ | :------------ | :------------------- | :------- | | Seller Note – Bolder BioPath | $207 | $376 | $(169) | | Seller Note – Preclinical Research Services | — | $464 | $(464) | | Seller Payable - Orient BioResource Center | $3,235 | $3,700 | $(465) | | Seller Note – Histion | — | $84 | $(84) | | Second Lien Notes | $21,816 | $17,846 | $3,970 | | Convertible Senior Notes | $114,754 | $109,979 | $4,775 | | Term Loan Facility, DDTL and Incremental Term Loans | $269,167 | $272,840 | $(3,673) | | Total debt before unamortized debt issuance costs | $409,179 | $405,289 | $3,889 | | Total Long-term debt (net of current portion) | $390,336 | $389,801 | $535 | - The Seventh Amendment to the Credit Agreement (September 13, 2024) permitted the incurrence of $22,550 thousand in Second Lien Notes, made certain changes to financial covenant definitions, and waived existing financial covenants until June 30, 2025[92] 5. SUPPLEMENTAL BALANCE SHEET INFORMATION This note provides additional detail on specific balance sheet accounts, including receivables, inventories, and liabilities - Trade receivables and contract assets, net, increased to $78,745 thousand at June 30, 2025, from $73,560 thousand at September 30, 2024[121] Supplemental Balance Sheet Information (Amounts in thousands) | Metric | June 30, 2025 | September 30, 2024 | Change | | :------------------------------------------ | :------------ | :------------------- | :------- | | Trade receivables and contract assets, net | $78,745 | $73,560 | $5,185 | | Inventories, net | $45,074 | $18,173 | $26,901 | | Prepaid expenses and other current assets | $43,535 | $50,248 | $(6,713) | | Accrued expenses and other current liabilities | $35,921 | $28,218 | $7,703 | | Fees invoiced in advance | $40,251 | $41,986 | $(1,735) | | Other long-term liabilities | $27,566 | $34,963 | $(7,397) | - Inventories, net, significantly increased to $45,074 thousand from $18,173 thousand, primarily driven by research model inventory[122] - A $10,000 thousand insurance recovery receivable was booked in connection with ongoing negotiations to settle securities class action and derivative lawsuits[122] 6. DEFINED BENEFIT PLAN This note describes the company's U.K. defined benefit pension plan and its net periodic benefit costs - The Company has a curtailed defined benefit pension plan in the U.K., the Harlan Laboratories UK Limited Occupational Pension Scheme, with a funded status of $3,126 thousand as of June 30, 2025[127][128] Net Periodic Benefit Costs (9 Months Ended June 30, Amounts in thousands) | Net Periodic Benefit Costs (9 Months Ended June 30) | 2025 | 2024 | | :------------------------------------------------ | :----- | :----- | | Interest cost | $555 | $551 | | Expected return on assets | $(690) | $(585) | | Amortization of prior gain, net | $(71) | $(106) | | Total Net periodic benefit | $(206) | $(140) | 7. OTHER OPERATING INCOME / EXPENSE This note explains the significant decrease in other operating expenses due to a settlement payment and the absence of prior year charges - Other operating expense significantly decreased to $155 thousand for the nine months ended June 30, 2025, from $39,661 thousand in the prior year[131] Other Operating Expense (9 Months Ended June 30, Amounts in thousands) | Other Operating Expense (9 Months Ended June 30) | 2025 | 2024 | Change | | :----------------------------------------------- | :----- | :----- | :------- | | Restructuring costs | $1,378 | $2,859 | $(1,481) | | Settlement Agreement | $(7,550) | — | $(7,550) | | Resolution Agreement and Plea Agreement | — | $28,500 | $(28,500) | | Total Other operating expense | $155 | $39,661 | $(39,506) | - The reduction was primarily due to a $7,550 thousand settlement payment received and the absence of the $28,500 thousand charge related to the Resolution Agreement and Plea Agreement that occurred in the prior year[131] 8. RESTRUCTURING AND ASSETS HELD FOR SALE This note outlines the company's restructuring and site optimization plans, including completed phases and asset sales - Phase One of the Company's restructuring and site optimization plans was completed by September 30, 2024, achieving an estimated $17,000 to $19,000 thousand in net annual cost savings[132][182] - Phase Two, initiated in the nine months ended June 30, 2025, aims to further consolidate RMS facilities in the U.S., with an anticipated capital investment of $6,500 thousand and expected annual cost savings of $6,000 to $7,000 thousand[133][184] - One U.S. property was sold in June 2025, with proceeds used to repay term loans, and another property remained held for sale as of June 30, 2025[133][185] 9. LEASES This note provides information on the company's operating and finance lease assets, liabilities, and associated costs - Operating ROU assets decreased, while finance ROU assets significantly increased from September 2024 to June 2025[136] Lease Metrics (Amounts in thousands) | Lease Metric | June 30, 2025 | September 30, 2024 | Change | | :-------------------------------- | :------------ | :------------------- | :------- | | Operating ROU assets, net | $44,930 | $49,165 | $(4,235) | | Total operating lease liabilities | $48,930 | $51,784 | $(2,854) | | Finance ROU assets, net | $2,734 | $652 | $2,082 | | Total finance lease liabilities | $2,742 | $644 | $2,098 | - Total operating lease costs for the nine months ended June 30, 2025, were $8,790 thousand, an increase from $7,804 thousand in the prior year[136] 10. EQUITY, STOCK-BASED COMPENSATION AND LOSS PER SHARE This note details changes in equity, stock-based compensation expense, and loss per share metrics - The number of authorized common shares increased from 20,000,000 to 75,000,000 (74,000,000 common shares) in November 2021[140] - In December 2024, the Company completed a public offering of 6,900,000 common shares, generating net proceeds of $27,524 thousand[142] Equity, Stock-Based Compensation and Loss Per Share (Amounts in thousands, except per share data) | Metric | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :------- | | Stock-based compensation expense | $4,644 | $5,118 | $(474) | | Basic loss per common share | $(1.89) | $(3.46) | $1.57 (improvement) | | Diluted loss per common share | $(1.89) | $(3.46) | $1.57 (improvement) | 11. INCOME TAXES This note discusses the company's effective tax rate and the potential impact of new tax legislation - The Company's effective tax rate for the nine months ended June 30, 2025, was 6.9%, compared to 15.7% in the prior year, primarily driven by a change in the valuation allowance[150] Effective Tax Rate | Effective Tax Rate | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Effective tax rate | 6.3% | 20.8% | 6.9% | 15.7% | - The "One Big Beautiful Bill Act" (OBBBA), signed into law on July 4, 2025, is currently being assessed for its tax implications on the current fiscal year's financial statements[151][215] 12. CONTINGENCIES AND COMMITMENTS This note covers legal and regulatory contingencies, including lawsuits, settlement agreements, and government investigations - A $10,000 thousand liability and a corresponding $10,000 thousand insurance recovery receivable were recorded for securities class action and derivative lawsuits as of June 30, 2025, with final terms pending[160] - The Company received a $7,550 thousand settlement payment from Freese and Nichols, Inc. (FNI) in February 2025, resolving a lawsuit related to lagoon design[161] - The Resolution Agreement and Plea Agreement with the DOJ (June 2024) includes $22,000 thousand in fines, $6,500 thousand in payments to taskforces/foundations, and at least $7,000 thousand for animal welfare improvements, along with a compliance monitor for up to five years[167] - The SEC's Division of Enforcement concluded its investigation into NHP importations from Asia and does not intend to recommend enforcement action against the Company[169] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of Inotiv's financial condition and results of operations, highlighting key business developments, financial performance across segments, liquidity challenges, capital resources, and critical accounting estimates. It also addresses the impact of external factors and ongoing legal and regulatory matters Business Overview This section outlines the company's core business as a contract research organization and its strategic objectives - Inotiv is a CRO focused on nonclinical and analytical drug discovery and development services, and research models and services, operating in DSA and RMS segments[174][176] - Strategic objectives include strengthening liquidity, reducing NHP revenue volatility, improving client satisfaction, and continuing integration efforts[179] - Phase One of restructuring and site optimization is complete, expected to achieve $17,000 to $19,000 thousand in net annual cost savings by end of fiscal year 2025[182] - Phase Two of site optimization is underway, with an anticipated capital investment of $6,500 thousand and expected net annual savings of $6,000 to $7,000 thousand, to be completed by March 2026[184] Financial Highlights During Three Months Ended June 30, 2025 This section summarizes key financial performance indicators for the three months ended June 30, 2025 - Total revenue increased by 23.5% year-over-year to $130,683 thousand, driven by a 34.1% increase in RMS revenue and an 8.9% increase in DSA revenue[196] Financial Highlights (3 Months Ended June 30, Amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (%) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------- | | Total Revenue | $130,683 | $105,786 | 23.5% | | Consolidated Net Loss | $(17,577) | $(26,087) | 32.7% (reduction) | | DSA Services Book-to-Bill Ratio | 1.07x | N/A | N/A | Financial Highlights During Nine Months Ended June 30, 2025 This section summarizes key financial performance indicators for the nine months ended June 30, 2025 - Total revenue increased by 4.0% year-over-year to $374,882 thousand, with RMS revenue up 6.1% and DSA revenue up 0.6%[196] Financial Highlights (9 Months Ended June 30, Amounts in thousands) | Metric | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | YoY Change (%) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------- | | Total Revenue | $374,882 | $360,322 | 4.0% | | Consolidated Net Loss | $(60,073) | $(89,994) | 33.3% (reduction) | | DSA Services Book-to-Bill Ratio | 1.03x | N/A | N/A | - The SEC's Division of Enforcement concluded its investigation into NHP importations and does not intend to recommend enforcement action against the Company[196] - A $10,000 thousand liability and corresponding receivable were recorded for securities class action and derivative lawsuits, with final agreements pending[196] Results of Operations This section analyzes the company's financial performance, comparing revenue and operating results across different periods and segments Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the company's financial performance for the three-month periods, highlighting revenue and operating income changes by segment - Total revenue increased by 23.5% to $130,683 thousand. DSA revenue increased by 8.9% due to higher general toxicology, biotherapeutic, and medical device services. RMS revenue surged by 34.1% due to higher NHP volumes and average selling prices[196][197][199] Results of Operations (3 Months Ended June 30, Amounts in thousands) | Metric (3 Months Ended June 30) | 2025 | 2024 | $ Change | % Change | | :------------------------------------ | :----- | :----- | :------- | :------- | | DSA Revenue | $48,150 | $44,219 | $3,931 | 8.9% | | DSA Operating Income | $2,149 | $2,325 | $(176) | (7.6)% | | RMS Revenue | $82,533 | $61,567 | $20,966 | 34.1% | | RMS Operating Income (Loss) | $6,378 | $(7,447) | $13,825 | 185.6% | | Unallocated Corporate Operating Loss | $(14,202) | $(15,630) | $(1,428) | (9.1)% | | Consolidated Net Loss | $(17,577) | $(26,087) | $(8,510) | (32.7)% | - RMS operating expenses decreased by $2,158 thousand, primarily due to the non-recurrence of a $2,000 thousand charge related to the Resolution Agreement and Plea Agreement from the prior year[200] Nine Months Ended June 30, 2025 Compared to Nine Months Ended June 30, 2024 This section compares the company's financial performance for the nine-month periods, detailing revenue and operating income changes by segment - Total revenue increased by 4.0% to $374,882 thousand. DSA revenue increased slightly by 0.6%, but operating income decreased by 40.3% due to higher cost of revenue[196][207] Results of Operations (9 Months Ended June 30, Amounts in thousands) | Metric (9 Months Ended June 30) | 2025 | 2024 | $ Change | % Change | | :------------------------------------ | :----- | :----- | :------- | :------- | | DSA Revenue | $136,304 | $135,548 | $756 | 0.6% | | DSA Operating Income | $4,039 | $6,771 | $(2,732) | (40.3)% | | RMS Revenue | $238,578 | $224,774 | $13,804 | 6.1% | | RMS Operating Income (Loss) | $16,625 | $(32,973) | $49,598 | 150.4% | | Unallocated Corporate Operating Loss | $(44,784) | $(47,037) | $(2,253) | (4.8)% | | Consolidated Net Loss | $(60,073) | $(89,994) | $(29,921) | (33.3)% | - RMS operating income significantly improved from a loss to a gain, primarily due to decreased operating expenses (absence of prior year's Resolution Agreement charge and FNI settlement)[210] Liquidity and Capital Resources This section discusses the company's cash position, funding sources, debt structure, and ability to meet its financial obligations Liquidity and Going Concern This section addresses the company's cash levels, negative operating cash flows, and the assessment of its ability to continue as a going concern - The Company's cash and cash equivalents decreased to $6,215 thousand at June 30, 2025, from $21,432 thousand at September 30, 2024[220] - Despite $27,524 thousand net proceeds from a December 2024 equity offering, the Company had negative operating cash flows and net losses for the nine months ended June 30, 2025, raising substantial doubt about its ability to continue as a going concern[219][220][226] - The Company was in compliance with the First Lien Leverage Ratio test and the Fixed Charge Coverage Ratio test for the testing period ended June 30, 2025, following the Seventh Amendment to the Credit Agreement[222] Comparative Cash Flow Analysis This section analyzes the changes in cash flows from operating, investing, and financing activities over the nine-month periods - Net cash used in operating activities increased significantly to $24,760 thousand for the nine months ended June 30, 2025, from $4,433 thousand in the prior year, primarily due to a $26,846 thousand increase in inventory[227][228] Cash Flow Activity (9 Months Ended June 30, Amounts in thousands) | Cash Flow Activity (9 Months Ended June 30) | 2025 | 2024 | Change | | :------------------------------------------ | :----- | :----- | :------- | | Net cash used in operating activities | $(24,760) | $(4,433) | $(20,327) | | Net cash used in investing activities | $(12,416) | $(11,583) | $(833) | | Net cash provided by (used in) financing activities | $22,083 | $(4,889) | $26,972 | | Net decrease in cash and cash equivalents | $(15,217) | $(21,058) | $5,841 | - Net cash provided by financing activities was $22,083 thousand, driven by $27,524 thousand from common share issuance and $20,000 thousand in borrowings on the revolving credit facility[233] Capital Resources This section details the company's debt instruments, including their terms, interest rates, and compliance with financial covenants - Total debt before unamortized debt issuance costs increased to $409,179 thousand at June 30, 2025, from $405,289 thousand at September 30, 2024[236] Debt (Amounts in thousands) | Debt Type | June 30, 2025 | September 30, 2024 | Change | | :------------------------------------------ | :------------ | :------------------- | :------- | | Total debt before unamortized debt issuance costs | $409,179 | $405,289 | $3,889 | | Second Lien Notes | $21,816 | $17,846 | $3,970 | | Convertible Senior Notes | $114,754 | $109,979 | $4,775 | | Term Loan Facility, DDTL and Incremental Term Loans | $269,167 | $272,840 | $(3,673) | - The Seventh Amendment to the Credit Agreement (September 13, 2024) permitted the incurrence of $22,550 thousand in Second Lien Notes and established new testing ratios for financial covenants[268] - Second Lien Notes accrue interest at 15.00% per annum (PIK) and mature on February 4, 2027, while Convertible Senior Notes accrue interest at 3.25% per annum and mature on October 15, 2027[272][283] Critical Accounting Estimates This section outlines the key accounting judgments and estimates that significantly impact the company's financial statements - No material changes to the application of critical accounting estimates were made during the nine months ended June 30, 2025[295][298] - Critical accounting estimates include revenue recognition, income taxes, goodwill and intangible assets, long-lived tangible assets, fair value of financial instruments, and pension costs[297] - Management continues to evaluate the impact of macroeconomic and external factors (e.g., tariffs, government R&D funding) on critical accounting estimates[296] Recent Accounting Pronouncements This section discusses the adoption of new accounting standards and the evaluation of future pronouncements - The Company did not adopt any new accounting pronouncements during the nine months ended June 30, 2025, that significantly affected its unaudited condensed consolidated financial statements[302] - The Company is evaluating the impact of recently issued ASUs, including ASU 2023-07 (Segment Disclosures), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03 (Expense Disaggregation Disclosures), which are effective for future periods[43][44][45][46] Item 3 Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to interest rate risk and foreign currency exchange rate risk. A one-percentage-point increase in interest rates would increase loss before income taxes by an estimated $2.7 million over a year. Foreign currency fluctuations, particularly for the Euro and British Pound, affect financial results; a hypothetical 10% change in exchange rates would impact cash by $0.4 million and revenue by $4.9 million for the nine months ended June 30, 2025 - A one-percentage-point increase in interest rates would result in an estimated $2.7 million increase in loss before income taxes over a one-year period[303] - The Company's principal functional currencies of foreign subsidiaries are the Euro and British Pound[304] - A hypothetical 10% change in foreign exchange rates would change the June 30, 2025 cash balance by approximately $0.4 million and revenue by approximately $4.9 million for the nine months ended June 30, 2025[306] Item 4 Controls and Procedures Management concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2025, due to previously identified material weaknesses in internal control over financial reporting. These weaknesses relate to ineffective information technology general controls (ITGCs) and an inadequate process for designing and testing the operating effectiveness of internal controls over financial reporting. Remediation efforts are ongoing, but the material weaknesses are not yet considered remediated - Disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses in internal control over financial reporting[308] - Material weaknesses include ineffective ITGCs (user access, program change management) and an inadequate process for designing and testing the operating effectiveness of internal control over financial reporting[312] - Remediation efforts are ongoing, involving hiring accounting and IT personnel, utilizing an internal oversight team, improving ITGC consistency, and enhancing control environment design, but the weaknesses are not yet remediated[310][313][314] PART II OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1 Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 12 to the unaudited condensed consolidated financial statements, covering various lawsuits and government investigations - Legal proceedings information is detailed in Note 12 of the financial statements[315] Item 1A Risk Factors The Company's business is significantly affected by its dependence on imported Non-Human Primates (NHPs), particularly from Southeast Asia and Africa, and related legal issues and increased costs (e.g., tariffs). Supply constraints and rising NHP prices, along with potential additional tariffs (15%-20% expected), pose material adverse risks. Additionally, reliance on government funding for R&D and regulatory changes like the FDA Modernization Act 2.0, which encourages alternatives to animal testing, could reduce demand for services and products - Dependence on imported NHPs from outside the U.S., especially from Southeast Asia and Africa, and related legal issues (e.g., Cambodian NHP supply) significantly impact the business[318][319][320] - Increased costs due to tariffs (10% in Q3 fiscal 2025, 15%-20% expected for future imports) negatively impact cash flows and pose a material adverse risk[324] - Reliance on government funding for R&D and regulatory changes like the FDA Modernization Act 2.0 (encouraging alternatives to animal testing) could reduce demand for the Company's services and products[325][326] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current report - Not applicable[327] Item 3 Defaults Upon Senior Securities This item is not applicable to the current report - Not applicable[328] Item 4 Mine Safety Disclosures This item is not applicable to the current report - Not applicable[329] Item 5 Other Information This section details recent amendments to the Company's Bylaws and confirms no new Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter Bylaw Amendments This section details recent amendments to the company's bylaws, including changes to corporate governance procedures - On August 6, 2025, the Board of Directors approved amendments to the Company's Bylaws, resulting in the Fourth Amended and Restated Bylaws[331] - Key changes include requirements for shareholder proxy solicitations, clarification of uncertificated share transfers, director resignation procedures, and revisions to officer authorities and document execution[333] Trading Arrangements This section confirms that no new or terminated Rule 10b5-1 trading arrangements were reported by insiders - During the three months ended June 30, 2025, no directors or officers adopted or terminated any Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1 trading arrangements[332] Item 6 Exhibits This section lists various exhibits filed with the Form 10-Q, including stock purchase agreements, articles of incorporation, bylaws, and certifications from executive and financial officers - The section lists various exhibits, including stock purchase agreements, articles of incorporation, bylaws, and certifications from executive and financial officers[334] Signatures The report is signed by Robert W. Leasure (President and CEO), Beth A. Taylor (CFO and Executive VP), and Brennan Freeman (VP of Finance and Corporate Controller) on August 7, 2025, certifying its accuracy - The report was signed by Robert W. Leasure (President and CEO), Beth A. Taylor (CFO and Executive VP), and Brennan Freeman (VP of Finance and Corporate Controller) on August 7, 2025[335]