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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2024
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to _____________.
Commission File Number 000-23357
INOTIV, INC.
(Exact name of the registrant as specified in its charter)
INDIANA
(State or other jurisdiction of incorporation or organization)
35-1345024
(I.R.S. Employer Identification No.)
2701 KENT AVENUE
WEST LAFAYETTE, IN
(Address of principal executive offices)
47906
(Zip code)
(765) 463-4527
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common SharesNOTVThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller Reporting Company x
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No x
As of April 30, 2024, 25,971,450 of the registrant's common shares were outstanding.


TABLE OF CONTENTS
  Page
 
 
 
3

Index to Consolidated Financial Statements
4

INOTIV, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31,September 30,
20242023
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$32,695 $35,492 
Trade receivables and contract assets, net of allowances for credit losses of $6,459 and $7,446, respectively
65,757 87,383 
Inventories, net45,406 56,102 
Prepaid expenses and other current assets36,821 33,408 
Assets held for sale 1,418 
Total current assets180,679 213,803 
Property and equipment, net191,423 191,068 
Operating lease right-of-use assets, net46,796 38,866 
Goodwill94,286 94,286 
Other intangible assets, net291,331 308,428 
Other assets10,863 10,079 
Total assets$815,378 $856,530 
Liabilities, shareholders' equity and noncontrolling interest 
Current liabilities: 
Accounts payable$28,381 $32,564 
Accrued expenses and other current liabilities31,102 25,776 
Fees invoiced in advance41,675 55,622 
Current portion of long-term operating lease11,413 10,282 
Current portion of long-term debt 380,358 7,950 
Total current liabilities492,929 132,194 
Long-term operating leases, net 37,218 29,614 
Long-term debt, less current portion, net of debt issuance costs275 369,795 
Other long-term liabilities38,055 6,373 
Deferred tax liabilities, net39,739 50,064 
Total liabilities608,216 588,040 
Contingencies (Note 14)
Shareholders’ equity and noncontrolling interest:  
Common shares, no par value:
Authorized 74,000,000 shares at March 31, 2024 and September 30, 2023; 25,905,395 issued and outstanding at March 31, 2024 and 25,777,169 at September 30, 2023
6,438 6,406 
Additional paid-in capital717,139 715,696 
Accumulated deficit(517,185)(453,278)
Accumulated other comprehensive income770 330 
Total equity attributable to common shareholders207,162 269,154 
Noncontrolling interest (664)
Total shareholders’ equity and noncontrolling interest207,162 268,490 
Total liabilities and shareholders’ equity and noncontrolling interest$815,378 $856,530 
The accompanying notes are an integral part of the condensed consolidated financial statements.
5

INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
Six Months Ended
March 31,
2024 2023 2024 2023
Service revenue$56,961 $58,752 $110,824 $108,800 
Product revenue62,074 92,711 143,712 165,417 
Total revenue$119,035 $151,463 $254,536 $274,217 
Costs and expenses:    
Cost of services provided (excluding depreciation and amortization of intangible assets)38,663 36,803 77,740 70,804 
Cost of products sold (excluding depreciation and amortization of intangible assets)53,694 65,926 116,645 129,189 
Selling5,403 4,764 10,751 9,265 
General and administrative19,796 28,293 39,723 56,591 
Depreciation and amortization of intangible assets14,155 12,990 28,405 26,253 
Other operating expense30,440 4,812 33,759 8,451 
Goodwill impairment loss   66,367 
Operating loss$(43,116)$(2,125)$(52,487)$(92,703)
Other (expense) income:
Interest expense(11,088)(10,515)(22,452)(20,965)
Other (expense) income(239)545 1,174 (1,333)
Loss before income taxes$(54,443)$(12,095)$(73,765)$(115,001)
Income tax benefit6,364 2,466 9,858 18,440 
Consolidated net loss$(48,079)$(9,629)$(63,907)$(96,561)
Less: Net income (loss) attributable to noncontrolling interests 365 (440)756 
Net loss attributable to common shareholders$(48,079)$(9,994)$(63,467)$(97,317)
Loss per common share
Net loss attributable to common shareholders:
Basic$(1.86)$(0.39)$(2.46)$(3.79)
Diluted$(1.86)$(0.39)$(2.46)$(3.79)
Weighted-average number of common shares outstanding: 
Basic25,83125,68725,79725,645
Diluted25,83125,68725,79725,645
The accompanying notes are an integral part of the condensed consolidated financial statements.
6

INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended
March 31,
Six Months Ended
March 31,
2024 2023 2024 2023
Consolidated net loss$(48,079)$(9,629)$(63,907)$(96,561)
Foreign currency translation(747)936 417 6,043 
Defined benefit plan:
Pension cost amortization47 (54)93 (108)
Foreign currency translation(107)26 (70)267 
Other comprehensive (loss) income, net of tax(807)908 440 6,202 
Consolidated comprehensive loss(48,886)(8,721)(63,467)(90,359)
Less: Comprehensive income (loss) attributable to non-controlling interests 365 (440)756 
Comprehensive loss attributable to common stockholders$(48,886)$(9,086)$(63,027)$(91,115)
The accompanying notes are an integral part of the condensed consolidated financial statements.
7

INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
(In thousands, except number of shares)
(Unaudited)
Common SharesAdditional
paid-in
capital
Accumulated
deficit
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Controlling
Interests
Total
shareholders’
equity
NumberAmount
Balance at September 30, 202325,777,169$6,406 $715,696 $(453,278)$330 $(664)$268,490 
Consolidated net (loss) income— — (15,828)— 440 (15,388)
Change in noncontrolling interest(2,309)224 (2,085)
Issuance of stock under employee stock plans13,5113 (2)— — — 1 
Stock-based compensation — 1,897 — — — 1,897 
Pension cost amortization— — — 46 — 46 
Foreign currency translation adjustment— — — 1,201 — 1,201 
Balance at December 31, 202325,790,680$6,409 $715,282 $(469,106)$1,577 $ $254,162 
Consolidated net loss— — (48,079)— — (48,079)
Issuance of stock under employee stock plans114,71529 (27)— — — 2 
Stock-based compensation — 1,884 — — — 1,884 
Pension cost amortization— — — 47 — 47 
Foreign currency translation adjustment— — — (854)— (854)
Balance at March 31, 202425,905,395$6,438 $717,139 $(517,185)$770 $ $207,162 
Common SharesAdditional
paid-in
capital
Accumulated
deficit
Accumulated
Other
Comprehensive
(Loss) Income
Non-
Controlling
Interests
Total
shareholders’
equity
NumberAmount
Balance at September 30, 202225,598,289$6,362 $707,787 $(348,277)$(5,500)$(606)$359,766 
Consolidated net loss— — (86,932)— (391)(87,323)
Issuance of stock under employee stock plans8,3471 23 — — — 24 
Stock-based compensation — 2,046 — — — 2,046 
Pension cost amortization— — — (54)— (54)
Foreign currency translation adjustment— — — 5,348 — 5,348 
Balance at December 31, 202225,606,636$6,363 $709,856 $(435,209)$(206)$(997)$279,807 
Consolidated net loss— — (9,629)— (365)(9,994)
Issuance of stock under employee stock plans152,471128 (46)— — — 82 
Stock-based compensation— 1,781 — — — 1,781 
Pension cost amortization— — — (54)— (54)
Foreign currency translation adjustment— — — 962  962 
Other$51 51 
Balance at March 31, 202325,759,107$6,491 $711,591 $(444,838)$702 $(1,311)$272,635 
The accompanying notes are an integral part of the condensed consolidated financial statements.
8

INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
March 31,
20242023
Operating activities:  
Consolidated net loss$(63,907)$(96,561)
Adjustments to reconcile net loss to net cash provided by operating activities, net of acquisitions:  
Depreciation and amortization28,405 26,253 
Employee stock compensation expense3,781 3,827 
Changes in deferred taxes(10,391)(21,303)
Provision for expected credit losses(245)1,333 
Amortization of debt issuance costs and original issue discount1,686 1,512 
Non-cash interest and accretion expense3,336 2,870 
Other non-cash operating activities(655)1,113 
Goodwill impairment loss 66,367 
Changes in operating assets and liabilities: 
Trade receivables and contract assets22,265 22,836 
Inventories10,781 7,125 
Prepaid expenses and other current assets(3,565)1,862 
Operating lease right-of-use assets and liabilities, net807 429 
Accounts payable(3,119)5,018 
Accrued expenses and other current liabilities5,276 (3,474)
Fees invoiced in advance(14,100)(13,720)
Other asset and liabilities, net30,018 (61)
Net cash provided by operating activities10,373 5,426 
  
Investing activities:  
Capital expenditures(12,594)(16,840)
Proceeds from sale of property and equipment3,964 276 
Net cash used in investing activities(8,630)(16,564)
  
Financing activities:  
Payments on revolving credit facility (21,000)
Payments on senior term notes and delayed draw term loans(1,382)(1,375)
Borrowings on revolving credit facility 6,000 
Borrowings on delayed draw term loan 35,000 
Other financing activities, net(2,712)(1,401)
Net cash (used in) provided by financing activities(4,094)17,224 
  
Effect of exchange rate changes on cash and cash equivalents(446)1,052 
Net (decrease) increase in cash and cash equivalents(2,797)7,138 
Less: cash, cash equivalents, and restricted cash held for sale (1,522)
Cash, cash equivalents, and restricted cash at beginning of period35,492 18,980 
Cash, cash equivalents, and restricted cash at end of period, net of cash, cash equivalents and restricted cash held for sale$32,695 $24,596 
  
Non-cash financing activity:
Paid in kind debt issuance costs$ $1,363 
Supplemental disclosure of cash flow information:  
Cash paid for interest$16,891 $16,374 
Income taxes paid, net$1,175 $3,952 
The accompanying notes are an integral part of the condensed consolidated financial statements.
9

INOTIV, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share amounts, unless otherwise indicated)
(Unaudited)
1.    DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Inotiv, Inc. and its subsidiaries (“we,” “our,” “us,” the “Company,” and “Inotiv”) comprise a leading contract research organization (“CRO”) dedicated to providing nonclinical and analytical drug discovery and development services to the pharmaceutical and medical device industries and selling a range of research-quality animals and diets to the same industries as well as academia and government clients. Our products and services focus on bringing new drugs and medical devices through the discovery and preclinical phases of development, all while increasing efficiency, improving data, and reducing the cost of discovering and taking new drugs and medical devices to market. Inotiv is committed to supporting discovery and development objectives as well as helping researchers realize the full potential of their critical research and development projects, all while working together to build a healthier and safer world. We are dedicated to practicing high standards of laboratory animal care and welfare.
As a result of our strategic acquisition of Envigo RMS Holding Corp. (“Envigo”) in November 2021, which added a complementary research model platform, our full spectrum solutions now span two segments: Discovery and Safety Assessment (“DSA”) and Research Models and Services (“RMS”).
Through our DSA segment, we support the discovery, nonclinical development and clinical development needs of researchers and clinicians for primarily small molecule drug candidates, as well as biotherapeutics and biomedical devices. Our scientists have skills in analytical instrumentation development, chemistry, computer software development, histology, pathology, physiology, surgery, analytical chemistry, drug metabolism, pharmacokinetics, and toxicology to make the services and products we provide increasingly valuable to our current and potential clients. Our principal clients are companies whose scientists are engaged in analytical chemistry, drug safety evaluation, clinical trials, drug metabolism studies, pharmacokinetics and basic research, from small start-up biotechnology companies to some of the largest global pharmaceutical companies.

Through our RMS segment, we offer access to a wide range of small and large research models for basic research and drug discovery and development, as well as specialized models for specific diseases and therapeutic areas. We combine deep animal husbandry expertise and expanded access to scientists across the discovery and preclinical continuum, which reduces nonclinical lead times and provides enhanced project delivery. In conjunction with our DSA business, we have the ability to run selected nonclinical studies directly on-site at closely located research model facilities and provide access to innovative genetically engineered models and services solutions. Our principal clients include biopharmaceutical companies, CROs, and academic and government organizations.

Agreement in Principle

As it relates to the matter of the U.S. Department of Justice (“DOJ”), together with federal and state law enforcement agents, executing a search and seizure warrant on the Cumberland facility on May 18, 2022, the Company and DOJ have reached an agreement in principle (the “Agreement in Principle”) to resolve this investigation as to the Company and its subsidiaries, Envigo Global Services Inc. and Envigo RMS, LLC. Any final resolution is subject to certain material contingencies, including, without limitation, negotiations between the Company and DOJ regarding mutually satisfactory resolution documents, final approvals by DOJ and the Company, and depending on the terms of any final resolution with DOJ, negotiations with certain of the Company’s stakeholders regarding the feasibility of such proposed resolution. While the Company has reached an Agreement in Principle with the DOJ, and believes a resolution is probable and estimable, there can be no assurance that a resolution will be agreed and finalized. Refer to Note 14 – Contingencies for additional information.

For the three and six months ended March 31, 2024, the Company has accrued an estimate of $26,500 related to the Agreement in Principle, which is presented within other operating expense in the Company’s Condensed Consolidated Statement of Operations. In line with the Agreement in Principle, the Company expects that it would pay $6,500 during fiscal year 2024 and $20,000 over multiple years. Accordingly, the Company has included $6,500 in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets as of March 31, 2024 and within “Changes in operating assets and liabilities – accrued expenses and other current liabilities” in its Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2024 and the Company has included $20,000 in other long-term liabilities on its Condensed Consolidated Balance Sheets as of March 31, 2024 and “Changes in operating assets and
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liabilities – other assets and liabilities” in its Condensed Consolidated Statement of Cash Flows for the six months ended March 31, 2024. The $26,500 charge is reflected in the operating loss of the RMS segment.

The Company expects that the $26,500 charge will be non-deductible for U.S. federal income tax purposes. The Company expects to have additional cash outlays in connection with certain costs related to the Agreement in Principle, which would be paid over the next three to five years. The additional cash outlays could include ongoing monitoring and compliance costs, legal expenses and other payments required to comply with the Agreement in Principle, subject to final approvals, and at this time, the Company expects that such costs would be expensed as incurred.

Operational Update

On November 16, 2022, the Company became aware that the U.S. Attorney’s Office for the Southern District of Florida (“USAO-SDFL”) had criminally charged employees of the principal supplier of non-human primates ("NHPs") to the Company, along with two Cambodian government officials, with conspiring to illegally import NHPs into the U.S. from December 2017 through January 2022 and in connection with seven specific imports between July 2018 and December 2021 (the "November 16, 2022 event"). The Company has not been directed to refrain from selling the Cambodian NHPs in its possession in the U.S. However, due to the allegations contained in the indictment involving the supplier and the Cambodian government officials, the Company believed that it was prudent, at the time, to refrain from selling or delivering any of its Cambodian NHPs held in the U.S. until the Company’s staff and external experts could evaluate what additionally could be done to satisfy itself that the NHPs in inventory from Cambodia can be reasonably determined to be purpose-bred. Historically, the Company relied on the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”) documentation and related processes and procedures, including release of each import by U.S. Fish and Wildlife Service. After a thorough review of the documentation we have for the Cambodian NHPs in our inventory and their colonies, we resumed shipping Cambodian NHPs. In addition, we completed audits on site at our Cambodian supplier and we worked to establish even more robust procedures for future imports. Inotiv has continued to monitor and respond to the evolving environment around non-human primates. Although Cambodia remained closed as a source through fiscal 2023 and into fiscal 2024, the Company identified and extensively audited multiple additional sources of purpose-bred animals that can be made available for life-saving medical research which has allowed the Company to diversify our sourcing of NHPs outside of Cambodia to satisfy demand at our DSA business segment and to our RMS clients. In addition, we have developed, and sourced, novel genetic testing techniques to further bolster our auditing capabilities to determine whether the animals we import are purpose-bred, and we are assessing the ability to introduce these techniques into our supply chain.

NHPs are critical for scientific research, and are required by international regulatory guidance to develop and evaluate the safety and effectiveness of a range of life-saving drugs and treatments prior to their assessment in human clinical trials. Without a consistent source of NHP’s in the U.S., Drug discovery and development in the U.S. could be materially impacted.

NHP imports into the U.S. for drug discovery significantly declined from 2022 to 2023. The decrease in overall NHP supply drove an increase in pricing in 2023. Furthermore, we now believe the decreased U.S. NHP supply caused some studies to be shifted outside of the U.S. We also believe some clients increased their inventory levels of NHP’s during 2023 and therefore recently, clients appear to be utilizing existing NHP inventory without purchasing historical levels of NHPs. RMS revenue decreased $32,100 in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due primarily to the lower NHP-related product and service revenue of $26,200. For the 2024 period, such reduction in sales volumes adversely affected our business, financial condition and results of operations.

During 2022 and 2023 there were decreases in biotech funding which contributed to a reduced demand for preclinical studies. While U.S. biotech funding increased in the first calendar quarter of 2024, the Company has yet to see a meaningful increase in demand from biotech clients.

Liquidity and Going Concern

The accompanying unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below.

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As of March 31, 2024, the Company has cash and cash equivalents of approximately $32,695 and access to a $15,000 revolver, which currently has no balance outstanding. The November 16, 2022 event and subsequent decision to refrain from selling or delivering Cambodian NHPs held in the U.S. triggered a material adverse event clause in our Credit Agreement discussed in Note 6 - Debt to these condensed consolidated financial statements resulting in, among other things. a limitation of our ability to draw on our revolving credit facility. The loss of access to our revolving credit facility at the time and reduced liquidity resulting from the decision to refrain from selling Cambodian NHPs held in the U.S. resulted in reduced forecasted liquidity. As a result of these events, the Company took steps to improve its liquidity, which included negotiating an amendment to its Credit Agreement to reinstate its ability to borrow under its revolving credit facility. Without the amendment, the Company was at the time at risk of not having the revolving credit facility available.

In 2023, we implemented several initiatives to reduce our operating and investing costs. We announced several site consolidation plans in the U.S. and certain European and U.K. sites. Our site optimization plans allow us to reduce overhead and create efficiencies through scale. During fiscal 2023, we completed all planned fiscal year 2023 consolidations and closures and sold our Israeli businesses. The consolidation of the operations at our Blackthorn, U.K., facility with the operations in Hillcrest, U.K., is expected to be complete in fiscal Q4 2024. Over the last year, we have continued to improve our infrastructure and worked to optimize our operating platform to support future growth. These improvements included investments in our information technology platforms, building program management functions to enhance management and communication with clients and multi-site programs, further enhancing client services and improving the client experience. We believe the actions taken and investments made in recent periods form a solid foundation upon which we can continue to build. However, there is no assurance that such actions will ultimately have the intended effects.

In connection with the site optimizations noted above and other restructuring initiatives, we reduced our workforce. We also took steps to reduce our budgeted capital expenditures and certain forecasted expenses, including a reduction of nonessential travel and employee-related expenses among other efficiency-based reductions. Additionally, we identified and executed new strategies to improve the efficiency and cost effectiveness of the transportation of our products. In December 2023, we announced that we would be partnering with Vanguard Supply Chain Solutions LLC, a current provider of our transportation services, to enable the in-house integration of our North American transportation operations. By taking direct control of our transportation operations, we expect to achieve key efficiencies to strengthen internal operations, improve our outgoing supply chain, and bolster service and scientific continuity for clients. In the second quarter of fiscal 2024, we completed the in-house integration of our North American transportation operations as described above. The Company is now working on further route optimization projects designed for further efficiencies and cost reductions.

The financial covenants under the Company's Credit Agreement include, among others, a requirement to not permit the consolidated debt to consolidated EBITDA of the Company to exceed certain leverage thresholds under the Credit Agreement. Subsequent to March 31, 2024, the Company entered into the Fourth Amendment (as defined in Note 15 - Subsequent Events) to the Credit Agreement, which provides that any charges or expenses attributable to or related to the Agreement in Principle may be added back to the Company’s consolidated EBITDA (up to $26,500) for purposes of the financial covenants under the Credit Agreement. As a result of the Fourth Amendment obtained by the Company, the Company was in compliance with its covenants under the Credit Agreement as of March 31, 2024.

The Company believes it has sufficient liquidity to satisfy its current obligations as they come due, including cash outflows for planned targeted capital expenditures, for the twelve months following the issuance of these financial statements. Following the decrease in overall revenue for the three months ended March 31, 2024, there is no assurance that the Company will experience an increase in revenue for the remainder of the 2024 fiscal year. If the Company's revenue and related operating margins do not increase, it would result in non-compliance with the financial covenants under the Credit Agreement. If at the time the Company files, or is required to file, its next Quarterly Report on Form 10-Q it reports a failure to comply with its financial covenants and remains unremedied for the period of time stipulated under the Credit Agreement, this would constitute an event of default under the Credit Agreement and the lenders may, among other remedies set out under the Credit Agreement, declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be immediately due and payable. Furthermore, if the lenders were to accelerate the loans under the Credit Agreement, such acceleration would constitute a default under our indenture governing the Company's Convertible Senior Notes (the "Notes") which, if not cured within 30 days following notice of such default from the trustee or holders of 25 percent of the Notes, would permit the trustee or such holders to accelerate the Notes. If the lenders accelerate the loans under the Credit Agreement, the Company does not believe its existing cash and cash equivalents, together with cash generated from operations, would be sufficient to fund its operations, satisfy its obligations, including cash outflows for planned targeted capital expenditures, and repay the entirety of its outstanding
12

senior term loans and repay the entirety of its outstanding Notes in the next twelve months; in addition, access to the $15,000 revolver would be restricted and such funds would not be available to pay for any operating activities.

Further, our evaluation of the Company's ability to continue as a going concern in accordance with U.S. generally accepted accounting principles entailed analyzing prospective fully implemented operating budgets and forecasts for expectations of our cash needs and comparing those needs to the current cash and cash equivalent balances in order to satisfy our obligations, including cash outflows for planned targeted capital expenditures, and to comply with minimum liquidity and financial covenant requirements under our debt covenants related to borrowings pursuant to its Credit Agreement for at least the next twelve months. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented and are outside of its control as of the date the financial statements are issued. When substantial doubt exists under this methodology, we evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. After considering the factors outlined above, substantial doubt about our ability to continue as a going concern exists.

We plan to continue our efforts to optimize our capital allocation and expense base, which reduced our cash expenses in the three and six months ended March 31, 2024 compared to the three and six months ended March 31, 2023, and which are expected to continue to reduce cash expenses in the remainder of fiscal 2024 and into fiscal 2025. Further, we have invested and plan to continue to invest in our DSA capacity and added to our service offerings in recent periods which we plan to utilize in order to support future revenue growth and margins. The Company also continues to collaborate with its lenders with regard to its current business conditions. The Company plans to request amendments to the Credit Agreement, which may include potential additional financial covenant requirements, in an effort to avoid an acceleration of the loans under the Credit Agreement prior to their existing maturity. In the event that the Company fails to comply with the requirements of the financial covenants set forth in the Credit Agreement, the Company has approximately 55 days subsequent to any fiscal quarter, and approximately 100 days subsequent to fiscal year-end to cure noncompliance. Additionally, the Company may consider seeking additional financing and evaluating financing alternatives to meet its cash requirements for the next 12 months. There is no assurance that the Company’s lenders will agree to any amendment to the Credit Agreement, nor can there be any assurance that the Company would be able to raise additional capital, whether through selling additional equity or debt securities or obtaining a line of credit or other loan on terms acceptable to the Company or at all.

Basis of Presentation
The Company has prepared the accompanying unaudited interim condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP, and therefore should be read in conjunction with the Company’s audited consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. In the opinion of management, the condensed consolidated financial statements for the three and six months ended March 31, 2024 and 2023 include all adjustments which are necessary for a fair presentation of the results of the interim periods and of the Company’s financial position at March 31, 2024. The results of operations for the three and six months ended March 31, 2024 are not necessarily indicative of the results for the fiscal year ending September 30, 2024. Certain prior year amounts have been reclassified within the condensed consolidated statements of operations and the consolidated statement of cash flows for consistency with the current year presentation. Specifically, depreciation expense has been combined with amortization of intangible assets. These reclassifications had no effect on the reported results of operations. Further, certain financing activities have been reclassified within the condensed consolidated statements of cash flows for consistency with the current year presentation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. These include, but are not limited to, management estimates in the calculation and timing of revenue recognition, pension liabilities, deferred tax assets and liabilities and the related valuation allowance. Although estimates are based upon management’s best estimate using historical experience, current events, and
13

actions, actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.
Consolidation
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company, including all subsidiaries and prior to December 23, 2023, a variable interest entity (“VIE”) it previously consolidated in accordance with GAAP. During December 2023, the Company entered into a transition services agreement with VSCS, one of the Company's transportation providers, to enable the in-house integration of Inotiv’s North American transportation operations. Following this transaction, Inotiv was no longer required to consolidate this entity. The VIE has not materially impacted our net assets or net loss. The Company successfully completed the in-house integration of its North American transportation operations during the three months ended March 31, 2024.
The Company accounts for noncontrolling interests in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”). ASC 810 requires companies with noncontrolling interests to disclose such interests as a portion of equity but separate from the parent’s equity. The noncontrolling interests’ portion of net loss is presented on the condensed consolidated statements of operations.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the twelve months ended September 30, 2023, and there have been no material changes to those significant accounting policies.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables from customers in the biopharmaceutical, contract research, academic, and governmental sectors. The Company believes its exposure to credit risk is minimal, as the majority of the customers are predominantly well established and viable. Additionally, the Company maintains allowances for potential credit losses. The Company’s exposure to credit loss in the event that payment is not received for revenue recognized equals the outstanding trade receivables and contract assets less fees invoiced in advance.
During the three and six months ended March 31, 2024, one client accounted for 15.2% and 19.0% of sales, respectively. During the three and six months ended March 31, 2023, one client accounted for 25.0% and 23.6% of sales, respectively. During the three and six months ended March 31, 2024, one vendor accounted for 23.0% and 12.5%, respectively, of the sum of cost of services and cost of products. During the three and six months ended March 31, 2023, no vendors accounted for more than 10% of the sum of cost of services and cost of products.
2.    REVENUE FROM CONTRACTS WITH CUSTOMERS
DSA
The DSA segment generates service revenue through drug discovery and development services. The DSA segment generates product revenue through internally-manufactured scientific instruments for life sciences research and the related software for use by pharmaceutical companies, universities, government research centers and medical research institutions under the Company’s BASi product line.
RMS
The RMS segment generates product revenue through the commercial production, procurement and sale of research models, diets and bedding and bioproducts. The RMS segment generates service revenue through Genetically Engineered Models and Services ("GEMS"), client-owned animal colony care, and health monitoring and diagnostics services related to research models.
14

Contract Assets and Liabilities from Contracts with Customers
The timing of revenue recognition, billings and cash collections results in billed receivables (trade receivables), contract assets (unbilled revenue), and contract liabilities (customer deposits and deferred revenue) on the condensed consolidated balance sheets. The following table provides information about contract assets (trade receivables and unbilled revenue, excluding allowances for credit losses), and fees invoiced in advance (customer deposits and deferred revenue):
Balance at
March 31,
2024
Balance at
September 30,
2023
Contract assets: Trade receivables$55,021 $77,618 
Contract assets: Unbilled revenue17,195 17,211 
Contract liabilities: Customer deposits24,295 36,689 
Contract liabilities: Deferred revenue17,380 18,933
When the Company does not have the unconditional right to advanced billings, both advanced client payments and unpaid advanced client billings are excluded from deferred revenue, with the advanced billings also being excluded from client receivables. The Company excluded approximately $9,921 and $10,220 of unpaid advanced client billings from both client receivables and deferred revenue as of March 31, 2024 and September 30, 2023, respectively.
The Company expects a majority of deferred revenue to be recognized as revenue within twelve months.
Changes in the contract asset and the contract liability balances during the six months ended March 31, 2024 include the following:
Changes in the time frame for a right for consideration to become unconditional – approximately 70.0% of unbilled revenue as of September 30, 2023, was billed during the six months ended March 31, 2024; and
Changes in the time frame for a performance obligation to be satisfied – approximately 68.0% of deferred revenue as of September 30, 2023, was recognized as revenue during the six months ended March 31, 2024.
3.    SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information
During the three and six months ended March 31, 2024, the RMS segment reported intersegment revenue of $3,938 and $4,834, respectively, related to sales to the DSA segment. During the three and six months ended March 31, 2023, the RMS segment reported intersegment revenue of $3,262 and $4,387, respectively, related to sales to the DSA segment. The following tables present revenue and other financial information by reportable segment:
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Three Months Ended
March 31,
Six Months Ended
March 31,
 2024202320242023
Revenue
DSA:
Service revenue$45,302 $46,145 $88,865 $86,116 
Product revenue1,329 878 2,464 2,000 
RMS:
Service revenue11,659 12,607 21,959 22,684 
Product revenue60,745 91,833 141,248 163,417 
$119,035 $151,463 $254,536 $274,217 
Operating Income (Loss)
DSA$2,853 $1,924 $4,446 $4,296 
RMS(30,604)12,725 (25,525)(58,547)
Unallocated Corporate(15,365)(16,774)(31,408)(38,452)
$(43,116)$(2,125)$(52,487)$(92,703)
Interest expense(11,088)(10,515)(22,452)(20,965)
Other (expense) income(239)545 1,174 (1,333)
Loss before income taxes$(54,443)$(12,095)$(73,765)$(115,001)
Three Months Ended
March 31,
Six Months Ended
March 31,
2024202320242023
Depreciation and amortization:   
DSA$4,363 $3,611 $8,772 $7,591 
RMS9,643 9,379 19,380 18,662 
  Unallocated Corporate149  253  
 $14,155 $12,990 $28,405 $26,253 
 
Capital expenditures:
DSA$929 3,970 $3,204 $7,264 
RMS6,093 4,501 9,390 9,576 
 $7,022 $8,471 $12,594 $16,840 
Geographic Information
The following represents revenue originating in entities physically located in the identified geographic area:
Three Months Ended
March 31,
Six Months Ended
March 31,
2024202320242023
United States$102,429 $129,980 $214,198 $228,989 
Netherlands9,724 11,522 27,786 26,744 
Other6,882 9,961 12,552 18,484 
$119,035 $151,463 $254,536 $274,217 
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Long-lived assets shown below include property and equipment, net. The following represents long-lived assets where they are physically located:
March 31,September 30,
20242023
United States$174,664 $178,021 
Netherlands6,619 6,656 
Other10,140 6,391 
$191,423 $191,068 
4.    BUSINESS COMBINATIONS
The Company accounts for acquisitions in accordance with ASC 805, Business Combinations. The guidance requires consideration given, including contingent consideration, assets acquired, liabilities assumed and non-controlling interests to be valued at their fair market values at the acquisition date. The guidance further provides that: (1) in-process research and development will be recorded at fair value as an indefinite-lived intangible asset; (2) acquisition costs will generally be expensed as incurred; (3) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (4) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense (benefit). ASC 805 requires that any excess of the purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill.
Histion Acquisition
On April 25, 2022, the Company completed the acquisition of Histion, LLC (“Histion”), which was a strategic element of the Company’s expansion of its specialized pathology services. Consideration for the Histion acquisition consisted of (i) $950 in cash, subject to working capital adjustments, (ii) 17,618 of the Company’s common shares valued at $364 based on the closing stock price of the Company’s common shares as reported by Nasdaq on the closing date and (iii) unsecured subordinated promissory notes payable to the former shareholders of Histion in an aggregate principal amount of $433.
Protypia Acquisition
On July 7, 2022, the Company entered into a Stock Purchase Agreement with Protypia, Inc. (“Protypia”), which was a strategic element of the Company’s expansion of its mass spectrometry-based bioanalytical offerings, providing for the acquisition by the Company of all of the outstanding stock of Protypia on that date. Consideration for the Protypia stock consisted of (i) $9,460 in cash, subject to certain adjustments, (ii) 74,997 of the Company's common shares valued at $806 based on the opening stock price of the Company’s common shares as reported by Nasdaq on the closing date and (iii) $600 in seller notes.
The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:
July 7, 2022
Assets acquired and liabilities assumed: 
Goodwill6,002 
Intangible assets5,600 
Other liabilities, net(84)
Deferred tax liabilities(652)
$10,866 
Intangible assets primarily relate to client relationships and technology associated with the ability to perform specialized protein and peptide mass spectrometry analysis. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 8.1 years on a straight-line basis. The estimated fair values of identifiable intangible assets were determined using the "income approach," which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for each asset or product (including revenues and EBITDA), the
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appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, the potential regulatory and commercial success risk, and competitive trends impacting the asset and each cash flow stream, as well as other factors.
Goodwill, which is derived from the enhanced scientific expertise and our ability to provide broader service solutions through a comprehensive portfolio, is recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and none is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s DSA reportable segment.
In accordance with ASC 805-740, the Company established a deferred tax liability with an offset to goodwill in connection with the accounting for the opening balance sheet of the Protypia acquisition as a result of book-to-tax differences primarily related to the intangible assets.

5.    INTANGIBLE ASSETS
The following table displays intangible assets, net by major class:
March 31, 2024
Carrying
Amount, Gross
Accumulated
Amortization
Carrying
Amount, Net
Client relationships$317,137 $(68,659)$248,478 
Intellectual property56,376 (15,468)40,908 
Other4,837 (2,892)1,945 
$378,350 $(87,019)$291,331 
September 30, 2023
Carrying
Amount, Gross
Accumulated
Amortization
Carrying
Amount, Net
Client relationships$316,820 $(54,711)$262,109 
Intellectual property56,337 (12,234)44,103 
Other4,837 (2,621)2,216 
$377,994 $(69,566)$308,428 
The decrease in intangible assets, net during the six months ended March 31, 2024 related to amortization over the applicable useful lives, partially offset by the impact of foreign exchange rates.

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6.    DEBT

Long-term debt as of March 31, 2024 and September 30, 2023 is detailed in the table below.

March 31, 2024September 30, 2023
Seller Note – Bolder BioPath (Related party)$489 $602 
Seller Note – Preclinical Research Services503 541 
Seller Payable - Orient BioResource Center3,680 3,649 
Seller Note – Histion (Related party)156 229 
Seller Note – Protypia (Related party) 400 
Economic Injury Disaster Loan 140 
Convertible Senior Notes113,716 110,651 
Term Loan Facility, DDTL and Incremental Term Loans271,849 272,930 
Total debt before unamortized debt issuance costs$390,393 $389,142 
Less: Debt issuance costs not amortized(9,760)(11,397)
Total debt, net of unamortized debt issuance costs$380,633 $377,745 
Less: Current portion$(380,358)$(7,950)
Total Long-term debt$275 $369,795 

Revolving Credit Facility

As of March 31, 2024 and September 30, 2023, the Company had no outstanding balance on the revolving credit facility. Refer to the statements of cash flows for information related to payments on the revolving credit facility during the six months ended March 31, 2023.

Significant Transactions

On October 12, 2022, the Company drew its $35,000 delayed draw term loan (the “Additional DDTL”) allowed under the First Amendment to the Credit Agreement (“First Amendment”). A portion of the proceeds were used to repay the $15,000 balance on the Company’s revolving credit facility, while the remaining amount was drawn to fund a portion of the Company’s capital expenditures in fiscal year 2022 and those planned for fiscal year 2023.

On December 29, 2022 and January 9, 2023, the Company, the lenders party thereto, and Jefferies Finance LLC, as administrative agent (the “Agent”), entered into the Second and Third Amendments, respectively, to the Credit Agreement. Refer below for further information related to those amendments.

Absent the Fourth Amendment (as defined in Note 15 - Subsequent Events), the Company would not have complied with its financial covenants under the Credit Agreement and the Company believes that if we do not see an increase in revenue, and related operating margins, it is probable that the Company will fail its financial covenants within twelve months of the balance sheet date. As a result, we have classified the Term Loan Facility, DDTL and Incremental Term Loans and the Convertible Senior Notes as current. Refer to Note 1 - Description of the Business and Basis of Presentation for the Company's Operational Update and the Company's analysis of Liquidity and Going Concern.

Term Loan Facility, DDTL and Incremental Term Loans

Below are the weighted-average effective interest rates for the loans available under the Credit Agreement (as defined below):
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Three Months Ended
March 31,
Six Months Ended
March 31,
2024202320242023
Effective interest rates:
Term Loan11.06 %10.40 %11.30 %10.32 %
Initial DDTL11.05 %10.45 %11.29 %10.35 %
Additional DDTL11.17 %10.68 %11.42 %11.07 %

Credit Agreement

On November 5, 2021, the Company, certain subsidiaries of the Company (the “Subsidiary Guarantors”), the lenders party thereto, and the Agent, entered into a Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a term loan facility (the "Term Loan") in the original principal amount of $165,000, a delayed draw term loan facility in the original principal amount of $35,000 (available to be drawn up to 18 months from the date of the Credit Agreement) (the “Initial DDTL” and together with the Additional DDTL, the “DDTL”) and a revolving credit facility in the original principal amount of $15,000. On November 5, 2021, the Company borrowed the full amount of the term loan facility, but did not borrow any amounts on the delayed draw term loan facility or the revolving credit facility.

The Company could have elected to borrow on each of the loan facilities at either an adjusted LIBOR rate of interest or an adjusted prime rate of interest. Adjusted LIBOR rate loans accrued interest at an annual rate equal to the LIBOR rate plus a margin of between 6.00% and 6.50%, depending on the Company’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The LIBOR rate had to be a minimum of 1.00%. The initial adjusted LIBOR rate of interest was the LIBOR rate plus 6.25%. Adjusted prime rate loans accrued interest at an annual rate equal to the prime rate plus a margin of between 5.00% and 5.50%, depending on the Company’s then current Secured Leverage Ratio. The initial adjusted prime rate of interest was the prime rate plus 5.25%.

The Company must pay (i) a fee based on a percentage per annum equal to 0.50% on the average daily undrawn portion of the commitments in respect of the revolving credit facility and (ii) a fee based on a percentage per annum equal to 1.00% on the average daily undrawn portion of the commitments in respect of the delayed draw loan facility. In each case, such fee shall be paid quarterly in arrears.

Each of the term loan facility and delayed draw term loan facility require annual principal payments in an amount equal to 1.00% of their respective original principal amounts. The Company shall also repay the term loan facility on an annual basis in an amount equal to a percentage of its Excess Cash Flow (as defined in the Credit Agreement), which percentage will be determined by its then current Secured Leverage Ratio. Each of the loan facilities may be repaid at any time. Voluntary prepayments were subject to a 1.00% prepayment premium if made on or prior to November 5, 2023 and other breakage penalties, as defined in the Credit Agreement. Voluntary prepayments made after November 5, 2023 are not subject to any prepayment premium.

The Company is required to maintain a Secured Leverage Ratio of not more than 4.25 to 1.00 for the Company's fiscal quarters through the fiscal quarter ended June 30, 2023, 3.75 to 1.00 beginning with the Company’s fiscal quarter ending September 30, 2023, and 3.00 to 1.00 beginning with the Company’s fiscal quarter ending March 31, 2025. The Company is required to maintain a minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement), which ratio was 1.00 to 1.00 during the first year of the Credit Agreement and is 1.10 to 1.00 from and after the Credit Agreement’s first anniversary.

Each of the loan facilities is secured by all assets (other than certain excluded assets) of the Company and each of the Subsidiary Guarantors. Repayment of each of the loan facilities is guaranteed by each of the Subsidiary Guarantors.

On January 7, 2022, the Company drew $35,000 on the Initial DDTL. Amounts outstanding under the Initial DDTL accrued interest at an annual rate equal to the LIBOR rate plus a margin of between 6.00% and 6.50%, depending on the Company’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The initial adjusted LIBOR rate of interest was the LIBOR rate plus 6.25%.

The Term Loan and the Initial DDTL will mature on November 5, 2026.

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First Amendment to Credit Agreement

On January 27, 2022, the Company, Subsidiary Guarantors, the lenders party thereto, and the Agent entered into the First Amendment to the existing Credit Agreement. The First Amendment provides for, among other things, an increase to the existing term loan facility in the amount of $40,000 (the “Incremental Term Loans”) and the Additional DDTL in the original principal amount of $35,000, which amount is available to be drawn up to 24 months from the date of the First Amendment. The Incremental Term Loans and any amounts borrowed under the Additional DDTL are referred to herein as the “Additional Term Loans”. On January 27, 2022, the Company borrowed the full amount of the Incremental Term Loans, and on October 12, 2022, the Company borrowed the full $35,000 under the Additional DDTL.

Amounts outstanding under the Additional Term Loans accrued interest at an annual rate equal to the LIBOR rate plus a margin of between 6.00% and 6.50%, depending on the Company’s then current Secured Leverage Ratio (as defined in the Credit Agreement). The initial adjusted LIBOR rate of interest was the LIBOR rate plus 6.25%.

The Additional Term Loans require annual principal payments in an amount equal to 1.00% of the original principal amount. Voluntary prepayments of the Additional Term Loans were subject to a 1.00% prepayment premium if made on or prior to November 5, 2023 and other breakage penalties, as defined in the Credit Agreement. Voluntary prepayments made after November 5, 2023 are not subject to any prepayment premium.

The Company shall also repay the term loans on an annual basis in an amount equal to a percentage of its Excess Cash Flow (as defined in the Credit Agreement), which percentage will be determined by its then current Secured Leverage Ratio.

The Additional Term Loans are secured by all assets (other than certain excluded assets) of the Company and each of the Subsidiary Guarantors. Repayment of the Additional Term Loans is guaranteed by each of the Subsidiary Guarantors.
The Additional Term Loans will mature on November 5, 2026.

Second Amendment to Credit Agreement

On December 29, 2022, the Company, the Subsidiary Guarantors, the lenders party thereto, and the Agent, entered into a Second Amendment (the “Second Amendment”) to the Credit Agreement.

The Second Amendment provided for, among other things, an extension of the deadline for the Company to provide to the lenders the audited financial statements for the Company’s fiscal year ended September 30, 2022 and an annual budget for 2023; the Company satisfied these requirements by the extended deadline. The Second Amendment added a requirement that the Company provide, within 30 days after the end of each month, an unaudited consolidated balance sheet, statement of income and statement of cash flows as of the end of, and for, such month, as well as a “key performance indicator” report. The Second Amendment also requires that, within 10 business days after the end of each month, the Company will provide a rolling 13-week cash flow forecast prepared on a monthly basis. The Second Amendment further provides that, upon the request of the Required Lenders (as defined in the Credit Agreement), the Company will permit a financial advisor designated by the Required Lenders to meet with management of the Company to discuss the affairs, finances, accounts and condition of the Company during the six-month period following the effective date of the Second Amendment. In addition, the Second Amendment requires the Company to deliver an updated organization chart and certain supplemental information regarding the Company’s subsidiaries in connection with each quarterly report required pursuant to the Credit Agreement.

Under the Second Amendment, the Company could have elected to borrow on each of the loan facilities at either an adjusted term secured overnight financing rate (“Term SOFR”) rate of interest or an alternate base rate of interest. Term SOFR loans accrued interest at an annual rate equal to the applicable Term SOFR rate plus (i) an adjustment percentage equal to between 0.11448% and 0.42826%, depending on the term of the loan (“Adjusted Term SOFR”); provided that, Adjusted Term SOFR could never be less than 1.00%, and (ii) a margin of between 6.00% and 6.50%, depending on the Company’s then current Secured Leverage Ratio (as defined in the Credit Agreement). Alternate base rate loans could accrue interest at an annual rate equal to (i) the highest of (a) the Federal Funds Effective Rate (as defined in the Credit Agreement) plus 0.50%, (b) the Agent’s prime rate and (c) Adjusted Term SOFR for a one-month tenor plus 1.00% (the “Second Amendment Alternate Base Rate”); provided that, the Second Amendment Alternate Base Rate could never be less than 2.00%, plus (ii) a margin of between 5.00% and 5.50%, depending on the Company’s then current Secured Leverage Ratio.

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The Second Amendment also provides that the Company may not request any credit extensions under the revolving credit facility under the Credit Agreement, if any of the conditions precedent set forth in Section 4.02 of the Credit Agreement cannot be satisfied, including, without limitation, the making of the representation and warranty that as of the date of the most recent audited financial statements delivered to the Agent, no event, change, circumstance, condition, development or occurrence has had, or would reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect (as defined in the Credit Agreement).

In addition, the Second Amendment provided that, no later than January 13, 2023 (or such later date as the Required Lenders shall agree in their discretion), the Company shall (i) appoint a financial advisor on terms reasonably acceptable to the Required Lenders and the Company for a term of at least six months, (ii) provide a 13-week budget to the Agent, and (iii) deliver a perfection certificate supplement updating certain information previously provided with respect to each of the Company and the Subsidiary Guarantors, including information regarding certain collateral and other assets owned by such parties. The Company timely satisfied each of these requirements.

Third Amendment to Credit Agreement

On January 9, 2023, the Company, the Subsidiary Guarantors, the lenders party thereto, and the Agent, entered into a Third Amendment (“Third Amendment”) to the Credit Agreement. The Third Amendment provides that, among other things, during the period beginning on January 9, 2023 and, subject to the terms of the Credit Agreement, ending on the date on which financial statements for the Company’s fiscal quarter ending March 31, 2024 are delivered or are required to be delivered, as long as no event of default has occurred (the “Amendment Relief Period”):

the Cambodian NHP-related matters, to the extent existing and disclosed to the lenders prior to December 29, 2022, shall not constitute a Material Adverse Effect under the Credit Agreement and will not restrict the Company’s ability to request credit extensions under the revolving credit facility;
the use of borrowings under the revolving credit facility is limited to funding operational expenses of the Company in the ordinary course and cannot be used for the making or funding of investments, permitted acquisitions or restricted payments, payments or purchases with respect to any indebtedness, bonuses or executive compensation, or judgments, fines or settlements; and
additional limitations are imposed on the Company under the Credit Agreement, including restrictions on permitted asset sales, a prohibition on making permitted acquisitions, and significant limitations on the ability to incur additional debt, make investments and make restricted payments.

The Third Amendment provides that from and after the date thereof, no incremental facilities under the Credit Agreement may be established or incurred. The Third Amendment also provides for additional mandatory prepayments of borrowed amounts following the receipt by the Company of certain cash receipts, including proceeds from certain equity issuances and cash received by the Company not in the ordinary course of business. Under the Third Amendment, after any draw on the revolving credit facility, the Company’s cash and cash equivalents held on hand domestically within the U.S. cannot exceed $10,000.

Under the Third Amendment, the Company may elect to borrow on each of the loan facilities accruing interest at either an adjusted Term SOFR or an alternate base rate of interest. Term SOFR loans shall accrue interest at an annual rate equal to the applicable Term SOFR rate plus (i) an adjustment percentage equal to between 0.11448% and 0.42826%, depending on the term of the loan, provided that, the Adjusted Term SOFR shall never be less than 1.00% per annum, plus (ii) an applicable margin of 6.75% per annum for term loans maintained as SOFR loans or 9.50% per annum for revolving loans maintained as SOFR loans. Alternate base rate loans shall accrue interest at an annual rate equal to (i) the highest of (a) the Federal Funds Effective Rate (as defined in the Credit Agreement) plus 0.50%, (b) the Agent’s prime rate and (c) Adjusted Term SOFR for a one-month tenor plus 1.00% (the “Alternate Base Rate”), provided that, the Alternate Base Rate is subject to a floor of 2.00% per annum plus (ii) an applicable margin of 5.75% per annum for term loans maintained as Alternate Base Rate loans or 8.50% per annum for revolving loans maintained as Alternate Base Rate loans.

The fee consideration payable by the Company for each consenting lender party to the Third Amendment is: (i) 0.50% of the aggregate outstanding principal amount of the term loans held by each consenting term loan lender, to be paid in-kind and capitalized to the principal amounts of the term loans held by such lender; (ii) 0.50% of the aggregate outstanding principal amount of the term loans held by each consenting term loan lender, to be paid in cash upon the occurrence of certain prepayments of the term loan under the Credit Agreement; and (iii) 7.00% of the aggregate amount of the revolving commitments held by each consenting revolving lender, to be paid in cash upon the occurrence with certain permanent reductions of the revolving loans under the Credit Agreement.
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Acquisition-related Debt (Seller Notes)

In addition to the indebtedness under the Credit Agreement, certain of the Company’s subsidiaries have issued unsecured notes as partial payment of the purchase prices of certain acquisitions as described herein. Each of these notes is subordinated to the indebtedness under the Credit Agreement.

As part of the acquisition of Pre-Clinical Research Services, Inc. ("PCRS"), the Company issued an unsecured subordinated promissory note payable to the PCRS seller in the initial principal amount of $800. The promissory note bears interest at a rate of 4.50% per annum with monthly payments of principal and interest and a maturity date of December 1, 2024.

As part of the acquisition of Bolder BioPATH, the Company issued unsecured subordinated promissory notes payable to the former shareholders of Bolder BioPATH in an aggregate principal amount of $1,500. As part of the working capital adjustment in March 2022, a reduction of the promissory note of $470 was recorded. The promissory notes bear interest at a rate of 4.50% per annum, with monthly payments of principal and interest and a maturity date of May 1, 2026.

As part of the acquisition of Plato BioPharma, Inc. ("Plato"), the Company issued unsecured subordinated promissory notes payable to the former shareholders of Plato in an aggregate principal amount of $3,000. The promissory notes bore interest at a rate of 4.50% per annum, with monthly payments of principal and interest and a maturity date of June 1, 2023. The promissory notes were paid in full as of June 1, 2023.

As part of the acquisition of Orient BioResource Center, Inc. ("OBRC"), the Company agreed to leave in place a payable owed by OBRC to Orient Bio, Inc. (the "Seller") in the amount of $3,700, which the Company determined to have a fair value of $3,325 as of January 27, 2022. The payable does not bear interest and was originally required to be paid to the Seller 18 months after the closing date of January 27, 2022. The Company has the right to set off against the payable any amounts that become payable by the Seller on account of indemnification obligations under the purchase agreement. On April 4, 2023, the Company and the Seller entered into a First Amendment to extend the maturity date of the payable to July 27, 2024. This extension did not affect the rights and remedies of any party under the stock purchase agreement, nor alter, modify or amend or in any way affect any of the terms and conditions, obligations, covenants or agreements contained in the stock purchase agreement.

As part of the acquisition of Histion, the Company issued unsecured subordinated promissory notes payable to the former shareholders of Histion in an aggregate principal amount of $433. The promissory notes bear interest at a rate of 4.50% per annum, with monthly payments of principal and interest and a maturity date of April 1, 2025.

As part of the acquisition of Protypia, the Company issued unsecured subordinated promissory notes payable to the former shareholders of Protypia in an aggregate principal amount of $600. The promissory notes bear interest at a rate of 4.50% per annum, with monthly interest payments, as well as principal payments on July 7, 2023 and on the maturity date, January 7, 2024. These notes were paid in full on January 7, 2024.

Convertible Senior Notes

On September 27, 2021, the Company issued $140,000 principal amount of its 3.25% Convertible Senior Notes due 2027 (the “Notes”). The Notes were issued pursuant to, and are governed by, an indenture, dated as of September 27, 2021, among the Company, the Company’s wholly-owned subsidiary, BAS Evansville, Inc., as guarantor (the “Guarantor”), and U.S. Bank National Association, as trustee (the “Indenture”). Pursuant to the purchase agreement between the Company and the initial purchaser of the Notes, the Company granted the initial purchaser an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes were first issued, up to an additional $15,000 principal amount of the Notes. The Notes issued on September 27, 2021 included $15,000 principal amount of the Notes issued pursuant to the full exercise by the initial purchaser of such option. The Company used the net proceeds from the offering of the Notes, together with borrowings under a new senior secured term loan facility, to fund the cash portion of the purchase price of the Envigo acquisition and related fees and expenses.

The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally
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subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s non-guarantor subsidiaries. The Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by the Guarantor.

The Notes accrue interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2022. The Notes will mature on October 15, 2027, unless earlier repurchased, redeemed or converted. Before April 15, 2027, noteholders have the right to convert their Notes only upon the occurrence of certain events. From and after April 15, 2027, noteholders may convert their Notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, its common shares or a combination of cash and its common shares, at the Company’s election. The initial conversion rate is 21.7162 common shares per $1 principal amount of Notes, which represents an initial conversion price of approximately $46.05 per common share. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

As of March 31, 2024 and September 30, 2023, there were $3,705 and $4,172, respectively, in unamortized debt issuance costs related to the Notes. For the three months ended March 31, 2024, the total interest expense was $2,907, including coupon interest expense of $1,131, accretion expense of $1,542, and the amortization of debt discount and issuance costs of $234. During the three months ended March 31, 2023, the total interest expense was $2,740, including coupon interest expense of $1,138, accretion expense of $1,383, and the amortization of debt discount and issuance costs of $219. For the six months ended March 31, 2024, the total interest expense was $5,807, including coupon interest expense of $2,275, accretion expense of $3,065, and the amortization of debt discount and issuance costs of $467. During the six months ended March 31, 2023, the total interest expense was $5,504, including coupon interest expense of $2,300, accretion expense of $2,764, and the amortization of debt discount and issuance costs of $440.

The Notes are redeemable, in whole and not in part, at the Company’s option at any time on or after October 15, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, but only if the last reported sale price per common share of the Company exceeds 130.00% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. The redemption price is a cash amount equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling the Notes for redemption pursuant to the provisions described in this paragraph will constitute a Make-Whole Fundamental Change, which will result in an increase to the conversion rate in certain circumstances for a specified period of time.

If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the Fundamental Change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common shares.

The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, are subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the failure by the Company or the Guarantor to comply with certain covenants in the Indenture relating to the ability of the Company or the Guarantor to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company or the Guarantor, as applicable, and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company or the Guarantor in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (v) certain defaults by the Company, the Guarantor or any of their respective subsidiaries with respect to indebtedness for borrowed money of at least $20,000; (vi) the rendering of certain judgments against the Company, the Guarantor or any of their respective subsidiaries for the payment of at least $20,000, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; (vii) certain events of bankruptcy, insolvency and reorganization involving the Company, the Guarantor or any of their respective significant subsidiaries; and (viii) the guarantee of the Notes ceases to be in full force and effect (except as permitted by the Indenture) or the Guarantor denies or disaffirms its obligations under its guarantee of the Notes.
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If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company or the Guarantor (and not solely with respect to a significant subsidiary of the Company or the Guarantor) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then the trustee, by notice to the Company, or noteholders of at least 25.00% of the aggregate principal amount of Notes then outstanding, by notice to the Company and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Notes.

At issuance, the Company evaluated the convertible feature of the Notes and determined it was required to be bifurcated as an embedded derivative and did not qualify for equity classification. In subsequent periods, the Notes conversion rights met all equity classification criteria and the fair value of the embedded derivative was reclassified to additional paid-in-capital. The discount resulting from the initial fair value of the embedded derivative has and will continue to be amortized to interest expense using the effective interest method. Non-cash interest expense during the period primarily related to this discount.

7.    SUPPLEMENTAL BALANCE SHEET INFORMATION

Trade receivables and contract assets, net consisted of the following:
 March 31,September 30,
2024 2023
Trade receivables$55,021 $77,618 
Unbilled revenue17,195 17,211 
Total72,216 94,829 
Less: Allowance for credit losses(6,459)(7,446)
Trade receivables and contract assets, net of allowances for credit losses$65,757 $87,383 

Inventories, net consisted of the following:
 March 31,September 30,
20242023
Raw materials$2,007 $2,259 
Work in progress86 124 
Finished goods4,540 4,439 
Research Model Inventory42,718 52,524 
Total49,351 59,346 
Less: Obsolescence reserve(3,945)(3,244)
Inventories, net$45,406 $56,102 

Prepaid expenses and other current assets consisted of the following:
March 31,September 30,
20242023
Advances to suppliers$21,331 $19,247 
Prepaid research models4,705 4,300 
Income tax receivable2,313 1,813 
Note receivable1,334 1,226 
Other7,138 6,822 
Prepaid expenses and other current assets$36,821 $33,408 
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The composition of other assets is as follows:
 March 31,September 30,
20242023
Long-term advances to suppliers$3,741 $3,681 
Funded status of defined benefit plan3,163 3,036 
Other3,959 3,362 
Other assets$10,863 $10,079 

Accrued expenses and other current liabilities consisted of the following:
 March 31,September 30,
2024 2023
Accrued compensation$11,099 $12,966 
Non-income taxes4,474 4,596 
Accrued interest3,887 2,975 
Other5,141 5,239 
Agreement in Principle (Note 1)$6,501  
Accrued expenses and other current liabilities$31,102 $25,776 

The composition of fees invoiced in advance is as follows:
 March 31,September 30,
2024 2023
Customer deposits$24,295 $36,689 
Deferred revenue17,380 18,933 
Fees invoiced in advance$41,675 $55,622 

The composition of other liabilities is as follows:
 March 31,September 30,
20242023
Long-term client deposits$17,000 $5,250 
Other1,055 1,123 
Agreement in Principle (Note 1)20,000  
Other liabilities$38,055 $6,373 

8.    DEFINED BENEFIT PLAN

The Company has a defined benefit plan in the U.K., the Harlan Laboratories UK Limited Occupational Pension Scheme (the "Pension Plan"), which operated through April 2012. As of April 30, 2012, the accumulation of plan benefits of employees in the Pension Plan was permanently suspended and therefore the Pension Plan was curtailed. During the year ending September 30, 2024, the Company expects to contribute $0 to the Pension Plan. As of March 31, 2024, the funded status of the defined benefit plan obligation of $3,163 is included in other assets (non-current) in the condensed consolidated balance sheets.

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The following table provides the components of net periodic benefit costs for the Pension Plan, which is included in general and administrative expenses in the condensed consolidated statements of operations.
Three Months Ended
March 31,
Six Months Ended
March 31,
2024202320242023
Components of net periodic expense:
Interest cost$185 $182 $366 $364 
Expected return on assets(197)(198)(389)(396)
Amortization of prior loss(35)(37)(70)(75)
Net periodic expense$(47)$(53)$(93)$(107)
9.    OTHER OPERATING EXPENSE

Other operating expense consisted of the following:

Three Months Ended
March 31,
Six Months Ended
March 31,
2024 2023 2024 2023
Acquisition and integration costs$ $105 $70 $1,088 
Restructuring costs 1
1,368 1,740 2,402 2,006 
Startup costs967 2,281 1,797 3,786 
Remediation costs369 555 652 1,140 
Other costs1,236 131 2,338 431 
Agreement in Principle 2
26,500  26,500  
$30,440 $4,812 $33,759 $8,451 
1Restructuring costs represent costs incurred in connection with the Company's site closures, site optimization strategy and the in-house integration of Inotiv’s North American transportation operations as discussed in Note 10 – Restructuring and Assets Held for Sale and Note 1 - Description of Business and Basis of Presentation.
2 Refer to Note 1 - Description of Business and Basis of Presentation for further discussion of the Agreement in Principle

10.    RESTRUCTURING AND ASSETS HELD FOR SALE

During June 2022, the Company approved and announced a plan to close its facility in Cumberland, Virginia. Further, the Company’s restructuring and site optimization plan includes the following sites, which were identified for relocation of operations: Dublin, Virginia, Gannat, France, Blackthorn, U.K., RMS St. Louis, Missouri, Spain, Boyertown, Pennsylvania, and Haslett, Michigan.

For the three and six months ended March 31, 2024 and 2023, the Company incurred immaterial expenses that qualify as exit and disposal costs under GAAP, and does not expect further material charges as a result of the closures and planned site consolidations. Exit and disposal costs were charged to other operating expense. Further, as of March 31, 2024 and 2023, the liability balance for exit and disposal costs that qualify as employee-related exit and disposal costs was $616 and $503, respectively. As of March 31, 2024, the property and equipment related to the facilities at Haslett, Michigan and Cumberland, Virginia were presented within assets held for sale.

Cumberland and Dublin

During June 2022, the Company approved and announced a plan to close its facility in Cumberland, Virginia ("Cumberland facility") and to close and relocate its operations in Dublin, Virginia ("Dublin facility) into its other existing facilities, as a part of the Company's restructuring and site optimization plan. The Cumberland facility exit was also a part of the settlement, as further described in Note 14 – Contingencies. The Cumberland facility exit was completed in September 2022 and initially met the criteria for assets held for sale as of March 31, 2023. Further, in connection with this conclusion, the Company determined that the carrying value exceeded the fair value of the real property at the Cumberland facility less
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costs to sell. As a result, an asset impairment charge of $678 was recorded within the RMS reportable segment during the three months ended March 31, 2023. The real property of the Cumberland facility is under contract to be sold and continued to meet the criteria for assets held for sale as of March 31, 2024. The Dublin facility transition was completed in November 2022 and initially met the criteria for assets held for sale as of December 31, 2023. The Dublin facility was sold in March 2024. The operations at both the Cumberland facility and the Dublin facility were within the RMS reporting segment.

Gannat, Blackthorn, Spain and RMS St. Louis

As of March 31, 2023, the Company completed its consultation with employee representatives at the Gannat and Blackthorn facilities and the closures of both facilities were approved. The consolidation of operations at Gannat with the operations in Horst, the Netherlands was completed in June 2023 and initially met the criteria for assets held for sale as of June 30, 2023. The Gannat facility was sold in December 2023. As of June 30, 2023, the real property of the Blackthorn facility initially met the criteria for assets held for sale. The Blackthorn facility sold in February 2024 which the Company is leasing back until the operations are relocated to its Hillcrest, U.K. site. The consolidation of the operations at the Blackthorn facility with the operations in Hillcrest, U.K. is expected to be complete by the end of September 2024. In July 2023, the Company decided to close its Spain facility. The exit of the facility in Spain was completed in September 2023 and initially met the criteria for assets held for sale as of September 30, 2023. The facility in Spain was sold in November 2023. The leased RMS St. Louis facility closed in June 2023 and the GEMS operations at the RMS St. Louis facility were relocated to the DSA St. Louis facility and other operational facilities. The operations at the Gannat, Blackthorn, Spain and RMS St. Louis facilities were within the RMS reportable segment.

Boyertown and Haslett

Prior to the acquisition of Envigo, the Boyertown and Haslett facilities were identified for relocation of operations to the Denver, Pennsylvania facility. The exits of the Boyertown and Haslett facilities were completed in March 2023 and both facilities initially met the criteria for assets held for sale as of March 31, 2023. The Boyertown facility was sold in September 2023. The Haslett facility continued to meet the criteria for assets held for sale as of March 31, 2024. Subsequent to March 31, 2024, the facility in Haslett was sold.

Israel

As of December 31, 2022, the assets and liabilities related to the Israel RMS and Israel CRS businesses (the “Israeli Businesses”) initially met the held for sale criteria and, in August 2023, the Company sold its ownership interest in the Israeli Businesses, which were previously reflected in the RMS reportable segment. Consideration for the sale consisted of (i) $1,000 in cash, (ii) an excess cash adjustment of $316, (iii) real property valued at $3,700, and (iv) a promissory note receivable in the aggregate amount of $2,453. The promissory note bears interest at a rate of 5.00% per annum, with quarterly payments of interest and principal payments on the first anniversary of the closing date and at maturity on August 29, 2025. The sale includes the Company’s 100.00% ownership in Israel RMS and Israel RMS’s 62.50% ownership interest in Israel CRS. Prior to the sale, the management team owned a 37.50% non-controlling ownership position in Israel CRS.

11.    LEASES

The Company records a right-of-use (“ROU”) asset and lease liability for substantially all leases for which it is a lessee, in accordance with ASC 842. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. The Company recognizes lease expense for the leases on a straight-line basis over the lease term. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.

The Company has various operating and finance leases for facilities and equipment. Facilities leases provide office, laboratory, warehouse, or land that the Company uses to conduct its operations. Facilities leases range in duration from one to 21 years, with either renewal options for additional terms as the initial lease term expires, or purchase options. Facilities leases are considered as either operating or financing leases.

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Equipment leases provide for office equipment, laboratory equipment or services the Company uses to conduct its operations. Equipment leases range in duration from 21 to 84 months, with either subsequent annual renewals, additional terms as the initial lease term expires, or purchase options.

ROU lease assets and operating lease liabilities that are reported in the Company’s condensed consolidated balance sheets are as follows:
March 31, 2024September 30, 2023
Operating ROU assets, net$46,796 $38,866 
Current portion of operating lease liabilities11,413 10,282 
Long-term operating lease liabilities37,218 29,614 
Total operating lease liabilities$48,631 $39,896 
During the three and six months ended March 31, 2024, the Company had operating lease amortization of $2,208 and $4,355, respectively. During the three and six months ended March 31, 2023, the Company had operating lease amortization of $2,466 and $4,401, respectively.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense related to the Company’s leases for the three and six months ended March 31, 2024 and 2023 were:
Three Months Ended
March 31,
Six Months Ended
March 31,
2024202320242023
Operating lease costs: 
Fixed operating lease costs$3,491 $3,322 $6,594 $5,914 
Short-term lease costs 50  62 
Lease income(794)(811)(1,558)(1,485)
Total operating lease cost$2,697 $2,561 $5,036 $4,491 

The Company serves as lessor to a lessee in six facilities. The gross rental income and underlying lease expense are presented net in the Company’s condensed consolidated statements of operations. The gross rent receivables and underlying lease liabilities are presented gross in the Company’s condensed consolidated balance sheets.

Supplemental cash flow information related to leases was as follows:
Six Months Ended
March 31,
20242023
Cash flows included in the measurement of lease liabilities: 
Operating cash flows from operating leases$5,762 $5,491 
Non-cash lease activity: 
ROU assets obtained in exchange for new operating lease liabilities$12,441 $14,080 
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The weighted average remaining lease term and discount rate for the Company’s operating leases as of March 31, 2024 and 2023 were:
March 31, 2024March 31, 2023
Weighted-average remaining lease term (in years)
Operating lease8.915.92
Weighted-average discount rate (in percentages) 
Operating lease11.84 %7.85 %
Lease duration was determined utilizing renewal options that the Company is reasonably certain to execute.

As of March 31, 2024, maturities of operating lease liabilities for each of the following five fiscal years and a total thereafter were as follows:
Operating Leases
2024 (remainder of fiscal year)$6,122 
20259,695 
202610,340 
20278,375 
20286,859 
Thereafter47,843 
Total minimum future lease payments89,234 
Less interest(40,603)
Total lease liability