UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to _____________. |
Commission File Number
(Exact name of the registrant as specified in its charter)
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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. ⌧ NO ◻
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). ⌧ NO ◻
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. (Check):
Large accelerated filer ◻ | Accelerated filer ◻ | Smaller Reporting Company | Emerging growth company |
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. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
As of April 26, 2022,
TABLE OF CONTENTS
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PART I | FINANCIAL INFORMATION |
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Item 1 | Condensed Consolidated Financial Statements: |
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Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and September 30, 2021 | 4 | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 36 | ||
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INOTIV, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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| September 30, |
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2022 | 2021 | ||||||
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Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | |||
Restricted cash |
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Trade receivables and contract assets, net of allowances for doubtful accounts of $ |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net | | | |||||
Goodwill |
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Other intangible assets, net |
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Other assets |
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Total assets | $ | | $ | | |||
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Liabilities, shareholders' equity and noncontrolling interest |
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Current liabilities: |
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Accounts payable | $ | | $ | | |||
Accrued expenses and other liabilities |
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Capex line of credit | — | | |||||
Fees invoiced in advance | | | |||||
Current portion on long-term operating lease |
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Current portion of long-term debt | | | |||||
Total current liabilities |
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Long-term operating leases, net | | | |||||
Long-term debt, less current portion, net of debt issuance costs |
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Other liabilities | | | |||||
Deferred tax liabilities, net | | | |||||
Total liabilities |
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Contingencies (Note 14) | |||||||
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Shareholders’ equity and noncontrolling interest: |
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Preferred shares, authorized |
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Common shares, |
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Authorized |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss | ( | — | |||||
Total equity attributable to common shareholders | | | |||||
Noncontrolling interest | ( | — | |||||
Total shareholders’ equity and noncontrolling interest |
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Total liabilities and shareholders’ equity and noncontrolling interest | $ | | $ | |
The accompanying notes are an integral part of the condensed consolidated financial statements
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INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||
March 31, | March 31, | ||||||||||||
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| 2021 |
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Service revenue | $ | | $ | | $ | | $ | | |||||
Product revenue |
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Total revenue | $ | |
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Costs and expenses: |
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Cost of services provided | | | | | |||||||||
Cost of products sold | | | | | |||||||||
Selling |
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General and administrative | | | | | |||||||||
Amortization of intangible assets | | | | | |||||||||
Other operating expense | | | | | |||||||||
Operating income (loss) | $ | | $ | ( | $ | ( | $ | ( | |||||
Other income (expense): | |||||||||||||
Interest expense |
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Other (expense) income |
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Income (loss) before income taxes | $ | | $ | ( | $ | ( | $ | ( | |||||
Income tax (expense) benefit |
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Consolidated net (loss) | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Less: Net income (expense) attributable to noncontrolling interests | ( | — | ( | — | |||||||||
Net (loss) attributable to common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||
(Loss) per common share | |||||||||||||
Net (loss) attributable to common shareholders: | |||||||||||||
Basic and diluted | ( | ( | ( | ( | |||||||||
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Weighted-average number of common shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
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INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
Three Months Ended | Six Months Ended | |||||||||||
March 31, | March 31, | |||||||||||
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Consolidated net (loss) | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Foreign currency translation |
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Defined benefit plans: | ||||||||||||
Amortization of periodic benefit costs | | — | | — | ||||||||
Other comprehensive (loss) income, net of tax | ( | — | ( | — | ||||||||
Consolidated comprehensive (loss) | ( | ( | ( | ( | ||||||||
Less: Comprehensive (loss) attributable to non-controlling interests |
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Comprehensive (loss) attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( |
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INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
(UNAUDITED)
(In thousands, except number of shares)
Three and Six Month Periods Ended March 31, 2022 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
| Additional |
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Preferred Shares | Common Shares | paid-in | Accumulated | Comprehensive | Controlling | shareholders’ | |||||||||||||||||||
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Balance at September 30, 2021 |
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Consolidated net (loss) income |
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Stock issued in acquisitions | |
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Non-controlling interest related to Envigo acquisition | |
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Issuance of stock under employee stock plans | | | | | | | — | — | | ||||||||||||||||
Stock based compensation | | | | | | | — | — | | ||||||||||||||||
Pension cost amortization | | | | | | | ( | — | ( | ||||||||||||||||
Foreign currency translation adjustment | | | | | | | | — | | ||||||||||||||||
Reclassification of convertible note embedded derivative to equity (Note 7) | | | | | | | — | — | | ||||||||||||||||
Balance at December 31, 2021 | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | $ | | |||||||||
Consolidated net (loss) income | |
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Stock issued in acquisitions | |
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Non-controlling interest related to Envigo acquisition | |
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Issuance of stock under employee stock plans | | | | | | | — | — | | ||||||||||||||||
Stock based compensation | | | | | | | — | — | | ||||||||||||||||
Pension cost amortization | | | |
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Foreign currency translation adjustment | | | | | | | ( | ( | ( | ||||||||||||||||
Balance March 31, 2022 | | $ | | | $ | | $ | | ( | $ | ( | $ | ( | $ | |
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INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST
(UNAUDITED)
(In thousands, except number of shares)
Three and Six Month Periods Ended March 31, 2021 | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
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Preferred Shares | Common Shares | paid-in | Accumulated | Comprehensive | Controlling | shareholders’ | |||||||||||||||||||
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| Loss | Interests | equity | |||||||||
Balance at September 30, 2020 |
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Consolidated net (loss) income | |
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Stock option exercises | — | — | | | | | — | — | | ||||||||||||||||
Stock based compensation | | | | | | | | | | ||||||||||||||||
Balance at December 31, 2020 | | $ | | | $ | | $ | | $ | ( | $ | — | $ | — | $ | | |||||||||
Consolidated net (loss) income | — |
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Stock based compensation | — | — | | | | | — | — | | ||||||||||||||||
Stock option exercises | — | — | | | | | — | — | | ||||||||||||||||
Preferred stock conversion | ( | ( | | | | | — | — | | ||||||||||||||||
Balance at March 31, 2021 | — | $ | — | | $ | | $ | | $ | ( | $ | — | $ | — | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
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INOTIV, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended | |||||||
March 31, | |||||||
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Operating activities: |
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Consolidated net (loss) | $ | ( | $ | ( | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of acquisitions: |
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Depreciation and amortization |
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Undistributed earnings of noncontrolling interest | | — | |||||
Employee stock compensation expense |
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Changes in deferred taxes | ( | — | |||||
Provision for doubtful accounts | | | |||||
Unrealized foreign currency loss | | | |||||
Amortization of debt issuance costs and original issue discount | | — | |||||
Noncash interest and accretion expense | | — | |||||
Loss on fair value remeasurement of embedded derivative | | — | |||||
Other non-cash operating activities | — | | |||||
Loss on debt extinguishment | | — | |||||
Non-cash amortization of inventory fair value step-up | | — | |||||
Gain on disposal of property and equipment | ( | ( | |||||
Financing lease interest expense |
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Changes in operating assets and liabilities: |
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Trade receivables and contract assets |
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Inventories |
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Prepaid expenses and other current assets | ( | | |||||
Operational lease right-of-use assets and liabilities, net | | ( | |||||
Accounts payable |
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Accrued expenses and other liabilities |
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Fees invoiced in advance |
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Other asset and liabilities, net | | — | |||||
Net cash provided by operating activities |
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Investing activities: |
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Capital expenditures | ( | ( | |||||
Proceeds from sale of equipment | | | |||||
Cash paid in acquisitions |
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Net cash used in investing activities |
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Financing activities: |
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Payments on finance lease liability | — | ( | |||||
Payments of long-term debt | ( | ( | |||||
Payments of debt issuance costs | ( | ( | |||||
Payments on promissory notes |
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Payments on capex lines of credit | ( | ( | |||||
Payments on revolving credit facility |
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Payments on senior term notes | ( | ||||||
Payments on delayed draw term loan | ( | ||||||
Borrowings on revolving credit facility |
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Borrowings on construction loans | | — | |||||
Borrowings on capex lines of credit | — | | |||||
Borrowings on delayed draw term loan | | — | |||||
Proceeds from issuance of senior term notes | | — | |||||
Proceeds from exercise of stock options | | | |||||
Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash and cash equivalents | ( | — | |||||
Net (decrease) increase in cash and cash equivalents |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period | $ | | $ | | |||
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Noncash financing activity: | |||||||
Seller financed acquisition | $ | | — | ||||
Supplemental disclosure of cash flow information: |
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Cash paid for interest | $ | | $ | | |||
Income taxes paid, net | $ | | $ | — | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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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 and a variable interest entity (“VIE”) (“we,” “our,” “us,” the “Company,” and “Inotiv”) comprise a leading contract research organization specializing in nonclinical and analytical drug discovery and development services. The Company also manufactures scientific instruments for life sciences research, which it sells with related software for use by pharmaceutical companies, universities, government research centers and medical research institutions.
On November 5, 2021, the Company completed the acquisition of Envigo RMS Holding Corp. (“Envigo”) by merger of a wholly owned subsidiary of the Company with and into Envigo.
As a result of the Envigo transaction, the Company’s business now includes breeding, importing and selling research-quality animal models for use in laboratory tests, manufacturing and distributing standard and custom diets, distributing bedding and enrichment products, and providing other services associated with these products. With over 130 different species and strains, the Company is a global leader in the production and sale of some of the most widely used rodent research model strains, among other species. The Company maintains production and distribution facilities in the United States (“U.S.”), United Kingdom (“U.K.”), mainland Europe, and Israel.
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 generally accepted accounting principles (“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, 2021. In the opinion of management, the condensed consolidated financial statements for the three and six months ended March 31, 2022 and 2021 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, 2022. The results of operations for the three and six months ended March 31, 2022 may not be indicative of the results for the fiscal year ending September 30, 2022.
The acquisition of Envigo was transformational to the Company’s underlying business. As a result, certain reclassifications have been made to prior periods in the unaudited condensed consolidated financial statements and accompanying notes to conform with current presentation, which more closely reflects management’s perspective of the business as it currently exists.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgements 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 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 a VIE it consolidates in accordance with GAAP. The Company consolidates a VIE as a result of the Envigo acquisition. The VIE does not materially impact our net assets or net income.
The Company accounts for noncontrolling interests in accordance with Accounting Standard 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 income (loss) is presented on the condensed consolidated statement of operations.
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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 fiscal year 2021. As a result of the Envigo acquisition, the following policies have been added or adjusted to reflect our combined business.
Pension Costs
As a result of the Envigo acquisition, the Company has a defined benefit pension plan for one of its U.K. subsidiaries.
The projected benefit obligation and funded position of the defined benefit plan is estimated by actuaries and the Company recognizes the funded status of its defined benefit plan on its condensed consolidated balance sheets and recognizes gains, losses and prior service costs or credits that arise during the period that are not recognized as components of net periodic benefit cost as a component of accumulated other comprehensive income (loss), net of tax. The Company measures plan assets and obligations as of the date of the Company’s year-end consolidated balance sheet, using assumptions to anticipate future events. The valuation of assets acquired and liabilities assumed in the Envigo acquisition had not yet been finalized as of March 31, 2022. The purchase price allocation is preliminary and subject to change, including the valuation of the unfunded defined benefit plan obligation, among other items.
Additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations are disclosed in the notes to the condensed consolidated financial statements (see Note 13 – Defined Benefit Plan).
Comprehensive Income (Loss)
Comprehensive income (loss) for the periods presented is comprised of consolidated net income (loss) plus the change in the cumulative translation adjustment equity account and the adjustments, net of tax, for the current period actuarial gains (losses) in connection with the Company’s defined benefit plan.
Foreign Currencies
Transactions in currencies other than the functional currency of each entity are recorded at the rates of exchange on the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are translated at the rates of exchange on the balance sheet date and the related transaction gains and losses are reported in the condensed consolidated statements of operations, in Operating income. The Company records gains and losses from re-measuring intercompany loans within Other (expense) income in the condensed consolidated statements of operations.
The results of operations of subsidiaries whose functional currency is other than the U.S. dollar are translated into U.S. dollars at the average exchange rate, assets and liabilities are translated at period-end exchange rates, capital accounts are translated at historical exchange rates, and retained earnings are translated at the weighted average of historical rates. Translation adjustments are excluded from the determination of net income (loss) and are recorded as a separate component of equity within accumulated other comprehensive income (loss) in the condensed consolidated financial statements.
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, 2022,
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2. EQUITY
Common Stock Offering
On April 23, 2021, we closed an underwritten public offering of
Increase in Authorized Shares and Equity Plan Reserve
On November 4, 2021, the Company’s shareholders approved an amendment to the Company’s Second Amended and Restated Articles of Incorporation to increase the number of authorized shares from
Stock Issued in Connection with Acquisitions
During the three and six months ended March 31, 2022,
Stock Based Compensation
The Company expenses the estimated fair value of stock options, restricted stock and restricted stock units over the vesting periods of the grants. The Company recognizes expense for awards subject to graded vesting using the straight-line attribution method. The Company adopted a change in accounting policy effective October 1, 2020 for forfeitures. Stock based compensation expense for the three and six months ended March 31, 2022 and 2021, was $
3. NET LOSS PER SHARE
The Company computes basic income (loss) per share using the weighted average number of common shares outstanding. The Company computes diluted earnings per share using the if-converted method for preferred shares and convertible debt, if any, and the treasury stock method for stock options and restricted stock units. Shares issuable upon exercise of
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