Inotiv, Inc. [NOTV] Filings

10-Q 1 notv-20230630.htm 10-Q notv-20230630

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 June 30, 2023
			OR
			o			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 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 class

Trading Symbol(s)

Name of each exchange
on which registered

Common Shares

NOTV

The 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 o

Non-accelerated filer x

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 July 28, 2023, 25,782,742 of the registrant's common shares were outstanding.

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TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1	Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and September 30, 2022	5
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2023 and 2022 (Unaudited)	6
	Condensed Consolidated Statements of Comprehensive Income (Loss ) for the Three and Nine Months Ended June 30, 2023 and 2022 (Unaudited)	7
	Condensed Consolidated Statements of Shareholders’ Equity and Noncontrolling Interest for the Three and Nine Months Ended June 30 , 2023 and 2022 (Unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30 , 2023 and 2022 (Unaudited)	10
	Notes to Condensed Consolidated Financial Statements	12
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4	Controls and Procedures	58

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	59
Item 1A	Risk Factors	59
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3	Defaults Upon Senior Securities	59
Item 4	Mine Safety Disclosures	59
Item 5	Other Information	59
Item 6	Exhibits	60
	Signatures	61

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Index to Consolidated Financial Statements


			Page
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			12

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION			12

2. REVENUE FROM CONTRACTS WITH CUSTOMERS			14

3. SEGMENT AND GEOGRAPHIC INFORMATION			15

4. BUSINESS COMBINATIONS			17

5. GOODWILL AND INTANGIBLE ASSETS			24

6. DEBT			25

7. SUPPLEMENTAL BALANCE SHEET INFORMATION			31

8. DEFINED BENEFIT PLAN			32

9. OTHER OPERATING EXPENSE			33

10. RESTRUCTURING AND ASSETS HELD FOR SALE			33

11. LEASES			35

12. EQUITY, STOCK-BASED COMPENSATION AND E ARNING S (LOSS ) PER SHARE			37

13. INCOME TAXES			38

14. CONTINGENCIES			39

15. SUBSEQUENT EVENTS			42

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INOTIV, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	June 30,		September 30,
	2023		2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	22,220	$	18,515
Restricted cash	—		465
Trade receivables and contract assets, net of allowances for credit losses of $8,365 and $6,268, respectively	82,771		100,073
Inventories, net	53,920		71,441
Prepaid expenses and other current assets	35,519		42,483
Assets held for sale	8,708		—
Total current assets	203,138		232,977

Property and equipment, net	189,089		186,199
Operating lease right-of-use assets, net	41,426		32,489
Goodwill	94,286		157,825
Other intangible assets, net	317,553		345,886
Other assets	9,342		7,524
Total assets	$	854,834	$	962,900

Liabilities, shareholders' equity and noncontrolling interest
Current liabilities:
Accounts payable	$	30,499	$	28,695
Accrued expenses and other liabilities	23,450		35,801
Revolving credit facility	—		15,000
Fees invoiced in advance	50,443		68,642
Current portion of long-term operating lease	10,755		7,982
Current portion of long-term debt	3,810		7,979
Liabilities held for sale	2,271		—
Total current liabilities	121,228		164,099
Long-term operating leases, net	31,795		24,854
Long-term debt, less current portion, net of debt issuance costs	371,752		330,677
Other long-term liabilities	5,913		6,477
Deferred tax liabilities, net	48,816		77,027
Total liabilities	579,504		603,134

Contingencies (Note 14)

Shareholders’ equity and noncontrolling interest:
Common shares, no par value:
Authorized 74,000,000 shares at June 30, 2023 and at September 30, 2022; 25,782,742 issued and outstanding at June 30, 2023 and 25,598,289 at September 30, 2022	6,513		6,362
Additional paid-in capital	713,601		707,787
Accumulated deficit	(444,443)		(348,277)
Accumulated other comprehensive income (loss)	392		(5,500)
Total equity attributable to common shareholders	276,063		360,372
Noncontrolling interest	(733)		(606)
Total shareholders’ equity and noncontrolling interest	275,330		359,766
Total liabilities and shareholders’ equity and noncontrolling interest	$	854,834	$	962,900

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 June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Service revenue	$	56,295	$	60,119	$	165,095	$	147,879
Product revenue	101,173		112,547		266,590		249,311
Total revenue	$	157,468	172,666		$	431,685	$	397,190
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)	39,115		34,477		112,688		91,991
Cost of products sold (excluding amortization of intangible assets)	63,229		87,253		197,255		190,212
Selling	4,793		4,802		14,058		12,187
General and administrative	26,570		21,652		84,574		56,251
Amortization of intangible assets	8,717		8,854		25,951		18,664
Other operating expense	6,261		10,841		14,712		48,871
Goodwill impairment loss	—		—		66,367		—
Operating income (loss)	$	8,783	$	4,787	$	(83,920)	$	(20,986)
Other (expense) income:
Interest expense	(10,786)		(8,441)		(31,751)		(20,816)
Other (expense) income	(12)		440		(1,345)		(57,426)
Loss before income taxes	$	(2,015)	$	(3,214)	$	(117,016)	$	(99,228)
Income tax benefit (expense)	2,380		(342)		20,820		5,597
Consolidated net income (loss)	$	365	$	(3,556)	$	(96,196)	$	(93,631)
Less: Net (loss) income attributable to noncontrolling interests	(1,475)		172		(719)		(769)
Net income (loss) attributable to common shareholders	$	1,840	$	(3,728)	$	(95,477)	$	(92,862)

Income (loss) per common share
Net income (loss) attributable to common shareholders:
Basic	$	0.07	$	(0.15)	$	(3.72)	$	(3.88)
Diluted	$	0.07	$	(0.15)	$	(3.72)	$	(3.88)
Weighted-average number of common shares outstanding:
Basic	25,726		25,510		25,690		23,938
Diluted	26,021		25,510		25,690		23,938

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)

(In thousands)

(Unaudited)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Consolidated net income (loss)	$	365	$	(3,556)	$	(96,196)	$	(93,631)
Foreign currency translation	(392)		(2,851)		5,651		(3,718)
Defined benefit plans:
Pension cost amortization	(55)		173		(163)		403
Foreign currency translation	137		—		404		—
Other comprehensive (loss) income, net of tax	(310)		(2,678)		5,892		(3,315)
Consolidated comprehensive income (loss)	55		(6,234)		(90,304)		(96,946)
Less: Comprehensive (loss) income attributable to non-controlling interests	(1,475)		172		(719)		(769)
Comprehensive income (loss) attributable to common stockholders	$	1,530	$	(6,406)	$	(89,585)	$	(96,177)

The accompanying notes are an integral part of the condensed consolidated financial statements.

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INOTIV, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTEREST

(In thousands, except number of shares)

(Unaudited)


	Common Shares			Additional paid-in capital		Accumulated deficit		Accumulated Other Comprehensive (Loss) Income		Non- Controlling Interests		Total shareholders’ equity
	Number	Amount
Balance at September 30, 2022	25,598,289	$	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 plans	8,347	1		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, 2022	25,606,636	$	6,363	$	709,856	$	(435,209)	$	(206)	$	(997)	$	279,807
Consolidated net loss	—	—		—		(9,629)		—		(365)		(9,994)
Issuance of stock under employee stock plans	152,471	128		(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, 2023	25,759,107	$	6,491	$	711,591	$	(444,838)	$	702	$	(1,311)	$	272,635
Consolidated net income	—	—		—		365		—		1,475		1,840
Issuance of stock under employee stock plans	23,635	22		(19)		—		—		—		3
Noncontrolling interest related to Envigo acquisition	—	—		—		—		—		(961)		(961)
Stock-based compensation	—	—		2,029		—		—		—		2,029
Pension cost amortization	—	—		—		—		(55)		—		(55)
Foreign currency translation adjustment	—	—		—		—		(255)		—		(255)
Other	—	—		—		30		—		64		94
Balance June 30, 2023	25,782,742	$	6,513	$	713,601	$	(444,443)	$	392	$	(733)	$	275,330

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	Common Shares			Additional paid-in capital		Accumulated deficit		Accumulated Other Comprehensive (Loss) Income		Non- Controlling Interests		Total shareholders’ equity
	Number	Amount
Balance at September 30, 2021	15,931,485	$	3,945	$	112,198	$	(11,015)	$	—	$	—	$	105,128
Consolidated net (loss) income	—	—		—		(83,411)		—		364		(83,047)
Stock issued in acquisitions	8,374,138	2,094		459,289		—		—		—		461,383
Noncontrolling interest related to Envigo acquisition		—		—		—		—		(983)		(983)
Issuance of stock under employee stock plans	42,971	11		38		—		—		—		49
Stock-based compensation	—	—		19,160		—		—		—		19,160
Pension cost amortization	—	—		—		—		(110)		—		(110)
Foreign currency translation adjustment	—	—		—		—		247		—		247
Reclassification of convertible note embedded derivative to equity	—	—		88,576		—		—		—		88,576
Balance at December 31, 2021	24,348,594	$	6,050	$	679,261	$	(94,426)	$	137	$	(619)	$	590,403
Consolidated net (loss) income	—	—		—		(6,664)		—		577		(6,087)
Stock issued in acquisitions	1,106,457	276		32,599		—		—		—		32,875
Noncontrolling interest related to Envigo acquisition	—	—		—		—		—		(191)		(191)
Issuance of stock under employee stock plans	40,650	10		36		—		—		—		46
Stock-based compensation	—	—		1,138		—		—		—		1,138
Pension cost amortization	—	—		—		—		340		—		340
Foreign currency translation adjustment	—	—		—		—		(1,105)		(9)		(1,114)
Balance at March 31, 2022	25,495,701	$	6,336	$	713,034	$	(101,090)	$	(628)	$	(242)	$	617,410
Consolidated net loss	—	—		—		(3,556)		—		(172)		(3,728)
Stock issued in acquisitions	17,618	4		360		—		—		—		364
Noncontrolling interest related to Envigo acquisition	—	—		—		—		—		271		271
Issuance of stock under employee stock plans	2,472	1		6		—		—		—		7
Stock-based compensation	—	—		1,987		—		—		—		1,987
Pension cost amortization	—	—		—		—		173		—		173
Foreign currency translation adjustment	—	—		—		—		(2,851)		—		(2,851)
Balance at June 30, 2022	25,515,791	$	6,341	$	715,387	$	(104,646)	$	(3,306)	$	(143)	$	613,633

The accompanying notes are an integral part of the condensed consolidated financial statements.

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INOTIV, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended June 30,
	2023		2022
Operating activities:
Consolidated net loss	$	(96,196)	$	(93,631)
Adjustments to reconcile net loss to net cash used in operating activities, net of acquisitions:
Depreciation and amortization	40,117		31,867
Employee stock compensation expense	5,856		22,285
Changes in deferred taxes	(27,114)		(8,385)
Provision for expected credit losses	2,175		661
Amortization of debt issuance costs and original issue discount	2,339		1,907
Non-cash interest and accretion expense	4,608		3,906
Loss on fair value remeasurement of embedded derivative	—		56,714
Other non-cash operating activities	1,034		(94)
Goodwill impairment loss	66,367		—
Loss on debt extinguishment	—		877
Non-cash amortization of inventory fair value step-up	563		10,039
Non-cash restructuring costs	889		2,990
Changes in operating assets and liabilities:
Trade receivables and contract assets	13,047		(30,565)
Inventories	16,550		(26,589)
Prepaid expenses and other current assets	6,272		(14,743)
Operating lease right-of-use assets and liabilities, net	779		447
Accounts payable	4,128		8,129
Accrued expenses and other liabilities	(11,048)		(3,327)
Fees invoiced in advance	(18,098)		32,789
Other asset and liabilities, net	(3,148)		(665)
Net cash provided by (used in) operating activities	9,120		(5,388)

Investing activities:
Capital expenditures	(21,324)		(31,275)
Proceeds from sale of equipment	268		277
Cash paid in acquisitions	—		(287,129)
Net cash used in investing activities	(21,056)		(318,127)

Financing activities:
Payments of long-term debt	—		(36,777)
Payments of debt issuance costs	(77)		(10,067)
Payments on promissory notes	(1,780)		(1,362)
Payments on revolving credit facility	(21,000)		(19,000)
Payments on senior term notes and delayed draw term loans	(2,070)		(1,200)
Borrowings on revolving loan facility	6,000		19,000
Borrowings on delayed draw term loan	35,000		35,000
Proceeds from exercise of stock options	109		102
Proceeds from issuance of senior term notes	—		205,000
Other, net	—		(1,534)
Net cash provided by financing activities	16,182		189,162

Effect of exchange rate changes on cash and cash equivalents	753		(852)

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Net increase (decrease) in cash and cash equivalents	4,999		(135,205)
Less: cash, cash equivalents, and restricted cash held for sale	(1,759)		—
Cash, cash equivalents, and restricted cash at beginning of period	18,980		156,924
Cash, cash equivalents, and restricted cash at end of period, net of cash, cash equivalents and restricted cash held for sale	$	22,220	$	21,719

Non-cash financing activity:
Seller financed acquisition	$	—	$	6,288
Paid in kind debt issuance costs	$	1,363	$	—

Supplemental disclosure of cash flow information:
Cash paid for interest	$	26,889	$	11,914
Income taxes paid, net	$	5,979	$	666

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 (“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 CRO 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.

Temporarily Suspended or Limited Operations

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”). Also as previously disclosed, two of the Company’s subsidiaries, Orient BioResource Center, Inc. (“OBRC”) and Envigo Global Services, Inc. (“EGSI”), companies acquired by the Company on January 27, 2022 and November 5, 2021, respectively, had received grand jury subpoenas from USAO-SDFL requiring the production of documents and information related to their importation of NHPs into the U.S. The Company has been fully cooperating, and will continue to cooperate, with USAO-SDFL.

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 and through January 13, 2023, to refrain from selling or delivering any of its Cambodian NHPs held in the U.S. until the Company’s staff and external experts evaluated 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 has 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. The Company has continued to sell NHPs from other suppliers. Subsequent to January 13,

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2023, and through the date of this report, and after an internal analysis and review, the Company has shipped a number of its Cambodian NHP inventory; however, the Company is not currently shipping Cambodian NHPs at the same volumes that it was prior to the November 16, 2022 event. The Company expects to establish new procedures before it will resume Cambodian NHP imports. The Company expects that future imports of NHPs from Cambodia will be dependent on working with third parties to establish additional procedures aiming at providing additional assurances that future NHP imports from Cambodia are purpose-bred.

Of the Company’s total revenue of $547,656 in the fiscal year ended September 30, 2022, approximately $140,000 was from NHPs that it had imported from Cambodia. Refer to the "Liquidity" section below and Note 5 – Goodwill and Intangible Assets for further discussion of impacts to the nine months ended June 30, 2023, and expected future impacts.

Liquidity

As of June 30, 2023, the Company had cash and cash equivalents of approximately $22,220. 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 (as defined in Note 6 – Debt) resulting in, among other things, a limitation of the Company’s ability to draw on its revolving credit facility. The loss of access to the Company’s revolving credit facility 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, which was executed on January 9, 2023, to reinstate its ability to borrow under its revolving credit facility. Without the amendment, the Company was at risk of not having the revolving credit facility available.

As a result of the Company's site optimization strategy, the Company announced the completion of the closure of the Cumberland, Virginia (“Cumberland”) facility during the first quarter of fiscal year 2023. Further, the Dublin, Virginia (“Dublin”) facility transition was completed in November 2022, the exits of the Boyertown, Pennsylvania (“Boyertown”) and Haslett, Michigan (“Haslett”) facilities were completed in March 2023 and the relocation of operations for Gannat, France (“Gannat”) and St. Louis, Missouri (“RMS St. Louis”) were completed in June 2023. In addition to the completed closures and consolidations, the facility in Blackthorn, U.K. (“Blackthorn”) is expected to be complete by the end of June 2024. Refer to Note 10 – Restructuring and Assets Held for Sale for further information regarding the site optimization plan.

Further, the Company has executed price increases that began in January 2023. The Company also took steps in reducing its 2023 budgeted capital expenditures and certain forecasted expenses, including a reduction of nonessential travel and employee-related expenses, among other efficiency-based reductions. As a result of the above measures, the Company believes its existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund its operations, satisfy its obligations, including cash outflows for planned targeted capital expenditures, and comply with minimum liquidity and financial covenant requirements under its debt covenants under its Credit Agreement, for at least the next twelve months. The forecasted operating cash flows include the shipping of the Company’s existing Cambodian NHP inventory. See Note 6 – Debt for further information about the Company’s existing credit facilities and requirements under its debt covenants. The Company’s liquidity needs and compliance with covenants depend, among other things, on the timing of NHP shipments and its ability to generate cash from operations.

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, 2022. In the opinion of management, the condensed consolidated financial statements for the three and nine months ended June 30, 2023 and 2022 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 June 30, 2023. The results of operations for the three and nine months ended June 30, 2023 are not necessarily indicative of the results for the fiscal year ending September 30, 2023. Certain prior year amounts have been reclassified within the statements of cash flows for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

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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 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 variable interest entity (“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 (loss).

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 income (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, 2022, 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 nine months ended June 30, 2023, one customer accounted for 19.7% and 22.5% of sales, respectively. During the three and nine months ended June 30, 2022, one customer accounted for 30.9% and 28.9% of sales, respectively. During the three and nine months ended June 30, 2023, no vendors accounted for more than 10% of cost of revenues. During the three and nine ended June 30, 2022, one vendor accounted for 13.0% and 13.7% of cost of revenues, respectively.

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.

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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 June 30, 2023		Balance at September 30, 2022
Contract assets: Trade receivables	$	74,492	$	88,867
Contract assets: Unbilled revenue	16,644		17,474
Contract liabilities: Customer deposits	32,409		39,222
Contract liabilities: Deferred revenue	18,034		29,420

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 $15,737 and $2,647 of unpaid advanced client billings from both client receivables and deferred revenue as of June 30, 2023 and September 30, 2022, respectively.

Changes in the contract asset and the contract liability balances during the nine months ended June 30, 2023 include the following:

•Changes in the time frame for a right for consideration to become unconditional – approximately 94.0% of unbilled revenue as of September 30, 2022, was billed during the nine months ended June 30, 2023; and

•Changes in the time frame for a performance obligation to be satisfied – approximately 75.7% of deferred revenue as of September 30, 2022, was recognized as revenue during the nine months ended June 30, 2023.

3. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

During the three and nine months ended June 30, 2023, the RMS segment reported intersegment revenue of $3,471 and $7,858 to the DSA segment, respectively. During the three and nine months ended June 30, 2022, the RMS segment reported intersegment revenue of $2,257 and $4,574 to the DSA segment, respectively. The following tables present revenue and other financial information by reportable segment:

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	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Revenue
DSA:
Service revenue	$	45,197	$	48,217	$	131,313	$	118,154
Product revenue	1,561		1,007		3,561		2,949
RMS:
Service revenue	11,098		11,902		33,782		29,725
Product revenue	99,612		111,540		263,029		246,362
	$	157,468	$	172,666	$	431,685	$	397,190

Operating Income (Loss)
DSA	$	4,182	$	13,171	$	8,478	$	22,965
RMS	21,886		11,902		(36,661)		34,544
Unallocated Corporate	(17,285)		(20,286)		(55,737)		(78,495)
	$	8,783	$	4,787	$	(83,920)	$	(20,986)

Interest expense	(10,786)		(8,441)		(31,751)		(20,816)
Other (expense) income	(12)		440		(1,345)		(57,426)
Loss before income taxes	$	(2,015)	$	(3,214)	$	(117,016)	$	(99,228)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Depreciation and amortization:
DSA	$	4,235	$	3,438	$	11,826	$	9,396
RMS	9,629		12,563		28,291		22,471
	$	13,864	$	16,001	$	40,117	$	31,867

Capital expenditures:
DSA	$	2,403	7,614		$	9,667	$	14,031
RMS	2,081		8,459		11,657		17,244
	$	4,484	$	16,073	$	21,324	$	31,275

Geographic Information

The following represents revenue originating in entities physically located in the identified geographic area:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
United States	$	132,265	$	150,540	$	361,254	$	340,875
Netherlands	15,682		12,894		42,426		31,549
Other	9,521		9,232		28,005		24,766
	$	157,468	$	172,666	$	431,685	$	397,190

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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:


	June 30,		September 30,
	2023		2022
United States	$	175,451	$	173,417
Netherlands	6,625		5,824
Other	7,803		6,958
	$	189,879	$	186,199

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.

Plato BioPharma Acquisition

On October 4, 2021, the Company completed the acquisition of Plato BioPharma, Inc. (“Plato”) to expand its market reach in early-stage drug discovery. Consideration for the Plato acquisition consisted of (i) $10,530 in cash, including working capital and subject to customary purchase price adjustments, (ii) 57,587 of the Company’s common shares valued at $1,776 using the closing price of the Company’s common shares on October 4, 2021 and (iii) seller notes to the former shareholder of Plato in an aggregate principal amount of $3,000. This business is reported as part of our DSA reportable segment.

The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:


	October 4, 2021
Assets acquired and liabilities assumed:
Cash	1,027
Trade receivables and contract assets	853
Prepaid expenses and other assets	133
Property and equipment	1,127
Operating lease right-of-use assets, net	2,272
Goodwill	9,279
Intangible assets	4,800
Accounts payable	(113)
Accrued expenses and other liabilities	(343)
Operating lease liabilities	(2,272)
Deferred tax liabilities	(1,457)
	$	15,306

Property and equipment is mostly composed of lab equipment, furniture and fixtures, and computer equipment. The fair value of property and equipment was determined using a combination of cost and market-based methodologies.

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straight-line basis. The estimated fair value of the customer relationships was determined using the "income approach," which is a valuation technique that provides 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 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, expanded client base 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 is not deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s DSA reportable segment.

Envigo RMS Holding Corp Acquisition

On November 5, 2021, the Company completed the acquisition of Envigo by merger of a wholly owned subsidiary of the Company with and into Envigo to expand its market reach in early-stage drug discovery. The aggregate consideration paid to the holders of outstanding capital stock in Envigo in the merger consisted of cash of $217,808, including adjustments for net working capital, and 8,245,918 of the Company’s common shares valued at $439,590 using the opening price of the Company’s common shares on November 5, 2021. In addition, the Company assumed certain outstanding Envigo stock options, including both vested and unvested options, that were converted to the right to purchase 790,620 Company common shares at an exercise price of $9.93 per share. The stock options were valued at $44.80 per option utilizing a Black-Scholes option valuation model with the inputs below. The total value of options issued was $35,418, of which $18,242 was excluded from the purchase price as those options were determined to be post-combination expense. The previously vested stock options are reflected as purchase consideration of approximately $17,176. This business is reported as part of the Company’s RMS reportable segment.


Stock price	$	53.31
Strike price	$	9.93
Volatility	75.93		%
Expected term	3.05
Risk-free rate	0.62		%

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The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:


	November 5, 2021
Assets acquired and liabilities assumed:
Cash	2,488
Restricted cash	435
Trade receivables and contract assets	43,566
Inventories	40,000
Prepaid expenses and other current assets	17,373
Property and equipment	106,338
Operating lease right-of-use assets, net	13,229
Goodwill	282,768
Intangible assets - customer relationships	251,000
Intangible assets - intellectual property	49,000
Other assets	7,676
Accounts payable	(25,832)
Accrued expenses and other liabilities	(11,665)
Fees invoiced in advance	(7,047)
Current portion on long-term operating lease	(4,371)
Long-term operating leases, net	(8,634)
Other liabilities	(5,339)
Deferred tax liabilities	(77,291)
Noncontrolling interest	880
	$	674,574

Inventory is comprised of small and large animal research models, including NHPs, and Teklad diet and bedding. The fair value was determined using a comparative sales methodology, in which the intent is to ensure that the acquirer only recognizes profits associated to value added subsequent to the acquisition date.

Property and equipment is mostly composed of land, buildings and equipment (including lab equipment, furniture and fixtures, caging and computer equipment). The fair value of property and equipment was determined using a combination of cost and market-based methodologies.

Intangible assets primarily relate to customer relationships and technology associated with the ability to produce and care for the research models. The acquired customer relationship intangible assets are being amortized over a weighted-average estimated useful life of approximately 12.5 years on a straight-line basis and the acquired intellectual property associated with the ability to produce and care for the research models is being amortized over a weighted-average estimated useful life of approximately 8.8 years. 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, gross margin, EBITDA, customer survival rate and royalty rates), the 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.

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 Envigo acquisition as a result of book-to-tax differences primarily related to the intangible assets, step up on the fair value of inventory and property and equipment. Within the deferred tax liability, $2,222 of acquired foreign net operating losses are offset by an uncertain tax benefit of $1,861.

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Goodwill, which is derived from the expanded client base, the ability to provide products and services for the entirety of discovery and nonclinical development within one organization, and to ensure supply for internal use, is recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and $50,428 is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s RMS reportable segment.

Robinson Services, Inc. Acquisition

On December 29, 2021, the Company completed the acquisition of the rabbit breeding and supply business of Robinson Services, Inc. (“RSI”). The acquisition was another step in Inotiv’s strategic plan for building its RMS business. The aggregate consideration paid in the transaction consisted of cash consideration of $3,250 and 70,633 of the Company’s common shares valued at $2,898 using the closing price of the Company’s common shares on December 29, 2021.

This business is reported as part of the Company’s RMS reportable segment.

The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:


	December 29, 2021
Assets acquired and liabilities assumed:
Customer relationship	4,700
Non-compete agreement	300
Supply agreement	200
Goodwill	948
	$	6,148

Intangible assets primarily relate to customer relationships. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 7.5 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 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 expanded client base 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 is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s RMS reportable segment.

Integrated Laboratory Systems, LLC Acquisition

On January 10, 2022, the Company completed the acquisition of Integrated Laboratory Systems, LLC (“ILS”). ILS is a provider of services specializing in nonclinical and analytical drug discovery and development services. Consideration for the ILS acquisition consisted of (i) $38,993 in cash, including adjustments for net working capital, and inclusive of $3,800 being held in escrow for purposes of securing any amounts payable by the selling parties on account of indemnification obligations, purchase price adjustments, and other amounts payable under the merger agreement, (ii) 429,118 of the Company’s common shares valued at $14,466 using the opening price of the Company’s common shares on January 10, 2022 and (iii) the effective settlement of a preexisting relationship of $(15). This business is reported as part of our DSA reportable segment.

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The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:


	January 10, 2022
Assets acquired and liabilities assumed:
Cash	797
Trade receivables, contract assets and other current assets	4,730
Property and equipment	4,436
Operating lease right-of-use assets, net	4,994
Goodwill	25,283
Intangible assets	22,300
Accounts payable	(1,165)
Accrued expenses and other liabilities	(905)
Fees invoiced in advance	(2,472)
Operating lease liabilities	(4,554)
	$	53,444

Property and equipment is mostly composed of equipment (including lab equipment, furniture and fixtures, and computer equipment) and leasehold improvements. The fair value of property and equipment was determined using a combination of cost and market-based methodologies.

Intangible assets primarily relate to customer relationships. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately nine 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, EBITDA, and customer survival rate), the 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, expanded client base 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 is deductible for tax purposes. Goodwill from this transaction is allocated to the Company’s DSA reportable segment.

Orient BioResource Center, Inc. Acquisition

On January 27, 2022, the Company completed the acquisition of OBRC from Orient Bio, Inc., a preclinical contract research organization and animal model supplier based in Seongnam, South Korea (“Seller”). OBRC is a primate quarantine and holding facility. Consideration for the OBRC acquisition consisted of (i) $26,522 in cash, including certain adjustments, (ii) 677,339 of the Company’s common shares valued at $18,410 using the closing price of the Company’s common shares on January 27, 2022, (iii) the effective settlement of a preexisting relationship of $1,017 and (iv) a payable owed by OBRC to the Seller in the amount of $3,325. The preexisting relationship represents the return of fees invoiced in advance and paid to OBRC by the Company prior to the acquisition offset by the payment of trade receivables by the Company to OBRC. As these were settled at the stated value, no gain or loss was recorded as a result of the settlement of this preexisting relationship. The payable does not bear interest and is required to be paid to the Seller on the date that is 18 months after the closing. On April 4, 2023, the Company extended by one year the maturity of the seller payable pursuant to the stock purchase agreement (“SPA”) with the Seller of OBRC. Refer to Note 6 – Debt for further information related to amendments of the terms of the payable due to the Seller. The Company will have 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. This business is reported as part of our RMS reportable segment.

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The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:


	January 27, 2022
Assets acquired and liabilities assumed:
Cash	5,481
Trade receivables and contract assets	2,025
Inventories	9,400
Prepaid expenses and other current assets	2,609
Property and equipment	8,336
Goodwill	18,624
Intangible assets	13,400
Accounts payable	(552)
Accrued expenses and other liabilities	(285)
Fees invoiced in advance	(6,548)
Deferred tax liabilities	(3,216)
	$	49,274

Inventory is comprised of NHP research models. The fair value was determined using a comparative sales methodology, in which the intent is to ensure that the acquirer only recognizes profits associated to value added subsequent to the acquisition date.

Property and equipment is mostly composed of land, building and equipment. The fair value of property and equipment was determined using a combination of cost and market-based methodologies.

Intangible assets primarily relate to customer relationships and technology associated with the ability to produce and care for the research models. The acquired definite-lived intangible assets are being amortized over a weighted-average estimated useful life of approximately 10.1 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 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, expanded client base 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 RMS reportable segment.

Histion Acquisition

On April 25, 2022, the Company completed the acquisition of Histion, LLC (“Histion”), which is 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 using the closing price of the Company’s common shares on April 25, 2022 and (iii) unsecured subordinated promissory notes payable to the former shareholders of Histion in an aggregate principal amount of $433.

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Protypia Acquisition

On July 7, 2022, the Company entered into a Stock Purchase Agreement with Protypia, Inc. (“Protypia”), which is 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 $9,460 in cash, subject to certain adjustments, $600 in seller notes and 74,997 common shares having a value of approximately $806 based on the opening stock price of the Company’s common shares as reported by Nasdaq on the closing date.

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:
Goodwill	6,002
Intangible assets	5,600
Other liabilities, net	(84)
Deferred tax liabilities	(652)
	$	10,866

Intangible assets primarily relate to customer 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 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.

Pro Forma Results

The Company’s unaudited pro forma results of operations for the three and nine months ended June 30, 2022, assume that the acquisitions had occurred as of October 1, 2021. Pro forma information for the three and nine months ended June 30, 2023, is not presented here, as the statement of operations for the three and nine months ended June 30, 2023, includes all business combinations. The following pro forma amounts are based on available information of the results of operations prior to the acquisition date and are not necessarily indicative of what the results of operations would have been had the acquisitions been completed on October 1, 2021.

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The unaudited pro forma information is as follows:


	Three Months Ended June 30, 2022		Nine Months Ended June 30, 2022
Total revenues	$	173,395	$	443,116

Net loss	$	(3,578)	$	(102,053)

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following is a rollforward of the Company’s goodwill:


	September 30, 2022		Acquisitions		Impairment		June 30, 2023
DSA	$	91,458	$	2,828	$	—	$	94,286
RMS	302,372		—		—		302,372
Gross Carrying Amount	393,830		2,828		—		396,658
Accumulated impairment loss - RMS	(236,005)		—		(66,367)		(302,372)
Goodwill	$	157,825	$	2,828	$	(66,367)	$	94,286

The Company determined that as a result of the November 16, 2022 event, which led to the Company’s decision to refrain from selling or delivering any of its Cambodian NHPs held in the U.S., the uncertainty related to the Company’s ability to import NHPs from Cambodia and the decrease in its stock price, the carrying value of goodwill as of December 31, 2022, was required to be quantitatively evaluated. The carrying value of the Company’s goodwill by reporting unit was determined utilizing the income approach. Based on the Company’s quantitative goodwill impairment test, the fair value of the DSA reporting unit exceeded the reporting unit’s carrying value and, therefore, goodwill was not impaired. However, the fair value of the RMS reporting unit was less than the RMS reporting unit’s carrying value. As a result, a goodwill impairment loss of $66,367 was recorded within the RMS segment. The remaining goodwill balance as of June 30, 2023 is attributed to the DSA segment. Further, certain measurement period adjustments related to the acquisitions of Histion and Protypia were identified during the nine months ended June 30, 2023, which are reflected as changes in goodwill due to acquisitions within the Company’s DSA reportable segment.

Intangible Assets, Net

The following table displays intangible assets, net by major class:


	June 30, 2023
	Carrying Amount, Gross		Accumulated Amortization		Carrying Amount, Net
Customer relationships	$	317,272	$	(47,771)	$	269,501
Intellectual property	56,393		(10,667)		45,726
Non-compete agreements	2,410		(1,214)		1,196
Other	2,396		(1,266)		1,130
	$	378,471	$	(60,918)	$	317,553

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	September 30, 2022
	Carrying Amount, Gross		Accumulated Amortization		Carrying Amount, Net
Customer relationships	$	318,896	$	(26,990)	$	291,906
Intellectual property	56,997		(5,767)		51,230
Non-compete agreements	2,410		(872)		1,538
Other	2,396		(1,184)		1,212
	$	380,699	$	(34,813)	$	345,886

The decrease in intangible assets, net during the nine months ended June 30, 2023 related to measurement period adjustments to intangible assets for the Protypia acquisition, partially offset by amortization over the applicable useful lives and by the impact of foreign exchange rates.

6. DEBT

Long term debt as of June 30, 2023 and September 30, 2022 is detailed in the table below.


	June 30, 2023		September 30, 2022
Seller Note – Bolder BioPath	$	658	$	808
Seller Note – Preclinical Research Services	560		615
Seller Note – Plato BioPharma	—		1,470
Seller Payable - Orient BioResource Center	3,633		3,488
Seller Note – Histion	265		369
Seller Note – Protypia	600		600
Economic Injury Disaster Loan	140		140
Convertible Senior Notes	109,165		104,965
Term Loan Facility, DDTL and Incremental Term Loans	272,755		238,200
	$	387,776	$	350,655
Less: Current portion	(3,810)		(7,979)
Less: Debt issuance costs not amortized	(12,214)		(11,999)
Total long-term debt	$	371,752	$	330,677

Revolving Credit Facility

As of June 30, 2023 and September 30, 2022, the Company had a $0 and $15,000 outstanding balance on the revolving credit facility. Refer to the statements of cash flows for information related to borrowings and paydowns of the revolving credit facility during the nine months ended June 30, 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 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.

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Term Loan Facility, DDTL and Incremental Term Loans

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 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 shall 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 accrue 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%. For the term loan facility, interest expense was accrued at an effective rate of 10.25% and 10.29% for the three and nine months ended June 30, 2023, respectively.

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 will be subject to a 1.0% 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 an initial Secured Leverage Ratio of not more than 4.25 to 1.00. The maximum permitted Secured Leverage Ratio shall reduce to 3.75 to 1.00 beginning with the Company’s fiscal quarter ending September 30, 2023 and to 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 shall be 1.00 to 1.00 during the first year of the Credit Agreement and shall be 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.

Utilizing proceeds from the Credit Agreement on November 5, 2021, the Company repaid all indebtedness and terminated the credit agreement related to the First Internet Bank of Indiana (“FIB”) credit facility and recognized an $877 loss on debt extinguishment during the nine months ended June 30, 2022.

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%. For the Initial DDTL, interest expense was accrued at an effective rate of 10.22% and 10.31% for the three and nine months ended June 30, 2023, respectively.

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

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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%. For the Additional DDTL, interest expense was accrued at an effective rate of 10.35% and 10.47% for the three and nine months ended June 30, 2023, respectively.

The Additional Term Loans require annual principal payments in an amount equal to 1.0% of the original principal amount. Voluntary prepayments of the Additional Term Loans will be subject to a 1.0% 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 provides 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 adds 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 0.5%, (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 provides 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 secured overnight financing rate (“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

Inotiv, Inc. [NOTV] Filings
10-Q	[2023-08-11]
10-Q	[2023-05-15]
10-Q	[2023-02-14]
10-K	[2023-01-13]
10-Q	[2022-08-12]
10-Q	[2022-05-16]
10-Q	[2022-02-16]
S-1	[2021-12-23]
10-K	[2021-12-21]
10-Q	[2021-08-13]
10-Q	[2021-05-14]
10-Q	[2021-02-10]
10-K	[2020-12-22]
10-Q	[2020-08-14]
10-Q	[2020-05-14]
10-Q	[2020-02-14]
10-K	[2019-12-26]
10-Q	[2019-08-14]
10-Q	[2019-05-15]
10-Q	[2019-02-14]
10-K	[2018-12-21]
10-Q	[2018-08-14]
10-Q	[2018-05-15]
10-Q	[2018-02-14]
10-K	[2017-12-22]
10-Q	[2017-08-14]
10-Q	[2017-05-15]
10-Q	[2017-02-14]
10-K	[2016-12-28]
10-Q	[2016-08-15]
10-Q	[2016-05-16]
10-Q	[2016-02-16]
10-K	[2015-12-24]
10-Q	[2015-08-14]
10-Q	[2015-05-15]
10-Q	[2015-02-17]
10-K	[2014-12-29]
10-Q	[2014-08-14]
10-Q	[2014-05-15]
10-Q	[2014-02-14]
10-K	[2013-12-30]
10-Q	[2013-10-18]
10-Q	[2013-05-15]
10-Q	[2013-02-14]
10-K	[2012-12-31]
10-Q	[2012-08-14]
10-Q	[2012-05-14]
10-Q	[2012-02-14]