Inotiv - Earnings Call - Q2 2025

Executive Summary

• Revenue grew 4.4% year-over-year to $124.3M, driven by RMS (+9.1% YoY) while DSA declined (-2.8% YoY); operating loss narrowed sharply to $2.9M and adjusted EBITDA improved to $8.0M, reflecting cost controls and a $7.6M legal settlement inflow.
• Versus consensus, revenue modestly beat ($124.3M vs $124.0M*) and EPS beat (Primary EPS -$0.568* vs -$0.635*), while S&P Global’s EBITDA actual ($4.35M*) tracked below consensus ($7.52M*) due to mix and non-GAAP adjustments; the company does not provide formal guidance.
• RMS momentum and optimization are catalysts: revised RMS plan accelerates completion to March 2026 with higher annual savings ($6–$7M vs $4–$5M) and savings starting as soon as Q4 FY25; NHP services revenue rose ~10% QoQ, and DSA bookings improved (book-to-bill 1.01x).
• Headwinds include DSA margin pressure from higher-cost NHPs carrying over into studies, pricing dynamics, higher utilities/supplies, and elevated interest expense; operating cash outflows and rising net debt warrant monitoring.

What Went Well and What Went Wrong

What Went Well

• RMS revenue increased $6.6M (+9.1% YoY) on higher NHP product and services; RMS non-GAAP operating income rose to $15.6M and 19.7% of RMS revenue, showing margin recovery.
• Adjusted EBITDA improved to $8.0M (6.4% margin), supported by lower operating expenses versus prior year (no repeat of the DOJ charge) and the $7.6M settlement received during Q2.
• Management highlighted strategic progress: “We now anticipate net annual savings of $6–$7M…completion by March 2026…beginning to see savings benefits as soon as Q4 fiscal 2025,” reinforcing execution on RMS optimization and efficiency.

What Went Wrong

• DSA margins deteriorated due to higher-cost NHPs used in toxicology studies, overtime/labor, utilities and supplies; DSA revenue fell to $45.3M (-2.8% YoY) with non-GAAP operating income down to $5.0M.
• Cash used in operations was $17.3M YTD FY25 versus $10.4M provided in YTD FY24; cash and cash equivalents declined to $19.3M, reflecting working capital swings tied to NHP deposits and collections.
• Interest expense increased to $13.4M in Q2 (from $11.1M YoY), and total debt net rose to $399.5M; leverage and covenant compliance remain key watch items despite management’s forecast to comply with updated covenants.

Transcript

Operator (participant)

Good day, everyone, and welcome to today's Inotiv Second Quarter Fiscal 2025 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Steve Halper of LifeSci Advisors. Please go ahead.

Steve Halper (Managing Director)

Thank you, Chloe, and good afternoon, everyone. Thank you for joining today's quarterly call with Inotiv's management team. Before we begin, I'd like to remind everyone that some of the statements that management will make on the call are considered forward-looking statements, including statements about the company's future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected. Any such statements represent management's expectations as of today's date. You should not place undue reliance on these forward-looking statements, and the company does not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to the company's SEC filings for further guidance on this matter, including risks and uncertainties that could cause results to differ from forward-looking statements.

Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in the company's earnings release, which has been posted to the investors' section of the company's website, www.inotiv.com, and is also available in the Form 8-K filed with the Securities and Exchange Commission. If you haven't obtained a copy of today's press release yet, you can do so by going to the investors' section of Inotiv's website. Joining us from the company this afternoon are Bob Leasure, President and Chief Executive Officer, and Beth Taylor, Chief Financial Officer. John Sagartz, Chief Strategy Officer, will join us for the question-and-answer portion of the call.

Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results for our second fiscal quarter of 2025, and then we'll open the call for questions. It is now my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead.

Bob Leasure (President and CEO)

Thank you, Steve. Good afternoon, everyone. During the second quarter, there were some announcements and events which are likely to impact our industry and our business. Over the last five years, Inotiv has been evolving and has embraced challenges and changes that we've seen in our business. We believe we are a better company because of the changes we have faced. We have also made significant investments to better prepare us for the future. These include acquisitions, the businesses that we have started, the RMS site optimization plans, and the RMS and DSA site investments.

This quarter, we stayed focused on our plans and continued to execute on many of the objectives, including continuing to focus on client satisfaction, client relationships, continued integration of our scientific services, and efforts as one company moving forward and improving upon the next phase of our RMS site optimization plan and expanding our NHP boarding and colony management services. We also had the opportunity to settle open litigation related to a three-year-old case in which we were a plaintiff, which we inherited with the Invigo acquisition. We settled this case for approximately $7.6 million, and the proceeds were received in March. I'll spend a few minutes on our second quarter results and highlights.

For the second quarter of fiscal 2025, total revenue was $124.3 million compared to $119.9 million in Q1 of fiscal 2025 and $119 million in Q2 of fiscal 2024, representing a year-over-year increase of $5.3 million, or 4.4%. The year-over-year increase was mainly due to an increase in RMS segment revenue of $6.6 million, partially offset by a decrease in DSA segment revenue of $1.3 million. The RMS revenue growth was primarily due to higher NHP revenue. As I mentioned in our call in February, we continue to see geopolitical and macroeconomic risk and uncertainties for our company, as do many other companies and industries do at this time. At this time, we expect to continue to see year-over-year revenue and adjusted EBITDA growth for the next two quarters of fiscal 2025.

Our RMS second quarter revenue saw year-over-year growth, and some of this was due to a very light Q2 of fiscal year 2024. We believe we do have some momentum in 2025 that we did not see in 2024. As a result, we believe we will continue to see year-over-year RMS growth in fiscal 2025 versus 2024. Our overall RMS operating margins improved and were the strongest operating margins since Q1 of fiscal year 2024. We believe we have further opportunity to drive margins higher as we complete the next phase of the RMS site optimization plan, which we announced in December of 2024. We also indicated this expansion plan was expected to be an approximately $5 million investment with the intent to use tenant improvement dollars along with proceeds from the sale of owned facilities to pay for this consolidation project.

We originally estimated completion was expected to be before the end of fiscal year 2026. Also, we estimated this plan would have an annual cost savings of approximately $4million-$5 million a year from reduced repair and maintenance expense on facilities and lower cost of production, along with improved service for clients while production capacity would be unchanged. We have continued to refine our optimization plan and related timing for this project and have further revised this plan. We now anticipate net annual savings of $6 million-$7 million on a capital investment of approximately $6.5 million, which will be paid for with the use of tenant improvement dollars and a portion of the settlement dollars received this month. In connection with our revised plan, we continue to have two properties under contract to be sold, and the proceeds will be used to repay principal on our term loans.

This project is now anticipated to be completed by March of 2026, which is approximately six months earlier than our original plan, and we anticipate beginning to see savings benefits as soon as Q4 fiscal 2025. As with previous projects we have executed in RMS, these additional investments will help modernize our existing footprint while allowing us to close older facilities. This revised plan will reduce capacity, and we believe will create operating efficiencies and continue to support our animal welfare objectives. Additionally, we believe this plan allows us to remain agile and to increase capacity in the future if needed. We also continue to integrate and improve our North American transportation distribution systems, which we brought in-house in the first half of fiscal 2024.

Over the past three years, and including the current optimization plan, these initiatives have upgraded our operating facilities, improved efficiencies, decreased expenses, and improved margins, all while enhancing animal welfare quality and delivery for our clients. In aggregate, we believe these projects have delivered and will continue to deliver for Inotiv and for our clients and are improving the competitive positioning of our RMS business. Moving now to DSA revenue for fiscal Q2, we're slightly down versus the prior year quarter and ahead of Q1 2025. We recognize we have had a deterioration of DSA margins over the last two quarters, which we are addressing. We had several expenses that were higher than normal, such as higher cost-based NHPs being used in toxicology studies, plus we saw increased overtime and labor cost, additional utility cost, and increase in operating supplies.

Some of this margin deterioration can also be attributed to a mix in business and lower general toxicology service revenues and some related to pricing. We will be focused on these variables in efforts to improve margins in future quarters. On a positive note, DSA quoting and awards remain in line with the last nine months, as our book to bill in the second quarter of fiscal 2025 remained at 1.01-1, and our new orders were 27% ahead of Q2 of fiscal year 2024. Again, the start of this quarter saw strong quoting activity with awards picking up towards the end of the quarter. So far, in the current quarter, we remain pleased with the level of quoting and awards.

Discovery awards for the first half of the year are still running 6.2% ahead of the six months ended March 31, 2024, and we expect discovery revenue to begin to see sequential and year-over-year improvements in the second half of fiscal 2025. We consider one of our foundational attributes as a contract service and research model provider to be our commitment to our clients having a high-quality experience when they choose us as a partner. Our focus is to meet and exceed our clients' needs and expectations. We believe we accomplish this through scientific talent and speed we can bring to bear on the projects and the care and efficiency with which we produce and distribute our feed, bedding, enrichment products, and research models to them.

At critical steps along our clients' journeys with us, we monitor metrics of the quality of our product, our delivery, and the satisfaction of our client base. We have been very pleased with the efforts of our teams on all of these fronts, and we continue to see improvements in these metrics we use to track the quality of the client experience. We believe this ongoing focus is critical to building confidence for both our new and existing clients and leads our clients to choose Inotiv as a preferred provider. Now, let me provide some comments on what we are seeing in the market today and on recent activities that have generated questions related to our industry.

There is no doubt this has been an interesting time for our industry, with recent announcements by the U.S. administration on tariffs to be levied on our international trading partners, and more recently by the FDA on the future direction of drug development and the active discussions surrounding changes within the NIH funding and objectives.

First, on the FDA announcement, we broadly support the FDA's stated goals of reducing animal testing and the desire to reduce the time and cost required to bring new medications to market. In their recent official statement, the FDA noted the potentially critical role that new approach methodologies, or NAMs, could have in achieving these goals. Such NAMs include technologies such as computer modeling, using cell and organoid-based methods, and the use of human tissues, ex vivo, as a contributory model for drug safety and efficacy.

At Inotiv, many of our acquisitions and investments have been implemented, at least in part, if not sometimes wholly, with the intent to help position us for the future, which is in line with the goals outlined in the 2022 FDA Modernization Act 2.0. Examples of some of our current service offerings, which are in line with these goals, include predictive computer software, computational toxicology, bioinformatics, proteomics, ex vivo and in vitro cell-based assays, and assays we run in human cells and tissues. I want to remind everyone that we have been building these capabilities over many years, and we consider the continuation of development of them to be critical for the future of smarter drug development and our role in this initiative.

As we adopt these advanced new technologies, we see these potentially reducing the need for using animals in some circumstances and over some time period, but we do not yet foresee the complete replacement of the use of animals in bringing safe and effective new medicines to humans and animal patients. Indeed, on April 29th, the NIH also made an announcement on the future of NAMs and their intent to prioritize the use of human-based research technologies.

In their announcement, they made clear their hope that NAMs could enable drug discovery and development to be smarter and more efficient in the future, but they also noted, and I quote, "Traditional animal models continue to be vital to advancing scientific knowledge." We plan to continue our role helping develop and validate the NAMs alternatives, but until they are sufficiently predictive of complex human biology and are fully accepted as alternatives by regulatory authorities, we believe animal-based safety and efficacy testing will remain critical. Since the FDA announcement, I've also been asked specifically what percentage of our business comes from monoclonal antibodies, as they were a major focus of that announcement as the first wave of drugs that would be focused on for NAMs-based testing. We do not track our business at this time in a way that enables us to specifically identify that data.

However, from publicly available data, we know that around 15% of all medicines in development are monoclonal antibodies. Moving now to the U.S. government's recent introduction of tariffs on virtually all of our international trading partners and the potential for those tariffs to meaningfully increase if the U.S. cannot reach specific trade agreements with each of those partners. Let me address the potential direct impacts of the tariffs currently in place. For the majority of our business, the primary components of our products and services are sourced within the same geographies. That is, most of what we need to deliver our products and services in the U.S., we source within the U.S., and the same is true for outside of the U.S. A material exception to this rule is the sourcing of NHPs, which we bring into the U.S. from certain Asian and African countries.

For these, based upon current tariff levels, we will be paying the 10% tariffs, and we will be working with suppliers and customers to mitigate the financial impact of these additional costs. Should the much higher tariff rates that have been talked about previously come to pass, we also expect to work with suppliers and customers to mitigate those potential additional costs as the NHPs are mission-critical to the safety testing of new medicines. If the higher tariffs are put into place and exist for some time, we are not in a position at this juncture to predict if or how our clients may prioritize studies or how our suppliers may prioritize and allocate their supply going forward. Based upon current tariffs announced, we have not yet seen any material change in demand.

We believe we are beginning to see some cost inflation that is being linked to tariffs, for example, quotes for certain lab equipment and materials for construction projects. We are working to adapt our sourcing and planning strategies to largely mitigate these costs. Should higher tariffs come into play and/or be imposed for extended periods of time, we will continue to assess the financial impact and consider whether we will try to pass along some, if not all, of these costs to our client base. Overall, we remain confident going into the second half of fiscal 2025 and are also now preparing for 2026 and 2027. As I said earlier, the geopolitical and macroeconomic condition, risk, and uncertainties will remain with us as they do for all companies.

We continue to improve, and we remain committed to building a business that will create value for our clients, employees, and our shareholders, and look forward to our future. I'll now hand things over to Beth to provide a financial overview.

Beth Taylor (SVP and CFO)

Thank you, Bob, and good afternoon, everyone. For the second quarter of fiscal 2025, total revenue was $124.3 million compared to $119 million in the second quarter of fiscal 2024. This was a $5.3 million, or 4.4%, increase in revenue from the prior year quarter, and as Bob said earlier, most of this increase was a result of increased NHP revenue within our RMS segment. RMS revenue for the second quarter of fiscal 2025 increased $6.6 million, or 9.1%, compared to Q2 of fiscal 2024.

The increase in RMS revenue was primarily due to the higher NHP volume sold, partially offset by lower average selling price for NHPs compared to the prior year quarter. DSA revenue in the fiscal 2025 second quarter was $45.3 million compared to $46.6 million in Q2 of fiscal year 2024. The year-over-year decrease in DSA revenue was primarily driven by a decrease in general toxicology services revenue. Overall, net new DSA orders this quarter were $44.5 million, which is a 5% increase over last quarter and a 27% increase over Q2 of fiscal 2024. The conversion rate in the second quarter of fiscal 2025 was 34.1%, up from 30.1% in the prior year period. The DSA cancellations and negative change orders in the second quarter of fiscal 2025 were approximately 28% lower compared to the prior year second quarter.

Cancellations in the trailing 12-month period were approximately 7% less than the prior period. The overall operating loss for the second quarter of fiscal 2025 decreased $40.2 million from $43.1 million in the second quarter of fiscal 2024- $2.9 million in Q2 of fiscal 2025, primarily due to the $26.5 million charge related to the agreement in principle and subsequent resolution agreement and plea agreement with the Department of Justice that was incurred in the second quarter of fiscal 2024, and the $7.6 million settlement payment we received during the second quarter of fiscal 2025, in addition to the $5.3 million increase in revenue previously mentioned. Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2025 totaled $14.9 million, or a $0.44 loss per diluted share.

This is compared to consolidated net loss attributable to common shareholders of $48.1 million, or $1.86 of loss per diluted share in the second quarter of fiscal 2024. For the second quarter of 2025, adjusted EBITDA was $8 million, or 6.4% of total revenue, compared to $3.1 million, or 2.6% of total revenue for the second fiscal quarter of 2024. Non-GAAP operating income for our DSA segment in the second quarter was $5 million, or 4% of total revenue, compared to $8.2 million, or 6.9% of total revenue in the last fiscal year second quarter. As Bob mentioned, we are focused on our DSA margins, and we expect to see improvement in future quarters. In addition, as we experience an increase in discovery service revenue and continue to fill recently added capacity, we believe we will see margin improvement through operating leverage.

The book-to-bill ratio for DSA in the second quarter of fiscal 2025 was 1.01-1. Our trailing 12-month book-to-bill was 0.93-1. DSA backlog was $130.8 million at March 31, 2025, compared to $130.4 million at December 31, 2024, and $142.1 million at March 31, 2024. In our RMS segment, non-GAAP operating income in the second quarter of fiscal 2025 was $15.6 million, or 12.5% of total revenue, compared to $8.2 million, or 6.9% of total revenue in the second quarter of fiscal 2024. Interest expense in Q2 of fiscal 2025 increased to $13.4 million from $11.1 million in the second fiscal quarter of 2024, primarily due to interest incurred in relation to the second lien notes issued in September of 2024.

Our balance sheet as of March 31, 2025, included $19.3 million in cash and cash equivalents as compared to $21.4 million on September 30, 2024, and $38 million on December 31, 2024. In the second quarter of fiscal 2025, we saw significant fluctuations in our working capital based on the timing of NHP deposits required by our suppliers and when we get paid for sales of NHPs by our clients. Total debt, net of debt issuance cost as of March 31, 2025, was $399.5 million compared to $393.3 million on September 30, 2024. This includes $113.1 million of convertible notes as of March 31, 2025, and our second lien notes of $20.5 million. Cash used in operating activities was $17.3 million for the first six months ended March 31, 2025, compared to $10.4 million of cash provided by operations for the six months ended March 31, 2024.

Capital expenditures in the second quarter of fiscal 2025 were $5.5 million, or approximately 4.4% of total revenue. The second quarter of fiscal 2024 capital expenditures were $7 million, or 5.9% of revenue. We continue to expect our annual spend for CapEx for fiscal year 2025 to be less than 4% of revenue. We have not provided formal financial guidance for fiscal year 2025. While we continue to feel positive about the progress we have made in recent quarters, we are not providing formal fiscal 2025 guidance at this time. As we stated previously, we hope to provide guidance once we have greater clarity on the market and client demand and clarity on any impact to our business once there is more information on tariffs. Our current operating plan forecasts compliance with the updated covenants under our latest amendment to the credit agreement entered into in September 2024.With that financial overview, we will turn the call over to our operator for questions.

Operator (participant)

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two. Again, that is star and one for your questions. We will take our first question from Matt Hewitt with Craig-Hallum Capital Group. Your line is open.

Matthew Hewitt (Senior Research Analyst)

Congratulations on a good quarter and the progress that you've made, Bob and Beth. Maybe first up, and thank you for providing the details on some of the movement you've seen here with the FDA and NIH. Regarding the FDA, I'm just wondering, and you provided some of the services that you're already providing that kind of address what the FDA is seeking or looking for. I guess since that announcement came out, have you changed your marketing to make sure that your customers understand how you can help them navigate these changing times? What are you hearing from customers on that front? Are they already coming in and saying, "Boy, we like that you offer this. We want your help"? Anything along those lines would be helpful. Thank you.

Bob Leasure (President and CEO)

Hi, Matt. Thank you for the question. We have been integrating these services, some of that we've acquired over the last couple of years, into our business over the last two or three years. We mainly sell these as part of our discovery sale process and discovery and translational sciences, I should say. I would say that they have been out there, and we're including them more and more.

We have seen some of those increasing, but not at the pace people may expect. The computational toxicology, the proteomics are things that we're including in our quotes. People are becoming more educated about it. We have some great capacity available, and I think it will take off. We are seeing some growth right now, actually, in those areas. It has not taken off as much as maybe we'd expected, starting from looking back in 2022. Yes, we have been including those. I think we're becoming much more educated. Our customers are becoming educated. I think some people are changing their approach. I think it's mainly right now in the discovery and translational sciences more than probably we're seeing in the safety and efficacy segment. Ask John. John, do you want to add anything to that?John Sagartz is on the phone, and he may have a better insight to this. John, do you have anything you want to add?

John Sagartz (Chief Strategy Officer)

I would just echo what you've said about not really seeing an impact immediately. I struggle a little bit with what NAMs really means because many of these are old approach methodologies. They've been around for decades, but they obviously continue to evolve. Of course, you can point to examples of genetic toxicology testing, computational toxic, quantitative structural activity relationship, primary cell cultures using animal or human cells, cell lines, patient-derived xenografts. These have all been part of our toolkit. I think what the FDA announcement has given us the opportunity to do is to really collate and describe the contributions that they're making to the company and to our industry. As I mentioned, these continue to evolve.

We're looking for opportunities to participate in that evolution. In terms of feedback from clients, customers, not really seeing that emerge at this point. I think one thing I would just mention is that the headlines that came out after the FDA announcement, I don't think really match what was in the communication. Many of the changes that FDA is proposing are things that can be celebrated by innovators because for certain therapeutic modalities, they reflect an ability not to have to check boxes, but to use a weight of evidence approach to evaluating the safety and efficacy of the compounds.

Matthew Hewitt (Senior Research Analyst)

That's really helpful. Thank you. Maybe shifting gears a little bit, Bob, you kind of spoke to the refined optimization plans for your RMS business or RMS sites that you're kind of going through. It sounds like you're trying to get closer to the customers, if I heard you correctly. Are there one, two, or three items in particular that you're really focused on with that kind of revised plan, or is it more broad than that?

Bob Leasure (President and CEO)

We announced the plan originally back in December. The revised plan came about in a couple of ways. One, we are looking at how to improve our efficiencies and optimize our facilities quite a bit. Also, we can see increasing costs. We don't see necessarily that the small animal market is increasing in size. The number of animals that are being sold are not increasing. I don't know that we need, we have the ability to grow, but I don't know that we need to build out that capacity right now.

In addition, with the transportation system that we've been able to develop after we acquired it a year and a half ago, about 18 months ago, I guess, we've become much more efficient of transporting. I don't think we need as many facilities all over the place. We considered all of that and thought about how can we really maximize these dollars. If you look at the dollars that we have already achieved, and then you look at the dollars that we hope to achieve on that segment of our business, it's a pretty good size turnaround for that business. It's starting to contribute. We think this is a much better animal welfare plan and much better for our clients and allows us to be much more efficient. It'll press us to be much more efficient. I think that's a much better job planning.

I think as we have evolved, we found that we have the ability to do this. I think this is a great move. I applaud our team for coming up with this. I think it was a much better plan than what we originally are. I'm glad that they're always evaluating and looking for opportunities to do a better job. I think this was significant on their part. Not only did we increase the annual benefit, we also accelerated the time in which we can get it implemented. We'll start seeing some benefits immediately. I think it was really a win-win all the way around. I just applaud them for continuing to find ways to be smarter and better about everything we do.

Matthew Hewitt (Senior Research Analyst)

That's great. Maybe one last one for me. I think you mentioned during your prepared remarks that you saw kind of an increase in demand in Q1 from the beginning of the quarter to the end of the quarter. How have things started off here this quarter? Has that increased demand that you exited Q2 with, has that kind of contributed or increased here in Q3, or where do we sit today? Thank you.

Bob Leasure (President and CEO)

Yes, Matt. I think remember we started this quarter, we had a lot of weather-related issues. If you recall, we had a lot of ice. We had a lot of facilities that had ice. We had people spending the night at facilities. I think some things seemed to start a little slow in January, if you ask me. Quoting was good, but people were not making decisions yet because I think they were fighting some of the other weather-related issues out there.

Whatever, after it picked up towards the end of the quarter, we were able to have a positive book-to-bill, which I thought was what we expected. I would say this quarter, we are now six weeks, I guess, into it, five, six weeks into it. Yes, I have been very pleased with the level of quoting and closing. We have had a great start to this quarter.

Matthew Hewitt (Senior Research Analyst)

That is great. Congratulations. Thank you very much.

John Sagartz (Chief Strategy Officer)

I think you indicated, I think we will see year-over-year improvement in revenue over the next two quarters for this fiscal year. I also think that we will start to see a reversal in the decline of the discovery business that we have seen for the last two or three years. I think we will start to see that reverse in the next six months. I am optimistic on both of those fronts.

Matthew Hewitt (Senior Research Analyst)

That is great.Thank you.

Operator (participant)

We'll move next to Nelson Cox with Lake Street Capital Markets. Your line is open.

Nelson Cox (Equity Research Associate)

Great. Hey, this is Nelson Cox on for Frank. And congrats on all the progress this quarter. Maybe just starting on the NIH side, maybe talk a bit more about any potential impacts you're seeing out there or not seeing and what the feedback is you're hearing. And then I guess more broadly, how insulated do you believe your current customer mix is from potentially fluctuating NIH funding?

Bob Leasure (President and CEO)

I think like the rest, we've heard a lot about the NIH funding. We've heard about proposed budgets. I think that's and I think I heard in the news today, people are debating that, whether that's healthy or not. I think there's ways to go before we determine what NIH funding is going to do.

We've also had at times, we hear concerns from universities about their funding. Overall, I would say that we've not seen a dramatic impact yet in our business. We do have sales to the government, and we do have sales to universities. I'd have to ask Beth exactly what % that is. We're keeping a close eye on that. Right now, I don't know that we've seen any significant changes as a result of the NIH funding. We may have had one or two customers that said they're not doing anything. On the other hand, we may have one or two customers that are picking up and increasing their orders. That's not unusual. That's normal in the ordinary course of business. I don't know that I'd say anything that I would say that's not ordinary yet.

Beth, do you have anything you want to add in terms of the mix of what percent we are?

Beth Taylor (SVP and CFO)

Yeah. For fiscal year 2024, our government revenue to total company revenue is approximately 7%. And I will say quarter-over-quarter for Q2, we've actually seen on the DSA side and on the RMS side an increase in revenue in the government sector, U.S. government sector.

Bob Leasure (President and CEO)

Thank you, Beth.

Nelson Cox (Equity Research Associate)

Got it. Yeah. Thank you. That's helpful. And then positive book to bill in line with last quarter. Last quarter talked about there being kind of one large project that drove cancellations higher. I mean, were there any one-time events like that this quarter that may have impacted those metrics or anything to call out there?

Bob Leasure (President and CEO)

No, I think Beth indicated that our cancellations were down quite a bit this quarter, weren't they, Beth? Didn't win that in what you were?

Beth Taylor (SVP and CFO)

Yes, we were.

Bob Leasure (President and CEO)

I think that that was encouraging. Again, we had a big cancellation in the last quarter. We did not have any really big cancellations in our Q1. We did not have any big ones in Q2. Not saying we will or will not have any in Q3. We will wait and see how that trend develops. As you look back over 12 months, I think, as Beth indicated, our cancellations have started to decrease while our quoting and awards have started to increase. I think that is overall a good trend.

Beth Taylor (SVP and CFO)

Quarter-over-quarter, we saw a 28% decrease.

Nelson Cox (Equity Research Associate)

Got it. Perfect.

Bob Leasure (President and CEO)

The awards were a 27% increase over last quarter. I think that is a pretty good indicator of some momentum.

Nelson Cox (Equity Research Associate)

Yeah. Perfect. Maybe just one last one. I mean, strong quarter from an adjusted EBITDA perspective and heard the commentary. I'm expecting continued growth, $8 million in adjusted EBITDA this quarter. I understand you're not providing formal guidance. Given all the moving pieces, is there any other color you can maybe provide directionally that may be helpful as we work on our models?

Bob Leasure (President and CEO)

No, I think that in my remarks, I commented on the one area I think we need to improve upon, which is our DSA margins that deteriorated a little bit over the last two quarters. We gave some reasons for that. Some of those jobs are jobs that are coming through that were probably quoted a year ago. I think a year ago, pricing was there were some more discounts offered than probably they are in more recent months.

We're evaluating that and making sure that we're going to focus on that. I would like to see us really pick up those margins in the future months. I have a lot of confidence we can do that between that and leveraging some of the growth that we have going on in the discovery. I think we have some opportunities to do a better job on the margins there. I think overall, our G&A costs and some of the things that we're doing, we indicated we thought those would be coming down. I think right now, those are coming down, and we're in pretty good shape.

Nelson Cox (Equity Research Associate)

Perfect. Thanks again, guys, and congrats.

Bob Leasure (President and CEO)

Thank you.

Operator (participant)

We'll take our next question from Dave Windley with Jefferies. Your line is open.

Dave Windley (Managing Director)

Hi. Thanks. Good afternoon. Thank you for taking my questions. On the last one, Bob, is that are those steps that you've identified in the areas in DSA on margin things that you think you can impact quickly, or should we assume that that's a two, three-quarter horizon?

Bob Leasure (President and CEO)

I think, first of all, I would say that we just didn't identify with this quarter's results. I think it's been something we've been concerned about for three or four months. So we have been addressing it. I think we should start to see some of the benefits sooner than later. As a matter of fact, during the quarter, I think we saw improvement between January, February, and March. I think some of it is in growth, and some of it will come in pricing, and some of it's come in we know that we had some higher cost NHPs.

If you recall, in the end of 2020 or Q1 of 2025, we had low margins in RMS because we had higher cost NHPs that were going through that. Those higher cost NHPs were still going through those studies on the DSA side. That is kind of what related to some of the higher animal costs. We had additional utilities and supplies that come with some of the weather-related issues. I think we will see some immediate benefit. I am looking forward to see what we can do as we get that focus. I am confident we will get where we need to be.

Dave Windley (Managing Director)

A couple of clarifications. The point you're making on the higher cost NHPs, understand historically, the pointing was to RMS, but you're saying in Q2, those higher cost NHPs were still a factor in DSA cost structure?

Bob Leasure (President and CEO)

Yes. They would still be on studies that were floating into the first three or four months of calendar 2025. I think as we go into May, most of those are behind us. We had some of those still in the system through April.

Dave Windley (Managing Director)

Okay. We were together at SOT, and I talked to a number of other folks there as well as I'm sure you did. One of the themes that I thought was pretty prevalent was an intensification of price discounting. That was, call it mid-March. Has that dramatically changed that quickly?

Bob Leasure (President and CEO)

Dave, I think we heard some of this. I think the price discounting 6 months-12 months ago was bigger than it is today. I think that some of the, I do not know that it is as prevalent as it was before. I know we do not hear as much about it. On the other hand, we have some pretty good recurring clients that have not pushed. I think we are offering a very, very fair price right now too, by the way. I do not think we are at the pricing where we were two and three years ago. Compared to three years ago, yes, there is still some discounting. I do not think it is the level it was 6-12 months ago.

Dave Windley (Managing Director)

Okay. You kind of answered the question, but I thought it worth asking just to make sure in RMS, the increase coming from NHP revenue, and I think Beth more specifically said higher volumes of NHP sales at lower prices. I wanted to see if the NHP services had any part in that, and if so, how much?

Bob Leasure (President and CEO)

Yes. The NHP services actually are continuing to increase. I would tell you we're actually bringing a lot of boarding capacity on board this quarter, actually. We will continue to increase. I know for the year, we were going to see about a 20% increase. I do not know what it is quarter-over-quarter. Beth, do you have that immediately available? I do not know-

Beth Taylor (SVP and CFO)

Yeah. We will have it here in a few seconds.

Dave Windley (Managing Director)

Okay. Let's look at that. I'll ask you the last question then. You mentioned in your prepared remarks, continuing to integrate your scientific services. Is that just a reference to continuing to kind of better integrate the acquisitions that you've made over a number of years, or is there something more specific there, like a consolidated client portal or technology stack or something like, or, say, a go-to-market in the salesforce that is pulling those together in a different way? I just wanted to explore your choice of words there.

Bob Leasure (President and CEO)

Right. I'll try to do the best I can to explain what I mean. We believe, and I believe that our clients do value speed and time. We track very closely our ability to deliver what we say we're going to deliver on time. That's a really key component of our business. The other key component to speed is when we integrate our services, we can also help our client and accelerate their speed and their product development. Integrating those services are really critical. When we put 14 companies together two and three years ago, we were 14 companies. We were not integrated. Developing the project management systems that we have developed in-house has taken multiple years.

Changing the culture to get people to respect those project management systems and use them and have great data in, so we have great data out, has also been an important evolution of our company. As we have been able to integrate those services so that we can combine the science, what we learned in the development stage through the safety assessment stage, we can add more value for our clients.

When we add more value and deliver on time and we can accelerate speed, again, that's the value proposition that we are after. When I say integrate, yes, it means being one company, but it is also how do we integrate and communicate that we create more value for our clients and more speed and improve the ability to interpret that data so we can improve their scientific development schedule. John, did I say that right?

John Sagartz (Chief Strategy Officer)

You got it pretty close.

Bob Leasure (President and CEO)

Okay. [crosstalk]Thank you.

John Sagartz (Chief Strategy Officer)

It's a combination, Dave, of making organizational realignments, providing the software tools to be able to track project movement, and creating accountability and expectation that on-time delivery is not an option.

Bob Leasure (President and CEO)

All right. Thank you, David. Beth, did you find that data?

Dave Windley (Managing Director)

Thank you.

Beth Taylor (SVP and CFO)

Yes. Our NHP service revenue did increase quarter-over-quarter by about 10%.

Bob Leasure (President and CEO)

Okay. Thank you. Thank you, David.

Thank you.

Operator (participant)

It does appear that we have no further questions at this time. I would now like to turn it back to Bob Leasure for any additional or closing remarks.

Bob Leasure (President and CEO)

I'd like to thank everyone for joining today's call. Obviously, we're feeling optimistic with the level of DSA quoting and awards that we're seeing. We were pleased with our RMS results this past quarter. We feel that there's a path to improving the DSA margin starting in Q3 of fiscal 2025, Dave asked. We will continue building Inotiv as a high-touch, flexible provider with strong scientific capabilities that is focused on our clients' needs and a positive environment for employees to have a career and grow and generate positive returns for our shareholders. We'll continue to pay attention to these details to get better every day.

Also, I'd like to add that we are going to be planning an investor day at our facility in Rockville, Maryland, on Thursday, May 29th. We look forward to further expanding on our strategic plan and our focus on client excellence. Thank you for your time today.

Operator (participant)

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful evening.