Inotiv's Q4 2025 Earnings Call: Contradictions Emerge on Cancellation Trends, FDA Guidance, Cybersecurity Impact, NHP Pricing, and DSA Margins

Date of Call: December 3, 2025

Financials Results

• Revenue: $138.1M (Q4), up $7.7M or 5.9% YOY; FY2025 $513.0M, up $22.3M or 4.5% YOY
• EPS: $0.25 loss per diluted share in Q4 (vs $0.73 loss in Q4 FY2024); FY2025 $2.11 loss per diluted share (vs $4.19 loss FY2024)
• Operating Margin: $6.8M operating loss in Q4 (improved from $13.2M in Q4 FY2024); FY2025 operating loss $30.9M (improved from $86.4M FY2024)

Business Commentary:

• Discovery & Safety Assessment (DSA) Revenue and Awards Growth:
• Inotiv's DSA revenue for Q4 2025 reached $51.6 million, up 15.7% year-on-year, with DSA awards increasing approximately 61%.
• 

• The growth in DSA revenue and awards was driven by increased demand for discovery and translational science services, biotherapeutics, general toxicology services, and surgical services.

• Cybersecurity Incident Impact:

• The cybersecurity incident in August affected operations, although the details of its financial impact are not quantified.

• The incident caused additional expenses and overtime, and potentially impacted award issuance due to organizational focus on recovery.

• Revenue and Segment Performance:

• Total revenue for Q4 2025 was $138.1 million, up 5.9% year-on-year.

• The increase was primarily driven by a $7.1 million increase within the DSA segment, with RMS revenue slightly ahead by approximately 1%.

• RMS Site Consolidation and Cost Reduction:

• The RMS site consolidation project remained on track, with plans to close a total of 13 RMS facilities, representing approximately 60% of facilities over the last 3 years.
• This effort aims to reduce costs and improve operational efficiencies while supporting animal welfare objectives.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted improving momentum: "DSA quarterly revenue increased 15.7% and awards increased approximately 61%"; total Q4 revenue was $138.1M, up 5.9% YOY; adjusted EBITDA improved to $11.8M in Q4 vs $5.4M prior year. Management called results "encouraging" and emphasized continuing margin and backlog conversion improvements.

Q&A:

• Question from Frank Takkinen (Lake Street Capital Markets, LLC): Can you parse out the headwinds in the quarter, specifically quantify the incremental expenses related to the cybersecurity incident and indicate what revenue or earnings might have been without those headwinds?
  Response: The cybersecurity incident was the primary headwind, causing overtime, third‑party costs and some rework; its full financial impact is difficult to quantify, but operations recovered quickly and awards remained strong.

• Question from Frank Takkinen (Lake Street Capital Markets, LLC): Any quarter‑to‑date trends you can share on ordering patterns and seasonality (holiday effects) as we think about the December quarter?
  Response: Q4 (calendar quarter ending Dec 30) is typically the weakest due to holidays, but recent quoting and awards remain strong (DSA momentum over last 6–9 months); if those trends persist, management expects continued DSA growth despite seasonality.

• Question from Matthew Hewitt (Craig‑Hallum Capital Group LLC): With the FDA guidance on new approach methodologies, how are you positioned — what's your exposure to monoclonal antibodies and potential impacts on large animal toxicology demand?
  Response: Exposure to monoclonal antibodies is minimal; management has not seen meaningful customer behavior change from the guidance and does not expect near‑term impact.

• Question from Matthew Hewitt (Craig‑Hallum Capital Group LLC): As pharma customers start 2026 budget planning, are you hearing budgets will be flat or up next year?
  Response: Early in the cycle but quoting and bookings have increased materially; management is optimistic—no signs yet of weakness and they expect potential revenue growth next year.

• Question from David Windley (Jefferies LLC): Have you seen movement in lead times — how quickly can you start studies and how quickly do clients want to start?
  Response: Small‑animal/discovery studies typically start within weeks; large‑animal safety studies usually have 3–9 month lead times and current large‑animal capacity is highly utilized for the next couple of quarters.

• Question from David Windley (Jefferies LLC): RMS margin was impacted sequentially — was the cyber event differentially impactful on RMS versus DSA, or was it mainly corporate-level?
  Response: RMS margin improvements are driven by site consolidation (small animal/diet); NHP costs (spot market, transport, quarantine) add variability — cyber costs were more corporate/intangible and not the main driver of RMS margin change.

• Question from David Windley (Jefferies LLC): Can you describe volume versus price dynamics in RMS, large animal versus small animal mix, models versus services, and how the Alice, Texas animal services business is developing?
  Response: Small‑animal/diet margins are improving due to fixed‑cost removal from site closures; services and domestic breeding (Alice, Texas) are growing; NHP volumes/pricing still cause some volatility but the market has become more stable.

Contradiction Point 1

Cancellation and Bookings Trends

It involves differing perceptions of the trend in cancellations and new bookings, which impact revenue projections and operational efficiency.

What were the headwinds in the quarter and what would revenue have been without them? Are there any quarter-to-date trends you're comfortable sharing? - Frank Takkinen (Lake Street Capital Markets, LLC, Research Division)

2025Q4: The major headwind was the cybersecurity incident in August. It caused overtime, communication costs, and some studies had to be redone. It's hard to quantify the intangible costs, but the team responded well. The quoting and awards trends are moving forward nicely, and we see positive trends in quoting activity for the last 2 months. - Robert Leasure(CEO)

Do you expect cancellations or negative change orders to decline in the second half of this year or fiscal year 2026? - Matthew Gregory Hewitt (Craig-Hallum Capital Group)

2025Q3: We had a very strong quarter in new bookings and sales growth, despite the cancellations. Our organization is managing through this, and we've increased our sales team. We'll continue to expect higher gross bookings to offset cancellations. - Robert W. Leasure(CEO)

Contradiction Point 2

FDA Guidance on Animal Models

It involves differing interpretations of the impact of FDA guidance on animal models, which could affect client decision-making and service demand.

How does the FDA's new guidance on reducing animal models affect your business, especially regarding monoclonal antibodies? - Matthew Hewitt (Craig-Hallum Capital Group LLC, Research Division)

2025Q4: Our revenue related to monoclonal antibodies is minimal. We're not worried about this guidance impacting us. The FDA guidance is just that, guidance, and clients will still decide based on their needs. We do see some quoting activity, so no significant impact is expected. - Robert Leasure(CEO)

What is the outlook for pharma budgets next year, and will they remain flat or increase? - Matthew Gregory Hewitt (Craig-Hallum Capital Group)

2025Q3: We're seeing a substantial increase in quoting and bookings, with some bookings further out. We're encouraged with the reoccurring customer base and increased quoting activity. - Robert W. Leasure(CEO)

Contradiction Point 3

Impact of Cybersecurity Incident

It highlights differing statements about the impact of a major cybersecurity incident on the company's operations and financial performance.

What were the key headwinds in the quarter and what revenue would have been without them? Are there any quarter-to-date trends you can share? - Frank Takkinen (Lake Street Capital Markets, LLC, Research Division)

2025Q4: The major headwind was the cybersecurity incident in August. It caused overtime, communication costs, and some studies had to be redone. It's hard to quantify the intangible costs, but the team responded well. - Robert Leasure (CEO)

How have quoting and demand trends started in Q3 compared to Q2? - Matt Hewitt (Craig-Hallum Capital Group)

2025Q2: We've had a great quarter in terms of operational performance - Bob Leasure (CEO)

Contradiction Point 4

NHP Inventory and Pricing

It involves changes in the company's approach to managing non-human primate (NHP) inventory and pricing strategies, which directly impact financial projections and revenue expectations.

How did the cyber event costs affect the RMS segment compared to DSA? What are the key drivers of RMS margins? - David Windley (Jefferies LLC, Research Division)

2025Q4: We expect our NHP margin to improve as we are gaining pricing and we expect some margin expansion in the NHP segment. - Robert Leasure(CEO)

Can you quantify the impact of NHP gross margins for the recent quarter and provide a future outlook? - Frank Takkinen (Lake Street Capital Markets)

2024Q4: The gross margin in NHPs was approximately half of what we would normally achieve. It was important to move higher-cost inventory, and despite some margin pressure, demand was strong. - Robert Leasure(CEO)

Contradiction Point 5

DSA Pricing Pressure

It concerns the underlying reasons for pricing pressure in the DSA business, which affects the company's revenue and profit margins.

What are your expectations for pharma budgets next year, and do you expect them to remain flat or increase? - Matthew Hewitt (Craig-Hallum Capital Group LLC, Research Division)

2025Q4: Pricing pressure is mainly in the DSA business, driven by NHP costs and margin compression. - Robert Leasure(CEO)

How are you managing pricing pressures in your DSA business? - Matthew Hewitt (Craig-Hallum)

2024Q4: Pricing pressure is mainly in the DSA business, driven by NHP costs and margin compression. - Robert Leasure(CEO)