Financial Performance Overview

In the three months ended December 31, 2024, the company reported revenue of $119,876, a decrease of 11.5% compared to the same period in the prior year. This was driven by a 15.1% decline in revenue from the Research Models and Services (RMS) segment and a 4.2% decrease in revenue from the Discovery and Safety Assessment (DSA) segment.

The company reported a consolidated net loss of $27,630 for the quarter, compared to a net loss of $15,828 in the prior year period. This increase in net loss was primarily due to the lower revenue, as well as higher interest expense and other expenses.

The book-to-bill ratio, which measures the ratio of orders received to units shipped and billed, was 1.01x for the DSA services business, indicating stable demand. However, the DSA backlog decreased to $130,392 at the end of December 2024, down from $152,300 a year earlier.

Segment Performance

The DSA segment, which provides discovery and safety assessment services, saw revenue decrease by 4.2% to $42,822. Operating income for the segment increased by 22.2% to $1,946, driven by lower operating expenses and cost of revenue, partially offset by the revenue decline.

The RMS segment, which provides research models and associated services, experienced a more significant 15.1% drop in revenue to $77,054. This segment reported an operating loss of $1,185, compared to operating income of $5,078 in the prior year period. The decline was primarily due to lower pricing and demand for non-human primate (NHP) products and services.

Unallocated corporate expenses, which include general and administrative costs not directly attributable to the business segments, increased by 1.4% to $16,268.

Liquidity and Capital Resources

As of December 31, 2024, the company had cash and cash equivalents of $38,043 and access to a $15,000 revolving credit facility, which was undrawn. However, the company had negative operating cash flows, operating losses, and net losses during the quarter.

The company’s ability to continue as a going concern is subject to substantial doubt. If the company’s results do not improve over the next 12 months, it risks non-compliance with financial covenants under its credit agreement. This could lead to the acceleration of the company’s outstanding debt, which it does not believe it has sufficient cash and cash equivalents to repay.

To address this, the company recently completed a public offering of 6.9 million common shares, raising $27.5 million in net proceeds. The company plans to use these funds for working capital, capital expenditures, and other general corporate purposes.

Additionally, the company has been working with its lenders to amend the credit agreement, including obtaining waivers of certain financial covenants and establishing new minimum liquidity and EBITDA requirements. The company was in compliance with these new covenants as of December 31, 2024.

The company also issued $22.6 million in new second lien notes in September 2024, the proceeds of which were used to pay down a portion of the company’s existing convertible notes.

Strengths and Weaknesses

A key strength of the company is its diversified business model, with the DSA segment providing discovery and safety assessment services and the RMS segment supplying research models and associated products and services. This diversification helps mitigate risks from any single business line.

However, the company’s financial performance has been challenged, with declining revenue and profitability in both the DSA and RMS segments. The RMS segment, in particular, has faced significant headwinds from lower pricing and demand for NHP products.

The company’s high debt load, with over $400 million in total debt as of December 31, 2024, is also a significant weakness. The need to comply with financial covenants and the risk of debt acceleration create substantial uncertainty about the company’s ability to continue as a going concern.

Outlook and Conclusion

The company’s outlook remains uncertain. While the recent equity raise and debt restructuring efforts provide some near-term relief, the company’s long-term viability is dependent on its ability to improve operating performance and comply with its debt covenants.

Key focus areas for the company include increasing NHP-related product and service revenue, growing its discovery and safety assessment contract awards, and continuing to optimize its capital allocation and expense base. However, there is no assurance that these efforts will be successful.

Overall, the company’s financial performance has been disappointing, with declining revenue and profitability, high debt levels, and substantial doubt about its ability to continue as a going concern. Investors and other stakeholders will be closely watching the company’s progress in the coming quarters as it works to stabilize its business and address its liquidity and capital structure challenges.