Inotiv Inc.

02/09/2026 | Press release | Distributed by Public on 02/09/2026 15:24

Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally identified with words such as "aim", "anticipate", "assume", "believe", "could", "estimate", "expect", "future", "goal", "intend", "likely", "may", "plan", "project", "seek", "strategy", "target", "will" and similar expressions. Those statements appear in a number of places in this report and may include, but are not limited to, statements regarding our
intent, belief or current expectations with respect to (i) our strategic plans; (ii) trends in the demand for our services and products, including as a result of fluctuations in research and development spending by pharmaceutical and biotechnology companies; (iii) trends in the industries that consume our services and products; (iv) market and company-specific impacts of non-human primate ("NHP") supply and demand matters; (v) compliance with the Resolution Agreement and the Plea Agreement and the expected impacts on the Company related to the compliance plan and compliance monitor, including the expected amounts, timing and expense treatment of cash payments and other investments thereunder; (vi) our ability to service our substantial outstanding indebtedness and to comply or regain compliance with financial covenants; (vii) our current and forecasted cash position; (viii) our ability to make capital expenditures, fund our operations and satisfy our obligations; (ix) our ability to manage recurring and unusual costs; (x) our ability to execute on and realize the expected benefits related to our restructuring and site optimization plans; (xi) our expectations regarding the volume of new bookings, pre-sales, pricing, cost savings initiatives, expansion of services, operating income or losses and liquidity; (xii) our ability to effectively fill recent expanded capacity or any future expansion or acquisition initiatives undertaken by us; (xiii) our ability to develop and build infrastructure and teams to manage growth and projects; (xiv) our ability to continue to retain and hire key talent; (xv) our ability to market our services and products under our corporate name and relevant brand names; (xvi) our ability to develop new services and products; (xvii) our ability to negotiate amendments to the Credit Agreement or obtain waivers related to the financial covenants defined within the Credit Agreement; (xviii) our ability to maintain effective data protection, privacy and cybersecurity measures and to mitigate legal, financial and reputational risks in the event of a cyber incident, including the 2025 Cybersecurity Incident; and (xix) the impact of macroeconomic factors, including but not limited to tariffs and trade policies. Actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to those discussed in Part I, Item 1A, Risk Factors, contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, in Part II, Item 1A, Risk Factors, contained in this Quarterly Report on Form 10-Q and in subsequent filings with the SEC, many of which are beyond our control.
In addition, we have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove inaccurate and, as a result, the forward-looking statements based upon those assumptions could be significantly different from actual results. In light of the uncertainties inherent in any forward-looking statement, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved. We do not undertake any obligation to update any forward-looking statement, except as required by law.Our actual results could differ materially from those discussed in the forward-looking statements.
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report.
All amounts in this Management's Discussion and Analysis of Financial Condition and Results of Operations are presented in thousands, unless otherwise specified.
Business Overview
Inotiv is a leading contract research organization ("CRO") dedicated to providing nonclinical and analytical drug discovery and development services primarily 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 and, in certain cases, the clinical phases of development, all while focusing on 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.
We have two reportable segments: Discovery and Safety Assessment ("DSA") and Research Models and Services ("RMS").
Through our DSA segment, we provide discovery and translational sciences ("DTS") and safety assessment ("SA") services (including nonclinical development and, in certain cases, clinical development) to support the needs of researchers and clinicians for primarily small molecule drug candidates, as well as biotherapeutics and biomedical devices utilizing
both Good Laboratory Practice ("GLP") and non-GLP. Our scientists have skills in histology, pathology, physiology, surgery, analytical chemistry, drug metabolism, pharmacokinetics, and toxicology. Our principal clients range from small start-up biotechnology companies to some of the largest global pharmaceutical companies, whose scientists are engaged in analytical chemistry, drug safety evaluation, drug metabolism studies, pharmacokinetics, clinical trials, and basic research.
Through our RMS segment, we offer access to a wide range of purpose-bred animal research models for basic research and drug discovery and development, specialized models for specific diseases and therapeutic areas, and diet, bedding and enrichment products, all supported by our deep animal husbandry expertise. 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.
Site Optimization and Transportation
During the three months ended December 31, 2025, in order to support the continued integration and improvement of our North American transportation and distribution systems, we continued to move forward with right-sizing our leased vehicle fleet.
We anticipate that Phase Two of our site optimization plan for the RMS business ("Phase Two") will require a total capital investment of approximately $7,000. Of this expected capital investment, we have spent $4,761 to date. We expect that Phase Two will reduce production capacity and create operating efficiencies, while supporting our animal welfare objectives, and provide net annual savings of $6,000 to $7,000. During the three months ended December 31, 2025, we exited two leased facilities in connection with Phase Two. We expect Phase Two to be complete by the end of the third fiscal quarter of 2026.
2025 Cybersecurity Incident
On August 8, 2025, we became aware of a cybersecurity incident affecting certain of our systems and data (the "2025 Cybersecurity Incident"). Upon identifying encrypted systems, we took steps to contain, assess, and remediate the cybersecurity incident, including initiating an investigation, engaging external cybersecurity specialists, and restricting access to certain of its systems. We also notified law enforcement. We have restored availability and access to our networks and systems. The forensic investigation of the 2025 Cybersecurity Incident is now complete and determined that between approximately August 5-8, 2025, a threat actor gained unauthorized access to the Company's systems and may have acquired certain data. The Company is in the process of providing notifications regarding the 2025 Cybersecurity Incident in accordance with applicable legal obligations. While we have identified the likely scope of the incident, the full operational and financial impacts are still being evaluated. Accordingly, we have not yet determined whether the 2025 Cybersecurity Incident is reasonably likely to have a material impact on the Company.
Securities Class Action and Derivative Lawsuits
In order to eliminate the uncertainty, burden, and expense of protracted litigation, on September 25, 2025, we entered into a Stipulation and Agreement of Settlement (the "Securities Settlement") to settle the Securities Class Action. The Court granted final approval of the Securities Settlement on January 27, 2026. Refer to Note 11 - Contingencies and Commitments for further discussion of the Securities Class Action and the Securities Settlement.
In order to eliminate the uncertainty, burden, and expense of protracted litigation, on September 25, 2025, the Company reached an agreement in principle to settle the Derivative Actions. On December 18, 2025, the parties to the Derivative Actions executed a stipulation of settlement (the "Proposed Derivative Settlement"). The Court preliminarily approved the Proposed Derivative Settlement on January 7, 2026, and scheduled a settlement hearing for March 18, 2026. The Proposed Derivative Settlement is subject in all respects to court approval and there can be no assurance that the court will approve the Proposed Derivative Settlement. Refer to Note 11 - Contingencies and Commitments for further discussion of the Derivative Actions and the Proposed Derivative Settlement.
As of December 31, 2025, we recorded an $11,000 liability and an $11,000 insurance recovery asset related to the Securities Settlement and the Proposed Derivative Settlement, collectively.
Nasdaq Delisting Notice
On December 31, 2025, we received written notice from The Nasdaq Stock Market LLC ("Nasdaq") stating that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Rule") because our common shares failed to maintain a minimum closing bid price of $1.00 per share for 30 consecutive business days. This letter provides an initial 180 calendar day period, or until June 29, 2026, in which to regain compliance. If we do not regain compliance by July 29, 2026, we may be eligible for an additional 180-day grace period.
We intend to continue to monitor the bid price for our common shares and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Rule, including seeking shareholder approval of a reverse split of our common shares in order to increase the trading price of our common shares in compliance with the Minimum Bid Price Rule. There is no assurance, however, that we will be eligible for an additional compliance period or that any actions we take will resolve the deficiency. If we fail to regain and maintain compliance with the Minimum Bid Price Rule or we fail to continue to meet all other applicable continued listing requirements for Nasdaq, our common shares may be delisted, which would adversely affect the market liquidity of our common shares and our ability to obtain financing to fund our operations. See Part II, Item 1A "Risk Factors" of this reportfor a description of the risks related to this notice.
External Factors
We remain attentive to external factors, including tariffs, client research and development funding levels, and the recently announced efforts to accelerate implementation of the FDA Modernization Act 2.0, including a roadmap to reduce animal testing in preclinical safety studies with scientifically validated new approach methodologies, any of which may increase our costs and could continue to drive uncertainty and instability in global markets. Any or all of these external factors could impact both of our segments.
Our imported NHPs were subject to tariffs ranging from 15% to 20% during the first quarter of fiscal 2026. These tariffs were required to be paid within approximately 30 days of import, which is a shorter timeframe than the average NHP research model inventory turnover period. As a result, payment of tariffs negatively impacted the Company's cash flows during the first fiscal quarter of 2026 and is expected to continue to impact the Company's cash flows in the future. Future NHP imports are currently expected to remain subject to tariffs in the range of 15% to 20%. However, we have and expect to continue to work with suppliers and customers to attempt to mitigate the financial impact of these additional costs. The current and future applicable tariff percentages are based on the country of origin of the imported NHPs. If tariff rates continue to increase, we expect to continue working with suppliers and customers to attempt to mitigate these potential additional costs as the NHPs are mission-critical to the safety testing of new medicines; however, there can be no assurance that we will be successful in any mitigation efforts.
Client research and development funding levels, particularly those impacted by government sources like the U.S. National Institutes of Health ("NIH"), can be challenging to forecast. Funding of research and development is impacted by the political process, which is ever-changing. We continue to monitor macro indicators and maintain communication with our clients, as needed, regarding client research and development funding levels.
With respect to the FDA Modernization Act 2.0, which encourages the industry to explore alternatives to animal testing, 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. We believe our future objectives are in line with the goals outlined in the FDA Modernization Act 2.0. Examples of some of our current service offerings which we believe 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.
Financial and Operational Highlights During Three Months Ended December 31, 2025
•Revenue was $120,879 in the three months ended December 31, 2025, an increase of $1,003, or 0.8%, compared to $119,876 during the three months ended December 31, 2024, driven by a $5,133, or 12.0%, increase in DSA revenue, partially offset by a decrease of $4,130, or 5.4%, in RMS revenue.
•Consolidated net loss for the three months ended December 31, 2025 was $28,378, or 23.5% of total revenue, compared to a consolidated net loss of $27,630, or 23.0% of total revenue, in the three months ended December 31, 2024.
•Book-to-bill ratio for the three months ended December 31, 2025 was 1.16x for the DSA services business.
•DSA backlog was $145,413 at December 31, 2025 compared to $138,197 at September 30, 2025, and $130,392 at December 31, 2024.
•In connection with Phase Two of our U.S. site optimization plan, we exited two leased facilities during the three months ended December 31, 2025.
Results of Operations
Three Months Ended December 31, 2025 Compared to Three Months Ended December 31, 2024
DSA
Three Months Ended
December 31,
2025 2024 $ Change % Change
Revenue $ 47,955 $ 42,822 $ 5,133 12.0 %
Cost of revenue1
34,602 30,812 3,790 12.3 %
Operating expenses2
5,858 5,481 377 6.9 %
Depreciation and amortization of intangible assets 4,346 4,583 (237) (5.2) %
Operating income3
$ 3,149 $ 1,946 $ 1,203 61.8 %
Operating income % of total revenue 2.6 % 1.6 %
1Cost of revenue includes cost of services provided and cost of products sold and excludes depreciation and amortization of intangible assets, which is separately stated
2Operating expenses include selling, general and administrative and other operating expenses and excludes depreciation and amortization of intangible assets, which is separately stated
3Table may not foot due to rounding
DSA revenue increased by $5,133 in the three months ended December 31, 2025 compared to the three months ended December 31, 2024. DSA revenue increased primarily due to increased DTS revenue and increased SA revenue. The increase in DTS revenue included increased discovery pharmacology service revenue and the increased SA revenue included increased surgical services revenue and new business at our Rockville facility.
DSA operating income was $3,149 in the three months ended December 31, 2025 compared to $1,946 in the three months ended December 31, 2024, an increase of $1,203, primarily due to the increase in revenue discussed above, partially offset by an increase in cost of revenue. The increase in DSA cost of revenue primarily related to increased compensation and benefits costs and increased supplies expense.
RMS
Three Months Ended
December 31,
2025 2024 $ Change % Change
Revenue $ 72,924 $ 77,054 $ (4,130) (5.4) %
Cost of revenue1
61,467 64,026 (2,559) (4.0) %
Operating expenses2
5,761 4,775 986 20.6 %
Depreciation and amortization of intangible assets 9,250 9,438 (188) (2.0) %
Operating loss3
$ (3,554) $ (1,185) $ (2,369) (199.9) %
Operating loss % of total revenue
(2.9) % (1.0) %
1Cost of revenue includes cost of services provided and cost of products sold and excludes depreciation and amortization of intangible assets, which is separately stated
2Operating expenses include selling, general and administrative and other operating expenses and excludes depreciation and amortization of intangible assets, which is separately stated
3Table may not foot due to rounding
RMS revenue decreased $4,130 in the three months ended December 31, 2025 compared to the three months ended December 31, 2024, primarily due to lower NHP volumes sold, partially offset by higher average selling prices for NHPs compared to the prior year quarter and higher NHP-related services revenue.
RMS operating loss was $3,554 in the three months ended December 31, 2025 compared to $1,185 in the three months ended December 31, 2024, an increase of $2,369, due primarily to the decrease in revenue discussed above and increased operating expenses, partially offset by decreased cost of revenue and decreased depreciation and amortization of intangible assets. The $986 increase in operating expenses was primarily due to an increased provision for expected credit losses. The $2,559 decrease in cost of revenue primarily related to decreased costs associated with the decreased NHP product revenue as discussed above and decreased compensation and benefits costs, partially offset by increased non-NHP inventory costs.
Unallocated Corporate
Three Months Ended
December 31,
2025 2024 $ Change % Change
Operating expenses1
$ 15,730 $ 16,110 $ (380) (2.4) %
Depreciation 195 158 37 23.4 %
Operating loss2
$ 15,925 $ 16,268 $ (343) (2.1) %
Operating loss % of total revenue (13.2) % (13.6) %
1Operating expenses includes general and administrative and other operating expenses
2Table may not foot due to rounding
Unallocated corporate costs consist of general and administrative expenses, other operating expenses and depreciation expenses that are not directly related or allocated to the reportable segments. The decreased operating loss of $343 in the three months ended December 31, 2025 compared to the three months ended December 31, 2024 was primarily driven by decreased operating expenses.
Other Expense
Other expense decreased by $615 for the three months ended December 31, 2025 compared to the three months ended December 31, 2024, primarily driven by a decrease of $375 in interest expense.
Income Taxes
The Company's effective tax rates for the three months ended December 31, 2025 and 2024 were 5.5% and 7.3%, respectively. For the three months ended December 31, 2025, the Company's effective tax rate was primarily driven by a valuation allowance in connection with certain deferred tax assets. For the three months ended December 31, 2024, the Company's effective tax rate was primarily driven by a change in the valuation allowance.
Consolidated Net Loss
As a result of the factors described above, we had a consolidated net loss of $28,378 for the three months ended December 31, 2025 as compared to $27,630 during the three months ended December 31, 2024.
Liquidity and Capital Resources
Liquidity and Going Concern
The accompanying unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below.
As of December 31, 2025, the Company had cash and cash equivalents of approximately $12,732 and access to a $15,000 revolving credit facility, which had a $6,000 balance outstanding, which balance remains outstanding as of the date of this
report. Further, for the three months ended December 31, 2025, the Company had negative operating cash flows, operating losses and consolidated net losses. The financial covenants under the Company's Credit Agreement, dated as of November 5, 2021 (as amended through the date hereof, the "Credit Agreement") include, among others, the First Lien Leverage Ratio and the Fixed Charge Coverage Ratio (each as defined in the Credit Agreement). Subsequent to December 31, 2025 and within period of time stipulated under the Credit Agreement, the Company entered into the Eighth Amendment (as defined in Note 4 - Debt) to the Credit Agreement, which provided a written waiver for the First Lien Leverage Ratio and Fixed Charge Coverage Ratio financial covenants applicable to three months ended December 31, 2025. As a result of the waiver, the Company was in compliance with its financial covenants under the Credit Agreement for the period ended December 31, 2025.
Management's fiscal 2026 annual operating plan forecasts noncompliance with its financial covenants pursuant to the Credit Agreement for the remainder of fiscal 2026. If the Company's results of operations in the twelve months following the date of this report do not improve relative to the results of the first three months of fiscal 2026 and to the forecast in the 2026 annual operating plan, the Company will be at risk of non-compliance with its financial covenants under its Credit Agreement. Further, the Company's Term Loan Facility, Delayed Draw Term Loan, Incremental Term Loans and any outstanding balance on the Revolving Credit Facility (each as defined in Note 4 - Debt) mature in the next 12 months.
If at any time in the twelve months following the date of this report, the Company fails to comply with its financial covenants which remains unremedied for the period of time stipulated under the Credit Agreement, this would constitute an event of default under the Credit Agreement and the lenders may, among other remedies set out under the Credit Agreement, declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be immediately due and payable. Furthermore, if the lenders were to accelerate the loans under the Credit Agreement, such acceleration would constitute a default under our indentures governing the Company's Convertible Senior Notes (the "Notes") and the Company's 15.00% Senior Secured Second Lien PIK Notes due 2027 (the "Second Lien Notes") which, if not cured within 30 days following notice of such default from such trustees or holders of 25 percent of the Notes and from the trustee or holders of 30 percent of the Second Lien Notes, would permit the trustee or such holders to accelerate the Notes and the Second Lien Notes. If the loans under the Credit Agreement, the Notes and the Second Lien Notes are accelerated, the Company does not believe its existing cash and cash equivalents, together with cash generated from operations, would be sufficient to fund its operations, satisfy its obligations, including cash outflows for planned targeted capital expenditures, and repay the entirety of its outstanding senior term loans, outstanding Notes, outstanding revolving credit facility balance and outstanding Second Lien Notes in the next twelve months. Additionally, access to the revolving credit facility would be restricted and such funds would not be available to pay for any operating activities.
Our evaluation of the Company's ability to continue as a going concern in accordance with U.S. generally accepted accounting principles entailed analyzing prospective fully implemented operating budgets and forecasts for expectations of our cash needs and comparing those needs to the current cash and cash equivalent balances in order to satisfy our obligations, including cash outflows for planned targeted capital expenditures, and to comply with minimum liquidity and financial covenant requirements under our debt covenants related to borrowings pursuant to our Credit Agreement for at least the next twelve months. This evaluation initially does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented and are outside of its control as of the date the condensed consolidated financial statements are issued. When substantial doubt exists under this methodology, we evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the condensed consolidated financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued.
Management has developed our fiscal 2026 annual operating plan in which we plan to continue our efforts to optimize our capital allocation and expense base. Additionally, the Company's plan is to continue its efforts to improve its operating results with a sustained focus on client service and margin discipline, increasing our volume of DTS and safety assessment contract awards and increasing our RMS product and service revenue. In connection with management's fiscal 2026 annual operating plan, the Company believes its existing cash and cash equivalents, together with cash generated from operations, will be sufficient to fund its operations and satisfy its obligations, including cash outflows for planned targeted capital expenditures for at least the next 12 months, excluding the maturity of the Company's Term Loan Facility, Delayed Draw Term Loan and Incremental Term Loans in November 2026. However, management's fiscal 2026 annual operating plan forecasts noncompliance with its financial covenants pursuant to the Credit Agreement. In the event that the Company fails to comply with the requirements of the financial covenants set forth in the Credit Agreement, the Company has
approximately 55 days subsequent to any fiscal quarter, and approximately 100 days subsequent to fiscal year-end, to cure noncompliance (the "grace period").The Company also continues to discuss its current business conditions with its lenders. Additionally, the Company is exploring potential debt refinancing alternatives. There is no assurance that the Company's lenders will agree to any amendment or extension to the Credit Agreement, nor can there be any assurance that the Company would be able to raise additional capital, whether through selling additional equity or debt securities or obtaining a line of credit or other loan on terms acceptable to the Company or at all.
The Company's liquidity needs and compliance with covenants depend, among other things, on its ability to source and sell NHPs, its ability to fill its expanded DSA capacity, its ability to generate cash from other operating activities and its ability to manage its forecasted capital expenditures. Although management believes that it will be able to implement its plan, there can be no assurances that its plan will prove successful. As a result, substantial doubt about the Company's ability to continue as a going concern exists.
Comparative Cash Flow Analysis
At December 31, 2025, we had cash and cash equivalents of $12,732, compared to $21,741 at September 30, 2025.
Net cash used in operating activities was $5,433 for the three months ended December 31, 2025 compared to $4,497 for the three months ended December 31, 2024.
Net cash used in operating activities in the three months ended December 31, 2025, was driven by consolidated net loss of $28,378, partially offset by non-cash charges of $17,302 and a net decrease in operating assets and liabilities of $5,643. Non-cash charges primarily included $13,791 for depreciation and amortization, $2,718 for non-cash interest and accretion expense, amortization of debt issuance costs and original issue discount of $1,404, and $1,382 for non-cash employee stock compensation expense, partially offset by a decrease in deferred taxes of $2,337. The net decrease in operating assets and liabilities was primarily driven by a decrease in fees invoiced in advance of $14,479, a decrease in accounts payable of $4,230 and a decrease in accrued expenses and other current liabilities of $3,620, partially offset by a decrease in trade receivables and contract assets of $14,686, a decrease of $653 in other assets and liabilities, net and a decrease in prepaid expenses and other current assets of $12,304.
Net cash used in operating activities for the three months ended December 31, 2024 was primarily driven by a consolidated net loss of $27,630, partially offset by non-cash charges of $17,701 and a net increase in operating assets and liabilities of $5,432. Non-cash charges primarily included $14,179 for depreciation and amortization, non-cash interest and accretion expense of $3,076, $1,770 for non-cash stock compensation expense and amortization of debt issuance costs and original issue discount of $1,288, partially offset by changes in deferred taxes of $2,802.
Net cash used in investing activities of $5,180 in the three months ended December 31, 2025 was due to capital expenditures of $5,180. The capital additions during the three months ended December 31, 2025 primarily consisted of investments in facility improvements and expansion related to Phase Two and capacity expansions to support future NHP colony management service revenue growth.
Net cash used in investing activities of $4,459 in the three months ended December 31, 2024 was primarily due to capital expenditures of $4,459. The capital additions during the three months ended December 31, 2024 primarily consisted of investments in facility improvements and site expansions to support future service revenue growth.
Net cash provided by financing activities of $1,536 in the three months ended December 31, 2025 primarily included borrowings on the revolving credit facility of $3,000, partially offset by payments on senior term notes and delayed draw term loans of $1,428.
Net cash provided by financing activities of $26,125 in the three months ended December 31, 2024 included net proceeds from the issuance of common shares of $27,524 and borrowings on the revolving credit facility of $20,000, partially offset by payments on the revolving credit facility of $20,000.
Capital Resources
Our indebtedness as of December 31, 2025 and September 30, 2025 is detailed in the table below. Refer below for discussion of the revolving credit facility.
December 31, 2025 September 30, 2025
Seller Note - Bolder BioPath (Related party) $ 94 $ 150
Seller Payable - Orient BioResource Center 3,235 3,235
Second Lien Notes 24,694 23,220
Convertible Senior Notes 118,168 116,440
Term Loan Facility, DDTL and Incremental Term Loans 267,395 268,654
Total debt before unamortized debt issuance costs $ 413,586 $ 411,699
Less: Debt issuance costs not amortized (7,813) (9,576)
Total debt, net of unamortized debt issuance costs $ 405,773 $ 402,123
Less: Current portion (405,773) (402,123)
Total Long-term debt $ - $ -
If the Company's results of operations in the twelve months following the date of this report do not improve relative to its results in the three months ended December 31, 2025, it is probable that the Company will fail its financial covenants within twelve months of the balance sheet date. As a result, we have classified the Term Loan Facility, DDTL and Incremental Term Loans (each as defined below), the Notes and the Second Lien Notes as current. Refer to Note 1 - Description of the Business and Basis of Presentation for the Company's analysis of Liquidity and Going Concern, including cross-default considerations.
Revolving Credit Facility
As of December 31, 2025 and September 30, 2025, the Company had a $6,000 and a $3,000 outstanding balance, respectively, on the revolving credit facility. The Revolving Credit Facility will mature on November 5, 2026. Refer to the Condensed Consolidated Statements of Cash Flows for information related to borrowings and payments on the revolving credit facility during the three months ended December 31, 2025.
Term Loan Facility, DDTL and Incremental Term Loans
Below are the weighted-average effective interest rates for the loans available under the Credit Agreement:
Three Months Ended
December 31,
2025 2024
Effective interest rates:
Term Loan 11.57 % 11.71 %
Initial DDTL 11.56 % 11.69 %
Additional DDTL 11.62 % 11.82 %
On November 5, 2026, the Term Loan Facility, DDTL and Incremental Term Loans will mature, any amounts outstanding under the revolving credit facility will be due and payable, and the Credit Agreement will terminate.
Credit Agreement
On November 5, 2021, the Company, certain subsidiaries of the Company (the "Subsidiary Guarantors"), the lenders party thereto, and an administrative agent (the "Agent"), entered into the Credit Agreement. The Credit Agreement provides for a term loan facility (the "Term Loan") 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 DDTL 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 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 First Lien 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 accrued 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 First Lien Leverage Ratio. The initial adjusted prime rate of interest was the prime rate plus 5.25%.
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 First Lien Leverage Ratio. Each of the loan facilities may be repaid at any time. Voluntary prepayments were subject to a 1.00% 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 a First Lien Leverage Ratio of not more than 4.25 to 1.00 for the Company's fiscal quarters through the fiscal quarter ended June 30, 2023, 3.75 to 1.00 beginning with the Company's fiscal quarter ended September 30, 2023, and 3.00 to 1.00 beginning with the Company's fiscal quarter ended March 31, 2025. The Company is required to maintain a minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement), which ratio was 1.00 to 1.00 during the first year of the Credit Agreement and is 1.10 to 1.00 from and after the Credit Agreement's first anniversary. The covenants related to the First Lien Leverage Ratio and Fixed Charge Coverage Ratio were amended by the Seventh Amendment. Further, the Eighth Amendment waived the First Lien Leverage Ratio and the Fixed Charge Coverage Ratio financial covenant tests for the period ended December 31, 2025 and increased the Company's required minimum liquidity to $30,000 beginning March 6, 2026.
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.
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 First Lien Leverage Ratio (as defined in the Credit Agreement). The initial adjusted LIBOR rate of interest was the LIBOR rate plus 6.25%.
The Term Loan and the Initial DDTL will mature on November 5, 2026.
First Amendment to Credit Agreement
On January 27, 2022, the Company, the 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 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 First Lien Leverage Ratio (as defined in the Credit Agreement). The initial adjusted LIBOR rate of interest was the LIBOR rate plus 6.25%.
The Additional Term Loans require annual principal payments in an amount equal to 1.00% of the original principal amount. Voluntary prepayments of the Additional Term Loans were subject to a 1.00% 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 First Lien 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 provided 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 added 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 First Lien 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 0.50%, (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 First Lien Ratio.
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 provided 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, 2023and, subject to the terms of the Credit Agreement, ending on the date on which financial statements for the Company's fiscal quarter ended March 31, 2024are 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 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 0.11448% and 0.42826%, depending on the term of the loan, provided that, the Adjusted Term SOFR shall never be less than 1.00% per annum, plus (ii) an applicable margin of 6.75% per annum for term loans maintained as SOFR loans or 9.50% per annum for revolving loans maintained as SOFR loans. Alternate base rate loans shall 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 0.50%, (b) the Agent's prime rate and (c) Adjusted Term SOFR for a one-month tenor plus 1.00% (the "Alternate Base Rate"), provided that, the Alternate Base Rate is subject to a floor of 2.00% per annum plus (ii) an applicable margin of 5.75% per annum for term loans maintained as Alternate Base Rate loans or 8.50% per annum for revolving loans maintained as Alternate Base Rate loans.
The fee consideration payable by the Company for each consenting lender party to the Third Amendment is: (i) 0.50%of the aggregate outstanding principal amount of the term loans held by each consenting term loan lender, to be paid in-kind and capitalized to the principal amounts of the term loans held by such lender; (ii) 0.50%of the aggregate outstanding principal amount of the term loans held by each consenting term loan lender, to be paid in cash upon the occurrence of certain prepayments of the term loan under the Credit Agreement; and (iii) 7.00%of the aggregate amount of the revolving commitments held by each consenting revolving lender, to be paid in cash upon the occurrence with certain permanent reductions of the revolving loans under the Credit Agreement.
Fourth Amendment to Credit Agreement
On May 14, 2024, the Company, the Subsidiary Guarantors and the lenders party thereto entered into a Fourth Amendment (the "Fourth Amendment") to the Credit Agreement. The Fourth Amendment provided that any charges or expenses attributable to or related to the Resolution Agreement and Plea Agreement (each as defined in Note 11) could be added back to the Company's Consolidated EBITDA (up to $26,500) for purposes of the financial covenants under the Credit Agreement. Refer to Note 11 - Contingencies and Commitments for further discussion of the Resolution Agreement and Plea Agreement.
The fee consideration payable by the Company for each consenting lender party to the Fourth Amendment is 0.50%of the aggregate outstanding principal amount of the term loans held by each consenting term loan lender, to be paid in-kind and capitalized to the principal amounts of the term loans held by such lender.
Fifth Amendment to Credit Agreement
On June 2, 2024, the Company, the Subsidiary Guarantors and the lenders party thereto entered into a Fifth Amendment (the "Fifth Amendment") to the Credit Agreement. The Fifth Amendment, among other changes, permits charges or expenses attributable to or related to the Resolution Agreement and the Plea Agreement to be added back to the Company's Consolidated EBITDA in an amount up to $28,500; excludes any direct effects to the Company resulting from the Resolution Agreement and the Plea Agreement from being deemed a material adverse effect under the Credit Agreement; permits liens on the Company and certain subsidiaries in favor of the U.S. Department of Justice (the "DOJ") in connection with the Resolution Agreement and the Plea Agreement; provides that certain uncured or unwaived breaches of the terms and conditions of the Resolution Agreement and the Plea Agreement shall be considered an event of default under the Credit Agreement; and enables the lenders to cause, at their discretion, material foreign subsidiaries to be joined as guarantors of the Company's obligations under the Credit Agreement. Refer to Note 11 - Contingencies and Commitments for further discussion of the Resolution Agreement and Plea Agreement.
The fee consideration payable by the Company for each consenting lender party to the Fifth Amendment is 0.50%of the aggregate outstanding principal amount of the term loans held by each consenting term loan lender, to be paid in-kind and capitalized to the principal amounts of the term loans held by such lender.
Sixth Amendment to Credit Agreement
On August 7, 2024, the Company, the Subsidiary Guarantors and the lenders party thereto entered into a Sixth Amendment (the "Sixth Amendment") to the Credit Agreement. The Sixth Amendment among other changes, waived the financial covenant tests set out under the Credit Agreement for the fiscal quarter ended June 30, 2024, established a new weekly liquidity reporting requirement to the lenders, and established a new minimum weekly liquidity requirement of $7,000for each of the weeks ended August 16, 2024, August 23, 2024and August 30, 2024, $17,500for each of the weeks ended October 11, 2024, October 18, 2024and October 25, 2024and $10,000for each other week thereafter.
Seventh Amendment to Credit Agreement
On September 13, 2024, the Company, the Subsidiary Guarantors and the lenders party thereto entered into the Seventh Amendment to the Credit Agreement. The Seventh Amendment, among other changes, permitted the incurrence of the issuance of the Second Lien Notes in an aggregate amount of $22,550, made certain changes to the component definitions of the financial covenants, including the definition of Fixed Charge Coverage Ratio, and increased the cash netting capability in the First Lien Ratio covenant. The Seventh Amendment included the addition of a maximum capital expenditure limit and a minimum EBITDA test effective as of the closing date, waived the existing financial covenants from the date of the Seventh Amendment until June 30, 2025, and established new testing ratios and new financial covenant tests for the fiscal quarters starting June 30, 2025and thereafter. The Seventh Amendment also capped the reinvestment of funds from extraordinary receipts and asset sales and casualty events at $5,000in the aggregate, and established a non-voting third party observer to the Company's board of directors meetings, as elected by the lenders. Additionally, the Seventh Amendment permits charges or expenses attributable to or related to the Resolution Agreement and the Plea Agreement to be added back to the Company's Consolidated EBITDA in an amount up to $32,000 for purposes of the financial covenants under the Credit Agreement. This is an update to the $28,500 provided in the Fifth Amendment.
Eighth Amendment to Credit Agreement
On February 8, 2026, the Company, the Subsidiary Guarantors and the lenders party thereto entered into an Eighth Amendment (the "Eighth Amendment") to the Credit Agreement. The Eighth Amendment makes the following changes to the Credit Agreement: (i) waives the maximum First Lien Leverage Ratio covenant for the fiscal quarter ended December 31, 2025; (ii) waives the minimum Fixed Charge Coverage Ratio covenant for the fiscal quarter ended December 31, 2025; and (iii) increases the minimum liquidity covenant from $10,000 to $30,000 for the March 6, 2026 liquidity test date and each liquidity test date thereafter. The liquidity covenant is measured as the average liquidity for the five business day period ending on the last business day of each week, with each such last day being a liquidity test date.
Second Lien Notes
Purchase Agreement
The Company and the Subsidiary Guarantors entered into a Purchase Agreement (the "Purchase Agreement"), dated September 13, 2024, with certain investors (the "Purchasers"), pursuant to which the Purchasers acquired $22,000in aggregate principal amount of the Second Lien Notes and Warrants to purchase 3,946,250 Common Shares for consideration comprised of (i) $17,000in cash and (ii) the cancellation of approximately $8,333of the Company's Notes held by certain of the Purchasers. In connection with the transactions contemplated by the Purchase Agreement, and pursuant to a Fee Letter between the Company and the structuring agent, the Company also issued to the structuring agent $550aggregate principal amount of theSecond Lien Notes and additional warrants to purchase 200,000Common Shares as compensation for its services as structuring agent for the transactions. In connection therewith, $8,333of the Notes were cancelled by the Company under the terms of the Purchase Agreement, such that the aggregate principal amount of Notes that remains outstanding is $131,667.
Second Lien Indenture
The Second Lien Notes were issued pursuant to an indenture (the "Second Lien Indenture"), dated as of September 13, 2024, by and between the Company, the Subsidiary Guarantors and U.S. Bank Trust Company, National Association, as trustee (the "Second Lien Trustee"). The Second Lien Notes are the Company's senior secured second lien obligations and are secured by substantially all of the Company's and its subsidiaries' assets, and are guaranteed on a senior secured second lien basis by the Subsidiary Guarantors.
Interest on the Second Lien Notes is payable in kind. The Second Lien Notes accrue interest at a rate of 15.00%per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, with the initial payment on December 31, 2024. The Second Lien Notes will mature on February 4, 2027, unless earlier repurchased or redeemed.
The Second Lien Notes will be redeemable, in whole or in part, at the Company's option at any time on or prior to March 13, 2026, at a cash redemption price equal to 100.00%of the principal amount of the Second Lien Notes redeemed, plus accrued and unpaid interest, plus a make-whole premium, as further described in the Second Lien Indenture. The Second Lien Notes may be redeemed on or after March 14, 2026through and including September 13, 2026, at a redemption price of 102.00%of the principal amount of the Second Lien Notes to be redeemed and (ii) on and after September 14, 2026, at a redemption price of 100.00%of the principal amount of the Second Lien Notes to be redeemed, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
As of December 31, 2025 and September 30, 2025, there were $1,069 and $1,297, respectively, in unamortized debt issuance costs related to the Second Lien Notes. For the three months ended December 31, 2025, the total interest expense was $1,719, including coupon interest expense of $1,003, accretion expense of $488, and amortization of debt discount and issuance costs of $228. For the three months ended December 31, 2024, the total interest expense was $1,525, including coupon interest expense of $1,008, accretion expense of $360, and amortization of debt discount and issuance costs of $157.
The Second Lien Indenture contains covenants restricting the Company's and its subsidiaries' ability to incur indebtedness, incur liens, make investments, make restricted payments, make asset sales and engage in transactions with affiliates, subject to certain baskets. The Second Lien Indenture requires the Company to add future assets to the collateral under the Security Agreement (as defined below) and to add future subsidiaries as guarantors under the Security Agreement.
The Second Lien Notes have customary provisions relating to the occurrence of "Events of Default" (as defined in the Second Lien Indenture), which include, among others, the following: (i) certain payment defaults on the Second Lien Notes (which, in the case of a default in the payment of interest on the Second Lien Notes, will be subject to a 30-day cure period); (ii) a default by the Company in its obligations or agreements under the Second Lien Indenture or the Second Lien Notes if such default is not cured or waived within certain grace periods; (iii) certain defaults by the Company or any of its subsidiaries with respect to indebtedness for borrowed money of at least $8,625during the Amendment Relief Period (as defined in the Second Lien Indenture) or of at least $17,250thereafter; (iv) certain defaults by the Company or any of its subsidiaries with respect to the Credit Agreement; (v) subject to certain exceptions, the rendering of certain judgments against the Company or any of its subsidiaries for the payment of at least $8,625during the Amendment Relief Period or of at least $17,250thereafter, where such judgments are not discharged or stayed within 90 daysafter the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; (vi) the occurrence of certain ERISA
events; (vii) the loss of material security interests and liens and guarantees, subject to certain exceptions; (viii) certain payment defaults in excess of $11,500owned by the Company or any of its subsidiaries under the 2024 Settlement (as defined in the Second Lien Indenture) and other failures to perform any term, covenant, condition or agreement contained in the 2024 Settlement that is capable of being cured and that is not cured within 30 daysafter receipt by the Company or any of its subsidiaries of written notice of such failure; (ix) any note Document (as defined in the Second Lien Indenture) or material provision thereof being declared null and void by a court of competent jurisdiction and (x) certain events of bankruptcy, insolvency and reorganization involving the Company or any of the Company's significant subsidiaries.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Second Lien Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Second Lien Trustee, by notice to the Company, or noteholders of at least 30.00%of the aggregate principal amount of Second Lien Notes then outstanding, by notice to the Company and the Second Lien Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Second Lien Notes then outstanding to be due and payable immediately.
Security Agreement
On September 13, 2024, the Company and the Subsidiary Guarantors entered into a Security Agreement (the "Security Agreement") with U.S. Bank Trust Company, National Association, as the collateral agent for the Second Lien Notes (the "Collateral Agent"). Pursuant to the Security Agreement, the Company and the Subsidiary Guarantors granted the Collateral Agent a second lien security interest in substantially all of their assets, including but not limited to certain accounts, equipment, fixtures and intellectual property, in order to secure the payment and performance of all of the Obligations, as defined in the Second Lien Indenture.
Convertible Senior Notes
On September 27, 2021, the Company issued $140,000 principal amount of the Notes. The Notes were issued pursuant to, and are governed by, an indenture, dated as of September 27, 2021, among the Company, the Company's wholly-owned subsidiary, BAS Evansville, Inc., as guarantor (the "Guarantor"), and U.S. Bank National Association, as trustee (the "Convertible Bond Indenture"). Pursuant to the purchase agreement between the Company and the initial purchaser of the Notes, the Company granted the initial purchaser an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes were first issued, up to an additional $15,000 principal amount of the Notes. The Notes issued on September 27, 2021 included $15,000 principal amount of the Notes issued pursuant to the full exercise by the initial purchaser of such option. The Company used the net proceeds from the offering of the Notes, together with borrowings under a new senior secured term loan facility, to fund the cash portion of the purchase price of the Envigo acquisition and related fees and expenses.
In connection with the Purchase Agreement, $8,333of the Notes were cancelled by the Company under the terms of the Purchase Agreement, such that the aggregate principal amount of Notes that remains outstanding is $131,667.
The Notes are the Company's senior, unsecured obligations and are (i) equal in right of payment with the Company's existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company's existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company's existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company's non-guarantor subsidiaries. The Notes are fully and unconditionally guaranteed, on a senior, unsecured basis, by the Guarantor.
The Notes accrue interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2022. The Notes will mature on October 15, 2027, unless earlier repurchased, redeemed or converted. Before April 15, 2027, noteholders have the right to convert their Notes only upon the occurrence of certain events. From and after April 15, 2027, noteholders may convert their Notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, its common shares or a combination of cash and its common shares, at the Company's election. The initial conversion rate is 21.7162 common shares per $1 principal amount of Notes, which represents an initial conversion price of approximately $46.05 per common share. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that
constitute a "Make-Whole Fundamental Change" (as defined in the Convertible Bond Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
As of December 31, 2025 and September 30, 2025, there were $1,847 and $2,093, respectively, in unamortized debt issuance costs related to the Notes. For the three months ended December 31, 2025, the total interest expense was $3,052 at an effective rate of 9.38%, including coupon interest expense of $1,079, accretion expense of $1,728, and amortization of debt discount and issuance costs of $245. For the three months ended December 31, 2024, the total interest expense was $2,883 at an effective rate of 9.38%, including coupon interest expense of $1,079, accretion expense of $1,572, and amortization of debt discount and issuance costs of $232.
The Notes are redeemable, in whole and not in part, at the Company's option at any time on or after October 15, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, but only if the last reported sale price per common share of the Company exceeds 130.00% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. The redemption price is a cash amount equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling the Notes for redemption pursuant to the provisions described in this paragraph will constitute a Make-Whole Fundamental Change, which will result in an increase to the conversion rate in certain circumstances for a specified period of time.
If certain corporate events that constitute a "Fundamental Change" (as defined in the Convertible Bond Indenture) occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the Fundamental Change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company's common shares.
The Notes have customary provisions relating to the occurrence of "Events of Default" (as defined in the Convertible Bond Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, are subject to a 30-day cure period); (ii) the Company's failure to send certain notices under the Convertible Bond Indenture within specified periods of time; (iii) the failure by the Company or the Guarantor to comply with certain covenants in the Convertible Bond Indenture relating to the ability of the Company or the Guarantor to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company or the Guarantor, as applicable, and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company or the Guarantor in its other obligations or agreements under the Convertible Bond Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Convertible Bond Indenture; (v) certain defaults by the Company, the Guarantor or any of their respective subsidiaries with respect to indebtedness for borrowed money of at least $20,000; (vi) the rendering of certain judgments against the Company, the Guarantor or any of their respective subsidiaries for the payment of at least $20,000, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; (vii) certain events of bankruptcy, insolvency and reorganization involving the Company, the Guarantor or any of their respective significant subsidiaries; and (viii) the guarantee of the Notes ceases to be in full force and effect (except as permitted by the Convertible Bond Indenture) or the Guarantor denies or disaffirms its obligations under its guarantee of the Notes.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company or the Guarantor (and not solely with respect to a significant subsidiary of the Company or the Guarantor) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then the trustee, by notice to the Company, or noteholders of at least 25.00% of the aggregate principal amount of Notes then outstanding, by notice to the Company and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Convertible Bond Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal amount of the Notes.
At issuance, the Company evaluated the convertible feature of the Notes and determined it was required to be bifurcated as an embedded derivative and did not qualify for equity classification. In subsequent periods, the Notes conversion rights met
all equity classification criteria and the fair value of the embedded derivative was reclassified to additional paid-in-capital. The discount resulting from the initial fair value of the embedded derivative has and will continue to be amortized to interest expense using the effective interest method. Non-cash interest expense during the period primarily related to this discount.
Acquisition-related Debt (Seller Payable)
As part of the acquisition of Orient BioResource Center, Inc. ("OBRC"), the Company agreed to leave in place a payable (the "Seller Payable") owed by OBRC to Orient Bio, Inc. (the "Seller") in the amount of $3,700, which the Company determined to have a fair value of $3,325 as of January 27, 2022. The Seller Payable did not bear interest and was originally required to be paid to the Seller 18 months after the closing date of January 27, 2022. The Company has the right to set off against the Seller Payable any amounts that become payable by the Seller on account of indemnification obligations under the purchase agreement. On April 4, 2023, the Company and the Seller entered into a First Amendment to extend the maturity date of the Seller Payable to July 27, 2024. On May 24, 2024, the Company and the Seller entered into a Second Amendment to extend the maturity date of the Seller Payable to July 27, 2025. Further, beginning on July 27, 2024, the note bears interest at a rate of 4.60% per annum. Accrued interest and principal will be paid at the maturity date. On October 24, 2024, the Company and the Seller entered into a Third Amendment to extend the maturity date of the Seller Payable to January 27, 2026. On January 27, 2026, the Company and the Seller entered into a Fourth Amendment to extend the maturity date of the Seller Payable to March 27, 2026. No amendments to the Seller Payable have affected the rights and remedies of any party under the stock purchase agreement, nor did any alter, modify or amend or in any way affect any of the terms and conditions, obligations, covenants or agreements contained in the stock purchase agreement. The Seller Payable is subordinated to the indebtedness under the Credit Agreement.
Critical Accounting Estimates
Our financial results are affected by the selection and application of accounting policies and methods and require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. There were no changes in the three months ended December 31, 2025 to the application of our critical accounting estimates as described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
We will continue to evaluate the impact of macroeconomic and external factors, including, but not limited to, tariffs and government funding of research and development, on our critical accounting estimates.
Our critical accounting estimates, as described in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, relate to revenue recognition, income taxes, goodwill and intangible assets, long-lived tangible assets, fair value of financial instruments, pension costs and contingencies.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, please refer to Note 1 - Description of the Business and Basis of Presentation, in this Quarterly Report on Form 10-Q. We did not adopt any new accounting pronouncements during the three months ended December 31, 2025 that had a significant effect on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
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