CHARLES RIVER LABORATORIES INTERNATIONAL, INC. Q1 FY2025 earnings call

• Addressed FDA's NAMs initiative, stating Charles River supports leveraging scientific advancement to reduce animal testing.
• Outlined Charles River's strategy around alternative methods, including investments in NAMs platforms with $200 million annual DSA revenue from NAMs.
• Discussed potential financial impact from FDA announcement, noting no immediate impact on business, especially for non-monoclonal antibody drug modalities.
• Provided details on segment performance, including DSA, RMS, and Manufacturing, with updates on backlog, book-to-bill, and outlook revisions.
• Announced changes to the Board with new members and a strategic review by the Board's Capital Allocation Committee to evaluate value creation opportunities.

DSA Segment: First quarter revenue was $592.6 million, a 1.4% organic decrease. DSA backlog was $1.99 billion at the end of the first quarter, up slightly from year-end. Net book-to-bill improved to 1.04x in the first quarter, the first time above 1x since the second half of 2022. DSA operating margin increased 40 basis points year-over-year to 23.9%.

RMS Segment: Revenue was $213.1 million, a 2.5% organic decrease. RMS operating margin decreased by 50 basis points to 27.1%. Outlook for RMS is revised to flat to slightly positive revenue growth on an organic basis compared to previous low single-digit growth.

Manufacturing Segment: Revenue was $178.5 million, a 2.2% organic decrease. Operating margin declined by 220 basis points to 23.1%. Outlook for Manufacturing is unchanged for essentially flat organic revenue growth in 2025.

• Raised 2025 revenue guidance to a 2.5% to 4.5% organic decline and non-GAAP earnings per share guidance to $9.30 to $9.80.
• Revised DSA organic revenue outlook to mid-single-digit decline from prior mid- to high single-digit decline.
• Moderated RMS outlook to flat to slightly positive organic growth from prior low single-digit growth.
• Maintained Manufacturing segment organic revenue outlook as essentially flat.

• Potential impact of NIH budget cuts on RMS revenue, with no immediate impact but caution about later years.
• Tariffs affecting NHP supply and study-related items, with plans to pass along costs.
• Uncertainty in biotech funding affecting CRADL utilization in the RMS segment.

Q: Thoughts on mixed messaging from the FDA preventing drug developers from leaning into reducing animal testing?

A: Difficult to predict, but the initiative is not new, and Charles River will participate in validation.

Q: Where does Charles River stand out in NAMs and interest in M&A?

A: Charles River has a growing portfolio of NAMs capabilities, supports M&A of validatable technologies, and has investments in various NAMs platforms.

Q: Impact of FDA NAMs on long-term growth and pricing compared to Great Recession?

A: Long-term growth trajectory will be refreshed, pricing environment improved slightly in Q1 with mix favorability, different from Great Recession with better capacity management.

Q: NIH funding impact on RMS and biotech trends?

A: NIH direct exposure is 2%, academic and government U.S. is ~20% of RMS revenue; biotech trends show growth in Q1 but uncertainty in funding outlook.

Q: FDA CDMO 483 and cancellation rates?

A: Working closely with FDA on CDMO improvements; cancellation rates continue to decline, indicating a more measured approach.