CRL - Earnings call transcript Q1 2024 | Charles River Laboratories International, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Charles River Laboratories First Quarter 2024 Earnings Conference Call. This call is being recorded. [Operator Instructions]

I would now like to turn the conference over to our host, Todd Spencer, Vice President of Investor Relations. Please go ahead.

Todd Spencer

to and Laboratories Webcast. welcome Earnings Quarter and Call Conference morning, Charles First River XXXX Good Pease, and This Foster, Chief Flavia Chair, I President Vice morning, am and Executive joined Officer; Financial Officer. Chief by Jim Executive President and quarter comments first They will our XXXX. provide on

with presentation, Investor associated Relations A our the at remarks, be the section after slide today, respond available Relations call. they beginning next webcast questions. posted approximately ir.criver.com. will be of There Following of which replay on a and quarter's this is is call accessed hours to can presentation will be website. today's the X The on available conference call our Investor replay will website through

we the I'd and Litigation indicated. expectations, results like differ to constitute you company Reform our Actual may remind the from that about materially prospects Act make plans of Private for safe statements remarks forward-looking those under future XXXX. Securities of All harbor.

in which non-GAAP call financial G, over GAAP. measures the to During Jim this core substitute comparable to the non-GAAP a and The accordance operations accordance with section call, In meant of Regulation Relations Investor measures, of for from measures and guidance. results understanding will I you turn a operating we help discuss now or results our are prepared the will financial gain meaningful investors be we find superior considered on can to with primarily GAAP reconciliations our website. not believe Foster.

James Foster

sentiment later an that to investors year months trends. overall in trends with increasing that year, biopharmaceutical like gave from the outlook X we other this clients, believe on remain improve which February. providing the will demand for still stable our market begin of consistent is market the first the market to We with morning. update stakeholders. signs that clients end has begin an by through this I'd been on and focus There Good

is an activity. signs after these years of of biotech funding X improvement One in tempered

clients, approximately to $XX record. and our positive Biotech the funding led increased fourth on in the the significantly the including trends lead and sentiment billion, environment spending clients funding of XXXX that improving have market discussions this with highest of with to in quarter early-stage Toxicology Conference first Society quarter mid-March, to referencing These improving at programs specifically the additional the optimism this year. on Annual would

the measured. increased of certain have proposal we saw start quarter. while in to available quickly, is We activity work first encouraging, types the appropriately And year capacity remains outlook for relatively this our and

it expect our new activity we revenue time funding additional continue Therefore, year, initial February. this take and from expect outlook consistent proposal with for later We will will and to DSA demand into to improve generation. translate bookings

client experienced trends continuation revenue of financial Our and first a demand at the resulting outlook results X.X% quarter of patterns first end of the that we February. our in an in line last organic decline quarter, with in year, the reflect spending in

Testing solid The a order RMS businesses benefiting in NHP Solutions shipments as primarily activity Microbial by and both Biologics in as rebound segments, of the reported and RMS Manufacturing timing well the quarters, segment. driven the

with year. As in first due challenging strong organically, the high comparison at expected, declined the to growth organic of last to single-digit DSA quarter revenue part a rate the XX% rate nearly in

on determine industry. of passed, the final to legislation, biopharmaceutical the sentiment There the and year. in It financial on reinforcing the continuing our of outlook the year. outcome is this too BIOSECURE are content both the and has end increasing reflecting our proposed if for impact the final this markets the to focus also Act an been early bill, trends Demand potential stabilize, positive more broader

River for for Charles remain medical industry assume is of too many we base XX% impact. but the With impact our a long-term The diseases development to passed, drug would early positive, other find likely determine net in that it's be North also America treatments rare Europe, of and the life-saving potential revenue firmly bill on needs approximately should potential the and overwhelming unchanged. intact the unmet magnitude fundamentals demand because to the be

to R&D. their early-stage beginning prospects industry's back environment matter the of to investments reaccelerate. efficient. in more the we if, large It's move will are firmly in reinvigorate has not markets into when and consistently regulatory lead while to pharma drive be the a believe and healthy the Biotechs growth favor will capital way will advancements, a clients but Therefore, adapted scientific

As partner drug clients' programs speed logical River to and their enhance our development, the Charles in is outsourcing the leader preclinical to advance market.

We provide I quarter reported performance. the over X.X% of our revenue decrease first year. a of reported now in billion highlights XXXX, basis quarter of on first last a $X.XX will

segment, a a second full basis we which Manufacturing Organic reflecting unallocated revenue XXXX. the RMS the yet revenue. client will offset from impact declined revenue as performances X.X%, partially margin, costs. initiatives restructuring XX.X%, global as The lower revenue generated The decrease and the anticipated savings, declined, biotechs and have small half margin offset DSA was by points academic The a decline the quarterly of XXX of year-over-year. in DSA from sales operating implemented corporate and of solid volume cost midsized By biopharmaceutical well that higher principally lower segments driven decline by occur as in higher was operating from were not by clients.

margin revenue in higher a the a XX.X% the and Earnings decline per from of operating $X.XX were the decrease rate. last as of tax first first well quarter reflects share The as quarter, lower year.

a RMS initial due the of into in earnings timing shift which share shipments, benefited outlook moved February, our NHP in exceeded quarter quarter part first and First per to results.

earnings reaffirming year, For per we revenue non-GAAP share the full guidance. and are our

of to continue X% to X% an growth reported a and flat on We X% on to basis. basis revenue expect growth organic

$XX.XX to $XX.XX. range per a of non-GAAP earnings share in Our guidance remains

the outlook some mentioned, between essentially the there year in forecast unchanged. I As were but movements is quarters, for our

a to the $XXX.X was our I'd organic details reflected additional volume year Lower on revenue million, DSA challenging as benefit of small Quarterly pricing. DSA the growth the and performance, a segment with was businesses. decrease beginning quarter an provide lower Services in study the like with last well first Safety basis. by as first quarter Assessment both X.X% in to a Safety revenue comparison rate XX.X% offset Discovery decline on segment's results. Assessment you in partially business from

adjusting price new modestly appropriate, when incremental volume. to proposals, are We drive on

but Looking optimistic will that the sequential not improved second has of lead half improved basis. at demand are these demand activity year-over-year proposal and during broader both yet Assessment, we to a cautiously Safety trends the This fully trends, into bookings, on cancellations improved year. and the translated

back focus year. routinely IND-enabling mix believe from As we the post-IND in their back And been the that noted studies for work will much enable funding shift the we and the time. over past, that focus to to forth has have R&D our new study past shifts clients of

will that factored a the The later natural between out in a client modestly proposal there's and time begin few the As will is into us. can funding the and work reaches gets a a take subsequently which demand for reminder, improve book client the new new lag with expectation study to that process our year. when quarters, a

in $X.XX year-end. rate end on of due sequential bookings a a at of ratio billion the the at result quarter lower did net the remained from first As decreased basis to trends, slightly above to cancellation backlog at below Xx, billion stable the these modestly the but the Xx, quarter. $X.XX Gross book-to-bill while DSA remained first improve

decrease point decline The performance. year's in XXX DSA of the reflected the The quarter comparison operating was margin quarter, basis XXXX. from challenging to XX.X% last a first the operating margin first outstanding year-over-year

longer-term level were XX% was range increases and in Assessment the quarter also lower below unable to Discovery However, operating cost mid- volume because high targeted and cover Safety the in businesses moderating our first margin sales inflation. price to

as DSA to from pricing model margin of the The organic in quarter move and million, increase NHP all higher on well to small due in revenue revenue as sustained towards models was from of operating from research targeted demand segment the expect the primarily research $XXX.X of services. geographic regions, year. sales higher an primarily XXXX. rebounds RMS of over increases benefited first X.X% levels half basis as RMS the second an We

Revenue for due Europe North China, regions. all primarily leading models China in America, and increased small growth to in pricing, with

resilience and growth Research RMS of models rate in challenges research small macroeconomic in compressed from without China which the both has the has demand than the and by comes other research tools are While world, Models believe affected the well-chronicled sector. we believe been essential, China the cannot the rest low-cost We less for country, the life science been in the proceed. that fact business, of

IS operations. increased contracts higher Solutions, revenue led to Vivarium revenue signed we And perspective, new solutions. also modestly. the by services From a management our continued ] [ IS, CRADL or legacy generate Insourcing for

As we occupancy expected the of year. facility biotech demand the mentioned accelerate monitoring CRADL and in growth rate which in the environment, healthy February, during rates ramp to light are we the new remains is overall.

shipments Noveprim, first acquired third-party from The interest sites first accelerate the late in new in like a higher results, San demand which to supplier bio-hubs saturated clients quarter of NHP timing opening Boston, San and balancing regions Cambridge controlling both more quarter. Mauritius-based Francisco. we These Diego, benefited year. and consolidation in also are We South China the last in capacity into like with of shipments

change So and would will year, the second RMS revenue this growth quarterly RMS affect not rate. pressure gating although the it our revenue outlook it quarter

Solutions organic improvement growth, driven on as the NHP RMS expect segments expect an by quarter, XXX from RMS level Each the first the the to the shipments of to gating will margin these improvement for full the operating margin for year. basis segment continue quarter, in increased first basis In led outlook to revenue year. the the including will robust from for margin compared contributed Revenue We NHP achieve businesses Manufacturing sustained the quarter primarily XX.X% first us normalized, business. by CDMO XX.X%. not operating $XXX.X by million, be but to contribution Noveprim. do the enable segment's increase was our points revenue Manufacturing this to in an benefit year the of The of the at the of was and last RMS the higher

including Testing first in were to slowed year also Biologics first the core rebounded the in solid that year-over-year and We testing and our Testing Solutions proposal quarter services returning volume at the continuing. quarter, XXXX. the trends to which emerged banking that to last activities, be the of are of Clients the at viral the end revenue cell quarter which confirmed booking both appear and were in pleased clearance, beginning activity as first performance. businesses Solutions quarter meaningfully improved Microbial Proposal fourth and increased that, the Biologics expected, led

Solutions, In system. reactivated and spending activity endotoxin for signs it on Microbial destocking we of new instruments and winding was complete. orders, now MCS testing to down with have resumed is believe their Clients and is particularly the Endosafe that reagents continue see new of largely increase an purchases consumables,

We which portfolio, resonate help our manufacturing continues to the testing and believe Manufacturing clients segment's XXXX. control will rate quality to reinvigorate that in comprehensive with growth

and are Our Biologics and of practices sustainable businesses Solutions alternative. Microbial on the examples excellent nonanimal focus Testing advancement of our

we Biologics In vitro to release initiative viral lot with vivo it clients the launched in with Testing, of remaining in end an testing, safety testing replacing methodologies. have and use our

the sequencing PathoQuest. to able partnership are offer testing clients through our alternative to of is methods that next-generation with we One

Endosafe and technology cartridge adoption Trillium testing These the additional implement details will responsibly promote introduced shortly are to we clients of animal our looking program also already business Endotoxin who I progress use to to and reduce are to how Testing those will alternatives. X animal-free Trillium's adopt are and practices. platform, sustainable on provide new our more technologies, Solutions to Microbial which alternative Our driving examples advance

commercial first weekly growth to of good therapy be phases segment's clients development. the quarter of as across activities well. solid a our strong the for beginning drove Cell for various with most Client continues projects as generating business CDMO are interest starting the last The in production up X year. ramp double-digit almost to clinical growth. new rate

last comparison expect more double-digit the the quarter of be we robust, growth quarter will for But continue anniversary business this remains growth year. year. second the the recovery and business to funnel of The CDMO as solid challenging sales the we in second

CDMO higher XX.X% segment's Manufacturing from quarter quarter was improvement traction to as last in segment's each significant businesses increase XX.X%, by operating comparison of The last are as primarily the first the first regaining well the Manufacturing lease in year. was business. as volume year's margin the impairment driven sales of

to in like to quarter, an implementing that we drug clients our Before to stronger development. greater Flavia, efficiencies. to to initiatives position I become discussed that operational have we actions update as provide as the nonclinical call on to over I'd even turning client-facing Last our initiatives scientific are maintain new an partner drive leadership implemented well

April, AMAP, or initiatives company animal the program, of position In better alternatives Alternative developing drive at to or future Project, we dedicated our AMAP state and reduce the Advancement industry. change launched to AMAP, testing. aimed for to positive the is the Message

on the We intend to key which efficiently. We bring a organizations, implementing policymakers and technologies, our animal technologies impact role new discovery drug we pursuit anticipate helping innovative engage clients as testing of forefront remain time, including evaluating is market in their regulated alternative and that these alternatives. to therapies the technological scientific they NGOs, have at of including life-saving on to for advancing will in enhance clients, more and technologies, leaders, Change greater and already we play have take with begun why than compounds rather to will safety focused stakeholders, intend partner innovation thought process. screening lead the

to testing PathoQuest next-gen A technologies, animal-free acquire and years. our over internally develop enabled animal of portion of through that the past that reduce initial Endosafe for already $XXX sustainable investment mentioned. Trillium I more been exploring X had to test, and with million sequencing Endotoxin We just investment us partner our partnership a including the alternatives

to similar development additional Over utilization driving enhance lead frontier. and our under to to We intend the an alternative fund of years, to X technologies. the its the is million AMAP our to continue initiatives to next way goal invest in $XXX next industry

conclude, our and exceptional To their thank I'd like and shareholders work their and commitment for continued for clients to employees our support.

provide XXXX on will guidance. first Flavia our financial details performance quarter Now additional and

Flavia Pease

and Jim, good Thank you, morning.

or revenue capital that and certain non-GAAP Before will other strategic to and actions, may acquisitions, organic I'll exclude restructuring which and other comments which I adjustments, the foreign you also losses items. remind results, translation. excludes to growth, venture be I currency certain of investments and acquisition-related primarily gains my to of begin, Many impact divestitures refer primarily speaking other from amortization related costs

XXXX in quarter decreased the at First rate, organic outlook. revenue with X.X% line a February

of However, a the acceleration shipments the drivers strong at the per of we outperformance of XX.X%. exceeded first $X. that share The primary $X.XX, in delivered the which least the non-GAAP earnings of Manufacturing performance outlook NHP which into provided and earnings from were delivered we February growth quarter of segment, organic revenue

revenue X% XXXX only quarter revenue of As Jim our reported outperformance of in by We driven of earnings mentioned, gating share our growth and and annual not because per largely reaffirmed outlook. we a the was shipments, revenue guidance organic as per full continue of $XX.XX. the first which timing to NHP year the share well non-GAAP full X% quarterly a increase $XX.XX earnings as to non-GAAP and to in range X% expect growth year flat to affects

Slide noted segment revenue for XXXX growth as unchanged outlook XX. on essentially remains Our

margin continue operating expansion basis points also XX at expect to least We XXXX. of in consolidated

diligently and structure with restructuring or million are to efficiency, upper cost of annualized the initiatives focus expected on of the prior approximately We our range. end generate managing our cost driving savings $XX

first year, to operating contributing As just last were of of in corporate the unallocated to revenue the above at compared first quarter quarter. in costs revenue margin of X.X% X.X% headwind anticipated, X% the

quarter the costs above For expect to continue unallocated full to from corporate of moderate X% revenue. will year, we levels just first

the mid-XX% higher the was than compensation. tax February increase due rate favorable XXX basis better slightly outlook was an XX.X%, rate of from first during This year-over-year. The stock-based due quarter price The was primarily increase points a to compensation stock to because was a stock-based our impact quarter. tax of

the We will continue floating fourth to of in which our and in prior and interest balances as both expense stable. to similar $XX.X from expect range previous be unchanged XX%, rate our was rates Net outlook. to the first year the full year interest debt quarter is quarter tax relatively XX% levels were of million

would For at slightly low million. our net us expense of the $XXX $XXX prior outlook expect million end interest which the year, favorable, to trend put to we of

first leverage expenditures, net the of driving $X.X the of a As million was end ratio in a and decrease the our X/X was our At of reminder, cash rate. nearly our at last ratio quarter, capital billion end the a X.Xx, to X.Xx. of $XX.X quarter improvement. compared the at fixed quarter was Free was $X.X first flow million gross debt first million in with the much $XX year leverage

moderating current last the due million expenditures first to capacity compared million quarter year, to match in expansions $XX.X Capital primarily were to demand. $XXX.X

For free A a on flow cash financial million of summary $XXX $XXX to expect $XXX our approximately guidance of million. is we and CapEx can expected to be year, continue be range to found XX. the XXXX in to million be Slide

quarter. the to second ahead Looking

We a expect will decline reported and low to organic mid-single-digit rate at year-over-year. revenue

Our DSA second to expectations improve. trends include revenue begin as modest increase sequential in quarter a

revenue are with quarter first NHP the the the rates year's growth constrained $X.XX growth segments RMS CDMO and share to in reported over Earnings the second quarter be Manufacturing both and by outlook earnings of for in timing an shipments segment. the level to of in Manufacturing anniversary The expected quarter. RMS expected mid-single-digit rebound the of improve the per from sequential growth are first last

cost and We the of constrained expense remain when inflation. reaccelerates half from expect cost the more the rate to the the growth levels, interest stable first and savings annual the second will revenue will the margin from and somewhat recognize remain of year full benefit quarter tax the relatively rate operating the until we cover

resilient, on strategy, with remain confident unique for our Thank and quarter is conclusion, focused we year. in and executing our nonclinical our for driving outlook share. the we Demand are In and first market gaining are efficiency performance portfolio you. our pleased

Todd Spencer

That our concludes prepared remarks.

will your take now We questions.

Operator

Bank our take question We'll Instructions] first America [Operator Michael Ryskin with Securities. from of

Unknown Analyst

for I revenues cadence the would [ great. on guess how should through the shipment on first of think about saw? we rest that is NHP accelerated ] Mike. be year the Wolf The the given RMS This pacing the of would be one we back

related have follow-up. We a

James Foster

the What beginning of was the question?

Flavia Pease

was was And about Mike. stepping he can Maybe I is saying he take NHP just for think of the that. timing I in shipments in RMS. question

guidance Noveprim added year. actually in shipments and would I in have are the quarters quarters additional every [indiscernible] that not same -- the into timed business commented they think the that result provided we in those a adding our that time this I at we when year the linear, because always in happen our for way are nonlinearity not

is confident a our second of this will, between prepared feel comfortable and we a we to it and little was in spoke as So the within with quarter very if bit the quarter. But shift year, first you going introduce lumpiness, quarter-by-quarter. remarks, the And guidance.

to of more going make quarters, little the the it's part that but bit pinpoint nature challenging segment a So of guys' to just the that's business. the your lives within

Unknown Analyst

hear some make a Then Okay. just would ask given I just be on to noted book-to-bill kind the like below great. of I Wonderful. comfortable bit improvements through can your there, And is hopefully, there would more but you now. ramp year, anything to us better trending know you confidence me still one. your the in

James Foster

fourth multiplicity VCs, a; we in year; our reduction the clients, things. the and history in ramp the the funding best proposal the the with comps part Inflows capital our of in last last see and is dialogue pent-up the general cancellations premised clients. the increase on that a half I c, modest the confidence can of biotech fact just of the on to quarter, of demand b, volume, wonderful of mean year our back markets, in in

fair critical of developed, in And a were were board prioritization [indiscernible] talked were and post-IND will into thing last that and because need the with it quarter lead seems a about and they before to like actual filing the clinic. compounds of the most to being think sort clients there back lot developed that, We funding that's IND across the work quarter to focused drugs paused. reason our and do number reasons, the We drugs that get for get on. clients work

other funding in I our we're about to continued year, where maybe had concerning, positive, a So base know funding and don't as we're that we second, improving to we're situation things years is similar X very access phenomenon. similar in and but more that the last had bit is things feelings their much stronger pretty a about is year first X the I surprising a -- and confident. were this -- We've the the shareholder know quarter

the Flavia about linearity never often or we no stop. don't that have just talked will. and our start We've fact as business we And control have studies said, when in and

change and the we of come So of the funding of degree that constant year. from literally confidence given in have thousands our a the environment meaningfully back things on basis conversations a whence we've in clients, with the accelerate daily and half high will

Operator

take our Blair. question And Smock William we'll next Max with from

Max Smock

about with modestly in the to deck the DSA, comment new proposals, on when incremental appropriate, Starting volume. price had adjusting drive you

to is more wanted for the get specifically DSA little more rationale color these up NHP segment playing around in broadly. pricing follow Just that proposals decision the a into behind bit pricing and how and

James Foster

with River price. Charles principal to the compete competitors way with regard is our So

prices the is don't slower or good ours. or than has the is much think significant. is across a But competition it's So a pretty bit a I board, science infrastructure fact. the the substantive as workers certainly

people about more of sort capital, important. and are pricing times is financial challenging in so I to And access think worried

So as we and necessary work. preserve more to price have win thoughtfully importantly, and strategically to utilize

the this need in we be that paid wholesale a fashion We and haven't are because studies we feel very to well. complicated, done

as long that. do more have historically and didn't we we necessary. as had power, strategy the We've, obviously, pricing use -- where it's had to continue we'll So to

meaningful say higher. I side, prices what been have NHP the of do. we On Competition's that would part a it's pricing

-- pricing NHPs, us the And beneficial that has pay whole so in on the been the they paradigm. I to work NHP and think for is somewhat so actually what and on

time as an not strategic tool. used the price important first So we've

Max Smock

Were can the of Got this competitive regard having has you that. cuts, up just how this last And some then changed you so what lowest cutting on prices much on work? is it the any in to Or on of the to prices been year-over-year gross you've following number just it. nearly And means over there give cut basis price into in gross the few over reaction dramatically is how XXX anticipating have which us we've to margin, that for I specifically services, down, a year? coming seen think, points dynamics and And around margin X detail years been months? more here.

James Foster

very access that's is edge, I to the that about say capital. work volume. to better. mean would to concerned say Charles more one we've that cutting price are I want science I of I dramatically prices been on clients our and to competitive, have to prices. be are that been wouldn't better cutting need But that. say we've River's I modestly, with

we feel it we're said, doing and I as responsibly So thoughtfully. that responsive,

Flavia Pease

basis. on the would to I margin, It's pressure of of Jim comment get an annualized that. to we're a as well. savings given the million is I basis, inflation. Yes. to think about the more We the And There's GAAP bit that that impacting margin putting on our on cost really ability restructuring costs started are on cover talked little margins $XX a gross that going volume alluding

think as a and implemented stronger we well year, I back operating margin how that, margin. fully initiatives that throughout But this So will positive as that have as talked restructuring our also comes volume impact about the expect that and as margin in we second well. on gross gross -- will evolve half margin the impacts

Operator

question from Jefferies. We'll take Dave Windley our next with

David Windley

up ask a maybe follow different on I wanted price on question to and slightly way. Max's

So adjusting moderating down. about made pretty has think over price, good Is we to year, in the a way contribution? from in price wondering talked backlog, increases contributor about pricing and then guess price based kind what inflation you the price a point I contributor of I'm of as into prices this your that is, the through does you of quarter discussion deck, first what what this year? we moderate about on should the you're the and course just headwind to move does a Flavia, the move been

Flavia Pease

I we pricing not would And conditions tailwind are, the the say guidance definitely going flat a year, be as we In much are Jim for at given our Dave, volume. and pricing. think some been few years. is the price the guidance, still the end appropriately, as it to up contemplating domain contemplate Yes, past of what said, is to in of environment. I had market positive our slightly we top also And as

translating And so the volume I starts not expect impact biotech be happen. only think we what will the for into rebound fully in and is that margin in seeing which funding said, strength critical proposals in Jim will as bookings then revenue,

will matter of year. the throughout And the we the not this as but think contributor that accelerating a be when. to key said, I margin it's

David Windley

And much is Or improve? get versus still that that significant of on would -- point passes? anything you pre-pandemic of see there the seeing as this can backlog DSA, historical BIOSECURE? it. question, you quarter in much be made is just relative you're side, versus if to those And bill additional -- your for part the built the guess, kind backlog into looking fairly and is guidance that Got to volume upside expectations an increase, pretty standards. to of How I then then left how substantial first in that to level, this your from a segment at growth intra-year

James Foster

significant There's a volume been proposal as anticipate we follow. I of we see, But has increasing a lag. bookings that can't will said, amount nicely, So of revenue and see not all it. we usually

Not So one. to clients will. this, but positive. see to the dialogue yet, we're quarters interesting BIOSECURE is opportunity of seems Act we're an that need with legislation confident given dialogue going we but a the couple

fair there amount that. no, nothing surprised BIOSECURE guidance premature a be if amount some we of and into of So assumes benefit that. Having got be a with conversation Act specifically there's to that anything clients we've do that that, work would trivial to us. a isn't our as said of it would result built There's about the because

You Europe. in and understand that our the facilities are principally U.S.

that So to to an China. or do want we alternative either are can't for don't folks continue work their in

So positive I think it's watch. to something directionally,

surprised, not it we imminent we're As assuming benefit said, us. a I But have . that's if certainly would certainly it's that and there's doesn't anything be [indiscernible] to

David Windley

If just one to it. comments. price the one last sneak in Got I inflation on could relative

with could inflation Maybe you that cost So in my still margin. price guess, Flavia, to to the propping the put of of side have of inflation those up would been kind assumption as there, talked I you relation about would inflation price. in terms moderating that equation is been along impacting what have cost.

Flavia Pease

would that bit. several down Dave, over And I couple What last strong, say, than Yes. of is were also we have so price years but coming more I some when historical is talked beyond right? -- inflation about increased the levels. definitely costs and recouping escalated actually a very now the meaningfully more, inflation Obviously, historically. is plus

favorable that maybe than right is earlier down quarter. couple we down of in much ability obviously, I'm is part fully And the price those of we to That's coming have. don't as in fixed that pressure in volume, the the on especially what between the inflation have as a the year, still are cost is a putting first bit of the because And absorb years the saying of just as was obviously, result last sales it more our in But now. the X so well. relationship

Operator

Elizabeth from with question next ISI. our Anderson take Evercore We'll

Elizabeth Anderson

away. to sort titrate I curious, comment to terms hard are you what industry? And guys commentary doing, sort helpful. in talk on it's there ability on the you of of of your could So of expand about now Where the sort you're levels probably the what capacity start utilization? versus of in be right have you expecting with further Jim, back you sort any would in space to was if Can demand work the half year? of

James Foster

try is utilize as proposition efficiently that possible. space So and general fully to as we our

adding businesses always in the know, capacity. incremental empty on huge amounts don't have our some our space said capacity we're our as to we that, you the any businesses. So across of board. of some have of And we depending Having in demand,

we So capacity anticipate, we half across ability as the of in than have it's of in work that the rate-limiting potential to particularly have factor and Safety to The do do would well. Assessment. And better businesses increased accommodate availability year the the multiple we back if is staff.

as So and have time because staff add some see we'll there's associated with we training things improving, that. incremental to

a intensifies. terms good I think, So place to view business with clients demand our out fine. some and physical but of adds force. very in there the Staffing now, get an good, of efficiency is require from given to incremental point sales capacity, as the margin generally, very in ability will current Access

Elizabeth Anderson

we very DSA we savings, about terms call in think to we -- key like like as then of then the and positives incrementals like That's the out if other so margins DSA? Got helpful. volumes that it. any about in move major through And as potential minuses the specifically just focus potential cost think like What pluses then or is and the other progression -- any year.

Flavia Pease

-- I really Flavia it's think highlighted. I -- was a bit -- No. you what It just

well. with sequential We percentage basis basis, a fixed are drive costs revenue a on obviously, in would But There's DSA of size business, dollar obviously margins. it addition restructuring expecting fully we the in provided when your that second our that, point that as said, actions the to some bigger as in improvement to business. guidance, will place in I half. put have And be executed we in on

will also be margins. to the drive tailwind that so And additional

Operator

We'll question next with take Leonard our Dan UBS. from

Daniel Leonard

is talked in proposal about question, in it activity that you increase you Safety could first Assessment? possible quantify My

Flavia Pease

the I increase. quantify We're proposal going activity to we're Yes. dollar -- think don't

at And about we up impact up and backlog also the first sequentially both year-over-year quarter. being cancellations. think it being talked saw the into also year-over-year. net and talk sequentially both bookings improved went -- impact sequentially I about of think the Cancellations I you the us in

QX. versus we And in so decrease smaller proposals. on it was think than saw our I adjustment will terms the the of but percentage don't to the what increase in the of QX specifics backlog, talk decrease

James Foster

way, biotech proposals And Clients combination the sustainable. bookings. is improvement always that April sustainable. portends I to that the cancellations the believe by said is we funding have it increased on as well. be for of lag earlier, have And funding a as reduced a month, confident I good was and think we increased all And that. very

guidance. X watch that that it. So into we'll ultimately, the are we're quite our built we metrics confident bookings. volume and see It's And those cancellations, proposal

So I think we're performance. on a track to achieve second half improved

Daniel Leonard

a front indicators well? the seeing indicators you in you're leading large biotech. Understood. talked pharma leading And on what the as speak Jim, Can about lot to you

James Foster

and usually of lesser point fundamentally They're work us a to and Pharma particularly been a the different. We lower has with and type better faster loss the continuously of work discovery we period of do do, Assessment science than and that do, Safety some at can price that. aggressively for extent, outsourcing Yes. years. not

So companies still And they balance trying a companies been to those. pharma like part to to that have on of that's their holding just prioritize. very to on rich and interesting a make hesitancy public any small necessity book do number since are also work. it's of sheets there's that the It's budgets function

the the drugs number with and of very said perhaps higher on say So in of careful difference about biotech. our -- getting historically companies we Having a spending between much surprisingly, working at some worried are smaller is to there's seen volume assets. Obviously, that, more currently, actually I or pharma biotech getting that concept about wouldn't fragile activity fundamental that proof biotech. a -- we've and and the are clinics

an it's for base important So client us.

over actually. impact client or small, to our they're molecules greater has as feels absolutely have I base, clinic. to know, large have like market month-after-month for and I it's companies factors you viewpoint, going spending medical but continue improvement, overnight. So into do whether really getting on has this. to it to needs, it inflows want all control world than and been to be with a on to the confidence, people's that well. And the very IPO have strong see get now won't think VC of opened high caveat developing you going of that right those probably up back as a biotech they activity the been think we assets And positive M&A again, in drugs a that affect there's unmet have nicely. subject dramatic could the lot has this level but pharma

overall quite the environment think I positive. is So

Operator

We'll take our next question from Casey Woodring with JPMorgan.

Casey Woodring

I guess a here. two-parter

of time talked First months to of kind your have? normalized X is, did you the end and many how at X think give backlog months, XQ, you ranges you of frame. months about had XX you I

walk fared you but the in that? a And relative can when talked to quarter can then prepared how in us talking just safety So you through lot about DSA, the your expectations? you about elaborate on Discovery

Flavia Pease

about Yes. take question backlog then talk Discovery. Jim the and I'll just on the can

XX months. is backlog the So at

So year, around norms a to your quarters think your of X XX, X. trickling little that But saying bit. we've for of I down point, X think, to historical X were or Casey, I last point, hovered to kind been

actually So what X we're are kind of to in booking they norm advance. hearing reversed from clients to quarters that is of the X

clients on feels what that consistent think and we're book hearing from -- terms to what with they're I working tends ahead. they want So what of

James Foster

an one. So is Discovery interesting

of work our pre-IND improve, unlikely quickly. post-IND And back funding said been A are that to back dialogue Studies, opposed haven't I will will all developed back going been lot hit portfolio. but extent, it is to some businesses have as come they're earlier, strongly relatively overall come So internally. certainly no filed economy. back? already And that still small for around DSA a back. shorter. our that of come yet how the funding will And work of as first question we our by to to quickly to come get what feel as do clients work. We of to drugs of Discovery first. a think more hardest continues percentage there's been that's pharma that lot But

we're more get So unlikely of at development the into because them on in that be it's to process, terms growth for the whole about our much stuff often, look so primarily important trials. as coal to Safety Assessment drug talked in mine you we be focused just going safety And the business rate. to regulated canary

franchise. our like discovery we So

clients, to that assets continue use have measure in and small, have important used We but larger large historically.

they're and of been assets already discovery premised sufficient more on appropriate is and to client have do becomes funding the the their obviously, funding our ability spending. base impactful long-term As health that developed,

overall country. that is discovery competition across soon adverse in still situation the exactly slow, as the small. changes, still economic I impacted, has So We'll but had our think still same let as clearly the the know from And greatest you in place. impact

Casey Woodring

can upside came has to terms in to there Street in the in if like And this on growth, sneak above it, expectations. the began more haven't that nice quarter. segment manufacturing there guide manufacturing helpful. year think maybe because if turn touched seeing year? each the the just on looks is business quickly Curious business I you of the in, That's just was is how to in and we It one start rebound just

James Foster

don't certainly in strong entire we've we're Well, pleased so. would first be have We that had That but in It We very necessarily anticipate segment that anticipate, growth would would quarter. hope across the certainly that, nice. certainly the be nice. that guide. our

very franchise You in we and see business that there. people biologics, have are back strong to a

worked disposables. business we're grower folks as have that are that a inventories You our of and getting working to CDMO a and I have traction lot that business see drugs been had double-digit microbial the recognize of pleasure expanded of quality in the distinct as big we those through assets, we're some nicely. commercial -- facilities people have and that our the on a

with on would margins, growth the be relatively one I better significantly -- a mid-single-digit operating expect business are So to a strong to for we although minimum, with those that saying year think we're continue at there's now X that this to of at particularly point side. those short, those comps the upside to have improve. saying CDMO stop numbers. businesses would will year the all We easy But to in continue

Flavia Pease

in adjusted, digit, point, And think I the I Jim's low we've right? saying to guidance mid-single to of the was modestly mid-single think the Yes. beginning year digits. now and think we're I

get we want as reflection So but ahead we a that you strength guidance the today. don't say first quarter, to said, think raised bit skis, provided to the just of of the bottom we our there to I little Jim there. upside that a is the end But of that's

Operator

our take with question Tejas Morgan next from we'll Stanley. And Savant

Tejas Savant

modest for know pricing adjustments called talked to out here, now for you that ability quick pricing your the essentially actually. the still more of in a that light about one those Or time, Is million guide NHP but competitors selective one off higher. last pricing benefit guys you Jim, the think million light to you strategic, about table view? pricing is reach you I right $XX have of broadly in $XX being to? in on alluded I

James Foster

still the than say significantly that view. prices that's Competition higher had would we. We

They've had they to to down. prices come. had their bring So

us actually. little gives think I bit a it of power pricing

really So pleased made. sourcing recently of that the we're we also with acquisition particularly our NHPs, given

Flavia Pease

I'll Yes. add. And just

I in think the pricing NHP is positive first quarter. still

some competitors come it are last are think significant seeing will. couple you quarters, if been from decreases. I down signaling as the And peak, I think for We saying the I've of to

level. they're because more it's our think to I down coming

modest in peak year-over-year, we from So NHP modestly levels. experienced QX, down as still increase although in a I said is it pricing,

Tejas Savant

as in that any One the work on out into in backlog is capacity in CDMO on of on end the or of China Chinese share that sort And look CROs, put from local -- are? what's China of in terms widening of green Jim, demand comments your And disparity in terms benefit early outside I guide versus 'XX? your embedded the the how perhaps Are just a where you the of particularly just couple of went of utilization in helpful. That's where China. in that at And sort piece, seeing the was of any year you defense it. price then Got then that March, there we to shoots could finish stimulus mean, all? ramping And today? follow-ups. light unrelated

James Foster

space. of say would I that manufacturing added by guess, we've regulatory I of amount appropriate lots is the CDMO an and facility agencies. audits in that So clients

dealing couple some in to getting more. have already we're base clients I'm client been we with have also where the additional we'll has of we're The the commercial myself. on Hopefully, of clients shape positive. a So clinical feedback accommodate facilities And good clients. very those

impending an sufficient lowest folks ahead that get legislation has hard The work, issue we had there so has in that gone capacity. But some stay was disparity and really from had to work, for to given and -- work of of been we'll to that, it, positive. some a and for to beneficial So team get to the price change. audit do the the Chinese things And feedback obviously, marketplace call with have this week, likely fact, quality just been the point. that's to they'll the have places but they'll look Chinese different too, have will for prices

working appropriate we're have hard our So be options to portfolio have for them.

business, well we U.S. by Chinese be sort continuing work Our to since legislation capital given the of anticipate for that. to China, Unlikely small China which do done infusions small has of principally animals, is there. relatively do and any impacted not but entirely, in and

be is margin to point continues us and from good for view. -- a of place a China So growth

Operator

We'll next take question Citi. our with Donnelly from Patrick

Patrick Donnelly

DSA in of of side, on more Jim, maybe cancellations. one just pace the the terms

quarter? the down, stepped have that trend think we they Certainly, did cancellations just be in are kind April to about in you get XQ, XQ What's you think better, welcome. guess can question back is, back X.X the got better. there? got do the How they book-to-bill? thoughts, XQ of million-dollar a thinking you little visibility? I What the bit trends And would when that any like I if

James Foster

Yes.

that everything our embedded happened in guidance. in April So is

to moderation the have the of what's what and confidence cut said, can continue. that's to but we mean is period will always that which have cancellations with some meaningful is have trajectory believe and all decline way, happening, been want By that that cancellations. We're we to. know, we see a We sustained on, we for in you as we're reduction have say don't to time it it's that, I the pleased I we cancellations. of month-by-month. So

backlog. for terms beneficial We have be our in to of to experience and that that

almost not historically is what's an So it's impossible trend relevant. to happened necessarily on comment

conditions given Assessment different cancellations the critical particularly I Safety again, get the marketplace on and as to different market scenario, if larger competitive so as continue intensify. We're that booking totally much much volume, and and economic to the conditions more decline, confident proposal that, the so business. You should the and now think right different we're

notion imagine half wouldn't the our cancellations the back again. funding up suddenly that crank improve, as would supports to of continues That for that year. One

with we've function years. of dealing been the a last definitely that's So economy for X.X the

Patrick Donnelly

broad on Okay. That's of kind And just helpful. then environment. the maybe demand

around expansions demand. cash you flow slides match piece, to in the capacity talked about think I moderating current the

demand, a in you expectations that environment up Can like a just about kind demand through It right. of sound about of we these very commentary maybe of piece. on terms the up this as you way to go right want frame Just marry questions piece, the demand You the the given softening talked, the demand? with obviously, good sure lot year. to little seems just yet pricing about capacity improvement and conversations given and bit of positive that thinking again of make think kind and price along we're your the

James Foster

hard, and marry done The X to a we've capacity It's current advance. quite because know, year I at we've this we really We And just have demand. build least, decades. -- or work X.X anticipated with successfully I that and not in time think space deleterious ago, in tough for demand don't it manage long else we it's impact that has -- too you're lived the your just where swimming space. a when much but margins, space. in through and painful period And a built on to industry a everybody was

to want never to get we So back that.

having We I have of risk, and That's amount space. worked the course. successfully think of really not hard, and adequate an

You get you the and [indiscernible] have work capacity. don't

there. So to get want we never

anticipated to with So say and and we titrate space multiple is work can building sites. demand at competitive our dynamic all the new I hard demand out

up. is to the current is what your demand and You titrate how against filling have that current space

we're that So doing I think appropriately.

from a have a any growth maintenance We of this don't business, I point capitalizing of both with in from to careful view, and money. CapEx shareholders' under a the be really And way point view. think we're

said, to think spending be. need right And advance. we to need I we're we as in where call I exactly that

So great we give it a of thought. deal

same given of we So it year demand I will curve. that the year aggressive think an next just current Having better continue today. and it's obviously period at to the such and demand building -- it's is we come demand the level to anticipate after said that, spend irresponsible that aggressive than through be

We there. have X-year out guidance

And so we're building to at least. that

Flavia Pease

going add, if Yes. just Jim's can I almost to to maybe we of X%. that demand. through both years through as be we That added I some to CapEx well the of some point, think a point, And demand. and increase of combination we we we'd lived said unprecedented a doing And capacity And were as we our now at in revenue. were of more X% M&A, historically, was fueling unprecedented historically, couple organically

this And year, contemplates X-year our guidance sales. that to X% of demand of of think I at as X% guidance for And the has now. is kind a normalized low the of our percent horizon capital end X%.

Jim appropriately so And matching main that capital environment think I are out, we investment in we're pointed the the being thoughtful as up seeing. with

Operator

with We'll Josh Cleveland take from Waldman next Research. our question

Joshua Waldman

think, if Jim, X for may. I you, I

the you proposal better in First, all. study you rev? your to assumption receive that tweak from Can about conversion and when of at timing on conversion contemplating rate standpoint, and activity talked seen you're piece and to how proposal? you've seeing hear return I this, to you've the then from comment if be seeing great what DSA. booking to you recognizing you would are proposal the line have guess outlook The and time normal had the forecasting a

James Foster

is. it's normal. Not sure what say I'd normal But reasonably

As is ensure between where lag a the and some are this bookings. demand to proposals trying period in in accessibility have particularly except I for was maybe that people overwhelming, of they capital. periods there said And before, confidence where

to be are to portfolios. stronger. that's more be as to to So heartened have as of to feel but We're or we out X of quarters the developing rest of coming their at proposal this much And of volume would will of get the will shells, there's the see underlying capital, be seem hopefully, robust. -- is. the desirous pretty kind our obviously, X access necessary that the their acknowledging year expected. much improve, going be to People back And half conversions anticipation

as So anticipated. I much pretty think it's

Joshua Waldman

Got it.

And that. the then Okay. follow-up on

whether DSA the could change Just provide organic second then curious for performed or your how wondering you the that assumption in of context the any And versus more been half. recovery your if on business expectation there's for quarter? in slope QX to

Flavia Pease

I'll that. Maybe take

I I what think think is, and as beat shipments in with remarks, also obviously, guided shift quarter quarter. was said the second impacting different the the is we first RMS. first in NHP a how prepared that drove quarter timing accelerated was the our and into we There

So was the encouraging. tailwind in will strength of about and quarter a first that quarter, then which manufacturing second. talked be was in And headwind a in the the we first the

on DSA impact the both quarter in second were contemplated the guidance and in that expectations, performed we the for our of first silent I think the is according to sense in that it the quarter.

about X of I our different So other the spoke than think businesses. expectations we what was

Operator

with Guggenheim last question Securities. Wallace Thank We'll you. Jack from our take

Jack Wallace

Just commentary. moderating the like the looks expansions. It reiterated of CapEx the you quickly capacity on guide, there's

reiterate think You bridge or that dollars comment as a being in And expansions? Or of guide just of year? comments? just is spent help ago. capacity should about than back kind Can we the rate the deck against half those questions differently the in being CapEx us and more the you the couple

Flavia Pease

Yes.

first timing our reaffirmed of Obviously, the I quarter. same The take projects the year strong I was throughout progress the that we for tends the everything think capital the year. is of to cash free think in right? flow guidance guidance, so the -- one. I'll for kind quite our And

decline a year-over-year. CapEx of saw You spend

started expenditures year to progresses. of going cash no So guess, and the a progress some we're tailwind flow, the to point. as we is projects our year the But I there's capital continue being with update, to

Jack Wallace

in that And that quarter might the manufacturing continue second think then the you prepared not as I mentioned any comment? was of timing first there it. that remarks, element quarter? some Or RMS. Got surprising in demand kind [indiscernible] I Was for misinterpret in your as did well snapback

Flavia Pease

Again, take I'll maybe that.

saw, quarter we quarter, proposals really The which we So and our in impact encouraging business positive is the have seen that and was in what X last testing is things. the one quarters fourth timing manufacturing, strongest did that quarter. strength In RMS. was in was of had. second manufacturing translated especially year, for second improved business quarter in business the we've said we and stronger performance the in that first the of the What

So quarter. from a comp year-over-year second of we into it's when perspective, little year headwind a second the bit get a --

Jack Wallace

Got it.

that reason here Is that to has stronger not there's quarters. necessarily no deal strength the want So the we that so wouldn't quarter first of basically, in quarter repeat the there's to -- demand the with tougher wouldn't based because level on raise first the why in guidance an comps, the necessarily the the the expectation just right? upcoming in

Flavia Pease

it's about you guidance, And year, for Correct. still pretty the when early. say would I think

to we mentioned, year our manufacturing we that to the think a guidance mid And was earlier low given we as beginning question improved in upside I the of and are there was the around now, think there's whether I slightly guidance. mid. it,

that bit now. updated a but reflected to little would guidance upside straight we we it premature say the So of already, be there's just to that that

the I think Thank point. that's you.

Operator

Thank you.

We have remarks. will turn to questions Todd closing conference Spencer further no back for in the I queue.

Todd Spencer

the call. call forward of upcoming for conference seeing concludes conference We investor you you conferences. look us to the Thank at morning. on Thanks many This joining some Great. this again.

Operator

First you now may conclude Laboratories does you your Quarter for and today's Call. XXXX Charles River That Thank you. disconnect. participation, Thank Earnings

Charles River Laboratories International (CRL) 9 May 242024 Q1 Earnings call transcript