| --- | --- | --- | --- | |----------------------|--------|-------|--------------| | ($ in millions) | 3Q23 | 3Q22 | 2023 Outlook | | Free cash flow (FCF) | $139.5 | $60.4 | $340-$360 | | Capex | $65.9 | $72.4 | $330-$340 | | Depreciation | $44.6 | $39.1 | ~$180 | | Amortization (1) | $34.2 | $35.5 | $135-$140 | ─ Continue to take a disciplined approach to managing capital deployment and are committed to aligning capacity and capital investments with current demand trends | --- | --- | --- | |-------------- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 001-15943 CHARLES RIVER LABORATORIES INTERNATIONAL, INC. (Exact Name of Registrant as Specified in Its Charter) (State or Other Jur ...

Financial Data and Key Metrics Changes - The company reported revenue of $1.06 billion in Q2 2023, an 8.9% increase year-over-year, with organic revenue growth of 11.2% driven by strong performance in RMS and DSA segments [120][147] - Non-GAAP earnings per share were $2.69, a decrease of 2.9% from the previous year, impacted by increased interest expense and tax rates [150] - The operating margin was 20.4%, down 140 basis points year-over-year, primarily due to margin pressure in the manufacturing segment and higher corporate costs [150] Business Line Data and Key Metrics Changes - DSA revenue in Q2 was $663.5 million, reflecting an 11.7% organic growth, driven by base pricing and study volume [151] - RMS revenue reached $209.9 million, a 13.9% organic increase, benefiting from broad-based growth across regions and strong performance in end sourcing solutions [153] - Manufacturing Solutions segment revenue was $186.5 million, a 6.6% organic increase, driven by CDMO and Microbial Solutions, though demand for biologics testing remained soft [19][131] Market Data and Key Metrics Changes - Demand from global biopharmaceutical clients outpaced small and mid-sized biotech clients for the second consecutive quarter [120] - The DSA backlog decreased to $2.8 billion from $3 billion sequentially, indicating a modest decline in demand [121] - Biotech funding showed the first year-over-year increase in seven quarters, suggesting a stabilization in the market [152] Company Strategy and Development Direction - The company aims to leverage its global safety assessment infrastructure to mitigate NHP supply constraints and enhance operational efficiency [124][125] - A focus on continuous improvement, speed, and efficiency through digital transformation is emphasized to better manage costs and investments [7] - The company plans to share updated long-term financial targets at the upcoming Virtual Investor Day [22] Management's Comments on Operating Environment and Future Outlook - Management noted a cautious biopharma spending environment, with clients prioritizing efficiency and speed to market [3] - The company expects revenue growth rates in the mid-single digits for DSA, reflecting a normalization from previous high growth rates [148] - Despite some demand trends moderating, management remains confident in the fundamental drivers of the business and its financial position [21][26] Other Important Information - The company narrowed its organic revenue growth guidance to 5.5% to 7.5% and non-GAAP earnings per share guidance to $10.30 to $10.90 for 2023 [125] - Free cash flow was $80.7 million in Q2, up from $66.6 million the previous year, with guidance for the year remaining unchanged at $330 million to $380 million [134] Q&A Session Summary Question: Is there a noticeable split in demand between large pharma, mid-size pharma, and emerging biotech? - Management indicated that careful spending is observed across all client types, with small and mid-sized biotech clients being particularly cautious [28] Question: How is the demand environment affecting the RMS segment? - Management noted that while clients are prioritizing later-stage programs, the RMS segment continues to perform well due to its exposure to large, well-funded clients [47] Question: What is the outlook for the biologics testing business? - Management anticipates improvement in the biologics testing business in the latter half of the year, despite current softness [33] Question: How are NHP pricing and margins being managed? - Management stated that NHP pricing has been primarily a pass-through, and they expect to maintain margins as costs normalize [143] Question: What is the impact of cancellations on bookings? - Management explained that cancellations have increased as clients rationalize their pipelines, but they expect this trend to stabilize as clients book studies closer to when they are needed [126][127]

Financial Performance - Q2 2023 - Reported revenue for Q2 2023 was $1,059.9 million, an increase of 8.9% year-over-year[37, 63] - Organic revenue growth was 11.2%[37, 44, 63] - GAAP EPS was $1.89, a decrease of 11.3% year-over-year[37, 79] - Non-GAAP EPS was $2.69, a decrease of 2.9% year-over-year[37, 79] Segment Results - Q2 2023 - RMS (Research Models and Services) revenue increased by 12.6% to $209.9 million[2, 53] - RMS organic revenue growth was 13.9%[2] - DSA (Discovery and Safety Assessment) revenue increased by 12.1% to $663.5 million[53] - DSA organic revenue growth was 11.7%[53] - Manufacturing revenue decreased by 4.2% to $186.5 million[19] - Manufacturing organic revenue growth was 6.6%[19] Updated 2023 Guidance - Revenue growth is projected to be between 2.5% and 4.5%[81, 97] - Organic revenue growth is projected to be between 5.5% and 7.5%[52, 81, 97] - GAAP EPS is estimated to be between $7.60 and $8.20[81, 97] - Non-GAAP EPS is estimated to be between $10.30 and $10.90[81, 83, 97]

Financial Performance Highlights - Charles River achieved strong organic revenue growth of 15.4% in Q1 2023[103, 117] - The company's Q1 2023 GAAP EPS was $2.01, an 11.0% increase year-over-year[170, 127] - Non-GAAP EPS for Q1 2023 reached $2.78, a 1.1% increase year-over-year[170, 127] - Q1 2023 reported revenue was $1.0294 billion, a 12.6% increase compared to $913.9 million in Q1 2022[170, 117] Segment Performance - DSA (Discovery and Safety Assessment) segment revenue grew organically by 23.6% in Q1 2023[130] - RMS (Research Models and Services) segment revenue increased by 13.2% to $199.8 million in Q1 2023[137] - Manufacturing segment revenue decreased by 13.4% to $167.3 million in Q1 2023[181] Guidance and Outlook - Charles River narrowed its 2023 revenue growth guidance to 2.0%-4.5% reported and 5.0%-7.5% organic[122, 190] - The company updated its 2023 Non-GAAP EPS guidance to $9.90-$10.90[122, 129] - Charles River anticipates a high-single-digit revenue growth for Q2 2023, with organic revenue growth of approximately 10% or better[201] Financial Position - The company expects net interest expense of $133 million to $137 million for 2023[218, 222] - Charles River projects free cash flow (FCF) for 2023 to be in the range of $330 million to $380 million[38, 222]

Company Participants Conference Call Participants Operator I would now like to turn the conference over to our host, Todd Spencer, Vice President of Investor Relations. Please go ahead. Good morning, and welcome to Charles River Laboratories first quarter 2023 earnings conference call and webcast. This morning, I am joined by Jim Foster, Chairman, President and Chief Executive Officer; and Flavia Pease, Executive Vice President and Chief Financial Officer. They will comment on our results for the first quar ...

Financial Data and Key Metrics Changes - The company reported record quarterly revenue of $1.1 billion in Q4 2022, marking a 21.5% increase on a reported basis [62] - For the full year 2022, revenue reached $3.98 billion, with a reported growth rate of 12.3% and an organic growth rate of 13.4% [63] - Earnings per share (EPS) for Q4 2022 were $2.98, a 19.7% increase from $2.49 in Q4 2021, while full-year EPS was $11.12, a 7.8% increase over the prior year [91] Business Line Data and Key Metrics Changes - The Discovery and Safety Assessment (DSA) segment saw a substantial 26.5% increase in organic revenue in Q4, with a full-year organic growth rate of 17.5% [92] - Manufacturing Solutions revenue was $212.1 million in Q4, with a 5.3% organic growth rate, consistent with the mid-single-digit outlook for 2022 [71] - Research Model Services (RMS) revenue increased by 10.8% on an organic basis in Q4, driven by strong growth in North America and China [96] Market Data and Key Metrics Changes - The company noted that the current NHP supply situation may restrict revenue growth and margin expansion in 2023, with an expected organic revenue growth guidance of 4.5% to 7.5% [86] - North America continued to generate strong revenue growth, while China experienced a double-digit increase despite a modest impact from COVID cases [69] Company Strategy and Development Direction - The company aims to position itself as the non-clinical drug development partner of choice, focusing on early-stage research and strategic outsourcing [64] - The integration of acquired companies and expansion of capabilities through partnerships and M&A are key strategies to enhance service offerings [95] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying business trends remaining intact in 2023 despite macroeconomic pressures [64] - The company is actively working to resolve the NHP supply situation, which is critical for the pharmaceutical industry and patient needs [58][84] Other Important Information - The company has voluntarily suspended planned future shipments of Cambodian NHPs until new procedures are developed to ensure compliance [57] - The investigation into NHP imports from Cambodia is expected to impact study timelines and revenue growth [56][86] Q&A Session Summary Question: What are your customers doing in the biotech space regarding studies? - Management indicated that the NHP supply issue is an industry-wide concern, affecting all vendors and potentially delaying drug development [112] Question: How closely are FDA and Fish and Wildlife working together? - Management confirmed that Fish and Wildlife understands the critical nature of NHPs and is engaged in discussions to resolve the supply issue [115] Question: Can you provide details on supply expansion beyond Cambodia? - Management mentioned ongoing efforts to audit and expand supply sources, ensuring compliance and quality from alternative suppliers [120]

Charles River Laboratories © 2023 Charles River Laboratories International, Inc. Safe Harbor Statement 2 Caution Concerning Forward-Looking Statements. This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate," "believe," "expect," "intend," "will," "may," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indica ...

Market Demand and Competition - A reduction in demand for drug R&D expenditures by pharmaceutical and biotechnology companies could adversely affect the company's business[80] - The outsourcing trend in non-clinical research support activities is expected to continue, but any decrease could impair the company's growth[88] - The company faces significant competition from other non-clinical drug development partners and internal departments of larger clients, which may have greater resources[89] - New technologies in biomedical research may reduce demand for traditional products and services, impacting sales[92] - The outsourcing trend in non-clinical drug discovery and development may decrease, which could impair the company's growth and sales[88] Regulatory and Compliance Challenges - The company's CDMO operations depend significantly on regulatory approvals; delays or failures in these approvals could materially impact revenue and profitability[80] - Changes in government regulations or healthcare reforms may decrease the demand for the company's services, impacting R&D expenditures by clients[82] - The FDA Modernization Act 2.0 may lead to a gradual reduction in the use of animals in testing, potentially adversely affecting the company's business[82] - The company emphasizes the importance of data integrity and has established global governance teams to ensure compliance with regulatory standards[96] - The company has a dedicated group managing global regulatory compliance programs to meet various national and international laws[96] Financial Performance and Revenue Sources - Revenue from clients at academic institutions and research laboratories is partially dependent on government funding, which is difficult to forecast and may be adversely affected by budget proposals[82] - The financial condition and operational results may be adversely affected if the products manufactured for customers do not gain market acceptance[82] - A significant decrease in drug R&D expenditures by clients could adversely affect the company’s business and profitability[80] - A significant portion of the company's revenue is derived from international operations, which are expected to continue accounting for a substantial percentage of total revenue[59] - The company’s revenue is partially dependent on government funding for R&D, which is subject to political uncertainties and could affect client purchasing decisions[82] Operational Risks and Challenges - Contaminations in animal populations could damage inventory and harm the company's reputation, leading to decreased sales and additional costs[85] - The company relies on third-party suppliers for raw materials, and any delays or failures in supply could materially impact operations and financial condition[72] - The supply of non-human primates, which accounts for approximately 60% of the U.S. market, has been constrained due to geopolitical issues and health-related disruptions[78] - The ongoing conflict between the Russian Federation and Ukraine has resulted in negative impacts on the global economy, affecting supply chains and increasing costs for materials and transportation[63] - The COVID-19 pandemic has caused disruptions in operations, including temporary closures of facilities and interruptions in global supply chains, which may continue to affect financial performance[66] Strategic Growth and Development - The company is focused on developing and marketing new services and products to meet client needs, but faces challenges in identifying and commercializing new technologies[93] - The company aims to be the preferred strategic non-clinical drug development partner, focusing on an integrated portfolio of drug discovery and non-clinical development products and services[38] - The company has expanded its service capabilities into the high-growth sector of cell and gene therapy, aiming to deliver integrated solutions to accelerate development and manufacturing[50] - Recent acquisitions, including Distributed Bio and Explora BioLabs, are part of the company's growth strategy to enhance its portfolio and geographic footprint[50] - The company continues to expand its portfolio in key therapeutic areas, aligning with clients' drug discovery and development needs, particularly in small molecules and biologics[39] Leadership and Corporate Governance - Corporate governance standards are adhered to, with nine of eleven board members being independent, ensuring accountability and transparency[100] - The executive team has extensive experience, with key members holding significant positions in the company for many years, contributing to strategic growth[101] - The company has a strong leadership team with extensive experience in various sectors, enhancing its strategic vision and operational growth[104] - The executive team is focused on long-term growth and success across multiple business segments[104] - The company emphasizes collaboration among its business units to develop and implement effective business strategies[104]

Charles River Laboratories International, Inc. (NYSE:CRL) Q3 2022 Earnings Conference Call November 2, 2022 9:00 AM ET | --- | |---------------------------------------------------------------------------------------------------| | | | Company Participants | | Todd Spencer - VP, IR James Foster - Chairman, President & CEO Flavia Pease - Corporate EVP & CFO | | Conference Call Participants | | Eric Coldwell - Baird | | Derik De Bruin - Bank of America | | Sandy Draper - Guggenheim | | David Windley - Jefferie ...