Charles River(CRL) - 2025 Q2 - Quarterly Results

Executive Summary & Financial Highlights Charles River Laboratories' Q2 2025 performance showed mixed results with revenue growth but declining GAAP net income, offset by strong non-GAAP performance Second-Quarter 2025 Financial Performance Charles River Laboratories reported Q2 2025 revenue of $1.0321 billion, a 0.6% increase, with GAAP net income declining but non-GAAP metrics showing strong growth Financial Highlights | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :-------------------------------- | :------------- | :------------- | :---------- | | Revenue | $1,032.1 Million USD | $1,026.1 Million USD | +0.6% | | Organic Revenue Growth | -0.5% | - | - | | GAAP Operating Margin | 9.7% | 14.8% | -5.1 pp | | GAAP Net Income | $52.3 Million USD | $90.0 Million USD | -41.9% | | GAAP EPS | $1.06 | $1.74 | -39.0% | | Non-GAAP Operating Margin | 22.1% | 21.3% | +0.8 pp | | Non-GAAP Net Income | $154.0 Million USD | $144.9 Million USD | +6.2% | | Non-GAAP Diluted EPS | $3.12 | $2.80 | +11.4% | - GAAP performance declined primarily due to increased amortization expenses related to certain CDMO client relationships, company restructuring costs, and third-party legal and consulting fees[3] - Non-GAAP performance growth was driven by improved operating margins across all three business segments, partially offset by increased unallocated corporate costs, with reduced diluted shares from the company's share repurchase program also contributing to non-GAAP EPS growth[4] CEO Commentary CEO James C. Foster noted stabilizing biopharmaceutical demand and gradual organic revenue recovery, particularly in the DSA segment, with an improved outlook - Biopharmaceutical demand is stabilizing, and the company is gradually achieving organic revenue growth, primarily driven by strong performance in the DSA segment[5][6] - The company is well-positioned for an improving demand environment due to its broad, scientifically differentiated portfolio and leading non-clinical market position[6] - DSA business and overall non-GAAP financial performance are expected to be significantly better than the company's initial expectations[6] Segment Results This section details the Q2 2025 financial performance and operational highlights for the Research Models and Services, Discovery and Safety Assessment, and Manufacturing Solutions segments Research Models and Services (RMS) The RMS segment achieved 3.3% revenue growth in Q2 2025, driven by increased demand for large research models and services, improving both GAAP and non-GAAP operating margins RMS Segment Performance | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----------------------- | :------------- | :------------- | :---------- | | Revenue | $213.3 Million USD | $206.4 Million USD | +3.3% | | Organic Revenue Growth | +2.3% | - | - | | GAAP Operating Margin | 16.8% | 14.5% | +2.3 pp | | Non-GAAP Operating Margin | 25.3% | 23.1% | +2.2 pp | - Organic revenue growth was primarily attributable to increased revenue from large research model products and research model services, including Genetic Engineering Model Services (GEMS) and Insourcing Solutions businesses[7] - The increase in GAAP and non-GAAP operating margins was primarily driven by a favorable revenue mix related to large research models, operating leverage from increased research model services revenue, and cost savings from the company's restructuring initiatives[8] Discovery and Safety Assessment (DSA) The DSA segment experienced a 1.5% revenue decline in Q2 2025 due to lower service volumes, with GAAP operating margin decreasing but non-GAAP margin slightly improving from cost savings DSA Segment Performance | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----------------------- | :------------- | :------------- | :---------- | | Revenue | $618.0 Million USD | $627.4 Million USD | -1.5% | | Organic Revenue Growth | -2.4% | - | - | | GAAP Operating Margin | 19.9% | 22.1% | -2.2 pp | | Non-GAAP Operating Margin | 27.4% | 27.1% | +0.3 pp | - Organic revenue decline was primarily driven by lower sales volumes in discovery and regulatory safety assessment services[9] - The decrease in GAAP operating margin was primarily due to lower revenue, increased costs associated with the company's restructuring initiatives, and increased third-party legal costs related to the U.S. government's investigation into the company's NHP supply chain[10] - The increase in non-GAAP operating margin was primarily driven by cost savings from the company's restructuring initiatives, partially offset by lower revenue[10] Manufacturing Solutions (Manufacturing) The Manufacturing segment reported 4.4% revenue growth in Q2 2025, primarily from microbial solutions, with GAAP operating margin significantly impacted by accelerated amortization, while non-GAAP margin rose Manufacturing Segment Performance | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----------------------- | :------------- | :------------- | :---------- | | Revenue | $200.8 Million USD | $192.3 Million USD | +4.4% | | Organic Revenue Growth | +2.9% | - | - | | GAAP Operating Margin | 6.0% | 19.4% | -13.4 pp | | Non-GAAP Operating Margin | 32.8% | 26.6% | +6.2 pp | - Organic revenue growth was primarily driven by increased revenue in the microbial solutions business, partially offset by lower revenue in the biologics testing business[11] - The decrease in GAAP operating margin was due to increased amortization expenses related to the accelerated amortization of certain CDMO client relationships[12] - The increase in non-GAAP operating margin was primarily driven by revenue and payments associated with commercial CDMO clients and operating leverage from increased revenue in the microbial solutions business[12] Key Updates & Outlook This section provides updates on the NHP supply chain investigation and revised 2025 financial guidance, reflecting improved Q2 performance and favorable exchange rates Update on U.S. Department of Justice Investigation into Non-Human Primate Supply Chain The U.S. Department of Justice has closed its federal grand jury and civil investigations into the company's non-human primate supply chain, with past shipments approved - The U.S. Fish and Wildlife Service has approved the lawful entry into the U.S. of non-human primates (NHPs) shipped in late 2022 and early 2023[13] - The U.S. Department of Justice has closed both the federal grand jury investigation and the parallel civil investigation related to these NHP shipments[13] Updates 2025 Guidance The company has raised its full-year 2025 revenue and non-GAAP EPS outlook, driven by better-than-expected Q2 financial results, particularly in the DSA segment - The company has raised its full-year 2025 outlook for revenue and non-GAAP diluted earnings per share[14] - This increase primarily reflects better-than-anticipated financial performance in the second quarter, particularly in the DSA segment, and to a lesser extent, a favorable foreign exchange impact[14] 2025 Guidance | 2025 Guidance | Current | Previous | | :--------------------------------------- | :---------- | :---------- | | Revenue Growth/(Decline), Reported | (2.5)% – (0.5)% | (5.5)% – (3.5)% | | Favorable/(Unfavorable) Impact of Foreign Exchange | ~(0.5)% | ~1.0% | | Revenue Growth/(Decline), Organic | (3.0)% – (1.0)% | (4.5)% – (2.5)% | | GAAP EPS Estimate | $4.25 – $4.65 | $4.35 – $4.85 | | Non-GAAP EPS Estimate | $9.90 – $10.30 | $9.30 – $9.80 | Additional Information This section provides details on the webcast, the use of non-GAAP financial measures, cautionary statements regarding forward-looking information, and an overview of Charles River Laboratories Webcast and Use of Non-GAAP Financial Measures The company will host a webcast to discuss results and provides non-GAAP financial measures to offer a clearer view of core operational performance by excluding one-time items - The company will host a webcast on August 6 at 9:00 AM ET to discuss matters related to this press release and provide a reconciliation of GAAP to non-GAAP financial measures[20] - Non-GAAP financial measures, such as non-GAAP diluted EPS, non-GAAP operating income, non-GAAP operating margin, and non-GAAP net income, exclude items like amortization of intangible assets, acquisition and divestiture-related adjustments, restructuring costs, investment gains/losses, and certain legal and consulting fees[21][22] - The company believes providing supplemental non-GAAP financial measures helps investors meaningfully understand its core operating performance and future prospects, unaffected by these often one-time expenses, and aligns with how management measures and forecasts company performance[22] Caution Concerning Forward-Looking Statements This section warns that forward-looking statements are subject to various unpredictable risks and uncertainties, which could cause actual results to differ materially from projections - Forward-looking statements involve predictions about future events or trends, not historical facts, and are based on the company's current expectations and beliefs[23][24] - There are various unpredictable risks and uncertainties that could cause actual results to differ materially from forward-looking statements[24] - Key risks and uncertainties include NHP supply constraints and related investigations, changes in global economic and financial markets, ability to successfully integrate acquisitions, R&D spending trends, regulatory changes, loss of key personnel, interest and foreign exchange rate fluctuations, and geopolitical conflicts[24] About Charles River Charles River Laboratories provides essential products and services to accelerate research and drug development for global pharmaceutical, biotech, government, and academic institutions - Charles River provides essential products and services to global pharmaceutical and biotechnology companies, government agencies, and leading academic institutions to accelerate their research and drug development efforts[25] - The company is dedicated to providing what clients need to improve and expedite the discovery, early-stage development, and safe manufacture of new therapies[25] Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including income statements, balance sheets, and cash flow statements Condensed Consolidated Statements of Income (Unaudited) This statement provides unaudited income, cost, operating profit, net income, and EPS data for Charles River Laboratories for the three and six months ended June 28, 2025, and June 29, 2024 Condensed Consolidated Statements of Income | Metric (Thousand USD) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------- | :------------- | :------------- | :------------- | :------------- | | Total Revenue | 1,032,135 | 1,026,117 | 2,016,303 | 2,037,677 | | Service Revenue | 840,836 | 842,900 | 1,638,759 | 1,659,762 | | Product Revenue | 191,299 | 183,217 | 377,544 | 377,915 | | Operating Income | 100,134 | 151,652 | 174,803 | 277,629 | | Income Before Income Taxes | 71,418 | 119,653 | 107,396 | 218,664 | | Net Income | 52,693 | 94,261 | 78,571 | 168,743 | | Net Income Attributable to Charles River Laboratories International, Inc. Common Stockholders | 52,326 | 89,988 | 77,795 | 157,317 | | Diluted Earnings Per Share | $1.06 | $1.74 | $1.55 | $3.04 | | Weighted-Average Diluted Common Shares Outstanding | 49,316 | 51,846 | 50,089 | 51,810 | Condensed Consolidated Balance Sheets (Unaudited) This statement presents the unaudited assets, liabilities, redeemable noncontrolling interests, and stockholders' equity for Charles River Laboratories as of June 28, 2025, and December 28, 2024 Condensed Consolidated Balance Sheets | Metric (Thousand USD) | June 28, 2025 | December 28, 2024 | | :--------------------------------------- | :------------- | :--------------- | | Total Assets | 7,560,545 | 7,528,345 | | Cash and Cash Equivalents | 182,824 | 194,606 | | Trade Receivables and Contract Assets, Net | 767,569 | 720,915 | | Inventories | 279,550 | 278,544 | | Goodwill | 2,936,265 | 2,846,608 | | Intangible Assets, Net | 602,452 | 723,400 | | Total Liabilities | 4,160,959 | 4,020,267 | | Long-Term Debt, Net and Finance Leases | 2,332,374 | 2,240,205 | | Total Equity Attributable to Charles River Laboratories International, Inc. | 3,353,321 | 3,461,503 | | Total Liabilities, Redeemable Noncontrolling Interests and Equity | 7,560,545 | 7,528,345 | Condensed Consolidated Statements of Cash Flows (Unaudited) This statement details the unaudited cash flows from operating, investing, and financing activities for Charles River Laboratories for the six months ended June 28, 2025, and June 29, 2024 Condensed Consolidated Statements of Cash Flows | Metric (Thousand USD) | H1 2025 | H1 2024 | | :--------------------------------------- | :------------- | :------------- | | Net Cash Provided by Operating Activities | 376,300 | 323,423 | | Net Cash Used in Investing Activities | (82,818) | (147,658) | | Net Cash Used in Financing Activities | (332,246) | (267,512) | | Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | 17,934 | (11,729) | | Net Change in Cash, Cash Equivalents, and Restricted Cash | (20,830) | (103,476) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 184,740 | 181,004 | Non-GAAP Reconciliations (Unaudited) This section provides unaudited reconciliations of GAAP to non-GAAP financial measures for various segments and overall company performance, detailing specific adjustments Reconciliation of GAAP to Non-GAAP Selected Business Segment Information (Unaudited) This table reconciles GAAP to non-GAAP operating profit for RMS, DSA, and Manufacturing Solutions segments, detailing adjustments like acquisition-related amortization and restructuring costs GAAP to Non-GAAP Selected Business Segment Information | Metric (Thousand USD) | Q2 2025 (GAAP) | Q2 2025 (Non-GAAP) | Q2 2024 (GAAP) | Q2 2024 (Non-GAAP) | | :--------------------------------------- | :-------------------- | :---------------------- | :-------------------- | :---------------------- | | RMS Operating Income | 35,786 | 53,879 | 29,948 | 47,701 | | RMS Operating Margin | 16.8% | 25.3% | 14.5% | 23.1% | | DSA Operating Income | 122,781 | 169,173 | 138,376 | 170,141 | | DSA Operating Margin | 19.9% | 27.4% | 22.1% | 27.1% | | Manufacturing Operating Income | 12,061 | 65,838 | 37,230 | 51,203 | | Manufacturing Operating Margin | 6.0% | 32.8% | 19.4% | 26.6% | | Total Operating Income | 100,134 | 228,194 | 151,652 | 218,555 | | Total Operating Margin | 9.7% | 22.1% | 14.8% | 21.3% | - Non-GAAP adjustments primarily include acquisition-related amortization (with Manufacturing Solutions including $35.5 million of accelerated amortization in Q2 2025), acquisition, integration, and divestiture-related adjustments, severance, asset impairments, site consolidation costs, and third-party legal and consulting fees[31] Reconciliation of GAAP Earnings to Non-GAAP Earnings (Unaudited) This table reconciles GAAP net income and EPS to non-GAAP net income and EPS, detailing adjustments for redeemable noncontrolling interests, non-GAAP operating profit, and tax impacts GAAP to Non-GAAP Earnings | Metric (Thousand USD) | Q2 2025 (GAAP) | Q2 2025 (Non-GAAP) | Q2 2024 (GAAP) | Q2 2024 (Non-GAAP) | | :------------------------------------------------- | :-------------------- | :---------------------- | :-------------------- | :---------------------- | | Net Income Attributable to Charles River Laboratories International, Inc. Common Stockholders | 52,326 | 153,992 | 89,988 | 144,939 | | Diluted Earnings Per Share | $1.06 | $3.12 | $1.74 | $2.80 | | Weighted-Average Diluted Common Shares Outstanding | 49,316 | 49,316 | 51,846 | 51,846 | - Non-GAAP adjustments include redeemable noncontrolling interest adjustments, incremental dividends to noncontrolling interest holders, non-GAAP operating income adjustments, net gains/losses on venture capital and strategic equity investments, gains/losses on divestitures, and the tax impact of each non-GAAP adjustment[32] Reconciliation of GAAP Revenue Growth to Non-GAAP Revenue Growth, Organic (Unaudited) This table reconciles GAAP reported revenue growth to non-GAAP organic revenue growth for the company and its segments by adjusting for foreign exchange and divestiture impacts GAAP to Non-GAAP Revenue Growth, Organic | Metric | Total CRL | RMS Segment | DSA Segment | MS Segment | | :-------------------------------- | :-------- | :-------- | :-------- | :-------- | | Q2 2025 Revenue Growth, Reported | 0.6 % | 3.3 % | (1.5) % | 4.4 % | | Foreign Exchange Impact (Increase) Decrease | (1.2) % | (1.0) % | (1.1) % | (1.5) % | | Divestiture Impact | 0.1 % | — % | 0.2 % | — % | | Q2 2025 Non-GAAP Revenue Growth, Organic | (0.5)% | 2.3 % | (2.4)% | 2.9 % | | H1 2025 Revenue Growth, Reported | (1.0) % | (0.2) % | (1.8) % | 0.5 % | | Foreign Exchange Impact (Increase) Decrease | (0.2) % | — % | (0.2) % | (0.1) % | | Divestiture Impact | 0.1 % | — % | 0.1 % | — % | | H1 2025 Non-GAAP Revenue Growth, Organic | (1.1)% | (0.2)% | (1.9)% | 0.4 % | - Organic revenue growth is defined as reported revenue growth adjusted for the impact of completed acquisitions and divestitures, and foreign currency translation[16][34]