Charles River(CRL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported fourth-quarter revenue of $1 billion, representing a 1.8% decline on an organic basis from the previous year [15] - For the full year, revenue was$ 4.05 billion, with an organic revenue decrease of 2.8%, primarily driven by lower DSA revenue [15] - The operating margin increased by 80 basis points year over year to 19.9% in the fourth quarter, while the full-year operating margin declined by 40 basis points to 19.9% [16][17] - Earnings per share for the fourth quarter were $2.66, an increase of 8.1% from$ 2.46 in the fourth quarter of 2023 [17] Business Line Data and Key Metrics Changes - DSA revenue in the fourth quarter was $603.3 million, a decrease of 3.5% on an organic basis, reflecting lower study volume and slightly lower pricing [19] - RMS revenue in the fourth quarter was$ 204.3 million, a decrease of 0.4% on an organic basis, while full-year RMS revenue was essentially flat with a 0.1% decline [29] - Manufacturing solutions revenue was $194.9 million in the fourth quarter, with a growth rate of 2.1% on an organic basis, and a full-year organic growth rate of 6.8% [36] Market Data and Key Metrics Changes - The DSA backlog declined to$ 1.97 billion from $2.12 billion at the end of the third quarter [22] - The net book-to-bill ratio remained below one times in the fourth quarter, consistent with the third quarter [20] - The company expects DSA revenue to decline at a mid to high single-digit rate on an organic basis in 2025 [22] Company Strategy and Development Direction - The company is implementing restructuring initiatives expected to yield annualized savings of approximately$ 225 million by 2026, with over $175 million realized in 2025 [14][50] - The focus is on enhancing client experience and gaining market share through commercial enhancements and strategic pricing [43][44] - The company plans to allocate approximately$ 350 million to stock repurchases in 2025 under a $1 billion authorization [45][51] Management's Comments on Operating Environment and Future Outlook - The management views the biopharmaceutical demand environment as stabilizing, with expectations for a revenue decline of 4.5% to 7% in 2025, including foreign exchange headwinds [13][53] - There is cautious optimism regarding biotech demand, which is expected to be stable to slightly improved in 2025 [11][41] - The management does not anticipate a recovery in 2025 but is taking decisive actions to manage costs and protect shareholder value [42][64] Other Important Information - The company is closely monitoring the supply chain for non-human primates (NHPs) and has diversified sourcing arrangements to mitigate risks [25][96] - The non-GAAP tax rate for 2025 is expected to be in the range of 22.5% to 23.5%, an increase from 21.3% in 2024 [57] Q&A Session Summary Question: About bookings and backlog - The fourth quarter's net book-to-bill was stable, with no deterioration or improvement [71] - The first quarter is expected to see some seasonality in DSA and Biologics, but biopharmaceutical client demand has stabilized [73] Question: Academic and government exposure - Academic and government clients represent about 40% of RMS, with direct NIH exposure at less than 2% [78] Question: Large pharma demand and recovery expectations - The management does not anticipate further deterioration in pharma demand but expects stability throughout the year [84] Question: CDMO business and margin impact - Margins in the CDMO business will be challenged, but actions are being taken to right-size infrastructure and staffing [92] Question: CITES decision on NHP trade - The company will continue to diversify sourcing for NHPs to mitigate potential supply disruptions [96] Question: Visibility on client restructuring - The management maintains close communication with clients and does not anticipate further deterioration in demand [105]