James Foster
Chairman, President & Chief Executive Officer, Management at Charles River Laboratories International
Thank you, Todd, and good morning. We're pleased to-end the year with a 4th-quarter performance that was slightly better-than-expected, yielding annual revenue and non-GAAP earnings per share higher than guidance that we issued in November. Before I provide more details on our 4th-quarter results, I will provide an update on the market trends and our 2025 financial guidance. Beginning with an update on the market environment, I can say that our view of biopharmaceutical demand remains consistent with our last update. Overall, DSA demand KPIs, including the net book-to-bill ratio were stable compared to the 3rd-quarter and we expect similar trends throughout 2025 many of our global biopharmaceutical clients continue to move forward with the restructuring and pipeline reprioritization activities, which are expected to constrain early-stage spending by many of these clients again in 2025. Small and midsized biotechnology clients continue to benefit from a more favorable funding environment through the end of 2024 compared to the previous two years, and we expect biotech demand trends will be stable to slightly improved in 2025 versus last year. These combined trends are expected to result in flattish DSA demand sequentially within 2025. However, we expect study volume to be at a lower level than in 2024 because many global biopharmaceutical clients reset their budgets in the middle of last year. We're closely monitoring our clients' R&D spending patterns, the funding environment and interest rates as well as new biotech company formations, which have slowed over the past couple of years and believe our expectations for 2025 are appropriately measured. As discussed at a recent investor conference, the primary factors influencing our 2025 outlook are as follows. The first relates to our expectation for a stabilizing DSA demand environment in 2025, as well as an anticipated headwind from lower DSA pricing throughout the year. The second item is lower commercial revenue in the CDMO business, which will reduce consolidated revenue by approximately 1% in 2025. And finally, our site consolidation actions are expected to reduce revenue by an additional 50 basis-points this year. The cumulative effect of these factors is expected to result in a revenue decline of 3.5% to 5.5% on an organic basis this year. And when including a foreign-exchange headwind of over 1%, a reported revenue decline of 4.5% to 7%. We have taken significant action to protect the operating margin and shareholder value, including restructuring initiatives that are expected to yield annualized savings of approximately $225 million in 2026, of which over $175 million will be realized this year. However, we will not be able to fully offset the revenue decline in 2025, particularly in the DSA segment, which is expected to result in a modestly lower consolidated operating margin and a non-GAAP earnings per share in the range of $9.10 to $9.60. Now I'd like to quickly recap our 4th-quarter and full-year consolidated performance. We reported revenue of $1 billion in the 4th-quarter of 2024, a 1.8% decline on an organic basis from the previous year. For the year, we reported revenue of $4.05 billion with an organic revenue decrease of 2.8%, driven primarily by lower DSA revenue. Our full-year revenue slightly outperformed the range that we provided in November, led by a better-than-expected 4th-quarter performance in the RMS segment and a robust year-end for Microbial solutions. Sales to both the global biopharmaceutical and small and midsized biotech client segments declined for the full-year, but in the 4th-quarter, we were pleased to see revenue from biotech clients return to growth for the first time since the 3rd-quarter of 2023. The operating margin increased 80 basis-points year-over-year to 19.9% in the 4th-quarter, principally driven by lower unallocated corporate costs and margin expansion in the manufacturing segment. The cost-saving initiatives also helped to limit the margin declines in the DSA and RMS segments. For the full-year, the operating margin declined by-40 basis-points to 19.9%. The decrease was primarily driven by the DSA segment as well as higher unallocated corporate costs. Earnings per share were $2.66 in the 4th-quarter, an increase of 8.1% from $2.46 in the 4th-quarter of 2023. The 4th-quarter operating margin expansion as well as favorable below-the-line items, including reductions in interest expense, the tax-rate and share count led to the earnings improvement. For 2024, earnings per share declined by 3.3% to $10.32 due primarily to the lower revenue and operating margin, partially offset by the benefit of cost-saving initiatives. Turning to segment performance, I'll now provide you with additional details on the 4th-quarter and each segment's outlook for 2025. DSA revenue in the 4th-quarter was $603.3 million, a decrease of 3.5% on an organic basis. The decline reflected lower study volume as well as slightly lower pricing. As anticipated, safety assessment pricing turned negative in the 4th-quarter as the moderating pricing environment during 2024 started to work from backlog into the revenue stream. In the current demand environment, pricing has become a point of discussion with clients, particularly small and mid-sized biotechs. We have strategically and selectively utilized pricing and other commercial enhancements, including better integration of our DSA sales force with a global -- with the goal to gain additional market-share and believe this strategy has been successful as demonstrated by an improved DSA capture rate during 2024. DSA demand KPIs were also stable in the 4th-quarter, including the net book-to-bill ratio and cancellation rate. The net book-to-bill remained below 1 times in the 4th-quarter with global biopharmaceutical and small and mid-sized biotech client segments in a similar range. This was consistent with the 3rd-quarter following the divergence in trends during the second-quarter that resulted in revenue to global biopharmaceutical clients taking a step-down in the second-half of 2024, which will continue to impact 2025. Cancellations also remained at lower levels in the 4th-quarter as they have for most of the past year and closer to targeted levels. We believe the clients have largely completed the process of canceling lower priority programs that remain in our backlog, so that the key for the DSA segment to return to revenue growth will be a sustained improvement in booking activity, which has not yet occurred. For the full-year, DSA revenue decreased 6.2% on an organic basis, which was consistent with our expectation in November that DSA revenue would be favorable to our previous outlook of a high single-digit decline. At year-end, the DSA backlog modestly declined to $1.97 billion from $2.12 billion in the -- at the end-of-the 3rd-quarter. In 2025, we expect DSA revenue will decline at a mid to-high single-digit rate on an organic basis, which will be slightly less favorable than in 2024. We expect that both lower pricing and study volume will have a similar impact on the 2025 decline. As I mentioned earlier, we expect study volume will be relatively stable sequentially throughout 2025 for the global biopharmaceutical and biotech client segments, but at a lower level than in 2024 due primarily to the softer demand from global biopharmaceutical clients that emerged in the second-half of last year. In addition, lower realized DSA pricing will add an incremental headwind in 2025 that was not present in 2024 when realized pricing was essentially flat for the full-year. We have not assumed any meaningful improvement in the DSA demand environment during 2025 at this time. So the quarterly gating of DSA revenue dollars should be relatively consistent over the course of the year aside from a modest seasonal impact in the first-quarter. In recent weeks, NHP supply has once again made headlines as a result of a recent proposal at the Standing committee meeting of, an international body that oversees the trade of animals, including NHPs used in biomedical research to potentially suspend the trade of NHPs from Cambodia. We were very pleased that studies did not enact the trade suspension at the meeting in early-February and postponed the agenda item on this matter until the end-of-the year. This decision underscores the international community's strong support for a fair, accurate and science-based review process, providing the necessary time to review the facts and counteract on this information being disseminated by other groups. Let me be clear, Stals River firmly believes that any action to restrict the availability of purpose-spread NHPs from Cambodia could have significant and unintended consequences that will impact biomedical research globally. Legally sourced NHPs are critical regulatory required models to help ensure human patient safety and advanced biologics drug development for the global biopharmaceutical industry. Will continue to work collaboratively with regulatory agencies, government officials, industry trade associations and our biopharmaceutical clients to promote patient safety and educate our partners about the scientific importance of NHPs, particularly when viable alternatives do not currently exist. With regard to our NHP supply, we will continue to diligently work to diversify and secure our supply-chain by procuring NHPs under various supply arrangements outside of Cambodia, including through our controlling interest in Novaprim and Mauritius. As a reminder, we will be able to utilize an increasing number of Mauritius NHPs in our DSA segment after 2026. In the appendix of our slide presentation today, we have also updated certain key statistics for 2024 that were included in our NHP report last year. DSA operating margin was 24.7% in the 4th-quarter or 130 basis-point decrease from the 4th-quarter of 2023 and was 25.7% for the full-year of 2024, representing a 180 basis-point decline year-over-year. Both the 4th-quarter and full-year declines were primarily driven by lower revenue, which was partially offset by the benefit from cost-savings. RMS revenue in the 4th-quarter was $204.3 million, a decrease of 0.4% on an organic basis. For the year, RMS revenue was essentially flat with just a 0.1% decline on an organic basis. For both the quarter and the year, lower revenue for Research model services, including Cradle, NHP sales in China and the Cell Solutions business was mostly offset by higher sales of smaller research models in all geographic regions, principally driven by higher pricing. Cell Solutions 2024 growth rate was impacted by the consolidation of its operations to its largest -- largest California site. For 2025, RMS revenue is expected to increase at a low single-digit rate, driven primarily by higher pricing in the North American and European models businesses. Improved growth prospects for research model services, including and from higher NHP sales to NovoPrim third-party clients. Unit volume for small research models continued to be lower in 2024 due in large part to the softer biopharmaceutical spending environment. However, higher pricing and higher revenue from academic institutions more than offset these unit volume declines. We expect similar trends in 2025 with higher pricing in North-America and Europe more than offsetting lower unit volumes. We also expect small models revenue in China to be flattish as the life sciences environment continues to be somewhat challenged. Given the recent news around NIH funding, we will closely monitor the health of our academic and government client base. Our direct exposure to the NIH represents less than 2% of our total revenue, largely related to in-sourcing solutions contracts. For academia, small research models are critical components to academic research projects and consider direct research costs, but we will monitor what, if any impact the NIH's new directive to cap indirect costs will have on these clients. Overall, large models are not expected to be a significant contributor to RMS revenue growth this year as anticipated increase in Novaprim's third-party NHP revenue will be partially offset by lower NHP revenue in China. Demand for research model services is expected to rebound and become a notable contributor to RMS revenue growth in 2025. Our business is expected to get back on-track as clients increasingly utilize these services to support their complex research efforts and maintenance of the genetically modified model colonies. Moderate growth of Cradle operations is expected to deliver an improved top-line performance in 2025, primarily driven by new Cradle sites to limit risk in this tighter budgetary environment, the new sites will either have dedicated or anchor clients. Clients are continuing to view Cradle as an attractive model to access flexible space without having to invest in internal infrastructure, which provides a powerful value proposition for clients who are looking to reduce costs and conserve capital. The RMS operating margin decreased by 30 basis-points year-over-year to 22.8% in the 4th-quarter, but increased by 70 basis-points to 23.7% in 2024. For the year, the operating margin improvement was primarily due to higher pricing for small research models, cost-savings related to our restructuring initiatives and a favorable revenue mix-related to higher sales of NHPs due to the acquisition. We expect similar drivers to contribute to the RMS operating margin in 2025. Manufacturing solutions revenue was $194.9 million in the 4th-quarter, a growth rate of 2.1% on an organic basis and the full-year organic growth rate was 6.8%. The slower 4th-quarter growth rate was primarily driven by lower commercial revenue in the CDMO business, offset by a robust year-end performance for the Microbial solutions business. These same drivers will likely result in essentially flat manufacturing revenue in 2025 on an organic basis. Biologics testing benefited in 2024 from certain client projects that will not repeat, which will result in a moderated growth rate in 2025. As mentioned at a recent investor conference, we expect lower revenue from two commercial CDMO clients will reduce consolidated revenue by approximately 1% in 2025 and the manufacturing segment's growth rate by more than 5%. Despite the commercial setbacks, we believe our efforts over the past two years to enhance the CDMO operations have established a solid foundation for this business through investments in facilities, leadership and scientific expertise. Although demand in the cell and gene sector is not as robust as it was when we acquired the business in 2021. We believe attractive long-term growth opportunities exist and we have a healthy pipeline of biotech clients with early-stage clinical candidates ready to help move the CDMO business forward. The Microbial solutions business reported a strong year-end performance with solid growth across all three testing platforms,, Celsys and Acugenics and the Safe continued to lead the way with robust growth for testing consumables as well as another strong quarter for instrument placements. We believe the 2024 performance thoroughly demonstrated that demand for microbial products has rebounded and the clients are increasingly utilizing our comprehensive, rapid manufacturing quality-control testing solutions to enhance their product release, testing speed and efficiency. The Manufacturing segment's operating margin increased by 330 basis-points to 28.7% in the 4th-quarter and by 560 basis-points to 27.4% for the full-year. We were pleased by the operating margin expansion, which was driven by operating leverage for improved demand in the microbial solutions and biologics testing businesses and our continued focus on generating greater efficiencies across all businesses, including CDMO. We believe the manufacturing segment remains on-track to reach its goal to return to an operating margin above the 30% level within a couple of years. To conclude, we are currently operating in a challenging biopharmaceutical demand environment with continued constrained client spending, but we believe that demand trends are stabilizing. On the positive side, biotech is trending favorably. We have not seen signs of further deterioration from our global biopharmaceutical clients. However, we're not forecasting a recovery in 2025. We are taking decisive action to manage the company through the current environment, including appropriately rightsizing our infrastructure and eliminating over 5% of our cost structure. We remain committed to initiatives to generate more revenue, contain costs and protect shareholder value. To ensure our future success, we continue to make progress on strategic actions in these three main areas: restructuring and other initiatives to -- to manage costs and generate greater efficiency by reducing staffing levels to align with the pace of demand, optimizing our global footprint and streamlining processes and operations. We have made meaningful progress on this front and continue to selectively evaluate additional opportunities to cut costs and drive efficiency and now expect to generate approximately $225 million of annualized cost-savings from these initiatives. The second area is concentrating on commercial enhancements to promote a client-centric focus and gain additional market-share. Our goal is to enhance the client experience and reinforce our role as a flexible and responsive partner to our clients, including through leveraging technologies such as our Apollo platform and our RMS e-commerce initiatives. As I mentioned earlier, our enhancements to our DSA sales force and dynamic pricing strategy have enabled us to gain market-share over the past year. And finally, we are taking a balanced approach to capital allocation and regularly revisiting our best uses for capital. We are very pleased that our leverage remains low in the low 2 times range and as we have routinely done, we continue to evaluate select M&A candidates. Based on our anticipated capital needs this year and coupled with our belief that we are currently undervalued, it is an opportune time to allocate most of our free-cash flow just to stock repurchases in 2025 under our $1 billion authorization. We intend to repurchase approximately $350 million in-stock over the next month or two, which exceeds our initial goal of $100 million last year to offset annual dilution from equity awards. We have navigated challenges before and we believe our strategic actions will enable us to emerge from this period a stronger, leaner and more profitable company and an even more responsive partner for our clients. We have always distinguished ourselves through our exquisite science and preclinical focus, extending our leading position as our client's preferred global non-clinical drug development partner. I'd like to thank our employees for their exceptional work and commitment and our clients and shareholders for their continued support. Now, Flavia will provide additional details on our financial performance and 2025 guidance.
