Q1 2024 Charles River Laboratories International Inc Earnings Call

[music].

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.

Ladies and gentlemen, thank you for standing by and welcome to the Charles River Laboratories first quarter 'twenty 'twenty four earnings conference call. This call is being recorded.

Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this period, you will need to press star 1 on your telephone. If you want to remove yourself from the queue, please press star 2.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this period, you will need to press star one on your telephone.

If you want to remove yourself from the queue. Please press star two.

Lastly, if you should need operator assistance. Please press star Zero I would now like to turn the conference over to our host Todd Spencer Vice President of Investor Relations. Please go ahead.

Operator: Lastly, if you should need operator assistance, please press star 0. I would now like to turn the conference over to our host, Todd Spencer, Vice President of Investor Relations. Please go ahead.

Todd Spencer: Good morning, and welcome to Charles River Laboratories' first quarter 2024 earnings conference call and webcast. This morning, I am joined by Jim Foster, Chair, President, and Chief Executive Officer, and Flavia Pease, Executive Vice President and Chief Financial Officer. They will provide comments on our first quarter of 2024. Following the presentation, they will respond to questions. There is a slide presentation associated with today's remarks that can be found on the Investor Relations section of our website at ir.criver.com. The webcast replay of this call will be available beginning approximately two hours after the call today and can be accessed on our investor relations website.

Todd Spencer: Good morning, and welcome to Charles River Laboratories, first quarter 2024 earnings conference call and webcast.

Todd Spencer: This morning, I'm joined by Jim Foster sure President and Chief Executive Officer, and Flavio, <unk> Executive Vice President and Chief Financial Officer. They.

Todd Spencer: They will provide comments on our first quarter of 2024 following the presentation. They will respond to questions. There is a slide presentation associated with today's remarks, which is posted on the Investor Relations section of our website at IR Dot C River dotcom.

Todd Spencer: The webcast replay of this call will be available beginning approximately two hours after the call today and can be accessed on our investor Relations website.

Todd Spencer: The replay will be available through next quarters conference call.

Todd Spencer: The replay will be available through next quarter's conference call. I'd like to remind you of our safe harbor. All remarks that we make about future expectations, plans, and prospects for the company constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995, and actual results may differ materially from those indicated. During this call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance. However, non-GAAP financial measures are not meant to be considered superior to or a substitute for results from operations prepared in accordance with GAAP.

Todd Spencer: I would like to remind you of our safe Harbor, our remarks that we make about future expectations plans and prospects for the company constitute forward looking statements under the private Securities Litigation Reform Act of 1095.

Todd Spencer: Actual results may differ materially from those indicated during.

Todd Spencer: During this call we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results from operations prepared in accordance with GAAP.

Todd Spencer: In accordance with Regulation G, you can find the comparable GAAP measures and reconciliations on the investor relations website. I will now turn the call over to Jim Foster. Good morning.

Todd Spencer: In accordance with regulation G. You can find the comparable GAAP measures and reconciliations on the Investor Relations section of our website I will now turn the call over to Jim Foster.

James C. Foster: Good morning.

James C. Foster: I'd like to begin by providing an update on the overall market. There has been an increasing focus on the market through the first four months of this year from clients, investors, and other stakeholders.

James C. Foster: I'd like to begin by providing an update on the overall market trends.

James C. Foster: There has been an increasing focus on market sentiment.

James C. Foster: The first four months of this year from clients investors and other stakeholders.

James C. Foster: We still believe that the end market trends for our biopharmaceutical clients remain stable, and signs that demand will begin to improve later this year, which is consistent with the outlook that we gave in February. One of these signs is an improvement in biotech funding. After two years of tempered activity, biotech funding increased significantly in the first quarter of 2024 to approximately $23 billion, the fourth highest quarter on record. These trends and the improving market sentiment have led to positive discussions with our clients, including at the Annual Society of Toxicology Conference in Denmark, with clients specifically referencing the improving funding environment and optimism that this would lead to additional spending on early stage programs this year. We saw increased proposal activity in the first quarter, and while this is encouraging, and we have available capacity to start certain types of work relatively quickly, our outlook for the year remains appropriate.

James C. Foster: Still believes that the end market trends for our biopharmaceutical clients remained stable.

James C. Foster: With signs that demand will begin to improve later this year, which.

James C. Foster: Which is consistent with the outlook that we gave in February one of this size is an improvement in biotech funding.

James C. Foster: After two years and has tempered activity biotech funding increased significantly in the first quarter of 2024 to approximately $23 billion, the fourth highest quarter on record.

James C. Foster: These trends and the improving market sentiment have led to positive discussions with our clients, including at the annual Society of Toxicology conference in mid March with clients, specifically referencing improving funding environment and optimism that this could lead to additional spending on the early <unk>.

James C. Foster: Stage programs this year.

James C. Foster: Increased proposal activity in the first quarter and while this is encouraging.

James C. Foster: And we have available capacity to start certain types of work relatively quickly our outlook for the year remains appropriately measured.

James C. Foster: We expect it will take time for additional funding and proposal activity to translate into new DSA bookings and revenue generation. Therefore, we continue to expect demand will improve later this year, consistent with our initial outlook from February. Our first quarter financial results reflect a continuation of the demand trends and client spending patterns that we experienced at the end of last year, resulting in an organic revenue decline of 3.3% in the first quarter, in line with our Outlook configuration.

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

James C. Foster: Our first quarter financial results reflect a continuation of the demand trends and client spending patterns that we experienced at the end of last year, resulting in an organic revenue decline of three 3% in the first quarter.

James C. Foster: With our outlook in February.

James C. Foster: Manufacturing and RMS segments, both reported solid quarters, primarily driven by a rebound in order activity and then microbial solutions and biologics testing businesses as well as the timing of NH P shipments benefiting the RMS segment.

James C. Foster: Both reported solid quarters, primarily driven by a rebound in order activity in the microbial solutions and biologics testing businesses, as well as the timing of NHP shipments benefiting the RMS segment. As expected, DSA revenue declined at a high single-digit rate organically, due in part to the challenging comparison to the strong organic growth rate of nearly 24% in the first quarter of last year. Demand trends are continuing to stabilize, reflecting the more positive sentiment in our end markets and reinforcing our financial outlook for the year. There has also been an increasing focus on the Biosecure Act. It is too early to determine the final outcome of this proposed legislation.

James C. Foster: As expected DSA revenue declined at a high single digit rate organically due in part to the challenging comparison to the strong organic growth rate of nearly 24% in the first quarter of last year demand trends are continuing to stabilize reflecting the more positive sentiment in our end markets.

James C. Foster: And reinforcing our financial outlook for the year.

James C. Foster: There has also been an increasing focus on the bio secure act. This year. It is too early to determine the final outcome of this proposed legislation.

James C. Foster: Both the content of the final bill, if passed, and the potential impact on the broader biopharmaceutical industry. With approximately 95% of our revenue based in North America and Europe, we assume that the potential impact on Charles River would likely be a net positive, should a bill be passed, but it's too early to determine the magnitude of such an impact. The long-term industry fundamentals for drug development also remain firmly intact.

James C. Foster: Plus the content cause a final bill is passed and the potential impact on the broader biopharmaceutical industry.

James C. Foster: With approximately 95% of our revenue base in North America, and Europe, we assume that the potential impact on Charles River.

James C. Foster: We'd be a net positive should've Dolby test, but it's too early to determine the magnitude of the potential impact.

James C. Foster: Long term industry fundamentals drug development also remains firmly intact, because the overwhelming demand to find lifesaving treatments for rare diseases and many other unmet medical needs is unchanged.

James C. Foster: The overwhelming demand to find lifesaving treatments for rare diseases and many other unmet medical needs is uncertain. Biotechs, which are beginning to move back into favor in the capital market, will lead the way while large pharma has consistently adapted to scientific advances. The regulatory environment and a drive to be more. Therefore, we firmly believe the industry's healthy growth prospects will reaccelerate. It's not a matter of if but when clients will reinvigorate their investment and early stage R&D.

James C. Foster: Texas are beginning to move back into favor in the capital markets and will lead the way while large pharma has consistently adapted to scientific advancements the regulatory environment and the drive to be more efficient.

James C. Foster: Therefore, we firmly believe the industry is healthy growth prospects will reaccelerate its not a matter of they have to win clients will reinvigorate their investments in early stage R&D.

James C. Foster: As the leader in preclinical drug development, Charles River is the logical outsourcing partner to advance our clients' programs and enhance their speed to market. I will now provide highlights of our first quarter performance. We reported revenue of $1.01 billion in the first quarter of 2024, a 1.7% decrease on a reported basis over last year. Organic revenue declined 3.3%, as solid performances from the manufacturing and RMS segments were offset by the anticipated decline and DSA Revit, by client segment revenue from small and mid-sized biotechs declined, partially offset by high revenue.

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

James C. Foster: I will now provide highlights of our first quarter performance.

James C. Foster: We reported revenue of $1.0 billion to $1 billion in the first quarter of 2020, 417% decrease on a reported basis over last year.

James C. Foster: <unk> revenue declined three 3%.

James C. Foster: Solid performances from the manufacturing and RMS segments for us.

James C. Foster: Set by the anticipated decline in DSA revenue.

James C. Foster: Client segment revenue from small and mid sized biotechs declined partially offset by higher revenue from global biopharmaceutical and academic clients.

James C. Foster: Global Biopharmaceutical and Academic Client. The operating margin was 18.5%, a decrease of 270 basis points year over year. The decline was principally driven by a lower DSA operating margin, reflecting the impact of lower sales volume as well as higher unallocated corporate costs.

James C. Foster: The operating margin was 18, 5% a decrease of 270 basis points year over year.

James C. Foster: The client.

James C. Foster: <unk> driven by a lower DSA operating margin, reflecting the impact of lower sales volume as well as higher unallocated corporate costs.

James C. Foster: The restructuring initiatives that we implemented have not yet generated a full quarterly cost savings, which will occur in the second half of 2020. Ranks per share were $2.27 in the first quarter, a decrease of 18.3 percent from the first quarter of last year. The decline reflects a lower revenue and operating margin as well as a higher tax rate. First quarter earnings per share exceeded our initial outlook in February due in part to a timing shift of NHP shipments which moved into the first quarter and benefited RMS results.

James C. Foster: Restructuring initiatives that we implemented have not yet generated full quarterly cost savings, which will occur in the second half of 2024.

James C. Foster: <unk> per share were $2.27 in the first quarter of <unk>.

James C. Foster: Decrease of 18, 3% from the first quarter of last year. The decline reflects the lower revenue and operating margin as well as the higher tax rate.

James C. Foster: First quarter earnings per share exceeded our initial outlook in February due in part to a timing shift and then HP shipments, which moved into the first quarter and benefited Rms results.

James C. Foster: For the full year, we are reaffirming our revenue and non-GAAP earnings per share guidance. We continue to expect revenue growth of 1-4% on a reported basis and flat to 3% growth on an organic basis. Non-GAAP earnings per share guidance remains in a range of $10.90 to $11.40.

James C. Foster: For the full year, we are reaffirming our revenue and non-GAAP earnings per share guidance, we continue to expect revenue growth of 1% to 4%.

James C. Foster: On a reported basis and flat to 3% growth.

James C. Foster: And organic basis, and non-GAAP earnings per share guidance remains in a range of $10 90 to $11 40.

James C. Foster: As I mentioned, there were some movements in the forecast between quarters, but our outlook for the years. I'd like to provide you with additional details on our first quarter segment performance, beginning with the DSA segment's results. DSA revenue in the first quarter was $605.5 million, a decrease of 8.7% on an organic basis. The quarterly decline reflected a challenging comparison to the 23.6% growth rate last year, as well as lower revenue in both discovery services and safety assessment.

James C. Foster: As I mentioned, there were some movements in our forecast between quarters, but our outlook for the year is essentially unchanged I'd like to provide you with additional details on our first quarter segment performance beginning with the DSA segment's results.

James C. Foster: DSA revenue in the first quarter was $605 $5 million a decrease of eight 7% on an organic basis quarterly decline reflected the challenging comparison to the 23, 6% growth rate last year.

James C. Foster: Well as lower revenue in both discovery services and safety assessment businesses.

James C. Foster: The lowest study volume in the safety-assessed business was partially offset by a small benefit from practice. We are modestly adjusting the price of new proposals when appropriate to drive incremental volume. Looking at the broader demand trend, safety assessment proposal activity, and cancellation, [inaudible] These trends will lead to improved demand during the second half of the year. As we have noted in the past, the study mix routinely shifts back and forth over time.

James C. Foster: Lowest study volume in the safety assessment business was partially offset by a small benefit from pricing. We are modestly adjusting price of new proposals when appropriate to drive incremental volume looking at the broader demand trends safety assessment proposal activity and cancellations improved on both a year over year.

James C. Foster: Sequential basis. This is not yet translated fully into improved bookings, but we are cautiously optimistic that these trends will lead to improved demand during the second half of the year as.

James C. Foster: As we have noted in the past the study mix routinely shifts back and forth over time, we believe that new funding will enable our clients to shift their R&D focus back to IND.

James C. Foster: We believe that new funding will enable our clients to shift their IND focus back to IND-enabling studies from post-IND work that has been the focus for much of the past year. As a reminder, there is a natural lag between the time that a client gets new funding and reaches out for a study proposal to when the client will book and subsequently begin the new work with us. The process can take a few quarters, which is factored into our expectation that demand will improve modestly later.

James C. Foster: Enabling studies from post Sandy work that it's been a focus for much of the past year. As a reminder, there's a natural lag between the time that the client gets new funding and reaches out for study proposal to win the client will book and subsequently began in the new work with us.

James C. Foster: The process can take a few quarters, which is factored into our expectation that demand will improve modestly later in the year.

James C. Foster: As a result of these trends, the DSA backlog decreased modestly on a sequential basis, to $2.35 billion at the end of the first quarter from $2.45 billion at year end. Gross bookings remained stable at above one times, while the net book to bill ratio remained below one times, but did improve slightly due to the lower cancellation rate in the first quarter. The DSA operating margin was 23.5% in quarter five.

James C. Foster: As a result of these trends the DSA backlog decreased modestly on a sequential basis.

James C. Foster: Two to three $5 billion at the end of it.

James C. Foster: First quarter from $2 $45 billion a year at gross bookings remained stable at about one times, while the net book to Bill ratio remained below one times.

James C. Foster: Did improve slightly due to the lower cancellation rate in the first quarter.

James C. Foster: The DSA operating margin was 23, 5% in the first quarter.

James C. Foster: 550 basis point decrease from the first quarter of 2023.

James C. Foster: decreased from the first quarter of 2023. The year-over-year decline reflected the challenging comparison to last year's outstanding operating margin performance. However, First Quarter Operating Margin was also below our longer-term targeted level in the mid-to-high 20% range because lower sales volume and moderating price increases in the discovery and safety assessment business were unable to cover costs in place. We expect the DSA operating margin to move towards targeted levels as demand rebounds in the second half. RMS revenue was $220.9 million, an increase of 3.3% on an organic basis over the first quarter of 2023.

James C. Foster: The year over year decline reflected the challenging comparison to last year's outstanding operating margin performance. However, the first quarter operating margin was also below our longer term targeted level in the mid to high 20% range, because lower sales volume and moderating price increases in discovery and safety assessment businesses.

James C. Foster: We are unable to cover cost inflation, we expect the DSA operating margin to move towards targeted levels as demand rebounds in the second half of the year.

James C. Foster: The RMS segment benefited primarily from higher NHP revenue, as well as from higher sales of small research models in all geographic areas, primarily to sustain pricing increases and from research model surveys. Revenue for small models increased in North America, Europe, and China, due primarily to price. However, the growth rate in China has been compressed by the well-chronicled macroeconomic challenges in the country.

James C. Foster: RMS revenue was $229 million, an increase of three 3%.

James C. Foster: And organic basis over the first quarter of 2023.

James C. Foster: This segment benefited primarily from higher <unk> revenue as well as from higher sales of small research models in all geographic regions due primarily to sustained pricing increases and from research model services.

James C. Foster: Revenue for small models increased in North America, Europe, and China, due primarily to pricing with growth in China, leading all regions, while the growth rate in China has been compressed by the well chronicled macroeconomic challenges in the country. We believe RMS demand has been less affected than other life science sector.

James C. Foster: We believe RMS demand has been less affected than other life science sectors. We believe the resilience of the research model, both in China and the rest of the world, comes from the fact that small models are essential, low-cost tools for research, and without which research cannot, from a services perspective. Revenue Increased Modesty, Insourcing Solutions, or IS, continue to generate higher revenue led by the Cradle operation, and we also signed new contracts for our legacy IS divariate management solution. As we mentioned, Cradle's growth rate is expected to accelerate during the year. We are monitoring the occupancy rates and new facility ramp-up in light of the biotech demand environment. This remains healthy overall.

James C. Foster: We believe the resilience of the research models business, both in China, and the rest of the World comes from the fact that small models are essential low cost tools for research and without which research cannot proceed.

James C. Foster: From a services perspective revenue increased modestly insourcing solutions or I S continued to generate higher revenue led by the cradle operation.

James C. Foster: And we also signed new contracts for our legacy ice librarian management solutions as we mentioned in February.

James C. Foster: <unk> growth rate is expected to accelerate during the year, we are monitoring the occupancy rates and new facility ramp in light of the biotech demand environment, which remains healthy overall.

James C. Foster: We are balancing opening new sites in higher-demand biohubs like Boston, Cambridge, and San Diego with consolidation capacity in more saturated regions like South America. Timing of NHP shipments to third-party clients also benefited first-quarter results, both in China and from Novaprim, the Mauritius-based supplier in which we acquired a controlling interest late last year. These shipments accelerate into the first quarter, so although it would not change our RMS revenue outlook this year, it will affect the quarterly gating and pressure the second quarter RMS revenue growth. In the first quarter, the RMS operating margin increased by 420 basis points. 27.6%

James C. Foster: We are balancing opening new sites and higher demand bio hubs like Boston, Cambridge, and San Diego with.

James C. Foster: With consolidation of capacity and more saturated regions like South San Francisco.

James C. Foster: The timing of NIH P shipments to third party clients also benefited first quarter results, both in China and from Novo Prem Mauritius based supplier and which we acquired a controlling interest late last year.

James C. Foster: Shipments accelerated into the first quarter, so although it will not change our RMS revenue outlook this year.

James C. Foster: Second quarterly gating.

James C. Foster: Pressure in the second quarter RMS revenue growth rate.

James C. Foster: In the first quarter, the RMS operating margin increased by 420 basis points to 27, 6%.

James C. Foster: The robust improvement was primarily driven by the benefit from higher NHP revenue in the first quarter, including the contribution from NOVA. We do not expect the RMS operating margin will be sustained at this level for the full year as the gating of NHP shipments normalizes, but we continue to expect margin improvement in the RMS and manufacturing sectors will enable us to achieve our outlook for the. Revenue for the manufacturing solutions segment was $185.2 million, an increase of 10.4% on an organic basis compared to the first quarter of last year. Each of these segments businesses contributed to the revenue growth led by the CDMO business.

James C. Foster: The robust improvement was primarily driven by the benefit from higher <unk> revenue in the first quarter, including the contribution from Novo prep, we do not expect the RMS operating margin will be sustained at this level for the full year. That's the gating of that HP shipments normalizes, but continue to expect margin improvement in.

James C. Foster: The RMS and manufacturing segments will enable us to achieve our outlook for the year.

James C. Foster: Revenue for the manufacturing solutions segment was $185 $2 million, an increase of 10, 4% on an organic basis compared to the first quarter of last year. Each of these segments businesses contributed to the revenue growth led by the CMO business.

James C. Foster: We were pleased that, as expected, revenue rebounded in both our biologics test and In Biologics Testing. Improved fourth-quarter proposal volume also led to the solid first-quarter performance. Proposal and booking activity also increased meaningfully year-over-year in the first quarter, which confirmed the trends that emerged at the end of last year are continuing. Clients appear to be returning to core testing activities, including cell banking and viral clearance, which were the services that slowed at the beginning of 2020. For microbial solutions, we continue to see signs that de-stalking activity is winding down, and believe it is now largely complete.

James C. Foster: We were pleased that as expected revenue rebounded in both our biologics testing solutions and microbial solutions businesses in the first quarter and biologics testing improved fourth quarter proposal volume led to the solid first quarter performance proposal and booking activity also increased meaningfully year over year.

James C. Foster: In the first quarter, which confirmed the trends that emerged at the end of last year are continuing.

James C. Foster: <unk> appear to be returning to the core testing activities, including cell banking and viral clearance, which was the services that's slowed at the beginning of 2023.

James C. Foster: Microbial solutions, we continued to see signs that destocking activity is winding down and believe it is now largely complete.

James C. Foster: Clients have resumed their purchases of reagents and consumables. Spending on new instruments has also been reactivated with an increase in new orders, particularly for the EndoSafe MCS endotoxin testing. We believe that our comprehensive manufacturing quality control testing portfolio continues to resonate with clients and will help to reinvigorate the manufacturing segment's growth rate in 2020. Biologic Testing and Microbial are excellent examples of our focus on sustainable practices and the Advancement of Non-Animal Alternatives.

James C. Foster: Clients have resumed their purchases of reagents and consumables and spending on new instruments was reactivated with an increase of new orders, particularly for the end of safe Mcs endotoxin testing system.

James C. Foster: We believe that our comprehensive manufacturing quality control testing portfolio.

James C. Foster: Which continues to resonate with clients and will help to reinvigorate the manufacturing segment's growth rate in 2024.

James C. Foster: Our biologics testing and microbial solutions businesses are excellent examples of our focus on sustainable practices and the advancement of non animal alternative and biologics testing, we have launched an initiative with our clients to and then remaining in vivo testing use a viral safety and lot release.

James C. Foster: In Biologics Testing, we have launched an initiative with our clients to end the remaining in vivo testing used for viral safety and lot release testing, replacing it with in vitro methodology. One of the alternative methods is next-generation sequencing testing, which we are able to offer to clients through our partnership with Path Aquatic. Our microbial solutions business also introduced the cartridge technology to our animal-free endosave Trillium endotoxin testing classroom, which will promote Trillium's adoption by those clients who are looking to implement more sustainable testing practices.

James C. Foster: Testing, replacing it with in vitro methodologies.

James C. Foster: One of the alternate alternative methods is next generation sequencing testing that we are able to offer to clients through our partnership with path at quest.

James C. Foster: Microbial solutions business also introduced the cartridge technology to our animal free and to save Trillium endotoxin testing platform.

James C. Foster: Which will promote trillium adoption because those clients who are looking at something that's more sustainable testing practices.

James C. Foster: These are two examples of how we are already responsibly driving Progress to reduce animal use and adopt alternative technologies, and I will provide additional details shortly on our new program to advance alternative technologies. The CDMO business drove the segment's growth rate in the first quarter as it did for most of last year, generating solid double-digit growth. Client interest continues to be strong, with new projects starting almost weekly across the various phases of clinical development.

James C. Foster: Is it two examples of how we are already responsibly driving.

James C. Foster: Progress to reduce animal use and adopt alternative technologies and I will provide additional detail shortly on a new program to advance alternatives.

James C. Foster: The <unk> business drove the segment's growth rate in the first quarter as a good for most of last year generating solid double digit growth.

James C. Foster: <unk> continues to be strong with new projects, starting almost weekly across the various phases of clinical development.

James C. Foster: Cell therapy production activities for our two commercial clients are beginning to ramp up as well. The second quarter growth comparison will be more challenging for the CDMO business as we anniversary the recovery of the business in the second quarter of last year. But the sales funnel remains robust, and we continue to expect solid double-digit growth this year. The manufacturing segment first quarter operating margin was 25.3%.

James C. Foster: All therapy production activities for our two commercial clients are beginning to ramp up as well the second quarter growth comparison.

James C. Foster: Be more challenging for the <unk> business as we anniversary the recovery of the business in the second quarter of last year.

James C. Foster: But the sales funnel remains robust and we continue to expect solid double digit growth this year.

James C. Foster: Manufacturing segment's first quarter operating margin was 25, 3%.

James C. Foster: Significant improvement from 13.7% in the first quarter of last year. The increase was driven primarily by higher sales volume, as each of the manufacturing segment's businesses are regaining traction, as well as the comparison to last year's lease impairment. C. D. M. August

James C. Foster: Significant improvement from 13, 7% in the first quarter of last year. The increase was driven primarily by higher sales volume as each of the manufacturing segments businesses that regaining traction as well as the comparison to last year's leasing pyramid and the C D and all goodness.

James C. Foster: Before turning the call over to Flavia, I'd like to provide an update on new initiatives that we are implementing to maintain our leadership position in non-clinical drug development. Last quarter, I discussed client-facing initiatives that we had implemented to become an even stronger scientific partner to our clients, as well as actions to drive greater efficiency. In April, we launched our AMAP or Alternative Methods Advancement Project program to drive positive change and better position the company for the future state of the industry. AMAP, or the Alternative Methods Advancement Project, is aimed at initiatives dedicated to developing alternatives to reduce animal testing.

James C. Foster: Before turning the call over to Flavio I'd like to provide an update on new initiatives.

Flavio: We are implementing to maintain our leadership position in non clinical drug development.

Flavio: Last quarter I discussed client facing initiatives that we implemented to become an even stronger scientific partner to our clients as well as actions to drive greater operational efficiencies.

Flavio: In April we launched our <unk>.

Flavio: I am a P. R. AME App program to drive positive change and better position the company for the future state of the industry a map or the alternative methods Advancement project is aimed at initiatives dedicated to developing alternatives to reduce animal testing, we intend to remain at the forefront of evaluating and implementing.

James C. Foster: We intend to remain at the forefront of evaluating and implementing new and innovative technologies, including alternative technologies, to enhance the role that we play in helping our clients bring their lifesaving therapies to market more efficiently. We anticipate these technologies will have a greater impact on drug discovery as they have already begun with screening for lead compounds rather than a regulated safety test. Change will take time, which is why we intend to engage key stakeholders.

Flavio: Entering new and innovative technologies.

Flavio: The alternative technologies to enhance the role that we play in helping our clients bring their life saving therapies to market more efficiently.

Flavio: We anticipate these technologies will have greater impact in drug discovery as they already have begun with screening for lead compound rather than the regulated safety testing process change will take time, which is why we intend to engage key stakeholders, including clients partner organization thought leaders.

James C. Foster: , including clients, partner organizations, thought leaders, Policymakers, and NGOs in the Pursuit of Scientific and Technological Innovation focused on Advancing Animal Alternatives. We had already been exploring alternatives to reduce animal testing through our initial investment of $200 million over the past four years.

Flavio: Policymakers and Ngos and the pursuit of scientific and technological innovation focused on advancing animal alternatives.

Flavio: We had already been exploring alternatives to reduce the animal testing through our initial investment of $200 million over the past four years.

James C. Foster: A portion of that investment enabled us to acquire a partner. Over the next five years, our goal is to invest an additional $300 million to fund similar initiatives under AMAP to enhance the development and utilization of alternative energy. We intend to continue to lead the way in driving our company to its next phase. To conclude, 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 first quarter financial performance and 2024 guidance. Thank you, Jim, and good morning.

Flavio: Portion of that investment enabled us to acquire partner and internally develop more sustainable technologies, including the animal free under save Trillium Endotoxin test.

Flavio: Partnership with passive quest for next Gen sequencing that I just mentioned.

Flavio: Over the next five years, our goal is to invest an additional $300 million to find similar initiatives and are aimed at to enhance the.

Flavio: Development and utilization of alternative technologies.

Flavio: We intend to continue to lead the way in driving our industry to its next frontier.

Flavio: To conclude I would like to thank our employees for their exceptional work and commitment and our clients and shareholders for their continued support.

Flavio: Now Flavia will provide additional details on our first quarter financial performance and 2024.

Flavia H. Pease: Before I begin, may I remind you that I'll be speaking primarily about non-GAAP results, which exclude amortization and other acquisition-related adjustments, costs related primarily to restructuring actions, gains or losses from certain venture capital and other strategic investments, and certain other items. Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions, divestitures, and foreign currency translation. First quarter 2024 organic revenue decreased at a 3.3% rate, in line with the February outlook.

Flavia: Thank you Jim and good morning, before I begin may I remind you that I'll be speaking primarily to non-GAAP results, which exclude amortization and other acquisition related adjustments costs related primarily to restructuring actions.

Flavia: <unk> losses from certain venture capital and other strategic investments and certain other items.

Flavia: Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions divestitures and foreign currency translation.

Flavia: First quarter 2020 for organic revenue decreased at a three 3% right in line with our February outlook. However, we delivered non-GAAP earnings per share of $2 27, which exceeded the outlook that we provided in February of at least $2.

Flavia H. Pease: However, we delivered non-GAAP earnings per share of $2.27, which exceeded the outlook that we provided in February of at least $2. The primary drivers of the earnings outperformance were the acceleration of NHP shipments into the first quarter and a strong performance from the manufacturing segment, which delivered organic revenue growth of 10.4%. As Jim mentioned, we continue to expect full-year reported revenue growth of 1% to 4% and organic revenue growth of flat to a 3% increase, as well as non-GAAP earnings per share in a range of $10.90 to $11.40.

Flavia: The primary drivers of the earnings outperformance was the acceleration of NH be shipments into the first quarter and a strong performance from the manufacturing segment, which delivered organic revenue growth of 10, 4%.

Flavia: As Jim mentioned, we continue to expect full year reported revenue growth of 124%.

Flavia: Organic revenue growth of flat to a 3% increase as well as non-GAAP earnings per share in a range of $10 90 to $11 40 sets.

Flavia H. Pease: We reaffirmed our annual revenue and non-GAAP earnings per share guidance because the first quarter outperformance was largely driven by the timing of NHP shipments, which only affects the quarterly gating in 2024 and not our full year outlook. Our segment outlook for 2024 revenue growth remains essentially unchanged, as noted on slide 30. We also continue to expect consolidated operating margin expansion of at least 50 basis points in 2024. We are diligently managing the cost structure and focusing on driving efficiency with restructuring initiatives expected to generate approximately $70 million of annualized cost savings, or the upper end of our prior range.

Flavia: We reaffirmed our annual revenue and non-GAAP earnings per share guidance because of the first quarter outperformance was largely driven by the timing of NH be shipments, which only affects the quarterly gating in 2024 and not our full year outlook.

Flavia: Our segment outlook for 2020 for revenue growth remains essentially unchanged as noted on slide 30.

Flavia: We also continue to expect consolidated operating margin expansion of at least 50 basis points in 2024.

Flavia: We are diligently managing the cost structure and our focus on driving efficiency with restructuring initiatives expected to generate approximately $70 million of annualized cost savings or the upper end of our prior range.

Flavia H. Pease: As anticipated, unallocated corporate costs were just above 6% of revenue, at 6.2%, compared to 4.3% of revenue in the first quarter of last year, contributing to the operating margin headwind in the first quarter. For the full year, we continue to expect unallocated corporate costs to moderate from first quarter levels to just above 5% of revenue. The first quarter tax rate was 23.3%, an increase of 160 basis points year over year.

Flavia: As anticipated on allocated corporate costs were just above 6% of revenue at six 2% compared to four 3% of revenue in the first quarter of last year contributing to the operating margin headwind in the first quarter.

Flavia: For the full year, we continue to expect unallocated corporate costs will moderate from first quarter levels to just above 5% of revenue.

Flavia H. Pease: The increase was primarily due to the impact of stock-based compensation. This was slightly better than our February outlook of a mid-20% tax rate because stock-based compensation was favorable due to a higher stock price during the quarter. We continue to expect our full-year tax rate will be in a range of 23 to 24 percent, which is unchanged from our previous outlook. Net interest expense of $32.8 million in the first quarter was similar to both the prior year and fourth quarter levels, as floating interest rates and debt balances were relatively stable.

Flavia H. Pease: For the year, we expect net interest expense to trend slightly favorably, which would put us at the low end of our prior outlook of $125 to $130 million. As a reminder, nearly three-quarters of our $2.7 billion debt at the end of the first quarter was at a fixed rate. At the end of the first quarter, our growth leverage ratio was 2.4 times, and our net leverage ratio was 2.3 times. Free cash flow was $50.7 million in the first quarter, compared to $2.5 million last year, with a $28 million decrease in capital expenditures driving much of the improvement.

Flavia: <unk> million dollars.

Flavia: As a reminder, nearly three quarters of our $2 $7 billion of that at the end of the first quarter was at a fixed rate.

Flavia: At the end of the first quarter gross leverage ratio was two four times and our net leverage ratio was two three times.

Flavia: Free cash flow was $57 million in the first quarter compared to $2 $5 million last year with a $28 million decrease in capital expenditures driving much of the improvement.

Flavia H. Pease: Capital expenditures were $79.1 million in the first quarter, compared to $106.9 million last year, due primarily to moderating capacity expansions to match current demand. For the year, we continue to expect free cash flow to be in a range of $400 million to $440 million, and CAPEX is expected to be approximately $300 million. A summary of our 2024 financial guidance can be found on slide 35. Looking ahead to the second quarter, we expect reported and organic revenue to decline at a low to mid-single-digit rate year over year.

Flavia: Capital expenditures were $79 $1 million in the first quarter compared to $106 $9 million last year due primarily to moderating capacity expansions to match current demand.

Flavia: For the year, we continue to expect free cash flow will be in a range of 400 million to $440 million and Capex is expected to be approximately $300 million.

Flavia: A summary of our 2024 financial guidance can be found on slide 35.

Flavia: Looking ahead to the second quarter, we expect reported and organic revenue will decline at a low to mid single digit rate year over a year.

Flavia H. Pease: Our second quarter expectations include a modest sequential increase in DSA revenue as trends begin to improve. The second quarter revenue growth rates for both the RMS and manufacturing segments are expected to be constrained by the timing of NHP shipments in RMS and the anniversary of last year's CDMO growth rebound in the manufacturing segment. Earnings per share are expected to improve from the first quarter level, with an outlook of mid-single-digit sequential earnings growth over the $2.27 reported in the first quarter.

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

Flavia: Second quarter revenue growth rates for both the RMS and manufacturing segments I expect it to be constrained by the timing of an HP shipments in RMS and the anniversary of last year's CDMA growth rebound in the manufacturing segment.

Flavia: Earnings per share I expect it to improve from the first quarter level with an outlook of mid single digit sequential earnings growth over the $2 27.

Flavia: We reported in the first quarter.

Flavia H. Pease: We expect the tax rate and interest expense to remain relatively stable from the first quarter levels, and the operating margin will remain somewhat constrained until the second half of the year when we recognize the full benefit from the cost savings and the revenue growth rate re-accelerates to cover more of the annual cost inflation. In conclusion, we're pleased with our first quarter performance and are confident in our outlook for the year. Demand for our unique non-clinical portfolio is resilient, and we remain focused on executing our strategy, driving efficiency, and gaining market share. Thank you.

Flavia: We expect the tax rate and interest expense will remain relatively stable from the first quarter levels and the operating margin will remain somewhat constrained until the second half of the year. When we recognize the full benefit from the cost savings and the revenue growth rate reaccelerate to cover them.

Flavia: More of the annual cost inflation.

Flavia: In conclusion, we're pleased with our first quarter performance and are confident in our outlook for the year.

Flavia: Demand for our unique non clinical portfolio is resilient and we remain focus on executing our strategy driving efficiency and gaining market share.

Flavia: Q.

Operator: That concludes our prepared remarks. We will now take your questions. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two.

Speaker Change: That concludes our prepared remarks, we will now take your questions.

Operator: Please limit yourself to one question. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. And we'll take our first question from Michael Ryskin with Bank of America Securities. Your line is open. Hi, this is Wolf on for Mike.

Speaker Change: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to please limit yourself to one question. Once again that is star and one to ask a question.

Speaker Change: We will pause for a moment to allow questions to queue.

Speaker Change: And we'll take our first question from Michael Rice skin with Banc of America Securities. Your line is open.

Unknown Speaker: Thanks for taking the questions. I guess the first one would be on how we should think about pacing RMS revenues given the accelerated NHP shipment that we saw. The cadence through the rest of the year would be great. What was the question? I think he was just saying he was stepping in for Mike, and the question is about the timing of NHV shipments in RMS. Maybe I can take that.

Michael Rice: Alright, thank with Wolff on for Mike. Thanks for taking the questions I guess the first one would be how should we think about two things or a month's revenues given the accelerated in HPT shipment that we saw the cadence through the rest of the year would be great.

Michael Rice: Paul.

Speaker Change: What is the bigger question.

Paul: I think he was just saying he was stepping in for Mike and the question is about timing of NH. These shipments in RMS maybe I can take that.

Unknown Speaker: I think we have commented that our quarters are not linear, and I actually added when we provided guidance for this year that adding the Novoprim business into the fold would result in additional non-linearity in our quarters because those shipments are not timed in a way that they always happen at the same time every year. So it is going to introduce a little bit of lumpiness, if you will, quarter by quarter, but as we spoke in our prepared remarks, this was a shift between the second quarter and the first quarter, and within the year, we feel very comfortable and confident with the guidance.

Speaker Change: I think we have commented that our quarters are not linear and I actually added when we provided guidance for this year that the adding de novo <unk> business into the fold.

Speaker Change: Would result in.

Speaker Change: Additional non linearity in our quarters, because those shipments are not.

Speaker Change: Timing in a way that they always happen in the at the same time and in every year. So it is going to introduce a little bit of Lumpiness. If you will.

Speaker Change: Quarter by quarter, but as a as we spoke in our prepared remarks. This was a shift between the second quarter and first quarter and within the year, we feel very comfortable and confident with the guidance. So it's going to make you guys as lives a little bit more challenging to pinpoint the segments within the quarters.

Unknown Speaker: So it's going to make your guys' lives a little bit more challenging to pinpoint the segments within the quarters, but that's just the nature of that part of it. Okay, wonderful. And hopefully, you can hear me a bit better now.

Speaker Change: But that's just the nature of that part of the business.

Unknown Speaker: Um, then I would just like to ask kind of your confidence in the grants for the year, given your book to bill is still trending below one. I know you noted some improvements there, but just anything to make us more comfortable there would be great. I mean, our confidence in the back half of the ramp is, you know, premised on a multiplicity of things, inflows to the VCs, wonderful funding in the capital markets, fourth best in the history of biotech last quarter.

Speaker Change: Okay wonderful and hopefully you can hear me a bit better now.

Speaker Change: Then I just want to ask on kind of your confidence in the ramp for the year given your book to Bill is still trending below one I know you'd noted some improvements there, but just anything to give us.

Speaker Change: That makes it more comfortable there would be great.

Speaker Change: Our confidence in the back half of the ramp is premised on a multiplicity of things.

Speaker Change: Yes.

Speaker Change: Inflows to the Vcs.

Speaker Change: While the full funding of the capital markets fourth best in the history of biotech last quarter.

Unknown Speaker: The increase in proposal volume, a modest reduction in cancellations, and just the general dialogue with our clients, A, B, the comps of last year, and C, the fact that we can see pent-up demand on the part of our clients. And it seems like there were a fair number of programs across the board with our clients where drugs were developed, lead compounds were developed, and for funding reasons and prioritization reasons, sort of paused.

Speaker Change: The.

Speaker Change: Increase in proposal volume modest reduction in cancellations.

Speaker Change: And just see the general dialogue with our clients a b.

Speaker Change: Comps of last year and see the fact that.

Speaker Change: We can.

Speaker Change: See pent up demand on part of our clients and it seems like there were a fair number of those.

Speaker Change: No it's across the board with our clients.

Speaker Change: We have developed lead compounds with developed and for funding reasons and prioritization reasons sort of paused.

Speaker Change: So a lot of the last quarter in the quarter before that about post A&D work being folks are focused on within clients.

Unknown Speaker: We talked a lot last quarter and the quarter before that about post-IND work being focused on. We think clients need to and will get back to actual IND filing work, because that's the most critical thing that they do to get drugs into the clinic. So, as the funding is improving, and there are...

Speaker Change: Need to and we'll get back to actual IND filing work because.

Speaker Change: That's the most critical things they do to get drugs into the clinic. So.

Speaker Change: As the funding is improving and there.

James C. Foster: Feelings about continued access to funding are more positive; we're pretty confident. You know, we've had a very similar situation in the last two years. I know we're, I don't know about worrying, but we're a bit maybe surprising to our shareholder base that things, we have one year where things were much stronger in the first quarter, another year, the second, and this is a similar phenomenon. You know, we've talked often about the fact that we have no control over when studies start and stop.

Speaker Change: Feelings about continued access to funding.

Speaker Change: Is more positive.

Speaker Change: Pretty confident we've had and we've had a very similar situation in the last two years.

Speaker Change: I know.

Speaker Change: I don't know about concerning.

Speaker Change: We're a bit maybe surprising to our shareholder base things, we had one year, where things were much stronger in the first quarter. Another year. The second and this is a similar phenomenon.

Speaker Change: We've talked often about the fact that we have no control over what study start stop and as <unk> said, we don't have linearity in our business and never well so.

James C. Foster: And as Flavia just said, we don't have linearity in our business and never will. So, given from whence we've come and the change in the funding environment and our constant conversations on a daily basis with literally thousands of clients, we have a high degree of confidence that things will accelerate meaningfully in the back half of the year. Thank you very much.

Speaker Change: Given from whence we've come in the change in the funding environment.

Speaker Change: Constant conversations on a daily basis with literally thousands of clients. We have a high degree of confidence that things will accelerate meaningfully in the back half of the year.

Speaker Change: Alright, Thank you very much for answers.

Operator: Thank you. And we'll take our next question from Max Smock with William Blair. Your line is open. Hey, good morning.

Speaker Change: Thank you and we'll take our next question from Max Smock with William Blair. Your line is open.

Unknown Speaker: Thanks for taking our questions. Starting with DSA, you had to comment on the deck about modestly adjusting. Transcripts provided by Transcription Outsourcing, LLC, specifically how NHP pricing is playing into pricing for these proposals in the DSA segment more broadly. The principal way our competitors compete with Charles River is with regard to price, so competition has prices pretty much across the board that's slower than ours. I certainly don't think the work is as good, or the science is as substantive, or the infrastructure is as significant, but that's the reality.

Maxwell Andrew Smock: Hey, good morning, Thanks for taking my questions starting with DSA you had the comment in the deck about modestly adjusting price on new proposals when appropriate to drive incremental volume I just wanted to follow up and get a little bit more color around the rationale behind that decision and specifically how an HP pricing.

Speaker Change: Playing into pricing for that proposals in the DSA segment more broadly.

Speaker Change: So.

Speaker Change: The principal way our competitors compete with Charles River.

Speaker Change: With regard to price so competition.

Speaker Change: If prices.

Speaker Change: Pretty much.

Speaker Change: <unk>.

Speaker Change: Across the board thats slower than ours.

Speaker Change: Yes, I certainly don't think that work is as good or the science is a substantive or the infrastructure.

Speaker Change: Is significant but it's a fact and so in <unk>.

Speaker Change: <unk> financial times and people sort of worried about.

Speaker Change: Access to capital I think pricing is more important so we have.

Unknown Speaker: And so in challenging financial times and people sort of worried about access to capital, I think pricing is more important. So we have thoughtfully and strategically utilized price as necessary to preserve and, more importantly, to win work. We haven't done this in a wholesale fashion because the studies are very complicated and we feel that we need to be paid well.

Speaker Change: Thoughtfully and strategically.

Speaker Change: Utilized price.

Speaker Change: As necessary to preserve and more importantly to.

Speaker Change: To win work.

Speaker Change: We havent done this in a wholesale fashion.

Speaker Change: Because the study is a very complicated and we feel that we need to be we need to be paid well so.

James C. Foster: So we will continue to use the strategy as long as it's necessary. We've obviously had years in the past where we had more pricing power, and we didn't have to do that. On the NHP pricing side, I would say that it's a meaningful part of what we do. Competition's prices have been higher for the NHP work and for what they pay for the NHPs. And so I think that actually has been somewhat beneficial to us in the whole pricing paradigm. This is not the first time we've used price as an important strategic tool. I got it.

Speaker Change: We will continue to use a strategy as long as it's necessary. We've obviously it yes, historically, where we have more pricing power.

Speaker Change: Didn't have to do that.

Speaker Change: NSP pricing side, I would say that.

Speaker Change: It's a meaningful part of what we do competitions prices have been higher.

Speaker Change: And so.

Speaker Change: Okay.

Speaker Change: HP work in on what they pay for the NIH piece and so I think that actually is has been somewhat beneficial to us as a whole.

Speaker Change: Pricing paradigm so.

Speaker Change: That's the first time, we've used prices and important.

Speaker Change: Strategic tool.

Unknown Speaker: And just following up on that, were you anticipating having to cut prices so much coming into the year, or was this more of a reaction to how competitive dynamics have changed over the last few months? And then in regard to the price cuts, is there any detail you can give us around just how dramatically you've been cutting prices on some of this work and what it means for gross margin, specifically gross margin on services, which is down, I think, nearly 350 basis points year over year to the lowest number that we've seen in over five years here? I mean, that's a lot of volume.

Speaker Change: Got it and just following up on that what are you anticipating having to cut prices. So much coming into the year or has this been more of a reaction to how competitive dynamics have changed over the last few months and then in regard to the price cuts is there any detail you can give us around just how dramatically you've been cutting prices on some of this work and what it means for gross.

Speaker Change: Margins, specifically gross margin on services, which was down I think nearly 350 basis points year over year in the lowest.

Speaker Change: Number that we've seen in over five years here.

James C. Foster: I wouldn't say we've been dramatically cutting prices. I would say that we've been cutting prices very modestly, to be more competitive, to have clients that are on the edge to say, well, Charles River's science is better. I want to work with them.

Speaker Change: I mean, that's retroactive of volume.

Speaker Change: I wouldn't say, we've been dramatically cutting prices are et cetera, we've been cutting prices very modestly to be more competitive.

Speaker Change: Clients that are on the HSA with Charles River's science is better I don't want to work with them.

Speaker Change: But I need better prices arent concerned about access to capital so.

James C. Foster: But I need better pricing. I'm concerned about access to capital. So, you know, as I said, we feel that we're doing it responsively and thoughtfully. Yeah, and I would comment on the margin. I think Jim started alluding to that.

Speaker Change: As I said, we feel that we're doing at responsive response of fleet responsibly.

Speaker Change: And thoughtfully.

Flavia H. Pease: It's really more the volume that is putting pressure on margin, given, you know, the ability to cover cost inflation. And there's a little bit of restructuring costs that are impacting, on a gap basis, the gross margin as well. We talked about our $70 million of savings that we're going to get on an annualized basis. So that impacts gross margin as well. But I think we also talked about how this will evolve throughout the year, and we expect that as volume comes back stronger in the second half, and our restructuring initiatives are fully implemented, that that will have a positive impact on gross margin as well as operating margin. I got it.

Speaker Change: Yeah, and I would comment on the margin I think Jim started alluding to that.

Speaker Change: It's really more of the volume that is putting pressure on margins given the ability.

Speaker Change: To cover cost simply inflation.

Speaker Change: John.

Speaker Change: There is a little bit on restructuring costs that are impacting <unk>.

Speaker Change: GAAP basis, the gross margin as well, we talked about $70 million of savings.

Speaker Change: Savings that we're going to get on an annualized basis.

Speaker Change: So that impacts gross margin as well.

Speaker Change: But I think we also talked about how.

Speaker Change: This will evolve throughout the year and we expect that as volume comes back stronger in the second half and our restructuring initiatives are fully implemented that that will have a positive impact on margin gross margin as well as operating margin.

Speaker Change: Got it thank you again for taking our questions.

Speaker Change: Thank you we'll take our next question from Dave Windley with Jefferies. Your line is open.

Unknown Speaker: Thank you again for taking our questions. We'll take our next question from Dave Windley with Jeffreys. Your line is open.

Unknown Speaker: I wanted to follow up on Max's question on price and maybe ask it in a slightly different way. So, in your deck, you talk about moderating price increases and Flavia, the point you just made about inflation, and then this discussion of adjusting prices down. I guess what I'm wondering is, does price, over the course of this year, based on what you're pricing into the backlog, move from what has been a pretty good contributor to a moderate contributor in the first quarter to a headwind as we move through the year? Is that the way we should think about price contribution?

David Howard Windley: Hi, Thanks for taking my questions I wanted to follow up on <unk> question on price and maybe ask a slightly different way so.

David Howard Windley: In your deck, you talk about moderating price increases and Flavio. The point you just made about.

Speaker Change: About inflation.

David Howard Windley: And then this discussion of adjusting prices down I guess, what I'm wondering is.

David Howard Windley: Does the does price over the course of this year based on what your pricing into the backlog does price move from what has been a pretty good contributor to a moderate contributor in the first quarter or two of headwind as we move through the year is that kind of the way, we should think about price contribution.

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

Speaker Change: Yeah, Dave what I would say is price is definitely not going to be as much of a tailwind as it had been in the past few years.

David Howard Windley: And.

Speaker Change: I think we are as Jim said appropriately pricing given the market conditions and the demand environment.

Speaker Change: It will.

David Howard Windley: Our guidance for the year, we still contemplate positive pricing.

Speaker Change: And at the top end of our guidance. We are also contemplating some flat to slightly up volume.

Flavia H. Pease: And so I think what will be critical for the margin impact is seeing that rebound in volume as, you know, Jim said, the strength in biotech funding starts translating into not only proposals but bookings and then revenue, which we fully expect will happen. I think, as we said, it's not a matter of this, but when, and that will be the key contributor to the margin accelerating throughout the year.

Speaker Change: And so I think.

Speaker Change: What will be.

Speaker Change: Critical in the margin impact is seen that rebound in volume.

David Howard Windley: As.

David Howard Windley: Jim said the strength in biotech funding starts translating into normally proposals, but bookings and then revenue, which we fully expect it will happen I think as we said, it's not a matter of this but one.

David Howard Windley: And that will be the key contributor to the margin accelerating throughout the year.

Unknown Speaker: And then from this, this first quarter level, to get to your segment guidance. For DSA, you know, you're looking at a pretty significant entry year. I guess. How much of that, you know, your backlog is still fairly substantial versus the historical, you know, pre-pandemic standard? How much of that growth can you see in backlog versus, you know, the point that you just made and seeing, you know, volume improve? And then, as an additional part to this question, is there anything built into those expectations? Relative to biosecure, or is that kind of left on the side and would be an upside if the bill passes? Thanks.

Speaker Change: Got it and then from this this first quarter level.

Speaker Change: To get to your segment guidance.

David Howard Windley: For DSA Youre looking at a pretty significant intra year.

David Howard Windley: Increase I guess.

David Howard Windley: How much of that your backlog is still fairly substantial versus historical pre pandemic standards, how much of that growth.

David Howard Windley: Can you can you see in backlog versus the point that you just made and seen volume improve.

David Howard Windley: And then as a as an additional parts of this question is there anything.

David Howard Windley: Built into those expectations.

David Howard Windley: Relative to bio secure or is that kind of left on the side and would be upside if the bill passes.

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

David Howard Windley: So a significant amount.

David Howard Windley: On a revenue we can't see.

David Howard Windley: Not all of it.

David Howard Windley: But as I said proposal volume has been increasing nicely in <unk>.

David Howard Windley: We anticipate that bookings will follow this usually a lag.

James C. Foster: So we're going to need a couple of quarters to see this, but we're confident given the dialogue with the clients that we will. The Biosecure Act is an interesting one. Not legislation yet, but dialogue and opportunity seem positive. You know, so no, there's nothing built into our guidance that assumes anything about the Biosecure Act because it would be premature to do that.

David Howard Windley: So we're going to need a couple of quarters to students, but we're confident given the dialog with the clients that we will buy the secure act is an interesting one.

David Howard Windley: Not legislation yet but.

David Howard Windley: Dialogue.

David Howard Windley: Yeah.

David Howard Windley: Opportunity seems positive.

David Howard Windley: <unk>.

David Howard Windley: So no there's nothing built into our guidance that assumes anything about the bio secure act because it would be premature to do that having said that.

James C. Foster: Having said that, we would be surprised if there wasn't some benefit to us. There's been a fair amount of conversation with clients and a trivial amount of work that we've got specifically as a result of that. You know that our facilities are principally in the U.S. and Europe. So we are an alternative for folks that either can't or don't want to continue to do their work in China.

David Howard Windley: We would be surprised if there isn't some benefit to us.

David Howard Windley: A fair amount of conversation with clients and a trivial amount of work that we've got specifically as a result of that you understand there are facilities are principally in the U S and Europe. So we are an alternative for folks that either can't or don't want to continue to do that work in China.

James C. Foster: So I think directionally, it's something positive to watch. As I said, we would be surprised if it didn't have a benefit to us, but we're certainly not assuming that there's anything that's imminent, and it's certainly nothing in our gut.

David Howard Windley: So I think directionally, it's something classes to watch.

David Howard Windley: As I said, we would be surprised if it doesn't have a benefit to us, but we're certainly not assuming that there is anything thats imminent certainly nothing in our guidance got.

Flavia H. Pease: If I could just sneak one last one in on the price relative to inflation comments. So Flavia, you talked about inflation and that impacting margin, I guess. My assumption would have been that inflation would have been moderating along with price.

Speaker Change: Got it if I could just sneak one last one in on the price relative to inflation comments. So flavio you talked about inflation and that impacting margin I guess.

David Howard Windley: My assumption would have been that that inflation would have been moderating along with price maybe you could put those in relation.

Flavia H. Pease: Maybe you could put those in relation as to what is, you know, what is kind of still propping up the inflation cost side of the equation there in terms of price to cost. Yeah, what I'd say, David, over the last several, a couple of years, when inflation definitely escalated beyond historical levels, I talked about how we were actually recouping that and plus some more, right. And so our price is very strong, but also the cost has increased meaningfully more than historically.

David Howard Windley: As to what is what is kind of still propping up the inflation cost side of the equation there in terms of price to cost.

Flavio: Yes, what I'd say David.

Flavio: Over the last several a couple of years like when inflation definitely escalated beyond.

David Howard Windley: Historical levels.

David Howard Windley: I talked about we were actually recouping back and plus some more right and so our pricing very strong but also the costs have increased.

Flavia H. Pease: Obviously, inflation is now coming down a bit. And so obviously, our prices are coming down as a result of that as well. But what I'm just saying is the relationship between those two maybe was a bit more favorable in the last couple of years than it is right now.

David Howard Windley: More meaningfully than that historically.

David Howard Windley: Obviously inflation is now coming down a bit and so obviously our prices coming down as a result of that as well, but what I'm just saying is the relationship between those two.

David Howard Windley: Maybe it was a bit more favorable in the last couple of years. Then obviously it is right now and because we don't have.

Flavia H. Pease: And because we don't have as much volume, especially in the earlier part of the year, you know, sales are still down in the first quarter, that's putting pressure on the ability to fully absorb inflation and the fixed costs that we have. Thank you. Thank you. We'll take our next question from Elizabeth Anderson with Evercore ISI. Your line is open.

David Howard Windley: As much of the volume and especially in the earlier part of the year.

David Howard Windley: Sales are still down in the first quarter.

David Howard Windley: It's putting pressure on the ability to fully absorb.

David Howard Windley: Inflation in the fixed cost that we have got.

Speaker Change: Got it thank you for that.

David Howard Windley: Thank you we'll take our next question from Elizabeth Anderson with Evercore ISI. Your line is open.

Unknown Speaker: Hi guys, thanks so much for the question. I was curious, Jim, if you could expand on your comment about sort of the ability to start work right away. Can you sort of talk about capacity levels in the industry? Where are you guys on space utilization and sort of what have you sort of done in terms of, you know, it's probably hard to balance with the demand now versus what you're expecting in the back half of the year? So any further commentary there would be helpful.

Elizabeth Hammell Anderson: Hi, guys. Thanks, so much for the question I was curious Jim if you could expand on your comment about it.

Elizabeth Hammell Anderson: The ability to start work right away can you sort of talk to capacity levels in the industry, where you guys on space utilization and sort of what are you sort of doing in terms of.

Elizabeth Hammell Anderson: Probably hard to titrate with the demand now versus what you're expecting in the back half of the year. So any further commentary there would be helpful.

James C. Foster: So the general proposition is that we try to utilize our space as fully and efficiently as possible, so we don't have huge amounts of empty space in any of our businesses, and as you know, depending on the demand, we're always adding to our capacity. Having said that, we have some incremental capacity in some of our businesses across the board, so we do have the ability to accommodate increased work in the back half of the year across multiple businesses, particularly in safety assessments, and if it's better than we anticipate, we would have the capacity to do that as well. The potential rate limiting factor is the availability of staff. So as we see things improving, we'll have to add incremental staff. And, of course, there's some training time associated with that.

Elizabeth Hammell Anderson: So general proposition is that we try to utilize our space as fully and efficiently as possible. So we don't have huge amounts of empty space in any of our businesses and as you know.

Elizabeth Hammell Anderson: Pending on the demand, we're always adding to our capacity.

Elizabeth Hammell Anderson: <unk> said that we have some incremental capacity at some of our businesses across the board. So we do have the ability to accommodate.

Elizabeth Hammell Anderson: Increased work in the back half of the year across multiple businesses, particularly in safety assessment.

Elizabeth Hammell Anderson: And if it's better than we anticipate.

Elizabeth Hammell Anderson: We would have the capacity to do that as well.

Elizabeth Hammell Anderson: The potential rate limiting factor is availability of staff. So as we see things improving we'll have to add incremental staff and of course, there's some training time associated with that so physical capacity I think fine.

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

Elizabeth Hammell Anderson: Access to clients.

Elizabeth Hammell Anderson: Very good in terms of our ability to get out there with the sales force.

Elizabeth Hammell Anderson: Staffing generally in a very good place now from an efficiency and margin point of view given the current demand, but will require some incremental ads.

Elizabeth Hammell Anderson: As business intensifies.

Flavia H. Pease: That's very helpful. And then if we just think about the incrementals in terms of DSA margins as we move through the year, what is the key? The key focus is volumes and then the cost savings; any other potential positive and then potential, like any other major like pluses or minuses to call out as we think about that progression specifically in DSA? No, Elizabeth, and Flavia, I think it's really what you just highlighted.

Speaker Change: Got it that's very helpful.

Elizabeth Hammell Anderson: Then if we just think about like the.

Elizabeth Hammell Anderson: Incrementals in terms of DSA margins as we move through the year what is the key the key focus is volumes and then the cost savings any other like potential positive and then potentially.

Elizabeth Hammell Anderson: Any other major like pluses or minuses to call out as we think about that progression specifically in DSA.

Flavia H. Pease: You know, we are expecting sequential improvement in DSA revenue on a dollar basis, obviously on a percentage basis as well. But with that bigger size of business, you know, it would obviously drive margins, since there are some fixed costs in our business. And in addition to that, to your point, as I said when we provided guidance, the restructuring actions that we have put in place will be fully executed in the second half. And so that also will be an additional tailwind to drive margins. Thank you very much.

Elizabeth Hammell Anderson: Elizabeth.

Elizabeth Hammell Anderson: Slightly I think it's really what you just highlighted.

Elizabeth Hammell Anderson: We.

Elizabeth Hammell Anderson: I expecting sequential improvement in DSA revenue on a dollar basis, obviously on a percentage basis as well, but with that bigger size of the business. It would obviously drive margin since there is some fixed cost.

Elizabeth Hammell Anderson: In our in our business and in addition to that to your point as I said, when we provided guidance the restructuring actions that we have.

Elizabeth Hammell Anderson: <unk> put in place will be fully executed in the second half and so that also will be the additional tailwind to drive margins.

Speaker Change: Got it thank you very much.

Speaker Change: Thank you.

Operator: Thank you. We'll take our next question from Dan Leonard with UBS. Your line is open.

Speaker Change: We'll take our next question from Dan Brennan with UBS. Your line is open.

Unknown Speaker: Thank you. My first question is, is it possible you could quantify that increase in proposal activity you talked about in the safety assessment? Yeah, we're, I don't think we're going to quantify, you know, the dollar proposal activity increase. I think we talked about it being sequentially up both year over year. And I think you also saw us talk about the impact, the net impact on the backlog of bookings and cancellations. Cancellations also went, and improved sequentially in the first quarter. And so, our adjustment to the backlog, the decrease was smaller than the decrease in Q4 versus Q3.

Daniel Louis Leonard: Thank you. My first question is it possible you could quantify that increase in proposal activity you talked about in safety assessment.

Speaker Change: Yes.

Speaker Change: We're going to quantify.

Daniel Louis Leonard: The dollar our proposal activity increase I think we talked about it being sequentially up both year over year.

Daniel Louis Leonard: Being up both sequentially and year over year and I think you also saw us talk about the impact and that impact into the backlog.

Speaker Change: Of.

Speaker Change: Bookings and cancellations cancellations also weighted.

Speaker Change: Improved sequentially in the first quarter and so our adjustment to the backlog. The decrease was smaller than the decrease on Q4 versus Q3, but I don't think it will talk specifics in terms of what percentage of the increase we saw in proposals and the combination of increased proposals at reduced cancellations.

Flavia H. Pease: But I don't think we'll talk specifics in terms of, you know, what percentage of the increase we saw in proposals. And the combination of increased proposals and reduced cancellations portends increased bookings. And as I said earlier, we always have a lag on that. Clients have to be confident that the funding improvement is sustainable.

Speaker Change: Four tenths increase bookings and as I said earlier.

Speaker Change: We always have a lag.

Speaker Change: Clients have to be confident that the funding improvement is sustainable.

Speaker Change: And I think we all believe that this sustainable April was a very good funding by the way to biotech as well. So we're quite confident that we will see it that's built into our guidance.

Speaker Change: And.

Speaker Change: Those are the three metrics that we watch cancellations proposal volume and ultimately bookings.

James C. Foster: And I think we all believe that this is sustainable. April was a very good funding month, by the way, for biotech as well. So we're quite confident that we'll see it.

Speaker Change: I think we are on track to achieve second half.

Speaker Change: Performance.

James C. Foster: It's built into our guidance. You know, those are the three metrics that we watch, you know, cancellations, proposal volume, and ultimately bookings. I think we're on a track to achieve second half approval.

Speaker Change: Understood.

Speaker Change: And Jim you talked a lot about the leading indicators in biotech can you speak to what leading indicators you are seeing on the large pharma front as well. Thank you.

Speaker Change: Yeah.

James C. Foster: And Jim, you talked a lot about the leading indicators in biotech. Can you speak to what leading indicators you're seeing on the large pharma front as well? Thank you. Yeah, they're not. They're not fundamentally different.

Speaker Change: Yes.

Speaker Change: Not fundamentally different.

James C. Foster: Pharma has been aggressively and continuously outsourcing, Lots of the type of work that we do, particularly safety assessment, and to some lesser extent, discovery to us for a period of years, we can and do do the work faster at a lower price point, and usually with better science than that. So, you know, it's a small number of pharma companies that are holding on to this. It's interesting, since they have very rich balance sheets, that there's still a bit of hesitancy on their part to book work and that's just a function of trying to make budgets like any public companies do and also the necessity to prioritize so we surprisingly I wouldn't say we've seen a fundamental difference in the activity between pharma and biotech obviously there's some fragile biotech companies that are worried about you know getting to proof of concept or getting the drugs into the clinics that are very perhaps more careful about spending and working on a smaller number of assets having said that historically and actually currently our volume is much higher with biotech.

Speaker Change: Pharma has been aggressively and continuously outsourcing.

Speaker Change: Lots of the type of work that we do particularly safety assessment at some lesser.

Speaker Change: Lesser extent discovery to us for a period of years.

Speaker Change: We can and do the work.

Speaker Change: Faster at a lower price point.

Speaker Change: With better Science, then so it's a small number of pharma companies that are holding on to this.

Speaker Change: It's interesting since they have very rich balance sheets.

Speaker Change: There's still that hesitancy on their part to book work.

Speaker Change: Just a function of trying to make projects like any public companies.

Speaker Change: And also the necessity to prioritize so.

Speaker Change: Not surprisingly I wouldn't say, we've seen a fundamental difference in the activity between pharma and biotech obviously, there's some fragile biotech companies.

Speaker Change: Worried about getting to proof of concept or getting the drugs clinics at a very.

Speaker Change: Perhaps more careful about spending in awarding a smaller number of <unk>.

Speaker Change: Assets, having said that.

Speaker Change: Historically.

Speaker Change: Actually currently our volume is.

James C. Foster: So it's an important client base for us. So yeah, you probably have a greater impact on spending with biotech companies than pharma. But again, it won't be overnight; I do think they're going to have to continue to see month after month improvement. And we have, you know, a high level of confidence subject to the caveat that we have no control over this. And there are a lot of factors going on in this world that could affect people's viewpoints.

Speaker Change: <unk> hired biotech so it's an important client base for us so.

Speaker Change: You probably have a greater impact on spending with biotech companies that pharma, but again it won't be it won't be overnight I do think they're going to have to continue to see much asked about improvement.

Speaker Change: We have.

Speaker Change: Yes.

Speaker Change: High level of confidence subject to the caveat.

Speaker Change: Control over this and there's a lot of factors going on in this world that could affect <unk>.

Speaker Change: People's viewpoint, but feels like the IPO market has opened up nicely.

James C. Foster: But it feels like the IPO market has opened up nicely. The VC inflows have been dramatic, actually. M&A activity has been positive as well. And I think, as you all know, our client base, whether it's large or small, really has very strong assets right now. You know, molecules from medical needs that they absolutely want to get back to developing and getting those drugs into a clinic.

Speaker Change: <unk> and flows have been dramatic actually M&A activity has been positive as well.

Speaker Change: And I think as you all know our client base, whether it's larger.

Speaker Change: It really has very strong assets right now.

Speaker Change: Molecules, Ryan met medical need to absolutely wanted to get back to developing and getting those drugs into the clinic. So I think the overall environment is quite positive.

Speaker Change: I appreciate all the thoughts thank you.

Unknown Speaker: So I think the overall environment is quite positive. I appreciate all the thoughts. Thank you. We'll take our next question from Casey Woodring with J.P. Morgan. Your line is open.

Speaker Change: Thank you we'll take our next question from Casey Woodring with J P. Morgan Your line is open.

Unknown Speaker: Great, thank you for taking my questions. I guess a two-parter here first. How many months of backlog do you have? I think at the end of 4Q you had 12 months. We've talked about your normalized ranges, kind of at six to nine months.

Casey Rene Woodring: Great. Thank you for taking my questions.

Casey Rene Woodring: I guess two parter here. The first is did you give how many months of backlog do you have I think at the end of <unk>. You had 12 months you've talked about your normalized range is kind of a six to nine months.

Unknown Speaker: Timeframe. So you walk us through that, and then you talked a lot about safety and preparedness when talking about the TSA, but can you just elaborate on how discovery faired in the quarter relative to, Yeah, I'll just take the question on the backlog, and then Jim can talk about discovery. So the backlog is at 10 months. So to your point, Casey, I think for two or three quarters of last year it kind of hovered around 12, so it came down a little bit. But I think we've been saying that, to your point, historical norms were six to nine.

Speaker Change: Time frame I'm, sorry, you walk us through that and then you talked a lot about safety in the prepared when I'm talking about DSA, but can you just elaborate on how discovery fared in the quarter relative to your expectations.

Speaker Change: Yes, I'll just take the question on the <unk>.

Speaker Change: Backlog in the engine to talk about discovery. So the backlog is at 10 months so to your point Casey.

Speaker Change: Thanks for two or three quarters of last year kind of hovered around 12. So it came down a little bit, but I think we've been saying that to your point historical norms or six to nine so what we're hearing from clients is actually that kind of reverts to the norm of the bookings.

Flavia H. Pease: So what we're hearing from clients is actually that kind of reverse to the norm of, you know, they're booking two to three quarters in advance. So I think that 10, you know, feels consistent with what we're hearing from clients in terms of what they're working on and what they want to book ahead. So discovery is an interesting one.

Speaker Change: Looking two to three quarters in advance so I think the 10 field.

Speaker Change: Feels consistent with what we are hearing from clients in terms of what they are working on and what they want to book ahead.

James C. Foster: So no question that's been the hardest hit of all of our businesses by the overall economy. And, you know, there's a lot of dialogue around, you know, as funding continues to improve, how quickly will that come back? And it certainly will come back. Studies in that are, to some extent, shorter, but unlikely to come back first.

Speaker Change: So discoveries and interesting one so no question Thats been the hardest hit of all of our businesses by overall economy.

Speaker Change: Sure.

Speaker Change: And there's a lot of dialogue around funding continues to improve how quickly will that come back and it certainly will come back.

Speaker Change: Studies.

Speaker Change: Some extent shorter but.

Speaker Change: Unlikely to come back first a lot of our pharma clients still do that work internally and as I said earlier, what we think will come back first.

James C. Foster: A lot of our pharma clients still do that work internally. And as I said earlier, what we think will come back first is pre-IND work for drugs that have already been developed but haven't been filed yet, as opposed to post-IND work.

Speaker Change: Pre IND work for drugs that have already been developed but hasnt been filed yet as opposed to post int works.

James C. Foster: We feel strongly they're going to get back to funding that more quickly. DS discoveries are a relatively small percentage of our DSA portfolios, so we're focused primarily on the safety assessment business in terms of our growth rate. It's unlikely to be the canary in a coal mine that you know we talked about so often just because as you look at the whole drug development process.

Speaker Change: We feel strongly they are going to get back to funding that more quickly.

Speaker Change: DSO.

Speaker Change: Discoveries are relatively small percentage of our DSA.

Speaker Change: Portfolio. So we're focused primarily on the <unk>.

Speaker Change: Safety assessment business.

Speaker Change: In terms of in terms of our growth rate.

Speaker Change: And.

Speaker Change: It's unlikely to be the Canary in the coal mine that we have.

Speaker Change: Talk about so often just because as you look at the whole drug development process.

James C. Foster: It's going to be much more important for them to get stuff into regulated safety trials. So we like our Discovery franchise. We have important assets that clients large and small continue to use, but they have used in larger measure historically. As funding becomes more sufficient, and they're funding the assets that have already been developed, obviously, the long-term health of our client base is premised on their ability to do appropriate and impactful discovery spending. So, still slow, still impacted, still small.

Speaker Change: Got to be much more important for them to get stuff into regulated safety trials. So.

Speaker Change: We like our discovery franchise, we have important assets to clients.

Speaker Change: The large and small.

Speaker Change: Continue to use but have used in large measure historically.

Speaker Change: As funding becomes more sufficient in their funding the assets that.

Speaker Change: Have already been developed obviously the long term health of our client base is premised on their ability to do appropriate and impactful discovery spending so still slow still impacted still small.

James C. Foster: We'll let you know as soon as that changes, but clearly it has had the greatest adverse impact on the overall economic situation in the country. And I think our competition across discovery isn't exactly the same. That's helpful. Thanks for that.

Speaker Change: Well.

Speaker Change: We'll let you know as soon as that changes but.

Speaker Change: Clearly has had the greatest adverse impact from.

Speaker Change: From the.

Speaker Change: Overall economic situation in the country.

Speaker Change: And I think our competition across discovery isn't exactly the same place.

Unknown Speaker: And maybe just if I can sneak one more in, just because we haven't touched on it, the manufacturing rebound in the quarter. Looks like each business there is seeing nice growth, and the segment came in above street expectations. I'm curious if there was an upside to the guide in manufacturing this year just in terms of how quickly that business has begun to turn around to start the year. Thank you. Well, that would be nice. That would be great.

Speaker Change: That's helpful. Thanks for that and maybe just if I can sneak one more in just because we haven't touched on it is on the manufacturing rebound in the quarter. It looks like each business. There is seeing nice growth in the segment came in above street expectations.

Speaker Change: I'm curious if you think there was upside to the guide and manufacturing. This year just in terms of how quickly that business has begun to turn to start the year. Thank you.

James C. Foster: We certainly hope so. We certainly don't have that in our guides and certainly wouldn't necessarily anticipate that. But we're very pleased that we had strong growth across the entire segment in the first quarter. You can see that people are back to business and biologics, and we have a very strong franchise there. You see that folks that had big inventories of disposables have worked through those in our microbial business and the CDMO business, to our distinct pleasure as a double-digit grower, we're getting a lot of traction as people recognize the quality of our assets, and we have some commercial drugs that we're working on, and the facilities have been expanded nicely.

Speaker Change: Well that will be nice.

Speaker Change: That'd be nice.

Speaker Change: We certainly hope so we certainly don't have that in our guidance it certainly would.

Speaker Change: We anticipate necessarily anticipate that but we're very pleased that we've had strong growth across the entire segment in the first quarter you see that people are back to business in biologics and we have a very strong franchise that you see that folks that have had big inventories of.

Speaker Change: <unk> disposables.

Speaker Change: Work through those in our microbial business as our CMO business.

Speaker Change: Two our distinct pleasure.

Speaker Change: As a double digit grower that we're getting a lot of traction as people recognize the quality of our assets and we have some commercial drugs that we're working on in our facilities.

Speaker Change: Have been extended a nicely so at a minimum we would expect that business to continue to be a strong one.

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

Speaker Change: With I think we're saying now mid single digit growth for the year with significantly better operating margins. Although those are relatively easy comps on the CMO side, but all three of those businesses will continue to.

Speaker Change: To improve.

Speaker Change: We'd have to stop short, particularly at this point in the year, saying that there's upside to those numbers and I think to Jim's point, we modestly adjusted right I think the guidance at the beginning of the year was a low to mid single digit and I think we're now saying mid single digits. So we.

Flavia H. Pease: Yeah, and I think to Jim's point, we've modestly adjusted, right? I think the guidance at the beginning of the year was low to mid-single-digit, and I think we're now saying mid-single-digit, so we raised a little bit the bottom end there, but I think that's a reflection of the strength of the first quarter, but we don't want to get ahead of ourselves, as Jim said, to say that it is an upside to the guidance that we just provided you today. I got it.

Speaker Change: As a little bit the bottom in there.

Speaker Change: But I think thats.

Speaker Change: A reflection of the strength of the first quarter, but we don't want to get ahead of our skis as Jim said to say that there is upside to the guidance that we just provided you today.

Speaker Change: Got it thank you.

Unknown Speaker: Thank you. Thank you. And we'll take our next question from Tejas Savant with Morgan Stanley. Your line is open. Hey, guys. Good evening. And thanks. Or rather, good morning.

Speaker Change: Thank you and we'll take our next question from Thomas <unk> with Morgan Stanley. Your line is open.

Unknown Speaker: And thanks for your time. Jim, one quick one for you on NHP pricing. Actually, I know you talked about pricing more broadly here, but I think last time you guys called out about a modest $15 to $35 million benefit in the guide for your ability to raise prices in light of competitors being higher. Is that still the right view?

Thomas: Hey, guys, good evening, and thanks, and good morning, rather and thanks for the thanks guys.

Speaker Change: Jim.

Thomas: One quick one for you on an HP pricing actually I know you talked about pricing more broadly Europe, but I think last time, you guys had called out about a modest 15% to $35 million benefit in the guide for your ability to raise pricing in light of competitors being higher is that still the right.

James C. Foster: Or is that now essentially off the table in light of those strategic, selective pricing adjustments you alluded to? We would say that that's still the view. Competition had prices significantly higher than we do, so they've had to come, they've had to bring their prices down. I think it gives us a little bit of price and power, actually.

Speaker Change: <unk> view or is that now essentially off the table in light of those strategic selective pricing adjustments you alluded to.

Speaker Change: We would say that.

Speaker Change: Still the view competition at prices significantly higher than we thought.

Speaker Change: So they've had to come.

Flavia H. Pease: So we're also really pleased with our sourcing of NHPs, particularly given the acquisition that we recently made. Yeah, and I'll just add, I think NHP pricing was still positive in the first quarter. We are seeing it come down from the peak, if you will. And I think, as I've been saying, for the last couple of quarters, I think some competitors are signaling significant decreases. I think it's more because they're coming down to our level.

Speaker Change: They've had to bring their price is down I think it gives us a little bit of pricing power actually so we're also really pleased with that.

Speaker Change: Sourcing of NIH fees.

Speaker Change: Particularly given the acquisition that we've recently made.

Speaker Change: Yeah, and I'll, just add I think.

Speaker Change: <unk> pricing was still positive in the first quarter.

Speaker Change: We are seeing it come down from the peak if you will.

Speaker Change: And I think as I've been saying for the last couple of quarters.

Speaker Change: I think some competitors are $6 million to significant decreases I think it's more because they are coming down to a level. So we still experience year over year a modest.

Unknown Speaker: So we still experience, over a year, a modest increase in NHP pricing, although, as I said, we wanted it modestly down from peak levels. Got it. That's helpful. And then a couple of unrelated follow-ups.

Unknown Speaker: Increase in AHD pricing, although as I said in Q1.

Speaker Change: Modestly.

Speaker Change: Down from peak levels.

James C. Foster: One on the CDMO piece, Jim, where is capacity utilization today and what's embedded in the guide in terms of where you finish the year, just in light of the ramping backlog of work here? And then on your comments on China, are you seeing any sort of widening in that price disparity versus the Chinese CROs, particularly outside of China, as they look to defend share at all, and any early sort of green shoots from the stimulus that just went – I mean, that was put out there in March, in terms of how that could benefit local demand in China and to your end, or perhaps 25%? We've added an appropriate amount of space, I guess I would say, to the CDMO manufacturing facility in Memphis, and we have had lots of audits by clients and regulatory agencies.

Speaker Change: Got it that's helpful.

Speaker Change: And then a couple of unrelated follow ups, one on the <unk> piece, Jim where capacity utilization is today and what's embedded in the guide in terms of where you finished the year just in light of the.

Speaker Change: Ramping backlog of work here and then on your comments on China are you seeing any sort of widening and that price disparity versus the Chinese <unk>, particularly outside of China as they look to defend share at all and any early sort of green shoots from the stimulus that just went.

Speaker Change: I mean that was put out there in March in terms of how that could benefit local demand in China into your endo, perhaps 25.

Speaker Change: So we.

Speaker Change: We've added.

Speaker Change: An appropriate amount of space I guess, I would say that the CMO.

Speaker Change: Manufacturing facility in Memphis lots of audits by clients and regulatory agencies.

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

James C. Foster: So we're in very good shape to accommodate the client base, where we have.

Speaker Change: A couple of commercial clients, hopefully hopefully we'll have more.

James C. Foster: We're also getting additional clinical clients are dealing with some of those clients by itself. The feedback on the facilities has been has been positive. So obviously, we will work hard to stay ahead of that so we have sufficient capacity, but just had a call. This week in fact that and the feedback from the Arctic.

James C. Foster: So, obviously, we'll work hard to stay ahead of that so we have sufficient capacity, but I just had a call this week, in fact, and the feedback from the audit team that had gone there was really positive. Um, you know, the disparity with Chinese prices for some things has been, has been an issue, and has been beneficial to the Chinese marketplace. You know, given some of the impending legislation that's, uh, that's likely to change, and folks will look for different places to do the work, and they'll have to get a two for they'll have to get quality work but the lowest price point, so you know we're working hard to have our portfolio be have appropriate options for them.

Speaker Change: <unk> got there was was really positive.

James C. Foster: The disparity with Chinese prices for some things.

Speaker Change: Has been has been an issue and it has been beneficial to the Chinese marketplace, given some of the impending legislation.

James C. Foster: That's likely to change and folks will look for different places to do the work.

Speaker Change: And they all have to get it to four that will have to get quality work, but.

Speaker Change: Lowest price point, so we're working hard to to have our portfolio be.

James C. Foster: Have appropriate options for that our Chinese business.

James C. Foster: Our Chinese business, you know, which is relatively small and not entirely, but principally small animals, has done well given the infusions of capital. They're unlikely to be impacted by any sort of U.S. legislation since we do work in China for China and anticipate continuing to do that.

James C. Foster: Which is relatively small and not entirely but principally small animals has done well.

James C. Foster: Given the.

James C. Foster: Infusions of capital there are likely to be impacted by any sort of U S legislation since we do work in China for China, and anticipate continuing to do that so China is.

Unknown Speaker: So China is, you know, and continues to be a good place for us from a growth and margin point of view. Got it. Super helpful.

Unknown Speaker: Continues to be a good place for us from a growth.

Unknown Speaker: Margin point of view.

Unknown Speaker: Thanks, guys. Appreciate the time. Thank you. We'll take our next question from Patrick Donnelly with Citi. Your line is open.

Speaker Change: Got it Super helpful. Thanks, guys I appreciate the time.

Unknown Speaker: Thank you we'll take our next question from Patrick Donnelly with Citi. Your line is open.

Unknown Speaker: Hey, guys, thanks for taking the questions. Jim, maybe one more on the DSA side, just in terms of the pace of cancellations, you know, I think in three-Q, they got a little bit better, four-Q, they stepped back down, and one-Q got better. How are you thinking about just the trend there? And I guess, you know, the million-dollar question: when do you think we can get back to that kind of 1.0 book-to-bill? You know, what's the visibility like?

Patrick Bernard Donnelly: Hey, guys. Thanks for taking the questions.

Flavia H. Pease: Jim maybe maybe one more on the DSA side, just in terms of the K for cancellations.

Unknown Speaker: <unk> got a little bit better for cubic stepped back down once you got better how are you thinking about just the trends there and I guess the million dollar question. When do you think we can get back to that kind of one point.

Unknown Speaker: Book to Bill Whats the visibility.

James C. Foster: What did cancellations trend like in the quarter? You know, certainly if you have any April thoughts. And so everything that happened in April is embedded in our guide, so I don't want to break it down month by month.

Unknown Speaker: Cancellations trend like in the quarter or certainly if you're if you have any April thoughts that would be welcome.

Jim: Yeah. So.

James C. Foster: Everything that happened in April is embedded.

James C. Foster: And our guidance.

James C. Foster: I don't want to cut it month by month.

James C. Foster: You know, we're pleased with what's been happening, the moderation and decline of cancellations. By the way, as you know, we always have cancellations. I mean, all we can say is what we've said, which is that we have to see a reduction in cancellations for some sustained period of time to have confidence that it is meaningful and will continue. You know, we believe that that's the trajectory that we're on, but we have to we have to experience that for that to be beneficial.

James C. Foster: We're pleased with what's been happening the moderation and decline of cancellations by the way as you know we always have cancellations I mean, all we can say is what we've said which is that.

James C. Foster: We have to see a reduction in cancellations for some sustained period of time to have confidence.

James C. Foster: It.

James C. Foster: But it's meaningful and won't continue.

James C. Foster: We believe that that's the trajectory that we're on but we have to.

James C. Foster: We have experienced that for that to be beneficial.

James C. Foster: And in terms of our backlog, so, it's an almost impossible trend to comment on what's happened historically is not necessarily relevant. You get different market conditions right now and different economic conditions and totally different competitive scenarios, particularly in the safety assessment business, which was so much larger.

James C. Foster: In terms of our.

James C. Foster: Backlog so.

James C. Foster: It's an almost impossible trend too.

James C. Foster: To comment on what's happened historically is not necessarily relevant to get different market conditions right now in different economic conditions and totally different competitive scenario, particularly on the safety assessment business was so much larger and I think so much more critical to the marketplace.

James C. Foster: And I think so much more critical to the marketplace that, you know, again, we're confident that if and as the cancellations continue to decline, given the proposal by the book should intensify, which supports our notion for the back half of the year, one would imagine that as funding continues to improve, cancellations wouldn't suddenly crank up again. So that's definitely a function of the economy we've been dealing with for the last year and a half. Okay, that's helpful.

James C. Foster: Again, we're confident that as <unk>.

James C. Foster: If and as the cancellations continue to decline.

James C. Foster: Given the proposal by the board should intensify.

James C. Foster: That supports our notion for the back half of the year, one would imagine that as funding continues to improve that cancellations wouldn't suddenly crank up again, so that's definitely a function of the economy that we've been dealing with for the last year and a half.

Unknown Speaker: And then maybe just on kind of the broad demand environment, you know, I think in the slides around the cash flow piece, you talk about moderating capacity expansions to match current demand; you talked, obviously, a lot of questions about the pricing piece, it seems like maybe softening a little bit, given the demand environment, yet you sound very good in terms of these conversations and the expectations of demand improvement. As we go through this year, can you just kind of marry that up and frame up the right way to think about demand, given, again, the capacity and price piece, along with your positive commentary on demand? I just want to make sure.

Speaker Change: Okay. That's helpful. And then maybe just on kind of a broad demand environment I think it was.

Unknown Speaker: Slides around the cash flow piece, you talked about moderating capacity expansions to match current demand you talk obviously a lot of questions about the pricing piece. It seems like maybe softening a little bit given the demand environment you sound very good in terms of kind of these conversations and the expectations of demand improvement as we go through this year could you just kind of marry that up and then.

Unknown Speaker: Just frame up the right way to think about the demand given again the capacity and price piece along with your positive commentary on demand is want to make sure. We're thinking about that right. Thank you so much.

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

Unknown Speaker: We work really hard and I think we've done this quite successfully for at least a decade and a half.

James C. Foster: The mere capacity.

James C. Foster: With anticipated demand, it's not just current demand because we have to build space.

James C. Foster: Year or two in advance.

James C. Foster: And we've lived through a period, a long time ago, but it was painful.

James C. Foster: We and everybody else in the industry, just built too much space and.

James C. Foster: That has a deleterious impact on your margins.

James C. Foster: So we never want to get back to that. We have worked really hard, and I think successfully, in not having an adequate amount of space. That's the risk, of course. You get the demands for work, and you don't have capacity.

James C. Foster: And it's tough to manage that when you're swimming in space. So we never wanted to get back to that we have worked really hard and I think successfully and not having.

James C. Foster: And an adequate amount of space, that's the risk of course.

James C. Foster: So all I can say is we work hard to titrate our demand and anticipated demand and the competitive dynamic with building out new space at multiple sites. You have to titrate that against what the current demand is and how your current space is filling up. So I think we're doing that appropriately. We have to be really careful with the shareholders' money.

Speaker Change: Got it.

James C. Foster: Demand for work and you don't have capacity. So we never want to get there. So all I can say is weak.

James C. Foster: <unk>.

James C. Foster: We were kind of titrate.

James C. Foster: Current demand and anticipated demand and the competitive dynamic with building out new space at multiple sites.

James C. Foster: And you have to titrate that against what the current demand is and how your current space is filling up.

James C. Foster: So.

James C. Foster: We are doing that appropriately we have to be really careful with the shareholders' money from a capex point of view I don't think were in any way Andrew capitalizing this business both from a maintenance and a growth point of view I think we're spending exactly where we need to be.

James C. Foster: And from a CapEx point of view, I don't think we're in any way undercapitalizing this business, both from a maintenance and a growth point of view. I think we're spending exactly where we need to be. And as I said, we need to call that right in advance, so we give it a great deal of thought.

James C. Foster: Okay.

James C. Foster: And as I said, we need to call that right in advance so.

James C. Foster: We gave it a great we gave it a great deal of thought so.

James C. Foster: I think it's.

Flavia H. Pease: We've come through such an aggressive period of demand and aggressive building that it's just irresponsible to continue to spend at the same level given the current demand curve. Having said that, we obviously anticipate that demand will be better next year and the year after than it is today. We have three-year guidance out there, and so we're building to that at least. Yeah, maybe if I could just add to Jim's point: we lived through a couple of years of unprecedented demand.

James C. Foster: We've come through such an aggressive period of demand.

Flavia H. Pease: And aggressive building that.

Flavia H. Pease: They are responsible to continue to spend at the same level given the current demand curve, having said that we obviously anticipate that demand will be better next year and thereafter, then it is today, we have three year guidance out there and so we're building to that at least maybe.

Speaker Change: Maybe if I can just add I think to Jim's point, we live through a couple of years of unprecedented demand.

Flavia H. Pease: And at some point, we said we were going to, you know, increase our CapEx to almost 9% of revenue, which historically would have been more than 5%. That was both a combination of historically, we added some capacity through M&A, and now we were doing organically, as well as fueling that unprecedented demand.

Flavia H. Pease: And at some point, we said we were going to ask increase on capex to almost 9% of revenue and historically it would be more in the 5% that was both a combination of.

Flavia H. Pease: Historically, we added some capacity through M&A and that we were doing organically as well is that feeling that unprecedented demand I think demand has normalized now and.

Flavia H. Pease: I think demand has normalized now, and our guidance for the, you know, three-year horizon is 7% to 8% of capital as a percent of sales. And this year, our guidance contemplates kind of the low end of that at 7%. And so I think, as Jim pointed out, we are being appropriately thoughtful in matching up the capital investment with the demand environment that we're seeing. We appreciate it.

Flavia H. Pease: And our guidance for the.

Flavia H. Pease: Three year Horizon is 7% to 8% of capital as a percent of sales and this year our guidance contemplates kind of at the low end of that at 7% and so I think as Jim pointed out.

Flavia H. Pease: Being.

Flavia H. Pease: Appropriately thoughtful in matching up the capital investment with the demand environment that we're seeing.

Speaker Change: I appreciate it thank you.

Unknown Speaker: Thank you. We'll take our next question from Josh Waldman with Cleveland Research. Your line is open. Good morning.

Flavia H. Pease: Thank you we'll take our next question from Josh Waldman with Cleveland Research. Your line is open.

Unknown Speaker: Thanks for squeezing me in. Jim, two for you, I think, if I may. First, you've talked about seeing better proposal activity in DSA. Can you comment on what you are seeing from a conversion standpoint, the timing from when you receive a proposal? Booking this study and then recognizing the revs, I guess, have you seen the timeline and conversion rate return to normal? It would be great to hear how you're contemplating this in your outlook on that piece. I'm not sure what normal is, but I'd say it's reasonably normal.

Joshua Paul Waldman: Good morning, Thanks for squeezing me in Jim two for you I think if I may.

Unknown Speaker: First you talked about seeing better proposal activity in DSA can you comment on what you are seeing from a conversion standpoint, the timing from when you receive proposal proposal to bookings.

Unknown Speaker: Bookings. This study and then recognizing Rev. I guess have.

Unknown Speaker: Have you seen the timeline and conversion rate returned to normal will.

Unknown Speaker: It would be great to hear how youre contemplating this and your outlook and if you had to tweak that.

Unknown Speaker: Piece of the forecasting assumption at all.

Unknown Speaker: Not sure what normal is but I'd.

Unknown Speaker: I'd say, it's reasonably normal as I said before.

James C. Foster: As I said before, um, except maybe for some periods where the demand was overwhelming, there is a lag between proposals and books, and particularly in this period where people are trying to ensure that they have confidence in the accessibility of capital. So the conversions are pretty much as we would have expected, and hopefully that will improve, but it's going to be kind of a two or three quarters necessary to get this to be more, more robust. We're heartened to see the proposal volume as it is.

Unknown Speaker: Except maybe for some periods, where the demand was overwhelming.

James C. Foster: There is a lag between proposals and book.

James C. Foster: And particularly in this period, where people are trying to ensure that they have confidence and accessibility of capital. So.

James C. Foster: The conversions are pretty much as we would have expected.

James C. Foster: Ed.

James C. Foster: Hopefully that will.

James C. Foster: Improved, but theres going to be.

James C. Foster: Kind of a two or three quarter as necessary.

James C. Foster: To get this to be more more robust.

James C. Foster: We're heartened to see the proposal volume is is people seem to be coming out of the shelves.

James C. Foster: People seem to be coming out of their shelves, acknowledging access to capital, and obviously desirous of developing the rest of their portfolios. And that's underlying our anticipation that the back half of the year will be much stronger. So I think it's pretty much as anticipated. Got it. Okay.

James C. Foster: Knowledge and access to capital.

James C. Foster: Obviously desirous of.

James C. Foster: Developing the rest of their portfolios.

James C. Foster: And thats underlying our anticipation in the back half of the year will be much stronger. So I think it's pretty much as anticipated.

Unknown Speaker: And then to follow up on that, just wondering if you could provide more context on how DSA performed versus your expectation in the quarter. And then, you know, curious whether there's been any change to your assumption for Q2 or, you know, the slope of organic recovery and that type of thing. Maybe I'll take that.

Speaker Change: Got it Okay and then the follow up on that just wondering if you could provide more context on how DSA performed versus your expectation in the quarter and then curious whether theres been any change to your assumption for Q2 or the slope of organic recovery in that business for the second half.

Flavia H. Pease: I think, as we said in our prepared remarks, I think what was different and drove the beat in the first quarter and is also impacting how we do in the second quarter is obviously RMS. There was a tiny shift with NHP shipments that accelerated into the first quarter. So that was a tailwind in the first quarter and will be a headwind in the second. And then we talked about the strength of manufacturing in the first quarter, which was encouraging. I think we were silent in the essay in the sense that it performed according to our expectations, both in the.

Speaker Change: Maybe I'll take that I think as we said in our prepared remarks, I think what was different and drove the beat in the first quarter and is also impacting how we got in the second quarter.

Flavia H. Pease: <unk> is obviously RMS that was a tiny.

Flavia H. Pease: Shift with an HP shipments that accelerated into the first quarter. So that was a tailwind in the first quarter and will be a headwind in the second and then we talked about the strength of manufacturing in.

Flavia H. Pease: In the first quarter, which was encouraging.

Flavia H. Pease: I think we were silent in DSA in the sense that it performed according to our expectations both in the.

Flavia H. Pease: You know, the first quarter and the impact of that are contemplated in the guidance for the second quarter. So I think we spoke about what was different than our expectations for the other two businesses. Thank you. We'll take our last question from Jack Wallace with Guggenheim Securities. Your line is open.

Flavia H. Pease: The first quarter.

Flavia H. Pease: And.

Jack Dawson Wallace: The impact of that is contemplated on the guidance for the second quarter and so I think we spoke about what was different than our expectations on the other two businesses.

Jack Dawson Wallace: Okay. Thank you.

Flavia H. Pease: Thank you we'll take our last question from Jack Wallace with Guggenheim Securities. Your line is open.

Unknown Speaker: Hey, thanks for taking my questions. Just quickly, on the CapEx... It looks like you reiterated the guide, yet there's the moderating of capacity, your comment in the deck and just reiterate a couple questions ago. Can you help us kind of bridge the gap? Transcripts provided by Transcription Outsourcing, LLC. Yeah, I think I'll take that one.

Jack Dawson Wallace: Hey, Thanks for taking my questions.

Speaker Change: Just quickly on the Capex.

Speaker Change: In your commentary it looks like you reiterated the guide.

Speaker Change: Moderating capacity expansion you comment in the deck and just reiterated a couple of questions ago can you just help us kind of bridge that.

Speaker Change: The reiterated guide against those comments and should we think about that as being more capex in the back half of the year or the dollars being spent differently than capacity expansions.

Speaker Change: Yes, I think I'll take that one.

Flavia H. Pease: The guidance for the year is the same for, I think, everything. We reaffirmed the guidance, right? And so the timing of our capital projects tends to kind of progress throughout the year. Obviously, our free cash flow was quite strong in the first quarter. But you saw a decline in capex spend year over year.

Speaker Change: The guidance for the year is the same for <unk>.

Flavia H. Pease: I think everything we reaffirmed the guidance right and so.

Flavia H. Pease: The timing of all of our capital projects tends to kind of.

Flavia H. Pease: Progress throughout the year, obviously, our free cash flow was quite strong in the first quarter you saw a decline of capex spend year over year. So.

Flavia H. Pease: We started the year.

Flavia H. Pease: So, you know, we started the year with capital expenditures being a tailwind to cash flow. And we're going to continue to progress some of our projects as the year progresses. But you know, there's no update. I guess it's a point.

Flavia H. Pease: With capital expenditures being a tailwind.

Flavia H. Pease: To cash flow and we're going to continue to progress some of our projects as the year progresses.

Flavia H. Pease: But there is no update I guess it.

Flavia H. Pease: Is the point.

Flavia H. Pease: Got it. Thank you. And then, in your prepared remarks, I think you mentioned some timing element in the first quarter for manufacturing. Transcripts provided by Transcription Outsourcing, LLC. Again, I'll maybe take that. So, two things. The timing impact was really in RMS.

Speaker Change: Got it. Thank you and then in your prepared remarks, I think you mentioned some timing element in the first quarter for manufacturing as well as RMS was there any kind of snapback demand that was may be surprising that might not continue in the second quarter or.

Speaker Change: Did I misinterpret that comment.

Flavia H. Pease: In manufacturing, what we saw, which was encouraging and positive, was that we had seen strength of proposals in the fourth quarter, especially in our testing business, and that translated into improved business and stronger performance in the first quarter. What we said about the second quarter for the manufacturing business is that last year, the second quarter was one of the strongest quarters that we've had. So, from a comp perspective, it's a little bit of a headwind year over year when we get into the second year, second quarter.

Speaker Change: Again, I'll, maybe take that so two things the timing impact was really in RMS in manufacturing, what we saw which was encouraging and positive <unk>, we had seen strength of proposals in the fourth quarter.

Flavia H. Pease: Specialty in our packaging business and that.

Flavia H. Pease: Translated improved business and stronger performance in the first quarter.

Flavia H. Pease: What we said in the second quarter for the manufacturing.

Flavia H. Pease: Is that.

Flavia H. Pease: Last year the <unk>.

Flavia H. Pease: Second quarter was one of the strongest quarters that we've had.

Flavia H. Pease: So from a comp perspective.

Flavia H. Pease: Little bit of a headwind year over year, when we get into the second year second quarter.

Flavia H. Pease: Got it. So basically, the reason why we wouldn't necessarily want to raise the guidance, it's based on the stronger demand in the first quarter, just has to deal with the tougher comps, not because there's an expectation. The level of the strength in the first quarter wouldn't necessarily repeat in the upcoming quarter.

Speaker Change: Got it so theres no.

Flavia H. Pease: So basically the reason why we wouldn't necessarily want to raise the guidance based on the stronger demand in the first quarter.

Flavia H. Pease: Just have to deal with the tougher comps not because there is an expectation that all the level of the strength in the first quarter wouldn't necessarily repeat in the upcoming quarters is that right.

Unknown Speaker: And I would say, you know, for the year, when you think about guidance, it's still pretty early. I think there was a question earlier around whether we think there's upside to our manufacturing guidance. And as I mentioned, we slightly improved it, given that the guidance at the beginning of the year was low to mid, and now we're at mid. So we have already reflected a little bit of that strength, but it would be premature to say that there's upside to the guidance that we just updated. I think that's the point.

Speaker Change: Correct and I would say.

Unknown Speaker: For the year, what do you think about guidance, it's still pretty early I think that was a question earlier around.

Unknown Speaker: Whether we think there is upside to our manufacturing guidance.

Unknown Speaker: As I mentioned, we slightly improved days given that the guidance at the beginning of the year was low to mid and now we've made so we reflect it a little bit of that strength already but it would be premature to say that there is upside to the guidance that we just updated now.

Speaker Change: What's the point.

Flavia H. Pease: Got it. Thank you so much. Thank you. We have no further questions in queue.

Speaker Change: Got it thank you so much.

Speaker Change: Thank you. Thank you.

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

Todd Spencer: I will turn the conference back to Todd Spencer for his closing remarks. All right. Thank you for joining us on the conference call this morning. We look forward to seeing many of you at some upcoming investor conferences. This concludes our conference call. Thanks again. Thank you. That does conclude today's Charles River Laboratories first quarter 2024 earnings call. Thank you for your participation, and you may now disconnect.

Speaker Change: Great. Thank you for joining us on the conference call. This morning, we look forward to see many of you at some upcoming Investor conferences. This concludes our conference call. Thanks again.

Todd Spencer: Thank you that does conclude today's Charles River laboratories first quarter 2024 earnings call.

Todd Spencer: Thank you for your participation and you may now disconnect.

Todd Spencer: [music].

Operator: ... BF-WATCH TV 2021, and and and The Bulletproof Executive 2013, BF-WATCH TV 2021 The Bulletproof Executive 2013, BF-WATCH TV 2021 Thank you for watching! BF-WATCH TV 2021

Operator: Mhm.

Operator:

Operator: Hum.

Operator: [music].

Operator: Okay.

Operator: Uh-huh.

Operator: [music].

Operator: Mhm.

Operator:

Operator: Hello.

Operator: Oh.

Operator: [music].

Operator: Oh.

Operator: [music].

Operator: Hum.

Operator: Hum.

Operator: Okay.