Q2 2026 Charles River Laboratories International Inc Earnings Call

August 5, 2026

Speaker #1: Ladies and gentlemen, thank you for standing by, and welcome to the CHARLES RIVER LABORATORIES second quarter 2026 earnings conference call. This call is being recorded.

Speaker #1: 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 keypad.

Speaker #1: If you want to remove yourself from the queue, please press star two. Lastly, if you require 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.

Operator: Lastly, if you should require 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.

Speaker #1: Please go ahead.

Speaker #2: Good morning, and welcome to CHARLES RIVER LABORATORIES second quarter 2026 earnings conference call and webcast. This morning, I am pleased to be joined by Birgit Gershik, our Chief Executive Officer, and by Glenn Coleman, our Executive Vice President and Chief Financial Officer.

Todd Spencer: Good morning, and welcome to Charles River Laboratories' Q2 2026 earnings conference call and webcast. This morning, I am pleased to be joined by Birgit Girshick, our Chief Executive Officer, and by Glenn Coleman, our Executive Vice President and Chief Financial Officer. They will comment on our results for the Q2 2026, as well as our financial guidance. Following the presentation, they will respond to questions. There is a slide presentation associated with today's remarks, which will be posted on the investor relations section of our website at ir.criver.com. A 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. The replay will be available through next quarter's conference call. I'd like to remind you of our safe harbor.

Speaker #2: They will comment on our results for the second quarter of 2026, as well as our financial guidance. Following the presentation, they will respond to questions.

Speaker #2: There is a slide presentation associated with today's remarks, which will be posted on the Investor Relations section of our website at ir dot criver dot com.

Speaker #2: A webcast replay of this call will be available beginning approximately two hours after the call today. It can be accessed on our Investor Relations website.

Speaker #2: The re-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 act of 1995.

Todd Spencer: 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. 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. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures and the reconciliation on the investor relations section of our website. I will now turn the call over to Birgit Girshick.

Speaker #2: Actual results may differ materially from those indicated. During this call, we will primarily discuss non-gap financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance.

Speaker #2: The non-GAAP financial measures are not meant to be considered superior to, or a substitute for, results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures in the reconciliation on the Investor Relations section of our website.

Speaker #2: I will now turn the call over to Birgit Gershik.

Speaker #3: Thank you, Todd. And good morning. Today, I would like to discuss the progress that we made during the second quarter both financially and on our refreshed strategic framework, Pathway to Purpose.

Birgit Girshick: Thank you, Todd Spencer, and good morning. Today, I would like to discuss the progress that we made during Q2, both financially and on our refreshed strategic framework, Pathway to Purpose. I am pleased to report that we delivered on our Q2 financial targets, exceeding our prior outlook for the quarter, and that we are raising our financial guidance for the year. We continue to remain focused on execution, on achieving our financial targets, and driving increased shareholder value, as well as executing on our Pathway to Purpose strategy, which includes working to modernize our company and the industry, strengthening our world-class scientific portfolio, and offering a customized client-centric approach to drive growth. Execution of our Pathway to Purpose strategic initiatives and our financial goals will be the key to our future success.

Speaker #3: And please, to report that we delivered on our second quarter financial targets, exceeding our prior outlook for the quarter, and that we are raising our financial guidance for the year.

Speaker #3: We continue to remain focused on execution, achieving our financial targets, and driving increased shareholder value, as well as executing on our Pathway to Purpose strategy, which includes working to modernize our company and the industry, strengthening our world-class scientific portfolio, and offering a customized, client-centric approach to drive growth.

Speaker #3: Execution of our Pathway to Purpose strategic initiatives and our financial goals will be the key to our future success. Let me now provide you with a recent highlight that demonstrates our progress on our Pathway to Purpose initiatives as well as our second quarter performance.

Birgit Girshick: Let me now provide you with the recent highlights that demonstrate our progress on our Pathway to Purpose initiatives, as well as our Q2 performance. First, we were encouraged that the biopharmaceutical demand environment continued to strengthen in Q2, particularly in the DSA segment. The DSA net book-to-bill rose to nearly 1.2 times in Q2, making this the third consecutive quarter that the DSA net book-to-bill has been above one time and also the highest level achieved in nearly four years. Our constructive view was also supported by a return to organic revenue growth of 0.1% for the total company, which marks the first time that revenue has improved organically since Q3 of 2023. We firmly believe these trends position us well to drive higher organic growth during H2 of the year.

Speaker #3: First, we were encouraged that the biopharmaceutical demand environment continued to strengthen in the second quarter particularly in the DSA segment. The DSA netbook to bill rose to nearly $1.2 times in the second quarter, making this the third consecutive quarter that the DSA netbook to bill has been above one time in all of the highest-level achieved in nearly four years.

Speaker #3: Our constructive view was also supported by a return to organic revenue growth of 0.1% for the total company which marks the first time that revenue has improved organically since the third quarter of 2023.

Speaker #3: We firmly believe these trends positioned us well to drive higher organic growth during the second half of the year. As part of our efforts to further deepen client relationships, in June, we announced a unique collaboration with Eli Lilly's twin-lab drug discovery platform.

Birgit Girshick: As part of our efforts to further deepen client relationships, in June, we announced a unique collaboration with Eli Lilly's TuneLab Drug Discovery Platform. In support of Lilly's goal to advance R&D modernization efforts, we will provide our non-clinical or wet lab testing expertise to help build and optimize Eli Lilly's AI and machine learning drug discovery model. We believe this type of collaboration demonstrates that the future state of drug discovery and development will require traditional in vivo and in vitro solutions, even when integrated with AI or other in silico approaches, to help enhance the speed and scientific data needed to support our clients' R&D programs. Charles River is a scientific partner that is uniquely positioned to be able to integrate traditional in vivo, in vitro, and new innovative capabilities into one comprehensive solution for the biopharmaceutical industry.

Speaker #3: In support of Lilly's goal to advance R&D modernization efforts, we will provide our non-clinical, or Red Lab, testing expertise to help build and optimize Eli Lilly's AI and machine learning drug discovery model.

Speaker #3: We believe this type of collaboration demonstrates that the future state of drug discovery and development will require traditional in vivo and in vitro solutions even when integrated with AI or other in silico approaches to help enhance the speed, and scientific data needed to support our clients' R&D programs.

Speaker #3: And CHARLES RIVER is a scientific partner that is uniquely positioned to be able to integrate traditional in vivo in vitro and new innovative capabilities into one comprehensive solution for the biopharmaceutical industry.

Speaker #3: We are also utilizing new technologies including AI to modernize and strengthen our own scientific portfolio including an enhanced digital pathology solution that delivers AI-enabled end-to-end workflows designed to improve study turnaround times and increase pathology's efficiency.

Birgit Girshick: We are also utilizing new technologies, including AI, to modernize and strengthen our own scientific portfolio, including an enhanced digital pathology solution that delivers AI-enabled end-to-end workflows designed to improve study turnaround times and increase pathology's efficiency. With over 140 trained pathologists on staff, pathology always has been one of Charles River's greatest strengths, and this enhanced digital solution will drive both internal operating efficiency and greater speed for our clients' programs. Our goal for clients that utilize our fully integrated digital pathology solution will be to cut at least one week from standard pathology timelines. As I discussed in detail last quarter, I completed the divestitures of certain European discovery services sites in May 2026, as well as the CDMO and cell solutions businesses.

Speaker #3: With over 140 trained pathologists on staff, pathology always has been one of CHARLES RIVER's greatest strengths and this enhanced digital solution will drive both internal operating efficiency and greater speed for our clients' programs.

Speaker #3: Our goal for clients that utilize our fully integrated digital pathology solution will be to cut at least one week from standard pathology timelines. As I discussed in detail last quarter, we completed the divestitures of certain European discovery services sites in May 2026, as well as the CDMO and cell solutions businesses.

Speaker #3: The partial quarter benefit from the divestitures was one of the drivers of the $420 basis points of sequential operating margin improvement in the second quarter to 20.5% and helps us refine the portfolio to create a more streamlined offering focused on our core competencies in regulated testing solutions.

Birgit Girshick: The partial quarter benefit from the divestitures was one of the drivers of the 420 basis points of sequential operating margin improvement in Q2 to 20.5%, and helps us refine the portfolio to create a more streamlined offering focused on our core competencies in regulated testing solutions. We are also continuing to invest organically in our scientific capabilities to support our future growth and accommodate more of the testing requirements for our clients' therapeutic programs, including in the area of lab sciences and specifically bioanalysis. Demand for lab science services has been growing nicely over the past five years, driven by large molecule bioanalysis, biomarkers, and additional testing requirements in both regulated and non-regulated programs, including in the clinical development phase. To support this growth, we recently embarked on an expansion to add bioanalytical laboratory capacity at Heriot-Watt University's Research Park in Scotland.

Speaker #3: We are also continuing to invest organically in our scientific capabilities to support our future growth and accommodate more of the testing requirements for our clients' therapeutic programs including in the area of lab sciences, and specifically bioanalysis.

Speaker #3: The main four lab science services has been growing nicely over the past five years, driven by large molecule bioanalysis, biomarkers, and additional testing requirements in both regulated and non-regulated programs, including in the clinical development phase.

Speaker #3: To support this growth, we recently embarked on an expansion to add bioanalytical laboratory capacity at Harriet Ward University's research park in Scotland. This expansion which is one of five ongoing lab sciences expansions globally at CHARLES RIVER will also offer an opportunity to partner with Harriet Ward University on the talent pipeline to further support our future growth in bioanalysis and in the region.

Birgit Girshick: This expansion, which is one of five ongoing lab sciences expansions globally at Charles River, will also offer an opportunity to partner with Heriot-Watt University on the talent pipeline to further support our future growth in bioanalysis and in the region. My final highlight demonstrates how our broader strategy is working to support our client-centric approach. We recently announced a collaboration with Arovella Therapeutics to provide next-generation sequencing, or NGS services, to accelerate progress toward their alternative cancer treatment approaches using cell and gene therapy. This collaboration shows that by strengthening our scientific capabilities with an innovative in vitro NGS testing solution through our recent acquisition of PathoQuest, we are able to deepen client relationships and expand the possible opportunities for collaboration. In today's dynamic marketplace, there are abundant opportunities to further differentiate Charles River from the competition.

Speaker #3: My final highlight demonstrates how our broader strategy is working to support our client-centric approach. We recently announced a collaboration with Aurovilla Therapeutics to provide next-generation sequencing or NGS services to accelerate progress toward their alternative cancer treatment approaches using cell and gene therapy.

Speaker #3: This collaboration shows that by strengthening our scientific capabilities with an innovative in vitro NGS testing solution through our recent acquisition of PathQuest, we are able to deepen client relationships and expand the possible opportunities for collaboration.

Speaker #3: In today's dynamic marketplace, there are abundant opportunities to further differentiate CHARLES RIVER from the competition. We stand alone with our strong financial profile, refreshed strategic vision, and scientific expertise focused on our core regulated testing capabilities that span early-stage development through the clinic and beyond.

Birgit Girshick: We stand alone with our strong financial profile, refreshed strategic vision, and scientific expertise focused on our core regulated testing capabilities that span early-stage development through the clinic and beyond. Clients are expecting their scientific partners to help them drive greater innovation, speed, and efficiency, we are making great progress under our Pathway to Purpose strategic framework to become an even more modern, client-centric organization that will operate more simply with more agility and enhanced digital connectivity. As the biopharma demand environment improves, this will enable us to become an even more essential partner to our clients, work with them across our differentiated portfolio, and gain a greater share of their R&D spend. Let me provide a brief update on the end market trends. As I mentioned, we believe the biopharma demand is continuing to sustainably improve.

Speaker #3: Clients are expecting their scientific partners to help them drive greater innovation, speed, and efficiency, and we are making great progress under our Pathway to Purpose strategic framework to become an even more modern, client-centric organization that will operate more simply, with more agility, and enhanced digital connectivity.

Speaker #3: As a biopharma demand environment improves, this will enable us to become an even more essential partner to our clients, work with them across our differentiated portfolio, and gain a greater share of their R&D spend.

Speaker #3: Let me provide a brief update on the end market trends. As I mentioned, we believe the biopharma demand is continuing to sustainably improve. Small and mid-sized biotech clients are leading the trend as a result of the invigorated funding environment demonstrated by a training 12-month funding of nearly $100 billion which is just shy of peak levels achieved during the pandemic.

Birgit Girshick: Small and mid-sized biotech clients are leading the trend as a result of the invigorated funding environment demonstrated by a trailing 12-month funding of nearly $100 billion, which is just shy of peak levels achieved during the pandemic. While we continue to monitor for changes in the funding environment, whether it be from interest rates and inflation pressures or other macroeconomic factors, funding activity has been resilient and broad-based to date, including a notable increase in IPO activity as well as solid VC and follow-on funding. Overall, revenue from small and mid-sized biotechs was essentially flat organically in Q2, which is an improvement from declines in recent quarters. As a reminder, there is a natural lag of several quarters between studies are booked into backlog and work their way through to revenue.

Speaker #3: While we continue to monitor for changes in the funding environment, whether it be from interest rates and inflation pressures or other macroeconomic factors, funding activity has been resilient and broad-based to date, including a notable increase in IPO activity as well as solid VC and follow-on funding.

Speaker #3: Overall, revenue from small and mid-sized biotechs was essentially flat organically in the second quarter which is an improvement from declines in recent quarters. As a reminder, there is a natural lack of several quarters between studies are booked into backlog and work their way through to revenue.

Speaker #3: So we are just beginning to see the benefit from improved DSA booking activity from late last year. Therefore, the strengthening booking activity that we have experienced through the middle of this year gives us greater confidence that we will generate incremental organic revenue growth starting in the third quarter, on both a consolidated basis and in the DSA segment.

Birgit Girshick: We are just beginning to see the benefit from improved DSA booking activity from late last year. Therefore, the strengthening booking activity that we have experienced through the middle of this year gives us greater confidence that we will generate incremental organic revenue growth starting in Q3 on both a consolidated basis and in the DSA segment. Global biopharmaceutical clients were also a significant contributor to the improving DSA demand KPIs in Q2. As I mentioned last quarter, most of our global biopharma clients have progressed through restructuring and pipeline reprioritization activities over the last several years. Demand trends have been improving gradually over the last 18 months with continued evidence this year. Revenue from global biopharmaceutical clients continued to increase organically in Q2. I will now provide some highlights from our financial performance before Glenn provides additional detail.

Speaker #3: Global biopharmaceutical clients were also a significant contributor to the improving DSA demand KPIs in the second quarter. As I mentioned last quarter, most of our global biopharma clients have progressed through restructuring and pipeline reprioritization activities over the last several years.

Speaker #3: Demand trends have been improving gradually over the last 18 months with a continued evidence this year. Revenue from global biopharmaceutical clients continued to increase organically in the second quarter.

Speaker #3: I will now provide some highlights from our financial performance before Glenn provides additional detail. First, we are pleased that our second quarter results exceeded our prior outlook for revenue on non-GAAP earnings per share.

Birgit Girshick: First, we are pleased that our Q2 results exceeded our prior outlook for revenue on non-GAAP earnings per share. Q2 revenue increased 0.1% on an organic basis compared to our prior outlook of a low single-digit decline. In addition to the solid top-line performance, the operating margin increased 420 basis points sequentially to 20.5% due to two primary factors. First, less pressure from several discrete margin headwinds that impacted Q1 as we had anticipated. Second, a partial quarter benefit from the divestitures that enabled the manufacturing segment's operating margin to jump to 37.8% in Q2.

Speaker #3: Second quarter revenue increased 0.1% on an organic basis, compared to our prior outlook of a low single-digit decline. In addition to the solid top-line performance, the operating margin increased 420 basis points sequentially to 20.5%, due to two primary factors.

Speaker #3: First, less pressure from several discrete margin headwinds that impacted the first quarter as we had anticipated. And second, a partial quarter benefit from the divestitures that enabled the manufacturing segment's operating margin to jump to 37.8% in the second quarter.

Speaker #3: For the remainder of the year, we continue to have a clear line of sight into the drivers behind at least 500 basis points of margin improvement expected in the second half of the year, with the largest drivers being the actions that we have already taken to strengthen and refine our portfolio.

Birgit Girshick: For the remainder of the year, we continue to have a clear line of sight into the drivers behind at least 500 basis points of margin improvement expected in H2, with the largest drivers being the actions that we have already taken to strengthen and refine our portfolio. Non-GAAP earnings per share of $3.02 increased 47% sequentially, which was well above our prior outlook of at least 30% sequential growth. Glenn will provide more details on the operating margin and earnings drivers in a moment, as well as our increased financial guidance. RMS revenue declined 1.4% organically. This represents an improvement from the Q1 level, due principally to the timing of NHP shipments, which were more normalized in Q2 and did not have a meaningful impact on the year-over-year growth rate.

Speaker #3: Non-GAAP earnings per share of $3.20 increased 47% sequentially, which was well above our prior outlook of at least 30% sequential growth. Glenn will provide more details on the operating margin and earnings drivers in a moment, as well as our increased financial guidance.

Speaker #3: Armis revenue declined 1.4% organically. This represents an improvement from the first quarter level due principally to the timing of NHP shipments which were more normalized in the second quarter and did not have a meaningful impact on the year-over-year growth rate.

Speaker #3: The primary drivers of the year-over-year revenue decline were lower revenue for small models in North America, as well as for research models services including genetically engineered models and services or GEMs.

Birgit Girshick: The primary drivers of the year-over-year revenue decline were lower revenue for small models in North America, as well as for research model services, including genetically engineered models and services, or GEMs. These declines were largely offset by continued robust demand for research models in China from mid-tier biotech and CRO clients. For the year, we continue to expect a low to mid single-digit organic revenue decline in the RMS segment, with much of this decline driven by lower volumes for research models in North America. This is largely because spending from academic and government clients has been constrained by flat NIH budgets and slower grants processing. DSA revenue returned to growth, increasing 0.2% organically in Q2.

Speaker #3: These declines were largely offset by continued robust demand for research models in China from mid-tier biotech and CRO clients. For the year, we continued to expect a low to mid-single-digit organic revenue decline in the RMS segment which much of this decline is driven by lower volume for research models in North America.

Speaker #3: This is largely because spending from academic and government clients has been constrained by flat NIH budgets and slower grant processing. DSA revenue returned to growth increasing 0.2% organically in the second quarter.

Speaker #3: As noted, it takes several quarters for projects booked to work through the backlog and into the revenue stream so we are just beginning to see the benefits of the improved biopharmaceutical demand trends from the end of last year.

Birgit Girshick: As noted, it takes several quarters for projects booked to work through the backlog and into the revenue stream, so we are just beginning to see the benefits of the improved biopharmaceutical demand trends from the end of last year. The Q2 improvement was broadly driven across multiple study types and modalities, including a more discernible uptick in IND-enabling studies as clients shift their research focus earlier to replenish their pipeline and continued strength for NHP-related studies, reflecting our clients' focus on complex biologics. Regulatory-required safety assessment studies utilizing NHPs have become a competitive advantage for Charles River because of our more reliable supply of these critical research models after strengthening our portfolio through the acquisitions of suppliers in Cambodia and Mauritius in recent years.

Speaker #3: The second quarter improvement was broadly driven across multiple study types and modalities. Including a more discernible uptick in I&D enabling studies as clients shift their research focus earlier to replenish their pipelines and continued strengths for NHP-related studies reflecting our clients' focus on complex biologics.

Speaker #3: Regulatory required safety assessment studies utilizing NHPs have become a competitive advantage for charge river because of our more reliable supply of these critical research models after strengthening our portfolio through the acquisitions of suppliers in Cambodia and Mauritius in recent years.

Speaker #3: We expect the DSA growth rate to accelerate in the second half of the year supported by encouraging trends in the DSA demand environment to date.

Birgit Girshick: We expect the DSA growth rate to accelerate in the H2, supported by encouraging trends in the DSA demand environment to date. Net bookings increased significantly year-over-year and by 12.6% sequentially to $701 million in the Q2, resulting in an increase in the DSA backlog to $1.97 billion and a net book-to-bill of 1.19 times. The Q2 improvement was broad-based across both global biopharmaceutical and small and mid-sized biotechnology client segments. As noted, these were the highest levels for the net book-to-bill and net bookings in nearly four years since the Q3 2022, and the third consecutive quarter that the net book-to-bill was above one time. These trends, combined with another strong increase in proposal activity during the Q2, leave us cautiously optimistic that the positive momentum will continue.

Speaker #3: Net bookings increased significantly year over year and by 12.6% sequentially to 701 million dollars in the second quarter resulting in an increase in the DSA backlog to 1.97 billion dollars and a net book to bill of 1.19 times.

Speaker #3: The second quarter improvement was broad-based across both global biopharmaceutical and small and mid-sized biotechnology client segments. As noted, these were the highest levels for the net book to bill and net bookings nearly four years since the third quarter of 2022 and the third consecutive quarter that the net book to bill was above one times.

Speaker #3: These trends combined with another strong increase in proposal activity during the second quarter leave us cautiously optimistic that the positive momentum will continue. Underlying DSA market demand is improving as supported by the recent strengths in biotech funding and the improvement in our KPIs.

Birgit Girshick: Underlying DSA market demand is improving, as supported by the recent strength in biotech funding and the improvement in our KPIs. In this environment, we continue to differentiate ourselves in the marketplace through our financial stability, scientific expertise, global scale, and digitized client experience, which accelerates the speed with which we are able to work with our clients and enables us to take share. As a result of these collective trends, we have raised our DSA outlook to low single-digit organic revenue growth in 2026. That said, we continue to expect the recovery will be marked by gradual progress. Manufacturing revenue increased 1.3% organically. Revenue for Microbial Solutions continued to increase at a high single-digit rate in the Q2, partially offset by more modest growth in the biologics testing business.

Speaker #3: This environment we continue to differentiate ourselves in the marketplace through our financial stability, scientific expertise, global scale, and digitized client experience which accelerate the speed with which we are able to work with our clients and enables us to take share.

Speaker #3: As a result of these collective trends, we have raised our DSA outlook to low single-digit organic revenue growth in 2026. That said, we continue to expect the recovery will be marked by gradual progress.

Speaker #3: Manufacturing revenue increased 1.3% organically. Revenue for Microbial Solutions continued to increase at a high single-digit rate in the second quarter, partially offset by more modest growth in the Biologics Testing business.

Speaker #3: The manufacturing organic growth rate is expected to improve to mid to high single-digit rates in the second half of the year when the biologic testing growth rate rebounds after we anniversary a client-specific challenge that has been a headwind since the middle of last year.

Birgit Girshick: The manufacturing organic growth rate is expected to improve to mid to high single-digit rates in the H2, when the biologic testing growth rate rebounds after we anniversary a client-specific challenge that has been a headwind since the middle of last year. In addition, CDMO was also a headwind to organic growth for the partial quarter because it wasn't divested until May. As I close today, I want to share a reflection for my first few months as CEO. I've had the privilege of visiting more than 40 Charles River sites across seven countries, meeting with employees in town hall and individual settings, and hearing firsthand about their work, their challenges, and their ideas. What struck me most was the consistent passion, commitment, and sense of purpose I saw everywhere I went.

Speaker #3: In addition, CDMO was also a headwind to organic growth for the partial quarter because it wasn't invested until May. As I close today, I want to share reflection from my first few months as CEO.

Speaker #3: I've had the privilege of visiting more than 40 charge river sites across seven countries meeting with employees in town hall and individual settings and hearing firsthand about their work, their challenges, and their ideas.

Speaker #3: What struck me most was the consistent passion commitment and sense of purpose I saw everywhere I went. Those conversations left me even more confident in the future of charge river and our ability to live a long-term success for our clients and shareholders and the patience we ultimately serve.

Birgit Girshick: Those conversations left me even more confident in the future of Charles River and our ability to deliver long-term success for our clients and shareholders and the patients we ultimately serve. They also reinforced for me how critical our Pathway to Purpose strategy is in guiding our decisions, strengthening our culture, and positioning the company for sustainable growth. I remain incredibly optimistic about what we can achieve together and look forward to building on the strong foundation we have created. Now, I will turn the call over to Glenn to provide more details on our Q2 financial performance, as well as our 2026 guidance.

Speaker #3: They also reinforced for me how critical our Pathway to Purpose strategy is in guiding our decisions, strengthening our culture, and positioning the company for sustainable growth.

Speaker #3: I remain incredibly optimistic about what we can achieve together and look forward to building on the strong foundation we have created. Now I will turn the call over to Glenn to provide more details on our second quarter financial performance as well as our 2026 guidance.

Speaker #1: Thank you, Birgit and good morning. As a reminder, my comments on financial performance will largely be related to non-GAAP results. Which exclude amortization and other acquisition and investure-related adjustments cost-related primarily to restructuring and efficiency initiatives and certain other items.

Glenn Coleman: Thank you, Birgit, and good morning. As a reminder, my comments on financial performance will largely be related to non-GAAP results, which exclude amortization and other acquisition and divestiture-related adjustments, costs related primarily to restructuring and efficiency initiatives, 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. We are pleased with our financial performance for the Q2, with both revenue and non-GAAP earnings per share exceeding our prior outlook. On an organic basis, revenue was essentially flat year-over-year compared to our prior forecast of a low single-digit decline, driven by better-than-expected performance in our DSA and manufacturing segments. The non-GAAP operating margin of 20.5% was in line with our forecast but improved by 420 basis points on a sequential basis over the Q1.

Speaker #1: Many of my comments will also refer to organic revenue growth which excludes the impact of acquisitions divestitures and foreign currency translation. We are pleased that our financial performance for the second quarter with both revenue and non-GAAP earnings per share exceeding our prior outlook.

Speaker #1: On an organic basis, revenue was essentially flat year over year compared to our prior forecast of a low single-digit decline driven by better than expected performance in our DSA and manufacturing segments.

Speaker #1: The non-GAAP operating margin of 20.5% was in line with our forecast, but improved by 420 basis points on a sequential basis over the first quarter.

Speaker #1: Non-GAAP earnings per share are $3.02 also exceeding our expectations with over half of the outperformance driven by better than expected top line results and the remainder by a favorable contribution from non-operating items which I'll discuss in more detail shortly.

Glenn Coleman: Non-GAAP earnings per share of $3.02 also exceeds our expectations with over half of the outperformance driven by better-than-expected top-line results and the remainder by a favorable contribution from non-operating items, which I will discuss in more detail shortly. In the Q2, we also repurchased $100 million in shares at approximately $174 per share under the $1 billion stock repurchase authorization approved last October. This brings our total year-to-date share repurchases to $300 million and reflects the continuation of our thoughtful and diligent approach to capital deployment to enhance shareholder value as we balance organic investments in the business, pursue strategic acquisitions, and repay debt. Our updated guidance assumes an average diluted share count of approximately 48.5 million shares for the full year 2026.

Speaker #1: In the second quarter, we also repurchased $100 million in shares at approximately $174 per share under the $1 billion stock repurchase authorization approved last October.

Speaker #1: This brings our total year-to-date share repurchases to $300 million and reflects a continuation of our thoughtful and diligent approach to capital deployment to enhance shareholder value as we balance organic investments in the business, pursue strategic acquisitions, and repay debt.

Speaker #1: Our updated guidance assumes an average diluted share count of approximately 48.5 million shares for the full year 2026. Moving to details on our segment performance, DSA revenue was $607 million in the second quarter a decrease of 1.9% on a reported basis compared to the second quarter of 2025 due primarily to the impact of the divestiture of certain European discovery sites.

Glenn Coleman: Moving to details on our segment performance, DSA revenue was $607 million in the Q2, a decrease of 1.9% on a reported basis compared to the Q2 2025, due primarily to the impact of the divestiture of certain European discovery sites. On an organic basis, revenue increased 0.2%, and was also the first time we reported organic growth in DSA since the Q3 2023. Year-over-year, operating margin decreased by 180 basis points to 25.6%. However, increased by 460 basis points on a sequential basis from the Q1. The year-over-year decline was primarily due to higher study related direct costs. However, we expect this year-over-year margin headwind to turn favorable in the coming quarters as we benefit from lower NHP sourcing costs as a result of the acquisition of our Cambodian NHP supplier.

Speaker #1: On an organic basis, revenue increased 0.2% and was also the first time we recorded organic growth in DSA since the third quarter of 2023.

Speaker #1: Year over year, operating margin decreased by 180 basis points to 25.6%. However, increased by 460 basis points on a sequential basis from the first quarter.

Speaker #1: The year over year decline was primarily due to higher study-related direct costs. However, we expect this year over year margin headwind to turn favorable in the coming quarters as we benefit from lower NHP sourcing costs as a result of the acquisition of our Cambodian NHP supplier.

Speaker #1: The lower sourcing costs for Cambodian NHPs will begin to benefit the DSA operating margin in the third quarter but will have a more significant margin contribution in the fourth quarter as we increase our use of these models on studies.

Glenn Coleman: The lower sourcing costs for Cambodian NHPs will begin to benefit the DSA operating margin in Q3, but will have a more significant margin contribution in Q4 as we increase our use of these models on studies. As a result, we expect the operating margin in DSA to be the highest in Q4. Shifting to the RMS segment, revenue was $209 million in the quarter, representing an organic decline of 1.4% year over year. Small model revenue experienced lower volume for research models in North America and for research model services, partially offset by continued strong demand in China. Operating margin declined by 80 basis points to 24.5% in Q2, due largely to the impact of lower sales volume and an unfavorable geographic revenue mix.

Speaker #1: As a result, we expect the operating margin in DSA to be the highest in the fourth quarter. Shifting to the RMS segment, revenue was $209 million in the quarter, representing an organic decline of 1.4% year-over-year.

Speaker #1: Small model revenue experienced lower volume for Research Models in North America and for Research Models Services, partially offset by continued strong demand in China.

Speaker #1: Operating margin declined by 80 basis points to 24.5% in the second quarter due largely to the impact of lower sales volume and an unfavorable geographic revenue mix.

Speaker #1: Wrapping up the segment performance, the manufacturing segment reported second quarter revenue of $188 million an increase of 1.3% on an organic basis. The CDMO business reduced the segment organic revenue growth rate by nearly 400 basis points in the quarter with the segment growing at a mid single-digit organic growth rate excluding CDMO.

Glenn Coleman: Wrapping up the segment performance, the Manufacturing Segment reported Q2 revenue of $188 million, an increase of 1.3% on an organic basis. The CDMO business reduced the segment organic revenue growth rate by nearly 400 basis points in the quarter, with the segment growing at a mid-single-digit organic growth rate excluding CDMO. The strong performance in our Manufacturing Segment was largely driven by high single digit organic growth in our Microbial Solutions business as we saw increases in demand across our three major geographic regions for endotoxin testing reagents, including our PTS rapid testing cartridges, as well as adding new clients to our strong, broad-based quality control testing platform. Operating margin improved by 500 basis points year over year to 37.8%, driven primarily by the benefit of the CDMO divestiture.

Speaker #1: The strong performance in our manufacturing segment was largely driven by high single-digit organic growth in our Microbial Solutions business, as we saw an increase in demand across our three major geographic regions for endotoxin testing reagents, including our PTS rapid testing cartridges, as well as adding new clients to our strong, broad-based quality control testing platform.

Speaker #1: Operating margin improved by 500 basis points year over year to 37.8%. Driven primarily by the benefit of the CDMO divestiture. We expect the manufacturing segment to remain a meaningful contributor to margin expansion during the second half of the year with the operating margin approaching 40% with the full benefit being recognized from the CDMO divestiture.

Glenn Coleman: We expect the Manufacturing Segment to remain a meaningful contributor to margin expansion during H2, with the operating margin approaching 40% with the full benefit being recognized from the CDMO divestiture. Moving on to other financial metrics. Unallocated corporate costs were higher than expected in Q2, totaling $72 million, or 7.2% of revenue, compared to 5.9% in the prior year period. The increase was primarily driven by increased costs related to our deferred compensation plan of $6 million, or $0.10 per share, due to the market performance of the plan assets during the quarter. To fund the deferred compensation plan, we separately invest in certain funds which experienced gains of $19 million, or $0.29 per share in Q2. These gains are included in other income.

Speaker #1: Moving on to other financial metrics, unallocated corporate costs were higher than expected in the second quarter, totaling $72 million, or 7.2% of revenue, compared to 5.9% in the prior year period.

Speaker #1: The increase was primarily driven by increased costs related to our deferred compensation plan of $6 million or 10 cents per share due to the market performance of the plan assets during the quarter.

Speaker #1: To fund the deferred compensation plan, we separately invest in certain funds which experienced gains of $19 million or 29 cents per share in the second quarter.

Speaker #1: These gains are included in other income. The net benefit associated with our deferred compensation plan was $0.19 per share in the second quarter, which we do not expect to recur.

Glenn Coleman: The net benefit associated with our deferred compensation plan was $0.19 per share in Q2, which we do not expect to recur. Based upon our Q2 results and updated forecast, which also encompasses higher performance-based compensation, we now expect unallocated corporate costs of approximately 6.0% of revenue for the full year, compared to our prior outlook of approximately 5.5%. Net interest expense was $28 million in Q2, a decline of $1.2 million year over year. For the full year, our net interest expense outlook remains unchanged at $103 to 108 million on a non-GAAP basis. At the end of Q2, our net leverage improved slightly to 2.5 times from Q1. The non-GAAP tax rate in Q2 was 23.8%, an increase of 110 basis points year over year, due primarily to the impact of discrete items.

Speaker #1: Based upon our second quarter results and updated forecast, which also encompasses higher performance-based compensation, we now expect unallocated corporate costs of approximately $6.0% of revenue for the full year compared to our prior outlook of approximately $5.5%.

Speaker #1: Net interest expense was $28 million in the second quarter, a decline of $1.2 million year over year. For the full year, our net interest expense outlook remains unchanged at $103 to $108 million on a non-GAAP basis.

Speaker #1: At the end of the second quarter, our net leverage improved slightly to 2.5 times from the first quarter. The non-gap tax rate in the second quarter was 23.8% an increase of 110 basis points year over year due primarily to the impact of discrete items.

Speaker #1: For the full year, we now anticipate our non-gap tax rate will be in the range of 23 to 24 percent an increase of approximately 100 basis points from our prior outlook primarily as a result of the unfavorable second quarter rate and a higher tax rate due to proposed tax legislation changes in a foreign tax jurisdiction.

Glenn Coleman: For the full year, we now anticipate our non-GAAP tax rate will be in the range of 23% to 24%, an increase of approximately 100 basis points from our prior outlook, primarily as a result of the unfavorable Q2 rate and a higher tax rate due to proposed tax legislation changes in a foreign tax jurisdiction. The higher tax rate outlook for the year is expected to be a $0.20 headwind to earnings per share, with about half of the impact in the Q3. Free cash flow was $149 million in the Q2, a decrease of $21 million compared to the prior year period. This decline was primarily driven by the timing of working capital. CapEx declined to $31 million, or approximately 3.1% of revenue in the Q2 from $35 million last year.

Speaker #1: The higher tax rate outlook for the year is expected to be a 20 cent headwind to earnings per share with about half of the impact in the third quarter.

Speaker #1: Free cash flow was $149 million in the second quarter a decrease of 21 million compared to the prior year period. This decline was primarily driven by the timing of working capital.

Speaker #1: Capex declined to 31 million or approximately 3.1% of revenue in the second quarter from $35 million last year. For the full year, we're raising our free cash flow projections to be in the range of $400 million to $420 million compared to our prior outlook of $375 million to $400 million.

Glenn Coleman: For the full year, we're raising our free cash flow projections to be in the range of $400 million to $420 million compared to our prior outlook of $375 million to $400 million, largely driven by higher earnings. Turning to full year 2026 P&L guidance. We are increasing both the reported and organic revenue outlook due primarily to the DSA Manufacturing outperformance in the Q2 and our expectations for further improvements during the remainder of the year. We now expect reported revenue to decline in the range of 2.5% to 3.5%, driven by the impact of completed divestitures. We're also raising our organic revenue growth in the range of flat to a 1% increase, which represents a 150 basis point improvement to our prior guidance.

Speaker #1: Largely driven by higher earnings. Turning to full year 2026 P&L guidance, we are increasing both the reported and organic revenue outlook due primarily to the DSA and manufacturing outperformance in the second quarter and our expectations for further improvements during the remainder of the year.

Speaker #1: We now expect reported revenue to decline in a range of two and a half to three and a half percent driven by the impact of completed divestitures.

Speaker #1: We're also raising our organic revenue growth guidance to a range of flat to a 1% increase, which represents a 150-basis-point improvement to our prior guidance.

Speaker #1: By segment on an organic basis, we're increasing our DSA revenue outlook to low single-digit growth for the year and we're also adjusting our manufacturing revenue outlook higher to a low to mid single-digit growth rate.

Glenn Coleman: By segment, on an organic basis, we're increasing our DSA revenue outlook to low single-digit growth for the year, and we're also adjusting our Manufacturing revenue outlook higher to a low to mid single-digit growth rate. Our RMS outlook remains unchanged. Moving to profitability, we continue to expect operating margin expansion of approximately 120 to 150 basis points in 2026, with the Manufacturing and DSA segments driving the year-over-year increase. We have a clear line of sight into the H2 improvement of at least 500 basis points compared to the H1 of the year. As shown on slide 14, approximately 50% of the H2 improvement will be attributable to the portfolio actions already completed, including the full benefit of the divestitures, as well as the lower NHP sourcing costs from the K.F. acquisition, which will largely benefit the Q4.

Speaker #1: Our RMS outlook remains unchanged. Moving to profitability, we continue to expect operating margin expansion of approximately $120 to $150 basis points in 2026 with the manufacturing and DSA segments driving the year-over-year increase.

Speaker #1: We have a clear line of sight into the second half improvement of at least 500 basis points compared to the first half of the year.

Speaker #1: As shown on slide 14, approximately 50% of the second-half improvement will be attributable to the portfolio actions already completed, including the full benefit of the divestitures as well as the lower NHP sourcing costs from the KF acquisition, which will largely benefit the fourth quarter.

Speaker #1: Lower corporate costs are estimated to drive approximately $150 basis points of the improvement with the balance derived from other operational contributors including efficiency savings.

Glenn Coleman: Lower corporate costs are estimated to drive approximately 150 basis points of the improvement, with the balance derived from other operational contributors, including efficiency savings. Lower corporate costs in the H2 will reflect favorable stock compensation expense related to the CEO transition and fringe costs, which are typically lower in the H2 of the year. We are also increasing our non-GAAP earnings per share guidance to a range of $11.15 to $11.45, which represents 8% to 11% year-over-year growth and an increase of $0.25 at the midpoint of our prior outlook. The increase reflects the expected operational outperformance for the year, driven primarily by improving trends in the DSA segment and a better than expected performance in the Manufacturing segment.

Speaker #1: Lower corporate costs in the second half will reflect favorable stock compensation expense related to the CEO transition and fringe costs which are typically lower in the second half of the year.

Speaker #1: We are also increasing our non-gap earnings per share guidance to a range of $11.15 to $11.45 which represents 8 to 11 percent year over year growth and an increase of 25 cents at the midpoint of our prior outlook.

Speaker #1: The increase reflects the expected operational outperformance for the year, driven primarily by improving trends in the DSA segment and a better-than-expected performance in the Manufacturing segment.

Speaker #1: Separately, we expect a 19 cent net benefit associated with the deferred compensation plan will not have a meaningful impact on non-gap earnings per share in 2026.

Glenn Coleman: Separately, we expect a $0.19 net benefit associated with the deferred compensation plan will not have a meaningful impact on non-GAAP EPS in 2026, as it is expected to be entirely offset by the higher tax rate outlook for the year, which is an approximate $0.20 headwind. For Q3, revenue is expected to decline approximately 4% to 6% on a reported basis, primarily driven by the impact of the completed divestitures. We expect organic revenue growth of approximately 1% to 3% year-over-year, reflecting improving demand trends in the DSA segment and an expected rebound in biologics testing growth rate, which will drive higher manufacturing revenue growth. In addition, operating margin is projected to improve approximately 200 basis points sequentially versus Q2, due largely to lower corporate costs and a full quarter benefit from the divestitures.

Speaker #1: As it is expected to be entirely offset by the higher tax rate outlook for the year which is an approximate 20 cent headwind. For the third quarter, revenue is expected to decline approximately 4 to 6 percent on a reported basis primarily driven by the impact of the completed divestitures.

Speaker #1: We expect organic revenue growth of approximately 1 to 3 percent year over year reflecting improving demand trends in the DSA segment and an expected rebound in biologics testing growth rate which will drive higher manufacturing revenue growth.

Speaker #1: In addition, operating margin is projected to improve approximately 200 basis points sequentially versus the second quarter, due largely to lower corporate costs and a full-quarter benefit from the divestitures.

Speaker #1: For the third quarter, we expect non-gap earnings per share in the range of $2.90 to $3.00 representing an approximate 20 percent year over year increase.

Glenn Coleman: For Q3, we expect non-GAAP EPS in the range of $2.90 to $3, representing an approximate 20% year-over-year increase. As previously mentioned, the higher tax rate outlook creates a $0.10 headwind to Q3 EPS, which has been included in the guidance. In conclusion, I'm encouraged by the recent improvement in the underlying business trends and our H1 performance, including the execution of our strategic priorities, which demonstrate our commitment to our Pathway to Purpose strategy and enhancing long-term shareholder value. Over the past several months, I've had the opportunity to meet with employees across our global organization as well as shareholders and other stakeholders. These interactions have further strengthened my confidence in our capabilities, our people, and the momentum we are building across the organization.

Speaker #1: As previously mentioned, the higher tax rate outlook creates a $0.10 headwind to third quarter earnings per share, which has been included in the guidance.

Speaker #1: In conclusion, I'm encouraged by the recent improvement in the underlying business trends in our first half performance including the execution of our strategic priorities which demonstrate our commitment to our pathway to purpose strategy and enhancing long-term shareholder value.

Speaker #1: Over the past several months, I've had the opportunity to meet with employees across our global organization as well as shareholders in other stakeholders. These interactions have further strengthened my confidence in our capabilities, our people, and the momentum we are building across the organization.

Speaker #1: I look forward to continuing to work with the team to execute our strategy and to sharing more information about our long-term priorities and financial targets at our upcoming Investor Day on September 24.

Glenn Coleman: I look forward to continuing to work with the team to execute our strategy and to sharing more information about our long-term priorities and financial targets at our upcoming Investor Day on 24 September. Thank you.

Speaker #1: Thank you.

Todd Spencer: That concludes our comments. We will now take your questions.

Speaker #2: That concludes our comments. We will now take your questions.

Speaker #3: Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two.

Operator: Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. We do ask that you please limit yourself to one question and one follow-up. Once again, that is star one to ask a question. We'll go first to Calum Titchmarsh with Morgan Stanley. Your line is now open.

Speaker #3: We do ask that you please limit yourself to one question and one follow-up. Once again, that is star one to ask a question. We'll go first to Callum Titchmarsh with Morgan Stanley.

Speaker #3: Your line is now open.

Speaker #4: Great, thanks a lot for the question, guys. I wanted to start actually on AI. We've been fielding quite a lot of questions in this space in relation to kind of preclinical work.

Calum Titchmarsh: Great. Thanks a lot for the question, guys. Wanted to start actually on AI. We've been fielding quite a lot of questions on this space in relation to kind of preclinical work. You called out some of the partnerships here. Maybe just talk us through your expectations for the preclinical pipeline evolving from that smarter drug discovery and whether that seems like a plausible thesis to you based on the discussions you've had with customers. I think we're just trying to work out when that impact starts creeping into numbers via more IND enabling studies, would love your views there.

Kallum Titchmarsh: Great. Thanks a lot for the question, guys. Wanted to start actually on AI. We've been fielding quite a lot of questions on this space in relation to kind of preclinical work. You called out some of the partnerships here. Maybe just talk us through your expectations for the preclinical pipeline evolving from that smarter drug discovery and whether that seems like a plausible thesis to you based on the discussions you've had with customers. I think we're just trying to work out when that impact starts creeping into numbers via more IND enabling studies, would love your views there.

Speaker #4: And you called out some of the partnerships here. So maybe just talk us through your expectations for the preclinical pipeline evolving from that smarter drug discovery and whether that seems like a plausible thesis to you based on the discussions you've had with customers.

Speaker #4: I think we're just trying to work out when that impact starts creeping into numbers, via more like IND-enabling studies, but would love your views there.

Speaker #2: Thanks, Callum. I'm absolutely happy to. So, obviously, AI is a hot topic everywhere, and we talk to a lot of clients about it—what their expectations are, where they're investing into.

Birgit Girshick: Thanks, Calum. Absolutely happy to. Obviously, AI is a hot topic everywhere. We talk to a lot of clients about it, what their expectations is, where they're investing into. From our perspective, a lot of the articles or the pieces that were published support our thesis on it. Once AI provides more productivity into the molecule design, target identification, makes more molecules maybe available to move into the validation stage and regulated safety assessment stage and makes the molecule design more efficient, we expect more programs to work itself through the safety assessment stage, the validation stage, the area that is core to us. We expect that it will actually be a tailwind for us and drive demand. Timing is a little bit more difficult to estimate.

Speaker #2: And so from our perspective, a lot of the articles or the pieces that were published support our thesis on it. So once AI provides more productivity into the molecule design, target identification, makes more molecules maybe available to move into the validation regulated safety assessment stage and makes the molecule design more efficient we expect more programs to work itself through the safety assessment stage, the validation stage, the area that is core to us.

Speaker #2: And we expect that it will actually be a tailwind for us and drive demand. Timing is a little bit more difficult to estimate obviously companies have worked on AI for a long time.

Birgit Girshick: Obviously, companies have worked on AI for a long time. On the other hand, technology is accelerating. Really, we'll have to see when those efficiencies are being delivered, when the cost savings for our clientele can materialize. What we are already seeing, actually, is that a lot of companies that are more AI native or drug discovery companies that use AI platforms, they're generally running more programs than a typical biotech that generally comes in with one or two programs. The numbers are still very small. That will accelerate materially over the next, I would say, year or two. We should see some impact, positive impact over the next few years, it will take some time to really ramp that up.

Speaker #2: But on the other hand, technology is accelerating so really we'll have to see when those efficiencies are being delivered when the cost savings for our clientele can materialize.

Speaker #2: What we are already seeing actually is that a lot of companies that are more AI native or drug discovery companies that use AI platforms they're generally running more programs than a typical biotech that generally comes in with one or two programs.

Speaker #2: The numbers are still very small but that will accelerate materially over the next I would say year or two so we should see some impact positive impact over the next few years but it will take some time to really ramp that up and when it's going to be material is a little bit harder to estimate but I think you will see some ramp up over the next couple years more programs more validation more data needed to validate the platforms so all of that should be a tailwind for the work we do.

Birgit Girshick: When it's going to be material is a little bit harder to estimate. I think you will see some ramp up over the next couple of years, more programs, more validation, more data needed to validate the platforms. All of that should be a tailwind for the work we do. In addition to that, we as a company are investing in AI tools, enabling platforms that give us more insights, also allow us to put efficiencies in place. Those are all really focused on the work we do so that validation, safety assessment stage that is core to us, and that will allow us to differentiate ourselves, to help our clients to move faster. Time is money as usual. Also provide us for our work with some efficiencies. We are really excited about AI.

Speaker #2: In addition to that we as a company are investing in AI tools enabling platforms that give us more insights also allow us to put efficiencies in place those are all really focused on the work we do so that validation safety assessment stage that is core to us and that will allow us to differentiate ourselves to help our clients to move faster time is money as usual and then also provide us for our work with some efficiencies.

Speaker #2: So we are really excited about AI. I think it will be an enabler a differentiator but obviously technology has to advance and continue to advance and then prove itself but great question Callum.

Birgit Girshick: I think it will be an enabler, a differentiator. Obviously technology has to advance and continue to advance and then prove itself. Great question, Calum.

Speaker #4: Yeah. It's great Callum. Thank you. And then just secondly when we think about the portfolio refinement we've seen over the past year or so clearly benefits starting to come through from that.

Calum Titchmarsh: Yeah. It's great, Carla. Thank you. Just secondly, when we think about the portfolio refinement we've seen over the past year or so, clearly benefits starting to come through from that. Is it fair to assume you're now comfortable with the current shape of the business? Maybe just talk through appetite for maybe more deals or divestitures, more broadly to capital allocation. Thanks a lot, guys.

Kallum Titchmarsh: Yeah. It's great, Carla. Thank you. Just secondly, when we think about the portfolio refinement we've seen over the past year or so, clearly benefits starting to come through from that. Is it fair to assume you're now comfortable with the current shape of the business? Maybe just talk through appetite for maybe more deals or divestitures, more broadly to capital allocation. Thanks a lot, guys.

Speaker #4: Is it fair to assume you're now comfortable with the current shape of the business? Maybe just talk through appetite for maybe more deals or diversitures and then more broadly to capital allocation.

Speaker #4: Thanks a lot guys.

Speaker #2: Yeah, I'm going to start on that and then I'll let Glenn join in here a little bit more on the capital allocation. So, from a point of divestitures, we absolutely are seeing the benefits from that both financially, in terms of our OI improvements, but also from an ability to focus on the core portfolio.

Birgit Girshick: Yeah. I'm going to start on that. I'll let Glenn chime in here a little bit more on the capital allocation. From a point of divestitures, we absolutely are seeing the benefits from that, both financially in terms of our OI improvements, also from an ability to focus on the core portfolio. That was a big driver for us to really getting back to core to what we do best, where we have the biggest relevance to our clients, where we provide the highest value. That will allow us as a leadership team, also our sales organization and our operational organization to really focus on being the best partner for our clients possible. We continue to look at our portfolio like we always have done. If you think back, Charles River has, over the years, divested other businesses.

Speaker #2: So and that was a big driver for us to really getting back to core to what we do best where we have the biggest relevance to our clients where we provide the highest value.

Speaker #2: And that will allow us as a leadership team but also our sales organization and our operational organization to really focus on being the best partner for our clients possible.

Speaker #2: We continue to look at our portfolio like we always have done so if you think back Child River has over the years divested other businesses we have had a program of site consolidations but we also have a healthy appetite for M&A.

Birgit Girshick: We have had a program of site consolidations, we also have a healthy appetite for M&A. We will continue to look at all of that. Nothing imminent on the divestitures. We are still continuing to execute on some site closures that we had announced last year. Certainly from an M&A perspective, we have a good roadmap. We have a clear target area we are interested in. As you know, it is always difficult to estimate when targets are available. Are they coming in for the right price? More to be seen, but definitely we will keep it broad-based and continue to look at refining our portfolio.

Speaker #2: So we will continue to look at all of that. Nothing imminent on the divestitures. We're still continuing to execute on some site closures that we had announced last year and certainly from an M&A perspective we have a good roadmap.

Speaker #2: We have a clear target area we are interested in but as you know it's always difficult to estimate when targets are available. Are they coming in for the right price?

Speaker #2: So more to be seen but definitely we will keep it broad based and continue to look at refining our portfolio.

Speaker #3: Yeah. And the only thing I'd add is, obviously, our balance sheet is in very good shape. We can support our acquisition strategy going forward.

Glenn Coleman: The only thing I'd add is obviously our balance sheet is in very good shape. We can support our acquisition strategy going forward. If you look at where our leverage is, we ended around 2.5 times, even after the most recent $100 million share repurchase that we did in Q2. We generated strong cash flows in the quarter. We actually raised our free cash flow guidance. We have plenty of capacity under our existing revolver at very attractive rates, I think we're very well-positioned from a balance sheet perspective to support our acquisition strategy. You can never predict when they're going to happen, we'd love to be able to add a couple additional companies to our portfolio.

Speaker #3: If you look at where our leverage is, we ended around two and a half times, even after the most recent $100 million share repurchase that we did in the second quarter.

Speaker #3: We generated strong cash flows in the quarter. We actually raised our free cash flow guidance. We have plenty of capacity in our existing revolver at very attractive rates, and so I think we're very well-positioned from a balance sheet perspective to support our acquisition strategy.

Speaker #3: You can never predict when they're going to happen, but we'd love to be able to add a couple of additional companies to our portfolio.

Speaker #4: Thanks a lot.

Calum Titchmarsh: Thanks a lot.

Kallum Titchmarsh: Thanks a lot.

Speaker #1: Thank you. Our next question comes from Anne Hines with Mizuho. Your line is now open.

Operator: Thank you. Our next question comes from Ann Hynes with Mizuho. Your line is now open.

Ann Hynes: Great. Thank you so much. On the call, you talked about how the demand in biotech was accelerating. Can you talk about your other customer segments, especially how large biopharma is doing?

Speaker #5: Great. Thank you so much. On the call you talked about how the demand in biotech was accelerating. Can you talk about your other customer segments especially how large biopharma is doing?

Speaker #2: Yeah. Happy to Anne. So it's actually great to see that both our major client segments are strengthening and we're seeing more demand from both of them in our KPI forward looking KPI demand KPIs.

Birgit Girshick: Yeah, happy to, Ann. It's actually great to see that both our major client segments are strengthening, and we're seeing more demand from both of them, and our forward-looking demand KPIs are strengthening in both segments. Looking at the global biopharma specifically, most all of our global biopharma clients, and we work with all of them, have moved through their portfolio prioritization, have moved through their restructurings over the last few years. Over the last 18 months, we've really seen them coming back to work, booking more work, more discussions, more proposals, and fewer cancellations. It's going all in the right direction. We have a lot of discussions with those clients, so we understand that their focus right now is on more molecules into the clinic, more molecules approved and being approved for commercial distribution to the patients.

Speaker #2: Our strengthening in both segments. Looking at the global biopharma specifically most all of our global biopharma clients and we work with all of them have moved through their portfolio prioritization have moved through their restructurings over the last few years and over the last 18 months we really seen them coming back to work booking more work more discussions more proposals and fewer cancellations.

Speaker #2: So it's going all in the right direction, and we have a lot of discussion with those clients. So we understand that their focus right now is on getting more molecules into the clinic, more molecules approved, and being approved for commercial distribution.

Speaker #2: To the patients. So it's all about more programs more speed more agility and I think we are the differentiated partner for them to help them execute on that.

Birgit Girshick: It's all about more programs, more speed, more agility, and I think we are the differentiated partner for them to help them execute on that.

Ann Hynes: Great. Thank you. My follow-up question is just about China. I get asked a lot about this. I think there's two competitive debates investors are focused on. One is just the increasing capability of Chinese CROs, and the other is whether large pharma is bringing more preclinical work in-house in China. Maybe can you talk about, do you view these as real risks, and how do you think about it long term?

Speaker #5: Great. Thank you. And my follow up question is just about China. I get asked a lot about this. I think there's like two competitive debates investors are focused on.

Speaker #5: One is just the increasing capability of Chinese CROs, and the other is whether large pharma is bringing more preclinical work in-house in China.

Speaker #5: Maybe can you talk about do you view these as real risks and how do you think about it long term?

Speaker #2: Yeah. And so we certainly watch China very, very, very closely, right? So, an emerging or maybe a little bit past emerging, innovative market—really interesting from a perspective of serving this market directly.

Birgit Girshick: Yeah. We certainly watch China very closely, right? A emerging or maybe a little bit past emerging, innovative market, really interesting from a perspective of serving this market directly. As you know, we have a strong Research Models and Services business in China. We are a well-established, highly respected participant in that industry, and it certainly would serve well to expand on that business. We are looking at options at any given time at how we can accomplish that. From the other hand is the, as you said, the competition in China, adding more capabilities. This is a trend that has started probably a decade, maybe even longer, really focused initially on the very early stage capabilities, chemistry and biology. That market definitely has structurally changed and generally moved into lower-cost countries, including China, but also a bit in India.

Speaker #2: As you know, we have a strong Research Models and Services business in China, so we are a well-established, highly respected participant in that industry, and it certainly would serve us well to expand on that business. So we're looking at options at any given time for how we can accomplish that.

Speaker #2: From the other hand is the as you said the competition in China adding more capabilities. This is a trend that has started probably a decade maybe even longer really focused initially on the very early stage capabilities chemistry and biology and that market definitely has structurally changed and moved into a lower generally moved into a lower cost countries including China but also a bit in India.

Speaker #2: We are now looking to see what their ability of bringing on more regulated work is. This is still the minority, generally focused on companies that are doing their Phase 1 work in China, but we are watching that very closely and are very prepared to differentiate ourselves here in the West with our services, with our speed, with our supply chain, and being the best partner we can be here for our clients.

Birgit Girshick: We are now looking to see what their ability of bringing on more regulated work is. This is still the minority, generally focused on companies that are doing their phase I work in China. We are watching that very closely and are very prepared to differentiate ourselves here in the West, with our services, with our speed, with our supply chain, and being the best partner we can be here for our clients. Yeah, some of our global biopharma clients are moving maybe more into China with some R&D centers. They are due establish with that some capabilities. There, again, from what I can see, at the very early stage, not so much in the regulated safety assessment market.

Speaker #2: Yeah. Some of our global biopharma clients are moving maybe more into China with some R&D centers they do establish with that some capabilities. They're again from what I can see at the very early stage not so much in the regulated safety assessment market.

Speaker #2: I think all our global biopharma clients have established the understanding that it's really hard to be in this area, particularly because of that regulated nature—keeping up the scale and a capability that would make sense for them.

Birgit Girshick: I think all our global biopharma clients have established the understanding that it is really hard to be in this area, particularly because of that regulated nature, keeping up a scale and a capability that would make sense for them. We believe that their investments are in the true R of the R&D stage, and that we continue to support them in more of the development stage.

Speaker #2: So, we believe that their investments are in the true R&D stage, and that we continue to support them in more of the development stage.

Speaker #5: Thank you.

Ann Hynes: Thank you.

Speaker #1: Thank you. We'll move next to Dave Windley with Jefferies. Your line is now open.

Operator: Thank you. We'll move next to Dave Windley with Jefferies. Your line is now open.

Speaker #4: Great. Thanks. Thanks for taking my question. I'll forewarn you this is a multiparter period. I'm interested in demand environment. You talked in the prepared remarks about pretty balanced demand and DSA across study types.

Dave Windley: Great. Thanks for taking my question. I'll forewarn you, this is a multi-parter. My questions are, what your view is of the demand landscape by study type, and then help us to understand maybe a little bit more clearly the availability of NHPs that you have from previous Noveprim and more recently K.F., and how much excess capacity or animal supply can you dip into there, or do you have to wait for contracts to run out? I'm interested in demand environment. You talked in the prepared remarks about pretty balanced demand in DSA across study types, I'm hearing that large molecule or large animal NHP, specifically, studies are in quite high demand to the point that maybe some of your competitors are running short on capacity in the near term.

Speaker #4: I'm hearing that large molecule, or large animal NHP specifically, studies are in quite high demand—to the point that maybe some of your competitors are running short on capacity in the near term.

Speaker #4: So my questions are what's your view is of kind of the demand landscape by study type and then help us to understand maybe a little bit more clearly the availability of NHPs that you have from previous Novaprim and more recently KF and kind of how much excess capacity or animal supply can you dip into there or do you have to wait for contracts to run out.

Speaker #4: Are they already claimed, et cetera, to be able to service what I think is NHP growing demand? Thanks.

Dave Windley: Are they already claimed, et cetera, to be able to service what I think is NHP growing demand? Thanks.

Speaker #2: Certainly, David. Great questions, and I wouldn't expect anything less than a multi-question from you.

Birgit Girshick: Certainly, David. Great questions. I wouldn't expect anything less than a multi-question from you.

Speaker #4: I got another one for you.

Dave Windley: I got another one for you.

Speaker #2: So, looking at demand, yes, we talked about broad-based. We were referring quite a bit to BIND versus post-IND studies, which really has balanced out quite a bit, which is great.

Birgit Girshick: Looking at demand, yes, we talked about broad-based. We were referring quite a bit to pre-IND versus post-IND studies, which really has balanced out quite a bit, which is great, because we need both. We need the pre-IND because that will eventually translate into post-IND. We also referred to healthy demand in the more complex areas, and in NHP studies specifically. We believe that this is both very positive. It shows that clients are reinvesting in the early-stage pre-IND work, but it also shows that clients are very focused on more complex modalities, which provides us with a nice uptick in revenue opportunity. Both not only in the in vivo study, but also from a bioanalysis study, because there's more revenue associated with a more complex modality than in small molecules.

Speaker #2: Because we need both. We need the pre IND because that will eventually translate into post IND. We also referred to healthy demand in the more complex areas and in NHP studies specifically and we believe that this is both very positive it shows that clients are reinvesting in the early stage pre IND work but it also shows that clients are very focused on more complex modalities which provides us with a nice uptick in revenue opportunity.

Speaker #2: Both not only in the in vivo study but also from a bioanalysis study because there's more revenue associated with a more complex modality than in small molecules.

Speaker #2: Specific to your question on nonhuman primate supply you're obviously known you refer to it that we have acquired Mauritius farm a few years ago and then the Cambodian farm last year by having ownership of it there's a couple things that we can do that we would otherwise not be able to do.

Birgit Girshick: Specific to your question on non-human primate supply, you obviously know and you referred to it, that we have acquired a Mauritius farm a few years ago, and then the Cambodian farm last year. By having ownership of it, there's a couple things that we can do that we would otherwise not be able to do. Number 1 is control the quality, the logistics, the timing of shipments, and that is helping us a lot. Also to control the capacity itself. We can obviously breed more. That will take a little bit of time, but we can also either accelerate some shipments or hold back some shipments. It is really about managing the capacity to the peak levels. We still have third-party contracts that we were executing on.

Speaker #2: Number one is control the quality the logistics the timing of shipments. And that is helping us a lot. But then also to control the capacity itself.

Speaker #2: So, we can obviously breed more; that will take a little bit of time. But we can also either accelerate some shipments or hold back some shipments.

Speaker #2: So it is really about managing the capacity to the peak levels. We still have third party contracts that we will executing on. They're ramping down and we will work through that with our customer over the next few years and move more and more of those animals into client studies in our DSA segment.

Birgit Girshick: They are ramping down, and we will work through that with our customer over the next few years and move more and more of those animals into client studies in our DSA segment. Overall, we are quite happy that we are integrated into the supply chain, as you can imagine. We are in a very healthy state of having animals available. We'll have to see where demand goes. We are really differentiated now because of that non-human primate supply, and we see that as a possibility, obviously, to gain market share. Overall, I think we're in the best state possible at this stage, and we will leverage that.

Speaker #2: So overall, we are quite happy that we are integrated into the supply chain, as you can imagine. We are in a very healthy state of having animals available.

Speaker #2: We'll have to see where demand goes. We are really differentiated now because of that nonhuman primate supply, and we see that as a possibility, obviously, to gain market share. But overall, I think we're in the best state possible at this stage, and we will leverage that.

Speaker #4: Great. If I could just squeeze in a follow up quickly on the same topic. I think as I'm looking at both consensus and our numbers relative to the guidance that you're giving for third quarter I think the primary difference is kind of a cadence of perhaps your access or the benefit of the NHP cost to drop to your margin sounds like it's landing mostly in the fourth quarter rather than third quarter.

Dave Windley: Great. If I could just squeeze in a follow-up quickly on the same topic. I think as I'm looking at both consensus and our numbers relative to the guidance that you're giving for Q3, I think the primary difference is kind of a cadence of perhaps your access or the benefit of the NHP cost to drop to your margin. Sounds like it's landing mostly in Q4 rather than Q3. Maybe, I don't know if this is a Glenn question, but maybe you could talk a little bit about the cadence. Are there animals that are going to be on quarantine in Q3 that are depressing that impact a little bit? Just the Q3, Q4 cadence as to how that KF benefit materializes. Thank you.

Speaker #4: Maybe I don't know if this is a Glenn question but maybe you could talk a little bit about the cadence. Are there animals that are going to be on quarantine in the third quarter that are depressing that impact a little bit just kind of the third quarter fourth quarter cadence as to how that KF benefit materializes.

Speaker #4: Thank you.

Speaker #3: Yeah. No. So relative to the margins and what we see right now we're expecting a minimal impact in Q3. There will be some impact but very small.

Glenn Coleman: Relative to the margins and what we see right now, we're expecting a minimal impact in Q3. There'll be some impact, but very small. The large impact will be in Q4. We do expect to see a very meaningful move in margins in DSA in Q4 as a result of the NHPs and them being placed on studies and those direct costs going lower in Q4. That's where we're going to see the biggest impact.

Speaker #3: The large impact will be in Q4. And so we do expect to see a very meaningful move in margins and DSA in the fourth quarter as a result of the NHPs and then being placed on studies and those direct costs going lower in Q4.

Speaker #3: And that's where we're going to see the biggest impact.

Speaker #2: Yeah, and David, you got it absolutely right. So, just thinking through, you understand the timing of importation, quarantine, getting them on study, and then generating revenue.

Birgit Girshick: David, you got it absolutely right. Just thinking through, you understand the timing of importation, quarantine, getting them on study, and then generating revenue. It just takes some time to import them, quarantine them, acclimate them, and then get them on study and generate revenue. It's just a matter of timing.

Speaker #2: It is just take some time to import them quarantine them acclimate them and then revenue. It's just a matter of timing.

Speaker #4: Yep. Thanks again.

Dave Windley: Yep. Thanks again.

Speaker #1: Thank you. Our next question will come from Charles Rye with TD Cowen. Your line is now open.

Operator: Thank you. Our next question will come from Charles Riley with TD Cowen. Your line is now open.

Speaker #5: Yeah, thanks for taking the questions. Hey, just wanted to follow up maybe a little bit more on David's cadence question here. So, I think, Glenn, you said that Q4 DSA revenue will be the highest.

Charles Riley: Yeah. Thanks for taking the questions. Hey, just wanted to follow up maybe a little bit more on that, on Dave's cadence question here. I think, Glenn, you said that Q4 DSA revenue will be the highest. I guess the question then is: Is that the right kind of run rate we should think about as we look forward into 2027? Because clearly when we've seen the strong demand uptick and we're seeing this continuous improvement in the book-to-bill, is maybe then the Q4 the right jump-off point, or is there anything that maybe because it's maybe delayed from Q3 to Q4 that might be sort of a one-time-ish kind of benefit partially, so that we shouldn't use that as the jump-off point?

Charles Rhyee: Yeah. Thanks for taking the questions. Hey, just wanted to follow up maybe a little bit more on that, on Dave's cadence question here. I think, Glenn, you said that Q4 DSA revenue will be the highest. I guess the question then is: Is that the right kind of run rate we should think about as we look forward into 2027? Because clearly when we've seen the strong demand uptick and we're seeing this continuous improvement in the book-to-bill, is maybe then the Q4 the right jump-off point, or is there anything that maybe because it's maybe delayed from Q3 to Q4 that might be sort of a one-time-ish kind of benefit partially, so that we shouldn't use that as the jump-off point?

Speaker #5: And I guess the question then is is that the right kind of runway we should think about as we look forward into 27 because clearly when we see the strong demand uptick and we're seeing this continuous improvement in the book to bill is maybe then the four Q the right jump off point or is there anything that maybe because it's maybe delayed from three Q to four Q that might be sort of a one time ish kind of benefit partially so that we shouldn't use that as the as the jump off point.

Speaker #3: Yeah. Charles let me give you a little color. So your comment on revenues my comment was really around margin being the highest for DSA in the fourth quarter to be clear.

Glenn Coleman: Yeah, Charles, let me give you a little color. My comment was really around margin being the highest for DSA in Q4, to be clear, and that's driven by these lower costs for the NHPs. We look at the sequencing of margins, I mentioned in my prepared remarks about a 200-basis point sequential improvement from Q2 to Q3. That's largely driven by lower corporate costs and some benefit from divestitures. Then we'd expect probably about another 300-basis point improvement to Q4 to get to our full-year guidance numbers, and most of that will come from the acquisition of K.F. Cambodia and the benefit we'll see in the DSA segment. Just so you know how we're sequencing out the Q3 and Q4 margins and, obviously, the comments that I made earlier around the margins, not the revenue.

Speaker #3: And that's driven by these lower costs for the NHPs. As we look at the sequencing of margins I mentioned in my prepared remarks about a 200 basis point sequential improvement from Q2 to Q3.

Speaker #3: That's largely driven by lower corporate costs and some benefit from divestitures. Then we'd expect probably about another 300 basis points of improvement by Q4 to get to our full-year guidance numbers, and most of that will come from the acquisition of KF Cambodia.

Speaker #3: And the benefit we'll see in the DSA segment. So just so you know how we're sequencing out the Q3 and Q4 margins and obviously the comments that I made earlier around the margins not the revenue.

Speaker #5: Okay. That's helpful. Sorry. I must have misheard. And then maybe just a quick follow up on the tax rate change. You said partially due to a proposed tax legislation change.

Charles Riley: Okay. That's helpful. Sorry, I must have misheard. Then maybe just a quick follow-up on the tax rate change. You said partly it was due to a proposed tax legislation change. Do we know when that will actually be finalized? Is this an estimation of a proposed change, and is there a chance that maybe it doesn't go through? Thanks.

Charles Rhyee: Okay. That's helpful. Sorry, I must have misheard. Then maybe just a quick follow-up on the tax rate change. You said partly it was due to a proposed tax legislation change. Do we know when that will actually be finalized? Is this an estimation of a proposed change, and is there a chance that maybe it doesn't go through? Thanks.

Speaker #5: Do we know when that will actually be finalized, or is this an estimation of a proposed change? And is there a chance that maybe it doesn't go through?

Speaker #5: Thanks.

Speaker #3: Yeah, no. Thanks for the question. So, this is associated with Mauritius, and we are expecting to hear back literally any day now on what the changes are going to be.

Glenn Coleman: Thanks for the question. This is associated with Mauritius, and we are expecting to hear back literally any day now on what the changes are going to be. We've obviously been in close contact with the local authorities in understanding what this could be. We've modeled in our guidance the impact we are expecting. If for some reason the impact is less, it would obviously be upside to our guidance right now. Just to put a finer point on it, when we raised our EPS guidance for the year by $0.25 at the midpoint, that's all operational. We have about a $0.19 gain overall that we expect to flow through the year, but we're anticipating a $0.20 tax headwind to offset that. If for some reason this tax legislation change does not happen, there would be upside to our EPS numbers.

Speaker #3: We've obviously been in close contact with the local authorities, and we're working to understand what this could be. So, we've modeled the impact we're expecting into our guidance.

Speaker #3: If for some reason the impact is less it would obviously be upside to our guidance right now. And just to put a finer point on it when we raised our EPS guidance for the year by 25 cents at the midpoint that's all operational.

Speaker #3: We have about a $0.19 gain overall that we expect to flow through the year, but we're anticipating a $0.20 tax headwind to offset that.

Speaker #3: So, if for some reason this tax legislation change does not happen, there would be upside to our EPS numbers. But right now, from what we know, we're pretty comfortable that it's going to happen.

Glenn Coleman: Right now, from what we know, we're pretty comfortable that it's going to happen, and we've factored it into our guidance.

Speaker #3: And we've factored it into our guidance.

Speaker #5: Great. Appreciate it. Thanks.

Charles Riley: Great. Appreciate it. Thanks.

Charles Rhyee: Great. Appreciate it. Thanks.

Speaker #3: Yep.

Glenn Coleman: Yep.

Speaker #1: Thank you. Our next question will come from Michael Riskin with Bank of America. Your line is now open.

Operator: Thank you. Our next question will come from Michael Ryskin with Bank of America. Your line is now open.

Speaker #4: Great. Thanks for taking the question and congrats on congrats on great quarter. Brooklyn maybe kind of going back to some of your prepared remarks on DSA strength the book to bill commentary you talked about demand trends both in biotech and pharma.

Michael Ryskin: Great. Thanks for taking the question, congrats on great quarter. Birgit, maybe kind of going back to some of your prepared remarks on DSA strength, the book-to-bill commentary. You talked about demand trends both in biotech and pharma. Would love to hear you talk on, comment on what you view as your capacity to support this. As you talked about, there's a lag between when some of these things convert into bookings convert into revenue. You've kind of tweaked capacity in DSA in prior years. Just talk about where you feel like you are now in terms of ability to absorb as that funding starts to flow through, or if there's incremental investments you need to make. Like, where are you looking out 12, 18, 24 months on that front?

Speaker #4: We'd love to hear you talk, coming on what you view as your capacity to support this. As you talked about, there's a lag between when some of these things convert, into when funding converts into bookings, and bookings convert into revenue.

Speaker #4: You've kind of tweaked capacity in DSA in prior years. Just talk about where you feel like you are now in terms of ability to absorb as that funding starts to flow through, or if there's incremental investments you need to make—sort of where are you looking out 12, 18, 24 months on that front?

Speaker #5: Yeah, thanks for the question, Mike. So, because of some volume declines over the last few years, we have sufficient capacity for a while. Obviously, it depends on the growth rate and the volume growth rate as such.

Birgit Girshick: Yeah. Thanks for the question, Mike. Because of some volume declines over the last few years, we have sufficient capacity for a while. Obviously, it depends on the growth rate and the volume growth rate as such. But at this stage, we don't see any issues, neither from an in vivo perspective, so animal rooms, equipment, then we will have to make some adjustments with people, but that isn't always. That is just part of doing business. From a lab perspective, we actually have expansions in progress. They are geared towards the future demand, currently we're fine, but we will need to execute on those expansions over the next couple of years to be able to grow with the market or above. Overall, quite comfortable with what we have on capacity.

Speaker #5: But at this stage, we don't see any issues, neither from an in vivo perspective—so animal rooms, equipment—and then we will have to make some adjustments in people, but that isn't always, always.

Speaker #5: So that is just part of doing business. From a lab perspective, we actually have expansions in progress. They're geared towards future demand. And currently, we are fine.

Speaker #5: But we will need to execute on those expansions over the next couple of years to be able to grow with the market or above.

Speaker #5: So, overall, we're quite comfortable with what we have on capacity. Utilization will improve a little bit, which is a good thing. But we don't see a bottleneck there.

Birgit Girshick: Utilization will improve a little bit, which is a good thing, but we don't see a bottleneck there.

Speaker #4: Okay, and maybe a quick follow-up on pricing, both on NHPs and just more broadly—what do you see in Q2? What are your expectations for the second half? How is that kind of playing out with the uptick in demand?

Michael Ryskin: Okay. Maybe a quick follow-up on pricing, both on NHPs and just more broadly, what you see in Q2. What are your expectations for H2? How is that kind of playing out with the uptick in demand? Thanks.

Speaker #4: Thanks.

Speaker #5: Yeah. Happy to address that too. So obviously what we're seeing in Q2 right now is mostly booked a few quarters ago. And so that what's flowing through right now is proposals that were basically done last year.

Birgit Girshick: Yeah. Happy to address that, too. Obviously, what we're seeing in Q2 right now is mostly booked a few quarters ago. That what's flowing through right now is proposals that were basically done last year. Overall, what I would say is pricing has not materially improved yet. Pricing is still stable. It is at the levels that we have seen for the last few years. Not more discounting, not less discounting. We are aggressive going after work, which shows in our capture rates. I'm actually quite happy seeing a little bit of an uptick in our capture rates. Which indicates that our go-to market approach is working, our pricing strategies are working, and that our differentiation strategy is working. We are looking forward to the time where pricing becomes a little bit more available.

Speaker #5: But overall what I would say is pricing has not materially improved yet. So pricing is still stable. It is at the levels that we have seen for the last few years.

Speaker #5: Not more discounting, not less discounting. We are aggressive going after work, which shows in our capture rates. I'm actually quite happy seeing a little bit of an uptick in our capture rates.

Speaker #5: Which indicates that our approaches, our go-to-market approach is working, our pricing strategies are working, and that our differentiation strategy is working. But we are looking forward to the time where pricing becomes a little bit more available.

Speaker #5: We do think that will happen. With capacity filling up a bit more over the next few quarters. But then again it will take some time to work through that in our backlog.

Birgit Girshick: We do think that will happen with capacity filling up a bit more over the next few quarters. Again, it will take some time to work through that in our backlog. Just as a reminder, if we get a proposal today, generally takes a quarter to go into bookings, another quarter or two to go into revenue generation. Any pricing uptick we might see in the upcoming quarters, would flow through then in 2027, not before. I think pricing will improve as capacity improves.

Speaker #5: So just as a reminder if we get a proposal today generally takes a quarter to go into bookings another quarter. Or two to go into revenue generation.

Speaker #5: So any pricing uptick we might see in the upcoming quarters would flow through then in 2027 not before. So but I think pricing will improve as capacity improves.

Speaker #4: Okay. Thank you.

Michael Ryskin: Okay. Thank you.

Operator: Thank you. We'll take our next question from Justin Bowers with Deutsche Bank. Your line is now open.

Speaker #1: Next question from Justin Bowers with Deutsche Bank. Your line is now open.

Speaker #6: Hi, good morning. Just going back to an earlier question on China, I was going to take it in a different direction.

Justin Bowers: Hi, good morning. Just going back to an earlier question on China. I was going to take it in a different direction. On the clinical side, we're starting to see some of the in-licensing flow back in the US, and given the demand profile over there and what we think is some upward pressure on price over there, are you starting to see an uptick in work from biotechs that might have otherwise gone over there, stay here, or that's coming back here? Can you talk about the opportunity set there? On pricing, are you starting to see that approach parity around the DSA side?

Speaker #6: But on the clinical side we're starting to see some of the in licensing flow back in the US. And given the demand profile over there and and what we think is some upward pressure on price over there.

Speaker #6: Are you starting to see an uptick in work from biotechs that might have otherwise gone over there, stay here, or that's coming back here?

Speaker #6: Can you talk about the opportunities set there and then on pricing are you starting to see that approach parity around the DSA side?

Speaker #5: Yeah. So on the first your first question first. So on the biotechs that did work in China most of those that work is in the early stage in the chemistry biology.

Birgit Girshick: Yeah. On your first question first. On the biotechs that did work in China, most of those that work is in the early stage in the chemistry biology. We don't really do that work anymore. It was actually part of the business that we divested. We divested that because it didn't quite have the synergies nor the benefits to our portfolio that we were looking for. For us, the regulated work that we are really focusing on, our core business where most of our work is, has had very little influx into China so far. Not seeing this coming back doesn't mean the early stage isn't coming back. I can't really answer that question if the early-stage work is coming back because we're not seeing that in our proposals. It's not work we're doing.

Speaker #5: We don't really do that work anymore. It was actually part of the business that we divested. And we divested that because it didn't quite have the synergies.

Speaker #5: Nor the benefits to our portfolio that we were looking for. So for us the regulated work that we are really focusing on our core business where most of our work is has had very little influx into China so far.

Speaker #5: So not seeing this coming back doesn't doesn't mean the early stage isn't coming back. So basically I can't really answer that question if the early stage work is coming back because we are not we're not seeing that in our proposals.

Speaker #5: It's not work we're doing. However from discussions with clients there is a level of uncertainty but a bit more of a wait and see approach.

Birgit Girshick: However, from discussions with clients, there is a level of uncertainty, but a bit more of a wait and see approach. With the early stage work, with the chemistry work, because that goes relatively quickly, I think people will continue to work there till they can't anymore. I don't think there is a huge need to build capacity here for them or move their work quickly. Certainly discussions are very frequent about what's the future there, should we bring work over there, should we bring it back? I don't think that particular biotech clients really have acted on that in a major fashion yet.

Speaker #5: And with the early-stage work, with the chemistry work, because that goes relatively quickly, I think people will continue to work there until they can't anymore.

Speaker #5: So I don't think there is a huge need to build capacity here for them or move their work quickly. So but certainly discussions are very frequent about what is what's the future there.

Speaker #5: Should we bring work over there? Should we bring it back? But I don't think that particular biotech clients really have acted on that in a major fashion yet.

Speaker #5: From a pricing perspective so what we're hearing is that the companies that are doing work for the West so there's there's a very specific group of CROs they're pricing is not too far off anymore.

Birgit Girshick: From a pricing perspective, what we're hearing from some of our clients is that the companies that are doing work for the West, there's a very specific group of CROs, their pricing is not too far off anymore, to the Western pricing. They're still lower. They will continue to be lower, and they need to be lower to actually have an attractiveness to work being done in the West because there's still complexity with language and time zones and other reasons. It is moderating a little bit. Now, pricing for Chinese biotech and pharma is still considerably lower. I don't know if that answered your question, Justin.

Speaker #5: To the Western pricing. They're still lower. They will continue to be lower. And they need to be lower to actually have an attractiveness to work being done in the West because there's still complexity with language and time zones and and other reasons.

Speaker #5: But it is moderating a little bit. Now, pricing for China, for Chinese biotech and pharma, is still considerably lower. So I don't know if that answered your question, Justin.

Speaker #6: It does Brenda. That's helpful. Thank you. I have a few more but I'll just jump back in Q.

Justin Bowers: It does, Birgit. That's helpful. Thank you. I have a few more, but I'll just jump back in queue.

Speaker #5: Okay.

Birgit Girshick: Okay.

Speaker #1: Thank you. Our next question comes from Casey Woodring with JP Morgan. Your line is now open.

Operator: Thank you. Our next question comes from Casey Woodring with J.P. Morgan. Your line is now open.

Operator: Thank you. Our next question comes from Casey Woodring with JPMorgan. Your line is now open.

Speaker #7: Great. Thank you for taking my questions. I just wanted to go back to the competitive comments you made. About NHP related safety assessment studies.

Casey Woodring: Great. Thank you for taking my questions. I just wanted to go back to the competitive comments you made about NHP-related safety assessment studies becoming a competitive advantage for you because you have security of supply. Can you maybe just elaborate on that a little bit? You've always sort of been the leader in this space, right? I think historically you've owned at least a third of the safety assessment market. Just curious how much your win rate has maybe increased as a result of more of this insourcing, and then how much higher you think your share could go here in the near term?

Speaker #7: It's becoming a competitive advantage for you because you have security of supply. Can you maybe just elaborate on that a little bit? You've always sort of been the leader in this space, right?

Speaker #7: I think historically, you've owned at least a third of the safety assessment market. So, just curious how much your win rate has maybe increased as a result of more of this insourcing, and then how much higher you think your share could go here in the near term.

Speaker #5: Yeah. I'm happy to. And Casey so shares is really hard to estimate. So I want to be very careful with that because there is really no public figures and many of our competitors are private companies and we don't necessarily have the insight.

Birgit Girshick: Yeah. I'm happy to. Casey, share is really hard to estimate, so I want to be very careful with that because there is really no public figures and many of our competitors are private companies, and we don't necessarily have the insight. What we are looking at internally to see if our pricing strategies and our differentiation strategies are working is capture rate. We had a nice uptick in our capture rate over the last few months. I wouldn't call it yet a trend because I want to see this trend continue for not just a quarter or two, but for the remainder of this year into next year. Still good to see, and I think it does show that we are focusing on the right things.

Speaker #5: So what we are looking at internally to see if our pricing strategies and our differentiation strategies are working is capture rate. And we had a nice uptick in our capture rate over the last few months.

Speaker #5: I wouldn't call it a trend yet, because I want to see this trend continue—not just for a quarter or two, but for the remainder of this year and into next year.

Speaker #5: But still good to see. And I think it does show that we are focusing on the right things. In terms of differentiation and competitiveness from non-human primates obviously that's been always a risk area for the industry.

Birgit Girshick: In terms of differentiation and competitiveness from non-human primates, obviously that's been always a risk area for the industry. Do we have enough non-human primates? Do we have them at the time when we need them? By being in control of that supply chain, in control of the timing, when we bring them in, quarantine them, when we can put them on studies, that really gives our clients a lot of assurance that they can run their studies when they need them, and that they don't have a time delay. I think that is a big benefit that we're bringing to the marketplace, and I think it's very acknowledged by our clients and just is deepening our client relationships and our preferred partnerships.

Speaker #5: Do we have enough non-human primates? Do we have them at the time when we need them? But being in control of that supply chain in control of the timing when we can't bring them in quarantine them when we can put them on studies.

Speaker #5: That really gives our clients a lot of assurance that they can run their studies when they need them. And that they don't have a time delay.

Speaker #5: So and I think that is a big a big benefit that we're bringing to the marketplace. And I think it's very acknowledged by our clients and just deepening our client relationships and our preferred partnerships.

Speaker #7: Got it. That's helpful. And then maybe just one quickly on RMS. You mentioned academic and government's the week. We've heard sort of mixed signals from some of the tools vendors on that end market.

Casey Woodring: Got it. That's helpful. Then maybe just one quickly on RMS. You mentioned academic and government's still weak. We've heard sort of mixed signals from some of the tools vendors on that end market, so maybe just talk about what you're seeing there. Then I don't think that you mentioned how CRADL performed in the quarter, so maybe just walk through that as well. Thank you.

Speaker #7: So maybe just talk about what you're seeing there and then I don't think that you mentioned how CRADLE performed in the quarter. So maybe just walk through that as well.

Speaker #7: Thank you.

Speaker #5: Yep. Certainly. So let me start with academic and government. So this is a segment for us that primarily is being serviced by our research models and services.

Birgit Girshick: Yeah, certainly. Let me start with academic and government. This is a segment for us that primarily is being serviced by our research models and services business. It's actually about 10% of the total company, so a smaller segment of ours. What we're seeing currently is stable but not growing demand. Historically, this has been a client segment that has been a growth segment for our research models and services business. What we're currently seeing is a little bit, I would say uncertainty still, right? NIH budget's been approved. Grants are coming out, but they are now multi-year. Some of the grant holders don't quite know how to work with this yet.

Speaker #5: Business. It's about 15 it's actually about 10 percent of the total companies or a smaller segment of ours. What we're seeing currently is stable but not growing demand.

Speaker #5: And historically this has been a client segment that has been a growth segment for our research models and services business. And what we are currently seeing is a little bit I would say uncertainty still right.

Speaker #5: So NIH budget been approved. Grants are coming out but they are now the grant holders don't quite know how to work with this yet.

Speaker #5: I think this will open up more in the future, but currently, it's holding our Research Models business back a little bit compared to historical.

Birgit Girshick: I think this will open up more in the future, currently it's holding our research models business back a little bit compared to historical, and that's why we're not quite seeing the demand, specifically in North America, that we would like to see. Looking at our CRADL business, CRADL is stable from a revenue perspective as well. Again, here too, we're not seeing quite the growth that we historically have seen in our CRADL business. CRADL is specifically focused on new companies, new biotech companies that have funding but do not want to spend or have enough funding to create their own vivariums. We're providing them with a space to do their research early on, grow with them, and then many of them leave and have their own vivariums, or they continue to stay with us for a few years.

Speaker #5: And that's why we're not quite seeing the demand in specifically in North America that we would like to see. Looking at our CRADLE business CRADLE is stable from a revenue perspective as well.

Speaker #5: But again, here too, we're not seeing quite the growth that we historically have seen in our CRADLE business. CRADLE is specifically focused on new companies, new biotech companies that have funding but do not want to spend—or have enough funding to create—their own vivariums.

Speaker #5: So we are providing them with a space to do their research early on, grow with them, and then many of them leave and have their own vivariums, or they continue to stay with us for a few years.

Speaker #5: And this business is still a bit hindered if you think about the company formation is growing but only by 2 percent. And far off from the COVID levels.

Birgit Girshick: This business is still a bit hindered. If you think about, the company formation is growing, but only by 2% and far off from the COVID levels. We just need to see a little bit more strengthening of that new company formation, new biotechs being established, before we will see this CRADL business to return to former growth rates.

Speaker #5: So we just need to see a little bit more strengthening of that new company formation new biotechs being established before we will see this CRADLE business to return to former growth rates.

Speaker #7: Got it. Thank you.

Casey Woodring: Got it. Thank you.

Speaker #1: Thank you. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is now open.

Operator: Thank you. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is now open.

Speaker #8: Hi guys. Good morning and thanks so much for the question. As we think about the bookings which obviously was a really nice step up to see in the quarter.

Elizabeth Anderson: Hi, guys. Good morning, and thanks so much for the question. As we think about the bookings, which obviously was a really nice step up to see in the quarter, can you talk a little bit more about kind of the mix of services within those bookings? Are they sort of similar to what your current revenue mix is? Are you seeing incremental demand in certain places within DSA versus previously? Any kind of additional qualitative color there would be very helpful. Thank you.

Speaker #8: Can you talk a little bit more about kind of the mix of services within those bookings? Are they sort of similar to what your current revenue mix is?

Speaker #8: Are you seeing incremental demand in certain places within DSA versus previously? Any kind of additional qualitative color there would be very helpful. Thank you.

Speaker #5: Yes. Elizabeth's happy to. So what we're seeing is a little bit of a shift from more post-I&D work to more pre-I&D work. Now we see this over time happening here and there in any time but over the last few years just because of funding was better available in later stage.

Birgit Girshick: Yes, Elizabeth, happy to. What we're seeing is a little bit of a shift from more post-IND work to more pre-IND work. Now, we see this over time happening here and there in any time. Over the last few years, just because of funding was better available in later stage, that post-IND had a bit more of a heavier component of our work. Over the last quarter, we saw that pivoting back a little bit to pre-IND work, which is great to see. We need both for the utmost profitability and capacity utilization at our company. It is important that pre-IND work is being performed, because that will just lead into later stage work, more complex work, more specialty work. That's actually a good sign that we're taking that, the market, the funding, our clients' demand is strengthening.

Speaker #5: That post-I&D had a bit more of a heavier component of our work. And over the last quarter we saw that pivoting back a little bit to pre-I&D work.

Speaker #5: Which is great to see; we need both for the utmost profitability and capacity utilization at our company. But it is important that pre-I&D work is being performed because that will just lead into later stage work—more complex work, more specialty work.

Speaker #5: So that's actually a good sign that we're taking that the market the funding our clients demand is strengthening.

Speaker #8: Got it. And maybe as a follow up just to understand how do you guys feel about any kind of incremental investment levels? I understand what you've been saying about some of the technology and AI investments really helping on that front too.

Elizabeth Anderson: Got it. Maybe as a follow-up, just to understand, how do you guys feel about any kind of incremental investment levels? I understand what you've been saying about some of the technology and AI investments really helping on that front too, but just as we kind of think about this influx of demand, anything to think about on that front? Or you sort of feel comfortable with sort of where utilization levels are and staffing levels and things like that and as we think about like the back half of 2026 into 2027? Thank you.

Speaker #8: But just as we kind of think about this influx of demand, is there anything to think about on that front? Or do you sort of feel comfortable with where utilization levels are and staffing levels and things like that, as we think about the back half of 2026 into 2027?

Speaker #8: Thank you.

Speaker #5: Yeah. So we are adding staffing just based on what we expect for demand. So that is always always we'll add the staff. We'll get them trained up and make sure that ready for revenue to pick up.

Birgit Girshick: Yeah. We are adding staffing, just based on what we expect for demand. That is always. We'll add the staff, we'll get them trained up, and make sure they're ready for revenue to pick up. The other investments we're making, I mentioned that a little bit in my remarks, is in lab space and lab expansions. That doesn't have an impact on revenue in 2026, but it allows us to grow in that area 2027 and beyond. It's very important that we execute on that. I specifically talked about an expansion in Edinburgh, where we are close to one of the universities, which then also helps us with the staffing aspect.

Speaker #5: The other investments we're making I mentioned that a little bit in my remarks is in lab space and lab expansions. That doesn't have an impact on revenue in 2026 but it will have allows us to grow in that area 27 and beyond.

Speaker #5: So it's very important that we execute on that. I specifically talked about a expansion in Edinburgh where we are close to one of the universities which then also helps us with the staffing aspect.

Speaker #5: We continue to focus also on modernizing our labs bringing more automation in increasing the throughput and bringing systems in both digitals as well as lab equipment systems to really drive speed but also utilization in our laboratories.

Birgit Girshick: We continue to focus also on modernizing our labs, bringing more automation in, increasing the throughput, and bringing systems in, both digitals as well as lab equipment systems, to really drive speed, but also utilization in our laboratories. We will continue to talk about that, how we will modernize the company. It's both for speed and efficiencies, but that is a big focus of ours right now in all segments and all functions. Particularly during our Investor Day, we will deep dive on that a bit more.

Speaker #5: So we will continue to talk about that how we will modernize the company. It's both for speed and efficiencies. But that is a big focus of ours right now in all segments in all functions.

Speaker #5: And particularly during our investor day we will deep dive on that a bit more.

Speaker #8: Got it. Thank you.

Elizabeth Anderson: Got it. Thank you.

Speaker #1: Thank you. We'll go next to Ryan Halstead with RBC. Your line is now open.

Operator: Thank you. We'll go next to Ryan Halsted with RBC. Your line is now open.

Speaker #7: Good morning. Thanks for taking the questions. My question is just on the guidance raise. If you could just offer some more color on the incremental visibility you have into the bookings that you now expect to convert in the second half?

Ryan Halsted: Good morning. Thanks for taking the questions. My question is just on the guidance raise. If you could just offer some more color on the incremental visibility you have into the bookings that you now expect to convert in the H2. I thought maybe you said this was related to bookings that you've completed the middle of this year, or is this bookings from prior year?

Speaker #7: I thought maybe you said this was related to bookings that you've completed the middle of this year or is this bookings from prior year?

Speaker #2: Yeah Ryan. Thanks for the question. So the confidence in the raise to our revenue and EPS is really based upon the bookings we saw come through in Q2.

Glenn Coleman: Yeah, Ryan, thanks for the question. The confidence in the raise to our revenue and EPS is really based upon the bookings we saw come through in Q2. Most of the year now we've gotten bookings. We still have to see a book-to-bill of one or greater for the rest of the year, but that's largely going to impact 2027. We'll get some benefit from that in the H2. Just given the strength we're seeing in all the key lead indicators, net book-to-bill being one, proposal volumes being a second, capture rate being the third, we feel confident now that we're going to see better performance in the H2. The guidance raise for EPS is all associated with revenue. We raised our organic revenue growth rate by about 150 basis points.

Speaker #2: So most of the year now we've got in bookings. We still have to see a book to bill of one or greater for the rest of the year but that's largely going to impact 2027.

Speaker #2: We'll get some benefit from that in the second half of the year but just given the strength we're seeing in all the key lead indicators net book to bill being one proposal volumes being a second capture rate being the third we feel confident now that we're going to see better performance in the second half of the year.

Speaker #2: And so the guidance raise for EPS is all associated with revenue. And we raised our organic revenue growth rate by about 150 basis points.

Speaker #7: Got it. That's helpful. And then my follow up just in terms of your modernization initiatives some of the detail you provided in the prepared remarks was very helpful.

Ryan Halsted: Got it. That's helpful. My follow-up, just in terms of your modernization initiatives. Some of the detail you provided in the prepared remarks was very helpful. Wanted to ask specifically about NAMs. Should we be looking for collaborations and partnerships with biotech companies that maybe have some interesting innovation in NAMs? Appreciate that.

Speaker #7: But wanted to ask specifically about NANDs. Any should we be looking for kind of collaborations and partnerships with biotech companies that maybe have some interesting innovation in kind of NANDs?

Speaker #7: Appreciate that.

Speaker #5: Yeah. So we have a very strong NAMs focus and commitment. So last year, we established a scientific advisory board. We hired a leader from the industry to be our Chief Scientific Officer and to particularly focus on NAMs development. And so what we are doing is really focusing on areas where we believe NAMs can have a benefit on the reduction of animals, but also providing more insights, more evidence, to our clients.

Birgit Girshick: Yeah. We have a very strong NAMs focus and commitment. Last year, we established a scientific advisory board. We hired a leader from the industry to be our chief scientific officer and to particularly focus on NAMs development. What we are doing is really focusing on areas where we believe NAMs can have a benefit on the reduction of animals, providing more insights, more evidence to our clients. It's going to be a very broad mix of technologies, assays that we are either already have or are developing or in-licensing or partnering with. You will see probably more internal development, followed by licensing and partnering. You will probably hear us talk about some of the technologies that we are in-licensing and partnering.

Speaker #5: And it's going to be a very broad mix of technologies assays that we are either already have or are developing or in licensing or partnering with.

Speaker #5: So you will see probably more internal development followed by licensing and partnering. So you will probably hear us talk about some of the technologies that we are in licensing and partnering and then we also are working with several of our clients on areas where they are interested or where they see the best possible outcomes.

Birgit Girshick: We also are working with several of our clients on areas where they are interested or where they see the best possible outcomes. It's ongoing. Again, during our Investor Day, we'll give a deep dive on NAMs development, how we think about it, where we do see opportunities. There will never be a NAMs business for Charles River. It will always be a safety assessment business where we're integrating NAMs into our safety assessment workflows. I think that is the strength and that is the only way NAMs can be adopted. We're in a really good position to be the leader in the integration. As I said, it will be from multiple sources, multiple technologies, not really focused on one single thing.

Speaker #5: So it's ongoing. Again during our investor day we'll give a deep dive on NANDs development how we think about it where we do see opportunities.

Speaker #5: There will never be a names business for Charles River. It will always be a safety assessment business where we integrating names into our safety assessment workflows and I think that is the strengths and that is the only way names can be adopted and we're in a really good position to be the leader in the integration and as I said it will be from multiple sources multiple technologies not really focused on one thing or thing.

Speaker #7: Great. Thank you. Looking forward to the event.

Ryan Halsted: Great. Thank you. Looking forward to the event.

Speaker #1: Thank you. Our next question comes from Luke Sergot with Barclays. Your line is now open.

Operator: Thank you. Our next question comes from Luke Sergott with Barclays. Your line is now open.

Speaker #3: Great. Thanks for the question. Just wanted to ask if you guys have seen any demand pick-up from the DOD list and the WuXi on the no-fly list.

Luke Sergott: Great. Thanks for the question. Just wanted to ask about if you guys have seen any demand pickup from the DoD list and the WuXi on the no-fly list. I know that was in June, but any signs of early wins or conversations with those customers?

Speaker #3: I know that was in June, but are there any signs of early wins or conversations with those customers?

Speaker #5: Yeah. Look so generally most of that work that they're doing is in the early stage like chemistry biology that we are no longer in the business of.

Birgit Girshick: Yeah, look. Generally, most of that work that they're doing is in the early stage, like chemistry, biology, that we are no longer in the business of. I couldn't tell you specifically if clients are looking for other providers there, but I assume there are. We had a few discussions with clients, more on the regulated space, but generally, the Western clients are not yet taking their regulated work to China, those discussions are quite limited, but not occurring, if that's English.

Speaker #5: So I couldn't tell you specifically if clients are looking for other providers there. But I'm assume there are. We had a few discussions with clients more on the regulated space but generally the western clients are not yet taking their regulated work to China and so those discussions are quite limited.

Speaker #5: But not occurring. So if that's English. So limited but yes a little bit.

Luke Sergott: Yeah

Birgit Girshick: limited, but yes, a little bit.

Speaker #3: Okay. Perfect. And then on the guide with the DSA business and in light of your strong bookings kind of implies there are decell in the conversion or burn rate.

Luke Sergott: Okay, perfect. On the guide with the DSA business, in light of your strong bookings, kind of implies there a decel in the conversion or burn rate. Anything there from a mix perspective or how the projects are shaking out that gives you that decel, or is that just the conservatism based on what you guys are seeing right now?

Speaker #3: So anything there from a mixed perspective or how the projects are shaking out that gives you that decell or is that just kind of the conservatism based on what you guys are seeing right now?

Speaker #5: It's more about the time it takes to go from booking some proposal to bookings bookings to revenue generating and then that just will take some time.

Birgit Girshick: It's more about the time it takes to go from proposal to bookings to revenue generating, that just will take some time. Some of the work we are doing is still was booked last year. What you are seeing now, the demand or the net book-to-bill really will have an impact in the H2 into 2027. It's just a matter of timing.

Speaker #5: So some of the work we are doing is still booked was booked last year and what you're seeing now the demand or the net book to bill really will have an impact in the second half into 2027.

Speaker #5: So it's just a matter of timing.

Speaker #2: And keep in mind for the first half of the year DSA had negative organic growth and now we're projecting low single digit organic growth in the back half of the year.

Glenn Coleman: Keep in mind, for the H1 of the year, DSA had negative organic growth, now we are projecting low single-digit organic growth in the H2 of the year. We are reflecting some of that improvement here. Obviously, we would like to see that continue to accelerate going into 2027.

Speaker #2: So, we are reflecting some of that improvement here, and obviously, we'd like to see that continue to accelerate going into 2027.

Speaker #3: Great. Thanks.

Birgit Girshick: Great. Thanks.

Speaker #1: Thank you. Our final question today comes from Josh Waldman with Cleveland Research. Your line is now open.

Operator: Thank you. Our final question today comes from Josh Waldman with Cleveland Research. Your line is now open.

Josh Waldman: Hey, morning. Thanks for taking my question. I'll just keep it to one. Birgit, it sounds like you feel comfortable with even existing safety capacity. When you think about your ability to get better utilization on existing capacity, the impact of NHP costs, et cetera, how do the moving pieces leave you feeling on the margin set up into next year? Or I guess, how are you thinking about the margin potential for the business in Q4 into 2027?

Speaker #6: Hey. Morning. Thanks for taking my question. I'll just keep it to one. Birgit it sounds like you feel comfortable with existing safety capacity I mean when you think about your ability to get better utilization on existing capacity the impact of NHP costs etc.

Speaker #6: How did the moving pieces leave you feeling on the margin setup in the next year or I guess how are you thinking about the margin potential for the business in Q4 and the 2027?

Birgit Girshick: I think we're going to stay away from comments on 2027. That's a little bit early. There are some areas, obviously, that we already called out, which, for example, the K.F. Cambodia acquisition and divestitures have a positive impact on margin next year, and we can walk you through. Overall, I want to stay away. There's too many variables in play that we still need to work through. For the second half of the year, we called out at least 500 basis points, a big impact in Q4 because of when the non-human primates are coming through on the revenue line. I wouldn't necessarily translate that straight into 2027. Glenn, you can chime in.

Speaker #5: I think we'll going to stay away from comments on 2027. That's a little bit early. There are some areas obviously that we already called out which for example the KS Cambodia acquisition and divestitures have a positive impact on margin next year and we can walk you through.

Speaker #5: But overall I want to stay away. There's too many variables in play that we still need to work through. For the second half of the year we called out at least 500 basis points.

Speaker #5: A big impact in Q4 because of when the non-human primates are coming through on the revenue line. But I wouldn't necessarily translate that straight into 2027.

Speaker #5: So Glenn you can chime in.

Glenn Coleman: No, exactly. Don't take the Q4 run rate and assume that that's the run rate going forward. I think year over year, 2027 versus 2026, if you look at some of the previous comments we've made, we would expect to see some margin expansion coming from the full impact of divestitures and the Cambodia acquisition. That will have a tailwind in 2027, we're not ready yet to give guidance on our margins for next year.

Speaker #2: No, no, exactly. Don't take the Q4 run rate and assume that that's the run rate going forward. I think year-over-year 2027 versus 2026, if you look at some of the previous comments we've made, we would expect to see some margin expansion coming from the full impact of divestitures and the Cambodia acquisition.

Speaker #2: So that will have a tailwind in 2027 but we're not ready yet to give guidance on our margins for next

Speaker #6: Okay. Thank you.

Josh Waldman: Okay. Thank you.

Speaker #1: Thank you. We have no further questions in the queue. I will now turn the conference back to Todd Spencer for closing remarks.

Operator: Thank you. We have no further questions in queue. I will now turn the conference back to Todd Spencer for closing remarks.

Speaker #4: Thank you for joining us on the conference call this morning. For those interested in our Investor Day on September 24, please visit the Investor Relations section of our website at ir.criver.com to register for the webcast, or contact me for any additional details.

Todd Spencer: Thank you for joining us on the conference call this morning. For those interested in our Investor Day on 24 September, please visit the investor relations section of our website at ir.criver.com to register for the webcast, or contact me for any additional details. This concludes the conference call. Thank you.

Speaker #4: This concludes the conference call. Thank you.

Operator: Thank you. That does conclude today's Charles River Laboratories Q2 2026 earnings call. Thank you for your participation, and you may now disconnect.

Q2 2026 Charles River Laboratories International Inc Earnings Call

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