Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2023 as filed with the SEC on February 14, 2024. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in Item 1A, “Risk Factors” included elsewhere within this Form 10-Q. Certain percentage changes may not recalculate due to rounding.

Overview

We are a leading, non-clinical global drug development partner with a mission to create healthier lives. For over 75 years, we have been in the business of providing the research models required in the research and development of new drugs, devices, and therapies. Over this time, we have built upon our original core competency of laboratory animal medicine and science (research model technologies) to develop a diverse portfolio of discovery and safety assessment services, both Good Laboratory Practice (GLP) and non-GLP, that supports our clients from target identification through non-clinical development. We also provide a suite of products and services to support our clients’ manufacturing activities. Utilizing our broad portfolio of products and services enables our clients to create a more efficient and flexible drug development model, which reduces their costs, enhances their productivity and effectiveness, and increases speed to market.

Our client base includes major global pharmaceutical companies, many biotechnology companies; agricultural and industrial chemical, life science, veterinary medicine, medical device, diagnostic and consumer product companies; contract research and contract manufacturing organizations; and other commercial entities, as well as leading hospitals, academic institutions, and government agencies around the world.

Segment Reporting

Our three reportable segments are Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing).

Our RMS reportable segment includes the Research Models, Research Model Services, and Cell Solutions businesses. Research Models includes the commercial production and sale of small research models, as well as the supply of large research models. Research Model Services includes: Insourcing Solutions (IS), which provides colony management of our clients’ research operations (including recruitment, training, staffing, and management services) within our clients’ facilities as well as our own vivarium space, utilizing our Charles River Accelerator and Development Lab (CRADL), Genetically Engineered Models and Services (GEMS), which performs contract breeding and other services associated with genetically engineered models; and Research Animal Diagnostic Services (RADS), which provides health monitoring and diagnostics services related to research models; and Cell Solutions provides controlled, consistent, customized primary cells and blood components derived from normal and mobilized peripheral blood and bone marrow.

Our DSA segment is comprised of two businesses: Discovery Services and Safety Assessment. We provide regulated and non-regulated DSA services to support the research, development, and regulatory-required safety testing of potential new drugs, including therapeutic discovery and optimization plus in vitro (non-animal) and in vivo (in research models) studies, laboratory support services, and strategic non-clinical consulting and program management to support product development.

Our Manufacturing reportable segment includes Microbial Solutions, which provides in vitro lot-release testing products, microbial detection products, and species identification services and Biologics Solutions (Biologics), which performs specialized testing of biologics (Biologics Testing Solutions) as well as contract development and manufacturing products and services (CDMO).

U.S. Government Investigations into the Non-Human Primate Supply Chain

On February 16, 2023, the Company was informed by the U.S. Department of Justice (DOJ) that in conjunction with the U.S. Fish and Wildlife Service (USFWS), it had commenced an investigation into the Company’s conduct regarding several shipments of non-human primates from Cambodia. On February 17, 2023 the Company received a grand jury subpoena requesting certain documents related to such investigation. The Company is aware of a parallel civil investigation being undertaken by the DOJ and USFWS. The Company is cooperating with the DOJ and the USFWS and believes that the concerns raised with respect to the Company’s conduct are without merit. The Company maintains a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations, and has operated under the belief that all shipments of non-human primates it received satisfied the material requirements, documentation and related processes and procedures of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) documentation and related processes and procedures, which guides the release of each import by USFWS. Notwithstanding our

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

efforts and good-faith belief, in connection with the civil investigation, the Company has voluntarily suspended future shipments of non-human primates from Cambodia to the United States until such time that the Company and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported from Cambodia are purpose-bred. The Company continues to care for the Cambodia-sourced non-human primates from certain shipments in the United States. The carrying value of the inventory related to these shipments is approximately $27 million as of June 29, 2024, which reflects the value of the shipments in accordance with our inventory accounting policy. On May 16, 2023, the Company received an inquiry from the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting it to voluntarily provide information, subsequently augmented with a document subpoena and additional inquiries, primarily related to the sourcing of non-human primates and related disclosures, and the Company is cooperating with these requests. We are not able to predict what action, if any, might be taken in the future by the DOJ, USFWS, SEC or other governmental authorities as a result of the investigations. None of the DOJ, USFWS or SEC has provided the Company with any specific timeline or indication as to when these investigations or, specific to the DOJ and USFWS, discussions regarding future processes and procedures, will be concluded or resolved. The Company cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities. For our assessment of risk factors surrounding the aforementioned matter refer to Item 1A, “Risk Factors” and Item 3, “Legal Proceedings” of our Annual Report on Form 10-K for fiscal year 2023.

Recent Acquisitions

Our strategy is to augment internal growth of existing businesses with complementary acquisitions. Our recent acquisitions are described below.

Fiscal Year 2023 Acquisitions

On November 30, 2023, we completed our acquisition of an additional 41% equity interest of Noveprim Group (“Noveprim”), a leading provider of non-human primates (“NHPs”) used for biomedical, pharmaceutical and toxicological research purposes, resulting in a 90% controlling interest. The acquisition strengthens and diversifies the supply chain for our DSA segment. We had previously acquired a 49% equity stake in 2022 for $90.0 million up-front and additional future contingent payments up to $5.0 million based on future performance. The total preliminary purchase price for the Noveprim acquisition is $392.4 million, which includes $144.6 million additional cash paid for the 41% equity interest, elimination of historical activity and intercompany balances of $209.5 million which includes a remeasurement gain on the 49% equity investment of $113.0 million, contingent consideration of $33.3 million, deferred purchase price of $12.0 million payable from 2024 through 2027, offset by estimated post-closing adjustments for working capital of $7.0 million. The purchase price reflected a preliminary agreement with seller on working capital and debt, which was adjusted from $13.8 million to $7.0 million during the quarter ended June 29, 2024. As a result of measurement period adjustments to the purchase price, goodwill and remeasurement gains on the previous 49% equity investment for the quarter ended June 29, 2024, were increased by $17.6 million and $9.8 million, respectively. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment for NHPs vertically integrated into our Safety Assessment supply chain and the RMS reportable segment for NHPs sold to third party customers.

On January 27, 2023, we acquired SAMDI Tech, Inc., (SAMDI), a leading provider of high-quality, label-free high-throughput screening (HTS) solutions for drug discovery research. The acquisition of SAMDI will provide clients with seamless access to the premier, label-free HTS MS platform and create a comprehensive, library of drug discovery solutions. The purchase price of SAMDI was $62.8 million, inclusive of a 20% strategic equity interest previously owned by us. The acquisition was funded through a combination of available cash and proceeds from our Credit Facility. This business is reported as part of our DSA reportable segment.

Fiscal Quarters

Our fiscal year is typically based on 52-weeks, with each quarter composed of 13 weeks ending on the last Saturday on, or closest to, March 31, June 30, September 30, and December 31. A 53rd week in the fourth quarter of the fiscal year is occasionally necessary to align with a December 31 calendar year-end.

Global Market Environment

We are seeing a more cautious spending environment from our client base, principally global biopharmaceutical and biotechnology clients within our DSA segment, as they reassess their budgets, reprioritize their drug pipelines, and manage their cost structures. DSA backlog decreased to $2.2 billion as of June 29, 2024 from $2.5 billion as of December 30, 2023. We will continue to monitor the market trends carefully for potential impacts to our operating and financial results.

In response to recent trends observed, we have undertaken and will continue to implement restructuring actions at various locations across North America, Europe and Asia. This includes workforce right-sizing actions, resulting in severance and transition costs; and costs related to the consolidation of facilities, resulting in asset impairment, accelerated depreciation, and other site consolidation charges.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

During fiscal year 2023, we began taking restructuring actions as a result of these emerging business trends. We incurred restructuring charges of $18.0 million and $35.0 million during the three and six months ended June 29, 2024, and approximately $65 million during fiscal year 2023 through June 29, 2024. We expect that these effectuated actions as well as other upcoming planned actions will result in excess of $150 million of cost savings on an annualized basis, of which approximately $100 million impact fiscal year 2024. Future initiatives beyond these actions are expected to include a multi-year strategy to optimize our global footprint to drive greater operating efficiency. These future initiatives are in the process of being finalized and quantified and the associated costs and savings associated are not included in the above totals.

Results of Operations

Consolidated Results of Operations and Liquidity

Revenue for three months ended June 29, 2024 decreased $33.8 million, or 3.2%, to $1,026.1 million compared to $1,059.9 million in the corresponding period in 2023. Revenue for the six months ended June 29, 2024 decreased $51.6 million, or 2.5%, to $2,037.7 million compared to $2,089.3 million in the corresponding period in 2023. The decreases in revenue were primarily due to our DSA business which experienced lower volume; partially offset by higher revenue within our Manufacturing businesses and the recent acquisition of Noveprim when compared to the corresponding periods in 2023.

In the three months ended June 29, 2024, our operating income and operating income margin were $151.7 million and 14.8% respectively, compared with $164.9 million and 15.6% respectively, in the corresponding period of 2023. In the six months ended June 29, 2024, our operating income and operating income margin were $277.6 million and 13.6% respectively, compared with $332.8 million and 15.9%, respectively, in the corresponding period of 2023. The decrease in operating income and operating income margin for the three and six months ended June 29, 2024 was primarily due to lower revenue described above, higher operating costs across all businesses, and charges related to recent restructuring activities, including severance, asset impairments, and other site consolidation costs.

Net income attributable to common shareholders decreased to $90.0 million in the three months ended June 29, 2024, from $97.0 million in the corresponding period of 2023. Net income attributable to common shareholders decreased to $157.3 million in the six months ended June 29, 2024, from $200.2 million in the corresponding period of 2023. The decreases in net income attributable to common shareholders was due principally to the decreases in operating income described above.

During the six months ended June 29, 2024, our cash flows from operations was $323.4 million compared with $257.5 million for the same period in 2023. The increase was driven by improvements across our revenue related accounts, including trade receivables, deferred revenue, and customer deposits; reduced inventory purchases supporting our Safety Assessment business, and timing of vendor and supplier payments compared to the same period in 2023.

Three Months Ended June 29, 2024 Compared to the Three Months Ended July 1, 2023

Revenue and Operating Income

The following tables present consolidated revenue by type and by reportable segment:

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change
			(in thousands, except percentages)
Service revenue			$	842,900					$	874,891					$	(31,991)					(3.7)		%
Product revenue			183,217						185,046						(1,829)						(1.0)		%
Total revenue			$	1,026,117					$	1,059,937					$	(33,820)					(3.2)		%

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
RMS			$	206,389					$	209,948					$	(3,559)					(1.7)		%				(0.5)		%
DSA			627,419						663,457						(36,038)						(5.4)		%				(0.1)		%
Manufacturing			192,309						186,532						5,777						3.1		%				(0.6)		%
Total revenue			$	1,026,117					$	1,059,937					$	(33,820)					(3.2)		%				(0.3)		%

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

The following table presents operating income by reportable segment:

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
RMS			$	29,948					$	48,918					$	(18,970)					(38.8)		%				(0.7)		%
DSA			138,376						161,538						(23,162)						(14.3)		%				0.7		%
Manufacturing			37,230						24,403						12,827						52.6		%				(1.6)		%
Unallocated corporate			(53,902)						(69,914)						16,012						(22.9)		%				(0.1)		%
Total operating income			$	151,652					$	164,945					$	(13,293)					(8.1)		%				0.2		%
Operating income % of revenue			14.8		%				15.6		%										(80) bps

The following presents and discusses our consolidated financial results by each of our reportable segments:

RMS

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	206,389					$	209,948					$	(3,559)					(1.7)		%				(0.5)		%
Cost of revenue (excluding amortization of intangible assets)			142,942						127,888						15,054						11.8		%
Selling, general and administrative			27,597						27,653						(56)						(0.2)		%
Amortization of intangible assets			5,902						5,489						413						7.5		%
Operating income			$	29,948					$	48,918					$	(18,970)					(38.8)		%				(0.7)		%
Operating income % of revenue			14.5		%				23.3		%										(880) bps

RMS revenue decreased $3.6 million due primarily to the combination of lower volume from Cell Solutions product revenue, Insourcing Solutions services revenue, and large research models product revenue in China, and the effect of changes in foreign currency exchange rates; partially offset by higher small research model product revenue in all geographic regions and the recent acquisition of Noveprim, which contributed $5.8 million to large research model product revenue.

RMS operating income decreased $19.0 million compared to the corresponding period in 2023. RMS operating income as a percentage of revenue for the three months ended June 29, 2024 was 14.5%, a decrease of 880 bps from 23.3% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue decreased primarily due to the lower revenue described above, higher amortization related to acquisitions, including an inventory step up recorded in cost of revenue from the Noveprim acquisition, and higher site consolidation and asset impairment charges related to recent restructuring activities.

DSA

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	627,419					$	663,457					$	(36,038)					(5.4)		%				(0.1)		%
Cost of revenue (excluding amortization of intangible assets)			418,964						420,551						(1,587)						(0.4)		%
Selling, general and administrative			54,479						63,709						(9,230)						(14.5)		%
Amortization of intangible assets			15,600						17,659						(2,059)						(11.7)		%
Operating income			$	138,376					$	161,538					$	(23,162)					(14.3)		%				0.7		%
Operating income % of revenue			22.1		%				24.3		%										(220) bps

DSA revenue decreased $36.0 million due primarily to decreased revenue in our Safety Assessment and Discovery Services businesses due to decreased volume, the impact of a recently divested site related to our Safety Assessment business, which decreased revenue by $2.3 million, and the effect of changes in foreign currency exchange rates.

DSA operating income decreased $23.2 million during the three months ended June 29, 2024 compared to the corresponding period in 2023. DSA operating income as a percentage of revenue for the three months ended June 29, 2024 was 22.1%, a

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

decrease of 220 bps from 24.3% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue decreased primarily due to the lower revenue described above, an adjustment to contingent consideration related to the acquisition of Noveprim, and higher severance, site consolidation, and asset impairment charges related to recent restructuring activities.

Manufacturing

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	192,309					$	186,532					$	5,777					3.1		%				(0.6)		%
Cost of revenue (excluding amortization of intangible assets)			110,498						112,522						(2,024)						(1.8)		%
Selling, general and administrative			33,813						38,481						(4,668)						(12.1)		%
Amortization of intangible assets			10,768						11,126						(358)						(3.2)		%
Operating income			$	37,230					$	24,403					$	12,827					52.6		%				(1.6)%
Operating income % of revenue			19.4		%				13.1		%										630 bps

Manufacturing revenue increased $5.8 million due primarily to increased revenue in both our Biologics Solutions and Microbial Solutions businesses, driven by increased demand for Biologics Testing, and CDMO services, and higher Microbial Solutions endotoxin product revenue; partially offset by the effect of changes in foreign currency exchange rates.

Manufacturing operating income increased $12.8 million during the three months ended June 29, 2024 compared to the corresponding period in 2023. Manufacturing operating income as a percentage of revenue for the three months ended June 29, 2024 was 19.4%, an increase of 630 bps from 13.1% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue increased primarily due to the higher revenue described above, improved operating leverage, and the absence of legal costs from an environmental litigation related to the Microbial Solutions business incurred during the three months ended July 1, 2023.

Unallocated Corporate

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Unallocated corporate			$	53,902					$	69,914					$	(16,012)					(22.9)		%				(0.1)		%
Unallocated corporate % of revenue			5.3		%				6.6		%										(130) bps

Unallocated corporate costs consist of selling, general and administrative expenses that are not directly related or allocated to the reportable segments. The decrease in unallocated corporate costs of $16.0 million, or 22.9%, compared to the corresponding period in 2023 is primarily related to reduction in compensation expenses, timing of digital investments and acquisition related costs. Costs as a percentage of revenue for the three months ended June 29, 2024 was 5.3%, a decrease of 130 bps from 6.6% for the corresponding period in 2023.

Other Income (Expense)

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change
			(in thousands, except percentages)
Other income (expense):
Interest income			$	3,010					$	1,426					$	1,584					111.1		%
Interest expense			(32,769)						(35,044)						2,275						(6.5)		%
Other income (expense), net			(2,240)						(2,663)						423						(15.9)		%
Total other expense, net			$	(31,999)					$	(36,281)					$	4,282					(11.8)		%

Interest income for the three months ended June 29, 2024 was $3.0 million, an increase of $1.6 million, or 111.1%, driven primarily from higher interest rates and interest earning asset balances.

Interest expense for the three months ended June 29, 2024 was $32.8 million, a decrease of $2.3 million, or 6.5%, compared to $35.0 million in the corresponding period in 2023. The decrease was due primarily to lower debt balances as we continue to pay down on our revolving credit facility.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Income Taxes

			Three Months Ended
			June 29, 2024						July 1, 2023						$ change						% change
			(in thousands, except percentages)
Provision for income taxes			$	25,392					$	29,221					$	(3,829)					(13.1)		%
Effective tax rate			21.2		%				22.7		%										(150) bps

Income tax expense for the three months ended June 29, 2024 was $25.4 million, a decrease of $3.8 million compared to $29.2 million for the corresponding period in 2023. Our effective tax rate was 21.2% for the three months ended June 29, 2024 compared to 22.7% for the corresponding period in 2023. The decrease was primarily attributable to an increase in non-taxable remeasurement gains on previous equity investment in Noveprim.

Six Months Ended June 29, 2024 Compared to Six Months Ended July 1, 2023

Revenue and Operating Income

The following tables present consolidated revenue by type and by reportable segment:

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change
			(in thousands, except percentages)
Service revenue			$	1,659,762					$	1,732,257					$	(72,495)					(4.2)		%
Product revenue			377,915						357,053						20,862						5.8		%
Total revenue			$	2,037,677					$	2,089,310					$	(51,633)					(2.5)		%

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
RMS			$	427,296					$	409,714					$	17,582					4.3		%				(0.4)		%
DSA			1,232,871						1,325,810						(92,939)						(7.0)		%				0.3		%
Manufacturing			377,510						353,786						23,724						6.7		%				(0.2)		%
Total revenue			$	2,037,677					$	2,089,310					$	(51,633)					(2.5)		%				0.0		%

The following table presents operating income by reportable segment:

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
RMS			$	73,097					$	89,327					$	(16,230)					(18.2)		%				(0.7)		%
DSA			253,215						332,969						(79,754)						(24.0)		%				0.3		%
Manufacturing			70,911						26,509						44,402						167.5		%				(1.1)		%
Unallocated corporate			(119,594)						(115,968)						(3,626)						3.1		%				0.1		%
Total operating income			$	277,629					$	332,837					$	(55,208)					(16.6)		%				—		%
Operating income % of revenue			13.6		%				15.9		%										(230) bps

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

The following presents and discusses our consolidated financial results by each of our reportable segments:

RMS

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	427,296					$	409,714					$	17,582					4.3		%				(0.4)		%
Cost of revenue (excluding amortization of intangible assets)			283,867						254,692						29,175						11.5		%
Selling, general and administrative			58,490						54,711						3,779						6.9		%
Amortization of intangible assets			11,842						10,984						858						7.8		%
Operating income			$	73,097					$	89,327					$	(16,230)					(18.2)		%				(0.7)		%
Operating income % of revenue			17.1		%				21.8		%										(470) bps

RMS revenue increased $17.6 million due primarily to the recent acquisition of Noveprim, which contributed $20.1 million to large research product revenue, and higher small research models product revenues; partially offset by lower Cell Solutions product revenue and large research models product revenue in China, and the effect of changes in foreign currency exchange rates.

RMS operating income decreased $16.2 million compared to the corresponding period in 2023. RMS operating income as a percentage of revenue for the six months ended June 29, 2024 was 17.1%, a decrease of 470 bps from 21.8% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue decreased principally due to higher severance, site consolidation and asset impairment charges related to recent restructuring activities, and higher amortization related to acquisitions, including an inventory step up recorded in cost of revenue from the Noveprim acquisition.

DSA

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	1,232,871					$	1,325,810					$	(92,939)					(7.0)		%				0.3		%
Cost of revenue (excluding amortization of intangible assets)			836,876						832,074						4,802						0.6		%
Selling, general and administrative			111,338						125,707						(14,369)						(11.4)		%
Amortization of intangible assets			31,442						35,060						(3,618)						(10.3)		%
Operating income			$	253,215					$	332,969					$	(79,754)					(24.0)		%				0.3		%
Operating income % of revenue			20.5		%				25.1		%										(460) bps

DSA revenue decreased $92.9 million due primarily to decreased revenue in our Safety Assessment and Discovery Services businesses due to decreased volume, as well as the impact of a recently divested site related to our Safety Assessment business, which decreased revenue by $5.2 million; partially offset by the effect of changes in foreign currency exchange rates.

DSA operating income decreased $79.8 million compared to the corresponding period in 2023. DSA operating income as a percentage of revenue for the six months ended June 29, 2024 was 20.5%, a decrease of 460 bps from 25.1% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue decreased primarily due to the lower revenue described above, higher operating and staffing costs, an adjustment to contingent consideration related to the acquisition of Noveprim, and higher severance, site consolidation, and asset impairment costs related to recent restructuring activities.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Manufacturing

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Revenue			$	377,510					$	353,786					$	23,724					6.7		%				(0.2)		%
Cost of revenue (excluding amortization of intangible assets)			218,378						225,914						(7,536)						(3.3)		%
Selling, general and administrative			66,660						78,218						(11,558)						(14.8)		%
Amortization of intangible assets			21,561						23,145						(1,584)						(6.8)		%
Operating income			$	70,911					$	26,509					$	44,402					167.5		%				(1.1)		%
Operating income % of revenue			18.8		%				7.5		%										1,130 bps

Manufacturing revenue increased $23.7 million due primarily to increased revenue in both our Biologics Solutions and Microbial Solutions businesses, driven by increased demand for Biologics Testing and CDMO services, and higher Microbial Solutions endotoxin product revenue; partially offset by the effect of changes in foreign currency exchange rates.

Manufacturing operating income increased $44.4 million compared to the corresponding period in 2023. Manufacturing operating income as a percentage of revenue for the six months ended June 29, 2024 was 18.8%, an increase of 1,130 bps from 7.5% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue increased primarily due to the higher revenue described above, along with improved operating leverage, and the absence of legal costs from an environmental litigation related to the Microbial Solutions business incurred during the six months ended July 1, 2023.

Unallocated Corporate

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change						Impact of FX
			(in thousands, except percentages)
Unallocated corporate			$	119,594					$	115,968					$	3,626					3.1		%				0.1		%
Unallocated corporate % of revenue			5.9		%				5.6		%										30 bps

Unallocated corporate costs consist of selling, general and administrative expenses that are not directly related or allocated to the reportable segments. The increase in unallocated corporate costs of $3.6 million, or 3.1%, compared to the corresponding period in 2023 is primarily related to higher compensation related expenses, including employee fringe related costs and severance costs, partially offset by lower acquisition related expenses. Costs as a percentage of revenue for the six months ended June 29, 2024 were 5.9%, an increase of 30 bps from 5.6% for the corresponding period in 2023.

Other Income (Expense)

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change
			(in thousands, except percentages)
Other income (expense):
Interest income			$	5,212					$	2,232					$	2,980					133.5		%
Interest expense			(67,770)						(69,424)						1,654						(2.4)		%
Other income (expense), net			3,593						(5,940)						9,533						(160.5)		%
Total other expense, net			$	(58,965)					$	(73,132)					$	14,167					(19.4)		%

Interest income for the six months ended June 29, 2024 was $5.2 million, an increase of $3.0 million, or 133.5%, driven primarily from higher interest rates.

Interest expense for the six months ended June 29, 2024 was $67.8 million, a decrease of $1.7 million, or 2.4%, compared to $69.4 million in the corresponding period in 2023. The decrease was due primarily to lower debt balances as we continue to pay down our revolving credit facility.

Other income, net for the six months ended June 29, 2024 was $3.6 million, an increase of $9.5 million, or 160.5%, compared to Other expense, net of $5.9 million for the corresponding period in 2023. The increase was due primarily to venture capital investment gains of $1.8 million as compared to losses of $8.4 million in the corresponding period in 2023.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Income Taxes

			Six Months Ended
			June 29, 2024						July 1, 2023						$ change						% change
			(in thousands, except percentages)
Provision for income taxes			$	49,921					$	56,308					$	(6,387)					(11.3)		%
Effective tax rate			22.8		%				21.7		%										110 bps

Income tax expense for the six months ended June 29, 2024 was $49.9 million, a decrease of $6.4 million compared to $56.3 million for the corresponding period in 2023. Our effective tax rate was 22.8% for the six months ended June 29, 2024 compared to 21.7% for the corresponding period in 2023. The increase in our effective tax rate in the six months ended June 29, 2024 compared to the corresponding period in 2023 was primarily attributable to decreased tax benefits from stock-based compensation deductions in the six months ended June 29, 2024.

Our global operations make the effective tax rate sensitive to significant tax law changes. Several countries where we operate have enacted legislation implementing the Organization for Economic Cooperation and Development’s (OECD) international tax framework, including the Pillar II global minimum tax rate with effect from January 1, 2024 or later. We continue to monitor future legislation on Pillar II, however, the Pillar II associated tax expense accrued for the six months ended June 29, 2024, is not material to the unaudited consolidated financial statements.

Liquidity and Capital Resources

Liquidity and Cash Flows

We currently require cash to fund our working capital needs, capital expansion, acquisitions, debt payments, lease, venture capital investment, restructuring initiatives, and pension obligations. Our principal sources of liquidity have been our cash flows from operations, supplemented by long-term borrowings. Based on our current business plan, we believe that our existing funds, when combined with cash generated from operations and our access to financing resources, are sufficient to fund our operations for the foreseeable future.

The following table presents our cash, cash equivalents and short-term investments:

			June 29, 2024						December 30, 2023
			(in thousands)
Cash and cash equivalents:
Held in U.S. entities			$	5,190					$	2,234
Held in non-U.S. entities			174,023						274,537
Total cash and cash equivalents			179,213						276,771
Short-term investments:
Held in non-U.S. entities			26,709						68
Total cash, cash equivalents and short-term investments			$	205,922					$	276,839

The following table presents our net cash provided by operating activities:

			Six Months Ended
			June 29, 2024						July 1, 2023
			(in thousands)
Net income			$	168,743					$	203,397
Adjustments to reconcile net income to net cash provided by operating activities			214,104						197,185
Changes in assets and liabilities			(59,424)						(143,077)
Net cash provided by operating activities			$	323,423					$	257,505

Net cash provided by cash flows from operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for (1) non-cash operating items such as depreciation and amortization, stock-based compensation, and other financing costs, deferred income taxes, gains and/or losses on venture capital and strategic equity investments, gains and/or losses on divestitures, contingent consideration, as well as (2) changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations. For the six months ended June 29, 2024, compared to the six months ended July 1, 2023, the increase in net cash provided by operating activities was primarily driven by improvements across our revenue related accounts, including trade receivables, deferred

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

revenue, and customer deposits; reduced inventory purchases supporting our Safety Assessment business, and timing of vendor and supplier payments compared to the same period in 2023.

The following table presents our net cash used in investing activities:

			Six Months Ended
			June 29, 2024						July 1, 2023
			(in thousands)
Acquisition of businesses and assets, net of cash acquired			$	(5,479)					$	(50,166)
Capital expenditures			(118,630)						(174,258)
Investments, net			(23,179)						(19,746)
Other, net			(370)						(1,057)
Net cash used in investing activities			$	(147,658)					$	(245,227)

For the six months ended June 29, 2024, the primary use of cash used in investing activities related to capital expenditures to support the growth of the business, an immaterial asset acquisition, and investments in certain venture capital and strategic equity investments.

For the six months ended July 1, 2023, the primary use of cash used in investing activities related to capital expenditures to support the growth of the business, the acquisition of SAMDI, and investments in certain venture capital and strategic equity investments.

The following table presents our net cash used in financing activities:

			Six Months Ended
			June 29, 2024						July 1, 2023
			(in thousands)
Proceeds from long-term debt and revolving credit facility			$	741,200					$	281,796
Proceeds from exercises of stock options			22,331						15,719
Payments on long-term debt, revolving credit facility, and finance lease obligations			(987,344)						(317,049)
Purchase of treasury stock			(18,265)						(23,978)
Purchases of additional equity interests, net			(12,000)						—
Payment of contingent considerations			—						(2,711)
Other, net			(13,434)						—
Net cash used in financing activities			$	(267,512)					$	(46,223)

For the six months ended June 29, 2024, net cash used in financing activities was primarily driven by the following activity:

• Net repayments of $252.4 million from our Credit Facility

• Net proceeds from exercises of employee stock options of $22.3 million

• Treasury stock purchases of $18.3 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements

For the six months ended July 1, 2023, net cash used in financing activities was primarily driven by the following activity:

• Net repayments of $33 million from our Credit Facility

• Net proceeds from exercises of employee stock options of $15.7 million

• Treasury stock purchases of $24.0 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements, and

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Financing and Market Risk

We are exposed to market risk from changes in interest rates and currency exchange rates, which could affect our future results of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities.

Amounts outstanding under our Credit Facility and our Senior Notes were as follows:

			June 29, 2024						December 30, 2023
			(in thousands)
Revolving facility			$	879,498					$	1,129,243
4.25% Senior Notes due 2028			500,000						500,000
3.75% Senior Notes due 2029			500,000						500,000
4.00% Senior Notes due 2031			500,000						500,000
Total			$	2,379,498					$	2,629,243

The Credit Facility has a maturity date of April 2026, with no required scheduled payment before that date. The interest rates applicable to the Credit Facility are equal to (A) for revolving loans denominated in U.S. dollars, at our option, either the base rate (which is the higher of (1) the prime rate, (2) the federal funds rate plus 0.50%, or (3) the one-month adjusted term SOFR rate plus 1%) or the adjusted term SOFR rate, (B) for revolving loans denominated in euros, the adjusted EURIBOR rate and (C) for revolving loans denominated in sterling, the daily simple SONIA rate, in each case, plus an interest rate margin based upon our leverage ratio.

We have an interest rate swap with a notional amount of $500 million to manage interest rate fluctuation related to our floating rate borrowings under the Credit Facility, at a fixed rate of 4.65% on our swap maturing November 2, 2024.

Our off-balance sheet commitments related to our outstanding letters of credit as of June 29, 2024 and December 30, 2023 were $21.2 million and $21.6 million, respectively.

Foreign Currency Exchange Rate Risk

We operate on a global basis and have exposure to foreign currency exchange rate fluctuations for our financial position, results of operations, and cash flows.

While the financial results of our global activities are reported in U.S. dollars, our foreign subsidiaries typically conduct their operations in their respective local currency. The principal functional currencies of the Company’s foreign subsidiaries are the Euro, British Pound and Canadian Dollar. During the six months ended June 29, 2024, the most significant drivers of foreign currency translation adjustment the Company recorded as part of Other comprehensive income (loss) were the Euro, Mauritian Rupee, Canadian Dollar, and Swedish Krona.

Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our financial position, results of operations, and cash flows. As the U.S. dollar strengthens against other currencies, the value of our non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally decline when reported in U.S. dollars. The impact to net income as a result of a U.S. dollar strengthening will be partially mitigated by the value of non-U.S. expenses, which will decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue, expenses, assets, liabilities, and cash flows will generally increase when reported in U.S. dollars. For the six months ended June 29, 2024, our revenue would have decreased by $65.2 million, and our operating income would have decreased by $3.6 million, if the U.S. dollar exchange rate had strengthened by 10%, with all other variables held constant.

We attempt to minimize this exposure by using certain financial instruments in accordance with our overall risk management and our hedge policy. We do not enter into speculative derivative agreements.

Repurchases of Common Stock

During the six months ended June 29, 2024, we did not repurchase any shares under our authorized stock repurchase program. As of June 29, 2024, we had $129.1 million remaining on the authorized $1.3 billion stock repurchase program. On August 2, 2024, our Board of Directors approved a new stock repurchase authorization of $1.0 billion. This new authorization replaces a prior stock repurchase authorization of $1.3 billion that had $129.1 million remaining on the plan when it was terminated.

Additionally, our stock-based compensation plans permit the netting of common stock upon vesting of restricted stock, restricted stock units, and performance share units in order to satisfy individual statutory tax withholding requirements. During the six months ended June 29, 2024, we acquired 0.1 million shares for $18.3 million through such netting.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reported periods, and the related disclosures. These estimates and assumptions are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience, trends in the industry, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

We believe that the application of our accounting policies, each of which require significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results. Our significant accounting policies are more fully described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for fiscal year 2023 as filed with the SEC on February 14, 2024. There have been no changes in the Company’s critical accounting policies during the six months ended June 29, 2024.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements please refer to Note 1, “Basis of Presentation,” in this Quarterly Report on Form 10-Q. Other than as discussed in Note 1, “Basis of Presentation,” we did not adopt any other new accounting pronouncements during the six months ended June 29, 2024 that had a significant effect on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.