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

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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 products and services offered within Research Models, Research Model Services, and Cell Solutions. 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™) offering, 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 Discovery Services and Safety Assessment services. 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), which guides the release of each import by USFWS. Notwithstanding our efforts and good-faith belief, in connection with the

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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 September 28, 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 contingent payments up to $5.0 million based on future performance. The total 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 an agreement with seller on working capital and debt, which was adjusted from $13.8 million to $7.0 million during the nine months ended September 28, 2024. As a result of measurement period adjustments to the purchase price, goodwill and remeasurement gains on the previous 49% equity investment for the nine months ended September 28, 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 provided clients with seamless access to the premier, label-free HTS MS platform and created 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 $2.1 billion as of September 28, 2024 from $2.5 billion as of December 30, 2023.

During the third quarter ended September 28, 2024, a triggering event was identified for the Discovery Services reporting unit (part of the DSA reportable segment). This resulted from a continuous decline in market conditions and operational challenges, ultimately resulting in a reduction of Discovery Services’ long range financial outlook. In response, management conducted a quantitative impairment test for goodwill to determine if the goodwill in the Discovery Services reporting unit was impaired. Upon completion of a quantitative impairment test, it was determined that the fair value of the reporting unit exceeded its

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

carrying value by approximately 22%, with a goodwill carrying value of $334.8 million as of September 28, 2024. The reporting unit’s fair value could be adversely affected and result in an impairment of goodwill if actual cash flows are below estimated cash flows, the estimated cash flows are discounted at a higher risk-adjusted rate or market multiples decrease. While the Discovery Services reporting unit is not currently impaired, the Company will continue to closely monitor future performance and any potential impacts on the value of the reporting unit.

In response to recent trends observed across each of our businesses, 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 to optimize our global footprint and drive greater operating efficiency across the Company, resulting in asset impairment, accelerated depreciation, and other site consolidation charges.

During fiscal year 2023, we began taking restructuring actions as a result of these emerging business trends. We incurred restructuring charges of $30.6 million and $65.6 million during the three and nine months ended September 28, 2024, and approximately $95 million since the beginning of fiscal year 2023 through September 28, 2024. We expect that these effectuated actions, as well as other upcoming planned actions designed to optimize our global footprint to drive greater operating efficiency, will result in approximately $200 million of cost savings on an annualized basis, of which approximately $100 million will impact fiscal year 2024.

Results of Operations

Consolidated Results of Operations and Liquidity

Revenue for three months ended September 28, 2024 decreased $16.9 million, or 1.6%, to $1,009.8 million compared to $1,026.6 million in the corresponding period in 2023. Revenue for the nine months ended September 28, 2024 decreased $68.5 million, or 2.2%, to $3,047.4 million compared to $3,115.9 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 September 28, 2024, our operating income and operating income as a percentage of revenue were $117.4 million and 11.6% respectively, compared with $151.5 million and 14.8% respectively, in the corresponding period of 2023. In the nine months ended September 28, 2024, our operating income and operating income as a percentage of revenue were $395.0 million and 13.0% respectively, compared with $484.3 million and 15.5%, respectively, in the corresponding period of 2023. The decrease in operating income and operating income as a percentage of revenue for the three and nine months ended September 28, 2024 were primarily due to the revenue impacts described above coupled with charges related to recent restructuring activities, including severance, asset impairments, and other site consolidation costs as discussed in Global Market Environment above.

Net income available to Charles River Laboratories International Inc, common shareholders decreased to $68.7 million in the three months ended September 28, 2024, from $87.4 million in the corresponding period of 2023. Net income available to Charles River Laboratories International Inc. common shareholders decreased to $226.0 million in the nine months ended September 28, 2024, from $287.5 million in the corresponding period of 2023. The decreases in net income available to common shareholders were due principally to the decreases in operating income described above.

During the nine months ended September 28, 2024, our cash flows from operations were $575.2 million compared with $463.0 million for the same period in 2023. The increase was driven by favorable performance across our revenue related accounts, including collections on trade receivables, deferred revenue, and customer deposits; benefiting cash provided by operations by $46.6 million; lower inventory of $13.8 million primarily due to lower purchases of inventory supporting our Safety Assessment business, and timing of payments to our suppliers and vendors benefiting our cash provided by operations by $7.1 million.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Three Months Ended September 28, 2024 Compared to the Three Months Ended September 30, 2023

Revenue and Operating Income

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


	Three Months Ended
	September 28, 2024		September 30, 2023		$ change		% change
	(in thousands, except percentages)
Service revenue	$	832,463	$	869,759	$	(37,296)	(4.3)	%
Product revenue	177,300		156,864		20,436		13.0	%
Total revenue	$	1,009,763	$	1,026,623	$	(16,860)	(1.6)	%


	Three Months Ended
	September 28, 2024		September 30, 2023		$ change		% change		Impact of FX
	(in thousands, except percentages)
RMS	$	197,824	$	186,848	$	10,976	5.9	%	0.4	%
DSA	615,060		664,028		(48,968)		(7.4)	%	0.3	%
Manufacturing	196,879		175,747		21,132		12.0	%	0.2	%
Total revenue	$	1,009,763	$	1,026,623	$	(16,860)	(1.6)	%	0.4	%

The following table presents operating income by reportable segment:


	Three Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
RMS	$	27,544		$	28,326		$	(782)	(2.8)	%	0.7	%
DSA	126,436			146,819			(20,383)		(13.9)	%	0.8	%
Manufacturing	40,188			26,275			13,913		53.0	%	0.8	%
Unallocated corporate	(76,763)			(49,918)			(26,845)		53.8	%	0.3	%
Total operating income	$	117,405		$	151,502		$	(34,097)	(22.5)	%	1.0	%
Operating income % of revenue	11.6		%	14.8		%			(320) bps

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

RMS


	Three Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Revenue	$	197,824		$	186,848		$	10,976	5.9	%	0.4	%
Cost of revenue (excluding amortization of intangible assets)	137,906			126,640			11,266		8.9	%
Selling, general and administrative	26,453			26,483			(30)		(0.1)	%
Amortization of intangible assets	5,921			5,399			522		9.7	%
Operating income	$	27,544		$	28,326		$	(782)	(2.8)	%	0.7	%
Operating income % of revenue	13.9		%	15.2		%			(130) bps

RMS revenue increased $11.0 million primarily driven by an increase in large research model product revenue, principally due to the recent acquisition of Noveprim, which contributed $9.1 million, an increase in small research model revenue in all geographic areas, and the effect of changes in foreign currency exchange rates; partially offset by a decline in Insourcing Solutions services revenue.

RMS operating income decreased $0.8 million compared to the corresponding period in 2023. RMS operating income as a percentage of revenue for the three months ended September 28, 2024 was 13.9%, a decrease of 130bps from 15.2% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue decreased primarily due to higher amortization related to acquisitions, including an inventory step up recorded in cost of revenue from the Noveprim

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acquisition, and higher charges related to recent restructuring activities, including severance and site consolidation and impairment charges; partially offset by the positive impacts of the RMS revenue drivers described above.

DSA


	Three Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Revenue	$	615,060		$	664,028		$	(48,968)	(7.4)	%	0.3	%
Cost of revenue (excluding amortization of intangible assets)	409,684			436,174			(26,490)		(6.1)	%
Selling, general and administrative	63,260			63,369			(109)		(0.2)	%
Amortization of intangible assets	15,680			17,666			(1,986)		(11.2)	%
Operating income	$	126,436		$	146,819		$	(20,383)	(13.9)	%	0.8	%
Operating income % of revenue	20.6		%	22.1		%			(150) bps

DSA revenue decreased $49.0 million primarily due to decreased revenue in our Safety Assessment business primarily due to declines in volume coupled with a decrease in demand within our Discovery Services business. The impact of a recently divested site related to our Safety Assessment business contributed $1.9 million to the decrease. This was partially offset by the effect of changes in foreign currency exchange rates.

DSA operating income decreased $20.4 million during the three months ended September 28, 2024 compared to the corresponding period in 2023. DSA operating income as a percentage of revenue for the three months ended September 28, 2024 was 20.6%, a decrease of 150 bps from 22.1% 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 severance related to recent restructuring activities, and certain third-party legal costs incurred in connection with the investigations by the U.S. government into the non-human primate supply chain; partially offset by lower site consolidation and impairment charges associated with a Discovery Services site closure which occurred in 2023.

Manufacturing


	Three Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Revenue	$	196,879		$	175,747		$	21,132	12.0	%	0.2	%
Cost of revenue (excluding amortization of intangible assets)	113,152			101,968			11,184		11.0	%
Selling, general and administrative	32,737			36,338			(3,601)		(9.9)	%
Amortization of intangible assets	10,802			11,166			(364)		(3.3)	%
Operating income	$	40,188		$	26,275		$	13,913	53.0	%	0.8%
Operating income % of revenue	20.4		%	15.0		%			540 bps

Manufacturing revenue increased $21.1 million primarily due to increased revenue in both our Biologics Solutions and Microbial Solutions businesses driven by increased demand for Biologics Testing and CDMO services, and an increase in endotoxin product revenue.

Manufacturing operating income increased $13.9 million during the three months ended September 28, 2024 compared to the corresponding period in 2023. Manufacturing operating income as a percentage of revenue for the three months ended September 28, 2024 was 20.4%, an increase of 540 bps from 15.0% 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 and improved operating leverage.

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Unallocated Corporate


	Three Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Unallocated corporate	$	76,763		$	49,918		$	26,845	53.8	%	0.3	%
Unallocated corporate % of revenue	7.6		%	4.9		%			270 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 $26.8 million, or 53.8%, compared to the corresponding period in 2023 is primarily related to higher employee compensation and benefits related costs, including severance related to recent restructuring activities and employee fringe related costs, and the absence of positive net settlements recognized on virtual power purchase agreements for the corresponding period in 2023. Costs as a percentage of revenue for the three months ended September 28, 2024 was 7.6%, an increase of 270 bps from 4.9% for the corresponding period in 2023.

Other Income (Expense)


	Three Months Ended
	September 28, 2024		September 30, 2023		$ change		% change
	(in thousands, except percentages)
Other income (expense):
Interest income	$	1,528	$	1,373	$	155	11.3	%
Interest expense	(30,284)		(33,742)		3,458		(10.2)	%
Other income (expense), net	2,592		(6,260)		8,852		(141.4)	%
Total other expense, net	$	(26,164)	$	(38,629)	$	12,465	(32.3)	%

Interest income for the three months ended September 28, 2024 was $1.5 million, an increase of $0.2 million, or 11.3%, driven primarily from higher interest rates and interest earning asset balances.

Interest expense for the three months ended September 28, 2024 was $30.3 million, a decrease of $3.5 million, or 10.2%, compared to $33.7 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.

Other income, net for the three months ended September 28, 2024 was $2.6 million, an increase of $8.9 million, or 141.4% compared to Other expense, net of $6.3 million for the corresponding period in 2023. The increase was due primarily to net gains on our venture capital investments and life insurance contracts as compared to fiscal year 2023.

Income Taxes


	Three Months Ended
	September 28, 2024			September 30, 2023			$ change		% change
	(in thousands, except percentages)
Provision for income taxes	$	20,946		$	24,852		$	(3,906)	(15.7)	%
Effective tax rate	23.0		%	22.0		%			100 bps

Income tax expense for the three months ended September 28, 2024 was $20.9 million, a decrease of $3.9 million compared to $24.9 million for the corresponding period in 2023. Our effective tax rate was 23.0% for the three months ended September 28, 2024 compared to 22.0% for the corresponding period in 2023. The tax rate increase was primarily attributable to the deferred tax impact of tax law changes enacted during the three months ended September 28, 2024, offset by jurisdictional earnings mix.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Nine Months Ended September 28, 2024 Compared to Nine Months Ended September 30, 2023

Revenue and Operating Income

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


	Nine Months Ended
	September 28, 2024		September 30, 2023		$ change		% change
	(in thousands, except percentages)
Service revenue	$	2,492,225	$	2,602,016	$	(109,791)	(4.2)	%
Product revenue	555,215		513,917		41,298		8.0	%
Total revenue	$	3,047,440	$	3,115,933	$	(68,493)	(2.2)	%


	Nine Months Ended
	September 28, 2024		September 30, 2023		$ change		% change		Impact of FX
	(in thousands, except percentages)
RMS	$	625,120	$	596,562	$	28,558	4.8	%	(0.1)	%
DSA	1,847,931		1,989,838		(141,907)		(7.1)	%	0.3	%
Manufacturing	574,389		529,533		44,856		8.5	%	—	%
Total revenue	$	3,047,440	$	3,115,933	$	(68,493)	(2.2)	%	0.1	%

The following table presents operating income by reportable segment:


	Nine Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
RMS	$	100,641		$	117,653		$	(17,012)	(14.5)	%	(0.3)	%
DSA	379,651			479,788			(100,137)		(20.9)	%	0.5	%
Manufacturing	111,099			52,784			58,315		110.5	%	(0.2)	%
Unallocated corporate	(196,357)			(165,886)			(30,471)		18.4	%	0.2	%
Total operating income	$	395,034		$	484,339		$	(89,305)	(18.4)	%	0.4	%
Operating income % of revenue	13.0		%	15.5		%			(250) bps

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

RMS


	Nine Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Revenue	$	625,120		$	596,562		$	28,558	4.8	%	(0.1)	%
Cost of revenue (excluding amortization of intangible assets)	421,773			381,332			40,441		10.6	%
Selling, general and administrative	84,943			81,194			3,749		4.6	%
Amortization of intangible assets	17,763			16,383			1,380		8.4	%
Operating income	$	100,641		$	117,653		$	(17,012)	(14.5)	%	(0.3)	%
Operating income % of revenue	16.1		%	19.7		%			(360) bps

RMS revenue increased $28.6 million primarily driven by an increase in large research model product revenue, principally due to the recent acquisition of Noveprim, which contributed $30.0 million, and an increase in small research models product revenues across all geographic areas; partially offset by lower Cell Solutions product revenue and Insourcing Solutions services revenue.

RMS operating income decreased $17.0 million compared to the corresponding period in 2023. RMS operating income as a percentage of revenue for the nine months ended September 28, 2024 was 16.1%, a decrease of 360 bps from 19.7% for the corresponding period in 2023. Operating income and operating income as a percentage of revenue decreased primarily due to

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higher charges related to recent restructuring activities, including severance and site consolidation and impairment charges, higher amortization related to acquisitions, including an inventory step up recorded in cost of revenue from the Noveprim acquisition; partially offset by the impacts of the RMS revenue drivers described above.

DSA


	Nine Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Revenue	$	1,847,931		$	1,989,838		$	(141,907)	(7.1)	%	0.3	%
Cost of revenue (excluding amortization of intangible assets)	1,246,560			1,268,248			(21,688)		(1.7)	%
Selling, general and administrative	174,598			189,076			(14,478)		(7.7)	%
Amortization of intangible assets	47,122			52,726			(5,604)		(10.6)	%
Operating income	$	379,651		$	479,788		$	(100,137)	(20.9)	%	0.5	%
Operating income % of revenue	20.5		%	24.1		%			(360) bps

DSA revenue decreased $141.9 million primarily due to decreased revenue in our Safety Assessment and Discovery Services businesses due to decreased volume and the impact of a recently divested site related to our Safety Assessment business contributed $7.1 million to the decrease; partially offset by the effect of changes in foreign currency exchange rates.

DSA operating income decreased $100.1 million compared to the corresponding period in 2023. DSA operating income as a percentage of revenue for the nine months ended September 28, 2024 was 20.5%, a decrease of 360 bps from 24.1% 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 severance related to recent restructuring activities, an adjustment to contingent consideration associated with the acquisition of Noveprim, and certain third-party legal costs incurred in connection with the investigations by the U.S. government into the non-human primate supply chain; partially offset by lower site consolidation and impairment charges compared to the corresponding period in 2023.

Manufacturing


	Nine Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Revenue	$	574,389		$	529,533		$	44,856	8.5	%	—	%
Cost of revenue (excluding amortization of intangible assets)	331,530			327,882			3,648		1.1	%
Selling, general and administrative	99,397			114,556			(15,159)		(13.2)	%
Amortization of intangible assets	32,363			34,311			(1,948)		(5.7)	%
Operating income	$	111,099		$	52,784		$	58,315	110.5	%	(0.2)	%
Operating income % of revenue	19.3		%	10.0		%			930 bps

Manufacturing revenue increased $44.9 million primarily due to increased revenue in both our Biologics Solutions and Microbial Solutions businesses, driven by increased demand for Biologics Testing and CDMO services and higher endotoxin product revenue.

Manufacturing operating income increased $58.3 million compared to the corresponding period in 2023. Manufacturing operating income as a percentage of revenue for the nine months ended September 28, 2024 was 19.3%, an increase of 930 bps from 10.0% 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 and improved operating leverage as well as lower legal costs from an environmental litigation related to the Microbial Solutions business incurred compared to the corresponding period in 2023.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

Unallocated Corporate


	Nine Months Ended
	September 28, 2024			September 30, 2023			$ change		% change		Impact of FX
	(in thousands, except percentages)
Unallocated corporate	$	196,357		$	165,886		$	30,471	18.4	%	0.2	%
Unallocated corporate % of revenue	6.4		%	5.3		%			110 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 $30.5 million, or 18.4%, compared to the corresponding period in 2023 is primarily related to higher employee compensation and benefits related costs, including severance related to recent restructuring activities and employee fringe related costs, and the absence of positive net settlements recognized on virtual power purchase agreements for the corresponding period in 2023. Costs as a percentage of revenue for the nine months ended September 28, 2024 were 6.4%, an increase of 110 bps from 5.3% for the corresponding period in 2023.

Other Income (Expense)


	Nine Months Ended
	September 28, 2024		September 30, 2023		$ change		% change
	(in thousands, except percentages)
Other income (expense):
Interest income	$	6,740	$	3,605	$	3,135	87.0	%
Interest expense	(98,054)		(103,166)		5,112		(5.0)	%
Other income (expense), net	6,185		(12,200)		18,385		(150.7)	%
Total other expense, net	$	(85,129)	$	(111,761)	$	26,632	(23.8)	%

Interest income for the nine months ended September 28, 2024 was $6.7 million, an increase of $3.1 million, or 87.0%, driven primarily from higher interest rates.

Interest expense for the nine months ended September 28, 2024 was $98.1 million, a decrease of $5.1 million, or 5.0%, compared to $103.2 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 nine months ended September 28, 2024 was $6.2 million, an increase of $18.4 million, or 150.7%, compared to Other expense, net of $12.2 million for the corresponding period in 2023. The increase was due primarily to venture capital investment gains of $8.4 million as compared to losses of $14.3 million in the corresponding period in 2023.

Income Taxes


	Nine Months Ended
	September 28, 2024			September 30, 2023			$ change		% change
	(in thousands, except percentages)
Provision for income taxes	$	70,867		$	81,160		$	(10,293)	(12.7)	%
Effective tax rate	22.9		%	21.8		%			110 bps

Income tax expense for the nine months ended September 28, 2024 was $70.9 million, a decrease of $10.3 million compared to $81.2 million for the corresponding period in 2023. Our effective tax rate was 22.9% for the nine months ended September 28, 2024 compared to 21.8% for the corresponding period in 2023. The increase in our effective tax rate in the nine months ended September 28, 2024 compared to the corresponding period in 2023 was primarily attributable to deferred tax impact of enacted tax law changes, as well as decreased tax benefits from stock-based compensation deductions in the nine months ended September 28, 2024, offset by jurisdictional earnings mix.

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 nine months ended September 28, 2024, is not material to the unaudited consolidated financial statements.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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:


	September 28, 2024		December 30, 2023
	(in thousands)
Cash and cash equivalents:
Held in U.S. entities	$	8,273	$	2,234
Held in non-U.S. entities	201,898		274,537
Total cash and cash equivalents	210,171		276,771
Short-term investments:
Held in non-U.S. entities	69		68
Total cash, cash equivalents and short-term investments	$	210,240	$	276,839

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


	Nine Months Ended
	September 28, 2024		September 30, 2023
	(in thousands)
Net income	$	239,038	$	291,418
Adjustments to reconcile net income to net cash provided by operating activities	324,110		312,306
Changes in assets and liabilities	12,067		(140,769)
Net cash provided by operating activities	$	575,215	$	462,955

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 nine months ended September 28, 2024, compared to corresponding period in 2023, the increase in net cash provided by operating activities was primarily driven by favorable performance across our revenue related accounts, including collections on trade receivables, deferred revenue, and customer deposits; benefiting cash provided by operations by $46.6 million; lower inventory of $13.8 million primarily due to lower purchases of inventory supporting our Safety Assessment business, and timing of payments to our suppliers and vendors benefiting our cash provided by operations by $7.1 million.

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


	Nine Months Ended
	September 28, 2024		September 30, 2023
	(in thousands)
Acquisition of businesses and assets, net of cash acquired	$	(5,479)	$	(50,166)
Capital expenditures	(157,351)		(240,205)
Investments, net	(5,794)		(32,369)

Other, net	(358)		(2,044)
Net cash used in investing activities	$	(168,982)	$	(324,784)

Investing activities primarily consist of cash used to fund capital expenditures to support the growth of our business, purchases and sales of investments related to our venture capital and strategic equity investment portfolios, and asset and business acquisitions.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

For the nine months ended September 28, 2024, cash used in investing activities was primarily driven by capital expenditures, an immaterial asset acquisition, and net purchases and sales in investments related to certain venture capital and strategic equity investments. The Company experienced declines in capital expenditures for the nine months ended September 28, 2024 as compared to the same period in 2023, primarily as a result of disciplined spend management in light of the global economic environment.

For the nine months ended September 30, 2023, cash used in investing activities was primarily driven by capital expenditures to support the growth of the business, the acquisition of SAMDI, and net purchases and sales of investments related to certain venture capital and strategic equity investments.

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


	Nine Months Ended
	September 28, 2024		September 30, 2023
	(in thousands)
Proceeds from long-term debt and revolving credit facility	$	976,783	$	333,034
Proceeds from exercises of stock options	23,110		19,658
Payments on long-term debt, revolving credit facility, and finance lease obligations	(1,316,990)		(530,909)
Purchase of treasury stock	(119,051)		(24,016)

Purchases of additional equity interests, net	(12,000)		—
Payment of contingent considerations	—		(2,711)
Other, net	(26,900)		(4,145)
Net cash used in financing activities	$	(475,048)	$	(209,089)

Financing activities primarily consist of the proceeds and repayments of debt and certain equity related transactions including treasury stock purchases and employee stock option exercises. For the nine months ended September 28, 2024, net cash used in financing activities was primarily driven by the following activity:

Net repayments of $346.2 million towards our Credit Facility
Treasury stock purchases of $100.7 million associated with our stock repurchase program and $18.4 million due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements
Net proceeds from exercises of employee stock options of $23.1 million
Net dividend payments to noncontrolling interest holders of $14.5 million

For the nine months ended September 30, 2023, net cash used in financing activities was primarily driven by the following activity:

Net repayments of $195 million towards our Credit Facility
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
Net proceeds from exercises of employee stock options of $19.7 million

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:


	September 28, 2024		December 30, 2023
	(in thousands)
Revolving facility	$	794,290	$	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	$	2,294,290	$	2,629,243

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

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. We have not entered into any additional interest rate swap contracts.

Our off-balance sheet commitments related to our outstanding letters of credit as of September 28, 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, Canadian Dollar, and Mauritian Rupee. During the nine months ended September 28, 2024, the most significant drivers of foreign currency translation adjustment the Company recorded as part of Other comprehensive income (loss) were the British Pound, Mauritian Rupee, Euro, and Canadian Dollar.

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 nine months ended September 28, 2024, our revenue would have decreased by $96.8 million, and our operating income would have decreased by $5.8 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

On August 2, 2024, our Board of Directors approved a stock repurchase authorization of $1 billion. This authorization fully replaces a prior stock repurchase authorization of $1.3 billion that had $129.1 million remaining when it was terminated and we did not repurchase any shares under the prior program during the nine months ended September 28, 2024.

During the three and nine months ended September 28, 2024, we repurchased 0.5 million shares of common stock for $100.7 million under the new stock repurchase program. As of September 28, 2024, we had $899.3 million remaining on the current authorized stock repurchase program.

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 nine months ended September 28, 2024, we acquired 0.1 million shares for $18.4 million through such netting.

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

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

February 14, 2024. There have been no changes in the Company’s critical accounting policies during the nine months ended September 28, 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 nine months ended September 28, 2024 that had a significant effect on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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