CHARLES RIVER LABORATORIES INTERNATIONAL INC

Previous wording

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.

Current wording

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.

Previous wording

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 plusin vitro (non-animal) andin vivo (in research models) studies, laboratory support services, and strategic non-clinical consulting and program management to support product development.

Current wording

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 plusin vitro (non-animal) andin vivo (in research models) studies, laboratory support services, and strategic non-clinical consulting and program management to support product development.

Previous wording

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 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 asses…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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 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 aforemen…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 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.

Previous wording

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.

Current wording

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.

Previous wording

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 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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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 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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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:

Previous wording

•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

Current wording

•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

Previous wording

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

Current wording

•Net proceeds from exercises of employee stock options of $23.1 million

Previous wording

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

Current wording

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

Previous wording

•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

Current wording

•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