Good morning. I'm Dave Windley with Jefferies Healthcare Equity Research. Welcome to Jefferies' 2025 New York Conference. Pleased to have you here. Appreciate the support. See some familiar faces in the crowd here in person, and certainly welcome to the folks that are listening to the website live or on demand. Thank you again. Our next company to present or to talk to us in fireside style is Charles River Laboratories. I've covered the company for quite a long time. Birgit, I'll admit I was just looking at your LinkedIn profile and comparing our tenures. At first, I—so I've been at Jefferies coming up on 25 years, and I saw 23 years at Charles River. Then I scrolled down a little more and saw across two stints it's even longer than that. Congratulations on your long tenure with Charles River. Birgit Girshick is the EVP and Chief Operating Officer of the company. Todd Spencer is also here with us in the crowd. I'm going to turn it over to Birgit to talk a little bit here to lead off, and then we'll get into questions. Thanks again. Thanks, Dave. Thanks for having us today. Yeah, I have 33 years, so I have a few years on me. I wasn't going to say the number. Yeah. I have 33 proud years at Charles Rivers. Let me start the session today with just a little update on our Q1, which we felt was a solid performance. It was better than we had expected and prior outlook. We ended up with still a revenue decline, but less than expected at - 1.8%. It was great to see that we achieved an OI margin improvement of 60 basis points and an EPS growth of 3%. This was a clear result of our cost savings actions and cost savings program that we have initiated just about 18 months ago now, and where we have reduced our cost structure by roughly 5%. Also great to see that we have, for the first time in two years, achieved a net book-to-bil l of above one, which we were waiting for for quite a while. This was primarily driven by strong bookings, particularly in our Pharma segment, but also by moderating cancellation rates in all our client segments. So really good to see and gives us some confidence going forward. This allowed us to improve our guidance for EPS by $0.20- $9.30-$9.80, and also our revenue growth by 1% to -4.5% to - 2.5%. And my colleague Flavia Pease reaffirmed that earlier this week. So I'm happy to see we are seeing some stability there. We also talked about the FDA announcement at our earnings call, and that's something that we will probably touch on later in the questions. So I will leave that to that. Excellent. Okay, great. Thank you. Thank you for that tee-up. I think a good place to start is to key on the cost structure changes that the company has made. I guess I'd start with compliments on once management identified that the environment was truly weakening, you acted pretty quickly in addressing and right-sizing cost structure and figuring out ways to mitigate margin impact. In that regard, maybe you could talk to a few of the areas or the most significant areas where you've pulled levers. Then I want to take us into the strategic review and what more could be done. I'll let you talk about what you've done so far first. Yeah, certainly happy to. As I said, we reduced our cost structure by roughly 5%. There are some key areas that we are executing on. Some of that cost reduction is completed. Some of that is still in progress. It will translate to roughly $175 million of cost saving this year and then $225 million forecasted for next year. It will have a lasting impact. Some of the areas that we have looked into or are executing on is, for example, site consolidation. Between the sites that we have consolidated or eliminated over the last year and the ones that are still in progress, we will reduce our footprint by about 20 sites. Many of those are quite small, and we will maintain the services and solutions for our clients in one of our bigger sites. We are not reducing our services footprint, but we are reducing our square footage overall. It actually makes us a stronger company and a more competitive company because our customers are actually able to do the same amount of work or the same work all under one roof. It is actually something that is very, very positively seen. Other areas that we have looked at is obviously or executing on is the reduction of staffing. Some of that will return as volume growth returns, particularly in areas where we used attrition to allow the staffing numbers to go down. We also have roughly $75 million of sustainable savings where we reduced headcount and other costs that we do not think we need to rehire. We made process changes, automation, some outsourcing, and other areas. I will leave it with that. I could go on for half an hour on that, but there's a lot of activities going on. For clarification on the site consolidation, are the preponderance, excuse me, of those breeding facilities, barrier room type facilities, or is it other areas of the business? We have looked at our holistic portfolio and at all our sites that are in the Charles River network. It actually impacts sites in all our businesses. A lot of those, the majority of those, are in DSA and in RMS. There are some Cradle facilities part of that as well. There are actually seven to eight facilities in Cradle that we have reduced. Every business has had some sites that were consolidated. Okay. So then kind of rolling forward to the strategic review. So announced the agreement, the collaboration with Elliott Management, and some of the emphasis, I guess, in discussions with you, with management have been around the preexistence of your special, sorry, strategic planning capital allocation committee. And so I suppose the question then is, as I said before, you've been pretty proactive about this. What remains or what more can be stimulated by shining a brighter light on this? Yeah, I'm happy to talk about that, obviously. Yes, in our earnings calls, we announced that we will undergo a strategic review. This strategic review is, we actually do that every year, but we have some new board members and with the kind of fresh perspective, we want to do a very comprehensive review and to see where we possibly can improve shareholder value in the company. What we will do there, we will look at every business. We'll see what fits, what doesn't fit. Are there any other costs out that we can do? Certainly part of it. I believe it's very much about the strategic fit and where we can maintain synergies. At this point, we're in very, very early stages. We're going to look at all possible solutions, including if there's M&A that actually would improve our shareholder value, but also areas that we shouldn't play in. Once we go through that, we will be for sure a few months. We'll be a little bit of time before we can report out on that. We'll certainly come back and provide more information. On that, I think the question was asked on the call and I get the question, do you, I think, do people think that you'll have an update on the 2Q call? What you just said suggests that's probably a little too early. Do you think that's fair? That's fair. It will definitely not be on the Q2 call. We're just starting the process. This will take some time. As I said, we'll do a comprehensive analysis, some of the parts and everything else included. That will take some time. Yeah. When you think about the businesses, you mentioned very much an emphasis on strategic fit. It seems like DSA is the biggest business. RMS is probably the most germane then of the other two segments to your core DSA business. I'm inclined to ask how willing to divest of parts of the portfolio is the company, is management, and could that be up to and including a full segment of the business? Yeah, I think it's just a little bit too early to speculate. Let us go through the review. We strongly feel that our stock price is extremely undervalued right now, and particularly since the FDA announcement. We are going to look at all options and anything that is reasonable and makes sense, we will entertain. We're really early on, and it's just too early to speculate. Okay, got it. Digging into segments a little bit, the Manufacturing Solutions business kind of has three big parts. I think management, Flavia, has described that two of those are operating at or pretty close to target margins, one a little more lagging. The two that are performing better, microbial and Biologics Testing. How would you describe their performance versus where you think they can achieve or what are target margins? Yeah, so where we believe, and to get to later in the years, actually that we are getting closer to 30% margins for our Manufacturing segment. This is primarily driven by the two segments, Biologics Testing and microbial solutions. Biologics testing had a little bit of a soft quarter, which we see regularly because of seasonality. A lot of the manufacturing sites that we are supporting, may that be Pharma or CDMOs or Biotech, are actually closing down over the holiday periods, and then we do not get samples in early January. We believe this business will return to better performance and growth in the following quarters. With that, margin will improve. Our Microbial business, we have said before, this is a highly profitable business, and we will continue to see solid growth there, and that will be always a contributor to that. As I said, we believe that that business as a Manufacturing solutions as a whole can definitely come back to just about 30% for the year. Right. And that's 30% for the year or by the end of the year? By the end of the year. Yeah. The path to that, I think clearly Biologics Testing was probably a little lower because of the slow start on volumes. The path to that 30%, does an improvement to, I'll say in air quotes, normal on Biologics Testing get you there, or does the CDMO part of Manufacturing need to improve from its current levels? It's primarily driven by the Biologics Testing. Our CDMO business this year is impacted by actually two commercial clients, and one of them will discontinue the work with us because of consolidation of their suppliers. The other one has a little bit of a delay in their program. The CDMO business will most likely not return to profitability this year, whereas we have made a lot of improvements and have a road to profitability going into the future and believe that we can build this as a strong, really strong business there. On that last part, is that road on existing client base or I'll say and/or development stage activities, or does the road to profitability in the CDMO need some commercial, larger scale commercial volume? Yeah, so the road to profitability is definitely driven by using the capacity and driving revenue. There is a certain amount of fixed cost in this business that requires the top line to be at a certain level. In the cell and gene therapy space, the distinction between a later stage clinical and a commercial from a revenue perspective is not actually that large for the most part. We can build a clinical pipeline and become profitable for sure. We do not need a commercial client. Certainly, a commercial client gives you stability and does not have the peaks and valleys. It is a nice thing to have. Our clinical pipeline is strong at this stage. We believe we can build that with new clients coming in. Got it. I believe you have two commercial clients. You have one kind of normalized commercial client and then one where the volumes were declining or dropping. Is the one where the volumes are diminished in 2025, should we view that as temporary or is 2025 reflective of run rate with that client? Yeah, I don't want to go into too much detail about our clients, but what I can tell you is that with any commercial program, there's a ramp-up period where the negotiations was how reimbursements will work, finding the right clients, approvals in different countries. With any commercial program, we expect a ramp over a few years, and we would expect that here too. Maybe just to say in this business, CDMO business specifically, we have done a ton of improvements over the last years, which is a lot of investment. We have improved regulatory compliance both from processes as well as in the facilities. We made a lot of investments in our facilities. We brought in new leadership. We had for the longest time consulting groups helping us with getting a clinical stage company into a commercial stage. All of those things over time will become a new normal or will reduce and will help us to become more profitable. Got it. Okay, so let's move to DSA. In that largest segment, you mentioned stronger bookings back to circle 1.0 book to bill and strength on the large Pharma side. Maybe we could delve into that a little bit in terms of what clients, did clients provide any color on why that, why the kind of demand perked back up again? Are you seeing that as a sustainable level? Yeah, so thanks, Dave. That's a really good question. I'll start with Pharma and then I'll talk a little bit about Biotech too. From our Pharma clients, what we have seen is a solid growth in bookings in Q1. We attribute this a little bit to timing because it was right after the budgets have been approved early in the year. Clients know what programs they're going to move forward with. We are cautiously optimistic, obviously, about the future and the rest of the year. We do think that some of this early bookings was just a timing perspective. The revenue for Pharma is still on a declining rate for Q1 and Q2. We believe that's primarily because the anniversary of our Pharma decline started really in H2 of last year. We haven't anniversaried it yet. Looking at Biotech, the trend is a little bit opposite or different. We have seen now two quarters of growth in our Biotech segment, which is really nice to see, obviously. Booking trends metrics are stable to slightly improving. We are very pragmatic in our outlook for Biotech and very cautious for our outlook for Biotech because after a good year of funding or decent year of funding in 2024, so far this year has not been that great. We need to see that the clients that we are serving have to fund, maintain the work, and that this mental situation is not changing, that people do not get overly cautious again because they are seeing that either in the news, trying to conserve cash and or not. At this point, what we have seen has been very positive. You specifically asked about client conversations. Obviously, we always have them. Our Pharma clients, the people that we are talking to, which is in the heads of preclinical and in that stage, are optimistic about the year. They are optimistic about their programs moving forward, being back to work, having prioritized to work, knowing where they are going. Last year, there was a lot of discussion, obviously, in boardrooms and CEO level. With a lot of the rhetoric that is coming out of the new administration and tariffs and drug pricing and niche state, we just need to see where this is going. The same with Biotech. We get positive vibes, but I want to make sure that we are not over forecasting. Sure. Just to clarify on the Biotech, you mentioned two quarters of growth. Was that revenue, bookings, or both? Revenue. Okay. In large Pharma, we've seen, I won't say a mega trend, but something of a trend of Pharma licensing. We've seen a few deals announced, Pharma licensing of some Chinese compound, Chinese assets. How, if at all, do you think about that affecting the large Pharma demand for preclinical activity? When Pharma is licensing in a program, for some of those programs that were press released, we're doing some work on it. We're obviously not doing the very early stage work because that was done then in China. But there's often some follow-on work or some validating work, meaning we redo some studies because maybe the data set wasn't quite to the expectation of the Pharma companies. There is some follow-on work, but I certainly would, from a preclinical perspective, would rather see that work originating out of a U.S. Biotech company. Okay. Okay. Okay. I thought that might be the case, but I wanted to clarify. I mean, you mentioned the Biotech funding environment. Can you talk about, at a high level, when I think about business mix for Total company, the kind of academic government piece is more substantial for Charles River than, say, for some of the later- stage clinical players. I think that academic government piece contribution is really in RMS, in a different segment. If we were to focus on DSA, I'm going to say Todd's probably going to tell you not to give me numbers, but can you give kind of ballparks of how does that split look between Pharma and Biotech and DSA? Yeah. If you look at Pharma and Biotech, what I can tell you, it's very similar to Total company. We do more Biotech work than Pharma, and it's kind of very similar. Okay. Okay. How are you thinking about price versus volume in your study activity? Price is many faceted in small animal. Large animal has had an interesting inflation kind of few years and deflation year probably. How are price and volume intermixing into that segment? Are you looking at DSA or? DSA. DSA. DSA. Yeah. Okay. For the first quarter, we actually saw a positive price mix trend that was great to see. A little bit more mixed than I would call it price. We had some nice longer-term chronic studies, but also some four-week NHP work that in both cases, the pricing pressure is lower than on some of the other work. That has translated into a positive price mix impact for our segment and our business. We do not necessarily foresee that for the upcoming quarters. We believe that price will still be a headwind, even though we believe it is stable from what we have seen last year. Just not, it has not deteriorated further, but we are also not expecting a major improvement for the next few quarters. Okay. And just for clarity, because I'll probably get this question, what you just described, is it consistent with your thinking at the end of the last quarter, i.e., is what you just described in the guidance? Yes. Yeah. We're reaffirming the guidance, which should give you the confidence. Got it. Let's move on to the FDA announcement. I think people have sobered up a little bit in terms of the rate and pace of transition from animal studies to NAMS. Some of us were recently at a meeting where there were some examples given of NAMS that have been developed and the timeframe to get to a validated NAM that really can be used in what I'll call production. I don't know if you have examples in mind like that, but this is a five to 10 to maybe 20-year journey to validate these things. I don't want to lead the witness, but how would you describe this journey? Yeah. Let me answer that question and then maybe go a little bit into where we are playing here if possible. Historically, absolutely. To validate a NAM, have it used in a particular regulated space requires a lot of validation, a lot of data that's translated and has taken, and to get it through FDA and some other of the regulatory bodies has historically taken a decade, maybe longer, right? What I want to maybe focus on a little bit more is that for me, the NAMS discussion is an evolution from what we have done over the last two to three decades, meaning we used to call it three Rs, reduce, refine, replace. That's still what we're talking about. The NAMS is a part of that. Charles River has always played a leading role in finding ways to reduce the use of animals, bringing new technologies in, bringing NAMS in, looking at study protocols, working with the FDA reviewers, working with our clients to make sure that we are as pragmatic as possible in the use of animals. We will continue to do that. We are actually doing $200 million of revenue right now with NAMS. We have invested, which we formally launched last year, a program called AMAP, which is Alternative Methods Advancement Program, where we said we have invested $200 million already through partnerships in M&A as well as some organic developments. We will continue about at the same level going forward. For us, this is the evolution of drug development. For us, this was not really coming at a surprise, except the announcement came at a surprise. We are applauding the FDA leadership in their focus on this area, which the FDA always had committees and other areas and see how we can drive that forward. It will be interesting to see where we go with that. Is it right to think in terms of the FDA's selection of MABs? First of all, I think people have kind of learned that maybe it's obvious because there were some tests that weren't particularly efficacious or not particularly telling in testing of MABs. Is it also right to think that maybe the impact there would be more on the NHP side, excuse me, than the small animal side? Yeah. The FDA had announced a pilot program on the use of, or in the space of MABs, monoclonal antibodies, specifically chronic studies. What you're referring to is we announced that we do roughly $60 million in chronic studies. $50 million of that is NHP. Definitely more NHPs than small animals. We already have several clients who used a weight of evidence argument, basically went to the FDA, said, "I don't think I need to do a chronic study because we have not seen anything in three months. If you don't see anything in three months, you probably won't see anything in a longer-term study." Part of that is already in our base. We do think that there are arguments to be made. This is something that we definitely see will be implemented for many of those studies going forward. MABs are much more defined, known toxicity. Generally, as we said, if you do not see anything in three months, you may not see something in six months. That needs to be worked through. I do think this is the right target area for the FDA to focus on and do a pilot project on. As I said, we are already working with our clients in many cases. Some do the chronic study, but not the three-month. It is a mix right now, and we will continue to work with them on that. Got it. We've got about a minute left. Let's just throw one in on RMS here before we leave. That is, as we said earlier, the area where you do have a little more direct exposure to government and academic spending. Update us on the budget spending environment among those government and academic clients with the Trump administration scrutiny on DOJ-related topics. Yeah, certainly happy to. Just to size it a little bit, North American academia and government is about 6% of Charles River, so a relatively small part. NIH is 2% of that 6%, so even a smaller part. It's an important segment for RMS, so it translates to about 20% of RMS. At this stage, we have not seen a material impact from the NIH or grants or academia, but there's a lot of discussions about what impact it might have. If we do see we're working directly for the NIH or other government agencies for some of our IS contracts. If we do see an impact there, we expect to see that maybe earliest in 2026 because those contracts generally work their way through first and just don't get renewed. We don't expect that to be a big part of our revenue because it's just a very small segment. From an academia perspective, we'll have to see how that impacts animal purchases. To remind you, animal purchases are a very small part of their research dollars. It's actually a very inexpensive part of drug development. For academia, buying animals is a direct cost versus breeding animals or having their own vivarium is an indirect cost. You actually might see stable or maybe even an upside because there might be a little bit of a switch over. Something similar we have seen in a prior decade of that. More to be seen, but we don't think it will have a big impact on Charles River. Yeah, important distinction on the direct and indirect. I appreciate that. Birgit, thanks for your time. Thanks to everybody in the audience for your attendance.