0001100682-25-000034
SEC filingRevenue grew 0.6% in Q2 2025, but operating income fell 34% due to restructuring and accelerated amortization.
For the three months ended June 28, 2025, Charles River Laboratories reported total revenue of $1,032.1 million, a 0.6% increase from $1,026.1 million in the prior-year period. Service revenue declined slightly by 0.2% to $840.8 million, while product revenue grew 4.4% to $191.3 million. The revenue increase was primarily driven by the Manufacturing and RMS segments, partially offset by a decline in DSA due to continued cautious client spending.
Operating income fell sharply to $100.1 million from $151.7 million, a 34.0% decrease, and operating margin contracted 510 basis points to 9.7%. The decline was driven by $35.6 million in accelerated amortization expense from a reduction in the remaining useful life of certain CDMO client relationships due to a loss of key customers, $32.2 million in restructuring charges (including asset impairments and site consolidation), and $16.6 million in higher third-party legal and advisory costs related to a Cooperation Agreement and the non-human primate supply chain investigations. Net income available to common shareholders decreased to $52.3 million from $90.0 million.
RMS revenue grew 3.3% to $213.3 million, driven by large research model product revenue in China and from Noveprim, as well as growth in Insourcing Solutions and GEMS services. Operating income increased 19.5% to $35.8 million, with margin expanding 230 bps to 16.8%, aided by lower asset impairment charges compared to the prior year.
DSA revenue declined 1.5% to $618.0 million, reflecting lower volume from cautious client spending, partially offset by pricing increases and favorable FX. Operating income fell 11.3% to $122.8 million, and margin contracted 220 bps to 19.9%, pressured by restructuring activities and legal costs related to the NHP investigations.
Manufacturing revenue increased 4.4% to $200.8 million, driven by Microbial Solutions growth in identification services and endotoxin products. However, operating income plunged 67.6% to $12.1 million, and margin collapsed 1,340 bps to 6.0%, primarily due to the $35.6 million accelerated amortization charge from CDMO customer losses and restructuring charges.
Management noted a cautious spending environment, particularly in DSA, with backlog declining to $1.9 billion from $2.0 billion at year-end 2024. The company is executing restructuring actions across North America, Europe, and Asia, including workforce reductions and facility consolidations, expected to generate $225 million in annualized cost savings, with $175 million impacting fiscal 2025. The FDA's pilot program to reduce animal testing is viewed as aligned with the company's strategy, and the company is investing in alternative methods. The U.S. government investigations into the NHP supply chain have been closed by the DOJ, but an SEC inquiry remains ongoing. The company plans to offset most tariff impacts by passing costs to customers. No specific financial guidance for future periods was provided.
Cash and cash equivalents stood at $182.8M as of June 28, 2025, down from $194.6M at year-end 2024. Total debt increased to $2.35B from $2.26B, driven by net borrowings under the revolving credit facility. The weighted average interest rate on debt was 4.13%, down from 4.48% at year-end. Shareholders' equity decreased to $3.35B from $3.46B, primarily due to $360.5M in treasury stock purchases. Deferred revenue (current and long-term) totaled $305.0M.
No specific purchase commitments were disclosed in the notes. The company reported $727.3M in aggregate transaction price allocated to remaining performance obligations (backlog), with approximately 50% expected to be recognized within 12 months. Contingent consideration liabilities of $26.1M relate to acquisitions, with maximum potential payments of $30.0M.
The company repurchased 2.1 million shares for $350M during the six months, leaving $549.3M under the $1.0B authorization approved in August 2024. No dividends were declared. Capital expenditures were $94.6M (4.7% of revenue), down from $118.6M in the prior-year period. Debt activity included $963.4M in proceeds and $887.7M in repayments, resulting in a net increase of $90.5M.
For the six months ended June 28, 2025, revenue by geography: U.S. 53.9%, Europe 27.0%, Canada 12.9%, Asia Pacific 4.8%, Other 1.3%. Segment operating income: RMS $79.4M (18.6% margin), DSA $216.7M (17.9% margin), Manufacturing $3.4M (0.9% margin). Operating margins were pressured by restructuring costs of $56.0M (including $31.2M in asset impairments) and accelerated amortization of $71.0M in the Manufacturing segment.
Operating cash flow of $376.3M comfortably covered net income of $78.6M, a ratio of ~4.8x, indicating strong cash generation relative to earnings. Key non-cash add-backs included $239.9M in depreciation and amortization, $31.2M in long-lived asset impairments, and $30.2M in stock-based compensation. A deferred income tax benefit of $41.0M reduced cash tax outflows.
Working capital was a modest net use of cash ($13.0M) despite a $39.0M increase in accrued compensation and a $16.2M rise in accounts payable, offset by higher trade receivables and inventories. Capital expenditures of $94.6M represented 25.1% of operating cash flow, a moderate capex intensity. Free cash flow (not explicitly stated) would approximate $281.7M before capital returns.
The company deployed significant cash toward share repurchases ($360.5M), more than consuming operating cash flow, and financed this via $75.7M net debt draw ($963.4M proceeds less $887.7M repayments). No dividends were paid. The net change in cash was a modest decline of $20.8M, with $17.9M of positive FX impact offsetting cash outflows.