Charles River Laboratories International, Inc.

outlook has increased by approximately $8 million to a range of $103 to $108 million, primarily attributable to short-term borrowings to fund stock repurchases in the first quarter. At the end of the first quarter, our net leverage was 2.6 times. The non-GAAP tax rate in the first quarter was 22.5%, a decrease of 20 basis points year-over-year, due primarily to the favorable impact from last year's enactment of OB3, or the One Big Beautiful Bill. Our non-GAAP tax rate guidance for the full year remains unchanged at 22% to 23%, although it's currently trending towards the lower end of the range due to a favorable geographic mix. Free cash flow was negative $15 million in the first quarter, or a reduction of $127 million compared to the prior year period. This decline was expected and mainly driven by higher performance-based cash bonus payments for 2025, which are paid in the first quarter. CapEx declined modestly to $56 million, or approximately 5.6% of revenue in the first quarter, from $59 million last year. Our free cash flow outlook remains unchanged at $375 to $400 million in 2026. Turning to 2026 full-year guidance, we are reaffirming our organic revenue and non-GAAP earnings per share guidance, which had previously factored in the impact of the divestitures. All of our guidance referenced today assumes the planned divestiture of certain European discovery sites being completed in May, and as Birgit mentioned, we have completed the divestiture of the CDMO and cell solutions businesses this week. We continue to expect an organic revenue decline of 0.5% to 1.5% and non-GAAP earnings per share of $10.80 to $11.30 or 5% to 10% growth over 2025. This guidance includes earnings accretion of approximately $0.10 per share from the divestitures. On a reported basis, we reduced our revenue outlook by 50 basis points to a 4.0% to 5.5% decline because FX rates have become less favorable this year due to the recent strengthening of the U.S. dollar. From an earnings perspective, this FX headwind compared to our original outlook will be essentially offset by the accretion from stock repurchases. As a reminder, the acquisition of the assets of KF, or Charles River Cambodia, the divestitures, and incremental cost savings from our efficiency initiatives are expected to result in meaningful operating margin expansion this year. We expect approximately 120 to 150 basis points of improvement in 2026, with most of the benefit generated in the second half of the year. Combined with the abatement of the discrete margin headwinds in the first quarter, we expect the second half of the year operating margin will be over 500 basis points higher than the first six months of the year, with over half of this improvement being driven by completed acquisitions and divestitures, as well as the planned sale of certain European discovery sites. From a segment perspective, our organic revenue outlook for each of the segments remains unchanged from February. Our reported revenue outlook for the segments has been updated to reflect the impact of the divestitures, as well as less favorable FX impact. As a reminder, the divestitures are expected to reduce our reported revenue outlook by approximately 500 basis points in 2026. By segment, we now expect a reported revenue decrease in the low to mid single digits for the DSA segment and in the mid single digits for both RMS and manufacturing segments. We expect the most significant margin improvement in 2026 will come from the manufacturing and DSA segments. Moving to our second quarter outlook, as I mentioned earlier, we expect financial results to improve substantially on a sequential basis due primarily to operating margin improvement and normal seasonal trends in the DSA and biologic testing businesses. We expect reported revenue to decline at a mid to high single-digit rate year-over-year due primarily to the impact of the divestitures, while organic revenue is projected to decline at a low single-digit rate year-over-year similar to the first quarter. However, we expect second quarter earnings per share to improve significantly on a sequential basis, increasing at least 30% from the first quarter level of $2.06. The first quarter headwinds from the timing of NHP shipments in RMS and the NHP sourcing costs and study starts in the DSA segment are expected to subside in the second quarter. In addition, the manufacturing operating margin is expected to benefit from the CDMO divestiture. As a result, we expect all three segments will show a sequential improvement in operating margin in the second quarter. To conclude, as I step into the CFO role, I'm focused on driving initiatives to generate profitable growth through the disciplined execution of our pathway to purpose strategy. This includes advancing our M&A priorities, successfully integrating acquisitions, and delivering on our efficiency initiatives. Collectively, these efforts will strengthen our foundation and position us to deliver long-term shareholder value. Finally, I look forward to meeting many of you in the coming months. As Birgit mentioned, we plan to host an investor day in September where we will provide a more comprehensive update on our strategy priorities and long-term financial outlook. Thank you.

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