CHARLES RIVER LABORATORIES INTERNATIONAL, INC. (CRL) FY 2024 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and related notes appearing in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. A discussion of our results of operations for the fiscal year ended December 30, 2023 and a comparison of our results for the fiscal years ended December 30, 2023 and December 31, 2022 was included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the SEC on February 14, 2024. In addition to historical consolidated financial information, 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” and elsewhere in this Annual Report on Form 10-K. Certain percentage changes may not recalculate due to rounding.

Overview

We are a leading, full service, non-clinical global drug development partner. 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. We currently operate in over 130 sites and in over 20 countries worldwide, which numbers exclude certain Insourcing Solutions (IS) sites.

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™) offerings, 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 as well as cells from disease state donors.

Our DSA segment is comprised of Discovery Services and Safety Assessment services. We provide regulated and non-regulated DSA services to support the discovery, development, and regulatory-required safety testing of potential new drugs, including in vitro (non-animal) and in vivo (in research models) studies, laboratory support services, including bioanalytical 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). In December of 2022, we sold the Avian Vaccine Services (Avian) business, reported in the Manufacturing segment, which supplied specific-pathogen-free chicken eggs and chickens.

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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, which occurred in fiscal year 2022.

Business Trends

In fiscal year 2024, biopharmaceutical clients intensified their actions around restructuring initiatives and reprioritized their drug development programs, leading to constrained budgetary spending. The uncertainty from a combination of a macroeconomic slowdown, pending patent expirations, and the impact of the Inflation Reduction Act (IRA) on drug pricing had led to significant cost-cutting measures by our large biopharmaceutical clients, including significant restructuring initiatives aimed at improving efficiency and reprioritization of spending shifting to late-stage clinical pipelines. In addition, while biotechnology companies benefited from a more favorable funding environment in fiscal year 2024, recovery for this client base has occurred at a more gradual pace than anticipated due in part to uncertainty around future funding levels and the broader interest rate environment.

Despite the current, challenging market environment, many of our pharmaceutical and biotechnology clients continued to benefit from the long-term value of strategic outsourcing to improve their operating efficiency and to access capabilities that they do not maintain internally. Many of our large biopharmaceutical clients have continued to rely on relationships with outsourced partners like Charles River to enhance their drug discovery and early-stage development efforts, and biotechnology companies to assist them in bringing new drugs to market. However, because of their more cautious view with regard to early-stage R&D spending, revenue due to both large biopharmaceutical clients and small and mid-sized biotechnology client declined in fiscal year 2024. However, our ability to continue to deliver our leading suite of research, non-clinical development, and clinical bioanalytical solutions has endeavored our clients to continue to choose to partner with us for our flexible and efficient outsourcing solutions, broad scientific capabilities, and global scale.

Within the DSA segment, these demand trends led to lower study volumes in both Safety Assessment and Discovery businesses, principally driven by softer demand from both large biopharmaceutical clients and small and mid-sized biotechnology clients. Demand trends for large biopharmaceutical clients stabilized at a lower level during the second half of 2024; however, many of these clients are still in a period of tighter budgetary spending, continuing to reprioritize pipelines or eliminate some programs, which influences our cautious outlook for the near-term biopharmaceutical demand environment. In addition, while biotechnology companies benefited from a more favorable funding environment and a slight improvement in demand trends during fiscal year 2024, recovery for this client base occurred at a more gradual pace than anticipated. DSA backlog decreased to $2.0 billion as of December 28, 2024 from $2.5 billion as of December 30, 2023. To enhance operational efficiency within the segment, the global Discovery and Safety Assessment businesses will implement a “One DSA” integrated operating structure. This unification will focus on a combined salesforce and leadership approach, with integrated scientific programming in order to facilitate a more seamless client experience and enhance the Company’s client relationships.

Revenue for RMS increased in fiscal year 2024 due largely to revenue contributions from the acquisition of a controlling interest in Noveprim, as well as increased pricing for small research models. Offsetting this growth, the challenging biopharmaceutical demand environment led to lower revenue for research model services, including Insourcing Solution’s CRADLTM operations. However, CRADLTM continues to be an attractive business model as a cost-effective and flexible solution for clients allowing access to vivarium space without having to invest in internal infrastructure. This flexibility is particularly valuable in the current environment, where organizations are seeking to optimize their research budgets and minimize operational costs. We are confident that research models and services will remain essential tools for our clients’ drug discovery and early-stage development efforts.

Revenue for products and services that support biopharmaceutical clients’ manufacturing activities increased across the Manufacturing Solutions segment in fiscal year 2024. The Microbial Solutions business experienced robust growth as client destocking activity by large biopharmaceutical and CDMO clients was largely completed in the prior year. The growth was further driven by higher revenue of our rapid microbial testing solutions, primarily for Endosafe® testing consumables and instruments. Our Biologics business benefited from improved volumes for biologics quality-control testing services, as well as increased demand for our cell and gene therapy CDMO services during the year. Since the strategic acquisition of the CDMO businesses in 2021, Cognate and Vigene, significant steps have been taken, such as establishing Centers of Excellence for cell therapy, viral vectors, and plasmids, to support the emerging modalities and technologies enhanced operations and capabilities. However, in December 2024, our Biologics business experienced the loss of certain key customers, ultimately resulting in a reduction in its long range financial outlook. As a result, the Company expects lower revenue from commercial clients to impact its CDMO business in 2025.

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,

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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 2023, the Company began to take restructuring actions as a result of these emerging business trends. The Company incurred restructuring charges of $107.0 million and $29.7 million during the fiscal years 2024 and 2023, respectively. 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 $225 million of cost savings on an annualized basis, of which approximately $100 million impacted fiscal 2024.

Despite the near-term market pressures, we believe clients will continue to benefit from the long-term value of strategic outsourcing to improve their operating efficiency and to access capabilities that they do not maintain internally. We believe that our comprehensive scientific capabilities and global scale, as well as the breadth and depth of our scientific expertise, quality, and responsiveness remain key criteria when our clients make the decision to outsource to us. As the scientific partner of choice to accelerate biomedical research, we are committed to driving greater efficiency and speed while providing exceptional service to our clients.

Recent Acquisitions

We make strategic acquisitions designed to expand our portfolio of products and services to support the drug discovery and development continuum. We maintain an acquisition strategy that focuses on augmenting internal growth of existing businesses with complementary acquisitions. Our recent transactions are described below.

On November 30, 2023, we completed our acquisition of an additional 41% equity interest of Noveprim Group (Noveprim), a leading supplier of non-human primates (NHPs) located in Mauritius, resulting in a 90% controlling interest. We had previously acquired a 49% equity interest in 2022 for $90.0 million plus additional contingent payments up to $5.0 million based on future performance. The total consideration allocable to 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 the seller on working capital and debt, which was adjusted from $13.8 million to $7.0 million during fiscal year 2024. As a result of measurement period adjustments to the purchase price, goodwill and remeasurement gains on the previous 49% equity investment during fiscal year 2024, were increased by $17.6 million and $9.8 million, respectively. Remeasurement gains are recorded in Other income (expense), net, within the consolidated statements of income. The contingent consideration fair value is estimated using a Monte Carlo Simulation model and the maximum contingent contractual payments are up to $55.0 million based on future performance and milestone achievements from fiscal years 2023 through 2025. The Company has the call option right to purchase the remaining 10% equity interest up until one month after the sixth anniversary of closing the 41% equity interest. On the first anniversary of the expiration of the call option, a 12-month put option will be triggered giving the seller the right to require us to acquire the remaining shares of the seller. The redemption price for the call/put is fixed and ranges from $47.0 million to $54.0 million depending on when exercised. The noncontrolling interest is classified as a redeemable noncontrolling interest in the mezzanine section of the consolidated balance sheets. 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 the DSA supply chain and the RMS reportable segment for those 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 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, net of $0.4 million in cash, inclusive of a 20% strategic equity interest previously owned by us of $12.6 million. 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.

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U.S. Government Investigations into Non-Human Primate Supply Chain

On February 17, 2023, we received a grand jury subpoena requesting certain documents related to an investigation by the U.S. Department of Justice (DOJ) and the U.S. Fish and Wildlife Service (USFWS) into our conduct regarding several shipments of non-human primates from Cambodia. That investigation remains ongoing and we are continuing to cooperate with the investigation. As also previously disclosed, a parallel civil investigation is being undertaken by the DOJ and USFWS. We are also cooperating with that investigation, and although we continue to dispute the merits of certain positions taken by the DOJ and USFWS in the civil investigation, we have discussed a potential resolution of that matter with the DOJ and USFWS. Those discussions are ongoing. Although we maintain 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, including the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), in connection with the civil investigation, we have voluntarily suspended future shipments of non-human primates from Cambodia to the United States until such time that we and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported from Cambodia are purpose-bred. We continue to care for the Cambodia-sourced non-human primates from certain shipments in the United States. Due to a number of factors, including the age of these NHP’s, during the fourth quarter of fiscal year 2024, we recorded a charge of $27 million to costs of products sold within the accompanying consolidated statements of income to reflect the reduction in carrying value of this inventory to zero. On May 16, 2023, we received an inquiry from the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting us 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 we are cooperating with the requests. Our Audit Committee has retained counsel to conduct an independent investigation into certain issues raised in the investigations, and that work is ongoing. 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. None of the DOJ, USFWS or SEC has provided us with any specific timeline or indication as to when these investigations or, specific to the DOJ and USFWS, discussions regarding resolution and future processes and procedures, will be concluded or resolved. We cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities.

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 United States (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 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. Our significant accounting policies are more fully described in Note 1, “Description of Business and Summary of Significant Accounting Policies”, to our consolidated financial statements contained in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

An accounting policy is deemed to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the impact of the estimates and assumptions on our consolidated financial statements is or may be material. We believe the following represent our critical accounting policies and estimates used in the preparation of our financial statements:

Revenue Recognition

Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer (“transaction price”).

To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the amount to which we expect to be entitled. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Generally, we do not extend payment terms beyond one year. Applying the practical expedient, we do not assess whether a significant financing

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component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less. Our contracts do not generally contain significant financing components.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes existing, enforceable rights and obligations. Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Depending on which better depicts the transfer of value to the customer, we generally measure our progress using either cost-to-cost (input method) or right-to-invoice (output method). We use the cost-to-cost measure of progress when it best depicts the transfer of value to the customer which occurs as we incur costs on our contract, generally related to fixed fee service contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The costs calculation includes variables such as labor hours, allocation of overhead costs, research model costs, and subcontractor costs. Revenue is recorded proportionally as costs are incurred. The right-to-invoice measure of progress is generally related to rate per unit contracts, as the extent of progress towards completion is measured based on discrete service or time-based increments, such as samples tested or labor hours incurred. Revenue is recorded in the amount invoiced since that amount corresponds directly to the value of our performance to date. During fiscal year 2024, $2.4 billion, or approximately 60%, of our total revenue recognized ($4.0 billion) is DSA service and product revenue transferred over time.

Business Combinations

We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination. The determination of the fair value of intangible assets (including goodwill) and certain biological assets, which represent a significant portion of the purchase price in certain recent acquisitions, requires the use of significant judgment with regard to (i) the fair value; and (ii) whether such assets are amortizable or non-amortizable and, if the former, the period and the method by which the asset will be amortized. We utilize commonly accepted valuation techniques, such as the income, cost and market approaches, as appropriate, in establishing the fair value of these assets. Typically, key assumptions include projections of cash flows that arise from these assets of acquired businesses as well as discount rates based on an analysis of the weighted average cost of capital, adjusted for specific risks associated with the assets.

In our recent acquisitions, customer relationship intangible assets (also referred to as client relationships) and certain biological assets have been the most significant identifiable assets acquired. To determine the fair value of the acquired client relationships and biological assets, we utilized the multiple period excess earnings model (a commonly accepted valuation technique), which includes the following key assumptions: projections of cash flows from the acquired entities, which included future revenue, cost of revenue, operating income margins, customer attrition rates, productivity rates; as well as discount rates based on a market participant’s weighted average cost of capital. During fiscal year 2024, we did not enter into any acquisitions. The value of the client relationship acquired was $23 million and the value of the biological assets acquired was $168 million for fiscal year 2023.

Goodwill

We evaluate goodwill for impairment annually, during the fourth quarter, and when events occur or circumstances change that may reduce the fair value of the asset below its carrying amount. Events or circumstances that might require an interim evaluation include, but are not limited to, unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities, loss of key customers or personnel, and acts by governments and courts. Estimates of future cash flows require assumptions related to revenue and operating income growth, asset-related expenditures, working capital levels and other factors. Different assumptions from those made in our analysis could materially affect projected cash flows and our evaluation of goodwill for impairment.

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We perform the quantitative impairment test where we compare the fair value of our reporting units to their carrying values. If the carrying values of the net assets assigned to the reporting units exceed the fair values of the reporting units, then we would record an impairment loss equal to the difference. In fiscal years 2024 and 2023 we performed the quantitative goodwill impairment test for our reporting units. Fair value was determined by using a weighted combination of a market-based approach and an income approach, as this combination was deemed to be the most indicative of our fair value in an orderly transaction between market participants. Under the market-based approach, we utilized information about our company as well as publicly available industry information to determine earnings multiples and sales multiples that are used to value our reporting units. Under the income approach, we determined fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn.

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, we 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 carrying value by approximately 22%, and no impairment was recognized as of September 28, 2024. As of the annual impairment test date, the fair value of the reporting unit exceeded its carrying value by approximately 16% and no impairment was recognized as of December 28, 2024. While the Discovery Services reporting unit is not currently impaired, we will continue to closely monitor future performance and any potential impacts on the value of the reporting unit. If the estimated future cash flows decrease below our current expectations, specifically as a result of lower revenue growth rates or lower operating income margins, or due to an increase of the weighted-average cost of capital, the fair value may decrease below the carrying value, which may result in a material goodwill impairment.

During the fourth quarter ended December 28, 2024, a triggering event was identified for the Biologics Solutions reporting unit after the annual impairment assessment. This resulted from a loss of key customers, ultimately resulting in a reduction in Biologics Solutions’ long range financial outlook. In response, we conducted a quantitative impairment test for goodwill to determine if the goodwill in the Biologics Solutions reporting unit was impaired. The fair value of the Biologics Solutions reporting unit tested for impairment during 2024 was determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method. Significant assumptions used in the determination of fair value of the Biologics Solutions reporting unit generally include forecasted cash flows, discount rates, terminal growth rates and earnings multiples. The discounted cash flow model used to determine the fair value of the Biologics Solutions reporting unit as of the impairment triggering date reflected assumptions related to revenue growth rates, operating income margins, discount rate and terminal growth rate. The Biologics Solutions reporting unit fair value measurement is classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

Upon completion of a quantitative impairment test, it was determined that the fair value of the reporting unit was below its carrying value, resulting in a goodwill impairment of approximately $215.0 million. We will continue to closely monitor future performance and any potential impacts on the value of the reporting unit. If the estimated future cash flows decrease below our current expectations, specifically as a result of lower revenue growth rates or operating income margins, or due to an increase of the weighted-average cost of capital, the fair value may further decrease resulting in an incremental material goodwill impairment.

Our 2024 and 2023 impairment tests indicated that goodwill was not impaired for any other reporting units.

Valuation and Impairment of Long-Lived Assets

Long-lived assets to be held and used, principally definite-lived intangible assets, biological assets, right-of-use lease assets, and property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. Factors we consider important that could trigger an impairment review include, but are not limited to, the following:

•significant underperformance relative to expected historical or projected future operating results;

•loss of key customers;

•significant negative industry or economic trends; or

•significant changes or developments in strategy or operations that negatively affect the utilization of our long-lived assets.

Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset or asset group, net of any sublease income, if applicable, and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their fair values. We

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measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in our current business model. Significant judgments are required to estimate future cash flows, including the selection of appropriate discount rates and other assumptions. We may also estimate fair value based on market prices for similar assets, as appropriate. Changes in these estimates and assumptions could materially affect the determination of fair value for these assets. Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset.

During the fourth quarter ended December 28, 2024, a triggering event was identified for the Cell Therapy asset group within the Biologics Solutions business as there was a loss of key customers, resulting in a significant reduction in cash flows. We concluded there were no impairments for the asset group related to this triggering event, however the remaining useful life of the intangible asset within the asset group was reduced to less than 1 year.

Long-lived asset impairments associated with our right-of-use lease assets and property, plant, and equipment, recognized during fiscal years 2024 and 2023 were $51.8 million and $41.9 million, respectively.

Income Taxes

We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations. In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and the effects of tax planning strategies. Our valuation allowance was $286.8 million as of December 28, 2024. In the event actual results differ from our estimates, we will adjust our estimates in future periods and may establish additional allowances or reversals as necessary.

We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in process audit activities and changes in facts or circumstances related to a tax position. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the controversy process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews; we have no plans to appeal or litigate any aspect of the tax position; and we believe that it is highly unlikely that the taxing authority would re-examine the related tax position. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.

We generally receive a tax deduction upon the exercise of non-qualified stock options by employees, or the vesting of restricted stock and performance share units held by employees. The stock price, timing, and amount of vesting and exercising of stock-based compensation could materially impact our current tax expense.

Our global operations make the effective tax rate sensitive to significant tax law changes. Several countries have begun to enact legislation to implement the Organization for Economic Cooperation and Development’s (OECD) international tax framework, including the Pillar II global minimum tax regime with effect from January 1, 2024 or later. We are currently monitoring these developments. To date, we have not nor, expect there to be a material financial impact.

New Accounting Pronouncements

For a discussion of new accounting pronouncements, refer to Note 1, “Description of Business and Summary of Significant Accounting Policies” to our consolidated financial statements contained in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K.

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Results of Operations

Consolidated Results of Operations and Liquidity

Revenue for fiscal year 2024 was $4.0 billion compared to $4.1 billion in fiscal year 2023. The 2024 decrease as compared to the corresponding period in 2023 was $79.4 million, or 1.9%, and was primarily due to our DSA business, which experienced lower volume driven by more cautious client spending as a result of the biopharmaceutical demand environment; partially offset by higher revenue within our Manufacturing businesses and the recent acquisition of Noveprim within our RMS business when compared to fiscal year 2023.

In fiscal year 2024, our operating income and operating income margin were $227.3 million and 5.6%, respectively, compared with $617.3 million and 14.9%, respectively, in fiscal year 2023. The decreases in operating income and operating income margins for fiscal year 2024 were primarily due to the revenue impacts described above, charge related to the goodwill impairment within our Manufacturing business, recent restructuring activities, including severance, asset impairments, and other site consolidation costs, and an inventory charge incurred in connection with the investigations by the U.S. government into the non-human primate supply chain.

Net income available to Charles River Laboratories International Inc, common shareholders decreased to $10.3 million in fiscal year 2024, from $474.6 million in the corresponding period of 2023. The decrease in net income available to common shareholders of $464.3 million was due principally to the decreases in operating income described above.

During fiscal year 2024, our cash flows from operations was $734.6 million compared with $683.9 million for fiscal year 2023. The increase in net cash provided by operating activities was primarily due to favorable performance across our revenue related accounts, including collections on trade receivables, deferred revenue, and customer deposits; benefiting cash provided by operations by $46.7 million, lower purchases of inventory supporting our Safety Assessment business, benefiting our cash provided by operations by $16.8 million; partially offset by $27.6 million related to accrued compensation, and timing of payments to our suppliers and vendors reducing our cash provided by operations by $14.3 million.

Revenue and Operating Income

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

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Analysis of Segment Results

The following table presents operating income (loss) by reportable segment:

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

RMS

RMS revenue increased $37.0 million due primarily to an increase in large research model product revenue, principally due to the recent acquisition of Noveprim, which contributed $39.4 million, and an increase in small research model revenue in all geographic areas; partially offset by lower Cell Solutions product revenue and Insourcing Solutions services revenue.

RMS operating income decreased $40.3 million compared to fiscal year 2023. RMS operating income as a percentage of revenue for fiscal year 2024 was 13.8%, a decrease of 570 bps from 19.5% for fiscal year 2023. Operating income and operating income as a percentage of revenue decreased primarily due to higher charges related to recent restructuring activities, including severance, site consolidation, and asset 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

DSA revenue decreased $164.3 million primarily due to decreased revenue in our Safety Assessment and Discovery Services businesses due to decreased study volume driven by softer demand as a result of more cautious client spending in the biopharmaceutical environment, and the impact of a recently divested site related to our Safety Assessment business which contributed $8.5 million to the decrease; partially offset by the effect of changes in foreign currency exchange rates.

DSA operating income decreased $163.6 million compared to fiscal year 2023. DSA operating income as a percentage of revenue for fiscal year 2024 was 18.1%, a decrease of 510 bps from 23.2% for fiscal year 2023. Operating income and

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operating income as a percentage of revenue decreased primarily due to the lower revenue described above, as well as higher severance related to recent restructuring activities, adjustments to contingent consideration associated with the acquisition of Noveprim, and higher third-party legal costs and a $27 million inventory charge to cost of revenue incurred in connection with the investigations by the U.S. government into the non-human primate supply chain compared to the corresponding period in 2023.

Manufacturing

Manufacturing revenue increased $47.9 million primarily due to increased revenue in both our Biologics Solutions and Microbial Solutions businesses, driven by higher endotoxin product revenue coupled with increased revenue related to our Biologics Testing and CDMO services.

Manufacturing operating income (loss) decreased $159.8 million compared to fiscal year 2023. Manufacturing operating income (loss) as a percentage of revenue for fiscal year 2024 was (9.3)%, a decrease of 2,150 bps from 12.2% for fiscal year 2023. Operating income (loss) and operating income (loss) as a percentage of revenue decreased primarily due to the goodwill impairment of $215.0 million within our Biologics Solutions reporting unit, higher severance related to the recent restructuring activity, and accelerated amortization of certain client relationships in the CDMO business due to a change in estimate of the remaining useful life; partially offset by 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 compared to the corresponding period in 2023.

Unallocated Corporate

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 $26.3 million, or 11.4%, compared to fiscal year 2023 is primarily related to severance associated with recent restructuring activities, adjustments to contingent consideration associated with a recent divestiture, and the absence of positive net settlements recognized on virtual power purchase agreements as compared to the corresponding period in 2023. Costs as a percentage of revenue for fiscal year 2024 was 6.4%, an increase of 80 bps from 5.6% for fiscal year 2023.

Other Income (Expense)

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Interest income for fiscal year 2024 was $8.6 million, an increase of $3.4 million, or 65.0%, driven primarily from higher interest rates and interest bearing asset balances.

Interest expense for fiscal year 2024 was $126.3 million, a decrease of $10.4 million, or 7.6%, compared to $136.7 million in fiscal year 2023. The decrease was due primarily to lower debt balances as we continue to pay down our revolving credit facility.

Other expense, net for fiscal year 2024 was $16.5 million, a change of $112.1 million, or 117.3%, compared to other income, net of $95.5 million for fiscal year 2023. The change was primarily due to a gain on acquisition of $98.5 million for Noveprim recognized in fiscal year 2023, as well as net losses on our venture capital and strategic investments of $12.9 million recognized in fiscal year 2024.

Income Taxes

Income tax expense for fiscal year 2024 was $67.8 million, a decrease of $33.1 million compared to $100.9 million for fiscal year 2023. Our effective tax rate was 72.8% for fiscal year 2024 compared to 17.4% for fiscal year 2023. The increase in our effective tax rate in fiscal year 2024 compared to fiscal year 2023 was primarily attributable to the impact of the non-deductible goodwill impairment of the Biologic Solutions reporting unit, as well as the non-taxable gain on Noveprim of $98.5 million in fiscal year 2023.

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 and strategic equity investments, and pension obligations. Our principal sources of liquidity have been our cash flows from operations and recent divestitures, 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 and cash equivalents and short-term investments:

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

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 items including, but not limited to (1) non-cash operating items such as depreciation and amortization, stock-based compensation,

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goodwill impairment, debt financing costs, deferred income taxes, long-lived asset impairment changes, gains and/or losses on venture capital and strategic equity investments, gains and/or losses on divestitures, changes in fair value of 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.

During fiscal year 2024, our cash flows from operations was $734.6 million compared with $683.9 million for fiscal year 2023. The increase in net cash provided by operating activities was primarily due to favorable performance across our revenue related accounts, including collections on trade receivables, deferred revenue, and customer deposits; benefiting cash provided by operations by $46.7 million, lower purchases of inventory supporting our Safety Assessment business, benefiting our cash provided by operations by $16.8 million; partially offset by $27.6 million related to accrued compensation, and timing of payments to our suppliers and vendors reducing our cash provided by operations by $14.3 million.

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

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 and divestitures.

During fiscal year 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. Capital expenditures declined for the fiscal year 2024 compared to 2023, primarily as a result of disciplined spend management in light of the global economic and demand environment. Cash used in investing activities in fiscal year 2023 primarily related to the acquisitions of Noveprim and SAMDI, capital expenditures to support the growth of the business, and investments in certain venture capital and strategic equity investments.

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

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 fiscal year 2024, net cash used in financing activities was primarily driven by the following activity:

•Net repayments of $417.1 million towards our Credit Facility

•Treasury stock purchases of $100.7 million associated with our stock repurchase program and $18.5 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 $23.9 million

•Net dividend payments to noncontrolling interest holders of $14.5 million

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For fiscal year 2023, net cash used in financing activities was primarily driven by the following activity:

•Net repayments of $70.9 million towards our Credit Facility.

•Treasury stock purchases of $24.2 million made due to the netting of common stock upon vesting of stock-based awards in order to satisfy individual statutory tax withholding requirements

•Initial payment to purchase the remaining 8% interest in our Vital River subsidiary of $4.8 million

•Dividends paid to noncontrolling interests $4.0 million

•Contingent consideration payments of $2.7 million

•Net proceeds from exercises of employee stock options of $25.6 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 revolving credit facility and our Senior Notes were as follows:

On December 13, 2024, the Company modified its revolving credit facility “Credit Facility”. The Credit Facility provides for up to $2.0 billion in multi-currency revolving credit (reduced from $3.0 billion) and has a maturity date of December 2029 (previously April 2026), with no required scheduled payment before that date. The terms of the Credit Facility are substantially the same with the interest rates equal to (A) for revolving loans denominated in U.S. dollars, at the Company’s 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 SOFR rate plus 1.0%) or the adjusted 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 the Company’s leverage ratio.

Our 2028 Senior Notes have semiannual interest payments due May 1 and November 1. Our 2029 and 2031 Senior Notes have semiannual interest payments due March 15 and September 15.

We had an interest rate swap with a notional amount of $500 million to manage interest rate fluctuation related to our floating rate borrowings under the revolving credit facility, at a fixed rate of 4.65%. Our swap matured on November 2, 2024 and 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 December 28, 2024 were $22.4 million.

Foreign Currency Exchange Rate Risk

We operate on a global basis and have exposure to some 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 our foreign subsidiaries are the Euro, British Pound, Canadian Dollar, and Mauritian Rupee. During fiscal year 2024, the most significant drivers of foreign currency translation adjustment we recorded as part of other comprehensive income (loss) were the Euro, Canadian Dollar, and Mauritian Rupee.

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 fiscal year 2024, our revenue would

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have decreased by $129.8 million, and our operating income would have decreased by $8.0 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 $1.0 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 fiscal year 2024.

During the third quarter of fiscal year 2024, we repurchased 0.5 million shares of common stock for $100.7 million under the new stock repurchase program. As of December 28, 2024, we had $899.3 million remaining on the authorized stock repurchase program. We intend to repurchase shares in fiscal year 2025 totaling approximately $350 million.

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 fiscal year 2024 and 2023, we acquired 0.1 million shares for $18.5 million and $24.2 million, respectively, through such netting.

Commitments and Other Purchasing Arrangements

We lease properties and equipment for use in our operations. In addition to rent, the leases may require us to pay additional amounts for taxes, insurance, maintenance, and other operating expenses. As of December 28, 2024, we had $701.4 million of operating leases inclusive of future minimum rental commitments under non-cancellable operating leases, net of income from subleases as well as $38.5 million of financing leases. The expected payments of our operating and finance lease liabilities over the next twelve months are $77.9 million and $4.2 million, respectively as of December 28, 2024.

In addition to the obligations on the balance sheet at December 28, 2024, we entered into unconditional purchase obligations in the ordinary course of business. Unconditional purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancellable at any time without penalty. As of December 28, 2024, we had approximately $379 million of unconditional purchase obligations, the majority of which are expected to be settled during 2025.

We invest in several venture capital funds that invest in start-up companies, primarily in the life sciences industry. Our total commitment to the funds as of December 28, 2024 was $215.8 million, of which we funded $167.3 million through December 28, 2024. Refer to Note 8. Venture Capital and Strategic Equity Investments to our consolidated financial statements contained in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K for further details.

In connection with certain business and asset acquisitions, we agreed to make additional payments based upon the achievement of certain financial targets and other milestones in connection with the respective acquisition. As of December 28, 2024, we had approximately $55 million of gross contingent payments, of which $49 million is the current fair value.

We have certain federal and state income tax liabilities of $17.9 million relating to the one-time Transition Tax on unrepatriated earnings under the 2017 Tax Act. The Transition Tax will be paid, interest free, with a final payment in 2025.