What Management Said
Read the full Q4 2025 transcript ↗They will comment on our results for the Q4 of 2025, as well as our financial guidance for 2026. During the call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance. Birgit will provide an overview of our 2026 guidance and the key drivers behind our outlook. Before I hand the call over to her, I will provide details on our Q4 and full year 2025 financial results, as well as an update on our latest developments and market trends.
We were pleased that our 2025 financial results were at the upper ends of the revenue and non-GAAP earnings per share ranges that we provided in November. Beyond our financial results, the Q4 capped a year that was marked by the stabilization of the biopharma demand environment, including substantial improvements in DSA net bookings, particularly during the first and Q4. At different points during 2025, demand from both global biopharmaceutical clients and small and mid-sized biotechnology clients showed signs of improvement. The biotech funding environment slowed in the first half of 2025, and we subsequently experienced softer demand trends from our small and mid-sized biotech clients during the summer months.
K.F., the acquisition of which has already closed, has been a longtime NHP supplier in Cambodia and will further strengthen and secure our DSA supply chain. We expect it will generate meaningful operating margin improvement starting later this year through significant cost savings on NHP sourcing. and NovaPrim, we expect to own and internally source most of our future annual NHP supply requirements for the DSA segment. We continued to advance our NAMs capabilities with the planned acquisition of PathoQuest, which is expected to close within the next month.
What went well
- Full-year 2025 financial results came in at the upper ends of the revenue and non-GAAP EPS ranges the company provided in November.
- DSA net book-to-bill improved to 1.1 times in the fourth quarter, with steady sequential monthly increases in the second half driven primarily by biotech clients amid a record $28 billion biotech funding quarter.
- In the fourth quarter, sales to global biopharma clients rebounded meaningfully versus the prior year as these clients got back to work after pulling back at the end of 2024.
- The company announced the planned acquisitions of K.F. Cambodia (already closed) and PathoQuest, strengthening the NHP supply chain and advancing NAMs capabilities, with K.F. expected to add approximately $0.25 to 2026 EPS.
- Management issued 2026 guidance projecting a return to organic revenue growth in the second half of the year for both DSA and the overall company, with operating margin improvement of 20-50 basis points.
- The company expects to generate at least $100 million in incremental cost savings in 2026 above 2025 levels, bringing cumulative annualized savings to over $300 million, and net leverage stood at a healthy 2.0 times.
What went wrong
- Fourth quarter revenue of $994.2 million declined 2.6% on an organic basis, with revenue declines in all three business segments.
- Full-year 2025 revenue of $4.02 billion declined 1.6% organically, driven primarily by lower revenue in the DSA and manufacturing segments, with sales to both global biopharma and small/mid-sized biotech declining modestly for the full year.
- The first quarter 2026 operating margin is expected to be in the mid-teens, pressured by unfavorable NHP shipment timing, accelerated stock compensation from the CEO transition, and higher DSA NHP sourcing and staffing costs.
- First quarter 2026 non-GAAP EPS is expected to decline at a high-teens rate year-over-year.
- RMS revenue is expected to decline at a low- to mid-single-digit organic rate in 2026, with NHP shipment timing a ~200 basis point headwind and constrained CRADL occupancy from subdued early-stage biotech demand.
- Free cash flow is expected to decline to $375 million-$400 million in 2026 from $518.5 million in 2025, driven by higher bonus payments and CEO retirement-related deferred compensation.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Organic revenue | FY2026 | down 1% to at least flat (new) |
| Reported revenue | FY2026 | at least flat to 1.5% growth (new) |
| Non-GAAP EPS | FY2026 | $10.70-$11.20 (growth ~4%-9%) (new) |
| Operating margin | FY2026 | improve 20-50 bps (new) |
| DSA organic revenue | FY2026 | slightly positive to low single-digit decrease (new) |
| RMS organic revenue | FY2026 | low- to mid-single-digit decline (new) |
| Manufacturing organic revenue | FY2026 | low single-digit increase (new) |
| Non-GAAP tax rate | FY2026 | 22%-23% (decrease) |
| Net interest expense | FY2026 | $95M-$100M (decrease) |
| Free cash flow | FY2026 | $375M-$400M (decrease) |
| CapEx | FY2026 | approximately $200M (~5% of revenue) (slight reduction) |
| Operating margin | Q1 2026 | mid-teens (new) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Q4 revenue | -2.6% organic | Revenue declines across all three business segments |
| FY revenue | -1.6% organic to $4.02B | Lower revenue in DSA and manufacturing segments |
| Q4 global biopharma sales | rebounded meaningfully | Clients got back to work after pulling back on spending at the end of 2024 |
| DSA net book-to-bill | 1.1x in Q4 | Steady sequential monthly improvement driven by biotech clients amid record $28B biotech funding quarter |
| Biologics testing | returned to growth in Q4 | Higher demand principally from Europe after a complicated 2025 of lower sample volumes from project delays and regulatory challenges |
| Net leverage | 2.0x | Continued debt repayment, outstanding debt reduced to $2.1B |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| DSA demand environment | Stabilizing, improving | Cautiously optimistic on continued favorable trends; H2 2026 return to growth expected | Improving |
| Net book-to-bill | Low 0.8 range | 1.1x in Q4 | Improving |
| Biotech funding | Improving | Record $28B in Q4 | Improving |
| Portfolio strategy | Strategic review first phase complete | K.F. and PathoQuest acquisitions announced; ~7% revenue divestitures ongoing | Improving |
| NHP supply chain | Higher third-party sourcing costs | K.F. and Noveprim to internally source most future NHP needs; benefit in H2 2026 | Improving |
| Cost savings | ~$225M cumulative annualized | Over $300M cumulative; at least $100M incremental in 2026 | Improving |
| Leadership transition | Jim Foster CEO | Birgit Girshick to become CEO in May; Glenn Coleman to join as CFO April 6 | Stable |
| NAMs and AI | Nascent, complementary | Enabling technology, gradual longer-term evolution; no notable change in client behavior | Stable |
Q&A Summary
Can you walk us through the NHP dynamics between RMS facing lower volume and DSA facing higher sourcing costs?
The RMS Q4 volume impact is primarily timing as shipments shifted, with Q1 also reflecting slightly lower volumes. For DSA, more NHP studies came in than expected in 2025 and early 2026, requiring open-market purchases at higher prices that hurt ROI. The company always uses two sources (Asian and Mauritius) that do not always align with internal availability versus open-market needs, so it is mostly timing and sourcing mix.
What are your hiring needs for DSA as bookings continue to improve?
Physical capacity is in good shape and not optimally used, allowing the company to fill space as demand increases. Headcount has been kept in sync with demand; senior scientific staff and study directors are in particularly good shape, with the focus on direct labor that must be brought on about a quarter ahead due to training. Management is confident it can do this in a measured fashion without dragging operating margins.
Why aren't you going to be impacted by AI given how much wet lab work you do?
Management was surprised by the violent share price reaction. AI is part of NAMs and viewed as an enabling, complementary technology over the long term, not a disruptor, and is more relevant to discovery than safety. The science will prevail; if technologies are beneficial they will be embraced industry-wide, but nothing is imminent and they do not see it as a threat to the company.
Can you give context on DSA cancellations in the quarter and your normal range?
Cancellations and slippage are normal elements of the business, with penalties for insufficient notice covering costs incurred. The company has never disclosed the actual percentage or dollar amount but is back to normal, expected cancellation levels that it can manage well with the roughly nine-month backlog. Cancellations had spiked a couple of years ago, improved last year, and are now back to normal.
Your higher-end revenue guidance requires only a 1.0 book-to-bill, which seems conservative versus the 1.1x just posted; can you add perspective?
A book-to-bill above 1 is needed for the top end and it will not be linear, so not every quarter will be above 1. Other factors drive the H2 growth view: study start timing (bookings are one to two quarters out before starting), backlog conversion timing, and study starts. Management remains very positive on the trends continuing.
Is there a compounding benefit on NHP savings beyond 2026 as you insource more?
Yes; there is a $0.25 benefit in 2026, and approximately $0.60 of accretion from K.F. expected as the company moves into 2027.
More on Charles River Laboratories International, Inc.
Reported 2026-02-18 · figures from the Charles River Laboratories International, Inc. Q4 2025 earnings call.
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