They will comment on our results for the second quarter of 2026, as well as our financial guidance. During this 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. I'm pleased to report that we delivered on our second quarter financial targets, exceeding our prior outlook for the quarter, and that we are raising our financial guidance for the year. First, we were encouraged that the biopharmaceutical demand environment continued to strengthen in the second quarter, particularly in the DSA segment.
We firmly believe these trends positioned us well to drive higher organic growth during the second half of the year. To support this growth, we recently embarked on an expansion to add bioanalytical laboratory capacity at Heriot-Watt University's Research Park in Scotland. I mentioned, we believe the biopharma demand is continuing to sustainably improve. Revenue from small and mid-sized biotechs was essentially flat organically in the second quarter, which is an improvement from declines in recent quarters.
A reminder, there is a natural lag of several quarters between studies are booked into backlog and work their way through to revenue. Global biopharmaceutical clients were also a significant contributor to the improving DSA demand KPIs in the second quarter. As I mentioned last quarter, most of our global biopharma clients have progressed through restructuring and pipeline reprioritization activities over the last several years. Demand trends have been improving gradually over the last 18 months with continued evidence this year.
| Metric | Period | Current guidance |
|---|---|---|
| Reported revenue growth | FY2026 | -2.5% to -3.5% (driven by completed divestitures) |
| Organic revenue growth | FY2026 | Flat to +1% (raised ~150 bps); DSA low single-digit growth, Manufacturing low-to-mid single digits, RMS unchanged (low-to-mid single-digit decline) |
| Operating margin expansion | FY2026 | ~120-150 bps year over year; H2 at least 500 bps better than H1, ~50% from completed portfolio actions |
| Non-GAAP diluted EPS | FY2026 | $11.15-$11.45 (+8%-11% YoY; +$0.25 at midpoint, all operational) |
| Free cash flow | FY2026 | $400M-$420M (raised on higher earnings) |
| Non-GAAP tax rate | FY2026 | 23%-24% (+~100 bps, mainly proposed Mauritius tax legislation) |
| Q3 outlook | Q3 2026 | Reported revenue -4% to -6%, organic +1% to +3%; operating margin +~200 bps sequentially; non-GAAP EPS $2.90-$3.00 (~+20% YoY) |
| Metric | YoY | Note |
|---|---|---|
| Total revenue | $1.00B (organic +0.1%) | First organic growth since Q3 2023, driven by better-than-expected DSA and Manufacturing; reported down modestly on divestitures. |
| GAAP EPS | $(0.03) (vs $1.06) | Net loss of $1.5 million principally from a loss on the CDMO and Cell Solutions divestitures; GAAP operating margin 11.9% (up from 9.7%). |
| Non-GAAP EPS | $3.02 (-3.2% YoY, +47% sequentially) | Over half of the outperformance from better top line, the rest from favorable non-operating items. |
| DSA segment | Revenue $607M (-1.9% reported, +0.2% organic) | First DSA organic growth since Q3 2023; operating margin 25.6% (-180 bps YoY on higher study costs, +460 bps sequentially). |
| RMS segment | Revenue $209M (-1.4% organic) | Lower North American small-model volumes and research model services, partially offset by strong China demand; operating margin 24.5% (-80 bps). |
| Manufacturing segment | Revenue $188M (+1.3% organic) | High-single-digit Microbial Solutions growth; operating margin 37.8% (+500 bps) on the CDMO divestiture; mid-single-digit organic ex-CDMO. |
| DSA net bookings / book-to-bill | $701M (+12.6% seq); 1.19x | Broad-based across global biopharma and biotech; backlog rose to $1.97 billion, highest bookings/book-to-bill in nearly four years. |
| Free cash flow / leverage | $149M; net leverage 2.5x | Down $21 million on working-capital timing; balance sheet supports continued M&A and buybacks. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Biopharma demand recovery | Weak, declining demand | Third consecutive DSA book-to-bill above 1x with rising proposals; biotech funding near $100 billion TTM (near pandemic peaks), IPO activity up, and global biopharma booking more work after multi-year restructuring; a several-quarter lag means benefits accelerate in H2 2026 and into 2027. | — |
| Pathway of Purpose / portfolio refinement | Broad portfolio | Completed divestitures of certain European discovery sites, CDMO, and Cell Solutions to refocus on core regulated testing, driving margin and focus benefits; management signaled continued portfolio review plus M&A appetite (nothing imminent on further divestitures). | — |
| NHP supply advantage | Industry supply risk | Ownership of Mauritius and Cambodian (K.F.) NHP farms gives control over quality, timing, and capacity, a competitive differentiator; lower NHP sourcing costs begin benefiting DSA margin in Q3 with a larger Q4 impact as animals move onto studies. | — |
| AI in drug discovery | Emerging | Management believes AI-driven discovery (e.g., the Lilly TuneLab collaboration) will increase the number of molecules advancing into validation and regulated safety assessment, a multi-year tailwind; Charles River is also deploying internal AI, including AI-enabled digital pathology targeting a one-week cut to timelines. | — |
| China | Watching competition | Strong research-models business in China; competition is adding capability mainly in early-stage chemistry/biology (which CRL exited), with limited migration of Western regulated safety work to China so far; management sees Western pricing for China-for-West CROs moderating but still lower. | — |
| Academic/government weakness | Growth segment historically | About 10% of the company (mostly RMS); demand stable but not growing amid flat NIH budgets, multi-year grants, and slower processing, holding back North American research models; CRADL subdued on modest (2%) new-company formation. | — |
| NAMs and modernization | Early NAMs focus | A scientific advisory board and new chief scientific officer lead NAMs integration into safety assessment workflows (internal development plus licensing/partnering), not a standalone business; deeper detail promised at the September 24 Investor Day. | — |