Charles River Laboratories International, Inc. (NYSE:CRL) Q4 2022 Earnings Call Transcript

Charles River Laboratories International, Inc. (NYSE:CRL) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Charles River Laboratories Fourth Quarter and Full Year 2022 Earnings Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to turn the conference over to our host, Todd Spencer, Vice President of Investor Relations. Please go ahead, sir.

Todd Spencer: Thank you, and good morning, and welcome to Charles River Laboratories fourth quarter and full year 2022 earnings and 2023 guidance conference call and webcast. This morning, I am joined by Jim Foster, Chairman, President and Chief Executive Officer; and Flavia Pease, Executive Vice President and Chief Financial Officer. They will comment on our results for the fourth quarter of 2022 as well as our financial guidance for 2023. Following the presentation, they will respond to questions. There is a slide presentation associated with today’s remarks, which will be posted on the Investor Relations section of our website at ir.criver.com. A webcast replay of this call will be available beginning approximately two hours after the call today and can be also accessed on our Investor Relations website.

The replay will be available through the next quarter’s conference call. I’d like to remind you of our Safe Harbor. All remarks that we make about future expectations, plans and prospects for the company constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated. During this call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of the core operating results and guidance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures and reconciliations on the Investor Relations section of our website.

I will now turn the call over to Jim Foster.

Jim Foster: Good morning. Before I speak about our strong fourth quarter results, I want to provide an update on the non-human primate or NHP supply situation. As many of you are aware, there has been an ongoing industry-wide investigation into NHP imports from Cambodia. On February 17, we received a subpoena from the U.S. Department of Justice related to an investigation into the Cambodian NHP supply chain. We have been informed this investigation related specifically to shipments of NHPs received by Charles River from our Cambodian supplier. We intend to fully cooperate with the U.S. government. Once the Department of Justice concludes its investigation, we believe it will find that any concerns with respect to Charles River are without merit.

As we have stated before, we are committed to ensuring our operations are fully compliant with all U.S. and international laws and regulations. And we maintain risk-based supplier due diligence, audit and management practices to help ensure the quality of our supplier relationships and compliance of applicable laws, including the status of the NHPs we import. Based on ongoing investigations and a heightened focus on the Cambodia NHP supply chain, in recent months, we have voluntarily suspended planned future shipments of Cambodian NHPs until such time that we and the U.S. Fish and Wildlife Service can develop and implement new procedures to reinforce confidence that the NHPs we import from Cambodia are purpose-bred. This will take time to implement and the duration of which is unknown.

The investigation in current NHP supply situation will result in study delays in our Safety Assessment business. By way of background, NHPs are the most scientifically relevant large model for the regulatory required safety testing of biologics drugs as mandated by the FDA and other international regulatory agencies. Biologic drugs cannot be approved for commercial use without NHPs. And given the proliferation of biologic drug development activity in recent years, NHPs have been in high demand. As an example, all of the COVID-19 vaccines developed in the United States and Europe utilized NHPs. In recent years, NHPs sourced from Cambodia have been responsible for approximately 60% of the NHPs supplied to the United States and to Charles River for drug research and development.

While there is no other near-term global source to replace the supply, we are continuing to actively work to diversify our NHP supply chain. It’s critical that we work diligently to resolve the NHP supply situation and collaborate with all agencies of the U.S. government, including the U.S. Fish and Wildlife Service, to restore this important supply chain because the U.S. pharmaceutical industry and the patients who need new life saving treatments are counting on us. The current Cambodian NHP supply constraints and the corresponding impact to our Safety Assessment business are expected to reduce our consolidated revenue growth forecast by approximately 200 basis points to 400 basis points this year, resulting in organic revenue growth guidance of 4.5% to 7.5% for the total company.

The non-GAAP earnings per share are expected to be in a range of $9.70 to $10.90 in 2023 with the wider ranges encompassing a number of scenarios related to the timing of the resumption of Cambodian NHP imports this year. The top end of our guidance ranges anticipate that we will have Cambodian NHPs available for studies in the fourth quarter, whereas the bottom end of our guidance assumes that we will have no Cambodian NHP imports for the remainder of 2023. In either case, we expect to begin to experience a more meaningful impact from NHP supply constraints in the second quarter. In addition to NHP supply, several non-operating items are significantly affecting the year-over-year earnings per share comparison in 2023, including higher interest expense, a higher tax rate and the divestiture of our Avian Vaccine business, which was completed in December.

These items will generate a combined earnings per share headwind of $1.20 to $1.40 in 2023, partially offset by up to a $0.25 benefit from foreign exchange. Flavia will discuss these items in more detail shortly. Now I’ll speak with you about an outstanding finish to another strong year for Charles River. We reported robust operating performance in 2022, highlighted by 13.4% organic revenue growth against the backdrop of escalating macroeconomic pressures. 2022 performance demonstrates the continued execution of our strategy, which enables us to enhance our position as the scientific partner of choice to accelerate biomedical research and therapeutic innovation. Let me give you the highlights of our fourth quarter and full year performance.

We reported record quarterly revenue of $1.1 billion in the fourth quarter of 2022, exceeding the $1 billion mark for the first time and representing an increase of 21.5% on an organic €“ on a reported basis. Organic revenue growth of 18.8% was driven by increases from all three business segments with the most significant contribution from the DSA segment due to another robust performance in the Safety Assessment business. In the second half, DSA organic growth rate rose to 23.6% as we exceeded the second half growth acceleration that we had forecast since the beginning of last year. For 2022, revenue was $3.98 billion with a reported growth rate of 12.3% and an organic growth rate of 13.4%. The revenue growth rate exceeded the top end of our guidance range by 140 basis points driven primarily by outperformance in both the Discovery and Safety Assessment businesses.

The operating margin was 20.4% in the fourth quarter, a decrease of 50 basis points year-over-year driven primarily by the Manufacturing and RMS segments. For the full year, the operating margin was unchanged at 21%. We are pleased to have held the operating margin steady in a year with substantial cost inflation and the CDMO business generated significant margin pressure. Earnings per share were $2.98 in the fourth quarter, an increase of 19.7% from $2.49 in the fourth quarter of 2021. For the full year, earnings per share were $11.12, a 7.8% increase over the prior year. We exceeded our last guidance range of $10.80 to $10.95 due primarily to the robust fourth quarter revenue growth, particularly in the DSA segment. We believe our 2022 performance thoroughly demonstrated the successful execution of our strategy to position Charles River as the non-clinical drug development partner of choice for our valued clients as well as the sustained pace of demand from these clients despite macroeconomic headwinds.

Our exceptional market position, unique early-stage focus and our large diversified client base give us confidence that many of the underlying business trends will remain intact in 2023. I’d like to provide you with additional details on our fourth quarter segment performance and our expectations for 2023 beginning with the DSA segment’s results. DSA revenue in the fourth quarter was $691.7 million or a substantial 26.5% increase on an organic basis. The Safety Assessment business continued to be the principal driver of DSA revenue growth with significant contributions from study volume, pricing and NHP pass-throughs in order of magnitude. As we have often mentioned, our business is not linear. In this case, the record fourth quarter DSA revenue growth was driven by a combination of the current robust demand and pricing environment as well as the comparison to the fourth quarter of 2021 when the business experienced some resource constraints, including staffing.

The Discovery Business Services growth rate also improved in the quarter. For the full year, DSA organic revenue growth was also a record 17.5%, exceeding our midterm outlook. As of year-end, the DSA backlog has increased 32% year-over-year to $3.15 billion. The backlog remained robust in 2022 and continues to support a long growth runway and also normalized during the year as expected because the backlog duration stabilized after substantially elongating in prior years. We are continuing to see broad-based and sustained client demand across our Safety Assessment business as we have the staffing and capacity to accommodate this client demand. The current NHP supply situation may restrict the revenue growth rate and margin expansion in 2023, but the underlying strength and resilience of demand environment and pricing should afford us with healthy DSO growth opportunities once the NHP supply situation is resolved and we have an adequate supply of these large models.

The Discovery Services business had a good quarter with improvement in the revenue growth rate from the third quarter level. Many of our clients who previously lengthened the timeframes to start new projects move forward with their programs in the fourth quarter. Discovery booking and proposal activity also support a healthy growth profile as we begin 2023. In order to strengthen our position as a single-source partner to support our clients’ early-stage research needs, we continue to expand our discovery capabilities through our technology partnership strategy and through M&A. We achieved both with SAMDI Tech, which we acquired in January. We established an initial partnership with SAMDI Tech in 2018, and we were able to validate their proprietary mass spectrometry technology for label-free, high-throughput screening with our clients.

During the partnership, we determined that SAMDI Tech cutting-edge technology was increasingly favored by clients to accelerate their timeline and reduce the costs required to identify a lead drug candidate and make critical go/no-go decisions earlier. As a result of the successful partnership, we mutually agreed to have SAMDI Tech join Charles River. Partnerships and acquisitions like this advance our ongoing efforts to build our scientific expertise for the discovery of novel therapeutics and strengthen our discovery toolkit by adding cutting-edge capabilities to enable clients to work with us for a single project or on an integrated program in a flexible manner tailored to their specific outsourcing needs. The DSA operating margin was 26.3% in the fourth quarter, a 320 basis point increase from the fourth quarter of 2021.

For the year, the DSA operating margin increased by 160 basis points to 25.3%. Both increases were driven primarily by operating leverage associated with the meaningfully higher revenue in the Safety Assessment business. RMS revenue in the fourth quarter was $196.1 million, an increase of 10.8% on an organic basis. For the year, RMS organic revenue growth was 9%, squarely in line with our outlook of high single-digit growth in 2022. Accelerating growth for Research Model Services, particularly our CRADL initiative and research models in North America and China, drove the exceptional RMS revenue growth rates for the fourth quarter and full year. We also continue to benefit from meaningful price increases, which were implemented in part to offset inflationary cost pressures.

We expect similar trends will drive high single-digit organic growth again in 2023. In the Research Model business, North America continued to generate strong revenue growth. And China, although reporting a double-digit increase, experienced a modest impact from an increase in COVID cases during the fourth quarter. The expansion of the central, southern and western regions of China are progressing well, and each new set is operational with two sites already shipping research models. This will enable us to continue to generate robust double-digit growth in China and gain additional market share. Research Model Services also continued to perform well with broad-based growth across Insourcing Solutions and GEMS in the fourth quarter and for the year.

Growth was primarily driven by Insourcing Solutions CRADL operations or Charles River Accelerator and Development Labs, including last year’s Explora acquisition. Clients are increasingly adopting this flexible model to access vivarium space without having to invest in internal infrastructure. Explora continued to perform very well, and the combined CRADL footprint now encompasses 28 vivarium facilities totaling over 380,000 square feet of turnkey rental capacity. CRADL and Explora provide us with a new and unique pathway to connect with clients in earlier stages, enabling these clients to invest in a research and not in infrastructure, preferring to leverage Charles River’s broader capabilities to continue to advance their research. The RMS operating margin declined by 420 basis points year-over-year to 22.7% in the fourth quarter and by 210 basis points to 25.2% in 2022.

The declines were primarily attributable to the 53rd week, which has a greater impact on the RMS segment, headwinds from expansions of our CRADL and Explora operations and new RMS sites in China and also a modest COVID impact in China. We anticipate that each of these factors will either be eliminated or generate less of an impact in 2023, resulting in improvement in the RMS operating margin. Manufacturing Solutions revenue was $212.1 million in the fourth quarter, a growth rate of 5.3% on an organic basis. And the full year organic growth rate was also 5.3%, in line with our mid-single-digit outlook for 2022. The segment growth rate in 2022 was compressed by lower revenue in the CDMO business. The initiatives that we have implemented to improve the performance of our CDMO business continue to gain traction and earn positive feedback from clients.

Our creation of centers of excellence for cell therapies, viral vectors and plasmids has been well received. And coupled with our focus on CDMO business development efforts and investing in the commercial readiness of our operations, we are generating new client interest. We have won over $100 million of new CDMO projects over the past 12 months and more than two thirds of which are for our world-class cell therapy operations in Memphis. We believe that a stronger sales funnel has helped in a gradual improvement in the CDMO performance during 2023 as the business returns to its targeted growth rates. We expect the CDMO business will drive a rebound in the Manufacturing segment organic growth rate to the low double digits in 2023. The Biologics Testing Solutions and Microbial Solutions businesses both performed very well in the fourth quarter, benefiting from robust client demand as the growth prospects for these legacy manufacturing quality control businesses remain strong.

These businesses in the Manufacturing segment in total will continue to be principally driven by demand for biologic drugs, including cell and gene therapies and other complex biologics. Microbial Solutions had a strong quarter and full year, benefiting from broad-based growth across its Endosafe Endotoxin testing and Accugenix microbial identification testing platforms. We are continuing to convert the marketplace to our more efficient and reliable quality control testing platform. The continued expansion of the installed base of instruments drives demand for the consumable cartridges and reagents, which provides a healthy recurring revenue stream. We believe Microbial Solutions’ long-term growth potential continues to be approximately 10%, including in 2023.

The Biologics Testing business reported an excellent fourth quarter and full year. Robust demand for cell and gene therapy testing services continue to be the primary growth factor as well as traditional biologics. And the business had an excellent year despite the moderation of COVID vaccine testing revenue during 2022. We have been successful in maintaining €“ and we have been successfully gaining business because of our extensive portfolio of services to support the safe manufacture of biologics. We believe cell and gene therapies will continue to be significant growth drivers over the longer term. The Manufacturing segment’s operating growth declined meaningfully in both the fourth quarter and full year to 25.3% and 28.8%, respectively.

As has been the case all year, the decline was driven almost entirely by the underperformance of the CDMO business. Based on our expectations for the CDMO business, we believe the manufacturing operating margin will improve meaningfully in 2023 to above the 30% level. As you know, there is inherent operating leverage in our businesses. So as project volumes improve in the CDMO business, we expect the margin profile will follow. In 2022, we celebrated our Charles River’s 75th anniversary. We’re delighted to have evolved from a small revolutionary research model company overlooking the Charles River to a leading global drug discovery and development partner, generating nearly $4 billion in annual revenue and helping to lead the biopharmaceutical industry’s essential nonclinical drug development efforts.

As we look to 2023, we continue to see a resilient funding environment to continued renaissance in the golden age of scientific innovation, our clients’ increasing use of strategic outsourcing and their need for enhanced efficiency and speed to market. Our core competencies, including our extensive scientific knowledge and our focus on preclinical R&D, are precisely tailored to these trends and make us an even more indispensable partner to advance our clients’ life-saving therapies. I assure you that we will continue to proactively manage the NHP supply and reinforce our firm commitment to conducting ethical regulatory compliant business practices and to the humane treatment of the research model under our care. To conclude, I’d like to thank our employees for their exceptional work and commitment and our clients and shareholders for their support.

Now I’d like Flavia to give you additional details on our financial performance and 2023 guidance.

Flavia Pease: Thank you, Jim, and good morning. Before I begin, may I remind you that I’ll be speaking primarily to non-GAAP results, which exclude amortization and other acquisition-related adjustments, costs related primarily to our global efficiency initiatives, gains or losses from our venture capital and other strategic investments, a gain on the sale of the Avian Vaccine business and certain other items. Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions, divestitures, foreign currency translation and the 53rd week in 2022. My discussion this morning will focus primarily on our financial guidance for 2023. We’re very pleased with our fourth quarter results, which included revenue and earnings per share that outperformed our previous guidance, including quarterly revenue exceeding the $1 billion level for the first time.

Our 2023 guidance ranges reflect multiple scenarios with regards to the estimated impact from the NHP supply constraint, as Jim outlined, the impact of which is expected to result in reported revenue growth of 1.5% to 4.5% and organic revenue growth of 4.5% to 7.5% in 2023. Notwithstanding the NHP supply situation, our outlook reflects sustained underlying trends in most of our businesses and a resilient funding environment. We expect non-GAAP earnings per share between $9.70 and $10.90, reflecting meaningful headwinds associated with both NHP supply and non-operating items. I will not provide too many more comments on the NHP supply impact since Jim covered it. So, I’ll focus my comments on the other headwinds, which include the impact of the Avian Vaccine divestiture, a higher tax rate and increased interest expense.

In combination, these non-operating headwinds will reduce earnings per share by approximately $1.20 to $1.40 for the year, partially offset by an FX benefit to earnings per share of up to $0.25 in 2023. These items will reduce earnings per share growth by nearly 10% at midpoint. I’d like to provide some additional details on the three non-operating items that we expect will generate headwinds for our financial performance in 2023. First, we completed the Avian Vaccine divestiture in December as expected. The transaction will reduce 2023 revenue by approximately $80 million and non-GAAP earnings per share by approximately $0.25 net of the interest expense benefit since we used the proceeds to repay debt. Second, the non-GAAP tax rate is expected to move to the top of our long-term low 20% range to 22.5% to 23.5% in 2023, representing a nearly 400 basis point increase at midpoint compared to the 2022 tax rate of 19.2%.

The increase will be primarily driven by a year-over-year reduction in the excess tax benefit related to stock compensation as a lower stock price will generate less of a benefit in 2023 compared to the prior year as well as discrete tax benefits in 2022 that are not expected to reoccur this year. The higher tax rate is expected to reduce 2023 earnings per share by $0.50 to $0.65 and the earnings growth rate by over 500 basis points at midpoint. Finally, total adjusted net interest expense in 2023 is expected to increase to a range of $133 million to $137 million compared to $105 million last year. We expect year-over-year increase will be driven by higher variable interest rates primarily as a result of the Federal Reserve’s actions, partially offset by repayment of debt.

We anticipate the higher interest expense will create an earnings per share headwind of $0.45 to $0.50 and reduce the earnings growth rate by at least 400 basis points. As we mentioned last quarter, we entered into an interest rate swap agreement effectively locking in a fixed rate for two years on $500 million of our revolving credit facility. At year-end, approximately three-quarters of our $2.7 billion debt was at a fixed rate. We believe the Federal Reserve will increase rates in the near term, and our outlook accommodates an additional 100 basis point increase in rates in 2023 beyond the recently announced February increase. At the end of the fourth quarter, our gross and net leverage ratios were approximately 2.2 times and 2.1 times, respectively.

This is a meaningful decline from the third quarter due in part to a cash gain on the Avian divestiture. We continuously evaluate our capital priorities and as always, intend to deploy capital to the areas that we believe will generate the greatest returns. Our outlook assumes an average diluted share count of approximately 51.5 million to 52 million shares outstanding in 2023. From a segment perspective, our 2023 revenue growth outlook reflects sustained client demand trends, offset by the NHP supply impact in the DSA segment. Similar to the prior year, the RMS segment is expected to achieve high single-digit organic revenue growth, the result of continued robust demand for research models and associated services. As a reminder, the Cambodian NHP supply situation does not have an impact on our RMS segment as these large models are sourced and used to support our Safety Assessment operation.

For the DSA segment, we expect the organic growth rate will be between low to mid-single digits based on our NHP supply assumptions around the timing of the resumption of imports. The Manufacturing segment is expected to generate low double-digit organic revenue growth with the increase from the 2022 growth rate principally driven by the expected rebound in the CDMO performance during the year. While foreign exchange was a 350-basis point headwind in 2022, the weakening of the U.S. dollar since November is expected to result in a slight FX benefit of up to 50 basis points to revenue growth in 2023, assuming near current foreign exchange rates. This will drop down to a more meaningful contribution to the bottom line and is projected to generate up to a $0.25 earnings per share benefit due largely to movements in the Canadian dollar.

You may recall, in Canada, we invoiced most of our revenue in U.S. dollars, but essentially all of our costs are in current Canadian dollars. We have provided information on our 2022 revenue by currency and the foreign exchange rates that we are assuming for 2023 in our slide presentation. For the operating margin, we would have expected to generate moderate margin improvement in 2023 without an NHP supply impact. But given this meaningful headwind, we expect the 2023 operating margin to be flat to down 150 basis points depending on the timing of the resumption of Cambodia NHP shipment. Longer term, we still believe there is operating margin improvement that is inherent in our business from a combination of leverage from higher volume, pricing and continuing to drive efficiency.

We will not provide free cash flow or capital expenditure outlooks at this time because these metrics could vary based on the level of NHP supply impact that is incurred. For 2022, free cash flow totaled $330.3 million compared to $532 million for the prior year. The decrease was due to higher CapEx as we added capacity to accommodate the robust demand as well as unfavorable working capital movements, the timing of which contributed to our free cash flow being below our prior outlook. Capital expenditures for 2022 increased by $96 million to $324.7 million with most of the increase driven by the continued capacity needs of the Safety Assessment business. Given the current NHP supply situation, we will reassess our capital needs for this year.

Longer term, the targeted level for CapEx remains at approximately 9% of revenue as we expect to continue to invest in capacity in order to keep pace with a sustained underlying demand environment and support our long-term growth forecast. The next slide shows a summary of our 2023 financial guidance. Looking at the first quarter of 2023, we expect that year-over-year revenue growth will be in the high single-digit range on a reported basis and at or above the 10% level on an organic basis. We’re expecting stronger revenue growth in the first half of 2023, both due to the comparisons to last year when growth accelerated throughout the year as well as the gating of the NHP supply impact. We expect only a small impact related to NHP supply in the first quarter because these large models are already in place to start the scheduled study.

We expect earnings per share will decline at a mid-single-digit rate in the first quarter compared to $2.75 in the first quarter of last year. In addition to the impact of the Avian divestiture, the non-operating headwinds will have a greater impact to earnings per share in the first quarter. Specifically, the higher tax rate and increased interest expense. As previously mentioned, the tax benefit from stock compensation is expected to be lower in 2023 with the greatest impact in the first quarter. We also will now have anniversary last year’s Federal Reserve more aggressive interest rate increases in the first quarter. These two items are expected to result in a combined earnings headwind of approximately $0.40 per share. In addition, the Manufacturing segment faces a difficult comparison versus the first quarter of last year with regards to commercial readiness milestones in the CDMO business and COVID testing revenue in the Biologics Testing business.

This will result in a lower growth rate for the Manufacturing segment in the first quarter. Each of these headwinds will improve throughout the year, beginning in the second quarter. In conclusion, we’re very pleased with our 2022 financial performance, and we’ll proactively manage the challenges in 2023. We’re confident in our ability to generate value for our shareholders by consistently growing revenue, earnings and cash flow. Over the last five years, we have achieved compound annual growth of 16% for revenue and 17% for earnings per share, generating robust operating and free cash flow while continuing to make necessary investments to support the growth of our business. We’re focused on continuing to drive growth, executing our strategy and enhancing our position as the leading global nonclinical drug development partner, working with our clients from discovery and preclinical development through the safe manufacture of their life-saving therapies.

Thank you. Todd Spencer That concludes our comments. We will now take your questions.

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Q&A Session

Operator: And our first question will come from Derik De Bruin with Bank of America. Your line is open.

Derik De Bruin: Hi, good morning. Thanks for taking my question. Jim, I’m just curious, what are your customers doing that €“ in the biotech space and elsewhere to €“ in terms of their studies? I mean, is €“ are other vendors having similar delays on some issues? Basically, are you at risk of losing business because other vendors have better access to some of the model systems?

Jim Foster: Tough to comment on the competition, Derik. I guess my overarching comment would be, number one, we are a much wider scale. Number two, we have different supply sources and different capabilities. But I would say that with regard to Cambodia, where 60% of the animals come from, we are all at least temporarily foreclosed from bringing new animals in and utilizing them on studies in the United States. So you want to extrapolate this and say this is an industry issue, a relatively profound one because drugs aren’t going to move through preclinical and into the clinic. Biologics are not going to move unless they’re tested on large animals, and it’s has to be NHP. So we are €“ our focus now is to work with Fish and Wildlife to come up with a collaborative methodology that they’re in agreement with, and we can execute to show parentage, which is sort of the underlying issue here.

It’s going to be some sort of laboratory assay that we’re developing, but we have to be able to do that quickly and cross a large population of animals. The €“ just to reset the table for you, the irony is that demand is really significant for us. I can’t comment on the competition, but I assume similarly. So demand is exceptional. We’re well staffed. Capacity’s in a good place. We actually have enough animal supply in terms of our relationships with the various suppliers that we have where we either own a piece or have a long-term contract. And we’ve hit this unanticipated speed bump with Fish and Wildlife. They’re saying that they’re concerned about parentage. So I don’t €“ I can’t guarantee anything. I don’t think this is a situation that we’ve been concerned about losing share.

It’s a situation of how do we €“ we, and that’s both Charles River and the competition to some extent, move past this so we can support the clients to get drugs through preclinical and to patients. And that’s €“ that’ll be pretty much 100% of our focus going forward. We’re optimistic that we will be able €“ that’s been a request. We’re optimistic that we’ll be able to meet that request. It’s a little bit difficult to determine exactly when it will be resolved and exactly when we will get animals into the U.S. We’ve sized our guide, as we said in the prepared remarks, to either have animals kind of late in the third quarter for utilization in Q4. That would be sort of the best case. Worst case would be that Cambodia doesn’t open up at all for fiscal 2023.

And of course, it’s about 60% of the supply source, both for Charles River and the industry at large. So it’s €“ I don’t know how else to say this. It’s not really optional that we fix it, have to fix it for our clients and for patients and for ourselves. I think the U.S. government authorities understand the criticality of the work that we do and the role that NHPs play. And we’re hoping they’ll work closely with us as we work through the resolution.