We’re so much larger and I think so much more critical to the marketplace that, again, we’re confident that as if and as the cancellations continue to decline, given the proposal volume, the booking should intensify. That supports our notion for the back half of the year. One would imagine that as funding continues to improve, that cancellations wouldn’t suddenly crank up again. So that’s definitely a function of the economy we’ve been dealing with for the last 1.5 years.
Patrick Donnelly: Okay. That’s helpful. And then maybe just on kind of the broad demand environment. I think in the slides around the cash flow piece, you talked about moderating capacity expansions to match current demand. You talked, obviously, a lot of questions about the pricing piece. It seems like maybe softening a little bit given the demand environment yet you sound very good in terms of kind of these conversations and the expectations of demand improvement as we go through this year. Can you just kind of marry that up and just frame up the right way to think about the demand, given again the capacity and price piece, along with your positive commentary on demand? Just want to make sure we’re thinking about that right.
Jim Foster: We work really hard, and I think we’ve done this quite successfully — I don’t know, for at least, 1.5 decades. The marry capacity with anticipated demand. It’s not just current demand because we have to build space a year or 2 in advance. And we’ve lived through a period — a long time ago, but it was painful where we and everybody else in the industry just built too much space. And that has a deleterious impact on your margins, and it’s tough to manage that when you’re swimming in space. So we never want to get back to that. We have worked really hard, and I think successfully and not having an adequate amount of space. That’s the risk, of course. You get the [indiscernible] work and you don’t have capacity. So we never want to get there.
So all I can say is we work hard to titrate our demand and anticipated demand and the competitive dynamic with building out new space at multiple sites. You have to titrate that against what the current demand is and how your current space is filling up. So I think we’re doing that appropriately. We have to be really careful with the shareholders’ money. And from a CapEx point of view, I don’t think we’re in any way under capitalizing this business, both from a maintenance and a growth point of view. I think we’re spending exactly where we need to be. And as I said, we need to call that right in advance. So we give it a great deal of thought. So I think it’s — we come through such an aggressive period of demand and aggressive building that it’s just irresponsible to continue to spend at the same level given the current demand curve.
Having said that, we obviously anticipate that demand will be better next year and the year after than it is today. We have 3-year guidance out there. And so we’re building to that at least.
Flavia Pease: Yes. And maybe if I can just add, I think to Jim’s point, we lived through a couple of years of unprecedented demand. And at some point, we said we were going to increase our CapEx to almost 9% of revenue. And historically, we’d be more in the 5%. That was both a combination of historically, we added some capacity through M&A, and now we were doing organically as well as fueling that unprecedented demand. I think demand has normalized now. And our guidance for the 3-year horizon is 7% to 8% of capital as a percent of sales. And this year, our guidance contemplates kind of the low end of that at 7%. And so I think as Jim pointed out, we are being appropriately thoughtful in matching up the capital investment with the main environment that we’re seeing.
Operator: We’ll take our next question from Josh Waldman with Cleveland Research.
Josh Waldman : Jim, 2 for you, I think, if I may. First, you’ve talked about seeing better proposal activity in DSA. Can you comment on what you are seeing from a conversion standpoint, the timing from when you receive proposal? The proposal to booking the study and then recognizing rev? I guess have you seen the time line and conversion rate return to normal would be great to hear how you’re contemplating this, and your outlook and if you’ve had to tweak that piece of the forecasting assumption at all.
Jim Foster: Not sure what normal is. But I’d say it’s reasonably normal. As I said before, except maybe for some periods where the demand was overwhelming, there is a lag between proposals and bookings. And particularly in this period where people are trying to ensure that they have confidence in accessibility of capital. So the conversions are pretty much as we would have expected. And hopefully, that will improve, but there’s going to be kind of 2 or 3 quarters necessary to get this to be more robust. We’re heartened to see the proposal volume as is. People feel — seem to be coming out of their shells, acknowledging access to capital, obviously, desirous of developing the rest of their portfolios. And that’s underlying our anticipation at the back half of the year will be much stronger. So I think it’s pretty much as anticipated.
Josh Waldman : Got it. Okay. And then the follow-up on that. Just wondering if you could provide more context on how DSA performed versus your expectation in the quarter? And then curious whether there’s been any change to your assumption for Q2 or the slope of organic recovery in that business for the second half.
Flavia Pease: Maybe I’ll take that. I think as we said in our prepared remarks, I think what was different and drove the beat in the first quarter and is also impacting how we guided the second quarter is, obviously, RMS. There was a timing shift with NHP shipments that accelerated into the first quarter. So that was a tailwind in the first quarter and will be a headwind in the second. And then we talked about the strength of manufacturing in the first quarter, which was encouraging. I think we were silent in DSA in the sense that it performed according to our expectations, both in the first quarter and the impact of that is contemplated on the guidance for the second quarter. So I think we spoke about what was different than our expectations of the other 2 businesses.
Operator: We’ll take our last question from Jack Wallace with Guggenheim Securities.
Jack Wallace : Just quickly on the CapEx commentary. It looks like you reiterated the guide, there’s the moderating of capacity expansions. You comment in the deck and just reiterate a couple questions ago. Can you just help us kind of bridge the rate or guide against those comments? And should we think about that as being more CapEx in the back half of the year? Or is the dollars being spent differently than capacity expansions?
Flavia Pease: Yes. I think I’ll take that one. The guidance for the year is the same for — I think everything we reaffirmed the guidance, right? And so the timing of our capital projects tends to kind of progress throughout the year. Obviously, our free cash flow was quite strong in the first quarter. You saw a decline of CapEx spend year-over-year. So we started the year with capital expenditures being a tailwind to cash flow, and we’re going to continue to progress some of our projects as the year progresses. But there’s no update, I guess, is the point.
Jack Wallace : Got it. And then in your prepared remarks, I think you mentioned some timing element in the first quarter for manufacturing as well as RMS. Was there any kind of snapback demand that was [indiscernible] surprising that might not continue in the second quarter? Or did I misinterpret that comment?
Flavia Pease: Again, I’ll maybe take that. So 2 things. The timing impact was really in RMS. In manufacturing, what we saw, which was encouraging and positive is we have seen strength of proposals in the fourth quarter, especially in our testing business and that did translated improved business and stronger performance in the first quarter. What we said in the second quarter for the manufacturing business is that last year, the second quarter was one of the strongest quarters that we’ve had. So from a comp perspective, it’s a little bit of a headwind year-over-year when we get into the second year — second quarter.
Jack Wallace : Got it. So there’s no — so basically, the reason why we wouldn’t necessarily want to raise the guidance here based on the stronger demand in the first quarter just has to deal with the tougher comps, not because that there’s an expectation that the level of the strength in the first quarter wouldn’t necessarily repeat in the upcoming quarters. Is that right?
Flavia Pease: Correct. And I would say for the year, when you think about guidance, it’s still pretty early. I think there was a question earlier around whether we think there’s upside to our manufacturing guidance. And as I mentioned, we slightly improved it, given that the guidance in the beginning of the year was low to mid and now, we are mid. So we reflected a little bit of that straight already, but it would be premature to say that there’s upside to the guidance that we just updated now. I think that’s the point.
Operator: Thank you. We have no further questions in queue. I will turn the conference back to Todd Spencer for closing remarks.
Todd Spencer: Great. Thank you for joining us on the conference call this morning. We look forward to seeing many of you at some upcoming investor conferences. This concludes the conference call. Thanks again.
Operator: That does conclude today’s Charles River Laboratories first quarter 2024 earnings call. Thank you for your participation, and you may now disconnect.
