Charles River Laboratories International, Inc. (NYSE:CRL) Q3 2023 Earnings Call Transcript

Charles River Laboratories International, Inc. (NYSE:CRL) Q3 2023 Earnings Call Transcript November 8, 2023

Charles River Laboratories International, Inc. beats earnings expectations. Reported EPS is $2.72, expectations were $2.35.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Charles River Laboratories’ Third Quarter 2023 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. [Operator Instructions] I would now like to turn the conference over to our host, Todd Spencer, Vice President of Investor Relations. Please go ahead.

Todd Spencer: Good morning and welcome to Charles River Laboratories’ third quarter 2023 earnings 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 third quarter of 2023. Following the presentation, they will respond to questions. There is a slide presentation associated with today’s website [ph], which is 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 also be 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 than those indicated. 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. 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. We reported third quarter organic revenue growth of 4.1% and earnings per share of $2.72, both of which exceeded our prior outlook. As anticipated, our growth rates declined from first half levels, reflecting the difficult comps from last year and the moderating demand that is affecting our businesses this year. Looking at the biopharmaceutical end market environment, we believe certain demand trends slowed — showed some early positive signs, but clients also remain cautious with their spending. Biopharmaceutical clients are continuing to reprioritize their pipelines and in some cases, conserve cash or streamline their cost structures. This has led to a meaningful impact on some of our businesses this year, including Discovery Services and our Manufacturing segment and began to have a more discernible impact on the RMS business in the third quarter.

We believe the current client spending patterns will persist in the near-term. However, we are also seeing some early encouraging signs starting to emerge, which support our belief that the demand environment will stabilize. In the Safety Assessment business, we were pleased to see sequential improvement in both the study cancellation rate and the net book-to-bill ratio in the third quarter. These favorable trends are supported by external indicators, including a stable biotech funding environment. The third quarter was the second consecutive quarterly increase in biotech funding on a trailing 12-month basis, led by venture capital investments. I will now provide highlights of our third quarter performance. We reported revenue of $1.03 billion in the third quarter of 2023, a 3.8% increase over last year.

Organic revenue growth of 4.1% was driven by all three business segments, led by a mid-single-digit increase in the DSA segment. As I mentioned earlier, the third quarter growth rate was affected by a difficult comparison to last year that included organic growth of 15.3% in the third quarter of 2022. By client segment, third quarter revenue growth was driven by solid demand from global biopharma clients and academic institutions. As has been the case throughout the year, the growth rate for small and midsized biotech slowed as these clients are being more selective with their spending. Growth of biotech clients last year also outpaced all other client segments, driving the particularly difficult comparison in the second half of the year. The operating margin was 20.5%, an increase of 10 basis points year-over-year.

The slight improvement was driven primarily by the DSA segment as well as lower unallocated corporate costs. These improvements were largely offset by margin pressure in both the RMS and Manufacturing segments. Earnings per share were $2.72 in the third quarter, an increase of 3.4% from the third quarter of last year. This exceeded our prior outlook, due primarily to the top line outperformance. In addition, the year-over-year headwind from interest expense is beginning to dissipate. We have tightened our revenue and non-GAAP earnings per share guidance ranges for 2023 as we move into the final quarter of the year. We are narrowing our organic revenue growth guidance to a range of 5.5% to 6.5%, and our non-GAAP earnings per share guidance to a range of $10.50 to $10.70, which raises the bottom end and trims the top end of our prior range by $0.20 per share, respectively.

The guidance update is primarily due to shifts in the gating of our forecast between quarters and the favorable impact of lower third quarter cancellations in the Safety Assessment business being largely offset by a reduced outlook for our Manufacturing Solutions segment in the fourth quarter. I’d like to provide you with additional details on our third quarter segment performance, beginning with the DSA segment’s results. DSA revenue in the third quarter was $664 million, an increase of 5.3% on an organic basis. Safety Assessment business continued to drive DSA revenue growth with contributions from base pricing and higher study volume, driven by non-NHP related work and post-IND studies. NHP pricing was a modest benefit to the growth rate.

But as I will discuss shortly, NHP study volume declined year-over-year. Discovery Services remained an integral component of our end-to-end early-stage portfolio because it enables us to forge relationships with clients at earlier stages of the R&D process. However, the business continues to be impacted by the overall biopharma demand environment as clients focus on post-IND work and getting their drugs to the clinic to the detriment of discovery spending. As I mentioned earlier, we saw some early signs of more favorable demand trends in the third quarter for our safety assessment business. The cancellation rate improved sequentially and was at the lowest level since the second quarter of 2022. The net book-to-bill ratio also improved sequentially, but remained below one times.

As a result, the DSA backlog declined in the third quarter to $2.6 billion from $2.8 billion at the end of the second quarter. However, as the lower cancellation suggests clients appear to be moving further along in their pipeline reprioritization processes, which we believe will lead to a higher quality and more reliable book of business. With the net book-to-bill remaining below one times, we believe the current demand trends will persist in the near term, including in the fourth quarter, which, as a reminder, already faces a difficult comparison to DSA organic growth of 26.5% reported last year. Overall, we believe stabilizing demand trends and significant backlog coverage will enable us to achieve our financial targets, including high single-digit DSA organic revenue growth for 2023, which is above our prior outlook for the segment.

The DSA operating margin was 27.2% in the third quarter, a 100-basis-point increase from the third quarter of 2022. The increase continued to be driven by operating leverage associated with higher revenue in the Safety Assessment business. Before moving on to RMS, I’d like to comment on our NHP-related study work. At our Investor Day in September, we provided some information around the benefit from NHP pricing on our DSA revenue growth rates. We believe that additional information would be useful for investors and analysts to gain a better understanding of the impact of NHP pricing and NHP-related safety assessment studies on our business. Over a three-year period, ending in 2023, NHP pricing is expected to benefit DSA revenue growth by a total of just $230 million or approximately 30% of our total DSA revenue growth since 2020.

Without the impact of NHP pricing, DSA revenue would still have increased at a high single-digit growth CAGR since 2020. In total, NHP Safety Assessment study revenue, which includes both services and the embedded NHP revenue, is expected to represent approximately 30% of DSA segment revenue in both 2022 and 2023. NHP pricing has rapidly escalated since 2020 due to both NHP supply constraints and the continued increase of biologic drugs in development. Supply constraints began in China around the pandemic and intensified last year due to the Cambodian NHP supply situation in the US. This has caused NHP pricing to increase by approximately $20,000 per model in aggregate since 2020. In 2023, we expect to utilize approximately 11,400 NHPs in safety assessment studies worldwide.

This represents a reduction of approximately 25% from over 15,000 in the prior year, principally driven by the current level of biopharmaceutical demand and our clients’ focus on their post-IND safety assessment work, which generates higher service revenue per model due to the longer-term nature of these studies, with fewer NHPs are used to generate that service revenue. A long-standing strategic imperative of the company is responsible animal use, which includes modifying or reducing animal usage. Responsible animal use is firmly embedded in our commitment to animal welfare and the 4R principles. And its adoption accelerated this year as a result of the NHP supply constraints. One example of our progress is the introduction of virtual control groups for toxicology studies.

Virtual control groups, or VCGs, replaced the animals and control groups with existing randomized data sets and statistical evaluations. It will take some time to adopt, but we are having active discussions with our clients about VCGs. As many of you are aware, we have committed to providing additional disclosure on NHP sourcing, and a comprehensive update on our NHP strategic initiatives in early 2024. The timing of this strategic update will be ideal as we recognize the industry is changing, and these shifts are causing disruptive technologies to emerge and societal needs to evolve. With the industry at an inflection point, we will reinforce our critical role in preclinical drug development and maintain our leadership position. We will do this by leading with science, remaining committed to our essential mission of creating healthier lives and ensuring patient safety and by consistently challenging ourselves to raise the bar.

And as we look to the future, we will be focused on ensuring a sustainable supply chain, particularly for NHPs. And we’ll also pursue a longer-term strategy to lead the industry in adopting animal alternatives. Our team is diligently working to continue to enhance our processes and key initiatives in these areas. We’ve already made several investments in non-animal technologies, ranging from our Endosafe Trillium launch this summer for endotoxin detection testing, to our technology partnerships with Valo for Discovery AI, PathoQuest for next-gen sequencing for in vitro viral study safety testing and Cypre for 3D tumor modeling. We look forward to sharing our NHP strategic update in early 2024. RMS revenue was $186.8 million, an increase of 3.2% on an organic basis over the third quarter of 2022.

This is below the year-to-date high single-digit revenue growth rate for two primary reasons: slower demand from mid-tier clients, including biotechs and CROs; and the timing of NHP shipments within China as we anticipated last quarter. The timing of NHP shipments within China is transitory. We expect NHP revenue in China will improve in the fourth quarter, although some shipments will slip out of 2023. For the year, we expect RMS organic revenue growth will be in the mid to high single-digit range. In the third quarter, we generated revenue growth in our small research models business and in the services business. Our client segment demand from global biopharma clients and academic institutions remain robust and drove RMS revenue growth. But as I mentioned, this was offset by mid-tier clients affected by the broader biopharma demand environment as well as by softer demand from government accounts.

Small molecules revenue increased across all geographic regions, including China, principally driven by price. Our services business continued to report healthy growth, led by in-sourcing solutions and our CRADL operations. Our CRADL sites, or our flexible vivarium rental space, remain well utilized overall and continue to generate significant year-over-year revenue growth. In the third quarter, the RMS operating margin decreased by 460 basis points to 18.9%. The significant decline was driven by the mix of business, which favored academic clients in our Insourcing Solutions business as well as the timing of NHP shipments within China. We expect the RMS operating margin will rebound in the fourth quarter due in part to the timing of the China NHP shipments.

In addition, as we mentioned at Investor Day, we are reviewing the profitability of certain Insourcing Solutions contracts, which should benefit the RMS operating margin in the future. Revenue for the Manufacturing Solutions segment was $175.7 million, an increase of 0.9% on an organic basis compared to the third quarter of last year. The segment is experiencing softness across the broader end markets, which we attribute to a post-COVID slowdown from biopharma manufacturers, CDMOs and their suppliers. These market conditions started to more noticeably impact the Microbial Solutions business in the third quarter. Clients, particularly CDMOs, are cutting costs as part of their COVID destocking efforts and reducing testing volumes and fewer programs advanced into the clinic, but these clients must continue to manufacture commercial products.

So we believe the long-term growth trends for our Manufacturing segment will reemerge after a period of right-size. For Microbial Solutions, the global biopharma demand environment is affecting our Endosafe endotoxin testing product line as clients reduce both testing volumes and investments in new instruments. This includes China, where we have a small microbial operation and like many life science instrumentation companies, have seen a decline in client demand. However, other areas of the business, such as Accugenix microbial identification services, continued to perform well. Third quarter trends in biologics testing were similar to those experienced since the beginning of the year. The sector continued to be challenged by the tighter funding environment, which is resulting in clients reprioritizing projects and reducing demand for services that can be conducted at various times during the development process, including viral clearance and cell banking.

While not immune to the end market challenges, in the other manufacturing businesses, with cell and gene therapy, CDMO business had another solid quarter. Its strong double-digit growth rate in the third quarter reflected the success of the initiatives the CDMO team has implemented since the beginning of 2022 to improve performance. We are working diligently to continue to expand our CDMO sales pipeline of new products and are pleased to have cleared several regulatory audits in recent months, including European EMA approval of our Memphis site for the production of a second cell therapy product. We believe that successful regulatory audits will generate additional client interest and support our expectation that we will add new commercial clients.

The Manufacturing segment’s operating margin declined by 410 basis points year-over-year to 24.5% in the third quarter of 2023, but did improve again sequentially. The year-over-year margin decline reflected the lower revenue growth rate and the softer demand trends across the manufacturing end markets. We are intently focused on driving operating margin improvement in the Manufacturing segment, including the profitability of the CDMO business, as this segment is expected to be the largest contributor to achieving our 2026 margin targets. We believe our leading position as an outsourcing partner for our clients’ drug discovery and nonclinical drug development efforts is helping us to manage in the current demand environment. The IND enabling and associated nonclinical services that we provide are mandatory to help clients advance their programs into the clinic and eventually to commercialize drugs.

Our portfolio also differentiates us in the marketplace, because of our unique focus on early-stage R&D solutions, and our ability to distinguish ourselves scientifically. We believe that these attributes combined with our continued ability to leverage the significant DSA backlog, will enable us to achieve our financial targets. Our value proposition of delivering exquisite science and driving greater efficiency and speed to market continues to differentiate Charles River in the marketplace and is reinforced with today’s more budget-focused client base. To conclude, I’d like to thank our employees for their exceptional work and commitment and our clients and shareholders for their continued support. Now Flavia will provide additional details on our third quarter financial performance and updated 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 restructuring actions, gains or losses from certain venture capital and other strategic investments and certain other items. Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions, divestitures and foreign currency translation. We’re pleased with our third quarter results, which included 4.1% organic revenue growth and an operating margin of 20.5%, representing a 10-basis-point increase on both a year-over-year and sequential basis. Non-GAAP earnings per share of $2.72 for the quarter, represented a 3.4% increase over the prior year.

As expected, increased interest expense, a higher tax rate and the divestiture of the Avian Vaccine business continue to restrict year-over-year earnings growth rate, but the headwind is beginning to dissipate as we anniversary last year’s interest rate increases. Our third quarter results outperformed our prior outlook, but as Jim discussed, we remain cautious with regard to the biopharmaceutical end market demand environment. Our updated outlook for the year reflects our normal practice of narrowing our guidance ranges, as we move into the fourth quarter as well as a shift in the gating of our forecast between the third and fourth quarters. This is due in part to lower cancellations and study slippage than forecasted in the third quarter in the DSA segment, offset by a reduced outlook for the Manufacturing segment in the fourth quarter.

Given the cumulative effect of these factors, we have narrowed our revenue growth and non-GAAP earnings per share guidance for the full year. We now expect revenue growth in a range of 2.5% to 3.5% on a reported basis and 5.5% to 6.5% on an organic basis, which represent the low end to midpoint of our prior ranges. We expect continued pressure in the Manufacturing segment, reflecting the softer demand trends, including in the Microbial Solutions business, which we believe will be partially offset by a more favorable outlook for our DSA segment for the year. We expect that the consolidated operating margin will be modestly lower than in 2022, resulting in non-GAAP earnings per share guidance in a range of $10.50 to $10.70 compared to our prior outlook of $10.30 to $10.90.

We’ll continue to manage the business in a disciplined manner, with a focus in setting achievable financial targets, protecting our operating margins by managing costs and driving greater efficiency, remaining disciplined with our investments, taking share and implementing other initiatives to improve performance and manage effectively in this environment. We continue to evaluate our operations and we’ll appropriately manage our cost structure to align with the current domain environment. Restructuring actions implemented this year are expected to generate approximately $40 million in annualized cost savings. Our updated revenue growth outlook reflects slight revisions for each of our segments. As I just referenced, we are reducing the outlook for our Manufacturing segment to be flat to low single-digit organic growth from our prior outlook in the high single digits.

For the RMS segment, we have widened the bottom end of our outlook to mid to high single-digit organic growth. This reflects the timing of NHP shipments in China, some of which may be deferred to 2024. And our RMS segment also experienced a more discernible impact from mid-tier biopharma clients’ softer demand. Our improved outlook for the DSA segment to high single-digit organic revenue growth, principally reflects the lower cancellations and study slippage in the third quarter that I referenced. I will now provide some additional details on the non-operating items that affected our third quarter performance. Unallocated corporate costs in the third quarter totaled $48 million, or 4.7% of total revenue compared to 5.8% of revenue last year.

The decrease was primarily due to benefits achieved through our virtual power purchase agreements, or VPPAs. Despite the favorability in the third quarter, we continue to expect unallocated corporate costs to be approximately 5% of total revenue for the full year. As we announced in October, we have achieved 90% renewable electricity globally through a solar VPPA in North America and a wind VPPA in Europe. These agreements have enabled our facilities in those regions to achieve 100% renewable electricity, providing a key component of our efforts to reduce Scope 1 and 2 greenhouse gas emissions. The third quarter non-GAAP tax rate was 21.6%, representing a 140-basis-point increase from the same period last year. The higher tax rate year-over-year was due primarily to the geographic mix of earnings.

However, the tax rate was favorable to our expectations, principally because of discrete tax benefits related to U.S. R&D tax credits. For the full year, we now expect the tax rate will be at the low end of our prior range, or approximately 22.5%, due primarily to the discrete tax benefit. Total adjusted net interest expense for the third quarter was $32.4 million, representing a decrease of $1.2 million sequentially, due primarily to debt repayment. For the full year, we have narrowed our total adjusted net interest expense outlook by $1 million to a range of $131 million to $133 million, as any further rate increases by the Federal Reserve before the end of the year will not have a meaningful impact on our 2023 results. At the end of the third quarter, approximately 80% of our $2.5 billion in outstanding debt was at a fixed interest rate.

Our gross and net leverage ratios were both approximately 1.9 times at the end of the third quarter. Free cash flow was $139.5 million in the third quarter compared to $60.4 million last year. The year-over-year increase was primarily due to favorable changes in working capital as well as lower capital expenditures. For the year, we have narrowed our free cash flow guidance to a range of $340 million to $360 million. Capital expenditures were $65.9 million in the third quarter compared to $72.4 million last year. For the year, we now expect CapEx to be in the range of $330 million to $340 million or below our prior outlook of $340 million to $360 million. We continue to take a disciplined approach to managing our capital deployment and are committed to aligning our capacity and capital investments with the current demand trends.

A summary of our updated financial guidance for the full year can be found on Slide 37. With one quarter remaining in the year, our fourth quarter outlook is effectively embedded in our guidance for the full year. For the fourth quarter, we expect revenue to decline by nearly 10% on a reported basis and at a mid-single-digit rate on an organic basis. This will result in flattish year-over-year organic revenue growth in the second half of the year, which is consistent with the outlook provided in August. Non-GAAP earnings per share are expected to be in the range of $2.30 to $2.50. The fourth quarter outlook largely reflects a very challenging comparison to the prior year when we reported organic revenue growth of 18.8%, including DSA growth of 26.5%.

In conclusion, we’re pleased with our solid third quarter performance, which is evidence of the resilience of our business, despite a cautious biopharma spending environment as growth rates normalize to pre-pandemic levels. We’ll continue to manage our business prudently in response to the challenges we are seeing in the broader market environment and work diligently to achieve our financial targets. Thank you.

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

Operator: [Operator Instructions] We’ll take our first question from Eric Coldwell with Baird. Your line is now open.

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Q&A Session

Eric Coldwell: Thank you very much. Good morning and truly appreciate all the additional details on the NHPs. I’m curious, in 3Q, could you provide commentary on the gross awards in DSA? Were those positive, above one, below one? Just any color on gross bookings in the quarter? And then on the backlog, $2.6 billion. I’m wondering if you have additional thoughts on where and when that backlog may stabilize at what level? What — how long it might take for the net reductions to come to an end? Thank you.

Flavia Pease: Good morning, Eric, yes, the gross bookings were above one in the third quarter. And we also, as you saw in our prepared remarks, had a sequential improvement in net book-to-bill in the quarter. So the backlog came down a little bit from the second quarter. It’s at $2.6 billion now. It was $2.8 billion in the second quarter. So I think it demonstrates that things are stabilizing, and we’re reverting back to the pre-COVID norm as we have been talking about.

Eric Coldwell: Jim, if I could just jump in with one more. You had an Investor Day not so long ago. Some new updates here on the timing of 3Q, 4Q impacts, maybe some additional market change over the last month or two. I’m just curious, does — anything you’re seeing today change your outlook on the LRP that was provided just a while ago, achievability, confidence levels? And then specifically on 2024, I know you plan to give guidance later, but Street’s hovering around $11 of earnings. I think this update might provide some controversy about whether that’s a realistic target. I’m just comfort with high-level views on your comfort levels with where Street expectations are for next year? Thank you.

Jim Foster: So Eric, we feel confident about our three-year guidance that we just gave. I think those numbers are achievable both on a segment basis and on a total company basis. And I would say that, relative view on 2024, which we talked about a little bit on that call, hasn’t significantly changed. But it’s a complex market environment. We definitely want to see how the fourth quarter ends. We’ve only had a month. So it’s really too early to provide any more details on 2024, but we feel good about the three-year numbers.

Eric Coldwell: Okay. Thank you very much.

Operator: Thank you. We will take our next question from Elizabeth Anderson with Evercore. Your line is now open.

Elizabeth Anderson: Hi, guys. Thanks so much for the question. Just in terms of DSA bookings, just a follow-up from Eric’s question. Do you see any impact from like push-outs or timing issues? I just want to make sure that we’re just looking at everything on sort of like an apples-to-apples basis? And secondarily, can you talk about the cash flow in the quarter? It’s a little weaker than we had been expecting. So I just wanted to make sure I understand — understood all of the puts and takes there. Thank you very much.

Jim Foster: So we — slippage and cancellations isn’t always obvious. We’ve talked about that a lot. Definitely higher this year, but we’re seeing a slowdown in cancellations. We definitely saw that third quarter. So pleased to see that. So it feels like things are normalizing. We’re kind of getting back to pre-COVID cadence. We certainly want to finish the quarter and put it an apostrophe after that — a period after that, I mean. So it’s always part of the business, got more pronounced because that we had studied volumes we’re booking out 18, 24 months. In some ways, that was really nice. In some ways, that was probably too long because we saw clients just booking slots that would not necessarily knowledge that they had a study and often when they got to the point of actually committing, didn’t have a study.

So that’s been a little bit disruptive. So we’ve got pretty good backlogs now. Not as long as they were, but not as sure as they were years ago. Impossible to tell where that’s going to settle out. But it’s moving towards a better place with more predictability, more consistency and probably a more normal cancellation rate. I think Flavia will answer the other part of that question.

Flavia Pease: Good morning, Elizabeth, on free cash flow, the quarter actually was pretty solid. We reported about 100 — close to $140 million in — that was up almost $80 million or 130% versus prior year, although last year was a relative slow base. For the year, cash flow is a little pressured. Some movement on working capital, receivables and inventory and timing of that, but I think it’s still a very solid performance. We actually have lowered our CapEx for the year a little bit. Our guidance, as you saw to reflect modulation of our investment in capacity, given the current demand environment in Q3, CapEx was a little bit above 6% of sales which is below what we’ve been — we told you all at Investor Day that our target would be 7% to 8%. I think we are navigating the current demand environment well, fortifying our performance, and we’ll deliver solid free cash flow for the year.

Elizabeth Anderson: So you’re not seeing an incremental slowdown in like pharma payments or biotech payments, given the current environment? And then is that CapEx the way to think about things going forward? Just to double quick on two things you said there.

Flavia Pease: Yes. So I’ll parts those two comments out. So we are not seeing any impact or any significant impact with regards to bad debt or any similar metrics of creditworthiness. There’s nothing unusual and significant in the receivables side. And then from a capital perspective, we’re not coming off of the 7% to 8% that we provided about 1.5 months ago. I’m just saying that relative to that, we were lower in the third quarter.

Elizabeth Anderson: Got it. Thank you so much.

Operator: Thank you. We will take our next question from Derik De Bruin with Bank of America. Your line is open.

Derik De Bruin: Hi, good morning and thank you for taking my question. Hey, Jim, I appreciate the additional top line commoner on the NHPs. But I think the key question investors have is what’s been the benefit from margins and EPS since 2019? And what happens when pricing goes back? I mean, rough back of the envelope, and you can always check my math. It looks like it’s about a $3 benefit this year to earnings, assuming the margins are similar, but I see they’re accretive. You really think that would really help clear the air, if you just sort of like talked about what — how you sort of think about pricing trends? I know it’s not going to go back immediately to — prices aren’t going to fall back, but I do think this is like the one question that keeps coming up with investors is like, what does EPS looks like as NHP pricing normalizes?

Flavia Pease: Derik, it’s Flavia. I’ll start, and then Jim can comment. I think it’s a little bit of an impossible when and if prices will come down. We have — as I think we provided in our additional disclosures, price has been a benefit, but perhaps not as much of a benefit as people have predicted. We have diversified supply base, which helps mitigate and manage — help us mitigate and manage through price fluctuations and volatility. As we said in our Investor Day, we have taken into consideration a modulation of pricing of NHP in our outlook. So we already took that into consideration as we provided you all our LRP numbers for the next three years. I speak more than that. I don’t know — I have any additional comments. Jim?