Jim Foster: I mean I think because the prices have risen dramatically, some of that is reflected. Most of that is passed through. We think that the prices will flat, moderate perhaps, be reduced because there are sufficient numbers. We still think we’ll get price besides the incremental price for NHPs as we have for the last few years and volume and mix as a result of the types of studies, what the duration is. So there’s been a benefit, but I think it’s more modest than people are thinking — are anticipating. I think that’s really all that we could say to — we really like to stay away from pricing.
Derik De Bruin: Great. Okay. And just switching to something different as a follow-up, can you sort of like quantify what the — how much microbial was down in the business? And how much of that was China versus the rest of the world? And also, what was the impact to RMS from the NHP push-out to China in 3Q? Thanks.
Jim Foster: Yes, so without giving you the actual numbers, the China NHP sales are not consistent. So they sort of shift from quarter-to-quarter. And so we’d like to look at that on an annual basis. So we’re likely to see more of that happen in the fourth quarter. Some of that might slap over into 2024. And the first part of your question was?
Derik De Bruin: Microbial.
Jim Foster: Microbial. So yes, several things working there, for sure. Some impact from China. We have a small but not — we have a small but profitable and interesting Chinese business, which has had just some difficulty in terms of supply. With local regulations, we should be moving past that. Like many parts of the business, I mean, the microbial business is providing a lot of release testing for drugs that are going into the clinic or have been approved, but require that law. That’s a good news. Probably a less good news is that, there’s less drugs going through that testing modality these days. So that has some impact. We also have clients that bought an awful lot of product from us at the end of last year. Of course, we don’t know at the end of this year will be like, but it seems to be sort of an unloading of inventory or the fact that they stock up so much that they probably need less.
The business is an interesting inflection point with the recombinant products being available. I think it will take a while for us to get traction. But some aspect of our client base has been looking forward to there. We have a very good product. So we feel good about that. So a slightly slower growth rate than we would have liked, but I think that’s kind of consistent with demand that we’re seeing across the board, particularly from biotech.
Flavia Pease: Derik, just to add specifically on the NHP, it is just a modest headwind to the RMS revenue in the third quarter. We’re not going to specify the amount, but it’s a modest impact. And to Jim’s point, while the Microbial China business is still relatively small, it has been growing nicely for us. So that slowdown does affect the microbial growth rate.
Derik De Bruin: Thank you.
Operator: Thank you. We will take our next question from Casey Woodring with JPMorgan. Your line is open
Casey Woodring: Great. Thank you for taking our question. So just a quick follow-up. I wanted to touch on the bookings. So did gross bookings grow sequentially? Or did cancellations just drop quarter-over-quarter? And then I just have one quickly on the revenue per NHP. It looks like if we use the numbers that you gave here, 30% of DSA revenue per year is exposed to NHPs. If you back out the implied, it looks like revenue per NHP grew close to 42% year-on-year in 2023. Just how should we contemplate revenue per NHP on a forward-looking basis? Thank you.
Flavia Pease: So I’ll maybe take the question on cancellations and growth in that book-to-bill. So I think we also stated in our remarks, the cancellation level in the third quarter was the lowest that we had seen since the second quarter of 2022. So I think we have been talking about a normalization of the domain environment, people going through their pipeline, reprioritization, and we had speculated that, that would eventually modulate. As Jim said, slippage and cancellation is a normal part of the business, but we had certainly seen a higher level of cancellations as the backlog expanded significantly at its peak to 17 months. And so there was a lot of, I would say, rationalization and people prioritizing their compounds.
The gross book-to-bill in the quarter was above 1, as we said. And so the lower cancellations did help improve the net book-to-bill sequentially in the third quarter versus the second quarter. So I hope that answers your question. And can you repeat the part about the NHP pricing?
Casey Woodring: Yes. It was just the less NHPs used this year has led to a lot higher amount of revenue per NHP. So just thinking about that on a forward-looking basis, just trends there? Any color around that trend? Thank you.
Flavia Pease: Yes. Thanks for clarifying that. Yes. And the last NHP usage and still, on a relative basis, higher revenue is driven by the types of studies that we’re conducting more so. As clients seem to be prioritized and post-IND work, we are seeing the impact of that into our study mix as well. And we do a significant amount of post-IND work. These studies are longer in nature. And so from a mix perspective, they result in less units, but relatively higher revenue since you — they last longer, as I said. So it really will depend on what happens with the demand. It’s — we — if clients are going back to pre-IND work, you see a reverse of higher numbers of units being used. So it’s hard for us to predict, at this point, given that we don’t know our clients are going to be clients are going to be prioritizing their pipeline if they’re focusing on pre or post-IND studies.
Operator: Thank you. We will take our next question from Patrick Donnelly with Citi. Your line is open.
Patrick Donnelly: Hi, guys. Thanks for taking the questions. Flavia, maybe one for you, just on the margin side. Gross margins came in a little light. I mean was that just to do with the lower manufacturing side? And then you guys, obviously, offset that with the SG&A being quite a bit lower. Can you just talk about, I guess, the moving pieces on those two and the right way to think about them going forward?
Flavia Pease: Sure. So yeah, the gross margin was dominant. You saw and appropriately pointed manufacturing. And also as we commented, RMS was a little bit impacted by the domain environment with the growth slowing down to about 3% versus last quarter, putting aside the timing of shipment of NHPs. So those two businesses were pressured in margin and our ability to leverage fixed overhead, we did have the benefit in G&A, and I talked in my prepared remarks about the impact of our VPPA. So you put it all together, DSA had another strong margin quarter for us with operating margin expanding 100 basis points year-over-year. So in total, we were about 10 points — excuse me, 10 bps better at 20.5 versus Q2 as well as prior year. And there’s a little bit of mix of businesses there.
