Max Smock: Okay, perfect. Thank you so much for taking my questions.
Operator: Thank you. We’ll take our next question from Charles Rhyee with TD Cowen. Your line is open.
Charles Rhyee: Thank you for taking the question. I had a question on the fourth quarter guidance, just generally how to think of cadence overall. I think pre-COVID, your fourth quarter was typically your strongest quarter in terms of earnings. Obviously, that wasn’t the case during the COVID period and certainly not the case this year from tough comps, as well as some of the trends you’re discussing. If we think about the range here for the fourth quarter, is this a good jumping off point, though, as we’re going to the ex-COVID period? It seems like backlog is normalizing. Cancellation rates are slowing, and we’re maybe getting to a more normal period. And so would we expect the jump-off point for the fourth quarter to think of first quarter next year at least sequentially down and we be getting back to a more normal cadence of earnings?
Flavia Pease: It depends on what you mean by jump-off point from a growth rate, right? Our first — our fourth quarter, as I indicated in my remarks from an organic revenue, it’s mid-single-digit decline, which is not, I think, how you should be thinking about the outlook for 2024. Without putting — without giving any guidance into 2024, we — I think the fourth quarter is being impacted by comps, because we had extraordinarily high performance in the fourth quarter of 2022, with close to 19% growth. So if you’re talking about growth rates, I have to be careful.
Charles Rhyee: Right. Some color on from a dollar standpoint?
Flavia Pease: Yes. So I think from a dollar standpoint, I think I commented earlier, it’s sort of flattish, I think, to slightly down versus the third quarter. Normally, our fourth quarter tends to be our largest quarter from a dollar perspective. But we do, as you pointed out, we’ve seen some impacts from the demand environment, and that plays a little bit into the fourth quarter. We really encourage you guys to look at us on an annualized basis. We have fluctuations quarter-to-quarter. There’s comps when we compare to last year, first half, second half, as we pointed out. First half was relatively lower, second half was very strong from a growth rate, and then there’s other things like the timing of the NHP shipments in China, as I pointed out.
Charles Rhyee: Great. And if I could just quickly follow-up on that?
Jim Foster: Use the entire year as the jumping off point, I think it’s what we’re saying. So we had — we’ve had some complicated comps this year and last year, first half year versus second and vise versa. The sort of assumption that quarters will be at certain growth rate is almost a positive for us to discern. I think we do a very good job at giving you annual guidance. So try to embrace what the full year is growth rate and margin is as some sort of reasonable jumping off point, subject to whatever we do with pricing and whatever volume we can gather for the next year. But if you just assume that whatever the fourth quarter is just going to continue, I think that’s going to give you an erroneous result.
Charles Rhyee: Yes, understood. If I could follow-up on that NHP. Just what is the sort of root cause on the kind of the difference in timing of shipments? Has that always just been a constant in this business just not very noticeable or just not having needed to be called out until more recently? Or is there something more specific happening over the last year or so?
Jim Foster: Yes. No, I mean it’s always been there. We had to call it out, because it was sort of unpredictable and the numbers are pretty big. The impact when we get it is quite positive. We don’t have a lot of control and we have x number of NHPs available. We have a handful of local clients, Chinese clients who want them. And sometimes that slides, they say they want them in a certain quarter, and they don’t take them or they don’t take all of them. So it’s again, a little bit unpredictable, but we should end up selling all that we had anticipated during the fiscal year. So we have said earlier that numbers of animals available was slightly less than they were a couple of years ago. And so that has an impact as well.
Charles Rhyee: Great. Thank you, so much.
Jim Foster: Sure.
Operator: Thank you. We’ll take our next question from Jack Wallace with Guggenheim Securities. Your line is open.
Jack Wallace: Hey, thanks for taking my questions. Quick one on NHPs and again, I appreciate all the disclosure. I think you recall that there was expected to be about half or certainly less than the $190 million — or $160 million impact for the back half of the year due to supply constraints. It looks like there was a solid beat in DSA in the quarter, possibly related to that. Was there any NHP revenue drop there or impact that was you previously called out that we experienced in the third quarter?
Flavia Pease: Yes. So I think we’ve been — the team has done an incredible job throughout the year of ensuring we could support the needs of our clients and mitigate almost all the impact of the supply disruptions that we were expecting in the beginning of the year. And so as a result of that, as you saw, we actually updated our full year guidance for the DSA segment now to high single digit. And so I think the impact of NHP supply disruption would really — has really been de minimis and has allowed us to actually increase the DSA guidance.
Jack Wallace: That’s fantastic. And then quickly over to manufacturing, thinking about the testing business. Just to put the demand for testing in context for vaccines, roughly, where are we today in terms of demand mix versus, say, pre-COVID? Just trying to get an idea if there’s — as inventories have been diminishing, whether there’s a snapback here. We’re still above — at an elevated level compared to historical norms. Thank you.
Jim Foster: I think the historical levels of testing or higher. A lot of the work got sort of high-jacked with COVID that should be coming back. What we’re encompassing now is just to pull back the numbers of drugs to be tested just generally a huge emphasis in getting stuff through the clinic. Again, our biologics business, not unlike discovery snapback quickly — get snapback quickly. We have very short-term valuable studies with — they just come in regard of lotus. Historically, there’s been more of a more of a predictable cadence that we’re experiencing this year. But we do think that going forward, we’re heading back to sort of historical onset the discovery — the biologic [indiscernible] had very good growth rates and margin accretion over the last few years.
Microbial has been a steady grower for 25 years literally, with exceptional margins. And we do think our CDMO business, which nobody has asked about, but in our prepared remarks, now is performing well, growing nicely, bunch of regulatory audits, several clients hopefully move it from a clinical phase of the commercial phase. That will — that obviously will be accretive to the manufacturing segment’s top and bottom line as the margins improved.
