Charles River delivered a strong second quarter 2025, with revenue of $1.03 billion and EPS of $3.12 up 11.4%, both meaningfully exceeding the prior outlook on favorable DSA results, leading the company to raise full-year revenue and EPS guidance. Management characterized the demand environment as stabilizing, with net book-to-bill on a steady 18-month upward trajectory despite a sequential dip to 0.82x in the quarter. Headwinds including a lost CDMO commercial client, DSA hiring investment, and merit timing are expected to pressure second-half margins below the 20.7% first-half level.
Good morning and welcome to Charles River Laboratories' Second Quarter 2025 Earnings Conference Call and Webcast. This morning, I am joined by Jim Foster, Chair, President and Chief Executive Officer, and Flavia Pease, Executive Vice President and Chief Financial Officer. They will comment on our results for the second quarter of 2025. 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 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 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 the 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 from 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.
Thank you, Todd, and good morning. We reported another solid financial performance in the second quarter, meaningfully exceeding our prior outlook, due primarily to favorable DSA results. The DSA business benefited from the strong booking activity that was recorded in the first quarter, and the corresponding lift in first half results is the primary driver leading us to raise our financial guidance for the year. To a lesser extent, favorable movements in foreign exchange also contributed to the outperformance in the second quarter and to our increased outlook for the year. We have continued to see clear signs that the demand environment is stabilizing. Over the past several quarters, global biopharmaceutical demand trends appear to have bottomed, and we believe they are beginning to slowly move upward as more clients have progressed through their restructuring activities and getting back to work.
The biotech environment is stable but mixed, with smaller biotechs still being more cash constrained, due in part to the slowdown in biotech funding, whereas mid-sized biotechs are performing better as many are able to support their own R&D programs without external funding. DSA demand trends, coupled with constructive discussions with our biopharmaceutical clients, have also reinforced our belief that the preclinical demand environment is stabilizing. In the second quarter, both gross and net DSA bookings increased at mid-single-digit rates year-over-year, resulting in a solid 6% and 13% increases in first half gross and net bookings, respectively. While this bookings performance reflected an improving demand environment in the first half, the net book-to-bill dipped back below one times in the second quarter to 0.82 times, which we had anticipated and was largely driven by a sequential increase in cancellations and the DSA revenue outperformance.
We never expected a straight line recovery in the net book-to-bill or broader DSA demand trends, and in fact, have often said that the sustained improvement in our businesses will not be linear. However, we are pleased that the net book-to-bill trends over the past 18 months have reflected a steady upward trajectory, starting with a net book-to-bill of 0.80 times in the first half of 2024 to 0.85 times in the second half, and most recently improved to 0.93 times in the first half of this year. The DSA business and our overall non-GAAP financial results continue to significantly outperform our expectations, and we are making gradual progress towards achieving a return to organic revenue growth. We recognize that some uncertainty persists across the broader healthcare landscape. As a result, we continue to take a measured and prudent approach to our outlook.
While we have not factored in further demand improvements this year, it is encouraging that the overall demand environment shows signs of stabilization. To date, we have not observed any meaningful impact on client spending patterns stemming from tariffs or drug pricing concerns. Additionally, the effects of government funding reductions, including at the NIH, have been minimal, which I will address further in the context of RMS results. Before I provide more details on these trends, let me provide highlights of our second quarter performance and updated outlook for the year. We reported revenue of $1.03 billion in the second quarter of 2025, a 0.6% increase over last year, with nearly half of the revenue outperformance driven by foreign exchange. On an organic basis, revenue declined 0.5%, driven by a low single-digit decline in the DSA segment, partially offset by low single-digit revenue increases in the RMS and manufacturing segments.
By client segment, revenue for small and mid-sized biotech clients improved slightly for a third consecutive quarter. Revenue for global biopharmaceutical clients remained below last year's level, but did improve sequentially from the first quarter. Revenue for global academic and government clients increased at a mid-single-digit rate in the quarter. The operating margin was 22.1%, an increase of 80 basis points year-over-year, with margin improvement across all three segments, primarily reflecting the benefit of cost savings from our previous restructuring actions and operating leverage from better-than-expected first-half sales volume. You may recall that we are on pace to generate a run rate of over $175 million in cost savings this year. In addition, the CDMO business benefited from revenue and payments from commercial clients, most of which will not repeat in the second half of this year, as we previously disclosed.
Earnings per share were $3.12 in the second quarter, an increase of 11.4% from the second quarter of last year. Operating margin improvement was the primary driver of this robust earnings growth. Most of the earnings outperformance versus our prior outlook was operationally driven, with an additional $0.12 benefit from a lower-than-expected tax rate. Flavia will provide more details on the tax rate shortly, including the second half tax headwind from the new U.S. legislation. We are raising our revenue and non-GAAP earnings per share guidance, largely to reflect the outperformance in the quarter. We are increasing our 2025 organic revenue guidance by 150 basis points to a 1%-3% decrease and raising our non-GAAP earnings per share guidance by $0.55 at midpoint to $9.90-$10.30. In addition to the DSA-driven operational outperformance, full-year guidance will benefit by $0.14 from more favorable FX rates versus our May outlook.
Below-the-line items will largely offset each other, as the second half tax headwind that I just mentioned will be offset by lower interest expense for the year. I will now provide details on the second quarter segment performance, beginning with the DSA segment. Revenue for the DSA segment was $618 million in the second quarter, a 2.4% decrease year-over-year on an organic basis, driven by lower revenue for both discovery and safety assessment services. Lower sales volume was partially offset by a favorable mix of higher price, longer duration, and specialty studies again this quarter. Consistent with our commentary in May, the favorable mix does not signal a broader improvement in the pricing environment, as we continue to believe that spot pricing remains stable overall.
Moving to the DSA demand KPIs, the DSA backlog was $1.93 billion at the end of the second quarter, a slight decline from $1.99 billion last quarter. As I mentioned, gross and net bookings both improved at mid-single-digit rates year-over-year in the second quarter, but declined sequentially, primarily for global biopharma clients. The sequential decline in the net book-to-bill was not a surprise. We had previously said that global biopharmaceutical clients started the year strong, with a resurgence of booking activity for projects that they had delayed or deprioritized at the end of last year and wanted to start quickly. However, we did not expect the first quarter booking strength to continue through the remainder of the year.
Proposal activity for global biopharmaceutical companies increased at a healthy pace in the second quarter, both year-over-year and sequentially, which reinforces our belief that demand for this client base has stabilized. Demand KPIs for small and mid-sized biotech clients remain consistent with the overall trends that we described in the first quarter, with little change aside from a moderate decline in proposal activity, supporting our belief that demand for this client base is also stable. We also experienced an increase in DSA cancellations in both client segments to levels consistent with the first half of 2024, but higher than the last three quarters. The higher cancellations were more focused on longer-term post-I&D work. These trends have cumulatively resulted in quarterly net bookings of $506 million and a net book-to-bill of 0.82 times.
While below one times for the quarter, our first half net book-to-bill was at its highest level since the end of 2022 and reflects an upward demand trajectory compared to recent years. Reflecting our solid second quarter performance and the DSA KPIs that underpin our outlook, we now expect DSA organic revenue will decline at a low to mid-single-digit rate in 2025, an improvement from our prior outlook of a mid-single-digit decline. The demand environment continues to support our outlook for the year, which is not predicated on the net book-to-bill returning to one times. Furthermore, we believe the DSA business is stabilized and is beginning to show signs of gradual progress. In support of our improved demand outlook, we have begun to modestly increase staffing levels in the DSA segment.
We are doing so to ensure we can fully support our clients' programs and to position resources appropriately for the second half of this year. Due to the increased hiring, DSA headcount costs are expected to create a headwind of approximately $10 million in the second half when compared to first half levels, which is one of the factors contributing to the company's second half operating margin outlook. For the second quarter, the DSA segment reported another solid operating margin, increasing by 30 basis points year-over-year to 27.4% in the second quarter. This was primarily a result of the operating leverage from better-than-expected demand that we accommodated without meaningful headcount increases in the quarter, as well as the benefit of prior cost savings actions.
Before I provide commentary on the RMS and manufacturing segments, I would like to provide an update on our NAM strategy or New Approach Methods. We recently updated the Board on our roadmap and strategic imperatives to continue to build our growing NAMs portfolio. As we said last quarter, we firmly believe that utilizing more NAMs-enabled approaches will be a gradual, long-term transition by our clients and that the scientific capabilities to fully replace animal models do not exist today. As the leader in preclinical drug development, we have the scientific capabilities, regulatory expertise, and access to data that make us the logical partner for biopharmaceutical companies to advance their use of NAMs and alternative technologies over time. We already have a growing NAMs portfolio that is generating a meaningful amount of revenue, or approximately $200 million in annual DSA revenue, and increased interest from our clients.
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 are pleased with our second quarter performance, which included revenue and non-GAAP earnings per share exceeding the outlook provided in May. This outcome was primarily driven by operational improvement from better-than-expected DSA results and, to a lesser extent, a $0.12 benefit from lower tax rates and a $0.03 benefit from favorable FX rates in the quarter. As a result of the second quarter outperformance, we're raising our revenue and non-GAAP earnings per share guidance.
We now expect full-year reported revenue will decline 0.5%-2.5%, and organic revenue will decline 1%-3%. Non-GAAP earnings per share are now expected to be in a range of $9.90-$10.30. The $0.55 guidance raise for 2025 at midpoint is expected to be driven by two main components: operational outperformance in the second quarter and a favorable movement in foreign exchange rates from our forecast in May. As you may recall, we forecast FX based on recent bank forecast rates rather than current rates. Based on the continued weakness of the U.S. dollar, we now expect foreign exchange will represent an approximate 50 basis point tailwind to 2025 revenue compared to our prior outlook of an approximate 1% headwind. This 150 basis point revenue benefit translates into about a $0.14 contribution to EPS, with most of this EPS benefit in the second half of the year.
Our outlook for the tax rate and interest expense have also been updated since May, but the net EPS impacts will largely offset each other. I'll discuss each of these items shortly. Our updated EPS guidance implies that the second half operating margin will be below the first half level of 20.7%. This is largely for reasons consistent with our expectations at the start of the year, and the gap was further widened by our first half outperformance. For the year, we now expect the consolidated operating margin will be in a range between flat and a 30 basis point decline, which represents an improvement from our prior expectations of a 20-50 basis point decline due to our outperformance to date and operating leverage from the increased revenue outlook. Our full-year operating margin outlook also includes several headwinds, which are occurring in the second half of the year.
The first headwind is in the CDMO business and primarily relates to commercial cell therapy revenue that will not repeat in the second half since one commercial relationship has ended. The CDMO revenue generated from this client was sizable in the first half at approximately $20 million. The second is hiring in the DSA segment, where we need more people in order to accommodate the current and forecasted demand. As Jim mentioned, additional DSA staffing in the second half represents an approximate $10 million cost headwind versus the first half. Finally, the timing of annual merit increases for our employees was at the beginning of July this year in most geographies, which creates a headwind when comparing to the first half. To be clear, the CDMO and merit timing-related headwinds were known and contemplated in our initial outlook.
Our decision to begin investing back into DSA headcount was a result of the improved demand trajectory this year and to appropriately position staffing levels for the remainder of 2025 and as we move into next year. By segment, our updated revenue outlook for 2025 can be found on slide 33. Aside from FX modifications to the reported growth rates, the only change to our segment revenue outlooks is that, due primarily to the second quarter outperformance, we now expect DSA organic revenue to decline at a low to mid-single-digit rate, better than our prior outlook of a mid-single-digit decline. As a reminder, this does not require an improvement in our net book-to-bill metrics. For the RMS and manufacturing segments, those outlooks remain unchanged. Unallocated corporate costs total $60.7 million in the second quarter, or 5.9% of revenue, compared to 4.9% of revenue last year.
The increase was primarily due to higher performance-based compensation. The higher bonus accruals will also result in an incremental earnings headwind in the second half, which is the opposite impact of last year when bonuses were a tailwind. As a result, for the full year, we now expect unallocated corporate costs will be at approximately 5.5% of total revenue, or the upper end of our prior outlook of 5%-5.5%. I'll now provide an update on the non-operating items, starting with our favorable outlook for interest expense and our higher tax rate expectations for the year. As I mentioned, these items will largely offset each other and not have a meaningful impact on our EPS guidance. Total adjusted net interest expense was $28.9 million in the second quarter, representing an increase of $2.4 million sequentially.
This increase was primarily driven by the impact from short-term borrowing to facilitate the first quarter stock repurchases. For the full year, we now expect total net interest expense will be in a range of $100 million-$105 million, or approximately $7 million-$12 million lower than our prior outlook. This improvement will primarily be a result of our diligent capital planning activities, including shifting debt to lower interest rate geographies. At the end of the second quarter, we had outstanding debt of $2.3 billion, with approximately 65% at a fixed interest rate compared to $2.5 billion at the end of the first quarter. As a result of that repayment, the growth and net leverage ratios also declined to 2.3 times at the end of the second quarter. The non-GAAP tax rate in the second quarter was 22.7%, representing an increase of 160 basis points year-over-year.
The increase was primarily due to the impact from stock-based compensation. However, the second quarter tax rate was more favorable than our prior expectation, benefiting EPS by approximately $0.12 because of the timing of the enactment of certain global minimum tax provisions, as well as an increase in foreign tax credits. For the full year, the tax rate will now be an earnings headwind that had not been anticipated at the beginning of the year. This will more than offset the second quarter favorability because of U.S. tax legislation changes enacted on July 4th as part of the One Big Beautiful Bill Act, or OB3, which allows for accelerated bonus depreciation and expensing for domestic R&D expenditures. These changes will increase the effective tax rate in the short term, but generate over $40 million of cash tax savings this year and therefore increase free cash flow.
We expect the non-GAAP tax rate in the third quarter will be elevated to the 25%-30% range due to the enactment of OB3 and expected enactment of certain global minimum tax provisions. For the full year, we now expect our non-GAAP tax rate outlook will increase by approximately 100 basis points to a range of 23.5%-24.5%. Free cash flow for the second quarter remains strong at $169.3 million, an increase from $154 million last year. The improvement was primarily driven by higher earnings and improved working capital. CapEx was $35.3 million, or approximately 3% of revenue in the second quarter, compared to $39.5 million last year, reflecting our focus on disciplined capital spending.
For the year, we expect that free cash flow will be $430 million to $407 million, an increase from our prior outlook of $350 million-$390 million, primarily driven by stronger earnings, anticipated cash tax savings resulting from the recent tax legislation changes, and continued working capital management. CapEx will be approximately $230 million, consistent with our prior outlook, and continues to be well below our peak capital spending in recent years. Strong free cash flow generation is one of the hallmarks of Charles River, and the increase this year will enable us to repay debt more quickly and position us to continue investing in our strategic priorities. A summary of our 2025 financial guidance can be found on slide 39. Looking ahead to the third quarter, we expect reported and organic revenue will decline between 2%-4% year-over-year.
As I mentioned earlier, we expect manufacturing and DSA revenue will decrease moderately in the third quarter, partially offset by higher RMS revenue due to the favorable timing of NHP shipments in the quarter, a portion of which accelerated from the fourth quarter. Non-GAAP earnings per share are expected to decline at a low double-digit rate year-over-year, reflecting the impact of lower commercial revenue and associated client payments in the CDMO business and increased staffing in the DSA segment, as well as the meaningfully higher tax rate within the 25%-30% range for the quarter. In conclusion, we are pleased with our performance through the first half of the year, which reflects stronger than expected demand and solid operational execution.
Our restructuring program, the goal of which has been to reduce our cost structure by over 5%, is on track to deliver annualized cost savings of over $175 million in 2025 and approximately $225 million in 2026. In addition, the repurchase of $350 million in shares during the first quarter reinforces our commitment to maximize shareholder value and diligently deploy capital. We remain confident in the resilience of our business and are committed to be financially disciplined as we drive long-term value creation. Thank you.
That concludes our comments. We will now take your questions.