Charles River's first quarter 2026, the debut quarter under new CEO Birgit Girshick and new CFO Glenn Coleman, delivered revenue of $996 million (down 1.5% organically) in line with the February outlook, with EPS of $2.06 down 12% but ahead of the prior high-teens decline guidance. Operating margin compressed 280 basis points to 16.3% on NHP sourcing costs and CEO-transition stock compensation, with management guiding to a roughly 500 basis point margin step-up in the second half driven by acquisitions, divestitures, and cost savings. Proposal volume rose high single digits across both client segments for a third consecutive sequential quarter, reinforcing the company's cautiously optimistic view of a return to DSA organic growth in the back half of the year.
Good morning and welcome to Charles River Laboratories first quarter 2026 earnings conference call and webcast. This morning, I am pleased to be joined by Birgit Girshick, who became our Chief Executive Officer this week, and to introduce our new Executive Vice President and Chief Financial Officer, Glenn Coleman. They will comment on our results for the first quarter of 2026, as well as our financial guidance. 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 webcast replay of this call will be available beginning approximately two hours after the call today and can also be accessed on the investor relations section of our 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 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 our Investor Relations section of our website. I will now turn the call over to Birgit Girshick.
Thank you, Todd. It is a privilege to speak to you today as the CEO of Charles River. I would like to acknowledge Jim Foster for building this company into an industry leader and reiterate my gratitude for the mentorship that he has provided to me over the years. I step into this role with a clear understanding of Charles River today, what we can become, and the tremendous responsibility we have to our clients, to the patients who rely on us, to our nearly 20,000 employees worldwide, and also to you, our shareholders. I'm not taking this responsibility slightly, and I'm energized by what lies ahead as we continue to work to help create healthier lives, to capitalize on the significant opportunities ahead of us, both in science and in the marketplace, and to enhance shareholder value.
Our teams have already put forth significant efforts to plan for the future, and I'm proud to lead the company into its next chapter of growth and evolution. The world is changing rapidly around us. Science is advancing faster than it ever has, and our clients require greater speed, best science, and more collaboration. As the industry changes, Charles River will evolve alongside it and lead the way. Together as a company, we will create our own future by reimagining the way we operate and embracing the opportunities ahead of us. We will accomplish this through our refreshed strategic framework, which we are calling Pathway to Purpose. Pathway to Purpose is a disciplined approach to driving growth and shareholder value through the following key priorities. Modernizing our company and the industry. Strengthening our world-class scientific portfolio by enhancing our capabilities in strategic locations while delivering a customized client-centric approach.
We will also continue to maintain rigorous oversight on animal welfare, higher security, and regulatory compliance, as well as fostering an exceptional employee experience. We have already established a solid foundation, including through the execution of strategic initiatives and enhancements made over the past few years. This refreshed focus, Pathway to Purpose, will enable us to realize our full potential and ensure our future success. This will lead us to drive profitable revenue growth and optimize our financial performance. We will also continue to take a balanced and disciplined approach to capital deployment, including organic investments, M&A, and other uses of capital. We plan to take a much deeper dive into our overall Pathway to Purpose strategy and these priorities when we host an Investor Day in September. For now, I will provide a high-level overview of each priority as well as some of our recent accomplishments.
First, we are diligently working on opportunities to modernize Charles River by building a future version of the company that will be faster, more agile and connected and data-driven. We endeavor not only to transform operationally by driving greater efficiencies and streamlining and simplifying processes, but by creating an environment that allows scientific insights and information to move more quickly. This will enable us to partner even more seamlessly with our clients and expedite the speed at which we're able to deliver solutions, supporting their goals and deepening our relationship with them. We have already made substantial progress in our efforts to drive greater operating efficiencies and optimize processes. As previously discussed, we expect to generate at least $100 million in incremental cost savings this year above the 2025 levels, primarily driven by efficiency initiatives.
Cumulatively, we expect to generate over $300 million in cost savings on an annualized basis from actions taken over the past few years. However, our pursuit of operating efficiency does not stop here. We are evaluating new initiatives designed to enable us to continue to modernize the company and how we operate and drive additional savings to generate meaningful operating margin expansion in the future. We have already made great progress on our efforts to further strengthen our leading scientific portfolio, including through actions taken as part of our comprehensive strategic review last year. As we mentioned last quarter, our acquisition of the assets of K.F. Cambodia earlier this year, now Charles River Cambodia, further strengthens and secures the non-human primate supply chain for our safety assessment operations.
Combined with Noveprim, in which we acquired a controlling stake in 2023, we own and expect to internally source most of our future NHP supply requirements for the DSA segment. In April, we completed the acquisition of PathoQuest to continue advancing our NAMs or New Approach Methodologies capabilities by adding this in vitro next generation sequencing platform for quality control testing for biologic drugs. We are pleased to have completed the previously announced divestiture of the CDMO and Cell Solutions businesses on May 6th. We also expect to complete the planned sale of our certain European discovery sites later this month, in May. These strategic transactions will help us refine and refocus our portfolio on our core competencies and drive synergistic growth in areas in which we have differentiated scientific expertise, including drugs development testing.
In addition to our efforts to modernize the company and drive incremental efficiency savings, these divestitures and the K.F. acquisitions are expected to be meaningful levers for future operating margin improvement, including the principal drivers of margin expansion for the year. As we move forward, providing the best science will remain paramount at Charles River. With the combined strengths of our core capabilities and scientific rigor, we intend to set new standards for what modern science can achieve and to help our clients enhance the efficiency and speed to market for their life-saving therapeutic programs. We will continue to build our world-class portfolio by investing in core growth areas and providing scientific solutions that are critical to our clients.
In particular, we will further strengthen our capabilities in a regulated testing environment, including early-stage drug development, where we remain the industry leader, and in complementary testing opportunities to support the clinical and commercial phases. We have identified areas of future growth, including in vitro and related testing services, to extend our existing capabilities, as well as adding additional NAM solutions and continuing to evaluate our geographic presence, particularly in Asia. To further enhance our growth profile, we're doubling down on our client-centric approach with a go-to-market model that deepens and further customizes client relationships and reinforces our position as a preferred partner to the biopharmaceutical industry. We are leveraging technology, including AI, to improve sales effectiveness, KPI transparency, and lead generation while investing in collaborative tools that enhance how we engage with clients and generate insights.
Our Apollo cloud-based platform has already been a core enabler of our client-centric strategy and differentiates us in the marketplace through the speed that we can work with our clients. Apollo delivers a seamless self-service client experience with real-time access to scientific data and decision support tools. Its scope has expanded from RMS e-commerce and DSA pricing into study design, CRADL, and our Manufacturing businesses with further expansion underway. Technology is embedded throughout our strategy and in everything that we do. We are investing in broadly using technology to help harmonize and streamline processes, including through digitizing core work streams and lab automation, which will enable us to gain better data insights, enhance connectivity with our clients, and accelerate their speed to market. AI has been a particular focus in the recent months. Our view is quite simple. AI will support the work that we and our clients do.
We believe the efficiencies gained from AI over time will be reinvested in R&D by our biopharmaceutical clients, enabling them to work on more programs throughout the regulated drug development process, including safety assessment. To support this constructive view, recent discussions with our clients and industry surveys indicate that large biopharmaceutical companies are primarily utilizing AI in R&D to enhance the speed and efficiency of the early discovery process, including target identification, drug design and screening capabilities, and also around clinical trial monitoring and logistics. In addition, a Deloitte survey last year indicated that nearly 60% of surveyed biopharmaceutical R&D executives expect AI and lab automation investments will result in an increase in R&D approvals, due in part to a faster pace of drug discovery over the next several years.
Like NAMs, the use of AI will be an exciting but gradual evolution led by science and the proper validation of new capabilities. We are leveraging AI and machine learning across the company, including as part of our strategic priority to strengthen our enhanced portfolio through our pioneering approach to Virtual Control Groups or VCGs for safety assessment studies. A recent independent scientific review demonstrated the effectiveness of our VCG process, which preserves scientific integrity with no observed adverse effects compared to traditional control groups while reducing reliance on animal models. The VCG program is guided by our Alternative Methods Advancement Project, or AMAP initiative, focused on reducing the use of animals in research, and is also a key priority for Scientific Advisory Board, led by our Chief Scientific & Innovation Officer, Dr. Namandjé Bumpus.
Before I discuss our first quarter financial performance, let me provide a brief update on the end market trends. The overall biopharma demand environment stabilized last year, and we're currently seeing pockets of improvement for both global biopharmaceutical and small and mid-sized biotechnology clients. Many of our global biopharma clients progress through their restructuring and pipeline reprioritization activities, and demand trends have improved even so overall spending levels aren't yet back to historical norms. Revenue from our global biopharmaceutical client segment increased in the first quarter. From a biotech perspective, demand trends from our biotech clients improved over the past two quarters as a result of the reinvigorated funding environment as we exited 2025 and continued health in 2026. The recent increase in biopharma and M&A activity has also provided another source of capital infusion for an exit strategy for biotechs, which we also view favorably.
Thank you, Birgit, and good morning. I'm pleased to be joining the Charles River team as Chief Financial Officer. I was drawn to the company because of its mission-driven culture and its position as a leader in the life sciences industry. Over the past three decades, I have led global organizations through financial and operational leadership roles and have been committed to instilling operational and financial discipline, effective capital allocation, and driving long-term shareholder value. I look forward to leveraging that expertise and experience as I partner with Birgit and the leadership team to build upon Charles River's strong foundation. As I step into this role, my priorities are clear and fully aligned with supporting our Pathway to Purpose strategy and driving profitable growth.
I'll be focused on continuing to efficiently manage costs, including the delivery of over $100 million in incremental savings this year, and identifying new areas of efficiency and process improvement to generate additional savings and drive future operating margin expansion. We will maintain a disciplined and balanced approach to our capital priorities and invest to drive our growth strategy forward. This includes executing on M&A opportunities that strengthen our core capabilities, ensuring the successful integration of acquisitions, and regularly evaluating all areas for capital deployment, including organic investments, stock repurchases, and debt repayment. Before discussing our financial results, I'll remind you that I'll be speaking primarily to non-GAAP results, which exclude amortization and other acquisition and divestiture-related adjustments, costs related primarily to restructuring and efficiency initiatives, 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. I'll now provide highlights of our first quarter 2026 performance. Overall, our financial performance in the quarter was in line or slightly better than expected across our key financial metrics. We reported revenue of $996 million, representing growth of 1.2% compared to last year. On an organic basis, revenue declined 1.5% and was in line with our February outlook of a low single-digit organic decline. The operating margin was 16.3%, a decrease of 280 basis points year-over-year.
The expected decline was primarily driven by lower NHP third-party revenue in the RMS segment, the timing of stock compensation related to the CEO transition, and higher NHP sourcing costs and study starts in our DSA segment. As I will discuss in more detail shortly, we do expect the second quarter operating margin to improve meaningfully from these levels as many of these first quarter discrete margin headwinds subside and we begin to see a margin benefit from divestitures. Earnings per share were $2.06 in the first quarter, a decrease of 12% from the first quarter of last year, primarily driven by the lower operating margin. This exceeded our prior outlook of a high teens decline, largely due to better-than-expected operating performance in the Manufacturing and RMS segments.
Another highlight from the first quarter is the repurchase of approximately $200 million in shares under the $1 billion stock repurchase authorization approved last October. This supports our balanced and disciplined approach to capital deployment as well as the confidence we have in our long-term growth and strategic plan. Moving to details on our segment performance. DSA revenue was $597 million in the first quarter, a decrease of 1.4% on an organic basis compared to the first quarter of 2025. Lower revenue for discovery services, due in part to prior site consolidation activities, was partially offset by stable revenue for safety assessment services. The DSA operating margin decreased 290 basis points to 21.0% in the quarter, mostly due to increased study-related direct costs, including higher NHP sourcing costs and study starts.
In RMS, revenue was $208 million, representing an organic decline of 5.5% year-over-year due to lower sales of small and large models as well as research model services. Small models revenue was pressured by lower volume in North America, partially offset by a solid increase in China volume. As previously anticipated, large model revenue is primarily affected by the timing of NHP shipments, with NHP unit volume in the first quarter expected to be the lowest point for the year. The RMS operating margin declined by 240 basis points to 24.7% in the first quarter, due largely to an unfavorable revenue mix from the timing of NHP shipments and lower sales volume of small models in North America.
The Manufacturing segment reported first quarter revenue of $191 million, an increase of 2.9% on an organic basis due to strong growth from the Microbial Solutions business, primarily driven by Endosafe and Celsis Manufacturing quality control testing platforms. The segment operating margin improved by 280 basis points to 25.9%, driven largely by leverage from higher revenue and the benefit from cost savings. As a reminder, the first quarter CDMO growth rate was negatively impacted by the loss of a large commercial client last year. As a result, the CDMO performance reduced the Manufacturing organic revenue growth rate by approximately 350 basis points in the first quarter. However, this comparison will no longer have a meaningful impact going forward because of the completion of the CDMO divestiture this week. Moving on to other financial metrics.
Unallocated corporate costs totaled $63 million in the first quarter or 6.4% of revenue, compared to 5.3% last year. The anticipated increase was primarily due to the timing of stock compensation expense related to the CEO transition. For the full year, we continue to expect unallocated corporate costs will be approximately 5.5% of total revenue. Net interest expense was $26 million in the first quarter, a decline of $0.8 million year-over-year. For the full year, our net interest expense outlook has increased by approximately $8 million to a range of $103 million-$108 million, primarily attributable to short-term borrowings to fund stock repurchases in the first quarter. At the end of the first quarter, our net leverage was 2.6x.
The non-GAAP tax rate in the first quarter was 22.5%, a decrease of 20 basis points year-over-year, due primarily to the favorable impact from last year's enactment of OB3 or the One Big Beautiful Bill. Our non-GAAP tax rate guidance for the full year remains unchanged at 22%-23%, although it's currently trending towards the lower end of the range due to a favorable geographic mix. Free cash flow was -$15 million in the first quarter or a reduction of $127 million compared to the prior year period. This decline was expected and mainly driven by higher performance-based cash bonus payments for 2025, which are paid in the first quarter. CapEx declined modestly to $56 million or approximately 5.6% of revenue in the first quarter from $59 million last year.
Our free cash flow outlook remains unchanged at $375 million-$400 million in 2026. Turning to 2026 full year guidance, we are reaffirming our organic revenue and non-GAAP earnings per share guidance, which had previously factored in the impact of the divestitures. All of our guidance referenced today assumes the planned divestiture of certain European discovery sites being completed in May. As Birgit mentioned, we have completed the divestiture of the CDMO and Cell Solutions businesses this week. We continue to expect an organic revenue decline of 0.5%-1.5% and non-GAAP earnings per share of $10.80-$11.30 or 5%-10% growth over 2025. This guidance includes earnings accretion of approximately $0.10 per share from the divestitures.
On a reported basis, we reduced our revenue outlook by 50 basis points to a 4.0%-5.5% decline because FX rates have become less favorable this year due to the recent strengthening of the U.S. dollar. From an earnings perspective, this FX headwind compared to our original outlook will be essentially offset by the accretion from stock repurchases. As a reminder, the acquisition of the assets of K.F. or Charles River Cambodia, the divestitures and incremental cost savings from our efficiency initiatives are expected to result in meaningful operating margin expansion this year. We expect approximately 120 basis points-150 basis points of improvement in 2026, with most of the benefit generated in the second half of the year.
Combined with the abatement of the discrete margin headwinds in the first quarter, we expect the second half of the year operating margin will be over 500 basis points higher than the first six months of the year, with over half of this improvement being driven by completed acquisitions and divestitures, as well as the planned sale of certain European discovery sites. On the segment perspective, our organic revenue outlook for each of the segments remains unchanged from February. Our reported revenue outlook for the segments has been updated to reflect the impact of the divestitures as well as less favorable FX impact. As a reminder, the divestitures are expected to reduce our reported revenue outlook by approximately 500 basis points in 2026.
That concludes our comments. We will now take your questions.