WILMINGTON, Mass.--(BUSINESS WIRE)--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the third quarter of 2021. For the quarter, revenue was $895.9 million, an increase of 20.5% from $743.3 million in the third quarter of 2020.
Acquisitions contributed 5.9% to consolidated third-quarter revenue growth. The impact of foreign currency translation benefited reported revenue growth by 1.0%. Excluding the effect of these items, organic revenue growth was 13.6%, driven by contributions from all three business segments. The comparison to last year’s COVID-19-related impact increased the reported and organic revenue growth rates in the third quarter of 2021 by 1.8% and 1.7%, respectively.
On a GAAP basis, third-quarter net income attributable to common shareholders was $103.4 million, an increase of 0.5% from net income of $102.9 million for the same period in 2020. Third-quarter diluted earnings per share on a GAAP basis were $2.01, a decrease of 1.0% from $2.03 for the third quarter of 2020. GAAP net income and earnings per share reflect higher revenue and a lower tax rate, which were offset by venture capital investment losses. GAAP net income and earnings per share included a loss from the Company’s venture capital and other strategic investments of $0.15 per share in the third quarter of 2021, compared to a gain of $0.29 per share for the same period in 2020. The Company’s venture capital and other strategic investment performance has been excluded from non-GAAP results.
On a non-GAAP basis, net income was $139.1 million for the third quarter of 2021, an increase of 17.9% from $118.0 million for the same period in 2020. Third‑quarter diluted earnings per share on a non-GAAP basis were $2.70, an increase of 15.9% from $2.33 per share for the third quarter of 2020. The non-GAAP net income and earnings per share increases were primarily driven by higher revenue and a lower tax rate.
James C. Foster, Chairman, President and Chief Executive Officer, said, “Our strong third-quarter results demonstrate the effectiveness of our strategy, the sustained strength of industry fundamentals, and the success we have had in becoming our clients’ partner of choice from concept, to nonclinical development, to the safe manufacture of their life-saving therapeutics.”
“We continue to add people and capacity to accommodate growing client demand and to build a scalable operating model; to enhance our scientifically distinguished portfolio; and to work with clients to devise outsourcing solutions which enable them to increase productivity and speed to market. We believe these efforts will enable us to achieve our strategic and financial goals, both in 2021 and over the longer term,” Mr. Foster concluded.
Third-Quarter Segment Results
Research Models and Services (RMS)
Revenue for the RMS segment was $171.3 million in the third quarter of 2021, an increase of 12.7% from $151.9 million in the third quarter of 2020. The impact of foreign currency translation contributed 1.4% and the acquisition of Cellero contributed 0.6% to third-quarter RMS revenue. Organic revenue growth of 10.7% was primarily driven by robust demand for research models, particularly in China, as well as higher revenue for research model services, particularly the Genetically Engineered Models and Services (GEMS) business. Third-quarter revenue for the cell supply business, which consists of HemaCare and Cellero, continued to be impacted by limitations on donor availability. The comparison to last year’s COVID-19-related impact increased the reported and organic revenue growth rates in the third quarter of 2021 by 2.2% and 2.1%, respectively.
In the third quarter of 2021, the RMS segment’s GAAP operating margin decreased to 22.8% from 24.4% in the third quarter of 2020, and on a non-GAAP basis, the operating margin decreased to 26.1% from 27.7%. The GAAP and non-GAAP operating margin decreases were primarily driven by the cell supply business.
Discovery and Safety Assessment (DSA)
Revenue for the DSA segment was $531.8 million in the third quarter of 2021, an increase of 15.3% from $461.2 million in the third quarter of 2020. The impact of foreign currency translation contributed 0.9%, and the acquisitions of Distributed Bio and Retrogenix contributed 1.4% to DSA revenue growth. Organic revenue growth of 13.0% was driven by both the Safety Assessment and Discovery Services businesses. From a client perspective, biotechnology clients were the primary driver of DSA revenue growth, with solid contributions from global biopharmaceutical clients as well.
In the third quarter of 2021, the DSA segment’s GAAP operating margin increased to 21.9% from 19.6% in the third quarter of 2020. The increase was primarily due to lower acquisition-related adjustments associated with contingent consideration. On a non-GAAP basis, the operating margin decreased by 90 basis points to 24.3% from 25.2% in the third quarter of 2020, primarily due to the impact of foreign currency translation, which reduced the DSA operating margin by approximately 70 basis points. In addition, a Discovery Services milestone payment received in the third quarter of 2020 contributed approximately 50 basis points to last year’s DSA operating margin.
Manufacturing Solutions (Manufacturing)
Revenue for the Manufacturing segment was $192.9 million in the third quarter of 2021, an increase of 48.1% from $130.2 million in the third quarter of 2020. The impact of foreign currency translation contributed 1.1%, and the acquisitions of Cognate BioServices (Cognate) and Vigene Biosciences (Vigene) contributed 27.9% to third-quarter Manufacturing revenue. Organic revenue growth of 19.1% was driven primarily by robust demand in the Biologics Testing Solutions and Microbial Solutions businesses. The comparison to last year’s COVID-19-related impact increased the reported and organic revenue growth rates in the third quarter of 2021 by 4.4% and 3.5%, respectively.
In the third quarter of 2021, the Manufacturing segment’s GAAP operating margin decreased to 25.2% from 37.1% in the third quarter of 2020, and on a non-GAAP basis, the operating margin decreased to 32.7% from 39.1%. The GAAP and non-GAAP operating margin decreases were driven primarily by the addition of the Cognate and Vigene CDMO businesses. The GAAP operating margin also declined due to amortization of intangible assets and acquisition-related costs associated with the transactions.
Updates 2021 Guidance
The Company is updating its 2021 financial guidance, which was previously provided on August 4, 2021. The Company completed the divestitures of its RMS operations in Japan and its CDMO site in Sweden on October 12th. The effect of these transactions will reduce revenue by nearly $20 million and non-GAAP diluted earnings per share by less than $0.10 in the fourth quarter of 2021. The divestitures have been reflected in the updated 2021 financial guidance.
The primary drivers of the updated reported revenue growth guidance are the impact of foreign exchange and the divestitures. Foreign currency translation is now expected to benefit reported revenue growth by 1.5% to 2.0% in 2021, compared to the prior outlook of a 2.5% benefit.
The Company is updating its GAAP and non-GAAP earnings per share guidance, primarily to reflect a lower-than-expected tax rate driven by R&D tax credits and a favorable excess tax benefit from stock-based compensation, partially offset by the impact of the divestitures. On a GAAP basis, the updated guidance also reflects a gain related to the sale of the Company’s RMS Japan operations.
The Company’s guidance for revenue growth, earnings per share, and free cash flow is as follows:
2021 GUIDANCE |
CURRENT |
PRIOR |
Revenue growth, reported |
19.5% – 20.5% |
20.5% – 22.5% |
Less: Contribution from acquisitions/
|
(4.0%) – (4.5%) |
~(5.0%) |
Unfavorable/(favorable) impact of foreign exchange |
(1.5%) – (2.0%) |
~(2.5%) |
Revenue growth, organic (2) |
13.5% – 14.5% |
13% – 15% |
GAAP EPS estimate |
$7.05 – $7.15 |
$6.55 – $6.80 |
Acquisition-related amortization |
$1.90 – $1.95 |
$1.90 – $2.00 |
Acquisition and integration-related adjustments (3) |
$0.65 – $0.70 |
$0.70 – $0.80 |
Gain on the sale of RMS Japan |
~($0.40) |
-- |
Other items (4) |
~$0.70 |
$0.70 – $0.75 |
Venture capital and other strategic
|
$0.26 |
$0.10 |
Non-GAAP EPS estimate |
$10.20 – $10.30 |
$10.10 – $10.35 |
Free cash flow (6) |
~$500 million |
~$500 million |
Footnotes to Guidance Table:
(1) The contribution from acquisitions/divestitures (net) reflects only those transactions that have been completed.
(2) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions, divestitures, and foreign currency translation.
(3) These adjustments are related to the evaluation and integration of acquisitions and divestitures, and primarily include transaction, advisory, and certain third-party integration costs, as well as adjustments related to contingent consideration and certain costs associated with acquisition-related efficiency initiatives.
(4) These items primarily relate to charges of a) approximately $0.30 associated with U.S. and international tax legislation, and b) approximately $0.40 associated with debt extinguishment costs and the write-off of deferred financing costs related to debt refinancing.
(5) Venture capital and other strategic investment performance only includes recognized gains or losses. The Company does not forecast the future performance of these investments.
(6) Reconciliation of the current 2021 free cash flow guidance is as follows: Cash flow from operating activities of approximately $720 million, less capital expenditures of approximately $220 million, equates to free cash flow of approximately $500 million.
Webcast
Charles River has scheduled a live webcast on Wednesday, November 3, at 9:00 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of GAAP financial measures to non-GAAP financial measures on the website.
Credit Suisse Healthcare Conference Presentation
Charles River will virtually present at the Credit Suisse 30th Annual Healthcare Conference, on Tuesday, November 9th, at 10:30 a.m. ET. Management will provide an overview of Charles River’s strategic focus and business developments.
A live webcast of the presentation will be available through a link that will be posted on ir.criver.com. A webcast replay will be accessible through the same website shortly after the presentation and will remain available for approximately two weeks.
Non-GAAP Reconciliations
The Company reports non-GAAP results in this press release, which exclude often-one-time charges and other items that are outside of normal operations. A reconciliation of GAAP to non-GAAP results is provided in the schedules at the end of this press release.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets, and other charges related to our acquisitions and divestitures; expenses associated with evaluating and integrating acquisitions and divestitures, as well as fair value adjustments associated with contingent consideration; charges, gains, and losses attributable to businesses or properties we plan to close, consolidate, or divest; severance and other costs associated with our efficiency initiatives; the impact of the termination of the Company’s U.S. pension plan; the write-off of deferred financing costs and fees related to debt financing; third-party costs associated with the remediation of unauthorized access into our information systems detected in March 2019; investment gains or losses associated with our venture capital and other strategic equity investments; certain costs in our Microbial Solutions business related to environmental litigation; and adjustments related to the recognition of deferred tax assets expected to be utilized as a result of changes to the our international financing structure and the revaluation of deferred tax liabilities as a result of foreign tax legislation. This press release also refers to our revenue in both a GAAP and non-GAAP basis: “organic revenue growth,” which we define as reported revenue growth adjusted for foreign currency translation, acquisitions, and divestitures. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. There are limitations in using non-GAAP financial measures, as they are not presented in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions and divestitures (and in certain cases, the evaluation of such acquisitions and divestitures, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities and their underlying associated costs, such as business acquisitions, generally occur periodically but on an unpredictable basis. We calculate non-GAAP integration costs to include third-party integration costs incurred post-acquisition. Presenting revenue on an organic basis allows investors to measure our revenue growth exclusive of acquisitions, divestitures, and foreign currency exchange fluctuations more clearly. Non-GAAP results also allow investors to compare the Company’s operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations presented in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in this press release, and can also be found on the Company’s website at ir.criver.com.
Caution Concerning Forward-Looking Statements
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “would,” “may,” “estimate,” “plan,” “outlook,” and “project,” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding the impact of the COVID-19 pandemic; the projected future financial performance of Charles River and our specific businesses; the future demand for drug discovery and development products and services, including our expectations for future revenue trends; our expectations with respect to the impact of acquisitions and divestitures completed in 2020 and 2021 on the Company, our service offerings, client perception, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products, including our investments in our portfolio; market and industry conditions including the outsourcing of services and spending trends by our clients; and Charles River’s future performance as delineated in our revised forward-looking guidance, and particularly our expectations with respect to revenue, the impact of foreign exchange, enhanced efficiency initiatives, and the assumptions surrounding the COVID-19 pandemic that form the basis for our revised annual guidance. Forward-looking statements are based on Charles River’s current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the COVID-19 pandemic, its duration, its impact on our business, results of operations, financial condition, liquidity, business practices, operations, suppliers, third party service providers, clients, employees, industry, ability to meet future performance obligations, ability to efficiently implement advisable safety precautions, and internal controls over financial reporting; the COVID-19 pandemic’s impact on client demand, the global economy and financial markets; the ability to successfully integrate businesses we acquire (including Cognate BioServices and Vigene Biosciences, and risks and uncertainties associated with Cognate’s and Vigene’s products and services, which are in areas that the Company did not previously operate); the timing and magnitude of our share repurchases; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our clients; the ability to convert backlog to revenue; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; the impact of Brexit; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 17, 2021 and the Quarterly Report on Form 10-Q as filed on August 4, 2021, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this press release except as required by law.
Assessment of COVID-19 Impact in 2020
In this press release, the Company has provided its assessment for the impact from the COVID-19 pandemic in 2020, including on the Company's revenue. This assessment was determined using methodologies, assumptions, and estimates that vary depending on the specific reporting segment and situation. For the Research Models and Services segment, the assessment was primarily based on comparisons to daily historical research model sales volumes prior to the COVID-19 pandemic and the subsequent reduction in research model order activity associated with our clients’ COVID-19 pandemic-related site closures and/or their reduced on-site activity, as well as our discussions with clients, particularly of our research model services and HemaCare businesses, with regard to revenue expectations and operational impacts from the COVID-19 pandemic. For the Discovery and Safety Assessment segment, the assessment was based on multiple factors including, but not limited to, discussions with clients with regard to the cause of delays to discovery projects and safety assessment studies, location-specific actions to ensure employee safety in our facilities, the impact of remote versus in-person activities and services, and supply chain delays and other resource constraints. For the Manufacturing Solutions segment, the assessment was based on multiple factors including, but not limited to, analysis of the sales impact due to the COVID-19 pandemic, assessments of idle instruments and the related revenue streams due to the inability to access clients’ sites, as well as discussions with clients with regard to their revenue expectations and operations. The estimated revenue loss related to COVID-19 was also expected to be partially offset by incremental work on clients’ COVID-19 programs. Because this assessment involves risks and uncertainties, actual events and results may differ materially from these estimates and assumptions, and Charles River assumes no obligation and expressly disclaims any duty to update them.
About Charles River
Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. |
|||||||||||||||||
SCHEDULE 1 |
|||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||||||||||||
(in thousands, except for per share data) |
|||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||||
| Service revenue | $ |
703,859 |
|
$ |
580,774 |
|
$ |
2,045,760 |
|
$ |
1,677,927 |
|
|||||
| Product revenue |
|
192,078 |
|
|
162,526 |
|
|
589,350 |
|
|
455,016 |
|
|||||
| Total revenue |
|
895,937 |
|
|
743,300 |
|
|
2,635,110 |
|
|
2,132,943 |
|
|||||
| Costs and expenses: | |||||||||||||||||
| Cost of services provided (excluding amortization of intangible assets) |
|
468,659 |
|
|
377,226 |
|
|
1,369,396 |
|
|
1,124,988 |
|
|||||
| Cost of products sold (excluding amortization of intangible assets) |
|
90,051 |
|
|
76,800 |
|
|
278,188 |
|
|
234,382 |
|
|||||
| Selling, general and administrative |
|
148,573 |
|
|
128,289 |
|
|
475,807 |
|
|
385,902 |
|
|||||
| Amortization of intangible assets |
|
32,852 |
|
|
28,232 |
|
|
94,664 |
|
|
83,869 |
|
|||||
| Operating income |
|
155,802 |
|
|
132,753 |
|
|
417,055 |
|
|
303,802 |
|
|||||
| Other income (expense): | |||||||||||||||||
| Interest income |
|
137 |
|
|
179 |
|
|
343 |
|
|
771 |
|
|||||
| Interest expense |
|
(16,455 |
) |
|
(18,867 |
) |
|
(62,364 |
) |
|
(53,286 |
) |
|||||
| Other (expense) income, net |
|
(16,214 |
) |
|
21,211 |
|
|
(37,966 |
) |
|
23,400 |
|
|||||
| Income before income taxes |
|
123,270 |
|
|
135,276 |
|
|
317,068 |
|
|
274,687 |
|
|||||
| Provision for income taxes |
|
18,111 |
|
|
32,665 |
|
|
58,058 |
|
|
53,571 |
|
|||||
| Net income |
|
105,159 |
|
|
102,611 |
|
|
259,010 |
|
|
221,116 |
|
|||||
| Less: Net income (expense) attributable to noncontrolling interests |
|
1,733 |
|
|
(298 |
) |
|
5,606 |
|
|
3 |
|
|||||
| Net income attributable to common shareholders | $ |
103,426 |
|
$ |
102,909 |
|
$ |
253,404 |
|
$ |
221,113 |
|
|||||
| Earnings per common share | |||||||||||||||||
| Net income attributable to common shareholders: | |||||||||||||||||
| Basic | $ |
2.05 |
|
$ |
2.07 |
|
$ |
5.04 |
|
$ |
4.47 |
|
|||||
| Diluted | $ |
2.01 |
|
$ |
2.03 |
|
$ |
4.93 |
|
$ |
4.39 |
|
|||||
| Weighted-average number of common shares outstanding; | |||||||||||||||||
| Basic |
|
50,425 |
|
|
49,703 |
|
|
50,234 |
|
|
49,482 |
|
|||||
| Diluted |
|
51,558 |
|
|
50,702 |
|
|
51,360 |
|
|
50,371 |
|
|||||
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||
| SCHEDULE 2 | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||
| (in thousands, except per share amounts) | |||||||
| September 25, 2021 | December 26, 2020 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ |
212,539 |
|
$ |
228,424 |
|
|
| Trade receivables and contract assets, net of allowances for doubtful accounts of $7,024 and $6,702, respectively |
|
660,452 |
|
|
617,740 |
|
|
| Inventories |
|
181,694 |
|
|
185,695 |
|
|
| Prepaid assets |
|
77,527 |
|
|
96,712 |
|
|
| Other current assets |
|
246,828 |
|
|
72,560 |
|
|
| Total current assets |
|
1,379,040 |
|
|
1,201,131 |
|
|
| Property, plant and equipment, net |
|
1,175,911 |
|
|
1,124,358 |
|
|
| Operating lease right-of-use assets, net |
|
284,722 |
|
|
178,220 |
|
|
| Goodwill |
|
2,736,322 |
|
|
1,809,168 |
|
|
| Client relationships, net |
|
1,012,606 |
|
|
721,505 |
|
|
| Other intangible assets, net |
|
87,274 |
|
|
66,094 |
|
|
| Deferred tax assets |
|
41,117 |
|
|
37,729 |
|
|
| Other assets |
|
341,445 |
|
|
352,626 |
|
|
| Total assets | $ |
7,058,437 |
|
$ |
5,490,831 |
|
|
| Liabilities, Redeemable Noncontrolling Interests and Equity | |||||||
| Current liabilities: | |||||||
| Current portion of long-term debt and finance leases | $ |
2,275 |
|
$ |
50,214 |
|
|
| Accounts payable |
|
127,913 |
|
|
122,475 |
|
|
| Accrued compensation |
|
223,045 |
|
|
206,823 |
|
|
| Deferred revenue |
|
221,731 |
|
|
207,942 |
|
|
| Accrued liabilities |
|
244,790 |
|
|
149,820 |
|
|
| Other current liabilities |
|
163,997 |
|
|
102,477 |
|
|
| Total current liabilities |
|
983,751 |
|
|
839,751 |
|
|
| Long-term debt, net and finance leases |
|
2,892,676 |
|
|
1,929,571 |
|
|
| Operating lease right-of-use liabilities |
|
244,012 |
|
|
155,595 |
|
|
| Deferred tax liabilities |
|
259,119 |
|
|
217,031 |
|
|
| Other long-term liabilities |
|
214,258 |
|
|
205,215 |
|
|
| Total liabilities |
|
4,593,816 |
|
|
3,347,163 |
|
|
| Redeemable noncontrolling interests |
|
32,556 |
|
|
25,499 |
|
|
| Equity: | |||||||
| Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding |
|
- |
|
|
- |
|
|
| Common stock, $0.01 par value; 120,000 shares authorized; 50,607 shares issued and 50,460 shares outstanding as of September 25, 2021, and 49,767 shares issued and outstanding as of December 26, 2020 |
|
506 |
|
|
498 |
|
|
| Additional paid-in capital |
|
1,720,461 |
|
|
1,627,564 |
|
|
| Retained earnings |
|
878,818 |
|
|
625,414 |
|
|
| Treasury stock, at cost, 147 and 0 shares, as of September 25, 2021 and December 26, 2020, respectively |
|
(40,440 |
) |
|
- |
|
|
| Accumulated other comprehensive loss |
|
(132,779 |
) |
|
(138,874 |
) |
|
| Total equity attributable to common shareholders |
|
2,426,566 |
|
|
2,114,602 |
|
|
| Noncontrolling interest |
|
5,499 |
|
|
3,567 |
|
|
| Total equity |
|
2,432,065 |
|
|
2,118,169 |
|
|
| Total liabilities, redeemable noncontrolling interests and equity | $ |
7,058,437 |
|
$ |
5,490,831 |
|
|
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||
| SCHEDULE 3 | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||||
| (in thousands) | ||||||||
| Nine Months Ended | ||||||||
| September 25, 2021 | September 26, 2020 | |||||||
| Cash flows relating to operating activities | ||||||||
| Net income | $ |
259,010 |
|
$ |
221,116 |
|
||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization |
|
198,299 |
|
|
174,048 |
|
||
| Stock-based compensation |
|
52,289 |
|
|
40,973 |
|
||
| Debt extinguishment and financing costs |
|
28,972 |
|
|
2,759 |
|
||
| Deferred income taxes |
|
(13,757 |
) |
|
(3,131 |
) |
||
| Loss (gain) on venture capital and strategic equity investments, net |
|
17,277 |
|
|
(32,226 |
) |
||
| Other, net |
|
(9,432 |
) |
|
14,143 |
|
||
| Changes in assets and liabilities: | ||||||||
| Trade receivables and contract assets, net |
|
(35,592 |
) |
|
(51,456 |
) |
||
| Inventories |
|
(5,639 |
) |
|
(14,055 |
) |
||
| Accounts payable |
|
11,431 |
|
|
(12,327 |
) |
||
| Accrued compensation |
|
18,210 |
|
|
29,438 |
|
||
| Deferred revenue |
|
(9,394 |
) |
|
(1,308 |
) |
||
| Customer contract deposits |
|
4,850 |
|
|
9,887 |
|
||
| Other assets and liabilities, net |
|
15,017 |
|
|
30,335 |
|
||
| Net cash provided by operating activities |
|
531,541 |
|
|
408,196 |
|
||
| Cash flows relating to investing activities | ||||||||
| Acquisition of businesses and assets, net of cash acquired |
|
(1,292,093 |
) |
|
(419,146 |
) |
||
| Capital expenditures |
|
(129,997 |
) |
|
(78,706 |
) |
||
| Purchases of investments and contributions to venture capital investments |
|
(31,963 |
) |
|
(19,887 |
) |
||
| Proceeds from sale of investments |
|
5,960 |
|
|
5,810 |
|
||
| Other, net |
|
854 |
|
|
(1,192 |
) |
||
| Net cash used in investing activities |
|
(1,447,239 |
) |
|
(513,121 |
) |
||
| Cash flows relating to financing activities | ||||||||
| Proceeds from long-term debt and revolving credit facility |
|
6,119,671 |
|
|
1,411,954 |
|
||
| Proceeds from exercises of stock options |
|
43,314 |
|
|
43,806 |
|
||
| Payments on long-term debt, revolving credit facility, and finance lease obligations |
|
(5,190,394 |
) |
|
(1,320,961 |
) |
||
| Purchase of treasury stock |
|
(40,440 |
) |
|
(23,905 |
) |
||
| Payment of debt extinguishment and financing costs |
|
(38,253 |
) |
|
- |
|
||
| Other, net |
|
(2,328 |
) |
|
(4,417 |
) |
||
| Net cash provided by financing activities |
|
891,570 |
|
|
106,477 |
|
||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
|
17,514 |
|
|
5,825 |
|
||
| Net change in cash, cash equivalents, and restricted cash |
|
(6,614 |
) |
|
7,377 |
|
||
| Cash, cash equivalents, and restricted cash, beginning of period |
|
233,119 |
|
|
240,046 |
|
||
| Cash, cash equivalents, and restricted cash, end of period | $ |
226,505 |
|
$ |
247,423 |
|
||
| Supplemental cash flow information: | ||||||||
| Cash and cash equivalents | $ |
212,539 |
|
$ |
242,879 |
|
||
| Cash classified within current assets held for sale |
|
8,612 |
|
|
- |
|
||
| Restricted cash included in Other current assets |
|
4,275 |
|
|
2,968 |
|
||
| Restricted cash included in Other assets |
|
1,079 |
|
|
1,576 |
|
||
| Cash, cash equivalents, and restricted cash, end of period | $ |
226,505 |
|
$ |
247,423 |
|
||
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||||||||||
| SCHEDULE 4 | |||||||||||||||||
| RECONCILIATION OF GAAP TO NON-GAAP | |||||||||||||||||
| SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)(1) | |||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||||
| Research Models and Services | |||||||||||||||||
| Revenue | $ |
171,258 |
|
$ |
151,910 |
|
$ |
524,862 |
|
$ |
414,455 |
|
|||||
| Operating income |
|
39,111 |
|
|
37,108 |
|
|
126,626 |
|
|
68,325 |
|
|||||
| Operating income as a % of revenue |
|
22.8 |
% |
|
24.4 |
% |
|
24.1 |
% |
|
16.5 |
% |
|||||
| Add back: | |||||||||||||||||
| Amortization related to acquisitions |
|
5,344 |
|
|
4,010 |
|
|
16,029 |
|
|
15,581 |
|
|||||
| Severance |
|
- |
|
|
27 |
|
|
7 |
|
|
527 |
|
|||||
| Acquisition related adjustments (2) |
|
241 |
|
|
922 |
|
|
1,217 |
|
|
1,499 |
|
|||||
| Site consolidation costs, impairments and other items |
|
- |
|
|
(59 |
) |
|
- |
|
|
200 |
|
|||||
| Total non-GAAP adjustments to operating income | $ |
5,585 |
|
$ |
4,900 |
|
$ |
17,253 |
|
$ |
17,807 |
|
|||||
| Operating income, excluding non-GAAP adjustments | $ |
44,696 |
|
$ |
42,008 |
|
$ |
143,879 |
|
$ |
86,132 |
|
|||||
| Non-GAAP operating income as a % of revenue |
|
26.1 |
% |
|
27.7 |
% |
|
27.4 |
% |
|
20.8 |
% |
|||||
| Depreciation and amortization | $ |
9,927 |
|
$ |
9,455 |
|
$ |
29,450 |
|
$ |
27,333 |
|
|||||
| Capital expenditures | $ |
18,026 |
|
$ |
3,552 |
|
$ |
29,521 |
|
$ |
15,585 |
|
|||||
| Discovery and Safety Assessment | |||||||||||||||||
| Revenue | $ |
531,823 |
|
$ |
461,177 |
|
$ |
1,573,095 |
|
$ |
1,342,424 |
|
|||||
| Operating income |
|
116,548 |
|
|
90,348 |
|
|
312,011 |
|
|
234,872 |
|
|||||
| Operating income as a % of revenue |
|
21.9 |
% |
|
19.6 |
% |
|
19.8 |
% |
|
17.5 |
% |
|||||
| Add back: | |||||||||||||||||
| Amortization related to acquisitions |
|
20,983 |
|
|
22,191 |
|
|
64,807 |
|
|
68,326 |
|
|||||
| Severance |
|
(180 |
) |
|
423 |
|
|
1,160 |
|
|
3,987 |
|
|||||
| Acquisition related adjustments (2) |
|
(9,316 |
) |
|
461 |
|
|
(3,642 |
) |
|
2,845 |
|
|||||
| Site consolidation costs, impairments and other items |
|
961 |
|
|
2,938 |
|
|
1,254 |
|
|
5,872 |
|
|||||
| Total non-GAAP adjustments to operating income | $ |
12,448 |
|
$ |
26,013 |
|
$ |
63,579 |
|
$ |
81,030 |
|
|||||
| Operating income, excluding non-GAAP adjustments | $ |
128,996 |
|
$ |
116,361 |
|
$ |
375,590 |
|
$ |
315,902 |
|
|||||
| Non-GAAP operating income as a % of revenue |
|
24.3 |
% |
|
25.2 |
% |
|
23.9 |
% |
|
23.5 |
% |
|||||
| Depreciation and amortization | $ |
44,072 |
|
$ |
42,707 |
|
$ |
132,268 |
|
$ |
125,138 |
|
|||||
| Capital expenditures | $ |
23,270 |
|
$ |
15,532 |
|
$ |
60,783 |
|
$ |
46,436 |
|
|||||
| Manufacturing Solutions | |||||||||||||||||
| Revenue | $ |
192,856 |
|
$ |
130,213 |
|
$ |
537,153 |
|
$ |
376,064 |
|
|||||
| Operating income |
|
48,563 |
|
|
48,246 |
|
|
154,717 |
|
|
132,288 |
|
|||||
| Operating income as a % of revenue |
|
25.2 |
% |
|
37.1 |
% |
|
28.8 |
% |
|
35.2 |
% |
|||||
| Add back: | |||||||||||||||||
| Amortization related to acquisitions |
|
7,888 |
|
|
2,150 |
|
|
17,914 |
|
|
6,614 |
|
|||||
| Severance |
|
1,515 |
|
|
333 |
|
|
2,344 |
|
|
1,985 |
|
|||||
| Acquisition related adjustments (2) |
|
4,116 |
|
|
- |
|
|
4,844 |
|
|
(421 |
) |
|||||
| Site consolidation costs, impairments and other items (3) |
|
1,074 |
|
|
169 |
|
|
1,114 |
|
|
169 |
|
|||||
| Total non-GAAP adjustments to operating income | $ |
14,593 |
|
$ |
2,652 |
|
$ |
26,216 |
|
$ |
8,347 |
|
|||||
| Operating income, excluding non-GAAP adjustments | $ |
63,156 |
|
$ |
50,898 |
|
$ |
180,933 |
|
$ |
140,635 |
|
|||||
| Non-GAAP operating income as a % of revenue |
|
32.7 |
% |
|
39.1 |
% |
|
33.7 |
% |
|
37.4 |
% |
|||||
| Depreciation and amortization | $ |
13,953 |
|
$ |
6,655 |
|
$ |
34,474 |
|
$ |
19,257 |
|
|||||
| Capital expenditures | $ |
13,296 |
|
$ |
5,787 |
|
$ |
34,008 |
|
$ |
13,985 |
|
|||||
| Unallocated Corporate Overhead | $ |
(48,420 |
) |
$ |
(42,949 |
) |
$ |
(176,299 |
) |
$ |
(131,683 |
) |
|||||
| Add back: | |||||||||||||||||
| Severance |
|
- |
|
|
36 |
|
|
(151 |
) |
|
36 |
|
|||||
| Acquisition related adjustments (2) |
|
3,387 |
|
|
2,124 |
|
|
29,011 |
|
|
9,976 |
|
|||||
| Other items (3) |
|
- |
|
|
89 |
|
|
- |
|
|
(661 |
) |
|||||
| Total non-GAAP adjustments to operating expense | $ |
3,387 |
|
$ |
2,249 |
|
$ |
28,860 |
|
$ |
9,351 |
|
|||||
| Unallocated corporate overhead, excluding non-GAAP adjustments | $ |
(45,033 |
) |
$ |
(40,700 |
) |
$ |
(147,439 |
) |
$ |
(122,332 |
) |
|||||
| Total | |||||||||||||||||
| Revenue | $ |
895,937 |
|
$ |
743,300 |
|
$ |
2,635,110 |
|
$ |
2,132,943 |
|
|||||
| Operating income |
|
155,802 |
|
|
132,753 |
|
|
417,055 |
|
|
303,802 |
|
|||||
| Operating income as a % of revenue |
|
17.4 |
% |
|
17.9 |
% |
|
15.8 |
% |
|
14.2 |
% |
|||||
| Add back: | |||||||||||||||||
| Amortization related to acquisitions |
|
34,215 |
|
|
28,351 |
|
|
98,750 |
|
|
90,521 |
|
|||||
| Severance |
|
1,335 |
|
|
819 |
|
|
3,360 |
|
|
6,535 |
|
|||||
| Acquisition related adjustments (2) |
|
(1,572 |
) |
|
3,507 |
|
|
31,430 |
|
|
13,899 |
|
|||||
| Site consolidation costs, impairments and other items (3) |
|
2,035 |
|
|
3,137 |
|
|
2,368 |
|
|
5,580 |
|
|||||
| Total non-GAAP adjustments to operating income | $ |
36,013 |
|
$ |
35,814 |
|
$ |
135,908 |
|
$ |
116,535 |
|
|||||
| Operating income, excluding non-GAAP adjustments | $ |
191,815 |
|
$ |
168,567 |
|
$ |
552,963 |
|
$ |
420,337 |
|
|||||
| Non-GAAP operating income as a % of revenue |
|
21.4 |
% |
|
22.7 |
% |
|
21.0 |
% |
|
19.7 |
% |
|||||
| Depreciation and amortization | $ |
68,686 |
|
$ |
59,580 |
|
$ |
198,299 |
|
$ |
174,048 |
|
|||||
| Capital expenditures | $ |
55,536 |
|
$ |
26,185 |
|
$ |
129,997 |
|
$ |
78,706 |
|
|||||
(1) |
Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. | |||||||||
(2) |
These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value adjustments associated with contingent consideration. | |||||||||
(3) |
Other items include certain costs in our Microbial Solutions business related to environmental litigation incurred during the three and nine months ended September 25, 2021, which impacted Manufacturing Solutions; and third-party costs, net of insurance reimbursements, incurred during the three and nine months ended September 26, 2020 associated with the remediation of the unauthorized access into the Company's information systems which was detected in March 2019, which impacted Unallocated Corporate Overhead. | |||||||||
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||||||||||
| SCHEDULE 5 | ||||||||||||||||
| RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED)(1) | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Net income attributable to common shareholders | $ |
103,426 |
|
$ |
102,909 |
|
$ |
253,404 |
|
$ |
221,113 |
|
||||
| Add back: | ||||||||||||||||
| Non-GAAP adjustments to operating income (Refer to previous schedule) |
|
36,013 |
|
|
35,814 |
|
|
135,908 |
|
|
116,535 |
|
||||
| Write-off of deferred financing costs and fees related to debt financing |
|
- |
|
|
- |
|
|
26,089 |
|
|
- |
|
||||
| Venture capital and strategic equity investment losses (gains), net |
|
10,367 |
|
|
(20,350 |
) |
|
17,277 |
|
|
(32,226 |
) |
||||
| Other (2) |
|
- |
|
|
- |
|
|
(2,942 |
) |
|
- |
|
||||
| Tax effect of non-GAAP adjustments: | ||||||||||||||||
| Non-cash tax provision related to international financing structure (3) |
|
1,461 |
|
|
804 |
|
|
3,781 |
|
|
2,990 |
|
||||
| Enacted tax law changes |
|
- |
|
|
- |
|
|
10,036 |
|
|
- |
|
||||
| Tax effect of the remaining non-GAAP adjustments |
|
(12,139 |
) |
|
(1,216 |
) |
|
(41,468 |
) |
|
(19,040 |
) |
||||
| Net income attributable to common shareholders, excluding non-GAAP adjustments | $ |
139,128 |
|
$ |
117,961 |
|
$ |
402,085 |
|
$ |
289,372 |
|
||||
| Weighted average shares outstanding - Basic |
|
50,425 |
|
|
49,703 |
|
|
50,234 |
|
|
49,482 |
|
||||
| Effect of dilutive securities: | ||||||||||||||||
| Stock options, restricted stock units and performance share units |
|
1,133 |
|
|
999 |
|
|
1,126 |
|
|
889 |
|
||||
| Weighted average shares outstanding - Diluted |
|
51,558 |
|
|
50,702 |
|
|
51,360 |
|
|
50,371 |
|
||||
| Earnings per share attributable to common shareholders: | ||||||||||||||||
| Basic | $ |
2.05 |
|
$ |
2.07 |
|
$ |
5.04 |
|
$ |
4.47 |
|
||||
| Diluted | $ |
2.01 |
|
$ |
2.03 |
|
$ |
4.93 |
|
$ |
4.39 |
|
||||
| Basic, excluding non-GAAP adjustments | $ |
2.76 |
|
$ |
2.37 |
|
$ |
8.00 |
|
$ |
5.85 |
|
||||
| Diluted, excluding non-GAAP adjustments | $ |
2.70 |
|
$ |
2.33 |
|
$ |
7.83 |
|
$ |
5.74 |
|
||||
(1) |
Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. | ||||||||
(2) |
Includes adjustments related to the gain on an immaterial divestiture and the finalization of the annuity purchase related to the termination of the Company's U.S. pension plan. | ||||||||
(3) |
This adjustment relates to the recognition of deferred tax assets expected to be utilized as a result of changes to the Company's international financing structure. | ||||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. |
|||||||||
SCHEDULE 6 |
|||||||||
RECONCILIATION OF GAAP REVENUE GROWTH |
|||||||||
TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1) |
|||||||||
| Three Months Ended September 25, 2021 | Total CRL | RMS Segment | DSA Segment | MS Segment | |||||
| Revenue growth, reported | 20.5 % |
12.7 % |
15.3 % |
48.1 % |
|||||
| Decrease (increase) due to foreign exchange | (1.0)% |
(1.4)% |
(0.9)% |
(1.1)% |
|||||
| Contribution from acquisitions (2) | (5.9)% |
(0.6)% |
(1.4)% |
(27.9)% |
|||||
| Non-GAAP revenue growth, organic (3) | 13.6 % |
10.7 % |
13.0 % |
19.1 % |
|||||
| Nine Months Ended September 25, 2021 | Total CRL | RMS Segment | DSA Segment | MS Segment | |||||
| Revenue growth, reported | 23.5 % |
26.6 % |
17.2 % |
42.8 % |
|||||
| Decrease (increase) due to foreign exchange | (2.6)% |
(3.5)% |
(2.1)% |
(3.5)% |
|||||
| Contribution from acquisitions (2) | (4.2)% |
(1.5)% |
(0.9)% |
(18.9)% |
|||||
| Non-GAAP revenue growth, organic (3) | 16.7 % |
21.6 % |
14.2 % |
20.4 % |
|||||
(1) |
Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. | |||||||||
(2) |
The contribution from acquisitions reflects only completed acquisitions. | |||||||||
(3) |
Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign exchange. | |||||||||
