Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q1 2024 Earnings Presentation
48 slides from Charles River Laboratories International's earnings presentation, May 9, 2024
Slide 1: Charles River Laboratories 1Q 2024 Results
Charles River Laboratories 1Q 2024 Results May 9, 2024 © 2024 Charles River Laboratories International, Inc.
Slide 2: Safe Harbor
Safe Harbor Caution Concerning Forward-Looking Statements. This presentation 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,” “in
Slide 3: Market Overview
Market Overview ▪ Increasing focus on market sentiment through the first 4 months of 2024 from clients, investors, and other stakeholders ▪ Still believe that end-market trends for biopharmaceutical clients remain stable ̶ Signs that demand will begin to improve later this year, which is consistent
Slide 4: Market Overview, cont.
Market Overview, cont. ▪ Demand trends and improving market sentiment have led to positive discussions with clients ̶ Including at annual Society of Toxicology (SOT) conference in March ▪ Clients specifically referenced improving funding environment and optimism that would lead to additional spendin
Slide 5: 1Q24 Overview
1Q24 Overview ▪ 1Q24 financial results reflect continuation of demand trends and client spending patterns we experienced at end of 2023 ̶ Resulted in organic revenue decline of (3.3)%, in line with February outlook ▪ Manufacturing and RMS segments both reported solid quarters, primarily driven by: ̶
Slide 6: BIOSECURE Act
BIOSECURE Act ▪ There has also been increasing focus on the BIOSECURE Act in 2024 ▪ Too early to determine final outcome of proposed legislation, including: ̶ Content of final bill; or ̶ Potential impact on broader biopharmaceutical industry ▪ With ~95% of CRL revenue based in North America and Euro
Slide 7: Long-Term Industry Fundamentals Remain Firmly Intact
Long-Term Industry Fundamentals Remain Firmly Intact ▪ Long-term industry fundamentals for drug development remain firmly intact ▪ Overwhelming demand to find life-saving treatments for rare diseases and many other unmet medical needs is unchanged ▪ Biotechs beginning to move back in favor in capita
Slide 8: 1Q24 Revenue
1Q24 Revenue ($ in millions, except per share amounts) 1Q24 1Q23 YOY Δ Revenue, reported $1,011.6 $1,029.4 (1.7)% Unfavorable/(favorable) impact of FX (0.3)% Contribution from acquisitions (1.5)% Impact of divestitures 0.2% Revenue growth, organic (3.3)% ▪ Solid performances from Manufacturing and R
Slide 9: 1Q24 Operating Margin
1Q24 Operating Margin 1Q24 1Q23 YOY Δ GAAP OM% 12.5% 16.3% (380) bps Non-GAAP OM% 18.5% 21.2% (270) bps ▪ Operating margin decline principally driven by lower DSA operating margin and higher unallocated corporate costs ̶ DSA reflected impact of lower sales volume ▪ Restructuring initiatives have not
Slide 10: 1Q24 EPS
1Q24 EPS 1Q24 1Q23 YOY Δ GAAP EPS $1.30 $2.01 (35.3)% Non-GAAP EPS $2.27 $2.78 (18.3)% ▪ Decline reflects lower revenue and operating margin, as well as higher tax rate ▪ 1Q24 non-GAAP EPS exceeded initial outlook in February, due in part to timing of NHP shipments which moved into 1Q24 and benefite
Slide 11: 2024 Guidance
2024 Guidance 2024 Guidance Revenue growth, reported 1.0%-4.0% Impact of divestitures/(acquisitions), net ~(0.5)% (Favorable)/unfavorable impact of FX ~(0.5)% Revenue growth, organic 0.0%-3.0% GAAP EPS estimate $7.60-$8.10 Acquisition-related amortization ~$2.50 Acquisition and integration-related a
Slide 12: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 1Q24 1Q23 YOY Δ Revenue, reported $605.5 $662.4 (8.6)% (Favorable)/unfavorable impact of FX (0.5)% Impact of divestitures 0.4% Revenue growth, organic (8.7)% ▪ 1Q24 YOY decline reflected challenging comparison to 23.6% growth rate in 1Q23, as well as lower reven
Slide 13: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ Lower study volume in SA partially offset by a small benefit from pricing ▪ Modestly adjusting price on new proposals when appropriate to drive incremental volume ▪ SA proposal activity and cancellations improved on both YOY and sequential basis ▪ Improvement h
Slide 14: DSA Results – Operating Margin
DSA Results – Operating Margin 1Q24 1Q23 YOY Δ DSA GAAP OM% 19.0% 25.9% (690) bps DSA Non-GAAP OM% 23.5% 29.0% (550) bps ▪ YOY operating margin decline reflected challenging comparison to last year’s outstanding performance ▪ 1Q24 operating margin was also below our longer-term targeted level in mid
Slide 15: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 1Q24 1Q23 YOY Δ Revenue, reported $220.9 $199.8 10.6% (Favorable)/unfavorable impact of FX 0.3% Contribution from acquisitions (7.6)% Revenue growth, organic 3.3% ▪ RMS segment benefited from: ̶ Higher NHP revenue ̶ Higher sales of small research models across a
Slide 16: RMS Results – Research Models
RMS Results – Research Models ▪ Revenue for small models increased in North America, Europe, and China, due primarily to pricing ̶ Growth in China led all regions ▪ While growth rate in China has been compressed by well-chronicled macroeconomic challenges, believe RMS demand has been less affected t
Slide 17: RMS Results – Research Model Services
RMS Results – Research Model Services ▪ Research Model Services revenue increased modestly ▪ Insourcing Solutions (IS) continued to generate higher revenue, led by CRADL® operations ▪ Also signed new contracts for legacy IS vivarium management solutions ▪ As mentioned in February, CRADL® growth rate
Slide 18: NHP Shipment Timing
NHP Shipment Timing ▪ Timing of NHP shipments to third-party clients also benefited 1Q24 results ̶ Both in China and from Noveprim (Mauritius-based supplier in which we acquired controlling interest late last year) ▪ Shipments accelerated into 1Q24 ̶ Will not change RMS revenue outlook this year ̶ W
Slide 19: RMS Results – Operating Margin
RMS Results – Operating Margin 1Q24 1Q23 YOY Δ RMS GAAP OM% 19.5% 20.2% (70) bps RMS Non-GAAP OM% 27.6% 23.4% 420 bps ▪ Robust non-GAAP operating margin improvement primarily driven by benefit from higher NHP revenue in 1Q24, including the contribution from Noveprim ▪ Do not expect RMS operating mar
Slide 20: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 1Q24 1Q23 YOY Δ Revenue, reported $185.2 $167.3 10.7% (Favorable)/unfavorable impact of FX (0.3)% Revenue growth, organic 10.4% ▪ Each of segment’s businesses contributed to revenue growth, led by CDMO business ▪ As expected, revenue rebounded in both
Slide 21: Manufacturing Results – Biologics Testing
Manufacturing Results – Biologics Testing ▪ In Biologics Testing, improved 4Q23 proposal volume led to solid 1Q24 performance ▪ Proposal and booking activity also increased meaningfully YOY in 1Q24, confirming trends that emerged at YE 2023 are continuing ▪ Clients appear to be returning to core tes
Slide 22: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions continued to see signs that destocking activity is winding down and believe it is now largely complete ▪ Clients have resumed their purchases of reagents and consumables ▪ Spending on new instruments was reactivated with an increase o
Slide 23: Sustainable Practices
Sustainable Practices ▪ Biologics Testing and Microbial Solutions are excellent examples of our focus on sustainable practices and advancement of animal alternatives ▪ Biologics Testing has launched an initiative with clients to end the remaining in vivo testing used for viral safety and lot release
Slide 24: Manufacturing Results – CDMO
Manufacturing Results – CDMO ▪ CDMO business again drove segment growth, as it did for most of last year, generating solid, double-digit growth in 1Q24 ▪ Client interest continues to be strong, with new projects starting almost weekly across various phases of clinical development ▪ Cell therapy prod
Slide 25: Manufacturing Results – Operating Margin
Manufacturing Results – Operating Margin 1Q24 1Q23 YOY Δ Manufacturing GAAP OM% 18.2% 1.3% 1690 bps Manufacturing Non-GAAP OM% 25.3% 13.7% 1160 bps ▪ Non-GAAP operating margin increase driven primarily by higher sales volume as each of segment’s businesses are regaining traction ▪ Also driven by com
Slide 26: AMAP & Other Initiatives to Maintain Leadership Position
AMAP & Other Initiatives to Maintain Leadership Position ▪ Previously discussed client-facing initiatives implemented to become an even stronger scientific partner to our clients and actions to drive greater operational efficiencies ▪ In April, launched AMAP (Alternative Methods Advancement Project)
Slide 27: AMAP & Other Initiatives to Maintain Leadership Position, cont.
AMAP & Other Initiatives to Maintain Leadership Position, cont. ▪ Already been exploring alternatives to reduce animal testing through our initial investment of $200M over past four years ▪ A portion of that investment enabled us to acquire, partner, and internally develop more sustainable technolog
Slide 28: 1Q24 Results
1Q24 Results ($ in millions, except per share amounts) 1Q24 1Q23 YOY Δ Organic Δ Revenue $1,011.6 $1,029.4 (1.7)% (3.3)% GAAP OM% 12.5% 16.3% (380) bps Non-GAAP OM% 18.5% 21.2% (270) bps GAAP EPS $1.30 $2.01 (35.3)% Non-GAAP EPS $2.27 $2.78 (18.3)% ▪ Organic revenue decrease was in line with Februar
Slide 29: 2024 Guidance
2024 Guidance 2024 Guidance Revenue growth, reported 1.0% - 4.0% Revenue growth, organic 0.0% - 3.0% GAAP EPS $7.60 - $8.10 Non-GAAP EPS $10.90 - $11.40 ▪ Reaffirmed annual revenue and non-GAAP EPS guidance because 1Q24 outperformance largely driven by timing of NHP shipments ̶ Affects only quarterl
Slide 30: 2024 Segment Revenue & Operating Margin Outlook
2024 Segment Revenue & Operating Margin Outlook 2024 Reported 2024 Organic Revenue Growth Revenue Growth(1) RMS Mid-single-digit growth Flat to low-single-digit growth DSA Flat to low-single-digit growth Flat to low-single-digit growth Manufacturing Mid-single-digit growth Mid-single-digit growth Co
Slide 31: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 1Q24 4Q23 1Q23 GAAP $65.7 $65.9 $46.1 Non-GAAP $62.7 $62.6 $43.9 ▪ As expected, higher unallocated corporate costs contributed to operating margin headwind in 1Q24 ▪ Continue to expect non-GAAP unallocated corporate expenses will moderate from 1Q24 leve
Slide 32: Tax Rate
Tax Rate ($ in millions) 1Q24 4Q23 1Q23 GAAP 24.8% 9.5% 20.7% Non-GAAP 23.3% 21.6% 21.7% ▪ Increased non-GAAP tax rate YOY was primarily due to impact from stock-based compensation ▪ Slightly better than February outlook of a mid-20% rate because stock-based compensation was favorable due to a highe
Slide 33: Net Interest Expense
Net Interest Expense ($ in millions) 1Q24 4Q23 1Q23 Interest expense, net $32.8 $32.0 $33.6 ▪ Net interest expense was similar to both 1Q23 and 4Q23 levels, as floating interest rates and debt balances were relatively stable ▪ Expect FY 2024 net interest expense to trend slightly favorable, putting
Slide 34: Cash Flow
Cash Flow FY 2024 ($ in millions) 1Q24 1Q23 Guidance Free cash flow (FCF) $50.7 $2.5 $400-$440M Capex $79.1 $106.9 ~$300M Depreciation $52.8 $42.2 $195-$200M Amortization (1) $32.6 $34.9 ~$130M ▪ 1Q24 FCF improvement driven primarily by decrease in capital expenditures ▪ Moderating capacity expansio
Slide 35: 2024 Guidance Summary
2024 Guidance Summary GAAP Non-GAAP Revenue growth 1%-4% reported 0%-3% organic(1) Unallocated corporate Above 5% of revenue Above 5% of revenue Operating margin Improvement in 2024 At least 50 bps of improvement Net interest expense Low end of $125M-$130M Low end of $125M-$130M Tax rate 24%-25% 23%
Slide 36: 2Q24 Outlook
2Q24 Outlook 2Q24 Outlook Reported revenue YOY Low- to mid-single-digit decline Organic revenue YOY Low- to mid-single-digit decline Non-GAAP EPS Mid-single-digit sequential growth over $2.27 in 1Q24 ▪ Modest sequential increase in DSA revenue (dollars $) as trends begin to improve ▪ Revenue growth
Slide 37: Closing Remarks
Closing Remarks ▪ Pleased with 1Q24 performance and confident in outlook for 2024 ▪ Demand for our unique, non-clinical portfolio is resilient ▪ We remain focused on executing our strategy, driving efficiency, and gaining market share 37
Slide 38: 1Q24 Regulation G Financial Reconciliations & Appendix
1Q24 Regulation G Financial Reconciliations & Appendix © 2024 Charles River Laboratories International, Inc.
Slide 39: Reconciliation of GAAP to Non-GAAP Selected Business Segment Information
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP (1) SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (in thousands, except percentages) Three Months Ended March 30, 2024 April 1, 2023 Research Models and Services Revenue $ 220,907 $ 199,766 Operating income 43,149
Slide 40: Reconciliation of GAAP to Non-GAAP Segment Information (continued)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP (1) SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (in thousands, except percentages) Three Months Ended March 30, 2024 April 1, 2023 CONTINUED FROM PREVIOUS SLIDE Unallocated Corporate Overhead $ (65,692) $ (46,054
Slide 41: Reconciliation of GAAP Earnings to Non-GAAP Earnings
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED) (1) (in thousands, except per share data) Three Months Ended March 30, 2024 April 1, 2023 Net income available to Charles River Laboratories, Inc. common shareholders $ 67,329 $ 103,131 Ad
Slide 42: Reconciliation of GAAP Revenue Growth to Non-GAAP Organic Revenue Growth
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP REVENUE GROWTH (1) TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) Three Months Ended March 30, 2024 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported (1.7)% 10.6 % (8.6)% 10.7 % (Increase) decrease due to fore
Slide 43: Reconciliation of GAAP to Non-GAAP Revenue and EPS Guidance
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP REVENUE AND EARNINGS PER SHARE (EPS) Guidance for the Twelve Months Ended December 28, 2024E 2024 GUIDANCE CURRENT PRIOR Revenue growth, reported 1.0% – 4.0% 1.0% – 4.0% Impact of divestitures/(acquisitions), net ~(0.5
Slide 44: Reconciliation of GAAP Tax Rate to Non-GAAP Tax Rate
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TAX RATE TO NON-GAAP TAX RATE (UNAUDITED) (1) (in thousands) Three Months Ended March 30, 2024 December 30, 2023 April 1, 2023 Income before income taxes & noncontrolling interests $ 99,011 $ 208,706 $ 131,041 Add back: Amortizati
Slide 45: Reconciliation of Free Cash Flow (Non-GAAP)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF FREE CASH FLOW (NON-GAAP) (1) (in thousands) Three Months Ended 2024 Guidance March 30, 2024 April 1, 2023 FYE December 28, 2024E Net cash provided by operating activities $ 129,888 $ 109,383 $700,000-$740,000 Less: Capital expenditure
Slide 46: Reconciliation of Gross/Net Leverage Ratio, Net Income to Adjusted EBITDA
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. (1) RECONCILIATION OF GROSS/NET LEVERAGE RATIO, INCLUDING GAAP NET INCOME TO ADJUSTED EBITDA (dollars in thousands, except for per share data) March 30, 2024 December 30, 2023 December 31, 2022 December 25, 2021 December 26, 2020 December 28, 2019 (2) D
Slide 47: Reconciliation of GAAP to Non-GAAP Selected Business Segment Information
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1) (in thousands, except percentages) Three Months Ended December 30, 2023 Unallocated Corporate Overhead $ (65,924) Add back: Severance 889 Acquisition related adjust
Slide 48: © 2024 Charles River Laboratories International, Inc.
© 2024 Charles River Laboratories International, Inc.
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