Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q2 2022 Earnings Presentation
54 slides from Charles River Laboratories International's earnings presentation, Aug 3, 2022
Slide 1: 2Q 2022 Results
2Q 2022 Results August 3, 2022 Charles River Laboratories EVERY STEP OF THE WAY © 2022 Charles River Laboratories International, Inc.
Slide 2: Safe Harbor Statement
Safe Harbor Statement 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,” “ex
Slide 3: 2Q22 Financial Results
2Q22 Financial Results ($ in millions) 2Q22 2Q21 YOY Δ Organic Δ Revenue $973.1 $914.6 6.4% 9.5% GAAP OM% 19.3% 15.0% 430 bps Non-GAAP OM% 21.8% 20.8% 100 bps GAAP EPS $2.13 $1.72 23.8% Non-GAAP EPS $2.77 $2.61 6.1% ▪ 2Q22 financial results reflect sustained trends that continue to support our busin
Slide 4: 2Q22 Financial Results, cont.
2Q22 Financial Results, cont. ▪ Sustained business trends that continue to support our businesses were offset by headwinds from CDMO business and FX, first noted in early June that led to revised 2Q22 outlook ▪ These headwinds, coupled with interest expense, have intensified since early June and led
Slide 5: 2Q22 Revenue
2Q22 Revenue ($ in millions) 2Q22 2Q21 YOY Δ Revenue, reported $973.1 $914.6 6.4% (Increase)/decrease due to FX 3.4% Contribution from acquisitions (2.3)% Impact of divestitures 2.0% Revenue growth, organic 9.5% ▪ Strong performance from the DSA and RMS segments ▪ Partially offset by lower growth ra
Slide 6: 2Q22 Operating Margin
2Q22 Operating Margin 2Q22 2Q21 YOY Δ GAAP OM% 19.3% 15.0% 430 bps Non-GAAP OM% 21.8% 20.8% 100 bps ▪ Non-GAAP improvement driven by DSA segment, as well as lower unallocated corporate costs ─ Reflecting actions we have taken to responsibly manage our expenses 6 EVERY STEP OF THE WAY See ir.criver.c
Slide 7: 2Q22 EPS
2Q22 EPS 2Q22 2Q21 YOY Δ GAAP EPS $2.13 $1.72 23.8% Non-GAAP EPS $2.77 $2.61 6.1% ▪ Low-double-digit non-GAAP operating income growth largely offset by higher interest expense and tax rate compared to 2Q21 ▪ 2Q22 EPS were in line with our revised outlook, despite incremental pressure over past two m
Slide 8: Updated 2022 Guidance
Updated 2022 Guidance REVISED PRIOR Revenue growth, reported 9.0%-11.0% 13.5%-15.5% Contribution from acquisitions/divestitures, net ~(1.0)% ~(1.0)% Impact of 53rd week in 2022 ~(1.5)% ~(1.5)% (Increase)/Decrease due to FX ~3.5% ~1.5% Revenue growth, organic 10.0%-12.0% 12.5%-14.5% GAAP EPS $7.90-$8
Slide 9: Updated 2022 Guidance, cont.
Updated 2022 Guidance, cont. ▪ Lower revenue for CDMO business, strengthening US$, and rising interest rates over past two months are the primary reasons for reduction of revenue growth and EPS guidance for FY 2022 ▪ FX now expected to reduce the reported revenue growth rate by 350 bps, or 200 bps m
Slide 10: CDMO Business Update
CDMO Business Update ▪ Tempered expectations for CDMO business in near term are the primary driver of the remainder of earning shortfall ▪ 2Q22 CDMO performance was below our expectations due to several factors: ─ Re-tooling production suites, retraining staff, and filling capacity with plasmid work
Slide 11: CDMO Business Update, cont.
CDMO Business Update, cont. ▪ Implemented a refined vision and strategy for our combined CDMO business following last year’s Cognate and Vigene acquisitions ▪ Includes developing Centers of Excellence for: ─ Plasmids at Cognate UK ─ Viral vectors at Vigene in Rockville, MD ─ Gene-modified cell thera
Slide 12: CDMO Business Update, cont.
CDMO Business Update, cont. ▪ Adding new capabilities through modest facility expansions ▪ As announced in June, expanding Alderley Park, UK as part of our Center of Excellence for plasmids ▪ Upscaling other sites for regulatory compliance and commercial readiness ▪ Very pleased to report that Memph
Slide 13: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 2Q22 2Q21 YOY Δ Revenue, reported $591.9 $540.1 9.6% (Increase)/decrease due to FX 3.3% Contribution from acquisitions --- Revenue growth, organic 12.9% ▪ Very pleased that DSA organic growth rate improved by 340 bps from 1Q22, to low-double-digit range as previ
Slide 14: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ Higher demand and meaningful price increases drove sequential SA growth acceleration in 2Q22 ▪ 2Q22 backlog increased on a sequential basis and continued to be significantly above prior-year levels ▪ Backlog, coupled with solid booking activity in 2Q22, firmly
Slide 15: DSA Results - Safety Assessment (SA), cont.
DSA Results - Safety Assessment (SA), cont. ▪ With our capacity well utilized—both in terms of people and infrastructure, we continue to implement new operational initiatives and evaluate others to enhance labor utilization and infrastructure efficiency, as well as study scheduling ▪ Believe we are
Slide 16: DSA Results – Discovery Services
DSA Results – Discovery Services ▪ 2Q22 Discovery Services revenue growth rate improved meaningfully from 1Q22 as expected ▪ Experiencing some lengthening in time clients take to commit to and begin new projects ▪ Given short-term nature of the backlog and project cycles for this business, it is exp
Slide 17: DSA Results – Operating Margin
DSA Results – Operating Margin 2Q22 2Q21 YOY Δ DSA GAAP OM% 21.8% 19.4% 240 bps DSA Non-GAAP OM% 25.3% 23.5% 180 bps ▪ Operating margin increase driven by pricing and leverage from investments in staff to support higher volume ▪ Expect DSA operating margin will improve in FY 2022, as growth rate acc
Slide 18: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 2Q22 2Q21 YOY Δ Revenue, reported $186.4 $176.7 5.5% (Increase)/decrease due to FX 3.0% Contribution from acquisitions (7.2)% Impact of divestitures 7.2% Revenue growth, organic 8.5% ▪ Organic revenue growth driven by strong demand and meaningful price increases
Slide 19: RMS Results – Research Models
RMS Results – Research Models ▪ RMS growth rate did not improve from 1Q22 as anticipated, due primarily to research models business in China ▪ Revenue for China increased, but due to COVID-related restrictions in Beijing and Shanghai regions, growth was limited and reduced RMS growth rate by <200 bp
Slide 20: RMS Results – RM Services & CRADL/Explora
RMS Results – RM Services & CRADL™/Explora ▪ RM Services had another excellent quarter, led by IS and GEMS ▪ IS’s growth driven by CRADL™ (Charles River Accelerator and Development Labs) initiative, which provides turnkey research capacity to small and large biopharma clients in key biohubs ▪ Client
Slide 21: RMS Results – CRADL/Explora, cont.
RMS Results – CRADL™/Explora, cont. ▪ Continuing to expand CRADL™ and Explora footprint to support growth ─ Have added new facilities in California and London in 2Q22 ─ Goal to operate at least 25 vivarium facilities with >300K sq. ft. of turnkey rental capacity by end of 2022 ▪ CRADL™ and Explora a
Slide 22: RMS Results – Operating Margin
RMS Results – Operating Margin 2Q22 2Q21 YOY Δ RMS GAAP OM% 21.2% 24.1% (290) bps RMS Non-GAAP OM% 24.9% 27.4% (250) bps ▪ Margin decrease due primarily to COVID-related revenue impact in China ▪ Explora has healthy margins for a service business and had an excellent 2Q22, but is expected to be a sm
Slide 23: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 2Q22 2Q21 YOY Δ Revenue, reported $194.8 $197.8 (1.5)% (Increase)/decrease due to FX 4.1% Contribution from acquisitions (4.0)% Impact of divestitures 2.4% Revenue growth, organic 1.0% ▪ Revenue growth rate reflected lower revenue for CDMO business, as
Slide 24: Manufacturing Results
Manufacturing Results ▪ C> will continue to be the primary growth driver for Manufacturing segment, reflecting rapid increase in number of C> programs in development ▪ Today, > 3,000 C> programs are in the pipeline, a number which has grown at an average rate above 20% over last 3 years ▪ With
Slide 25: Manufacturing – Operating Margin
Manufacturing – Operating Margin 2Q22 2Q21 YOY Δ Manufacturing GAAP OM% 32.1% 28.7% 340 bps Manufacturing Non-GAAP OM% 28.6% 33.2% (460) bps ▪ Non-GAAP operating margin decline driven almost entirely by CDMO business ▪ Have taken actions to manage costs and investments, both in CDMO business and in
Slide 26: Capital Deployment Update
Capital Deployment Update ▪ Have built an excellent foundation for C> solutions since 2020 through M&A ─ Focus on integrating enhanced scientific capabilities and recent acquisitions ▪ While we will still evaluate strategic acquisitions, intend to focus on debt repayment for the remainder of the y
Slide 27: Concluding Remarks
Concluding Remarks ▪ Reset our financial outlook for 2022 to account for escalating headwinds that have emerged throughout the year ▪ Remain well positioned to deliver low-double-digit organic revenue growth for FY 2022 and stable operating margins amidst today’s challenging macroeconomic environmen
Slide 28: 2Q22 Results
2Q22 Results ($ in millions) 2Q22 2Q21 YOY Δ Organic Δ Revenue $973.1 $914.6 6.4% 9.5% GAAP OM% 19.3% 15.0% 430 bps Non-GAAP OM% 21.8% 20.8% 100 bps GAAP EPS $2.13 $1.72 23.8% Non-GAAP EPS $2.77 $2.61 6.1% ▪ Delivered solid 2Q22 results despite challenges related to CDMO business and unfavorable mov
Slide 29: 2022 EPS Headwinds
2022 EPS Headwinds FY 2022E Changes since Changes since Non-GAAP EPS Impact early June initial guidance (Feb.) Primary Drivers Foreign exchange (FX) $0.24 $0.31 Significant strengthening of US$ Interest expense $0.15 $0.25 Higher interest rates (excluding Explora impact) Tax rate $0.02 $0.10 Lower b
Slide 30: Reduced 2022 Guidance
Reduced 2022 Guidance 2022 Guidance Revenue growth, reported 9.0% - 11.0% Revenue growth, organic 10.0% - 12.0% GAAP EPS $7.90 - $8.15 Non-GAAP EPS $10.70 - $10.95 ▪ Expect to generate low-double-digit organic revenue growth, supported by strong trends in most of our businesses ▪ Expect reported rev
Slide 31: Foreign Exchange (FX) Impact
Foreign Exchange (FX) Impact ▪ Recent, dramatic strengthening of US$ 2022E 2022E (% of total revenue) Revenue FX Rates has resulted in FX being more of a headwind than previously anticipated U.S. Dollar 69% -- ▪ Since revised outlook in early June, FX Euro 18% 1.00 has reduced 2022 revenue by an Bri
Slide 32: Net Interest Expense
Net Interest Expense ($ in millions) 2Q22 1Q22 2Q21 GAAP interest expense, net $3.5 $9.3 $16.0 Non-GAAP interest expense, net $3.5 $9.3 $15.9 Adjustments for foreign exchange forward contract and related interest expense(1) $19.4 $11.1 $4.9 Adjusted net interest expense $22.9 $20.4 $20.8 ▪ Federal R
Slide 33: Net Interest Expense, cont.
Net Interest Expense, cont. ▪ 2Q22 total adjusted net interest expense of $22.9M increased $2.5M sequentially and $2.1M YOY due primarily to: ─ Higher debt balances from recent acquisitions ─ Rate increases earlier in the year ▪ Current interest rates on revolving credit facility are based on LIBOR
Slide 34: Capital Structure
Capital Structure ▪ At end of 2Q22, total outstanding debt was $3.0B, representing gross leverage ratio of 2.8x and net leverage ratio of 2.7x ▪ Plan to focus capital deployment priorities on debt repayment for remainder of 2022 34 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP
Slide 35: 2022 Segment Revenue Outlook
2022 Segment Revenue Outlook 2022 Reported 2022 Organic Revenue Growth Revenue Growth(1) RMS High-single digits High-single digits DSA Low-teens Mid-teens Manufacturing High-single-digit Mid-single-digits Consolidated CRL 9.0%-11.0% 10.0%-12.0% ▪ Revised 2022 revenue growth outlook primarily reflect
Slide 36: Operating Margin Outlook
Operating Margin Outlook ▪ Despite revised revenue outlook for 2022, expect consolidated operating margin to be essentially flat with 2021 ─ Appropriately managing costs to limit margin impact and hold operating margin ▪ Continue to expect DSA segment will generate operating margin improvement in 20
Slide 37: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 2Q22 1Q22 2Q21 GAAP $43.4 $50.5 $66.3 Non-GAAP $40.2 $45.3 $51.2 ▪ Lower unallocated corporate costs contributed to 2Q22 operating margin improvement ▪ Non-GAAP corporate costs totaled 4.1% of revenue compared to 5.6% of revenue last year, with decrease
Slide 38: Tax Rate
Tax Rate 2Q22 1Q22 2Q21 GAAP 23.2% 14.1% 29.5% Non-GAAP 21.1% 16.8% 20.4% ▪ 2Q22 non-GAAP tax rate represented a 70-bps increase from last year due to: ─ Lower excess tax benefit associated with stock-based compensation resulting from lower stock price ─ Partially offset by discrete tax benefits ▪ F
Slide 39: Cash Flow
Cash Flow ($ in millions) 2Q22 2Q21 2022 Outlook Free cash flow (FCF) $66.6 $140.2 ~$360 Capital expenditures $82.9 $46.4 ~$340 Depreciation $38.8 $35.1 ~$165 Amortization $37.6 $33.0 ~$150 ▪ FCF YOY decrease > $70M in 2Q22 was primarily due to: ─ Higher capex to accommodate future growth ─ Unfavora
Slide 40: 2022 Updated Guidance Summary
2022 Updated Guidance Summary GAAP Non-GAAP Revenue growth 9.0%-11.0% reported 10.0%-12.0% organic(1) Modest improvement Essentially flat Operating margin from 16.7% in 2021 from 21.0% in 2021 ~5% range ~5% range Unallocated corporate as a % of revenue as a % of revenue Net interest expense $75M-$79
Slide 41: 3Q22 Outlook
3Q22 Outlook 3Q22 Outlook Reported revenue growth YOY High-single-digit growth vs. 3Q21 Organic revenue growth YOY At least low-double-digit growth vs. 3Q21 Non-GAAP EPS growth YOY High-single-digit decline vs. 3Q21 ▪ Reported revenue growth reflects incremental FX headwinds ▪ Organic revenue growth
Slide 42: Concluding Remarks
Concluding Remarks ▪ Continue to be focused on execution of our strategy, enhancing the speed and efficiency in which we operate, and delivering solid financial and operational results in today’s macroeconomic environment ▪ Believe significant growth potential continues to exist as our clients seek
Slide 43: 2Q22 Regulation G Financial Reconciliations
2Q22 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2022 Charles River Laboratories International, Inc.
Slide 44: Reconciliation of GAAP to Non-GAAP: 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 Six Months Ended June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Research Models and Services Revenue
Slide 45: Reconciliation of GAAP to Non-GAAP: Segment Information, continued
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1) (in thousands, except percentages) CONTINUED FROM PREVIOUS SLIDE Three Months Ended Six Months Ended June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Unalloc
Slide 46: 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 Six Months Ended June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Net income attributable to common shareholders $ 109,3
Slide 47: Reconciliation of GAAP Revenue Growth to Non-GAAP Organic
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP REVENUE GROWTH TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1) Three Months Ended June 25, 2022 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 6.4 % 5.5 % 9.6 % (1.5) % Decrease due to foreign exchange 3
Slide 48: 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 31, 2022E 2022 GUIDANCE CURRENT PRIOR Revenue growth, reported 9.0% - 11.0% 13.5%-15.5% Less: Contribution from acquisitions/divestitur
Slide 49: Reconciliation of GAAP to Non-GAAP Net Interest Expense
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP NET INTEREST EXPENSE (1) (in thousands) Three Months Ended Fiscal Year Ended June 25, 2022 March 26, 2022 June 26, 2021 December 31, 2022E GAAP Interest expense, net $ 3,515 $ 16,019 $ 16,019 $75,000-$79,000 Exclude: W
Slide 50: Reconciliation of Gross/Net Leverage Ratio to Adjusted EBITDA
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GROSS/NET LEVERAGE RATIO, INCLUDING GAAP NET INCOME TO ADJUSTED EBITDA (1) (dollars in thousands, except for per share data) June 25 December 25, December 26, December 28, December 29, December 30, December 31, December 26, December 27
Slide 51: Reconciliation of GAAP to Non-GAAP 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 March 26, 2022 Unallocated Corporate Overhead $ (50,458) Add back: Severance 1,087 Acquisition related adjustm
Slide 52: 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 Six Months Ended June 25, 2022 March 26, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Income before income taxes & noncontrolling interests $ 144,11
Slide 53: 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 Six Months Ended Fiscal Year Ended June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 December 31, 2022E Net cash provided by operating activities $ 149,474 $ 186,590
Slide 54: Every Step of the Way
EVERY STEP OF THE WAY © 2022 Charles River Laboratories International, Inc.
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