Charles River Laboratories International, Inc. · NYSE:CRL

Charles River Laboratories International — Q4 2023 Earnings Presentation

52 slides from Charles River Laboratories International's earnings presentation, Feb 14, 2024

  1. Slide 1: 4Q 2023 Results & 2024 Guidance

    Charles River Laboratories 4Q 2023 Results & 2024 Guidance February 14, 2024 © 2024 Charles River Laboratories International, Inc.

  2. 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

  3. Slide 3: Stability and Resilience of CRL Business Model

    Stability and Resilience of CRL Business Model ▪ Stability and resilience of CRL business model were very clear in 2023 ▪ Although demand trends moderated in the broader life sciences sector, we delivered organic revenue growth of 6.5% and non-GAAP EPS of $10.67 ̶ Both measures were in the upper hal

  4. Slide 4: Overview of Market Trends

    Overview of Market Trends ▪ Belief is supported by early indicators that improvement will come, including: ̶ Several successful biotech IPOs in January providing early signs that capital markets should reopen and biotech funding will improve ▪ Internal indicators also suggest demand trends may be be

  5. Slide 5: Focused on Driving Efficiency and Commercial Initiatives

    Focused on Driving Efficiency and Commercial Initiatives ▪ Proactively and continuously engaged in actions to streamline organization and drive productivity, enhance speed and responsiveness, and become an even stronger scientific partner to clients ▪ Continuing to focus on initiatives to win additi

  6. Slide 6: 4Q23 & FY 2023 Financial Performance

    4Q23 & FY 2023 Financial Performance ($ in millions, except per Organic Organic 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ share amounts) Δ Δ Revenue $1,013.5 $1,099.8 (7.9)% (3.5)% $4,129.4 $3,976.1 3.9% 6.5% GAAP OM% 13.1% 14.9% (180) bps 14.9% 16.4% (150) bps Non-GAAP OM% 19.1% 20.4% (130) bps 20.3% 21.0% (

  7. Slide 7: 4Q23 & FY 2023 Operating Margin

    4Q23 & FY 2023 Operating Margin 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ GAAP OM% 13.1% 14.9% (180) bps 14.9% 16.4% (150) bps Non-GAAP OM% 19.1% 20.4% (130) bps 20.3% 21.0% (70) bps ▪ For 4Q23, non-GAAP operating margin decrease principally driven by higher unallocated corporate costs, due in part to meaning

  8. Slide 8: 4Q23 & FY 2023 EPS

    4Q23 & FY 2023 EPS 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ GAAP EPS $3.62 $3.65 (0.8)% $9.22 $9.48 (2.7)% Non-GAAP EPS $2.46 $2.98 (17.4)% $10.67 $11.12 (4.0)% ▪ In addition to lower revenue and operating margin, 4Q23 non-GAAP EPS headwinds included a higher tax rate, the 53rd week in 2022, and divestiture

  9. Slide 9: 2024 Outlook

    2024 Outlook ▪ For 2024, believe our outlook is appropriately balanced ▪ Demand from many large biopharma clients expected to be stable ▪ Small and mid-sized biotech clients may continue to spend cautiously as they endeavor to extend their cash runways until clear indications of an improving funding

  10. Slide 10: 2024 Guidance

    2024 Guidance REVISED 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 $7.90-$8.40 Acquisition-related amortization ~$2.40 Acquisition and integration-related adjustm

  11. Slide 11: DSA Results – Revenue

    DSA Results – Revenue ($ in millions) 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ Revenue, reported $625.8 $691.7 (9.5)% $2,615.6 $2,447.3 6.9% (Favorable)/unfavorable impact of FX (1.3)% (0.3)% Contribution from acquisitions (0.3)% (0.3)% Effect of 53rd week in FY 2022 5.1% 1.6% Revenue growth, organic (6.0)%

  12. Slide 12: DSA Results – Safety Assessment (SA)

    DSA Results – Safety Assessment (SA) ▪ FY 2023 revenue met our segment outlook due to another solid year in SA business ▪ As anticipated, SA backlog coverage enabled us to achieve DSA financial outlook of high-single-digit organic revenue growth in 2023 ▪ At year end, DSA backlog modestly declined t

  13. Slide 13: 2024 DSA Outlook

    2024 DSA Outlook ▪ With gross book-to-bill remaining above 1x at end of 4Q23, expect demand KPIs to improve modestly once the cancellation rate subsides ̶ One of the assumptions behind our 2024 DSA outlook ▪ Expect flat to low-single-digit DSA organic revenue growth in 2024 ▪ 1Q24 will exhibit trend

  14. Slide 14: Acquisition of Controlling Stake in Noveprim

    Acquisition of Controlling Stake in Noveprim ▪ One of the reasons we are able to navigate a volatile NHP pricing environment is our long-standing, high-quality NHP supply relationships ̶ Gives us an important competitive advantage in the preclinical sector ▪ Acquisition of controlling stake in Novep

  15. Slide 15: DSA Results – Discovery Services

    DSA Results – Discovery Services ▪ Discovery Services a challenging year and saw a meaningful revenue decline in 4Q23 across all client segments ▪ Discovery proposal volume remained low throughout the year ▪ Clients’ decision-making timelines for new project starts remained extended ▪ Despite these

  16. Slide 16: DSA Results – Operating Margin

    DSA Results – Operating Margin 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ DSA GAAP OM% 20.2% 22.7% (250) bps 23.2% 21.8% 140 bps DSA Non-GAAP OM% 26.0% 26.3% (30) bps 27.5% 25.3% 220 bps ▪ 4Q23 non-GAAP operating margin decrease due to Discovery Services revenue decline ▪ For FY 2023, non-GAAP operating margin

  17. Slide 17: RMS Results – Revenue

    RMS Results – Revenue ($ in millions) 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ Revenue, reported $195.8 $196.1 (0.2)% $792.3 $739.2 7.2% (Favorable)/unfavorable impact of FX (0.8)% 0.6% Contribution from acquisitions (3.1)% (2.9)% Effect of 53rd week in FY 2022 3.7% 1.0% Revenue growth, organic (0.4)% 5.9% ▪

  18. Slide 18: RMS 2024 Outlook – Research Models

    RMS 2024 Outlook – Research Models ▪ For 2024, expect organic revenue will be flat to low-single-digit growth ▪ Current demand environment will likely limit unit volume growth this year in research models business in North America and Europe ̶ Expect modest price increases to drive most of the growt

  19. Slide 19: RMS 2024 Outlook – Research Model Services

    RMS 2024 Outlook – Research Model Services ▪ Research Model Services are positioned to be a notable contributor to revenue growth in 2024 ▪ Expanding GEMS capacity in certain regions to accommodate clients’ increasing requirements for our support of their: ̶ Complex research ̶ Maintenance of their g

  20. Slide 20: RMS Results – Operating Margin

    RMS Results – Operating Margin 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ RMS GAAP OM% 18.9% 18.9% --- 19.5% 21.7% (220) bps RMS Non-GAAP OM% 23.1% 22.7% 40 bps 23.0% 25.2% (220) bps ▪ One-month contribution from Noveprim and increased shipments of NHPs within China were principal contributors to 4Q23 non-GAAP

  21. Slide 21: Manufacturing Results – Revenue

    Manufacturing Results – Revenue ($ in millions) 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ Revenue, reported $191.9 $212.1 (9.5)% $721.4 $789.6 (8.6)% (Favorable)/unfavorable impact of FX (1.6)% (0.4)% Impact of divestitures 9.0% 9.8% Effect of 53rd week in FY 2022 4.4% 1.2% Revenue growth, organic 2.3% 2.0% ▪

  22. Slide 22: Manufacturing Results – CDMO

    Manufacturing Results – CDMO ▪ CDMO business drove segment growth, with solid, double-digit revenue growth in both 4Q23 and FY 2023 ▪ Initiatives implemented to improve performance have proven successful in 2023 ▪ Believe CDMO business is now well positioned competitively: ̶ Centers of Excellence es

  23. Slide 23: Manufacturing Results – Microbial Solutions

    Manufacturing Results – Microbial Solutions ▪ Microbial Solutions experienced a modest increase in year-end client order activity as normally occurs, but not to the extent it occurred in 4Q22 when there was a significant budget flush ▪ Now seeing positive signs that client destocking activity is sta

  24. Slide 24: Manufacturing Results – Biologics Testing

    Manufacturing Results – Biologics Testing ▪ Biologics Testing had a difficult year due to tighter client spending in end markets; however, saw an increase in proposal activity in 4Q23 ̶ It was the first quarterly increase in 2023 ▪ Q1 sample volumes are always seasonally soft following holidays ▪ Be

  25. Slide 25: Manufacturing Results – Operating Margin

    Manufacturing Results – Operating Margin 4Q23 4Q22 YOY Δ 2023 2022 YOY Δ Manufacturing GAAP OM% 18.5% 12.6% 590 bps 12.2% 21.2% (890) bps Manufacturing Non-GAAP OM% 25.4% 25.3% 10 bps 21.8% 28.8% (700) bps ▪ Non-GAAP operating margin declined in each business unit in FY 2023; however, CDMO was most

  26. Slide 26: Management Announcements

    Management Announcements ▪ Bill Barbo, Executive Vice President and Chief Commercial Officer, will retire at end of 2024, following a remarkable, 42-year career at CRL ▪ For many years, Bill has worked with Kristen Eisenhauer, Senior Vice President responsible for all client services and sales ▪ Kri

  27. Slide 27: Concluding Remarks

    Concluding Remarks ▪ We are pleased with solid performance in 2023 ▪ Our long-term prospects for revenue growth and margin expansion remain unchanged from the targets provided at Investor Day: ̶ Averaging 6%-8% organic revenue growth through 2026 ̶ ~150 basis points of cumulative non-GAAP operating

  28. Slide 28: 4Q23 Results

    4Q23 Results ($ in millions, except per share amounts) 4Q23 4Q22 YOY Δ Organic Δ Revenue $1,013.5 $1,099.8 (7.9)% (3.5)% GAAP OM% 13.1% 14.9% (180) bps Non-GAAP OM% 19.1% 20.4% (130) bps GAAP EPS $3.62 $3.65 (0.8)% Non-GAAP EPS $2.46 $2.98 (17.4)% ▪ 4Q23 revenue and non-GAAP EPS were in line with ex

  29. Slide 29: Noveprim Financial Impact

    Noveprim Financial Impact ▪ In November, acquired additional 41% equity stake in Noveprim, a high-quality supplier of NHPs in Mauritius ▪ Noveprim has been a long-time supplier to CRL ̶ Made first equity investment of a 49% equity stake in 2022 ̶ Now own 90% controlling interest and will consolidate

  30. Slide 30: 2024 Outlook

    2024 Outlook 2024 Guidance Revenue growth, reported 1.0% - 4.0% Revenue growth, organic 0.0% - 3.0% GAAP EPS $7.90 - $8.40 Non-GAAP EPS $10.90 - $11.40 ▪ With regard to quarterly gating of 2024 outlook, business isn’t linear and quarterly performance can fluctuate based on mix, the status of clients

  31. Slide 31: 2024 Segment Revenue Outlook

    2024 Segment Revenue 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 Low- to mid-single-digit growth Low- to mid-single-digit growth Conso

  32. Slide 32: Operating Margin

    Operating Margin ▪ 2023 non-GAAP operating margin declined 70 bps to 20.3%, caused by: ̶ Moderating demand environment particularly impacted the RMS and Biologics Testing businesses ̶ Manufacturing margin impacted by higher costs in the CDMO business (regulatory audits, commercial readiness, and 1Q2

  33. Slide 33: Segment Operating Margin

    Segment Operating Margin ▪ Expect meaningful non-GAAP operating margin improvement from the RMS and Manufacturing segments ̶ Noveprim is expected to contribute at least 200 bps to RMS margin ▪ In Manufacturing segment, expect profitability of each business unit will improve commensurate with sales v

  34. Slide 34: Unallocated Corporate Expenses

    Unallocated Corporate Expenses ($ in millions) 4Q23 4Q22 2023 2022 GAAP $65.9 $57.0 $231.8 $209.4 Non-GAAP $62.6 $54.9 $219.5 $197.8 ▪ Expect non-GAAP unallocated corporate expenses in 2024 to be similar to 2023 level at just above 5% of total revenue ▪ Non-GAAP increase of 30 bps in 2023 to 5.3% of

  35. Slide 35: Tax Rate

    Tax Rate ($ in millions) 4Q23 4Q22 2023 2022 GAAP 9.5% 22.8% 17.4% 20.9% Non-GAAP 21.6% 18.7% 22.1% 19.2% ▪ Non-GAAP tax rate for 2024 expected to be in the range of 23%-24%, an increase from 22.1% in 2023 ▪ Anticipated increase is principally due to impact related to stock-based compensation, as we

  36. Slide 36: Net Interest Expense

    Net Interest Expense ($ in millions) 4Q23 4Q22 2023 2022 GAAP interest expense, net $32.0 $34.4 $131.5 $58.5 Non-GAAP interest expense, net $32.0 $34.4 $131.5 $58.5 Adjustments for foreign exchange forward contract and related interest expense(1) ― ― ― $46.5 Adjusted net interest expense $32.0 $34.4

  37. Slide 37: Cash Flow

    Cash Flow ($ in millions) 4Q23 4Q22 2023 2022 Free cash flow (FCF) $142.6 $181.1 $365.4 $330.3 Capex $78.3 $89.0 $318.5 $324.7 Depreciation $46.5 $42.1 $176.7 $157.3 Amortization (1) $34.0 $35.4 $137.4 $146.6 ▪ Expect 2024 FCF will be in a range of $400-$440M, representing a meaningful increase over

  38. Slide 38: 2024 Updated Guidance Summary

    2024 Updated 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 $125M-$130M $125M-$130M Tax rate 24%-25% 23%-24% EPS $7.90

  39. Slide 39: 1Q24 Outlook

    1Q24 Outlook 1Q24 Outlook Reported revenue growth YOY Low- to mid-single-digit decline Organic revenue growth YOY Mid-single-digit decline Non-GAAP EPS At least $2.00 ▪ 1Q24 revenue outlook reflects demand trends that will be similar to 4Q23 ̶ Seasonal impact is typical in Safety Assessment and Biol

  40. Slide 40: Closing Remarks

    Closing Remarks ▪ Despite ongoing cautious biopharma spending environment, our business continues to be resilient and we remain confident in long-term health of the industry ▪ Solid 2023 performance reflected ability to manage challenges in the marketplace, while continuing to focus on making discip

  41. Slide 41: 4Q23/FY23 Regulation G Financial Reconciliations & Appendix

    4Q23/FY23 Regulation G Financial Reconciliations & Appendix © 2024 Charles River Laboratories International, Inc.

  42. Slide 42: Revenue 2024E FX Rates

    FX Exchange (FX) Impact 2023 2024E (% of total revenue) Revenue FX Rates U.S. Dollar 69% ― Euro 18% 1.10 British Pound 6% 1.28 Chinese Yuan (renminbi) 3% 0.14 Canadian Dollar 2% 0.76 Other currencies 2% ― 42

  43. Slide 43: 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 Twelve Months Ended December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022 Research Models and

  44. Slide 44: 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 Twelve Months Ended December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022 CONTINUED FROM PRE

  45. Slide 45: 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 Twelve Months Ended December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022 Net income attributable to common s

  46. Slide 46: Reconciliation of GAAP Revenue Growth to Non-GAAP Organic Revenue Growth

    CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP REVENUE GROWTH TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1) Three Months Ended December 30, 2023 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported (7.9)% (0.2)% (9.5)% (9.5)% (Increase) decrease due to f

  47. Slide 47: 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 Revenue growth, reported 1.0% – 4.0% Impact of divestitures/(acquisitions), net ~(0.5)% Unfavorable/(favorable)

  48. Slide 48: 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 Twelve Months Ended December 30, 2023 September 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022 Income before income taxes & noncontrol

  49. 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 Twelve Months Ended Fiscal Year Ended December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022 December 28, 2024E GAAP interest expense, net $ 3

  50. Slide 50: 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 Twelve Months Ended Fiscal Year Ended December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022 December 28, 2024E Net cash provided by operating activities

  51. Slide 51: Reconciliation of Gross/Net Leverage Ratio and 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) December 30, 2023 December 31, 2022 December 25, 2021 December 26, 2020 December 28, 2019 December 29, 2018 DE

  52. Slide 52: © 2024 Charles River Laboratories International, Inc.

    © 2024 Charles River Laboratories International, Inc.

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