Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q3 2023 Earnings Presentation
51 slides from Charles River Laboratories International's earnings presentation, Nov 8, 2023
Slide 1: 3Q 2023 Results
3Q 2023 Results November 8, 2023 Charles River Laboratories EVERY STEP OF THE WAY © 2023 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: 3Q23 Financial Performance
3Q23 Financial Performance ($ in millions, except per share amounts) 3Q23 3Q22 YOY Δ Organic Δ Revenue $1,026.6 $989.2 3.8% 4.1% GAAP OM% 14.8% 15.3% (50) bps Non-GAAP OM% 20.5% 20.4% 10 bps GAAP EPS $1.69 $1.88 (10.1)% Non-GAAP EPS $2.72 $2.63 3.4% ▪ Both revenue and non-GAAP EPS exceeded prior out
Slide 4: Monitoring Biopharmaceutical Demand Trends
Monitoring Biopharmaceutical Demand Trends ▪ Believe certain demand trends showed some positive signs, but clients remain cautious with spending ▪ Biopharma continues to reprioritize pipelines, and in some cases, conserve cash or streamline cost structures ▪ Led to a meaningful impact on some of our
Slide 5: Monitoring Biopharmaceutical Demand Trends, cont.
Monitoring Biopharmaceutical Demand Trends, cont. ▪ Internal Indicators ─ In Safety Assessment, there was a sequential improvement in both the study cancellation rate and the net book-to-bill ratio in 3Q23 ▪ External Indicators ─ Stable biotech funding environment • 3Q23 was the second consecutive q
Slide 6: 3Q23 Revenue
3Q23 Revenue ($ in millions) 3Q23 3Q22 YOY Δ Revenue, reported $1,026.6 $989.2 3.8% Unfavorable/(Favorable) impact of FX (1.4)% Contribution from acquisitions (0.2)% Impact of divestitures 1.9% Revenue growth, organic 4.1% ▪ Organic revenue growth was driven by all three business segments, led by a
Slide 7: 3Q23 Revenue by Client Segment
3Q23 Revenue by Client Segment ▪ By client segment, 3Q23 revenue growth driven by solid demand from global biopharma clients and academic institutions ▪ As has been the case throughout 2023, growth rate for small and mid-sized biotech clients slowed as these clients are being more selective with spe
Slide 8: 3Q23 Operating Margin
3Q23 Operating Margin 3Q23 3Q22 YOY Δ GAAP OM% 14.8% 15.3% (50) bps Non-GAAP OM% 20.5% 20.4% 10 bps ▪ Non-GAAP operating margin increase driven primarily by DSA segment, as well as lower unallocated corporate costs ▪ Improvements were largely offset by margin pressure in both RMS and Manufacturing s
Slide 9: 3Q23 EPS
3Q23 EPS 3Q23 3Q22 YOY Δ GAAP EPS $1.69 $1.88 (10.1)% Non-GAAP EPS $2.72 $2.63 3.4% ▪ Non-GAAP EPS exceeded our prior outlook due primarily to top-line performance ▪ In addition, YOY headwind from interest expense is beginning to dissipate 9 EVERY STEP OF THE WAY See ir.criver.com for reconciliation
Slide 10: Updated 2023 Guidance
Updated 2023 Guidance REVISED PRIOR Revenue growth, reported 2.5%-3.5% 2.5%-4.5% Contribution from divestitures/(acquisitions), net ~1.5% ~1.5% Impact of 53rd week in 2022 ~1.5% ~1.5% Unfavorable/(favorable) impact of FX 0.0%-(0.5)% 0.0%-(0.5)% Revenue growth, organic 5.5%-6.5% 5.5%-7.5% GAAP EPS es
Slide 11: Updated 2023 Guidance, cont.
Updated 2023 Guidance, cont. ▪ Tightened our revenue and non-GAAP EPS guidance ranges for FY 2023 as we move into the final quarter of the year ▪ Narrowing our guidance ranges: ─ Organic revenue growth guidance to a range of 5.5%-6.5% ─ Non-GAAP EPS guidance to a range of $10.50-$10.70, which raises
Slide 12: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 3Q23 3Q22 YOY Δ Revenue, reported $664.0 $619.5 7.2% Unfavorable/(Favorable) impact of FX (1.5)% Contribution from acquisitions (0.4)% Revenue growth, organic 5.3% ▪ Safety Assessment (SA) business continued to drive DSA revenue growth, with contributions from b
Slide 13: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ Saw some early signs of more favorable demand trends for SA in 3Q23 ▪ Cancellation rate improved sequentially and was at lowest level since 2Q22 ▪ Net book-to-bill also improved sequentially, but remained below 1x ▪ As a result, DSA backlog declined to $2.6B in
Slide 14: DSA Results – Operating Margin
DSA Results – Operating Margin 3Q23 3Q22 YOY Δ DSA GAAP OM% 22.1% 22.9% (80) bps DSA Non-GAAP OM% 27.2% 26.2% 100 bps ▪ Non-GAAP operating margin increase continued to be driven by leverage associated with higher revenue in SA business 14 EVERY STEP OF THE WAY See ir.criver.com for reconciliations o
Slide 15: Additional NHP Disclosures
Additional NHP Disclosures ▪ Providing additional information on NHP pricing and NHP-related safety assessment studies ▪ Over a three-year period ending in 2023, NHP pricing expected to benefit DSA revenue by a total of >$230M(1), or ~30% of total DSA revenue growth since 2020 ▪ Without impact of NH
Slide 16: Additional NHP Disclosures, cont.
Additional NHP Disclosures, cont. ▪ In 2023, expect to utilize ~11,400 NHPs in safety assessment studies worldwide ▪ Represents a reduction of ~25% vs. FY 2022 ─ Principally driven by current level of biopharma demand; and ─ Also our clients’ focus on post-IND safety assessment work • Generates high
Slide 17: Additional NHP Disclosures, cont.
Additional NHP Disclosures, cont. ▪ One example of our progress is introduction of virtual control groups (VCGs) for toxicology studies ▪ VCGs replace animals in control groups with existing randomized data sets and statistical evaluations ─ It will take some time to adopt, but we are having active
Slide 18: We Are Going to Lead
We Are Going to Lead ▪ With industry at an inflection point, we will reinforce our critical role in preclinical drug development and maintain our leadership position ▪ We will do this by leading with science, remaining committed to our essential mission of creating healthier lives, and ensuring pati
Slide 19: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 3Q23 3Q22 YOY Δ Revenue, reported $186.8 $180.1 3.7% Unfavorable/(Favorable) impact of FX (0.5)% Revenue growth, organic 3.2% ▪ Growth below the YTD, high-single-digit rate for two primary reasons: ─ Slower demand from mid-tier clients, including biotechs and CR
Slide 20: RMS Results – Revenue, cont.
RMS Results – Revenue, cont. ▪ In 3Q23, generated revenue growth in small models and Services businesses ▪ Demand from global biopharma clients and academic institutions remained robust ▪ Offset by mid-tier clients affected by broader biopharma demand environment, as well as softer demand from gover
Slide 21: RMS Results – Operating Margin
RMS Results – Operating Margin 3Q23 3Q22 YOY Δ RMS GAAP OM% 15.2% 19.9% (470) bps RMS Non-GAAP OM% 18.9% 23.5% (460) bps ▪ Operating margin decline driven primarily by business mix, which favored academic clients and IS business ─ Also driven by timing of NHP shipments within China ▪ Expect RMS oper
Slide 22: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 3Q23 3Q22 YOY Δ Revenue, reported $175.7 $189.6 (7.3)% Unfavorable/(Favorable) impact of FX (1.7)% Impact of Avian divestiture 9.9% Revenue growth, organic 0.9% ▪ Segment experiencing softness across broader end markets ─ Attribute this to a post-COVID
Slide 23: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Global biopharma demand environment is affecting Endosafe ® endotoxin testing product line, as clients reduce both testing volumes and investments in new instruments ▪ Our small Microbial operation in China was also affected ─ Like many life science inst
Slide 24: Manufacturing Results – Biologics Testing
Manufacturing Results – Biologics Testing ▪ 3Q23 trends were similar to those experienced since beginning of 2023 ▪ Sector continues to be challenged by tighter funding environment ─ Resulting in clients reprioritizing projects and reducing demand for services that can be conducted at various times
Slide 25: Manufacturing Results – CDMO
Manufacturing Results – CDMO ▪ While not immune to end-market challenges in other Manufacturing businesses, Cell & Gene Therapy (C>) CDMO business had another solid quarter ▪ Strong, double-digit growth rate in 3Q23 reflected success of initiatives the CDMO team has implemented to improve performa
Slide 26: Manufacturing – Operating Margin
Manufacturing – Operating Margin 3Q23 3Q22 YOY Δ Manufacturing GAAP OM% 15.0% 16.6% (160) bps Manufacturing Non-GAAP OM% 24.5% 28.6% (410) bps ▪ Operating margin improved sequentially, as expected ▪ YOY decline reflected lower revenue growth rate and softer demand trends across Manufacturing end mar
Slide 27: Unique and Differentiated Non-Clinical Focus
Unique and Differentiated Non-Clinical Focus ▪ Believe our leading position as an outsourcing partner for our clients’ drug discovery and non-clinical drug development efforts is helping us manage in the current demand environment ▪ IND-enabling and associated non-clinical services that we provide a
Slide 28: 3Q23 Results
3Q23 Results ($ in millions) 3Q23 3Q22 YOY Δ Organic Δ Revenue $1,026.6 $989.2 3.8% 4.1% GAAP OM% 14.8% 15.3% (50) bps Non-GAAP OM% 20.5% 20.4% 10 bps GAAP EPS $1.69 $1.88 (10.1)% Non-GAAP EPS $2.72 $2.63 3.4% ▪ Pleased with 3Q23 results ▪ As expected, increased interest expense, a higher tax rate,
Slide 29: 3Q23 Results / 2023 Guidance
3Q23 Results / 2023 Guidance ▪ 3Q23 results outperformed prior outlook, but continue to remain cautious with regard to the biopharmaceutical end market demand environment ▪ Updated outlook for FY 2023 reflects our normal practice of narrowing our guidance ranges moving into Q4 ▪ Also a shift in the
Slide 30: Narrowed 2023 Guidance
Narrowed 2023 Guidance 2023 Guidance Revenue growth, reported 2.5% - 3.5% Revenue growth, organic 5.5% - 6.5% GAAP EPS $7.30 - $7.50 Non-GAAP EPS $10.50 - $10.70 ▪ Now expect reported and organic revenue growth guidance at the low end to midpoint of prior ranges ─ Expect continued pressure in Manufa
Slide 31: Operating Margin
Operating Margin ▪ Expect consolidated non-GAAP operating margin will be modestly lower than FY 2022 level of 21.0% ▪ Continue to manage the business in a disciplined manner, with a focus on setting achievable financial targets ─ Protecting operating margins by managing costs and driving greater eff
Slide 32: 2023 Segment Revenue Outlook
2023 Segment Revenue Outlook 2023 Reported 2023 Organic Revenue Growth Revenue Growth(1) RMS Mid-to-high-single digits Mid-to-high-single digits DSA Mid-to-high-single digits High-single digits Manufacturing High-single digit decline Flat to low-single-digit growth (reflects Avian Vaccine divestitur
Slide 33: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 3Q23 2Q23 3Q22 GAAP $49.9 $69.9 $58.5 Non-GAAP $48.0 $65.1 $57.5 ▪ Unallocated corporate costs totaled 4.7% of revenue, compared to 5.8% last year ─ Decrease was primarily due to benefits achieved through virtual power purchase agreements (vPPAs) ▪ Cont
Slide 34: Tax Rate
Tax Rate 3Q23 2Q23 3Q22 GAAP 22.0% 22.7% 20.7% Non-GAAP 21.6% 23.3% 20.2% ▪ 3Q23 non-GAAP tax rate represented a 140-bps increase YOY ▪ Higher tax rate YOY due primarily to the geographic mix of earnings ▪ 3Q23 tax rate favorable to expectations principally because of discrete tax benefits related t
Slide 35: Net Interest Expense
Net Interest Expense ($ in millions) 3Q23 2Q23 3Q22 GAAP interest expense, net $32.4 $33.6 $11.3 Non-GAAP interest expense, net $32.4 $33.6 $11.3 Adjustments for foreign exchange forward contract and related interest expense(1) ― ― $16.0 Adjusted net interest expense $32.4 $33.6 $27.3 ▪ 3Q23 adjuste
Slide 36: Cash Flow
Cash Flow ($ in millions) 3Q23 3Q22 2023 Outlook Free cash flow (FCF) $139.5 $60.4 $340-$360 Capex $65.9 $72.4 $330-$340 Depreciation $44.6 $39.1 ~$180 Amortization (1) $34.2 $35.5 $135-$140 ▪ YOY increase in 3Q23 FCF was primarily due to favorable changes in working capital, as well as lower capita
Slide 37: 2023 Updated Guidance Summary
2023 Updated Guidance Summary GAAP Non-GAAP Revenue growth 2.5%-3.5% reported 5.5%-6.5% organic(1) Unallocated corporate ~5% of revenue ~5% of revenue Lower Modestly lower Operating margin vs. 16.4% in 2022 vs. 21.0% in 2022 Net interest expense $131M-$133M $131M-$133M Tax rate ~22.5% ~22.5% EPS $7.
Slide 38: 4Q23 Outlook
4Q23 Outlook 4Q23 Outlook Reported revenue growth YOY Nearly 10% decline Organic revenue growth YOY Mid-single-digit decline Non-GAAP EPS $2.30-$2.50 ▪ 4Q23 outlook is effectively embedded in 2023 guidance ▪ Flattish 2H23 organic revenue growth YOY will be consistent with outlook provided in August
Slide 39: Concluding Remarks
Concluding Remarks ▪ Pleased with solid 3Q23 performance ─ Evidence of the resilience of our business ─ A cautious biopharma spending environment as growth rates normalize to pre- pandemic levels ▪ Will continue to manage our business prudently in response to the challenges we are seeing in the broa
Slide 40: 3Q23 Regulation G Financial Reconciliations
3Q23 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
Slide 41: 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 Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Research Models a
Slide 42: 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 Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 CONTINUED FROM P
Slide 43: Reconciliation of GAAP Earnings to Non-GAAP Earnings
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. (1) RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED) (in thousands, except per share data) Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Net income attributable to common
Slide 44: 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 September 30, 2023 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 3.8 % 3.7 % 7.2 % (7.3)% Increase due to foreign exchan
Slide 45: 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 30, 2023E 2023 GUIDANCE CURRENT PRIOR Revenue growth, reported 2.5% – 3.5% 2.5% – 4.5% Impact of divestitures/(acquisitions), net ~1.5%
Slide 46: Reconciliation of GAAP to Non-GAAP: Unallocated Corporate Overhead
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1) (in thousands, except percentages) Three Months Ended July 1, 2023 Unallocated Corporate Overhead $ (69,914) Add back: Acquisition related adjustments (2) 4,799 Tot
Slide 47: 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 Nine Months Ended September 30, 2023 July 1, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Income before income taxes & noncontrolling
Slide 48: 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 September 30, 2023 July 1, 2023 September 24, 2022 December 30, 2023E GAAP Interest expense, net $ 32,369 $ 33,618 $ 11,253 $131,000-$133,000
Slide 49: 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) September 30, 2023 July 1, 2023 April 1, 2023 December 31, 2022 December 25, 2021 December 26, 2020 December 2
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 Nine Months Ended Fiscal Year Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 December 30, 2023E Net cash provided by operating activitie
Slide 51: Every Step of the Way
EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
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