Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q3 2021 Earnings Presentation
53 slides from Charles River Laboratories International's earnings presentation, Nov 3, 2021
Slide 1: 3Q 2021 Results
3Q 2021 Results November 3, 2021 Charles River Laboratories EVERY STEP OF THE WAY © 2021 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: Assessment of COVID-19 Impact in 2020
Assessment of COVID-19 Impact in 2020 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 an
Slide 4: Well-Positioned to Meet Client Needs
Well-Positioned to Meet Client Needs ▪ Strong 3Q21 results demonstrate effectiveness of our strategy and progress we have made on its execution, as well as sustained strength of industry fundamentals ▪ Believe that CRL is a stronger company today than it has ever been ▪ Believe we will achieve our l
Slide 5: Divestitures of RMS Japan and CDMO Sweden
Divestitures of RMS Japan and CDMO Sweden ▪ In October, divested RMS Japan and CDMO Sweden for ~$115M in total, plus potential contingent payments of up to an additional $25M ▪ Routinely evaluate strategic fit and fundamental performance of our global infrastructure for acquisitions and legacy sites
Slide 6: 3Q21 Revenue
3Q21 Revenue ($ in millions) 3Q21 3Q20 YOY Δ Revenue, reported $895.9 $743.3 20.5% (Increase)/decrease due to FX (1.0)% Contribution from acquisitions (5.9)% Revenue growth, organic 13.6% ▪ Last year’s COVID-19 impact increased 3Q21 organic revenue growth by a modest 170 bps ▪ From a client perspect
Slide 7: 3Q21 Operating Margin
3Q21 Operating Margin 3Q21 3Q20 YOY Δ GAAP OM% 17.4% 17.9% (50) bps Non-GAAP OM% 21.4% 22.7% (130) bps ▪ As anticipated, 3Q21 non-GAAP decline principally driven by comparison to 3Q20, which benefited from COVID-19 cost controls ─ Also reflects impact of Cognate and Vigene acquisitions on Manufactur
Slide 8: 3Q21 EPS
3Q21 EPS 3Q21 3Q20 YOY Δ GAAP EPS $2.01 $2.03 (1.0)% Non-GAAP EPS $2.70 $2.33 15.9% ▪ Non-GAAP EPS was favorable to prior outlook due in large part to a lower- than-expected tax rate 8 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP results.
Slide 9: Updating 2021 Guidance
Updating 2021 Guidance CURRENT PRIOR Revenue growth, reported 19.5%-20.5% 20.5%-22.5% Contribution from acquisitions ~(4.0%)-(4.5%) ~(5.0%) Decrease/(Increase) due to FX (1.5%)-(2.0%) (~2.5%) Revenue growth, organic 13.5%-14.5% 13%-15% GAAP EPS $7.05-$7.15 $6.55-$6.80 Acquisition-related amortizatio
Slide 10: Updating 2021 Guidance, cont.
Updating 2021 Guidance, cont. ▪ With sustained strength of demand environment, revised guidance based on three primary factors: ─ Unfavorable movements in FX ─ Lower tax rate ─ Divestitures of RMS Japan and CDMO Sweden ▪ Reported revenue growth lowered by ~150 bps at midpoint, to 19.5%-20.5%, primar
Slide 11: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 3Q21 3Q20 YOY Δ Revenue, reported $531.8 $461.2 15.3% (Increase)/decrease due to FX (0.9)% Contribution from acquisitions (1.4)% Revenue growth, organic 13.0% ▪ Driven by strength in both Safety Assessment, including lab sciences and bioanalytical services, and
Slide 12: DSA Results – Revenue, cont.
DSA Results – Revenue, cont. ▪ Demand for services and price increases are driving low-double-digit DSA organic growth, which is expected to continue into next year ▪ Biotech clients leveraging our expertise rather than investing in internal capabilities and global biopharma choosing to partner with
Slide 13: DSA Results - Safety Assessment (SA)
DSA Results - Safety Assessment (SA) ▪ SA business continued to perform very well, with bookings and proposal volume tracking at record levels ▪ As mentioned this year, clients are choosing to book safety assessment studies further in advance ─ Enhances their ability to start working with us as soon
Slide 14: DSA Results – Discovery Services
DSA Results – Discovery Services ▪ Discovery had a strong quarter, driven by our comprehensive portfolio of oncology, CNS, early discovery, and antibody discovery capabilities ▪ Biotech clients continue to invest in their pipelines instead of infrastructure and utilize CRL’s integrated services to m
Slide 15: DSA Results – Operating Margin
DSA Results – Operating Margin 3Q21 3Q20 YOY Δ DSA GAAP OM% 21.9% 19.6% 230 bps DSA Non-GAAP OM% 24.3% 25.2% (90) bps ▪ Non-GAAP operating margin YOY decline was primarily due to: ▪ FX, which reduced margin by ~70 bps ▪ Discovery milestone payment, which contributed 50 bps to 3Q20 operating margin ▪
Slide 16: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 3Q21 3Q20 YOY Δ Revenue, reported $171.3 $151.9 12.7% (Increase)/decrease due to FX (1.4)% Contribution from acquisitions (0.6)% Revenue growth, organic 10.7% ▪ ~200 bps of growth attributable to the comparison to last year’s COVID- related revenue impact ▪ Perf
Slide 17: RMS Results – Research Models
RMS Results – Research Models ▪ Research models continued to experience strong, double-digit growth in China, as well as solid performance in North America ─ Believe demand correlates with increased level of non-clinical research activity being conducted by biopharma and academic clients ▪ Believe g
Slide 18: RMS Results – RM Services
RMS Results – RM Services ▪ RM Services performed very well ▪ GEMS benefited from strong outsourcing demand as clients seek greater flexibility and efficiency gained when CRL manages their proprietary colonies ▪ Greater complexity of scientific research and proprietary models clients are creating fu
Slide 19: RMS Results – Cell Supply
RMS Results – Cell Supply ▪ Cell supply business (HemaCare and Cellero) continues to be affected by limitations on donor availability ─ Not fully recovered from last year’s COVID-related restrictions ▪ Implemented several improvement initiatives, including expansion of donor capacity across multiple
Slide 20: RMS Results – Operating Margin
RMS Results – Operating Margin 3Q21 3Q20 YOY Δ RMS GAAP OM% 22.8% 24.4% (160) bps RMS Non-GAAP OM% 26.1% 27.7% (160) bps ▪ Margin decrease due primarily to cell supply business ▪ Like many CRL businesses, cell supply is leveraged to sales volume ▪ Expect profitability will meaningfully improve once
Slide 21: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 3Q21 3Q20 YOY Δ Revenue, reported $192.9 $130.2 48.1% (Increase)/decrease due to FX (1.1)% Contribution from acquisitions (27.9)% Revenue growth, organic 19.1% ▪ Revenue increase driven by continued, strong double-digit growth in both Biologics Testing
Slide 22: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions’ 3Q21 growth rate remained well above the 10% level, reflecting strong demand across our portfolio of critical quality-control testing solutions ▪ Pleased with strength of underlying demand for endotoxin testing systems and cartridges
Slide 23: Mfg. Results – Biologics Testing Solutions
Mfg. Results – Biologics Testing Solutions ▪ Biologics Testing Solutions reported another exceptional quarter of strong, double-digit revenue growth ▪ Robust demand for cell and gene therapy testing services continued to be primary growth driver ▪ COVID-19 vaccines and traditional biologics were als
Slide 24: Cell and Gene Therapy (C>) CDMO Business
Cell and Gene Therapy (C>) CDMO Business ▪ 3Q21 was the first full quarter that Cognate and Vigene were part of CRL ▪ As anticipated when we acquired Cognate, a large COVID-related project was completed in 2Q21 ─ Actively adding new projects in its place ▪ Continue to make great progress on integr
Slide 25: Divestiture of CDMO Sweden
Divestiture of CDMO Sweden ▪ As mentioned, decision to divest CDMO site in Sweden was based on several factors: ─ Capabilities, including plasmid DNA, already duplicated at our CDMO sites in the UK and US ─ Determined it would be advantageous to invest in and expand capacity at our other CDMO “hubs”
Slide 26: Manufacturing – Operating Margin
Manufacturing – Operating Margin 3Q21 3Q20 YOY Δ Manufacturing GAAP OM% 25.2% 37.1% (1190) bps Manufacturing Non-GAAP OM% 32.7% 39.1% (640) bps ▪ Primary driver of operating margin decline was inclusion of Cognate and Vigene for the full quarter ─ CDMO business is profitable, but margins are below t
Slide 27: Robust Business Environment & Biotech Funding
Robust Business Environment & Biotech Funding ▪ Operating in a robust business environment with excellent growth potential ▪ Biotech funding in 2021 continuing to track at or above robust, pre-COVID levels ▪ Sustained funding environment, both from capital markets and the biopharma industry, and bio
Slide 28: Execution of Strategy is Vital to Success
Execution of Strategy is Vital to Success ▪ To continue to successfully execute our strategy to maintain and enhance CRL’s position as the leading, non-clinical CRO and accommodate our clients’ growing needs, it is essential that we continue to: ─ Make investments in scientific capabilities through
Slide 29: Execution of Strategy is Vital to Success, cont.
Execution of Strategy is Vital to Success, cont. ▪ For a business like CRL, staffing is a consistent challenge, which we have placed a disproportionate focus ▪ Believe we are effectively managing staffing levels, including increased costs ▪ Will continue to be thoughtful with respect to compensation
Slide 30: 3Q21 Results
3Q21 Results ($ in millions) 3Q21 3Q20 YOY Δ Organic Δ Revenue $895.9 $743.3 20.5% 13.6% GAAP OM% 17.4% 17.9% (50) bps Non-GAAP OM% 21.4% 22.7% (130) bps GAAP EPS $2.01 $2.03 (1.0)% Non-GAAP EPS $2.70 $2.33 15.9% ▪ Pleased with our strong 3Q21 results ▪ 3Q21 non-GAAP operating margin of 21.4% was lo
Slide 31: 3Q21 Results, cont.
3Q21 Results, cont. ▪ In addition to the COVID cost controls last year and the C> CDMO acquisitions this year, 3Q21 operating margin lower than last year’s robust, 22.7% level because of: ─ FX headwind ─ Last year’s Discovery milestone payment in 3Q20 ▪ Although cost inflation and supply chain pre
Slide 32: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 3Q21 2Q21 3Q20 GAAP $48.4 $66.3 $42.9 Non-GAAP $45.0 $51.2 $40.7 ▪ Lower non-GAAP unallocated corporate costs contributed to 3Q21 operating margin, at 5.0% of revenue, compared to 5.5% of revenue last year ▪ Corporate costs are non-linear, fluctuating f
Slide 33: Tax Rate
Tax Rate 3Q21 2Q21 3Q20 GAAP 14.7% 29.5% 24.1% Non-GAAP 17.0% 20.4% 21.9% ▪ 3Q21 non-GAAP tax rate was 17.0%, representing a 490-bps decrease from 3Q20 ▪ Lower tax rate was due primarily to: ─ Discrete tax benefits associated with R&D tax credits ─ A favorable excess tax benefit related to stock-bas
Slide 34: Net Interest Expense
Net Interest Expense ($ in millions) 3Q21 2Q21 3Q20 GAAP interest expense, net $16.3 $16.0 $18.7 Non-GAAP interest expense, net $16.3 $15.9 $18.7 Adjustments for foreign exchange forward contract and related interest expense(1) $4.4 $4.9 $— Adjusted net interest expense $20.7 $20.8 $18.7 ▪ Non-GAAP
Slide 35: Cash Flow
Cash Flow ($ in millions) 3Q21 3Q20 2021 Outlook Free cash flow (FCF) $119.2 $151.1 ~$500 Capex $55.5 $26.2 ~$220 Depreciation $35.8 $31.4 ~$145 Amortization (1) $32.9 $28.2 ~$125 ▪ Lower 3Q21 FCF primarily due to higher capex, as a result of: ─ Continued investments in capacity additions and other
Slide 36: Updating 2021 Guidance
Updating 2021 Guidance Current Prior Revenue growth, reported 19.5% - 20.5% 20.5% - 22.5% Revenue growth, organic 13.5% - 14.5% 13% - 15% GAAP EPS $7.05 - $7.15 $6.55 - $6.80 Non-GAAP EPS $10.20 - $10.30 $10.10 - $10.35 ▪ Updating FY 2021 revenue growth outlook, reflecting the impact of the divestit
Slide 37: Updating 2021 Guidance (cont.)
Updating 2021 Guidance (cont.) ▪ FX now expected to be less of a benefit than previously anticipated due to strengthening of U.S. dollar over the last three months, compared to British pound and Euro ─ Now expect 150- to 200-bps benefit for FY 2021, compared to prior outlook of ~250 bps ─ Strength o
Slide 38: 2021 Segment Revenue Outlook
2021 Segment Revenue Outlook 2021 Reported 2021 Organic Revenue Growth Revenue Growth RMS High teens High teens DSA Mid teens Low-double digits Manufacturing Low-40% range High teens Consolidated CRL 19.5%-20.5% 13.5%-14.5% ▪ Updated outlook continues to reflect sustained and healthy business enviro
Slide 39: 2021 Updated Guidance Summary
2021 Updated Guidance Summary GAAP Non-GAAP Revenue growth 19.5%-20.5% reported 13.5-14.5% organic(1) Operating margin Above 2020 level Approximately 21% ~6% Mid-5% range Unallocated corporate as a % of revenue as a % of revenue Net interest expense (total) $83M-$85M $80M-$82M Tax rate 18%-19% 18%-1
Slide 40: 4Q21 Outlook
4Q21 Outlook 4Q21 Outlook Reported revenue growth YOY Low-double-digit growth Organic revenue growth YOY High-single-digit growth Non-GAAP EPS growth YOY Flat to low-single-digit increase vs. 4Q20 ▪ With one quarter remaining, 4Q21 outlook is effectively embedded in guidance for FY 2021 ▪ YOY compar
Slide 41: Concluding Remarks
Concluding Remarks ▪ Next year will add a 53rd week at the end of 4Q22, periodically required to true up our fiscal year to a December 31st calendar year end ▪ 53rd week historically characterized as a partial week of revenue, since it occurs during the holidays, but a full week of costs ▪ Intend to
Slide 42: 3Q21 Regulation G Financial Reconciliations
3Q21 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2021 Charles River Laboratories International, Inc.
Slide 43: Reconciliation of GAAP to Non-GAAP: 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 Nine Months Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Research Models
Slide 44: 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) Three Months Ended Nine Months Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 CONTINUED FROM PR
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 Nine Months Ended September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Net income attributable to common
Slide 46: Reconciliation of GAAP Revenue Growth to Non-GAAP Organic
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP REVENUE GROWTH (1) TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) 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
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 25, 2021E 2021 GUIDANCE CURRENT PRIOR Revenue growth, reported 19.5% – 20.5% 20.5% – 22.5% Less: Contribution from acquisitions/ (4.0%)
Slide 48: 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 June 26, 2021 Unallocated Corporate Overhead $ (66,261) Add back: Acquisition related adjustments (2) 15,064 O
Slide 49: 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 25, 2021 June 26, 2021 September 26, 2020 September 25, 2021 September 26, 2020 Income before income taxes & noncontrollin
Slide 50: 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 25, 2021 June 26, 2021 September 26, 2020 December 25, 2021E GAAP Interest expense, net $ 16,318 $ 16,019 $ 18,688 $83,000-$85,000 E
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) September 25, December 26, December 28, December 29, December 30, December 31, December 26, December 27, Decem
Slide 52: Reconciliation of Free Cash Flow
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 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020 December 25, 2021E Net cash provided by operating activitie
Slide 53: EVERY STEP OF THE WAY © 2021 Charles River Laboratories International, Inc.
EVERY STEP OF THE WAY © 2021 Charles River Laboratories International, Inc.
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