Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q2 2021 Earnings Presentation
54 slides from Charles River Laboratories International's earnings presentation, Aug 4, 2021
Slide 1: 2Q 2021 Results
2Q 2021 Results August 4, 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: Robust 2Q21 Performance
Robust 2Q21 Performance ▪ Strength of our leading, non-clinical portfolio was clearly demonstrated in 2Q21 performance ▪ Robust industry fundamentals are leading to unprecedented client demand across most of our businesses ▪ Extremely well positioned to succeed in this environment ▪ 2Q21 organic rev
Slide 5: Well Positioned to Meet Client Needs
Well Positioned to Meet Client Needs ▪ Clients are increasingly choosing to partner with CRL for: ─ Flexible and efficient outsourcing solutions ─ Scientific depth and breadth of our portfolio ─ Unwavering focus on flawlessly serving their diverse needs ▪ Utilizing CRL capabilities enables them to d
Slide 6: Execution of Strategy is Key
Execution of Strategy is Key ▪ Due to sustained demand, keenly focused on execution of our strategy, including: ─ Strengthening our portfolio (e.g., acquisition of Vigene Biosciences in late June) ─ Strategically adding staff and capacity to accommodate robust demand and support clients ─ Enhancing
Slide 7: 2Q21 Revenue
2Q21 Revenue ($ in millions) 2Q21 2Q20 YOY Δ Revenue, reported $914.6 $682.6 34.0% (Increase)/decrease due to FX (3.9)% Contribution from acquisitions (6.0)% Revenue growth, organic 24.1% ▪ Quarterly revenue surpassed $900M for first time ▪ Organic revenue growth of 24.1% was increased by 8.0% when
Slide 8: 2Q21 Operating Margin
2Q21 Operating Margin 2Q21 2Q20 YOY Δ GAAP OM% 15.0% 11.2% 380 bps Non-GAAP OM% 20.8% 17.3% 350 bps ▪ Improvement principally driven by RMS, reflecting operating leverage from significantly higher sales volume for research models ─ Due in part to comparison to last year’s COVID-19 impact ▪ Notwithst
Slide 9: 2Q21 EPS
2Q21 EPS 2Q21 2Q20 YOY Δ GAAP EPS $1.72 $1.34 28.4% Non-GAAP EPS $2.61 $1.58 65.2% ▪ Non-GAAP EPS widely exceeded prior outlook of >50% EPS growth for 2Q21 ▪ Primarily as a result of exceptional demand environment 9 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP resu
Slide 10: Increasing 2021 Guidance Including Cognate
Increasing 2021 Guidance Including Cognate CURRENT PRIOR Revenue growth, reported 20.5%-22.5% 19%-21% Contribution from acquisitions ~(5.0%) (4.5%)-(5.0%) Decrease/(Increase) due to FX (~2.5%) (~2.5%) Revenue growth, organic 13%-15% 12%-14% GAAP EPS $6.55-$6.80 $5.95-$6.20 Acquisition-related amorti
Slide 11: Increasing 2021 Guidance
Increasing 2021 Guidance ▪ Based on 2Q21 performance and expectation for sustained demand through remainder of the year, increasing revenue growth and non-GAAP EPS for 2021 ▪ Now expect organic revenue growth in a range of 13% to 15% ─ 100 bps increase from prior range ▪ Non-GAAP EPS expected in a r
Slide 12: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 2Q21 2Q20 YOY Δ Revenue, reported $540.1 $442.6 22.0% (Increase)/decrease due to FX (3.0)% Contribution from acquisitions (0.9)% Revenue growth, organic 18.1% ▪ Revenue growth driven by broad-based demand for both Discovery and Safety Assessment (SA) services ▪
Slide 13: DSA Results - Safety Assessment (SA)
DSA Results - Safety Assessment (SA) ▪ SA business continued to perform exceptionally well, reflecting robust demand from biotech and global biopharma clients and price increases ▪ Bookings and proposal volume continued to achieve record highs in 2Q21, with strength across all regions and major serv
Slide 14: DSA Results – Discovery Services
DSA Results – Discovery Services ▪ Believe combination of robust funding, as well as CRL’s deep scientific expertise and willingness to forge flexible relationships with clients, led to another exceptional quarter for Discovery ▪ Comprehensive portfolio of oncology, CNS, early discovery, and antibod
Slide 15: DSA Results – Operating Margin
DSA Results – Operating Margin 2Q21 2Q20 YOY Δ DSA GAAP OM% 19.4% 16.3% 310 bps DSA Non-GAAP OM% 23.5% 23.2% 30 bps ▪ Leverage from robust DSA revenue growth was primary driver of margin improvement ▪ FX reduced DSA operating margin by 150 bps in 2Q21 because revenue and costs are not naturally hedg
Slide 16: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 2Q21 2Q20 YOY Δ Revenue, reported $176.7 $116.5 51.6% (Increase)/decrease due to FX (5.2)% Contribution from acquisitions (1.9)% Revenue growth, organic 44.5% ▪ ~33.4% of growth was attributable to the comparison to last year’s COVID- related revenue impact from
Slide 17: RMS Results – Research Models
RMS Results – Research Models ▪ Robust demand for research models in China was primary driver of 2Q21 revenue growth ▪ Resurgence in research activity in 2021 led to model volumes far exceeding pre-COVID levels ▪ Similar to Western markets, client base in China has transitioned from one dominated by
Slide 18: RMS Results – Research Models, cont.
RMS Results – Research Models, cont. ▪ Demand for research models outside China was also quite strong ▪ Believe this correlates with increased level of non-clinical research being conducted by biopharma and academic clients in Western markets ▪ Research investments have led to biomedical breakthroug
Slide 19: RMS Results – RM Services
RMS Results – RM Services ▪ RM Services also 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 the proprietary models clients are cr
Slide 20: RMS Results – HemaCare & Cellero
RMS Results – HemaCare & Cellero ▪ Revenue growth for cell supply business improved in 2Q21, but remained below targeted level due to continued limitations on donor access ▪ Believe revenue will increase during 2H21 as donor availability and capacity improve ▪ Have expanded capabilities, including d
Slide 21: RMS Results – Operating Margin
RMS Results – Operating Margin 2Q21 2Q20 YOY Δ RMS GAAP OM% 24.1% 3.3% 2080 bps RMS Non-GAAP OM% 27.4% 9.1% 1830 bps ▪ Significant margin improvement primarily due to comparison to depressed margin in 2Q20 associated with COVID-related client disruptions and corresponding reduction in research model
Slide 22: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 2Q21 2Q20 YOY Δ Revenue, reported $197.8 $123.5 60.2% (Increase)/decrease due to FX (5.4)% Contribution from acquisitions (28.2)% Revenue growth, organic 26.6% ▪ Revenue increase driven by strong, double-digit growth in both Biologics Testing Solutions
Slide 23: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Consistent with 1Q21, Microbial Solutions’ growth rate in 2Q21 was well above the 10% level, reflecting strong demand for: ─ Endosafe® endotoxin testing systems, cartridges, and core reagents in all geographic regions ─ Accugenix® microbial identificatio
Slide 24: Mfg Results – Biologics Testing Solutions
Mfg Results – Biologics Testing Solutions ▪ Biologics Testing Solutions reported another exceptional quarter of strong revenue growth, well above 20% target ▪ Primary growth driver continued to be robust demand for cell and gene therapy testing services ─ Rapid increase in the number of C> program
Slide 25: Manufacturing – Operating Margin
Manufacturing – Operating Margin 2Q21 2Q20 YOY Δ Manufacturing GAAP OM% 28.7% 34.8% (610) bps Manufacturing Non-GAAP OM% 33.2% 37.4% (420) bps ▪ Addition of Cognate CDMO business was primary driver of operating margin decline ▪ Higher production costs in Microbial Solutions also contributed ▪ Cognat
Slide 26: Cognate & Vigene Acquisitions
Cognate & Vigene Acquisitions ▪ Along with HemaCare and Cellero, these businesses form the core of our cell and gene therapy offering ▪ Believe they will be highly complementary to Biologics business and our portfolio as a whole ▪ Pleased with initial progress on integrations ▪ Addition of cell and
Slide 27: Cognate & Vigene Acquisitions, cont.
Cognate & Vigene Acquisitions, cont. ▪ Believe the acquisition of Vigene Biosciences, with its viral vector-based gene delivery solutions, fulfills our objective to create a comprehensive cell and gene therapy portfolio which spans each of the major CDMO platforms: ─ Gene-modified cell therapy ─ Vir
Slide 28: Execution of Strategy is Vital to Success
Execution of Strategy is Vital to Success ▪ As a result of successful execution of our strategy to date, believe our portfolio is the strongest it has ever been ▪ Efforts to enhance scientific capabilities, deliver flexible outsourcing solutions, and provide greater value to clients have made CRL an
Slide 29: 2Q21 Results
2Q21 Results ($ in millions) 2Q21 2Q20 YOY Δ Organic Δ Revenue $914.6 $682.6 34.0% 24.1% GAAP OM% 15.0% 11.2% 380 bps Non-GAAP OM% 20.8% 17.3% 350 bps GAAP EPS $1.72 $1.34 28.4% Non-GAAP EPS $2.61 $1.58 65.2% ▪ Very pleased with another strong performance in 2Q21 ─ Robust revenue and EPS growth outp
Slide 30: Increased 2021 Guidance
Increased 2021 Guidance Current Revenue growth, reported 20.5% - 22.5% Revenue growth, organic 13% - 15% GAAP EPS $6.55 - $6.80 Non-GAAP EPS $10.10 - $10.35 ▪ Based on strong 2Q21 results and expectation for the underlying strength of demand to continue, increased full-year financial guidance ▪ Expe
Slide 31: 2021 Segment Revenue Outlook
2021 Segment Revenue Outlook 2021 Reported 2021 Organic Revenue Growth Revenue Growth RMS Low-20% range High-teens DSA Mid-teens Low-double digits Manufacturing Low- to mid-40% range High-teens Consolidated CRL 20.5% - 22.5% 13% - 15% ▪ Updated segment outlook reflects the strong business environmen
Slide 32: 2021 Segment Revenue Outlook, cont.
2021 Segment Revenue Outlook, cont. ▪ For DSA, outlook is unchanged, with low-double-digit organic revenue growth reflecting continued strength in early-stage research activity ▪ For Manufacturing, now expect high-teens organic revenue growth, based on: ─ Exceptionally strong demand in Biologics, dr
Slide 33: Operating Margin Outlook
Operating Margin Outlook ▪ Expectations for segment contributions remain mostly unchanged from prior outlook ─ RMS operating margin meaningfully above 25% for FY 2021 ─ DSA in the mid-20% range ─ Manufacturing slightly below the prior, mid-30% outlook, principally reflecting the addition of Vigene i
Slide 34: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 2Q21 1Q21 2Q20 GAAP $66.3 $61.6 $42.2 Non-GAAP $51.2 $51.2 $41.8 ▪ Lower unallocated corporate costs (as a % of revenue) contributed to 2Q21 margin expansion, totaling 5.6% of total revenue, compared to 6.1% of revenue last year ─ Scalable infrastructur
Slide 35: Tax Rate
Tax Rate 2Q21 1Q21 2Q20 GAAP 29.5% 3.6% 19.4% Non-GAAP 20.4% 14.5% 21.0% ▪ 2Q21 non-GAAP tax rate declined 60 bps from last year ─ Decrease was due to a favorable excess tax benefit associated with stock-based compensation, which resulted from increased equity exercise and award activity at higher s
Slide 36: Net Interest Expense
Net Interest Expense ($ in millions) 2Q21 1Q21 2Q20 GAAP interest expense, net $16.0 $29.7 $19.1 Non-GAAP interest expense, net $15.9 $3.7 $19.1 Adjustments for foreign exchange forward contract and related interest expense(1) $4.9 $13.4 $— Adjusted net interest expense $20.8 $17.1 $19.1 ▪ Total adj
Slide 37: Capital Structure
Capital Structure ▪ Subsequent to the end of 2Q21, completed the acquisition of Vigene Biosciences on June 28th ▪ Gross leverage ratio remained below 3x on a pro forma basis, including Vigene ─ Attribute this to robust free cash flow generation that enabled debt repayment ahead of expectations ▪ For
Slide 38: Cash Flow
Cash Flow ($ in millions) 2Q21 2Q20 2021 Outlook Free cash flow (FCF) $140.2 $135.5 ~$500 Capex $46.4 $26.8 ~$220 Depreciation $35.1 $29.4 $145-$150 Amortization (1) $33.0 $27.8 ~$130 ▪ Free cash flow increased 3.5% YOY; primary drivers were strong 2Q21 operating performance and distributions from V
Slide 39: 2021 Revised Guidance Summary
2021 Revised Guidance Summary GAAP Non-GAAP Revenue growth 20.5%-22.5% reported 13%-15% 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) $90M-$93M $82M-$85M Tax rate Low-20% range 19
Slide 40: 3Q21 Outlook
3Q21 Outlook 3Q21 Outlook Reported revenue growth YOY Low-20% growth Organic revenue growth YOY Low-to-mid-teens growth Non-GAAP EPS growth YOY Low-double-digit growth vs. 3Q20 ▪ 3Q21 outlook reflects a continuation of the strong demand environment ─ Expect growth rates will normalize from 2Q21 leve
Slide 41: Concluding Remarks
Concluding Remarks ▪ Very pleased with 2Q21 results, which included another quarter of robust revenue, earnings and free cash flow growth ▪ Continue to be focused on continued execution of our strategy and achieving our financial and operational targets, which will move us forward toward our longer-
Slide 42: 2Q21 Regulation G Financial Reconciliations
2Q21 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 Six Months Ended June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Research Models and Services Revenue
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 Six Months Ended June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 CONTINUED FROM PREVIOUS SLIDE Unalloca
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 Six Months Ended June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Net income attributable to common shareholders $ 88,44
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 June 26, 2021 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 34.0 % 51.6 % 22.0 % 60.2 % Decrease (increase) due to forei
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 20.5% – 22.5% 19% – 21% Less: Contribution from acquisitions (1) ~(5.0%)
Slide 48: Reconciliation of GAAP to Non-GAAP: Segment Information 1Q21
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 27, 2021 Unallocated Corporate Overhead $ (61,618) Add back: Severance (151) (2) Acquisition related adj
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 Six Months Ended June 26, 2021 March 27, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Income before income taxes & noncontrolling interests $ 127,49
Slide 50: Reconciliation of GAAP to Non-GAAP Tax Rate Guidance
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. (1) RECONCILIATION OF GAAP TO NON-GAAP TAX RATE GUIDANCE Fiscal Year Ended December 25, 2021E GAAP Tax Rate Low 20% range Charges associated with changes to U.S. and international tax legislation (~2.0%) Non-GAAP Tax Rate 19.5%-20.5% (1) Charles River m
Slide 51: 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 26, 2021 March 27, 2021 June 27, 2020 December 25, 2021E GAAP Interest expense, net $ 16,019 $ 29,684 $ 19,076 $90,000-$93,000 Exclude: W
Slide 52: 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) December 26, December 28, December 29, December 30, December 31, December 26, December 27, December 28, Decemb
Slide 53: Reconciliation of Free Cash Flow
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 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 December 25, 2021E Net cash provided by operating activities $ 186,590 $ 162,306
Slide 54: EVERY STEP OF THE WAY © 2021 Charles River Laboratories International, Inc.
EVERY STEP OF THE WAY © 2021 Charles River Laboratories International, Inc.
Charles River Laboratories International — Q2 2021 Earnings Presentation on 6ix