Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q1 2022 Earnings Presentation
53 slides from Charles River Laboratories International's earnings presentation, May 4, 2022
Slide 1: 1Q 2022 Results
1Q 2022 Results May 4, 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: Solid Financial Results
Solid Financial Results ($ in millions) 1Q22 1Q21 YOY Δ Organic Δ Revenue $913.9 $824.6 10.8% 9.4% GAAP OM% 16.3% 15.0% 130 bps Non-GAAP OM% 21.4% 20.7% 70 bps GAAP EPS $1.81 $1.20 50.8% Non-GAAP EPS $2.75 $2.53 8.7% ▪ Solid 1Q22 results precisely in line with our expectations ─ Organic revenue grow
Slide 4: Strength of Biopharma Market Environment
Strength of Biopharma Market Environment ▪ Continue to benefit from strong, sustained business trends, particularly in Safety Assessment (SA) ─ SA is CRL’s largest business, representing ~half of total revenue ─ Booking work well into 2023 ─ >$1B of DSA backlog already booked for next year ─ Continu
Slide 5: Biopharma Client Base Remains Well Funded
Biopharma Client Base Remains Well Funded ▪ Client base is well funded, both large and small clients ▪ Clients are continuing to spend at the rate that we anticipated and move their non- clinical development programs forward ─ Based on daily conversations with our clients and key performance indicat
Slide 6: Balanced Sources of Biotech Funding
Balanced Sources of Biotech Funding ▪ Biotech industry is more critical to biomedical innovation than ever ▪ Clients are generally unaffected by recent headlines related to public biotech financing ▪ Beyond the public markets, we believe that broader, balanced sources of funding will enable biotechs
Slide 7: Managing Well in Today's Business Environment
Managing Well in Today’s Business Environment ▪ Taken action in recent years to add staff, capacity, scientific capabilities, and secure resources to accommodate client demand and provide them with exceptional service ▪ Efforts have intensified recently in order to support robust growth that we are
Slide 8: 1Q22 Revenue
1Q22 Revenue ($ in millions) 1Q22 1Q21 YOY Δ Revenue, reported $913.9 $824.6 10.8% (Increase)/decrease due to FX 1.7% Contribution from acquisitions (4.7)% Impact of divestitures 1.6% Revenue growth, organic 9.4% ▪ Solid performance from all three business segments was in line with the outlook provi
Slide 9: 1Q22 Operating Margin
1Q22 Operating Margin 1Q22 1Q21 YOY Δ GAAP OM% 16.3% 15.0% 130 bps Non-GAAP OM% 21.4% 20.7% 70 bps ▪ Non-GAAP improvement driven by RMS segment, as well as lower unallocated corporate costs 9 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP results.
Slide 10: 1Q22 EPS
1Q22 EPS 1Q22 1Q21 YOY Δ GAAP EPS $1.81 $1.20 50.8% Non-GAAP EPS $2.75 $2.53 8.7% ▪ Strong, mid-teens non-GAAP operating income growth was partially offset by higher tax rate and interest expense compared to 1Q21 10 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP resu
Slide 11: Updated 2022 Guidance
Updated 2022 Guidance REVISED PRIOR Revenue growth, reported 13.5%-15.5% 13.0%-15.0% Contribution from acquisitions/divestitures, net ~(1.0)% --- Impact of 53rd week in 2022 ~(1.5)% ~(1.5)% (Increase)/Decrease due to FX ~1.5% ~1.0% Revenue growth, organic 12.5%-14.5% 12.5%-14.5% GAAP EPS $8.70-$8.95
Slide 12: Updating 2022 Guidance, cont.
Updating 2022 Guidance, cont. ▪ Based on 1Q22 performance and expectation that robust business trends will continue throughout the year, maintaining organic revenue growth and non-GAAP EPS guidance ▪ Guidance incorporates two unfavorable changes to below-the-line items since the beginning of the yea
Slide 13: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 1Q22 1Q21 YOY Δ Revenue, reported $544.3 $501.2 8.6% (Increase)/decrease due to FX 1.6% Contribution from acquisitions (0.7)% Revenue growth, organic 9.5% ▪ As expected, DSA organic revenue growth rate improved by nearly 300 bps from the 4Q21 level, driven by Sa
Slide 14: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ SA business continued to benefit from strong business trends, as higher pricing and increased demand drove growth ▪ Pleased with sequential improvement in SA growth rate and expect continued growth acceleration during the year ▪ Supported by robust booking and
Slide 15: DSA Results - Safety Assessment (SA), cont.
DSA Results - Safety Assessment (SA), cont. ▪ Capacity is well utilized—both in terms of infrastructure and people—and we are continuing to add necessary staff and space to accommodate robust demand trends ▪ Hired a significant number of safety assessment staff in 2H21 and hiring continued in 1Q22 ▪
Slide 16: SA Client Reserving Space in Advance
SA Client Reserving Space in Advance ▪ Clients are accepting longer lead times required to start some of their studies ─ Necessitating that they book project further in advance to ensure they do not delay their drug development ▪ Many clients exploring new, creative relationships to secure space wit
Slide 17: DSA Results – Discovery Services
DSA Results – Discovery Services ▪ Revenue growth rate increased in 1Q22, but at a rate below its recent low-double-digit trend ─ Largely the result of a difficult comparison to strong 1Q21, which included milestone payments and some COVID-related work ▪ Integrated discovery portfolio continues to r
Slide 18: DSA Results – Operating Margin
DSA Results – Operating Margin 1Q22 1Q21 YOY Δ DSA GAAP OM% 19.3% 18.1% 120 bps DSA Non-GAAP OM% 22.9% 23.8% (90) bps ▪ Non-GAAP operating margin YOY decline was primarily due to higher staffing costs ▪ View this largely as a timing issue, given the significant number of new hires and wage environme
Slide 19: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 1Q22 1Q21 YOY Δ Revenue, reported $176.5 $176.9 (0.2)% (Increase)/decrease due to FX 1.2% Impact of divestitures 7.7% Revenue growth, organic 8.7% ▪ Organic growth rate was in line with high-single-digit outlook for the year 19 EVERY STEP OF THE WAY See ir.crive
Slide 20: RMS Results – Research Models
RMS Results – Research Models ▪ Organic revenue growth driven by broad-based demand and meaningful price increases in the research models business ─ Particularly in North America which performed very well ▪ China also continued to perform well, but growth rate was impacted by comparison to the excep
Slide 21: RMS Results – RM Services & CRADL/Explora
RMS Results – RM Services & CRADL™/Explora ▪ RM Service was a significant contributor to segment growth, led by Insourcing Solutions (IS) ▪ CRADL™ initiative (part of IS business) has further accelerated the growth potential for the RMS segment, as both small and large biopharma clients increasingly
Slide 22: RMS Results – CRADL/Explora, cont.
RMS Results – CRADL™/Explora, cont. ▪ Greater value proposition is that clients utilizing CRADL™ or Explora will be able to easily access additional services across our comprehensive discovery and non-clinical development portfolio ─ Providing CRL a new and unique pathway to connect with clients at
Slide 23: RMS Results – Operating Margin
RMS Results – Operating Margin 1Q22 1Q21 YOY Δ RMS GAAP OM% 27.1% 25.4% 170 bps RMS Non-GAAP OM% 29.9% 28.7% 120 bps ▪ Margin increase due primarily to leverage from robust sales of research models ▪ RMS operating margin expansion will be limited for remainder of 2022 due to Explora BioLabs acquisit
Slide 24: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 1Q22 1Q21 YOY Δ Revenue, reported $193.1 $146.5 31.8% (Increase)/decrease due to FX 2.7% Contribution from acquisitions (24.4)% Revenue growth, organic 10.1% ▪ Biologics Testing Solutions (Biologics Testing) was primary driver of revenue growth ─ Conti
Slide 25: Mfg. Results – Biologics Testing Solutions
Mfg. Results – Biologics Testing Solutions ▪ Demand for Biologics Testing Solutions services associated with cell and gene therapies and other complex biologics continues to be robust ─ Confident these will continue to be significant growth drivers ─ Even as COVID-related vaccine testing settles int
Slide 26: Mfg. Results – Cell and Gene Therapy CDMO
Mfg. Results – Cell and Gene Therapy CDMO ▪ CDMO had a good 1Q22 and continued to make excellent progress on integration efforts ▪ Gene-modified cell therapy production business has gained traction and generated strong growth in 1Q22 ─ Continues to be one of the leaders in this emerging space ▪ Bene
Slide 27: Manufacturing – Operating Margin
Manufacturing – Operating Margin 1Q22 1Q21 YOY Δ Manufacturing GAAP OM% 24.0% 33.8% (980) bps Manufacturing Non-GAAP OM% 33.1% 35.5% (240) bps ▪ Inclusion of Cognate and Vigene businesses were the primary driver of operating margin decline in 1Q22 ─ CDMO margins are below the overall Manufacturing s
Slide 28: Conclusion
Conclusion ▪ We are operating in a robust business environment that gives us excellent growth potential ▪ Believe we have the best visibility that we have ever had with an average of 12 to 18 months of backlog in our largest business, Safety Assessment ▪ Have the capacity and the people in place to
Slide 29: CFO Transition Plan Update
CFO Transition Plan Update ▪ Flavia Pease joined CRL on April 25th as Executive VP and will become the next CFO ▪ Replacing current EVP & CFO David Smith, who announced plans to retire last January ▪ Thanks to David for his dedicated service to CRL and a remarkable career ─ Instrumental in CRL’s gro
Slide 30: CFO Transition Plan Update, cont.
CFO Transition Plan Update, cont. ▪ Flavia Pease will assume the role of CFO when David transitions to new role ▪ Flavia is a highly regarded financial leader with >20 years of financial leadership experience at Johnson & Johnson ▪ Her deep biopharmaceutical industry knowledge and experience managin
Slide 31: 1Q22 Results
1Q22 Results ($ in millions) 1Q22 1Q21 YOY Δ Organic Δ Revenue $913.9 $824.6 10.8% 9.4% GAAP OM% 16.3% 15.0% 130 bps Non-GAAP OM% 21.4% 20.7% 70 bps GAAP EPS $1.81 $1.20 50.8% Non-GAAP EPS $2.75 $2.53 8.7% ▪ Pleased with 1Q22 performance, which included revenue and non-GAAP EPS growth in line with F
Slide 32: Updated 2022 Guidance
Updated 2022 Guidance 2022 Guidance Revenue growth, reported 13.5% - 15.5% Revenue growth, organic 12.5% - 14.5% GAAP EPS $8.70 - $8.95 Non-GAAP EPS $11.50 - $11.75 ▪ Reaffirmed organic revenue growth and non-GAAP EPS guidance for 2022 ▪ Non-GAAP EPS guidance has effectively absorbed higher-than-exp
Slide 33: Tax Rate
Tax Rate 1Q22 4Q21 1Q21 GAAP 14.1% 14.6% 3.6% Non-GAAP 16.8% 23.3% 14.5% ▪ Expect slightly higher tax rate in 2022 because of lower stock price during 1Q22 resulted in lower excess tax benefit associated with stock-based compensation ─ 1Q22 non-GAAP tax rate of 16.8% increased 230 bps YOY and above
Slide 34: Net Interest Expense
Net Interest Expense ($ in millions) 1Q22 4Q21 1Q21 GAAP interest expense, net $9.3 $11.2 $29.7 Non-GAAP interest expense, net $9.3 $11.2 $3.7 Adjustments for foreign exchange forward contract and related interest expense(1) $11.1 $9.2 $13.4 Adjusted net interest expense $20.4 $20.4 $17.1 ▪ Expect a
Slide 35: Capital Priorities
Capital Priorities ▪ At the end of 1Q22, total outstanding debt was $2.7B, equating to a gross leverage ratio of 2.5x and a net leverage ratio of 2.4x ▪ As planned, the Explora acquisition was financed through our revolving credit facility ─ Leverage remains below 3x pro forma for the transaction ▪
Slide 36: 2022 Segment Revenue Outlook
2022 Segment Revenue Outlook 2022 Reported 2022 Organic Revenue Growth Revenue Growth(1) RMS High-single digits High-single digits DSA Mid-teens Mid-teens Manufacturing Mid- to high-teens Mid-teens Consolidated CRL 13.5%-15.5% 12.5%-14.5% ▪ 2022 segment organic revenue growth outlook remains unchang
Slide 37: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 1Q22 4Q21 1Q21 GAAP $50.5 $54.0 $61.6 Non-GAAP $45.3 $52.4 $51.2 ▪ Lower non-GAAP unallocated corporate costs totaling 5.0% of total revenue contributed to 1Q22 operating margin improvement ▪ Compared to 6.2% of revenue last year, the decrease was drive
Slide 38: Cash Flow
Cash Flow ($ in millions) 1Q22 1Q21 2022 Outlook Free cash flow (FCF) $22.2 $142.2 ~$450 Capital expenditures $80.5 $28.0 ~$360 Depreciation $37.3 $32.7 $160-$165 Amortization $38.0 $28.8 $150-$155 ▪ YOY decrease of $120M in 1Q22 FCF vs. the prior year primarily due to: ─ Planned increase in capex p
Slide 39: 2022 Updated Guidance Summary
2022 Updated Guidance Summary GAAP Non-GAAP Revenue growth 13.5%-15.5% reported 12.5%-14.5% organic(1) Improvement Modest improvement Operating margin from 16.7% in 2021 from 21.0% in 2021 Mid-5% range Mid-5% range Unallocated corporate as a % of revenue as a % of revenue Net interest expense $87M-$
Slide 40: 2Q22 Outlook
2Q22 Outlook 2Q22 Outlook Reported revenue growth YOY Low-double-digit growth vs. 2Q21 Organic revenue growth YOY Low-double-digit growth vs. 2Q21 Non-GAAP EPS growth YOY Mid- to high-single-digit growth vs. 2Q21 ▪ 2Q22 outlook reflects a continuation of strong business trends and for the revenue gr
Slide 41: Concluding Remarks
Concluding Remarks ▪ Pleased with 1Q22 financial performance and confident about our growth prospects for remainder of the year ▪ Given the strong DSA business development activity, order book firmly supports FY 2022 financial guidance ─ Including DSA organic growth approaching 20% in 2H22 ▪ David S
Slide 42: 1Q22 Regulation G Financial Reconciliations
1Q22 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2022 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 SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1) (in thousands, except percentages) Three Months Ended March 26, 2022 March 27, 2021 Research Models and Services Revenue $ 176,542 $ 176,910 Operating income 47,882
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 March 26, 2022 March 27, 2021 CONTINUED FROM PREVIOUS SLIDE Unallocated Corporate Overhead $ (50,458) $ (61,61
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 March 26, 2022 March 27, 2021 Net income attributable to common shareholders $ 93,022 $ 61,530 Add back: Non-GAAP adjustments t
Slide 46: 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 March 26, 2022 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 10.8 % (0.2)% 8.6 % 31.8 % 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 31, 2022E 2022 GUIDANCE CURRENT PRIOR Revenue growth, reported 13.5% – 15.5% 13.0% – 15.0% Less: Contribution from acquisitions/divesti
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 March 26, 2022 December 25, 2021 March 27, 2021 Income before income taxes & noncontrolling interests $ 110,846 $ 163,642 $ 66,302 Add back: Amortizat
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 March 26, 2022 December 25, 2021 March 27, 2021 December 31, 2022E GAAP Interest expense, net $ 9,307 $ 11,237 $ 29,684 $87,000-$91,000 Exclud
Slide 50: 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) March 26, December 25, December 26, December 28, December 29, December 30, December 31, December 26, December
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) Three Months Ended December 25, 2021 Unallocated Corporate Overhead $ (54,021) Add back: Severance 224 Acquisition related adjustments (2) 1,343 Othe
Slide 52: 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 Fiscal Year Ended March 26, 2022 March 27, 2021 December 31, 2022E Net cash provided by operating activities $ 102,630 $ 170,229 ~$810,000 Less: Capital expenditures (80,4
Slide 53: EVERY STEP OF THE WAY © 2022 Charles River Laboratories International, Inc.
EVERY STEP OF THE WAY © 2022 Charles River Laboratories International, Inc.
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