Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q1 2023 Earnings Presentation
54 slides from Charles River Laboratories International's earnings presentation, May 11, 2023
Slide 1: 1Q 2023 Results
1Q 2023 Results May 11, 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: 1Q23 Financial Performance
1Q23 Financial Performance ($ in millions, except per share amounts) 1Q23 1Q22 YOY Δ Organic Δ Revenue $1,029.4 $913.9 12.6% 15.4% GAAP OM% 16.3% 16.3% --- Non-GAAP OM% 21.2% 21.4% (20) bps GAAP EPS $2.01 $1.81 11.0% Non-GAAP EPS $2.78 $2.75 1.1% ▪ Strong start to 2023, with organic revenue growth o
Slide 4: 1Q23 Financial Performance, cont.
1Q23 Financial Performance, cont. ▪ Year began with continuation of strong demand and pricing for DSA we experienced through end of 2022 ▪ DSA environment was expected based on strength of backlog, which supports more than a year of DSA revenue ▪ Clients continue to choose to partner with CRL for: ─
Slide 5: Current Trends Firmly Support 2023 Guidance
Current Trends Firmly Support 2023 Guidance ▪ Biopharma end market seems slightly less robust than 2022, which was anticipated and factored into initial guidance in February ▪ Clients appeared to be more thoughtful about spending and have prioritized programs at beginning of the year ▪ Not surprisin
Slide 6: NHP Supply Update
NHP Supply Update ▪ As previously stated, suspended shipments of Cambodian NHPs into the US last February ▪ Took the action so that we could develop and implement new testing procedures that would reinforce confidence that NHPs imported from Cambodia are purpose bred ▪ Have made advancements towards
Slide 7: NHP Supply Update, cont.
NHP Supply Update, cont. ▪ Believe efforts will mitigate some of the NHP supply impact expected in 2H23 ▪ Affords greater confidence in 2023 guidance ▪ Wider guidance range continues to accommodate a number of scenarios related to success of mitigation efforts ─ Since plans have not yet been fully i
Slide 8: 1Q23 Revenue
1Q23 Revenue ($ in millions) 1Q23 1Q22 YOY Δ Revenue, reported $1,029.4 $913.9 12.6% Unfavorable/(Favorable) impact of FX 2.1% Contribution from acquisitions (1.8)% Impact of divestitures 2.5% Revenue growth, organic 15.4% ▪ Organic revenue growth of 15.4% driven by robust DSA performance and solid
Slide 9: 1Q23 Operating Margin
1Q23 Operating Margin 1Q23 1Q22 YOY Δ GAAP OM% 16.3% 16.3% --- Non-GAAP OM% 21.2% 21.4% (20) bps ▪ Decline driven by Manufacturing and RMS segments 9 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP results.
Slide 10: 1Q23 EPS
1Q23 EPS 1Q23 1Q22 YOY Δ GAAP EPS $2.01 $1.81 11.0% Non-GAAP EPS $2.78 $2.75 1.1% ▪ Strong, low-double-digit operating income growth mostly offset by increased interest expense and higher tax rate compared to 2022, as well as impact of Avian Vaccine divestiture 10 EVERY STEP OF THE WAY See ir.criver
Slide 11: Updated 2023 Guidance
Updated 2023 Guidance REVISED PRIOR Revenue growth, reported 2.0%-4.5% 1.5%-4.5% Contribution from acquisitions/divestitures, 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 5.0%-7.5% 4.5%-7.5% GAAP EPS $7.4
Slide 12: Updated 2023 Guidance, cont.
Updated 2023 Guidance, cont. ▪ Based on strong 1Q23 performance and expectations for remainder of 2023—which remain largely consistent with initial outlook—narrowing 2023 guidance: ─ Organic revenue growth guidance to a range of 5%-7.5% ─ Non-GAAP EPS to a range of $9.90-$10.90 ▪ Have increased lowe
Slide 13: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 1Q23 1Q22 YOY Δ Revenue, reported $662.4 $544.3 21.7% Unfavorable/(Favorable) impact of FX 2.1% Contribution from acquisitions (0.2)% Impact of divestitures --- Revenue growth, organic 23.6% ▪ Safety Assessment (SA) business continued to be principal driver of D
Slide 14: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ DSA backlog decreased modestly on a sequential basis, to $3.0B at end of 1Q23, from $3.15B at YE 2022 ▪ Trend is reflective of normalization of booking and proposal activity that we experienced at YE 2022 and in 1Q23 ▪ Clients are not booking work as far out as
Slide 15: Stable and Resilient Client Base
Stable and Resilient Client Base ▪ Client base remains stable and resilient ▪ Biotech clients continued to send us new programs and generated healthy, double-digit revenue growth in 1Q23 ▪ Also encouraging to see biotech funding levels increase YOY by >20% in 1Q23, to ~$15B ▪ Believe higher funding
Slide 16: DSA Results - Safety Assessment (SA), cont.
DSA Results - Safety Assessment (SA), cont. ▪ Through the first 4 months of 2023, 14 new drugs were approved by the FDA ─ On pace to exceed last year’s total ▪ Since CRL has worked on > 80% of FDA-approved drugs over last 5 years, believe the pipeline of new drugs supports ample future growth opport
Slide 17: Expectations for NHP Impact
Expectations for NHP Impact ▪ Expect less of an impact from NHP supply constraints in 2Q23 than originally planned ─ Because of our ability to optimize study schedules and leverage our flexible, global infrastructure, and also due to our extensive backlog coverage across multiple study types ▪ As me
Slide 18: DSA Results – Operating Margin
DSA Results – Operating Margin 1Q23 1Q22 YOY Δ DSA GAAP OM% 25.9% 19.3% 660 bps DSA Non-GAAP OM% 29.0% 22.9% 610 bps ▪ Operating margin increase continued to be driven by: ─ Operating leverage associated with meaningfully higher revenue in SA business ─ Price increases 18 EVERY STEP OF THE WAY See i
Slide 19: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 1Q23 1Q22 YOY Δ Revenue, reported $199.8 $176.5 13.2% Unfavorable/(Favorable) impact of FX 2.5% Contribution from acquisitions (8.9)% Impact of divestitures --- Revenue growth, organic 6.8% ▪ RMS benefited from broad-based demand for small research models in all
Slide 20: RMS Results – Research Models
RMS Results – Research Models ▪ RMS growth rate was below high-single-digit target for 2023 due primarily to RMS China ▪ While demand for small research models remained strong, timing of NHP shipments to clients in China impacted the 1Q23 growth rate ▪ Since exports from China were shut down at begi
Slide 21: RMS Results – Research Models, cont.
RMS Results – Research Models, cont. ▪ Revenue for small research models in North America and Europe remained strong, driven by healthy volume increases in North America and continued pricing gains globally ▪ Believe demand for research models is an excellent indicator of health and stability of ear
Slide 22: RMS Results – RM Services
RMS Results – RM Services ▪ RM Services revenue growth was also broad based, with Insourcing Solutions (IS) and GEMS leading the way ▪ IS growth continued to be primarily driven by CRADL™ operations, which offer flexible vivarium rental space at CRL sites to both small and large biopharma clients ▪
Slide 23: RMS Results – RM Services, cont.
RMS Results – RM Services, cont. ▪ IS has historically had a larger academic and government client base; however, commercial clients are also seeking the benefits of driving cost savings and greater operational efficiency by allowing CRL to manage their internal vivariums ─ Pleased to add new, meani
Slide 24: RMS Results – Operating Margin
RMS Results – Operating Margin 1Q23 1Q22 YOY Δ RMS GAAP OM% 20.2% 27.1% (690) bps RMS Non-GAAP OM% 23.4% 29.9% (650) bps ▪ Most of operating margin decline driven by temporary headwind in China related to NHP shipments ▪ Revenue mix was also a factor, due in part to Explora acquisition in April 2022
Slide 25: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 1Q23 1Q22 YOY Δ Revenue, reported $167.3 $193.1 (13.4)% Unfavorable/(Favorable) impact of FX 1.9% Contribution from acquisitions --- Impact of Avian divestiture 9.7% Revenue growth, organic (1.8)% ▪ Revenue decrease driven by CDMO and Biologics Testing
Slide 26: Manufacturing Results – Biologics Testing
Manufacturing Results – Biologics Testing ▪ Biologics Testing experienced a slower start to the year ▪ Testing volumes tend to be seasonally softer in Q1, with lower sample volume reflecting reduced client manufacturing activity over the holidays ▪ This year, also experienced lower-than-anticipated
Slide 27: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions delivered a solid 1Q23 performance, led by the continued strength of Accugenix® microbial identification platform, due to both instrument placements and demand for our testing services ▪ Our advantage as the only provider who can offe
Slide 28: Manufacturing Results – CDMO
Manufacturing Results – CDMO ▪ Cell and gene therapy CDMO business continued to make progress towards its targeted growth rate goal ▪ As expected, 1Q23 growth rate was affected by comparison to 1Q22, when commercial readiness milestones were paid ▪ However, initiatives implemented to improve perform
Slide 29: Manufacturing – Operating Margin
Manufacturing – Operating Margin 1Q23 1Q22 YOY Δ Manufacturing GAAP OM% 1.3% 24.0% (2270) bps Manufacturing Non-GAAP OM% 13.7% 33.1% (1940) bps ▪ Operating margin decline primarily related to lower operating margins in each of the segment’s business units, particularly CDMO and Biologics Testing ─ L
Slide 30: Concluding Remarks
Concluding Remarks ▪ As anticipated, end market dynamics have moderated somewhat in 2023, but important to reiterate that client base remains stable and resilient, particularly biotechs ▪ Biotechs have now become the innovation engine for entire biopharma industry ─ Number of biopharma companies wit
Slide 31: Concluding Remarks, cont.
Concluding Remarks, cont. ▪ Believe the power of our unique portfolio differentiates CRL—today more than ever— from other companies who provide R&D support services to the biopharma industry ▪ Continuing to further distinguish CRL scientifically by: ─ Adding capabilities in biologics and cell and ge
Slide 32: 1Q23 Financial Performance
1Q23 Financial Performance ($ in millions, except per share amounts) 1Q23 1Q22 YOY Δ Organic Δ Revenue $1,029.4 $913.9 12.6% 15.4% GAAP OM% 16.3% 16.3% --- Non-GAAP OM% 21.2% 21.4% (20) bps GAAP EPS $2.01 $1.81 11.0% Non-GAAP EPS $2.78 $2.75 1.1% ▪ Pleased with 1Q23 results, which included revenue a
Slide 33: Narrowed 2023 Guidance
Narrowed 2023 Guidance 2023 Guidance Revenue growth, reported 2.0% - 4.5% Revenue growth, organic 5.0% - 7.5% GAAP EPS $7.45 - $8.45 Non-GAAP EPS $9.90 - $10.90 ▪ Narrowed 2023 financial guidance to reflect strong 1Q23 performance ▪ 2023 revenue guidance ranges continue to reflect the estimated impa
Slide 34: 2023 Segment Revenue & Operating Margin Outlook
2023 Segment Revenue & Operating Margin Outlook 2023 Reported 2023 Organic Revenue Growth Revenue Growth(1) RMS High-single digits High-single digits DSA Low- to- mid-single digits Low- to- mid-single digits Flat to low-single digits High-single to Manufacturing (reflects Avian Vaccine divestiture)
Slide 35: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 1Q23 4Q22 1Q22 GAAP $46.1 $57.0 $50.5 Non-GAAP $43.9 $54.9 $45.3 ▪ Non-GAAP unallocated corporate costs were favorable in 1Q23, totaling 4.3% of total revenue, compared to 5.0% of revenue in 1Q22 ─ Decrease was primarily the result of the timing of heal
Slide 36: Tax Rate
Tax Rate 1Q23 4Q22 1Q22 GAAP 20.7% 22.8% 14.1% Non-GAAP 21.7% 18.7% 16.8% ▪ 1Q23 non-GAAP tax rate was ~490 bps higher YOY, as anticipated ─ Primarily due to a lower tax benefit from stock-based compensation ▪ Continue to expect 2023 tax rate in a range of 22.5%-23.5% (GAAP and non- GAAP), unchanged
Slide 37: Net Interest Expense
Net Interest Expense ($ in millions) 1Q23 4Q22 1Q22 GAAP interest expense, net $33.6 $34.4 $9.3 Non-GAAP interest expense, net $33.6 $34.4 $9.3 Adjustments for foreign exchange forward contract and related interest expense(1) ― ― $11.1 Adjusted net interest expense $33.6 $34.4 $20.4 ▪ Net interest e
Slide 38: Cash Flow
Cash Flow ($ in millions) 1Q23 1Q22 2023 Outlook Free cash flow (FCF) $2.5 $22.2 $330-$380 Capital expenditures $106.9 $80.5 $340-$360 Depreciation $42.2 $37.3 ~$180 Amortization $34.9 $38.0 $135-$140 ▪ 1Q23 FCF decrease compared to last year was driven by higher capex ─ Q1 is a seasonally softer pe
Slide 39: Cash Flow, cont.
Cash Flow, cont. ▪ Initiating 2023 guidance for FCF and capex ▪ 2023 FCF outlook is flat to a 15% increase over 2022 FCF of $330M ▪ Capex expected to be slightly below our stated target of 9% of total revenue ─ 2023 capex outlook of $340-$360M ▪ Lower capital intensity vs. target represents discipli
Slide 40: 2023 Updated Guidance Summary
2023 Updated Guidance Summary GAAP Non-GAAP Revenue growth 2.0%-4.5% reported 5.0%-7.5% organic(1) Unallocated corporate ~5% of revenue ~5% of revenue Flat to lower Flat to lower Operating margin vs. 16.4% in 2022 vs. 21.0% in 2022 Net interest expense $133M-$137M $133M-$137M Tax rate 22.5%-23.5% 22
Slide 41: 2Q23 Outlook
2Q23 Outlook 2Q23 Outlook Reported revenue growth YOY High-single-digit growth vs. 2Q22 Organic revenue growth YOY ~10% growth or better vs. 2Q22 Non-GAAP EPS growth YOY Mid-single-digit decline vs. 2Q22 ▪ 2Q23 revenue outlook reflects continued strong growth trends across many of our businesses ▪ E
Slide 42: Concluding Remarks
Concluding Remarks ▪ Pleased with 1Q23 performance and are confident about our 2Q23 prospects, as well as our ability to achieve our full-year financial outlook ▪ Even as macroeconomic and biopharmaceutical market conditions evolve, we will continue to execute our strategy ─ Expand our business to m
Slide 43: 1Q23 Regulation G Financial Reconciliations
1Q23 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
Slide 44: 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 April 1, 2023 March 26, 2022 Research Models and Services Revenue $ 199,766 $ 176,542 Operating income 40,409
Slide 45: 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 April 1, 2023 March 26, 2022 CONTINUED FROM PREVIOUS SLIDE Unallocated Corporate Overhead $ (46,054) $ (50,458
Slide 46: 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 April 1, 2023 March 26, 2022 Net income attributable to common shareholders $ 103,131 $ 93,022 Add back: Non-GAAP adjustments t
Slide 47: Reconciliation of GAAP Revenue Growth to Non-GAAP Organic Growth
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP REVENUE GROWTH (1) TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) Three Months Ended April 1, 2023 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 12.6 % 13.2 % 21.7 % (13.4)% Decrease due to foreign exchang
Slide 48: 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 2.0% – 4.5% 1.5% – 4.5% Impact of divestitures/(acquisitions), net ~1.5%
Slide 49: 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 December 31, 2022 Unallocated Corporate Overhead $ (57,002) Add back: Severance — Acquisition related adjustme
Slide 50: 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 April 1, 2023 December 31, 2022 March 26, 2022 Income before income taxes & noncontrolling interests $ 131,041 $ 244,921 $ 110,846 Add back: Amortizat
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 April 1, 2023 December 31, 2022 March 26, 2022 December 30, 2023E GAAP Interest expense, net $ 33,574 $ 34,436 $ 9,307 $133,000-$137,000 Adju
Slide 52: 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) April 1, 2023 December 31, 2022 December 25, 2021 December 26, 2020 December 28, 2019 December 29, 2018 DEBT (
Slide 53: 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 April 1, 2023 March 26, 2022 December 30, 2023E Net cash provided by operating activities $ 109,383 $ 102,630 $680 - $730 million Less: Capital expenditu
Slide 54: EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
Charles River Laboratories International — Q1 2023 Earnings Presentation on 6ix