Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q4 2020 Earnings Presentation
65 slides from Charles River Laboratories International's earnings presentation, Feb 17, 2021
Slide 1: 4Q 2020 Results and 2021 Guidance
4Q 2020 Results and 2021 Guidance February 17, 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: Estimates of COVID-19 Impact
Estimates of COVID-19 Impact The Company has provided its estimates for the impact from the COVID-19 pandemic, including on the Company's revenue. These estimates were determined using methodologies and assumptions that vary depending on the specific reporting segment and situation. For the Research
Slide 4: Opening Remarks
Opening Remarks ▪ 2020 was an unprecedented year ▪ COVID-19 pandemic challenged us in many ways ▪ Successfully navigated it and reinforced our position as the leading non-clinical CRO ▪ Our success in 2020 was due to: ─ Resilience of our business model ─ Comprehensive business continuity plans that
Slide 5: Opening Remarks, cont.
Opening Remarks, cont. ▪ Despite the short-term impact of COVID-related client disruptions, we benefited from robust, underlying demand across most of our businesses ▪ Largely driven by clients’ intensified use of strategic outsourcing to overcome challenges at their own sites ▪ Partnered with us to
Slide 6: Opening Remarks, cont.
Opening Remarks, cont. ▪ Extremely pleased to report organic revenue growth above 10% in 4Q20, and 7% for FY 2020 ▪ Both metrics are in line with or above our high-single-digit organic growth target, despite challenges associated with COVID-19 last year ▪ Also achieved our 2-year operating margin ta
Slide 7: Cognate BioServices Acquisition
Cognate BioServices Acquisition ▪ Expanding our portfolio and scientific expertise through a combination of acquisitions, strategic partnerships, and internal investments ─ Enhance our ability to meet clients’ needs in emerging scientific areas and take advantage of significant growth opportunity th
Slide 8: Cognate Strategic Rationale
Cognate Strategic Rationale ▪ Three key aspects of the strategic rationale are: 1. Scientific Expertise: Cognate has solutions across the major CDMO platforms for C> 2. Synergistic Fit: Integrating manufacturing and required analytical testing is critical to drive efficiency 3. High Growth: C> s
Slide 9: Cognate's Scientific Expertise
Cognate’s Scientific Expertise ▪ Cognate’s scientific expertise makes this a particularly attractive transaction ▪ Provides CDMO services across both C> ─ Primary area of expertise is CGMP cell therapy manufacturing ─ Also has capabilities in the production of plasmid DNA • A foundational tool for
Slide 10: Cognate's Synergistic Fit
Cognate’s Synergistic Fit ▪ Cognate will be highly complementary to our existing, non-clinical capabilities ▪ Establishes CRL as a premier scientific partner for C> development, testing, and manufacturing ─ Provides clients with an integrated solution from basic research through CGMP production ▪
Slide 11: Cognate's Synergistic Fit, cont.
Cognate’s Synergistic Fit, cont. ▪ Strategic expansion with Cognate is particularly synergistic with our Biologics Testing Solutions (Biologics) business ▪ Ideal for clients to be able to seamlessly conduct analytical testing, process development, and manufacturing for advance modalities with the sa
Slide 12: CRL's Comprehensive Discovery & Non-Clinical Development Portfolio
CRL’s Comprehensive Discovery & Non-Clinical Development Portfolio in All Drug Modalities CRL’s Broad Capabilities Accelerate Modality Spectrum of CRL Capabilities Discovery to Clinical Candidate & Beyond Acquisition • Comprehensive small molecule platform of early discovery and disease biology capa
Slide 13: Cognate & C> Growth Potential
Cognate & C> Growth Potential ▪ Cognate is expected to immediately enhance our growth potential by expanding capabilities into the complementary, high-growth C> sector ▪ Addressable market for Cognate’s CDMO services currently estimated at ~$1.5B ─ Expected to grow ≥25% annually over the next 5
Slide 14: Cognate Financial Details
Cognate Financial Details ▪ Cognate purchase price expected to be ~$875M in cash ─ Valuation will be consistent with comparable high-growth, high-science transactions in the C> CDMO sector ▪ Cognate is expected to generate annual revenue of ~$140M in 2021 ─ Revenue projected to grow at or above th
Slide 15: 4Q20 and 2020 Revenue
4Q20 and 2020 Revenue From Continuing Operations ($ in millions) 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ Revenue, reported $791.0 $691.1 14.4% $2,924 $2,621 11.5% (Increase) Decrease due to FX (2.0)% (0.4)% Contribution from acquisitions (2.1)% (4.1)% Revenue, organic 10.3% 7.0% ▪ Robust client demand acros
Slide 16: 4Q20 and 2020 Operating Margin
4Q20 and 2020 Operating Margin From Continuing Operations 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ GAAP OM% 16.3% 15.7% 60 bps 14.8% 13.4% 140 bps Non-GAAP OM% 20.8% 21.4% (60) bps 20.0% 19.0% 100 bps ▪ 4Q20 non-GAAP operating margin improvement in both RMS and Manufacturing was offset by DSA ▪ At 20%, FY 20
Slide 17: 4Q20 and 2020 EPS
4Q20 and 2020 EPS From Continuing Operations 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ GAAP EPS $2.81 $1.61 74.5% $7.20 $5.07 42.0% Non-GAAP EPS $2.39 $2.01 18.9% $8.13 $6.73 20.8% ▪ Exceeded prior non-GAAP EPS guidance range of $7.75-$7.85 due primarily to robust, low-double-digit organic revenue growth and
Slide 18: Outlook for 2021
Outlook for 2021 ▪ Very enthusiastic about the outlook for 2021 ▪ Believe we are positioned extremely well for the year ahead due to: ─ Exceptional market position ─ Strategic expansion of unique portfolio ─ Focus on operational excellence ─ Continuing robust client demand 18 EVERY STEP OF THE WAY
Slide 19: 2021 Guidance (Excluding Cognate)
2021 Guidance (Excluding Cognate) 2021 Guidance Revenue growth, reported 12.0%-14.0% Contribution from acquisitions (0.5%)-(1.0%) (Increase)/Decrease due to FX (2.0%)-(2.5%) Revenue growth, organic 9.0%-11.0% GAAP EPS $7.10-$7.35 Acquisition-related amortization $1.65-$1.70 Acquisition-related adjus
Slide 20: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ Revenue, reported $495.0 $439.2 12.7% $1,837.4 $1,619.0 13.5% (Increase) Decrease due to FX (1.4)% (0.4)% Contribution from acquisitions --- (3.7)% Revenue, organic 11.3% 9.4% ▪ 4Q20 growth driven by robust demand from global biop
Slide 21: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ SA business performed extremely well, driven by higher study volume and 4Q20 price increases ▪ Bookings and proposal volume reached record levels in 4Q20, across all regions and major service areas ▪ Believe this positions SA favorably for a strong 1H21 ▪ Pleas
Slide 22: Cell and Gene Therapy Opportunity
Cell and Gene Therapy Opportunity ▪ Seeing greater opportunities to conduct safety and efficacy testing on C> ▪ Believe there is meaningful growth potential inherent in more than 2,000 programs currently in the C> pipeline, ~two-thirds of which are in preclinical phase ▪ Testing requirements for
Slide 23: Partnership Strategy
Partnership Strategy ▪ Continuing to add new capabilities across many of our businesses, including through strategic partnerships ▪ Strategy has proven very successful to stay current with cutting-edge technologies and add innovative capabilities with limited up-front risk ▪ In last several months,
Slide 24: DSA Results – Discovery Services
DSA Results – Discovery Services ▪ Believe the combination of strategic outsourcing trend, our deep scientific expertise, and our willingness to forge flexible relationships with clients led to tremendous performance by the Discovery business, which had another exceptional quarter and year ▪ Broad-b
Slide 25: DSA Results – Operating Margin
DSA Results – Operating Margin 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ DSA GAAP OM% 18.4% 19.1% (70) bps 17.7% 16.0% 170 bps DSA Non-GAAP OM% 23.2% 25.6% (240) bps 23.4% 22.0% 140 bps ▪ 4Q20 non-GAAP operating margin decrease driven by increased costs, due in part to performance-based bonuses, and slightly
Slide 26: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ Revenue, reported $156.7 $131.3 19.3% $571.2 $537.1 6.3% (Increase) Decrease due to FX (2.9)% (0.6)% Contribution from acquisitions (11.2)% (9.0)% Revenue, organic 5.2% (3.3)% ▪ FY 2020 organic revenue decline reflected impact of
Slide 27: RMS Results – Research Models
RMS Results – Research Models ▪ Global demand for research models improved in 4Q20, both YOY and sequentially, as clients normalized order activity in all geographic regions following COVID-19 disruptions earlier in 2020 ▪ Demand accelerated nicely in 4Q20, particularly in China ▪ Believe we benefit
Slide 28: RMS Results – Services
RMS Results – Services ▪ RM Services businesses continued to perform well ▪ GEMS is benefiting from renewed outsourcing demand due to: ─ Challenges at our clients’ sites earlier in 2020 ─ Use of more complex research models ▪ We are a natural partner for GEMS clients since we have extensive animal h
Slide 29: RMS Results – Cell Supply
RMS Results – Cell Supply ▪ Revenue for our cell supply business, which includes HemaCare and Cellero, increased in 4Q20 on a comparative basis, but remained at a growth rate below the targeted 30% level ▪ Anticipate that growth rate will accelerate as COVID-19 constraints ease and expect to achieve
Slide 30: RMS Results – Operating Margin
RMS Results – Operating Margin 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ RMS GAAP OM% 21.9% 23.0% (110) bps 18.0% 24.9% (690) bps RMS Non-GAAP OM% 25.1% 24.6% 50 bps 22.0% 26.2% (420) bps ▪ 4Q20 non-GAAP operating margin increase driven by operating leverage from higher sales volume in the research models bus
Slide 31: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ Revenue, reported $139.3 $120.6 15.5% $515.4 $465.1 10.8% (Increase) Decrease due to FX (3.1)% (0.4)% Revenue, organic 12.4% 10.4% ▪ 4Q20 organic revenue growth driven primarily by Biologics ▪ Microbial Solutions and Avi
Slide 32: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions revenue growth rate improved again in 4Q20, due in part to year-end ordering trends for Endosafe® testing cartridges ▪ Continue to have delayed instrument installations resulting from COVID-19 restrictions at certain client sites ▪ Ex
Slide 33: Manufacturing Results – Biologics
Manufacturing Results – Biologics ▪ Biologics reported an exceptional 4Q20 and FY 2020, with strong, double-digit revenue growth ▪ Believe that robust market demand will continue to support Biologics revenue growth in 2021, due largely to demand for testing of cell and gene therapies (C>) ▪ Develo
Slide 34: Manufacturing – Operating Margin
Manufacturing – Operating Margin 4Q20 4Q19 YOY Δ 2020 2019 YOY Δ Manufacturing GAAP OM% 35.3% 34.4% 90 bps 35.2% 31.3% 390 bps Manufacturing Non-GAAP OM% 37.3% 37.2% 10 bps 37.4% 33.9% 350 bps ▪ Non-GAAP operating margin increase was due to leverage from strong revenue growth ▪ Margin was above our
Slide 35: CRL's Trusted Role with Clients
CRL’s Trusted Role with Clients ▪ Believe that COVID-19 pandemic has demonstrated that we are even more integral to our clients now ▪ Intently focused on accommodating their evolving needs during these challenging times, and many clients have told us that they couldn’t move their research forward wi
Slide 36: AstraZeneca and Moderna
AstraZeneca and Moderna ▪ CRL has worked closely with AstraZeneca and Moderna, two leading biopharma companies, under our multi-year strategic relationships ▪ AstraZeneca and Moderna have embraced the benefits of outsourcing and driving efficiency throughout their R&D organizations ▪ Our relationshi
Slide 37: Concluding Remarks
Concluding Remarks ▪ As 2020 demonstrated, we are operating in a robust business environment with excellent growth potential ▪ To continue to successfully execute our strategy, maintain and enhance CRL’s position as the leading, early-stage CRO, and expand our manufacturing support and CDMO capabili
Slide 38: Concluding Remarks, cont.
Concluding Remarks, cont. ▪ Investing in a disciplined manner, strengthening our portfolio and focusing on speed and responsiveness as we meet our clients’ individual needs, promoting a more efficient drug development model ▪ Our goal is to enhance our position as a trusted scientific partner for ph
Slide 39: 2021 Guidance (Excluding Cognate)
2021 Guidance (Excluding Cognate) 2021 Guidance Revenue growth, reported 12% - 14% Revenue growth, organic 9% - 11% GAAP EPS $7.10 - $7.35 Non-GAAP EPS $9.00 - $9.25 ▪ 2021 revenue growth includes a benefit of favorable YOY comparison to 2020 COVID-19 revenue impact ▪ Sustained client demand, includ
Slide 40: Foreign Exchange (FX) Impact
Foreign Exchange (FX) Impact ▪ FX is expected to provide 200-250 bps 2020 2021E (% of total revenue) Revenue FX Rates benefit to 2021 reported revenue growth guidance, as a result of the weakening U.S. Dollar 67% -- U.S. dollar Euro 18% 1.22 ▪ FX rate estimates based on bank British Pound 6% 1.35 fo
Slide 41: 2021 Segment Revenue Outlook (Excluding Cognate)
2021 Segment Revenue Outlook (Excluding Cognate) 2021 Reported 2021 Organic Revenue Growth Revenue Growth(1) RMS Low-20% range High teens DSA Low-double digits Approaching 10% Manufacturing Low-double digits Slightly below 10% Consolidated CRL 12% - 14% 9% - 11% ▪ Outlook reflects the strong busines
Slide 42: 2021 Operating Margin Outlook (Excluding Cognate)
2021 Operating Margin Outlook (Excluding Cognate) ▪ Very pleased 2020 operating margin improved by 100 bps to 20.0%, and we achieved our targeted full-year operating margin of 20% one year ahead of plan ▪ Building upon this performance, believe CRL will be well positioned to drive additional margin
Slide 43: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 4Q20 4Q19 2020 2019 GAAP $45.7 $46.6 $177.4 $187.1 Non-GAAP $41.3 $41.9 $163.7 $157.8 ▪ Expect unallocated corporate expenses in FY 2021 to be in the mid-5% range as a percent of revenue (GAAP and non-GAAP) ─ Similar to 5.6% of revenue in FY 2020 (non-G
Slide 44: Net Interest Expense
Net Interest Expense ($ in millions) 4Q20 4Q19 2020 2019 GAAP interest expense, net $33.1 $23.7 $85.6 $59.4 Non-GAAP interest expense, net $33.1 $22.1 $85.6 $57.8 Adjustments for foreign exchange forward contract and related interest expense(1) ($16.1) ($5.3) ($11.9) $9.6 Adjusted net interest expen
Slide 45: Tax Rate
Tax Rate 4Q20 4Q19 2020 2019 GAAP 16.4% 23.7% 18.3% 16.5% Non-GAAP 17.8% 23.5% 18.9% 22.0% ▪ 2021 tax rate is expected to be in the low-20% range (GAAP and non-GAAP) ▪ 2021 YOY increase principally an issue of comparison to 2020, because last year’s tax rate was mainly reduced by discrete tax benefi
Slide 46: Cash Flow
Cash Flow 2021 Outlook 2020 2019 ($ in millions) (excluding Cognate) Free cash flow $380.0 $340.4 $415-$435 Capex $166.6 $140.5 ~$180 Depreciation $123.0 $108.5 ~$145 Amortization (1) $111.9 $89.6 ~$110 4Q20 4Q19 Free cash flow $50.5 $116.8 Capex $87.8 $63.8 Depreciation $32.9 $27.9 Amortization (1)
Slide 47: Capital Priorities
Capital Priorities ▪ Remain intently focused on driving strong FCF as a key measure of financial performance ▪ 2020 FCF increased 12% from 2019, but below prior guidance resulting primarily from higher 4Q20 capex due to: ─ Paying capital invoices ahead of schedule to secure discounts ─ Timing of cap
Slide 48: Capital Priorities, cont.
Capital Priorities, cont. ▪ Expect 2021 FCF to be in a range of $415-$435M, based on ─ Anticipated strong operating performance of our businesses ─ Continued focus on working capital management ▪ Capex in 2021 expected to total ~$180M, excluding Cognate ▪ Currently, do not intend to repurchase share
Slide 49: 2021 Guidance Summary (Excluding Cognate)
2021 Guidance Summary (Excluding Cognate) GAAP Non-GAAP Revenue growth 12%-14% reported 9%-11% organic(1) Improvement Modest improvement Operating margin from 14.8% in 2020 from 20.0% in 2020 Mid-5% range Mid-5% range Unallocated corporate as a % of revenue as a % of revenue Net interest expense $66
Slide 50: 1Q21 Outlook (Excluding Cognate)
1Q21 Outlook (Excluding Cognate) 1Q21 Outlook (excluding Cognate) Reported revenue growth YOY Low-double-digit growth vs. 1Q20 Organic revenue growth YOY Approaching 10% growth vs. 1Q20 Non-GAAP EPS growth YOY High-teens growth vs. $1.84 in 1Q20 ▪ 1Q20 non-GAAP tax rate expected to be in mid teens,
Slide 51: Cognate Financial Outlook
Cognate Financial Outlook ▪ Assuming acquisition closes by end of 1Q21, Cognate is expected to: ─ Add ~$110M to 2021 revenue (partial year) • Resulting in reported revenue growth guidance of 16%-18% ─ Be neutral to non-GAAP EPS in 2021 • Not expected to have a meaningful impact on current non-GAAP E
Slide 52: Cognate Financial Outlook, cont.
Cognate Financial Outlook, cont. ▪ From both strategic and financial perspectives, believe the acquisition will deliver compelling benefits that will generate value for shareholders ▪ As a premier, C> CDMO, expect Cognate to: ─ Boost the growth potential of our business ─ Be increasingly accretive
Slide 53: Cognate Transaction Financing
Cognate Transaction Financing ▪ Plan to finance the Cognate acquisition through current revolving credit facility ─ Will evaluate opportunities to further optimize our capital structure given the attractive interest-rate environment ▪ Pro forma gross leverage ratio at closing expected to increase in
Slide 54: Concluding Remarks
Concluding Remarks ▪ Very pleased with our 2020 financial performance and are positioned to have another strong year in 2021 ▪ Over the past five years, we have achieved compound annual growth (CAGR) of: ─ 15% Revenue ─ 16% Non-GAAP EPS ─ 15% Operating Cash Flow ─ 10% Free Cash Flow ▪ With Cognate a
Slide 55: 4Q20/FY20 Regulation G Financial Reconciliations
4Q20/FY20 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2021 Charles River Laboratories International, Inc.
Slide 56: 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 Twelve Months Ended December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019 Research Models an
Slide 57: 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 Twelve Months Ended December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019 CONTINUED FROM PRE
Slide 58: 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 Twelve Months Ended December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019 Net income attributable to common s
Slide 59: 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) For the three months ended December 26, 2020 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 14.4 % 19.3 % 12.7 % 15.5 % Decrease (increase)
Slide 60: Reconciliation of 2021 Guidance Revenue and EPS
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 EXCLUDING COGNATE Revenue growth, reported 12% – 14% Less: Contribution from acquisitions (1) (0.5%) – (1.0%) U
Slide 61: 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 Twelve Months Ended Fiscal Year Ended December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019 December 25, 2021E excluding Cognate GAAP Interest
Slide 62: 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) December 26, December 28, December 29, December 30, December 31, December 26, December 27, December 28, Decemb
Slide 63: 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 Twelve Months Ended December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019 Income from operations before income taxes & noncontrollin
Slide 64: Reconciliation of Free Cash Flow
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF FREE CASH FLOW (NON-GAAP) (1) (in thousands) Three Months Ended Twelve Months Ended Fiscal Year Ended December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019 December 25, 2021E excluding Cognate Net cash provided by ope
Slide 65: 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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