Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q2 2023 Earnings Presentation
55 slides from Charles River Laboratories International's earnings presentation, Aug 9, 2023
Slide 1: 2Q 2023 Results
2Q 2023 Results August 9, 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: 2Q23 Financial Performance
2Q23 Financial Performance ($ in millions, except per share amounts) 2Q23 2Q22 YOY Δ Organic Δ Revenue $1,059.9 $973.1 8.9% 11.2% GAAP OM% 15.6% 19.3% (370) bps Non-GAAP OM% 20.4% 21.8% (140) bps GAAP EPS $1.89 $2.13 (11.3)% Non-GAAP EPS $2.69 $2.77 (2.9)% ▪ Revenue growth rates in RMS and Manufactu
Slide 4: 2023 Outlook
2023 Outlook ▪ For FY 2023, narrowing revenue growth and non-GAAP EPS guidance to the upper ends of the previous ranges ▪ Update largely reflects successful implementation of mitigation efforts around NHP supply ▪ However, continue to expect 2H23 growth rates to be pressured—primarily in the DSA seg
Slide 5: Monitoring Biopharmaceutical Demand Trends
Monitoring Biopharmaceutical Demand Trends ▪ Closely monitoring near-term demand trends of biopharma clients, as they appear to be reprioritizing pipelines and tightening R&D budgets ▪ Affecting our industry and our Company, but we will continue to leverage significant DSA backlog and intend to appr
Slide 6: NHP Supply Update
NHP Supply Update ▪ Made effective efforts to leverage our global safety assessment infrastructure to alleviate the overall impact of supply constraints caused by the suspension of Cambodian imports into the US ▪ Significant progress to better utilize our sites outside the US ▪ Based on progress to
Slide 7: NHP Supply Update, cont.
NHP Supply Update, cont. ▪ Already made significant progress with these initiatives and do not foresee any meaningful NHP supply constraints affecting the business in 4Q23 and FY 2024 ▪ Therefore, now expect impact from NHP supply constraints will be less than our initial outlook of 2-4% to consolid
Slide 8: 2Q23 Revenue
2Q23 Revenue ($ in millions) 2Q23 2Q22 YOY Δ Revenue, reported $1,059.9 $973.1 8.9% Unfavorable/(Favorable) impact of FX 0.2% Contribution from acquisitions (0.2)% Impact of divestitures 2.3% Revenue growth, organic 11.2% ▪ Organic revenue growth of 11.2% driven by strong performances in RMS and DSA
Slide 9: 2Q23 Revenue by Client Segment
2Q23 Revenue by Client Segment ▪ By client segment, 2Q23 revenue growth was broad based across global biopharmas, biotechs, and academic and government institutions ▪ Demand from global biopharma clients modestly outpaced small and mid-sized biotech clients for the second consecutive quarter ▪ Demon
Slide 10: 2Q23 Operating Margin
2Q23 Operating Margin 2Q23 2Q22 YOY Δ GAAP OM% 15.6% 19.3% (370) bps Non-GAAP OM% 20.4% 21.8% (140) bps ▪ Decline driven by continued margin pressure in Manufacturing and higher unallocated corporate costs 10 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP results.
Slide 11: 2Q23 EPS
2Q23 EPS 2Q23 2Q22 YOY Δ GAAP EPS $1.89 $2.13 (11.3)% Non-GAAP EPS $2.69 $2.77 (2.9)% ▪ As anticipated, YOY increases in interest expense and tax rate continued to be meaningful headwinds to earnings growth in FY 2023, as was the divestiture of the Avian Vaccine business 11 EVERY STEP OF THE WAY See
Slide 12: Updated 2023 Guidance
Updated 2023 Guidance REVISED PRIOR Revenue growth, reported 2.5%-4.5% 2.0%-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 5.5%-7.5% 5.0%-7.5% GAAP EPS $7.6
Slide 13: Updated 2023 Guidance, cont.
Updated 2023 Guidance, cont. ▪ Narrowed revenue and non-GAAP EPS guidance ranges for FY 2023 to the upper ends of the previous ranges, due largely to successful implementation of NHP mitigation efforts ─ Organic revenue growth guidance to a range of 5.5%-7.5% ─ Non-GAAP EPS guidance to a range of $1
Slide 14: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 2Q23 2Q22 YOY Δ Revenue, reported $663.5 $591.9 12.1% Unfavorable/(Favorable) impact of FX (0.1)% Contribution from acquisitions (0.3)% Revenue growth, organic 11.7% ▪ Safety Assessment (SA) business continued to drive DSA revenue growth, with contributions from
Slide 15: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ DSA backlog decreased modestly on a sequential basis, to $2.8B at end of 2Q23, from $3.0B at end of 1Q23 ▪ Net bookings and proposal activity continued to trend lower, with net book-to-bill remaining below 1x on a quarterly basis ─ Primarily driven by cancellat
Slide 16: Client Booking Trends
Client Booking Trends ▪ Believe cancellation rates will decline because incoming new business awards (or gross booking activity not adjusted for cancellations) remain robust ─ Resulted in gross book-to-bill remaining above 1x in 2Q23 ▪ Now see clients booking closer to when studies are required, whi
Slide 17: Client Booking Trends, cont.
Client Booking Trends, cont. ▪ Have an average of 13 months of revenue coverage in SA backlog ▪ Solid backlog coverage affords us ability to: ─ Appropriately manage the business through fluctuations in demand ─ Backfill gaps in study schedule ─ Meet near-term financial targets ▪ In addition, level o
Slide 18: DSA Results – Operating Margin
DSA Results – Operating Margin 2Q23 2Q22 YOY Δ DSA GAAP OM% 24.3% 21.8% 250 bps DSA Non-GAAP OM% 27.6% 25.3% 230 bps ▪ Operating margin increase continued to be driven by leverage associated with higher revenue in SA business ▪ Closely monitoring capacity utilization for both physical infrastructure
Slide 19: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 2Q23 2Q22 YOY Δ Revenue, reported $209.9 $186.4 12.6% Unfavorable/(Favorable) impact of FX 1.3% Revenue growth, organic 13.9% ▪ RMS continued to benefit from broad-based growth in all geographic regions for small research models ▪ Another exceptional performance
Slide 20: RMS Results – Research Models
RMS Results – Research Models ▪ As referenced last quarter, timing of large-model shipments within China benefited the 2Q23 growth rate, leading to outperformance compared to FY 2023 outlook of high- single digit organic growth ▪ Growth rate for small models in China also benefited from comparison t
Slide 21: RMS Results – RM Services
RMS Results – RM Services ▪ RM Services continued to be primary growth driver for RMS, with Insourcing Solutions (IS) leading the way ▪ IS’s CRADL™ operations are continuing to expand and generate excellent client interest ▪ Recently opened a new site in Seattle and first location in Philadelphia ▪
Slide 22: RMS Results – Operating Margin
RMS Results – Operating Margin 2Q23 2Q22 YOY Δ RMS GAAP OM% 23.3% 21.2% 210 bps RMS Non-GAAP OM% 26.4% 24.9% 150 bps ▪ Operating margin improvement driven primarily by leverage from higher revenue growth in China due to timing of large-model shipments and last year’s COVID-related impact ▪ Because t
Slide 23: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 2Q23 2Q22 YOY Δ Revenue, reported $186.5 $194.8 (4.2)% Unfavorable/(Favorable) impact of FX — Impact of Avian divestiture 10.8% Revenue growth, organic 6.6% ▪ Revenue increase driven by CDMO and Microbial Solutions, partially offset by continued softer
Slide 24: Manufacturing Results – CDMO
Manufacturing Results – CDMO ▪ Cell and gene therapy CDMO business had a stronger quarter, reporting a solid, double-digit growth rate ▪ Very pleased that initiatives implemented by CDMO team over past 18 months to improve performance have been successful and are beginning to generate intended resul
Slide 25: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions delivered a solid 2Q23 performance, led by the continued strength of Accugenix® microbial identification platform ▪ Last month, very pleased to have completed launch of our Endosafe ® Trillium® recombinant cascade reagent, or rCR, for
Slide 26: Manufacturing Results – Microbial Solutions, cont.
Manufacturing Results – Microbial Solutions, cont. ▪ Launched reagent kits in July and plan to have Trillium® cartridges available this winter ─ Clients will be able to utilize Endosafe® Trillium® cartridges in their existing Endosafe® systems for a seamless transition from LAL to rCR ▪ Believe clie
Slide 27: Manufacturing Results – Biologics Testing
Manufacturing Results – Biologics Testing ▪ Testing volume in Biologics Testing business improved from the seasonally soft 1Q23 level, but YOY growth rate continued to be pressured ─ Particularly for viral clearance and cell banking services ▪ Believe the performance is indicative of current market
Slide 28: Manufacturing – Operating Margin
Manufacturing – Operating Margin 2Q23 2Q22 YOY Δ Manufacturing GAAP OM% 13.1% 32.1% (1900) bps Manufacturing Non-GAAP OM% 22.9% 28.6% (570) bps ▪ Operating margin improved sequentially, as expected ▪ YOY decline was primarily driven by the Biologics Testing and CDMO businesses ▪ Expect the segment m
Slide 29: Concluding Remarks
Concluding Remarks ▪ Very pleased with 2Q23 results, which gave us confidence to narrow 2023 revenue growth and non-GAAP EPS guidance to the upper ends of the previous ranges ▪ Although some demand trends are moderating, believe that the fundamental drivers of our business are intact, and we are wel
Slide 30: Concluding Remarks, cont.
Concluding Remarks, cont. ▪ Believe power of our unique portfolio differentiates CRL—today more than ever—from other companies who provide R&D support services to the biopharma industry ▪ As part of annual strategic planning process, recently completed thorough review of current market environment,
Slide 31: 2Q23 Results
2Q23 Results ($ in millions) 2Q23 2Q22 YOY Δ Organic Δ Revenue $1,059.9 $973.1 8.9% 11.2% GAAP OM% 15.6% 19.3% (370) bps Non-GAAP OM% 20.4% 21.8% (140) bps GAAP EPS $1.89 $2.13 (11.3%) Non-GAAP EPS $2.69 $2.77 (2.9%) ▪ 2Q23 results are consistent with prior outlook ─ Reflect the continued resilience
Slide 32: Narrowed 2023 Guidance
Narrowed 2023 Guidance 2023 Guidance Revenue growth, reported 2.5% - 4.5% Revenue growth, organic 5.5% - 7.5% GAAP EPS $7.60 - $8.20 Non-GAAP EPS $10.30 - $10.90 ▪ 1H23 results and updated NHP supply outlook support revenue growth and non-GAAP EPS guidance for 2023, which has been narrowed to the up
Slide 33: 2023 Segment Revenue Outlook
2023 Segment Revenue Outlook 2023 Reported 2023 Organic Revenue Growth Revenue Growth(1) RMS High-single digits High-single digits DSA Mid-single digits Mid-single digits Manufacturing Low- to mid-single digit decline High-single digits (reflects Avian Vaccine divestiture) Consolidated CRL 2.5%-4.5%
Slide 34: Operating Margin Outlook
Operating Margin Outlook ▪ Expect FY 2023 consolidated operating margin to be flat to slightly lower than in 2022 ▪ Will continue our efforts to: ─ Manage costs ─ Reduce discretionary spending ─ Drive efficiency ─ Monitor the demand environment to ensure our cost structure is closely aligned 34 EVER
Slide 35: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 2Q23 1Q23 2Q22 GAAP $69.9 $46.1 $43.4 Non-GAAP $65.1 $43.9 $40.2 ▪ 2Q23 unallocated corporate costs totaled 6.1% of revenue on a non-GAAP basis, compared to 4.1% of revenue last year ─ YOY increase primarily related to the timing of corporate expenses,
Slide 36: Tax Rate
Tax Rate 2Q23 1Q23 2Q22 GAAP 22.7% 20.7% 23.2% Non-GAAP 23.3% 21.7% 21.1% ▪ 2Q23 non-GAAP tax rate represented a 220-bps increase from last year, but consistent with full-year outlook ▪ YOY increase was primarily due to a lower benefit associated with stock- based compensation and other headwinds re
Slide 37: Net Interest Expense
Net Interest Expense ($ in millions) 2Q23 1Q23 2Q22 GAAP interest expense, net $33.6 $33.6 $3.5 Non-GAAP interest expense, net $33.6 $33.6 $3.5 Adjustments for foreign exchange forward contract and related interest expense(1) ― ― $19.4 Adjusted net interest expense $33.6 $33.6 $22.9 ▪ 2Q23 adjusted
Slide 38: Net Interest Expense, cont.
Net Interest Expense, cont. ▪ At end of 2Q23, total outstanding debt balance represented a gross leverage ratio of 2.1x and net leverage ratio of 2.0x ▪ Continuously evaluate our capital priorities and intend to deploy capital to the areas that we believe will generate the greatest returns ▪ Over th
Slide 39: Cash Flow
Cash Flow ($ in millions) 2Q23 2Q22 2023 Outlook Free cash flow (FCF) $80.7 $66.6 $330-$380 Capital expenditures $67.4 $82.9 $340-$360 Depreciation $43.4 $38.8 ~$180 Amortization $34.3 $37.6 $135-$140 ▪ 2Q23 FCF YOY increase was due primarily due to favorable changes in working capital ▪ 2023 FCF gu
Slide 40: 2023 Updated Guidance Summary
2023 Updated Guidance Summary GAAP Non-GAAP Revenue growth 2.5%-4.5% reported 5.5%-7.5% organic(1) Unallocated corporate ~5% of revenue ~5% of revenue Flat Flat to slightly lower Operating margin vs. 16.4% in 2022 vs. 21.0% in 2022 Net interest expense $131M-$134M $131M-$134M Tax rate 22.5%-23.5% 22
Slide 41: 2023 Updated Guidance, cont.
2023 Updated Guidance, cont. ▪ Expecting 2H23 consolidated organic revenue growth to average in a range of flat to low-single digit growth ▪ The slower growth from 1H23 levels is due to three principal factors, that will have the most significant impact on DSA growth rates: ─ Modest NHP-related supp
Slide 42: 3Q23 Outlook
3Q23 Outlook 3Q23 Outlook Reported revenue growth YOY Low-single-digit growth vs. 3Q22 Organic revenue growth YOY Low-single-digit growth vs. 3Q22 Non-GAAP EPS growth YOY ~10% decline vs. 3Q22 42 EVERY STEP OF THE WAY
Slide 43: Concluding Remarks
Concluding Remarks ▪ Continue to focus on the execution of our strategy and delivering solid financial and operational results ▪ Pleased with our 1H23 performance despite some macroeconomic and funding pressures on our biopharma clients ▪ We believe the fundamental drivers of our business and our so
Slide 44: 2Q23 Regulation G Financial Reconciliations
2Q23 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
Slide 45: 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 Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Research Models and Services Revenue $ 2
Slide 46: 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 Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 CONTINUED FROM PREVIOUS SLIDE Unallocat
Slide 47: 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 Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Net income attributable to common shareholders $ 97,020
Slide 48: 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 July 1, 2023 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 8.9 % 12.6 % 12.1 % (4.2)% Decrease (increase) due to foreign
Slide 49: 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 2.5% – 4.5% 2.0% – 4.5% Impact of divestitures/(acquisitions), net ~1.5%
Slide 50: Reconciliation of GAAP to Non-GAAP Segment Information (1Q23)
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 Unallocated Corporate Overhead $ (46,054) Add back: Acquisition related adjustments (2) 2,203 Ot
Slide 51: 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 July 1, 2023 April 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Income before income taxes & noncontrolling interests $ 128,664 $
Slide 52: 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 July 1, 2023 April 1, 2023 June 25, 2022 December 30, 2023E GAAP Interest expense, net $ 33,618 $ 33,574 $ 3,515 $131,000-$134,000 Adjustment
Slide 53: Reconciliation of Gross/Net Leverage Ratio
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) July 1, 2023 April 1, 2023 December 31, 2022 December 25, 2021 December 26, 2020 December 28, 2019 December 29
Slide 54: 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 July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 December 30, 2023E Net cash provided by operating activities $ 148,122 $ 149,474 $
Slide 55: EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
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