Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q4 2022 Earnings Presentation
56 slides from Charles River Laboratories International's earnings presentation, Feb 22, 2023
Slide 1: 4Q 2022 Results and 2023 Guidance
4Q 2022 Results and 2023 Guidance February 22, 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: NHP Supply Update
NHP Supply Update ▪ There has been an ongoing, industry-wide investigation into non-human primate (NHP) imports from Cambodia ▪ On February 17th, CRL received a subpoena from the U.S. Department of Justice (DOJ) relating to an investigation into the Cambodian supply chain ─ Relates specifically to s
Slide 4: NHP Supply Update, cont.
NHP Supply Update, cont. ▪ New procedures will take time to implement ─ Duration of which is unknown ▪ DOJ investigation and current NHP supply situation will result in study delays in Safety Assessment business ▪ Non-human primates (NHPs) are the most scientifically relevant large model for the reg
Slide 5: NHP Supply Update, cont.
NHP Supply Update, cont. ▪ NHPs sourced from Cambodia have been responsible for ~60% of NHPs supplied to the U.S. and CRL for drug research & development ▪ CRL is continuing to actively work to diversify its NHP supply chain ─ No near-term, global source to replace Cambodian supply at this time ▪ Cr
Slide 6: 2023 Guidance
2023 Guidance 2023 Guidance Revenue growth, reported 1.5%-4.5% Contribution from acquisitions/divestitures, net ~1.5% Impact of 53rd week in FY 2022 ~1.5% (Increase)/Decrease due to FX ~0.0%-(0.5)% Revenue growth, organic 4.5%-7.5% GAAP EPS $7.40-$8.60 Acquisition-related amortization ~$2.00 Acquisi
Slide 7: 2023 Guidance, cont.
2023 Guidance, cont. ▪ Current Cambodian NHP supply constraints and the corresponding impact to Safety Assessment business are expected to reduce our consolidated revenue growth forecast by approximately 200-400 basis points in FY 2023 ▪ Wider revenue and EPS guidance ranges encompassing a number of
Slide 8: Another Strong Year in 2022
Another Strong Year in 2022 ▪ Outstanding finish to another strong year for CRL ▪ Robust operating performance in FY 2022, highlighted by 13.4% organic revenue growth against a backdrop of escalating macroeconomic pressures ▪ FY 2022 financial performance demonstrates the continued execution of our
Slide 9: 4Q22 and FY 2022 Revenue
4Q22 and FY 2022 Revenue ($ in millions) 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ Revenue, reported $1,099.8 $905.1 21.5% $3,976.1 $3,540.1 12.3% Decrease due to FX 4.4% 3.5% Contributions from acquisitions (1.8)% (2.6)% Impact of divestitures 0.5% 1.7% Effect of 53rd week in FY 2022 (5.8)% (1.5)% Revenue gr
Slide 10: 4Q22 and FY 2022 Operating Margin
4Q22 and FY 2022 Operating Margin 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ GAAP OM% 14.9% 19.1% (420) bps 16.4% 16.7% (30) bps Non-GAAP OM% 20.4% 20.9% (50) bps 21.0% 21.0% --- ▪ 4Q22 non-GAAP operating margin decline driven primarily by Manufacturing and RMS segments ▪ For FY 2022, pleased to have held oper
Slide 11: 4Q22 and FY 2022 EPS
4Q22 and FY 2022 EPS 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ GAAP EPS $3.65 $2.67 36.7% $9.48 $7.60 24.7% Non-GAAP EPS $2.98 $2.49 19.7% $11.12 $10.32 7.8% ▪ For FY 2022, exceeded non-GAAP EPS guidance range of $10.80-$10.95 due primarily to robust, 4Q22 revenue growth, particularly in DSA segment 11 EVERY
Slide 12: A Leading, Global Non-Clinical Drug Development Partner
A Leading, Global Non-Clinical Drug Development Partner ▪ Believe FY 2022 performance thoroughly demonstrated: ─ Successful execution of our strategy to position CRL as the non-clinical drug development partner of choice for our valued clients ─ Sustained pace of demand from clients despite macroeco
Slide 13: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ Revenue, reported $691.7 $534.1 29.5% $2,447.3 $2,107.2 16.1% Decrease due to FX 3.9% 3.3% Contributions from acquisitions --- (0.1)% Effect of 53rd week in FY 2022 (6.9)% (1.8)% Revenue growth, organic 26.5% 17.5% ▪ Safety Assess
Slide 14: DSA – 2023 Revenue Outlook
DSA – 2023 Revenue Outlook ▪ For FY 2022, DSA organic revenue growth rate exceeded our mid-teens outlook ▪ As of year-end 2022, DSA backlog increased 32% YOY to $3.15B ▪ Backlog growth remained robust in FY 2022 and continues to support a long growth runway ─ Backlog growth also normalized during th
Slide 15: DSA – Safety Assessment (SA) Outlook
DSA – Safety Assessment (SA) Outlook ▪ Continue to see broad-based and sustained client demand across SA business ▪ Have staffing and capacity to accommodate client demand ▪ Current NHP supply situation will restrict the revenue growth rate and margin expansion in 2023 ▪ Underlying strength and resi
Slide 16: DSA Results – Discovery Services
DSA Results – Discovery Services ▪ Discovery Services had a good quarter with improvement in revenue growth rate from 3Q22 level ▪ Many clients who previously lengthened timeframes to start new projects moved forward with programs in 4Q22 ▪ Discovery booking and proposal activity also support a heal
Slide 17: SAMDI Tech Acquisition
SAMDI Tech Acquisition ▪ Established initial partnership with SAMDI Tech in 2018 ▪ Validated their proprietary mass spectrometry technology for label-free, high-throughput screening with CRL clients ▪ During partnership, determined that SAMDI Tech’s cutting-edge technology was increasingly favored b
Slide 18: DSA Results – Operating Margin
DSA Results – Operating Margin 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ DSA GAAP OM% 22.7% 17.8% 490 bps 21.8% 19.3% 250 bps DSA Non-GAAP OM% 26.3% 23.1% 320 bps 25.3% 23.7% 160 bps ▪ Operating margin increases driven by operating leverage associated with meaningfully higher revenue in SA 18 EVERY STEP OF TH
Slide 19: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ Revenue, reported $196.1 $165.6 18.4% $739.2 $690.4 7.1% Decrease due to FX 5.2% 3.3% Contribution from acquisitions (10.1)% (6.5)% Impact of divestitures 1.8% 6.2% Effect of 53rd week in FY 2022 (4.5)% (1.1)% Revenue growth, orga
Slide 20: RMS Results – Revenue, cont.
RMS Results – Revenue, cont. ▪ Organic revenue growth squarely in line with outlook of high-single-digit growth in FY 2022 ▪ Accelerating growth for research model services drove exceptional RMS revenue growth rates for 4Q22 and FY 2022 ─ Particularly CRADL™ and research models in North America and
Slide 21: RMS Results – Research Models
RMS Results – Research Models ▪ North America continued to generate strong revenue growth ▪ China, although reporting a double-digit increase, experienced modest impact from an increase in COVID cases during 4Q22 ▪ Expansions in central, southern, and western regions of China are progressing well ─
Slide 22: RMS Results – Services
RMS Results – Services ▪ Research model services also continued to perform well, with broad-based growth across Insourcing Solutions (IS) and GEMS in 4Q22 and FY 2022 ▪ Growth driven primarily by IS’s CRADL™ operations including last year’s Explora BioLabs acquisition ▪ Clients increasingly adopting
Slide 23: RMS Results – Operating Margin
RMS Results – Operating Margin 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ RMS GAAP OM% 18.9% 24.3% (540) bps 21.7% 24.2% (250) bps RMS Non-GAAP OM% 22.7% 26.9% (420) bps 25.2% 27.3% (210) bps ▪ Non-GAAP operating margin decline primarily attributable to: ─ 53rd week, which has greater impact on RMS segment ─ H
Slide 24: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ Revenue, reported $212.1 $205.3 3.3% $789.6 $742.5 6.3% Decrease due to FX 4.8% 4.4% Contribution from acquisitions --- (5.9)% Impact of divestitures 1.2% 1.6% Effect of 53rd week on FY 2022 (4.0)% (1.1)% Revenue growth,
Slide 25: Manufacturing Results – CDMO
Manufacturing Results – CDMO ▪ Segment growth rate compressed by lower revenue in CDMO business ▪ Initiatives implemented to improve CDMO performance continued to gain traction and earned positive feedback from clients ▪ Creation of Centers of Excellence for cell therapies, viral vectors, and plasmi
Slide 26: Manufacturing Results
Manufacturing Results ▪ Biologics Testing Solutions and Microbial Solutions businesses both performed very well in 4Q22 ▪ Benefited from robust client demand as growth prospects for these legacy manufacturing quality-control businesses remained strong ▪ These businesses, and Manufacturing segment in
Slide 27: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions had a strong 4Q22 and FY 2022, benefiting from broad-based growth across Endosafe® testing and Accugenix® microbial identification platforms ▪ Continuing to convert the marketplace to our more efficient and reliable quality-control te
Slide 28: Manufacturing Results – Biologics
Manufacturing Results – Biologics ▪ Biologics Testing reported an excellent 4Q22 and FY 2022 ▪ Robust demand for cell and gene therapies (C>) testing services continued to be primary growth driver, as well as traditional biologics ▪ Business had an excellent year despite moderation of COVID vaccin
Slide 29: Manufacturing – Operating Margin
Manufacturing – Operating Margin 4Q22 4Q21 YOY Δ 2022 2021 YOY Δ Manufacturing GAAP OM% 12.6% 44.6% (3200) bps 21.2% 33.2% (1200) bps Manufacturing Non-GAAP OM% 25.3% 35.7% (1040) bps 28.8% 34.2% (540) bps ▪ 4Q22 and FY 2022 non-GAAP operating margin declines driven almost entirely by underperforman
Slide 30: CRL's 75th Anniversary
CRL’s 75th Anniversary ▪ In 2022, celebrated CRL’s 75th anniversary ▪ Delighted to have evolved from a small, revolutionary research model company overlooking the Charles River to a leading, global drug discovery and development partner ▪ Generating nearly $4B in annual revenue ▪ Helping to lead bio
Slide 31: Concluding Remarks
Concluding Remarks ▪ As we look at 2023, we continue to see: ─ Resilient funding environment; ─ Continued renaissance in the golden age of scientific innovation; ─ Clients’ increasing use of strategic outsourcing; and ─ Clients’ need for enhanced efficiency and speed to market ▪ Core competencies, i
Slide 32: 2023 Guidance
2023 Guidance 2023 Guidance Revenue growth, reported 1.5% - 4.5% Revenue growth, organic 4.5% - 7.5% GAAP EPS $7.40 - $8.60 Non-GAAP EPS $9.70 - $10.90 ▪ Very pleased with 4Q22 results ─ Revenue and non-GAAP EPS outperformed previous guidance ─ Quarterly revenue exceeded $1B level for the first time
Slide 33: 2023 Guidance, cont.
2023 Guidance, cont. ▪ 2023 non-GAAP EPS of $9.70-$10.90 reflects meaningful headwinds associated with both NHP supply and non-operating items ▪ Non-operating headwinds include: ─ Impact of the Avian Vaccine divestiture ─ Higher tax rate ─ Increased interest expense ▪ Headwinds will reduce non-GAAP
Slide 34: Tax Rate
Tax Rate 4Q22 4Q21 2022 2021 GAAP 22.8% 14.6% 20.9% 17.0% Non-GAAP 18.7% 23.3% 19.2% 18.9% ▪ Non-GAAP tax rate is expected to move to the top of our long-term, low-20% range ▪ FY 2023 tax rate outlook of 22.5%-23.5% (GAAP and non-GAAP) ─ Represents nearly 400 bps YOY increase at midpoint on a non-GA
Slide 35: Net Interest Expense
Net Interest Expense ($ in millions) 4Q22 4Q21 2022 2021 GAAP interest expense, net $34.4 $11.2 $58.5 $73.3 Non-GAAP interest expense, net $34.4 $11.2 $58.5 $47.2 Adjustments for foreign exchange forward contract and related interest expense(1) ― $9.2 $46.5 $31.8 Adjusted net interest expense $34.4
Slide 36: Net Interest Expense, cont.
Net Interest Expense, cont. ▪ Entered into interest rate swap agreement in 3Q22 ─ Effectively locking in a fixed rate for two years on $500M revolving credit facility ─ At year end, ~three-quarters of $2.7B debt was at a fixed rate ▪ Believe the Federal Reserve will continue to increase interest rat
Slide 37: Capital Priorities
Capital Priorities ▪ At the end of 4Q22, our gross and net leverage ratios were 2.2x and 2.1x, respectively(1) ─ Meaningful decline from end of 3Q22 due in part to cash gain on the Avian divestiture ▪ Continuously evaluate our capital priorities and intend to deploy capital to the areas that we beli
Slide 38: 2023 Segment Revenue Outlook
2023 Segment Revenue Outlook 2023 Reported 2023 Organic Revenue Growth Revenue Growth(1) RMS High-single digits High-single digits DSA Low- to- mid-single digits Low- to- mid-single digits Manufacturing Low-single digits Low-double-digits (reflects Avian Vaccine divestiture) Consolidated CRL 1.5%-4.
Slide 39: Foreign Exchange (FX) Impact
Foreign Exchange (FX) Impact ▪ FX was a 350-bps headwind in FY 2022 2022 2023E (% of total revenue) Revenue FX Rates ▪ Weakening of US dollar (USD) since U.S. Dollar 70% ― November is expected to result in a slight FX benefit of up to 50-bps to FY 2023 revenue Euro 18% 1.08 growth British Pound 6% 1
Slide 40: 2023 Operating Margin Outlook
2023 Operating Margin Outlook ▪ Without NHP supply impact, would have expected to generate moderate operating margin improvement in FY 2023 ▪ Due to the meaningful NHP supply headwind, FY 2023 non-GAAP operating margin expected to be flat to down 150 bps ─ Depending on the timing of the resumption o
Slide 41: Cash Flow
Cash Flow ($ in millions) 2022 2021 Free cash flow (FCF) $330.3 $532.0 Capex $324.7 $228.8 Depreciation $157.3 $140.7 Amortization (1) $146.6 $124.9 4Q22 4Q21 Free cash flow (FCF) $181.1 $130.5 Capex $89.0 $98.8 Depreciation $42.1 $37.0 Amortization (1) $35.4 $30.2 (1) Amortization of intangible ass
Slide 42: Cash Flow, cont.
Cash Flow, cont. ▪ Will not provide FY 2023 free cash flow or capital expenditure outlooks at this time ─ Metrics could vary based on NHP supply impact that is incurred ▪ FY 2022 FCF decline due to higher capex and unfavorable working capital movements ─ Below prior outlook due largely to the timing
Slide 43: 2023 Guidance Summary
2023 Guidance Summary GAAP Non-GAAP Revenue growth 1.5%-4.5% reported 4.5%-7.5% organic(1) Flat to lower Flat to 150 bps decline 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% 22.5%-23.5% EPS $7.40-$8.60 $9.70-$10.90 (1) Organic
Slide 44: 1Q23 Outlook
1Q23 Outlook 1Q23 Outlook Reported and growth YOY High-single-digit growth Organic revenue growth YOY At or above 10% level Non-GAAP EPS decrease YOY Mid-single-digit decline vs. $2.75 in 1Q22 ▪ Expect stronger revenue growth rates in 1H23, due to both: ─ Comparison to FY 2022 when the growth rate a
Slide 45: Concluding Remarks
Concluding Remarks ▪ Very pleased with our FY 2022 financial performance and will proactively manage the challenges in 2023 ▪ Confident in our ability to generate value for our shareholders by consistently growing revenue, earnings, and cash flow ▪ Over the past five years, we have achieved compound
Slide 46: 4Q22/FY22 Regulation G Financial Reconciliations
4Q22/FY22 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2023 Charles River Laboratories International, Inc.
Slide 47: 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 31, 2022 December 25, 2021 December 31, 2022 December 25, 2021 Research Models and
Slide 48: 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 Twelve Months Ended December 31, 2022 December 25, 2021 December 31, 2022 December 25, 2021 CONTINUED FROM PRE
Slide 49: 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 31, 2022 December 25, 2021 December 31, 2022 December 25, 2021 Net income attributable to common s
Slide 50: Reconciliation of GAAP Revenue Growth to Non-GAAP Organic Growth
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP REVENUE GROWTH TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1) Three Months Ended December 31, 2022 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 21.5 % 18.4 % 29.5 % 3.3 % Decrease due to foreign excha
Slide 51: 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 Revenue growth, reported 1.5% - 4.5% Impact of divestitures/(acquisitions), net ~1.5% Impact of 53rd week in 20
Slide 52: 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 31, 2022 September 24, 2022 December 25, 2021 December 31, 2022 December 25, 2021 Income before income taxes & noncontrol
Slide 53: 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 31, 2022 December 25, 2021 December 31, 2022 December 25, 2021 December 30, 2023E GAAP Interest expense, net $ 3
Slide 54: 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 31, 2022 December 25, 2021 December 26, 2020 December 28, 2019 December 29, 2018 December 30, 2017 De
Slide 55: 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 Twelve Months Ended December 31, 2022 December 25, 2021 December 31, 2022 December 25, 2021 Net cash provided by operating activities $ 234,757 $ 229,258 $ 619,640 $ 760,7
Slide 56: 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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