Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q2 2024 Earnings Presentation
49 slides from Charles River Laboratories International's earnings presentation, Aug 7, 2024
Slide 1: Charles River Laboratories 2Q 2024 Results
Charles River Laboratories 2Q 2024 Results August 7, 2024 © 2024 Charles River Laboratories International, Inc.
Slide 2: Safe Harbor
Safe Harbor 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,” “expect,” “in
Slide 3: 2Q24 Revenue
2Q24 Revenue ($ in millions, except per share amounts) 2Q24 2Q23 YOY Δ Revenue, reported $1,026.1 $1,059.9 (3.2)% (Increase)/decrease due to FX 0.3% Contribution from acquisitions (0.5)% Impact of divestitures 0.2% Revenue growth, organic (3.2)% ▪ 2Q24 revenue in line with our outlook ▪ Organic reve
Slide 4: 2Q24 Operating Margin
2Q24 Operating Margin 2Q24 2Q23 YOY Δ GAAP OM% 14.8% 15.6% (80) bps Non-GAAP OM% 21.3% 20.4% 90 bps ▪ 2Q24 non-GAAP operating margin increase primarily driven by lower performance-based bonus compensation accruals ̶ Reflecting reduction in financial outlook for 2H24 ▪ On a segment basis, higher Manu
Slide 5: 2Q24 EPS
2Q24 EPS 2Q24 2Q23 YOY Δ GAAP EPS $1.74 $1.89 (7.9)% Non-GAAP EPS $2.80 $2.69 4.1% ▪ 2Q24 non-GAAP EPS exceeded the implied outlook in our prior guidance by ~$0.40 ̶ Lower performance-based compensation accruals were largest contributor to non-GAAP EPS outperformance in 2Q24 5 See ir.criver.com for
Slide 6: 2024 Updated Guidance
2024 Updated Guidance REVISED PRIOR Revenue growth/(decrease), reported (4.5)%-(2.5)% 1.0%-4.0% Impact of divestitures/(acquisitions), net ~(0.5)% ~(0.5)% (Increase)/decrease due to FX --- ~(0.5)% Revenue growth/(decrease), organic (5.0)%-(3.0)% 0.0%-3.0% GAAP EPS estimate $5.65-$5.95 $7.60-$8.10 Ac
Slide 7: Updated 2024 Guidance
Updated 2024 Guidance ▪ Significantly reducing 2024 financial guidance because forward-looking DSA trend data suggest that demand will not improve during 2H24 as we had previously anticipated ̶ In fact, demand will decline for global biopharmaceutical clients ▪ Intend to partially offset the headwin
Slide 8: Global Biopharma Demand Trends
Global Biopharma Demand Trends ▪ Financial performance to date, including low-single-digit organic revenue decline in 1H24, has been largely in line with our initial outlook ▪ Taking a much more negative view of growth prospects for 2H24 based on: ̶ Lack of recovery in biotech demand ̶ Recently emer
Slide 9: Global Biopharma Demand Trends, cont.
Global Biopharma Demand Trends, cont. ▪ Revenue for global biopharma clients continued to increase in 2Q24 ▪ However, DSA proposal activity and bookings began to notably decline for this client base and diverge from biotech clients in 2Q24 ▪ Now expect demand trends for global biopharma clients to f
Slide 10: Biotech Demand Trends
Biotech Demand Trends ▪ In contrast to large biopharma, demand KPIs for small and mid-sized biotech clients have stabilized and trended somewhat more favorably through 1H24 ̶ Reflecting solid biotech funding environment and favorable sentiment around interest rates ▪ DSA proposals and net bookings f
Slide 11: Taking Action Now: Commercial Efforts
Taking Action Now: Commercial Efforts ▪ We are laser focused on initiatives to generate more revenue, contain costs, and protect shareholder value ▪ Already begun to enhance commercial efforts this year ▪ Focused on optimizing our salesforce to accelerate revenue growth by: ̶ Adjusting go-to-market
Slide 12: Taking Action Now: Restructuring/Cost Savings & Business Optimization
Taking Action Now: Restructuring/Cost Savings & Business Optimization ▪ To drive additional savings and preserve the bottom line, will continue to aggressively manage our cost structure to ensure capacity and headcount are aligned with current, softer demand environment ▪ Already consolidated severa
Slide 13: New Stock Repurchase Authorization
New Stock Repurchase Authorization ▪ Board recently approved a new stock repurchase authorization totaling $1B ▪ Intend to reinstate a stock repurchase activity before the end of 3Q24 13
Slide 14: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 2Q24 2Q23 YOY Δ Revenue, reported $627.4 $663.5 (5.4)% (Increase)/decrease due to FX 0.1% Impact of divestitures 0.3% Revenue growth, organic (5.0)% ▪ 2Q24 revenue decline driven by lower revenue in both Discovery Services and Safety Assessment businesses 14 See
Slide 15: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ Lower study volume in SA partially offset by a small benefit from price increases in 2Q24 ▪ Overall business trends were relatively consistent with those discussed in recent quarters, with exception of diverging demand trends between global biopharma and small
Slide 16: DSA Outlook
DSA Outlook ▪ Reduced DSA revenue outlook to high-single-digit organic decline for FY 2024 ̶ Do not expect trends to improve during 2H24 as previously anticipated ̶ Expect incremental spending pressures for our global biopharma client base ▪ In the near term, will ensure our capacity – both space an
Slide 17: DSA Results – Operating Margin
DSA Results – Operating Margin . 2Q24 2Q23 YOY Δ DSA GAAP OM% 22.1% 24.3% (220) bps DSA Non-GAAP OM% 27.1% 27.6% (50) bps ▪ YOY non-GAAP operating margin decline reflected lower sales volume and moderated pricing, particularly in the Discovery Services business ▪ Operating margin improved from 1Q24
Slide 18: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 2Q24 2Q23 YOY Δ Revenue, reported $206.4 $209.9 (1.7)% (Increase)/decrease due to FX 0.5% Contribution from acquisitions (2.7)% Revenue growth, organic (3.9)% ▪ RMS revenue decline primarily driven by lower NHP revenue ▪ As mentioned last quarter, we expected ti
Slide 19: RMS Results – Research Models
RMS Results – Research Models ▪ Revenue for small models increased in all geographies, particularly in China and Europe ▪ Resilience of research model business reflects that small models are essential, low-cost tools for research ̶ Enhances our ability to continue to realize price increases globally
Slide 20: RMS Results – Research Model Services
RMS Results – Research Model Services ▪ Research Model Services experiences a slight revenue decline in 2Q24, both GEMS and Insourcing Solutions (IS) ▪ Trends largely reflect the overall biopharma demand environment; however, benefits generated by clients that utilize GEMS and IS solutions can help
Slide 21: RMS Results – Operating Margin
RMS Results – Operating Margin 2Q24 2Q23 YOY Δ RMS GAAP OM% 14.5% 23.3% (880) bps RMS Non-GAAP OM% 23.1% 26.4% (330) bps ▪ 2Q24 non-GAAP operating decline was primarily a result of lower NHP revenue ▪ Timing of NHP shipments from both Noveprim and in China can lead to quarterly revenue fluctuations
Slide 22: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 2Q24 2Q23 YOY Δ Revenue, reported $192.3 $186.5 3.1% (Increase)/decrease due to FX 0.6% Revenue growth, organic 3.7% ▪ Each of segment’s businesses contributed to revenue growth ▪ As anticipated, Manufacturing growth rate was lower than 1Q24 level beca
Slide 23: Manufacturing Results – CDMO
Manufacturing Results – CDMO ▪ CDMO business continues to perform well, and client interest remains strong ▪ A third client received commercial approval last month ̶ Utilizes our viral vector Center of Excellence in Maryland ▪ Also regularly adding new projects across the various phases of clinical
Slide 24: Manufacturing Results – Biologics Testing & Microbial Solutions
Manufacturing Results – Biologics Testing & Microbial Solutions ▪ Revenue in our manufacturing quality-control testing businesses also continued to grow, rebounding from more challenging market environment last year ▪ Biologics Testing performance was driven by core testing activities, including cel
Slide 25: Manufacturing Results – Operating Margin
Manufacturing Results – Operating Margin 2Q24 2Q23 YOY Δ Manufacturing GAAP OM% 19.4% 13.1% 630 bps Manufacturing Non-GAAP OM% 26.6% 22.9% 370 bps ▪ 2Q24 non-GAAP operating margin demonstrated continued improvement on both YOY (+370 bps) and sequential basis (+130 bps) ▪ Improvement largely a result
Slide 26: Conclusion
Conclusion ▪ It is clear that clients are in midst of reassessing budgets, reprioritizing pipelines, and managing cost structures ▪ However, our clients will continue to seek life-saving treatments for rare diseases and other unmet medical needs ▪ In order to do so, clients will by necessity reinvig
Slide 27: 2Q24 Results
2Q24 Results ($ in millions, except per share amounts) 2Q24 2Q23 YOY Δ Organic Δ Revenue $1,026.1 $1,059.9 (3.2)% (3.2)% GAAP OM% 14.8% 15.6% (80) bps Non-GAAP OM% 21.3% 20.4% 90 bps GAAP EPS $1.74 $1.89 (7.9)% Non-GAAP EPS $2.80 $2.69 4.1% ▪ 2Q24 organic revenue decrease was in line with prior outl
Slide 28: 2024 Guidance
2024 Guidance 2024 Guidance Revenue growth/(decrease), reported (4.5)%-(2.5)% Revenue growth/(decrease), organic (5.0)%-(3.0)% GAAP EPS $5.65-$5.95 Non-GAAP EPS $9.90-$10.20 ▪ Significantly lowered our 2024 guidance driven primarily by softer demand outlook in the 2H24 than previously anticipated fo
Slide 29: Restructuring Initiatives / Cost Savings
Restructuring Initiatives / Cost Savings ▪ Implementing additional restructuring initiatives to deliver further cost savings to partially offset lower revenue and help preserve the bottom line ̶ Will have more meaningful impact in 2025 and beyond ̶ Will not have time to offset all of the 2024 revenu
Slide 30: Stock Repurchase Program
Stock Repurchase Program ▪ Board recently approved a new stock repurchase authorization of $1B ̶ Adds another option to strategically manage capital allocation since M&A activity has slowed, leverage has remained low at just above 2x, and the capital intensity has moderated in the current market env
Slide 31: 2024 Segment Revenue & Operating Margin Outlook
2024 Segment Revenue & Operating Margin Outlook 2024 Reported 2024 Organic Revenue Growth Revenue Growth(1) RMS Mid-single-digit growth Flat to low-single-digit growth DSA High-single-digit decline High-single-digit decline Manufacturing Mid- to high-single-digit growth Mid- to high-single-digit gro
Slide 32: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 2Q24 1Q24 2Q23 GAAP $53.9 $65.7 $69.9 Non-GAAP $50.5 $62.7 $65.1 ▪ 2Q24 improvement in unallocated corporate costs (non-GAAP) to 4.9% of revenue vs. 6.1% in 2Q23 ─ Primarily driven by lower performance-based compensation accruals ▪ Expect non-GAAP unall
Slide 33: Tax Rate
Tax Rate ($ in millions) 2Q24 1Q24 2Q23 GAAP 21.2% 24.8% 22.7% Non-GAAP 21.1% 23.3% 23.3% ▪ Decrease in non-GAAP tax rate YOY was primarily due to favorable geographic earnings mix and higher R&D tax credits ▪ Now expect 2024 non-GAAP tax rate will be ~22% 33 See ir.criver.com for reconciliations of
Slide 34: Net Interest Expense
Net Interest Expense ($ in millions) 2Q24 1Q24 2Q23 Interest expense, net $29.8 $32.8 $33.6 ▪ Net interest expense represented both a sequential and YOY decline ▪ Expect net interest to be lower than prior outlook, in a range of $118M-$122M ▪ >80% of $2.4B debt at end of 2Q24 was at a fixed rate ▪ I
Slide 35: Cash Flow
Cash Flow FY 2024 ($ in millions) 2Q24 2Q23 GUIDANCE Free cash flow (FCF) $154.1 $80.7 $380-$400 Capex $39.5 $67.4 ~$250 Depreciation $47.7 $43.4 ~$240 Amortization (1) $32.3 $34.3 ~$130 ▪ 2Q24 FCF improvement driven primarily by lower capital expenditures and working capital ▪ Capex decrease repres
Slide 36: 2024 Guidance Summary
2024 Guidance Summary GAAP Non-GAAP Revenue growth/(decrease) (4.5)%-(2.5%) reported (5.0)%-(3.0)% organic(1) Unallocated corporate Mid-5% of revenue Mid-5% of revenue Operating margin Below 2023 Slightly below 2023 Net interest expense $118M-$122M $118M-$122M Tax rate ~23% ~22% EPS $5.65-$5.95 $9.9
Slide 37: 3Q24 Outlook
3Q24 Outlook 3Q24 Outlook Reported revenue YOY Mid-single-digit decline Organic revenue YOY Mid-single-digit decline Non-GAAP EPS YOY Low-double-digit decline vs. 3Q23 ▪ Impact of lower DSA demand will only be partially offset by the benefit of restructuring initiatives ▪ YOY revenue growth rates in
Slide 38: Closing Remarks
Closing Remarks ▪ Our critical focus at this time is continuing to: ̶ Execute our strategy ̶ Right size the business for the current demand environment ̶ Turn around the financial performance ▪ Believe accomplishing these actions will position the Company to gain market share and emerge from this pe
Slide 39: 2Q24 Regulation G Financial Reconciliations & Appendix
2Q24 Regulation G Financial Reconciliations & Appendix © 2024 Charles River Laboratories International, Inc.
Slide 40: 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Research Models and Services Revenue $ 2
Slide 41: 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 June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 CONTINUED ON PREVIOUS SLIDE Unallocated
Slide 42: 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net income available to Charles River Laboratories Inter
Slide 43: 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 June 29, 2024 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported (3.2)% (1.7)% (5.4)% 3.1 % (Increase) decrease due to foreig
Slide 44: 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 28, 2024E 2024 GUIDANCE CURRENT PRIOR Revenue growth/(decrease), reported (4.5)% – (2.5)% 1.0% – 4.0% Impact of divestitures/(acquisiti
Slide 45: 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 June 29, 2024 March 30, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Income before income taxes & noncontrolling interests $ 119,653
Slide 46: 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 2024 Guidance June 29, 2024 July 1, 2023 FYE December 28, 2024E Net cash provided by operating activities $ 193,535 $ 148,122 $630,000-$650,000 Less: Capital expenditures
Slide 47: 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) June 29, 2024 March 30, 2024 December 30, 2023 December 31, 2022 December 25, 2021 December 26, 2020 December
Slide 48: Reconciliation of GAAP to Non-GAAP Segment Information (1Q24)
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 30, 2024 Unallocated Corporate Overhead $ (65,692) Add back: Severance 1,490 Acquisition related adjustm
Slide 49: © 2024 Charles River Laboratories International, Inc.
© 2024 Charles River Laboratories International, Inc.
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