Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q3 2022 Earnings Presentation
57 slides from Charles River Laboratories International's earnings presentation, Nov 2, 2022
Slide 1: 3Q 2022 Results
3Q 2022 Results November 2, 2022 Charles River Laboratories EVERY STEP OF THE WAY © 2022 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: 3Q22 Financial Performance
3Q22 Financial Performance ($ in millions) 3Q22 3Q21 YOY Δ Organic Δ Revenue $989.2 $895.9 10.4% 15.3% GAAP OM% 15.3% 17.4% (210) bps Non-GAAP OM% 20.4% 21.4% (100) bps GAAP EPS $1.88 $2.01 (6.5)% Non-GAAP EPS $2.63 $2.70 (2.6)% ▪ 3Q22 organic revenue growth rate accelerated by 580 basis points from
Slide 4: Uniquely Positioned as Leading, Global, Non-Clinical Drug Development Partner
Uniquely Positioned as Leading, Global, Non-Clinical Drug Development Partner ▪ Strong operating performance, against backdrop of escalating macroeconomic pressures, demonstrates the power of our unique portfolio ▪ Differentiates CRL from other companies that provide R&D support services to biopharm
Slide 5: Comprehensive Early-Stage Portfolio
Comprehensive Early-Stage Portfolio ▪ With a comprehensive portfolio spanning small molecules, biologics, and cell and gene therapies (C>), CRL provides a flexible and efficient platform that accelerates early- stage biomedical research and therapeutic innovation ▪ Leading global partner for outso
Slide 6: Large and Diversified Client Base
Large and Diversified Client Base ▪ Large and diversified client base makes CRL an exceptional barometer for health of the broader biopharmaceutical industry, and unlike clinical providers, greatly reduces our reliance on a small group of clients ▪ Worked with >2,000 biopharmaceutical clients this y
Slide 7: Biotech Clients Continue to Drive Growth
Biotech Clients Continue to Drive Growth ▪ Believe biotech clients will remain a sustained growth engine for CRL ▪ Averaged adding >400 new biotech clients per year since 2017 ─ Already above that level this year ▪ Biotech clients continued to be principal driver of revenue growth, increasing at hea
Slide 8: Differentiated Through Our Non-Clinical Focus
Differentiated Through Our Non-Clinical Focus ▪ Total cost of a regulated safety assessment program is a fraction of the cost of clinical trials, typically ranging from $6-$8M including post-IND studies ─ Yet an important milestone to demonstrate that clients’ efforts are driving innovation and vali
Slide 9: 3Q22 Revenue
3Q22 Revenue ($ in millions) 3Q22 3Q21 YOY Δ Revenue, reported $989.2 $895.9 10.4% (Increase)/decrease due to FX 4.5% Contribution from acquisitions (1.7)% Impact of divestitures 2.1% Revenue growth, organic 15.3% ▪ Organic revenue growth of 15.3% exceeded prior outlook of at least a low-double- dig
Slide 10: 3Q22 Operating Margin
3Q22 Operating Margin 3Q22 3Q21 YOY Δ GAAP OM% 15.3% 17.4% (210) bps Non-GAAP OM% 20.4% 21.4% (100) bps ▪ Decline driven by lower margins in Manufacturing and RMS segments, as well as higher unallocated corporate costs ─ Both were previously anticipated 10 EVERY STEP OF THE WAY See ir.criver.com for
Slide 11: 3Q22 EPS
3Q22 EPS 3Q22 3Q21 YOY Δ GAAP EPS $1.88 $2.01 (6.5)% Non-GAAP EPS $2.63 $2.70 (2.6)% ▪ Higher revenue offset by operating margin decline, increased interest expense, and higher tax rate 11 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP results.
Slide 12: Updated 2022 Guidance
Updated 2022 Guidance REVISED PRIOR Revenue growth, reported 10.0%-11.0% 9.0%-11.0% Contribution from acquisitions/divestitures, net ~(1.0)% ~(1.0)% Impact of 53rd week in 2022 ~(1.5)% ~(1.5)% (Increase)/Decrease due to FX ~3.5% ~3.5% Revenue growth, organic 11.0%-12.0% 10.0%-12.0% GAAP EPS $7.90-$8
Slide 13: Updated 2022 Guidance, cont.
Updated 2022 Guidance, cont. ▪ Based on 3Q22 performance, narrowing 2022 revenue growth and non-GAAP earnings per share guidance to upper ends of previous ranges ▪ Expect organic revenue growth in a range of 11%-12% ▪ Expect non-GAAP earnings per share of $10.80-$10.95 13 EVERY STEP OF THE WAY
Slide 14: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 3Q22 3Q21 YOY Δ Revenue, reported $619.5 $531.8 16.5% (Increase)/decrease due to FX 4.3% Contribution from acquisitions --- Revenue growth, organic 20.8% ▪ DSA growth rate surpassed 20% level, tracking to initial plan that had forecast meaningful DSA growth acce
Slide 15: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ Broad-based growth in Safety Assessment (SA) was principal driver of nearly two-fold increase in DSA revenue growth rate from 2Q22 ▪ Factors that led to meaningful step-up were substantially higher study volume and continued, meaningful price increases ▪ Study
Slide 16: DSA Results - Safety Assessment (SA), cont.
DSA Results - Safety Assessment (SA), cont. ▪ Pricing also continued to trend meaningfully higher YOY and sequentially ▪ Believe pricing reflects complexity and specialized nature of work we do, today’s inflationary cost environment, and fact that capacity remains well utilized ▪ Although pass-throu
Slide 17: DSA Results - Safety Assessment (SA), cont.
DSA Results - Safety Assessment (SA), cont. ▪ Clients continue to emphasize breadth of capabilities, study lead times, and availability of space, more so than price, when determining their preferred partner for preclinical programs ▪ As the premier partner for clients’ non-clinical development progr
Slide 18: DSA Results – Discovery Services
DSA Results – Discovery Services ▪ Discovery Services revenue growth rate moderated in 3Q22, as expected ▪ Clients lengthened decision-making timeframe for starting new projects ─ Trend which we discussed in August ▪ Believe Discovery business continues to demonstrate favorable, long-term growth pro
Slide 19: DSA Revenue Outlook & Management Promotion
DSA Revenue Outlook & Management Promotion ▪ Continue to expect mid-teens DSA organic revenue growth in FY 2022 ▪ DSA backlog and booking activity through 3Q22 continues to support sustained growth ▪ For 2023, significant amount of safety assessment work already booked ▪ Shannon Parisotto (formerly
Slide 20: DSA Results – Operating Margin
DSA Results – Operating Margin 3Q22 3Q21 YOY Δ DSA GAAP OM% 22.9% 21.9% 100 bps DSA Non-GAAP OM% 26.2% 24.3% 190 bps ▪ Operating margin increase driven primarily by operating leverage from substantial, quarterly increase in SA study volume and pricing 20 EVERY STEP OF THE WAY See ir.criver.com for r
Slide 21: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 3Q22 3Q21 YOY Δ Revenue, reported $180.1 $171.3 5.2% (Increase)/decrease due to FX 4.0% Contribution from acquisitions (8.8)% Impact of divestitures 7.6% Revenue growth, organic 8.0% ▪ RMS continued to sustain high-single-digit growth, consistent with our outloo
Slide 22: RMS Growth Potential
RMS Growth Potential ▪ RMS growth potential has trended upwards recently, from a low- to mid-single-digit rate several years ago, due to combination of accelerating growth for research models services and research models ▪ These factors were principal drivers of RMS revenue growth in 3Q22: ─ CRADL™
Slide 23: RMS Results – Research Models
RMS Results – Research Models ▪ North America continued to generate strong revenue growth and China rebounded from impact of COVID-related restrictions in 2Q22 ▪ No meaningful impact on client order activity from COVID-related restrictions in 3Q22 ▪ Continuing to expand in China outside of Beijing a
Slide 24: RMS Results – RM Services & CRADL™/Explora
RMS Results – RM Services & CRADL™/Explora ▪ RM Services growth led by Insourcing Solutions, particularly CRADL™ and Explora operations ▪ Clients increasingly adopting this flexible model to access laboratory space without having to invest in internal infrastructure ▪ Explora has continued to perfor
Slide 25: RMS Results – Operating Margin
RMS Results – Operating Margin 3Q22 3Q21 YOY Δ RMS GAAP OM% 19.9% 22.8% (290) bps RMS Non-GAAP OM% 23.5% 26.1% (260) bps ▪ Operating margin decline driven primarily by revenue mix and higher costs in China, due in part to regional expansions ▪ Modest margin impact from opening new CRADL™ and Explora
Slide 26: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 3Q22 3Q21 YOY Δ Revenue, reported $189.6 $192.9 (1.7)% (Increase)/decrease due to FX 5.4% Contribution from acquisitions --- Impact of divestitures 2.3% Revenue growth, organic 6.0% ▪ Lower CDMO revenue more than offset by higher growth rates for both
Slide 27: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions benefitted from broad-based growth across Endosafe® endotoxin testing and Accugenix® microbial identification testing platforms ▪ Continuing to convert the marketplace to our more efficient and reliable quality-control testing platfor
Slide 28: Manufacturing Results – Biologics Testing
Manufacturing Results – Biologics Testing ▪ Biologics Testing also had a strong quarter, with virology, viral clearance, and microbiology testing services driving growth in both U.S. and Europe ▪ Demand for traditional biologics remains strong, but cell and gene therapy clients are driving a disprop
Slide 29: Manufacturing Results – CDMO Outlook
Manufacturing Results – CDMO Outlook ▪ Initiatives implemented to improve performance of CDMO business are beginning to gain traction and earn positive feedback from clients ▪ Do not expect financial performance to meaningfully improve until next year ─ Still early but pleased with initial progress
Slide 30: Manufacturing Results – CDMO Outlook, Cont.
Manufacturing Results – CDMO Outlook, Cont. ▪ Continue to believe in the long-term growth prospects for cell and gene therapies ▪ Enhancing service offering to generate new business and provide incremental opportunities for clients to streamline biologics development workflows by utilizing CRL for a
Slide 31: Manufacturing – Operating Margin
Manufacturing – Operating Margin 3Q22 3Q21 YOY Δ Manufacturing GAAP OM% 16.6% 25.2% (860) bps Manufacturing Non-GAAP OM% 28.6% 32.7% (410) bps ▪ Operating margin decline almost entirely driven by CDMO business 31 EVERY STEP OF THE WAY See ir.criver.com for reconciliations of GAAP to Non-GAAP results
Slide 32: Divestiture of Avian Vaccine Business
Divestiture of Avian Vaccine Business ▪ As announced this morning, signed an agreement to divest Avian Vaccine ─ Part of Manufacturing Solutions segment ▪ Sale price of ~$170M, plus potential contingent payments up to an additional $30M ▪ Routinely evaluate strategic fit and fundamental performance
Slide 33: Concluding Remarks
Concluding Remarks ▪ Confident we will finish 2022 on a strong note and encouraged by solid growth prospects as we head into 2023 ▪ Economy will present challenges in the coming year, but believe we are well positioned to meet challenges and continue to deliver exquisite science, superior client sup
Slide 34: 3Q22 Results
3Q22 Results ($ in millions) 3Q22 3Q21 YOY Δ Organic Δ Revenue $989.2 $895.9 10.4% 15.3% GAAP OM% 15.3% 17.4% (210) bps Non-GAAP OM% 20.4% 21.4% (100) bps GAAP EPS $1.88 $2.01 (6.5)% Non-GAAP EPS $2.63 $2.70 (2.6)% ▪ Pleased with solid 3Q22 results, with revenue and non-GAAP earnings per share outpe
Slide 35: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 3Q22 2Q22 3Q21 GAAP $58.5 $43.4 $48.4 Non-GAAP $57.5 $40.2 $45.0 ▪ Unallocated corporate costs increased in 3Q22, totaling 5.8% of revenue, compared to 5.0% of revenue last year ─ Increase was primarily the result of higher health and fringe-related cos
Slide 36: Net Interest Expense
Net Interest Expense ($ in millions) 3Q22 2Q22 3Q21 GAAP interest expense, net $11.3 $3.5 $16.3 Non-GAAP interest expense, net $11.3 $3.5 $16.3 Adjustments for foreign exchange forward contract and related interest expense(1) $16.0 $19.4 $4.4 Adjusted net interest expense $27.3 $22.9 $20.7 ▪ Increas
Slide 37: Net Interest Expense, cont.
Net Interest Expense, cont. ▪ Current interest expense guidance can accommodate an additional 75-100-bps rate increase, should that be the outcome of November’s Fed meeting ─ Given the late timing of a potential December increase, we do not expect a material impact on 2022 interest expense ▪ Entered
Slide 38: Capital Priorities
Capital Priorities ▪ Gross and net leverage ratios were ~2.7x at end of 3Q22 ▪ Over the longer-term, we continue to believe that strategic M&A will generate the greatest shareholder returns and enhance our growth potential ─ In the near term, we will focus on shorter-term initiatives like debt repay
Slide 39: Tax Rate
Tax Rate 3Q22 2Q22 3Q21 GAAP 20.7% 23.2% 14.7% Non-GAAP 20.2% 21.1% 17.0% ▪ 3Q22 non-GAAP tax rate represented a 320-bps increase YOY due primarily to: ─ A lower excess tax benefit associated with stock-based compensation related to the lower stock price ─ Higher discrete tax benefits in 2021 associ
Slide 40: Cash Flow
Cash Flow ($ in millions) 3Q22 3Q21 2022 Outlook Free cash flow (FCF) $60.4 $119.2 ~$360 Capex $72.4 $55.5 ~$340 Depreciation $39.1 $35.8 ~$160 Amortization (1) $35.5 $32.9 $145-$150 ▪ Decrease of 49% in 3Q22 FCF was primarily due: ─ Changes in working capital ─ Higher capex ▪ Capex increased nearly
Slide 41: Updating 2022 Guidance
Updating 2022 Guidance Current Prior Revenue growth, reported 10.0% - 11.0% 9.0% - 11.0% Revenue growth, organic 11.0% - 12.0% 10.0% - 12.0% GAAP EPS $7.90 - $8.05 $7.90 - $8.15 Non-GAAP EPS $10.80 - $10.95 $10.70 - $10.95 ▪ Narrowed revenue growth and non-GAAP EPS guidance to upper end of prior ran
Slide 42: 2022 Segment Revenue Outlook
2022 Segment Revenue Outlook 2022 Reported 2022 Organic Revenue Growth Revenue Growth RMS High-single digits High-single digits DSA Low-teens Mid-teens Manufacturing High-single-digit Mid-single-digits Consolidated CRL 10.0%-11.0% 11.0%-12.0% ▪ Segment revenue growth outlook remains unchanged from p
Slide 43: 2022 Updated Guidance Summary
2022 Updated Guidance Summary GAAP Non-GAAP Revenue growth 10.0%-11.0% reported 11.0%-12.0% organic(1) Essentially flat Essentially flat Operating margin from 16.7% in 2021 from 21.0% in 2021 ~5% range ~5% range Unallocated corporate as a % of revenue as a % of revenue Net interest expense (total) $
Slide 44: 4Q22 Outlook
4Q22 Outlook 4Q22 Outlook Reported revenue growth YOY Low- to mid-teens growth Organic revenue growth YOY At least low-double-digit growth Non-GAAP EPS growth YOY ~$2.65 – $2.80 ▪ With one quarter remaining, 4Q22 outlook is effectively embedded in 2022 guidance ▪ 2022 includes a 53rd week in 4Q22 to
Slide 45: Concluding Remarks
Concluding Remarks ▪ Well positioned to finish 2022 on a strong note ▪ 2H22 DSA growth acceleration is occurring as expected, and substantial backlog firmly supports our 2022 financial guidance ▪ Looking to the future, we are focused on: ─ Continuing to drive growth ─ Executing on our strategy ─ Enh
Slide 46: 3Q22 Regulation G Financial Reconciliations
3Q22 Regulation G Financial Reconciliations EVERY STEP OF THE WAY © 2022 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 Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Research Models a
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 Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 CONTINUED FROM P
Slide 49: 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 Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Net income attributable to common
Slide 50: Reconciliation of GAAP Revenue Growth to Non-GAAP Organic Revenue Growth
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP REVENUE GROWTH TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1) Three Months Ended September 24, 2022 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 10.4 % 5.2 % 16.5 % (1.7)% Decrease due to foreign exch
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 31, 2022E 2022 GUIDANCE CURRENT PRIOR Revenue growth, reported 10.0% - 11.0% 9.0%-11.0% Less: Contribution from acquisitions/divestitur
Slide 52: 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 June 25, 2022 Unallocated Corporate Overhead $ (43,411) Add back: Severance 167 Acquisition related adjustment
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 Fiscal Year Ended September 24, 2022 June 25, 2022 September 25, 2021 December 31, 2022E GAAP Interest expense, net $ 11,253 $ 3,515 $ 16,318 $59,000-$63,000 Ex
Slide 54: 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) September 24, 2022 December 25, 2021 December 26, 2020 December 28, 2019 December 29, 2018 December 30, 2017 D
Slide 55: 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 Nine Months Ended September 24, 2022 June 25, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Income before income taxes & noncontrollin
Slide 56: 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 Nine Months Ended Fiscal Year Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 December 31, 2022E Net cash provided by operating activitie
Slide 57: EVERY STEP OF THE WAY © 2022 Charles River Laboratories International, Inc.
EVERY STEP OF THE WAY © 2022 Charles River Laboratories International, Inc.
Charles River Laboratories International — Q3 2022 Earnings Presentation on 6ix