Charles River Laboratories International, Inc. · NYSE:CRL
Charles River Laboratories International — Q3 2024 Earnings Presentation
54 slides from Charles River Laboratories International's earnings presentation, Nov 6, 2024
Slide 1: Charles River Laboratories 3Q 2024 Results
Charles River Laboratories 3Q 2024 Results November 6, 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: 3Q24 Financial Performance Exceeded Our Outlook
3Q24 Financial Performance Exceeded Our Outlook ▪ Biopharma demand environment remains challenging but consistent with trends discussed on last quarter’s call ▪ Revenue from small and mid-sized biotech clients was stable compared to 2Q24 ▪ Forward-looking demand indicators for biotech clients contin
Slide 4: Forward-Looking Demand Indicators Stable
Forward-Looking Demand Indicators Stable ▪ Overall, these trends translated into slight, sequential improvement in the forward-looking demand indicators for the Safety Assessment business in 3Q24 ̶ Including improvements in net book-to-bill and the cancellation rate ▪ Important because it supports o
Slide 5: Taking Decisive Action to Right-Size Infrastructure
Taking Decisive Action to Right-Size Infrastructure ▪ As discussed in August, taking decisive action to manage CRL through current demand environment, including appropriately right-sizing infrastructure ▪ Committed to initiatives to generate more revenue, contain costs, and protect shareholder value
Slide 6: Update on Restructuring Initiatives
Update on Restructuring Initiatives ▪ Restructuring initiatives implemented to aggressively manage cost structure are already generating significant savings ▪ Headcount reduction ̶ As planned, continued to further reduce staffing levels in 3Q24 ̶ Initiatives implemented since late 2023 have reduced
Slide 7: Update on Restructuring Initiatives, cont.
Update on Restructuring Initiatives, cont. ▪ Global footprint optimization efforts are focused on consolidating capacity that is no longer needed, and in many cases, transitioning services and clients to other larger sites ▪ Taking a client-centric approach towards these actions with goal of serving
Slide 8: Update on Restructuring Initiatives, cont.
Update on Restructuring Initiatives, cont. 2024 2025 2026 Realized, Cumulative Cost Savings ~$100M >$150M ~$200M ▪ In total, restructuring initiatives implemented since late 2023 (including headcount reductions and global footprint optimization efforts) expected to generate ~$200M in cumulative, ann
Slide 9: Capital Allocation Update
Capital Allocation Update ▪ Pleased to report record quarterly free cash flow generation of over $200M in 3Q24 ▪ Strong cash generation is a long-term hallmark of CRL ▪ Coupled with moderating capital intensity of our business and lower debt, enabled us to reevaluate and rebalance capital priorities
Slide 10: 3Q24 Revenue
3Q24 Revenue ($ in millions, except per share amounts) 3Q24 3Q23 YOY Δ Revenue, reported $1,009.8 $1,026.6 (1.6)% (Increase)/decrease due to FX (0.4)% Contribution from acquisitions (0.9)% Impact of divestitures 0.2% Revenue growth, organic (2.7)% ▪ As anticipated, 3Q24 organic revenue decline drive
Slide 11: 3Q24 Operating Margin
3Q24 Operating Margin 3Q24 3Q23 YOY Δ GAAP OM% 11.6% 14.8% (320) bps Non-GAAP OM% 19.9% 20.5% (60) bps ▪ 3Q24 non-GAAP operating margin improved in each of our three business segments, due in part to benefit of cost savings ▪ However, higher unallocated corporate costs resulted in consolidated non-G
Slide 12: 3Q24 EPS
3Q24 EPS 3Q24 3Q23 YOY Δ GAAP EPS $1.33 $1.69 (21.3)% Non-GAAP EPS $2.59 $2.72 (4.8)% ▪ 3Q24 non-GAAP EPS decline reflected lower revenue and operating margin ▪ Despite decline, exceeded outlook provided in August ̶ Due primarily to better-than-expected top-line performance, particularly in the DSA
Slide 13: 2024 Updated Guidance
2024 Updated Guidance REVISED PRIOR Revenue growth/(decrease), reported (3.0)%-(2.0)% (4.5)%-(2.5)% Impact of divestitures/(acquisitions), net ~(0.5)% ~(0.5)% (Increase)/decrease due to FX ~(0.5)% --- Revenue growth/(decrease), organic (4.0)%-(3.0)% (5.0)%-(3.0)% GAAP EPS estimate $5.30-$5.50 $5.65-
Slide 14: Updated 2024 Guidance, cont.
Updated 2024 Guidance, cont. ▪ Narrowing and slightly raising full-year guidance for revenue and non-GAAP EPS from midpoint of previous ranges to reflect 3Q24 performance ̶ Revenue outlook to a 3% - 4% decrease on an organic basis ̶ Non-GAAP EPS to range of $10.10 - $10.30 ▪ While we are never pleas
Slide 15: DSA Results – Revenue
DSA Results – Revenue ($ in millions) 3Q24 3Q23 YOY Δ Revenue, reported $615.1 $664.0 (7.4)% (Increase)/decrease due to FX (0.3)% Impact of divestitures 0.3% Revenue growth, organic (7.4)% ▪ 3Q24 revenue decline driven by lower sales volume in both Discovery Services and Safety Assessment businesses
Slide 16: DSA Results – Safety Assessment (SA)
DSA Results – Safety Assessment (SA) ▪ Revenue decrease primarily driven by lower study volume ▪ Pricing was essentially flat YOY and is expected to turn slightly lower in 4Q24, consistent with our previous expectations ▪ From our perspective, SA pricing environment (or spot market for new proposals
Slide 17: DSA Results – Safety Assessment (SA), cont.
DSA Results – Safety Assessment (SA), cont. ▪ Headwinds still exist, ranging from net book-to-bill remaining below 1x to pricing and the overhang from our clients’ major restructuring efforts ▪ Therefore, continue to take a cautious view with respect to near-term outlook for SA until sustained deman
Slide 18: Global DSA Integration Efforts
Global DSA Integration Efforts ▪ Working to further integrate the global discovery and safety assessment operating structure into “One DSA” over the next year ▪ For last two years, global DSA operations have been managed by Shannon Parisotto (EVP, Global DSA) ▪ During this time, Shannon has comprehe
Slide 19: DSA Results – Operating Margin
DSA Results – Operating Margin . 3Q24 3Q23 YOY Δ DSA GAAP OM% 20.6% 22.1% (150) bps DSA Non-GAAP OM% 27.4% 27.2% 20 bps ▪ YOY and sequential non-GAAP operating margin improvements driven by increasing benefits from cost-saving actions we have implemented 19 See ir.criver.com for reconciliations of G
Slide 20: RMS Results – Revenue
RMS Results – Revenue ($ in millions) 3Q24 3Q23 YOY Δ Revenue, reported $197.8 $186.8 5.9% (Increase)/decrease due to FX (0.4)% Contribution from acquisitions (4.9)% Revenue growth, organic 0.6% ▪ Revenue increase primarily driven by benefit of higher pricing and small model sales volume in China, l
Slide 21: RMS Results – Research Models
RMS Results – Research Models ▪ As has been the case all year, small model revenue in North America and Europe driven by higher pricing ▪ Unit volume for small models has declined in conjunction with: ̶ Large pharma restructuring activities that have led to spending cuts and reduction in research st
Slide 22: RMS Results – Research Model Services
RMS Results – Research Model Services ▪ Research Model Services experienced a modest revenue decline in 3Q24, including our CRADL™ operations ̶ Largely reflecting the overall biopharma demand environment ▪ While CRADL®’s business model continues to resonate with clients, it experienced lower occupan
Slide 23: RMS Results – Operating Margin
RMS Results – Operating Margin 3Q24 3Q23 YOY Δ RMS GAAP OM% 13.9% 15.2% (130) bps RMS Non-GAAP OM% 21.0% 18.9% 210 bps ▪ 3Q24 non-GAAP operating margin improvement was primarily due to higher pricing, favorable revenue mix related to Noveprim, and benefit of cost-saving actions 23 See ir.criver.com
Slide 24: Manufacturing Results – Revenue
Manufacturing Results – Revenue ($ in millions) 3Q24 3Q23 YOY Δ Revenue, reported $196.9 $175.7 12.0% (Increase)/decrease due to FX (0.2)% Revenue growth, organic 11.8% ▪ Each of segment’s businesses contributed to robust revenue growth ▪ Given continued strong performance, raising the segment’s ful
Slide 25: Manufacturing Results – Biologics Testing
Manufacturing Results – Biologics Testing ▪ Biologics Testing business continued to perform well, driven by demand for core testing activities ̶ Including cell banking, viral clearance, and viral safety testing ▪ Also pleased that synergies between CDMO and Biologics Testing continue to strengthen ̶
Slide 26: Manufacturing Results – Microbial Solutions
Manufacturing Results – Microbial Solutions ▪ Microbial Solutions had a strong quarter, driven primarily by demand for Endosafe® testing consumables, as well as improving instrument placements ▪ Believe 3Q24 performance demonstrated that demand for Microbial products has rebounded from pressures las
Slide 27: Manufacturing Results – Operating Margin
Manufacturing Results – Operating Margin 3Q24 3Q23 YOY Δ Manufacturing GAAP OM% 20.4% 15.0% 540 bps Manufacturing Non-GAAP OM% 28.7% 24.5% 420 bps ▪ 3Q24 non-GAAP operating margin improvement largely a result of leverage from higher sales volume across each of segment’s businesses 27 See ir.criver.c
Slide 28: Conclusion
Conclusion ▪ Continuing to navigate through this challenging period by: ̶ Remaining laser focused on our strategy ̶ Aggressively managing our cost structure ̶ Enhancing our clients’ experiences to gain additional share ̶ Protecting shareholder value ▪ CRL has always distinguished the Company through
Slide 29: 3Q24 Results
3Q24 Results ($ in millions, except per share amounts) 3Q24 3Q23 YOY Δ Organic Δ Revenue $1,009.8 $1,026.6 (1.6)% (2.7)% GAAP OM% 11.6% 14.8% (320) bps Non-GAAP OM% 19.9% 20.5% (60) bps GAAP EPS $1.33 $1.69 (21.3)% Non-GAAP EPS $2.59 $2.72 (4.8)% ▪ 3Q24 organic revenue decrease was better than prior
Slide 30: 2024 Guidance
2024 Guidance 2024 Guidance Revenue growth/(decrease), reported (3.0)%-(2.0)% Revenue growth/(decrease), organic (4.0)%-(3.0)% GAAP EPS $5.30-$5.50 Non-GAAP EPS $10.10-$10.30 ▪ Narrowed and slightly raised full year revenue and EPS guidance to reflect the stronger third- quarter performance 30 See i
Slide 31: 2024 Segment Revenue & Operating Margin Outlook
2024 Segment Revenue & Operating Margin Outlook 2024 Reported 2024 Organic Revenue Growth Revenue Growth(1) RMS Low- to mid-single-digit growth Approximately flat Favorable end of Favorable end of DSA high-single-digit decline high-single-digit decline Manufacturing High-single-digit growth High-sin
Slide 32: Highlighting Three Key Updates from 3Q24
Highlighting Three Key Updates from 3Q24 ▪ Additional savings from restructuring initiatives ▪ Re-initiation of stock repurchases ▪ Strong free cash flow generation 32
Slide 33: Restructuring Initiatives
Restructuring Initiatives ▪ As mentioned in August, we have begun to implement additional restructuring initiatives to deliver further cost savings to help preserve the bottom line ̶ This will result in the consolidation of ~15 smaller sites, primarily in the DSA and RMS segments ̶ Most of these act
Slide 34: Restructuring Initiatives, cont.
Restructuring Initiatives, cont. ▪ Inclusive of actions taken since late 2023, successfully identified annualized savings of ~$200M ̶ ~$100M will be realized this year ̶ $50M in each of the next two years to achieve the full run rate in 2026 (to reach the total of ~$200M that will be fully realized
Slide 35: Stock Repurchase Program
Stock Repurchase Program ▪ Board recently approved a new stock repurchase authorization of $1B ▪ Commenced stock repurchases under the new authorization in August ̶ Repurchased a total of 500,000 shares for $100.7M ̶ Achieved our goal to offset annual share count dilution from equity awards for this
Slide 36: Cash Flow
Cash Flow FY 2024 ($ in millions) 3Q24 3Q23 GUIDANCE Free cash flow (FCF) $213.1 $139.5 >$450 Capex $38.7 $65.9 $220-$240 Depreciation (1) $48.5 $44.6 $190-$195 Amortization (1) $39.7 $34.3 ~$160 ▪ Achieved record quarterly free cash flow ▪ Improvement driven by disciplined working capital managemen
Slide 37: Unallocated Corporate Expenses
Unallocated Corporate Expenses ($ in millions) 3Q24 2Q24 3Q23 GAAP $76.8 $53.9 $49.9 Non-GAAP $66.2 $50.5 $48.0 ▪ 3Q24 non-GAAP increase to 6.6% of revenue (from 4.7% in 3Q23) primarily due to higher health and fringe-related costs and absence of benefits from virtual power purchase agreements (vPPA
Slide 38: Tax Rate
Tax Rate ($ in millions) 3Q24 2Q24 3Q23 GAAP 23.0% 21.2% 22.0% Non-GAAP 21.3% 21.1% 21.6% ▪ Decrease in non-GAAP tax rate YOY was primarily due to favorable geographic earnings mix ▪ Now expect 2024 non-GAAP tax rate will be in a range of 21.5%-22.0% 38 See ir.criver.com for reconciliations of GAAP
Slide 39: Net Interest Expense
Net Interest Expense ($ in millions) 3Q24 2Q24 3Q23 Interest expense, net $28.8 $29.8 $32.4 ▪ Net interest expense represented both a sequential and YOY decline ▪ Reductions are primarily the result of shifting debt to lower-interest-rate geographies and continued debt repayment ▪ Expect net interes
Slide 40: Effective Capital Management
Effective Capital Management ▪ We are pleased with the effectiveness of our capital management activities ▪ Lowered net interest expense by repaying over $300M in debt this year ̶ Brought gross leverage ratio to 2.25x and net leverage ratio to 2.2x at the end of 3Q24 ▪ Ability to repay debt while ab
Slide 41: 2024 Guidance Summary
2024 Guidance Summary GAAP Non-GAAP Revenue growth/(decrease) (3.0)%-(2.0%) reported (4.0)%-(3.0)% organic(1) Unallocated corporate ~6% of revenue Slightly above mid-5% of revenue Operating margin Below 2023 Slightly below 2023 Net interest expense Lower end of $118M-$122M Lower end of $118M-$122M T
Slide 42: 4Q24 Outlook
4Q24 Outlook 4Q24 Outlook Reported revenue YOY Low to-mid-single-digit decline Organic revenue YOY Low to-mid-single-digit decline Non-GAAP EPS $2.45 - $2.65 ▪ 4Q24 outlook is effectively embedded in FY 2024 guidance ▪ May be quarterly variability in RMS results due to timing of NHP shipments ▪ Manu
Slide 43: Closing Remarks
Closing Remarks ▪ Looking ahead to 2025, we continue to expect the current trends will persist largely due to: ̶ Global biopharmaceutical clients’ ongoing restructuring programs ̶ Continued, gradual recovery in biotech growth ▪ As a reminder, we plan to provide our 2025 outlook when we report year-e
Slide 44: 3Q24 Regulation G Financial Reconciliations & Appendix
3Q24 Regulation G Financial Reconciliations & Appendix © 2024 Charles River Laboratories International, Inc.
Slide 45: 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 Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Research Models a
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 Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 CONTINUED FROM P
Slide 47: 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 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net income available to Charles R
Slide 48: 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 September 28, 2024 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported (1.6)% 5.9 % (7.4)% 12.0 % (Increase) decrease due to f
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 28, 2024E 2024 GUIDANCE CURRENT PRIOR Revenue growth/(decrease), reported (3.0)%-(2.0)% (4.5)% – (2.5)% Impact of divestitures/(acquisi
Slide 50: 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 28, 2024 June 29, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Income before income taxes & noncontrollin
Slide 51: 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 September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net cash provided by operating activities $ 251,792 $ 205,450 $ 575,215 $ 462
Slide 52: 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 28, 2024 June 29, 2024 March 30, 2024 December 30, 2023 December 31, 2022 December 25, 2021 December
Slide 53: Reconciliation of GAAP to Non-GAAP Segment Information (2Q24)
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 29, 2024 Unallocated Corporate Overhead $ (53,902) Add back: Acquisition and integration-related adjustme
Slide 54: © 2024 Charles River Laboratories International, Inc.
© 2024 Charles River Laboratories International, Inc.
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