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CRL Charles River Laboratories International

Filed: 5 Aug 20, 8:00am
 
 Exhibit 99.1


Charles River Laboratories Announces Second-Quarter 2020 Results

– Second-Quarter Revenue of $682.6 Million –

– Second-Quarter GAAP Earnings per Share of $1.34 and Non-GAAP Earnings per Share of $1.58 –

– Increases 2020 Guidance –

– Announces Proposed Acquisition of Cellero in the High-Growth Cell Therapy Market –

WILMINGTON, Mass.--(BUSINESS WIRE)--August 5, 2020--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2020. For the quarter, revenue was $682.6 million, an increase of 3.8% from $657.6 million in the second quarter of 2019.

Acquisitions contributed 3.2% to consolidated second-quarter revenue growth. The impact of foreign currency translation reduced reported revenue growth by 0.8%. Excluding the effect of these items, organic revenue growth was 1.4%, driven by the Discovery and Safety Assessment and Manufacturing Support segments. Revenue growth in these segments was largely offset by a revenue decline in the Research Models and Services segment, due principally to the impact of the COVID-19 pandemic.

On a GAAP basis, second-quarter net income attributable to common shareholders was $67.4 million, an increase of 54.2% from net income of $43.7 million for the same period in 2019. Second-quarter diluted earnings per share on a GAAP basis were $1.34, an increase of 52.3% from $0.88 for the second quarter of 2019. The GAAP net income and earnings per share increases were primarily driven by a gain from the Company’s venture capital and other strategic investments of $0.38 per share in the second quarter of 2020, compared to a $0.07 loss for the same period in 2019. The Company’s venture capital and other strategic investment performance has been excluded from non-GAAP results.

On a non-GAAP basis, net income was $79.6 million for the second quarter of 2020, a decrease of 1.9% from $81.1 million for the same period in 2019. Second‑quarter diluted earnings per share on a non-GAAP basis were $1.58, a decrease of 3.1% from $1.63 per share for the second quarter of 2019. The non-GAAP net income and earnings per share decreases were primarily related to lower revenue and operating income in the Research Models and Services segment, as a result of the impact of the COVID-19 pandemic.


James C. Foster, Chairman, President and Chief Executive Officer, said, “Charles River has never been as essential to our diverse and growing client base as we are today. As they increase their use of our flexible and efficient early-stage solutions, our clients are better able to navigate the evolving COVID-19 crisis. By partnering with us, clients have continued to move their life-saving programs forward across a wide range of therapeutic areas, as well as to develop therapeutics aimed at treating and ultimately preventing COVID-19.”

Mr. Foster continued, “As anticipated, we experienced challenges related to COVID-19 in the second quarter, principally in the RMS segment; however, the resilience of our business model enabled us to weather these challenges extremely well. This resilience is demonstrated by our second-quarter financial performance, which widely exceeded our expectations. The outperformance was due in part to the tireless efforts of our dedicated staff; the effectiveness of our comprehensive business continuity plans that enabled us to keep our operating sites open and adequately staffed; and persistent client demand across most of our businesses, driven by robust biotech funding and continued innovation that is generating scientific breakthroughs. We were also pleased that clients of our research models business began to gradually resume activities at their research sites during the second quarter, which was earlier than anticipated.”

“Based on our second-quarter performance and our current belief that the COVID-19-related headwinds will be more moderate than previously anticipated, we are increasing our revenue growth and earnings per share guidance for 2020. We believe the global scale, broad scientific capabilities, and flexible outsourcing solutions of our leading, early-stage portfolio continue to differentiate us in the marketplace and are enabling us to withstand the initial challenges of the COVID-19 pandemic,” Mr. Foster concluded.

Second-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $116.5 million in the second quarter of 2020, a decrease of 14.3% from $136.1 million in the second quarter of 2019. The HemaCare acquisition, which was completed on January 3, 2020, contributed 4.7% to second-quarter RMS revenue. Organic revenue declined by 18.4%, principally due to the impact of the COVID-19 pandemic, which reduced total RMS revenue by approximately $35 million in the second quarter. The COVID-19 pandemic had a meaningful impact on worldwide demand for research models due to closures and reduced on-site activities at the research sites of academic institutions and biopharmaceutical clients in North America, Europe, and Asia, as well as demand for HemaCare’s cellular products. RMS clients in each region began to gradually resume activities at their research sites during the second quarter, particularly in Europe and Asia, which resulted in an improvement in client ordering trends in June. The RMS revenue decline was partially offset by higher revenue for research model services, particularly the Genetically Engineered Models and Services (GEMS) and the Insourcing Solutions (IS) businesses.

In the second quarter of 2020, the RMS segment’s GAAP operating margin decreased to 3.3% from 23.2% in the second quarter of 2019. On a non-GAAP basis, the operating margin decreased to 9.1% from 25.5% in the second quarter of 2019. The GAAP and non-GAAP operating margin decreases were primarily the result of the lower sales volume in the research models and HemaCare businesses due to the impact of the COVID-19 pandemic. The GAAP operating margin also declined due to acquisition-related amortization costs associated with HemaCare.


Discovery and Safety Assessment (DSA)

Revenue for the DSA segment was $442.6 million in the second quarter of 2020, an increase of 9.1% from $405.5 million in the second quarter of 2019. The Citoxlab acquisition contributed 3.7% to DSA revenue growth. Organic revenue growth of 6.2% was driven by strong demand in both the Discovery Services and Safety Assessment businesses, partially offset by a small impact from study slippage related to the COVID-19 pandemic.

In the second quarter of 2020, the DSA segment’s GAAP operating margin increased to 16.3% from 15.7% in the second quarter of 2019. On a non-GAAP basis, the operating margin increased to 23.2% from 21.1% in the second quarter of 2019. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from higher revenue in both the Discovery Services and Safety Assessment businesses, as well as the benefit of operating efficiency initiatives, including temporary cost reductions associated with our COVID-19 response.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $123.5 million in the second quarter of 2020, an increase of 6.4% from $116.0 million in the second quarter of 2019. Organic revenue growth was 8.0%, driven primarily by strong demand in the Biologics Testing Solutions (Biologics) and Avian Vaccine businesses. Second-quarter revenue growth for the Microbial Solutions business was affected by reduced client activity and delayed instrument installations related to the COVID-19 pandemic.

In the second quarter of 2020, the Manufacturing segment’s GAAP operating margin increased to 34.8% from 28.6% in the second quarter of 2019. On a non-GAAP basis, the operating margin increased to 37.4% from 30.9% in the second quarter of 2019. The GAAP and non-GAAP operating margin increases were driven primarily by enhanced operating efficiency in the Microbial Solutions businesses, and operating leverage from higher revenue in the Biologics and Avian Vaccine businesses.

Proposed Acquisition of Cellero

On August 4, Charles River Laboratories signed a definitive agreement to acquire Cellero, LLC, a premier provider of cellular products for cell therapy developers and manufacturers worldwide. Cellero will complement Charles River’s recent acquisition of HemaCare by enhancing the supply of critical biomaterials, including a wide range of human-derived primary cell types to support the discovery, development, and manufacture of cell therapies.

The addition of Cellero will enhance Charles River’s unique, comprehensive solutions for the high-growth cell therapy market, strengthening its ability to help accelerate clients’ critical programs from basic research and proof-of-concept to regulatory approval and commercialization. It will also expand Charles River’s access to high-quality, human-derived biomaterials with Cellero’s donor sites in both the eastern and western United States. Following the acquisition of Cellero, the Company expects to generate revenue growth for human-derived cellular products, including HemaCare, of at least 30% annually over the next five years, beginning in 2021.


The proposed purchase price will be approximately $38 million in cash, and the transaction is expected to close in August, subject to customary closing conditions. Cellero is expected to be reported as part of Charles River’s RMS segment.

Increases 2020 Guidance

The Company is increasing its 2020 financial guidance, which was previously provided on May 7, 2020, as a result of the better-than-expected second quarter performance and its expectations that the revenue loss from the COVID-19 pandemic will be approximately $100 million in 2020, which is favorable to its prior estimate of $135 to $215 million.

The Company’s revised guidance for revenue growth, earnings per share, and free cash flow is as follows:

2020 GUIDANCE (1)

CURRENT

PRIOR

Revenue growth, reported

7.5% – 9.0%

4.5% – 8.0%

Less: Contribution from acquisitions (2)

~(4.0%)

~(4.0%)

Unfavorable/(favorable) impact of foreign exchange

~0.5%

0.5% – 1.0%

Revenue growth, organic (3)

4.0% – 5.5%

1.5% – 4.5%

GAAP EPS estimate

$4.70 – $5.00

$4.25 – $4.60

Acquisition-related amortization (4)

~$1.75

$1.75 – $1.80

Charges related to global efficiency initiatives (5)

$0.25 – $0.30

~$0.05

Acquisition-related adjustments (6)

$0.20 – $0.25

~$0.20

Other items (7)

$0.25 – $0.32

$0.25 – $0.32

Venture capital and other strategic
investment losses/(gains), net (8)

($0.20)

$0.18

Non-GAAP EPS estimate

$7.05 – $7.35

$6.75 – $7.10

Free cash flow (9)

$350 – $365 million

$325 – $350 million


Footnotes to Guidance Table:

(1) The proposed acquisition of Cellero has not been included in the Company’s current financial guidance since the transaction has not yet been completed.

(2) The contribution from acquisitions reflects only those acquisitions that have been completed.

(3) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign currency translation.

(4) Acquisition-related amortization includes an estimate of approximately $0.25 for the impact of the HemaCare acquisition as the purchase price allocation has not been finalized.

(5) These charges, which primarily include severance and other costs, relate primarily to the Company’s planned efficiency initiatives. Other projects in support of global productivity and efficiency initiatives are expected, but these charges reflect only the decisions that have already been finalized.

(6) These adjustments are related to the evaluation and integration of acquisitions, and primarily include transaction, advisory, and certain third-party integration costs, as well as certain costs associated with acquisition-related efficiency initiatives.

(7) These items primarily relate to charges of $0.15-$0.22 associated with the planned termination of the Company’s U.S. pension plan in the second half of 2020, as well as charges of approximately $0.10 primarily associated with U.S. and international tax legislation that necessitated changes to the Company’s international financing structure.

(8) Venture capital and other strategic investment performance only includes recognized gains or losses. The Company does not forecast the future performance of these investments.

(9) The reconciliation of the current 2020 free cash flow guidance is as follows: Cash flow from operating activities of $480-$495 million, less capital expenditures of approximately $130 million, results in free cash flow of $350-$365 million.

Webcast

Charles River has scheduled a live webcast on Wednesday, August 5, at 9:30 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of GAAP financial measures to non-GAAP financial measures on the website.

Estimates of COVID-19 Impact

In this press release, the Company has provided its estimates for the impact from the COVID-19 pandemic, including on the Company's revenue. These estimates were determined using methodologies and assumptions that vary depending on the specific reporting segment and situation. For the Research Models and Services segment, estimates were primarily based on comparisons to daily historical research model sales volumes prior to the COVID-19 pandemic and the subsequent reduction in research model order activity associated with our clients’ COVID-19 pandemic-related site closures and/or their reduced on-site activity, as well as our discussions with clients, particularly of our research model services and HemaCare businesses, with regard to revenue expectations and operational impacts from the COVID-19 pandemic. For the Discovery and Safety Assessment segment, estimates were based on multiple factors including, but not limited to, discussions with clients with regard to the cause of delays to discovery projects and safety assessment studies, location-specific actions to ensure employee safety in our facilities, the impact of remote versus in-person activities and services, and supply chain delays and other resource constraints. For the Manufacturing Support segment, estimates were based on multiple factors including, but not limited to, analysis of the sales impact due to the COVID-19 pandemic, assessments of idle instruments and the related revenue stream due to the inability to access clients’ sites, as well as discussions with clients with regard to their revenue expectations and operations. Further, we assumed for the purposes of formulating these estimates that (1) restrictions on economic activity, including stay-in-place orders and other similar government actions, will largely not be re-imposed for the remainder of the fiscal year; (2) the global economy, as it relates to demand for Charles River’s products and services, will gradually improve through the remainder of 2020; and (3) most of the Company’s essential personnel will be able to work on-site and that it will have the adequate supplies and resources to support its businesses. In addition, the estimated revenue loss related to COVID-19 is expected to be partially offset by incremental work on clients’ COVID-19 programs. Because these estimates and assumptions involve risks and uncertainties, actual events and results may differ materially from these estimates and assumptions, and Charles River assumes no obligation and expressly disclaims any duty to update them.


Non-GAAP Reconciliations

The Company reports non-GAAP results in this press release, which exclude often-one-time charges and other items that are outside of normal operations. A reconciliation of GAAP to non-GAAP results is provided in the schedules at the end of this press release.

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets, and other charges related to our acquisitions; expenses associated with evaluating and integrating acquisitions and divestitures, as well as fair value adjustments associated with contingent consideration; charges, gains, and losses attributable to businesses or properties we plan to close, consolidate, or divest; severance and other costs associated with our efficiency initiatives; the write-off of deferred financing costs and fees related to debt financing; third-party costs associated with the remediation of unauthorized access into our information systems detected in March 2019; the non-cash tax benefit related to our international financing structure; charges related to the planned settlement of our U.S. pension plan; charges recorded in connection with the modification of our option to purchase equity in one of our joint ventures; and investment gains or losses associated with our venture capital and other strategic investments. This press release also refers to our revenue in both a GAAP and non-GAAP basis: “constant currency,” which we define as reported revenue growth adjusted for the impact of foreign currency translation, and “organic revenue growth,” which we define as reported revenue growth adjusted for foreign currency translation, acquisitions, and divestitures. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. Commencing in the first quarter of 2019, we exclude the performance of our venture capital and other strategic investments due to the determination that such investment gains or losses are not core to our overall operations. There are limitations in using non-GAAP financial measures, as they are not presented in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions and divestitures (and in certain cases, the evaluation of such acquisitions and divestitures, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities and their underlying associated costs, such as business acquisitions, generally occur periodically but on an unpredictable basis. We calculate non-GAAP integration costs to include third-party integration costs incurred post-acquisition. Presenting revenue on an organic basis allows investors to measure our revenue growth exclusive of acquisitions, divestitures, and foreign currency exchange fluctuations more clearly. Non-GAAP results also allow investors to compare the Company’s operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations presented in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in this press release, and can also be found on the Company’s website at ir.criver.com.


Caution Concerning Forward-Looking Statements

This press release 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,” “intend,” “will,” “would,” “may,” “estimate,” “plan,” “outlook,” and “project,” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding the impact of the COVID-19 pandemic; the projected future financial performance of Charles River and our specific businesses; the future demand for drug discovery and development products and services, including our expectations for future revenue trends; our expectations with respect to the impact of acquisitions, including the acquisition of HemaCare and Cellero, on the Company, our service offerings, client perception, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products, including our investments in our portfolio; market and industry conditions including the outsourcing of services and spending trends by our clients; and Charles River’s future performance as delineated in our revised forward-looking guidance, and particularly our expectations with respect to revenue, the impact of foreign exchange, enhanced efficiency initiatives, and the assumptions surrounding the COVID-19 pandemic that form the basis for our revised annual guidance. Forward-looking statements are based on Charles River’s current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the COVID-19 pandemic, its duration, its impact on our business, results of operations, financial condition, liquidity, business practices, operations, suppliers, third party service providers, clients, employees, industry, ability to meet future performance obligations, ability to efficiently implement advisable safety precautions, and internal controls over financial reporting; the COVID-19 pandemic’s impact on client demand, the global economy and financial markets; the ability to successfully integrate businesses we acquire; the timing and magnitude of our share repurchases; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our clients; the ability to convert backlog to revenue; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; the impact of Brexit; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 11, 2020 and the Quarterly Report on Form 10-Q as filed on May 7, 2020, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this press release except as required by law.


About Charles River

Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.


 
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.








 
SCHEDULE 1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for per share data)








 


Three Months Ended
Six Months Ended


June 27, 2020
June 29, 2019
June 27, 2020
June 29, 2019








 
Service revenue

$

550,561

 


$

505,880

 


$

1,097,153

 


$

956,822

 

Product revenue

 

132,023

 


 

151,688

 


 

292,490

 


 

305,315

 

Total revenue

 

682,584

 


 

657,568

 


 

1,389,643

 


 

1,262,137

 

Costs and expenses:






Cost of services provided (excluding amortization of intangible assets)

 

374,938

 


 

345,369

 


 

747,762

 


 

662,169

 

Cost of products sold (excluding amortization of intangible assets)

 

75,408

 


 

74,095

 


 

157,582

 


 

150,087

 

Selling, general and administrative

 

127,712

 


 

135,941

 


 

257,613

 


 

258,515

 

Amortization of intangible assets

 

27,758

 


 

22,395

 


 

55,637

 


 

41,806

 

Operating income

 

76,768

 


 

79,768

 


 

171,049

 


 

149,560

 

Other income (expense):






Interest income

 

276

 


 

274

 


 

592

 


 

453

 

Interest expense

 

(19,352

)


 

(20,835

)


 

(34,419

)


 

(30,822

)

Other income (expense), net

 

26,260

 


 

(213

)


 

2,189

 


 

6,093

 

Income from operations, before income taxes

 

83,952

 


 

58,994

 


 

139,411

 


 

125,284

 

Provision for income taxes

 

16,284

 


 

14,685

 


 

20,906

 


 

25,287

 

Net income

 

67,668

 


 

44,309

 


 

118,505

 


 

99,997

 

Less: Net income attributable to noncontrolling interests

 

233

 


 

581

 


 

301

 


 

1,136

 

Net income attributable to common shareholders

$

67,435

 


$

43,728

 


$

118,204

 


$

98,861

 









 
Earnings per common share






Net income attributable to common shareholders:






Basic

$

1.36

 


$

0.90

 


$

2.39

 


$

2.03

 

Diluted

$

1.34

 


$

0.88

 


$

2.36

 


$

1.99

 









 
Weighted-average number of common shares outstanding;






Basic

 

49,553

 


 

48,772

 


 

49,371

 


 

48,615

 

Diluted

 

50,246

 


 

49,662

 


 

50,118

 


 

49,599

 



CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

SCHEDULE 2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)



 



 

June 27, 2020
December 28, 2019
Assets


Current assets:


Cash and cash equivalents

$

402,020

 


$

238,014

 

Trade receivables, net

 

532,531

 


 

514,033

 

Inventories

 

168,366

 


 

160,660

 

Prepaid assets

 

66,746

 


 

52,588

 

Other current assets

 

65,062

 


 

56,030

 

Total current assets

 

1,234,725

 


 

1,021,325

 

Property, plant and equipment, net

 

1,028,005

 


 

1,044,128

 

Operating lease right-of-use assets, net

 

169,192

 


 

140,085

 

Goodwill

 

1,735,641

 


 

1,540,565

 

Client relationships, net

 

732,221

 


 

613,573

 

Other intangible assets, net

 

73,970

 


 

75,840

 

Deferred tax assets

 

42,759

 


 

44,659

 

Other assets

 

224,371

 


 

212,615

 

Total assets

$

5,240,884

 


$

4,692,790

 




 
Liabilities, Redeemable Noncontrolling Interests and Equity


Current liabilities:


Current portion of long-term debt and finance leases

$

53,713

 


$

38,545

 

Accounts payable

 

82,978

 


 

111,498

 

Accrued compensation

 

167,957

 


 

158,617

 

Deferred revenue

 

170,410

 


 

171,805

 

Accrued liabilities

 

144,239

 


 

139,118

 

Other current liabilities

 

108,639

 


 

90,598

 

Total current liabilities

 

727,936

 


 

710,181

 

Long-term debt, net and finance leases

 

2,207,157

 


 

1,849,666

 

Operating lease right-of-use liabilities

 

147,348

 


 

116,252

 

Deferred tax liabilities

 

201,792

 


 

167,283

 

Other long-term liabilities

 

176,042

 


 

182,933

 

Total liabilities

 

3,460,275

 


 

3,026,315

 

Redeemable noncontrolling interests

 

23,884

 


 

28,647

 

Equity:


Preferred stock, $0.01 par value; 20,000 shares authorized; no shares issued and outstanding

 

-

 


 

-

 

Common stock, $0.01 par value; 120,000 shares authorized; 49,804 shares issued and 49,659 shares outstanding as of June 27, 2020, and 48,936 shares issued and 48,936 shares outstanding as of December 28, 2019

 

498

 


 

489

 

Additional paid-in capital

 

1,590,117

 


 

1,531,785

 

Retained earnings

 

398,533

 


 

280,329

 

Treasury stock, at cost, 145 and 0 shares, as of June 27, 2020 and December 28, 2019, respectively

 

(23,793

)


 

-

 

Accumulated other comprehensive loss

 

(212,714

)


 

(178,019

)

Total equity attributable to common shareholders

 

1,752,641

 


 

1,634,584

 

Noncontrolling interest

 

4,084

 


 

3,244

 

Total equity

 

1,756,725

 


 

1,637,828

 

Total liabilities, redeemable noncontrolling interests and equity

$

5,240,884

 


$

4,692,790

 



CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

 
SCHEDULE 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)




 


Six Months Ended


June 27, 2020
June 29, 2019

Cash flows relating to operating activities



Net income

$

118,505

 


$

99,997

 


Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization

 

114,468

 


 

94,504

 


Stock-based compensation

 

24,103

 


 

29,404

 


Deferred income taxes

 

148

 


 

(1,347

)


Gain on venture capital and strategic equity investments, net

 

(11,876

)


 

(6,321

)


Other, net

 

10,487

 


 

3,312

 


Changes in assets and liabilities:



Trade receivables, net

 

(19,371

)


 

(36,538

)


Inventories

 

(1,901

)


 

(2,565

)


Accounts payable

 

(25,619

)


 

18,195

 


Accrued compensation

 

8,728

 


 

(25,421

)


Deferred revenue

 

(3,273

)


 

(241

)


Customer contract deposits

 

8,276

 


 

(10,918

)


Other assets and liabilities, net

 

8,221

 


 

(17,649

)


Net cash provided by operating activities

 

230,896

 


 

144,412

 


Cash flows relating to investing activities



Acquisition of businesses and assets, net of cash acquired

 

(382,250

)


 

(492,381

)


Capital expenditures

 

(52,521

)


 

(41,512

)


Purchases of investments and contributions to venture capital investments

 

(12,064

)


 

(14,753

)


Proceeds from sale of investments

 

5,681

 


 

15

 


Other, net

 

(1,157

)


 

(607

)


Net cash used in investing activities

 

(442,311

)


 

(549,238

)


Cash flows relating to financing activities



Proceeds from long-term debt and revolving credit facility

 

1,411,953

 


 

1,485,731

 


Proceeds from exercises of stock options

 

36,608

 


 

23,853

 


Payments on long-term debt, revolving credit facility, and finance lease obligations

 

(1,045,235

)


 

(1,076,761

)


Purchase of treasury stock

 

(23,793

)


 

(17,883

)


Other, net

 

(4,417

)


 

(10,516

)


Net cash provided by financing activities

 

375,116

 


 

404,424

 


Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

295

 


 

5,670

 


Net change in cash, cash equivalents, and restricted cash

 

163,996

 


 

5,268

 


Cash, cash equivalents, and restricted cash, beginning of period

 

240,046

 


 

197,318

 


Cash, cash equivalents, and restricted cash, end of period

$

404,042

 


$

202,586

 





 

Supplemental cash flow information:



Cash and cash equivalents

$

402,020

 


$

200,589

 


Restricted cash included in Other current assets

 

465

 


 

498

 


Restricted cash included in Other assets

 

1,557

 


 

1,499

 


Cash, cash equivalents, and restricted cash, end of period

$

404,042

 


$

202,586

 



CHARLES RIVER LABORATORIES INTERNATIONAL, INC.









 
SCHEDULE 4
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)(1)
(in thousands, except percentages)









 



Three Months Ended
Six Months Ended



June 27, 2020
June 29, 2019
June 27, 2020
June 29, 2019
Research Models and Services








Revenue

$

116,549

 


$

136,054

 


$

262,545

 


$

273,226

 


Operating income

 

3,844

 


 

31,512

 


 

31,217

 


 

69,344

 


Operating income as a % of revenue

 

3.3

%


 

23.2

%


 

11.9

%


 

25.4

%


Add back:








Amortization related to acquisitions

 

5,919

 


 

349

 


 

11,571

 


 

701

 


Severance

 

509

 


 

565

 


 

500

 


 

725

 


Acquisition related adjustments (2)(3)

 

292

 


 

2,201

 


 

577

 


 

2,201

 


Site consolidation costs, impairments and other items

 

30

 


 

76

 


 

259

 


 

257

 


Total non-GAAP adjustments to operating income

$

6,750

 


$

3,191

 


$

12,907

 


$

3,884

 


Operating income, excluding non-GAAP adjustments

$

10,594

 


$

34,703

 


$

44,124

 


$

73,228

 


Non-GAAP operating income as a % of revenue

 

9.1

%


 

25.5

%


 

16.8

%


 

26.8

%










 

Depreciation and amortization

$

9,126

 


$

4,981

 


$

17,878

 


$

9,303

 


Capital expenditures

$

6,621

 


$

5,049

 


$

12,033

 


$

9,161

 










 
Discovery and Safety Assessment








Revenue

$

442,564

 


$

405,517

 


$

881,247

 


$

759,714

 


Operating income

 

72,241

 


 

63,514

 


 

144,524

 


 

110,219

 


Operating income as a % of revenue

 

16.3

%


 

15.7

%


 

16.4

%


 

14.5

%


Add back:








Amortization related to acquisitions

 

23,128

 


 

19,772

 


 

46,135

 


 

36,507

 


Severance

 

3,481

 


 

672

 


 

3,564

 


 

685

 


Acquisition related adjustments (3)

 

1,095

 


 

1,738

 


 

2,384

 


 

3,992

 


Site consolidation costs, impairments and other items

 

2,934

 


 

-

 


 

2,934

 


 

-

 


Total non-GAAP adjustments to operating income

$

30,638

 


$

22,182

 


$

55,017

 


$

41,184

 


Operating income, excluding non-GAAP adjustments

$

102,879

 


$

85,696

 


$

199,541

 


$

151,403

 


Non-GAAP operating income as a % of revenue

 

23.2

%


 

21.1

%


 

22.6

%


 

19.9

%










 

Depreciation and amortization

$

41,101

 


$

37,549

 


$

82,431

 


$

71,333

 


Capital expenditures

$

16,175

 


$

15,141

 


$

30,904

 


$

23,989

 










 
Manufacturing Support








Revenue

$

123,471

 


$

115,997

 


$

245,851

 


$

229,197

 


Operating income

 

42,930

 


 

33,141

 


 

84,042

 


 

64,640

 


Operating income as a % of revenue

 

34.8

%


 

28.6

%


 

34.2

%


 

28.2

%


Add back:








Amortization related to acquisitions

 

2,217

 


 

2,274

 


 

4,464

 


 

4,598

 


Severance

 

1,396

 


 

74

 


 

1,652

 


 

301

 


Acquisition related adjustments (3)

 

(423

)


 

106

 


 

(421

)


 

156

 


Site consolidation costs, impairments and other items

 

-

 


 

297

 


 

-

 


 

1,305

 


Total non-GAAP adjustments to operating income

$

3,190

 


$

2,751

 


$

5,695

 


$

6,360

 


Operating income, excluding non-GAAP adjustments

$

46,120

 


$

35,892

 


$

89,737

 


$

71,000

 


Non-GAAP operating income as a % of revenue

 

37.4

%


 

30.9

%


 

36.5

%


 

31.0

%










 

Depreciation and amortization

$

6,236

 


$

5,782

 


$

12,602

 


$

11,587

 


Capital expenditures

$

3,037

 


$

4,272

 


$

8,198

 


$

7,878

 










 
Unallocated Corporate Overhead

$

(42,247

)


$

(48,399

)


$

(88,734

)


$

(94,643

)


Add back:








Acquisition related adjustments (3)

 

869

 


 

12,470

 


 

7,852

 


 

17,892

 


Other items (4)

 

(463

)


 

1,029

 


 

(750

)


 

1,029

 


Total non-GAAP adjustments to operating expense

$

406

 


$

13,499

 


$

7,102

 


$

18,921

 


Unallocated corporate overhead, excluding non-GAAP adjustments

$

(41,841

)


$

(34,900

)


$

(81,632

)


$

(75,722

)










 
Total








Revenue

$

682,584

 


$

657,568

 


$

1,389,643

 


$

1,262,137

 


Operating income

 

76,768

 


 

79,768

 


 

171,049

 


 

149,560

 


Operating income as a % of revenue

 

11.2

%


 

12.1

%


 

12.3

%


 

11.8

%


Add back:








Amortization related to acquisitions

 

31,264

 


 

22,395

 


 

62,170

 


 

41,806

 


Severance

 

5,386

 


 

1,311

 


 

5,716

 


 

1,711

 


Acquisition related adjustments (2)(3)

 

1,833

 


 

16,515

 


 

10,392

 


 

24,241

 


Site consolidation costs, impairments and other items (4)

 

2,501

 


 

1,402

 


 

2,443

 


 

2,591

 


Total non-GAAP adjustments to operating income

$

40,984

 


$

41,623

 


$

80,721

 


$

70,349

 


Operating income, excluding non-GAAP adjustments

$

117,752

 


$

121,391

 


$

251,770

 


$

219,909

 


Non-GAAP operating income as a % of revenue

 

17.3

%


 

18.5

%


 

18.1

%


 

17.4

%










 

Depreciation and amortization

$

57,208

 


$

49,146

 


$

114,468

 


$

94,504

 


Capital expenditures

$

26,800

 


$

24,781

 


$

52,521

 


$

41,512


(1)

Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.

(2)

This amount represents a $2.2 million charge recorded in connection with the modification of the option to purchase the remaining 8% equity interest in Vital River in the three and six months ended June 29, 2019.

(3)

These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value adjustments associated with contingent consideration.

(4)

This amount relates to third-party costs, net of insurance reimbursements, associated with the remediation of the unauthorized access into the Company's information systems which was detected in March 2019.


CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

SCHEDULE 5
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED)(1)
(in thousands, except per share data)








 


Three Months Ended
Six Months Ended


June 27, 2020
June 29, 2019
June 27, 2020
June 29, 2019








 
Net income attributable to common shareholders

$

67,435

 


$

43,728

 


$

118,204

 


$

98,861

 

Add back:






Non-GAAP adjustments to operating income (Refer to Schedule 4)

 

40,984

 


 

41,623

 


 

80,721

 


 

70,349

 

Venture capital and strategic equity investment (gains) losses, net

 

(23,911

)


 

4,254

 


 

(11,876

)


 

(6,321

)

Tax effect of non-GAAP adjustments:






Non-cash tax benefit related to international financing structure (2)

 

1,113

 


 

-

 


 

2,186

 


 

-

 

Tax effect of the remaining non-GAAP adjustments

 

(6,020

)


 

(8,491

)


 

(17,824

)


 

(12,371

)

Net income attributable to common shareholders, excluding non-GAAP adjustments

$

79,601

 


$

81,114

 


$

171,411

 


$

150,518

 









 
Weighted average shares outstanding - Basic

 

49,553

 


 

48,772

 


 

49,371

 


 

48,615

 

Effect of dilutive securities:






Stock options, restricted stock units and performance share units

 

693

 


 

890

 


 

747

 


 

984

 

Weighted average shares outstanding - Diluted

 

50,246

 


 

49,662

 


 

50,118

 


 

49,599

 









 
Earnings per share attributable to common shareholders:






Basic

$

1.36

 


$

0.90

 


$

2.39

 


$

2.03

 

Diluted

$

1.34

 


$

0.88

 


$

2.36

 


$

1.99

 









 
Basic, excluding non-GAAP adjustments

$

1.61

 


$

1.66

 


$

3.47

 


$

3.10

 

Diluted, excluding non-GAAP adjustments

$

1.58

 


$

1.63

 


$

3.42

 


$

3.03

 

(1)

Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.

(2)

This adjustment relates to the recognition of deferred tax assets expected to be utilized as a result of changes to the Company's international financing structure.


 

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.









 

SCHEDULE 6

RECONCILIATION OF GAAP REVENUE GROWTH

TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1)









 









 
Three Months Ended June 27, 2020
Total CRL
RMS Segment
DSA Segment
MS Segment









 
Revenue growth, reported

3.8 %


(14.3)%


9.1 %


6.4 %

Decrease due to foreign exchange

0.8 %


0.6 %


0.8 %


1.6 %

Contribution from acquisitions (2)

(3.2)%


(4.7)%


(3.7)%


- %

Non-GAAP revenue growth, organic (3)

1.4 %


(18.4)%


6.2 %


8.0 %










 
Six Months Ended June 27, 2020
Total CRL
RMS Segment
DSA Segment
MS Segment









 
Revenue growth, reported

10.1 %


(3.9)%


16.0 %


7.3 %

Decrease due to foreign exchange

0.8 %


0.7 %


0.6 %


1.5 %

Contribution from acquisitions (2)

(6.2)%


(6.8)%


(7.9)%


- %

Non-GAAP revenue growth, organic (3)

4.7 %


(10.0)%


8.7 %


8.8 %

(1)

Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.

(2)

The contribution from acquisitions reflects only completed acquisitions.

(3)

Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign exchange.

 

Contacts

Investor Contacts:
Todd Spencer
Corporate Vice President,
Investor Relations
781.222.6455
todd.spencer@crl.com

Media Contact:
Amy Cianciaruso
Corporate Vice President,
Public Relations
781.222.6168
amy.cianciaruso@crl.com