8-K
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. (CRL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 29, 2020
Date of Report (Date of earliest event reported)
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Charter)
| Delaware | 001-15943 | 06-1397316 |
|---|---|---|
| (State or Other | (Commission File Number) | (IRS Employer |
| Jurisdiction of Incorporation) | Identification No.) |
251 Ballardvale Street
Wilmington, Massachusetts 01887
(Address of Principal Executive Offices) (Zip Code)
781-222-6000
\(Registrant’s Telephone Number, including Area Code\)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, $0.01 per share | CRL | New York Stock Exchange |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
1
ITEM 2.02. Results of Operations and Financial Condition
The following information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On October 29, 2020, Charles River Laboratories International, Inc. issued a press release providing financial results for the quarter ended September 26, 2020.
The press release, attached as an exhibit to this report, includes "safe harbor" language pursuant to the Private Securities Litigation Reform Act of 1995, as amended, indicating that certain statements contained in the press release are "forward-looking" rather than historic. The press release also states that these and other risks relating to Charles River are set forth in the documents filed by Charles River with the Securities and Exchange Commission.
ITEM 9.01. Financial Statements and Exhibits
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
99.1 Press release dated October 29, 2020.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CHARLES RIVER LABORATORIES<br><br> INTERNATIONAL, INC. | ||
|---|---|---|
| Date: October 29, 2020 | By: | /s/ Matthew L. Daniel |
| Matthew L. Daniel, Corporate Senior Vice President, | ||
| General Counsel, Corporate Secretary & Chief Compliance Officer |
3
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release dated<br> October 29, 2020. |
4
Exhibit 99.1
Charles River Laboratories Announces Third-Quarter 2020 Results
– Third-Quarter Revenue of $743.3 Million –
– Third-Quarter GAAP Earnings per Share of $2.03 and Non-GAAP Earnings per Share of $2.33 –
– Increases 2020 Guidance –
WILMINGTON, Mass.--(BUSINESS WIRE)--October 29, 2020--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the third quarter of 2020. For the quarter, revenue was $743.3 million, an increase of 11.3% from $668.0 million in the third quarter of 2019.
Acquisitions contributed 2.2% to consolidated third-quarter revenue growth. The impact of foreign currency translation benefited reported revenue growth by 1.3%. Excluding the effect of these items, organic revenue growth was 7.8%, driven primarily by the Discovery and Safety Assessment and Manufacturing Support segments, with Research Models and Services also contributing.
On a GAAP basis, third-quarter net income attributable to common shareholders was $102.9 million, an increase of 41.3% from net income of $72.8 million for the same period in 2019. Third-quarter diluted earnings per share on a GAAP basis were $2.03, an increase of 39.0% from $1.46 for the third quarter of 2019. The GAAP net income and earnings per share increases were driven primarily by higher revenue, operating margin improvement, and venture capital investment gains. GAAP earnings per share included a gain from the Company’s venture capital and other strategic investments of $0.29 per share in the third quarter of 2020, compared to a loss of $0.01 per share 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 $118.0 million for the third quarter of 2020, an increase of 40.8% from $83.8 million for the same period in 2019. Third‑quarter diluted earnings per share on a non-GAAP basis were $2.33, an increase of 37.9% from $1.69 per share for the third quarter of 2019. The non-GAAP net income and earnings per share increases were driven primarily by higher revenue and operating margin improvement, as well as a lower tax rate.
James C. Foster, Chairman, President and Chief Executive Officer, said, “Our exceptional third-quarter performance is indicative of several important factors: that our flexible and reliable outsourced solutions resonate with clients even more today than ever before; that our research model clients are already resuming their research activities; that the market environment remains robust; and that we are generating greater operating leverage across our businesses as a result of our efforts to build a more scalable and nimble organization.”
“The COVID-19 crisis has emphasized the strength and resilience of our business model, our differentiated portfolio, and our unwavering focus on the client experience, which collectively are enhancing our position as the leading, early stage contract research organization. As our clients focus on scientific innovation and invest more in their preclinical pipelines, we believe we will remain their partner of choice to move their early-stage programs forward,” Mr. Foster concluded.
Third-Quarter Segment Results Research Models and Services (RMS)
Revenue for the RMS segment was $151.9 million in the third quarter of 2020, an increase of 14.6% from $132.5 million in the third quarter of 2019. The HemaCare and Cellero acquisitions, which were completed in January 2020 and August 2020, respectively, contributed 11.1% to third-quarter RMS revenue. Organic revenue growth of 2.0% was driven primarily by higher research model services revenue, particularly the Genetically Engineered Models and Services (GEMS) business, as well as strong demand for research models in China, which rebounded from the COVID-19 pandemic earlier than other geographic regions. Demand for research models outside of China improved significantly on a sequential basis as clients resumed more normalized research activities following COVID-19-related disruptions earlier in the year. As a result, client ordering trends for research models moved closer to pre-COVID-19 levels during the third quarter, particularly in Europe, but remained moderately below prior-year levels.
In the third quarter of 2020, the RMS segment’s GAAP operating margin decreased to 24.4% from 25.9% in the third quarter of 2019. The decrease was primarily due to acquisition-related amortization costs associated with HemaCare and Cellero. On a non-GAAP basis, the operating margin increased to 27.7% from 26.5% in the third quarter of 2019, primarily due to operating leverage from higher revenue, as well as the benefit of operating efficiency initiatives, including cost controls associated with our COVID-19 response.
Discovery and Safety Assessment (DSA)
Revenue for the DSA segment was $461.2 million in the third quarter of 2020, an increase of 9.8% from $420.1 million in the third quarter of 2019. Organic revenue growth of 8.6% was driven by strong demand in both the Discovery Services and Safety Assessment businesses.
In the third quarter of 2020, the DSA segment’s GAAP operating margin increased to 19.6% from 15.5% in the third quarter of 2019. On a non-GAAP basis, the operating margin increased to 25.2% from 22.1% in the third quarter of 2019. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from higher revenue and the benefit of operating efficiency initiatives.
Manufacturing Support (Manufacturing)
Revenue for the Manufacturing segment was $130.2 million in the third quarter of 2020, an increase of 12.9% from $115.3 million in the third quarter of 2019. Organic revenue growth was 11.5%, driven primarily by robust demand in the Biologics Testing Solutions (Biologics) business. Revenue for the Microbial Solutions business increased in the third quarter and the growth rate improved from the second-quarter level, due primarily to gradual improvement in the backlog of delayed instrument installations related to the COVID-19 pandemic.
In the third quarter of 2020, the Manufacturing segment’s GAAP operating margin increased to 37.1% from 34.0% in the third quarter of 2019. On a non-GAAP basis, the operating margin increased to 39.1% from 36.4% in the third quarter of 2019. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from robust revenue growth in the Biologics business, as well as contributions from the Avian Vaccine business. The elimination of duplicate costs associated with last year’s transition to the new Biologics facility also benefited the year-over-year operating margin comparison.
Increases 2020 Guidance
The Company is increasing its 2020 financial guidance, which was previously provided on August 5, 2020, primarily as a result of the better-than-expected third quarter performance. The revenue loss from the COVID-19 pandemic will be approximately $70 million in 2020, which is favorable to its prior estimate of approximately $100 million.
The Company’s revenue, earnings per share, and free cash flow guidance is as follows:
| 2020 GUIDANCE | CURRENT | PRIOR |
|---|---|---|
| Revenue growth, reported | 9.5% – 10.5% | 7.5% – 9.0% |
| Less: Contribution from acquisitions (1) | (4.0%) – (4.5%) | ~(4.0%) |
| Unfavorable/(favorable) impact of foreign exchange | 0.0% – (0.5%) | ~0.5% |
| Revenue growth, organic (2) | 5.0% – 6.0% | 4.0% – 5.5% |
| GAAP EPS estimate | $5.80 – $5.90 | $4.70 – $5.00 |
| Acquisition-related amortization | $1.75 – $1.80 | ~$1.75 |
| Charges related to global efficiency initiatives (3) | ~$0.15 | $0.25 – $0.30 |
| Acquisition-related adjustments (4) | $0.25 – $0.30 | $0.20 – $0.25 |
| Other items (5) | ~$0.25 | $0.25 – $0.32 |
| Venture capital and other strategic <br><br> investment losses/(gains), net (6) | ($0.49) | ($0.20) |
| Non-GAAP EPS estimate | $7.75 – $7.85 | $7.05 – $7.35 |
| Free cash flow (7) | ~$415 million | $350 – $365 million |
Footnotes to Guidance Table:
(1) The contribution from acquisitions reflects only those acquisitions that have been completed.
(2) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign currency translation.
(3) 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.
(4) 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.
(5) These items primarily relate to charges of approximately $0.15 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.
(6) Venture capital and other strategic investment performance only includes recognized gains or losses. The Company does not forecast the future performance of these investments.
(7) The reconciliation of the current 2020 free cash flow guidance is as follows: Cash flow from operating activities of approximately $545 million, less capital expenditures of approximately $130 million, results in free cash flow of approximately $415 million.
Webcast
Charles River has scheduled a live webcast on Thursday, October 29, 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 streams 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 (4) that the Company will have 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; investment gains or losses associated with our venture capital and other strategic investments; and adjustments related to the recognition of deferred tax assets expected to be utilized as a result of changes to the our international financing structure. This press release also refers to our revenue in both a GAAP and non-GAAP basis: “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 August 5, 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 | Nine Months Ended | |||||||||||
| September 26, 2020 | September 28, 2019 | September 26, 2020 | September 28, 2019 | |||||||||
| Service revenue | $ | 580,774 | $ | 523,169 | $ | 1,677,927 | $ | 1,479,991 | ||||
| Product revenue | 162,526 | 144,782 | 455,016 | 450,097 | ||||||||
| Total revenue | 743,300 | 667,951 | 2,132,943 | 1,930,088 | ||||||||
| Costs and expenses: | ||||||||||||
| Cost of services provided (excluding amortization of intangible assets) | 377,226 | 351,894 | 1,124,988 | 1,014,063 | ||||||||
| Cost of products sold (excluding amortization of intangible assets) | 76,800 | 69,941 | 234,382 | 220,028 | ||||||||
| Selling, general and administrative | 128,289 | 129,509 | 385,902 | 388,024 | ||||||||
| Amortization of intangible assets | 28,232 | 23,805 | 83,869 | 65,611 | ||||||||
| Operating income | 132,753 | 92,802 | 303,802 | 242,362 | ||||||||
| Other income (expense): | ||||||||||||
| Interest income | 179 | 385 | 771 | 838 | ||||||||
| Interest expense | (18,867 | ) | (5,698 | ) | (53,286 | ) | (36,520 | ) | ||||
| Other income (expense), net | 21,211 | (14,254 | ) | 23,400 | (8,161 | ) | ||||||
| Income from operations, before income taxes | 135,276 | 73,235 | 274,687 | 198,519 | ||||||||
| Provision (benefit) for income taxes | 32,665 | (317 | ) | 53,571 | 24,970 | |||||||
| Net income | 102,611 | 73,552 | 221,116 | 173,549 | ||||||||
| Less: Net (expense) income attributable to noncontrolling interests | (298 | ) | 742 | 3 | 1,878 | |||||||
| Net income attributable to common shareholders | $ | 102,909 | $ | 72,810 | $ | 221,113 | $ | 171,671 | ||||
| Earnings per common share | ||||||||||||
| Net income attributable to common shareholders: | ||||||||||||
| Basic | $ | 2.07 | $ | 1.49 | $ | 4.47 | $ | 3.53 | ||||
| Diluted | $ | 2.03 | $ | 1.46 | $ | 4.39 | $ | 3.46 | ||||
| Weighted-average number of common shares outstanding; | ||||||||||||
| Basic | 49,703 | 48,818 | 49,482 | 48,682 | ||||||||
| Diluted | 50,702 | 49,715 | 50,371 | 49,627 |
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||
|---|---|---|---|---|---|
| SCHEDULE 2 | |||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||
| (in thousands, except per share amounts) | |||||
| December 28, 2019 | |||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | 242,879 | $ | 238,014 | ||
| Trade receivables, net | 572,058 | 514,033 | |||
| Inventories | 181,367 | 160,660 | |||
| Prepaid assets | 69,481 | 52,588 | |||
| Other current assets | 74,489 | 56,030 | |||
| Total current assets | 1,140,274 | 1,021,325 | |||
| Property, plant and equipment, net | 1,037,212 | 1,044,128 | |||
| Operating lease right-of-use assets, net | 168,379 | 140,085 | |||
| Goodwill | 1,777,642 | 1,540,565 | |||
| Client relationships, net | 732,408 | 613,573 | |||
| Other intangible assets, net | 70,370 | 75,840 | |||
| Deferred tax assets | 39,515 | 44,659 | |||
| Other assets | 247,538 | 212,615 | |||
| Total assets | 5,213,338 | $ | 4,692,790 | ||
| Liabilities, Redeemable Noncontrolling Interests and Equity | |||||
| Current liabilities: | |||||
| Current portion of long-term debt and finance leases | 47,946 | $ | 38,545 | ||
| Accounts payable | 96,758 | 111,498 | |||
| Accrued compensation | 191,295 | 158,617 | |||
| Deferred revenue | 172,336 | 171,805 | |||
| Accrued liabilities | 151,061 | 139,118 | |||
| Other current liabilities | 127,618 | 90,598 | |||
| Total current liabilities | 787,014 | 710,181 | |||
| Long-term debt, net and finance leases | 1,968,161 | 1,849,666 | |||
| Operating lease right-of-use liabilities | 146,578 | 116,252 | |||
| Deferred tax liabilities | 202,392 | 167,283 | |||
| Other long-term liabilities | 183,695 | 182,933 | |||
| Total liabilities | 3,287,840 | 3,026,315 | |||
| Redeemable noncontrolling interests | 24,033 | 28,647 | |||
| Equity: | |||||
| Preferred stock, 0.01 par value; 20,000 shares authorized; no shares issued and<br> outstanding | - | - | |||
| Common stock, 0.01 par value; 120,000 shares authorized; 49,882 shares issued and<br> 49,736 shares outstanding as of September 26, 2020, and 48,936 shares issued and<br> 48,936 shares outstanding as of December 28, 2019 | 499 | 489 | |||
| Additional paid-in capital | 1,614,185 | 1,531,785 | |||
| Retained earnings | 501,442 | 280,329 | |||
| Treasury stock, at cost, 146 and 0 shares, as of September 26, 2020 and December 28,<br> 2019, respectively | (23,905 | ) | - | ||
| Accumulated other comprehensive loss | (195,281 | ) | (178,019 | ) | |
| Total equity attributable to common shareholders | 1,896,940 | 1,634,584 | |||
| Noncontrolling interest | 4,525 | 3,244 | |||
| Total equity | 1,901,465 | 1,637,828 | |||
| Total liabilities, redeemable noncontrolling interests and equity | 5,213,338 | $ | 4,692,790 |
All values are in US Dollars.
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||
|---|---|---|---|---|---|---|---|
| SCHEDULE 3 | |||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||||
| (in thousands) | |||||||
| Nine Months Ended | |||||||
| September 26, 2020 | September 28, 2019 | ||||||
| Cash flows relating to operating activities | |||||||
| Net income | $ | 221,116 | $ | 173,549 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 174,048 | 146,262 | |||||
| Stock-based compensation | 40,973 | 43,429 | |||||
| Deferred income taxes | (3,131 | ) | (25,092 | ) | |||
| Gain on venture capital and strategic equity investments, net | (32,226 | ) | (5,724 | ) | |||
| Other, net | 16,902 | 4,865 | |||||
| Changes in assets and liabilities: | |||||||
| Trade receivables, net | (51,456 | ) | (24,491 | ) | |||
| Inventories | (14,055 | ) | (12,981 | ) | |||
| Accounts payable | (12,327 | ) | 24,481 | ||||
| Accrued compensation | 29,438 | (23,320 | ) | ||||
| Deferred revenue | (1,308 | ) | (1,556 | ) | |||
| Customer contract deposits | 9,887 | (7,586 | ) | ||||
| Other assets and liabilities, net | 30,335 | 8,423 | |||||
| Net cash provided by operating activities | 408,196 | 300,259 | |||||
| Cash flows relating to investing activities | |||||||
| Acquisition of businesses and assets, net of cash acquired | (419,146 | ) | (515,647 | ) | |||
| Capital expenditures | (78,706 | ) | (76,675 | ) | |||
| Purchases of investments and contributions to venture capital investments | (19,887 | ) | (17,664 | ) | |||
| Proceeds from sale of investments | 5,810 | 15 | |||||
| Other, net | (1,192 | ) | (660 | ) | |||
| Net cash used in investing activities | (513,121 | ) | (610,631 | ) | |||
| Cash flows relating to financing activities | |||||||
| Proceeds from long-term debt and revolving credit facility | 1,411,954 | 2,071,175 | |||||
| Proceeds from exercises of stock options | 43,806 | 26,982 | |||||
| Payments on long-term debt, revolving credit facility, and finance lease obligations | (1,320,961 | ) | (1,798,620 | ) | |||
| Purchase of treasury stock | (23,905 | ) | (18,040 | ) | |||
| Other, net | (4,417 | ) | (10,516 | ) | |||
| Net cash provided by financing activities | 106,477 | 270,981 | |||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 5,825 | 8,793 | |||||
| Net change in cash, cash equivalents, and restricted cash | 7,377 | (30,598 | ) | ||||
| Cash, cash equivalents, and restricted cash, beginning of period | 240,046 | 197,318 | |||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 247,423 | $ | 166,720 | |||
| Supplemental cash flow information: | |||||||
| Cash and cash equivalents | $ | 242,879 | $ | 164,759 | |||
| Restricted cash included in Other current assets | 2,968 | 534 | |||||
| Restricted cash included in Other assets | 1,576 | 1,427 | |||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 247,423 | $ | 166,720 |
| 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 | Nine Months Ended | ||||||||
| September 26, 2020 | September 28, 2019 | September 26, 2020 | September 28, 2019 | ||||||
| Research Models and Services | |||||||||
| Revenue | $ | 151,910 | $ | 132,546 | $ | 414,455 | $ | 405,772 | |
| Operating income | 37,108 | 34,385 | 68,325 | 103,729 | |||||
| Operating income as a % of revenue | 24.4 % | 25.9 % | 16.5 % | 25.6 % | |||||
| Add back: | |||||||||
| Amortization related to acquisitions | 4,010 | 341 | 15,581 | 1,042 | |||||
| Severance | 27 | 381 | 527 | 1,106 | |||||
| Acquisition related adjustments ^(2)(3)^ | 922 | - | 1,499 | 2,201 | |||||
| Site consolidation costs, impairments and other items | (59) | - | 200 | 257 | |||||
| Total non-GAAP adjustments to operating income | $ | 4,900 | $ | 722 | $ | 17,807 | $ | 4,606 | |
| Operating income, excluding non-GAAP adjustments | $ | 42,008 | $ | 35,107 | $ | 86,132 | $ | 108,335 | |
| Non-GAAP operating income as a % of revenue | 27.7 % | 26.5 % | 20.8 % | 26.7 % | |||||
| Depreciation and amortization | $ | 9,455 | $ | 4,895 | $ | 27,333 | $ | 14,198 | |
| Capital expenditures | $ | 3,552 | $ | 5,818 | $ | 15,585 | $ | 14,979 | |
| Discovery and Safety Assessment | |||||||||
| Revenue | $ | 461,177 | $ | 420,079 | $ | 1,342,424 | $ | 1,179,793 | |
| Operating income | 90,348 | 64,995 | 234,872 | 175,214 | |||||
| Operating income as a % of revenue | 19.6 % | 15.5 % | 17.5 % | 14.9 % | |||||
| Add back: | |||||||||
| Amortization related to acquisitions | 22,191 | 21,560 | 68,326 | 58,067 | |||||
| Severance | 423 | 1,848 | 3,987 | 2,533 | |||||
| Acquisition related adjustments ^(3)^ | 461 | 4,524 | 2,845 | 8,516 | |||||
| Site consolidation costs, impairments and other items | 2,938 | (207) | 5,872 | (207) | |||||
| Total non-GAAP adjustments to operating income | $ | 26,013 | $ | 27,725 | $ | 81,030 | $ | 68,909 | |
| Operating income, excluding non-GAAP adjustments | $ | 116,361 | $ | 92,720 | $ | 315,902 | $ | 244,123 | |
| Non-GAAP operating income as a % of revenue | 25.2 % | 22.1 % | 23.5 % | 20.7 % | |||||
| Depreciation and amortization | $ | 42,707 | $ | 39,898 | $ | 125,138 | $ | 111,231 | |
| Capital expenditures | $ | 15,532 | $ | 21,141 | $ | 46,436 | $ | 45,130 | |
| Manufacturing Support | |||||||||
| Revenue | $ | 130,213 | $ | 115,326 | $ | 376,064 | $ | 344,523 | |
| Operating income | 48,246 | 39,253 | 132,288 | 103,893 | |||||
| Operating income as a % of revenue | 37.1 % | 34.0 % | 35.2 % | 30.2 % | |||||
| Add back: | |||||||||
| Amortization related to acquisitions | 2,150 | 2,204 | 6,614 | 6,802 | |||||
| Severance | 333 | 248 | 1,985 | 549 | |||||
| Acquisition related adjustments ^(3)^ | - | 62 | (421) | 218 | |||||
| Site consolidation costs, impairments and other items | 169 | 180 | 169 | 1,485 | |||||
| Total non-GAAP adjustments to operating income | $ | 2,652 | $ | 2,694 | $ | 8,347 | $ | 9,054 | |
| Operating income, excluding non-GAAP adjustments | $ | 50,898 | $ | 41,947 | $ | 140,635 | $ | 112,947 | |
| Non-GAAP operating income as a % of revenue | 39.1 % | 36.4 % | 37.4 % | 32.8 % | |||||
| Depreciation and amortization | $ | 6,655 | $ | 5,990 | $ | 19,257 | $ | 17,577 | |
| Capital expenditures | $ | 5,787 | $ | 6,421 | $ | 13,985 | $ | 14,299 | |
| Unallocated Corporate Overhead | $ | (42,949) | $ | (45,831) | $ | (131,683) | $ | (140,474) | |
| Add back: | |||||||||
| Severance | 36 | - | 36 | - | |||||
| Acquisition related adjustments ^(3)^ | 2,124 | 5,296 | 9,976 | 23,188 | |||||
| Other items ^(4)^ | 89 | 379 | (661) | 1,408 | |||||
| Total non-GAAP adjustments to operating expense | $ | 2,249 | $ | 5,675 | $ | 9,351 | $ | 24,596 | |
| Unallocated corporate overhead, excluding non-GAAP adjustments | $ | (40,700) | $ | (40,156) | $ | (122,332) | $ | (115,878) | |
| Total | |||||||||
| Revenue | $ | 743,300 | $ | 667,951 | $ | 2,132,943 | $ | 1,930,088 | |
| Operating income | 132,753 | 92,802 | 303,802 | 242,362 | |||||
| Operating income as a % of revenue | 17.9 % | 13.9 % | 14.2 % | 12.6 % | |||||
| Add back: | |||||||||
| Amortization related to acquisitions | 28,351 | 24,105 | 90,521 | 65,911 | |||||
| Severance | 819 | 2,477 | 6,535 | 4,188 | |||||
| Acquisition related adjustments ^(2)(3)^ | 3,507 | 9,882 | 13,899 | 34,123 | |||||
| Site consolidation costs, impairments and other items ^(4)^ | 3,137 | 352 | 5,580 | 2,943 | |||||
| Total non-GAAP adjustments to operating income | $ | 35,814 | $ | 36,816 | $ | 116,535 | $ | 107,165 | |
| Operating income, excluding non-GAAP adjustments | $ | 168,567 | $ | 129,618 | $ | 420,337 | $ | 349,527 | |
| Non-GAAP operating income as a % of revenue | 22.7 % | 19.4 % | 19.7 % | 18.1 % | |||||
| Depreciation and amortization | $ | 59,580 | $ | 51,758 | $ | 174,048 | $ | 146,262 | |
| Capital expenditures | $ | 26,185 | $ | 35,163 | $ | 78,706 | $ | 76,675 | |
| (1) | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful<br> 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<br> 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<br> 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<br> in the nine months ended September 28, 2019. | ||||||||
| (3) | These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and<br> 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<br> 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 | Nine Months Ended | |||||||||||
| September 26, 2020 | September 28, 2019 | September 26, 2020 | September 28, 2019 | |||||||||
| Net income attributable to common shareholders | $ | 102,909 | $ | 72,810 | $ | 221,113 | $ | 171,671 | ||||
| Add back: | ||||||||||||
| Non-GAAP adjustments to operating income (Refer to previous schedule) | 35,814 | 36,816 | 116,535 | 107,165 | ||||||||
| Venture capital and strategic equity investment (gains) losses, net | (20,350 | ) | 598 | (32,226 | ) | (5,724 | ) | |||||
| Tax effect of non-GAAP adjustments: | ||||||||||||
| Non-cash tax provision (benefit) related to international financing structure ^(2)^ | 804 | (20,368 | ) | 2,990 | (20,368 | ) | ||||||
| Tax effect of the remaining non-GAAP adjustments | (1,216 | ) | (6,073 | ) | (19,040 | ) | (18,443 | ) | ||||
| Net income attributable to common shareholders, excluding non-GAAP adjustments | $ | 117,961 | $ | 83,783 | $ | 289,372 | $ | 234,301 | ||||
| Weighted average shares outstanding - Basic | 49,703 | 48,818 | 49,482 | 48,682 | ||||||||
| Effect of dilutive securities: | ||||||||||||
| Stock options, restricted stock units and performance share units | 999 | 897 | 889 | 945 | ||||||||
| Weighted average shares outstanding - Diluted | 50,702 | 49,715 | 50,371 | 49,627 | ||||||||
| Earnings per share attributable to common shareholders: | ||||||||||||
| Basic | $ | 2.07 | $ | 1.49 | $ | 4.47 | $ | 3.53 | ||||
| Diluted | $ | 2.03 | $ | 1.46 | $ | 4.39 | $ | 3.46 | ||||
| Basic, excluding non-GAAP adjustments | $ | 2.37 | $ | 1.72 | $ | 5.85 | $ | 4.81 | ||||
| Diluted, excluding non-GAAP adjustments | $ | 2.33 | $ | 1.69 | $ | 5.74 | $ | 4.72 | ||||
| (1) | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful<br> 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<br> 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<br> 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<br> 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 September 26, 2020 | Total CRL | RMS Segment | DSA Segment | MS Segment | |
| Revenue growth, reported | 11.3 % | 14.6 % | 9.8 % | 12.9 % | |
| Increase due to foreign exchange | (1.3)% | (1.5)% | (1.2)% | (1.4)% | |
| Contribution from acquisitions ^(2)^ | (2.2)% | (11.1)% | - % | - % | |
| Non-GAAP revenue growth, organic ^(3)^ | 7.8 % | 2.0 % | 8.6 % | 11.5 % | |
| Nine Months Ended September 26, 2020 | Total CRL | RMS Segment | DSA Segment | MS Segment | |
| Revenue growth, reported | 10.5 % | 2.1 % | 13.8 % | 9.2 % | |
| Decrease due to foreign exchange | - % | - % | - % | 0.5 % | |
| Contribution from acquisitions ^(2)^ | (4.8)% | (8.2)% | (5.1)% | - % | |
| Non-GAAP revenue growth, organic ^(3)^ | 5.7 % | (6.1)% | 8.7 % | 9.7 % | |
| (1) | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful<br> 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<br> 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<br> 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:
Todd Spencer
Corporate Vice President,
Investor Relations
781.222.6455
todd.spencer@crl.com
Media:
Amy Cianciaruso
Corporate Vice President,
Public Relations
781.222.6168
amy.cianciaruso@crl.com