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
August 3, 2022
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 par value | 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. ☐
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 August 3, 2022, Charles River Laboratories International, Inc. issued a press release providing financial results for the second quarter ended June 25, 2022.
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
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release dated August 3, 2022. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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: August 3, 2022 | By: | /s/ Matthew L. Daniel |
| Matthew L. Daniel, Corporate Senior Vice President, | ||
| General Counsel, Corporate Secretary & Chief Compliance Officer | ||
| Exhibit 99.1 | ||
| --- |
Charles River Laboratories Announces Second-Quarter 2022 Results
– Second-Quarter Revenue of $973.1 Million –
– Second-Quarter GAAP Earnings per Share of $2.13 and Non-GAAP Earnings per Share of $2.77 –
– Reduces 2022 Guidance –
WILMINGTON, Mass.--(BUSINESS WIRE)--August 3, 2022--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2022. For the quarter, revenue was $973.1 million, an increase of 6.4% from $914.6 million in the second quarter of 2021.
Acquisitions contributed 2.3% to consolidated second-quarter revenue growth. The divestitures of the Research Models and Services operations in Japan (RMS Japan) and CDMO site in Sweden (CDMO Sweden) in October 2021 reduced reported revenue growth by 2.0%. The impact of foreign currency translation reduced reported revenue growth by 3.4%. Excluding the effect of these items, organic revenue growth of 9.5% was driven primarily by the Discovery and Safety Assessment (DSA) and Research Models and Services (RMS) business segments.
On a GAAP basis, second-quarter net income attributable to common shareholders was $109.3 million, an increase of 23.6% from net income of $88.4 million for the same period in 2021. Second-quarter diluted earnings per share on a GAAP basis were $2.13, an increase of 23.8% from $1.72 for the second quarter of 2021. The increases in GAAP net income and earnings per share were primarily driven by higher revenue and acquisition-related adjustments. In addition, GAAP net income and earnings per share included a loss from the Company’s venture capital and other strategic investments of $0.14 per share in the second quarter of 2022, compared to a gain of $0.14 per share for the same period in 2021. 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 $141.9 million for the second quarter of 2022, an increase of 6.0% from $133.8 million for the same period in 2021. Second‑quarter diluted earnings per share on a non-GAAP basis were $2.77, an increase of 6.1% from $2.61 per share for the second quarter of 2021. The non-GAAP net income and earnings per share increases were driven primarily by higher revenue and operating margin improvement, partially offset by higher interest expense and tax rate.
James C. Foster, Chairman, President and Chief Executive Officer, said, “Our second-quarter financial results reflect the sustained trends that continue to support our business, particularly our DSA and RMS business segments for which demand continues to be strong and the performance remains consistent with our initial outlook for the year. Safety Assessment continues to benefit from a growing backlog that is well above the prior-year level and solid booking activity, which support the anticipated DSA growth acceleration in the second half of the year.”
“However, these robust trends were offset by headwinds from our CDMO business, as well as unfavorable changes in foreign exchange and interest rates, which have significantly intensified over the past two months. We have revised our financial outlook for 2022 to account for these escalating headwinds, resulting in lower revenue growth and earnings per share guidance for the year,” Mr. Foster concluded.
Second-Quarter Segment Results
Research Models and Services (RMS)
Revenue for the RMS segment was $186.4 million in the second quarter of 2022, an increase of 5.5% from $176.7 million in the second quarter of 2021. Organic revenue growth of 8.5% was primarily driven by research model services, particularly the Insourcing Solutions (IS) and Genetically Engineered Models and Services (GEMS) business. Revenue growth for research models in North America and China also contributed. Revenue in China increased in the second quarter, but was negatively impacted by COVID-related restrictions that affected client order activity.
In the second quarter of 2022, the RMS segment’s GAAP operating margin decreased to 21.2% from 24.1% in the second quarter of 2021, and on a non-GAAP basis, the operating margin decreased to 24.9% from 27.4%. The GAAP and non-GAAP operating margin decreases were driven primarily by the COVID-related revenue impact in China.
Discovery and Safety Assessment (DSA)
Revenue for the DSA segment was $591.9 million in the second quarter of 2022, an increase of 9.6% from $540.1 million in the second quarter of 2021. Organic revenue growth of 12.9% was driven by strong demand and price increases in the Safety Assessment and Discovery Services businesses.
In the second quarter of 2022, the DSA segment’s GAAP operating margin increased to 21.8% from 19.4% in the second quarter of 2021, and on a non-GAAP basis, the operating margin increased to 25.3% from 23.5%. 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.
Manufacturing Solutions (Manufacturing)
Revenue for the Manufacturing segment was $194.8 million in the second quarter of 2022, a decrease of 1.5% from $197.8 million in the second quarter of 2021. Organic revenue growth of 1.0% reflected higher revenue in the Biologics Testing and Microbial Solutions businesses, which was effectively offset by a revenue decline in the CDMO business.
In the second quarter of 2022, the Manufacturing segment’s GAAP operating margin increased to 32.1% from 28.7% in the second quarter of 2021. The GAAP operating margin in the second quarter benefitted from acquisition-related adjustments associated with last year’s Cognate and Vigene CDMO transactions. On a non-GAAP basis, the operating margin decreased to 28.6% from 33.2% in the second quarter of 2021, primarily as a result of the CDMO business.
Reduces 2022 Guidance
The Company is reducing its 2022 financial guidance, due primarily to headwinds associated with the CDMO business, foreign exchange due to the strengthening U.S. dollar, and interest expense due to the rising interest rate environment.
Reported revenue growth guidance is being reduced by 450 basis points to reflect unfavorable movements in foreign currency translation, as well as a lower revenue growth rate in the Manufacturing segment, driven principally by the CDMO business.
Organic revenue growth guidance for 2022 is being reduced by 250 basis points, also driven largely by the CDMO business. The Company continues to expect the organic revenue growth rates for the DSA and RMS segments will be in line with the initial outlooks for the year.
The Company is also reducing GAAP and non-GAAP earnings per share guidance primarily to reflect the headwinds from the CDMO business and foreign exchange, as well as higher interest expense. These factors will be partially offset by discretionary cost controls.
The Company’s updated guidance for revenue growth, earnings per share, and cash flow is as follows:
| 2022 GUIDANCE | CURRENT | PRIOR |
|---|---|---|
| Revenue growth, reported | 9.0% – 11.0% | 13.5% – 15.5% |
| Less: Contribution from acquisitions/divestitures, net | ~(1.0%) | ~(1.0%) |
| Less: Impact of 53^rd^ week in 2022 | ~(1.5)% | ~(1.5)% |
| Unfavorable/(favorable) impact of foreign exchange | ~3.5% | ~1.5% |
| Revenue growth, organic ^(1)^ | 10.0% – 12.0% | 12.5% – 14.5% |
| GAAP EPS | $7.90 – $8.15 | $8.70 – $8.95 |
| Acquisition-related amortization | ~$2.20 | $2.15 – $2.25 |
| Acquisition and integration-related adjustments ^(2)^ | -- | ~$0.25 |
| Venture capital and other strategic investment losses/(gains), net ^(3)^ | $0.35 | $0.20 |
| Other items ^(4)^ | ~$0.25 | ~$0.15 |
| Non-GAAP EPS | $10.70 – $10.95 | $11.50 – $11.75 |
| Cash flow from operating activities | ~$700 million | ~$810 million |
| Capital expenditures | ~$340 million | ~$360 million |
| Free cash flow | ~$360 million | ~$450 million |
Footnotes to Guidance Table:
^(1)^ Organic revenue growth is defined as reported revenue growth adjusted for completed acquisitions and divestitures, the 53^rd^ week in 2022, and foreign currency translation.
^\(2\)^ These adjustments are related to the evaluation and integration of acquisitions and divestitures, and primarily include transaction, advisory, certain third-party integration costs, and certain costs associated with
acquisition-related efficiency initiatives, offset by adjustments related to contingent consideration and certain indirect tax liabilities.
^\(3\)^ Venture capital and other strategic investment performance only includes recognized gains or losses. The Company does not forecast the future performance of these investments.
^\(4\)^ These items primarily relate to charges associated with U.S. and international tax legislation that necessitated changes to the Company’s international financing structure; certain third-party legal costs related to \(a\)
environmental litigation related to the Microbial Solutions business and \(b\) responses to a U.S. government industry-wide supply chain management inquiry applicable to our Safety Assessment business; and severance and other costs related to
the Company’s efficiency initiatives.
Webcast
Charles River has scheduled a live webcast on Wednesday, August 3^rd^, 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.
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, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, and non-GAAP free cash flow. Non-GAAP financial measures exclude, but are not limited to, the amortization of intangible assets, and other charges and adjustments related to our acquisitions and divestitures; 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 impact of the termination of the Company’s pension plans; the write-off of deferred financing costs and fees related to debt financing; investment gains or losses associated with our venture capital and other strategic equity investments; certain legal costs in our Microbial Solutions business related to environmental litigation and in our Safety Assessment business related to producing responses to a U.S. government industry-wide supply chain management inquiry; 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 and the revaluation of deferred tax liabilities as a result of foreign tax legislation. This press release also refers to our revenue on both a GAAP and non-GAAP basis: “organic revenue growth,” which we define as reported revenue growth adjusted for foreign currency translation, acquisitions, divestitures, and the impact of the 53^rd^ week in 2022. We exclude these items from the non-GAAP financial measures because they are outside our normal 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, the 53^rd^ week in 2022, 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; client demand, particularly the future demand for drug discovery and development products and services, including our expectations for future revenue trends; our expectations with respect to pricing of our products and services; our expectations with respect to future tax rates and the impact of such tax rates on our business; our expectations with respect to the impact of acquisitions and divestitures completed in 2021 and 2022 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 forward-looking guidance, and particularly our expectations with respect to revenue, the impact of foreign exchange, interest rates, enhanced efficiency initiatives, and the assumptions surrounding the COVID-19 pandemic that form the basis for our 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 (including Explora BioLabs); 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; 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; disruptions in the global economy caused by the ongoing conflict between the Russian federation and Ukraine; 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 16, 2022, 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 25, 2022 | June 26, 2021 | June 25, 2022 | June 26, 2021 | |||||||||
| Service revenue | $ | 782,827 | $ | 715,320 | $ | 1,503,312 | $ | 1,341,901 | ||||
| Product revenue | 190,304 | 199,287 | 383,748 | 397,272 | ||||||||
| Total revenue | 973,131 | 914,607 | 1,887,060 | 1,739,173 | ||||||||
| Costs and expenses: | ||||||||||||
| Cost of services provided (excluding amortization of intangible assets) | 522,623 | 476,762 | 1,009,487 | 900,737 | ||||||||
| Cost of products sold (excluding amortization of intangible assets) | 93,782 | 95,824 | 184,029 | 188,137 | ||||||||
| Selling, general and administrative | 131,711 | 171,501 | 281,744 | 327,234 | ||||||||
| Amortization of intangible assets | 37,604 | 32,970 | 75,611 | 61,812 | ||||||||
| Operating income | 187,411 | 137,550 | 336,189 | 261,253 | ||||||||
| Other income (expense): | ||||||||||||
| Interest income | 188 | 171 | 315 | 206 | ||||||||
| Interest expense | (3,703 | ) | (16,190 | ) | (13,137 | ) | (45,909 | ) | ||||
| Other (expense) income, net | (39,783 | ) | 5,965 | (68,408 | ) | (21,752 | ) | |||||
| Income before income taxes | 144,113 | 127,496 | 254,959 | 193,798 | ||||||||
| Provision for income taxes | 33,449 | 37,580 | 49,069 | 39,947 | ||||||||
| Net income | 110,664 | 89,916 | 205,890 | 153,851 | ||||||||
| Less: Net income attributable to noncontrolling interests | 1,343 | 1,468 | 3,547 | 3,873 | ||||||||
| Net income attributable to common shareholders | $ | 109,321 | $ | 88,448 | $ | 202,343 | $ | 149,978 | ||||
| Earnings per common share | ||||||||||||
| Net income attributable to common shareholders: | ||||||||||||
| Basic | $ | 2.15 | $ | 1.76 | $ | 3.99 | $ | 2.99 | ||||
| Diluted | $ | 2.13 | $ | 1.72 | $ | 3.94 | $ | 2.93 | ||||
| Weighted-average number of common shares outstanding; | ||||||||||||
| Basic | 50,823 | 50,297 | 50,732 | 50,138 | ||||||||
| Diluted | 51,283 | 51,334 | 51,293 | 51,225 |
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||
|---|---|---|---|---|---|
| SCHEDULE 2 | |||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||
| (in thousands, except per share amounts) | |||||
| December 25, 2021 | |||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | 200,321 | $ | 241,214 | ||
| Trade receivables and contract assets, net of allowances for credit losses of 7,928 and 7,180, respectively | 747,605 | 642,881 | |||
| Inventories | 256,765 | 199,146 | |||
| Prepaid assets | 80,939 | 93,543 | |||
| Other current assets | 107,456 | 97,311 | |||
| Total current assets | 1,393,086 | 1,274,095 | |||
| Property, plant and equipment, net | 1,383,422 | 1,291,068 | |||
| Operating lease right-of-use assets, net | 382,121 | 292,941 | |||
| Goodwill | 2,860,258 | 2,711,881 | |||
| Client relationships, net | 965,206 | 981,398 | |||
| Other intangible assets, net | 67,166 | 79,794 | |||
| Deferred tax assets | 42,467 | 40,226 | |||
| Other assets | 435,635 | 352,889 | |||
| Total assets | 7,529,361 | $ | 7,024,292 | ||
| Liabilities, Redeemable Noncontrolling Interests and Equity | |||||
| Current liabilities: | |||||
| Current portion of long-term debt and finance leases | 2,364 | $ | 2,795 | ||
| Accounts payable | 211,381 | 198,130 | |||
| Accrued compensation | 202,962 | 246,119 | |||
| Deferred revenue | 242,084 | 219,703 | |||
| Accrued liabilities | 199,234 | 228,797 | |||
| Other current liabilities | 190,110 | 137,641 | |||
| Total current liabilities | 1,048,135 | 1,033,185 | |||
| Long-term debt, net and finance leases | 2,997,221 | 2,663,564 | |||
| Operating lease right-of-use liabilities | 365,775 | 252,972 | |||
| Deferred tax liabilities | 230,051 | 239,720 | |||
| Other long-term liabilities | 195,075 | 242,859 | |||
| Total liabilities | 4,836,257 | 4,432,300 | |||
| Redeemable noncontrolling interests | 40,177 | 53,010 | |||
| 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; 50,990 shares issued and 50,861 shares outstanding as of June 25, 2022,<br> and 50,480 shares issued and outstanding as of December 25, 2021 | 510 | 505 | |||
| Additional paid-in capital | 1,761,125 | 1,718,304 | |||
| Retained earnings | 1,183,094 | 980,751 | |||
| Treasury stock, at cost, 129 and 0 shares, as of June 25, 2022 and December 25, 2021, respectively | (38,468 | ) | - | ||
| Accumulated other comprehensive loss | (258,555 | ) | (164,740 | ) | |
| Total equity attributable to common shareholders | 2,647,706 | 2,534,820 | |||
| Noncontrolling interest | 5,221 | 4,162 | |||
| Total equity | 2,652,927 | 2,538,982 | |||
| Total liabilities, redeemable noncontrolling interests and equity | 7,529,361 | $ | 7,024,292 |
All values are in US Dollars.
| CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||
|---|---|---|---|---|---|---|---|
| SCHEDULE 3 | |||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||||
| (in thousands) | |||||||
| Six Months Ended | |||||||
| June 25, 2022 | June 26, 2021 | ||||||
| Cash flows relating to operating activities | |||||||
| Net income | $ | 205,890 | $ | 153,851 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 151,720 | 129,613 | |||||
| Stock-based compensation | 29,549 | 30,266 | |||||
| Loss on debt extinguishment and other financing costs | 1,987 | 27,980 | |||||
| Deferred income taxes | (14,684 | ) | 8,891 | ||||
| Loss on venture capital and strategic equity investments, net | 23,515 | 6,910 | |||||
| Contingent consideration, fair value changes | (15,420 | ) | - | ||||
| Other, net | 13,520 | (475 | ) | ||||
| Changes in assets and liabilities: | |||||||
| Trade receivables and contract assets, net | (117,642 | ) | (5,224 | ) | |||
| Inventories | (63,725 | ) | (7,107 | ) | |||
| Accounts payable | 31,466 | (13,383 | ) | ||||
| Accrued compensation | (38,173 | ) | 13,932 | ||||
| Deferred revenue | 27,641 | 502 | |||||
| Customer contract deposits | 16,100 | (2,032 | ) | ||||
| Other assets and liabilities, net | 360 | 13,095 | |||||
| Net cash provided by operating activities | 252,104 | 356,819 | |||||
| Cash flows relating to investing activities | |||||||
| Acquisition of businesses and assets, net of cash acquired | (283,392 | ) | (1,000,505 | ) | |||
| Capital expenditures | (163,316 | ) | (74,461 | ) | |||
| Purchases of investments and contributions to venture capital investments | (108,842 | ) | (23,266 | ) | |||
| Proceeds from sale of investments | 205 | 5,204 | |||||
| Other, net | (4,774 | ) | 839 | ||||
| Net cash used in investing activities | (560,119 | ) | (1,092,189 | ) | |||
| Cash flows relating to financing activities | |||||||
| Proceeds from long-term debt and revolving credit facility | 2,180,511 | 4,999,942 | |||||
| Proceeds from exercises of stock options | 15,571 | 35,298 | |||||
| Payments on long-term debt, revolving credit facility, and finance lease obligations | (1,856,262 | ) | (4,241,772 | ) | |||
| Purchase of treasury stock | (38,468 | ) | (40,297 | ) | |||
| Payment of debt extinguishment and financing costs | - | (38,166 | ) | ||||
| Payment of contingent considerations | (10,356 | ) | - | ||||
| Other, net | (32,843 | ) | (2,330 | ) | |||
| Net cash provided by financing activities | 258,153 | 712,675 | |||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 10,756 | 17,066 | |||||
| Net change in cash, cash equivalents, and restricted cash | (39,106 | ) | (5,629 | ) | |||
| Cash, cash equivalents, and restricted cash, beginning of period | 246,314 | 233,119 | |||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 207,208 | $ | 227,490 | |||
| Supplemental cash flow information: | |||||||
| Cash and cash equivalents | $ | 200,321 | $ | 222,969 | |||
| Restricted cash included in Other current assets | 5,797 | 3,118 | |||||
| Restricted cash included in Other assets | 1,090 | 1,403 | |||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 207,208 | $ | 227,490 |
| 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 25, 2022 | June 26, 2021 | June 25, 2022 | June 26, 2021 | ||||||||||
| Research Models and Services | |||||||||||||
| Revenue | $ | 186,410 | $ | 176,694 | $ | 362,952 | $ | 353,604 | |||||
| Operating income | 39,526 | 42,580 | 87,408 | 87,515 | |||||||||
| Operating income as a % of revenue | 21.2 | % | 24.1 | % | 24.1 | % | 24.7 | % | |||||
| Add back: | |||||||||||||
| Amortization related to acquisitions | 5,472 | 5,346 | 9,310 | 10,685 | |||||||||
| Severance | 453 | - | 1,127 | 7 | |||||||||
| Acquisition related adjustments ^(2)^ | 971 | 520 | 1,354 | 976 | |||||||||
| Total non-GAAP adjustments to operating income | $ | 6,896 | $ | 5,866 | $ | 11,791 | $ | 11,668 | |||||
| Operating income, excluding non-GAAP adjustments | $ | 46,422 | $ | 48,446 | $ | 99,199 | $ | 99,183 | |||||
| Non-GAAP operating income as a % of revenue | 24.9 | % | 27.4 | % | 27.3 | % | 28.0 | % | |||||
| Depreciation and amortization | $ | 13,228 | $ | 9,844 | $ | 22,697 | $ | 19,523 | |||||
| Capital expenditures | $ | 13,850 | $ | 8,512 | $ | 22,496 | $ | 11,495 | |||||
| Discovery and Safety Assessment | |||||||||||||
| Revenue | $ | 591,917 | $ | 540,094 | $ | 1,136,176 | $ | 1,041,272 | |||||
| Operating income | 128,793 | 104,514 | 233,779 | 195,463 | |||||||||
| Operating income as a % of revenue | 21.8 | % | 19.4 | % | 20.6 | % | 18.8 | % | |||||
| Add back: | |||||||||||||
| Amortization related to acquisitions | 20,849 | 21,176 | 43,214 | 43,824 | |||||||||
| Severance | 387 | 928 | 461 | 1,340 | |||||||||
| Acquisition related adjustments ^(2)^ | (2,591 | ) | 404 | (5,514 | ) | 5,674 | |||||||
| Site consolidation costs, impairments and other items ^(3)^ | 2,287 | 146 | 2,356 | 293 | |||||||||
| Total non-GAAP adjustments to operating income | $ | 20,932 | $ | 22,654 | $ | 40,517 | $ | 51,131 | |||||
| Operating income, excluding non-GAAP adjustments | $ | 149,725 | $ | 127,168 | $ | 274,296 | $ | 246,594 | |||||
| Non-GAAP operating income as a % of revenue | 25.3 | % | 23.5 | % | 24.1 | % | 23.7 | % | |||||
| Depreciation and amortization | $ | 44,626 | $ | 43,588 | $ | 91,415 | $ | 88,196 | |||||
| Capital expenditures | $ | 41,578 | $ | 20,473 | $ | 90,508 | $ | 37,513 | |||||
| Manufacturing Solutions | |||||||||||||
| Revenue | $ | 194,804 | $ | 197,819 | $ | 387,932 | $ | 344,297 | |||||
| Operating income | 62,503 | 56,717 | 108,871 | 106,154 | |||||||||
| Operating income as a % of revenue | 32.1 | % | 28.7 | % | 28.1 | % | 30.8 | % | |||||
| Add back: | |||||||||||||
| Amortization related to acquisitions | 11,373 | 7,812 | 23,271 | 10,026 | |||||||||
| Severance | 271 | 535 | 378 | 829 | |||||||||
| Acquisition related adjustments ^(2)^ | (18,888 | ) | 686 | (14,746 | ) | 728 | |||||||
| Site consolidation costs, impairments and other items ^(3)^ | 519 | - | 1,940 | 40 | |||||||||
| Total non-GAAP adjustments to operating income | $ | (6,725 | ) | $ | 9,033 | $ | 10,843 | $ | 11,623 | ||||
| Operating income, excluding non-GAAP adjustments | $ | 55,778 | $ | 65,750 | $ | 119,714 | $ | 117,777 | |||||
| Non-GAAP operating income as a % of revenue | 28.6 | % | 33.2 | % | 30.9 | % | 34.2 | % | |||||
| Depreciation and amortization | $ | 18,000 | $ | 13,952 | $ | 36,482 | $ | 20,521 | |||||
| Capital expenditures | $ | 24,431 | $ | 13,602 | $ | 47,259 | $ | 20,712 | |||||
| Unallocated Corporate Overhead | $ | (43,411 | ) | $ | (66,261 | ) | $ | (93,869 | ) | $ | (127,879 | ) | |
| Add back: | |||||||||||||
| Severance | 167 | - | 1,254 | (151 | ) | ||||||||
| Acquisition related adjustments ^(2)^ | 3,014 | 15,064 | 7,130 | 25,624 | |||||||||
| Total non-GAAP adjustments to operating expense | $ | 3,181 | $ | 15,064 | $ | 8,384 | $ | 25,473 | |||||
| Unallocated corporate overhead, excluding non-GAAP adjustments | $ | (40,230 | ) | $ | (51,197 | ) | $ | (85,485 | ) | $ | (102,406 | ) | |
| Total | |||||||||||||
| Revenue | $ | 973,131 | $ | 914,607 | $ | 1,887,060 | $ | 1,739,173 | |||||
| Operating income | 187,411 | 137,550 | 336,189 | 261,253 | |||||||||
| Operating income as a % of revenue | 19.3 | % | 15.0 | % | 17.8 | % | 15.0 | % | |||||
| Add back: | |||||||||||||
| Amortization related to acquisitions | 37,694 | 34,334 | 75,795 | 64,535 | |||||||||
| Severance | 1,278 | 1,463 | 3,220 | 2,025 | |||||||||
| Acquisition related adjustments ^(2)^ | (17,494 | ) | 16,674 | (11,776 | ) | 33,002 | |||||||
| Site consolidation costs, impairments and other items ^(3)^ | 2,806 | 146 | 4,296 | 333 | |||||||||
| Total non-GAAP adjustments to operating income | $ | 24,284 | $ | 52,617 | $ | 71,535 | $ | 99,895 | |||||
| Operating income, excluding non-GAAP adjustments | $ | 211,695 | $ | 190,167 | $ | 407,724 | $ | 361,148 | |||||
| Non-GAAP operating income as a % of revenue | 21.8 | % | 20.8 | % | 21.6 | % | 20.8 | % | |||||
| Depreciation and amortization | $ | 76,421 | $ | 68,105 | $ | 151,720 | $ | 129,613 | |||||
| Capital expenditures | $ | 82,852 | $ | 46,431 | $ | 163,316 | $ | 74,461 | |||||
| ^(1)^ | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a<br> 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<br> 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<br> intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. | ||||||||||||
| --- | --- | ||||||||||||
| ^(2)^ | These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration,<br> and certain compensation costs, fair value adjustments associated with contingent consideration, and an adjustment related to certain indirect tax liabilities. | ||||||||||||
| ^(3)^ | Other items include certain third-party legal costs related to (a) an environmental litigation related to the Microbial business and (b)<br> responses to a U.S. government industry-wide supply chain management inquiry applicable to our Safety Assessment business. |
| 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 25, 2022 | June 26, 2021 | June 25, 2022 | June 26, 2021 | |||||||||
| Net income attributable to common shareholders | $ | 109,321 | $ | 88,448 | $ | 202,343 | $ | 149,978 | ||||
| Add back: | ||||||||||||
| Non-GAAP adjustments to operating income (Refer to previous schedule) | 24,284 | 52,617 | 71,535 | 99,895 | ||||||||
| Write-off of deferred financing costs and fees related to debt financing | - | 110 | - | 26,089 | ||||||||
| Venture capital and strategic equity investment losses (gains), net | 9,612 | (9,809 | ) | 23,515 | 6,910 | |||||||
| Other ^(2)^ | 3,608 | (572 | ) | 3,965 | (2,942 | ) | ||||||
| Tax effect of non-GAAP adjustments: | ||||||||||||
| Non-cash tax provision related to international financing structure ^(3)^ | 1,341 | 1,285 | 2,463 | 2,320 | ||||||||
| Enacted tax law changes | - | 10,036 | - | 10,036 | ||||||||
| Tax effect of the remaining non-GAAP adjustments | (6,293 | ) | (8,316 | ) | (20,813 | ) | (29,329 | ) | ||||
| Net income attributable to common shareholders, excluding non-GAAP adjustments | $ | 141,873 | $ | 133,799 | $ | 283,008 | $ | 262,957 | ||||
| Weighted average shares outstanding - Basic | 50,823 | 50,297 | 50,732 | 50,138 | ||||||||
| Effect of dilutive securities: | ||||||||||||
| Stock options, restricted stock units and performance share units | 460 | 1,037 | 561 | 1,087 | ||||||||
| Weighted average shares outstanding - Diluted | 51,283 | 51,334 | 51,293 | 51,225 | ||||||||
| Earnings per share attributable to common shareholders: | ||||||||||||
| Basic | $ | 2.15 | $ | 1.76 | $ | 3.99 | $ | 2.99 | ||||
| Diluted | $ | 2.13 | $ | 1.72 | $ | 3.94 | $ | 2.93 | ||||
| Basic, excluding non-GAAP adjustments | $ | 2.79 | $ | 2.66 | $ | 5.58 | $ | 5.24 | ||||
| Diluted, excluding non-GAAP adjustments | $ | 2.77 | $ | 2.61 | $ | 5.52 | $ | 5.13 | ||||
| ^(1)^ | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a<br> 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<br> 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<br> intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. | |||||||||||
| --- | --- | |||||||||||
| ^(2)^ | Adjustments included in 2022 relate to a purchase price adjustment in connection with the 2021 divestiture of RMS Japan and a reversal of an<br> indemnification asset related to a prior acquisition. Adjustments included in 2021 include gains on an immaterial divestiture and the finalization of an annuity purchase related to the termination of the Company's U.S. pension plan. | |||||||||||
| ^(3)^ | 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 June 25, 2022 | Total CRL | RMS Segment | DSA Segment | MS Segment |
| Revenue growth, reported | 6.4 % | 5.5 % | 9.6 % | (1.5)% |
| Decrease due to foreign exchange | 3.4 % | 3.0 % | 3.3 % | 4.1 % |
| Contribution from acquisitions ^(2)^ | (2.3)% | (7.2)% | - % | (4.0)% |
| Impact of divestitures ^(3)^ | 2.0 % | 7.2 % | - % | 2.4 % |
| Non-GAAP revenue growth, organic ^(4)^ | 9.5 % | 8.5 % | 12.9 % | 1.0 % |
| Six Months Ended June 25, 2022 | Total CRL | RMS Segment | DSA Segment | MS Segment |
| Revenue growth, reported | 8.5 % | 2.6 % | 9.1 % | 12.7 % |
| Decrease due to foreign exchange | 2.6 % | 2.1 % | 2.5 % | 3.5 % |
| Contribution from acquisitions ^(2)^ | (3.4)% | (3.6)% | (0.3)% | (12.7)% |
| Impact of divestitures ^(3)^ | 1.8 % | 7.5 % | (0.1)% | 1.4 % |
| Non-GAAP revenue growth, organic ^(4)^ | 9.5 % | 8.6 % | 11.2 % | 4.9 % |
| ^(1)^ | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a<br> 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<br> 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<br> 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)^ | The Company sold both its RMS Japan operations and its gene therapy CDMO site in Sweden on October 12, 2021. This adjustment represents the<br> revenue from these businesses for all applicable periods in 2021. | |||
| ^(4)^ | Organic revenue growth is defined as reported revenue growth adjusted for acquisitions, divestitures 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