Charles River Laboratories International, Inc 10-Q for FY2022 Q3

Charles River Laboratories International, Inc. (CRL)

10-Q 2022-11-02 For: 2022-09-24

Added on April 06, 2026

About this 10-Q

Charles River Laboratories International, Inc filed this 10-Q on November 2, 2022, covering the quarter ended September 24, 2022 (FY2022 Q3).

Headline figures

Quarter ended September 24, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $989.16M; up 10.4% from $895.94M a year earlier
Net income: $96.47M; down 6.7% from net income of $103.43M a year earlier
Diluted EPS: $1.88; down 6.5% from $2.01 a year earlier

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FORM 10-Q
(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	CRL	New York Stock Exchange


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


Item		Page
PART I - FINANCIAL INFORMATION
1	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended September 24, 2022 and September 25, 2021	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 24, 2022 and September 25, 2021	4
	Condensed Consolidated Balance Sheets (Unaudited) as of September 24, 2022 and December 25, 2021	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 24, 2022 and September 25, 2021	6
	Condensed Consolidated Statements of Changes in Equity (Unaudited) for the three and nine months ended September 24, 2022 and September 25, 2021	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
3	Quantitative and Qualitative Disclosure About Market Risk	39
4	Controls and Procedures	39
PART II - OTHER INFORMATION
1	Legal Proceedings	41
1A	Risk Factors	41
2	Unregistered Sales of Equity Securities and Use of Proceeds	41

6	Exhibits	42

Signatures		43


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Service revenue	$	812,894	$	703,859	$	2,316,206	$	2,045,760
Product revenue	176,263		192,078		560,011		589,350
Total revenue	989,157		895,937		2,876,217		2,635,110
Costs and expenses:
Cost of services provided (excluding amortization of intangible assets)	530,706		468,659		1,540,193		1,369,396
Cost of products sold (excluding amortization of intangible assets)	88,228		90,051		272,257		278,188
Selling, general and administrative	183,714		148,573		465,458		475,807
Amortization of intangible assets	35,533		32,852		111,144		94,664
Operating income	150,976		155,802		487,165		417,055
Other income (expense):
Interest income	122		137		437		343
Interest expense	(11,375)		(16,455)		(24,512)		(62,364)
Other expense, net	(16,616)		(16,214)		(85,024)		(37,966)
Income before income taxes	123,107		123,270		378,066		317,068
Provision for income taxes	25,495		18,111		74,564		58,058
Net income	97,612		105,159		303,502		259,010
Less: Net income attributable to noncontrolling interests	1,139		1,733		4,686		5,606
Net income attributable to common shareholders	$	96,473	$	103,426	$	298,816	$	253,404

Earnings per common share
Net income attributable to common shareholders:
Basic	$	1.90	$	2.05	$	5.88	$	5.04
Diluted	$	1.88	$	2.01	$	5.83	$	4.93

Weighted-average number of common shares outstanding:
Basic	50,870		50,425		50,778		50,234
Diluted	51,283		51,558		51,285		51,360

See Notes to Unaudited Condensed Consolidated Financial Statements.


	September 24, 2022		December 25, 2021
Assets
Current assets:
Cash and cash equivalents	$	193,701	$	241,214
Trade receivables and contract assets, net of allowances for credit losses of $9,827 and $7,180, respectively	770,776		642,881
Inventories	261,522		199,146
Prepaid assets	92,266		93,543
Other current assets	97,087		97,311
Total current assets	1,415,352		1,274,095
Property, plant and equipment, net	1,380,568		1,291,068
Operating lease right-of-use assets, net	373,410		292,941
Goodwill	2,776,005		2,711,881
Client relationships, net	909,899		981,398
Other intangible assets, net	58,121		79,794
Deferred tax assets	39,721		40,226
Other assets	429,693		352,889
Total assets	$	7,382,769	$	7,024,292
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Current portion of long-term debt and finance leases	$	2,079	$	2,795
Accounts payable	181,629		198,130
Accrued compensation	200,365		246,119
Deferred revenue	251,473		219,703
Accrued liabilities	196,754		228,797
Other current liabilities	181,894		137,641
Total current liabilities	1,014,194		1,033,185
Long-term debt, net and finance leases	2,937,056		2,663,564
Operating lease right-of-use liabilities	368,851		252,972
Deferred tax liabilities	196,014		239,720
Other long-term liabilities	194,710		242,859
Total liabilities	4,710,825		4,432,300
Commitments and contingencies (Notes 2, 9, 11 and 13)
Redeemable noncontrolling interests	39,206		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; 51,006 shares issued and 50,877 shares outstanding as of September 24, 2022, and 50,480 shares issued and outstanding as of December 25, 2021	510		505
Additional paid-in capital	1,780,876		1,718,304
Retained earnings	1,279,567		980,751
Treasury stock, at cost, 129 and 0 shares, as of September 24, 2022 and December 25, 2021, respectively	(38,492)		—
Accumulated other comprehensive loss	(395,608)		(164,740)
Total equity attributable to common shareholders	2,626,853		2,534,820
Noncontrolling interest	5,885		4,162
Total equity	2,632,738		2,538,982
Total liabilities, redeemable noncontrolling interests and equity	$	7,382,769	$	7,024,292
See Notes to Unaudited Condensed Consolidated Financial Statements.


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Equity Attributable to Common Shareholders		Noncontrolling Interest		Total Equity
	Shares	Amount								Shares	Amount
December 25, 2021	50,480	$	505	$	1,718,304	$	980,751	$	(164,740)	—	$	—	$	2,534,820	$	4,162	$	2,538,982
Net income	—	—		—		93,022		—		—	—		93,022		560		93,582
Other comprehensive loss	—	—		—		—		(10,193)		—	—		(10,193)		—		(10,193)
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,161)		—		—		—	—		(1,161)		—		(1,161)
Issuance of stock under employee compensation plans	431	4		13,067		—		—		—	—		13,071		—		13,071
Purchase of treasury shares	—	—		—		—		—		111	(33,994)		(33,994)		—		(33,994)
Stock-based compensation	—	—		14,619		—		—		—	—		14,619		—		14,619
March 26, 2022	50,911	509		1,744,829		1,073,773		(174,933)		111	(33,994)		2,610,184		4,722		2,614,906
Net income	—	—		—		109,321		—		—	—		109,321		499		109,820
Other comprehensive income	—	—		—		—		(83,622)		—	—		(83,622)		—		(83,622)
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(1,132)		—		—		—	—		(1,132)		—		(1,132)
Issuance of stock under employee compensation plans	79	1		2,498		—		—		—	—		2,499		—		2,499
Purchase of treasury shares	—	—		—		—		—		18	(4,474)		(4,474)		—		(4,474)
Stock-based compensation	—	—		14,930		—		—		—	—		14,930		—		14,930
June 25, 2022	50,990	510		1,761,125		1,183,094		(258,555)		129	(38,468)		2,647,706		5,221		2,652,927
Net income	—	—		—		96,473		—		—	—		96,473		664		97,137
Other comprehensive loss	—	—		—		—		(137,053)		—	—		(137,053)		—		(137,053)
Adjustment of redeemable noncontrolling interest to redemption value	—	—		(4,388)		—		—		—	—		(4,388)		—		(4,388)
Issuance of stock under employee compensation plans	16	—		2,140		—		—		—	—		2,140		—		2,140
Purchase of treasury shares	—	—		—		—		—		—	(24)		(24)		—		(24)
Stock-based compensation	—	—		21,999		—		—		—	—		21,999		—		21,999
September 24, 2022	51,006	$	510	$	1,780,876	$	1,279,567	$	(395,608)	129	$	(38,492)	$	2,626,853	$	5,885	$	2,632,738


	Explora BioLabs (1)		Vigene		Retrogenix		Cognate		Distributed Bio
	April 5, 2022		June 28, 2021		March 30, 2021		March 29, 2021		December 31, 2020
	(in thousands)
Trade receivables	$	7,679	$	3,548	$	2,266	$	18,566	$	2,722
Other current assets (excluding cash)	1,067		1,657		209		14,128		221
Property, plant and equipment	37,369		7,649		400		52,082		2,382
Operating lease right-of-use asset, net	48,613		22,507		1,385		34,349		1,586
Goodwill (2)	215,752		239,681		34,489		611,555		71,585
Definite-lived intangible assets	70,100		93,900		22,126		270,900		24,540
Other long-term assets	556		694		—		6,098		469
Deferred revenue	(3,507)		(4,260)		(434)		(20,539)		(1,319)
Other current liabilities (3)	(15,507)		(6,319)		(1,141)		(45,388)		(1,504)
Operating lease right-of-use liabilities (Long-term)	(57,193)		(21,220)		(1,205)		(31,383)		(1,123)
Deferred tax liabilities	(18,601)		(13,958)		(4,174)		(32,503)		(2,529)
Other long-term liabilities	(1,807)		—		—		—		—
Total purchase price allocation	$	284,521	$	323,879	$	53,921	$	877,865	$	97,030

(1) Purchase price allocation is preliminary and subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.
(2) The goodwill resulting from these transactions is primarily attributable to the potential growth of the Company’s segments from new customers introduced to the acquired businesses and the assembled workforce of the acquirees, thus is not deductible for tax purposes. Explora BioLabs had $5.0 million of goodwill due to a prior asset acquisition that is not deductible for tax purposes.
(3) In connection with its acquisitions of businesses, the Company routinely records liabilities related to indirect state and local taxes for preacquisition periods when such liabilities are estimable and deemed probable. The Company may or may not be indemnified for such indirect tax liabilities under terms of the acquisitions. As these indirect tax contingencies are resolved, actual obligations, and any indemnifications, may differ from the recorded amounts and any differences are reflected in reported results in the period in which these are resolved. Specifically for Cognate, as of March 29, 2021, the Company recorded an estimated liability of $17.0 million pertaining to indirect state sales taxes. During the nine months ended September 24, 2022, the Company received a favorable ruling from the applicable state in which the indirect state sales tax liability arose and, accordingly, this liability was reduced in full, resulting in a gain recorded through selling, general and administrative expenses in the period.


	Explora BioLabs		Vigene		Retrogenix		Cognate		Distributed Bio
Definite-Lived Intangible Assets	(in thousands)
Client relationships	$	64,000	$	87,500	$	17,340	$	257,200	$	16,080
Other intangible assets	6,100		6,400		4,786		13,700		8,460
Total definite-lived intangible assets	$	70,100	$	93,900	$	22,126	$	270,900	$	24,540

Weighted Average Amortization Life	(in years)
Client relationships	13		12		13		13		9
Other intangible assets	4		2		3		2		4
Total definite-lived intangible assets	12		11		11		13		7


	October 12, 2021
	RMS Japan		CDMO Sweden
	(in thousands)
Assets
Current assets	$	26,524	$	8,187
Property, plant, and equipment, net	17,379		14,339
Operating lease right-of-use assets, net	—		19,733
Goodwill	4,129		27,764
Intangible assets, net	—		14,089
Other assets	3,695		—
Total assets	$	51,727	$	84,112

Liabilities
Current liabilities	$	8,705	$	6,386
Operating lease right-of-use liabilities	—		18,221
Long-term liabilities	94		—
Total liabilities	$	8,799	$	24,607


	Revenue Expected to be Recognized in Future Periods
	Less than 1 Year		1 to 3 Years		4 to 5 Years		Beyond 5 Years		Total
	(in thousands)
DSA	$	609,960	$	461,386	$	72,772	$	4,130	$	1,148,248
Manufacturing	113		8		—		—		121
Total	$	610,073	$	461,394	$	72,772	$	4,130	$	1,148,369


	Operating Income				Depreciation and Amortization				Capital Expenditures
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
	(in thousands)
Three Months Ended:
Total reportable segments	$	209,513	$	204,222	$	74,046	$	67,952	$	72,280	$	54,592
Unallocated corporate	(58,537)		(48,420)		559		734		113		944
Total consolidated	$	150,976	$	155,802	$	74,605	$	68,686	$	72,393	$	55,536

Nine Months Ended
Total reportable segments	$	639,571	$	593,354	$	224,640	$	196,192	$	232,543	$	124,312
Unallocated corporate	(152,406)		(176,299)		1,685		2,107		3,166		5,685
Total consolidated	$	487,165	$	417,055	$	226,325	$	198,299	$	235,709	$	129,997


	U.S.		Europe		Canada		Asia Pacific		Other		Consolidated
	(in thousands)
Three Months Ended:
September 24, 2022	$	595,265	$	245,928	$	101,601	$	43,803	$	2,560	$	989,157
September 25, 2021	493,564		258,353		85,252		56,607		2,161		895,937

Nine Months Ended:
September 24, 2022	$	1,688,731	$	760,599	$	280,541	$	138,988	$	7,358	$	2,876,217
September 25, 2021	1,433,665		771,594		252,924		171,186		5,741		2,635,110


	September 24, 2022
	Level 1		Level 2		Level 3		Total
Current assets measured at fair value:	(in thousands)
Cash equivalents	$	—	$	77	$	—	$	77
Other assets:
Life insurance policies	—		32,738		—		32,738
Total assets measured at fair value	$	—	$	32,815	$	—	$	32,815

Accrued liabilities measured at fair value:
Contingent consideration	$	—	$	—	$	8,661	$	8,661


Total liabilities measured at fair value	$	—	$	—	$	8,661	$	8,661


	Nine Months Ended
	September 24, 2022		September 25, 2021
Cash flows relating to operating activities
Net income	$	303,502	$	259,010
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	226,325		198,299
Stock-based compensation	51,548		52,289
Loss on debt extinguishment and amortization of other financing costs	3,054		28,972
Deferred income taxes	(26,323)		(13,757)
Loss on venture capital and strategic equity investments, net	20,068		17,277
Contingent consideration, fair value changes	(15,420)		(10,360)
Other, net	31,574		928
Changes in assets and liabilities:
Trade receivables and contract assets, net	(174,169)		(35,592)
Inventories	(76,283)		(5,639)
Accounts payable	5,979		11,431
Accrued compensation	(32,734)		18,210
Deferred revenue	53,565		(9,394)
Customer contract deposits	16,234		4,850
Other assets and liabilities, net	(2,037)		15,017
Net cash provided by operating activities	384,883		531,541
Cash flows relating to investing activities
Acquisition of businesses and assets, net of cash acquired	(283,392)		(1,292,093)
Capital expenditures	(235,709)		(129,997)
Purchases of investments and contributions to venture capital investments	(129,363)		(31,963)
Proceeds from sale of investments	3,104		5,960
Other, net	(6,945)		854
Net cash used in investing activities	(652,305)		(1,447,239)
Cash flows relating to financing activities
Proceeds from long-term debt and revolving credit facility	2,798,665		6,119,671
Proceeds from exercises of stock options	17,710		43,314
Payments on long-term debt, revolving credit facility, and finance lease obligations	(2,524,387)		(5,190,394)
Purchase of treasury stock	(38,492)		(40,440)
Payment of debt extinguishment and financing costs	—		(38,253)
Purchases of additional equity interests, net	(30,533)		—
Payment of contingent considerations	(10,356)		(2,328)
Other, net	(6,048)		—
Net cash provided by financing activities	206,559		891,570
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	10,726		17,514


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021			September 24, 2022		September 25, 2021
	(in thousands)
Timing of Revenue Recognition:
RMS
Services and products transferred over time	$	88,174	$	65,805		$	243,901	$	197,035
Services and products transferred at a point in time	91,940		105,453			299,165		327,827
Total RMS revenue	180,114		171,258			543,066		524,862
DSA
Services and products transferred over time	618,270		531,637			1,749,977		1,571,895
Services and products transferred at a point in time	1,193		186			5,662		1,200
Total DSA revenue	619,463		531,823			1,755,639		1,573,095
Manufacturing
Services and products transferred over time	89,173		93,473			276,993		240,015
Services and products transferred at a point in time	100,407		99,383			300,519		297,138
Total Manufacturing revenue	189,580		192,856			577,512		537,153
Total revenue	$	989,157	$	895,937		$	2,876,217	$	2,635,110


	September 24, 2022		December 25, 2021
	(in thousands)
Balances from contracts with customers:
Client receivables	$	580,626	$	489,452
Contract assets (unbilled revenue)	199,977		160,609
Contract liabilities (current and long-term deferred revenue)	275,634		240,281
Contract liabilities (customer contract deposits)	76,904		59,512


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
	(in thousands)
RMS
Revenue	$	180,114	$	171,258	$	543,066	$	524,862
Operating income	35,891		39,111		123,299		126,626
Depreciation and amortization	13,128		9,927		35,825		29,450
Capital expenditures	10,743		18,026		33,239		29,521
DSA
Revenue	$	619,463	$	531,823	$	1,755,639	$	1,573,095
Operating income	142,143		116,548		375,922		312,011
Depreciation and amortization	43,913		44,072		135,328		132,268
Capital expenditures	43,400		23,270		133,908		60,783
Manufacturing
Revenue	$	189,580	$	192,856	$	577,512	$	537,153
Operating income	31,479		48,563		140,350		154,717
Depreciation and amortization	17,005		13,953		53,487		34,474
Capital expenditures	18,137		13,296		65,396		34,008


	September 24, 2022				December 25, 2021
	Book Value		Fair Value		Book Value		Fair Value
4.25% Senior Notes due 2028	$	500,000	$	446,250	$	500,000	$	521,250
3.75% Senior Notes due 2029	500,000		422,500		500,000		506,700
4.0% Senior Notes due 2031	500,000		413,750		500,000		507,500


			Adjustments to Goodwill
	December 25, 2021		Acquisition Related		Foreign Exchange		September 24, 2022
	(in thousands)
RMS	$	283,524	$	215,752	$	(2,528)	$	496,748
DSA	1,472,506		—		(81,136)		1,391,370
Manufacturing	955,851		(592)		(67,372)		887,887
Goodwill	$	2,711,881	$	215,160	$	(151,036)	$	2,776,005


	September 24, 2022						December 25, 2021
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	(in thousands)
Backlog	$	14,810	$	(11,800)	$	3,010	$	12,577	$	(9,517)	$	3,060
Technology	123,169		(95,545)		27,624		135,764		(95,454)		40,310
Trademarks and trade names	12,164		(3,981)		8,184		13,086		(3,448)		9,638
Other	37,900		(18,597)		19,303		35,231		(8,445)		26,786
Other intangible assets	188,043		(129,923)		58,121		196,658		(116,864)		79,794
Client relationships	1,456,032		(546,133)		909,899		1,475,757		(494,359)		981,398
Intangible assets	$	1,644,075	$	(676,056)	$	968,020	$	1,672,415	$	(611,223)	$	1,061,192


	Foreign Currency Translation Adjustment and Other		Pension and Other Post-Retirement Benefit Plans		Total
	(in thousands)
December 25, 2021	$	(98,173)	$	(66,567)	$	(164,740)
Other comprehensive loss before reclassifications	(253,181)		—		(253,181)
Amounts reclassified from accumulated other comprehensive income	—		2,218		2,218
Net current period other comprehensive (loss) income	(253,181)		2,218		(250,963)
Income tax (benefit) expense	(20,645)		550		(20,095)
September 24, 2022	$	(330,709)	$	(64,899)	$	(395,608)


	September 24, 2022		December 25, 2021
	(in millions)
Cash and cash equivalents:
Held in U.S. entities	$	18.3	$	28.2
Held in non-U.S. entities	175.4		213.0
Total cash and cash equivalents	193.7		241.2
Short-term investments:
Held in non-U.S. entities	1.0		1.1
Total cash, cash equivalents and short-term investments	$	194.7	$	242.3


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
					(in thousands)
June 26, 2022 to July 23, 2022	138	$	214.41	—	$	129,105
July 24, 2022 to August 20, 2022	6	249.68		—	129,105
August 21, 2022 to September 24, 2022	7	205.25		—	129,105
Total	151			—


(a) Exhibits			Description of Exhibits
31.1+			Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2+			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1+			Certification of the Principal Executive Officer and the Principal Financial Officer required by Rule 13a-14(a) of 15d-14(a) of the Exchange Act
101.INS			eXtensible Business Reporting Language (XBRL) Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Calculation Linkbase Document
101.DEF			XBRL Taxonomy Definition Linkbase Document
101.LAB			XBRL Taxonomy Label Linkbase Document
101.PRE			XBRL Taxonomy Presentation Linkbase Document

+ Furnished herein.


						CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

			November 2, 2022			/s/ JAMES C. FOSTER
						James C. Foster Chairman, President and Chief Executive Officer

			November 2, 2022			/s/ FLAVIA H. PEASE
						Flavia H. Pease Corporate Executive Vice President and Chief Financial Officer