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Charles River Laboratories Announces First-Quarter 2014 Results from Continuing Operations
– First-Quarter Sales of
– First-Quarter GAAP Earnings per Share of
– Raises Sales and Non-GAAP EPS Guidance for 2014; Reduces 2014 GAAP EPS Guidance –
On a GAAP basis, net income from continuing operations for the first
quarter of 2014 was
On a non-GAAP basis, net income from continuing operations was
As a result of the acquisition of Argenta and BioFocus, we are raising
our 2014 sales guidance to 9-11%. Non-GAAP earnings per share increase
to a range of
First-Quarter Segment Results
Research Models and Services (RMS)
Net sales for the RMS segment were
In the first quarter of 2014, the RMS segment’s GAAP operating margin was 28.8% compared to 30.3% for the first quarter of 2013. On a non-GAAP basis, the operating margin increased to 31.7% from 31.5% in the first quarter of 2013. Benefits from the Company’s global efficiency initiatives offset the impact of lower sales volume for research models.
Preclinical Services (PCS)
First-quarter 2014 net sales from continuing operations for the PCS
segment were
In the first quarter of 2014, the PCS segment’s GAAP operating margin was 10.6% compared to 7.4% in the first quarter of 2013. On a non-GAAP basis, the operating margin increased to 12.9% from 10.6% in the first quarter of 2013. The non-GAAP operating margin improvement was due primarily to a foreign exchange benefit from a weaker Canadian dollar, the 2013 U.K. tax law change which reclassified research and development tax credits, and higher PCS sales volume.
Stock Repurchase Update
During the first quarter of 2014, the Company repurchased approximately
183,000 shares of its common stock for
2014 Guidance
The Company is updating its 2014 forward-looking guidance based on
continuing operations, which was originally provided on
2014 GUIDANCE (from continuing operations) | REVISED | PRIOR | |||||||
Net sales growth, reported | 9.0% – 11.0% | 3.0% – 5.0% | |||||||
Impact of foreign exchange | N/M | N/M | |||||||
Net sales growth, constant currency | 9.0% - 11.0% | 3.0% - 5.0% | |||||||
GAAP EPS estimate | $2.64 - $2.74 | $2.68 - $2.78 | |||||||
Amortization of intangible assets | $0.33 | $0.22 | |||||||
Operating losses (1) | $0.04 | $0.04 | |||||||
Charges related to global efficiency initiative (2) | $0.08-$0.10 | $0.05-$0.07 | |||||||
Costs associated with evaluation and integration of acquisitions | $0.05 | -- | |||||||
Non-GAAP EPS estimate | $3.15 - $3.25 | $3.00 - $3.10 | |||||||
(1) These costs relate primarily to the Company’s PCS facility in
(2) These charges are primarily related to the consolidation of a
research model production operation in
Webcast
Non-GAAP Reconciliations/Discontinued Operations
The Company reports non-GAAP results in this press release, which exclude certain 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. In addition, the Company reports results from continuing operations, which exclude results of the Phase I clinical business that was divested in 2011. The Phase I business is reported as a discontinued operation.
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; charges, gains and losses attributable to businesses or properties we plan to close, consolidate or divest; severance costs associated with our efficiency initiatives; accelerated depreciation charges related to the consolidation of research model production operations; and the additional interest recorded as a result of the adoption in 2009 of an accounting standard related to our convertible debt accounting which increased interest and depreciation expense. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. This press release also refers to our sales in both a GAAP and non-GAAP (constant currency) basis. There are limitations in using non-GAAP financial measures, as they are not prepared 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 in certain cases, the evaluation of such acquisitions, 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, such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Presenting sales on a constant currency basis allows investors to measure our sales growth exclusive of 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 prepared 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,” “will,” “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
our projected future financial performance including sales, operating
margins, earnings per share, and the expected impact of foreign exchange
rates; the future demand for drug discovery and development products and
services, including our expectations for future revenue trends; the
integration of Argenta and BioFocus, and our expectations with respect
to their impact on the Company, our service offerings, net sales, sales
growth rates, and earnings; the development and performance of our
services and products, including the impact this can have on our
clients’ drug development models; market and industry conditions
including the outsourcing of these services and spending trends by our
clients; the potential outcome of and impact to our business and
financial operations due to litigation and legal proceedings, including
with respect to our ongoing investigation of inaccurate billing with
respect to certain government contracts; and Charles River’s future
performance as delineated in our forward-looking guidance, and
particularly our expectations with respect to sales, the impact of
foreign exchange, and enhanced efficiency initiatives. 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 ability to successfully integrate businesses we acquire; the
ability to execute our efficiency initiatives on an effective and timely
basis (including divestitures and site closures); 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 sales; special interest groups; contaminations;
industry trends; new displacement technologies; USDA and
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. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except for per share data) |
||||||||||||
Three Months Ended | ||||||||||||
March 29, 2014 | March 30, 2013 | |||||||||||
Revenue | $ | 299,368 | $ | 291,238 | ||||||||
Cost of products sold and services provided | 190,555 | 187,027 | ||||||||||
Gross margin | 108,813 | 104,211 | ||||||||||
Selling, general and administrative | 64,767 | 57,199 | ||||||||||
Amortization of intangibles | 4,340 | 4,249 | ||||||||||
Operating income | 39,706 | 42,763 | ||||||||||
Interest income (expense) | (2,596 | ) | (8,183 | ) | ||||||||
Other income (expense) | 5,876 | 1,068 | ||||||||||
Income from continuing operations before income taxes | 42,986 | 35,648 | ||||||||||
Provision for income taxes | 10,358 | 9,722 | ||||||||||
Income from continuing operations, net of tax | 32,628 | 25,926 | ||||||||||
(Loss) income from discontinued operations, net of tax | (270 | ) | (155 | ) | ||||||||
Net income | 32,358 | 25,771 | ||||||||||
Net loss (income) from noncontrolling interests | (126 | ) | (193 | ) | ||||||||
Net income attributable to common stockholders | $ | 32,232 | $ | 25,578 | ||||||||
Earnings per common share | ||||||||||||
Basic: | ||||||||||||
Continuing operations | $ | 0.69 | $ | 0.54 | ||||||||
Discontinued operations | $ | (0.01 | ) | $ | - | |||||||
Net | $ | 0.68 | $ | 0.54 | ||||||||
Diluted: | ||||||||||||
Continuing operations | $ | 0.67 | $ | 0.53 | ||||||||
Discontinued operations | $ | (0.01 | ) | $ | - | |||||||
Net | $ | 0.67 | $ | 0.53 | ||||||||
Weighted average number of common shares outstanding | ||||||||||||
Basic | 47,090,830 | 47,658,995 | ||||||||||
Diluted | 48,151,384 | 48,436,049 | ||||||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands) |
||||||||||
March 29, 2014 | December 28, 2013 | |||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 169,850 | $ | 155,927 | ||||||
Trade receivables, net | 239,998 | 220,630 | ||||||||
Inventories | 91,674 | 89,396 | ||||||||
Other current assets | 88,459 | 85,847 | ||||||||
Current assets of discontinued businesses | 677 | 750 | ||||||||
Total current assets | 590,658 | 552,550 | ||||||||
Property, plant and equipment, net | 665,609 | 676,182 | ||||||||
Goodwill, net | 230,321 | 230,701 | ||||||||
Other intangibles, net | 79,451 | 84,537 | ||||||||
Deferred tax asset | 18,711 | 23,671 | ||||||||
Other assets | 64,043 | 61,964 | ||||||||
Long-term assets of discontinued businesses | 2,970 | 3,151 | ||||||||
Total assets | $ | 1,651,763 | $ | 1,632,756 | ||||||
Liabilities and Equity | ||||||||||
Current liabilities | ||||||||||
Current portion of long-term debt and capital leases | $ | 26,683 | $ | 21,437 | ||||||
Accounts payable | 35,253 | 31,770 | ||||||||
Accrued compensation | 52,434 | 58,461 | ||||||||
Deferred revenue | 54,422 | 54,177 | ||||||||
Accrued liabilities | 58,925 | 56,712 | ||||||||
Other current liabilities | 9,855 | 22,546 | ||||||||
Current liabilities of discontinued businesses | 1,747 | 1,931 | ||||||||
Total current liabilities | 239,319 | 247,034 | ||||||||
Long-term debt & capital leases | 614,129 | 642,352 | ||||||||
Other long-term liabilities | 70,440 | 70,632 | ||||||||
Long-term liabilities of discontinued businesses | 7,615 | 8,080 | ||||||||
Total liabilities | 931,503 | 968,098 | ||||||||
Redeemable non-controlling interest | 21,579 | 20,581 | ||||||||
Total shareholders'equity | 695,462 | 640,984 | ||||||||
Non-controlling interest | 3,219 | 3,093 | ||||||||
Total liabilities and equity | $ | 1,651,763 | $ | 1,632,756 | ||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (dollars in thousands) |
|||||||||
Three Months Ended | |||||||||
March 29, 2014 |
March 30, 2013 | ||||||||
Research Models and Services | |||||||||
Revenue | $ | 185,615 | $ | 182,489 | |||||
Gross margin | 80,979 | 80,435 | |||||||
Gross margin as a % of net sales | 43.6 | % | 44.1 | % | |||||
Operating income | 53,540 | 55,303 | |||||||
Operating income as a % of net sales | 28.8 | % | 30.3 | % | |||||
Depreciation and amortization | 10,690 | 9,873 | |||||||
Capital expenditures | 6,868 | 4,010 | |||||||
Preclinical Services | |||||||||
Revenue | $ | 113,753 | $ | 108,749 | |||||
Gross margin | 27,834 | 23,776 | |||||||
Gross margin as a % of net sales | 24.5 | % | 21.9 | % | |||||
Operating income | 12,033 | 8,060 | |||||||
Operating income as a % of net sales | 10.6 | % | 7.4 | % | |||||
Depreciation and amortization | 9,361 | 10,137 | |||||||
Capital expenditures | 4,322 | 2,418 | |||||||
Unallocated Corporate Overhead | $ | (25,867 | ) | $ | (20,600 | ) | |||
Total | |||||||||
Revenue | $ | 299,368 | $ | 291,238 | |||||
Gross margin | 108,813 | 104,211 | |||||||
Gross margin as a % of net sales | 36.3 | % | 35.8 | % | |||||
Operating income | 39,706 | 42,763 | |||||||
Operating income as a % of net sales | 13.3 | % | 14.7 | % | |||||
Depreciation and amortization | 20,051 | 20,010 | |||||||
Capital expenditures | 11,190 | 6,428 | |||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP TO NON-GAAP SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1) (dollars in thousands) |
|||||||||||||
Three Months Ended | |||||||||||||
March 29, 2014 | March 30, 2013 | ||||||||||||
Research Models and Services | |||||||||||||
Revenue | $ | 185,615 | $ | 182,489 | |||||||||
Operating income | 53,540 | 55,303 | |||||||||||
Operating income as a % of net sales | 28.8 | % | 30.3 | % | |||||||||
Add back: | |||||||||||||
Amortization of intangible assets related to acquisitions | 2,439 | 1,986 | |||||||||||
Severance related to cost-savings actions | 1,716 | 86 | |||||||||||
Government billing adjustment and related expenses | 67 | - | |||||||||||
Impairment and other items (2) | 980 | - | |||||||||||
Operating losses (3) | 12 | 158 | |||||||||||
Operating income, excluding specified items (Non-GAAP) | $ | 58,754 | $ | 57,533 | |||||||||
Non-GAAP operating income as a % of net sales | 31.7 | % | 31.5 | % | |||||||||
Preclinical Services | |||||||||||||
Revenue | $ | 113,753 | $ | 108,749 | |||||||||
Operating income | 12,033 | 8,060 | |||||||||||
Operating income as a % of net sales | 10.6 | % | 7.4 | % | |||||||||
Add back: | |||||||||||||
Amortization of intangible assets related to acquisitions | 1,900 | 2,262 | |||||||||||
Severance related to cost-savings actions | 63 | 211 | |||||||||||
Operating losses (3) | 671 | 948 | |||||||||||
Operating income, excluding specified items (Non-GAAP) | $ | 14,667 | $ | 11,481 | |||||||||
Non-GAAP operating income as a % of net sales | 12.9 | % | 10.6 | % | |||||||||
Unallocated Corporate Overhead | $ | (25,867 | ) | $ | (20,600 | ) | |||||||
Add back: | |||||||||||||
Severance related to cost-savings actions | 121 | - | |||||||||||
Costs associated with the evaluation and integration of acquisitions | 3,305 | 486 | |||||||||||
Convertible debt accounting | - | 53 | |||||||||||
Unallocated corp. costs, excluding specified items (Non-GAAP) | $ | (22,441 | ) | $ | (20,061 | ) | |||||||
Total | |||||||||||||
Revenue | $ | 299,368 | $ | 291,238 | |||||||||
Operating income | 39,706 | 42,763 | |||||||||||
Operating income as a % of net sales | 13.3 | % | 14.7 | % | |||||||||
Add back: | |||||||||||||
Amortization of intangible assets related to acquisitions | 4,339 | 4,248 | |||||||||||
Severance related to cost-savings actions | 1,900 | 297 | |||||||||||
Government billing adjustment and related expenses | 67 | - | |||||||||||
Impairment and other items (2) | 980 | - | |||||||||||
Operating losses (3) | 683 | 1,106 | |||||||||||
Costs associated with the evaluation and integration of acquisitions | 3,305 | 486 | |||||||||||
Convertible debt accounting | - | 53 | |||||||||||
Operating income, excluding specified items (Non-GAAP) | $ | 50,980 | $ | 48,953 | |||||||||
Non-GAAP operating income as a % of net sales | 17.0 | % | 16.8 | % | |||||||||
(1) Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.
(2) For the three months ended
(3) Includes operating losses related primarily to the Company's PCS-Massachusetts facility.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (1) (dollars in thousands, except for per share data) |
|||||||||||||
Three Months Ended | |||||||||||||
March 29, 2014 | March 30, 2013 | ||||||||||||
Net income attributable to common stockholders | $ | 32,232 | $ | 25,578 | |||||||||
Less: Discontinued operations | 270 | 155 | |||||||||||
Net income from continuing operations | 32,502 | 25,733 | |||||||||||
Add back: | |||||||||||||
Amortization of intangible assets related to acquisitions | 4,339 | 4,248 | |||||||||||
Severance related to cost-savings actions | 1,900 | 297 | |||||||||||
Impairment and other items (2) | 980 | - | |||||||||||
Operating losses (3) | 683 | 1,106 | |||||||||||
Costs associated with the evaluation and integration of acquisitions | 3,305 | 486 | |||||||||||
Government billing adjustment and related expenses | 67 | - | |||||||||||
Convertible debt accounting, net (4) | - | 3,813 | |||||||||||
Tax effect of items above | (4,502 | ) | (2,457 | ) | |||||||||
Net income, excluding specified charges (Non-GAAP) | $ | 39,274 | $ | 33,226 | |||||||||
Weighted average shares outstanding - Basic | 47,090,830 | 47,658,995 | |||||||||||
Effect of dilutive securities (stock options, unvested restricted stock): | 1,060,554 | 777,054 | |||||||||||
Weighted average shares outstanding - Diluted | 48,151,384 | 48,436,049 | |||||||||||
Basic earnings per share | $ | 0.68 | $ | 0.54 | |||||||||
Diluted earnings per share | $ | 0.67 | $ | 0.53 | |||||||||
Basic earnings per share, excluding specified charges (Non-GAAP) | $ | 0.83 | $ | 0.70 | |||||||||
Diluted earnings per share, excluding specified charges (Non-GAAP) | $ | 0.82 | $ | 0.69 | |||||||||
(1) Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.
(2) For the three months ended
(3) Includes operating losses related primarily to the Company's PCS-Massachusetts facility.
(4) The three months ended
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP REVENUE GROWTH (YEAR-OVER-YEAR) | ||||||||||||||
EXCLUDING THE IMPACT OF FOREIGN EXCHANGE | ||||||||||||||
For the three months ended March 29, 2014: |
Total CRL |
RMS Segment |
PCS Segment |
|||||||||||
Revenue growth, reported | 2.8 | % | 1.7 | % | 4.6 | % | ||||||||
Impact of foreign exchange | 0.4 | % | 0.2 | % | 0.7 | % | ||||||||
Revenue growth, constant currency | 2.4 | % | 1.5 | % | 3.9 | % | ||||||||
Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of one-time charges, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) |
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Three Months Ended | ||||||||||||
March 29, 2014 | March 30, 2013 | |||||||||||
Cash flows relating to operating activities: | ||||||||||||
Net income | $ | 32,358 | $ | 25,771 | ||||||||
Less: Income (loss) from discontinued operations | (270 | ) | (155 | ) | ||||||||
Income from continuing operations | 32,628 | 25,926 | ||||||||||
Summary of non-cash adjustments | 35,484 | 37,977 | ||||||||||
Changs in assets and liabilities | (39,649 | ) | (33,926 | ) | ||||||||
Net cash provided by operating activities | 28,463 | 29,977 | ||||||||||
Cash flows relating to investing activities: | ||||||||||||
Acquisition of businesses, net of cash acquired | - | (24,141 | ) | |||||||||
Capital expenditures | (11,190 | ) | (6,429 | ) | ||||||||
Other | 4,679 | 1,788 | ||||||||||
Net cash used in investing activities | (6,511 | ) | (28,782 | ) | ||||||||
Cash flow relating to financing activities: | ||||||||||||
Net cash used in financing activities | (6,144 | ) | (6,510 | ) | ||||||||
Cash flows used in discontinued operations | (664 | ) | (3 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (1,221 | ) | (3,945 | ) | ||||||||
Net change in cash and cash equivalents | 13,923 | (9,263 | ) | |||||||||
Cash and cash equivalents, beginning of period | 155,927 | 109,685 | ||||||||||
Cash and cash equivalents, end of period | $ | 169,850 | $ | 100,422 | ||||||||
Source:
Charles River Laboratories International, Inc.
Investor Contact:
Susan
E. Hardy, 781-222-6190
Corporate Vice President, Investor Relations
susan.hardy@crl.com
or
Media
Contact:
Amy Cianciaruso, 781-222-6168
Executive Director,
Public Relations
amy.cianciaruso@crl.com