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Charles River Laboratories Announces First-Quarter 2018 Results from Continuing Operations
– First-Quarter Revenue of
– First-Quarter GAAP Earnings per Share of
– Updates 2018 Guidance –
The impact of foreign currency translation benefited reported revenue
growth by 4.6%. The acquisitions of Brains On-Line and KWS BioTest
contributed 1.0% to consolidated first-quarter revenue growth, both on a
reported basis and in constant currency. The
On a GAAP basis, first-quarter net income from continuing operations
attributable to common shareholders was
On a non-GAAP basis, net income from continuing operations was
The GAAP and non-GAAP earnings per share increases were driven primarily
by a lower tax rate and a gain from the Company’s venture capital
investments. The gain from the Company’s venture capital investments
contributed
“We remain optimistic about the opportunities for growth in 2018, which
are enhanced by the acquisition of
First-Quarter Segment Results
Research Models and Services (RMS)
Revenue for the RMS segment was
In the first quarter of 2018, the RMS segment’s GAAP operating margin
decreased to 28.8% from 29.6% in the first quarter of 2017. The GAAP
operating margin decline was related primarily to charges associated
with the planned closure of the Company’s research model production site
in
Discovery and Safety Assessment (DSA)
Revenue from continuing operations for the DSA segment was
In the first quarter of 2018, the DSA segment’s GAAP operating margin decreased to 15.7% from 16.8% in the first quarter of 2017. On a non-GAAP basis, the operating margin decreased to 18.6% from 20.7% in the first quarter of 2017. The GAAP and non-GAAP operating margin declines were driven primarily by study mix and foreign exchange. Foreign exchange reduced the DSA operating margin by approximately 100 basis points.
Manufacturing Support (Manufacturing)
Revenue for the Manufacturing segment was
In the first quarter of 2018, the Manufacturing segment’s GAAP operating margin decreased to 28.5% from 29.3% in the first quarter of 2017. On a non-GAAP basis, the operating margin decreased to 31.9% from 33.2% in the first quarter of 2017. The GAAP and non-GAAP operating margin declines were driven primarily by lower volume in the Biologics Testing Solutions business.
Updates 2018 Guidance
On
The Company is increasing its guidance for reported revenue growth due to a more favorable benefit from foreign exchange, which is now expected to contribute approximately 3% to reported revenue growth, compared to the Company’s initial estimate of approximately 1%. The Company is reaffirming its organic revenue growth guidance for 2018.
The Company is providing initial GAAP earnings per share guidance
including the acquisition of
The Company’s revenue and earnings per share guidance including the
acquisition of
2018 GUIDANCE INCLUDING MPI RESEARCH (from continuing operations) |
REVISED | PRIOR | |||||
Revenue growth, reported | 18% - 20% | 16% - 18% | |||||
Less: Contribution from acquisitions (1) | (9.5% - 10.5%) | (9.5% - 10.5%) | |||||
Less: Favorable impact of foreign exchange | (~3%) | (~1%) | |||||
Revenue growth, organic (2) | 5.7% - 6.7% | 5.7% - 6.7% | |||||
GAAP EPS estimate | $4.22-$4.37 | --- | |||||
Amortization of intangible assets (3) | $1.00-$1.10 | --- | |||||
Charges related to global efficiency initiatives (4) | $0.09 | --- | |||||
Acquisition-related adjustments (5) | $0.41 | --- | |||||
Non-GAAP EPS estimate | $5.77 - $5.92 | $5.67 - $5.82 |
Footnotes to Guidance Table:
(1) The contribution from acquisitions reflects only those acquisition which have been completed.
(2) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions, the divestiture of the CDMO business, and foreign currency translation. Divestiture of the CDMO business did not have a material impact on the revenue growth rate in 2018.
(3) Amortization of intangible assets includes an estimate of
(4) These charges relate primarily to the Company’s planned efficiency
initiatives including the closure of the
(5) 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, and the write-off of deferred financing costs and fees related to debt financing.
Webcast
Charles River has scheduled a live webcast on
Charles River will present at the
A live webcast of the presentation will be available through a link that will be posted on ir.criver.com. A webcast replay will be accessible through the same website shortly after the presentation and will remain available for approximately two weeks.
Non-GAAP Reconciliations/Discontinued Operations
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. 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;
bargain gains associated with 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; gain on and tax effect of
the divestiture of the CDMO business; the write-off of a relocation
subsidy liability in our
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,” “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 projected future financial performance of Charles River
and our specific businesses, including revenue (on both a reported,
constant-currency, and organic growth basis), operating margins,
earnings per share, the expected impact of foreign exchange rates, and
the expected benefit of our life science venture capital investments;
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 on the Company,
our service offerings, client perception, strategic relationships,
revenue, revenue growth rates, and earnings; our expectations regarding
MPI’s final 2017 financial results, and our expected operational
synergies; the development and performance of our services and products;
market and industry conditions including the outsourcing of 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; the impact of U.S. tax reform enacted in the fourth quarter
of 2017; 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, 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,
such as our
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)(1) | |||||||||||
(in thousands, except for per share data) | |||||||||||
Three Months Ended | |||||||||||
March 31, 2018 | April 1, 2017 | ||||||||||
Total revenue | $ | 493,970 | $ | 445,763 | |||||||
Cost of revenue (excluding amortization of intangible assets) | 312,501 | 274,411 | |||||||||
Selling, general and administrative | 103,372 | 90,909 | |||||||||
Amortization of intangible assets | 10,268 | 10,737 | |||||||||
Operating income | 67,829 | 69,706 | |||||||||
Interest income | 282 | 202 | |||||||||
Interest expense | (11,191 | ) | (6,983 | ) | |||||||
Other income, net | 6,120 | 15,122 | |||||||||
Income from continuing operations, before income taxes | 63,040 | 78,047 | |||||||||
Provision for income taxes | 9,772 | 31,084 | |||||||||
Income from continuing operations, net of income taxes | 53,268 | 46,963 | |||||||||
Loss from discontinued operations, net of income taxes | (23 | ) | (4 | ) | |||||||
Net income | 53,245 | 46,959 | |||||||||
Less: Net income attributable to noncontrolling interests | 614 | 181 | |||||||||
Net income attributable to common shareholders | $ | 52,631 | $ | 46,778 | |||||||
Earnings (loss) per common share | |||||||||||
Basic: | |||||||||||
Continuing operations attributable to common shareholders | $ | 1.10 | $ | 0.98 | |||||||
Discontinued operations | $ | — | $ | — | |||||||
Net income attributable to common shareholders | $ | 1.10 | $ | 0.98 | |||||||
Diluted: | |||||||||||
Continuing operations attributable to common shareholders | $ | 1.08 | $ | 0.97 | |||||||
Discontinued operations | $ | — | $ | — | |||||||
Net income attributable to common shareholders | $ | 1.08 | $ | 0.97 | |||||||
Weighted average number of common shares outstanding | |||||||||||
Basic | 47,785 | 47,546 | |||||||||
Diluted | 48,828 | 48,421 | |||||||||
(1) |
Effective in the first quarter of 2018, the Company adopted new accounting standard ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Prior-year income statement amounts were recast to reflect the retrospective adoption of the new pension accounting standard. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||
SCHEDULE 2 | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||||
(in thousands) | |||||||||
March 31, 2018 | December 30, 2017 | ||||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 187,774 | $ | 163,794 | |||||
Trade receivables, net | 440,109 | 430,016 | |||||||
Inventories | 119,046 | 114,956 | |||||||
Prepaid assets | 43,340 | 36,544 | |||||||
Other current assets | 53,079 | 81,315 | |||||||
Total current assets | 843,348 | 826,625 | |||||||
Property, plant and equipment, net | 788,554 | 781,973 | |||||||
Goodwill | 835,936 | 804,906 | |||||||
Client relationships, net | 304,420 | 301,891 | |||||||
Other intangible assets, net | 65,876 | 67,871 | |||||||
Deferred tax assets | 26,237 | 22,654 | |||||||
Other assets | 136,632 | 124,002 | |||||||
Total assets | $ | 3,001,003 | $ | 2,929,922 | |||||
Liabilities, Redeemable Noncontrolling Interest and Equity | |||||||||
Current liabilities: | |||||||||
Current portion of long-term debt and capital leases | $ | 3,137 | $ | 30,998 | |||||
Accounts payable | 73,479 | 77,838 | |||||||
Accrued compensation | 71,136 | 101,044 | |||||||
Deferred revenue | 98,473 | 117,569 | |||||||
Accrued liabilities | 96,630 | 89,780 | |||||||
Other current liabilities | 62,572 | 44,460 | |||||||
Current liabilities of discontinued operations | 1,671 | 1,815 | |||||||
Total current liabilities | 407,098 | 463,504 | |||||||
Long-term debt, net and capital leases | 1,129,581 | 1,114,105 | |||||||
Deferred tax liabilities | 96,037 | 89,540 | |||||||
Other long-term liabilities | 204,871 | 194,815 | |||||||
Long-term liabilities of discontinued operations | 3,476 | 3,942 | |||||||
Total liabilities | 1,841,063 | 1,865,906 | |||||||
Redeemable noncontrolling interest | 17,323 | 16,609 | |||||||
Total equity attributable to common shareholders | 1,139,826 | 1,045,080 | |||||||
Noncontrolling interest | 2,791 | 2,327 | |||||||
Total liabilities, redeemable noncontrolling interest and equity | $ | 3,001,003 | $ | 2,929,922 |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||||
SCHEDULE 3 | |||||||||||
RECONCILIATION OF GAAP TO NON-GAAP | |||||||||||
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)(1)(2) | |||||||||||
(in thousands, except percentages) | |||||||||||
Three Months Ended | |||||||||||
March 31, 2018 | April 1, 2017 | ||||||||||
Research Models and Services | |||||||||||
Revenue | $ | 133,958 | $ | 127,161 | |||||||
Operating income | 38,527 | 37,690 | |||||||||
Operating income as a % of revenue | 28.8 | % | 29.6 | % | |||||||
Add back: | |||||||||||
Amortization related to acquisitions | 409 | 436 | |||||||||
Severance | 523 | — | |||||||||
Government billing adjustment and related expenses | — | 93 | |||||||||
Site consolidation costs, impairments and other items | 515 | — | |||||||||
Total non-GAAP adjustments to operating income | $ | 1,447 | $ | 529 | |||||||
Operating income, excluding non-GAAP adjustments | $ | 39,974 | $ | 38,219 | |||||||
Non-GAAP operating income as a % of revenue | 29.8 | % | 30.1 | % | |||||||
Depreciation and amortization | $ | 4,853 | $ | 5,092 | |||||||
Capital expenditures | $ | 4,625 | $ | 2,603 | |||||||
Discovery and Safety Assessment | |||||||||||
Revenue | $ | 259,992 | $ | 227,758 | |||||||
Operating income | 40,859 | 38,335 | |||||||||
Operating income as a % of revenue | 15.7 | % | 16.8 | % | |||||||
Add back: | |||||||||||
Amortization related to acquisitions | 7,541 | 7,600 | |||||||||
Severance | (254 | ) | 196 | ||||||||
Acquisition related adjustments (3) | 430 | 703 | |||||||||
Site consolidation costs, impairments and other items | (143 | ) | 409 | ||||||||
Total non-GAAP adjustments to operating income | $ | 7,574 | $ | 8,908 | |||||||
Operating income, excluding non-GAAP adjustments | $ | 48,433 | $ | 47,243 | |||||||
Non-GAAP operating income as a % of revenue | 18.6 | % | 20.7 | % | |||||||
Depreciation and amortization | $ | 20,787 | $ | 19,369 | |||||||
Capital expenditures | $ | 12,802 | $ | 8,323 | |||||||
Manufacturing Support | |||||||||||
Revenue | $ | 100,020 | $ | 90,844 | |||||||
Operating income | 28,523 | 26,600 | |||||||||
Operating income as a % of revenue | 28.5 | % | 29.3 | % | |||||||
Add back: | |||||||||||
Amortization related to acquisitions | 2,318 | 2,702 | |||||||||
Severance | 870 | 821 | |||||||||
Acquisition related adjustments (3) | — | 26 | |||||||||
Site consolidation costs, impairments and other items | 159 | — | |||||||||
Total non-GAAP adjustments to operating income | $ | 3,347 | $ | 3,549 | |||||||
Operating income, excluding non-GAAP adjustments | $ | 31,870 | $ | 30,149 | |||||||
Non-GAAP operating income as a % of revenue | 31.9 | % | 33.2 | % | |||||||
Depreciation and amortization | $ | 5,736 | $ | 5,962 | |||||||
Capital expenditures | $ | 6,834 | $ | 2,292 | |||||||
Unallocated Corporate Overhead | $ | (40,080 | ) | $ | (32,919 | ) | |||||
Add back: | |||||||||||
Acquisition related adjustments (3) | 2,864 | 21 | |||||||||
Total non-GAAP adjustments to operating expense | $ | 2,864 | $ | 21 | |||||||
Unallocated corporate overhead, excluding non-GAAP adjustments | $ | (37,216 | ) | $ | (32,898 | ) | |||||
Total | |||||||||||
Revenue | $ | 493,970 | $ | 445,763 | |||||||
Operating income | $ | 67,829 | $ | 69,706 | |||||||
Operating income as a % of revenue | 13.7 | % | 15.6 | % | |||||||
Add back: | |||||||||||
Amortization related to acquisitions | 10,268 | 10,738 | |||||||||
Severance | 1,139 | 1,017 | |||||||||
Acquisition related adjustments (3) | 3,294 | 750 | |||||||||
Government billing adjustment and related expenses | — | 93 | |||||||||
Site consolidation costs, impairments and other items | 531 | 409 | |||||||||
Total non-GAAP adjustments to operating income | $ | 15,232 | $ | 13,007 | |||||||
Operating income, excluding non-GAAP adjustments | $ | 83,061 | $ | 82,713 | |||||||
Non-GAAP operating income as a % of revenue | 16.8 | % | 18.6 | % | |||||||
Depreciation and amortization | $ | 33,210 | $ | 32,411 | |||||||
Capital expenditures | $ | 27,726 | $ | 15,920 | |||||||
|
|
(1) |
Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. | |
(2) |
Effective in the first quarter of 2018, the Company adopted new accounting standard ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Prior-year income statement amounts were recast to reflect the retrospective adoption of the new pension accounting standard. | |
(3) |
These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value adjustments associated with contingent consideration. | |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||||||
SCHEDULE 4 | ||||||||||||
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED)(1) | ||||||||||||
(in thousands, except per share data) | ||||||||||||
Three Months Ended | ||||||||||||
March 31, 2018 | April 1, 2017 | |||||||||||
Net income attributable to common shareholders | $ | 52,631 | $ | 46,778 | ||||||||
Less: Loss from discontinued operations, net of income taxes | (23 | ) | (4 | ) | ||||||||
Net income from continuing operations attributable to common shareholders | 52,654 | 46,782 | ||||||||||
Add back: | ||||||||||||
Non-GAAP adjustments to operating income (Refer to Schedule 3) | 15,232 | 13,007 | ||||||||||
Write-off of deferred financing costs and fees related to debt refinancing | 3,261 | — | ||||||||||
Gain on divestiture of CDMO business | — | (10,577 | ) | |||||||||
Tax effect of non-GAAP adjustments: | ||||||||||||
Tax effect from divestiture of CDMO business | — | 18,005 | ||||||||||
Tax effect of the remaining non-GAAP adjustments | (3,651 | ) | (4,664 | ) | ||||||||
Net income from continuing operations attributable to common shareholders, excluding non-GAAP adjustments | $ | 67,496 | $ | 62,553 | ||||||||
Weighted average shares outstanding - Basic | 47,785 | 47,546 | ||||||||||
Effect of dilutive securities: | ||||||||||||
Stock options, restricted stock units, performance share units and restricted stock | 1,043 | 875 | ||||||||||
Weighted average shares outstanding - Diluted | 48,828 | 48,421 | ||||||||||
Earnings per share from continuing operations attributable to common shareholders | ||||||||||||
Basic | $ | 1.10 | $ | 0.98 | ||||||||
Diluted | $ | 1.08 | $ | 0.97 | ||||||||
Basic, excluding non-GAAP adjustments | $ | 1.41 | $ | 1.32 | ||||||||
Diluted, excluding non-GAAP adjustments | $ | 1.38 | $ | 1.29 | ||||||||
(1) |
Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||||||||||
SCHEDULE 5 | |||||||||||||||||
RECONCILIATION OF GAAP REVENUE GROWTH | |||||||||||||||||
TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1) | |||||||||||||||||
For the three months ended March 31, 2018 | Total CRL | RMS Segment |
DSA |
MS Segment | |||||||||||||
Revenue growth, reported | 10.8 | % | 5.3 | % | 14.2 | % | 10.1 | % | |||||||||
Increase due to foreign exchange | (4.6 | )% | (5.1 | )% | (4.0 | )% | (5.9 | )% | |||||||||
Contribution from acquisitions (2) | (1.0 | )% | — | % | (1.9 | )% | — | % | |||||||||
Impact of CDMO divestiture (3) | 0.4 | % | — | % | — | % | 2.1 | % | |||||||||
Non-GAAP revenue growth, organic (4) | 5.6 | % | 0.2 | % | 8.3 | % | 6.3 | % | |||||||||
(1) | Charles River management believes that supplementary non-GAAP financial measures provide useful information to allow investors to gain a meaningful understanding of our core operating results and future prospects, without the effect of often-one-time charges and other items which are outside our normal operations, consistent with the manner in which management measures and forecasts the Company’s performance. The supplementary non-GAAP financial measures included are not meant to be considered superior to, or a substitute for results of operations prepared in accordance with U.S. GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance. | |
(2) | The contribution from acquisitions reflects only completed acquisitions. | |
(3) | The CDMO business, which was acquired as part of WIL Research on April 4, 2016, was divested on February 10, 2017. This adjustment represents the revenue from the CDMO business. | |
(4) | Organic revenue growth is defined as reported revenue growth adjusted for acquisitions, the divestiture of the CDMO business, and foreign exchange. |
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. |
||||||||||||
SCHEDULE 6 |
||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
||||||||||||
(in thousands) |
||||||||||||
Three Months Ended | ||||||||||||
March 31, 2018 | April 1, 2017 | |||||||||||
Cash flows relating to operating activities | $ | 60,051 | $ | 34,029 | ||||||||
Cash flows relating to investing activities | (24,664 | ) | 52,996 | |||||||||
Cash flows relating to financing activities | (14,936 | ) | (74,324 | ) | ||||||||
Cash flows used in discontinued operations | (636 | ) | (473 | ) | ||||||||
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 4,254 | 1,705 | ||||||||||
Net change in cash, cash equivalents, and restricted cash | 24,069 | 13,933 | ||||||||||
Cash, cash equivalents, and restricted cash, beginning of period | 166,331 | 119,894 | ||||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 190,400 | $ | 133,827 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20180510005224/en/
Source:
Charles River Laboratories International, Inc.
Investor Contacts:
Susan
E. Hardy, 781-222-6190
Corporate Vice President,
Investor
Relations
susan.hardy@crl.com
or
Media
Contact:
Amy Cianciaruso, 781-222-6168
Corporate Vice
President,
Public Relations
amy.cianciaruso@crl.com
or:
Todd
Spencer, 781-222-6455
Senior Director,
Investor Relations
todd.spencer@crl.com