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Charles River Laboratories Announces First-Quarter 2016 Results from Continuing Operations
– First-Quarter Revenue of
– First-Quarter GAAP Earnings per Share of
and
Non-GAAP Earnings per Share of
– Updates 2016 Guidance –
On a GAAP basis, net income from continuing operations attributable to
common shareholders for the first quarter of 2016 was
On a non-GAAP basis, net income from continuing operations was
“We remain optimistic about the opportunities for growth in 2016, 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 2016, the RMS segment’s GAAP operating margin was 29.5% compared to 24.0% in the first quarter of 2015. On a non-GAAP basis, the operating margin increased to 30.0% from 26.3% in the first quarter of 2015. The RMS operating margin improvement was primarily attributable to higher revenue, as well as benefits from the Company’s global efficiency initiatives.
Discovery and Safety Assessment (DSA)
Revenue from continuing operations for the DSA segment was
In the first quarter of 2016, the DSA segment’s GAAP operating margin was 19.5% compared to 16.8% in the first quarter of 2015. On a non-GAAP basis, the operating margin increased to 23.3% from 19.8% in the first quarter of 2015. The non-GAAP operating margin improvement was primarily driven by higher pricing and capacity utilization for safety assessment services, as well as a foreign exchange benefit due primarily to a weaker Canadian dollar, which contributed approximately 160 basis points to the improvement.
Manufacturing Support (Manufacturing)
Revenue for the Manufacturing segment was
In the first quarter of 2016, the Manufacturing segment’s GAAP operating margin was 26.7% compared to 27.8% in the first quarter of 2015. On a non-GAAP basis, the operating margin increased to 31.4% from 29.9% in the first quarter of 2015, primarily driven by operating margin improvement in the Biologics and Avian Vaccine businesses.
Updates 2016 Guidance
On
The Company is reaffirming its revenue growth guidance for 2016,
including the contribution from
The majority of WIL Research’s operations will be reported as part of Charles River’s DSA segment. WIL Research’s contract development and manufacturing business (CDMO) will be reported as part of Charles River’s Manufacturing segment.
Charles River’s revenue growth and earnings per share guidance is as follows:
2016 GUIDANCE INCLUDING WIL RESEARCH (from continuing operations) |
REVISED | PRIOR | ||||
Revenue growth, reported | 19% - 22.5% | 19% - 22.5% | ||||
Negative impact of foreign exchange | (~1%) | (~1%) | ||||
Revenue growth, constant currency | 20% - 23.5% | 20% - 23.5% | ||||
GAAP EPS estimate (1) | $3.39-$3.57 | --- | ||||
Amortization of intangible assets (2) | $0.55-$0.60 | --- | ||||
Charges related to global efficiency initiatives (3) | $0.03 | --- | ||||
Acquisition-related adjustments (4) | $0.30 | --- | ||||
Non-GAAP EPS estimate | $4.32 - $4.45 | $4.27 - $4.40 | ||||
(1) GAAP EPS includes an estimate of
(2) Amortization of intangible assets includes an
estimate of
(3)
These charges relate primarily to the Company’s planned efficiency
initiatives in 2016, including site consolidation costs, asset
impairments, and severance. Other projects in support of the global
productivity and efficiency initiatives are expected, but these charges
reflect only the decisions that have already been finalized.
(4)
These adjustments are related to the evaluation and integration of
acquisitions, which primarily include transaction, advisory, and certain
third-party integration costs, as well as certain costs associated with
acquisition-related efficiency initiatives.
Webcast
Charles River has scheduled a live webcast on
Charles River to Present at
A live webcast of the presentation will be available through a link that will be posted on the Investor Relations section of the Charles River website at ir.criver.com. A webcast replay will be accessible through the same website approximately three hours 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 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, inventory purchase accounting adjustments, and other charges related to our acquisitions; expenses associated with evaluating and integrating acquisitions, 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; executive transition costs; site consolidation costs; a reversal of indemnification assets associated with acquisitions and corresponding interest; and costs related to a U.S. government billing adjustment and related expenses. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. This press release also refers to our revenue 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. Commencing in the third quarter of 2015, following the acquisition of Celsis, we revised our approach to calculating non-GAAP integration costs to include third-party integration costs incurred post-acquisition. Presenting revenue on a constant-currency basis allows investors to measure our revenue 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,” “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 our projected future financial performance including revenue
(on both a reported and constant-currency 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
plans to reopen the Charles River Massachusetts (
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 | ||||||||||
March 26, 2016 | March 28, 2015 | |||||||||
Total revenue | $ | 354,868 | $ | 320,414 | ||||||
Cost of revenue | 214,100 | 200,754 | ||||||||
Selling, general and administrative | 82,944 | 71,397 | ||||||||
Amortization of intangible assets | 6,352 | 5,258 | ||||||||
Operating income | 51,472 | 43,005 | ||||||||
Interest income | 263 | 284 | ||||||||
Interest expense | (4,211 | ) | (3,024 | ) | ||||||
Other income (expense), net | 4,026 | (8,313 | ) | |||||||
Income from continuing operations before income taxes | 51,550 | 31,952 | ||||||||
Provision for income taxes | 13,975 | 331 | ||||||||
Income from continuing operations, net of income taxes | 37,575 | 31,621 | ||||||||
Loss from discontinued operations, net of income taxes | (26 | ) | (7 | ) | ||||||
Net income | 37,549 | 31,614 | ||||||||
Less: Net income attributable to noncontrolling interests | (406 | ) | (73 | ) | ||||||
Net income attributable to common shareholders | $ | 37,143 | $ | 31,541 | ||||||
Earnings (loss) per common share | ||||||||||
Basic: | ||||||||||
Continuing operations attributable to common shareholders | $ | 0.80 | $ | 0.67 | ||||||
Discontinued operations | $ | - | $ | - | ||||||
Net income attributable to common shareholders | $ | 0.80 | $ | 0.67 | ||||||
Diluted: | ||||||||||
Continuing operations attributable to common shareholders | $ | 0.78 | $ | 0.66 | ||||||
Discontinued operations | $ | - | $ | - | ||||||
Net income attributable to common shareholders | $ | 0.78 | $ | 0.66 | ||||||
Weighted average number of common shares outstanding | ||||||||||
Basic | 46,642 | 46,772 | ||||||||
Diluted | 47,617 | 47,868 | ||||||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||
SCHEDULE 2 | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||||||||
(in thousands) | ||||||||
March 26, 2016 | December 26, 2015 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 157,375 | $ | 117,947 | ||||
Trade receivables, net | 287,178 | 270,068 | ||||||
Inventories | 97,101 | 93,735 | ||||||
Prepaid assets | 33,573 | 30,198 | ||||||
Other current assets | 62,164 | 47,286 | ||||||
Total current assets | 637,391 | 559,234 | ||||||
Property, plant and equipment, net | 664,437 | 677,959 | ||||||
Goodwill | 434,056 | 438,829 | ||||||
Client relationships, net | 202,888 | 213,374 | ||||||
Other intangible assets, net | 62,496 | 67,430 | ||||||
Deferred tax asset | 26,355 | 40,028 | ||||||
Other assets | 76,095 | 71,643 | ||||||
Total assets | $ | 2,103,718 | $ | 2,068,497 | ||||
Liabilities, Redeemable Noncontrolling Interest and Equity | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt and capital leases | $ | 21,382 | $ | 17,033 | ||||
Accounts payable | 43,897 | 36,675 | ||||||
Accrued compensation | 57,072 | 72,832 | ||||||
Deferred revenue | 80,297 | 81,343 | ||||||
Accrued liabilities | 89,433 | 89,494 | ||||||
Other current liabilities | 16,056 | 12,544 | ||||||
Current liabilities of discontinued operations | 1,852 | 1,840 | ||||||
Total current liabilities | 309,989 | 311,761 | ||||||
Long-term debt, net and capital leases | 840,481 | 845,997 | ||||||
Deferred tax liabilities | 45,297 | 48,223 | ||||||
Other long-term liabilities | 87,364 | 89,062 | ||||||
Long-term liabilities of discontinued operations | 7,415 | 7,890 | ||||||
Total liabilities | 1,290,546 | 1,302,933 | ||||||
Redeemable noncontrolling interest | 28,744 | 28,008 | ||||||
Total equity attributable to common shareholders | 779,824 | 733,067 | ||||||
Noncontrolling interests | 4,604 | 4,489 | ||||||
Total liabilities, redeemable noncontrolling interest and equity | $ | 2,103,718 | $ | 2,068,497 | ||||
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | |||||||||||||
SCHEDULE 3 | |||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP | |||||||||||||
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED) (1) | |||||||||||||
(in thousands, except percentages) | |||||||||||||
Three Months Ended | |||||||||||||
March 26, 2016 | March 28, 2015 | ||||||||||||
Research Models and Services | |||||||||||||
Revenue | $ | 124,010 | $ | 120,011 | |||||||||
Operating income | 36,533 | 28,845 | |||||||||||
Operating income as a % of revenue | 29.5 | % | 24.0 | % | |||||||||
Add back: | |||||||||||||
Amortization of intangible assets related to acquisitions | 588 | 766 | |||||||||||
Severance | - | 919 | |||||||||||
Government billing adjustment and related expenses | 60 | 244 | |||||||||||
Site consolidation costs, impairments and other items | 69 | 798 | |||||||||||
Total non-GAAP adjustments to operating income | $ | 717 | $ | 2,727 | |||||||||
Operating income, excluding non-GAAP adjustments | $ | 37,250 | $ | 31,572 | |||||||||
Non-GAAP operating income as a % of revenue | 30.0 | % | 26.3 | % | |||||||||
Depreciation and amortization | $ | 5,281 | $ | 6,045 | |||||||||
Capital expenditures | $ | 1,053 | $ | 2,733 | |||||||||
Discovery and Safety Assessment | |||||||||||||
Revenue | $ | 157,983 | $ | 140,012 | |||||||||
Operating income | 30,830 | 23,516 | |||||||||||
Operating income as a % of revenue | 19.5 | % | 16.8 | % | |||||||||
Add back: | |||||||||||||
Amortization of intangible assets related to acquisitions | 3,095 | 3,425 | |||||||||||
Severance | 21 | 19 | |||||||||||
Operating losses (2) | - | 806 | |||||||||||
Acquisition related adjustments (3) | 802 | 25 | |||||||||||
Site consolidation costs, impairments and other items | 2,033 | - | |||||||||||
Total non-GAAP adjustments to operating income | $ | 5,951 | $ | 4,275 | |||||||||
Operating income, excluding non-GAAP adjustments | $ | 36,781 | $ | 27,791 | |||||||||
Non-GAAP operating income as a % of revenue | 23.3 | % | 19.8 | % | |||||||||
Depreciation and amortization | $ | 11,957 | $ | 11,139 | |||||||||
Capital expenditures | $ | 4,707 | $ | 5,378 | |||||||||
Manufacturing Support | |||||||||||||
Revenue | $ | 72,875 | $ | 60,391 | |||||||||
Operating income | 19,468 | 16,798 | |||||||||||
Operating income as a % of revenue | 26.7 | % | 27.8 | % | |||||||||
Add back: | |||||||||||||
Amortization of intangible assets and inventory step-up related to acquisitions | 3,004 | 1,067 | |||||||||||
Severance | - | 177 | |||||||||||
Acquisition related adjustments (3) | 187 | - | |||||||||||
Site consolidation costs, impairments and other items | 229 | - | |||||||||||
Total non-GAAP adjustments to operating income | $ | 3,420 | $ | 1,244 | |||||||||
Operating income, excluding non-GAAP adjustments | $ | 22,888 | $ | 18,042 | |||||||||
Non-GAAP operating income as a % of revenue | 31.4 | % | 29.9 | % | |||||||||
Depreciation and amortization | $ | 5,945 | $ | 3,286 | |||||||||
Capital expenditures | $ | 2,129 | $ | 1,566 | |||||||||
Unallocated Corporate Overhead | $ | (35,359 | ) | $ | (26,154 | ) | |||||||
Add back: | |||||||||||||
Severance and executive transition costs | - | 926 | |||||||||||
Acquisition related adjustments (3) | 3,763 | (362 | ) | ||||||||||
Total non-GAAP adjustments to operating expense | $ | 3,763 | $ | 564 | |||||||||
Unallocated corporate overhead, excluding non-GAAP adjustments | $ | (31,596 | ) | $ | (25,590 | ) | |||||||
Total | |||||||||||||
Revenue | $ | 354,868 | $ | 320,414 | |||||||||
Operating income | 51,472 | 43,005 | |||||||||||
Operating income as a % of revenue | 14.5 | % | 13.4 | % | |||||||||
Add back: | |||||||||||||
Amortization of intangible assets and inventory step-up related to acquisitions | 6,687 | 5,258 | |||||||||||
Severance and executive transition costs | 21 | 2,041 | |||||||||||
Operating losses (2) | - | 806 | |||||||||||
Acquisition related adjustments (3) | 4,752 | (337 | ) | ||||||||||
Government billing adjustment and related expenses | 60 | 244 | |||||||||||
Site consolidation costs, impairments and other items | 2,331 | 798 | |||||||||||
Total non-GAAP adjustments to operating income | $ | 13,851 | $ | 8,810 | |||||||||
Operating income, excluding non-GAAP adjustments | $ | 65,323 | $ | 51,815 | |||||||||
Non-GAAP operating income as a % of revenue | 18.4 | % | 16.2 | % | |||||||||
Depreciation and amortization | $ | 24,655 | $ | 22,368 | |||||||||
Capital expenditures | $ | 8,250 | $ | 10,648 | |||||||||
- | - | ||||||||||||
|
|
|
(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) This item
includes operating losses related primarily to the Company's
(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 26, 2016 | March 28, 2015 | ||||||||||
Net income attributable to common shareholders | $ | 37,143 | $ | 31,541 | |||||||
Less: Loss from discontinued operations, net of income taxes | 26 | 7 | |||||||||
Net income from continuing operations attributable to common shareholders | 37,169 | 31,548 | |||||||||
Add back: | |||||||||||
Non-GAAP adjustments to operating income (Refer to Schedule 3) | 13,851 | 8,810 | |||||||||
Reversal of an indemnification asset associated with acquisition and corresponding interest (2) | - | 10,411 | |||||||||
Tax effect of non-GAAP adjustments: | |||||||||||
Reversal of uncertain tax position associated with acquisition and corresponding interest (2) | - | (10,411 | ) | ||||||||
Tax effect of the remaining non-GAAP adjustments | (4,482 | ) | (2,757 | ) | |||||||
Net income from continuing operations attributable to common shareholders, excluding non-GAAP adjustments | 46,538 | 37,601 | |||||||||
Weighted average shares outstanding - Basic | 46,642 | 46,772 | |||||||||
Effect of dilutive securities: | |||||||||||
Stock options, restricted stock units, performance share units and restricted stock | 975 | 1,096 | |||||||||
Weighted average shares outstanding - Diluted | 47,617 | 47,868 | |||||||||
Basic earnings per share from continuing operations | $ | 0.80 | $ | 0.67 | |||||||
Diluted earnings per share from continuing operations | $ | 0.78 | $ | 0.66 | |||||||
Basic earnings per share from continuing operations, excluding non-GAAP adjustments | $ | 1.00 | $ | 0.80 | |||||||
Diluted earnings per share from continuing operations, excluding non-GAAP adjustments | $ | 0.98 | $ | 0.79 | |||||||
|
|
(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) These
amounts represent the reversal of an uncertain tax position and an
offsetting indemnification asset related to the acquisition of BioFocus.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||||||||||
SCHEDULE 5 | ||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP REVENUE GROWTH (UNAUDITED) | ||||||||||||||||
EXCLUDING THE IMPACT OF FOREIGN EXCHANGE | ||||||||||||||||
For the Three Months Ended March 26, 2016 | ||||||||||||||||
For the three months ended March 26, 2016 | Total CRL | RMS Segment | DSA Segment | MS Segment | ||||||||||||
Revenue growth, reported | 10.8 | % | 3.3 | % | 12.8 | % | 20.7 | % | ||||||||
Impact of foreign exchange | (1.6 | %) | (1.3 | %) | (1.9 | %) | (1.8 | %) | ||||||||
Non-GAAP revenue growth, constant currency | 12.4 | % | 4.6 | % | 14.7 | % | 22.5 | % | ||||||||
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.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC. | ||||||||||
SCHEDULE 6 | ||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||||||
(in thousands) | ||||||||||
Three Months Ended | ||||||||||
March 26, 2016 | March 28, 2015 | |||||||||
Cash flows relating to operating activities | $ | 38,539 | $ | 11,252 | ||||||
Cash flows relating to investing activities | (6,442 | ) | (12,293 | ) | ||||||
Cash flows relating to financing activities | 7,081 | 1,934 | ||||||||
Cash flows used in discontinued operations | (489 | ) | (316 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
739 | (8,681 | ) | |||||||
Net change in cash and cash equivalents | 39,428 | (8,104 | ) | |||||||
Cash and cash equivalents, beginning of period | 117,947 | 160,023 | ||||||||
Cash and cash equivalents, end of period | $ | 157,375 | $ | 151,919 | ||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160504005302/en/
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
Corporate Vice
President, Public Relations
amy.cianciaruso@crl.com