Investor Relations

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.

CR-000172

News Release

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Charles River Laboratories Announces Second-Quarter 2019 Results

– Second-Quarter Revenue of $657.6 Million

– Second-Quarter GAAP Earnings per Share of $0.88 and Non-GAAP Earnings per Share of $1.63

– Updates 2019 Guidance –

WILMINGTON, Mass.--(BUSINESS WIRE)--Jul. 31, 2019-- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2019. For the quarter, revenue was $657.6 million, an increase of 12.3% from $585.3 million in the second quarter of 2018.

Acquisitions, principally the partial-quarter benefit from Citoxlab, contributed 5.7% to consolidated second-quarter revenue growth. The impact of foreign currency translation reduced reported revenue growth by 1.9%. Excluding the effect of these items, organic revenue growth of 8.5% was driven by all three business segments.

On a GAAP basis, second-quarter net income from continuing operations attributable to common shareholders was $43.7 million, a decrease of 16.2% from net income of $52.2 million for the same period in 2018. Second-quarter diluted earnings per share on a GAAP basis were $0.88, a decrease of 17.0% from $1.06 for the second quarter of 2018. The lower GAAP net income and earnings per share were driven primarily by a loss from the Company’s venture capital investments of $0.07 per share in the second quarter of 2019, compared to a $0.16 gain for the same period in 2018. As previously disclosed, the Company’s venture capital investment performance has been excluded from non-GAAP results.

On a non-GAAP basis, net income from continuing operations was $81.1 million for the second quarter of 2019, an increase of 13.7% from $71.3 million for the same period in 2018. Second‑quarter diluted earnings per share on a non-GAAP basis were $1.63, an increase of 12.4% from $1.45 per share for the second quarter of 2018. The non-GAAP net income and earnings per share increases were driven primarily by higher revenue and operating income, including the contribution from the Citoxlab acquisition, as well as a lower tax rate.

James C. Foster, Chairman, President and Chief Executive Officer, said, “Our solid, second-quarter results demonstrate the effectiveness of our strategy and the strong industry fundamentals that continue to fuel the pipelines of the biotech industry, and in turn, our growth. We have invested tremendous effort over time to add people and capacity to accommodate growing client demand; to maintain and enhance our scientific leadership; to strengthen our relationships with clients; and to work with them to devise outsourcing solutions that increase their productivity and speed-to-market. We have maintained our focus on early-stage drug research and manufacturing support solutions, strategically expanding our portfolio to provide clients with the critical capabilities they require to discover, develop, and safely manufacture new drugs. As a result, we believe that Charles River is a stronger company today than it has ever been. We will continue to invest in and enhance our industry-leading portfolio to fulfill our long-term strategic goals and become an even stronger partner to our clients across a wider array of scientific solutions.”

 

Second-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $136.1 million in the second quarter of 2019, an increase of 4.3% from $130.4 million in the second quarter of 2018. Organic revenue growth was 6.8%, driven primarily by higher revenue for research model services, as well as increased demand for research models in China. Research model services benefited from a large government contract in the Insourcing Solutions (IS) business, which commenced in September 2018, and strong client demand for the Genetically Engineered Models and Services business. The revenue increase was partially offset by lower sales volume for research models outside of China, particularly to large biopharmaceutical clients.

In the second quarter of 2019, the RMS segment’s GAAP operating margin decreased to 23.2% from 26.3% in the second quarter of 2018. On a non-GAAP basis, the operating margin decreased to 25.5% from 26.8% in the second quarter of 2018. The GAAP and non-GAAP operating margin declines were driven primarily by lower sales volume for research models outside of China, the large IS government contract, and the compensation structure adjustment implemented in 2018. In addition, a non-cash charge related to the modification of a purchase option for the noncontrolling interest in Vital River (RMS China) reduced the GAAP operating margin.

Discovery and Safety Assessment (DSA)

Revenue for the DSA segment was $405.5 million in the second quarter of 2019, an increase of 17.1% from $346.4 million in the second quarter of 2018. Acquisitions contributed 9.6% to DSA revenue growth, due primarily to the revenue contribution from the Citoxlab acquisition, which was completed on April 29, 2019. Organic revenue growth of 8.7% was driven by both the Safety Assessment and Discovery Services businesses. By client segment, the DSA revenue increase was driven primarily by robust demand from biotechnology clients.

In the second quarter of 2019, the DSA segment’s GAAP operating margin decreased to 15.7% from 16.3% in the second quarter of 2018. On a non-GAAP basis, the operating margin decreased to 21.1% from 21.5% in the second quarter of 2018. The GAAP and non-GAAP operating margin declines were driven primarily by higher costs associated with staff and capacity investments, including last year’s compensation structure adjustment, partially offset by benefits from higher pricing and R&D tax credits associated with Citoxlab. In addition, acquisition and integration costs, principally amortization of intangible assets related to the Citoxlab acquisition, reduced the GAAP operating margin.

 

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $116.0 million in the second quarter of 2019, an increase of 7.0% from $108.5 million in the second quarter of 2018. Organic revenue growth was 9.8%, driven primarily by strong demand in the Microbial Solutions and Biologics Testing Solutions businesses.

In the second quarter of 2019, the Manufacturing segment’s GAAP operating margin decreased to 28.6% from 31.5% in the second quarter of 2018. On a non-GAAP basis, the operating margin decreased to 30.9% from 33.6% in the second quarter of 2018. The GAAP and non-GAAP operating margin declines were driven primarily by higher costs to support growth-related investments in the Microbial Solutions and Biologics Testing Solutions businesses.

Updates 2019 Guidance

The Company is updating 2019 financial guidance, which was previously provided on May 7, 2019.

The Company is narrowing its guidance ranges for both reported and organic revenue growth. Foreign exchange is now expected to reduce reported revenue growth by 1% to 1.5% in 2019.

The Company is reducing its GAAP earnings per share guidance by $0.10 to reflect higher acquisition-related costs, the venture capital investment loss in the second quarter, and other items. Non-GAAP earnings per share guidance is being increased by $0.05, due primarily to the benefit from a lower-than-expected tax rate. The Company is reaffirming its free cash flow guidance.

The Company’s revenue and earnings per share guidance is as follows:

2019 GUIDANCE

 

CURRENT

 

PRIOR

Revenue growth, reported

 

16% - 17%

 

16% - 18%

Less: Contribution from acquisitions (1)

 

8.5% - 9.0%

 

8% - 9%

Add: Negative impact of foreign exchange

 

1.0% - 1.5%

 

~0.5%

Revenue growth, organic (2)

 

8.5% - 9.5%

 

8.0% - 9.5%

GAAP EPS estimate

 

$4.65-$4.80

 

$4.75-$4.90

Amortization of intangible assets (3)

 

$1.35-$1.40

 

$1.42-$1.52

Charges related to global efficiency initiatives (4)

 

~$0.07

 

~$0.07

Acquisition-related adjustments (5)

 

$0.40-$0.45

 

$0.25-$0.30

Other items (6)

 

~$0.03

 

--

Venture capital investment (gains)/losses (7)

 

(~$0.09)

 

(~$0.16)

Non-GAAP EPS estimate

 

$6.45 - $6.60

 

$6.40 - $6.55

Free cash flow (8)

 

$310 - $320 million

 

$310 - $320 million

Footnotes to Guidance Table:

(1) The contribution from acquisitions reflects only those acquisitions which have been completed.

(2) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign currency translation.

(3) Amortization of intangible assets includes an estimate of approximately $0.20 for the impact of the Citoxlab acquisition based on the preliminary purchase price allocation.

(4) These charges, which primarily include severance and other costs, relate primarily to the Company’s planned efficiency initiatives. Other projects in support of global productivity and efficiency initiatives are expected, but these charges reflect only the decisions that have already been finalized.

(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. In addition, these adjustments include a charge associated with modification of a purchase option for the remaining 8% equity interest in Vital River. These costs will be partially offset by an anticipated discrete tax benefit.

(6) Other items include third-party costs, net of insurance reimbursements, associated with the remediation of the unauthorized access into the Company’s information systems, which was detected in March 2019.

(7) Venture capital investment performance only includes recognized gains or losses. The Company does not forecast future venture capital investment gains or losses.

(8) The reconciliation of 2019 free cash flow guidance is as follows: Cash flow from operating activities of $480-$490 million, less capital expenditures of ~$170 million, equates to free cash flow of $310-$320 million.

 

Webcast

Charles River has scheduled a live webcast on Wednesday, July 31, at 8:30 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of GAAP financial measures to non-GAAP financial measures on the website.

Investor Day

Charles River will host a Meeting with Management on Thursday, September 12, from 8:00 a.m. to 12:30 p.m. ET. The meeting will be webcast live on the Investor Relations section of the Company’s website at ir.criver.com .

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; expenses associated with evaluating and integrating acquisitions and divestitures, as well as fair value adjustments associated with contingent consideration; charges, gains, and losses attributable to businesses or properties we plan to close, consolidate, or divest; severance and other costs associated with our efficiency initiatives; the write-off of deferred financing costs and fees related to debt financing; third-party costs associated with the remediation of unauthorized access into our information systems detected in March 2019; and investment gains or losses associated with our venture capital investments. This press release also refers to our revenue in both a GAAP and non-GAAP basis: “constant currency,” which we define as reported revenue growth adjusted for the impact of foreign currency translation, and “organic revenue growth,” which we define as reported revenue growth adjusted for foreign currency translation, acquisitions, and divestitures. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. Commencing in the first quarter of 2019, we exclude the performance of our venture capital investments due to the determination that such investment gains or losses are not core to our overall operations. 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 divestitures (and in certain cases, the evaluation of such acquisitions and divestitures, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities and their underlying associated costs, such as business acquisitions, generally occur periodically but on an unpredictable basis. We calculate non-GAAP integration costs to include third-party integration costs incurred post-acquisition. Presenting revenue on an organic basis allows investors to measure our revenue growth exclusive of acquisitions, divestitures, and foreign currency exchange fluctuations more clearly. Non-GAAP results also allow investors to compare the Company’s operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations 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,” “would,” “may,” “estimate,” “plan,” “outlook,” and “project,” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements also include statements regarding the 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, including the acquisition of Citoxlab, on the Company, our service offerings, client perception, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products, including our investments in our portfolio; market and industry conditions including the outsourcing of services and spending trends by our clients; 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; risks and uncertainties associated with the unauthorized access into its information systems reported on April 30, 2019, including the timing and effectiveness of adding enhanced security features and monitoring procedures, the status and effectiveness of the ongoing remediation process, the percentage of clients affected by the unauthorized access, and the potential revenue and financial impact related to the incident; 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 revenue; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; the impact of Brexit; continued availability of products and supplies; loss of key personnel; interest rate and foreign currency exchange rate fluctuations; changes in tax regulation and laws; changes in generally accepted accounting principles; and any changes in business, political, or economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 13, 2019, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.

 

About Charles River

Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.

 
         

 

                 

 

           
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
         

 

                 

 

           
SCHEDULE 1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for per share data)
         

 

                 

 

           
     

Three Months Ended

 

 

Six Months Ended

 

 

 

June 29, 2019

 

June 30, 2018

 

 

June 29, 2019

 

June 30, 2018

         

 

                 

 

           
Service revenue    

$

 

505,880

 

 

$

 

438,456

 

   

$

956,822

 

 

$

 

783,910

 

Product revenue      

 

151,688

 

   

 

146,845

 

   

 

305,315

 

   

 

295,361

 

Total revenue      

 

657,568

 

   

 

585,301

 

   

 

1,262,137

 

   

 

1,079,271

 

Costs and expenses:        

 

                 

 

           
Cost of services provided (excluding amortization of intangible assets)      

 

345,369

 

   

 

302,304

 

   

 

662,169

 

   

 

546,112

 

Cost of products sold (excluding amortization of intangible assets)      

 

74,095

 

   

 

67,016

 

   

 

150,087

 

   

 

135,709

 

Selling, general and administrative      

 

135,941

 

   

 

120,531

 

   

 

258,515

 

   

 

223,903

 

Amortization of intangible assets      

 

22,395

 

   

 

18,740

 

   

 

41,806

 

   

 

29,008

 

Operating income      

 

79,768

 

   

 

76,710

 

   

 

149,560

 

   

 

144,539

 

Other income (expense):        

 

                 

 

           
Interest income      

 

274

 

   

 

182

 

   

 

453

 

   

 

464

 

Interest expense      

 

(20,835

)

   

 

(18,643

)

   

 

(30,822

)

   

 

(29,834

)

Other income (expense), net      

 

(213

)

   

 

12,039

 

   

 

6,093

 

   

 

18,159

 

Income from continuing operations, before income taxes      

 

58,994

 

   

 

70,288

 

   

 

125,284

 

   

 

133,328

 

Provision for income taxes      

 

14,685

 

   

 

17,438

 

   

 

25,287

 

   

 

27,210

 

Income from continuing operations, net of income taxes      

 

44,309

 

   

 

52,850

 

   

 

99,997

 

   

 

106,118

 

Income from discontinued operations, net of income taxes        

     

 

1,529

 

     

— 

     

 

1,506

 

Net income      

 

44,309

 

   

 

54,379

 

   

 

99,997

 

   

 

107,624

 

Less: Net income attributable to noncontrolling interests      

 

581

 

   

 

670

 

   

 

1,136

 

   

 

1,284

 

Net income attributable to common shareholders    

$

 

43,728

 

 

$

 

53,709

 

   

$

98,861

 

 

$

 

106,340

 

         

 

                 

 

           
Earnings per common share        

 

                 

 

           
Basic:        

 

                 

 

           
Continuing operations attributable to common shareholders    

$

 

0.90

 

 

$

 

1.08

 

   

$

2.03

 

 

$

 

2.18

 

Discontinued operations    

$

 

 —

   

$

 

0.03

 

   

$

 —

   

$

 

0.03

 

Net income attributable to common shareholders    

$

 

0.90

 

 

$

 

1.11

 

   

$

2.03

 

 

$

 

2.22

 

Diluted:        

 

                 

 

           
Continuing operations attributable to common shareholders    

$

 

0.88

 

 

$

 

1.06

 

   

$

1.99

 

 

$

 

2.14

 

Discontinued operations    

$

 

 —

   

$

 

0.03

 

   

$

 —

   

$

 

0.03

 

Net income attributable to common shareholders    

$

 

0.88

 

 

$

 

1.10

 

   

$

1.99

 

 

$

 

2.17

 

         

 

                 

 

           
Weighted-average number of common shares outstanding;        

 

                 

 

           
Basic      

 

48,772

 

   

 

48,198

 

   

 

48,615

 

   

 

47,992

 

Diluted      

 

49,662

 

   

 

49,043

 

   

 

49,599

 

   

 

48,966

 

 
     

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

     

SCHEDULE 2

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

             
             
   

June 29, 2019

 

December 29, 2018

Assets            
Current assets:            
Cash and cash equivalents  

$

 

200,589

 

 

$

 

195,442

 

Trade receivables, net  

 

545,148

 

 

 

472,248

 

Inventories  

 

134,925

 

 

 

127,892

 

Prepaid assets  

 

60,485

 

 

 

53,447

 

Other current assets  

 

68,911

 

 

 

48,807

 

Total current assets  

 

1,010,058

 

 

 

897,836

 

Property, plant and equipment, net  

 

1,006,330

 

 

 

932,877

 

Operating lease right-of-use assets, net  

 

131,880

 

  —   
Goodwill  

 

1,526,682

 

 

 

1,247,133

 

Client relationships, net  

 

644,192

 

 

 

537,945

 

Other intangible assets, net  

 

90,509

 

 

 

72,943

 

Deferred tax assets  

 

33,483

 

 

 

23,386

 

Other assets  

 

182,350

 

 

 

143,759

 

Total assets  

$

 

4,625,484

 

 

$

 

3,855,879

 

             
Liabilities, Redeemable Noncontrolling Interests and Equity            
Current liabilities:            
Current portion of long-term debt and finance leases  

$

 

33,955

 

 

$

 

31,416

 

Accounts payable  

 

99,381

 

 

 

66,250

 

Accrued compensation  

 

129,844

 

 

 

137,212

 

Deferred revenue  

 

167,530

 

 

 

145,139

 

Accrued liabilities  

 

122,893

 

 

 

106,925

 

Other current liabilities  

 

81,995

 

 

 

71,280

 

Total current liabilities  

 

635,598

 

 

 

558,222

 

Long-term debt, net and finance leases  

 

2,040,388

 

 

 

1,636,598

 

Operating lease right-of-use liabilities  

 

108,311

 

  —   
Deferred tax liabilities  

 

181,755

 

 

 

143,635

 

Other long-term liabilities  

 

180,589

 

 

 

179,121

 

Total liabilities  

 

3,146,641

 

 

 

2,517,576

 

Redeemable noncontrolling interests  

 

20,479

 

 

 

18,525

 

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; 48,937 shares issued and 48,799 shares outstanding as of June 29, 2019, and 48,210 shares issued and 48,209 shares outstanding as of December 29, 2018  

 

489

 

 

 

482

 

Additional paid-in capital  

 

1,497,794

 

 

 

1,447,512

 

Retained earnings  

 

140,957

 

 

 

42,096

 

Treasury stock, at cost, 138 and 1 shares, as of June 29, 2019 and December 29, 2018, respectively  

 

(17,938

)

 

 

(55

)

Accumulated other comprehensive loss  

 

(166,236

)

 

 

(172,703

)

Total equity attributable to common shareholders  

 

1,455,066

 

 

 

1,317,332

 

Noncontrolling interest  

 

3,298

 

 

 

2,446

 

Total equity  

 

1,458,364

 

 

 

1,319,778

 

Total liabilities, redeemable noncontrolling interests and equity  

$

 

4,625,484

 

 

$

 

3,855,879

 

 
     
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
       
SCHEDULE 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
               
     

Six Months Ended

     

June 29, 2019

 

June 30, 2018

  Cash flows relating to operating activities            
  Net income  

$

99,997

 

 

$

107,624

 

  Less: Income from discontinued operations, net of income taxes   —     

 

1,506

 

  Income from continuing operations, net of income taxes  

 

99,997

 

 

 

106,118

 

  Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:            
  Depreciation and amortization  

 

94,504

 

 

 

76,606

 

  Stock-based compensation  

 

29,404

 

 

 

24,088

 

  Deferred income taxes  

 

(1,347

)

 

 

(6,212

)

  Gain on venture capital investments  

 

(6,321

)

 

 

(17,385

)

  Other, net  

 

3,312

 

 

 

6,961

 

  Changes in assets and liabilities:            
  Trade receivables, net  

 

(36,538

)

 

 

(19,375

)

  Inventories  

 

(2,565

)

 

 

(7,444

)

  Accounts payable  

 

18,195

 

 

 

(12,608

)

  Accrued compensation  

 

(25,421

)

 

 

(2,417

)

  Deferred revenue  

 

(241

)

 

 

(4,331

)

  Customer contract deposits  

 

(10,918

)

 

 

37,543

 

  Other assets and liabilities, net  

 

(17,649

)

 

 

2,379

 

  Net cash provided by operating activities  

 

144,412

 

 

 

183,923

 

  Cash flows relating to investing activities            
  Acquisition of businesses and assets, net of cash acquired  

 

(492,381

)

 

 

(821,350

)

  Capital expenditures  

 

(41,512

)

 

 

(48,939

)

  Purchases of investments and contributions to venture capital investments  

 

(14,753

)

 

 

(11,097

)

  Proceeds from sale of investments  

 

15

 

 

 

30,406

 

  Other, net  

 

(607

)

 

 

(56

)

  Net cash used in investing activities  

 

(549,238

)

 

 

(851,036

)

  Cash flows relating to financing activities            
  Proceeds from long-term debt and revolving credit facility  

 

1,485,731

 

 

 

2,392,568

 

  Proceeds from exercises of stock options  

 

23,853

 

 

 

24,196

 

  Payments on long-term debt, revolving credit facility, and finance lease obligations  

 

(1,076,761

)

 

 

(1,680,207

)

  Payment of debt financing costs   —     

 

(18,314

)

  Purchase of treasury stock  

 

(17,883

)

 

 

(13,668

)

  Other, net  

 

(10,516

)

  —   
  Net cash provided by financing activities  

 

404,424

 

 

 

704,575

 

  Discontinued operations            
  Net cash used in operating activities from discontinued operations   —     

 

(3,731

)

  Effect of exchange rate changes on cash, cash equivalents, and restricted cash  

 

5,670

 

 

 

(4,697

)

  Net change in cash, cash equivalents, and restricted cash  

 

5,268

 

 

 

29,034

 

  Cash, cash equivalents, and restricted cash, beginning of period  

 

197,318

 

 

 

166,331

 

  Cash, cash equivalents, and restricted cash, end of period  

$

202,586

 

 

$

195,365

 

               
  Supplemental cash flow information:            
  Cash and cash equivalents  

$

200,589

 

 

$

192,300

 

  Restricted cash included in Other current assets  

 

498

 

 

 

593

 

  Restricted cash included in Other assets  

 

1,499

 

 

 

2,472

 

  Cash, cash equivalents, and restricted cash, end of period  

$

202,586

 

 

$

195,365

 

 

 

 

 

 

 

 

 

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.

 
     

 

     

 

   

 

     

 

 

SCHEDULE 4

RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)(1)
(in thousands, except percentages)
     

 

     

 

   

 

     

 

 
     

Three Months Ended

 

Six Months Ended

 

 

 

June 29, 2019

 

June 30, 2018

 

June 29, 2019

 

June 30, 2018

Research Models and Services  

 

     

 

   

 

     

 

 
  Revenue  

$

136,054

 

 

$

130,426

 

 

$

273,226

 

 

$

264,384

 

  Operating income  

 

31,512

 

 

 

34,245

 

 

 

69,344

 

 

 

72,772

 

  Operating income as a % of revenue  

 

23.2

%

 

 

26.3

%

 

 

25.4

%

 

 

27.5

%

  Add back:  

 

     

 

   

 

     

 

 
  Amortization related to acquisitions  

 

349

 

 

 

408

 

 

 

701

 

 

 

817

 

  Severance  

 

565

 

 

 

220

 

 

 

725

 

 

 

743

 

  Acquisition related adjustments (2)  

 

2,201

 

   

— 

   

 

2,201

 

   

— 

 
  Site consolidation costs, impairments and other items  

 

76

 

 

 

69

 

 

 

257

 

 

 

584

 

  Total non-GAAP adjustments to operating income  

$

3,191

 

 

$

697

 

 

$

3,884

 

 

$

2,144

 

  Operating income, excluding non-GAAP adjustments  

$

34,703

 

 

$

34,942

 

 

$

73,228

 

 

$

74,916

 

  Non-GAAP operating income as a % of revenue  

 

25.5

%

 

 

26.8

%

 

 

26.8

%

 

 

28.3

%

     

 

     

 

   

 

     

 

 
  Depreciation and amortization  

$

4,981

 

 

$

4,901

 

 

$

9,303

 

 

$

9,754

 

  Capital expenditures  

$

5,049

 

 

$

5,314

 

 

$

9,161

 

 

$

9,939

 

     

 

     

 

   

 

     

 

 
Discovery and Safety Assessment  

 

     

 

   

 

     

 

 
  Revenue  

$

405,517

 

 

$

346,416

 

 

$

759,714

 

 

$

606,408

 

  Operating income  

 

63,514

 

 

 

56,623

 

 

 

110,219

 

 

 

97,482

 

  Operating income as a % of revenue  

 

15.7

%

 

 

16.3

%

 

 

14.5

%

 

 

16.1

%

  Add back:  

 

     

 

   

 

     

 

 
  Amortization related to acquisitions  

 

19,772

 

 

 

16,051

 

 

 

36,507

 

 

 

23,592

 

  Severance  

 

672

 

 

 

1,197

 

 

 

685

 

 

 

943

 

  Acquisition related adjustments (3)  

 

1,738

 

 

 

767

 

 

 

3,992

 

 

 

1,197

 

  Site consolidation costs, impairments and other items  

— 

 

 

 

— 

 

 

— 

 

 

 

(143

)

  Total non-GAAP adjustments to operating income  

$

22,182

 

 

$

18,015

 

 

$

41,184

 

 

$

25,589

 

  Operating income, excluding non-GAAP adjustments  

$

85,696

 

 

$

74,638

 

 

$

151,403

 

 

$

123,071

 

  Non-GAAP operating income as a % of revenue  

 

21.1

%

 

 

21.5

%

 

 

19.9

%

 

 

20.3

%

     

 

     

 

   

 

     

 

 
  Depreciation and amortization  

$

37,549

 

 

$

31,042

 

 

$

71,333

 

 

$

51,829

 

  Capital expenditures  

$

15,141

 

 

$

10,894

 

 

$

23,989

 

 

$

23,696

 

     

 

     

 

   

 

     

 

 
Manufacturing Support  

 

     

 

   

 

     

 

 
  Revenue  

$

115,997

 

 

$

108,459

 

 

$

229,197

 

 

$

208,479

 

  Operating income  

 

33,141

 

 

 

34,115

 

 

 

64,640

 

 

 

62,638

 

  Operating income as a % of revenue  

 

28.6

%

 

 

31.5

%

 

 

28.2

%

 

 

30.0

%

  Add back:  

 

     

 

   

 

     

 

 
  Amortization related to acquisitions  

 

2,274

 

 

 

2,281

 

 

 

4,598

 

 

 

4,599

 

  Severance  

 

74

 

   

— 

   

 

301

 

 

 

870

 

  Acquisition related adjustments (3)  

 

106

 

 

 

15

 

 

 

156

 

 

 

15

 

  Site consolidation costs, impairments and other items  

 

297

 

   

— 

   

 

1,305

 

 

 

159

 

  Total non-GAAP adjustments to operating income  

$

2,751

 

 

$

2,296

 

 

$

6,360

 

 

$

5,643

 

  Operating income, excluding non-GAAP adjustments  

$

35,892

 

 

$

36,411

 

 

$

71,000

 

 

$

68,281

 

  Non-GAAP operating income as a % of revenue  

 

30.9

%

 

 

33.6

%

 

 

31.0

%

 

 

32.8

%

     

 

     

 

   

 

     

 

 
  Depreciation and amortization  

$

5,782

 

 

$

5,868

 

 

$

11,587

 

 

$

11,604

 

  Capital expenditures  

$

4,272

 

 

$

3,188

 

 

$

7,878

 

 

$

10,022

 

     

 

     

 

   

 

     

 

 
Unallocated Corporate Overhead  

$

(48,399

)

 

$

(48,273

)

 

$

(94,643

)

 

$

(88,353

)

  Add back:  

 

     

 

   

 

     

 

 
  Severance  

— 

   

 

659

 

 

— 

   

 

659

 

  Acquisition related adjustments (3)  

 

12,470

 

 

 

11,033

 

 

 

17,892

 

 

 

13,897

 

  Other items (4)  

$

1,029

 

 

$

 —

   

$

1,029

 

 

$

 —

 
  Total non-GAAP adjustments to operating expense  

$

13,499

 

 

$

11,692

 

 

$

18,921

 

 

$

14,556

 

  Unallocated corporate overhead, excluding non-GAAP adjustments  

$

(34,900

)

 

$

(36,581

)

 

$

(75,722

)

 

$

(73,797

)

     

 

     

 

   

 

     

 

 
Total  

 

     

 

   

 

     

 

 
  Revenue  

$

657,568

 

 

$

585,301

 

 

$

1,262,137

 

 

$

1,079,271

 

  Operating income  

$

79,768

 

 

$

76,710

 

 

$

149,560

 

 

$

144,539

 

  Operating income as a % of revenue  

 

12.1

%

 

 

13.1

%

 

 

11.8

%

 

 

13.4

%

  Add back:  

 

     

 

   

 

     

 

 
  Amortization related to acquisitions  

 

22,395

 

 

 

18,740

 

 

 

41,806

 

 

 

29,008

 

  Severance and executive transition costs  

 

1,311

 

 

 

2,076

 

 

 

1,711

 

 

 

3,215

 

  Acquisition related adjustments (2)(3)  

 

16,515

 

 

 

11,815

 

 

 

24,241

 

 

 

15,109

 

  Site consolidation costs, impairments and other items (4)  

 

1,402

 

 

 

69

 

 

 

2,591

 

 

 

600

 

  Total non-GAAP adjustments to operating income  

$

41,623

 

 

$

32,700

 

 

$

70,349

 

 

$

47,932

 

  Operating income, excluding non-GAAP adjustments  

$

121,391

 

 

$

109,410

 

 

$

219,909

 

 

$

192,471

 

  Non-GAAP operating income as a % of revenue  

 

18.5

%

 

 

18.7

%

 

 

17.4

%

 

 

17.8

%

     

 

     

 

   

 

     

 

 
  Depreciation and amortization  

$

49,146

 

 

$

43,396

 

 

$

94,504

 

 

$

76,606

 

  Capital expenditures  

$

24,781

 

 

$

21,213

 

 

$

41,512

 

 

$

48,939

 

       

 

     

 

     

 

     

 

 

(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)

  This amount represents a $2.2 million charge recorded in connection with the modification of the option to purchase the remaining 8% equity interest in Vital River.
     

(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.

(4)

  This amount relates to third-party costs, net of insurance reimbursements, associated with the remediation of the unauthorized access into the Company's information systems which was detected in March 2019.
 
     
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
     
SCHEDULE 5
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED)(1)
(in thousands, except per share data)
                       
      Three Months Ended   Six Months Ended
      June 29, 2019   June 30, 2018   June 29, 2019   June 30, 2018
                       
Net income attributable to common shareholders  

$

43,728

 

 

$

53,709

 

 

$

98,861

 

 

$

106,340

 

Less: Income from discontinued operations, net of income taxes  

 —

   

 

1,529

 

 

— 

   

 

1,506

 

Net income from continuing operations attributable to common shareholders  

 

43,728

 

 

 

52,180

 

 

 

98,861

 

 

 

104,834

 

Add back:                    
Non-GAAP adjustments to operating income (Refer to Schedule 4)  

 

41,623

 

 

 

32,700

 

 

 

70,349

 

 

 

47,932

 

Write-off of deferred financing costs and fees related to debt refinancing  

— 

   

 

1,799

 

 

— 

   

 

5,060

 

Venture capital (gains) losses  

 

4,254

 

 

 

(10,934

)

 

 

(6,321

)

 

 

(17,385

)

Tax effect of non-GAAP adjustments  

 

(8,491

)

 

 

(4,466

)

 

 

(12,371

)

 

 

(6,345

)

Net income from continuing operations attributable to common shareholders, excluding non-GAAP adjustments  

$

81,114

 

 

$

71,279

 

 

$

150,518

 

 

$

134,096

 

                       
Weighted average shares outstanding - Basic  

 

48,772

 

 

 

48,198

 

 

 

48,615

 

 

 

47,992

 

Effect of dilutive securities:                    
Stock options, restricted stock units, performance share units and restricted stock  

 

890

 

 

 

845

 

 

 

984

 

 

 

974

 

Weighted average shares outstanding - Diluted  

 

49,662

 

 

 

49,043

 

 

 

49,599

 

 

 

48,966

 

                       
Earnings per share from continuing operations attributable to common shareholders                    
Basic  

$

0.90

 

 

$

1.08

 

 

$

2.03

 

 

$

2.18

 

Diluted  

$

0.88

 

 

$

1.06

 

 

$

1.99

 

 

$

2.14

 

                       
Basic, excluding non-GAAP adjustments  

$

1.66

 

 

$

1.48

 

 

$

3.10

 

 

$

2.79

 

Diluted, excluding non-GAAP adjustments  

$

1.63

 

 

$

1.45

 

 

$

3.03

 

 

$

2.74

 

                                 

(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 6
RECONCILIATION OF GAAP REVENUE GROWTH
TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1)
                     
                     
Three Months Ended June 29, 2019  

Total CRL

 

RMS Segment

 

DSA Segment

 

MS Segment

                     
Revenue growth, reported  

12.3

%

 

4.3

%

 

17.1

%

 

7.0

%

Decrease (increase) due to foreign exchange  

1.9

%

 

2.5

%

 

1.2

%

 

3.1

%

Contribution from acquisitions (2)  

(5.7

)%

 

— 

%

 

(9.6

)%

 

(0.3

)%

Non-GAAP revenue growth, organic (3)  

8.5

%

 

6.8

%

 

8.7

%

 

9.8

%

                     
Six Months Ended June 29, 2019  

Total CRL

 

RMS Segment

 

DSA Segment

 

MS Segment

                     
Revenue growth, reported  

16.9

%

 

3.3

%

 

25.3

%

 

9.9

%

Decrease (increase) due to foreign exchange  

2.4

%

 

2.8

%

 

1.6

%

 

3.8

%

Contribution from acquisitions (2)  

(9.7

)%

 

— 

%

 

(17.1

)%

 

(0.3

)%

Non-GAAP revenue growth, organic (3)  

9.6

%

 

6.1

%

 

9.8

%

 

13.4

%

                         

(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. Manufacturing Support includes an immaterial acquisition of an Australian Microbial Solutions business.

(3)

  Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign exchange.

 

Source: Charles River Laboratories International, Inc.

Investor Contacts:
Todd Spencer
Corporate Vice President,
Investor Relations
781.222.6455
todd.spencer@crl.com

Media Contact:
Amy Cianciaruso
Corporate Vice President,
Public Relations
781.222.6168
amy.cianciaruso@crl.com

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