Charles River Laboratories Announces Strong First-Quarter 2005 Results
- Sales Increase 59% to $274 million
- GAAP Earnings Per Share of $0.40 and $0.55 on a Non-GAAP Basis
- Company Reaffirms Guidance for 2005 on Continuing Strong Demand for Outsourced Services
WILMINGTON, Mass.--(BUSINESS WIRE)--May 3, 2005-- Charles River Laboratories International, Inc. (NYSE:CRL) today reported first-quarter 2005 financial results. Net sales for the first quarter of 2005 increased 58.6% to $273.7 million, compared to $172.6 million reported in the first quarter of 2004. The increase was due primarily to the acquisition of Inveresk Research Group, and also to continuing strong demand for research models and outsourced preclinical services.
Net income on a GAAP basis was $27.6 million, or $0.40 per diluted share in the first quarter of 2005, compared to $17.6 million, or $0.36 per diluted share, in the first quarter of 2004. On a non-GAAP basis, net income for the first quarter was $38.6 million, compared to $23.4 million in the first quarter of 2004. Non-GAAP earning per diluted share were $0.55, compared to $0.47 per diluted share in the first quarter of 2004. Non-GAAP results in the first quarter of 2005 exclude amortization of intangibles of $13.3 million, or $0.12 per diluted share, and compensation charges of $3.0 million, or $0.03 per diluted share, related to the acquisition of Inveresk, and in the first quarter of 2004, exclude a net charge of $5.8 million, or $0.11 per diluted share, related to the write-off of a deferred tax asset and release of a related tax valuation allowance in connection with the Company's reorganization of its European operations.
James C. Foster, Chairman, President and Chief Executive Officer said, "We are extremely pleased with our first-quarter results. The year is off to a strong start, with sales and earnings growth driven by continuing demand for our products and services, particularly in the preclinical arena, where our customers are outsourcing more services. Our acquisition of Inveresk, our efforts to target new opportunities with our broader portfolio, and our continuing focus on operational efficiency, have positioned us extremely well to address this market, and to grow profitably. We continue to be optimistic about our prospects for 2005."
Business Segments Results
As a result of the acquisition of Inveresk, the Company is now reporting three business segments: Research Models and Services (RMS), Preclinical Services (formerly Development & Safety Testing), and a new segment, Clinical Services.
Research Models and Services
First-quarter 2005 net sales for the Research Models and Services segment of the business were $127.9 million compared to $119.5 million last year, an increase of 7.1%. Growth was due primarily to higher prices, volume, and favorable foreign currency translation. The gross margin was 44.2%, unchanged from the first quarter of last year. The operating margin increased to 33.1% from 32.4% in the same period last year.
Preclinical Services
Net sales for the Preclinical Services segment rose 114.6% in the first quarter of 2005, to $114.1 million from $53.2 million in the same period last year. The increase was due primarily to the acquisition of Inveresk, and to continuing strong demand for outsourced development services, particularly general and specialty toxicology. The segment's gross margin increased to 33.5% from 30.2% in the first quarter of 2004. Operating income was $12.5 million in the first quarter of 2005, compared to $7.6 million last year. The operating margin was 11.0% compared to 14.2% in the first quarter of 2004, due primarily to amortization of intangibles related to the acquisition of Inveresk. On a non-GAAP basis, when excluding amortization of $10.3 million related to the Inveresk acquisition, first-quarter operating income rose to $22.8 million from $7.6 million in the first quarter of last year and the operating margin increased to 20.0% from 14.2% in the first quarter of last year, reflecting higher sales and operating efficiencies.
Clinical Services
For the first quarter of 2005, net sales for the Clinical Services segment were $31.7 million. The gross margin was 31.0% and the operating margin was 2.6%. On a non-GAAP basis, when excluding amortization of $3.0 million related to the Inveresk acquisition, the operating margin was 12.1%.
Backlog
The backlog for Preclinical and Clinical Services at March 26, 2005, was $427 million. The Company does not report backlog for the RMS business segment because turnaround time from placement to completion of orders, both for products and services, is rapid.
2005 Outlook
The following forward-looking guidance is based on current foreign exchange rates.
For 2005, the Company reaffirms its expectations of revenue growth in a range of 48% to 52%, which reflects the acquisition of Inveresk as well as continued strength in the market for outsourced drug discovery and development services. As a result of strong sales growth, efficiency improvements, operating synergies, and a lower tax rate, GAAP earnings per diluted share are expected to be in a range of $1.70 to $1.80. Non-GAAP earnings, which exclude amortization of intangible assets of $53.1 million and other acquisition-related charges of $7.8 million, are expected to be in a range of $2.30 to $2.40 per diluted share, as the Company previously stated.
For the second quarter of 2005, the Company expects net sales to increase between 57% and 60% due to the acquisition of Inveresk and continued strong demand for the Company's products and services. Based on the anticipated higher net sales and cost synergies, GAAP earnings per diluted share are expected to be in a range of $0.43 to $0.45. Non-GAAP earnings per diluted share, which exclude amortization of intangible assets of $13.3 million and other acquisition-related charges of $2.8 million, are expected to be in a range of $0.58 to $0.60.
James Foster to Appear on Bloomberg News
Mr. Foster is scheduled to appear live on Bloomberg's "World Financial Report" this evening at approximately 5:45 p.m. ET.
Webcast
Charles River Laboratories has scheduled a live webcast on Wednesday, May 4, at 8:30 a.m. ET to discuss matters relating to this press release. To participate, please go to http://ir.criver.com and select the webcast link. The webcast will be available until 5:00 p.m. ET on May 11, 2005.
Use of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures which exclude, among other items, amortization of intangible assets and other charges related to the Inveresk acquisition. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. We believe that the inclusion of non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. 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. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in the text of, and the accompanying exhibits to, this press release, and can also be found on the Company's website at ir.criver.com.
Caution Concerning Forward-Looking Statements. This document 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," "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. Forward-looking statements are based on Charles River's current expectations and beliefs, and involve a number of risks and uncertainties 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: challenges arising from the acquisition of Inveresk Research Group; a decrease in research and development spending or a decrease in the level of outsourced services; acquisition integration risks; the ability to convert backlog to sales; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; 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 March 9, 2005, 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 Laboratories
Charles River Laboratories, based in Wilmington, Massachusetts, is a global provider of solutions that advance the drug discovery and development process. Our leading-edge products and services are designed to enable our clients to bring drugs to market faster and more efficiently. Backed by our rigorous, best-in-class procedures and our proven data collection, analysis and reporting capabilities, our products and services are organized into three categories spanning every step of the drug development pipeline: Research Models and Services, Preclinical Services, and Clinical Services. Charles River's customer base includes all of the major pharmaceutical companies and many biotechnology companies, government agencies and leading hospitals and academic institutions. Charles River's 8,000 employees serve clients in more than 50 countries. For more information on Charles River, visit our website at www.criver.com.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except for per share data)
Three Months Ended
------------------------------
March 26, 2005 March 27, 2004
Total net sales $ 273,722 $ 172,637
Cost of products sold and services
provided 169,111 103,809
-------------- -------------
Gross margin 104,611 68,828
Selling, general and administrative 44,852 28,120
Amortization of intangibles 14,363 1,191
-------------- -------------
Operating income 45,396 39,517
Interest income (expense) (6,259) (1,415)
Other, net (144) 200
-------------- -------------
Income before income taxes and minority
interests 38,993 38,302
Provision for income taxes 10,860 20,152
-------------- -------------
Income before minority interests 28,133 18,150
Minority interests (485) (556)
-------------- -------------
Net income $ 27,648 $ 17,594
============== =============
Earnings per common share
Basic $ 0.42 $ 0.38
Diluted $ 0.40 $ 0.36
Weighted average number of common
shares outstanding
Basic 65,876,099 45,855,115
Diluted 72,526,888 52,133,240
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
March 26, December 25,
2005 2004
Assets
Current assets
Cash and cash equivalents $ 213,059 $ 207,566
Marketable securities 1,435 234
Trade receivables, net 204,912 201,794
Inventories 63,680 61,914
Other current assets 39,906 38,798
----------- ------------
Total current assets 522,992 510,306
Property, plant and equipment, net 360,943 357,149
Goodwill, net 1,419,762 1,422,586
Other intangibles, net 244,771 256,294
Deferred tax asset 49,063 50,412
Other assets 29,485 30,088
----------- ------------
Total assets $ 2,627,016 $ 2,626,835
=========== ============
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 80,481 $ 80,456
Accounts payable 26,397 28,672
Accrued compensation 37,841 46,037
Deferred income 108,456 117,490
Other current liabilities 72,585 76,460
----------- ------------
Total current liabilities 325,760 349,115
Long-term debt 585,289 605,388
Other long-term liabilities 189,191 190,035
----------- ------------
Total liabilities 1,100,240 1,144,538
----------- ------------
Minority interests 8,985 9,792
Total shareholders' equity 1,517,791 1,472,505
----------- ------------
Total liabilities and shareholders' equity $ 2,627,016 $ 2,626,835
=========== ============
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
Three Months Ended
------------------------
March 26, March 27,
2005 2004
Research Models and Services
Net sales $ 127,912 $ 119,477
Gross margin 56,586 52,771
Gross margin as a % of net sales 44.2% 44.2%
Operating income 42,308 38,751
Operating income as a % of net sales 33.1% 32.4%
Depreciation and amortization 4,729 4,309
Capital expenditures 5,275 3,443
Preclinical Services
Net sales $ 114,072 $ 53,160
Gross margin 38,188 16,057
Gross margin as a % of net sales 33.5% 30.2%
Operating income 12,516 7,574
Operating income as a % of net sales 11.0% 14.2%
Depreciation and amortization 16,993 3,528
Capital expenditures 7,023 1,082
Clinical Services
Net sales $ 31,738 $ -
Gross margin 9,837 -
Gross margin as a % of net sales 31.0%
Operating income 833 -
Operating income as a % of net sales 2.6%
Depreciation and amortization 3,704 -
Capital expenditures 100 -
Unallocated Corporate Overhead $ (10,261) $ (6,808)
Total
Net sales $ 273,722 $ 172,637
Gross margin 104,611 68,828
Gross margin as a % of net sales 38.2% 39.9%
Operating income 45,396 39,517
Operating income as a % of net sales 16.6% 22.9%
Depreciation and amortization 25,426 7,837
Capital expenditures 12,398 4,525
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS
(dollars in thousands, except for per share data)
Three Months Ended
--------------------------
March 26, March 27,
2005 2004
Net income $ 27,648 $ 17,594
Add back:
Deferred tax asset write-off - 7,900
Valuation allowance release - (2,111)
Amortization related to merger 13,331 -
Stock-based compensation related to
merger 2,969 -
Tax effect (5,313) -
------------ -----------
Net income, excluding specified charges
(Non-GAAP) $ 38,635 $ 23,383
============ ===========
Calculation of earnings per common share,
excluding specified charges (Non-GAAP):
Net income for purposes of calculating
earnings per share, excluding specified
charges (Non-GAAP) $ 38,635 $ 23,383
After tax equivalent interest expense on
3.5% senior convertible debentures 1,168 996
Income for purposes of calculating diluted
earnings per share, excluding specified
charges (Non-GAAP) $ 39,803 $ 24,379
Weighted average shares outstanding - Basic 65,876,099 45,855,115
Effect of dilutive securities:
3.5% senior convertible debentures 4,759,455 4,759,455
Stock options and contingently issued
restricted stock 1,550,175 1,184,465
Warrants 341,159 334,205
------------ -----------
Weighted average shares outstanding -
Diluted 72,526,888 52,133,240
============ ===========
Basic earnings per share $ 0.42 $ 0.38
Diluted earnings per share $ 0.40 $ 0.36
Basic earnings per share, excluding
specified charges (Non-GAAP) $ 0.59 $ 0.51
Diluted earnings per share, excluding
specified charges (Non-GAAP) $ 0.55 $ 0.47
Charles River management believes that non-GAAP financial measures
helps investors to gain a meaningful understanding of our core
operating results and future prospects, consistent with the manner in
which management measures and forecasts the Company's performance. The
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.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(dollars in thousands)
Three Months Ended
-----------------------
March 26, March 27,
2005 2004
Research Models and Services
Net sales $ 127,912 $ 119,477
Operating income 42,308 38,751
Operating income as a % of net sales 33.1% 32.4%
Preclinical Services
Net sales $ 114,072 $ 53,160
Operating income 12,516 7,574
Operating income as a % of net sales 11.0% 14.2%
Add back:
Amortization related to merger 10,317 -
---------- ----------
Operating income, excluding specified
charges (Non-GAAP) 22,833 7,574
Non-GAAP operating income as a % of net
sales 20.0% 14.2%
Clinical Services
Net sales $ 31,738 $ -
Operating income 833 -
Operating income as a % of net sales 2.6%
Add back:
Amortization related to merger 3,014 -
---------- ----------
Operating income, excluding specified
charges (Non-GAAP) 3,847 -
Non-GAAP operating income as a % of net
sales 12.1%
Unallocated Corporate Overhead $ (10,261) $ (6,808)
Add back:
Stock-based compensation related to
merger 2,969 -
---------- ----------
Unallocated corporate overhead, excluding
specified charges (Non-GAAP) (7,292) (6,808)
Total
Net sales $ 273,722 $ 172,637
Operating income 45,396 39,517
Operating income as a % of net sales 16.6% 22.9%
Add back:
Amortization related to merger 13,331 -
Stock-based compensation related to
merger 2,969 -
---------- ----------
Operating income, excluding specified
charges (Non-GAAP) 61,696 39,517
Non-GAAP operating income as a % of net
sales 22.5% 22.9%
Charles River management believes that non-GAAP financial measures
helps investors to gain a meaningful understanding of our core
operating results and future prospects, consistent with the manner in
which management measures and forecasts the Company's performance. The
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.
CONTACT: Charles River Laboratories International, Inc.
Susan E. Hardy, 978-658-6000 Ext. 1616
SOURCE: Charles River Laboratories International, Inc.