Charles River Laboratories Announces Second-Quarter 2019 Results

WILMINGTON, Mass.--(BUSINESS WIRE)--July 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.