Charles River(CRL) - 2024 Q1 - Quarterly Results

First-Quarter 2024 Results & Overview First-Quarter 2024 Results Summary Charles River Laboratories reported a 1.7% revenue decrease in Q1 2024, primarily due to the DSA segment, with GAAP EPS declining 35.3% from reduced operating income Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1.01 billion | $1.03 billion | -1.7% | | Organic Revenue | | | -3.3% | | GAAP Operating Margin | 12.5% | 16.3% | -380 bps | | Non-GAAP Operating Margin | 18.5% | 21.2% | -270 bps | | GAAP Diluted EPS | $1.30 | $2.01 | -35.3% | | Non-GAAP Diluted EPS | $2.27 | $2.78 | -18.3% | - Overall revenue decreased due to a 0.3% foreign currency benefit, 1.5% acquisition contribution, and 0.2% divestiture reduction, with organic decline driven by lower DSA segment revenue offsetting growth in Manufacturing and RMS segments[1] - Decreased GAAP and non-GAAP operating margins were primarily due to lower DSA segment operating margin and higher unallocated corporate costs, with GAAP results also impacted by restructuring costs[4] CEO Commentary CEO James C. Foster highlighted strong Manufacturing segment performance and improving DSA proposal activity, anticipating demand recovery later in the year through strategic initiatives - The DSA segment experienced improved proposal activity and cancellations in Q1, with new bookings and revenue expected to materialize over time[6] - Stronger biotech funding is anticipated to drive improved demand later in the year[6] - Strategic initiatives include enhanced commercial efforts, efficiency drives, and investments in innovative technologies to maintain industry leadership[6] First-Quarter Segment Results Research Models and Services (RMS) The RMS segment reported $220.9 million revenue, a 10.6% increase with 3.3% organic growth, driven by NHP sales and small research models, improving non-GAAP operating margin to 27.6% RMS Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | $220.9 M | $199.8 M | | Reported Revenue Growth | 10.6% | | | Organic Revenue Growth | 3.3% | | | GAAP Operating Margin | 19.5% | 20.2% | | Non-GAAP Operating Margin | 27.6% | 23.4% | - The Noveprim acquisition significantly drove reported revenue, contributing 7.6% to the segment's growth[7] - Organic growth stemmed from increased NHP revenue in China, higher sales of small research models across regions, and growth in research model services[7] Discovery and Safety Assessment (DSA) The DSA segment's revenue decreased 8.6% to $605.5 million, with an 8.7% organic decline due to lower Discovery and Safety Assessment businesses, contracting non-GAAP operating margin to 23.5% DSA Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | $605.5 M | $662.4 M | | Reported Revenue Growth | -8.6% | | | Organic Revenue Growth | -8.7% | | | GAAP Operating Margin | 19.0% | 25.9% | | Non-GAAP Operating Margin | 23.5% | 29.0% | - The revenue decline was driven by lower performance in both Discovery Services and Safety Assessment businesses[9] - The operating margin decrease was primarily caused by lower sales volume and moderating price increases[10] Manufacturing Solutions (Manufacturing) The Manufacturing segment achieved $185.2 million revenue, a 10.7% increase with 10.4% organic growth, driven by CDMO business and expanding non-GAAP operating margin to 25.3% Manufacturing Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | $185.2 M | $167.3 M | | Reported Revenue Growth | 10.7% | | | Organic Revenue Growth | 10.4% | | | GAAP Operating Margin | 18.2% | 1.3% | | Non-GAAP Operating Margin | 25.3% | 13.7% | - Organic revenue growth was led by the CDMO business, reflecting higher revenue across all segment businesses[11] - The significant operating margin increase resulted from improved segment profitability and a favorable comparison to a Q1 2023 lease impairment[12] 2024 Financial Guidance Updated 2024 Guidance Charles River reaffirmed its 2024 revenue and non-GAAP EPS guidance, while lowering GAAP EPS estimates to $7.60-$8.10 due to increased restructuring costs 2024 Full-Year Guidance | Metric | Current Guidance | Prior Guidance | | :--- | :--- | :--- | | Reported Revenue Growth | 1.0% – 4.0% | 1.0% – 4.0% | | Organic Revenue Growth | 0.0% – 3.0% | 0.0% – 3.0% | | GAAP EPS Estimate | $7.60 – $8.10 | $7.90 – $8.40 | | Non-GAAP EPS Estimate | $10.90 – $11.40 | $10.90 – $11.40 | - The company's full-year outlook remains largely unchanged, anticipating modest demand improvement in the second half of the year[13] - Updated GAAP EPS guidance reflects increased restructuring costs, from approximately $0.25 to $0.35 per share[14] Financial Statements (Unaudited) Condensed Consolidated Statements of Income Q1 2024 total revenue decreased to $1.01 billion, with operating income falling to $126.0 million and net income attributable to common shareholders declining to $67.3 million Q1 2024 Income Statement Highlights (in thousands) | Line Item | Three Months Ended Mar 30, 2024 | Three Months Ended Apr 1, 2023 | | :--- | :--- | :--- | | Total Revenue | $1,011,560 | $1,029,373 | | Operating Income | $125,977 | $167,892 | | Net Income Attributable to Common Shareholders | $67,329 | $103,131 | | Diluted EPS | $1.30 | $2.01 | Condensed Consolidated Balance Sheets As of March 30, 2024, total assets were $8.15 billion, total liabilities $4.45 billion, and total equity $3.65 billion, with cash and cash equivalents increasing to $327.0 million Balance Sheet Highlights (in thousands) | Line Item | March 30, 2024 | December 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $327,039 | $276,771 | | Total Assets | $8,152,783 | $8,195,001 | | Long-term debt, net | $2,660,459 | $2,647,147 | | Total Liabilities | $4,448,858 | $4,536,003 | | Total Equity | $3,646,150 | $3,602,276 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $129.9 million in Q1 2024, while net cash used in investing activities decreased to $85.8 million due to lower capital expenditures Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Mar 30, 2024 | Three Months Ended Apr 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $129,888 | $109,383 | | Net cash used in investing activities | ($85,792) | ($168,618) | | Net cash provided by financing activities | $18,346 | $25,241 | | Net change in cash | $54,055 | ($32,323) | Reconciliation of GAAP to Non-GAAP Measures Reconciliation of Business Segment Information Q1 2024 total non-GAAP adjustments to operating income reached $61.4 million, primarily from acquisition amortization, severance, and site consolidation charges, resulting in $187.4 million consolidated non-GAAP operating income Total Non-GAAP Adjustments to Operating Income (Q1 2024, in thousands) | Adjustment Type | Amount | | :--- | :--- | | Amortization related to acquisitions | $39,677 | | Acquisition related adjustments | $2,583 | | Severance | $9,037 | | Site consolidation and impairment charges | $7,953 | | Third-party legal costs | $2,191 | | Total Non-GAAP Adjustments | $61,441 | Reconciliation of GAAP to Non-GAAP Earnings Q1 2024 GAAP net income of $67.3 million was adjusted to $117.6 million non-GAAP net income, resulting in non-GAAP diluted EPS of $2.27 versus GAAP diluted EPS of $1.30 GAAP to Non-GAAP Earnings Reconciliation (Q1 2024, in thousands) | Description | Amount | | :--- | :--- | | GAAP Net Income (Common Shareholders) | $67,329 | | Non-GAAP adjustments to operating income | $61,441 | | Venture capital investment (gains) | ($5,762) | | Other adjustments & tax effects | ($4,398) | | Non-GAAP Net Income | $117,610 | Reconciliation of Organic Revenue Growth Q1 2024 reported revenue decline of 1.7% was reconciled to a 3.3% organic revenue decline after adjusting for acquisitions, divestitures, and foreign exchange impacts Total CRL Revenue Growth Reconciliation (Q1 2024) | Description | % Impact | | :--- | :--- | | Revenue growth, reported | (1.7)% | | Impact of foreign exchange | (0.3)% | | Contribution from acquisitions | (1.5)% | | Impact of divestitures | 0.2% | | Non-GAAP revenue growth, organic | (3.3)% | Other Information Use of Non-GAAP Financial Measures The company utilizes non-GAAP financial measures to provide investors with a clearer understanding of core operating results by excluding one-time or non-operational items - Non-GAAP measures offer a meaningful understanding of core operating results by excluding the effect of often one-time charges[18] - Organic revenue presentation enables clearer growth measurement by excluding the effects of acquisitions, divestitures, and foreign currency fluctuations[18] Forward-Looking Statements This press release includes forward-looking statements on financial performance and demand, subject to risks like NHP supply constraints, government investigations, and global economic changes - Forward-looking statements encompass financial guidance, client demand trends, and the impact of NHP supply constraints[23] - Significant risks include NHP supply issues, government investigations, global economic changes, and challenges in integrating acquisitions such as Noveprim[23]