Charles River Laboratories Announces Third-Quarter 2022 Results

2022-11-02

基因疗法财报疫苗并购

– Third-Quarter Revenue of $989.2 Million – – Third-Quarter GAAP Earnings per Share of $1.88 and Non-GAAP Earnings per Share of $2.63 – – Narrows 2022 Revenue Growth and Earnings Per Share Guidance – – Announces Planned Divestiture of Avian Vaccine Business – WILMINGTON, Mass.--(BUSINESS WIRE)-- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the third quarter of 2022. For the quarter, revenue was $989.2 million, an increase of 10.4% from $895.9 million in the third quarter of 2021. Acquisitions contributed 1.7% to consolidated third-quarter revenue growth. The divestitures of the Research Models and Services operations in Japan (RMS Japan) and CDMO site in Sweden (CDMO Sweden) in October 2021 reduced reported revenue growth by 2.1%. The impact of foreign currency translation reduced reported revenue growth by 4.5%. Excluding the effect of these items, organic revenue growth of 15.3% was driven by contributions from all three business segments, particularly the Discovery and Safety Assessment (DSA) business segment. On a GAAP basis, third-quarter net income attributable to common shareholders was $96.5 million, a decrease of 6.7% from net income of $103.4 million for the same period in 2021. Third-quarter diluted earnings per share on a GAAP basis were $1.88, a decrease of 6.5% from $2.01 for the third quarter of 2021. On a non-GAAP basis, net income was $134.7 million for the third quarter of 2022, a decrease of 3.2% from $139.1 million for the same period in 2021. Third-quarter diluted earnings per share on a non-GAAP basis were $2.63, a decrease of 2.6% from $2.70 per share for the third quarter of 2021. The decreases in GAAP and non-GAAP net income and earnings per share were primarily driven by lower operating margins, as well as increased interest expense and a higher tax rate. These factors were largely offset by higher revenue. On a GAAP basis, higher acquisition-related adjustments were offset by the performance of venture capital and other strategic investments, which totaled a gain of $0.04 per share in the third quarter of 2022, compared to a loss of $0.15 per share for the same period in 2021. The Company’s venture capital and other strategic investment performance has been excluded from non-GAAP results. James C. Foster, Chairman, President and Chief Executive Officer, said, “We are pleased with our third-quarter operating performance, which demonstrates the power of our unique portfolio that is centered on preclinical R&D services to support the biopharmaceutical industry. With a large and diversified client base and a broad, non-clinical portfolio that differentiates Charles River from other outsourced service providers, we believe that we are an excellent barometer of the sustained health of the biopharmaceutical industry.” “The third-quarter results reflect substantial revenue growth acceleration in the DSA segment, resulting from the strength of the Safety Assessment backlog that continues to afford us with excellent visibility into future client demand. We are confident that we will finish 2022 on a strong note and are encouraged by the solid growth prospects as we look into the new year,” Mr. Foster concluded. Third-Quarter Segment Results Research Models and Services (RMS) Revenue for the RMS segment was $180.1 million in the third quarter of 2022, an increase of 5.2% from $171.3 million in the third quarter of 2021. Organic revenue growth of 8.0% was primarily driven by research model services, particularly the Insourcing Solutions (IS) business, as well as small research models in North America and China. In the third quarter of 2022, the RMS segment’s GAAP operating margin decreased to 19.9% from 22.8% in the third quarter of 2021, and on a non-GAAP basis, the operating margin decreased to 23.5% from 26.1%. The GAAP and non-GAAP operating margin decreases were primarily driven by the revenue mix and higher costs in China, as well as expansion costs related to opening new CRADL™ and Explora sites in the Insourcing Solutions business. Discovery and Safety Assessment (DSA) Revenue for the DSA segment was $619.5 million in the third quarter of 2022, an increase of 16.5% from $531.8 million in the third quarter of 2021. Organic revenue growth of 20.8% was primarily driven by broad-based growth in the Safety Assessment business, resulting from meaningful price increases and substantially higher study volume, both year-over-year and from first-half levels. In the third quarter of 2022, the DSA segment’s GAAP operating margin increased to 22.9% from 21.9% in the third quarter of 2021, and on a non-GAAP basis, the operating margin increased to 26.2% from 24.3%. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from higher revenue in the Safety Assessment business. Manufacturing Solutions (Manufacturing) Revenue for the Manufacturing segment was $189.6 million in the third quarter of 2022, a decrease of 1.7% from $192.9 million in the third quarter of 2021. Organic revenue growth of 6.0% reflected higher revenue in the Biologics Testing and Microbial Solutions businesses. These trends were partially offset by a revenue decline in the CDMO business. In the third quarter of 2022, the Manufacturing segment’s GAAP operating margin decreased to 16.6% from 25.2% in the third quarter of 2021, and on a non-GAAP basis, the operating margin decreased to 28.6% from 32.7%. The GAAP and non-GAAP operating margin decreases were primarily as a result of lower revenue in the CDMO business. Avian Vaccine Divestiture The Company announced that it has signed a definitive agreement to divest its Avian Vaccine business for approximately $170 million in cash with potential contingent payments of up to an additional $30 million, subject to certain closing adjustments. The Avian Vaccine business, which is part of Charles River’s Manufacturing Solutions segment, produces specific-pathogen-free (SPF) chicken eggs and associated products and services, principally for avian vaccine manufacturers and researchers. It has approximately 250 employees across approximately 20 sites in the United States. The transaction is expected to close by the end of the year, and will not have a meaningful impact on 2022 revenue and non-GAAP earnings per share. In 2023, the divestiture is expected to reduce annual revenue by approximately $80 million and non-GAAP earnings per share by approximately $0.35, prior to any benefit from redeploying the proceeds towards other capital priorities. Items excluded from non-GAAP diluted earnings per share are expected to include gains on the sale of the businesses and all divestiture-related costs, which primarily include advisory fees and certain other transaction-related costs. Updates 2022 Guidance The Company is updating 2022 financial guidance, which was previously provided on August 3, 2022. Revenue growth and non-GAAP earnings per share guidance are being narrowed to the upper end of the prior ranges, reflecting the solid, third-quarter performance. GAAP earnings per share guidance is being narrowed to the low end of the prior range, primarily as a result of contingent consideration adjustments related to the CDMO Sweden divestiture. The planned divestiture of the Avian Vaccine business will not have a meaningful impact on revenue and non-GAAP earnings per share in 2022, and an estimate for the gain on the sale of the business has not been included in the GAAP earnings per share guidance below. The impact of foreign exchange on reported revenue growth continues to be a meaningful headwind in 2022, which is unchanged from our prior outlook in August. Compared to 2021, foreign currency translation is expected to reduce GAAP and non-GAAP earnings per share by $0.43 per share this year, which will reduce the earnings per share growth rates by approximately 550 basis points and 400 basis points on a GAAP and non-GAAP basis, respectively. The Company’s guidance includes the addition of a 53rd week this year, which is necessary to true up to a December 31 year-end. The 53rd week, which will occur in the fourth quarter, was previously incorporated into our 2022 financial guidance and is characterized by a light week of sales but normal costs. This is expected to result in a 1.5% benefit to full-year reported revenue growth, but generate a modest operating margin headwind in the fourth quarter. The Company’s updated guidance for revenue growth, earnings per share, and cash flow is as follows: 2022 GUIDANCE CURRENT PRIOR Revenue growth, reported 10.0% – 11.0% 9.0% – 11.0% Less: Contribution from acquisitions/divestitures, net ~(1.0%) ~(1.0%) Less: Impact of 53rd week in 2022 ~(1.5)% ~(1.5)% Unfavorable/(favorable) impact of foreign exchange ~3.5% ~3.5% Revenue growth, organic (1) 11.0% – 12.0% 10.0% – 12.0% GAAP EPS $7.90 – $8.05 $7.90 – $8.15 Acquisition-related amortization ~$2.20 ~$2.20 Acquisition and integration-related adjustments (2) $0.20 – $0.25 -- Venture capital and other strategic investment losses/(gains), net (3) $0.30 $0.35 Other items (4) ~$0.20 ~$0.25 Non-GAAP EPS $10.80 – $10.95 $10.70 – $10.95 Cash flow from operating activities ~$700 million ~$700 million Capital expenditures ~$340 million ~$340 million Free cash flow ~$360 million ~$360 million Footnotes to Guidance Table: (1) Organic revenue growth is defined as reported revenue growth adjusted for completed acquisitions and divestitures, the 53rd week in 2022, and foreign currency translation. (2) These adjustments are related to the evaluation and integration of acquisitions and divestitures, and primarily include transaction, advisory, certain third-party integration costs, and certain costs associated with acquisition-related efficiency initiatives, offset by adjustments related to contingent consideration and certain indirect tax liabilities. (3) Venture capital and other strategic investment performance only includes recognized gains or losses. The Company does not forecast the future performance of these investments. (4) These items primarily relate to charges associated with U.S. and international tax legislation that necessitated changes to the Company’s international financing structure; certain third-party legal costs related to (a) environmental litigation related to the Microbial Solutions business and (b) responses to a U.S. government industry-wide supply chain management inquiry applicable to our Safety Assessment business; and severance and other costs related to the Company’s efficiency initiatives. Webcast Charles River has scheduled a live webcast on Wednesday, November 2nd, at 9:00 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. Non-GAAP Reconciliations 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. Use of Non-GAAP Financial Measures This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, and non-GAAP free cash flow. Non-GAAP financial measures exclude, but are not limited to, the amortization of intangible assets, and other charges and adjustments related to our acquisitions and divestitures; expenses associated with evaluating and integrating acquisitions and divestitures, including advisory fees and certain other transaction-related costs, 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 impact of the termination of the Company’s pension plans; the write-off of deferred financing costs and fees related to debt financing; investment gains or losses associated with our venture capital and other strategic equity investments; certain legal costs in our Microbial Solutions business related to environmental litigation and in our Safety Assessment business related to producing responses to a U.S. government industry-wide supply chain management inquiry; and adjustments related to the recognition of deferred tax assets expected to be utilized as a result of changes to the our international financing structure and the revaluation of deferred tax liabilities as a result of foreign tax legislation. This press release also refers to our revenue on both a GAAP and non-GAAP basis: “organic revenue growth,” which we define as reported revenue growth adjusted for foreign currency translation, acquisitions, divestitures, and the impact of the 53rd week in 2022. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. There are limitations in using non-GAAP financial measures, as they are not presented 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, the 53rd week in 2022, 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 presented 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 impact of the COVID-19 pandemic; the projected future financial performance of Charles River and our specific businesses; client demand, particularly the future demand for drug discovery and development products and services, including our expectations for future revenue trends; our expectations with respect to pricing of our products and services; our expectations with respect to future tax rates and the impact of such tax rates on our business; our expectations with respect to the impact of acquisitions and divestitures completed in 2021 and 2022 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; 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, interest rates, enhanced efficiency initiatives, and the assumptions surrounding the COVID-19 pandemic that form the basis for our annual guidance. 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 COVID-19 pandemic, its duration, its impact on our business, results of operations, financial condition, liquidity, business practices, operations, suppliers, third party service providers, clients, employees, industry, ability to meet future performance obligations, ability to efficiently implement advisable safety precautions, and internal controls over financial reporting; the COVID-19 pandemic’s impact on client demand, the global economy and financial markets; the ability to successfully integrate businesses we acquire (including Explora BioLabs); 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; 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; disruptions in the global economy caused by the ongoing conflict between the Russian federation and Ukraine; 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 16, 2022, 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 press 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 . CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SCHEDULE 1 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except for per share data) Three Months Ended Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Service revenue $ 812,894 $ 703,859 $ 2,316,206 $ 2,045,760 Product revenue 176,263 192,078 560,011 589,350 Total revenue 989,157 895,937 2,876,217 2,635,110 Costs and expenses: Cost of services provided (excluding amortization of intangible assets) 530,706 468,659 1,540,193 1,369,396 Cost of products sold (excluding amortization of intangible assets) 88,228 90,051 272,257 278,188 Selling, general and administrative 183,714 148,573 465,458 475,807 Amortization of intangible assets 35,533 32,852 111,144 94,664 Operating income 150,976 155,802 487,165 417,055 Other income (expense): Interest income 122 137 437 343 Interest expense (11,375 ) (16,455 ) (24,512 ) (62,364 ) Other expense, net (16,616 ) (16,214 ) (85,024 ) (37,966 ) Income before income taxes 123,107 123,270 378,066 317,068 Provision for income taxes 25,495 18,111 74,564 58,058 Net income 97,612 105,159 303,502 259,010 Less: Net income attributable to noncontrolling interests 1,139 1,733 4,686 5,606 Net income attributable to common shareholders $ 96,473 $ 103,426 $ 298,816 $ 253,404 Earnings per common share Net income attributable to common shareholders: Basic $ 1.90 $ 2.05 $ 5.88 $ 5.04 Diluted $ 1.88 $ 2.01 $ 5.83 $ 4.93 Weighted-average number of common shares outstanding; Basic 50,870 50,425 50,778 50,234 Diluted 51,283 51,558 51,285 51,360 CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SCHEDULE 2 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share amounts) September 24, 2022 December 25, 2021 Assets Current assets: Cash and cash equivalents $ 193,701 $ 241,214 Trade receivables and contract assets, net of allowances for credit losses of $9,827 and $7,180, respectively 770,776 642,881 Inventories 261,522 199,146 Prepaid assets 92,266 93,543 Other current assets 97,087 97,311 Total current assets 1,415,352 1,274,095 Property, plant and equipment, net 1,380,568 1,291,068 Operating lease right-of-use assets, net 373,410 292,941 Goodwill 2,776,005 2,711,881 Client relationships, net 909,899 981,398 Other intangible assets, net 58,121 79,794 Deferred tax assets 39,721 40,226 Other assets 429,693 352,889 Total assets $ 7,382,769 $ 7,024,292 Liabilities, Redeemable Noncontrolling Interests and Equity Current liabilities: Current portion of long-term debt and finance leases $ 2,079 $ 2,795 Accounts payable 181,629 198,130 Accrued compensation 200,365 246,119 Deferred revenue 251,473 219,703 Accrued liabilities 196,754 228,797 Other current liabilities 181,894 137,641 Total current liabilities 1,014,194 1,033,185 Long-term debt, net and finance leases 2,937,056 2,663,564 Operating lease right-of-use liabilities 368,851 252,972 Deferred tax liabilities 196,014 239,720 Other long-term liabilities 194,710 242,859 Total liabilities 4,710,825 4,432,300 Redeemable noncontrolling interests 39,206 53,010 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; 51,006 shares issued and 50,877 shares outstanding as of September 24, 2022, and 50,480 shares issued and outstanding as of December 25, 2021 510 505 Additional paid-in capital 1,780,876 1,718,304 Retained earnings 1,279,567 980,751 Treasury stock, at cost, 129 and 0 shares, as of September 24, 2022 and December 25, 2021, respectively (38,492 ) — Accumulated other comprehensive loss (395,608 ) (164,740 ) Total equity attributable to common shareholders 2,626,853 2,534,820 Noncontrolling interest 5,885 4,162 Total equity 2,632,738 2,538,982 Total liabilities, redeemable noncontrolling interests and equity $ 7,382,769 $ 7,024,292 CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SCHEDULE 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Nine Months Ended September 24, 2022 September 25, 2021 Cash flows relating to operating activities Net income $ 303,502 $ 259,010 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 226,325 198,299 Stock-based compensation 51,548 52,289 Loss on debt extinguishment and amortization of other financing costs 3,054 28,972 Deferred income taxes (26,323 ) (13,757 ) Loss on venture capital and strategic equity investments, net 20,068 17,277 Contingent consideration, fair value changes (15,420 ) (10,360 ) Other, net 31,574 928 Changes in assets and liabilities: Trade receivables and contract assets, net (174,169 ) (35,592 ) Inventories (76,283 ) (5,639 ) Accounts payable 5,979 11,431 Accrued compensation (32,734 ) 18,210 Deferred revenue 53,565 (9,394 ) Customer contract deposits 16,234 4,850 Other assets and liabilities, net (2,037 ) 15,017 Net cash provided by operating activities 384,883 531,541 Cash flows relating to investing activities Acquisition of businesses and assets, net of cash acquired (283,392 ) (1,292,093 ) Capital expenditures (235,709 ) (129,997 ) Purchases of investments and contributions to venture capital investments (129,363 ) (31,963 ) Proceeds from sale of investments 3,104 5,960 Other, net (6,945 ) 854 Net cash used in investing activities (652,305 ) (1,447,239 ) Cash flows relating to financing activities Proceeds from long-term debt and revolving credit facility 2,798,665 6,119,671 Proceeds from exercises of stock options 17,710 43,314 Payments on long-term debt, revolving credit facility, and finance lease obligations (2,524,387 ) (5,190,394 ) Purchase of treasury stock (38,492 ) (40,440 ) Payment of debt extinguishment and financing costs — (38,253 ) Purchases of additional equity interests, net (30,533 ) — Payment of contingent considerations (10,356 ) (2,328 ) Other, net (6,048 ) — Net cash provided by financing activities 206,559 891,570 Effect of exchange rate changes on cash, cash equivalents, and restricted cash 10,726 17,514 Net change in cash, cash equivalents, and restricted cash (50,137 ) (6,614 ) Cash, cash equivalents, and restricted cash, beginning of period 246,314 233,119 Cash, cash equivalents, and restricted cash, end of period $ 196,177 $ 226,505 Supplemental cash flow information: Cash and cash equivalents $ 193,701 $ 212,539 Cash classified within current assets held for sale — 8,612 Restricted cash included in Other current assets 1,376 4,275 Restricted cash included in Other assets 1,100 1,079 Cash, cash equivalents, and restricted cash, end of period $ 196,177 $ 226,505 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 Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Research Models and Services Revenue $ 180,114 $ 171,258 $ 543,066 $ 524,862 Operating income 35,891 39,111 123,299 126,626 Operating income as a % of revenue 19.9 % 22.8 % 22.7 % 24.1 % Add back: Amortization related to acquisitions 5,467 5,344 14,777 16,029 Severance (110 ) — 1,017 7 Acquisition related adjustments (2) 1,126 241 2,480 1,217 Total non-GAAP adjustments to operating income $ 6,483 $ 5,585 $ 18,274 $ 17,253 Operating income, excluding non-GAAP adjustments $ 42,374 $ 44,696 $ 141,573 $ 143,879 Non-GAAP operating income as a % of revenue 23.5 % 26.1 % 26.1 % 27.4 % Depreciation and amortization $ 13,128 $ 9,927 $ 35,825 $ 29,450 Capital expenditures $ 10,743 $ 18,026 $ 33,239 $ 29,521 Discovery and Safety Assessment Revenue $ 619,463 $ 531,823 $ 1,755,639 $ 1,573,095 Operating income 142,143 116,548 375,922 312,011 Operating income as a % of revenue 22.9 % 21.9 % 21.4 % 19.8 % Add back: Amortization related to acquisitions 20,039 20,983 63,253 64,807 Severance (28 ) (180 ) 433 1,160 Acquisition related adjustments (2) (395 ) (9,316 ) (5,909 ) (3,642 ) Site consolidation costs, impairments and other items (3) 645 961 3,001 1,254 Total non-GAAP adjustments to operating income $ 20,261 $ 12,448 $ 60,778 $ 63,579 Operating income, excluding non-GAAP adjustments $ 162,404 $ 128,996 $ 436,700 $ 375,590 Non-GAAP operating income as a % of revenue 26.2 % 24.3 % 24.9 % 23.9 % Depreciation and amortization $ 43,913 $ 44,072 $ 135,328 $ 132,268 Capital expenditures $ 43,400 $ 23,270 $ 133,908 $ 60,783 Manufacturing Solutions Revenue $ 189,580 $ 192,856 $ 577,512 $ 537,153 Operating income 31,479 48,563 140,350 154,717 Operating income as a % of revenue 16.6 % 25.2 % 24.3 % 28.8 % Add back: Amortization related to acquisitions 10,115 7,888 33,386 17,914 Severance 241 1,515 619 2,344 Acquisition related adjustments (2) 10,555 4,116 (4,191 ) 4,844 Site consolidation costs, impairments and other items (3) 1,741 1,074 3,681 1,114 Total non-GAAP adjustments to operating income $ 22,652 $ 14,593 $ 33,495 $ 26,216 Operating income, excluding non-GAAP adjustments $ 54,131 $ 63,156 $ 173,845 $ 180,933 Non-GAAP operating income as a % of revenue 28.6 % 32.7 % 30.1 % 33.7 % Depreciation and amortization $ 17,005 $ 13,953 $ 53,487 $ 34,474 Capital expenditures $ 18,137 $ 13,296 $ 65,396 $ 34,008 Unallocated Corporate Overhead $ (58,537 ) $ (48,420 ) $ (152,406 ) $ (176,299 ) Add back: Severance (193 ) — 1,061 (151 ) Acquisition related adjustments (2) 1,229 3,387 8,359 29,011 Total non-GAAP adjustments to operating expense $ 1,036 $ 3,387 $ 9,420 $ 28,860 Unallocated corporate overhead, excluding non-GAAP adjustments $ (57,501 ) $ (45,033 ) $ (142,986 ) $ (147,439 ) Total Revenue $ 989,157 $ 895,937 $ 2,876,217 $ 2,635,110 Operating income 150,976 155,802 487,165 417,055 Operating income as a % of revenue 15.3 % 17.4 % 16.9 % 15.8 % Add back: Amortization related to acquisitions 35,621 34,215 111,416 98,750 Severance (90 ) 1,335 3,130 3,360 Acquisition related adjustments (2) 12,515 (1,572 ) 739 31,430 Site consolidation costs, impairments and other items (3) 2,386 2,035 6,682 2,368 Total non-GAAP adjustments to operating income $ 50,432 $ 36,013 $ 121,967 $ 135,908 Operating income, excluding non-GAAP adjustments $ 201,408 $ 191,815 $ 609,132 $ 552,963 Non-GAAP operating income as a % of revenue 20.4 % 21.4 % 21.2 % 21.0 % Depreciation and amortization $ 74,605 $ 68,686 $ 226,325 $ 198,299 Capital expenditures $ 72,393 $ 55,536 $ 235,709 $ 129,997 (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) These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, fair value adjustments associated with contingent consideration, and an adjustment related to certain indirect tax liabilities. (3) Other items include certain third-party legal costs related to (a) an environmental litigation related to the Microbial business and (b) responses to a U.S. government industry-wide supply chain management inquiry applicable to our Safety Assessment business. 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 Nine Months Ended September 24, 2022 September 25, 2021 September 24, 2022 September 25, 2021 Net income attributable to common shareholders $ 96,473 $ 103,426 $ 298,816 $ 253,404 Add back: Non-GAAP adjustments to operating income (Refer to previous schedule) 50,432 36,013 121,967 135,908 Write-off of deferred financing costs and fees related to debt financing — — — 26,089 Venture capital and strategic equity investment losses (gains), net (3,447 ) 10,367 20,068 17,277 Other (2) 240 — 4,205 (2,942 ) Tax effect of non-GAAP adjustments: Non-cash tax provision related to international financing structure (3) 1,161 1,461 3,624 3,781 Enacted tax law changes — — — 10,036 Tax effect of the remaining non-GAAP adjustments (10,115 ) (12,139 ) (30,928 ) (41,468 ) Net income attributable to common shareholders, excluding non-GAAP adjustments $ 134,744 $ 139,128 $ 417,752 $ 402,085 Weighted average shares outstanding - Basic 50,870 50,425 50,778 50,234 Effect of dilutive securities: Stock options, restricted stock units and performance share units 413 1,133 507 1,126 Weighted average shares outstanding - Diluted 51,283 51,558 51,285 51,360 Earnings per share attributable to common shareholders: Basic $ 1.90 $ 2.05 $ 5.88 $ 5.04 Diluted $ 1.88 $ 2.01 $ 5.83 $ 4.93 Basic, excluding non-GAAP adjustments $ 2.65 $ 2.76 $ 8.23 $ 8.00 Diluted, excluding non-GAAP adjustments $ 2.63 $ 2.70 $ 8.15 $ 7.83 (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) Adjustments included in 2022 primarily relate to a purchase price adjustment in connection with the 2021 divestiture of RMS Japan and a reversal of an indemnification asset related to a prior acquisition. Adjustments included in 2021 include gains on an immaterial divestiture and the finalization of an annuity purchase related to the termination of the Company's U.S. pension plan. (3) This adjustment relates to the recognition of deferred tax assets expected to be utilized as a result of changes to the Company's international financing structure. CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SCHEDULE 6 RECONCILIATION OF GAAP REVENUE GROWTH TO NON-GAAP REVENUE GROWTH, ORGANIC (UNAUDITED) (1) Three Months Ended September 24, 2022 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 10.4 % 5.2 % 16.5 % (1.7 )% Decrease due to foreign exchange 4.5 % 4.0 % 4.3 % 5.4 % Contribution from acquisitions (2) (1.7 )% (8.8 )% — % — % Impact of divestitures (3) 2.1 % 7.6 % — % 2.3 % Non-GAAP revenue growth, organic (4) 15.3 % 8.0 % 20.8 % 6.0 % Nine Months Ended September 24, 2022 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 9.1 % 3.5 % 11.6 % 7.5 % Decrease due to foreign exchange 3.2 % 2.7 % 3.1 % 4.2 % Contribution from acquisitions (2) (2.9 )% (5.3 )% (0.2 )% (8.2 )% Impact of divestitures (3) 2.0 % 7.5 % — % 1.8 % Non-GAAP revenue growth, organic (4) 11.4 % 8.4 % 14.5 % 5.3 % (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. (3) The Company sold both its RMS Japan operations and its gene therapy CDMO site in Sweden on October 12, 2021. This adjustment represents the revenue from these businesses for all applicable periods in 2021. (4) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions, divestitures and foreign exchange.