Charles River Laboratories Announces Second-Quarter 2021 Results

2021-08-04
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Aug. 4, 2021 11:00 UTC Second-Quarter Revenue of $914.6 Million Second-Quarter GAAP Earnings per Share of $1.72 and Non-GAAP Earnings per Share of $2.61 Increases 2021 Guidance WILMINGTON, Mass.--(BUSINESS WIRE)-- Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2021. For the quarter, revenue was $914.6 million, an increase of 34.0% from $682.6 million in the second quarter of 2020. Acquisitions contributed 6.0% to consolidated second-quarter revenue growth. The impact of foreign currency translation benefited reported revenue growth by 3.9%. Excluding the effect of these items, organic revenue growth was 24.1%, driven by contributions from all three business segments. The comparison to last year’s COVID-19-related impact increased the reported and organic revenue growth rates in the second quarter of 2021 by 8.6% and 8.0%, respectively, with the greatest impact in the Research Models and Services segment. On a GAAP basis, second-quarter net income attributable to common shareholders was $88.4 million, an increase of 31.2% from net income of $67.4 million for the same period in 2020. Second-quarter diluted earnings per share on a GAAP basis were $1.72, an increase of 28.4% from $1.34 for the second quarter of 2020. The GAAP net income and earnings per share increases were primarily driven by higher revenue and operating margin improvement, partially offset by higher acquisition-related costs and a higher tax rate. In addition, the gain from the Company’s venture capital and other strategic investments totaled $0.14 per share in the second quarter of 2021, compared to a gain of $0.38 per share for the same period in 2020. The Company’s venture capital and other strategic investment performance has been excluded from non-GAAP results. On a non-GAAP basis, net income was $133.8 million for the second quarter of 2021, an increase of 68.1% from $79.6 million for the same period in 2020. Second‑quarter diluted earnings per share on a non-GAAP basis were $2.61, an increase of 65.2% from $1.58 per share for the second quarter of 2020. The non-GAAP net income and earnings per share increases were primarily driven by higher revenue and operating margin improvement. James C. Foster, Chairman, President and Chief Executive Officer, said, “The strength of our leading, non-clinical contract research and manufacturing portfolio was clearly demonstrated in our second-quarter financial performance. Robust industry fundamentals continue to drive unprecedented client demand across most of our businesses, and we are extremely well positioned to succeed in this environment.” “Due to the sustained demand, we are intensely focused on the execution of our strategy, including strengthening our portfolio and strategically adding staff and capacity to support our clients and provide exceptional service to them. We believe the success of this strategy will enable us to achieve our increased 2021 financial guidance, as well as our longer-term strategic and financial goals,” Mr. Foster concluded. Second-Quarter Segment Results Research Models and Services (RMS) Revenue for the RMS segment was $176.7 million in the second quarter of 2021, an increase of 51.6% from $116.5 million in the second quarter of 2020. The impact of foreign currency translation contributed 5.2%, and the acquisition of Cellero contributed 1.9% to second-quarter RMS revenue. Organic revenue growth of 44.5% was primarily driven by the year-over-year comparison to the COVID-19-related revenue impact in 2020, which contributed 35.0% on a reported basis and 33.4% on an organic basis to RMS revenue growth. Adjusted for the COVID-19 impact, RMS revenue growth was driven by robust demand for research models across all client segments and geographic regions, particularly in China, as well as higher revenue for research model services. In the second quarter of 2021, the RMS segment’s GAAP operating margin increased to 24.1% from 3.3% in the second quarter of 2020, and on a non-GAAP basis, the operating margin increased to 27.4% from 9.1%. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from higher sales volume of research models, due in part to the favorable comparison to last year’s COVID-19 impact. Discovery and Safety Assessment (DSA) Revenue for the DSA segment was $540.1 million in the second quarter of 2021, an increase of 22.0% from $442.6 million in the second quarter of 2020. The impact of foreign currency translation contributed 3.0%, and the acquisitions of Distributed Bio and Retrogenix contributed 0.9% to DSA revenue growth. Organic revenue growth of 18.1% was driven by strong demand in both the Discovery Services and Safety Assessment businesses from biotechnology and global biopharmaceutical clients, as well as a small benefit from the comparison to last year’s COVID-19 impact. In the second quarter of 2021, the DSA segment’s GAAP operating margin increased to 19.4% from 16.3% in the second quarter of 2020, and on a non-GAAP basis, the operating margin increased to 23.5% from 23.2%. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from higher revenue in both the Discovery Services and Safety Assessment businesses, partially offset by foreign currency translation. The impact of foreign currency translation reduced the DSA operating margin by approximately 150 basis points in the second quarter of 2021. Manufacturing Solutions (Manufacturing) Revenue for the Manufacturing segment was $197.8 million in the second quarter of 2021, an increase of 60.2% from $123.5 million in the second quarter of 2020. The impact of foreign currency translation contributed 5.4%, and the acquisition of Cognate BioServices (Cognate) contributed 28.2% to second-quarter Manufacturing revenue. Organic revenue growth of 26.6%, was driven primarily by robust demand in the Biologics Testing Solutions and Microbial Solutions businesses. In the second quarter of 2021, the Manufacturing segment’s GAAP operating margin decreased to 28.7% from 34.8% in the second quarter of 2020, and on a non-GAAP basis, the operating margin decreased to 33.2% from 37.4%. The GAAP and non-GAAP operating margin decreases were driven primarily by the addition of Cognate, as well as higher production costs in the Microbial Solutions business. In addition, the GAAP operating margin declined due to higher amortization costs associated with Cognate. Increases 2021 Guidance The Company is increasing its 2021 financial guidance, which was previously provided on May 4, 2021, primarily as a result of the stronger-than-expected second-quarter financial performance and an expectation that robust client demand trends will continue for the remainder of the year. The Company’s increased guidance for revenue growth, earnings per share, and free cash flow is as follows: 2021 GUIDANCE CURRENT PRIOR Revenue growth, reported 20.5% – 22.5% 19% – 21% Less: Contribution from acquisitions (1) ~(5.0%) (4.5%) – (5.0%) Unfavorable/(favorable) impact of foreign exchange ~(2.5%) ~(2.5%) Revenue growth, organic (2) 13% – 15% 12% – 14% GAAP EPS estimate $6.55 – $6.80 $5.95 – $6.20 Acquisition-related amortization (3) $1.90 – $2.00 $2.15 – $2.40 Acquisition and integration-related adjustments (4) $0.70 – $0.80 $0.75 – $0.80 Other items (5) $0.70 – $0.75 ~$0.55 Venture capital and other strategic investment losses/(gains), net (6) $0.10 $0.25 Non-GAAP EPS estimate $10.10 – $10.35 $9.75 – $10.00 Free cash flow (7) ~$500 million ~$435 million Footnotes to Guidance Table: (1) The contribution from acquisitions reflects only those acquisitions that have been completed. (2) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign currency translation. (3) Acquisition-related amortization includes an estimate of $0.05-$0.10 for the impact of the Vigene acquisition because the preliminary purchase price allocation has not been completed. (4) 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. (5) These items primarily relate to charges of a) approximately $0.30 associated with U.S. and international tax legislation, and b) approximately $0.40 associated with debt extinguishment costs and the write-off of deferred financing costs related to debt refinancing. (6) Venture capital and other strategic investment performance only includes recognized gains or losses. The Company does not forecast the future performance of these investments. (7) Reconciliation of the current 2021 free cash flow guidance is as follows: Cash flow from operating activities of approximately $720 million, less capital expenditures of approximately $220 million, equates to free cash flow of approximately $500 million. Webcast Charles River has scheduled a live webcast on Wednesday, August 4, at 9:30 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. 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, 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 impact of the termination of the Company’s U.S. pension plan; 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; investment gains or losses associated with our venture capital and other strategic equity investments; 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 in both a GAAP and non-GAAP basis: “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. 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, 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; 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 completed in 2020 and 2021 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 revised forward-looking guidance, and particularly our expectations with respect to revenue, the impact of foreign exchange, enhanced efficiency initiatives, and the assumptions surrounding the COVID-19 pandemic that form the basis for our revised 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 Cognate BioServices and Vigene Biosciences, and risks and uncertainties associated with Cognate’s and Vigene’s products and services, which are in areas that the Company did not previously operate); 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 17, 2021 and the Quarterly Report on Form 10-Q as filed on May 4, 2021, 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. Assessment of COVID-19 Impact in 2020 In this press release, the Company has provided its assessment for the impact from the COVID-19 pandemic in 2020, including on the Company's revenue. This assessment was determined using methodologies, assumptions, and estimates that vary depending on the specific reporting segment and situation. For the Research Models and Services segment, the assessment was primarily based on comparisons to daily historical research model sales volumes prior to the COVID-19 pandemic and the subsequent reduction in research model order activity associated with our clients’ COVID-19 pandemic-related site closures and/or their reduced on-site activity, as well as our discussions with clients, particularly of our research model services and HemaCare businesses, with regard to revenue expectations and operational impacts from the COVID-19 pandemic. For the Discovery and Safety Assessment segment, the assessment was based on multiple factors including, but not limited to, discussions with clients with regard to the cause of delays to discovery projects and safety assessment studies, location-specific actions to ensure employee safety in our facilities, the impact of remote versus in-person activities and services, and supply chain delays and other resource constraints. For the Manufacturing Solutions segment, the assessment was based on multiple factors including, but not limited to, analysis of the sales impact due to the COVID-19 pandemic, assessments of idle instruments and the related revenue streams due to the inability to access clients’ sites, as well as discussions with clients with regard to their revenue expectations and operations. The estimated revenue loss related to COVID-19 was also expected to be partially offset by incremental work on clients’ COVID-19 programs. Because this assessment involves risks and uncertainties, actual events and results may differ materially from these estimates and assumptions, and Charles River assumes no obligation and expressly disclaims any duty to update them. 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 Six Months Ended June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Service revenue $ 715,320 $ 550,561 $ 1,341,901 $ 1,097,153 Product revenue 199,287 132,023 397,272 292,490 Total revenue 914,607 682,584 1,739,173 1,389,643 Costs and expenses: Cost of services provided (excluding amortization of intangible assets) 476,762 374,938 900,737 747,762 Cost of products sold (excluding amortization of intangible assets) 95,824 75,408 188,137 157,582 Selling, general and administrative 171,501 127,712 327,234 257,613 Amortization of intangible assets 32,970 27,758 61,812 55,637 Operating income 137,550 76,768 261,253 171,049 Other income (expense): Interest income 171 276 206 592 Interest expense (16,190 ) (19,352 ) (45,909 ) (34,419 ) Other income (expense), net 5,965 26,260 (21,752 ) 2,189 Income before income taxes 127,496 83,952 193,798 139,411 Provision for income taxes 37,580 16,284 39,947 20,906 Net income 89,916 67,668 153,851 118,505 Less: Net income attributable to noncontrolling interests 1,468 233 3,873 301 Net income attributable to common shareholders $ 88,448 $ 67,435 $ 149,978 $ 118,204 Earnings per common share Net income attributable to common shareholders: Basic $ 1.76 $ 1.36 $ 2.99 $ 2.39 Diluted $ 1.72 $ 1.34 $ 2.93 $ 2.36 Weighted-average number of common shares outstanding; Basic 50,297 49,553 50,138 49,371 Diluted 51,334 50,246 51,225 50,118 CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SCHEDULE 2 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share amounts) June 26, 2021 December 26, 2020 Assets Current assets: Cash and cash equivalents $ 222,969 $ 228,424 Trade receivables and contract assets, net of allowances for doubtful accounts of $7,538 and $6,702, respectively 644,027 617,740 Inventories 194,341 185,695 Prepaid assets 84,610 96,712 Other current assets 121,966 72,560 Total current assets 1,267,913 1,201,131 Property, plant and equipment, net 1,189,120 1,124,358 Operating lease right-of-use assets, net 276,820 178,220 Goodwill 2,540,067 1,809,168 Client relationships, net 964,324 721,505 Other intangible assets, net 92,451 66,094 Deferred tax assets 31,863 37,729 Other assets 357,794 352,626 Total assets $ 6,720,352 $ 5,490,831 Liabilities, Redeemable Noncontrolling Interests and Equity Current liabilities: Current portion of long-term debt and finance leases $ 3,021 $ 50,214 Accounts payable 110,926 122,475 Accrued compensation 223,063 206,823 Deferred revenue 231,329 207,942 Accrued liabilities 228,972 149,820 Other current liabilities 132,299 102,477 Total current liabilities 929,610 839,751 Long-term debt, net and finance leases 2,727,240 1,929,571 Operating lease right-of-use liabilities 239,484 155,595 Deferred tax liabilities 262,562 217,031 Other long-term liabilities 207,377 205,215 Total liabilities 4,366,273 3,347,163 Redeemable noncontrolling interests 30,799 25,499 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; 50,538 shares issued and 50,391 shares outstanding as of June 26, 2021, and 49,767 shares issued and outstanding as of December 26, 2020 505 498 Additional paid-in capital 1,690,861 1,627,564 Retained earnings 775,392 625,414 Treasury stock, at cost, 147 and 0 shares, as of June 26, 2021 and December 26, 2020, respectively (40,297 ) - Accumulated other comprehensive loss (108,021 ) (138,874 ) Total equity attributable to common shareholders 2,318,440 2,114,602 Noncontrolling interest 4,840 3,567 Total equity 2,323,280 2,118,169 Total liabilities, redeemable noncontrolling interests and equity $ 6,720,352 $ 5,490,831 CHARLES RIVER LABORATORIES INTERNATIONAL, INC. SCHEDULE 3 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Six Months Ended June 26, 2021 June 27, 2020 Cash flows relating to operating activities Net income $ 153,851 $ 118,505 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 129,613 114,468 Stock-based compensation 30,266 24,103 Debt extinguishment and financing costs 27,980 - Deferred income taxes 8,891 148 Loss (gain) on venture capital and strategic equity investments, net 6,910 (11,876 ) Other, net (475 ) 10,487 Changes in assets and liabilities: Trade receivables and contract assets, net (5,224 ) (19,371 ) Inventories (7,107 ) (1,901 ) Accounts payable (13,383 ) (25,619 ) Accrued compensation 13,932 8,728 Deferred revenue 502 (3,273 ) Customer contract deposits (2,032 ) 8,276 Other assets and liabilities, net 13,095 8,221 Net cash provided by operating activities 356,819 230,896 Cash flows relating to investing activities Acquisition of businesses and assets, net of cash acquired (1,000,505 ) (382,250 ) Capital expenditures (74,461 ) (52,521 ) Purchases of investments and contributions to venture capital investments (23,266 ) (12,064 ) Proceeds from sale of investments 5,204 5,681 Other, net 839 (1,157 ) Net cash used in investing activities (1,092,189 ) (442,311 ) Cash flows relating to financing activities Proceeds from long-term debt and revolving credit facility 4,999,942 1,411,953 Proceeds from exercises of stock options 35,298 36,608 Payments on long-term debt, revolving credit facility, and finance lease obligations (4,241,772 ) (1,045,235 ) Purchase of treasury stock (40,297 ) (23,793 ) Payment of debt extinguishment and financing costs (38,166 ) - Other, net (2,330 ) (4,417 ) Net cash provided by financing activities 712,675 375,116 Effect of exchange rate changes on cash, cash equivalents, and restricted cash 17,066 295 Net change in cash, cash equivalents, and restricted cash (5,629 ) 163,996 Cash, cash equivalents, and restricted cash, beginning of period 233,119 240,046 Cash, cash equivalents, and restricted cash, end of period $ 227,490 $ 404,042 Supplemental cash flow information: Cash and cash equivalents $ 222,969 $ 402,020 Restricted cash included in Other current assets 3,118 465 Restricted cash included in Other assets 1,403 1,557 Cash, cash equivalents, and restricted cash, end of period $ 227,490 $ 404,042 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 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Research Models and Services Revenue $ 176,694 $ 116,549 $ 353,604 $ 262,545 Operating income 42,580 3,844 87,515 31,217 Operating income as a % of revenue 24.1 % 3.3 % 24.7 % 11.9 % Add back: Amortization related to acquisitions 5,346 5,919 10,685 11,571 Severance - 509 7 500 Acquisition related adjustments (2) 520 292 976 577 Site consolidation costs, impairments and other items - 30 - 259 Total non-GAAP adjustments to operating income $ 5,866 $ 6,750 $ 11,668 $ 12,907 Operating income, excluding non-GAAP adjustments $ 48,446 $ 10,594 $ 99,183 $ 44,124 Non-GAAP operating income as a % of revenue 27.4 % 9.1 % 28.0 % 16.8 % Depreciation and amortization $ 9,844 $ 9,126 $ 19,523 $ 17,878 Capital expenditures $ 8,512 $ 6,621 $ 11,495 $ 12,033 Discovery and Safety Assessment Revenue $ 540,094 $ 442,564 $ 1,041,272 $ 881,247 Operating income 104,514 72,241 195,463 144,524 Operating income as a % of revenue 19.4 % 16.3 % 18.8 % 16.4 % Add back: Amortization related to acquisitions 21,176 23,128 43,824 46,135 Severance 928 3,481 1,340 3,564 Acquisition related adjustments (2) 404 1,095 5,674 2,384 Site consolidation costs, impairments and other items 146 2,934 293 2,934 Total non-GAAP adjustments to operating income $ 22,654 $ 30,638 $ 51,131 $ 55,017 Operating income, excluding non-GAAP adjustments $ 127,168 $ 102,879 $ 246,594 $ 199,541 Non-GAAP operating income as a % of revenue 23.5 % 23.2 % 23.7 % 22.6 % Depreciation and amortization $ 43,588 $ 41,101 $ 88,196 $ 82,431 Capital expenditures $ 20,473 $ 16,175 $ 37,513 $ 30,904 Manufacturing Solutions Revenue $ 197,819 $ 123,471 $ 344,297 $ 245,851 Operating income 56,717 42,930 106,154 84,042 Operating income as a % of revenue 28.7 % 34.8 % 30.8 % 34.2 % Add back: Amortization related to acquisitions 7,812 2,217 10,026 4,464 Severance 535 1,396 829 1,652 Acquisition related adjustments (2) 686 (423 ) 728 (421 ) Site consolidation costs, impairments and other items - - 40 - Total non-GAAP adjustments to operating income $ 9,033 $ 3,190 $ 11,623 $ 5,695 Operating income, excluding non-GAAP adjustments $ 65,750 $ 46,120 $ 117,777 $ 89,737 Non-GAAP operating income as a % of revenue 33.2 % 37.4 % 34.2 % 36.5 % Depreciation and amortization $ 13,952 $ 6,236 $ 20,521 $ 12,602 Capital expenditures $ 13,602 $ 3,037 $ 20,712 $ 8,198 Unallocated Corporate Overhead $ (66,261 ) $ (42,247 ) $ (127,879 ) $ (88,734 ) Add back: Severance - - (151 ) - Acquisition related adjustments (2) 15,064 869 25,624 7,852 Other items (3) - (463 ) - (750 ) Total non-GAAP adjustments to operating expense $ 15,064 $ 406 $ 25,473 $ 7,102 Unallocated corporate overhead, excluding non-GAAP adjustments $ (51,197 ) $ (41,841 ) $ (102,406 ) $ (81,632 ) Total Revenue $ 914,607 $ 682,584 $ 1,739,173 $ 1,389,643 Operating income 137,550 76,768 261,253 171,049 Operating income as a % of revenue 15.0 % 11.2 % 15.0 % 12.3 % Add back: Amortization related to acquisitions 34,334 31,264 64,535 62,170 Severance 1,463 5,386 2,025 5,716 Acquisition related adjustments (2) 16,674 1,833 33,002 10,392 Site consolidation costs, impairments and other items (3) 146 2,501 333 2,443 Total non-GAAP adjustments to operating income $ 52,617 $ 40,984 $ 99,895 $ 80,721 Operating income, excluding non-GAAP adjustments $ 190,167 $ 117,752 $ 361,148 $ 251,770 Non-GAAP operating income as a % of revenue 20.8 % 17.3 % 20.8 % 18.1 % Depreciation and amortization $ 68,106 $ 57,208 $ 129,613 $ 114,468 Capital expenditures $ 46,431 $ 26,800 $ 74,461 $ 52,521 (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, and fair value adjustments associated with contingent consideration. (3) Other items relate to third-party costs, net of insurance reimbursements, incurred during the three and six months ended June 27, 2020 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 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Net income attributable to common shareholders $ 88,448 $ 67,435 $ 149,978 $ 118,204 Add back: Non-GAAP adjustments to operating income (Refer to previous schedule) 52,617 40,984 99,895 80,721 Write-off of deferred financing costs and fees related to debt financing 110 - 26,089 - Venture capital and strategic equity investment (gains) losses, net (9,809 ) (23,911 ) 6,910 (11,876 ) Other (2) (572 ) - (2,942 ) - Tax effect of non-GAAP adjustments: Non-cash tax provision related to international financing structure (3) 1,285 1,113 2,320 2,186 Enacted tax law changes 10,036 - 10,036 - Tax effect of the remaining non-GAAP adjustments (8,316 ) (6,020 ) (29,329 ) (17,824 ) Net income attributable to common shareholders, excluding non-GAAP adjustments $ 133,799 $ 79,601 $ 262,957 $ 171,411 Weighted average shares outstanding - Basic 50,297 49,553 50,138 49,371 Effect of dilutive securities: Stock options, restricted stock units and performance share units 1,037 693 1,087 747 Weighted average shares outstanding - Diluted 51,334 50,246 51,225 50,118 Earnings per share attributable to common shareholders: Basic $ 1.76 $ 1.36 $ 2.99 $ 2.39 Diluted $ 1.72 $ 1.34 $ 2.93 $ 2.36 Basic, excluding non-GAAP adjustments $ 2.66 $ 1.61 $ 5.24 $ 3.47 Diluted, excluding non-GAAP adjustments $ 2.61 $ 1.58 $ 5.13 $ 3.42 (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) Includes adjustments related to the gain on an immaterial divestiture and the finalization of the 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 June 26, 2021 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 34.0 % 51.6 % 22.0 % 60.2 % Decrease (increase) due to foreign exchange (3.9 )% (5.2 )% (3.0 )% (5.4 )% Contribution from acquisitions (2) (6.0 )% (1.9 )% (0.9 )% (28.2 )% Non-GAAP revenue growth, organic (3) 24.1 % 44.5 % 18.1 % 26.6 % Six Months Ended June 26, 2021 Total CRL RMS Segment DSA Segment MS Segment Revenue growth, reported 25.2 % 34.7 % 18.2 % 40.0 % Decrease (increase) due to foreign exchange (3.4 )% (4.6 )% (2.7 )% (4.7 )% Contribution from acquisitions (2) (3.3 )% (2.1 )% (0.6 )% (14.2 )% Non-GAAP revenue growth, organic (3) 18.5 % 28.0 % 14.9 % 21.1 % (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) Organic revenue growth is defined as reported revenue growth adjusted for acquisitions and foreign exchange.
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