Charles River Laboratories Announces First-Quarter 2021 Results

– First-Quarter Revenue of $824.6 Million –

– First-Quarter GAAP Earnings per Share of $1.20 and Non-GAAP Earnings per Share of $2.53 –

– Updates 2021 Guidance –

Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the first quarter of 2021. For the quarter, revenue was $824.6 million, an increase of 16.6% from $707.1 million in the first quarter of 2020.

Acquisitions contributed 0.7% to consolidated first-quarter revenue growth. The impact of foreign currency translation benefited reported revenue growth by 2.9%. Excluding the effect of these items, organic revenue growth of 13.0% was driven by contributions from all three business segments. The year-over-year comparison to last year’s COVID-19-related revenue impact contributed approximately 140 basis points to the reported and organic revenue growth rates in the first quarter, principally in the Research Models and Services segment.

On a GAAP basis, first-quarter net income attributable to common shareholders was $61.5 million, an increase of 21.2% from net income of $50.8 million for the same period in 2020. First-quarter diluted earnings per share on a GAAP basis were $1.20, an increase of 17.6% from $1.02 for the first quarter of 2020. The increases in the GAAP net income and earnings per share were driven primarily by higher revenue and operating margin improvement, partially offset by debt extinguishment costs and the write-off of deferred financing costs related to debt refinancing activities in the first quarter of 2021.

On a non-GAAP basis, net income from continuing operations was $129.2 million for the first quarter of 2021, an increase of 40.7% from $91.8 million for the same period in 2020. First‑quarter diluted earnings per share on a non-GAAP basis were $2.53, an increase of 37.5% from $1.84 per share for the first quarter of 2020. The non-GAAP net income and earnings per share increases were driven primarily by higher revenue and operating margin improvement.

James C. Foster, Chairman, President and Chief Executive Officer, said, “Our first-quarter performance demonstrates the power of our unique, non-clinical portfolio and the strength of the biopharmaceutical market environment. A global focus on scientific innovation is driving record levels of investment in the biopharmaceutical industry, which is generating biomedical breakthroughs across multiple therapeutic areas at a rapid pace. We believe these factors are resulting in unprecedented client demand across most of our businesses.”

“To maintain and enhance our position as the leading, non-clinical CRO, we are strategically expanding our portfolio and enhancing our scientific capabilities, especially in the use of more complex research techniques and advanced drug modalities such as cell and gene therapies. These investments are enabling us to offer greater value to our clients and capitalize on the significant growth opportunities,” Mr. Foster concluded.

First-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $176.9 million in the first quarter of 2021, an increase of 21.2% from $146.0 million in the first quarter of 2020. The impact of foreign currency translation contributed 4.2%, and acquisitions, principally Cellero which was completed in August 2020, contributed 2.2% to first-quarter RMS revenue. Organic revenue growth of 14.8% was driven by robust demand for research models in China, as well as higher revenue for research models services, particularly Genetically Engineered Models and Services (GEMS). The year-over-year comparison to last year’s COVID-19-related revenue impact contributed approximately 620 basis points to the RMS revenue growth rate in the first quarter.

In the first quarter of 2021, the RMS segment’s GAAP operating margin increased to 25.4% from 18.7% in the first quarter of 2020. On a non-GAAP basis, the operating margin increased to 28.7% from 23.0% in the first quarter of 2020. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from higher sales volume for research models.

Discovery and Safety Assessment (DSA)

Revenue for the DSA segment was $501.2 million in the first quarter of 2021, an increase of 14.2% from $438.7 million in the first quarter of 2020. The impact of foreign currency translation contributed 2.3% to DSA revenue growth. Organic revenue growth of 11.6% was primarily driven by robust demand from global biopharmaceutical and biotechnology clients in both the Discovery Services and Safety Assessment businesses.

In the first quarter of 2021, the DSA segment’s GAAP operating margin increased to 18.1% from 16.5% in the first quarter of 2020. On a non-GAAP basis, the operating margin increased to 23.8% from 22.0% in the first quarter of 2020. 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.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $146.5 million in the first quarter of 2021, an increase of 19.7% from $122.4 million in the first quarter of 2020. The impact of foreign currency translation contributed 4.1% to Manufacturing revenue growth. Organic revenue growth of 15.6% was driven by strong demand in the Biologics Testing Solutions (Biologics) and Microbial Solutions businesses.

In the first quarter of 2021, the Manufacturing segment’s GAAP operating margin increased slightly to 33.8% from 33.6% in the first quarter of 2020. On a non-GAAP basis, the operating margin decreased slightly to 35.5% from 35.6% in the first quarter of 2020.

2021 Guidance

On February 17, 2021, the Company provided 2021 financial guidance, both excluding and including the impact of the Cognate BioServices acquisition. The acquisition of Cognate was subsequently completed on March 29, 2021.

The Company is increasing its revenue growth and non-GAAP earnings per share guidance for 2021, as a result of the stronger-than-expected first quarter financial performance and an expectation that robust client demand trends will continue for the remainder of the year. This updated guidance includes the acquisitions that have already been completed in 2021, including Cognate.

The Company’s updated guidance for revenue growth, earnings per share, and free cash flow is as follows:

Webcast

Charles River has scheduled a live webcast on Tuesday, May 4^th, 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.

Bank of America Health Care Conference Presentation

Charles River will virtually present at the Bank of America 2021 Health Care Conference, on Wednesday, May 12^th, at 10:15 a.m. ET. Management will provide an overview of Charles River’s strategic focus and business developments.

A live webcast of the presentation will be available through a link that will be posted on ir.criver.com. A webcast replay will be accessible through the same website shortly after the presentation and will remain available for approximately two weeks.

Investor Day

Charles River will host a virtual Meeting with Management on Thursday, May 27^th, beginning at 8:30 a.m. ET. Investors will have the opportunity to listen to a webcast of the virtual event through the Investor Relations section of the Company's website at ir.criver.com. A replay will be accessible through the same 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 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; the non-cash tax benefit related to our international financing structure; 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. 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 risks and uncertainties associated with Cognate BioServices 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, 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.

Estimates of COVID-19 Impact in 2020

In this press release, the Company has provided its estimates for the impact from the COVID-19 pandemic in 2020, including on the Company's revenue. These estimates were determined using methodologies and assumptions that vary depending on the specific reporting segment and situation. For the Research Models and Services segment, estimates were 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, estimates were 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 Support segment, estimates were 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 these estimates and assumptions involve 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 www.criver.com.

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