Charles River Laboratories Announces Second-Quarter 2015 Results from Continuing Operations

– Second-Quarter Revenue of $339.6 Million –

– Second-Quarter GAAP Earnings per Share of $1.02
and Non-GAAP Earnings per Share of $0.96 –

– Updates 2015 Guidance for Celsis Acquisition –

– Renews Strategic Partnership with AstraZeneca –

– Plans to Reopen Shrewsbury, Massachusetts Facility in Early 2016 –

WILMINGTON, Mass.--()--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the second quarter of 2015. For the quarter, revenue from continuing operations was $339.6 million, a decrease of 0.5% from $341.2 million in the second quarter of 2014. Foreign currency translation reduced reported revenue growth by 6.2%. On a constant-currency basis, revenue growth of 5.7% was driven by both the Discovery and Safety Assessment and Manufacturing Support segments.

On a GAAP basis, net income from continuing operations for the second quarter of 2015 was $49.3 million, or $1.02 per diluted share, compared to $36.5 million, or $0.75 per diluted share, for the second quarter of 2014. The increase was primarily related to a $9.9 million, or $0.21 per diluted share, bargain purchase gain resulting from a small acquisition in the Avian Vaccine business during the second quarter of 2015. The gain was excluded from non-GAAP results.

On a non-GAAP basis, net income from continuing operations was $45.8 million for the second quarter of 2015, a decrease of 1.1% from $46.3 million for the same period in 2014. Second-quarter diluted earnings per share on a non-GAAP basis were $0.96, including a $0.01 loss from limited partnership investments. This result compared to $0.97 in the second quarter of 2014, which included a $0.03 gain from limited partnership investments. In addition, foreign currency translation reduced earnings per share by approximately $0.03 in the second quarter of 2015.

James C. Foster, Chairman, President and Chief Executive Officer, said, “We were very pleased with our second-quarter performance. Continued strong revenue growth for our Safety Assessment and Endotoxin and Microbial Detection businesses, coupled with stabilization of our research model business in North America and Europe, were the primary drivers of the 5.7% constant-currency revenue increase, and a 6% sequential revenue increase. Higher sales and operating efficiencies enabled us to achieve a 20% non-GAAP operating margin for the first time since 2008.”

“The second quarter also marked two notable developments: We renewed our successful strategic partnership with AstraZeneca for an additional five years, and made the decision to reopen our facility in Shrewsbury, Massachusetts. Both events are a testament to the confidence that clients place on our scientific expertise and the value of our focused, early-stage drug research portfolio.”

“Primarily as a result of the acquisition of Celsis, which closed on July 24, we are increasing our constant-currency revenue guidance for 2015 to a range of 8.0% to 9.5%, and our non-GAAP earnings per share guidance to a range of $3.60 to $3.70.”

Second-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $120.0 million in the second quarter of 2015, a decrease of 9.8% from $133.1 million in the second quarter of 2014. Foreign currency translation reduced reported revenue growth by 7.3%. On a constant-currency basis, revenue declined by 2.5%. Higher sales of research models were offset by lower revenue for the Genetically Engineered Models and Services (GEMS) business.

In the second quarter of 2015, the RMS segment’s GAAP operating margin was 27.9% compared to 25.7% in the second quarter of 2014. On a non-GAAP basis, the operating margin increased slightly to 29.1% from 29.0% in the second quarter of 2014.

Discovery and Safety Assessment (DSA)

Revenue from continuing operations for the DSA segment was $153.4 million in the second quarter of 2015, an increase of 7.5% from $142.6 million in the second quarter of 2014. Foreign currency translation reduced reported revenue growth by 3.9%. On a constant-currency basis, revenue growth of 11.4% was driven primarily by the Company’s Safety Assessment business, which generated a third consecutive quarter of low-double-digit revenue growth, with study volume, market share gains, and pricing as the primary contributors. This growth was offset in part by Argenta and BioFocus, which reported lower sales as a result of the early termination of a large contract for an integrated chemistry program. The ChanTest acquisition, which was completed on October 29, 2014, contributed 2.8% to DSA revenue growth in the second quarter. Sales to mid-tier biotechnology clients continued to be robust.

In the second quarter of 2015, the DSA segment’s GAAP operating margin was 18.4% compared to 12.5% in the second quarter of 2014. On a non-GAAP basis, the operating margin increased to 21.6% from 17.1% in the second quarter of 2014. The non-GAAP operating margin improvement was driven by higher capacity utilization and pricing for safety assessment services, as well as a foreign exchange benefit due to a weaker Canadian dollar.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $66.2 million in the second quarter of 2015, an increase of 1.1% from $65.4 million in the second quarter of 2014. Foreign currency translation reduced reported revenue growth by 8.7%. On a constant-currency basis, revenue growth was 9.8%. The Endotoxin and Microbial Detection (EMD) business, which achieved constant-currency revenue growth of approximately 10% in the second quarter, was the primary driver of the revenue increase. The Avian Vaccine acquisition contributed 1.7% to the Manufacturing segment’s second-quarter revenue growth.

In the second quarter of 2015, the Manufacturing segment’s GAAP operating margin was 30.9% compared to 31.3% in the second quarter of 2014. On a non-GAAP basis, the operating margin increased to 33.6% from 33.4% in the second quarter of 2014. Benefits from higher sales volume were largely offset by foreign exchange, which negatively impacted the segment operating margin because the EMD business manufactures products in the United States and distributes these products internationally, with the resulting revenue recorded in local currencies.

Stock Repurchase Update

During the second quarter of 2015, the Company repurchased approximately 550,000 shares for a total of $40.8 million. As of June 27, 2015, the Company had $87.6 million remaining on its stock repurchase authorization.

Renews Strategic Partnership with AstraZeneca

In the second quarter, Charles River extended its initial three-year strategic partnership with AstraZeneca for an additional five-year period. Under the agreement, which extends into 2020, Charles River retains its position as AstraZeneca’s preferred strategic partner for outsourced regulated safety assessment and development DMPK (drug metabolism and pharmacokinetics).

Plans to Reopen Massachusetts Facility in Early 2016

Based on considerable client indications of interest, and a comprehensive evaluation of the opportunities, the Company has made the decision to reopen its facility in Shrewsbury, Massachusetts, in early 2016. Initially, we expect to open a portion of the facility and offer only non-GLP services. Validation and staffing for GLP services will follow at a later date, depending on demand.

The Massachusetts facility will provide needed capacity to accommodate increasing demand for our Discovery and Safety Assessment services from large biopharmaceutical and emerging biotechnology companies, as well as academic research institutions in the Boston-Cambridge biohub, one of the largest concentrations of medical research in the world.

Updates 2015 Guidance

The Company is updating its forward-looking guidance based on continuing operations for 2015.

Primarily due to the acquisition of Celsis, revenue growth is now expected to be 8.0% to 9.5% on a constant-currency basis, compared to the prior range of 6.5% to 8.0%. Based on current rates, the Company expects foreign currency translation will reduce revenue growth by slightly more than 5.0%, which would result in reported revenue growth of 3.0% to 4.5%. The Company previously estimated a 5.5% impact from foreign currency translation and reported revenue growth of 1.0% to 2.5%.

Guidance for non-GAAP earnings per share in 2015 has been increased to reflect the Celsis acquisition, and GAAP earnings per share guidance has been increased due primarily to the bargain purchase gain associated with the Avian Vaccine acquisition.

Foreign currency translation is now expected to reduce earnings per share by approximately $0.10 in 2015, compared to the Company’s previous estimate of $0.17 per share. The improvement in foreign currency is being offset in part by lower expectations for Argenta and BioFocus.

The Company’s updated earnings per share guidance is as follows:

   
2015 GUIDANCE (from continuing operations)   REVISED   PRIOR
GAAP EPS estimate $3.25 - $3.35 $3.15 - $3.25
Amortization of intangible assets (1) $0.32 $0.31
Operating losses (2) $0.06 $0.04

Charges related to global efficiency initiatives and other items (3)

$0.06 $0.05
Acquisition-related adjustments (4) $0.10-$0.12 --
Bargain purchase gain associated with Avian Vaccine acquisition   ($0.21)   --
Non-GAAP EPS estimate   $3.60 - $3.70   $3.55 - $3.65

(1) Amortization of intangibles assets excludes the impact of the Celsis acquisition because the preliminary purchase price allocation has not been completed.

(2) These costs relate primarily to the Company’s Shrewsbury, Massachusetts, facility.

(3) These charges relate primarily to the Company’s planned efficiency initiatives in 2015, including site consolidation costs, asset impairments, and severance. Other projects in support of the global productivity and efficiency initiatives are expected, but these charges reflect only the decisions that have already been finalized. These charges also include executive transition costs.

(4) 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.

Webcast

Charles River has scheduled a live webcast on Thursday, July 30, at 8:30 a.m. ET to discuss matters relating to this press release. To participate, please go to ir.criver.com and select the webcast link. You can also find the associated slide presentation and reconciliations of non-GAAP financial measures to comparable GAAP financial measures on the website.

Investor Day

Charles River will host a Meeting with Management on Tuesday, August 11, from 8:00 a.m. to 12:30 p.m. ET in New York. The meeting will also be webcast on the Investor Relations section of the Company’s website at ir.criver.com. For additional information about this event, please contact Susan Hardy at susan.hardy@crl.com.

Non-GAAP Reconciliations/Discontinued Operations

The Company reports non-GAAP results in this press release, which exclude certain items that are outside of normal operations. A reconciliation of GAAP to non-GAAP results is provided in the schedules at the end of this press release. In addition, the Company reports results from continuing operations, which exclude results of the Phase I clinical business that was divested in 2011. The Phase I business is reported as a discontinued operation.

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets and other charges related to our acquisitions; expenses associated with evaluating and integrating acquisitions, 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; the gain related to the bargain purchase of Sunrise Farms; severance and other costs associated with our efficiency initiatives; executive transition costs; accelerated depreciation charges related to the consolidation of research model production operations; a reversal of indemnification assets associated with acquisitions and corresponding interest; and costs related to a U.S. government billing adjustment and related expenses. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. This press release also refers to our revenue in both a GAAP and non-GAAP (constant currency) basis. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, 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 such as business acquisitions, happen infrequently and the underlying costs associated with such activities do not recur on a regular basis. Presenting revenue on a constant-currency basis allows investors to measure our revenue growth exclusive of foreign currency exchange fluctuations more clearly. Non-GAAP results also allow investors to compare the Company’s operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this press release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. Reconciliations of the non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures are set forth in this press release, and can also be found on the Company’s website at ir.criver.com.

Caution Concerning Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “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 our projected future financial performance including revenue (on both a reported and constant-currency basis), operating margins, earnings per share, the expected impact of foreign exchange rates, and the expected benefit of our limited partnership investments; the future demand for drug discovery and development products and services, including our expectations for future revenue trends; our plans to reopen the facility in Shrewsbury, Massachusetts; our expectations with respect to the impact of acquisitions on the Company, our service offerings, strategic relationships, revenue, revenue growth rates, and earnings; the development and performance of our services and products; market and industry conditions including the outsourcing of services and spending trends by our clients; the potential outcome of and impact to our business and financial operations due to litigation and legal proceedings, including with respect to our ongoing investigation of inaccurate billing with respect to certain government contracts; and Charles River’s future performance as delineated in our forward-looking guidance, and particularly our expectations with respect to revenue, the impact of foreign exchange, and enhanced efficiency initiatives. Forward-looking statements are based on Charles River’s current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to: the ability to successfully integrate businesses we acquire; the ability to execute our efficiency initiatives on an effective and timely basis (including divestitures and site closures); the timing and magnitude of our share repurchases; negative trends in research and development spending, negative trends in the level of outsourced services, or other cost reduction actions by our clients; the ability to convert backlog to revenue; special interest groups; contaminations; industry trends; new displacement technologies; USDA and FDA regulations; changes in law; 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, 2015, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.

About Charles River

Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for per share data)
                   
Three Months Ended Six Months Ended
June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014
 
Total revenue $ 339,573 $ 341,179 $ 659,987 $ 640,547
Cost of revenue $ 206,790   $ 215,545   $ 407,544   $ 406,100  
Gross margin $ 132,783 $ 125,634 $ 252,443 $ 234,447
Selling, general and administrative $ 71,331 $ 67,756 $ 142,728 $ 132,523
Amortization of intangibles $ 5,717   $ 6,853   $ 10,975   $ 11,193  
Operating income $ 55,735 $ 51,025 $ 98,740 $ 90,731
Interest income (expense), net $ (4,079 ) $ (3,151 ) $ (6,819 ) $ (5,747 )
Other income, net $ 8,672   $ 2,667   $ 359   $ 8,543  
Income from continuing operations before income taxes $ 60,328 $ 50,541 $ 92,280 $ 93,527
Provision for income taxes $ 11,076   $ 14,081   $ 11,407   $ 24,439  
Income from continuing operations, net of income taxes $ 49,252 $ 36,460 $ 80,873 $ 69,088
Loss from discontinued operations, net of income taxes $ (7 ) $ (644 ) $ (14 ) $ (914 )
Net income $ 49,245 $ 35,816 $ 80,859 $ 68,174
Less: Net income attributable to noncontrolling interests $ (736 ) $ (552 ) $ (809 ) $ (678 )
Net income attributable to common shareholders $ 48,509   $ 35,264   $ 80,050   $ 67,496  
 
Earnings (loss) per common share
Basic:
Continuing operations $ 1.04 $ 0.76 $ 1.71 $ 1.46
Discontinued operations $ - $ (0.01 ) $ - $ (0.02 )
Net $ 1.04 $ 0.75 $ 1.71 $ 1.44
Diluted:
Continuing operations $ 1.02 $ 0.75 $ 1.68 $ 1.43
Discontinued operations $ - $ (0.01 ) $ - $ (0.02 )
Net $ 1.02 $ 0.74 $ 1.68 $ 1.41
 
Weighted average number of common shares outstanding
Basic 46,675 46,942 46,712 47,016
Diluted 47,550 47,684 47,718 47,909
 

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
         
 
June 27, 2015 December 27, 2014
Assets
Current assets:
Cash and cash equivalents $ 150,807 $ 160,023
Trade receivables, net 277,398 257,991
Inventories 90,037 89,043
Prepaid assets 36,952 26,900
Other current assets   74,453   72,941
Total current assets 629,647 606,898
Property, plant and equipment, net 680,565 676,797
Goodwill 317,414 321,077
Other intangible assets, net 172,376 178,875
Deferred tax asset 22,699 23,193
Other assets   63,216   72,951
Total assets $ 1,885,917 $ 1,879,791
 
Liabilities, Redeemable Noncontrolling Interest and Equity
Current liabilities:
Current portion of long-term debt and capital leases $ 17,993 $ 31,904
Accounts payable 32,967 33,815
Accrued compensation 57,400 71,569
Deferred revenue 77,382 78,124
Accrued liabilities 76,030 67,380
Other current liabilities 12,564 11,079
Current liabilities of discontinued operations   2,196   2,299
Total current liabilities 276,532 296,170
Long-term debt, net and capital leases 754,777 740,557
Other long-term liabilities 111,256 130,361
Long-term liabilities of discontinued operations   7,547   8,357
Total liabilities   1,150,112   1,175,445
Redeemable noncontrolling interest 29,976 28,419
Total equity attributable to common shareholders 701,703 672,203
Noncontrolling interests   4,126   3,724
Total liabilities, equity and redeemable noncontrolling interest $ 1,885,917 $ 1,879,791
 

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)
(in thousands, except percentages)
                     
Three Months Ended Six Months Ended
June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014
Research Models and Services
Revenue $ 120,044 $ 133,120 $ 240,055 $ 265,615
Gross margin 49,707 52,450 95,511 104,097
Gross margin as a % of revenue 41.4 % 39.4 % 39.8 % 39.2 %
Operating income 33,461 34,234 62,306 69,678
Operating income as a % of revenue 27.9 % 25.7 % 26.0 % 26.2 %
Depreciation and amortization 5,348 6,559 11,393 13,000
Capital expenditures 6,356 3,319 9,089 7,418
 
Discovery and Safety Assessment
Revenue $ 153,375 $ 142,614 $ 293,387 $ 247,752
Gross margin 49,256 39,457 92,939 65,116
Gross margin as a % of revenue 32.1 % 27.7 % 31.7 % 26.3 %
Operating income 28,149 17,798 51,665 29,511
Operating income as a % of revenue 18.4 % 12.5 % 17.6 % 11.9 %
Depreciation and amortization 12,412 12,385 23,551 20,527
Capital expenditures 4,101 3,858 9,479 7,894
 
Manufacturing Support
Revenue $ 66,154 $ 65,445 $ 126,545 $ 127,180
Gross margin 33,820 33,727 63,993 65,234
Gross margin as a % of revenue 51.1 % 51.5 % 50.6 % 51.3 %
Operating income 20,431 20,455 37,229 38,871
Operating income as a % of revenue 30.9 % 31.3 % 29.4 % 30.6 %
Depreciation and amortization 3,609 3,484 6,895 7,112
Capital expenditures 1,770 1,717 3,336 3,981
 
Unallocated Corporate Overhead $ (26,306 ) $ (21,462 ) $ (52,460 ) $ (47,329 )
 
Total
Revenue $ 339,573 $ 341,179 $ 659,987 $ 640,547
Gross margin 132,783 125,634 252,443 234,447
Gross margin as a % of revenue 39.1 % 36.8 % 38.2 % 36.6 %
Operating income 55,735 51,025 98,740 90,731
Operating income as a % of revenue 16.4 % 15.0 % 15.0 % 14.2 %
Depreciation and amortization 23,148 24,302 45,516 44,352
Capital expenditures 13,908 9,315 24,556 20,505
 

 

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP
SELECTED BUSINESS SEGMENT INFORMATION (UNAUDITED)(1)
(in thousands, except percentages)

                   
Three Months Ended Six Months Ended
June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014
Research Models and Services
Revenue $ 120,044 $ 133,120 $ 240,055 $ 265,615
Operating income 33,461 34,234 $ 62,306 $ 69,678
Operating income as a % of revenue 27.9 % 25.7 % 26.0 % 26.2 %
Add back:
Amortization of intangible assets related to acquisitions 768 608 1,534 1,545
Severance 80 2,011 999 3,595
Government billing adjustment and related expenses 47 13 291 80
Site consolidation costs, impairments and other items 560 1,740 1,358 2,732
Operating income, excluding specified charges (Non-GAAP) $ 34,916 $ 38,606 66,488 77,630
Non-GAAP operating income as a % of revenue 29.1 % 29.0 % 27.7 % 29.2 %
 
Discovery and Safety Assessment
Revenue $ 153,375 $ 142,614 $ 293,387 $ 247,752
Operating income 28,149 17,798 $ 51,665 $ 29,511
Operating income as a % of revenue 18.4 % 12.5 % 17.6 % 11.9 %
Add back:
Amortization of intangible assets related to acquisitions 3,795 4,891 7,220 6,863
Severance 456 854 475 1,049
Operating losses (2) 738 704 1,544 1,375
Acquisition related adjustments (3) - 203 25 203
Operating income, excluding specified charges (Non-GAAP) $ 33,138 $ 24,450 60,929 39,001
Non-GAAP operating income as a % of revenue 21.6 % 17.1 % 20.8 % 15.7 %
 
Manufacturing Support
Revenue $ 66,154 $ 65,445 $ 126,545 $ 127,180
Operating income 20,431 20,455 $ 37,229 $ 38,871
Operating income as a % of revenue 30.9 % 31.3 % 29.4 % 30.6 %
Add back:
Amortization of intangible assets related to acquisitions 1,154 1,355 2,221 2,785
Severance 118 24 295 24
Acquisition related adjustments (3) 528 - 528 -
Operating income, excluding specified charges (Non-GAAP) $ 22,231 $ 21,834 40,273 41,680
Non-GAAP operating income as a % of revenue 33.6 % 33.4 % 31.8 % 32.8 %
 
Unallocated Corporate Overhead $ (26,306 ) $ (21,462 ) $ (52,460 ) $ (47,329 )
Add back:
Severance and executive transition costs 51 - 977 121
Acquisition related adjustments (3) 3,956 1,371 3,594 4,676
Unallocated corporate overhead, excluding specified charges (Non-GAAP) $ (22,299 ) $ (20,091 ) $ (47,889 ) $ (42,532 )
 
Total
Revenue $ 339,573 $ 341,179 $ 659,987 $ 640,547
Operating income 55,735 51,025 98,740 90,731
Operating income as a % of revenue 16.4 % 15.0 % 15.0 % 14.2 %
Add back:
Amortization of intangible assets related to acquisitions 5,717 6,854 10,975 11,193
Severance and executive transition costs 705 2,889 2,746 4,789
Site consolidation costs, impairments and other items 560 1,740 1,358 2,732
Operating losses (2) 738 704 1,544 1,375
Acquisition related adjustments (3) 4,484 1,574 4,147 4,879
Government billing adjustment and related expenses   47     13     291     80  
Operating income, excluding specified charges (Non-GAAP) $ 67,986 $ 64,799 119,801 115,779

Non-GAAP operating income as a % of revenue

20.0 % 19.0 % 18.2 % 18.1 %

 

 

 

 

(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 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 GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.

(2) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

(3) These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value adjustments associated with contingent consideration.

CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP EARNINGS TO NON-GAAP EARNINGS (UNAUDITED)(1)
(in thousands, except per share data)
                     
Three Months Ended Six Months Ended
June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014
 
Net income attributable to common shareholders $ 48,509 $ 35,264 $ 80,050 $ 67,496
Less: Discontinued operations   7     644     14     914  
Net income from continuing operations attributable to common shareholders 48,516 35,908 80,064 68,410
Add back:
Amortization of intangible assets related to acquisitions 5,717 6,854 10,975 11,193
Severance and executive transition costs 705 2,889 2,746 4,789
Site consolidation costs, impairments and other items 560 1,740 1,358 2,732
Operating losses (2) 738 704 1,544 1,375
Acquisition related adjustments (3) 4,484 1,574 4,147 4,879
Government billing adjustment and related expenses 47 13 291 80
Reversal of an indemnification asset associated with acquisition and corresponding interest (4) - - 10,411 -
Write-off of deferred financing costs and fees related to debt refinancing 733 - 733 -
Gain on bargain purchase (5) (9,878 ) - (9,878 ) -
Tax effect of non-GAAP adjustments:
Reversal of uncertain tax position associated with acquisition and corresponding interest (4) - - (10,411 ) -
Tax effect of the remaining non-GAAP adjustments   (5,861 )   (3,426 )   (8,618 )   (7,928 )
Net income from continuing operations attributable to common shareholders, excluding specified charges (Non-GAAP) $ 45,761   $ 46,256   $ 83,362   $ 85,530  
 
Weighted average shares outstanding - Basic 46,675 46,942 46,712 47,016
Effect of dilutive securities:
Stock options, restricted stock units, performance stock units, and contingently issued restricted stock   875     742     1,006     893  
Weighted average shares outstanding - Diluted 47,550 47,684 47,718 47,909
 
Basic earnings per share from continuing operations $ 1.04 $ 0.76 $ 1.71 $ 1.46
Diluted earnings per share from continuing operations $ 1.02 $ 0.75 $ 1.68 $ 1.43
 
Basic earnings per share from continuing operations, excluding specified charges (Non-GAAP) $ 0.98 $ 0.99 $ 1.78 $ 1.82
Diluted earnings per share from continuing operations, excluding specified charges (Non-GAAP) $ 0.96 $ 0.97 $ 1.75 $ 1.79

(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 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 GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.

(2) This item includes operating losses related primarily to the Company's Shrewsbury, Massachusetts facility.

(3) These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, third-party integration, and certain compensation costs, and fair value adjustments associated with contingent consideration.

(4) These amounts represent the reversal of an uncertain tax position and an offsetting indemnification asset related to the acquisition of BioFocus.

(5) The amount relates to the acquisition of Sunrise Farms, Inc. and represents the excess of the estimated fair value of the net assets acquired over the preliminary purchase price.

         
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
RECONCILIATION OF GAAP TO NON-GAAP REVENUE GROWTH (UNAUDITED)
EXCLUDING THE IMPACT OF FOREIGN EXCHANGE
 
For the Three and Six Months Ended June 27, 2015        
 
 
For the three months ended June 27, 2015: Total CRL RMS Segment DSA Segment MS Segment
 
Revenue growth, reported (0.5 %) (9.8 %) 7.5 % 1.1 %
Impact of foreign exchange (6.2 %) (7.3 %) (3.9 %) (8.7 %)
Non-GAAP revenue growth, constant currency 5.7 % (2.5 %) 11.4 % 9.8 %
 
For the six months ended June 27, 2015: Total CRL RMS Segment DSA Segment MS Segment
 
Revenue growth, reported 3.0 % (9.6 %) 18.4 % (0.5 %)
Impact of foreign exchange (6.0 %) (7.0 %) (3.6 %) (8.3 %)
Non-GAAP revenue growth, constant currency 9.0 % (2.6 %) 22.0 % 7.8 %

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 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 GAAP. The Company intends to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules, regulations and guidance.

   
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
     
Six Months Ended
June 27, 2015 June 28, 2014
Cash flows relating to operating activities:
Net income $ 80,859 $ 68,174
Less: Loss from discontinued operations   (14 )   (914 )
Income from continuing operations 80,873 69,088
Summary of non-cash adjustments 57,455 59,081
Changes in assets and liabilities   (40,722 )   (42,731 )
Net cash provided by operating activities 97,606 85,438
 
Cash flows relating to investing activities:
Acquisition of businesses, net of cash acquired (10,680 ) (183,151 )
Capital expenditures (24,556 ) (20,505 )
Other   (1,252 )   1,158  
Net cash used in investing activities (36,488 ) (202,498 )
 
Cash flow relating to financing activities:
Net cash provided by (used in) financing activities (63,727 ) 78,212
 
Cash flows used in discontinued operations (927 ) (689 )
Effect of exchange rate changes on cash and cash equivalents   (5,680 )   622  
Net change in cash and cash equivalents (9,216 ) (38,915 )
Cash and cash equivalents, beginning of period   160,023     155,927  
Cash and cash equivalents, end of period $ 150,807   $ 117,012  

Contacts

Charles River Laboratories International, Inc.
Investor Contact:
Susan E. Hardy, 781-222-6190
Corporate Vice President, Investor Relations
susan.hardy@crl.com
or
Media Contact:
Amy Cianciaruso, 781-222-6168
Executive Director, Public Relations
amy.cianciaruso@crl.com

Release Summary

Charles River Laboratories announced its second-quarter 2015 financial results, including revenue of $339.6 million and non-GAAP earnings per share of $0.96.

Contacts

Charles River Laboratories International, Inc.
Investor Contact:
Susan E. Hardy, 781-222-6190
Corporate Vice President, Investor Relations
susan.hardy@crl.com
or
Media Contact:
Amy Cianciaruso, 781-222-6168
Executive Director, Public Relations
amy.cianciaruso@crl.com