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Charles River Laboratories Announces First-Quarter 2016 Results from Continuing Operations

WILMINGTON, Mass., May 04, 2016 (BUSINESS WIRE) -- Charles River Laboratories International, Inc. CRL, -0.76% today reported its results for the first quarter of 2016. For the quarter, revenue from continuing operations was $354.9 million, an increase of 10.8% from $320.4 million in the first quarter of 2016. Foreign currency translation reduced reported revenue growth by 1.6%. On a constant-currency basis, revenue growth of 12.4% was driven primarily by the Discovery and Safety Assessment and Manufacturing Support segments. Research Models and Services revenue also increased. The acquisitions of Celsis, Oncotest, and Sunrise Farms contributed 3.7% to consolidated first-quarter revenue growth, both on a reported basis and in constant currency.

On a GAAP basis, net income from continuing operations attributable to common shareholders for the first quarter of 2016 was $37.2 million, or $0.78 per diluted share, compared to $31.5 million, or $0.66 per diluted share, for the first quarter of 2015.

On a non-GAAP basis, net income from continuing operations was $46.5 million for the first quarter of 2016, an increase of 23.8% from $37.6 million for the same period in 2015. First-quarter diluted earnings per share on a non-GAAP basis were $0.98, an increase of 24.1% compared to $0.79 per share in the first quarter of 2014. The increase was driven primarily by higher revenue and operating margin improvement. A gain from the Company’s life science venture capital investments also contributed $0.04 per share in the first quarter of 2016, compared to a gain of $0.02 per share for the same period in 2015.

James C. Foster, Chairman, President and Chief Executive Officer, said, “I am very pleased to say that we are off to a great start in 2016. Our first-quarter financial results were strong across our three business segments. In addition to the contribution from acquisitions, revenue also benefited from high-single-digit organic growth, with the most significant contribution coming from the Safety Assessment business. We were also pleased to see 4.6% constant-currency revenue growth in RMS, with higher sales of models in all geographic regions—North America, Europe, and Asia—and improvement in the services businesses. Higher revenue and the benefit of efficiency initiatives drove a 24.1% increase in non-GAAP earnings per share, to $0.98 in the first quarter of 2016. As a result of the strong first-quarter performance, we are increasing our guidance for 2016 non-GAAP earnings per share to a range of $4.32 to $4.45.”

“We remain optimistic about the opportunities for growth in 2016, which are enhanced by the acquisition of WIL Research. WIL reinforces our scientific leadership, adding a wealth of talent with deep expertise in specialty areas. The acquisition of WIL Research is a key element of our continued ability to support our clients’ early-stage drug research efforts, to achieve our long-term growth goals, and to enhance shareholder value,” Mr. Foster concluded.

First-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $124.0 million in the first quarter of 2016, an increase of 3.3% from $120.0 million in the first quarter of 2015. Foreign currency translation reduced reported revenue growth by 1.3%. On a constant-currency basis, revenue growth of 4.6% was driven by higher sales of both research models and research model services in North America, Europe, and Asia.

In the first quarter of 2016, the RMS segment’s GAAP operating margin was 29.5% compared to 24.0% in the first quarter of 2015. On a non-GAAP basis, the operating margin increased to 30.0% from 26.3% in the first quarter of 2015. The RMS operating margin improvement was primarily attributable to higher revenue, as well as benefits from the Company’s global efficiency initiatives.

Discovery and Safety Assessment (DSA)

Revenue from continuing operations for the DSA segment was $158.0 million in the first quarter of 2016, an increase of 12.8% from $140.0 million in the first quarter of 2015. Foreign currency translation reduced reported revenue growth by 1.9%. On a constant-currency basis, revenue growth of 14.7% was driven primarily by double-digit revenue growth in the Company’s Safety Assessment business. The Discovery Services business also reported higher revenue in the first quarter, due primarily to the acquisition of Oncotest which contributed 2.1% to DSA revenue growth. Sales to biotechnology clients continued to drive DSA revenue growth.

In the first quarter of 2016, the DSA segment’s GAAP operating margin was 19.5% compared to 16.8% in the first quarter of 2015. On a non-GAAP basis, the operating margin increased to 23.3% from 19.8% in the first quarter of 2015. The non-GAAP operating margin improvement was primarily driven by higher pricing and capacity utilization for safety assessment services, as well as a foreign exchange benefit due primarily to a weaker Canadian dollar, which contributed approximately 160 basis points to the improvement.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $72.9 million in the first quarter of 2016, an increase of 20.7% from $60.4 million in the first quarter of 2015. Foreign currency translation reduced reported revenue growth by 1.8%. On a constant-currency basis, revenue growth was 22.5%. The acquisitions of Celsis and Sunrise Farms contributed 14.8% to Manufacturing revenue growth in the first quarter of 2016. Robust revenue growth for the Biologics Testing Solutions (Biologics) business also contributed to the first-quarter increase.

In the first quarter of 2016, the Manufacturing segment’s GAAP operating margin was 26.7% compared to 27.8% in the first quarter of 2015. On a non-GAAP basis, the operating margin increased to 31.4% from 29.9% in the first quarter of 2015, primarily driven by operating margin improvement in the Biologics and Avian Vaccine businesses.

Updates 2016 Guidance

On February 10, 2016, the Company provided 2016 financial guidance for revenue growth and non-GAAP earnings per share which included the impact of the pending WIL Research acquisition. The acquisition of WIL Research was subsequently completed on April 4, 2016.

The Company is reaffirming its revenue growth guidance for 2016, including the contribution from WIL Research. The Company is increasing its non-GAAP earnings per share guidance for 2016 to primarily reflect first-quarter performance, better-than-expected operating margin improvement in the RMS segment, and the inclusion of WIL Research from April 4, 2016.

The majority of WIL Research’s operations will be reported as part of Charles River’s DSA segment. WIL Research’s contract development and manufacturing business (CDMO) will be reported as part of Charles River’s Manufacturing segment.

Charles River’s revenue growth and earnings per share guidance is as follows:

2016 GUIDANCE INCLUDING WIL RESEARCH
(from continuing operations)
REVISED PRIOR
Revenue growth, reported 19% - 22.5% 19% - 22.5%
Negative impact of foreign exchange (~1%) (~1%)
Revenue growth, constant currency 20% - 23.5% 20% - 23.5%
GAAP EPS estimate (1) $3.39-$3.57 ---
Amortization of intangible assets (2) $0.55-$0.60 ---
Charges related to global efficiency initiatives (3) $0.03 ---
Acquisition-related adjustments (4) $0.30 ---
Non-GAAP EPS estimate $4.32 - $4.45 $4.27 - $4.40

(1) GAAP EPS includes an estimate of $0.15-$0.20 for the impact of amortization of intangible assets related to the WIL Research acquisition because the preliminary purchase price allocation has not been completed.
(2) Amortization of intangible assets includes an estimate of $0.15-$0.20 for the impact of the WIL Research acquisition because the preliminary purchase price allocation has not been completed. This item also includes amortization of an inventory fair value adjustment related to the Celsis acquisition of $0.03 per share.
(3) These charges relate primarily to the Company’s planned efficiency initiatives in 2016, 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.
(4) These adjustments are related to the evaluation and integration of acquisitions, which primarily include transaction, advisory, and certain third-party integration costs, as well as certain costs associated with acquisition-related efficiency initiatives.

Webcast

Charles River has scheduled a live webcast on Wednesday, May 4, 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.

Charles River to Present at Deutsche Bank 41 [st] Annual Health Care Conference

Charles River Laboratories will present at the Deutsche Bank 41 [st] Annual Health Care Conference in Boston, Massachusetts, on Thursday, May 5, at 10:40 a.m. ET. Management will discuss 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 the Investor Relations section of the Charles River...


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