On May 4, 2021 Charles River Laboratories International, Inc. (NYSE: CRL) reported its results for the first quarter of 2021 (Press release, Charles River Laboratories, MAY 4, 2021, View Source [SID1234579072]). For the quarter, revenue was $824.6 million, an increase of 16.6% from $707.1 million in the first quarter of 2020.

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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.

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 $0.45-$0.65 for the impact of the Cognate acquisition and $0.05-$0.10 for other acquisitions completed in 2021 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 $0.15 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 $655 million, less capital expenditures of approximately $220 million, equates to free cash flow of approximately $435 million.

Webcast

Charles River has scheduled a live webcast on Tuesday, May 4th, 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 12th, 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 27th, 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.