Charles River Laboratories Announces Fourth-Quarter and Full-Year 2020 Results and Provides 2021 Guidance - Fourth-Quarter Revenue of $791.0 Million and Full-Year Revenue of $2.92 Billion - - Fourth-Quarter GAAP Earnings

- Fourth-Quarter Revenue of $791.0 Million and Full-Year Revenue of $2.92 Billion -

- Fourth-Quarter GAAP Earnings per Share of $2.81 and Non-GAAP Earnings per Share of $2.39 -

- Full-Year GAAP Earnings per Share of $7.20 and Non-GAAP Earnings per Share of $8.13 -

- Provides 2021 Guidance -

- Announces Definitive Agreement to Acquire Cognate BioServices, A Premier, Cell and Gene Therapy CDMO -

WILMINGTON, Mass.--(BUSINESS WIRE)--February 17, 2021--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the fourth-quarter and full-year 2020 and provided guidance for 2021. For the quarter, revenue

was $791.0 million, an increase of 14.4% from $691.1 million in the fourth quarter of 2019.

Acquisitions contributed 2.1% to consolidated fourth-quarter revenue growth. The impact of foreign currency translation benefited reported revenue growth by 2.0%. Excluding the effect of these items, organic revenue growth of 10.3% was

driven by contributions from all three business segments.

On a GAAP basis, fourth-quarter net income attributable to common shareholders was $143.2 million, an increase of 78.2% from net income of $80.3 million for the same period in 2019. Fourth-quarter diluted earnings per share on a GAAP

basis were $2.81, an increase of 74.5% from $1.61 for the fourth quarter of 2019. The increases in GAAP net income and earnings per share were driven primarily by higher revenue, operating income, and venture capital investment gains. GAAP

earnings per share included a gain from the Company's venture capital and other strategic investments of $1.01 per share in the fourth quarter of 2020, compared to $0.22 per share for the same period in 2019. The Company's venture capital

and other strategic investment performance has been excluded from non-GAAP results.

On a non-GAAP basis, net income from continuing operations was $122.1 million for the fourth quarter of 2020, an increase of 22.0% from $100.1 million for the same period in 2019. Fourth quarter diluted earnings per share on a non-GAAP

basis were $2.39, an increase of 18.9% from $2.01 per share for the fourth quarter of 2019. The non-GAAP net income and earnings per share increases were driven primarily by higher revenue and operating income, as well as a benefit from

non-operating items, including a lower tax rate.

James C. Foster, Chairman, President and Chief Executive Officer, said, "2020 was an extraordinary year, in which we were able to successfully navigate the challenges of the COVID-19 pandemic and reinforce our position as the leading,

non-clinical CRO. Our strong financial performance reflects the resilience of our business model and the robust demand environment, which was driven by clients intensifying their use of strategic outsourcing and partnering with us to move

their critical research programs forward. Our focus on enhancing the value that we provide to clients has made us a trusted partner, and we expect that the robust demand trends will continue. As a result, we believe we are well positioned

for an excellent start in 2021."

Mr. Foster continued, "We are pleased to be expanding our early-stage research and manufacturing support portfolio into the complementary, high-growth cell and gene therapy CDMO sector. The planned acquisition of Cognate BioServices will

create a premier scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research through CGMP production. We believe this strategic expansion of our

portfolio will be highly synergistic with our existing capabilities, particularly for biologics testing. It will enhance our ability to achieve our long-term financial goals and deliver greater value to both clients and shareholders."

Fourth-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $156.7 million in the fourth quarter of 2020, an increase of 19.3% from $131.3 million in the fourth quarter of 2019. The HemaCare and Cellero acquisitions completed in 2020 contributed 11.2% to

fourth-quarter RMS revenue. Organic revenue growth of 5.2% was driven by higher revenue for research models services, particularly Genetically Engineered Models and Services (GEMS), as well as higher sales volume for research models due to

accelerated demand in all geographic regions, particularly in China. Global demand for research models improved both on a year-over-year and sequential basis, as clients returned to normalized order activity in all geographic regions

following COVID-19-related disruptions earlier in the year, principally in the second quarter.

In the fourth quarter of 2020, the RMS segment's GAAP operating margin decreased to 21.9% from 23.0% in the fourth quarter of 2019, primarily due to acquisition-related amortization costs associated with HemaCare and Cellero. On a

non-GAAP basis, the operating margin increased to 25.1% from 24.6% in the fourth quarter of 2019. The non-GAAP operating margin increased primarily due to operating leverage from higher sales volume in the research models business, as well

as the benefit of operating efficiency initiatives.

Discovery and Safety Assessment (DSA)

Revenue for the DSA segment was $495.0 million in the fourth quarter of 2020, an increase of 12.7% from $439.2 million in the fourth quarter of 2019. Organic revenue growth of 11.3% was primarily driven by robust demand from global

biopharmaceutical and biotechnology clients in both the Discovery Services and Safety Assessment businesses.

In the fourth quarter of 2020, the DSA segment's GAAP operating margin decreased to 18.4% from 19.1% in the fourth quarter of 2019. On a non-GAAP basis, the operating margin decreased to 23.2% from 25.6% in the fourth quarter of 2019. The

GAAP and non-GAAP operating margin decreases were driven primarily by increased costs due in part to higher performance-based compensation expense, as well as the study mix in the Safety Assessment business.

Manufacturing Support (Manufacturing)

Revenue for the Manufacturing segment was $139.3 million in the fourth quarter of 2020, an increase of 15.5% from $120.6 million in the fourth quarter of 2019. Organic revenue growth of 12.4% was led by robust demand in the Biologics

Testing Solutions (Biologics) business. Both the Microbial Solutions and Avian Vaccine businesses were also significant contributors to fourth-quarter revenue growth.

In the fourth quarter of 2020, the Manufacturing segment's GAAP operating margin increased to 35.3% from 34.4% in the fourth quarter of 2019. On a non-GAAP basis, the operating margin increased to 37.3% from 37.2% in the fourth quarter of

2019. The GAAP and non-GAAP operating margin increases were driven primarily by operating leverage from higher revenue in the Biologics and Avian Vaccine businesses.

For 2020, revenue increased by 11.5% to $2.92 billion from $2.62 billion in 2019. Organic revenue growth was 7.0%.

On a GAAP basis, net income attributable to common shareholders was $364.3 million in 2020, an increase of 44.6% from $252.0 million in 2019. Diluted earnings per share on a GAAP basis in 2020 were $7.20, an increase of 42.0% from $5.07

in 2019. On a GAAP basis, the Company recorded a gain from venture capital and other strategic investments totaling $1.50 per share in 2020, compared to a gain of $0.30 in 2019.

On a non-GAAP basis, net income from continuing operations was $411.5 million in 2020, an increase of 23.1% from $334.4 million in 2019. Diluted earnings per share on a non-GAAP basis in 2020 were $8.13, an increase of 20.8% from $6.73 in

Research Models and Services (RMS)

For 2020, RMS revenue was $571.2 million, an increase of 6.3% from $537.1 million in 2019. Organic revenue growth declined by 3.3%, principally due to the impact of the COVID-19 pandemic.

On a GAAP basis, the RMS segment operating margin decreased to 18.0% in 2020 from 24.9% in 2019. On a non-GAAP basis, the operating margin decreased to 22.0% in 2020 from 26.2% in 2019.

Discovery and Safety Assessment (DSA)

For 2020, DSA revenue was $1.84 billion, an increase of 13.5% from $1.62 billion in 2019. Organic revenue growth was 9.4%.

On a GAAP basis, the DSA segment operating margin increased to 17.7% in 2020 from 16.0% in 2019. On a non-GAAP basis, the operating margin increased to 23.4% in 2020 from 22.0% in 2019.

Manufacturing Support (Manufacturing)

For 2020, Manufacturing revenue was $515.4 million, an increase of 10.8% from $465.1 million in 2019. Organic revenue growth was 10.4%.

On a GAAP basis, the Manufacturing segment operating margin increased to 35.2% in 2020 from 31.3% in 2019. On a non-GAAP basis, the operating margin increased to 37.4% in 2020 from 33.9% in 2019.

Planned Acquisition of Cognate BioServices

In a separate press release today, Charles River announced that it has signed a definitive agreement to acquire Cognate BioServices, Inc. for approximately $875 million in cash, subject to customary closing adjustments.

Cognate is a premier, cell and gene therapy CDMO offering comprehensive manufacturing solutions for cell therapies, as well as for production of plasmid DNA and other inputs in the CDMO value chain. The planned acquisition of Cognate will

establish Charles River as a premier scientific partner for cell and gene therapy development, testing, and manufacturing, providing clients with an integrated solution from basic research through CGMP production.

Cognate is expected to generate annual revenue of approximately $140 million in 2021. By expanding into this high-growth sector, Cognate is expected to enhance Charles River's growth potential by generating at least 25% compound annual

revenue growth over the next five years. Cognate will be reported as part of Charles River's Manufacturing Solutions segment.

2021 Guidance Excluding Cognate BioServices

The Company is providing the following revenue, earnings per share, and free cash flow guidance for 2021 excluding the financial impact of the planned acquisition of Cognate. The 2021 revenue growth outlook reflects a continuation of

robust client demand trends, as well as a favorable comparison to last year's revenue impact from the COVID-19 pandemic. Earnings per share in 2021 are expected to benefit from higher revenue and modest operating margin improvement,

partially offset by a higher tax rate.

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) GAAP EPS guidance does not include an estimate for future gains or losses from venture capital and other strategic investments. Potential gains or losses are expected in 2021, but the Company does not forecast the future performance

of these investments. Any future gains or losses would be excluded from non-GAAP results.

(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 approximately $0.10 associated with U.S. and international tax legislation that necessitated changes to the Company's international financing structure.

(6) Reconciliation of the current 2021 free cash flow guidance is as follows: Cash flow from operating activities of $595-$615 million, less capital expenditures of approximately $180 million, equates to free cash flow of $415-$435

2021 Financial Impact of Cognate Acquisition

Based on the anticipated completion of the acquisition by the end of the first quarter of 2021, Cognate is expected to add approximately $110 million to Charles River's 2021 consolidated revenue for the partial year. With this

contribution from Cognate, Charles River's reported revenue growth guidance is expected to increase to 16% to 18% for 2021.

The transaction is expected to be neutral to non-GAAP earnings per share in 2021, and therefore, is not expected to have a meaningful impact on the Company's non-GAAP earnings per share guidance. Items excluded from non-GAAP earnings per

share are expected to include all acquisition-related costs, which primarily include amortization of intangible assets, advisory fees, certain costs associated with efficiency initiatives, and certain third-party integration costs.

Charles River has scheduled a live webcast on Wednesday, February 17th, 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 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; executive transition costs; 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; charges related to the settlement of our U.S. pension plan; charges recorded in connection

with the modification of our option to purchase equity in one of our joint ventures; 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. Commencing in the first quarter

of 2019, we exclude the performance of our venture capital and other strategic investments due to the determination that such investment gains or losses are not core to our overall 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