Charles River Laboratories Announces Fourth-Quarter and Full-Year 2022 Results and Provides 2023 Guidance - Fourth-Quarter Revenue of $1.10 Billion and Full-Year Revenue of $3.98 Billion - - Fourth-Quarter GAAP Earnings

- Fourth-Quarter Revenue of $1.10 Billion and Full-Year Revenue of $3.98 Billion -

- Fourth-Quarter GAAP Earnings per Share of $3.65 and Non-GAAP Earnings per Share of $2.98 -

- Full-Year GAAP Earnings per Share of $9.48 and Non-GAAP Earnings per Share of $11.12 -

- Provides 2023 Guidance -

WILMINGTON, Mass.--(BUSINESS WIRE)--February 22, 2023--Charles River Laboratories International, Inc. (NYSE: CRL) today reported its results for the fourth-quarter and full-year 2022 and provided guidance for 2023. For the quarter, revenue

was $1.10 billion, an increase of 21.5% from $905.1 million in the fourth quarter of 2021.

The addition of a 53rd week at the end of 2022, which is periodically required to align to a December 31st calendar year end, contributed approximately 5.8% to reported fourth-quarter revenue growth. The acquisition of

Explora BioLabs in April 2022 contributed 1.8% to consolidated fourth-quarter revenue growth, and the divestitures of the Research Models and Services operations in Japan (RMS Japan) and the CDMO site in Sweden (CDMO Sweden) in October 2021,

and the Avian Vaccine business in December 2022, reduced reported revenue growth by 0.5%. The impact of foreign currency translation reduced reported revenue growth by 4.4%. Excluding the effect of these items, organic revenue growth was

18.8%, driven by contributions from all three business segments, primarily the Discovery and Safety Assessment (DSA) business segment.

On a GAAP basis, fourth-quarter net income attributable to common shareholders was $187.4 million, an increase of 36.2% from $137.6 million for the same period in 2021. Fourth-quarter diluted earnings per share on a GAAP basis were $3.65,

an increase of 36.7% from $2.67 for the fourth quarter of 2021. The increases in GAAP net income and earnings per share were primarily driven by a gain on the sale of the Avian Vaccine business.

On a non-GAAP basis, net income was $152.9 million for the fourth quarter of 2022, an increase of 19.0% from $128.4 million for the same period in 2021. Fourth-quarter diluted earnings per share on a non-GAAP basis were $2.98, an increase

of 19.7% from $2.49 per share for the fourth quarter of 2021. The increases in non-GAAP net income and earnings per share were primarily driven by higher revenue and operating income.

James C. Foster, Chairman, President and Chief Executive Officer, said, "We are pleased with the outstanding finish to the year. We exceeded our expectations due primarily to another robust performance in the DSA segment, and quarterly

revenue exceeded $1 billion for the first time. We believe our 2022 performance demonstrates the strength of our business - including our leading market position, unique non-clinical focus, and the resilience of our large, diversified client

base - as we meet the sustained pace of client demand despite the macroeconomic environment."

"At Charles River, we are committed to conducting ethical, regulatory-compliant business practices, to being good corporate citizens, and to the humane treatment of the research models under our care. 2023 presents challenges with respect

to NHP supply that we will proactively manage; however, our business fundamentals remain solid and we will continue to benefit from the sustainable, long-term growth trends that are inherent in our business. We are focused on continuing to

execute our strategy, drive growth and generate greater efficiency, and enhance our position as the scientific partner of choice to accelerate biomedical research and therapeutic innovation," Mr. Foster concluded.

Fourth-Quarter Segment Results

Research Models and Services (RMS)

Revenue for the RMS segment was $196.1 million in the fourth quarter of 2022, an increase of 18.4% from $165.6 million in the fourth quarter of 2021. The Explora BioLabs acquisition and the addition of the 53rd week contributed

10.1% and 4.5%, respectively, to RMS revenue growth in the quarter. The impact of foreign currency translation reduced revenue by 5.2%, and the impact of the RMS Japan divestiture reduced revenue by 1.8%. Organic revenue growth of 10.8% was

primarily driven by robust demand for research model services, particularly the Insourcing Solutions (IS) business, as well as higher revenue for small research models in North America and China.

In the fourth quarter of 2022, the RMS segment's GAAP operating margin decreased to 18.9% from 24.3% in the fourth quarter of 2021, and on a non-GAAP basis, the operating margin decreased to 22.7% from 26.9%. The GAAP and non-GAAP operating

margin decreases were driven primarily by the addition of the 53rd week, lower revenue in the Cell Solutions business, and a modest COVID-related impact in China.

Discovery and Safety Assessment (DSA)

Revenue for the DSA segment was $691.7 million in the fourth quarter of 2022, an increase of 29.5% from $534.1 million in the fourth quarter of 2021. The addition of the 53rd week contributed 6.9% to reported DSA revenue growth,

and the impact of foreign currency translation reduced revenue by 3.9%. Organic revenue growth of 26.5% was driven principally by broad-based growth in the Safety Assessment business, resulting from higher study volume and meaningful price

increases, both on a year-over-year and sequential basis. The Discovery Services revenue growth rate also increased on both a year-over-year and sequential basis.

In the fourth quarter of 2022, the DSA segment's GAAP operating margin increased to 22.7% from 17.8% in the fourth quarter of 2021, and on a non-GAAP basis, the operating margin increased to 26.3% from 23.1%. The GAAP and non-GAAP operating

margin increases were driven primarily by higher revenue in the Safety Assessment business.

Manufacturing Solutions (Manufacturing)

Revenue for the Manufacturing segment was $212.1 million in the fourth quarter of 2022, an increase of 3.3% from $205.3 million in the fourth quarter of 2021. The addition of the 53rd week contributed 4.0% to reported

Manufacturing revenue growth. The impact of foreign currency translation reduced revenue by 4.8%, and the impact of the CDMO Sweden and Avian Vaccine divestitures reduced revenue by 1.2%. Organic revenue growth of 5.3% was driven primarily by

robust demand in the Biologics Testing Solutions and Microbial Solutions businesses, partially offset by a revenue decline in the CDMO business.

In the fourth quarter of 2022, the Manufacturing segment's GAAP operating margin decreased to 12.6% from 44.6% in the fourth quarter of 2021, and on a non-GAAP basis, the operating margin decreased to 25.3% from 35.7% in the fourth quarter

of 2021. The GAAP and non-GAAP operating margins primarily declined as a result of lower revenue in the CDMO businesses. The GAAP operating margin also decreased due to an acquisition-related adjustment in the fourth quarter of 2021

associated with a contingent consideration arrangement.

For 2022, revenue increased by 12.3% to $3.98 billion from $3.54 billion in 2021. Organic revenue growth was 13.4%.

On a GAAP basis, net income attributable to common shareholders was $486.2 million in 2022, an increase of 24.4% from $391.0 million in 2021. Diluted earnings per share on a GAAP basis in 2022 were $9.48, an increase of 24.7% from $7.60 in

On a non-GAAP basis, net income was $570.6 million in 2022, an increase of 7.6% from $530.5 million in 2021. Diluted earnings per share on a non-GAAP basis in 2022 were $11.12, an increase of 7.8% from $10.32 in 2021.

Research Models and Services (RMS)

For 2022, RMS revenue was $739.2 million, an increase of 7.1% from $690.4 million in 2021. Organic revenue growth increased 9.0%.

On a GAAP basis, the RMS segment operating margin decreased to 21.7% in 2022 from 24.2% in 2021. On a non-GAAP basis, the operating margin decreased to 25.2% in 2022 from 27.3% in 2021.

Discovery and Safety Assessment (DSA)

For 2022, DSA revenue was $2.45 billion, an increase of 16.1% from $2.11 billion in 2021. Organic revenue growth was 17.5%.

On a GAAP basis, the DSA segment operating margin increased to 21.8% in 2022 from 19.3% in 2021. On a non-GAAP basis, the operating margin increased to 25.3% in 2022 from 23.7% in 2021.

Manufacturing Solutions (Manufacturing)

For 2022, Manufacturing revenue was $789.6 million, an increase of 6.3% from $742.5 million in 2021. Organic revenue growth was 5.3%.

On a GAAP basis, the Manufacturing segment operating margin decreased to 21.2% in 2022 from 33.2% in 2021. On a non-GAAP basis, the operating margin decreased to 28.8% in 2022 from 34.2% in 2021.

U.S. Department of Justice Investigation into Non-Human Primate Supply Chain

On February 17th, the Company received a subpoena from the U.S. Department of Justice relating to an investigation into the Cambodian non-human primate (NHP) supply chain. The Company has been informed that this investigation

relates specifically to several shipments of NHPs received by Charles River from its Cambodian supplier. Charles River intends to fully cooperate with the U.S. government as part of their investigation. Due to ongoing investigations and the

heightened focus on the Cambodian NHP supply chain in recent months, Charles River has voluntarily suspended NHP shipments from Cambodia at this time.

The Company is providing financial guidance for 2023. The 2023 revenue growth outlook reflects the impact of NHP supply constraints, which is expected to reduce our consolidated revenue growth forecast by approximately 200 to 400 basis

points this year. This will pressure the DSA segment's revenue growth rate in 2023, while the Company expects higher growth in the Manufacturing segment as the actions to improve the performance of its CDMO business gain traction.

Earnings per share in 2023 will be affected by the impact of NHP supply constraints. In addition, a higher tax rate, increased interest expense, and the impact of the divestiture of the Avian Vaccine business will reduce earnings per share

by approximately $2.30 to $2.50 on a GAAP basis (including the gain on the sale of the Avian Vaccine business) and by approximately $1.20 to $1.40 on a non-GAAP basis in 2023. This will be partially offset by foreign exchange, which is

projected to benefit reported revenue growth by up to 50 basis points and earnings per share by up to $0.25 in 2023 due to the recent weakening of the U.S. dollar.

The Company's 2023 guidance for revenue growth and earnings per share is as follows:

Footnotes to Guidance Table:

(1) Organic revenue growth is defined as reported revenue growth adjusted for completed acquisitions and divestitures, the 53rd week in 2022, and foreign currency translation.

(2) GAAP earnings per share does not include third-party legal costs and other costs related to investigations by the U.S. Department of Justice into the Cambodian NHP supply chain because these costs are impractical to estimate at this time.

Certain costs related to this investigation are expected to be excluded from non-GAAP results.

(3) These adjustments are related to the evaluation and integration of acquisitions and divestitures, and primarily include transaction, advisory, certain third-party integration costs, and certain costs associated with acquisition-related

efficiency initiatives.

(4) These items primarily relate to charges associated with U.S. and international tax legislation that necessitated changes to the Company's international financing structure; certain third-party legal costs related to (a) environmental

litigation related to the Microbial Solutions business and (b) investigations by the U.S. government into the NHP supply chain applicable to our Safety Assessment business; and severance and other costs related to the Company's efficiency

Charles River has scheduled a live webcast on Wednesday, February 22nd, 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

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, non-GAAP operating income, non-GAAP operating margin, and non-GAAP net income. Non-GAAP financial measures exclude, but are not limited

to, the amortization of intangible assets, and other charges and adjustments related to our acquisitions and divestitures, including the gain on our sale of our Avian Vaccine business; expenses associated with evaluating and integrating

acquisitions and divestitures, including advisory fees and certain other transaction-related costs, 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; investment gains or losses associated

with our venture capital and other strategic equity investments; certain legal costs in our Microbial Solutions business related to environmental litigation and in our Safety Assessment business related to U.S. government investigations into

the NHP supply chain; 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 and the revaluation of deferred tax liabilities as a result of

foreign tax legislation. This press release also refers to our revenue on both a GAAP and non-GAAP basis: "organic revenue growth," which we define as reported revenue growth adjusted for foreign currency translation, acquisitions,

divestitures, and the impact of the 53rd week in 2022. 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, the 53rd week in 2022, 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 Charles River's expectations regarding the availability of Cambodia-sourced NHPs; the impact of the investigations by the U.S. Department of Justice into the Cambodia NHP supply chain, including but not limited to Charles

River's ability to cooperate fully with the U.S. government; Charles River's ability to effectively manage any Cambodia NHP supply impact; the projected future financial performance of Charles River and our specific businesses, including our

expectations with respect to the impact of NHP supply constraints; earnings per share; client demand, particularly the future demand for drug discovery and development products and services, including our expectations for future revenue