CRL - Earnings call transcript Q2 2018 | Charles River Laboratories International, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Charles River Laboratories Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Todd Spencer, Corporate Vice President of Investor Relations. ahead. go Please

Todd Spencer

and morning results Second Good This to Charles XXXX. will Executive the Jim and Vice Thank Financial the Chief XXXX and second Earnings Laboratories Officer, Officer; Chief and Quarter Chairman, on Webcast. Smith, Conference River Executive Foster, President our you. comment President welcome David for Call morning, of and quarter

at today Investor presentation Relations either August XXX-XXX-XXXX. respond associated beginning they The available of will is this be the be is will to posted The XX. in questions. code replay noon on a through of case is accessed presentation, X-XXX-XXX-XXXX. at the today's with by available website calling access slide section remarks, number XXXXXX. our replay ir.criver.com. can which Following access international There's A will call The and be

well any results but which various was materially those Actual Report forward-looking other XX-K, Form and those on we Annual of as version on Exchange limited also from filings make the for prospects of Relations company to statements XXXX. Securities purposes I'd access like discussed the an result filed statements XX, may constitute provisions Safe Securities of for Any of to, important You that under indicated the differ a not by Harbor. archived Investor as Reform make our including Litigation plans Harbor forward-looking webcast as and website. XXXX, Commission. may the future expectations, Safe factors, Act with remarks you on in remind the February of the our about we our

results meant help financial continuing financial measures future be non-GAAP prospects, considered with prepared information management non-GAAP primarily G, During be believe measures. manner to The understanding reconciliations to core a and results GAAP. of the consistent this operations call are financial meaningful measures company's gain now that Investor operating measures performance. through which superior our financial I of these operations comparable with to of substitute link. forecasts not call, discussing can measures in results those and to Regulation and GAAP turn We the the will from non-GAAP and a investors on you the Jim Foster. with for website accordance our accordance in section Relations the will find to the GAAP or In measures over we

James C. Foster

portfolio, provide sequential demand to resulting rate client believe we environment support the Good is morning. our are our our upon robust our company's to with generating pleased We're very the believe our is our discovery the growth business our for that early-stage and the operating CRO intended both to premier that revenue capital and funding incumbent to record. continue made shareholders. quarter The support nonclinical to new benefits, We we now with have enhance markets people second of and second organic on market an clients and River. is as in and level on investments in already the to our strategy. the indicative the their growth the clients execution investments the are We performance position intensifying which pipelines, track small, time our our and in it through from these of from healthy highest The creating improvement margin. large is on value is continued invest Biotech development. to to believe extremely ability opportunities we that and us Charles opportunities to growth unique reach that capitalize clients, target infrastructure in

share, for favorable have and higher made, free in and XXXX beyond. earnings flow in reflected that progress market We the conditions expectations This year. per is continue we are cash and our optimistic the revenue this will growth,

by increase We XX.X% performance. last million, reported Let revenue a of year. you highlights me $XXX.X quarter begin the over second our of giving

XX.X%. revenue of and sequential improved quarter benefited segments. perform biopharma segment revenue growth both contributed On-Line exchange growth in across the organic organic clients increase clients, MPI to improvement to growth RMS substantially spectrum and continued by contributing Foreign of growth. first our The X.X% and Manufacturing X.X%, Research, from was the as high as the acquisitions reporting institutions. rate quite well and The level, global Revenue DSA BioTest KWS of reflecting academic both well, with single-digit broad biotech Brains

performance that remainder primary year. was second $X.XX of quarter the outlook. driver believe per capital on outperformance to client from second second accelerate due from versus our gains was DSA Safety continue of quarter, of were of share MPI sequentially will the to lower improvement contribution Based to of a tax we basis, demand. anticipated, quarter mix combination to As declined to increase Manufacturing XXXX. increase Assessment in the when gains, outlook points and business, capacity the operating last primarily the The add in an points the investment favorable the the On $X.XX and acquisition, the year. XXX rate. our prior also basis in investment The by to $X.XX significant basis the The we while compared of XX% segments. margin and year-over-year year, by quarter first second personnel by pace our accommodate XX.X%. capital and venture increasing operating the to sequential as Venture the the in the driven headwind to XXX for increased margin were demand year, Earnings per compared be the and study last $X.XX a share XXXX, were in continued a quarter, prior a EPS the of

guidance point to As organic an basis prior from on are to a XXX XX% our a reported basis. growth X% XX% our X% result, outlook, to revenue we basis, increasing improvement on and to

primarily expected gains investments. per our by capital midpoint $X.XX venture earnings increasing non-GAAP reflecting also to the than share at $X.XX We better guidance from are $X, to

We people, accommodate technology our were quarter in our segment to to the are quarter achieve on year our low increasing to while details order DSA second and the like client of the exceeding quarter quarter, the the segment a XX.X% to Charles growth X.X% growth, revenues basis position second segment. $XXX.X be while a this to River part Acquisitions I'd revenue second an demand. invest family. million contributed with beginning double-digit performance infrastructure pleased DSA with in in to in of MPI on increase first earnings you provide continuing as expectations over organic DSA reported XXXX. in

Discovery segment that lead especially of is and which we from development benefit believe enhancing high optimistic these in its Assessment CRO client new testament single-digit one of services, clients is the clients. in factors work client, with Early remain second believe services, molecules. to year. about prospects our with to biotech Discovery candidate a expertise the very for organic revenue in quarter, identification our for delivered environment The XXXX. We The IND for performance business of to Discovery for discovery strength this this we growth the our and our to market Safety XXth DSA premier, its the scientific demand from strong driving demand a reputation We target to recently strengthened portfolio enables the continue early-stage will filing. and believe We the through business

are the virtual or have our rely biotech limited they beginning track services on our Early strong of identification with target Because result capabilities cohesive record programs. of a client advance. sites internal and stage more and interest Discovery particularly efforts multiple clients early business discovery was our our create discovery programs As drug often exceptionally our of service the many capabilities, and encompassing a ongoing expertise, integrated areas, our offering, as scientific DSA to across for

Assessment than As are mentioned the of Discovery last progressing our multiple sites, many I span quarter, into Safety more integrated programs half business. and

demonstrating clients a successfully cost-effectiveness of working them, from and that value with we to us broader the are provide research enhances both portion scientific through drug perspective. a the process early-stage a We

oncology bioanalytical continued well, Our Discovery perform in very services. both and In business Vivo particularly to

accommodate for work of single-source research, focusing our driving support novel Assessment Safety demand ability discovery their on $XX accommodate coupled significant capacity a our emerging area sites an increased efficiency, with needs. expertise, synergistic costs, robust research near-optimal our from comprehensive which are services, across of MPI experience, for of our exceptionally to quarter our clients' of another parent drug small driven clients' with the to the to global deliver benefits partner well to with acquisitions legacy we we which which a days and by has remained online MPI scale utilization drug process support Our demand. and seamless testing was suite Assessment at business due the expedite capacity strengthened client and the of well. The of at cancer second creating very clients acquisition network a million of and bring the achieved biopharmaceutical one therapeutics, large to at which Bioanalysis improving molecule well-positioned The integration like science is reported expanding the and million to the outsourcing positioned our end increase. in our are was the the Capacity first complexity There broader MPI, more provide bioanalytical nonclinical by enhancing small capabilities. of tenets tranches synergies intend that utilization investment area and is XXXX to is acquisition, of client believe this with By base. require the to operating we to continue of a available in on their was and our global increasing the completed of efforts. client early to is track and operational and the Demand through XXXX. $XX joining good at Agilux, oncology of performing to access our by flexible Safety XXX also MPI in scientific WIL, our to continues levels to quarter, goals we set forth acquisition,

are are midsize a when small benefiting especially which resources, global biopharma companies, relied companies Our external on are CROs, environment. funding their from increasing reliance robust capabilities have and and important extensive on now always

quarter. the a mix basis rebounded as point as unfavorable previously The well decline headwind margin second points anticipated. XXX basis the XX.X%, study These Assessment primary margin the was accelerate will and trends, in for predicated during on The second year. trends well confidence Assessment give DSA the that activity of as Safety operating second outlook year-over-year robust growth in year-over-year basis on from is half but the XX revenue by quarter as foreign declined a factor driving XXX us booking we the Our the points Safety backlog to as these sequential business basis, exchange.

mix quarter As long-term reinforcing a a we timing to is points studies and The short-term long-term beyond study our projects continued quarter the the quarter. in DSA improved start-up to the This studies sequential discussed not in is operating progressed as fluctuates mix margin. May, towards from largely long-term linear. of sequentially mix many second of in weighted was and basis phase. Study the improvement in XXX initial the reflected business issue, that be

operating to the the second DSA levels. further to more returns margin We mix the half as in year improve of optimal the expect

Research RMS of a the RMS an organic over of second second million, an Models, on driven the Services revenue for For segment, consecutive quarter growth improved rate the quarter, X% $XXX.X China businesses. was increase The by and XXXX. basis

less outstanding expertise. contributor also another rate. of delivered With people, own GEMS, use operational models. capabilities, their China in revenue a our and Shanghai enhance the to accelerated to Insourcing in continued business across scientific the in footprint that RADS, RMS We China quarter. facility our businesses their revenue, Insourcing of Solutions, full our believe RMS and the Models, capacity, China and demand is Solutions clients high-quality won Research segment's up Growth and than of revenue are expanded new our year-to-date we growth the growth new lieu our performance. ramp in or as slightly efficiency XX% Broad-based larger For RMS to services total of leverage to because to the to choosing of contributed becoming case

needs. create or Insourcing GEMS genetically-modified business flexible continues and Our as to solutions clients' use more our Solutions, new clients vivarium to faster of management cost-effectively, also increased for like innovative for research CRISPR drive models to IS, their business. demand win adopt continue and technologies

to RMS opt historically have us. operating new academic margin government We to intercompany from the contracts Services profitability now business MPI IS's second MPI and decline have can and year, been awarded by with driven The sales. from DSA work models half flexible XX and under intercompany basis the the the to declined in the by are was been primary and points biopharmaceutical attributable which with because new client transactions of last Approximately quarter they revenue are of base, of of clients the primarily that segment. which attracting sales institutions, XX.X% recognized

for the wide the more represented mentioned Research the largest by of margin. importance enables of As in client volume that but research volume XX.X% we increase Model RMS to organic only Research second RMS date, our Manufacturing was a a models of Model is underscores basis past, clients. global business Research of segment the X% the segment vital the which for is This high-quality, have are business. Not our perform Support total on our by DSA segment of our scientific the over Models the an required, early-stage our regulatory $XXX.X more of portfolio the business tools, used client. a component quarter largest than last Models was Revenue research us DSA than our twice to year. million, essential,

Avian Solutions reagents, business second Solutions reporting of both reported with Microbial and second The and services. driven organic growth above good rebounded business another quarter. in Accugenix demand anticipated, XX% in Microbial businesses the As quarter, sales identification the core had robust a each also by microbial Endosafe cartridges, Biologics quarter level.

for of cartridges. the PTS turn We XXXX, instruments also demand drive Endosafe second MCS will sold greater more compared significantly in which and quarter to

provider biopharmaceutical offer can non-sterile needs. As position solution in a are to our the both comprehensive clients' a quality-control of sterile and testing consumer rapid for products, and we rapid who support testing only unique

of adoption in the and for with our services. invest business a to business client XX% technology enhancements and products enhance in The rapid of improved above drive growth Solutions greater organic and continue year-over-year our Biologics of level on Microbial revenue the the platform performance product testing the to quarter, the significantly basis. We second functionality

continues first biosimilar As were holiday capacity. growing at expected. our the quarter and the in after in the development volumes The biologic number sample been need for rates, we May, of drugs discussed in demand has second softer drive in quarter services the but improved as seasonably for the double-digit which to period, new and

ample the through new leverage by pressure for to site The segment's to pipeline companies research our choosing the expansions a by market. a model after efficiency, improve and measured to modest The sequentially was the pace, for by which increased which unprecedented our This of industry biopharmaceutical and small a progress a to make process venture Manufacturing which be reliance be of and XX an for business. industry in as expected, and are facility funded drive plans today increasingly transition firms. heavily capital sector robust result our their sourcing for certain early-stage is but year externalize and margin with expected is is to foreseeable Pennsylvania, productivity, our improved companies operations is as from innovation pipeline internal speed better increased as research is this expected biopharma basis, accommodate to the approximately margin molecules new the doubled base evolving. due operating in will Microbial five volume larger will declined much the XXXX. their increase points Through the open in quarter Manufacturing markets biotech costs and driven primarily are year, The us. cash with outsourcing client at the XX.X%. Large well higher their start biotechs since over acquisitions, employee to time the partners large XXX Biologics We future. segment's second and basis this expansion driving basis have services. with doing new Pennsylvania believe We capacity investment intend in operating Biologics markets to company. points, CRO and broad-based opens, laboratory both infrastructure, is hand On by investing the to revenue to to to operating has through continue the in in Solutions limited and a early-stage on partnering associated critical other to end globally. or and capital and last businesses. by With year-over-year pharma believe capacity drug outsourcing, including partners, XXXX, to no the ongoing years. demand increasing our site the our on the expansions They're this like in academia from most process, so demand, we is on to biotech nearly continue of we Once slower margin There R&D XX% transition the

have we made hire to needs the personnel amounts modest increasing and of demand. add meet of time, this our accommodate During capacity disciplined clients talented to and investments

we investments anticipate company the of doubling continue these again expect We in as the size to five years. next the

with to flexibly need continue speed empowering both enhance tools we internally and this, business ensure responsiveness a accelerates scaled with respond to to organization unit we environment, of rapidly operating can a we and our the create business agile more that model facilitate our and To be them we our process As resources minimal clients. giving that and to challenges interactions, opportunities evolving the grow, market and the new business must adopted respond to constraint. that leaders by to decision-making they the and

businesses. our point and driving to with closely operations and impact. a is the This support closer to decision-making organization more client-centric the of encouraging fewer are they across support and with relationships more the aligned have build within layers functions We working critical intended

We left the has to company became and model, to of and interests. thank in River's Operating streamline structure, success like ourselves including President and confident further in the that more our and with organization I'd to order career. will invest strategic the next wish through scientific that our platforms, company the implementation needed to growth time new Chief during Davide it significant and areas of best empower from will his growth internal businesses clear eliminate competition. a to number the operating more and pursue anticipated to a I'm support the and contributions portfolio more distinguishing clients. Molho, continue Charles this to faster our our continue and the responsive also organizational technology us him COO, our initiatives a role the to stage decision-making Officer, critical and Technology support and Davide process of acquisitions, nimble the to a seamless streamlined for other our company, his make with of further must we expertise, the be people. in interactions During differentiator his

with businesses to cybersecurity. well enhance projects gain real-time client-facing can strengthen focusing data are access projects and We on as work clients facilitate our across to platforms as to to which our the ease

of year, earnings employees of current standards believe we in maintain retention to services, current to robust in reduce structure, we compensation North maintain in China. program technology to businesses, been across in factored platform. markets a our continue further monitor less half of to which employee to structure $X.XX of within on including voluntary implemented support recruiting hiring invest to order information wages we This our our targeted operate the share certain We expect were our a as increase wage will and will focused nearly are this X. also In We levels, the and we products In maintaining our competitive position by majority meaningfully per compensation effective in to market, the choice. into the of and our predominantly enhance as competitive guidance. The XX%. July the which continue has multiple than hourly a these enable are an second job of closely UK, geographies. adjustments America, program us To at our adjustment turnover level to for significantly demand and digital employer the

provide drugs service the to our To clients believe to for also go-to, with enhance The fact expand our our employees, efficiencies to responsiveness Charles is view provide of build We the preferred this invest will continue The we River more in that our in right worked that to portfolio continue reduce the fastest position is of interface; early-stage candidates clients. do costs relationships; granted. our experience. to robust. position, for that us fact as and who that digital maintain strategic simply provide our that portfolio. to across this to we is on speed enhance testament M&A the seamless the and XX% and a Charles XXXX enterprise acquisition to thing acquisitions best-in-class us do our our intend take in not clients; will the to to imperative It's FDA-approved River clients we use and working client CRO, pipeline also to remains unique the and dedicated a for our capital. And drive for of

be higher or for target work revenue, cash better, their earnings consolidated thank In exceptional like to organization, margin XX% balance for I'd commitment, and flow. their shareholders and our of of and while to Our conclusion, achievement our free will long-term operating employees driving per of in the support. with a investing our future share goal

on you results details XXXX additional second give our will David guidance. updated quarter and Now,

David R. Smith

Okay. Thank good morning. and you, Jim;

other other Many the certain organic I'll I primarily I and currency that revenue will and initiatives; of Now, the XXXX; operations, of speaking my also translation. in of CDMO related amortization exclude charges; to our costs begin, impact from which primarily to the may continuing divestiture, results impact global divestiture excludes foreign items. to before which non-GAAP comments growth, and the refer business CDMO of acquisition-related acquisitions, be efficiency remind you

free strong the We share, our and flow are with pleased included per cash quarter, second which earnings for growth. revenue, results

gains per were and growth our share outperforming of venture earnings revenue the year-over-year strong $X.XX, income share due aided the primarily of earnings by outlook in lower The reform. and to MPI benefit were capital expectations. year, a rate to from the per second investment with modest increase per to share $X.XX outperformance Along driven operating the quarter from and prior contributions was primarily tax to by tax our investment an capital of part the compared $X.XX XX.X% in quarter higher last due U.S. acquisition, venture Second gains.

estimate gains full-year not than in these the guidance higher gains Our we because of XXXX included performance of year. return, substantially initial have year-to-date. quarter do $X.XX. our initial estimate. included second And of expected for venture capital the The our year-to-date an investment were not half gain VC total any for investment $X.XX the beyond gains and we annual the forecast $X.XX was funds second of

XXXX. be X.X% level total $XX.X our reminder, we of year's revenue, full-year Unallocated guidance. or costs unallocated a beginning inherent costs the our corporate in or expect below continue non-GAAP potential XXXX. performance As which intend were last guidance investment X% VC given gains of to the below is VC corporate from year-to-date, of forecasting million in difficulty X.X% of to losses, revenue we to slightly and eliminate X.X% At

$XX.X sequentially, to with notes while more acquisition $X.X million debt in MPI million range April. costs our manage infrastructure, to but investments second of and X% invest expense of increase continue the was levels quarter, costs intend of targeted $XXX of increased business within growing We the the a fund to or and reflecting in corporate lower. million $X Net scalable support a rate future year-over-year, associated primarily higher interest issuance million the in senior keeping fixed an to borrowing

now to $XX additional our interest million year. expect due the from increases an rate to For by the we the prior reserve of expense interest million year, $X.X for potential federal this $XX million, of increase net outlook

tax Our and from was decline The benefit basis efficiency initiatives. last from second reform second the tax result of decrease XX.X%, points was the the largely tax operational quarter rate year-over-year impact year. XXX quarter U.S. the of of a

a For mid-XX% year, to expect which the full a assumes our we to rate of in tax range range a the the in XX.X% tax for continue to on XX% of XXXX. basis, non-GAAP rate remaining quarters be

working Turning the was Free on increase to million, an the last The year. to increase cash strong. increased quarter million very capital flow XX% was flow, management. cash $XXX.X our of for from primary second $XX.X reason focus

cash would year. end was of For acquisitions, net meet X% reflecting the remainder MPI. XX% the And result trends the approximately evaluate of by increased be this the higher to In X% on the any forma remain not to our and to the repurchases, and basis, full-year and times. reduce will gross in was year-over-year by our XXXX contribution debt quarter our returns. $X.XX billion. our second reported $XXX more free reduction debt working of XX% million, On not an range guidance, shares priority earnings of for the the pro under the reduce balance diluted of by to at in have of a our strong slightly on we X.X allocation, time. in We slightly repayment. gross capital capital outstanding to shares. times the to an absence XXXX we With a believe Absent track share expect point on $XX.X any by XXXX. to of outlook ratio acquisitions, do $X.X to second and revenue for leverage million our We $XX priorities organic flow intend we million million we debt followed and basis respect leverage per goal XX.X to capital to by repurchased ratio increased quarter. increased areas million ratio to basis, we basis to of million improvement our million. our is capital to primarily below remain the At CapEx $X.XX the year, variable generate end expectations Year-to-date, share acquisitions top $XXX count outlook agreement. a deploy on range X.XX with to $XXX reflecting the rate growth leverage the the which XXXX share from X interest will had that times, a XX in quarter, for continuously have we to of Strategic dilution greatest exit compared outlook credit the a demand intend our rate than and to our expected a a year, year-end

of X% now to an This less to X% of approximate per Foreign a our share result prior for a earnings create will benefit the favorable versus to a expect compared as is dollar. headwind be outlook outlook. our of prior year benefit. from We full-year the U.S. slight expected exchange FX weakening the

most in digits seeing trends low-double segment, the businesses for are expectations revenue digits expect We the segment of strong are organic raising DSA growth. for our segment. revenue now for the digits our low-single growth the and segment, We Manufacturing slightly across and high-single for RMS

range We are to to to to to earnings make investment The growth. accommodate better per $X. also the non-GAAP by primarily be The increasing $X.XX $X.XX the earnings is expected year, our in driven earnings our outlook the gain. of future with for full guidance share the increase than current expected in and the position favorable company also investments necessary venture for demand our plans business capital reflects by

earnings and adjustments will in can mentioned, choice Jim our support an nearly XXXX. the be of share our As compensation position employee our XX. detailed by of employer A the half recruiting and structure maintain to reduce slide second guidance $X.XX found on summary retention to as per of financial efforts our

expect in basis, rate the third quarter, an quarter On expect growth the to growth and the backlog This level, third we bookings we improve quarter above we organic the second from on intensifying to XX%. the to reported is second strong believe segment, rate expectation in based similar or which the quarter For that revenue be part rate. indicate in trends business. DSA demand our are

XXXX growth the quarter of in per We share non-GAAP when expect compared level mid-single-digit third to earnings $X.XX.

$X.XX compared the to creates included we quarter performance the estimate of third headwind mentioned, capital have venture I the XXXX. year, As which previously remainder for our in the of approximately investment quarter outlook a an not of third for or

our we costs quarter, quarter are operating earnings adjustment with higher of revenue the prospects addition, in second digit, about In are includes our flow. third share financial structure low-double growth, will an and In achieve increase the per incremental we related pressure full-year the margin. outlook that compensation pleased in our non-GAAP personnel confident cash are growth performance, conclusion, track the on the organic free to and to in

anticipated growth growing a tomorrow continue in evaluating position enhance today CRO. disciplined the as Thank business needs you. take our to early-stage the to which of the accommodate approach the premier we We of manner investing and to the are by to

Todd Spencer

That concludes take our comments. Operator, we will questions. now

Operator

Thank you.

first Our Tycho ahead. line question from go of Peterson, comes Please JPMorgan. the

Tycho W. Peterson

greater with about to you of this MPI could drivers maybe And Charles impact, want of your the Jim, much how talk I thanks. was adding Hey, work? legacy I if start one than versus legacy Can strength. follow-up. expected then, River pipeline ask clients

on margins? weigh to expect this issues, the long and On mix do Thanks. persist study you how

James C. Foster

follows The predict but study is a mix typical difficult pattern. to

mix the want you ones. studies have short have studies. a long-term long and So, you don't short-term unless And typically you of

life of issue. sort you cycle have the So,

You start-up are some those. long-term about We're the the in call. We're phase a of comparable higher short-term standard where the working margins last we costs on which a of have through more the studies, works. studies, quarter actually for the long-term talked to lot

anticipate are of year, we and was. strong the MPI second of sure quarter SA half exactly backlog and line part what comment as and half Not well. we shift, in which obviously, in mix bookings line your for to that from the bottom given you and one DSA, saw both guiding the year, of two, and top quarter So, we the

Tycho W. Peterson

How on Charles much MPI strength. work? adding customers was legacy just River the versus pipeline Yeah,

James C. Foster

been both. MPI Yeah. some extremely clients that. the who better MPI course, I not to or it's delivering were, open be clients Maintaining clients, anticipated. have mean, And performed River having we clients strongly, well utilize utilize inverse, of Charles margins, space, and River begin their as had legacy to we of beginning the have than historically locations. where Charles

process integration the the house. and with pleased client from sides receptivity extremely we're both So, the of

Tycho W. Peterson

Okay. Thank you.

James C. Foster

Sure.

Operator

David question go next Our is Jefferies. Please Windley, ahead. from

David Howard Windley

be the I maybe of in of was platform the morning. bit senior light Hi. what needed of And this looking a Davide streamlining year. on structure little my this. at how Good Jim, was in elaboration say, of comments. trigger elaborate evaluation Was to done? – in a promoted hoping your in more you're what taking on terms for emphasis this management just on, long you think in questions. February could the Thanks a morning you I lot investment for this

evaluation this this and Thanks. trying to understand how you just brought to has point. progressed So,

James C. Foster

Sure.

and our size meaningful scale IT, of is investment in of just resource, and company. people factor. significant the a So, rate-limiting and rate and space, Labor the in competitive growth the advantage always that's and and function principal investments

in not many advance the your it's So, sort you months of of hurry people advance, the them up training. in some can't hurts you that work, of and months far have hire But – you margins. work too to need because once

our in, So, IT, base Enhance process want to interface; eye cybersecurity, to of nature sleeping. made need And and some competitive principally invest which data adjustments pay, of of course, possible. everybody which given markets people, and We're keep the fruit. to in ahead bear hundreds to meaningfully we the client we're they're the given hundreds while will with better; going clients: that that of as we're we continue sure keeps one as open far for to and use hire

to the make the leaders have of last structure, more we really couple to run we if business, GMs in and and that move have decisions significant businesses their own the decentralize organizational ability way as business so the a feel we quickly decisively. the run made and On and who months

we're commentary And – Davide, reporting confident efficiency also decision-making the of COO novel so, it's which we're operating closest their that driving And the some the the the that issues we're functions, was organizational already you've have those position that decision-making folks, And they with move, in quite and it for. own relatively where With reflection married recent a and so and to corporately we've beginning arise. to larger that's have up of merely move. pace teams. as regard of pick while staff a to that indicated, a we're was

a company speed counterproductive beneficial not So, what And had was to found sort with some that. which never layer and the moving, we COO. that, was of that of XX-year-old that to in we're extent, a terms

So, in that context, we eliminated that role.

So, the organization feels more nimble.

people. as less have are. off better I the think more, before, decisions are of as to the closer we lots We smart top-down the And the made, and possible, I decisions said really

David Howard Windley

answers. the Thank you. appreciate it. Got I

James C. Foster

Sure.

Operator

Kreger, Our William next John ahead. from Please question Blair. go is

John C. Kreger

very Thanks Dave's just much. Jim, on, Hi. to on follow question.

in? want of the your all Given changed that see demand of River competitive of edge? Thanks. where thinking be sort Charles what having businesses you opportunities you big at boundaries the Are has talked about, you to in you expanding terms a

James C. Foster

guess both would We investment non-clinical intend I about talking stay in arena. to you're organic M&A. So, I say, not. the and And

As we, have we I all billion think, aggregate you mid-single our market, our sort posted at first about digits. call, of if in businesses $XX a quarter of growing

enhance we and to those in virtually So, where it's we shares. one opportunities big market, everything do shares leading market a have

in places grow, – We where well, are that's meaningfully in to no best investing buts. organic the way but growth

out and quite quite There's lot Additionally, there. assets of diverse pipeline the a robust. is M&A

increasingly sponsors on of as multiple strategic perhaps financial As at that less now. looking these have always, we conversations look and some have I more competitors them. we say would at going we

synergies top never While have often sponsors pay or bottom have. that up, line the both they we should

towards not maybe responsive laboratory-based more particularly, probably have services, vision and biotech, definitely partner Safety, in, expand we we're all enhance be continue more and but pharma; and more particularly, just a to will for be how we China, big portfolio, to large So, that to a bigger, and our view areas Discovery, the for molecule-related services.

say if problems biotech, for is ability some significant clients, playing. to need of sense areas areas and of authority. And capacity. feel role of to never are under in They solving that advantage to who activities where at I will a So, science very we and principal them scale some science, it is the breadth larger. also can in subtle our are and to I great are that increasingly scale look you basis them. do we have portfolio quickly really no the And the where we with never makes of we I at, lot have but we very for would the of continue that just the terms expand be say the of but competitive It get build that outside this it. do sort a will both quality fill that on the cost-effective for most good depth

John C. Kreger

much. Thanks

James C. Foster

Sure.

Operator

Morgan the from Ricky go question Goldwasser, a ahead. have of Please We line Stanley.

Mark Rosenblum

kind Rosenblum examples on had mentioned you a guys prepared interface clients? digital building Mark services It's that I you're some context what some you remarks. Hi. or your Ricky. Could just just the of for question on in out of give for

James C. Foster

and data access pull that a predict design clients clinical on end so a it's a of better can design It's and online the basis have everything studies, both most ordering of our from with to design Probably you importantly for So, they real-time our perfect is some data though world the studies that points, studies host clinical – whole linkages themselves. folks, availability to essentially all way things. back the that in really using to pre-clinical.

additional somebody, their day, look do can it they're knowledgeable our to question this of is to or what our real if that the scalability But can is So, portfolio. over they We alliance the about you of business the talk added to with clients leisure thousands biotech some realtime. of want across how there to which that. think have literally control need be at problem, for magic clients, that call much or with that they clients group And if we've managers to, model dependent that people, a they added. at we a very some and feel interface evolving shepherd of of smaller on it, geographic them the year have or whole will a they

important So, data, from clinical this part as a a folks, you is hear really of lot the business.

as to have their powerful think, access ability essential. having Our clients we we're successful But process own building thousands we certainly, definitely it's a studies have predictive from in is data more data to be we use not speak. will that that that. way, optional, in of And if are out I

Mark Rosenblum

build Got a And you how these long interfaces? do have it timeline take just follow of up, will a on it. to sense

James C. Foster

to be sort It's of going continual.

will beta-tested, it to continuously. be out, then of and Aspects then rolled added

will next people years, So, distinguish that hope, the the make should moves we meaningful we these I'd couple us from enhance the over competition. have, obviously, and That in areas. of say, we

Mark Rosenblum

Okay. Thank you.

James C. Foster

Sure.

Operator

line the America. de Derik have Bank question of We of ahead. from go Bruin, a Please

Juan E. Avendano

Congratulations DSA organic on also, Would revenue This your high-single-digit to quarter. behalf and of what's XXXX? for Juan break Assessment? embedded in between the the Hi. Safety growth in and DSA performance guidance And Avendano Discovery the is breakout willing Derik. on out you be

James C. Foster

love to into we clients be phase. move with Yeah, that us just to into with responsive not we're all want that. tox to in at so, we but the would we look us as drug their early It's phase, one. We if to always going promising, that your work important And questions, the the do phase, start as possible. continues as and and as GLP to look to discovery pharmacology segment

person; important. our HR, operational shareholders, we And ourselves quarter we way we this. some holistic made senior both changes senior both and A and operating last IT So, a our view person have finance And operate by clients, the overseeing pretty senior the with etcetera. businesses: is person;

Safety. a good multiple us, half in clients of intensify integrated that we gray the Discovery, use growth work sites. have the We're will doing of we're And very suffice who And we happy to year, that with we you so in the be use So, the We happier. in who with would do Discovery, XX% we half second taking across of studies say, quarter. will think it rate also to the but about have back share. demarcation, the job like folks

when seeing expansion these the the businesses. and of had the all bought portfolio we're we So, utilization exactly way hoped the of we

Juan E. Avendano

studies? you. it mix this follow-up. if mix improved Okay. trends unfavorable still Is across and what the long-term are study have specialty study the DSA to that seeing toxicology also to may And studies, but that you're operating seeing? sequentially, Besides toxicology Thank you're of mix general headwind a was I margin. short-term the The and a contributing

James C. Foster

we itself And earlier, very and want studies, is mix, mix. and And have will No, year. long-term much to I and both a so that healthy mix as work do of short have through we said will I mean, that. the mostly it's continue it

more no, than nothing that. So,

Juan E. Avendano

Thank you.

Operator

question from comes Ross line ahead. Evercore. next of Our the Muken, Please go

Ross Muken

and guys, morning congrats. Good

sure tease are seasonality. I some That those out up So, seems a little seems like levels the of bit strong. sequential like maybe there, which In the the Endosafe Manufacturing, quite guess, of you I'm were activity just still sort on improvement Seems year? business. well. rest the going in how of still it's thinking and Avian, it about are those for biologics

James C. Foster

all was lighter And at business a you large and just drugs there. which that biosimilar So, volume and good point quarter, a from first out quarter. the little demand beginnings plethora biologics and anticipate that, tends often of year. a molecules, view, volume guided anticipated There's definitely second first we least will, to achieved. have don't is. a of has of we it a to in slow be quarter. a strengthening And Seems as just the the We bit why; know in both the we

Microbial usually sustainable quarter out across It's really And for think most space, people, it yet, we highly is a had hiring So, of really does, as building most and strong but robust. the pieces. a lot competitive quarter, of a competitive growth space. of rate space, definitely a parts our and strong lot this is quite years.

– which good of margins capabilities from market and our instruments growth sold. we not issues, about continue year. had quarter. the that all And of remarks, razorblade we totally to for And client okay it's due sales. with kind XXXX had balance so said cartridge more see And That's sales, very to our a continue of a shares. performance should Avian little the wonderful some operating course, nice large rate prepared dislocated the As business, in business and the a

anything in organic of on impair That grow is see Manufacturing indefinitely. kind at So, to don't continues the mid-XXs we with double-digit range. sustainable significant horizon rates margins operating that. to growth And to the low

see view. do those of a all in and businesses In point of demand we view opportunities competitive fact, a point of three significant from

Ross Muken

helpful, That's just maybe And Jim. one. quick one follow-up,

On are noise underlying strategic guess, contribution, forward? seen in full may into thinking on very the Because we merits to it's VC in built some and still some doing when a point, what in basic. I P&L philosophically But the terms the going it's from is year although this predict, you of standpoint the that could there. are handle create gains, now it pause tough get well. some how obviously to how we've obviously, guidance at the

basis? guys for maybe guess, and what in underlying maybe the versus accurately. I Model how that So, through are to terms of Street account that on the go-forward debates the gone a you have more help

David R. Smith

so, the one beginning of And reasons want this why we that's year, XXXX, the we started of the to in at for that to even signal didn't VCs. give guidance

wildly. our the to onwards. been of like you've because the have to with business, River recent volatility, business or Charles VCs VCs around business, we're guidance, to to you the to guidance why We its as core out, against quarters, one it's our intent yourselves VCs seen, i.e., And to from XXXX put guess, remove performance the side, – consider the trying our core I signal bounce that of that, the almost and saying which we'd we're judging is and in quite in essentially consider they because ourselves organic stripped can

Ross Muken

Thank it. you. Got

Operator

We a go ahead. of Donald from have KeyBanc. the Hooker, question line Please

Donald H. Hooker

Good Great. morning.

the area, respect of you, in does China? road another new and is growth in to and forward, when that looking to models research I capacity mean, the look capacity how down addition? of generating with sort that capacity high give the level you're China see So, much you do sustain

James C. Foster

It's big really continuous. a market. it's unit On be a big bigger. basis, as or it'll So, certainly

got points lower You've but price lower cost.

sophisticated; competitors we some some are standard of small there. us. none have small and U.S. compete who have and sort we that with over competitors government European before, of or quasi-independent said we've are As not very And businesses our

position. a market wonderful have we So, really

will Beijing for west the in so, wonderful big will money capacity right gigantic we're this additional by and now. may a spaces and being we sciences That us that investigating much opened new We've more capacity. opened, the and that give now. country the of in player principal part selling the the market. We, we're building the a We're of facility We way, real need are life So, which, the finishing strong arena market. balance pumped south. need additional in – and centers, Chinese lot It's into Shanghai sure, government. research by the

strategic five-year world And lens sort so, through plans. look we the at of the of

opportunities engineered where And Genetically both hope our solutions services. clients in our we services services; some We there's confident are a of research the longer it's high-growth we not entirely all just that. certainly models, high years. think model through growth ancillary I it's services space as well. than and have: provide work is laboratory definitely we their five to insourcing for manage the business, there, And that space, this

days. early it's So,

you, than research it's XX% told growing are fast. disproportionately less of As we slightly our revenue models

change So, of you'll biased, than our competition's, the see paradigm of better. quickly. that animals Not definitely and just but higher-quality we're that science is shift are our a

to drugs international to I research. do want internationally, sell folks to Chinese on the if and So, they're animals their the basic scene higher-quality play think, their have going to use

market time quality. great of we're meetings, are that about consistently not just high but and the animals So, seminars, and with spending We're a that of just the of publishing benefits, high-quality using place. a educating in lot necessity

So, definitely investment. more

if literally for necessity. for now maybe think will opportunities are if obviously tuned. M&A I But fine. There's be returns some they out we looking can, sense stay pursue a the us. we'll It's there, so about right we space, additional and which make

Donald H. Hooker

you. Thank

Operator

Robert next Please comes ahead. Sachs. Goldman Jones, the question from line Our of go

Jack Rogoff

for Bob. Great. This Jack taking is on for Thanks Rogoff my question.

ramp margin XQ steep the sequential talk to imply half? seems Your margin cadence the guide expect in for back Can you you a about XQ.

David R. Smith

DSA a sort you're seeing, to study of and And our is impact, the climb mix, stepping returning partly quarter. second So, seen as mentioned through we're businesses the final quarter. seasonality particularly There is right. of washing we've in Also, we and levels. that's of where up fourth the in there steeper terms because normal some in a in the

of that a comes factors, we've conclusion reached we've that the it's in provided which you. guidance combination those So, to the to different

Jack Rogoff

it. Got Thanks.

Operator

go question from next Please Our is Jack ahead. Barclays. Meehan,

Jack Meehan

half. at I for with everybody. morning, funding are you're back DSA looking It the flush the positive; feels now, acceleration customers is Hi. to cash; second Good Right utilization is in to perfect go wanted that what Could your least, optimal. you of like using the price competitive way weigh seeing work. on you're to and prioritize as start the in a just landscape? lever, the think set-up terms you that, in about

James C. Foster

So, we're not decision that the of going to from about a point of weigh lot in in with view, our blueprint competition. stated much which concert talk to on a a too pricing is competitive for

don't we like So, that.

lack if bought pretty a sure the is know But now activity, price which and the of it, of of sort quite because like And need for with like really never good feels dynamics that good. looks benefit competition's what So, the we full, little capacity, when I think, everybody. MPI, some actually capacity based like. They for competitive suffice competition's we have bit we demand the it is known better calls quite of that it, having it utilization say a the have is to cutting this. know space we lack Capacity and because right upon strong. about thing, having our we aggressive

when that can I price tell can. all appropriately we to we you So, try is get

And sometimes, margin work price-protected obviously, simply have paradigms. because of price pricing can't, and different different we longer-term the escalation different types And, is are arrangements, with pre-negotiated. clients or metrics

our specialty competition know margin. higher and often for profit has you that a instance, less So, work,

lot margin. of of can facilities, is our capabilities. and first IT, investing to I building improving that opportunities capacity clients, pricing operating pricing like to necessity be tell all and can I we're the certainly They're So, obviously wages, do and pricing cognizant our for in they of you afford at. in very that enhancing provide, the able the our that things look thing interested think and in not a is

we we pursue so, almost opportunities, And do daily. which have

Jack Meehan

– to around few David, Great. going for parts the you, things there's wages, at related gains important, follow-up Thanks not this just as way? VC then headwind If XXXX. one I we balance from you're little this for right know the to had it's I I should another to point, as of accretion, about give on. of the think we out moving and Do a about of you some that – because but do a maybe $X.XX think year. we the neutral? carry-over spot WIL color. those I think guidance Are start that in have things a $X.XX all the thinking extra about shake

David R. Smith

a in incremental a that this is the over information we will be we're headwind full-year effect And $X.XX you're additional a mean, right. Well, we I The headwind. $X.XX so for we that wages, year. WIL, on you're so the said so on the gave VCs, that's get year-to-date, $X.XX that $X.XX right, next year.

where We've X% half what And costs, of corporate are we that's this tax signals of tax with is we in the year in complete under similar future. think, story. to terms we rate, would tried expect second of something the rate so the you stable. is some me to give Let which the revenue,

So a color into XXXX. that gives to little of bit look

Jack Meehan

Great.

Looking forward to seeing you week. guys next

Operator

for time that Intelligence. ahead. the last Justin Bowers, one Bloomberg question, Please have and go from we And of comes line

Justin Bowers

Can are the this platform? thank into on efficiency the a you that year of lot you savings year, for measures, Hi. you're and and that also back your remind Good what the where for of question. acknowledging targeted halfway you your reinvesting kind and morning, us are through

David R. Smith

number we've publicly? the was What given

Todd Spencer

million. $XX

David R. Smith

$XX million.

number. million So, the is $XX public

also heard from guidance, original well. you remarks. to that, track prepared on are with We as WIL as the delivering Jim's is

ability in there's our terms disturbed So, that being to deliver we're is nothing expecting. savings of the that

on that's So, track.

Justin Bowers

of Okay. we robust development how And one terms prospects? the follow-up, just had outsourcing in of to on Can then, you the compare just and broadly, that's the beginning current where and been activity year, of quick just kind of comment third XXXX, funding biz quarter? RFP just then, And the could Jim. environment you kind in another more

James C. Foster

very good, strong, consistent. persistent, and very is Demand and

spending starts you and pulling really for the lot amount fiscal inflow strong As see of our directly of a know, biotech, growth. principal disproportionate a stops and see business We of waiting not proportional period have quite But, to we kind of to fund never a patterns with driver of we just and work. and spending funds. back, the next

with that breakthroughs really very paradigm so the therapeutic treatment been Obviously, folks will has but it And robust new good now. feel half It the an too as the if even feels it's the year, solid. of about combine early to we modalities, the time right as predict strong biotech, you feels So, and said. be in year history strong we about of next like it. funding for external the biotech ever back almost as unusually it's

Justin Bowers

right. All Thank you.

James C. Foster

Sure.

Operator

the I'll Todd over go turn call Spencer. to And back Please ahead.

Todd Spencer

Okay. to Thanks. Investor in seeing concludes Thank York you call conference you. call. morning. upcoming Day This conference this you New week. the the Thank look for joining next our forward at We on us

Operator

Thank you participation and and that our ladies your today. for Executive call gentlemen, And Service. AT&T TeleConference for for using concludes

may You now disconnect.

Charles River Laboratories International (CRL) 8 Aug 182018 Q2 Earnings call transcript