Ladies and gentlemen, thank you for standing by and welcome to the Charles River Laboratories Fourth Quarter 2013 Earnings and 2014 Guidance Conference Call. (Operator Instructions) I'd now like to turn the conference over to Corporate Vice President of Investor Relations, Susan Hardy. Please go ahead.

Good morning, and welcome to Charles River Laboratories fourth quarter 2013 and 2014 guidance conference call and webcast. This morning, Jim Foster, Chairman, President and Chief Executive Officer; and Tom Ackerman, Executive Vice President and Chief Financial Officer, will comment on our fourth quarter results and provide guidance for 2014. Following the presentation, we will respond to questions. There is a slide presentation associated with today's remarks, which is posted on the Investor Relations section of our website at ir.criver.com. A replay of this call will be available beginning at noon today and can be accessed by calling 800-475-6701. The international access number is 320-365-3844. The access code in either case is 315893. The replay will be available through February 26th and you may also access an archived version of the webcast on our Investor Relations website. I'd like to remind you of our Safe Harbor. Any remarks that we may make about future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by any forward-looking statements as a result of various important factors, including but not limited to, those discussed in our Annual Report on Form 10-K, which was filed on February 27, 2013, as well as other filings we made with the Securities and Exchange Commission. During this call, we will be primarily discussing results from continuing operations and non-GAAP financial measures. We believe that these non-GAAP financial measures help investors to gain a meaningful understanding of our core operating results and future prospects consistent with the manner in which management measures and forecasts the company's performance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures and reconciliations to those GAAP measures on the Investor Relations section of our website through the Financial Reconciliations link. Now I'll turn the call over to Jim Foster.

Good morning. I'd like to begin by providing a summary of our fourth quarter results before commenting on our 2014 guidance and business prospects. We reported sales of $289.2 million in the fourth quarter 2013, an increase of 3.2% over the previous year. Excluding the negative effect of foreign exchange, sales increased 3.7%. PCS segment was the primary driver of the increase at 8.2% in constant currency. The fourth quarter sales increase represented the highest growth rate we reported in the last five years. As expected, PCS sales declined slightly on a sequential basis due primarily to seasonality. We were exceptionally pleased with the PCS performance, which reflected our market share gain as well as improved demand from both large biopharmaceutical and mid-tier clients. Year-over-year the consolidated operating margin improved by 50 basis points to 16.4%. The UK tax law change, which shifted R&D credits to PCS segment operating income, provided a benefit of approximately 40 basis points to the consolidated margin. Tom will provide additional information on this change shortly. Higher PCS and EMD sales, the acquisition of Vital River, and improved operating efficiency contributed approximately 50 basis points to the operating margin increase, which was effectively offset by higher corporate costs. Earnings per share were $0.73 in the fourth quarter, an increase of 14.1% from $0.64 in the fourth quarter of 2012. We continued to return value to shareholders in the fourth quarter through our share repurchase plan for the purchase of approximately 1.5 million shares with $77.2 million. In total, we repurchased nearly 3.5 million shares in 2013, which effectively enabled us to achieve our goal of offsetting dilution from stock compensation and the exercise of stock option. We were generally very pleased with the fourth quarter results, which demonstrated the benefits of the actions we have…

Thank you, Jim, and good morning. First, let me remind you that I will speak primarily to non-GAAP results, which exclude acquisition-related amortization, charges related primarily to our global efficiency initiatives and certain other items. This morning, I will also focus my discussion on our 2014 financial guidance. For 2014, we expect sales growth of 3% to 5% on both the reported and constant currency basis and non-GAAP EPS of $3 to $3.10. We expect only a small benefit from foreign exchange at this time, despite the favorable FX movements in recent weeks. As Jim said, we expect sales growth of both RMS and PCS to be within the 3% to 5% consolidated guidance range in 2014. For RMS, a notable improvement in organic growth in 2013 is a result of a number of factors. These factors include anticipated increase in average realized pricing of 2% to 3% compared to 1% to 2% in 2013, more stable demand from large pharmaceutical and government clients and low double-digit sales growth for the EMD business. In addition, we have anniversaried the termination of two long-term contracts for certain services in Europe. As we previously noted, these contracts concluded at the end of 2012 and represented approximately $5.5 million in annual revenues. Favorable PCS sales growth trends are expected to continue in 2014. We will anniversary several large strategic relationship wins and the corresponding sales ramp under these agreements would expect to continue to execute on our goal of expanding the range of products and services we sell to these clients beyond the initial scope of the RFP and entering into strategic relationships with new clients. We also expect growth from our mid-tier clients as we continue to benefit from a combination of market share gains and an improved funding environment for biotechnology…

That concludes our comments. We'll now take questions.

(Operator Instructions) We'll go to the line of Greg Bolan with Sterne Agee.

Just looking at 2013, Jim and Tom, finished the year around 5.9% constant dollar revenue growth in PCS, and you're talking about kind of 3% to 5% for both segment growth and 2014, but just kind of targeting on PCS for just two seconds, what's assumed there? Is it same-store sales growth from your existing strategic partnerships, and that's kind of the primary pillar for growth? Is there any assumption for further market share gain or acceleration in the trends that we've seen over the past six to nine months for the underlying ties for demand and for outsourced preclinical services? Maybe if you could dig a little bit deeper, that'd be great.

First, I would remind you that that’s the range. Second place, I would say that it assumes similar market metrics, which are space selling in the industry, but not full pricing, a little bit of spot pricing, but still pricing being tough. We said in the prepared remarks that we are intermittently seeing aggressive pricing from virtually all of our key competitors, so that may or may not continue. We're assuming strong sales from the clients with which we have large strategic deals. We're assuming robust sales in the mid-tiers. Of course, in the mid-tiers, there's is a little bit of churn in that sector given that those companies get bought, sold, merged, or go bankrupt, so we're doing very well. You heard the 11% growth and we actually have more revenue than large pharma, but it's a little bit difficult to call. So what we haven't built into that is the significant new strategic deal or multiple new strategic deals. We're certainly pursuing those. We certainly have conversations in place. It appears that we have clients that are interested and ready, but we don't control the extent of their readiness, and the other big driver of course is infrastructure reductions which while they are a little bit tough on the core animal business, tend to be very beneficial to the service businesses, and it is virtually impossible to predict any of that, so I would say that we give you that range with knowledge that we'll be able to perform well within that range with the opportunities of larger deals, I suppose to improve that, but it's impossible to call, so we just think it's irresponsible to do so.

You guys alluded to mix being a little bit better in PCS in fourth quarter. We have heard, though, from a couple of players that there was an elevated level of non-GOP studies in the fourth quarter, so higher animal costs. So I guess as you think about the mix, Jim, just given the current capacity utilization, is the mix where you'd like it to be or was maybe there a little bit of an unfavorable -- maybe less than optimal mix than you'd have liked to have seen in the fourth quarter, or no?

Well, the study start issue was always a complex one, particularly with our large animals, so there can be a significantly higher cost as a result of that. So I think we had some of that in the fourth quarter. Having said that, the mix is slightly better in terms of long and short-term studies, there’s a better balance. There tends to be a mix in terms of our whole portfolio of general versus specialty stocks as well. Obviously, nuancing and emphasizing mix as it becomes more specialty, and as there is more primate work work that actually gets going as opposed to just get started, the opportunities are obviously there that drive higher top and bottomline growth. But we're happy with the general trend and the trajectory. We're happy with the way the space has been selling. We're definitely happy with the huge increase in mid-tier client sales, and generally our engagement with the drug companies as a whole. So mix is definitely something that we hope to get some benefit from. I will just remind you that predicting that, how it's going to fall, when it's going to fall, continues to be a little bit of a challenge.

Our next question comes from Douglas Tsao with Barclays.

First, just curious on the Vital River acquisition, which has performed quite well, what's the typical mix of models that you are seeing in terms of demand from China? Is it largely on the outbred side or are you're seeing demand for the specialized models?

Well, we are very pleased with the trajectory of growth in top and bottomline from that business. There is really opportunity to educate the marketplace, and I think performs well versus mostly governmental competitors. We have a relatively small portfolio of most of the big outbred strains and the big inbred strains and a little bit of immunocompromised strains. So I do think that over time, there's an opportunity to sell increasingly more complex models, and that allows us to be beneficial for the margin. But even more than that, there's just an overall opportunity to sell significantly higher volumes to other parts of China, so while we have a big Shanghai sales contingent, this is a Beijing center facility, and so we tend to sell to that marketplace first in Shanghai, second Tokyo as we continue to build out capacity and geographically expand the reach. There's opportunities to sell both, kind of the bread-and-butter core models in time, add the more sophisticated.

In terms of the PCS market, do you have a sense of the lag time for study starts now for clients? I mean are they having to wait meaningful period, and is that sort of the inflection point for any kind of opportunity to become a little bit more aggressive on price?

We're seeing relatively swift study starts, I would say. A month or more as opposed to months or more, so while space is selling to the industry and it's not start of the study next week, like we have seen for last few years, there's still enough space where clients were not necessarily all that discerning about quality and science and just want to move quickly, we'll move quickly. So I would say we haven't reached an inflection point yet, Doug. There's a coordinated opportunity between waiting longer.

And our next question comes from Eric Coldwell with Robert W. Bair.

Talking about research models, I knew you're seeing good growth in China and obviously very focused on market share gains, but also going through a lot of efficiency programs to pare back infrastructure and maintain that strong 30% margin. I guess the question is there appears to be possibly a structural or even a secular shift in demand for the legacy core models, the rodent models. At the same time, we're seeing more evidence of the pickup in areas like fish, for example, and even some comments that rabbit demand has picked up recently, other animals strains. So the question is do you consider shifting your mix of model sales, do you look for targets perhaps in some of these other categories that appear to have more momentum in the future? Or do you think you'll stick with your core book presence just focusing on doing what you do better in the future? And I guess there's kind of maybe an acquisition or a strategy question there as well?

So the change in demand is nothing new. It's been happening for a long time. It started with a more responsible use of laboratory animals and an effort to drive the three Rs. And I think that has continued to happen significantly and consistently, but more subtly. The lack of settlement has appeared in the last three years, as we have seen big R&D facilities be closed. And last year was really dramatic. We saw multiple facilities reduced or shut down in Japan, also one in the States and so the beginning of the some infrastructure reductions in Europe as well. So I would say that a drug company is going from, let's say, six or seven or eight R&D centers to one or two or three has had the largest impact on all of this. Some of the models that you talk about are very interesting. I don't think they're going to be big revenue contributors. We look seriously at fish business for years. We went over that on several side of our business. It's an interesting model, but it's going to be a low contributor to revenue and profitability. And of course, we are already in the rabbit business. So I don't see more likely continued increase in complex animal models, more immunocomprised models, more multi-genetic, more humanized animal models and some stabilization of the core model, because obviously a lot of discovery and basically all of safety assessments are still predicated on the use of animals. And I think they are markets of prominent scale profitability and there's enhanced initiative to drive efficiency should hold us in good stead. So the biggest wildcard to that business, particularly 2014 or '15, is what will be the additional significant infrastructure reductions. And the answer to that is we don't know. We're assuming something in our plan. There's also some noise around the edges as to who is going to do mergers. And the reality of this is there's no way to predict it except that the industry has to get more refined and has to do more outsourcing. And of course, that will impact their pipelines as well. And we do continue to think as I think the fourth quarter really showed 1% on asset and over 8% in preclinical sort of the best preclinical numbers that there's a corresponding relationship between the shutdown of these big sites, a reduction in research model business and an increase in service revenues. And of course, I don't know the numbers, 70% of our revenues is service related. And so at the margin or greater than the margin, that should benefit us.

We'll go to the line of Doug Schenkel with Cowen and Company.

This is [ph] Chris in for Doug today. On PCS margin, I guess you (inaudible) various one-time items. Is it sure to say PCS margin performance is good in 2013. Can you just give an update on where do you think PCS margins can go over the next few years and how many more levers can you pull on your side in terms of implementing various operating efficiency? And do you think we can get more leverage to get internal controls versus improve the pricing or volume from customers?

As you mentioned, we have improved the margin in 2013 up just over 14%. Some of that was contributed with the tax change in the UK that we talked about. But even excluding that, we improved the margin going into 2013. And in remarks, in regard to 2014, we indicated that we thought the margin would also improve slightly in 2014. So it seems like we've been really grinding and not making much progress in margin, the reality is margins up come kind of nicely over the last couple of years from a range of 11% to 12%. And that's an environment where we haven't seen really much or any price increase. So we're going to keep working the efficiency initiative side of the table. We have a number of ideas that we're looking at in 2014 to help provide lift. The market seems to be in a little bit better spot. And I think if we can continue to drive topline growth and volume and have better demand from our clients overall, I think we'll start getting a little bit more priced in with and talking about over the last couple of years, '13 and '14 where we're really talking about 1% spot pricing. So I think we'll continue to look at efficiencies. And as the market improves, I think we'll do a little bit better on pricing, capacity utilization. And I think those things will be what would allow us to continue to improve the margin beyond mid-teens and up into the high-teens over the next couple or three years.

And the other thing I would emphasize there is there are some opportunities within that. We think the capacity is a big issue for us and for the industry. Capacity utilization appears to be better. It's higher for the whole sector. Latest estimates are around 70%, were higher. That's good for us. It's good for everyone. And we do need a rebalance between our available capacity and the planning metrics of our clients. So we have to get the extra time for the last minute stuff. That ought to get a little bit more price. Obviously none of us are going to run out and build new space or hold a lot of new space anytime soon. So we're all very focused on filling that space, but also using it well for the highest margin business that we can generate. So I'd say that all the factors are lining up well. We're very pleased with the margin profit in the fourth quarter. But to have it get us to the high-teens, which is certainly a goal of ours, we're going to have to see some price.

We'll go to line of Tim Evans with Wells Fargo Securities.

I want to talk a little bit about the corporate overhead. Over the past seven years or so that's gone up from the levels of 3.5%, now it's going to be 6.5%. Is that increase permanent? Is it going to go higher? Are there opportunities to bring it back down in the future? Maybe just some long-term commentary there would help a little bit.

I think the seven year historical reference and that increase has a lot to do with how we've aligned some things in IT, for example, where it expanded globally, but have done that through the corporate group and therefore are sort of varying a little bit and moving that to corporate number. It's an area where we looked at keeping cost in line with our sales growth and some relation to our sales, which I think over the last couple of years have been a little bit more on the 6% range. IT continues to be an area that we need to invest in for competitive reasons as well as for our back-office systems and what not. So I think we need to put a little bit of pressure on the number. Our global efficiency initiatives that we talked about today, corporate overhead is a focus of that, as are all of our business segments, so that's an area where we'll look to try to get more efficient, more open services that we buy and how we manage ourselves globally in SG&A. The idea going forward would be to try to at least have that number remain constant, but ideally generate some leverage from it. That'll continue to be a focus of ours.

And we'll go to John Kreger with William Blair.

Just going back to Eric's question a bit, you talked about some of the longer-term downward demand trends within the models business. But I thought I heard when you talked about guidance for '14 that you assume there's only some stabilization. So can you just clarify that a little bit? Are you expecting demand to kind of bottom-out in '14, and what drives that confidence and give a view of what that underlying unit growth goes longer term?

So we'd say that all things being equal, in 2014, we should have more stable demand. We should get more pricing. We should get maybe 2% to 3% net price than 1% to 2% that we had in '13. And that would be just the core research model. And of course, if you look at the whole sector, you got EMD on top of that and discovery, et cetera. We'd say that all things being equal, there's likely to be some stability, but the wildcard just continues to be what is the extent of infrastructure reduction. And we had an awful lot in '13 and we have to expect something in '14. So that has just an undue impact on driving units down. The good news is we have the primary share in the big pharmaceutical companies. The bad news is whey shut facilities, that has an undue adverse impact upon us. So it just feels kind of irresponsible to just assume that there'll be none of that. Obviously if it was more subtle or less pronounced or they took a year off, whatever, we could have better numbers. But for now, we're assuming sort of overall stability it'll better price and some inevitability of additional infrastructure reduction.

So longer term, do you view that as sort of a flattish business or do you think it can have underlying growth?

If and when the infrastructure reductions start, we think that's a business where we can continue to get price, we can continue to build share for sure in the academic marketplace, but we're doing a lot better I'd say in the last three or four years, given the lack of substantial premium of our price versus the competition. We've actually been picking up a little bit of share in big pharma in places and a few clients where we don't have that much share and new biotech companies as well. But having said that, just thinking about that globally for a moment, it's probably the core, the business is going to be low single-digit grower. I do think that we're going to spend in significant efficiency initiatives that we have in place, while the company will focus more directly on RMS. So we do think that it's not going to actually expand operating margin in what is already an extremely high operating margin business.

Our next question is from Sean Dodge with Jefferies.

Hi, it's Dave Windley. I wanted to try to get into your growth assumptions here on topline. So if I understood correctly, you're saying that your kind of mid-tier client base is driving greater amount of revenue now than your strategic clients would, so greater than 25%, I presume. And you've talked about that number being in the fourth quarter like 11%. So I guess if I extend that out and assume that growth rate continues, that mid-tier client base alone gets to the low-end of your revenue growth assumptions. What about that framework is incorrect? Follow me? I'm saying greater than 25%, maybe 30% of your business growing at 11% gets me to 3%, gets me to the bottom end. So seems like a 3% to 5% is pretty conservative.

We're not going to acknowledge conservative or not. We're going to acknowledge that we have a range that we have certain uncertainty from clients, could be better than we think, sure, as well as could not. We had an uptick in the fourth quarter in the big global accounts, of which we have 25% all over, about 5% in mid-tier, about 11% talking about preclinical now. Those are obviously very good metrics. We have big strategic relationships and several that we are in discussions with now. Again, we don't control the decision-making timeframe. But we like the way those are moving. Look, there's just so much inherent uncertainty related to continued availability of space and so there is periodic very low price metrics that we see sort of from everyone all of a sudden. It's directly related to how our competitors' desire and needs to fill the space. So if the incrementals are conservative, fine. We're not going to use that, because we've been doing this for too long and the predictability is too difficult. Look, all we can say is demand is definitely better, it's more consistent, it could be very well accelerated by the multiples or clients at the same time saying, yeah, we're ready to outsource. So the conversations are great, but we've learned from several of them in the past that sometimes it's a matter of months and sometimes it takes a year or two. So it's not in our best interest to predict that. Having said that, we're obviously very pleased with the fourth quarter, both margin and topline and there's a lot more work out there. And we don't mean to be difficult or evasive. We just want to give as much clarity as we can to how the world and the business occurs to us, the demand occurs to us. I would say that bidding on large pieces of work is still highly competitive and a challenging environment.

When I think about your commentary on the mid-tier, I'm thinking about companies that are maybe increasing their activity more because their pipelines have grown or their funding situation has improved, a lot of the recent IPO window, and that that demand would be a reflection of kind of organic demand or activity increase as opposed to just a shift in venue, say, insourced versus outsourced. And if I'm right on that, should that also have a knock on benefit for models demand?

I think that's right. The difference is this that as we talked about big pharma clients, it's clear that an increasing number of them always choose to work on coming from outside of their companies, principally from biotech. So a lot of our increase in biotech, a lot of money coming in from capital markets. And so maybe a compound that they couldn't afford to develop. But a lot of it's coming in from big pharma, as it always is. And so I do think to some extent, there's a shift in works that have historically been done in big pharma on the discovery side. And now since the biotech colleagues or partners are doing the discovery for them, we're seeing a big uptick there. And so the animals that would been utilized in big pharma and now being utilized by biotech. I think it's unlikely that there's a net add-on effect, although it's possible that you could have both with certain clients. But depending on who you talk to between 40% to 70% of these drugs that they're working on are licensed in, maybe the average is 50%, that's a lot. And I think it's growing substantially. And so we would expect biotech to be effortless, but there is a real distraction of for that.

Our next question is from Jeff Bailin with Credit Suisse.

The benefit of another year in the rear-view mirror, thoughts on some of the key strategic partnerships that Charles River disclosed, do you offer any high-level commentary on how these performed relative to expectations maybe in terms of volume and profitability and then looking forward to how meaningful the potential upsell opportunity is?

As we said many, many times, they take a multiplicity of sizes and shapes and forms on the long-term contracts and some of short-term. We get a quintile weekly of margin by clients and there's a fair amount of variability, although most are moving in the right direction. I would say that by and large, we are pleased with all these relationships without strategic feels regardless of the contractual nature. We're pleased with sense of true partnership, their respect for our science, them sooner than later treating us like they were themselves and not as a third party. As the volume increases and productivity improves, in many of them, the margins have improved significantly. I can take one or two where we've been disappointed with the revenue contribution vis-à-vis what we were told, not to say contracted for, but vis-à-vis what we were told. I do think we know how to do these deals and we do really listen closely to the clients and we try to design a structural relationship that works for them. And as we did say, I believe, in the prepared remarks, may have bee lost in there, one of the strongest aspects of these deals is regardless of how the conversation initially starts, we tend to almost always inevitably get additional business contemplated by the first conversation, which increases the size and scope and often in profitability of those relationships. So a little bit higher than 25% of total sales. It's not an insignificant number in terms of predictability of top and bottomline. We're going to continue to drive as many of those as clients are interested in talking to us about. But it appears that an increasing number are seeing their way to wanting to work on that basis and they definitely want to reduce the number of research partners that they have.

And we'll go to the line of Ross Muken with ISI Group.

I just wanted to touch again on the labor piece of PCS just in terms of where staffing is. And should we see sort of the inflection point, what needs to occur in order to make sure you can sort of efficiently meet any incremental change in demand that could happen, as this biotech environment continues to be robust?

That's constant issue for us. We feel that our facilities are in good shape in terms of having excess space and we actually could bring on more as necessary with some advanced planning, which of course we're doing. I'd say the senior scientific staff is quite deep as our study directors are quite strong across all sites and our pathologists are as well. So as we continue to take on additional work, we will have to add direct labor, which we do all the time. We did it in 2013. We'll certainly do it again this year. We're thrilled to be hiring people back. Some of our marketplaces are easy to recruit in than others. All of our jobs, no matter how basics require fair amount of training, so we have to hire people slightly in advance of when we need them, but not a year in advance of when we need them. So we think we're all over that. We're a good place to work. And our business model certainly on the preclinical side is more stable than has been historically. So we feel that we'll be able to manage our headcount in a way that we're able to do great work for our clients and stay slightly ahead of the demand.

And you had such an experience with a few recent acquisitions. As you look at that environment, obviously you're going to be still generating a fair amount of cash flow, how would you characterize kind of the tuck-in M&A activity out there and tertiary spaces that you guys may look to, to kind of supplement what you already have?

The deal flow is particularly good at the moment. It's a combination of we're doing a better job at it and more assets are available particularly from venture funds that have owned them and invested in for a while, even pretty clear. So let me reemphasize the fact that we're looking primarily upstream. We want to engage with our clients as early on in the process as possible and help them with multiple steps, some of which are earlier than what we do now. We are looking at several companies with several technologies and service businesses that would incorporate that description. We're also looking at expansion of our current therapeutic areas as well as expanding into additional therapeutic areas. And I would say, thirdly, we're looking at some geographic expansion. I would list them and prioritize in the way that I just described them. And as we continue to say on our calls, we can't promise that we can deliver any of these deals, because they're not done till they're done. But we have both the end straps, the finances and the strategic need and opportunity to broaden our portfolio or engage with our clients. So it's an important focus of us at the moment.

We'll go to Tycho Peterson with JPMorgan.

This is (inaudible) for Tycho this morning. Just had one quick one on PCS margin. Can you share any color on how you see them trending sequentially in 2014? I mean should we expect more of a back-end-loaded or is that just quarter-to-quarter variation that's hard to predict?

My comments is that as is typical in the first quarter, we expected to see it seasonally down a little bit. But beyond that, I think it should be somewhat steady. I don't think it'll be dramatically back-end-loaded or whatever. So I take a little bit slower start in the beginning. And then it'll be steady for the remainder of the year.

Okay. And can you comment quickly on your outlook for the genetically-engineered models business within RMS for 2014 and what you're seeing there?

We're optimistic about our GEMS business. It had a very good fourth quarter. The demand for these models continues to increase more, are being made by our clients and academic institutions. They continue to be an important translational vehicle for drug discovery. So we would expect to see a increase again in 2014.

And our next question will come from Steven Valiquette with UBS.

I just wanted to quickly question on seasonality pattern in the PCS side of the business. In this call, you definitely sound optimistic around PCS overall for overall 2014. But again, you just mentioned for 1Q that you're guiding for PCS sales and margins to be down sequentially. And while it is consistent with your historical patterns, probably I think it gets you worried about. And it does seem that one of your peers does have a more optimistic sequential outlook for their comparable business. So just trying to triangulate all those data points. I guess the main question might be is your guidance for PCS in 1Q, based on what you're seeing in the first half of the quarter to mid-February or is it based more on previously established budgets and historical patterns?

We're going to say what we're seeing so far in the quarter, because it's often misleading. And January has become an increasingly funky and complex month with clients not getting back to work and taking a lot of time to figure out what drugs they're going to work on what drugs they're going to outsource. It's possible that different commentaries from us and other people in the fields, both public and private, just has to do with our specific client footprint. So that wouldn't necessarily jive. I would say that on a positive, if you roll out everybody's comments, the demand is generally better across both big pharma and biotech. Pricing is challenging, but basically stable. Margins have been improving. And we're optimistic about that business for next year. Some of our commentary does have to do with the history, which is that Q1 is usually a little bit slower. Q2 and Q3 and stronger in the preclinical business. Q4 usually is slower because of the holidays, but not always. So some of those historical seasonal factors are pretty much uncertain.

The final question will come from Sung Ji Nam with Cantor.

I just have a quick one. Was wondering if you might be able to comment on what percent of your research model production revenues came from pharma in 2013?

We don't really spend time anymore parsing it that ways, sorry. It's a very large percentage, possibly a slight majority, I would sort of guess. But we have pharma starts, biotech starts and it's sort of blurred for us, I would say, in the last five years, because they work so closely together. If you think it's important, it's important. We're just saying it's a distinction we spend less time on. So if you take those as a whole, if you take pharma and biotech, are not for process footprint is 24%, 25% of sales and the rest is industrial. The other is low medical device and ag, farm. A vast majority of that is pharma and biotech with biotech going up faster.

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference Service. You may now disconnect.