Ladies and gentlemen, thank you for standing by. Welcome to the Charles River Laboratories First Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Corporate Vice President of Investor Relations, Susan Hardy. Please go ahead.

Thank you. Good morning and welcome to Charles River Laboratories' first quarter 2016 earnings conference call and webcast. This morning, Jim Foster, Chairman, President and Chief Executive Officer; and David Smith, Executive Vice President and Chief Financial Officer, will comment on our first quarter results and update guidance for 2016. Following the presentation, they will respond to questions. There's 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 391001. The replay will be available through May 18. You may also access an archived version of the webcast on our Investor Relations website.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 12, 2016, as well as other filings we make 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 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 information link. Jim, please go ahead.

Good morning. I'm very pleased to say that we are off to a great start in 2016. Our financial results were strong across our three business segments, which reinforces our confidence in our outlook for the year and is enabling us to increase our non-GAAP EPS guidance. We believe our performance demonstrates solid execution of our business strategy and our focus on exceptional client service. As a result, clients continue to choose to partner with Charles River for our science, our support, and the breadth of our portfolio, which enables them to work with us throughout the early stage research process. The acquisition of WIL Research, which was completed on April 4, has definitely enhanced our capabilities and our value proposition for clients. We will provide further details on WIL shortly but let me begin by giving you the highlights of our first quarter performance. We reported revenue of $354.9 million in the first quarter of 2016, a 12.4% increase over the first quarter of 2015 in constant currency. Acquisitions contributed 3.7% to first quarter revenue growth and our legacy businesses generated 8.7% organic growth, which is in line with our long-term target. The most significant contribution came from the Safety Assessment business and we were also pleased to see 4.6% growth in RMS with higher sales of models in all geographic regions and improvement in the services businesses. From a client perspective, biotechnology clients were the primary driver of revenue growth. Sales to these clients increased at double-digit rate, as they continued to invest in their pipelines. The operating margin increased 220 basis points year-over-year to 18.4%. Each of the three business segments reported an improved operating margin, benefiting both from higher revenue and efficiency initiatives. The RMS and DSA segments reported the most significant margin improvement, increasing 370…

Thank you, Jim, and good morning. Before I begin, may I remind you that I'll be speaking primarily to non-GAAP results from continuing operations, which exclude amortization and other acquisition-related charges, costs related primarily to our global efficiency initiatives and certain other items. We are very pleased with our first quarter performance, especially given that the start of the year can be difficult to predict, as clients prioritize their budgets for the year and the associated impact on study starts. We believe that the strong start this year is a testament to the demand for and quality of the early-stage products and services that we provide. From an operational perspective, our first quarter results were ahead of our expectations, primarily driven by our return to mid-single digit growth and margin expansion in the RMS segment. First quarter earnings per share of $0.98 were further aided by other income, which contributed approximately $0.05 to earnings per share. This was primarily driven by a $0.04 gain from our life science venture capital investment. The guidance for 2016, which we provided in February, included an expected gain of $0.04 per share for the year, which we fully achieved in the first quarter. We expect an annual return on our investments in these venture capital funds in line with our weighted average cost of capital but do not forecast the performance of these funds beyond our annual expected return. Therefore, we have not forecasted additional gains from these investments for the remainder of the year. Our primary purpose in partnering with life science venture capital firms is to enable us to access a large portfolio of emerging biotech companies at an early stage. This offers us the opportunity to become the preferred provider for their drug discovery and early development needs. The investment returns,…

That concludes our comments. The operator will take your questions now.

And our first question comes from the line of Dave Windley with Jefferies. Please go ahead.

Hi. Good morning. Thanks for taking the question. Jim, I'm seeing in your prepared remarks that you're talking about strong growth on the biotech side, and I'm curious about how they are engaging you. I hear you at the same time talking about broader relationships and things like that. Are the biotechs still mostly buying kind of à la carte or one or two services, or are you seeing – are you able to engage them more broadly as well?

It depends on the size of the client, Dave. I would say that we've seen no slowdown in demand or interest from biotech generally, including very, very small virtual ones and sort of modest sized ones. Since they are essentially all net outsourcers, the larger the clients, the more products they have in the pipeline and the more complex the business is, they tend to look like larger drug companies in terms of their portfolio buying approach to our service offering. So the unique portfolio that we put together continues to distinguish us versus other siloed providers that they can utilize. That's been quite beneficial for all of them. Also the smaller the company often the faster they need to move. And so they want a smaller number of partners. So, yeah, we are definitely seeing biotech embrace the portfolio as well and certainly as well as pharma, why don't we leave it at that.

Thanks.

And our next question is from Tycho Peterson with JPMorgan. Please go ahead.

Okay, thanks. Great quarter and margins. Wanted to maybe just talk a little bit about the sustainability of some of the trends I know for RMS, you're calling for some tapering due to seasonality but as we look out a little bit further, can you maybe just talk about how much room there is for margin expansion in both RMS and DSA and if you could talk a little bit on the timeline for improving the WIL margins, when you think you can get those up to a reasonable level that would be helpful as well.

So, I will take it backwards and David can jump in if I forget something. So what we have said about the WIL margin is that they are in low in sort of mid-teens and we are quite confident we can get them to our goal of 20% in the next two years – by the end of the next two years. We, of course, I will remind you, see the 20% in the first quarter. So our goal will eventually be to continue to drive their margins higher as well. So we are quite confident by the way, Tycho, that since we've improved operating margins and driven efficiencies throughout our entire pre-clinical network. And of course, I'll remind you that the pre-clinical business is the aggregation of several acquisitions that we did over a 15-year period that we're quite familiar with best practices and looking at procurement and utilization of labor and efficiencies. And then, of course, WIL has a modest additional opportunity of obviously buying animals directly from Charles River. So we feel good about that. The Research Model business, we're happy to see the top line invigorate. We're getting some price. We're getting some mix. We're getting some share for sure in the academic marketplace worldwide. We're also getting obviously some sustained volume growth in China, in particular. I think all we want to say at this point is that we are confident we can keep the operating margins in the high-20%s. And obviously, if we can sneak them into the low-30%s, Tycho, we'll do that. And on the Manufacturing segment, that still feels like a low-30%s operating margin business for us. Look, by definition, we're organized to drive efficiency in all of our businesses, whether it's a business that we've owned for a long time or acquired or started. So we will do that with all of our businesses. We've spent a lot of time and effort in Safety Assessment, in particular, and we've obviously seen substantial benefits from that. We are focusing similarly in the Research Model business, and we're beginning to see some margins pop there as well. So we hope to see it along most of our lines of business. And obviously, we're going to work hard to improve the operating margins at WIL while maintaining and perhaps enhancing the scientific capabilities of that enterprise.

Yeah. And just to add, in New York in our Investor Day, we talked about our ambitions over a five-year horizon and we talked about trying to get the total Charles River margin above 20%. We set our first, if you like; beachhead was to get to 20%. Clearly, with WIL, that's deferred the speed with which we can get to 20% because it has, as Jim just mentioned and we mentioned before, lower margins. But I would actually say that because majority of WIL's income is in Safety Assessment and we have a margin that's north of 20% in our basic legacy Safety Assessment business, I would say the ability for us to get to a 20% is now better because of the acquisition of WIL. So a little bit of delay to get there, but actually the risk profile of getting to above 20%, I think, is reduced.

That's helpful. If I could just add one quick follow-up on Manufacturing, Jim, you talked about adding capacity for Biologics. Can you maybe just talk about where you think you are in building out additional capacity? You talk about some business wins associated with the capacity you've added, how much more do think you need that?

We'll add capacity as the demand increases, so it's – it has capacity needs that are dissimilar to other businesses, so large laboratory services capability. We'll probably want to add capacity both in the U.S. and in Europe where we have locations in both locales. And we'll add it ahead of – slightly ahead of the demand as we continue to. We're quite confident that given the strength of Biologics in the portfolios of most of our clients and in the drugs that have been approved in the last few years that the demand for Biologics should at least be sustained probably will intensify. So, obviously, superb scientific staff and sufficient capacity in the right geographic locales is critical to our growth and development there. So we are thrilled to be able to add to the space and have clients utilize it and continue to see that business grow on both the top and the bottom line.

Okay. Thank you.

Sure.

Next, from the line of Derik De Bruin with Merrill Lynch. Please go ahead.

Hi. Good morning.

Good morning.

Good morning.

Hey, could you talk a little bit about where you are in terms of just total capacity utilization in terms of the Safety Assessment business? And what does adding WIL bring your overall capacity and once again just a little bit more color on what you are doing with the Massachusetts facility and the opening up there and I guess, has your plans at all changed or are you planning opening up more? It just looks like from our channel check and everything that demand for the preclinical services is just really blooming right now, so just a little bit more color on what your plans are?

So, Derik, we're happy to say that capacity continues to fill rapidly, pretty much in all of our locations around the world. So we are essentially fully utilizing our capacity. Doesn't mean we don't have any space to take on additional work, but we are quite full. And for instance, the space that we brought on – some of the space we brought on last year in the Midwest since have filled up nicely. So we are able to add it and have it be utilized. WIL provide some additional capacity and also some additional capacity geographic locales that we would like – would have always wanted to have the benefit of and our clients have been demanding principally in Continental Europe. Having said that, I guess, we'd have to say that WIL is more full than we had originally anticipated. And so that's – we're thrilled with that, but it continues to provide a need for us to increase space worldwide. So we will be able to do that at multiple European sites, including WIL. Certainly, Massachusetts, which is open and thriving, it's not fully staffed, but it's significantly staffed. The management team is exceptional. Work has started and the client base is both diverse and enthused. I was with a client yesterday from a local pharma company who said to me that all things being equal, he would always prefer proximity. And he was describing the obvious point that their study monitors would prefer to go and stay and be in the same place with the people that were doing the work and be able to do that pretty much at will by car and obviously, they're flying all over the world to do that now. But we continue to have a space closer and closer to our clients, and we do think that Massachusetts will be incredibly valuable to Boston Biotech. And also Boston Biotech is now Boston Pharma, and there is a lot of pharmaceutical companies here. So we are thrilled to see our space well utilized. Obviously, we're getting – as a result of that capacity utilization driving efficiency. We're getting a pop in operating margins. We have the infrastructure that we already own, which I think is very important to underscore. It has some incremental space to add to not the least of which was opening Massachusetts after too long having it shuttered. So we will – we feel our ability to accommodate clients' demand on a worldwide basis is quite strong.

And if I may do a quick follow-up, could you talk a little bit about employee retention at WIL and key employees? And I noticed it in the past there's really been some issue of one CRO sort of merge, you could have some of the people with institutional memories may be disappearing. What are you doing in terms of employee retention? Is there less risk of that today and just sort of comment on what you're doing to make sure that you're not losing anybody important?

Yeah. So we're very impressed with the WIL organization in terms of the quality of the people and the quality of the science and the quality of the culture, and we found it quite similar to our own. Their ability to have been such an effective competitor and provider to clients, I think, speaks volumes. We have retained and/or promoted all of the senior people that we wanted to. They're all very enthused to be in their former positions or in new ones. We've embraced the WIL management team both in the U.S. and Europe. And we are already working quite closely and collaboratively with them both as general managers and scientists. So we're quite confident that given the strength of both franchises independently and the collective collaborative strength of putting them together that we're going to be able to retain people and I don't even like putting it that way. But I think the WIL employees are enthused to be part of the synergistic parent that understands what they do and will be able to enhance what they do just in terms of continuing to improve and enhance the quality of the science. So we will be able to maintain those folks.

The track record that we've had with other acquisitions has been good as well. So we have history to suggest that the way that we approach and I'm a particular individual that hasn't been impacted by that. It's a very respectful approach that I believe that Charles River had in respect to how we genuinely listened to the managers that we acquired and how they can bring, apply some thoughts to the table and we are looking for the best solution. So in terms of the acquisition with WIL, we are generally looking at some of the processes that they have that we can apply across Charles River and vice versa.

Thank you very much.

Now, from the line of Greg Bolan with Avondale Partners. Please go ahead.

Hey, guys. Thanks for taking the questions and congrats on very good results. Got a couple questions here but just going to follow the rules with one. As you think about the waiting of improvement as it relates to RMS first quarter 2016 over first quarter 2015, and I am really focusing on the very high year-over-year incremental operating margin, much higher than what we have been expecting. I know there is some seasonality in there. We obviously had modeled for that but you mentioned, Jim, obviously, high leverage to volume, makes a lot of sense. Obviously, you guys made some production cuts in the Hollister facility a little while back. That's probably helping, but you mentioned price. And can you maybe wait the improvement in incremental operating margin, whether it be between volume and price? And then one other thing. Obviously, your largest competitor in this business obviously has gone through some changes themselves. And you specifically mentioned academia, Jim, gaining share. And do you think that that might be as a result of some disruption that's occurred at your primary competitor? That's all I've got. Thanks.

So we'll both take a crack at this. The operating margin in Research Models is a result of a host of things. One is that we run that business efficiently and have for a long period of time, and we have rationalized our infrastructure to definitely be in line with demand. We are gaining some progress. We are definitely getting some mix. And we have finally – I say it somewhat embarrassingly – refocused our efforts in driving efficiency in that business, which we've been – we're entering our 70th year in. As we've told you many times, the business has been too manual. And we're really putting some wonderful systems in there that are driving efficiency in areas like inventory management and others. So all of those factors are definitely contributing to that. The share gain – we have been – I think our competitors have seen some – are seeing some challenging times. I doubt we can't get inside of them. So we don't know what they are doing in areas like efficiency. They have small infrastructures and they don't have broad-gauge portfolios. And so they tend to be very siloed. It's unclear whether the ownership structure, Greg, has helped or hurt us or helped to hurt them frankly. Our competitors, particularly the one that you're talking about has primarily competed with us on price only forever. That's a harder and harder card for them to play over time, and our clients are very interested in quality. I'll let David...

So if you look at the price increase and if you look at also the efficiency programs that we have, and then you look at the cost pressures that come in year on year – we've got pay rises and inflation to deal with. You may not like the sense of it, but really matter whether you apply the price to the cost pressure or the efficiencies to the cost pressure. It's essentially a blend of the three, and the actual numbers we're talking about are similar to all those three of those components.

Congrats, guys. Thanks.

Now, from the line of Sandy Draper with SunTrust. Please go ahead.

Thanks very much and again I'll add my congratulations on a very strong quarter. Maybe following up on some of your comments, Jim, about the early – the Discovery side of the business and the opportunity there and the nice pickup in demand. You commented around – I think it was a comment from a customer about competition, and when you think about it, and I may have asked this before, do you view competition now in that business as primarily getting stuff that's being done in-house at pharma and having people willing to look at you guys? Or is it really now people are starting to really look at this and it's, how do we put this together and it's whether it's Charles River or some of the other people who may do something like this? Where do see the competition today versus maybe a year or two ago when you guys really started talking about this? Thanks.

I think it's both, Sandy. Clients – for a lot of clients, the kneejerk reaction when we talk to them about Discovery is that's terrific that you guys have a Discovery offering but that's what we do for a living. The drug companies feel that's their most significant capability, which is probably true, by the way. And notwithstanding that, as we've said in our prepared remarks, we have identified 64 development candidates for a whole host of clients, all of which are in clinical trials right now. That's kind of a big deal. So we actually have some capability in very, very early Discovery, which I do think the drug companies want to collaborate with anybody that can help them in any way. And if we can help them in the very earliest phase, we can help them improve the targets, improve the molecules, identify lead compounds and do obviously the testing all along the way to determine whether the drug should and will get to market. So I would say that increasingly, if they – when they listen, they are open to it. And it's a lot like safety was a long time ago. I was talking to a client about this yesterday in fact about how years ago there was a great reluctance to give a safety work and over time our capabilities have enhanced theirs and, in some cases, exceeded theirs. So I do think it's going to be a gradual process. We can do more for some clients than others and the work is coming outside. There are things that we can do that are sort of industrialized and more routine. There are assays that we have that they don't have. If you look at oncology, the cell lines and capabilities that we have that they don't have as well. If you look at CNS, we have some imaging and methodological capabilities that they don't have. There are slivers of competition along the way. Some of it's Eastern competition. Some of it's Western. It tends to be a little more siloed than we are. So as we've said countless times, I do think that putting the portfolio together of in vivo and in vitro capabilities very early discovery through latest stage discovery, has a lot of the clients to take notice of what we are capable of doing. And I think we're in very early days in the outsourcing trend and we hope it will be a trend. But we are seeing clients really happy with the quality of the work. We're seeing them come back and we're seeing very large pharma and very small biotech companies use that. So we believe that the thesis is a good one. We do think that scale will continue to be important for them, both breadth and depth.

Next, from the line of George Hill with Deutsche Bank. Please go ahead.

Yes. Hey. Good morning, guys, and thanks for taking the question. Jim, you gave a lot of color talking about the strength in biotech. Just one concern we hear from a lot of investors is that how the biotech companies have been revalued that could potentially set them up for sale or exit. I guess, I know it's probably a longer-term risk. But could you talk about what you guys have seen historically when some of these biotech companies have transacted and whether or not there's any risk to the business?

Yeah. So it would obviously be company specific. We have a couple of clients now who are potentially going to be acquired, at least that's what we read in the press. It depends. So if we're running studies for those clients and the science is, quality of our science is what they're looking for and I think they'll likely going to stay with us. It's also quite likely, not always, but quite likely that the acquiring company whether it's larger biotech or a large pharma, is a happy Charles River customer as well and would support that. So they're not going to buy these biotech companies to kill their pipelines. They're only buying them for their pipelines. So I just think that that expands the portfolio for them and I think there's a very, very strong possibility that we should notice nothing frankly. And to put the most positive spin on it, we could be the sole provider to a small or medium-sized biotech company who gets acquired by a larger one who was not a Charles River fan, and we could get access and provide off – they could get understanding of us by doing that deal. So we actually feel really good about that. And of course, we have more clients now in biotech because of that reason, because of the quality of the work that we're doing. So it's not – we don't see that as a significant risk at all, perhaps any risk.

Okay. And then maybe just a quick follow-up, nice little bonus from the performance of the venture portfolio in the quarter. Can you just say whether those are cash returns or changing the mark on the portfolio?

It's due to revaluation on the underlying assets that we brought in.

Okay. Appreciate the call. Thank you.

Next question is from the line of Ross Muken with Evercore ISI. Please go ahead.

Hi. Good morning, guys. So maybe just quickly now that WIL has closed, can you just help us think about you laid out a number of different metrics at the last Analyst Day in terms of longer-term aspirations and certainly in the context of the recent performance and the WIL transaction, those certainly seem readily achievable. I guess as we think about WIL now being closed, how does it – I am not asking you to provide specific details but maybe more directionally how do you relay that to those goals and where you will likely to be tracking as we hear from you next at the upcoming Analyst Day?

I would say that WIL will likely enhance our ability to grow the top line in our Safety Assessment business, which will obviously be beneficial to the DSA segment's top line. You know because we've discussed it several times that WIL is currently a drag to operating margins and Safety Assessment and will be for a couple of years albeit improving during that time. And so it's a little bit difficult to estimate what the margin growth will be in that segment once we catch it up. Although we would certainly hope that we could continue to drive efficiency, get some price, have a healthy mix and the margins will continue to improve. Where the margins in the preclinical business are going to end up, it's a little bit difficult to estimate. They are quite attractive at the moment. They're north of 20%, which was our corporate goal for the longest period of time. And obviously, they were substantially below that for a number of years. So we're quite pleased with them. We're not complacent about that. So, clearly, WIL will help the top line. We hope eventually it will help the bottom line. But if you look at the whole DSA segment, given the continued improvement in operating margins in Discovery, particularly – not particularly both on the top line and driving efficiency, we should continue to have slightly better and improving operating margins at DSA as well both from Discovery and ultimately from WIL.

We have broken out a fair bit of information about WIL in our previous call. And as Jim mentioned, it is only day 30. So before we start committing to additional, if you like, targets above what we've already shared with you, I just think it's a little bit early for us to declare where we think we might get it.

Fair enough. Thank you, gentlemen.

Next, from the line of Tim Evans with Wells Fargo Securities. Please go ahead.

Thanks. I wanted to ask about the Microbial Solutions. It seems like the demand there may be caught you a little bit off guard. That business has been doing very well. So I just wanted to kind of see, is the demand here even stronger than you anticipated or just maybe a little more color on what's going on there. Thanks.

Yeah. So thanks for that question. Let's just be clear about that. Demand is really good in that business and continues to be. We do believe that this business will continue to grow at double-digit rates for the balance of the year, and out in future years. And it has, as you, I think, know, it's gotten double-digit rates for at least half a dozen years historically, strong high-growth business. What happened in the first quarter is the demand for the cartridges are so robust. So we're obviously happy with that. We upgraded our manufacturing capacity and as a result of this conversion process, we got orders backlog a little bit in cartridges and we were unable actually to satisfy the demand in the first quarter. We're through that now, and we should continue to be back to growth metrics. So it's sort of yes to both ways you asked the question that the business is so good and demand is so good, and we are upgrading our manufacturing capability to service the demand and the conversion process slowed us down a bit in the first quarter.

Got you. Okay. Thank you.

Sure.

Next, from the line of John Kreger with William Blair. Please go ahead.

Yeah, hi. Good morning, guys. It's Robbie Fatta in for John today. Thanks for taking the question. I was just curious from your perspective on longer-term R&D spending trends, particularly from the smaller clients in light of any potential pressure on drug pricing.

Yeah. So, we certainly haven't heard anything directly from clients, whatever pressures on drug pricing are pretty much alleged and more conversational than reality. In fact, they have not been a reality. I don't think we've ever seen pipelines this robust. I'm talking about in the aggregate both big pharma and biotech companies. The quality of the pipelines, the amount of work that they have, the target hits that they are experiencing, the amount of work that's being outsourced, really feels that we are in a very positive inflection point just in terms of demand and interest and a lot of it has to do with immune-therapies probably particularly immuno-oncology, things like RNAi working. So I think we would all be speculating in terms of what, if any, moderation of drug pricing we see but we certainly haven't seen or heard any of it in dialogue with clients. And certainly we haven't seen it in terms of the volume of business that we have been so pleased to encounter in the first quarter and obviously given our forecast for the year, we continue to think the demand will be quite strong.

Great. Thank you.

Sure.

Next, from the line of Robert Jones with Goldman Sachs. Your line is open.

Good morning and thanks for the question. This is Adam Noble in for Bob. Just curious thinking about the guidance, given your expectations for higher RMS revenue and the slightly larger WIL contribution given the earlier closing date, why you guys didn't raise the revenue range as well. Is it just simply being conservative given your rolling one quarter into the year or are there some pushes and pulls with the other segments as well? Just clarity around that would be really helpful.

Yes. So what I would say, first of all, quarter one, we met our expectations for quarter one. And there are puts and takes in that forecast and at this time, we think that the revenue guidance that we have given you is appropriate when you put it altogether, not much more really to add then other than that we are only three months into the year, still nine months still to go. And I think given the fact that we met our expectations in Q1, on balance, we felt that keeping the revenue guidance to what it was is appropriate.

Got you. Thanks for the question.

Next, from the line of Garen Sarafian with Citigroup. Please go ahead.

Hi, guys. Thanks for squeezing me in. Two quick questions; one tactical one with the one strategic. On the WIL acquisition now that it's closed, you mentioned just the margin improvement. So could you elaborate on that a little bit as to what areas you guys are targeting maybe by priority? I know that in the prepared remarks, you guys mentioned, I think, about the purchasing of Research Models. But is it just re-contracting with clients? Is it more procurement? And also that will give us a little bit more color as to the timeline over two years rather than something a little bit more forward. And the second one is on M&A. In two portions of the prepared remarks, you're sort of still looking to strategic M&A to advance the quality and your scientific work but at the same time reduce your leverage ratios. So just it sounds like you guys are taking a balanced approach between the two. So just wondering what type of areas would compel you to revise that timeline with that buy-down and what types of companies would be appealing enough to reconsider that approach? Thank you.

So I'll take the first question. So just for the background, so we have declared the $17 million to $20 million synergies over two years. We also knew that once we've extracted those synergies, that gets our operating margins in the ballpark of the 20%. We have not and deliberately broken out what portion of that $17 million to $20 million will come this year. And that's – obviously, we have it internally and target that we're all shooting for but we've not broken that out perfectly. So some of the activities that we're doing, we've already mentioned it might be dependent upon the duplicate roles they were announced in terms of changes those on day one, that's been done. And we're already beginning to move our Research Models which we'll be buying from various sources and supplying them directly, so that's quite a quick win. Procurement, it's got up to a good start. Of course, the procurement savings started to come in as we go through the year. And so we're making leverage on our global procurement opportunities there. And there are some internal supports that WIL can use instead of using external consultant. So, for instance, we've got a pretty good and strong tax department team, so we'll be leaning on our internal tax team there. And it gets into the harder aspirations that we have of looking at the processes that they have which can be applied to Charles River and the processes that we have can be applied to WIL. That will take some time. And so when you put all that together, we're still confident that we can deliver that $17 million to $20 million savings and therefore get to the 20% operating margin within the next two years.

On the M&A question, we want to continue to be very clear about that. We just did a big deal. We – integration is – well, it's going really well. It's complex, we're going to focus most of our effort on the smooth integration of this important asset while we paid down our debt. So we are committed to get below three turns as quickly as possible. I think we originally said in the next 18 months. Having said that, we will continue to be active in looking at M&A targets whether we do something small in the intervening 12 months or 18 months now, we will see. But we're certainly open to doing that. And we – eventually, we want to continue to build out our Discovery portfolio and expand and enhance other areas so that we can be a more important and beneficial provider to our clients. So we will certainly keep working on M&A. But we are going to take a balanced approach as you put it and swallow what we have just want bought effectively and reduce our debt.

That's helpful. Thanks again.

And there no further questions in queue. I will turn it back over to Susan Hardy for closing remarks.

Thank you for joining us this morning. We look forward to seeing you at an upcoming conference and if you have any further questions, please feel free to give us a call. This concludes the conference call.

This concludes the conference for today. Thank you for your participation. You may now disconnect.