Ladies and gentlemen, thank you for standing by. Welcome to the Charles River Laboratories First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Susan Hardy, Corporate Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and thank for joining us for our first quarter 2017 earnings conference call and webcast this morning. 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 updated guidance for 2017. 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 422034. The replay will be available through May 24 and you may also access an archived version of the webcast on our Investor Relations website.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 14, 2017, 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 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 Information link. I will now turn the call over to Jim Foster.

Good morning. I'm very pleased to say that following an exceptional year in 2016, we're off to a strong start in the first quarter of 2017. We've succeeded in our strategy to become the early-stage CRO of choice as a result of a three-pronged approach which we live every day. First, we are continuing to expand our unique portfolio of essential products and services, which increases our relevance to our clients' drug research, development, and manufacturing efforts. Second, we continue to expand and enhance our scientific expertise and depth, which we believe is unique and unparalleled in the early-stage CRO universe, and a strong differentiating factor. Third, we maintain an intense focus on efficiency and responsiveness, which enables us to provide exceptional, flexible service to clients without adding significant cost. Because of the strategy, we were gratified that three sell-side analyst surveys issued this spring placed Charles River as the best-positioned CRO to win preclinical work. We will never take our position for granted, and will utilize our entrepreneurial culture to identify new paths in which to execute our strategy. Let me give you the highlights of our first quarter performance. We reported revenue of $445.8 million in the first quarter of 2017, a 25.6% increase. Our portfolio delivered robust organic growth of 8.2%, at the upper end of our guidance range of 7% to 8.5%. Each of our client segments, Global Accounts, Biotech and Other, and Academic and Government, generated higher revenue. The operating margin was 18.5%, an increase of 10 basis points year-over-year. We were very pleased with the margin improvement in the Manufacturing segment which was the primary driver of the increase. DSA margin declined year-over-year, however, it continued to exceed our long-term target as a result of higher revenue and efficiency initiatives. Earnings per share were…

Okay. Thank you, Jim, and good morning. Now, 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, the impact of the divesture of the CDMO business, and certain other items. Many of my comments on the first quarter and full year will also refer to organic revenue growth, which excludes the impact of acquisitions, the CDMO divestiture, and the impact of foreign currency translation. Full-year organic growth also excludes the impact of the 53rd week in 2016. Operationally, our first quarter revenue and operating margin performance was precisely in line with our expectations. Our February outlook called for reported revenue growth in the mid-20% range and an operating margin similar to the first quarter of last year. We delivered revenue growth of 25.6% and an operating margin of 18.5%, an increase of 10 basis points year-over-year. Organic growth of 8.2% in the quarter demonstrates the strength of our unique portfolio and give us confidence that our growth prospects and margin targets for both the year and the longer term are firmly intact. We continue to be well-positioned to deliver organic growth in a range of 7% to 8.5% and non-GAAP operating margin improvement of up to 100 basis points, which would bring us to at or near 20% this year. First quarter earnings per share of $1.29 were well above our expectations. A favorable tax rate generated a net benefit of $0.10 per share compared to the prior year. We also recorded a $0.05 gain on our venture capital investments in the first quarter. Adjusting for these items, earnings per share were also in line with our expectations. The non-GAAP tax rate decreased from 28.2% to…

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

Thank you. And our first question, we'll go to Derik de Bruin with Bank of America. Please go ahead.

Hi. Good morning.

Good morning.

Hey, Jim, can you – I know you've talked about it in detail in the biotech customer base, but if you could just – if there's any additional color on that, as you said, we've gotten a ton of questions on that from investors. And I guess, the – you saw this across some of the other players in the industry, and I just – is it just in terms of just readjusting (33:26) timing of what's going on, there were people worried about what's going on in Washington and that's what slowed it? I mean, did you get any – a bit more additional feedback from what's going on with that?

Yeah. There's really no additional color, Derik, in terms of people expressing any concern about Washington at all, any concern about funding at all. As we've said, the quarter started a little bit more slowly than we had maybe anticipated, or would have liked. We saw bookings. We saw sort of interest, inquiries, and bookings steadily increase, so there's crescendo in March. Feel really good about the backlog. So, we – it's large universal clients that we're dealing with, both U.S. and Europe, obviously biotech is primarily U.S., but large, medium and small biotech companies, let's say, if you want to call it an industry, that group of clients is extremely well funded, developing a lot of breakthrough drugs, a lot of money coming in from a variety of sources. And we really didn't hear anything to the contrary from anyone. And we know, when we look at our business volume, but we're checking in sort of real time with very senior people about this stuff, because we're hearing a lot, primarily from our investors, who – sort of news-generated as opposed to reality. So, didn't see any evidence of anything. And then actually, the quarter was enhanced by significant demand from our global clients because we re-upped several, actually, of our long-term agreements. They sort of all came together kind of in one quarter. We signed new ones, and we expanded some old ones and licensed some old ones. So, that always feels like it's shoring up the infrastructure for us. It gives us better visibility and predictability of our business model. So, look, we were very happy with the 8.2% top line. We would have, obviously, liked the DSA segment to have a stronger top line, but we really feel that the quarter strengthened so significantly and the bookings in backlog are so good. We still feel confident with our sort of full-year look at that, which we believe it'll be low double digit. And it's got this, sort of, by definition, a variable cadence. A lot of that work in safety in particular, even the discovery work. I mean, studies don't start and end at the beginning and the end of the quarter, and we're going to have some variability. And as we had in the conversation of the third quarter last year, we'd like to get people to look at sort of at least kind of the annual view of this. And so we feel good about what we're hearing, but more importantly of what we're experiencing from a bookings point of view.

Great. Thank you.

Sure.

Thank you. We have a question from Tycho Peterson with JPMorgan. Please go ahead.

Hey, guys. This is Steve Reiman on for Tycho. Thanks for taking my question. So, with leverage continuing to move lower, can you talk about or give a little more color on the deal funnel? Public market prices are obviously continuing to hit all-time highs. So, curious to what you're seeing on the private side. And has it hit a point where the high prices have become an impediment to kind of driving your M&A strategy?

Yeah. So, we're obviously happy with our leverage. We continue to move it down as indicated and as we desire. Deal flow is great. Yeah, it's moderate PE, venture capital and some privately owned businesses of, I would say, small to modest size – mid-size. We don't always know, but we're increasingly feeling that we're likely to be the only or perhaps one of a couple of strategic buyers that were often competing with financial buyers who should never and often can never win a competitive bid process, given the cost and the revenue synergies that we have. So, look, we remain extremely disciplined in what we will pay. So, public company comps aside, we're not going to overpay for anything, we haven't done a deal in a long time, there was anything worse than neutral and many – most have been accretive. So, we're quite focused on that and gain the returns that we want. We have a whole range of targets that – all of whom would enhance our portfolio in a material and strategic fashion. We're looking at acquisition opportunities virtually in all of the areas where we feel that we have substantial growth and will make us a broader solution for our clients. So, yeah, we're very busy. As you know, we don't have any arbitrary goals for the year, except that our preferred use of capital is strategic M&A, we'll do good deals if we can get that done and the due diligence work (39:09) we won't do them if none of those things happen. Having said that, I suppose we'll be somewhat surprised and disappointed if we don't have some M&A concluded this fiscal year.

Got it. Appreciate the color.

Sure.

Thank you. We have a question from Dave Windley from Jefferies. Please go ahead.

Hi. Good morning. Thanks for taking my questions. Wanted to target my question around guidance and some components thereof. So, if you could explain the – I think in the first quarter, the $0.15 tax benefit item, but then for the quarter you're quantifying that as $0.10. Wondering what specifically the $0.05 mitigation factor is. And then how much of that is being included or rolled forward into the full year guidance that you are maintaining, I believe? And then, I guess, trying to understand how in that full year guidance, I suppose kind of the above-the-line or the margin expectations are changing if we have a maintained EPS target with a new tax benefit included in that. Thanks.

So, well, there's a multi-part question there. So, let me see if I can go through...

I tried my best. Yeah.

Yeah. Okay. So, first of all, the $0.05. So, we had a different mix as a consequence of the VCs, because that has the U.S. tax burden to bear. You also saw very good performance in our Manufacturing sector and Microbial made up a component of that, and that also leveraged to the U.S. tax rate. So, the $0.05 there is to do with those two components. If we just kind of step out a little bit here, I mean, your wider question was how we might see the guidance for the whole year and where did the $0.05 come from. So, let me talk about $0.05 and then let's talk about the guidance for the year. So, the $0.05, I guess the way simplistically to look at this is that we were guiding on the VCs $0.04 for the entire year and we saw $0.05 in Q1. So, there's $0.01. We have also guided to the lower end of our guidance range for the interest expense, and so there's another $0.01. In terms of the excess tax benefit on the stock compensation, we were forecasting $0.12 for the entire year, and we saw $0.15 in Q1. So, there's another $0.03, and that essentially makes the $0.05. Yes, we're kind of guiding that we're not expecting to see much in a meaningful manner coming from the excess tax benefit on the stock compensation for the remainder of the year. There may be some, but we should remember that this is now part of the effective tax rate calculations. So, we have lots of puts and takes, and this new ruling on the stock compensation is just another put and take that we have within our effective tax rate. So, we feel that we're guiding correctly. 28% to 29% is what…

All right. Thank you.

And we'll go to the line of John Kreger with William Blair. Please go ahead. John C. Kreger - William Blair & Co. LLC: Hi. Thanks very much. Just wanted to come back to some of the comments you made on slide 10. Just to clarify, the slow start to the year, was that primarily among your smaller biotechs or did you see them among large pharma as well? And I think in the past, you were getting a point where some new study starts were starting to get a little bit delayed reflecting sort of a stronger demand. Are you still seeing that or at this point, is it – are we not seeing any study start delays within tox? Thanks.

Study starts within tox are inherent in the toxicology business. So, we'll always see them. Companies who used to do the work themselves always suffer internally, it's (44:52) when the drug is ready on time, ease or difficulty formulating it, priorities within the business. So, that goes to backlog. And as backlog improves, that's always less of an issue. So, we saw, as I said earlier, we saw a strong global client impact in the first quarter because of lots of signings of big deals, that's always a good thing even though our revenue is slightly larger for the biotech clients. And we're seeing sort of an evaluation that always happens in the first quarter of what drugs they want to approve, and when they want to get started, so safety is typically lighter anyway was kind of what we expected, maybe a little bit slower. But as I said earlier, extremely pleased with the solidification and the intensification of demand and inquiries pretty much on a world-wide basis, pretty much throughout the entire client base as the quarter ended. So, we're seeing very good client interaction. And it's hard to slice it because we have so many clients, both very large and very small. You have to remember that very small has never had any internal infrastructure, so they are totally dependent on Charles River, or the companies like us. So, if the work is available, it will come outside. John C. Kreger - William Blair & Co. LLC: Great. Thank you.

Sure.

We will go to the line of Ross Muken with Evercore ISI. Please go ahead.

Hey, guys. It's Luke on for Ross. I guess on the Biologics and Manufacturing Testing, it's been such a strong driver for you guys lately. Can you just talk about where you think we are in the cycle and about how your entire portfolio kind of helps you forecast from you have the tox in the beginning with the DSA and then that goes all the way through manufacturing, where we can kind of see if it's like a leading or lagging indicator?

So, it doesn't strike me that it's sort of cycle-related. And it's not necessarily particularly well-correlated with other parts of the business, although that may change over time. So, the business is increasingly improving, I'd say, the last two or three years, we've seen the sort of growth rates that we had desired and the operating margins that we had desired. We're investing significantly in capacity and scientists, and then our capabilities, which are continuously broad gauged. So, as the industry has more biologics that get to the clinic, whether they get to market or get to the clinic, that work almost entirely goes outside. When the drugs are approved, sometimes it goes inside, but often it stays outside as well. So, I guess it's most closely correlated to the increase and enhanced number of biologics that are both in the pipeline and getting to market. If and as that continues to increase, which I think everybody would agree, it will continue to increase. The power of those drugs are sort of undeniable, to be a very, very good business model – business for us. We have a very good geographic footprint, which I think is a competitive advantage for us. And obviously, the – while other parts of our business may not be predictively correlated, clients increasingly want to buy more services from a small number of providers. And so, if they can get the biologics service from us, even if it's not specifically a drug that we've done tox for them or pharmacology with them, but it's a bigger relationship and a better value proposition, they will do that. So, we're seeing that increasingly. We had a conversation yesterday about a client that's gone from having 28 providers of their work to one. Don't think that's unusual. I think that's – that makes their business easier – everyone is in a rush to market, so managing their outside suppliers kind of is a distraction. So, if you could find a scientific partner who will help you from a regulatory point of view and scientific point of view and a speed point of view, and you can buy multiple services and, I suppose, products as well from that provider, it's definitely a win-win for them, and obviously for us as well.

Good. Great. Thanks.

Sure.

We'll go to the line of Jack Meehan with Barclays. Please go ahead.

Thanks. Good morning. I wanted to dig in a little bit more on the safety assessment trends in the quarter. Could you elaborate on the commentary related to the competitive environment? Was this something one-off going on or broader, and what do you think was driving the behavior?

Yeah. It's not all that different than we see. I mean, I think the competitive environment is what it is, right? You've got about half a dozen big players and that's it. We're the largest player. The first quarter tends to be a little bit slower. There's a sorting out period, prioritization, which we always see. The fourth quarter is often slow, it's kind of difficult to predict. I think all of us – can't really speak for our competitors – so I think all of us are hard at work making sure we have a strong start to the year. We utilize our capacity well. And I think that we saw that happening in the very, very early part of the quarter, for sure January, a little bit less, but – February as well, and then very strong fortification and a lot of activity in March. It's really not that unusual. So, I don't think it's all that different. I do think that all of us appear busy. Demand is, I think, good, both short-term and long-term indications. We're not seeing any sort of crazy, overly aggressive pricing dynamics. And I think people's capacity, competitors' capacity as well as ours, are well utilized. So, it feels like a very rational, somewhat respectful business environment, and we feel that we can build upon the first quarter for the rest of the year.

Great. Thanks.

And we'll go to line of Ricky Goldwasser with Morgan Stanley. Please go ahead. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Yeah. Hi. Good morning.

Good morning. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Most of my questions have been asked, but just a couple of clarifications here. So, Jim, one of your competitors talked about some weakness in their business. Do you think that the organic growth that you're achieving, does that reflect kind of like market growth, or are you gaining share? And then, secondly, we are starting to see kind of like an increased wave of zero (52:33) consolidation on the clinical side. I was wondering if you have any views on what's driving it?

Yeah. You know, we're not experts in the clinical side. I think what's driving it, I think there's a lot of players, and scale is obviously really important. There's a couple of really big ones. So, not really surprised. Then a couple of the people that are being consolidated haven't had the best performance. So, probably on a consolidated basis, with appropriate synergies, the businesses will just be stronger. So business is very much outsourced right now. So, not surprising, not surprising at all. With regard to safety, we are unquestionably taking share from multiple competitors, I think we have for a while. I think the business volume – I think you have two things going on. You have pharma continuing to dismantle capacity and outsource. Pharma tends to like the really big players. So, we're getting a lot of that work, and I could think of one, and perhaps one other competitor who might be seeing a lot of that work. And then of course, you have lots of new biotech companies who didn't exist last year, didn't have drugs that were available to be tested, and they didn't have the technologies or the funding, whatever, and of course, they never had any internal capacity. So, I do think that the demand proposition is an extremely attractive one and one that should be persistent and somewhat consistent over a year. And the point that we really want to make that – well, so let me make it again – is that there has been variability from quarter-to-quarter. It's not something that's unlikely that we'll see again. We feel very strongly about the double-digit organic growth rate proposition for the DSA segment and for safety in and out of itself over a year's period. Felt quite good about that. We hope it's up double-digit every quarter, it just kind of not the way it's probably going to turn out just because of the cadence of the work. And so we certainly look beyond the modest variability from quarter-to-quarter as we utilize our space well, make the appropriate investments in people. So, we feel very good about the demand. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Okay. Thank you.

Sure.

And we have a question from Erin Wright with Credit Suisse. Please go ahead.

Hi. This is actually Hong (55:25) on for Erin. Thanks for taking our question. We just have one really quick one. Would you guys mind giving us an update on your Early Discovery business, what you're seeing there in regards to sort of your large pharma customers and just sort of your outlook for the rest of the year?

Yeah. So, the Early Discovery business continues to stabilize and strengthen. We have new management, we have new sales organization, we have an integrated drug development group that cuts across multiple therapeutic areas and in vivo and in vitro capabilities. We've done some creative deals. We announced a big deal with Nimbus during the quarter. We announced an extension with Chiesi during the quarter. It's a modest amount of our deals, but we're being much more creative with the way we structure deals. We did well with pharma in the quarter, we did well with small biotech companies as well. So, while Early Discovery was still slightly down, it is strengthening both top and bottom line. And most importantly, the client – the universe of clients that we're engaging with and signing work with is increasing. So, we really feel good about its stabilization and its future prospects.

Great. Thank you.

And our last question will come from Tim Evans from Wells Fargo. Please go ahead.

Hi. This is Sara Silverman on for Tim. I want to see if you guys could elaborate a little bit more on the specific mix issues that you're seeing impacting the DSA margin outside of acquisitions this quarter, like any additional color there would be helpful. Thanks.

Yeah. I'll give you some more color, but I'll keep it a little bit general. So, when we talk about mix, we talk about the mix between short and long-term studies. By the way, you don't get long-term studies unless you do the short one. The mix between general and specialty tox, specialty tox is often, not always, but often later in a clinical trial process, tends to be higher margin, less price sensitive and often the clients never had the capability and some of our competitors don't as well. And we also take a look at the ancillary or necessary laboratory scientist work that goes along with those. The predictability of what that mix will be amongst all of those six elements is impossible, just put it that way. The good news for us is we have a very large capability in specialty toxicology. So, over a year's period, we'll see a pretty good mix. We'll see good mix of lab scientist work as well and we hope obviously that the work that we start with short-term studies, assuming the drugs look promising, move into later stage. So, you can infer from what I just said that the mix was a little less desirable in the first quarter. Again, totally beyond our control, but sort of directionally and with some level of certainty that will enhance and strengthen and approve during the back half of the year.

Okay. Thank you.

Speakers, I'll turn it back.

Thank you. Thank you for joining us this morning. We look forward to seeing you at the Bank of America Merrill Lynch Healthcare Conference next Tuesday or the Jefferies Healthcare Conference on June 7. This concludes the conference call. Thank you.

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