Charles River Laboratories International Inc (CRL) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Charles River Fourth Quarter 2017 Earnings Conference Call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to Susan Hardy, Corporate Vice President of Investor Relations.

Please go ahead.

Thank you.

Good morning, and welcome to Charles River Laboratories Fourth Quarter 2017 Earnings and 2018 Guidance Conference Call and Webcast.

This morning, Jim Foster, Chairman and Chief Executive Officer; and David Smith, Executive Vice President and Chief Financial Officer, will comment on our results for the fourth quarter of 2017 and our guidance for 2018.

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 443328.

The replay will be available through February 27.

You may also access an archived version of the website on our Investor Relations website.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 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.

Now I'm pleased to turn the call over to Jim Foster.

Good morning.

I'm very pleased to speak with you today about the conclusion of another strong year for Charles River, our expectations for 2018 and beyond and some important developments that will contribute to our long-term growth.

Let me begin with an overview of our industry and factors driving our performance.

We are operating in a robust business environment that gives us excellent growth potential.

Our total addressable market is in the range of $15 billion, growing at mid-single-digit rate.

At revenue approaching $2 billion, that gives us a long runway.

Biotech funding remained strong.

In fact, 2017 was the second strongest year ever, with funding rising 37% from 2016 levels.

The FDA approved 46 drugs last year, more than twice the number of drugs as in 2016.

And because of our unique early-stage portfolio and extensive scientific expertise, we worked on 74% of the approved drugs.

We have demonstrated the value we can provide to clients and fully intend to continue to enhance our value proposition both through internal initiatives and strategic acquisitions.

With the strength of the market opportunities and our premier reputation with clients, Charles River is on a path to nearly double its size over the next 5 years.

We are maintaining our long-term target for consolidated revenue growth at high single digits over the 5-year life of our strategic plan and low double digits including acquisitions.

Our long-term target for the consolidated non-GAAP operating margin remains greater than 20%, even including acquisitions, because profitable revenue growth is key to our long-term goals.

Further to that point, we continue to target at least low double-digit non-GAAP EPS growth, exceeding organic revenue growth by at least 200 basis points.

Before discussing our fourth quarter results, I'm pleased to share 2 important events that will enhance our ability to achieve our growth goals.

First, you will hopefully have seen that we announced the definitive agreement to acquire MPI Research, a leading nonclinical CRO providing comprehensive testing services to biopharmaceutical and medical device companies worldwide.

Acquiring MPI will strengthen Charles River's ability to partner with clients across the drug discovery and development continuum.

As you know from the press release, we've entered into definitive agreement to acquire the company for approximately $800 million in cash, subject to certain adjustments.

Adding MPI's capabilities enhances Charles River's position as a leading early-stage CRO and drives profitable revenue growth and immediate non-GAAP earnings per share accretion.

Our commitment to growth, including through strategic acquisitions, requires an organizational infrastructure that is both broad and deep, with highly experienced leadership at the top.

The appointments of Davide Molho and Birgit Girshick are important steps in building out that necessary structure.

Effectively immediately, Davide becomes President and Chief Operating Officer of Charles River, responsible for our RMS, DSA, Biologics and Avian businesses and continuing to report to me.

Trained as a veterinarian, Davide has established a proven track record of outstanding performance, leading many of our businesses through important strategic initiatives during his nearly 20 years with the company.

His extensive operations management experience in both the U.S. and Europe uniquely qualifies Davide to oversee our global organization and provide leadership as it continues to grow.

Davide has been a key contributor on our executive management team.

The appointment of Birgit Girshick to corporate Executive Vice President, Discovery and Safety Assessment, enables us to manage the Discovery and Safety Assessment businesses as one cohesive unit, leveraging the synergies between the 2 related businesses in order to enhance the extensive services we provide to clients.

During her more than 25 years with the company, Birgit has established an exceptional record of operational management, most recently leading our global Discovery business after successfully executing the WIL Research integration.

Given her experience, there is no one more qualified to combine these 2 businesses into a seamless operating unit.

This enhanced organizational structure will enable us to continue to advance our strategic objectives and support our continuing growth.

I have complete confidence in Davide and Birgit's capabilities and believe that Charles River will benefit greatly as a result of their new roles.

I look forward to continuing to work side by side with Davide, Birgit and the entire team as we drive Charles River's growth and development over the coming years.

As I said at the outset, we plan to nearly double in size over the course of our 5-year plan, generating significant earnings growth and delivering value to our stakeholders.

Today's appointments give us the right leadership structure to support and advance that plan.

Now let me give you the highlights of our fourth quarter and full year performance.

We reported revenue of $478.5 million in the fourth quarter of '17, an increase of 2.5% on a reported basis.

Robust client demand in the Manufacturing and DSA segments drove organic revenue growth of 5.6%.

For 2017, revenue was $1.86 billion, with a reported growth rate of 10.5% and an organic growth rate of 6.7%.

From a client perspective, Biotech clients were our fastest-growing client segment in both the quarter and the year.

The operating margin was 19.7% in the fourth quarter, an increase of 50 basis points year-over-year.

We continue to be very pleased with the margin improvement in the Manufacturing segment, which drove the fourth quarter increase.

Lower corporate costs also contributed to the margin improvement.

The full year operating margin of 19.3% was slightly higher than '16 primarily due to a 170 basis point improvement in the Manufacturing operating margin, offset in part by a lower RMS operating margin.

Earnings per share were $1.40 in the fourth quarter, an increase of 15.7% from $1.21 in the fourth quarter of '16 due primarily to venture capital investment gains as well as higher revenue and operating income.

For the full year, earnings per share were $5.27, a 15.6% increase over the prior year.

Earnings growth was driven by higher revenue and operating income as well as contributions from venture capital investments and the excess tax benefit from stock compensation.

When adjusting both years for these items, the year-over-year growth rate was 7.2%.

Our strong performance in '17 reflects robust client demand across our broad portfolio of essential early-stage drug research and Manufacturing Support products and services as well as the disciplined investments in staffing and infrastructure that we are making to support our continuing growth.

These investments have positioned us extremely well to address the continued strong demand, which is the basis for our outlook for 2018.

Not including the anticipated acquisition of MPI, we expect organic revenue growth of 5.7% to 6.7% and non-GAAP earnings per share in a range of $5.42 to $5.57.

The EPS range includes $0.14 of gains on venture capital investments and $0.14 for the excess tax benefit associated with stock compensation.

Adjusting both years to exclude these items, the 2018 EPS range represents growth between 8% and 11%.

And when including MPI, the non-GAAP earnings per share range is expected to increase to $5.67 to $5.82, a growth rate of 13.5% to 16.5% on the same adjusted basis.

In either case, the projected non-GAAP EPS growth rate in '18 is in line with our goal of an EPS growth rate more than 200 basis points higher than the organic revenue growth rate.

I'd like to provide you with additional details on our fourth quarter segment performance and speak to our expectations for '18 and longer term.

I'll begin with the RMS segment.

RMS revenue in the fourth quarter was $120.4 million, a decrease of 1.4% on an organic basis.

The RMS operating margin decreased by 130 basis points to 26% due primarily to lower sales volume.

From a client perspective, Charles River's DSA segment is, and will continue to be, the largest client of the research models business.

Research models remain an essential regulatory required scientific tool for early-stage research and a vital component of our portfolio.

Researchers fuel our broad portfolio of high-quality, scientifically defined research models, and our exceptional client service is the foundation from which they derive precise scientific data about their molecules.

In both the fourth quarter and full year 2017, biotech clients increased their purchases of research models, but global biopharma clients continued to reduce theirs.

This is likely the result of both increased use of CROs and biotech partnering and consolidation in the biopharma industry.

But as the leading supplier of models to these clients, the impact largely offsets growth from biotech clients in China.

Growth opportunities in China are significant, and our business has been growing at double-digit rates each year since we acquired it in 2013.

The revenue growth rate moderated to low double digits in the second half of 2017 because of capacity constraints.

Our new production facility in the Shanghai area was completed in the fourth quarter, and we began commercial shipments early this year.

This new production capacity as well as plans to continue to expand in China are among the factors that give us confidence in our long-term low-single-digit growth targets for RMS.

In addition to China, we believe that the benefit of modest price increases and growth in the service businesses will also support our long-term target for this segment.

GEMS and Insourcing Solutions performed well in the fourth quarter, and we expect that the revenue growth rate for RADS will improve in '18 now that we have anniversary-ed the onetime single-client project in 2016 that depressed the growth rate in '17.

We expect that these trends will continue: declining demand from large biopharma, increasing demand from biotechs, strong growth in China, modest price increases and demand for services.

Therefore, we are reaffirming our long-term target of low single-digit revenue growth for RMS.

Because of the importance of our research models to drug research and to our Discovery and Safety Assessment businesses, we must continue to provide the high-quality research models for which Charles River is known and respected as efficiently as possible.

Over the last 5 years, we have periodically taken actions to enhance the productivity and streamline capacity in the research models business.

The goal of these actions, including the plant closure of our RMS site in Maryland before the end of the year and our continuing efficiency initiatives, is to sustain the robust RMS operating margin and our long-term target in the high 20% range.

DSA revenue in the fourth quarter was $253.2 million, a 6.8% increase on an organic basis, driven by both the Discovery and Safety Assessment businesses.

DSA growth was slightly below the third quarter level due primarily to a less favorable study mix and safety assessment, which can fluctuate from quarter-to-quarter based on clients' priorities.

For the full year, DSA organic revenue growth was 7.5%.

Safety Assessment growth was in the high single digits for the year, offset slightly by slower growth for the Discovery business.

We expect the Discovery business to generate higher revenue growth in '18 and beyond, and we continue to expand our services and demand for outsourced services trends higher.

We are continuing to enhance our position as the premier single-source provider for a broad portfolio of discovery services.

We have built exceptional capabilities in the area of oncology, which is the largest and fastest-growing area of drug research.

We strengthened these capabilities in January with the acquisition of KWS BioTest, a leading discovery oncology CRO based in the U.K. KWS specializes in immuno-oncology, an area of significant scientific breakthroughs in which researchers are harnessing the human immune system to fight diseases such as cancer.

We believe that adding KWS's capabilities to our portfolio enables us to increase the support we can provide to clients as they increase their focus on oncology drugs, a belief that was reinforced by our clients' immediate and positive reaction to the acquisition.

Our Early Discovery business recently delivered its 78th development candidate to a client.

Early Discovery's scientific reputation and innovative sales strategies are creating new opportunities for us to work with clients at the earliest stages of drug research.

Three clients recently renewed existing agreements or selected us to provide integrated programs.

These opportunities, combined with increasing demand from small and midsized biotech clients, position the business for improved revenue growth in '18.

Our Safety Assessment business continued to attract new business on the basis of our strong portfolio, scientific expertise and flexible and customized working relationships.

Our capacity remained well utilized in '17, and we opened a modest number of study rooms to accommodate growth.

Pricing also continued to increase in '17 at a rate of approximately 2%.

As we noted last year, we will not provide future updates on Safety Assessment pricing.

The Safety Assessment revenue increase in the fourth quarter reflected continued client demand and price increases, partially offset by study mix.

Proposal volume and bookings were very strong in the fourth quarter, increasing both year-over-year and sequentially, which positions us for continued Safety Assessment growth in '18.

In our view, there will continue to be significant demand for outsourced services from both biotech and pharma companies, and we intend to maintain and expand our position as their partner of choice.

As biotech companies proliferate and pharma companies increasingly rely on outsourced services to improve efficiency and access to expertise they no longer maintain in-house, we need additional capacity to accommodate the demand.

For that reason, the acquisition of MPI Research is particularly opportune.

MPI will add auto-toxicity and abuse liability capabilities and expand our existing capabilities in general toxicology and special toxicology, including ophthalmology, juvenile toxicity, molecular biology and surgery as well as medical device testing.

In addition to its strong scientific capabilities, MPI provides a 1 million square foot single site with available capacity.

Furthermore, biotech companies represent the largest portion of their diversified client base, which will expand our exposure to the most significant driver of demand for outsourced services.

From a financial perspective, this acquisition delivers compelling benefits, which will generate value to shareholders and which we consider fundamental to any acquisition we do.

MPI will be immediately accretive to non-GAAP EPS.

It will meet or exceed our ROIC hurdle rate within 3 to 4 years and will enhance our opportunities for organic growth.

Subject to regulatory approvals and customary closing conditions, we expect to close the acquisition early in the second quarter of '18.

On that basis, we expect the acquisition will contribute $170 million to $190 million to our consolidated revenue and add approximately $0.25 to non-GAAP earnings per share in '18.

We expect greater benefits in '19 with MPI's revenue contribution representing approximately $260 million to $280 million of consolidated revenue and non-GAAP earnings per share accretion of approximately $0.60.

At $13 million to $16 million, cost synergies will be somewhat less than we achieved with WIL primarily because MPI's operating margin is already slightly above 20%.

As we did with the WIL acquisition, we have already initiated a comprehensive integration planning process.

Andy Vick, Corporate Vice President, Safety Assessment Ohio, who joined us with the WIL acquisition and has been instrumental in its successful integration, will manage the operational integration on a full-time basis.

He will work side by side with both Charles River and MPI personnel to ensure that the integration process proceeds smoothly.

The DSA operating margin was 22% in the fourth quarter, 180 basis points below the fourth quarter of '16.

The decline was a result of the Safety Assessment study mix and higher staffing cost to support current and future growth, particularly in the Early Discovery business.

The operating factors accounted for 100 basis points of the decline, with an additional 80 basis points resulting from the negative impact from foreign exchange.

For the year, the DSA operating margin was 22.3%, 40 basis points below the prior year.

The slight decline was due primarily to lower-than-expected revenue and higher staffing costs.

Given our long-term outlook for high single-digit revenue growth for the DSA segment, we expect that higher revenue will result in improved operating margins.

In addition, our continuing efficiency initiatives are expected to drive margin gains.

Therefore, we are increasing our long-term DSA operating margin target to the mid-20% range, above the more than 20% we previously targeted.

The Manufacturing Support segment concluded an exceptional year with a strong fourth quarter.

Revenue for the quarter was $104.8 million, a growth rate of 11.8% on an organic basis, driven by the Microbial Solutions and Biologics businesses.

Organic revenue growth for the year was 12.9% due to robust market trends in both businesses, our continuing efforts to enhance our product and service offerings and our best-in-class client service.

Because we believe that the market trends will continue and we will continue executing our successful go-to-market strategy, we are reaffirming our long-term goal of organic revenue growth in the low double digits for the Manufacturing segment.

Combining robust sales of the PTS family of products, 4 reagents and microbial identification services, the Microbial Solutions business continued to generate low double-digit organic revenue growth in the fourth quarter and for the year.

Our installed base of rapid detection systems continued to expand.

And as a result, we are driving higher cartridge sales.

Furthermore, as the only provider who can offer a comprehensive solution for rapid quality control testing of both sterile and non-sterile biopharmaceutical and consumer products, we are leveraging our client relationships to market our microbial solutions.

For clients who have historically used our testing products in only one area, we are introducing them to our comprehensive microbial testing solution and selling across a broader portion of the microbial portfolio.

We are in a unique position to support our clients' rapid testing needs and win new business, which is why we believe that the Microbial Solutions business will be able to continue to deliver low double-digit organic revenue growth for the foreseeable future.

The Biologics business reported another exceptional performance in the fourth quarter as well as for the year, delivering robust double-digit organic revenue growth for both periods.

We believe that the number of biologic and biosimilar drugs in development has led to a rapid increase in demand for our services over the last several years, especially in view of the fact that many of the biologic drugs are being developed by biotech companies that do not have the internal infrastructure to support their manufacture.

Because of the exceptional growth in 2017 and our belief in continued growth for the foreseeable future, we have plans to expand into a new facility near our existing Pennsylvania site, which is larger and provides significantly more capacity for growth in 2018 and beyond.

The additional capacity as well as continued expansion of our Biologics services portfolio will further enhance our ability to support our clients' biologic and biosimilar development efforts from discovery through clinical phases and commercial manufacturing.

Strong revenue growth and our focus on continuous improvement have resulted in greater operating efficiency in Manufacturing Support segment.

The fourth quarter operating margin was 37.6%, a 340 basis point improvement from the fourth quarter of '16.

And for the year, the operating margin was 35.5%, a 170 basis point improvement over the previous year.

Based on our outlook for low double-digit revenue growth and continued efficiency initiatives, we are increasing our long-term operating margin target for the Manufacturing segment to the mid-30% range from more than 30% previously.

The increased margin expectation for this segment is one of the reasons that we believe we will achieve our consolidated margin of more than 20%.

As I said earlier, we are operating in a robust business environment with excellent growth potential.

We are realizing that potential because of 4 factors that distinguish us from the competition: our unique early-stage portfolio, which we continued to expand both through internal development and strategic acquisition; our scientific expertise, which is unmatched in the CRO industry and enables our clients to rely on us instead of maintaining in-house capabilities; our focus on continuous improvement, which enables us to operate more efficiently and effectively even as we grow through acquisition; and our best-in-class client service through which we ensure that our products and services are precisely tailored to each client's individual needs.

Our long-term targets are based on our ability to execute our business strategy in this robust environment.

We believe that we can generate consolidated revenue growth in the high single digits and an operating margin above 20%, including acquisitions.

The revenue target is based on low single-digit growth for RMS, high single-digit growth for DSA and low double-digit growth for Manufacturing.

The operating margin target is based on maintaining a high 20% margin for RMS, a mid-20% target for DSA and a mid-30% target for Manufacturing.

The investments we have made have enhanced our position as a trusted scientific partner for pharmaceutical and biotechnology companies, academic institutions and government and nongovernment organizations worldwide.

We have demonstrated the value we can provide to clients and believe that our long-term targets demonstrate our goal to deliver value to shareholders.

In conclusion, I'd like to thank our employees for their exceptional work and commitment and our shareholders for their support.

Now I'd like David Smith to give you additional details on our financial performance and '18 guidance.

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 initiative, the divestiture of the CDMO business in 2017 and certain other items.

Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions, the CDMO divestiture, the impact of foreign currency translation and a 53rd week in 2016.

I will focus my discussion on our 2018 financial guidance.

This guidance does not include the impact of MPI Research since the acquisition has yet to close.

In 2018, we believe that we are well positioned to deliver earnings per share between $5.42 and $5.57.

The 2018's earnings growth rate appears compressed by the year-over-year comparison of venture capital investment gains and the excess tax benefit associated with stock compensation, which creates a combined headwind of $0.24 per share.

Adjusting for these headwinds, the year-over-year earnings per share growth is expected to be approximately 8% to 11%, primarily driven by higher revenue and modest operating margin improvement.

This year, we have forecast venture capital investment gains of $0.14 per share compared to a gain of $0.29 per share in 2017.

Because of these strong historical returns, we increased our estimate for VC gains to $0.14 a share from a level of $0.04 in prior years.

We believe the higher estimate for 2018 more closely aligns with historical performance because in each of the last 5 years, we have outperformed our initial $0.04 outlook with gains ranging from $0.05 in 2015 to $0.29 last year.

Given the inherent difficulty of forecasting VC gains or potential losses, we will evaluate eliminating these gains from our guidance beginning in 2019.

For the excess tax benefit, we are estimating a $0.14 per share contribution in '18 compared to $0.23 per share in '17.

The $0.23 last year was nearly double our original estimate due to the stock price appreciation and subsequent option exercise activity.

The VC gains and excess tax benefit create a significant $0.24 headwind in 2018, and it is important to note that our earnings per share growth rate would be 8% to 11% when adjusting for this headwind.

In 2018, we expect organic revenue growth on a consolidated basis to be in a range of 5.7% to 6.7%.

From a segment perspective, the underlying trends in each of our business segments are expected to be similar to those of last year.

We expect RMS growth to improve from second half 2017 levels to a low single-digit growth rate in 2018 but continue to be pressured by lower sales volume in mature markets.

RMS is expected to benefit from continued growth in the services businesses and new production capacity to support robust demand for research models in China.

We expect the DSA segment will deliver organic growth in the same range as 2017.

We expect Safety Assessment growth in the same range as the segment and improved growth in our Discovery business.

The Manufacturing segment is expected to generate organic growth above 10%.

The Microbial Solutions and Biologics businesses are expected to continue to grow at low double-digit rates in 2018, but Biologics growth is expected to moderate in the first half of the year until we bring additional capacity online to support the increasing demand.

In our guidance, we are estimating the impact of foreign exchange based on bank forecasts of forward rates.

The 1% benefit that we expect from foreign exchange in 2018 is less favorable than if we were using current rates.

But given the volatility and weakening of the U.S. dollar since the beginning of this year, we did not feel it was prudent to include a higher benefit from foreign exchange in our guidance because rates could fluctuate over the balance of the year.

On Slide 39, we have provided information on our 2017 revenue by currency and the foreign exchange rates that we are using in 2018.

In addition to revenue growth, we expect modest operating margin improvement will drive earnings growth this year.

The Manufacturing segment will be the primary contributor as it benefits from manufacturing efficiencies and volume leverages in our Microbial Solutions business.

We will continue to add staff this year to support growth across many of our businesses.

Although we will continue to invest in additional staff to keep pace with demand, we believe that we are well positioned to gradually improve the consolidated operating margin to reach our long-term goal of greater than 20%.

Efficiency savings are also expected to continue to be a driver of operating margin improvement.

In 2017, we achieved incremental efficiency savings of over $65 million.

In 2018, we expect to generate efficiency savings of $60 million to $65 million before the benefit of the expected MPI synergies.

The benefits from our efficiency initiatives help offset annual cost increases.

Unallocated corporate expenses in '18 are expected to be slightly below 7% of revenue compared to 7.1% of revenue in '17.

Our 2018 outlook demonstrate that the investments in our people, processes and systems over the last several years are beginning to generate the intended goal of greater efficiency and productivity.

Before factoring in the incremental interest expense associated with the intended MPI transaction, net interest expense is expected to be in a range of $29 million to $31 million in 2018 compared to $29 million recorded in 2017.

This outlook assumes that higher interest rates in 2018 will be largely offset by debt repayment.

We're in the process of evaluating our financing options for the MPI acquisition, including the planned expansion of our credit facility.

We are also actively evaluating fixed-rate debt financing alternatives.

Our MPI accretion outlook includes an estimate for incremental interest expense related to this bank refinancing activity.

This year's non-GAAP tax rate is expected to be in a range of 25% to 26%, excluding MPI, which compares favorably to the 27.2% rate last year, primarily because of the benefit of operational efficiency initiatives.

This will be partially offset by the $0.09 headwind associated with the excess tax benefit from stock compensation.

The excess tax benefit reduced the tax rate by 310 basis points in 2017 but only reduces the 2018 rate by 180 basis points.

As we disclosed last month, we expect that U.S. tax reform will be effectively neutral to both GAAP and non-GAAP earnings per share in 2018.

However, we expect additional opportunities to be identified as we continue to refine our understanding of this legislation.

In the fourth quarter last year, the onetime changes -- charges related to the transition or toll tax, the revaluation of deferred tax liabilities and the withdrawal of the indefinite reinvestment assertion reduced GAAP earnings by $78.5 million or $1.66 per share, but this amount was excluded from non-GAAP results.

U.S. tax reform did not have an impact on our non-GAAP results in 2017.

Free cash flow in 2017 was $242 million, a decrease of approximately $20 million from $262 million in 2016.

Free cash flow was below our November outlook of $265 million to $275 million because of 2 primary factors: the timing of capital projects and working capital, specifically DSOs.

Capital expenditures of $82 million in '17 were $27 million higher than in '16 and $7 million above our prior outlook.

In addition, DSOs ended the year at 60 days, which was higher than our expectation.

However, we believe this was largely a timing issue and expect DSO will improve in 2018.

This year, we expect free cash flow to be in a range of $250 million to $260 million, excluding MPI.

The toll tax is expected to reduce free cash flow by approximately $15 million.

Excluding the toll tax, free cash flow would increase by 9.5% to 13.5% over the 2017 level.

Capital expenditures are expected to be approximately $100 million in 2018 before factoring in MPI's capital requirements.

The increase from 2017 will be driven primarily by additional projects to support growth, including continuing to add capacity in RMS China, Biologics and the Safety Assessment business and modest investments in our information systems.

A summary of our 2018 financial guidance, excluding MPI, can be found on Slide 46.

Including the MPI acquisition and assuming an early second quarter close, our guidance for 2018 would be reported revenue growth in a range of 16% to 18% and earnings per share in a range of $5.67 to $5.82.

From a financial perspective, we believe this acquisition delivers compelling financial benefits, which will generate value for shareholders.

It provides an attractive contribution to revenue growth and is immediately accretive to non-GAAP earnings.

It will exceed or meet our return on invested capital hurdle rate within 3 to 4 years, and it presents an opportunity to enhance MPI's operating margin with synergies of $13 million to $16 million by the end of 2019.

Following the acquisition, our capital priorities will be focused on debt repayment.

Our pro forma leverage ratio at closing is expected to be slightly below 3.5x, which is similar to our post-WIL debt level.

At this time, we do not intend to repurchase any shares this year.

And absent any M&A activity, our goal will be to drive the leverage ratio below 3x.

Moving ahead to our first quarter outlook.

We expect year-over-year revenue growth will be in the high single digits on a reported basis.

Organic growth is expected to be in the mid-single-digit range due primarily to slower growth in the Manufacturing segment.

The Biologics growth rate will be lower due to capacity constraints until we open our new Pennsylvania facility later this year.

The RMS segment also faces a difficult prior year comparison due to the strong first quarter in 2017.

First quarter earnings per share are expected to be moderately below last year's $1.29 due in part to meaningful headwinds from venture capital investment gains and the excess tax benefit from stock compensation, which totaled $0.05 and $0.15, respectively, in the first quarter of '17.

This year, we are forecasting $0.03 to $0.04 of VC gains and expect the excess tax benefit will be approximately $0.10, creating a year-over-year headwind of $0.06 to $0.07 in the first quarter.

When adjusting for these items, earnings per share growth is expected to be in the low single digits in the first quarter primarily as a result of the year-over-year operating margin decline in the RMS segment.

To conclude, we are pleased with our financial performance in 2017.

We believe that 2018 is positioned to be an excellent year, particularly with the expected completion of the MPI acquisition early in the second quarter and the associated benefits this acquisition provides to our clients and shareholders.

We are also optimistic about our outlook for earnings per share growth this year.

When adjusting for the previously mentioned headwind, growth is 8% to 11%, excluding MPI, and 13.5% to 16.5%, including MPI.

In addition to the benefits from the MPI acquisition, we are confident in our ability to achieve our long-term targets of high single-digit organic revenue growth and an operating margin greater than 20% because of our ongoing focus on disciplined investing to support the growth of our businesses, our efforts to drive global efficiency, the speed and responsiveness with which we operate and our goal to enhance the relationships with our clients.

Thank you.

That concludes our comments.

The operator will take your questions now.

(Operator Instructions) We'll go to Eric Coldwell with Baird.

Questions on MPI.

First off, I'm sorry if I missed any of this.

Facility utilization, can you talk about where they are with their capacity utilization?

And also, any additional commentary on overlap you might have with their client base or perhaps lack of overlap in terms of ability to cross-sell or up-sell into MPI's specific accounts?

So Eric, we have a similar client base.

So I'd say they're highly complementary.

Their client base is largely small and medium-sized biotech clients, and, obviously, that's been a major driver of our growth.

As we said in our remarks, it's a very large facility, 1 million square feet, considerably larger than the ones that we have.

Facility has some capacity available, which we think is extremely opportune both in terms of its geographic footprint and the scale and diversity of what they do at that site.

It will allow us to expand smoothly into new space as we need it, probably in lieu of building it out somewhere else.

So we think this will be a highly strategic facility addition to our portfolio and one that expands our capabilities in a few new areas but also expands some of the areas that we are currently participating in, in a more robust way.

Jim, can you share with us whether they were using Charles River's animal model business or -- in part or in whole?

Or were they using other providers?

I don't think we have a lot of details on that yet, so I'm going to modify my answer by saying that I suspect that they're a meaningful client of ours, and I have to get back to you on the extent of that.

Most of the large CROs are meaningful clients of ours, so I suspect, at least in part, Eric, this will add to our assertion that our largest clients of the RMS business is indeed our DSA business as well.

And additionally, regardless of what percentage of their research models came from us, we would hope to have an opportunity to supply more to them.

And there's just great operational elegance and symmetry in that.

As we've seen in France in particular and as we've seen in other parts of our business across the world, the supply of the animal models is obviously critically important from both a timing point of view and the diversity of models point of view.

And our next question comes from the line of Dave Windley from Jefferies.

Jim, I know you -- it sounds like you want to kind of sunset comments around pricing in DSA.

I wanted to explore margin improvement trajectory there.

I guess I'm thinking about 2017 as being a year where the WIL acquisition achieved kind of its 20% target, I think you said, on more of a sustainable basis.

So margin contribution from WIL would have been positive, but you highlighted that year-over-year margins were under pressure a little bit for, I think you said, labor costs and some other things.

So I just wanted to understand the moving parts in margin in DSA and how you believe that can continue to improve over time.

Yes, so it's multifactorial, as we've discussed previously.

It's the mix of work principally between specialty and general tox, which we tend to have more specialty than most.

There'll be some price.

There'll be continued enhanced capacity utilization.

I think some of the aggressive hiring that we have been undertaking should moderate because we're close to being caught up.

We continue to drive efficiencies.

As David said in his remarks, we saved $65 million -- we drove $65 million of efficiency savings in '17.

It's going to be $60 million to $65 million again.

A lot of that is in safety, and some of that is in discovery.

And while WIL's margins got to where we wanted them to be, north of 20%, it's still lower than legacy Charles River, so we have margin accretion there.

We're happy that we're starting with MPI with margins higher than WIL's were when we acquired them but also lower than legacy Charles River.

So we feel there's improvement there.

And then the last piece with regard to the DSA segment is some margin improvement in discovery as a whole.

So when you roll that up, whether you want to talk about just safety or just DSA, we should have improving margins and, we believe, commensurate with the long-term goals that we just upgraded.

And Jim, the promotions that you announced today, congratulations to those 2. I think natural progressions of 2 folks that have been with the organization for a long time.

Could you talk about how your focus may evolve and perhaps what your horizon is?

So we're very pleased, as you say, to have 2 significant contributors to the company take on larger responsibilities, particularly as the company gets larger.

I mean, just the advent of MPI makes us a larger, more complex business.

So we have to continue to parcel out the work to additional shoulders.

And of course, there's a whole range of people who will working with and for the 2 of them who have new and different and somewhat enhanced jobs.

As I said in my remarks, I look forward to continuing to work closely with them.

We flagged the 5-year horizon for 2 reasons.

One is that we look at the world in 5-year chunks, commensurate with our strategic plan, and we really do think we can double the size of the business.

I did not say explicitly in my remarks, but I will say explicitly in response to this question that I have just signed a 5-year contract with the company.

So I intend to stay here and participate significantly, principally in my current role and more and more strategic focus, I would say, going forward.

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

I want to ask about the synergies.

So the $13 million to $16 million you outlined, is that all in the cost side?

And what are you targeting?

And then what would the underlying MPI EBITDA growth be in 2018?

So the $13 million to $16 million is all to do with cost synergies, same as we did with WIL.

But we didn't feel at this stage we should be factoring in any revenue synergies.

So our valuation model was based on the $13 million to $16 million of costs.

And slight subtlety with WIL.

In WIL, we said $17 million to $20 million over 2 years.

With MPI, we're talking $13 million to $16 million by the end of '19.

So slight difference in time line there.

We -- as we've mentioned, we have called out that the OI, the operating margin, for MPI is slightly above 20%.

And we do intend to be able to walk that up as we've been walking up on WIL to the sort of legacy Safety Assessment margins that we have.

Great.

And then could you just give us a sense for the recent growth of MPI over the last few years?

I know you gave us 2017 and 2019 range, but maybe just a little bit of a view on what the trailing has been and then what gets us to the step-up in 2019.

MPI has been performing extremely well, at least at the same growth rates we have enjoyed.

The diversity of their capabilities, I think, has made them an important partner for lots of companies, particularly small and large high-growth biotech clients.

And we're confident, because of their scientific footprint and capability and client interface, that they'll -- we'll be able to continue at similar growth rates going forward.

I -- we didn't justify this deal from a valuation model point of view on sales synergies.

There are some cost synergies that we called out.

We, of course, have had some sales synergies with WIL.

WIL really work hard to have clients have a positive experience with Charles River generally and specifically with our MPI capabilities, so we would be disappointed if we didn't have some sales synergies.

But premature to call those out specifically.

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

Jim, can you just talk a little bit more about the strategic review that you did?

What's the sort of underlying macro view of your broader markets baked into that sort of updated 5-year targets?

And the organic revenue growth goals that you gave across the 3 segments, what do you think the underlying market growth is there versus some share gains that you think you can deliver over the next 5 years?

Sure.

So obviously, we're in multiple markets that are somewhat disparate.

I suspect your question is about DSA or maybe just SA.

If it isn't, let me know.

So just to talk about that.

Our sense is that biotech is the principal driver.

Even though pharma is aggressively dismantling space and outsourcing a lot of work, we have some really interesting conversations going on right now with some big pharma companies to do more for them both individually and collectively.

But biotech has an enormous infusion of capital from the capital markets and from -- directly from VC investments and Big Pharma.

And so we think between being extremely well financed, having multiple breakthrough technologies and the fact that, while not an enormous number, more drugs were approved last year than the year before, that the market dynamics are as good as we have ever seen them and the breadth of our portfolio and our client interface, as evidenced by the fact that we worked on 74% of the drugs that were approved last year and we think that's a number that could increase, sort of puts us -- the epicenter might be an overstatement, but we're sort of in the middle of demand and needs that both pharma and biotech have, so -- to do work for them instead of them doing it internally and, in some cases, to work -- to provide the interface between clients.

We would say that the safety assessment market as it -- as a whole is growing at about 5%.

So we have been growing in excess of the market.

Obviously, the denominator is getting bigger.

We're pleased with the growth rate.

We're pleased to be growing ahead of the market.

We're pleased with an opportunity to continue to improve the margins.

We're pleased with the scale and diversity of our clients and our ability to play a greater role.

And one of the raison d'êtres of the organizational change with Davide and Birgit and others who are working with them, besides their own talent, is the opportunity and necessity for us to have greater pull-through from discovery into safety and some working backwards with client safety -- current safety clients who want to do discovery work with us.

And so managing those businesses as one without any demarcation from an operating point of view or a sales and marketing point of view, we believe, will be very meaningful in terms of supporting the growth rates going forward.

And we'll go to the line of Tim Evans with Wells Fargo Securities.

Jim, the big-picture question here for me is basically trying to square up just your 2018 revenue guidance with your long-term targets.

Long term, you're looking for high single-digits organic.

2018, your consolidated organic growth rate looks to be about 6%, which I would think is maybe just more like mid-single digits.

I -- and it looks like maybe you're expecting the DSA piece to be the thing that accelerates more in the longer term.

And I guess the thing that I'm struggling with, it's hard to imagine living in a better environment than we're living in right now for DSA given where biotech funding has been.

What gives you -- number one, am I reading that correctly?

Is it really the DSA segment that bridges the gap between 2018 and the long-term target?

And then secondly, what is it that creates that acceleration?

So there's multiple pieces that should contribute to high single-digit growth rate: RMS delivering in low double digits, which it was very low -- sorry, low single digits.

It was very low single digit in '17.

So we think as China grows and the service -- services businesses grow, we should be able to do that.

That's still a large business for it, albeit one that isn't growing as quickly as it was historically, although the China growth rates are significant.

And as we indicated in our prepared remarks, it was capacity constrained in the back half of the year.

So going forward, as we build more sites, that should be significant.

Discovery has also been a drag.

And so we feel confident going forward that we should get an uplift there.

We feel we should get continual uplift in safety as we provide more solutions to clients.

And I guess, most importantly, as we really get to execute and derive the benefit of having both discovery and safety and using them more in a comprehensive way, I think we've been a bit too siloed in the way we thought about it and sold it and the way clients have heard about it.

Plus, discovery still is feeling like a new business to a lot of clients.

And so I think managing and selling it in a more holistic basis should be extremely powerful.

And then we would expect manufacturing to continue to deliver low double-digit organic growth rates.

The Avian business has been a bit of a drag lately.

We should be freed up from that as well.

The whole notion for us -- I think our principal and distinct competitive advantage is the breadth and diversity of the portfolio.

And I think every year, we're telling that story better.

And every year, we're having more of a pull-through.

We're having more clients buy more from us than less because it's a better value proposition and it's better for them to manage that.

I think as we continue to invest aggressively in our current businesses and add to that portfolio through M&A and perhaps add some additional capabilities through M&A, that, that should also fuel the organic growth going forward.

And we'll go to the line of Ricky Goldwasser with Morgan Stanley.

So Jim, when you talk about doubling the revenue over the next 5-year period, obviously you've got a good combination of organic growth and acquisitions.

So obviously, you just announced a very large acquisition.

So -- but I guess never too early to talk about what's next.

So first of all, what do you expect the leverage to be following the close of the acquisition?

And when you think about kind of like your strategic plan in the next 5 years, what do you think you need to kind of like continue to like augment?

So I'm going to let David talk about the leverage in a second, but I just want to remind you that we like to hang out below 3 turns.

So that's kind of our goal as we come off of acquisitions.

Obviously, this is a big one.

We have a lot of confidence in our ability to integrate this one well because we did a really good job with WIL, probably our best integration effort and result.

They're obviously not the same company, but WIL had multiple sites and this is a single site.

So we feel that we're going to be able to focus on this well.

And of course, we have a guy who was a senior WIL executive who's running a WIL site now and a Charles River site who's going to be full time on integration.

So we have a really strong feeling that the integration will go well.

Having said that, we need to close it, and we hope that will be early in the second quarter.

And then we need to get to work on the integration, and I think we need to do that before we move on to the next deal.

Having said that, we have been active across multiple fronts.

Obviously, in safety, as we've just heard; definitely in discovery and in a few areas that we're not in, in Discovery.

We actually have opportunities across most of our businesses, including RMS, including Biologics, including microbial, and for sure in China.

And what the cadence of that -- of those deals will be, I -- it would be inappropriate for me to say because we can't really control it, but we have a very clear line of sight on what we would like to buy, what we can afford and how we will feather those into the portfolio over the next, let's say, 3 to 5 years.

And the whole purpose is not just scale.

The purpose is to have a much better value proposition, a much greater service offering for our clients, all of whom want that.

So whether you're a second-year startup biotech company or the biggest pharma company, you just want to stop doing this work yourselves.

And you don't want to find 15 partners to do it, you'd prefer to have 1 or 2. So we feel very good about our ability to afford this deal -- find them, afford them and integrate them and increasingly to promote them.

And I'll let David talk to you about leverage.

Yes.

So about 2 years ago when we bought WIL, we went up to 3.5 turns.

As we speak, at the end of 2017, we're actually at 2.2 turns.

So it's interesting how it looks like it can be a bit of a repeat performance because the MPI acquisition will also take us back up to 3.5 turns, similar to where we were with WIL.

And again, it is our intent to bring that leverage down below 3 turns.

Okay.

And then one follow-up.

As we talk about the opportunity to grow with biotech customers, can you just remind us anything about your revenue mix?

What's biotech now versus pharma versus academics and government?

And how do you think this mix will look like 5 years out?

Well, we'll a little bit have to slice that cleanly since so much of what's biotech sort of -- the sort of gray area has become pharma and there's so much money from pharma going directly into biotech.

So we don't spend as much time on the demarcation as we would like to.

I think the last time we did it, pharma was kind of 25% to 30% and the biotech clients were probably 50% or 60%.

I think academic was around 20%.

So you have biotech and other, which includes chemical companies and agricultural companies and CROs, et cetera.

So there's no question that we have a disproportionately fast growth in biotech clients, which should continue.

And so that demarcation between biotech and pharma, to the extent that it's an important one, will become even greater.

And so we're spending a lot of our time thinking about how we do a better job communicating with and servicing clients who are in a race to get to market and some of whom have a single compound, but we have organized ourselves to do that well.

And we'll go to Sandy Draper with SunTrust.

A lot of my questions have been asked and answered, so I appreciate the commentary.

But also, our congratulations on the transaction and the promotions.

Maybe, Jim, just a little bit on RMS and the outlook there.

Obviously, there's -- there are a couple of positives in terms -- around China, some biotech; the negatives, especially Big Pharma in the U.S. When you think about the long term, how much risk is there?

Or how do you think about the risk of that business actually not doing low single digits but actually being in a moderate -- in the -- 3 to 5 years from now ending up being flat to slightly down?

Is that -- so what would happen to drive that type of scenario?

Yes, we obviously don't think that's where we're headed or we would have said that.

We are confident that we will continue to get price.

We always have and always do.

We get appropriate levels of price.

And this is not a business.

This is not an activity that clients engage in.

So animals are procured externally, and they're critical to getting your work done.

So we will get price.

We have a unique and exquisite and large geographic footprint, even though we're trimming it with the Maryland facility and have trimmed it previously.

And if we had to -- we hope we don't, but if we had do, we would trim it further if the demand wasn't there.

We think we have growth opportunities, principally in U.S. and secondarily in Europe, to grow our share in the academic market, where I would say while we have significant dollar revenue, we could have more.

We have a huge pharma footprint and a huge biotech footprint and a growing academic one.

So I think that's in the offering.

We will continue to have more specialty models that are higher value and potentially higher margins.

And the service businesses are performing well.

They're not high-growth businesses, but they're low to approaching kind of mid-single-digit growers.

They look good geographically.

We have strong capabilities.

So those should continue.

Those aren't services that clients want to engage in internally.

And of course, China is the big growth area, and it is a very nascent market with competitors that I think we can -- we are doing well against and continue to do well against.

And it's really all about building out capacity -- sufficient capacity in advance of the demand.

And it has the potential to be large enough to really stabilize the growth rate for this business and, we believe, ensure that low single-digit growth we were talking about.

And we'll go to Derik De Bruin with Bank of America.

This is Juan Avendano for Derik.

Our question is on the tax rate.

You provided tax rate guidance of 25% to 26% for 2018, excluding MPI.

What can you tell us at this time about your anticipated tax rate in the out years, including MPI, beyond 2019?

So -- well, I -- I'm not really going to comment beyond 2019, but I'm certainly happy to comment about MPI.

MPI being based entirely in the U.S. actually fits quite nicely into the 2018 guidance that we've given, the 25% to 26%.

So we actually don't think that the acquisition of MPI is going to distort the effective tax rate for '18.

And then regarding your recent acquisitions in the DSA segment, Brains On-Line and KWS Test (sic) [KWS BioTest], at what run rate of an M&A revenue contribution do you expect out of these 2 businesses?

If you're talking about exact dollar amounts, we're not going to -- we haven't given those.

They're -- I would describe those businesses as quite small but highly strategic from a scientific point of view.

So Brains On-Line enhances our CNS franchise; KWS enhances our oncology franchise.

But they're not moving the needle very much in terms of top line contribution.

And we'll go to Tycho Peterson with JPMorgan.

This is Tejas on for Tycho.

Jim, just one big-picture question here on MPI for you.

Preserving the high-touch service, clients' feel of the service offering is probably very important to their customers' skew towards the SMid-cap segment.

How exactly post integration do you expect to continue to preserve that within sort of the broader Charles River structure, particularly as you seek to drive some of those cost efficiencies that you talked about earlier on the call?

We had a similar opportunity, let's put it that way, with WIL.

We had a lot more small clients who had great expectations on personalized service because we've tried to give personalized service to all of our clients.

And so I think we've done a very thoughtful, professional job in making those clients feel good, keeping them close to us and -- to the extent that they wanted to continue to work at a WIL site with the same study director.

Nothing really has changed.

So we're going to be very cognizant and sensitive about the same need and desire from MPI clients and change as little as possible except to probably have more consistency across SOPs and allow them the opportunity to work with other Charles River sites -- to get to know other Charles River sites, to get to work with them if they want to.

And if they are delighted with where they're at, which I suspect most of them will be, then we will preserve those opportunities for them.

So we're buying this company because we think it's a very good company.

We -- they have happy clients.

They've had a nice growth rate.

They're profitable.

They do very good science.

And our responsibility is to embrace that.

And to the extent that we can enhance the science and some of the capabilities, we will do that.

To the extent that we can't enhance them, then we won't.

We will herald what they're capable of doing.

In terms of cost synergies, we've been working really hard for approaching a decade on driving efficiency.

It's something that we do -- we've done progressively better from year-to-year.

It's hard work, and we believe we can provide them with the same capabilities while enhancing their work.

So that's an opportunity that we're excited about.

Got it.

And then one quick follow-up here.

Given that a bunch of these clients are presumably at the pre-revenue stage, is there any shift in terms of contracting structures perhaps that you need to put in place?

Or do you anticipate that your bad debt levels might pick up a little bit?

Or since it's all sort of upfront payment before the work begins, you don't really anticipate that as a real risk?

We wouldn't anticipate that.

We doubt that this client base is significantly different than the WIL client base.

Having said that, this deal has just been signed.

We really haven't spent a lot of time studying this nor have we had access to a lot of those materials.

So we'll be working our way through that during this interim integration period post close -- pre-close, sorry.

We also have a team that look at clients' willingness in terms of their ability to pay.

When in doubt, we do ask them to pay ahead.

And actually, we have had historically a very low bad debt write-off in our industry and in Charles River as well.

And we'll go to the line of Erin Wright with Crédit Suisse.

Great.

Can you comment on what you're seeing from the VC partnerships?

I know you shared some metrics in the past on that front, but can you give us an update on the traction there and how that's helping you to get new customers?

Sure.

Very, very pleased with our VC relationships.

Some of those, as you know, we are LPs, and some we are not.

The relationships are slightly different when we're LPs just in terms of the level of activity amongst and between us, and more strategy with regard to therapeutic area of focus and some M&A.

But increasingly, the VCs like to work with us and get the benefit of our science and capability and value as if they were one large client, which is kind of the way we work with them just to ensure that they have access to us in great response times.

None of these little companies will ever -- it's probably a fair statement -- ever internalize the capabilities that we provide to them now.

So we're providing a significantly important capability for them.

And of course, you get so many new companies minted by these VCs every year that access to this sort of work is really critical.

We get their drugs filed and to get them to market.

I think the last time we reported on this, our collective revenue from our VCs was approaching $100 million.

That should continue, obviously, to increase both as we have new services and we reach out to more VCs and they mint more companies.

So very, very important part directionally of our client base.

Most of the new companies are literally virtual, small number of people, buying everything externally, all they own is IP, and they're very much dependent upon us.

And so our job is to communicate effectively with them often and to help them with regulatory filings and interpretation of data.

And they really make us better.

They really demand exquisite science and fast turnaround times.

So we're enjoying our relationships with them a lot.

And just a quick clarification in terms of MPI growth rate.

You said it's similar growth profile to yours.

Is that on an organic basis?

Yes.

Yes.

Although MPI haven't done any acquisitions.

We have time for one last question, and it'll come from George Hill with RBC.

I guess, Jim, most of my questions have been answered.

I guess, the last thing I would come back to is that if we think about the emerging and development-stage biopharma companies, the venture-funded companies, it sounds like, given the visibility, you guys assumed that the current growth rate continues.

I just want to think about -- how do we think about the risk to the guidance?

Should we see some type of funding slowdown?

Or should something in that end market reverse or stagnate?

It's a bit to ponder.

Well, I mean, that there's always that risk, we suppose.

Those companies are exquisitely well financed currently.

There's multiple years of cash in the bank.

There is more cash available, we believe, if the companies hit their milestones and continue to get drugs on the market that are novel and are treating or curing diseases.

And pharma is very -- is becoming very much dependent, reliant on these companies as their discovery engines and, of course, end up buying some of the companies who are minimally having a deal with them.

So it's not -- and look, anything is possible.

It's not foreseeable at all.

This is a fundamentally different market that we're in than the scourge of 2008 in terms of numbers of biotech companies, in terms of the prominence of success, in terms of their getting drugs to market and relationships with pharmas -- and of pharma companies' dependence on us.

So look, we watch those numbers carefully.

We watch the sort of demand curve and the ebbs and flows from these clients to see if we have any even early indications of funding slowdowns.

And we haven't heard anything from any clients if they have a concern, and I think it's unlikely for the long-term foreseeable future.

Thank you for joining us on the conference call this morning.

We look forward to seeing you at the Leerink Conference tomorrow or Raymond James and Barclays conferences in March.

This concludes the conference call.

Thank you, ladies and gentlemen.

That does conclude the conference for today.

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