Welcome to the Charles River Laboratories First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. 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 welcome to Charles River Laboratories first quarter 2018 earnings 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 first quarter 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. And the access code in either case is 447002. The replay will be available through May 24. You may also access an archived version of the webcast on our Investor Relations website.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 13, 2018, 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'll now turn the call over to Jim Foster.

Good morning. The year began with robust demand for our products and services with organic revenue growth rate improving sequentially in both the DSA and RMS segments. Clients are increasingly choosing to partner with Charles River for our science, for our support, and for the breadth and depth of our portfolio. We are continuing to expand this portfolio to strengthen our ability to holistically support our client's drug discovery, early development and manufacturing efforts, and to enhance our position as the premier early-stage CRO. The acquisition of MPI Research, which was completed on April 3, has enhanced our scale, our capabilities and our value proposition for clients. We will provide further details on MPI shortly, but let me begin by giving you the highlights of our first quarter performance. We reported revenue of $494 million in the first quarter of 2018, a 10.8% increase over last year. Foreign exchange benefited revenue growth by 4.6% and the acquisition of Brains On-Line and KWS BioTest contributed 1%. Organic revenue growth of 5.6% was in line with the mid-single digit outlook we provided in February. The DSA segment was the most significant driver of growth and the Manufacturing segment also contributed. From a client perspective, biotech clients were the primary contributor to our first quarter revenue growth as they continued to benefit from a robust funding environment. The operating margin was 16.8%, a decrease of 180 basis points year-over-year. The decline was primarily driven by the DSA and Manufacturing segments. We attribute the first quarter operating margin decline largely to timing and believe the margin will improve sequentially in the second quarter. We will provide further details on the operating margin shortly. Earnings per share were $1.38 in the first quarter, an increase of 7% from $1.29 in the first quarter of last…

Thank you, Jim and good morning. And I'd also like to echo your comments and sincerely thank Susan for her service to Charles River. 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 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, and the impact of foreign currency translation. We are pleased with our accomplishment this year, including first quarter organic revenue growth that met our mid-single-digit outlook, earnings per share that exceeded our expectations even after adjusting for higher venture capital investment gains and a lower than expected tax rate, the enhancement of our capital structure through the $500 million senior notes issuance and refinancing of our credit facilities, and the completion of the MPI acquisition on April 3. First quarter earnings per share of $1.38 outperformed our expectations. Earnings per share were driven by venture capital investment gain of $0.10 per share compared to $0.05 in the first quarter of last year and a lower than expected tax rate due primarily to $0.055 of discrete tax benefits in the first quarter. Our initial guidance for 2018 included an estimate of venture capital investment gains of $0.14 which was higher than our original estimate in 2017 because we believe $0.14 more closely aligns with historical performance. The $0.10 gain in the first quarter was $0.065 above our initial quarterly estimate. We will not forecast the performance of these funds beyond our annual expected return, therefore, we have not increased our full-year forecast beyond the $0.14 which was included in our original guidance.…

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

Thank you. And it has been requested that to limit yourselves to one question. And our first question, we'll go to Jack Meehan with Barclays. Please go ahead.

Thank you. Good morning. So I wanted to start and focus on Safety Assessment. How has the MPI deal impacted your positioning and some of the conversations you're having for strategic partnerships and has there been any change in the competitive dynamic with any of the other players in the market that you've seen?

So MPI is doing expressly what we had anticipated that it would. It expands our geographic footprint. It expands our service offering substantially. It also gives us the ability to work on client mobility. So as you may have heard us say years ago, the most efficient way that we can operate this business is to think of our vast network as, let's say, a single building and be able to make sure that we keep it full. The way that you do that is that you have clients appreciate the capabilities that we have across all of our sites. So, several things happened pretty much immediately upon close. One is we had inbound calls from current Charles River clients saying we want to know about the site, we want to audit this site, we want to consider using it as part of our work with you. So that's been fabulous. We also had the inverse, which is MPI clients going to MPI for whatever reasons they originally went there, saying like to learn more about the Charles River portfolio particularly other specialty areas and other geographic footprints and also your discovery business so we can work with you on a more holistic basis. So, it's opened up a whole opportunity for us to interface with clients in a more efficient way, hopefully a more holistic way, get them to utilize the portfolio and have this incremental capacity that we get with the MPI acquisition be able to help us with our growth metrics as well. So, certainly it's been not just a larger company but I think stronger from a service offering and both an expansion of current specialty areas and the addition of a couple of new ones.

Great. That's helpful. And then on RMS you mentioned this outsourcing dynamic is benefiting that segment as well. Can you just elaborate on that? Can you control where more of the models are getting purchased? And on the MPI point, how much of a drag is that as the intercompany sales get moved out?

It's a modest drag. So the point there to keep remembering and we'll keep mentioning it, it's magnified every time we do a transaction like this, is that virtually all the CROs, virtually all of our competitors, are clients. And that's a commentary on the fact that our animals are of extremely high quality and they want to use them themselves plus sometimes the sponsors request Charles River animals. So we haven't lost that business. When they're competitors, at least we have a piece of their work in terms of the animals that they buy. And in the case where we now own these entities, we have the vertical integration, which I think allows a lot of things. It's a lot of planning so we have a sufficient number of animals, we have the right strains in the right places. We obviously control quality, and we have a more efficient model. On the Research Model side, the principle issue on units has to do with the pharmaceutical infrastructure reduction, which sort of continues. Notwithstanding that, I think we're holding our own well. Particularly pleased with operating margins being nearly 30% in the first quarter. That's where we have guided you all to. And we're going to see the tailwinds coming from China, and complex services like Insourcing Solutions and GEMS.

Thank you, Jim.

Sure.

And we'll go to line of Dave Windley with Jefferies. Please go ahead.

Hi, good morning. Congrats to Susan and thank you. And congrats to Todd for your promotion. Appreciate all your help.

Thanks, Dave.

Wanted to focus on DSA as well and, Jim, interested in how as you're talking about folding in MPI and the additional kind of client reach that that gives you into the small biotech arena, how, first of all, you manage those client relationships to keep them in the fold. You touched on that a little bit, but knowing that MPI is now part of a much bigger organization. And then, two, as you think about your capacity, do you think about – I guess, what is the level of utilization roughly, if you're willing to share. And then, two as you think about long-term growth, do you keep all available capacity because the growth is robust enough to grow into it or are there some opportunities for streamlining somewhere? How do you think about the capacity in Safety Assessment long-term? Thanks.

Wow. So we manage the client relationships very carefully, the way I'd answer that. So clients initially went to MPI for some reason, alleged smallness, alleged better service that comes with their scale, geography, historical preference, been a post-doc with somebody that worked there. Whatever the reasons are, they are not unlike the reasons that people went to WIL or the reasons that people went to us in the old days versus others, so. We told clients that they (42:47) obviously, at the Michigan site that we just bought. They can work with the same study directors and that really nothing will change if that's the way they'd like it. And I think some will like it that way. It's not our goal, though. I mean, our goal is to have them understand, audit and, hopefully, take advantage of the broader Charles River portfolio and, as I said earlier, vice versa, have our current legacy clients take advantage of the MPI site which by the way is a high-science, high-quality, very large facility. So there's a lot of new clients, Dave. This is not a dissimilar transaction to WIL. It's one site and it's all domestic. So, it's in some ways more straightforward but it's quite similar in terms of scale and client response and we really have done a superb job keeping the clients (43:46) and keeping the clients happy who were legacy WIL. And we're quite confident we'll be able to do that with the MPI clients and we're absolutely getting positive feedback daily on this. In terms of capacity utilization, we are not going to give you the exact numbers except to say capacity continues to be well utilized. It's a little less well utilized at MPI, which is a really good thing so that gives us the opportunity to grow there faster should we desire that that's the place we want to grow. The rate limiting factor there, just let me remind you, will be staffing. So we will have to hire people and have them properly trained to work there but that's a faster turnaround than incremental space. Bite your tongue that we would ever consider streamlining. We're in a situation right now we have really great demand, Dave. It's as good as we've ever seen it in the history of this company. You know the biotech inflows have been significant. I think the amount of work that the pharma companies are doing externally has increased. And I think that we'll need all available capacity. Of course as you know since you've seen a lot of it, we do have a significant amount of available space which will have to be renovated in Massachusetts and Reno and some ability to build small pockets elsewhere. So we feel very good about our ability to utilize our capacity strategically, opportunistically, thoughtfully and professionally and be able to do that without impairing our operating measures.

Got it. Thank you.

Sure.

We'll go to Tycho Peterson with JPMorgan. Please go ahead.

Hey, thanks. And I'll add my congrats to Susan, it's been great working with you over the years.

Thank you.

On Manufacturing, Jim, you talked about seasonality here. Microbial Solutions was below kind of low double-digit expectations and you talked about Biologics really kind of being a timing dynamic. I guess, can you get us comfortable on the recovery here? You talked about bookings maybe being a little bit better coming out of the quarter. Should we still be thinking about double-digit growth in Manufacturing for the year?

You should. That's very long-term guidance and certainly our guidance for the year and, as you know, we've been able to do that for multiple years in a row. Microbial business was just a little bit softer than we would have liked and we explained that in our prepared remarks having shipping some additional product out of Europe in Q4, as we brought a new facility up online. And it's up and operating extremely efficiently and business is very good there and demand is good, and so we anticipate a strong second quarter. Biologics tends to have just historically kind of a funky first quarter. So it tends to be a little bit seasonal following the end of the year. So we saw a little bit lower sample volume than even perhaps we would have anticipated, but bookings and proposal volume are very strong there. We have really good franchise with multiple geographies at a time where biologics are getting to market in larger percentages than small molecule, so it's a really critical service that we provide. As you heard us say in our prepared remarks, we're beginning the process of making some modest modifications and beginning the process of moving into quite a large facility in Pennsylvania where we're going to consolidate space to accommodate demand. So feel really good about that sector on an organic basis going forward, both top line and bottom line. Even though the margins were terrific in the first quarter at 31% and change, we still think that they can be higher and be moving toward the kind of mid-30s that we told you was our long-term guidance.

Okay. And then one quick follow-up on DSA, you talked about the mix shifting to longer term projects. Does that start to normalize as the year progresses, are you able to talk about how much of the DSA mix was long-term and any comments on DSA pricing?

Yeah, we're not going to talk about pricing, as we told you, for competitive reasons. You get these sort of mix issues that are really tough to control, margins are in the final analysis comparable but you got higher startup costs on the long-term work. We have a little more long-term work now than short-term. That will normalize. It's just the natural ebb and flows of the business and given the strength of the backlog and the bookings and proposal volume, we're quite confident that that will begin to sequentially ameliorate as we move through the back half of the year.

Okay. Thank you.

Sure.

And we'll go to Derik de Bruin with Bank of America. Please go ahead.

Hi, good morning.

Good morning.

Good morning.

Good morning. Susan, it's been a good time. I think we've been together for the entire 15 years, if I remember correctly.

We have.

So two questions. So the Biologics volumes were low in the first quarter and you're also in the middle of expanding capacity in the testing. So how confident are you that you can fill this new capacity coming online and it doesn't impact margins? And then another margin question, you're are doing a number of deals lately where the margins tend to be lower. And I guess how long do you get to that consolidated 20% operating margin or is it continually get diluted down by new transactions?

Yes. So on Biologics, quite confident about the bill for the back half of the year. Quite confident in the demand and the new space is both a consolidation of older space which is less efficient and being able to provide incremental capacity for growth. So it'll have a very modest impact on margin this year which you won't see, by the way, it's already embedded in our guidance, just to bring that online and the sort of smooth transition of a lot of complex scientific work from site to site and client to client. So we feel really good about that. Your other question's a really good one. Think about it a lot. We do buy some companies with operating margins of 20% or higher. We just told you that MPI was higher. We're driving significant efficiency out of our business every year and we have sized that – it's north of $60 million the last year or two. And we're getting that in most of our businesses. You saw that the RMS margin was higher in the first quarter as well. So we're very confident that we're knocking on 20%. Whether we get there this year or not, don't know. That wasn't our guidance, our guidance was to be better than the prior year. Yeah, it's possible that some M&A could retard our ability to move forward but that's certainly not the way we see it long term. And Derik, we try not to buy anything. Look, our preference would be not to buy anything with margins below 20%. That's a little hard to do but we certainly don't buy anything that we don't believe will get to 20%. So, we think on a consolidated holistic basis, that we'll achieve and exceed that goal.

Thanks.

Sure.

And we'll go to the line of Ross Muken with Evercore ISI. Please go ahead.

Hey, guys. It's Luke in for Ross. I just kind of wanted to unpack a little bit of what you're seeing in China. It seems like it hit a real inflection this quarter. Just kind of give us your overall thoughts on the business there and how that's changing and then how your overall strategy with the overall Charles River business is kind of focusing on China?

Yes. So China was slower in Q4 than we would have liked because we were capacity constrained. As we indicated, we have opened our new facility, which is outside of Shanghai with the express purpose of servicing the Shanghai market. It's a large facility that should not only allow us to support that marketplace much more efficiently than coming from Beijing, which is what we were doing previously, but to take share and grow with that market, which is dynamically growing and probably – not probably, Shanghai is certainly the center of a lot of biomedical research. So, we feel good about that. We will continue to invest in and around that area and other areas as well because China is going to be a geographic expansion play for us. So, unless we build new facilities, which are further west and south of where we are now, we won't be able to garner the work that's available in those locales. Competition continues to be government-backed organizations who are capable, but don't have the scientific history and rigor and capability and experience and reputation that we do, so quite confident in our ability to take share from them in this rapidly growing market. So, feel really good about that business going forward. As we said previously, we will slowly – probably acquire, but there may be some organic growth but we will slowly acquire other capabilities in China that mirror the current portfolio we have in the U.S. and Europe. That will be a reasonably insular marketplace where drugs will be developed in China for China and the work will have to be done in-country. The M&A opportunities are pretty robust, but we are carefully working our way through them. So you should expect that that would be an area of M&A expansion for us over the next few years.

Helpful. And then last, I guess another margin on the MPI, it's more of a kind of where you see the puts and takes with achieving your stated synergy goals? I mean you guys have been doing this a long time and things sound like they're off to a great start. So what's the upside scenario to those synergies and timing on achieving those?

So I would refer you back to the WIL experience with a (54:47) similar sort of business. Again we had a raft of synergies that we were hunting to pull out. Very similar in the case of MPI. It's all about articulating what those synergies are, engaging fully which we did with WIL and there is no reason why we shouldn't do the same with MPI. So, in terms of talking about whether there's upside, well, we're 30 days or just over 30 days in, so why don't we just focus on delivering these synergies that we've called out.

Fair enough.

Not get too far ahead of ourselves there. (55:17)

Touché. Fair enough. Fair enough. Thank you.

And we will go to the line of Ricky Goldwasser with Morgan Stanley. Please go ahead. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Good morning, and congrats, Susan. Thank you for all your help over the years.

Thank you, Ricky. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: A couple of questions here. Jim, I know that you said that you're not going to comment on pricing for competitive reasons, but just given the discussion questions around capacity, can you just give us any directional color on what you're seeing in terms of pricing?

I'm just pausing to figure out how to do that without talking about pricing. I would say that capacity in Charles River's shop is fully utilized and while we never get in to see what our competitors are doing and I would actually say that, as we look back, WIL was more full than we would have had anticipated as a competitor of ours and maybe MPI is less full than we would have considered as a competitor of ours. So, you never know, I guess is my point. So, it is what it is, but we're not seeing any sort of aggressive or crazy or aberrant pricing behavior on the part of our competitors and really haven't for a while. So, I think everyone is filling up nicely. I think there's enough work to go around. I think we're certainly taking share when we want to, rarely using price except if somebody comes after us hard, which as I said is not happening very often. And then I guess the only thing I would say about price is that we certainly try to achieve it when we can. We have a lot of clients that have long-term contracts that are both price protected or at least protected in terms of the amount that we would increase price year-over-year. But I think – obviously our costs go up annually and we're delivering exceptional science in a responsive fashion, so we intend to get paid well, we intend to have our margins continue to improve. So, we'll continue to get as much price as is possible. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Okay. And then we recently heard about another pharma M&A, so just kind of like your current thinking about the M&A environment and your customers and what it means for the business?

Yeah. So, we obviously pay careful attention to that. There was a small deal announced this morning. So it will continue. There's 20 biotech deals that have happened since the beginning of the year. Lots of them – perhaps close to all of them – but certainly lots of them were clients. I'm talking about the targets. And there's a smoothing-out effect that we get. So our client base is so broad, particularly with the small clients that we don't really feel it but several things happen. Either nothing happens and those are complementary portfolios and an acquirer that doesn't have any internal capacity either or already works with us and wants to keep that work with Charles River. It's possible that that doesn't happen, but as I said, it gets sort of smoothed out in mix and there'll be new companies being minted all the time. So, we don't really notice that. You know that we don't have any large clients that account for more than 3% of our revenue. So, even if there was a big deal, the one that you're referring to, it's possible we have – there's no impact from that. I don't want to speak too specifically about that one. But usually there's a positive benefit when we have two large companies getting together on the service side, particularly on the Safety Assessment side as they will inevitably take out lots of costs. And so one of the ways that they get the benefit of that is by doing more outsourcing. So, typically isn't an issue for us. I doubt this one that was announced will be and we like our position and the breadth of our client base. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Thank you.

Sure.

And we'll go to the line of Robert Jones with Goldman Sachs. Please go ahead. Robert Patrick Jones - Goldman Sachs & Co. LLC: Hey. Thanks for the questions. And Susan, I too would like to thank you for all your help over the years.

Thanks, Robert. Robert Patrick Jones - Goldman Sachs & Co. LLC: Best of luck.

Thank you. Robert Patrick Jones - Goldman Sachs & Co. LLC: I guess, most of the fundamental questions around the business have been asked. So, maybe just one on tax. You mentioned that the incremental tax savings were more than the 10% that guidance was raised by, and so I'm just curious where those reinvestments in the excess tax savings would be focused? I mean maybe you could just share a little bit, are those areas that you're currently investing in, are there new areas that you plan on investing in? Just trying to get a sense of where the reinvestment would be directed?

Yes. So, the reinvestment is actually some new areas and we've have been – as we come through the year, we see some other opportunities, been discussing them with the executive team. And given the opportunity we had with the tax, we thought we'd use that to deploy that into securing growth, more for the future. I think the impact you'll see from those investments are not in-year, more for future. Robert Patrick Jones - Goldman Sachs & Co. LLC: Got it. And then, Jim, actually if I could sneak one more in, not a huge part of the business, but I was just curious if you had any updated thoughts on the chem or ag business? Obviously you saw one of your competitors is getting out of that business, just curious how you guys view that today?

Yeah. It continues to be a solid business for us. It continues to provide nice diversification. On a pure pharma world, you know that we do a bunch of that at WIL and at Edinburgh. So and have strong relationships with large clients who depend on us heavily. So, we like it. Robert Patrick Jones - Goldman Sachs & Co. LLC: Got it. Thanks, guys.

Sure.

And we'll go to the line of John Kreger with William Blair. Please go ahead. Jon Kaufman - William Blair & Co. LLC: Hi. Good morning. This is Jon Kaufman on for Kreger. So, in Early Discovery, it seems like you're making some nice traction there. Can you talk about what types of clients are driving this? Is large pharma becoming more open to outsourcing this type of work? And in terms of pull-through, what percent of these programs are moving into Safety Assessment today and where do you see that going longer term? Thanks.

Sure. So, very pleased with the stabilization of that business and the strength of the Discovery business in totality. You all know that we got into this business to interface with the clients earlier and to effectuate some pull-through because clients absolutely don't want to stop and have multiple providers along the drug discovery and development pathway. So, we're seeing increasing number of integrated deals. So large proportion of integrated deals for the Early Discovery, a large proportion of deals at all for this Early Discovery business are integrated. So that's very good. A larger number are across multiple sites, which is even better. So they're utilizing the whole Charles River portfolio. And I'm not going to give you a specific percentage except to say that the numbers that are moving into Safety are increasing. We also have some long-term Safety clients who of course we did do discovery, we haven't done it for that long, who are very interested in our discovery work and want to start with us earlier on their next compound or compounds after that. So we're beginning to see probably a better articulation on our part of the pull-through. I do think that the organizational change that we made recently about literally pulling these businesses together from an operational point of view, having a more holistic sell-in process, very high scientific sell for Discovery is working very well for us. We have a much stronger competitive position than anybody in both Discovery and Safety, and the combined entity is one the clients are resonating with. So what we always (1:04:22) is beginning to happen. As we always said, this is somewhat a function of scale. Also a function of getting the word out, probably a function of clients talking with one another about the quality of the work that we're doing and us being able to connect the dots more effectively and clearly for them. So pleased with the way it's progressing. Jon Kaufman - William Blair & Co. LLC: Great. Thank you. And then just one housekeeping question. On the tax rate, that 23.5% to 25%, is it fair to expect a similar rate in future periods? And then would that be inclusive or exclusive of any potential benefits from stock-based comp?

Do we want talk about guidance for 2019? I think I would say – without getting into guidance for 2019, I think I would say directionally we're in the right sort of zip code. We might see some nuances, but it's fair to say that we're in the right sort of zip code. Jon Kaufman - William Blair & Co. LLC: Okay. Thank you.

And we'll go to George Hill with RBC. Please go ahead.

Yeah. Good morning, guys. And I want to echo my congratulations to Susan and Todd. I guess, Jim, just asking about the new Biologics capacity, and I guess how long do you think it takes to fill out the capacity, and what are the implications for margins over time?

So we hope it takes a while. It's really a big building. The business is growing very fast. So it will take a few years to fill it which is exactly what we anticipated. The history space is such that it's not going to be a big drag on margins. As I said earlier, it's definitely a little bit of a drag this year because we have some duplication of costs as – and we may have some duplication of costs as well next year as we sort of move things from one site to the other without disrupting either the quality of the science or the work that's going on for certain clients. But it's a very high growth business and we needed space badly. It's actually very proximate to our old space so in terms of employee retention and the quality of work space, it's going to be terrific for our employees. So important the margins of that business should continue to remain strong going forward and we should be able to capture in the top line the significant demand that we're seeing by not being space-bound.

Okay, and I guess the margin profile or is that something we're not ready to talk about yet?

Well, I mean the margin profile, it's a north of 20% margin business going forward.

Okay. And then, maybe just a quick follow-up. On the M&A environment, it would seem like there's a lot of fragmented stuff that you can buy. And I guess I would just ask, I don't think we talk about this much, how do you think about the M&A environment where you guys buy assets versus how you think about the venture capital deployment?

The environment continues to be extremely strong. So, there are a lot of assets for sale across our whole portfolio, it's mostly PE owned, which means that nothing is going to come cheap, but we won't chase anything that doesn't have the sorts of returns that we would like. So to some extent, we become a natural consolidator in the nonclinical space. I think we have a strong leadership position. I think our balance sheet holds us in good stead. So, we feel good about the environment out there for the next few years.

Okay. I appreciate the color. Thank you.

And we'll go to Powers with Bloomberg Intelligence.(1:08:23) Please go ahead.

Hi, good morning. And also congratulations to Susan. Just a quick follow-up on China. I know, it sounds like the go-forward strategy is more of a focus on the domestics, but if you look at your existing book right now there, is that also primarily domestics or is it a mix of globals doing work in the market? And then, I have a follow-up.

Yes. Small amount of globals. That was not what we originally anticipated when we did this deal. It's mostly Chinese clients, mostly government clients as so many companies are. And that's clearly the way that market is going. There's a huge infusion of capital in there by the government to invest in the life sciences. There's a proliferation of new biotech companies and pharma companies. You got a whole bunch of people being educated in the U.S. and Europe going back to China. So yeah, it's mostly going to be domestic.

Okay. And then just on the capital raising environment, 1Q was huge and I was wondering if you could help us think about more broadly how that kind of materializes into bookings and eventually revenue. Just trying to get a sense of timing of when we see a big raise like that, how that impacts the growth funnel? And then also just a quick update on the VC strategy and how that's been contributing to growth? Thank you.

It's hard, sorry, VC strategy was the first question.

Biotech funding trends.

Yeah, it's somewhere between hard and impossible to predict it, because we've been asked this for years. I guess we would say that we rarely see a surge – be nice to see one and I guess we could – but we rarely see a surge even with big inflows. What we would tell you is demand is amazing, amazingly strong. Biotech continues to be the principal driver of growth even though the pharma business is strong for several years. We don't have any clients complaining about inability to fund programs. So, it's steady state. If we see a surge, great, but we don't really anticipate that. And I would say on your VC question, those relationships have been very powerful for us in terms of strategic understanding of the marketplace and how other companies like the ones that are being started by the VCs think and how they want to work with us. And just on a pure revenue basis, the aggregation of these new companies that are being started by the VCs has become a significant number for us. I think we sized it in our last call, rapidly approaching $100 million in revenue, so – and that should continue to increase.

Thank you.

Sure.

Thank you for joining us on the conference call this morning. We look forward to seeing you at the Bank of America Conference next week or the Jefferies and William Blair conferences in June. This concludes the conference call. Thank you.

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