The IDEXX Laboratories Fourth Quarter 2023 Earnings Conference Call is being recorded and will include forward-looking statements. The company cautions listeners about the risks and uncertainties associated with these statements and provides information on how to obtain more information. The call will also discuss non-GAAP financial measures and provide a reconciliation to the most comparable measures. Brian McKeon will then review the fourth quarter and full year 2023 results and provide an outlook for 2024.

In the fourth quarter of 2023, IDEXX saw strong performance with an 8% increase in revenues and 8% increase in operating profits. This contributed to a 17% increase in EPS. Overall, IDEXX had a successful year with 9% organic revenue growth and a 29% increase in EPS. This was driven by growth in CAG Diagnostic recurring revenues and software and digital imaging revenues. IDEXX aims to continue this growth in 2024 with a target of 10% organic revenue growth and solid operating margin gains.

In the fourth quarter, the company saw 8% organic revenue growth, driven by 9% gains in their CAG business. This growth was supported by a 10% increase in CAG Diagnostic recurring revenue, with strong performance in both the US and international regions. This was due to average global net price improvement and improved volume gains. The company's execution drivers also contributed to solid growth, with a 1,050 basis point growth premium in the US compared to clinical visit growth levels. International results were also strong, with a 12% growth in CAG Diagnostic recurring revenue and a 13% increase in premium instrument placements. Across all major testing modalities, the company achieved solid organic gains, with a 13% increase in IDEXX VetLab consumable revenues.

In 2023, the company saw an 11% increase in global premium install base, resulting in record placements of 19,000 premium instruments. However, overall instrument revenues declined by 3% due to comparison to high prior year levels, program pricing effects, and global mix. Rapid Assay revenue grew by 9% due to net price increases and volume gains in the US. Lab revenues also expanded, with high single-digit gains in the US and solid organic growth in international regions. Veterinary Software and Diagnostic Imaging revenues increased by 6% in Q4 and 11% for the full year, driven by recurring revenues and cloud-based software placements. Water revenues increased by 5% in Q4 and 8% for the full year, while Livestock, Poultry and Dairy revenues decreased by 4% in Q4 due to declines in herd health screening and lower swine testing levels in China.

LPD's full year revenues were down 1% organically due to declines in herd health screening, but operating profit and gross profit increased 8% and 9% respectively. Gross margins also improved by 50 basis points, driven by net price improvement and favorable business mix. Operating expenses were up 9%, but full year operating margins increased by 390 basis points on a comparable basis. Q4 EPS was $2.32, a 17% increase on a comparable basis, due in part to a lower effective tax rate.

The company's effective tax rate was lowered by the release of valuation allowances and stock-based compensation activity, resulting in an increase in EPS. Foreign exchange changes also affected EPS and operating profits, with hedge gains in 2023 offsetting losses from the previous year. Free cash flow was higher than expected due to careful control of capital spending. The company's balance sheet remains strong with low leverage ratios. The company also allocated funds for share repurchases in the fourth quarter and full year of 2023.

The company is targeting a reduction in diluted shares outstanding for the full year 2024 through strategic use of cash for share repurchases. They have provided initial guidance for 2024 revenues, with a projected increase of 7.5% to 10.5% on a reported basis and 7% to 10% on an organic basis. This includes expected growth in CAG Diagnostic recurring revenues and a limited impact from foreign exchange rates. The key drivers of their organic growth outlook include net price gains and volume gains, with a potential for improved trends and overall growth. The lower end of the range accounts for potential risks, while the high end is aligned with their long-term goals.

The company's overall organic growth is expected to be somewhat constrained due to modest growth in LPD and strong prior year instrument placement levels. The reported operating margin guidance for the full year of 2024 is expected to improve by 20 to 70 basis points, with solid gross margin gains supported by continued growth in CAG Diagnostic recurring revenues and lab productivity initiatives. Foreign exchange is not expected to have a significant impact on revenue and operating margin, with current hedge positions estimated to increase EPS by $0.02 per share. The company's EPS outlook for 2024 is $10.84 to $11.33 per share, representing an increase of 8% to 13% as reported. The outlook factors in a 1.5% increase in the effective tax rate and expected benefits from lower interest expense and share count reductions.

IDEXX had a strong fourth quarter and overall year, with high levels of execution and double-digit growth in diagnostics recurring revenue. Their 2024 outlook is for continued strong financial performance and they are planning for organic revenue growth in Q1, factoring in negative impacts from severe weather and tougher year-on-year comparisons. They also anticipate flat to moderate expansion in operating margins. The company's high touch commercial model, focus on the customer, and accelerated innovation have supported sector development and generated important clinical insights for veterinarians.

In the fourth quarter, IDEXX saw strong growth across all major regions, driven by increases in durable annuity revenues and the success of their commercial teams. The company's purpose-built solutions are gaining traction with customers, and IDEXX plans to continue this momentum in the coming year. The company's global commercial execution has been a key factor in driving awareness and education about IDEXX Diagnostics, resulting in record instrument placements and expansion of their installed base.

IDEXX has achieved high customer retention rates and strong revenue growth through their high-quality placements and easy-to-use diagnostic platforms. Their multi-modality offering and marketing programs, such as IDEXX 360, have helped drive adoption of their technology and support sector diagnostics revenue growth. The company's investments in commercial and R&D resources have positioned them for sustained growth, and they have recently expanded their commercial capabilities in the US and internationally.

IDEXX is experiencing strong growth in their international business, driven by their expanded global commercial capability and customer-friendly marketing programs. They have achieved double-digit installed base growth and improved recurring revenue growth despite macro headwinds. In addition, their veterinary software services and diagnostic imaging segment have also seen strong performance, as clinics embrace the use of technology to generate diagnostic insights and improve workflow and communication.

The adoption of contemporary software solutions has allowed clinicians to focus on providing better patient care and reduce time spent on administrative tasks. This has led to strong growth in cloud native products and a 19% increase in recurring revenues for the veterinary software diagnostic imaging segment. IDEXX's subscription-based services, such as Web PACS, have seen double-digit growth and have recently added dental imaging workflows to streamline processes for practices. This demonstrates the success of IDEXX's innovative and globally relevant software offering.

IDEXX is focused on building on their current momentum and introducing new solutions to improve efficiency in clinics. They are updating the user experience for their IDEXX VetLab Station, which will result in faster diagnostic workflows. The company also continues to look for strategic acquisitions to add value for their customers. They recently acquired a software and data platform that will enhance their software ecosystem and drive growth. IDEXX has a strong commitment to innovation and has invested over $2 billion in instrument platform development, assay discovery, and customer-facing software. This commitment has resulted in higher standards of care in global animal health. The company's most recent example of transformational innovation is in their point-of-care business.

The IDEXX inVue Dx cellular analyzer is an advanced platform that uses AI and 3D imaging to provide diagnostic test results without the need for manual preparation and interpretation. The initial menu will include ear cytology and blood morphology, with additional tests to be added in the future. The company estimates a global placement opportunity of 20,000 over five years. The latest addition to the Fecal Dx antigen platform can now identify Cystoisospora, making it an even better option for preventive screening tests.

IDEXX has successfully expanded their Fecal Dx antigen panel and launched IDEXX Cystatin B in North America, adding kidney injury detection to their comprehensive menu for kidney health. They have seen strong results and return on invested capital in 2023, thanks to the hard work of their 11,000 employees. There is still a significant opportunity to increase adoption and utilization of their diagnostic solutions and products. The management team is grateful for their colleagues' efforts and will now open the line for Q&A.

The speaker asks for clarification on the wider range of 2024 revenue guidance and where the uncertainty lies. The company's CFO explains that the range represents a 3% difference and the midpoint captures sector trends and execution, with the higher end allowing for potential upside from improved sector trends and stronger execution, and the lower end accounting for risks such as macro factors. The next question asks for further clarification on the underlying end-market assumptions in the guidance, to which the CFO responds that the guidance takes into account a 100 basis point impact from weather.

The speaker, Brian McKeon, responded to a question about clinical visit expectations for the first quarter and the rest of the year. He stated that the company had a strong finish to the year with 4% volume growth in the US and internationally. They expect to build on this in 2024, with a midpoint view of flat clinical visits in the US and similar trends internationally. They also factored in a $10 million impact from severe weather in January and expect this to only affect the first quarter.

The company is hopeful for improved performance in the long-term, as the end-market appears to be stabilized and healthy. They have seen demand for their technology solutions and are well positioned to help customers with their capacity challenges. The launch of inVue is expected in late 2024, with a small contribution to revenue this year. The company is targeting a 5% net price increase, compared to 7-8% last year.

The speaker addresses the feedback to recent pricing announcements and mentions that the company's guidance includes the assumption for a new product launch. The launch is expected to primarily benefit instrument revenue in the fourth quarter and will address a gap in the marketplace for high-volume relevant tests. The speaker also notes that pricing varies based on different customer types and cannot be generalized.

IDEXX has corporate customers who are under longer-term contracts and different program effects. The 5% debt provided as a guide reflects the value delivered and is in line with what customers see from an IDEXX contribution standpoint. The pet owner price is set by the veterinarian, who also factors in an uplift and differentiation in medical services. Early key opinion leader feedback on inVue, a new technology, has been positive. IDEXX is considering additional indications and further innovation in assays in 2024, and may also pursue M&A in software. The technology allows for viewing cellular structures, including intracellular structures, in their natural state.

The speaker discusses the advantages of using a three-dimensional view in diagnostic testing and the excitement of veterinarians for a new solution that eliminates the need for slide preparation. They also mention their constant innovation in product development but do not disclose any specific information. In response to a question about the launch of a new diagnostic platform, the speaker states that they have a method for developing and testing platforms before launch and that they have another platform in the pipeline for a potential 2025 release.

The company is aware of the difference between bench-top development and the actual performance in the clinic. They aim to have a low average time between support events and are comfortable with the timing of their upcoming launch. They do not want to launch prematurely and disrupt the practice environment. The company is not disclosing much about their next point-of-care platform, but it is outside of existing testing categories. In terms of competition, the company acknowledges that the market is competitive and new ownership of competitors has not changed this. The company's focus is on continuing to innovate and provide solutions for the challenges faced by their customers in the practice.

The company has a strong focus on providing integrated and user-friendly services that help produce positive medical outcomes. They are targeting a 20 to 70 basis point improvement in gross margin, driven by growth in diagnostic recurring revenues, price benefits, and expansion of their cloud-based software business. They also have a focus on improving lab operations to further increase profitability.

The company plans to prioritize investing in innovation and commercial operations to support their growth. They expect zero growth in vet visits by 2024 and a negative 1% in Q1. The 5% global growth rate may be affected by pricing and an extra day in the year.

The speaker discusses the impact of COVID-19 on the US business and the company's efforts to factor it in. They also mention that they expect solid price realization globally and do not anticipate any major issues with days. They conclude by stating that IDEXX is well positioned to sustain momentum and address the opportunity to raise the standard of care for companion animal health care.

This summary was generated with AI and may contain some inaccuracies.