The IDEXX Laboratories First Quarter 2024 Earnings Conference Call is being recorded and includes a caution about forward-looking statements. The call will discuss financial measures not prepared in accordance with GAAP and a reconciliation of these measures can be found on the company's website. All references to growth in the first quarter and updated guidance will be compared to the prior year period. Participants are asked to limit their questions to one with a follow-up if necessary. Additional questions may be asked if time permits.

In the second paragraph, Brian McKeon discusses the highlights of IDEXX's first quarter results and their updated financial outlook for 2024. He mentions solid organic revenue growth and strong profit gains, despite negative effects from severe weather in the US. He also highlights the company's strong execution and progress in expanding their business. However, he notes that sector and macro factors have constrained veterinary clinic visit growth. The company has updated their 2024 financial outlook to reflect these trends and the recent strengthening of the US dollar.

In the third paragraph, the speaker discusses the company's first quarter results, highlighting a 7% organic revenue growth driven by gains in veterinary software and diagnostic imaging. They also mention a 3% decline in LPD growth. The speaker then goes into detail about the growth in CAG instrument and diagnostic recurring revenue, with international growth driven by strong execution and US growth outpacing clinical visit growth despite negative impacts from severe weather. The company's operational EPS outlook is also reinforced, with a focus on solid margin improvement and favorable adjustments to net interest expense.

IDEXX's strong growth in the first quarter was due to increased diagnostic frequency and utilization per clinical visit at veterinary practices, as well as solid new business gains and high customer retention levels. However, there were some challenges in the US market due to staffing shortages and potential pressure on consumer spending. As a result, IDEXX has adjusted their 2024 revenue growth guidance. Despite these challenges, IDEXX saw solid growth across all modalities, including a 9% increase in VetLab consumable revenues and an 11% increase in their global premium instrument installed base. However, there was a decrease in global Catalyst placements compared to the previous year.

In the first quarter, Global Rapid Assay and Lab revenues increased by 5% and 6% respectively, driven by strong gains in the US and internationally. Veterinary software and diagnostic imaging revenues also saw a 12% increase, thanks to a recent software acquisition. Water revenues increased by 11%, while Livestock, poultry, and dairy revenues decreased by 3%, mostly due to lower testing levels in China. Gross profit and margins increased, supported by business mix and lower costs. Operating expenses also increased, driven by R&D spending for new platform development. Overall, EPS increased by 10% in the first quarter.

The company's net income for the first quarter was impacted by a negative EPS growth rate due to a customer contract resolution payment. Foreign exchange had a minimal effect on gross margin, operating profit, and EPS. Free cash flow was $168 million for the quarter, with a conversion ratio of 92%. The company maintains its outlook for free cash flow conversion of 90% to 95% for the full year. The balance sheet remains strong, with a low leverage ratio and conservative management of assets. $155 million was allocated for share repurchases in the first quarter. The company has updated its full year outlook for organic growth and revenue, taking into account recent trends in US clinical visits and the strengthening of the US dollar.

IDEXX has updated its full year guidance for overall organic growth to be between 7% to 9%, with gains in CAG Diagnostic recurring revenues between 7.5% to 9.5%. The outlook for overall organic growth is supported by IDEXX's execution and is expected to reflect a decline in US clinic visits in Q2. The company expects its second half organic revenue growth to benefit from equivalent days effects. The full year CAG Diagnostic recurring revenue outlook reflects expectations for global net price improvement of approximately 5%. IDEXX is maintaining its outlook for reported operating margins and full year EPS, with a slight decrease at midpoint due to updated foreign exchange estimates.

In the second quarter, IDEXX expects a 5-7.5% revenue growth, with an organic growth range of 6-8.5%. This is due to the recent software acquisition and relatively softer US clinical visit trends. Operating margins are expected to be 31-31.4%, with higher R&D spending to support platform advancement. IDEXX's strategy is focused on driving the growth of the companion animal diagnostics sector through innovation and customer engagement, supported by the pet population, human-pet bond, and expansion of pet healthcare services. Their business model aims to provide unparalleled diagnostic insight and support vet clinics in delivering high levels of care.

The success of IDEXX's strategy is evident in the strong execution of its teams, resulting in global expansion and solid growth in recurring revenues. This is supported by new business gains, high customer retention rates, and increased value for customers. The company's commercial teams have also achieved strong growth in instrument and software placements, leading to double-digit organic growth in recurring software revenues. Despite challenges in staffing and consumer pressures, IDEXX remains focused on expanding its business globally and delivering strong financial performance. The company's commercial efforts are crucial in driving the adoption and utilization of IDEXX's solutions, with a customer-first mindset being a key focus.

IDEXX is seeing strong customer adoption of their intuitive point-of-care testing platforms, resulting in record first quarter global premium instrument placements for the third year in a row. The company's focus is on international regions with potential for growth, and their international sales teams have seen high growth in installed base. The new platform, ProCyte One, has shown significant benefits compared to their previous analyzer and has led to a 20% increase in runs per day for customers who upgraded. Upgrades and adoption of new platforms also have a multiplier effect on customer loyalty and retention, as well as adoption of other IDEXX analyzers.

IDEXX's international sector saw strong recurring revenues thanks to their expanding installed base. Their integrated platform solutions and software ecosystem are also supporting the growth of new practices in the US. IDEXX's marketing programs have attracted interest from new practices, leading to increased placements and testing. The company is also making progress on their ongoing innovation agenda, with a new slide-free cellular analyzer platform set to begin shipping in the fourth quarter. IDEXX's commercial teams are already educating customers on this new technology and using it to promote other IDEXX solutions. This has contributed to the company's high reach to revenue metrics in the quarter.

Customers worldwide have had a positive response to the new IDEXX products, praising their medical and workflow benefits. The company is constantly seeking to add value to their products and improve user experience, as seen in the recent launch of their new UA analyzer. This analyzer provides essential urine parameters and integrates with other IDEXX products, providing actionable guidance for clinicians. IDEXX Reference Labs have also seen success with the launch of IDEXX Cystatin B, a test for kidney injury.

IDEXX has recently expanded its launch to North America, UK, and Australia and plans to launch in Europe later this year. The experience has been positive, with almost 500,000 tests ordered by over 13,000 customers since the launch in December. There is still room for growth and increasing awareness of the test's clinical utility. The company's software and imaging business is performing well and addressing customer needs. IDEXX's cloud-first strategy for software is driving productivity and double-digit growth in recurring revenue. The company is focused on enhancing its software ecosystem, with the recent announcement of Vello, a pet owner engagement platform that integrates with IDEXX's practice management software. This will streamline communication and improve workflows for veterinarians.

IDEXX's expansion of its vertical software suite has numerous benefits, including improved customer relationships, compliance, and health outcomes. The company's acquisition of Greenline Pet and integration with third-party practice management systems has enhanced partnerships with animal health manufacturers and increased adoption of their software. This has led to greater efficiency and revenue growth, as well as high customer retention rates. IDEXX is pleased with their progress in various business areas and their strong financial performance in the first quarter.

The speaker concludes their remarks by thanking the IDEXX employees for their commitment and passion, which has helped the company achieve strong financial results. They mention that the companion animal diagnostics sector is still attractive and that the company is well-positioned for long-term growth. They also mention some challenges with capacity and macro trends affecting vet visit numbers, and mention that it is difficult to determine how much of the visit erosion is due to capacity dynamics versus consumer demand. They then open the line for questions.

The company had a softer first quarter in the US due to flattening trends and weather impacts. However, they had a good quarter internationally. The US-specific issue may be due to staffing and capacity challenges, as well as potential impacts on demand from consumers. The company remains optimistic about the animal health industry and sees ongoing staffing challenges in practices.

The speaker discusses IDEXX's partnership with clients and their focus on controlling what they can in terms of operational execution and product development. They also mention that first quarter traffic was below expectations and April's traffic is in line with that trend. They expect an improvement in traffic levels over the balance of the year, with a slight benefit from a day's effect. The speaker then provides a breakdown of first half and second half expectations.

The company does not comment on in-quarter trends, but highlights their plans for Q2. They expect approximately 7% organic growth in the first half and 9% in the second half. Positive factors include a half day's overall equivalent days benefit in Q3, better lapping dynamics in areas like LPD, and higher growth in their software business. They also assume relatively flattening US clinical visit trends, which is supported by continued strong clinical diagnostics revenue growth rates and healthy diagnostics frequency and utilization. The company is partnering with clinics to improve productivity and expects benefits over time. The gross margin is expected to remain strong.

The speaker asked Brian about the factors driving the business. Brian responded that they had a strong start and maintained their outlook for the year. He also mentioned lower instrument costs and reinforced their ability to deliver strong financial performance despite some near-term macro dynamics. The questioner then asked about the underlying macro and the prolonged effects on vet visits.

The speaker discusses the potential for continued decline in vet visits and how the company plans to address this. They mention their strong innovation portfolio, including the upcoming launch of inVue, as well as their expanding menu offerings and successful commercial execution. They also highlight international growth as a potential lever to improve performance.

The company remains confident in the demand for pet care and is focused on supporting their customers through current challenges. They have a strong track record of growth and financial performance and plan to continue investing in their R&D agenda. The inVue product is still on track and has received positive feedback from veterinarians at a recent event.

The speaker discusses the progress of a new product that will be released in five to six months. Customers have been enthusiastic about the product's capabilities, especially in addressing high-volume and time-consuming clinical tasks. The product is seen as a valuable extension of the company's existing VetLab suite and has received positive feedback from both generalists and specialists in the veterinary industry. It is also seen as a way to support the productivity and retention of staff in veterinary practices.

The speaker discusses the competitive landscape in the global market and how their company is focused on providing integrated solutions for both independent practices and corporate accounts. They mention their software and client engagement application as differentiators and their success in supporting new practice formation. The company's commercial agenda is said to be progressing well.

The company is transparent about their placements and competitive performance, and they are doing well. The focus for inVue is on existing customers who already use their VetLab suite. The company is working on fine needle aspirate, but no further details have been given. Analysts are also asking about vet visits, which are being impacted by macro capacity constraints.

The speaker discusses the potential increase in sensitivity among pet owners to price increases in the veterinary industry. They mention that practices may have overstepped on pricing in recent years and that they are optimistic about the future. They also mention that they align their pricing with the value they provide and inflationary dynamics.

The company's outlook for 2024 is consistent with their earlier projection of 5% net price realization globally. There are questions about the vet visit data and how it will affect the company's guidance. The company is expected to introduce a new product in the market in 2024, but the timing is still TBD. The first question is about clarifying the impact of the vet visit data on the company's guidance, and the second question is about the timing of the new product launch.

The speaker comments on the progress of the US vet industry in addressing shortages and mental health of vets, as well as using more vet technicians to assist vets. They state that staffing churn has largely stabilized and that practices have taken steps such as increasing salary and benefits and implementing training programs. They do not provide specific numbers or projections for vet visits, wellness, or non-wellness.

The speaker discusses how the company has invested in technology and how it has helped save time for veterinarians. They also mention the potential for increased diagnostic utilization as pets age, and how the company is focused on accelerating this through all life stages. The Q&A portion of the call concludes with a reiteration of the company's commitment to improving the standard of care for companion animal health through diagnostics.

IDEXX has a strong organic growth strategy that is driving development in their sector. They are confident in their ability to execute their growth initiatives and have a positive outlook for 2024 based on their past investments and industry trends. The call has now ended.

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