The paragraph introduces the IDEXX Laboratories Third Quarter 2024 Earnings Conference Call, featuring key executives Jay Mazelsky, Brian McKeon, and John Ravis. It highlights that the call will discuss forward-looking statements that involve risks and uncertainties, referencing a press release and SEC filings for more details. It also notes that non-GAAP financial measures will be discussed, with reconciliations available on their website. The call will review second quarter 2024 results and updated guidance, focusing on growth metrics compared to the previous year. Participants are asked to limit questions to allow for broad participation in the Q&A session.

In the third quarter earnings call, Brian McKeon reported that IDEXX experienced solid organic revenue growth and strong profit gains. Organic revenues grew by 6%, driven by 7% growth in CAG diagnostic recurring revenues and 13% in the water business. The company's success was supported by factors such as new business gains, high customer retention rates, and growth in premium instrument installations. Despite challenges from US macroeconomic conditions and sectoral headwinds, as well as recent severe weather events, IDEXX updated its full-year organic revenue growth guidance to reflect these pressures. The company's operating margin and EPS showed solid growth, with EPS up 11% as reported and 12% on a comparable basis. Full-year operating margin goals are expected to be met despite the outlined challenges.

In the third quarter, the company experienced a 6% organic revenue growth, driven by strong performances in its CAG and water businesses, while the LPD segment saw a slight decline. The CAG business reported a 6% organic growth, supported by veterinary software services, diagnostic imaging, and a 7% increase in diagnostic recurring revenues. The growth was aided by global and U.S. price improvements and benefited from extended customer agreements, ensuring long-term volume growth. Internationally, the CAG diagnostics recurring revenue grew by 10% due to strong new business gains and a growing premium instrument install base. However, there was a 9% decline in CAG instrument revenue compared to last year's high placement levels.

The paragraph discusses the factors contributing to and impacting IDEXX's growth in the US. Despite challenges such as a 2.1% decline in same store clinical visit growth and macroeconomic pressures, IDEXX benefits from strong new business gains, customer retention, and pricing strategies. While a portion of growth is attributed to increased pain medication visits that typically do not involve diagnostics, the company sees a rise in diagnostics during visits, indicating a higher standard of care for pets. However, the primary challenge remains pressure on clinical visit growth, which affects IDEXX's recurring revenue from diagnostics. Despite these headwinds, IDEXX maintains solid organic growth and financial performance.

The paragraph discusses IDEXX's strong performance in Q3, highlighting significant growth in its consumable revenues and global premium instrument install base. Despite a decrease in global premium instrument replacements compared to the previous year, the company secured numerous orders for its new IDEXX inView analyzer. Global Rapid Assay and lab revenues also saw organic growth, supported by price realization and shipping day effects. Although same-store sales faced challenges, new business gains and major customer agreements contributed positively, positioning IDEXX for future benefits and aligned with its strategy to enhance pet healthcare standards globally.

In the third quarter, the company saw an 11% increase in revenues for its veterinary software services and diagnostic imaging, boosted by a recent acquisition of Greenline software. Organic revenue overall grew by 6%, with water revenues rising 13% primarily in the US and Europe. However, livestock, poultry, and dairy revenues fell by 2% due to reduced demand in Asia. Gross profit increased by 9%, with gross margins at 61.1% due to favorable business mix and lower costs. Operating expenses went up by 7%, driven by sales, marketing, and R&D expenses. Operating margins improved, and earnings per share (EPS) rose by 11%. Foreign exchange impacts slightly benefited revenues and EPS. The company reported free cash flow of $192 million, translating to a net income to free cash flow conversion ratio of 91% over the past 12 months.

The company is maintaining its full-year outlook for free cash flow conversion at 90% to 95% and adjusting its capital spending forecast to about $160 million due to lower projected spending. They ended the quarter with strong leverage ratios and spent $225 million on share repurchases, reducing diluted shares by 1.1% year-on-year. The 2024 guidance updates the full-year organic revenue growth outlook to 5.3% to 6% and the CAG Diagnostic recurring revenue growth to 5.8% to 6.4%, which is a reduction of 1% to 1.5% from previous expectations due to US macroeconomic and sector trends. The updated forecast anticipates continued pressure on US CAG diagnostic recurring revenue in Q4, partly affected by severe weather. Global CAG Diagnostic recurring revenue is expected to grow by 3.5% to 4%, with a negative 0.5% impact from weather. The company expects global net price improvement in CAG Diagnostic recurring revenues of 4% to 4.5% in Q4, with about 5% for the full year. The revised full-year revenue guidance is $3.865 billion to $3.890 billion, including a favorable $15 million adjustment from recent FX estimates.

The paragraph discusses the company’s financial outlook, noting an expected operating margin of 28.7% to 29% for the year despite a discrete litigation expense that will decrease margins by 160 basis points and EPS by $0.56 per share. Excluding this impact and foreign exchange effects, a consistent improvement of 40 to 50 basis points in comparable operating margins is anticipated. The updated annual EPS outlook is $10.37 to $10.53 per share, unchanged at the midpoint from previous guidance. This outlook accounts for various factors, including a $0.14 EPS reduction due to lower organic revenue growth, offset by favorable foreign exchange adjustments, improved interest expense estimates, and a better effective tax rate. The effective tax rate includes a one-time benefit from a tax reserve release expected in Q4. IDEXX continues to achieve its strategic priorities, focusing on innovation and robust commercial models to support long-term leadership in the companion animal diagnostics sector.

IDEXX's third quarter diagnostics revenue growth was driven by solid new business, high customer retention, and favorable pricing, with significant contributions from their premium instruments gaining traction globally. Despite macroeconomic pressures in the U.S. affecting pet clinic visits, IDEXX continues to benefit from long-term strategic focus on companion animal diagnostics, supported by a skilled commercial team. The enduring growth in the global pet population and increased demand for quality animal care present significant opportunities for IDEXX. Companion animal diagnostics remains the fastest growing segment in veterinary clinics, underpinning medical service revenue. IDEXX's strategic execution resulted in strong financial performance this quarter.

The paragraph discusses the strong performance and growth of IDEXX's diagnostics division. IDEXX's commercial teams have successfully placed premium instruments globally, achieving nine consecutive quarters of double-digit growth in their installed base. In the US and Europe, strategic placements and customer gains have led to significant recurring revenue growth. The company has also expanded its corporate account relationships, positioning itself for future volume gains and sustained growth across modalities, driven by new innovations and strong customer satisfaction.

IDEXX is expanding its key account agreements to focus on organic growth and is preparing to launch the new inVue Dx Cellular Analyzer in Q4. This innovative in-clinic testing platform has received positive feedback, with nearly 700 pre-orders in North America by the end of Q3. The system offers new diagnostic insights with features like ear cytology and blood morphology analysis, and has been well-received for its user-friendly, slide-free workflow. International pre-orders have started to further build demand. The inVue Dx platform will expand its capabilities beyond initial offerings, with plans to include F&A lumps and bumps analysis by 2025, aiming to address the needs of approximately 25 million dogs globally requiring oncology diagnostics.

The paragraph discusses IDEXX's focus on expanding its purpose-built platforms to enhance both medical and economic value. It highlights the recent release of the Catalyst Pancreatic Lipase Test for diagnosing pancreatitis in dogs and cats, which has been positively received by over 3,000 customers in North America and will soon be available globally. This innovation strategy increases the medical and economic value of IDEXX analyzers. Additionally, the paragraph mentions the launch of Catalyst SmartQC, which significantly streamlines the monthly quality control process, exemplifying IDEXX's commitment to improving workflows and efficiency for its customers.

IDEXX is preparing to launch its Cancer Diagnostic Screening Panel in 2025, initially detecting lymphoma and eventually expanding to cover the six most common canine cancers. This innovation is poised to capture a significant market opportunity, with strong adoption expected from veterinarians and pet owners. IDEXX also offers cloud-based software solutions that enhance diagnostics and streamline workflows for veterinary clinics, driving substantial growth in software placements. Strong bookings and a robust pipeline support future growth in software and diagnostic imaging, with recurring revenue rising as more customers adopt IDEXX's software solutions.

The paragraph discusses IDEXX's focus on enhancing pet owner engagement and productivity through tools like Velo, an application integrated with IDEXX PIMS. By the quarter's end, Velo had over 300 active practices, with promising results such as increased clinical visits and diagnostics usage. IDEXX aims to double Velo's user base by year-end and has a development roadmap to further improve pet owner communications, drive visit growth, and enhance diagnostic use, thereby boosting high-margin recurring revenues. The paragraph concludes by acknowledging IDEXX employees' efforts to support veterinarians and pets affected by Hurricanes Helene and Milton, with a commitment to assisting impacted practices. Following this, the floor is opened for a Q&A session.

In the paragraph, Brian McKeon responds to questions about vet visits and their impact on financial outlook. He clarifies that the projected organic growth is about 3%, with CAGDX recurring revenue growth at 3.5% to 4%, factoring in a 0.5% impact from a hurricane. Without the weather impact, the growth aligns with their price benefit expectations of 4% to 4.5%. He notes that Q4 volume, when adjusted for weather, is expected to be flat, similar to Q3 trends, but with additional pressure on clinic demand. This pressure isn't due to a lack of pets visiting the clinic, as wellness visits are increasing, but rather external factors affecting demand. There remains strong interest in pet diagnostics, though growth isn't as robust as historically. McKeon attributes this to current macroeconomic conditions, which they believe are short-term challenges that can be addressed over time.

In the paragraph, Jay Mazelsky discusses the impact of macroeconomic and sector pressures, such as inflation, on clinical visits in the animal health sector. Despite these pressures, pet owners continue to prioritize pet care. Mazelsky is optimistic that clinical visit trends will normalize over time, supported by factors like pet population growth, aging pets, and pet-owner bonds. Innovation in veterinary practices is expected to boost utilization. Michael Riskin from Bank of America then raises a question about a weak performance in the reference lab segment due to price impacts from major customer agreements, suggesting that competitive pricing may have been used to secure contracts.

The paragraph discusses the performance and dynamics of IDEXX's Reference Labs in the quarter. Brian McKeon mentions a 2.4% organic growth with an adjustment for a day's headwind effect, leading to a normalized growth rate of roughly 3%. The growth was primarily influenced by shipping days, new customer extensions, and expansions, which are expected to benefit long-term growth. Jay Mazelsky adds that the execution drivers remain strong, with modest volume growth, high customer retention, and new business gains. However, price gains were moderated by new customer agreements. The Reference Labs are more focused on wellness testing, which has faced pressures, including a 3.4% decline in the U.S. Despite this, the company is optimistic about future innovations, such as Fecal antigen and Cystathin B for kidney health and IDEXX cancer diagnostics expected in 2025.

The paragraph discusses a company's approach to pricing and how it aligns with their business strategy. It highlights that clinical visits and sales trends are expected to normalize over time, following some recent elevations. Michael Riskin asks about the company's pricing strategy, suggesting that while a 5% increase was projected for the year, fourth quarter expectations have slightly decreased. Brian McKeon confirms this moderation is mostly due to new business effects rather than previous price increases. He emphasizes the company's confidence in communicating future price adjustments and delivering value through innovation. The company anticipates that pricing will gradually return to historical levels of 2-3% increases, with new products and innovations playing a key role in their strategy.

The paragraph discusses the company's approach to maintaining a balanced value equation by adding new features and products at no additional cost, such as those for fecal imaging and other diagnostic tools. This strategy aims to ensure that pricing reflects the added value. Guidance for 2025 will be provided later. The Q&A section reveals a question from John Block regarding a projected decline in 2024 organic revenue guidance, attributed to factors like fewer end uses and softer results in the Laboratory Product Division (LPD) than expected. Brian McKeon confirms these themes and notes the influence of instrument revenue and strong advanced orders for the "in view" product on overall order generation.

The paragraph discusses positive developments for premium instruments, particularly noting strong EBI normalization and adjustments in software numbers due to trends. It addresses NV pricing, with low teens as an estimate for instrument price realization, which might vary by program but often results in upfront revenue under certain contracts. Jonathan Block inquires about a plan involving 700 orders with only 50 shipped, questioning challenges faced during beta testing and future shipment timing. There's also a discussion on corporate renewals, acknowledging they represent a significant market portion, and pricing dynamics for lab services, where pricing changes will be a headwind over the next three quarters before potentially benefiting from volume increases in a multiyear contract. Jay Mazelsky responds to these inquiries, particularly about the corporate renewals and the instrument launch, before passing it to Brian for further insight.

The paragraph discusses a corporate focus on organic growth and technology integration to expand business, particularly in reference labs. There is an emphasis on partnering with clients to implement wellness programs more harmoniously rather than as individual clinics. The company employs a cautious approach to launching products, such as Catalyst and inVue Dx, by starting with small, controlled implementations to ensure a positive customer experience. The reception to these products has been very positive, and there's optimism about building global demand. Additionally, business effects and pricing changes are notably impacting US labs.

The paragraph discusses opportunities in expanding business relationships, specifically touching on payment plans and financing options in the veterinary industry. It highlights the favorable financial dynamics expected in the latter part of the next year and mentions multiple industry innovations aimed at addressing affordability, such as payment plans and tools like ADEX credit cards and Velo. The focus is on providing technology that enhances practice productivity and workflow, thereby mitigating cash constraints and enabling better communication between veterinary practices and pet owners.

The paragraph discusses the trends in medical visits, highlighting that overall visits are down, with wellness visits decreasing by about 4% and non-wellness visits by about 3%, due to broader macro challenges. In the Q&A section, Erin Wright from Morgan Stanley asks about the development and pricing of a new cancer screening platform, particularly for canine lymphoma. Jay Mazelsky responds that IDEXX is making good progress with the target launch set for 2025. The platform is intended for young but at-risk dogs as well as older dogs, and feedback from experts has been very positive.

The paragraph discusses the ongoing development and market potential for a product aimed at early cancer detection in pets, seen as a significant challenge by pet owners and veterinarians. Early detection is emphasized for providing more effective treatment options. Erin Wright inquires about the performance and strategy of the company's reference labs, including competitive dynamics, service levels, and customer contracts in a low-volume environment. Jay Mazelsky responds that there is no change in competition, with positive business gains and high retention levels in reference labs, highlighting their robust diagnostic offerings and successful corporate partnerships.

Brandon Vasquez asked about managing end market volumes, particularly regarding frequency, utilization metrics, and the impact of pain medication on vet visits. He inquired about controlling these elements to offset weaker vet visit growth and sought clarification on whether pain medication headwinds stem from lower visit volumes or a shift from NSAIDs to injectables impacting diagnostic testing. Brian McKeon explained that increased visits for pain management, especially in older pets, contribute to growth but do not drive diagnostics, and highlighted that while clinical visits dropped by 2%, the reduction is 3% to 3.5% for visits driving diagnostics.

The paragraph discusses the frequency and utilization dynamics in veterinary clinics, noting that while visit frequency appears to be up by 50 basis points when adjusted for certain factors, overall utilization per visit has increased at a slower pace than in the past. The underlying dynamics within the clinics are seen as healthy, though they face challenges in getting more visits. Jay Mazelsky highlights that innovation and the commercial model influence both frequency and utilization by driving testing and inspiring the use of various diagnostic tools. This foundation is crucial for medical services and care management. The discussion then shifts to David Westenberg from Piper Sandler, who is interested in exploring potential future increases in utilization related to reference labs and pain management visits.

The paragraph discusses the gap between consumables and reference lab usage in veterinary diagnostics, noting it is the largest since 2018. There's speculation about whether veterinary groups might change diagnostic strategies, perhaps by utilizing in-clinic labs more, especially with elderly patients increasingly sold diagnostics. Jay Mazelsky responds by stating there's no significant shift from reference labs to in-clinic testing. He explains that wellness visits typically use reference labs, while acute conditions prompt in-clinic testing for quick results. No major shift in the use of these services has been observed beyond trends influenced by macro factors.

The paragraph discusses the use of pain medication in veterinary practices, particularly for older dogs, and notes that there has been no impact on the use of diagnostics, suggesting no substitution effect. Brian McKeon highlights the metric of bloodwork inclusion in diagnostics, which accelerated during the pandemic but has now sustained without further growth. The company is optimistic about returning to pre-pandemic growth levels and views it as a key part of their long-term growth strategy. Jay Mazelsky concludes by emphasizing the strong performance and potential for growth in the companion animal diagnostics sector.

IDEXX is well-positioned to capitalize on a new opportunity due to its current innovation and customer engagement strategies. The speaker looks forward to providing updates on their progress and concludes the call, with the operator thanking participants and ending the session.

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