IDEXX Laboratories Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025

There are 11 speakers on the call.

Operator

Good morning, and welcome to the IDEXX Laboratories First Quarter twenty twenty five Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jay Mazelski, President and Chief Executive Officer Andrew Emerson, Chief Financial Officer and John Rebus, Vice President, Investor Relations. IDEXX would like to preface the discussion today with a caution regarding forward looking statements. Listeners are reminded that our discussion during the call will include forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today.

Operator

Additional information regarding these risks and uncertainties is available under the forward looking statements notice in our press release issued this morning as well as in our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website, idexx.com. During this call, we will be discussing certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. A reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release, which may also be found by visiting the Investor Relations section of our website. In reviewing our first quarter twenty twenty five results and updated 2025 guidance, please note all references to growth, organic growth and comparable growth refer to growth compared to the equivalent prior year period, unless otherwise noted. To allow broad participation in the Q and A, we ask that each participant limit their questions to one with one follow-up as necessary.

Operator

We appreciate you may have additional questions, so please feel free to get back into the queue. And if time permits, we'll take your additional questions. Today's prepared remarks will be posted to the Investor Relations section of our website after the earnings conference call concludes. I would now like to turn the call over to Andrew Emerson.

Speaker 1

Good morning, and welcome to our first quarter earnings call. Today, I'd like to update you on Q1 results and review our 2025 financial outlook. IDEXX achieved a solid start to 2025. In terms of key highlights for the quarter, overall revenues increased 5% organically, supported by a 4.5% organic growth in CAG Diagnostic recurring revenues, net of an approximate 1.5 equivalent days headwind. Solid revenue gains were also net of global same store growth headwinds, including a 2.6% decline in U.

Speaker 1

S. Clinical visits. IDEXX execution trends remain strong, reflecting a continued IDEXX CAG Diagnostic recurring revenue growth premium, a 9% expansion of the premium instrument installed base and a 9% organic recurring revenue gains in veterinary software and diagnostic imaging. Profit delivery was aligned with our outlook, supported by gross margin gains while we invested in innovation priorities. Operating margin performance enabled EPS delivery of $2.96 per share, delivering 5% growth as reported and 7% growth on a comparable basis.

Speaker 1

We're pleased with the progress in expanding our business as we work through sector and macro factors that have pressured recent visit growth at the veterinary clinic level. We're confident in the long term growth potential of our business, supported by ongoing focus on innovation, including our recent IDEXX CancerDx launch, starting with canine lymphoma. We've updated our 2025 financial outlook to incorporate positive changes from foreign exchange and a now concluded litigation expense accrual adjustment while reinforcing consistent 2025 goals for organic revenue growth and comparable operating margin improvement. Let's begin with a review of our first quarter results before transitioning to our full year outlook. First quarter organic revenue growth of 5% was driven by 4.5% organic revenue gains in our CAG business, 7% organic growth in Water and 4% organic growth in LPD.

Speaker 1

CAG organic revenue growth was supported by 7% organic gains in veterinary software and diagnostic imaging revenues driven by 9% organic reoccurring revenue growth. CAG instrument revenues decreased 5% organically against high prior year placement levels, while benefiting from initial placements of IDEXX InVue Dx, which will ramp throughout the year. CAG Diagnostic recurring revenues increased 4.5% organically in Q1, net of a 1.5% headwind from equivalent days. Global CAG Diagnostic recurring revenue growth reflected solid gains across all major regions. On average, global net price improvement was 4% and on a days adjusted basis, volume gains were approximately 2%.

Speaker 1

International CAG Diagnostic recurring revenue organic growth was 8.5% and on a days adjusted basis sustained double digit organic revenue growth, reflecting benefits from net price realization and strong volume gains building on 2024 momentum. International results continued to be driven by IDEXX execution reflected in strong new business gains, which supported double digit year over year expansion of our premium instrument installed base. U. S. CAG Diagnostic recurring revenue organic growth was three percent in Q1, net of the days headwind.

Speaker 1

This reflects a continued solid growth premium compared to same store U. S. Clinic visit growth levels, which declined an estimated 2.6% overall in the quarter. IDEXX solid growth reflects increased levels of diagnostic frequency and increased diagnostic utilization per clinical visit at the practice level, along with strong execution, including solid new business gains, sustained high levels of customer retention and net price realization of 3.5%. Modality gains in the quarter were supported by strong growth in consumable revenues.

Speaker 1

IDEXX VetLab consumable revenues increased 10 organically, reflecting high single digit gains in The U. S. And double digit growth in international regions. Consumable gains were supported by 9% year over year growth in our global premium instrument installed base. During Q1, we placed 4,163 CAG premium instruments, a decline of 13% against high prior year levels.

Speaker 1

Our focus on quality of instrument placements continues to be strong, reflected in sustained levels of competitive and greenfield catalysts, including 7% growth in The U. S. And 5% gains in Europe, along with double digit growth in our global EVI metric. In The U. S, we placed fifteen forty four instruments, an increase of 12% year over year supported by strong competitive and greenfield catalyst placements.

Speaker 1

In North America, we placed three zero two IDEXX NVDX analyzers as we move from a controlled to full launch of our exciting new platform. Global rapid assay revenues declined 2% organically in Q1. Rapid assay results were constrained by customers shifting pancreatic lipase testing to our Catalyst instrument platform, which we estimated to be a 5% headwind in Q1 revenue growth. Global lab revenues increased 1% organically. When adjusting for equivalent days effects, international regions drove solid growth in the quarter, with The U.

Speaker 1

S. At low single digit growth. Global growth was supported by modest volume gains aided by new business. In Q1, net pricing gains in our Reference Lab line of business were moderated by impacts from previously highlighted major new customer agreements, which we will begin lapping during Q2. Veterinary software and diagnostic imaging revenues increased 9% as reported, including benefits from a software acquisition last year.

Speaker 1

7% overall organic gains were driven by reoccurring revenues reflecting benefits from ongoing momentum in cloud based software placements. Water revenues increased 7% organically in Q1 against high prior year levels. Growth was driven by double digit revenue expansion in our European region. Livestock, poultry and dairy revenues increased 4% organically. Solid gains in The U.

Speaker 1

S. Built off of momentum in the second half of twenty twenty four. Turning to our P and L, Q1 profit results were supported by solid gross margin gains. Gross profit increased 5% in the quarter as reported and 6% on a comparable basis. Gross margins were 62.4%, up 80 basis points on a comparable basis.

Speaker 1

Gross margin gains reflected benefits from business mix, including VetLab consumable growth and instrument mix. Reported gross margin gains benefited by approximately 10 basis points related to foreign exchange impacts net of hedge positions. Operating expenses increased 4% year over year as reported in the quarter and 8% on a comparable basis. This was net of a $9,000,000 or 3% operating expense growth offset related to a favorable adjustment to the discrete litigation expense accrual and 1% from foreign exchange impacts. Q1 OpEx growth was driven by increases in R and D and commercial spending aligned with advancing our innovation roadmap.

Speaker 1

EPS was $2.96 per share in Q1, an increase of 5% as reported and 7% on a comparable basis, net of a 3% EPS growth benefit related to the adjustment of a discrete litigation expense accrual. Foreign exchange reduced operating profits by $4,000,000 and EPS of approximately $04 per share in the quarter, net of a $4,000,000 hedge gain. Free cash flow was $2.00 $8,000,000 in Q1, reflecting normal seasonality. On a trailing twelve month basis, our net income to free cash flow conversion ratio was 95%. For the full year, we're updating our outlook for net income to free cash flow conversion of 80% to 85%, reflecting the impact of the now concluded litigation matter and estimated impacts as a result of tariff planning.

Speaker 1

Our balance sheet remains healthy. We ended the quarter with leverage ratios of 0.7 times gross and 0.6 times net of cash. We look to maintain full year gross leverage ratios at similar levels. Share repurchases over the last year supported a 2.4% reduction in diluted shares outstanding and we allocated $415,000,000 in capital to share repurchases during the first quarter. Turning to our 2025 guidance, our outlook reinforces consistent full year goals for solid organic revenue growth, comparable operating margin improvement and EPS gains.

Speaker 1

We revised estimates for foreign exchange impacts, reflecting the recent weakening of the U. S. Dollar and Q1 discrete litigation expense accrual adjustment. In terms of our revenue outlook, we've updated our full year guidance for reported revenues to 4,095,000,000 to $4,210,000,000 an increase of $40,000,000 or approximately 1% growth rate improvement related to foreign exchange at the rates published in our press release. We've maintained a full year organic growth outlook of 6% to 9%, supported by 5% to 8% gains in CAG Diagnostic recurring revenues, including global net price realization of 4% to 4.5% at midpoint and expectations for 4,500 IDEXX InBUE DX placements.

Speaker 1

We're increasing our outlook for reported operating margins to 31.1 to 31.6% for the full year. This outlook maintains consistent 30 to 80 basis points of comparable operating margin expansion for the full year, net of 180 basis point operating margin benefit related to the discrete litigation expense accrual adjustment and updated for foreign exchange effects. With respect to the dynamic trade environment, we're well positioned to navigate the changing tariff landscape. As previously highlighted, we captured high level tariff estimates for internationally sourced materials in our initial outlook. We have revised these estimates based on the current U.

Speaker 1

S. Pronouncements and have incorporated estimates for China's retaliatory tariffs. Our primary objectives are focused on maintaining continuous supply to customers and minimizing tariff impacts through effective operational planning and balance sheet leverage. Our updated full year EPS outlook is $11.93 to $12.43 per share, an increase of $0.19 per share at midpoint, driven by $0.11 per share from foreign exchange and $08 per share from a favorable adjustment to the discrete litigation expense accrual. We now estimate foreign exchange will have a negative zero one zero dollars per share full year EPS impact.

Speaker 1

Operationally, we're maintaining consistent outlook for 8% to 12% comparable EPS growth. For our second quarter, we're planning for reported revenue growth of 5% to 7.5%, net of approximately a 1% growth headwind from foreign exchange. This operational outlook aligns with overall organic revenue growth of 6% to 8.5% and organic CAG Diagnostic revenue growth of 5% to 7.5%. At midpoint, the second quarter organic revenue growth outlook includes U. S.

Speaker 1

Clinical visit growth in line with our full year estimates. We're planning for reported operating margins of 32.9% to 33.4% in Q2, reflecting expansion of 40 to 90 basis points on a comparable basis. That concludes our financial review, and I'll now turn the call over to Jay for his comments.

Speaker 2

Thank you, Andrew, and good morning. 2025 is off to a solid start as IDEXX's innovations gain commercial traction across the portfolio. At the March, we launched IDEXX CancerDx through our reference labs in North America. This first of its kind diagnostic panel for early detection of canine lymphoma brings exceptional levels of performance and is priced to our veterinarian partners in a way that is intended to support broad inclusion and access to pet owners. Adding to this excitement in the quarter, we continued our rollout of IDEXX InVue DX, our new to the industry cellular analyzer.

Speaker 2

With strong preorder momentum from last year, we placed over 300 instruments in q one and moved from a controlled rollout in q one to broad availability in April. Together, these two platforms, IDEXX CancerDx and IDEXX InBUE Dx, represent an important leap forward. They embody our vision for innovation that elevates patient care, supports our customers, and fuels long term sustainable growth for IDEXX. Let's now take a closer look at our commercial performance. Our commercial organization executed strongly in the quarter.

Speaker 2

We delivered solid growth in organic recurring revenue, including days adjusted double digit CAG Diagnostics recurring revenue growth internationally, sustained high levels of customer retention and expanded our customer base while further expanding our commercial footprint in high potential regions. We delivered strong premium instrument placements in the quarter, including over 1,100 new and competitive catalysts resulting in high single digit growth in our worldwide premium instrument installed base and double digit growth in future economic value. In The US, our commercial team delivered record q one placements in EVI, supported by early interest in IDEXX and VUDX. In Europe, we lapped a record upgrade cycle in hematology from LaserCite to ProCyte one while delivering solid growth in competitive and greenfield catalyst placements. We sustained high levels of customer retention in the high nineties across our diagnostic modalities, demonstrating the ongoing value and trust our customers place in IDEXX.

Speaker 2

This loyalty is foundational to our growth model as it enables predictable recurring revenue while providing a large customer base to introduce innovations like IDEXX CancerDx and IDEXX InVueDx. Internationally, in addition to another strong quarter with double digit instrument installed base growth, recent innovations like Catalyst Pancreatic Lipase has been especially well received, benefiting the strong IDEXX VetLab consumables performance. These regions are responding favorably to our tailored commercial strategies, which combine local support with global innovation. We completed onboarding and training for commercial expansion in South Korea, where our customers are primed to adopt IDEXX's innovative point of care solutions while benefiting from our in country reference laboratory capabilities. This additional investment in Korea represents another example of investing towards growth aligned with regional readiness and commercial momentum.

Speaker 2

As practices continue to seek productivity improvements, our diagnostic solutions position not just as medical tools, but also as operational enablers. By providing fast, accurate results, our platforms help practices see more patients, reduce callbacks, and make better use of limited clinical time. Our field teams partner with customers to optimize workflows, bring up technicians and doctors to focus on care rather than coordination. Altogether, the commercial performance in q one lays a solid foundation for the year ahead. While macroeconomic conditions remain dynamic, we're seeing strong demand signals and continued willingness by clinics to invest in diagnostics as a core part of animal health.

Speaker 2

Our commercial model, grounded in partnership, flexibility, and execution excellence, remains a key differentiator and a critical enabler of our innovation led growth strategy. This was a landmark quarter for IDEXX's diagnostic innovation strategy as we brought some of our most ambitious, clinically impactful technologies to market. IDEXX CancerDx marks a major evolution in our approach to diagnostics, making complex molecular level testing accessible to general practitioners through a simple cost effective blood test. Veterinarians now have a tool that allows them to incorporate cancer detection into a wellness visit seamlessly alongside other blood chemistry and hematology workups. With turnaround times of just two to three days in The US at a price point as low as $15, the solution provides an affordable solution that delivers powerful clinical insight.

Speaker 2

Since launch, we now have over a thousand practices that have already ordered the test representing broad awareness and strong initial interest. Cancer is personal to many pet owners. The earlier we can detect cancer and determine the type of cancer, the better the chance for targeted treatments and improved outcomes, such as additional quality of months or years of life. This is only the beginning. Within three years, we intend to broaden the scope of our oncology menu to address the majority of canine cancer cases.

Speaker 2

With an established diagnostic footprint and strong relationships with general and specialty practitioners, IDEXX is uniquely positioned to lead in this high impact area of veterinary medicine. Similarly, IDEXX InBUDX is poised to transform point of care diagnostics across several high volume testing categories. As noted, we moved from a controlled rollout in q one to broad availability entering q two. With gating controls removed, we've seen an acceleration of placements with over 900 placements through the April, which supports the increase in consumables usage expected to grow throughout the year. This momentum highlights the high level of customer interest in this breakthrough AI empowered slide free cytology system.

Speaker 2

By combining advanced optics with an AI model trained on millions of cellular images, IDEXX MuDX analyzes ear cytology and blood morphology in minutes while the patient is still in the practice. Seamless integration with IDEXX VetLab Station and VetConnect PLUS allows teams to store, view, and share results with these. Customer feedback has been especially enthusiastic around ease of use, confidence in results, and a way it enhances technician workflows by simplifying and automating what was once a time consuming manual task. We're seeing exciting utilization trends across early adopters with utilization for both ear cytology and blood morphology well aligned with our expectations. We look forward to sharing additional insights on utilization trends in the future.

Speaker 2

Looking ahead, we are in an excellent position for manufacturing, inventory and commercial capacity to deliver our 4,500 plus placement goal in 2025. And our r and d and operations teams continue to make great progress as we plan to introduce fine needle aspirate capabilities for lumps and bumps on IDEXX IMVU later in 2025. This high interest menu expansion is part of our technology for life approach. We'll unlock substantial value in oncology diagnostics as FNA is a key method for evaluating these ubiquitous lumps and bumps common to many dogs. Our software ecosystem continues to be an important growth driver and a source of strategic advantage With deep integrations across diagnostics, imaging, communication, and practice operations, IDEXX software helps clinics unlock the full potential of their diagnostics, improve client engagement, and enhance operational efficiency.

Speaker 2

This quarter, we saw strong performance across our practice information management systems as well as pet owner engagement tools like Bell. Our EasyVet and Neo platforms continued to grow as we delivered double digit placement growth in our leading cloud native pins during the quarter with accelerated momentum, particularly in multi location practices and and our corporate account customer. Customers are choosing our cloud native platforms for their modern user interfaces, seamless integration with diagnostics, and ability to scale across locations with centralized data and workflows. Dell, our cloud native client engagement platform, continued its strong growth trajectory in q one, increasing users over 20% from q four. Fellow users have experienced enhanced communications with pet owners, increased visit frequency, and improved compliance with diagnostics and treatment plans compared both to customers who are using other client engagement platforms or relying on a simple capability resident in their PINs.

Speaker 2

As we manage through ongoing uncertainty in the global trade environment, our top priority is to support our customers with uninterrupted access to the high quality products and services they rely on IDEXX for. IDEXX is relatively well positioned with 65% of consolidated revenues and a majority of our CAG industrial base located in The US, while less than 1% of company revenues come from China. While situated well, we are not immune to impacts from a highly dynamic tariff environment. As Andrew noted, we captured high level tariff estimates for internationally sourced materials in our initial outlook and have now incorporated estimates for China retaliatory tariff impacts. Our supply chain and operations teams are intensely focused on navigating the shifting tariff landscape and broader economic challenges.

Speaker 2

We have taken and are taking additional proactive steps to ensure staging where appropriate and implementing plans to support high product develop availability while also seeking to mitigate financial impacts as we look to deliver our profit goals. As noted, we're operating in a challenging environment where both the broader macro and global trade environment as well as continuing sector factors have moderated our growth. The veterinary capacity constraints have largely stabilized. Economic uncertainty continues to be a factor in pressuring clinical visits. We are pleased to share as a point supporting the resiliency of the pet health care market that the estimated pet population sustained in 2024 at similar levels to the prior year.

Speaker 2

Notably, this represents approximately 3% CACRE versus 2019 baseline, well ahead of historical approximately 1% annual growth rate. This higher baseline of the absolute number of pets supports strong tailwinds to our business that gives us confidence in the opportunity to deliver solid organic revenue growth. Pet ownership remains high. Pets are living longer, and the expanded pet population is aging, which are all positive factors for diagnostics use. Diagnostics sit at the center of the system of care, and pet owner expectations for quality care continue to rise.

Speaker 2

IDEXX is uniquely positioned to lead, and our focus is on exceptional execution to deliver solid growth and profit gains. I'll now conclude our prepared remarks by thanking the 11,000 IDEXX employees for your ongoing commitment and incredible passion for our purpose driven work. Now let's please open the line for q and

Speaker 3

a. Thank

Speaker 4

you. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. So please state your name before posing your question.

Speaker 4

Again, you could press star one to ask a question. It will pause for just a moment to allow everyone an opportunity to signal for questions. We will now move to your first question coming from Michael Ryskin with Bank of America.

Speaker 5

Great. Hey. Can you hear me? Thanks for Yeah.

Speaker 2

We got

Speaker 5

Yep. Hey. Thanks for taking the question, guys, and congrats on the quarter. I'll start with the high level question on on visits and the macro. I mean, total visits from your snapshot, you know, down 2.6 in the quarter, better than some third party data actually indicated.

Speaker 5

And but you saw pretty meaningful swings between wellness and nonwellness. Looks like nonwellness deteriorated. Wellness kinda snapped back after being down a little bit in 4Q. Was wondering if you could just talk about what you're seeing there, from a market perspective, you know, the changes over the last couple months, and just an updated view for the rest of the year.

Speaker 2

Yeah. Good morning, Mike. Thanks for that question. You know, largely, we've seen a, you know, consistent trend from both, wellness, non wellness. It does we do see some variation quarter to quarter, obviously.

Speaker 2

You know, from a wellness standpoint, we're at the the front end of the vector borne disease screening part of the part of the year. So there's obviously some some activity related to that, and you'd expect to see some snapback. We still think that the overall market overhang from a macro standpoint, you know, is providing some moderation, some headwinds to wellness visits. But, you know, in general, I think there's some level of optimism that the clinical visit moderation that we've seen has has stabilized. And, you know, more practices, both independent and and corporates, are really focused on trying to reengage customers, getting them back into the practice, and and the wellness visit piece is a is a key strategy for them.

Speaker 1

Yeah. Mike, I would just add, you know, just in terms of the the quality of the visits, right, something we pay close attention to, we saw increase in both frequency and utilization for those that are coming into the clinic. So while we continue to see a headwind on the actual pets coming in the door, I think the the quality remains strong in the use of diagnostics, and that's a key part of our strategy going forward.

Speaker 2

The the other thing I would just add add quickly is part of our strategy with, like, IDEXX Cancer, you know, DX and and the initial launch of lymphoma is to include that as part of the screening offering. We know that there's been, you know, a lot of receptivity on the part of customers to think about cancer screening and to include that, you know, as part of their wellness offering. And, you know, within within a month, we've seen thou over a thousand unique practices order the test. So that's something we think, you know, over time can provide a tailwind.

Speaker 5

Okay. That's helpful. And then my follow-up is just gonna be on the interview. You know, you did three zero two in the quarter, but then you talked about, I think, 900 cumulative through the April. So really picked up the pace in April as you removed the gating.

Speaker 5

Just what's been the feedback as you've opened it up to to more broader release? And, you know, you you you're still sticking with the 4,500 for the year, but just sort of how should we think about pacing for that through the rest of the year? Thanks.

Speaker 2

Yeah. So I what what I've guided to is 4,500 plus, but 4,500 is what in our is what in our is what is in the guidance. They were very enthusiastic about about interview because customers are enthusiastic about it. Couple couple pieces of of feedback that I think are important. One is, you know, these are very well understood clinical use cases in terms of ear cytology, blood morphology.

Speaker 2

So you don't have the if you're bringing something that's new to the world or new to how they practice, there's obviously, you know, marker market or or sector development activity connected with that. That's not the case here. Practices, yeah, across the board do these type of tests every every day. So being able to eliminate work, you don't have to do a slide. That's a fifteen to twenty minute exercise that captures the actual charge, invoices, the customer, to being able to provide consistent and accurate results.

Speaker 2

These are all things that customers respond to. And the, you know, the initial feedback we've seen from a utilization standpoint, very much in line with where we thought it was gonna be. You know, it's it's early days. To to your early the earlier point of your your question, we have moved from more of a gated approach to to full volume and ramped up pretty significantly in April. We'll continue to work through backlog at a at a fairly rapid pace.

Speaker 2

We have the capacity both in the field and and product ready, and we know that that's important to get it out into our customers' hands and get the recurring revenue flywheel going.

Speaker 5

Thanks. I'll leave it there, guys. Thank you.

Speaker 4

We will now take the next question from Chris Schott with JPMorgan.

Speaker 6

Hey. Thank you so much. This is actually Katarina on for Chris from JPMorgan. Thank you so much for taking our questions. So first, just on the theme of the macro, can you just maybe talk about the overall health of the pet owner demand in The US at this point?

Speaker 6

And maybe if you're starting to see any changes as you think about the broader economic environment as we potentially head into a recession? And then the second question is just around tariffs. Can you elaborate a bit on your exposure and how you're thinking about potential impact? And there's any ability to kind of mitigate some of that over time? And how you're thinking about potential future retaliatory tariffs after that ninety day pause and what you're most kind of focused on there?

Speaker 6

Thank you so much.

Speaker 1

Good morning. Thanks for the question. So when we think about the macro and the the consumer, just as we were highlighting, you know, we we certainly are seeing some pressure in terms of the clinical visits, and that's, you know, more recently played out. On the wellness side. I think, you know, as we, look, you know, at the consumer, they they, on the margin are making trade offs, you know, in areas of elective, type of procedures or, visits for for wellness.

Speaker 1

And we see that, you know, pressure on our clinical, visit metrics, here overall. So, you know, that's that's been an ongoing constraint. I think we have that well factored in our outlook. We're not expecting any meaningful change, you know, associated with that. Our guidance is a range.

Speaker 1

I think we capture, you know, positive improvement or or a little bit more of a decline associated with, you know, trends within that metric. But, again, I come back to, you know, the the quality of the visits that we continue to see partnering with our, customers at the veterinary clinic level. The diagnostic frequency and the utilization continue to be really important drivers for the business, and that comes back to execution from the teams, our ability to continue to drive new innovations. And I think we're really excited by some of the more recent ones between InBudx and CancerDx, as Jay was highlighting, already seeing the early ramps within those. So I think it's something we're continuing to monitor, but feel like we'd have that captured in our outlook ultimately.

Speaker 1

And, you know, it's not a a major trend change in anything that we're seeing at this point in time. Just thinking about the the tariff component, yeah, I think one of the things we highlighted was, you know, about 65% of our overall revenues are really U. S.-based, and our CAG industrial footprint is largely U. S.-based as well. So we're relatively well positioned from that perspective.

Speaker 1

Jay also highlighted that China represents less than 1% of our overall revenues here. You know, we're we're certainly focused at this point of just making sure that we can supply our customers and really, you know, have some operational plans put in place, leverage our balance sheet where possible to minimize the impacts of of tariffs, including the, you know, post ninety day pause that that you highlighted there. So something we're working through. We're paying close attention to that, but, again, feel like we're well positioned to manage that. Operationally, we're we're sticking with our guide, that we had started with at the beginning of the year.

Speaker 2

Yeah. I would add just a couple of other points. You know, if you think about our reference lab business, so over 80 reference labs on a global basis, yeah, those are essentially local for local type factories within within the countries. And so the tariff impact is, you know, pretty pretty small, maybe related to, you know, some of the reagents or or what have you. But that's largely that's largely manageable, and it gives us the, it gives us good local reach.

Speaker 2

You know, to Andrew's point, what we learned during the pandemic is customers really value product and business continuity. They don't wanna have to worry about, you know, tariffs and what it may mean from a product standpoint. And so we're very focused. Our supply chains are resilient, focused on on really making sure that customers get what they want when they need it. And we have a high degree of confidence that we're well positioned to be able to do that.

Speaker 6

Thank you.

Speaker 4

We will now go to our next question from Erin Wright with Morgan Stanley.

Speaker 7

Great. Thanks. Could you talk a little bit about CancerDx and the pull through that you're seeing, for instance, for those who have used it or familiar with it? And and, like, is it is it every wellness panel is becoming that premium wellness panel, or what's the goal there in terms of that conversion rate? And any sort of metrics you can give on that front.

Speaker 7

I know it's early, but, would love to hear it. Thanks.

Speaker 2

Sure. Good morning, Erin. Yeah. You know, we're we're only a month in, so it is early. We have seen, you know, very I I think we're very pleased with the awareness and initial uptake with over a thousand unique customers ordering it.

Speaker 2

And, you know, many of those customers have ordered, more than one. Too it's it's too early from a trend standpoint to understand the mix between aid and diagnosis versus part of the wellness panel. You know, we think that, there's a role to play in in each of those, and we've positioned both from a product offering and a pricing strategy standpoint, giving customers the option of of doing both. We we've priced it in a way for inclusion in wellness so that it from a performance and and price standpoint, it can support practice strategies of including it more broadly as part of a wellness screen. I think a lot of veterinarians have resonated with that.

Speaker 2

They recognize that, you know, pet owners are looking, you know, for that. And there's a lot of breeds, designer breeds, so to speak, that are at higher risk as, you know, young adults four, five years of of age. So, you know, the initial feedback has been great. I think customers see this as something that they is long overdue and that they're very enthusiastic about it and looking to really include it as as part of their care strategies.

Speaker 7

Okay. Great. And then and then on guidance, I guess, what gives you confidence right now in terms of and it sounds like you do feel like you have some conviction in terms of underlying utilization trends. But, I guess, what gives you confidence in sort of the pickup in CAG recurring for the balance of the year? Like, what's at the high end versus the low end of guidance from a vet office visit standpoint?

Speaker 7

And, yeah, I know you spoke to the the the disconnect with some of the other industry metrics, but just trying to to understand what some of the buffers are in your in your guidance at this point. Thanks.

Speaker 1

Thanks for the question. Good morning, Erin. This is Andrew. So from a guidance standpoint, you know, if if I just come back to, the underlying business in the trends that we're currently seeing, we're really expecting that to stay similar throughout the year. At midpoint, we had highlighted, for the full year that we expected clinical visits to decline similar levels to 2024, which is approximately two percent.

Speaker 1

If you take a step back and think about the last four quarters, it's still within that range. It's just over 2% from a metric standpoint. Yeah, we're not expecting any major change, you know, within the the clinical visit component of this. Really, what this comes down to is the our ability to, you know, continue to ramp innovations. Again, we're really excited by InVueDx and CancerDx, but we also have other menu expansions like our pancreatic lipase test, which, you know, continues to add positive momentum, you know, for our business.

Speaker 1

You know, the the other kind of components that, you know, we'll we'll continue to see play out here is we noted the lapping of some of those large customer agreements. Yeah. I think we have the ability to, both gain a little bit of price, you know, associated with that as well as, when we think about, you know, the ability to expand the relationships there and and capture volumes over time. So, we we have a lot of, you know, really good building blocks that we're putting in place. You know, the guidance is a range.

Speaker 1

Right? So we we we certainly have a a a range of outcomes here that we're expecting. It's a bit wider than we typically may be as well. So I think we're capturing, that piece of it. And then in q one in particular, yeah, I think, you know, we we also just had a day's headwind.

Speaker 1

So when you normalize for that, it's another component that you think about the overall outcome being pretty similar to the trends that we've seen in the second half and what we're expecting for the full year. So overall, I think we're well positioned, certainly a variety of variables that we're considering. And, yeah, I think the range allows us to, you know, stay consistent at the moment.

Speaker 4

And, again, if anyone would like to ask a question, it would be star one on your telephone keypad. Your next question is coming from John Block from Stifel.

Speaker 8

Hey, guys. Good morning. Maybe just the first one on InVue, a small series of questions all wrapped into one. Jay, I think the InVue order number was 16 last quarter. You gave more details around shipments, but is there an updated order number to share as of the end of the first quarter?

Speaker 8

And then regarding F and A timing, I think you said later in '25, but you've been saying later in '25. So anything more granular that you can give? And the final one is, you know, that additional metric in April of, I think, the implied 600 shipments for the month of April. Like, what led to that accelerating rate? Was it a component issue that was rectified?

Speaker 8

Did you get the software in a better play pay place to accelerate the, the shipments? Maybe you can comment there, and then I'll ask my follow-up.

Speaker 2

Yeah. Good morning, John. You know, as as I've described, you know, in the past, when we launch a new instrument, you know, typically, we go through a controlled launch process, and that's an opportunity to put ad volume, you know, like product in the hands of of customers. You always learn things that may involve, you know, some tweaks to an algorithm or, you know, helping to refine the the training and onboarding experience. And we got we went through that process.

Speaker 2

We've we've done it with every instrument. And it tends not to be, yeah, a long process. It can be, you know, couple months, you know, three, four months, something something like that. We got confident that we were delivering the right experience with with InView, and we opened up the gates. And so, you know, April represented, you know, confidence that we're down through the controlled launch period and can deliver the experience we we want to with customers.

Speaker 2

We're now that we're in volume launch, we're no longer disclosing backlogs for, you know, the product itself, and we'll just continue to report like we do for the other products in terms of, what we chip and and put in the hands of of customers. In terms of the cancer DX, we, you know, have said, I think, consistently that the FNA is an important part of the menu, that it's it's targeted later on in in 2025. That's still our plan. We have teams working on it. We know it's an important part of the menu that customers want and an integrated part of the overall company's cancer strategy.

Speaker 8

Okay. So no order number going forward. I the last part of that question, which was, like, what, you know, resolved the bottleneck on the shipments? Any commentary there if that was software or components? Or did you sort of get after that?

Speaker 2

No. I mean, it's just it's just part of as I was describing the controlled launch piece where you want to, you know, you wanna exercise the system. There's always things you learn. There's tweaks you make to the the algorithm from, you know, manufacturing standpoint of the instrument and the consumable and the field organization. Capacity, you know, is in place.

Speaker 2

You know, I can't I Yep. I I can't point to a a single thing and say, you know, that was it. It's more just how we how we run product launches to deliver a very high customer experience.

Speaker 8

Okay. Oh, that was helpful. Thank you. And then maybe I'll ask a similar small series of more annoying questions for Andrew. So, you know, Andrew, just maybe you could just help us out on a couple of things.

Speaker 8

The guidance that you gave or the metrics you gave for 02/2025, is that call it day neutral? I might have missed that. And if so, when we think about it at that acceleration in two h, is that when you get that day or so back from one q? Can you help us out on why the visit data, the sample size is down to 7,500 from 8,500 last quarter? It moves around, but that was a pretty big move.

Speaker 8

Maybe you can give some clarity there. And the last one is I I thought I heard you say FX was a headwind Q on Q. I might have missed that, but maybe if you can just clarify the FX and the impact of the reported revenue for 2Q. Thanks, guys.

Speaker 1

Yes. Good morning, John. So just in terms of days for q two in particular, we didn't highlight anything one way or the other. So, you know, the the any impact that we have from a days perspective in in q two wasn't something we called out and and wouldn't be a material, you know, driver. So to your point, I think we will benefit in the second half related to that compare if you're just looking at a half one to a half two type of metric.

Speaker 1

That is part of, I think, the acceleration that you could think about as part of that second half benefit. When we think about the FX component, again, we're planning for about a 1% headwind for foreign exchange year over year. That's for the full year outlook and Q2 at this point. It aligns with the rates that we published in our in our press release. Certainly, exchange has been relatively volatile, lately.

Speaker 1

So I think it's, you know, it's something we're, you know, again, paying attention to, but we're being transparent about what we have in plan. Just to give you a sense for sensitivities, you know, 1% change in in foreign exchange rates, would be about $11,000,000 on the top line and $4,000,000 of operating profit. So, yeah, we're we'll we'll continue to provide that level of transparency, but, yeah, just to give you a flavor for how we're how we're how we're seeing the planning rates play out here. And then on the visit data, you know, again, to your point, I think it changes, from period to period. I think it's largely in line with what we saw in terms of our q four, numbers as well.

Speaker 1

So it's in that, you know, thousand to 8,000 range in the last, you know, several quarters here, and, you know, we'll we'll pay attention to that. But nothing meaningful to call out there. You know, just tends to be how do we have make sure we have a comparable basis, and it's still a really material portion of the overall sector. So, yeah, I think it's a it's a meaningful number.

Speaker 4

Next question is coming from Brandon Vasquez with William Blair.

Speaker 9

Hi, everyone. Thanks for, taking the question. I'll ask two upfront because they're kind of related here. One is you guys were talking a lot about macros. So just kind of curious how things have trended more so in April.

Speaker 9

I think a lot of us are trying to understand the the consumer tea leaves are a little harder to read these days. So curious how wellness visits especially have been trending more so in April and how you guys are feeling there. And the kind of interconnected question to that is despite kind of the noise around macro, your utilization x price has actually been pretty strong in the past couple of quarters and has remained pretty resilient. So curious if you could talk a little bit about how that utilization is what's driving that utilization growth despite the macro? How durable you think that can be as we go through '25?

Speaker 9

Thank you.

Speaker 1

Yeah. Thanks, Brandon, for the question. I'll I'll start. Maybe just to highlight it. We don't really typically talk about anything, in period here.

Speaker 1

So, yeah, while Jay highlighted the, the ramp that we had on, InVue DX, which I think is really exciting, points to, you know, how we're thinking about that ramp going forward. You know, we're not necessarily gonna get into visit, you know, metrics here, you know, for for April. Yeah. The the guide, again, if you just kinda think about where we're positioning for q two at midpoint, CAG Diagnostic reoccurring revenue would be about six and a quarter, and so that's largely in line on a days adjusted basis with what we saw in q one. And we highlighted that, you know, again, for the q two, at midpoint, we would expect, you know, similar clinical visit levels as as the full year, outlook, which, you know, approximates around 2%, declines, for the full year.

Speaker 1

So, yeah, I think those are those are probably the the most important metrics to be thinking about in terms of how we see this playing out over time. And to your point, I think on the the utilization, you know, component here, that that's really encouraging for us. Again, the the frequency and the utilization are key aspects of our our strategy overall. Yeah. I think we do see a level of, resiliency here.

Speaker 1

That's what we've always said about the business is we're not immune to some of these macro impacts. And certainly, we've seen that play out on clinical visits, but, you know, we we see a a resilient business that people are willing to, you know, continue to to make trade offs, you know, for their their pet's health over time.

Speaker 4

Next question is going is coming from Dan Clark with Leerink Partners.

Speaker 3

Great. Thank you. Just wanted to just stick with the theme of of macro here. Is that a a topic that comes up at all when you're discussing, you know, potential in new sales with your customers? Or, like, what are they focusing on in addition to being probably enthusiastic about the the new box?

Speaker 3

Thank you.

Speaker 2

Yeah. Hi, Dan. This is Jay. The you know, customers, I what we see pretty much across the board have a, you know, pretty significant appetite for new technology provided it hits a sweet spot in terms of delivering a good clinical impact, but also workflow optimization. So we see practices, whether it's an independent, you know, practice or the corporate groups, really willing to lean in to technology investment.

Speaker 2

We've seen this on the software side. We're seeing it on the, you know, the capital side. They are, you know, I think discerning consumers, so to speak. They they wanna know that it's not adding work or taking work away, you know, from from their practices because though I think staffing has largely stabilized. What they don't wanna do is put themselves in a position where they will need more staff.

Speaker 2

They also wanna know that that the technology can be applied to help them deliver more consistent and accurate care. So whether it's CancerDx or InView or pancreatic lipase are the type of things that we're offering. Lot of I think a lot of enthusiasm for those type of solutions, and we've seen that in the numbers.

Speaker 4

Your next question is coming from David Westenberg with Piper Sandler.

Speaker 3

Hi. Thanks for taking the question. So I wanted to hit on the pet adoption trends. Are you seeing at least the the data, I I think, is suggesting there might be a little bit more cats than than dogs in the pet adoption trend. Can you talk about how that kinda changes the utilization dynamics?

Speaker 3

And if there's any innovation or drive or or kind of, like, conversations with customers in terms of of how to get these the utilization of of of cats up.

Speaker 2

Yeah. Good morning, David. We, you know, we we were very, I think, pleased with the the overall trend being being flat. It had come off, as you recall, you know, through the pandemic and and after the pandemic, really, from a a very significant adoption high. And as I mentioned in in my remarks, it's it's approximately a 3% CAGR going back to to 2019.

Speaker 2

You know, historically, that's a three x that's a three x figure. There is there's some mix in the in the cats, not not surprisingly. You know, I think there's increasingly interest in in being able to provide excellent care to cats in addition to to dogs. So, you know, we expect over over time to to, you know, see higher standards of care being able to provide. A lot of our solutions, like SCMA, for example, are are tailor made towards cats because there's a higher incidence of chronic kidney disease in cats.

Speaker 2

So we have a really nice portfolio. Our triple from rapid assay standpoint is the gold standard in in being able to support cat health and something that we continue to, you know, look at and really understand how better to support cat health.

Speaker 3

Thanks. And just another one on macro, you guys specifically, I think you did mention the 10% growth in EBI. So I'm guessing maybe this leans towards three sixty, but I was just thinking about the dynamics and kind of the uncertain environment, whether or not they are gravitate towards three sixty or a capital purchase. Just you know, the only I mean, consideration of maybe three sixty is is, you know, in an uncertain environment, you also wanna have the the the minimum commitment. So just any color there on on how to think about the the purchase decisions that that the customers are making today?

Speaker 3

Thank you. And that's my last one.

Speaker 2

Yeah. The I IDEXX three sixty has always been, you know, our our primary or the or the majority of placements occur through IDEXX three sixty as a program. So there's a lot of, I think, customer receptivity to it. What we said is we said the, yeah, the EBI placement was was double digits on a global basis. So, obviously, the the quality of placements across our premium, instrument portfolio was was very high, which is what we shoot for.

Speaker 2

It it really driven by competitive and greenfield catalysts of, both in The US and international. So we pay a lot of attention to to quality of placements. We continue to make great great traction, and and we'll we'll provide updates, you know, throughout the year on that.

Speaker 4

And your last question will be coming from Niven Thai with BNP Paribas.

Speaker 10

Hi. Good morning. Do you remain confident on the four, four and a half percent net price given the vet visit environment? And I have a question on IMVU as well. Is your confidence still based on the existing menu, or would you say the SMA expansion will materially help to reach the the 4,500 target?

Speaker 10

Thank you.

Speaker 1

Good morning, Nivan. Maybe I'll just start with your first question. So as part of our 2025 outlook, we have set at midpoint that pricing is 4% to 4.5%. In q one, we highlighted that we delivered 4% from a global net price realization perspective. So I think, you know, we're we're so confident with our overall focus on on pricing at this point.

Speaker 1

Maybe I'll hand the the call to to Jay to talk to your next question, however.

Speaker 2

Yeah. You know, the the menu on IMVU is, you know, ear cytology, blood morphology, and then we set later on in the year, FNA for for lumps and bumps. And, you know, customers who have purchased at at this point are are have purchased based on the ear cytology and blood morphology, And they recognize that we have a technology for life orientation. I think there's a lot of confidence that we'll continue to expand, you know, the the menu. But our guidance and our outlook is based on, you know, what what we've delivered in the hands of of customers today.

Speaker 2

And then, obviously, you know, as additional menu, you know, comes out, they'll be able to use that. And and we provided, I think, back at investor Day some guidance in terms of the overall value of that consumable stream between 3,500 and 5,500, which, dollars annually, which includes f and a as part of that model. Okay.

Speaker 7

Thank

Speaker 6

that's helpful.

Speaker 2

So I'll now conclude our prepared remarks by thanking the 11,000 IDEXX employees for your ongoing commitment and incredible passion for our purpose driven work. Once again, my pleasure to share how IDEXX executed against our organic growth strategy while delivering strong financial results in the first quarter. So with that, we'll conclude the call. Thank you.

Speaker 4

This concludes today's call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
IDEXX Laboratories Q1 2025
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