Jay Mazelsky
President and Chief Executive Officer at IDEXX Laboratories
Thank you, Brian, and good morning. IDEXX delivered another quarter of solid growth, supported by excellent execution by our global IDEXX teams. Demand for pet health care remains high, building on the step function and sector growth of pets and patient visits during the pandemic. IDEXX is a diagnostics and software partner of choice of veterinary clinicians. This was reflected in record second quarter premium instrument placements, continued high growth in cloud-based PIMS placements in a sustained IDEXX CAG Diagnostics recurring revenue growth premium to clinical visit growth. Our products support veterinarians by creating an integrated clinic-wide solution that helps them expand capacity and grow their businesses while providing diagnostic insights to support high levels of pet health care. The solid results that IDEXX delivered in the quarter despite some headwinds from near-term clinical visit growth and international macro factors reinforce our confidence in the durability and long-term growth potential of our business aligned with increasing care standards for companion animals. Today, I'll discuss our performance and progress in the context of current sector turns in advancing key innovation and commercial initiatives, that position us for continued solid growth and financial performance. Let me start by providing some updated context on trends in the companion animal sector.
CAG sector trends continue to reflect strong global demand for veterinary services. building on a significant step-up in the number of pets and patient visits observed during the pandemic. U.S. diagnostics revenue per practice grew 6% during the second quarter against a very strong prior year base, as veterinarians use diagnostics to deliver best care standards while benefiting from profitable clinical services growth. IDEXX grew U.S. CAG Diagnostics recurring revenue nearly 8%, two points faster, validating the value we bring with differentiated solutions and an excellent customer experience. Specifically, diagnostics remains one of the faster-growing areas of the veterinary clinic continuing to outpace both total practice revenue growth and clinical revenue growth on a same-store basis. U.S. diagnostics revenue growth per practice of 6% in the quarter, as noted was once again driven by positive contribution from both diagnostics frequency and utilization. Diagnostics frequency and the utilization gains were both above pre-pandemic trends even at a much higher base. As highlighted in the earnings snapshot, critical use of diagnostics per visit expanded by revenue nearly 9% in the quarter, offsetting headwinds from lower clinical visits. We continue to make progress on initiatives that drive future diagnostics recurring revenue. We saw increased adoption of our U.S. preventive care program where we provide a turnkey diagnostic solution to wellness care, with approximately 225 new enrollments, the largest quarter of enrollment since late 2020.
We're also seeing continued momentum across global regions related to the adoption of IDEXX platforms, reflected in 25% growth in international premium instrument placements, including the successful expansion of our ProCyte One platform. These strong areas of progress have been moderated by year-on-year pressure on clinical visit trends. This reflects a combination of impacts from pullback and capacity levels following a period of significant demand expansion, including the step-up in visits related to the 10% expansion of the pet population during the pandemic. In the U.S., for example, clinics were open around 50% of weekend days in Q2 compared to an average of almost 60% pre-pandemic. We're also seeing some impacts from macroeconomic pressures, particularly in Europe. We think it's prudent to plan on continued year-on-year growth impacts on these fronts in the second half of 2022. Recent research we performed in the U.S. and Germany shows that a majority of veterinarians indicate staff capacity is a major or moderate issue, while also indicating they see continued higher demand for appointments. As Brian indicated, we are well positioned with clinics and working through these dynamics over time to address what is likely underserved demand for pet health care in a significantly expanded global pet population. As we work through these near-term headwinds, we're targeting solid organic growth overall in the second half, building momentum that will keep us on track towards our long-term growth goals. Let's now discuss our ongoing progress in key areas of our growth strategy.
A key factor in enabling IDEXX to drive strong utilization of diagnostics within the sector, IDEXX's decade-long focus on building and supporting a world-class commercial team to execute our high-touch model. These capabilities, along with significant new product introductions over the last several years, help our customers grow faster and continue to support strong commercial results. This is reflected in record instrument and software placements, strong EVI gains, sustained solid net new business gains in very high customer retention levels. These results demonstrate the market development benefits, occurring commercial capabilities with highly relevant innovative products. Our sales professionals have shown an ability to maintain and leverage their deep relationships with customers to support these performance levels. Despite challenges related to staff capacity, U.S. account manager in-person visits are now over 70% approaching desired end state goals. International access was also excellent at close to 70%, where international growth is a strategic priority, and we're applying the successful U.S. playbook to drive strong placements and new business gains. The second quarter represented continued progress against the strategy with solid year-over-year growth in customer adoption across modalities in Europe. Meanwhile, onboarding and integration of the six country-level commercial expansions have been completed and have gone extremely well. We look forward to ongoing future benefits from these expansions as we work through macro-driven headwinds in regions like Europe, which are constraining near-term organic gains.
The international opportunity to drive diagnostics utilization is tremendous, and largely underpenetrated as shared in last year's Investor Day. Our advancing global commercial capability and product innovations that fit the requirements of these regions are positioning us to realize significant opportunities over long horizons. Putting the right products and enhance of our capable sales professionals drives continued growth in instrument placements with the resulting highly profitable future consumable streams. Customers on a global basis have never been hungrier for technology that supports care, workflow optimization, excellent clinical performance and friction for use. A key piece of our in-house analyzer portfolio is ProCyte One, the innovative, customer-friendly hematology analyzer, which launched last year and has already surpassed an installed base of over 5,000 units. Reception and adoption of ProCyte One has been exceptional, particularly in international regions where many veterinarians were trained to run hematology diagnostics first when doing a basic workup on a patient. We had excellent growth in ProCyte One placements across regions for the second quarter and continued high levels of customer satisfaction and retention, supporting the expansion of our global premium hematology installed base aligned to the approximately 4,000 placements annually as shared in last year's Investor Day. This progress is integral in addressing the estimated opportunity for 200,000 worldwide premium instrument placements. In addition to these targeted investments in enhanced commercial capabilities, technology and product innovation is another key pillar of IDEXX's growth strategy as we endeavor to add value to our product and service offerings.
In Q2, we announced three upcoming laboratory tests and service launches. We have a shared mission with our customers to deliver a higher standard of pet health care. And these new products and services support that care delivery to timely and highly accurate diagnostic insights. These innovations also enable our customers to do so in an efficient way by using the IDEXX reference lab as an extension of the veterinarian clinic, which is a key benefit given the current capacity constraints within our sector. These innovations include: number one, expanding fecal Dx antigen testing to include the detection of flea tapeworm, the most common type of tapeworm to infect dogs and cats. With this addition, IDEXX's fecal Dx antigen test detects up to five times more common and prevalent parasites than fecal flotation alone and provides customers with earlier diagnostic insights. This will drive even greater progress towards the goal we shared at Investor Day in 2018 of an incremental $120 million in fecal antigen revenues by 2023; number two, the addition of FGF23, a kidney disease management biomarker that will provide clinicians, along with the use of SDMA, not only earlier diagnostic signs of chronic kidney disease but will deliver more confident recommendations for targeted therapy during earlier stages of chronic kidney disease; and number three, a new service of PCR direct testing, which provides U.S. reference lab customers with crucial, timely access to next APCR results, enabled by a new PCR laboratory at our Louisville reference site.
The addition of these tests and services support our customers in delivering improved pet health care in ways in which an IDEXX partnership adds long-term increasing value for our customers. In addition to the development of highly relevant, accurately testing products, IDEXX's innovation focus is also on our broad portfolio of software services, including multiple cloud-native PIMs and a variety of tools to manage clinic workflow like Vet Radar, VetConnect PLUS, payment processing solutions and Web PACS. When combined, these products could create a powerful connected ecosystem within the veterinary clinic, which not only improves access to and communication of diagnostic insights but also provides efficiency benefits around the clinic and at each step of the patient visit process. The rapid uptake of IDEXX cloud-based solutions is a reflection of this. Customers understand that modern software tools reduce manual work and increased capacity for clinic staff to focus on higher order patient center tasks. This higher standard of care is further supported by clinical decision support on VetConnect PLUS, which leverages machine learning to offer suggested next steps aligned with care protocols. A great example of this is our enhanced 4Dx Plus introduction, where we not only improved upon our gold standard in a plasma assay, but added a vector-borne disease clinical decision support module and made significant enhancements to workflow by doubling product shelf life and room temperature storage.
We are also seeing incremental follow-up tests for customers engaging with clinical decision support, and we'll share with you at the upcoming Investor Day promising early results. Customers clearly appreciate these benefits as we saw another quarter of record PIMS global placements, supported by continued strong demand for cloud-based offerings. ezyVet in particular, continues to experience strong growth since joining the IDEXX software family, the second quarter placements consistent with the prior quarter and 28% higher than the previous year. These cloud-based solutions enable customers to shift their focus for maintaining on-premise hardware to providing excellent patient care while also benefiting IDEXX through growth of a highly profitable recurring revenue stream in the future. We continue to be very pleased with the advancement of our long-term strategy to integrate diagnostics and software that help IDEXX customers grow faster. Underpinning our growing commercial and technology capabilities is a commitment to providing world-class level of service to our customers, which is integral to earning our customers' business every day, especially given the high levels of demand within the sector. Strong execution against this commitment takes many forms, from consistently high product availability rates to reliable turnaround times at our reference labs. The high service level IDEXX delivered in the second quarter, including greater than 99% product availability demonstrates the benefit of our long-term focus on building supply chain capabilities and highly-scaled manufacturing centers.
Our recently communicated U.S. midyear price increase reflects higher cost to run the business, including investments in our supply chain to ensure excellent levels of product continuity and future network resiliency. Given this, IDEXX is well positioned to manage through supply chain and inflationary dynamics while building on our strong long-term financial performance. This concludes our review. IDEXX's execution levels remain strong and aligned towards our significant and enduring long-term growth potential. We're well positioned to deliver solid growth and financial results as we advance our mission to create a better future for animals, people in our planet. I'm thankful there are more than 10,000 colleagues for their ongoing dedication to our efforts. They are integral in delivering strong financial performance for the company and creating long-term value, while also supporting the advancement of animal care globally. To those listening in on the call, I'd like to extend the heartfelt thanks in making a meaningful difference in the world. Before we open the line for Q&A, I'd like to remind you that my senior management team and I will provide more information on the IDEXX strategy and long-term potential at our upcoming Investor Day.
After two years of holding the event virtually, we look forward to hosting the event at our global headquarters in Westbrook, Maine on Thursday, August 11, from 8:00 to noon. We're also live streaming and recording the event via idexx.com for those who cannot make it in person. Participating will be members of my senior management team, including Dr. Tina Hunt, Executive Vice President and GM for Point of Care Diagnostics and Worldwide Operations; Julie Godon, Vice President and GM for Global Rapid Assay; Mike Lane, Executive Vice President and GM for Reference Laboratories and Information Technology; Michael Schreck, Senior Vice President and GM of Veterinary Software and Services; Jim Polewaczyk, Executive Vice President and Chief Commercial Officer; and Brian McKeon, Executive Vice President and CFO. We're also excited to host a live customer conversation led by George Fennell, Senior Vice President and GM of the Americas CAG customer-facing organization, to discuss recent trends at the clinic level and how IDEXX has supported their business during these dynamic times. The event will last approximately four hours and we'll conclude with a Q&A session and an investor lunch with the extended management team.
So with that, we'll end the prepared section of the call and open the line for Q&A.