IDEXX LABORATORIES INC /DE Q3 FY2024 earnings call

• IDEXX delivered solid organic revenue growth and strong comparable profit gains in Q3. Overall revenues increased 6% organically, supported by 7% organic growth in CAG diagnostic recurring revenues and 13% organic growth in water. - CAG diagnostic recurring revenue growth in Q3 was constrained by near-term US macro and sector headwinds. - Solid gross margin gains, with gross profit increasing 9% in the quarter. Operating expenses increased, but operating margins improved. - Innovation initiatives: Nearly 700 orders for the new In View Analyzer, Catalyst Pancreatic Lipase Lights launched, SmartQC and cancer diagnostic panel developments, and strong recurring revenue growth in software solutions. - Support for customers impacted by recent severe weather events.

Third quarter organic revenue growth was 6%, driven by 6% organic revenue gains in CAG business and 13% organic growth in water, partially offset by 2% organic declines in LPD. CAG organic revenue growth was supported by 6% organic gains in veterinary software services and diagnostic imaging revenues (with 11% organic growth in recurring revenues) and 7% organic growth in CAG diagnostic recurring revenue. CAG instrument revenue decreased 9% organically. Water revenues increased 13% organically. Livestock, poultry and dairy revenues decreased 2% organically. VetLab consumable revenues increased 11% organically. Global rapid assay revenues expanded 6% organically. Global lab revenues increased 2% organically net of a modest equivalent days headwind. Veterinary software services and diagnostic imaging revenues increased 11% as reported, with 11% organic growth in recurring revenues.

• Updated full year organic revenue growth outlook to 5.3%-6% and CAG Diagnostic recurring revenue growth to 5.8%-6.4%. - Reported revenues revised to $3.865 billion to $3.890 billion. - Operating margin outlook 28.7%-29%, EPS outlook $10.37 to $10.53 per share. - Incorporates impacts from litigation expense, foreign exchange, and recent severe weather events.

• Near-term US macro and sector headwinds constraining CAG diagnostic recurring revenue growth. - Impacts from recent severe weather events on results. - Litigation expense accrual reducing full year reported operating margins by approximately 160 basis points.

Q: Can you elaborate on the drivers of the reduction in the outlook and the step down in 4Q, including split between weather and underlying US macro?

A: Brian McKeon stated it incorporates Q3 results, with softer results in areas like LPD, instrument revenue effects, and calibration on CAG diagnostic recurring. Jay Mazelsky addressed clinical visit piece, attributing to near-term macro and sector pressures but expecting normalization over time.

Q: Reference lab number was weak in the quarter, with comments on price impact from major customer agreements. Can you expand?

A: Brian McKeon said reference lab had 2.4% organic growth with day's headwind, and Jay Mazelsky noted price realization impacted by major new customer extensions/expansions with long-term growth benefits.

Q: Thoughts on price as a lever going forward, especially with innovation and vet visits normalizing?

A: Brian McKeon said they're positioned to communicate pricing, with new innovation as a positive driver. Jay Mazelsky emphasized maintaining value through innovation and price reflecting added value.

Q: Step down in 2024 guidance for total organic revenue vs CAG ex-recurring. Thoughts on drivers?

A: Brian McKeon mentioned it includes Q3 results, softer LPD, instrument revenue effects, and software trends. Jay Mazelsky talked about corporate renewals and in View launch approach.

Q: How industry innovation in affordability, like payment plans, helps mitigate lower visits? Thoughts on wellness vs non-wellness visits?

A: Jay Mazelsky said instruments are placed through programs with built-in financing. Brian McKeon discussed pain medication visit effect, with wellness visits down ~4% and non-wellness down ~3% adjusted for pain meds.

Q: Update on cancer diagnostics timeline, magnitude, and price?

A: Jay Mazelsky said targeting 2025 launch for lymphoma detection, with feedback from KOLs and oncologists positive, and price to be determined later.

Q: Reference lab performance, competitive landscape, and strategy?

A: Jay Mazelsky said no change in competitive dynamic, with net new business gains and high retention, and corporate contract extensions/expansions differentiating the business.

Q: Levers to offset weaker vet visit growth in terms of frequency and utilization? Thoughts on pain drug visits impact?

A: Brian McKeon clarified pain medication visits don't drive diagnostics, and Jay Mazelsky talked about innovation and commercial model influencing frequency and utilization. Brian McKeon highlighted bloodwork inclusion metric sustaining post-pandemic.

Q: Reference lab vs consumables gap, potential utilization acceleration?

A: Jay Mazelsky said no modality shift, and Brian McKeon discussed bloodwork inclusion metric as central to long-term growth strategy