IDEXX Laboratories, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• IDEXX delivered strong financial results with continued global execution in the companion animal business. Innovation agenda is advancing.
• Revenue increased 11% as reported and 9% organically, supported by CAG Diagnostic Recurring Revenues and CAG instrument revenues.
• Operating performance was strong in Q2, with operating profit growth of 14% on a comparable basis. Earnings per share was $3.63, with 17% growth on a comparable basis.
• Execution remains strong while working through pressure on clinical visit levels. Commercial teams delivered record premium instrument placements globally and drove growth in recurring revenues.

Segment Performance:

• Companion animal business: Revenue increased 11% as reported and 9% organically. CAG Diagnostic Recurring Revenues had nearly 7.5% organic growth, with U.S. and international regions contributing. CAG instrument revenues provided approximately 200 basis points organic growth benefit, with a record quarter of premium instrument placements including nearly 2,400 IDEXX inVue DX instruments. However, CAG Diagnostic Recurring Revenue growth in Q2 was constrained by macro and sector headwinds, leading to a 2.5% decline in U.S. same-store clinical visit growth levels.
• Water business: Organic revenue growth of 8% in Q2, driven by double-digit revenue expansion in international regions and solid mid-single-digit growth in the U.S.
• Livestock, Poultry and Dairy (LPD): Organic revenue growth of 3% in the quarter, led by commercial execution in North America and Asia Pacific.
• Veterinary software and Diagnostic imaging: Organic revenues increased 9%, driven by recurring revenues, with benefits from ongoing momentum in cloud-based software installations.

Guidance:

• Increased full year revenue outlook by $90 million at midpoint, with updated range of $4,205 million to $4,280 million, representing reported revenue growth of 7.7% to 9.7%.
• Updated overall organic revenue growth outlook is 7% to 9%, with organic CAG Diagnostic recurring revenue growth of 5.8% to 8%.
• Increased expectations for inVue Dx to 5,500 placements during the year, with instrument revenue expected to be over $60 million.
• Updated EPS outlook is $12.40 to $12.76 per share, an increase of $0.40 per share at midpoint.

Risks:

• Macro and sector headwinds constrained CAG Diagnostic Recurring Revenue growth and led to a decline in U.S. same-store clinical visit growth levels.
• Dynamic trade environment could pose challenges, though the company remains well positioned to navigate it through operational planning.

Q: Could you elaborate more on the inVue uptake, including what type of practices are seeing the greatest traction and gating of placements through the rest of the year?

A: Good morning, Chris. From just a high-level standpoint, the feedback we're getting from customers on inVue is excellent. It helps with workflow, and there's been a lot of demand. We updated the 5,500 placement forecast. The placement is a combination of suites for customers who don't have certain solutions and existing IDEXX customers.

Q: Can you talk a little bit about the contracts that coincide with the placements in terms of consumables agreements and the consumables flow-through, and how much inVue was a contributor to consumables revenue growth?

A: The inVue Dx has paper run and auto replenishment capability. We don't break out the consumables usage between inVue and other tests. For placements, independent practices move more quickly than corporate practices. Consumables usage is positive and in line with expectations.

Q: What's reflected in terms of that office visit trends now? What gets you to the high end, low end of the range? And how should we be thinking about the quarterly cadence here?

A: We have updated clinical visits more in line with recent trends. The midpoint reflects approximately a 2.5% range. There's not a material step-up in CAG Diagnostic recurring revenue captured in our outlook, and we'll continue to benefit from innovation momentum.

Q: Any color on how things trended throughout the second quarter and on the ongoing CAG Dx recurring divergence between international and U.S.?

A: Nothing specific to call out on trends within the quarter. On CAG Diagnostic recurring, international growth is strong but also dealing with macro and sector headwinds. In the U.S., we've seen improvement, and innovation ramping supports testing.

Q: Can you go a little bit more in depth about some of the investments you're making in the sales force, and about the investments in international markets and how competition is reacting to inVue and cancer diagnostics?

A: In international markets, we're increasing commercial density. In the U.S., we're selectively supporting our portfolio. The competitive landscape is very competitive, and we focus on growing our portfolio to retain customers.

Q: One more inVue. I'm curious whether the sales force has communicated to customers in future that the FNA expansion was imminent, and about revenue contribution for the first full quarter of cancer diagnostics, and how competition is reacting to inVue and cancer diagnostics?

A: We have broadly communicated to customers that our menu will grow over time with FNA for lumps and bumps coming later this year. We don't break out revenue for the first full quarter of cancer diagnostics. The competitive landscape remains competitive, and we continue to earn customers' loyalty by growing our portfolio.