Q3 2019 Earnings Call
Good morning, and welcome to the IDEXX Laboratories third quarter 2019 earnings Conference call. As a reminder, today's conference is being recorded.
Just a bidding in the call. This morning, R.J., Mazelsky, President and Chief Executive Officer, Brian Mckeon, Chief Financial Officer, and John Rayva Senior Director Investor Relations I'd actually 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 additional information regarding these risks and uncertainties is available under the forward looking statements notice in our press release issued this morning as wells in our periodic filings with the Securities and Exchange Commission, which can be obtained from the FCC or by visiting the Investor Relations.
Section of our website I'd extra calm.
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 filed by the thing the Investor Relations section of our website.
In reviewing our third quarter 2019 resolves. Please note all references to growth organic growth constant currency growth and comparable constant currency growth refer to growth compared to the equivalent period in 2018, unless otherwise noted to allow broad participation in the queue in a we ask that each participant limit his or her questions to one with one follow.
Up as necessary. We appreciate you may have additional questions. So please feel free to get back into queue and if time permits will take your additional questions I would now like to turn the call over to Brian Mccann.
Good morning, everyone and thanks for joining us in our third quarter earnings call today, I'll take you through our quarterly results and our updated outlook for the full year 2019.
I'll also provide an overview of our preliminary guidance for 2020, Jay will follow with his comments.
Our next delivered continued strong revenue and profit gains in Q3 in terms of highlights revenues of 605 million grew 11% as reported and 12% organically, including over 1% of growth rate benefit from equivalent days.
CAG diagnostic recurring revenues increased 14% organically, including nearly 2% of equivalent a day growth rate benefit, reflecting double digit gains across U.S. and international markets.
Yes, it was $1.24 per share increased 21% on a comparable constant currency basis that is benefiting from better than expected organic revenue growth, which supported a 130 basis point improvement in constant currency operating margins.
Excellent operating results are keeping us on track towards strong for your financial performance.
In terms of our two 2019 revenue outlook, we're refining or for your guidance to 2 million 302.395 billion to 2.405 billion, a 5 million dollar increase that midpoint, incorporating our strong Q3 performance.
This reflects an updated full year organic growth outlook or 10% to 10.5% overall and 11.5% to 12% for CAG diagnostic recurring revenues both at the higher end of our previous guidance range.
We're adjusting our 29 <unk>, yes guidance to $4, a 72 cents to $4.78 or 15% to 16% growth on a comparable constant currency basis.
This is 12 cents per share lower than our prior guidance midpoint, incorporating 18 cents per share in projected Q4 charges related to our recently announced CEO transition.
Adjusting for this impact our outlook is six cents per share higher at midpoint, incorporating benefits reversed strong third quarter operating performance and lower projections for full year net interest interest costs.
In terms of our preliminary 2020 outlook, we're projecting revenue of 2.610 billion to 2.650 billion, reflecting organic revenue growth of 9% to 10.5% supported by sustained high growth and CAG diagnostic recurring revenues.
Our 2020, <unk> outlook is $5.30 to $5.46 per share or comparable constant currency EPS growth of 17% to 20%.
As will discuss our 2020 EPS outlook incorporates 11 cents per share in projected headwinds from year over year, FX impacts and expectations for approximately 12 cents per share and reduced tax benefits from share based compensation activity.
Let's begin with a review of our Q3 revenue growth performance by segment.
Excellent third quarter revenue growth results were driven by continued strong momentum in our companion animal group.
Global CAG revenues increased 13% organically, reflecting 14% organic gains in CAG diagnostic recurring revenues, including nearly 2% in growth benefit from equivalent days in the quarter.
By region, U.S. CAG diagnostic recurring revenues increased 13% organically, including nearly 2% of growth rate benefit from equivalent days, reflecting continued strong gains in consumables and reference labs.
US CAG recurring diagnostic growth remains primarily volume driven with net price gains continuing to trend in the 2% to 3% range.
We also maintained consistent exceptionally high levels of customer retention across modalities.
IDEXX U.S. CAG diagnostic recurring revenue growth continues to outpace broader market trends, which improved in the quarter <unk>.
In Q3 total visits per practice growth was 1.4% year on year with clinical visits for practice growing at 2.7% and overall revenue per practice, increasing 5.3%, reflecting continued solid growth trends in the U.S. companion animal health care market.
International CAG diagnostic recurring revenue increased 16% organically in Q3, including approximately 1.5% of equivalent to grow kind of it.
International consumable revenue gains normalized for approximately 2.5% of benefits from equivalent days sustained at approximately 20% and international organic revenue reference lab growth improved to high single digit raise.
Globally reference lab and consulting service revenues grew 12% organically in Q3.
Supported by consistent low to mid teen volume driven gains in the U.S.
Robust U.S. lab growth continues to be driven by strong same store sales growth that IDEXX customers augment it by net customer acquisition benefits and moderate net price gains.
As Jay will discuss in October we closed on the acquisition of Marshfield laboratories, a national service provider based in Wisconsin, adding to our U.S. Martha capabilities.
Global consumable revenues increased 18% organically in Q3, including nearly 3% of equivalent a day growth benefits.
These results reflected strong growth across us in international markets, driven by increases in diagnostic test utilization and expansion of our installed instrument base.
We had an outstanding quarter in terms of high quality instrument placements supporting double digit year on year growth in our economic value index or give me a.
Overall premium instrument placements increased 14% year on year, driven by 18% year on year growth in catalyst placements, which supported an 18% year on year increase in our global catalyst installed base.
Globally, we placed 1898 catalyst in the quarter with 360 at new and competitive accounts in North America, and 910, new and competitive placements in international markets.
We also achieved 965 premium hematology placements globally of 18% and 589 Sedivue placements in line with strong prior levels.
Please note that we've expanded the data shared in our quarterly earnings snapshot avail water on our Investor Relations website to include premium instrument placements by category in region as well as quarterly checked tracking of our global premium installed base.
Rapid assay revenues grew 10% organically in Q3, including nearly 3% of equivalent day growth benefits, reflecting continued expansion of 40 X plus specialties snap fee line in first generation products.
Growth in high customer retention in our rapid assay business continues to benefit from expansion of our engage snap pro installed base.
Supported by an additional 2683 snap pro placements globally in Q3, bringing our global installed base to over 34000.
Veterinary software services and diagnostic imaging systems revenues increased 6% organically in Q3, driven by continued strong gains in VSS recurring service revenues.
Overall segment revenue gains were constrained in Q3 by comparisons to very strong prior your digital system placement levels.
In terms of our other business segment for performance in the quarter water business revenues grew 7% organically supported by continued solid growth across us in international markets.
Livestock poultry and dairy revenue increased nearly 10% organically.
Third quarter results were driven by strong year on year gains in Asia Pacific markets, which benefited from a favorable prior year comparison.
The prolonged outbreak of African swine fever continues to negatively impact the swine population in China, However, demand for new diagnostic testing programs and increased diagnostic testing for alternative poultry fruit sources offset lower recurring swine testing volume levels in Q3.
Hello, third screening levels, while down from strong priory levels were also relatively higher than expected in the quarter.
Turning to the piano operating profit in Q3 increased 19% as reported and on a constant currency basis, driven by solid profit gains across our CAG water and LPD segments.
Operating margins increased 130 basis points on a constant currency basis, reflecting solid gross profit gross margin gains and operating expense leverage on high revenue growth.
Gross profit increased 13% as reported or 14% on a constant currency basis in Q3.
Gross margins increased 60 basis points on a constant currency basis supported by mix benefits from strong consumable revenue growth lab productivity gains and moderate net price increases.
Foreign exchange hedge gains, which are reflected in gross profit were approximately $3 million in Q3, and approximately $7 million year to date.
Operating expenses in Q3 increased 9% as reported and 10% on a constant currency basis, resulting in 70 basis points of constant currency operating margin leverage.
Operating expense increases were driven by growth in R&D investment are in R&D spending and increased costs related to our expanded global CAG commercial capability.
EPS in Q3 was $1.24 per share, including benefits of 4 million or five cents per share related to share based compensation activity, which was approximately three cents per share higher than projected.
On a comparable constant currency basis, EPS increased 21%.
Foreign exchange net are favorable year on year hedge impacts had an immaterial impact on operating profit and EPS in the quarter.
Year to date free cash flow through the third quarter was 195 million. We continue to expect free cash flow of 60% to 65% of net income for 2019.
This reflects a consistent outlook for full year capital spending of 160 to 175 million, including approximately 70 million 70 million of combine incremental spending related to our west for of main headquarter expansion and our German core lab relocation.
Our strong cash flow generation supported the allocation of 91 million and capital towards the repurchase of 330000 shares in the quarter.
We maintain a strong balance sheet with leverage ratios as a multiple of adjusted EBITDA of 1.39 times gross and 1.24 times net of cash at the end of the quarter.
We continue to maintain a 2019 for your outlook for reduction in average shares outstanding from stock repurchases of approximately 1%, which assumes that we maintain net leverage at similar multiples of EBITDA.
We now project annual net interest expense of 31.5 million and improvement of 2.5 million compared to our previous guidance.
In terms of our updated piano our outlook for 2019 as noted we're refining our full year reported revenue guidance to 2.395 billion to 2.405 billion.
Reflecting an organic out growth outlook of 10% to 10.5% and CAG recurring diagnostic organic revenue growth of 11.5% to 12% both at the higher end of our prior guidance range.
At midpoint. This reflects a $5 million reported revenue increase factoring in our strong third quarter performance.
In this updated outlook modest projected benefits from our recently completed US lab acquisition are offset by refine projections for FX impacts.
For the full year, we now expect to 2% headwind from FX on revenue growth.
In terms of Vps, we're lowering our 2019 full year guidance by 12 cents per share at midpoint to for 72 to 478 per share incorporating 18 cents of impact related to the CEO transition.
This results in comparable constant currency growth of 15% to 16% for 2019, including approximately 4% of growth impact related to projected Q4 transition charges.
Costs related to the separation agreement will lower lower full year 2019 operating profit by an estimated at $13.4 million and year on year operating margin improvement by approximately 55 basis points.
Incorporating this impact or upper updated outlook is for 55 to 70 basis points in full year constant currency operating margin improvement or 110 to 125 basis points improvement, excluding that Q4 transition charge impact, which is consistent with the higher end of our prior guidance range.
Our full year operating margin outlook includes expectations for higher levels of year on year operating expense growth in Q4, including effects from the advancement of an additional expansion of our us commercial field resources, which Jay will discuss in his comments.
Strong for your operating margin performance, excluding transition charge impacts and benefits from lower projected interest costs yield approximately six cents per share and for your operational EPS benefit compared to two previous guidance.
Our updated EPS guidance assumes a 2019 effective tax rate of approximately 20%, including including approximately 1% of impact related to CEO transition costs.
This tax rate also includes an updated estimate of $15 million or approximately 3% in full year projected tax rate benefit from exercise of share based compensation.
Netting approximately two cents of upside compared to previous guidance.
At the midpoint of our guidance estimates this equates to about 17% per share in full year share based compensation tax benefit.
Operational share based compensation tax benefit upsize, our mitigated by two cents per share of negative impact related to the strengthening of the U.S. dollar since our last conference call.
Our 2019 EPS guidance now assumes six cents a negative four year impact related effects charges net of hedge impacts and for the full year 2019 were projecting hedge gains of 11.5 million.
As we look at a 2020 were targeting continued strong revenue and profit growth consistent with our long term goals.
Our preliminary revenue outlook is 2.610 billion to 2.650 billion, reflecting expectations for 9% to 10.5% organic revenue gains supported by sustained high growth in CAG diagnostic recurring revenues.
Our guidance reflects extract expectations for overall reported revenue growth of 9% to 10.5% with an estimated 0.5% foreign exchange headwind related to the recent strengthening of the US dollar offset by year on year benefits from completed 2019 acquisitions.
Our preliminary 2020 EPS guidance of $5 in 30 cents to 5046 cents per share incorporates expectations for operating margin improvement of 100 to 150 basis points on a constant currency basis.
Including approximately 50 basis points of year on year improvement related to lapping the Q4 2019 charges related to the CEO transition.
At rates assumed in our press release, we estimate the FX will decrease reported operating margins by approximately 30 basis points and EPS by approximately 11 cents per share net of establish hedge positions, which we estimate will result in 6 million of net pretax gains in 2020.
Our projected 2020 effective tax rate is 21% to 22%.
This outlook assumes $3 million to $5 million or approximately five cents per share in share based compensation tax benefits, assuming our current share price.
Note that our projections for share based compensation tax benefits incorporates timing of future option explorations.
As IDEXX transition from seven year to tenure option lives. In 2013. This has the effect of lowering the level of options scheduled to expire in 2020.
Contributing to a 12% reduced projected tax benefit in 2020 compared to 29 team.
For 2020 were projecting 1% reduction in shares outstanding related to share repurchases at assume consistent net leverage ratios and net interest expense next year of $36 million.
Adjusting for changes in currency and share based compensation tax benefits. This 2020, EPS outlook equates to a projected 17% to 20% comparable constant currency growth rate.
We look forward to providing an update in more detail review of our 2020 guidance and our yearend conference call.
That concludes our financial review I'll now turn the discussion over to Jeff.
Good morning, and thank you, Brian I'd excess third quarter results reflected solid growth across our companion animal livestock and water diagnostic businesses.
Outstanding achievement by our IODEX team globally high growth and CAG diagnostic revenues continues to lead our performance with attractive flow through benefits the profit.
Joining us on track to deliver strong full year operating results.
Excellent commercial execution is a key theme in our continued growth momentum and enhancing capability in this area consistently delivers a high return on investment.
In our us CAG business, we benefit from the increased IDEXX engagement with customers in an underdeveloped diagnostics market with solid growth momentum as evidenced by the 2.7% growth in same store clinical visits seen in the quarter.
Our U.S. commercial team remains highly productive delivering 13% CAG diagnostics recurring organic revenue growth in the us, including approximately 2% benefit from equivalent business days.
Execution was excellent across the board, resulting in both impressive revenue gains from all modalities and sustained high customer retention rates.
Increased customer engagement is helping to drive sustained low to mid teens organic growth in reference labs led by same store testing expansion and double digit organic AIDS and consumable revenues supported by our expanding premium instrument installed base.
Instrument placements were excellent in the quarter led by 14% year on year growth at us new and competitive catalyst placements.
Disappointed a 10% year on year expansion of our us catalyst installed base double digit growth in USA.
Snap pro placements were also robust in Q3 with over 2200 placed in the us up 77% year over year.
It's not program significant workflow electronic medical record and charge capture benefits that complement our differentiated rapid assay point of care diagnostics.
Importantly, customers, who are connected to snap pro our highly engaged and stay with us longer.
Our us commercial team continues to make excellent progress and advancing our preventive care initiative.
In Q3, we enrolled 330, new practices, bringing our total enrollees since program launch to nearly 3500.
Almost two thirds of our Bdcs have at least one new customer and early in the quarter.
As discussed at Investor Day, a key commercial goal is to inspire customers increased the is medically relevant bloodwork and clinical visits.
Should we consider bloodwork as a representative proxy for diagnostics utilization.
It was included in only about 8% of clinical wellness visits and 28.
The increased rate of diagnostics testing with blood work and practices post enrollment in our preventive care program is notable specifically if we take our 2017 preventive care enrollees, who have now been into program for over a year. The average annual increase in a percentage of well. This visits that include Bloodwork is approximately 1% per year.
Since 2016.
This compares to approximately 20 to 30 basis points of annual increase for non enrollees.
These convincing early success indicators reinforce the 1% to 2% contribution to annual CAG diagnostics recurring revenue growth potential we see from this initiative.
Our strong growth at us demonstrates diagnostics as a category continues to grow in importance and relevance to the veterinary profession.
Our customers are turn asking our category experts to spend more time partnering with them the combination of increasing customer engagement in key growth initiatives like IODEX preventive care.
The strong operating results in commercial momentum and a healthy product pipeline gives us confidence the once again expand our commercial presence in the U.S. we.
We are already underway with an 8% expansion in our U.S. field based professionals, which we expect to be largely in place by the beginning of Q1 2020.
As with our past field expansions. These are thoughtfully plant and supported by detailed regional analytical modeling that considers a number of factors, including territory size and specific geographic differences such as traffic patterns and population growth.
While we said this before it bears repeating the data continues to prove out that the more time, we spend with customers. The boy they grow with IDEXX. This expansion will bring us to an estimated 530 feel based professionals in the us up from 490 at the end of 2018.
We're very excited by the opportunity this expansion affords us heading into 2020.
The category of diagnostics is increasing and importance on a global basis as well and as a result, we're seeing the benefits from our recently completed CAG commercial expansion in international markets.
We saw 16% international CAG diagnostics recurring revenue organic growth in Q3, including approximately appointing a half equivalent business days growth benefit.
These gains were again led by international consumables growth of approximately 20% organically normalized for equivalent business days and supported by continued expansion of our catalyst installed base, which increased 26% year over year.
Our international reference lab showed improvement year over year high single digit growth benefiting from the completed commercial expansion strong commercial execution as well as focus on customer service and I'd X 360 programs that are increasingly multi modal in character.
We had extra 60 program is gaining traction with our international customers supporting excellent instrument placements and double digit growth that.
In the us approximately 60% of Paris cytology panels rented a reference lab included Pico Dx antigen in the third quarter up from approximately 50% in Q3 2018.
Receive a vector borne disease test to sometime.
While only approximately 15% of dogs in the U.S. receive a full vector borne multi analyte test.
This expansion of 40 X plus usage is a very encouraging sign with additional long term benefits for vector borne disease testing.
This has translated into a total of 2.9 million run since its introduction on to slide.
We're also very excited about the new SDMA based chronic kidney disease stage and lands that were issued in September by the international renal interest Society.
Finally, we continue to extend our capability and advantages in veterinary software by advancing our software on multiple fronts simultaneously. Our goal is to provide a truly comprehensive technology offering that both independent practices and corporate groups around the world relied on to run their businesses Q3.
As again, a strong quarter for global placements of new cornerstone deal on a mana and smartphone assistants inclusion of software systems at the IDEXX Hundred 60 program is accelerating commercial efforts in North America in the US practice management software placements grew 35% year over year.
Sticking with US we've seen an unprecedented pace at cornerstone upgrades. The version 9.1 with more than 2700 practices upgraded year to date across North America, driven by customer demand for the all new user interface and streamlined clinician experience.
We achieved yet another critical development milestone for cornerstone cloud in Q3, which has now successfully running and alive environment for more than a quarter.
Initial customer feedback is extremely positive and we look forward to eventually making the many benefits of cloud available to thousands of customers that value cornerstone as the standard bear in practice management software.
Q3 was another strong quarter for growth for web packs.
With a 29% year over year increase in subscriptions, our enterprise management and analytics platform for corporate groups continues to make big strides, providing a command and control center corporate groups C suite and Vetconnect plus the most widely used app and veterinary medicine had another strong quarter growing out new functionality for Sherry diagnostic reserve.
In addition to our strides in growing our business organically. We're also pleased to highlight our recent acquisition of Marshfield Labs and the addition of their employees Marshfield has a highly professional while run laboratory that has a national customer base with a relatively stronger presence in the mid and upper Midwest regions.
We look forward to quickly, bringing our unique innovations like SDMA fecal antigen and Vetconnect plus to name just a few marshfield customers many of whom we work with today.
In summary, we feel very good about our business progress across a range of strategic fronts and believe we are well positioned to build on this momentum in 2020 and deliver on our long term financial goals.
Before I conclude and on behalf of all my IODEX colleagues around the world I'd like to extend our thanks, the Gianaris and our best wishes for John's continued rehabilitation John's love It affection as a pet parents of cats translated into as deeply help beliefs on the unique role that pets and their care plan. Our lives as a result, he always reminded.
So what's possible and what IDEXX and contribute to our unique diagnostics and software that expand the health and wellbeing of the pets, We love.
It's a job division that IDEXX as an organization will remain committed to helping strengthened the role and relevant to the veterinarian as the key to improving the lives of pets in animals, and the people who love.
On a personal note I'm looking forward to continuing to work, which on both on the board of directors and as a trusted advisor.
And with that we'll open it up acuity.
Yes.
Ladies and gentlemen, if you wish to ask a question. Please press star one.
We'll go to the line of Michael Ryskin with Bank of America. Please go ahead.
Hi, guys Hi, Don.
Ornament good morning.
First off congrats on the quarter really really solid results and Threeq, you've I'll ask them 2020 outlook briefly.
First on the on the operating margin gains you highlighted a couple of different moving pieces with the CEO charge in the fourth quarter, but you've also seen some really strong gains and gross margins. This year, how should we think about the moving pieces in the and the progression extra you talked about 100, 250, Bips operating margin constant currency.
Slightly more conservative view for the topline organic not dependent I have I realize still very early on but.
Anything really change in the market just high level or is this just any particular area you can point to within reference labs or consumables and instruments or is just the is this just.
Yes, let me start with the operating margin clarification, you're right. The we have a compare here with the CEO transition charge that we tried to highlights or are preliminary outlook of 102 150 basis points. We noted included.
50 basis points related to the compares of favorability related to the charge. So if you adjust for that its is 50 to 100 basis points, which is very consistent with our.
I would highlight heading into next year, we have a couple of factors that are are built into the the operating margin outlook. One is that we have two significant new facilities that are coming online next year, our new core lab in Germany, as well as our new Westbrook headquarters and we will load.
That will involve a level of incremental costs and we'll grow into that overtime, but initially that will be.
Something that has the effect of moderating margin gains and as you pointed out we've we've got the the U.S. expansion. The additional expansion of us commercial resources, and we have a pretty healthy.
Growth rate now and our year on year investment as were.
Fully ramped with our international expansion that we implemented a little earlier this year end.
So we're we're investing in our R&D initiatives.
Consistent with our with our stated goal. So we've got a healthy level of investment you know some factors that will moderate kind of the upside on that but we feel very comfortable with the underlying 50 to 100 basis points of improvement outlook for next year.
Reflects a consistent outlook for get a sustaining a continued strong CAG dx recurring revenue growth, which is really the main driver of our of our growth outlook. We're looking to build on the the the solid progress we've made on both the USA and international fronts and growing context recurring revenues, which are right in line.
Their long term goal ranges.
In terms of overall growth I would highlight we are continuing to maintain a a calibrated outlook on on LPD revenues.
That is.
Some potential pullback on that as a.
In.
In 2020, so it's it's a smaller business for <unk>.
For us, but at the margin that.
And we'll go to the line of Ryan Daniels with William Blair. Please go ahead.
Hey, guys. Thanks for taking the question Jay one for you in regards to Marshfield Labs is little unique to see you purchasing lab assets, let alone in the U.S. I'm curious what the strategy was there and then more specifically outside of the lab network in the client base, you'll get from that was there anything proprietary the can be.
And into the IODEX lives existing network that new garner from the acquisition.
Yeah, Ryan. Thank you for that question, we're very excited by the Marshfield acquisition, It's a high quality very professional laboratory, we're adding approximately 2000 marshfield customers. These some of that some of which we already do business with our focus is really on being able to maintain.
Continuity of of service understand.
The needs of those those customers better and entered into some of the innovations that that we have like SDMA and fecal antigen and vetconnect plus over over time to them. So it's a up we think it's a great acquisition, it's a great laboratory and fits in well with our overall strategy.
And then I may have missed this is a different question but.
Commenting on the 8% uptick in Q4 on the North American customer facing organization.
Is there any specific focus of the hires you're making there.
That does it field sales reps is.
Anything in particular that it's kind of a focus and will you be changing in territories at all or is it just on many existing territories.
Thank you Ryan Let me, let me give you an overview of the the wide and I'll give you some background on the why essentially at its at its core we're adding 23 territories and our motto is we have a VDC per per territory, so up or will be going from 227 account a 227 territories.
250 on average that the BDC today has about a 110 that cabs and post implementation of the expansion will be down to about 100 and as is the case when we expanded the number of Edcs, we augment the number of field service reps to support them generally to Vtcs.
Per single FSR. So in addition to the 23 Bdcs and new territories were adding 12 episodic so that that represents the core of the change and I think it really is when you take a look at our market we've been growing strongly in the class and the average business we do.
With the with our customers has grown at south from both the depth and breadth standpoint, we have many customers that are 40, 50%.
Figure in terms of the business they do with US just compared to three years ago that their expectation as they do more business with us is that they see var of us whether its full staff training.
Or understanding their practice better identifying opportunities, where where we can help them and then you layer on top of that initiatives like preventive care, which take relatively more time of the BDC upfront, including things like Onboarding and getting those customers, calling Marshfield lab.
Reached a revenue metrics. So if you take a look at Q3, we're about 90% reach the revenue.
Which is where historically, we like to be but when you take a look at at reached a customer which incorporates not just iducs customers, but competitive customers, we're about 75% or so so we're a bit lower than we'd like to be we think there's really good opportunity outside at the outside of.
The IDEXX installed base tail, so that guided our thinking and how we implemented this.
Okay. That's super helpful. I want to this was my best to John as well, Thank you get extra.
And you have a question from the line of Aaron right. Please go ahead.
Great. Thanks.
Do you know how much of the Marshfield customers are IDEXX customers on the point of care side are generally speaking how much overlap maybe there is and I can think about like an opportunity for cross selling and what does that put you at flat talent at now following the Marshfield transaction and then can you caught.
All right. So there is up to all I'll take a few of those has a theres a number of questions in there.
Yes, as I indicated there's about 2000 in total marshfield customers, many of whom we do business with.
Currently we haven't broke out the specifics in terms of.
A cross sell our full slow as but our focus is Israeli first.
And on being able to understand those thus customer needs and work with them in terms of you had mentioned specifically competition to SDMA in our view, there's really no comparable offerings to SDMA in the marketplace.
We continue to make excellent progress expanding SDMA adoption as a differentiated I gave you some statistics in terms of not only the reference lab, but SDMA on a slide with our catalyst we're super excited by the updated guidelines a virus that elevates asked.
By the patient severity and progression of kidney disease. This guides that the treatment pass they take it up it helps the market's standardize on best care approaches for the for the patient. It drive we think of more standardized character or better outcomes for the marketplace as a whole it is it a assured.
As the pet parents that the that their pets get in the best treatment. So we think this is a really big deal and if something were really excited by.
And Eric why we had 52 labs before in the U.S. before those and we'll be adding the.
A few additional locations, including the the core lab from for Marcia, which were as Jay mentioned is it really high quality.
Version.
Growth this quarter, what was driving that you. Thank goodness that normalized for the day impact as well thanks.
It's it we think it's largely consistent with what we've seen in the past it does tend to be some variability quarter to quarter. We've got a pretty good beat on the market as a result of the art our analytics approach was 7500 a practices we.
Pick data from five five of the leading PEM systems. So I've got a nice proportional both regional and practice size representation in this data yet I think what showing us pretty consistent strong.
Growth across the market.
And just on the days impact to clarify it basically what we had in Q3 was an extra Monday and so what that really impacted was our business. We do a lot of shipping on Monday. So you saw positive benefits to consumables and and rapid assay, which we highlighted and actually very limited impact on on labs and it wouldn't have really impacted the.
The market metrics in that context as rates have more of a shipping dynamic.
Got it thank you.
Thanks for the question I wanted to follow up on the revenue guidance, Brian I Didnt hear range for.
Looking to build on that as in the U.S. So right now we're about 11.5% adjusted for days year to date and kind of 13 and a half in international and international actually improved a bit in the quarter. We had a relatively better a reference lab growth, which is which is something we've been working on so.
Uh Huh were were looking to build on that and.
We'll be sharing more specifics as we.
Get through the Finalization of our planning processes, and what we'll share that on the the the yearend call.
Number that you gave it looks like you saw some nice improvement internationally, specifically in new and new and competitive placements can you maybe just talk about what what drove that and specifically what you're seeing in China, I think that had been a little bit of a drag earlier. This year I just wondered if you had seen improvement there, yes, I'll wait wait we sell really nice placement growth.
Consumables growth internationally 20, 20%.
Normalized and I think if theres a couple of factors. It's clearly banded ongoing focus for us I think the maturing of our VDC model continuing maturing of our VDC model is helpful.
We are getting nice traction with the IDEXX hundred 60 program with our international customers I think they they appreciate what that brings in terms of flexibility and the ability to access.
Our solutions and other products themselves it fits our international markets really well I think we sat in the past that our catalyst. One was initially designed international markets in terms of its its cost profile and and physical footprint and we just we continue to see that.
Bear out in our sales momentum and Brian is going to address the China question, Yeah, China we.
Had a very good performance on new and competitive placements and have we continue to work through.
The lapping of compares to prior levels, where we had.
Hi levels of vet test upgrades. So the mix has shifted we are that does constrain our overall revenue growth reported revenue growth somewhat but I think the underlying quality of the placements you know, we're doing new and competitive accounts across across regions.
Contributed very high quality performance from our lines in the quarter and the the double digit EBITDA gains that we talked about so we we feel good about the progress, we're making across markets and.
No that sets us up well, it's really about expanding our.
Up 18% year on year with our catalyst installed base globally and that really sets a solid foundation for continuing to grow our our consumable revenues at high rates.
We'll go from the line of David Westenberg. Please go ahead, hey, Thanks, Hi, Thank you for taking the question. So I. Just first you note end customer shifting on preferences to cloud based solutions.
I know that pins typically has a very high barriers and switching out teams down 18, rather on the difficult side. So are you having a lot of success in terms of switching customers or adding on that cloud. The cornerstone cloud solution is that the way you kind of seed the market shaking out can you just maybe run through a competitive dynamic.
Thanks, and that and in the independence marketplace. Yeah. So I'll take that thank you for the question David the up our PIMS offering is very broad so we address the market.
In the up more of the advanced workflow with a cornerstone, but also those practices that may be single worked or mobile practices with with Neil and at what we see is.
Our veterinary customers like all customers, whether independent of industry. You appreciate easy is benefits.
Okay.
Typically focus on had workflow it does that help them address the challenges both from a care delivery standpoint, as well as a business standpoint in the practice and at what they're telling us with cornerstone 9.1, which is our most recent revision is that they really appreciate the improvements we've made in end user interface.
And the ability to do the work that they do with fewer clicks with.
Yes, the all the easiest benefits. So we're seeing really nice placements across the board. It's included as I had mentioned at our identity 60 program. So.
Our customers are deciding choosing.
That as I indicated is really in field trials at this point, we think the marketplace overtime.
Well will migrate at least in part as you indicated Pim systems tend to be a bit bits sticky, but I think customers increasingly recognize that there are some benefits that having their software in the cloud in terms of.
Lower cost for being able to maintain the hardware in the practices and up.
Somewhat bar.
Quick or to ARPU number revisions that they can expect on an ongoing basis without having the.
Shut down their practices for an hour two hours that that type of thing so lots and lots of benefits. We think over time that the market will move in that direction and we'll be ready for it yeah keep in mind, our our Neil practice management system is already in the club.
Yes. Thank you very much the color and I'm just gonna do a one really quick housekeeping question I really do appreciate how you call out yesterday in the quarter. So I was just I'm wondering on in terms of housekeeping is there a extra day or a lot in less our one less day, then in Q4 and that we need to be it and that we need to anticipate.
Is there any any kind of growth headwind in terms of Oh.
Extra days, there just as a housekeeping question.
On Q4, we will have one last Monday, but we anticipate some positive benefit around the holiday week timing. So I think it's a a modest net headwind or there may be some modality impacts, but we're not calling that out and the team is telling me with you at the next year is its relative we get some benefit.
Q1 for leap year, but I think on the full year, it's relatively neutral.
Appreciate it thank you so much.
Well go to the line of Jon Block. Please go ahead.
Great. Thanks, guys good morning.
Jerry maybe the first one for you just curious about the increase North American Salesforce I guess why now I think it was a couple quarters ago you said.
You guys are sort of go with your commercial infrastructure and I get it done business that responds well to increase investments, but just curious what youre seeing in the marketplace that cause you to move now versus maybe a couple of quarters and when I got a follow up.
Yes, so I.
John I think it it really comes down to what I was describing earlier, our dark a number of our customers a large number of our customers in our territories have have gotten bigger overtime and there's there's more demand from the BDC in terms of working with these customers if an expectation that that they have.
As they use more go broader and deeper and then you know if you take a look at some of these initiatives like like preventive care as I mentioned, they really do require more time up a front in terms of getting these customers onboarded and and the helping make them successfully added a couple of thousand more customers for Marshfield.
Labs as well as what we said at Investor Day, It's 11 billion dollar addressable market 3 billion in a well. This visits alone. So we continue to see that when we apply time with customers that they grow more and and use more of our diagnostics and we do better it really just comes down.
To that math.
Okay Fair enough and then Brian maybe the second one for you on the Guy that.
Some moving parts of stock based comp, adding largely in line with the midpoint of revenues was a tad below where we were so I guess the question is does this would be in what we may see from a new product standpoint in 2020 does it reflect that and then part being that as I thought you alluded to net interest expense of 36 point.
Half million, which seems like a decent step up year over year. Despite rates continue to go down so I want to make sure I got the right number there and if so why do we have a step up thanks guys. Yes, just on the your first question our outlook.
For 2020 incorporates for projections for growth across the business, including adoption of our current innovations in any new introduction. So that's that's factored in we feel it's a very much in line with kind of how we've been trending where we always targeted growth John at the you know the higher end of what we talk about that's that's what we try to execute and.
Just calibrate that appropriately, but we're looking to build on the strong growth rates and a very comfortable with the outlook in the context over a long term goals.
And Ah on your question related to interest expense or the it was 36 million and that included in assumption for we did not assume a change in interest rates. So I think that if there were reductions.
In things like variable interest rates, we would there maybe some modest benefit to that but that was our assumption and assumes a flat net leverage ratios to basically will.
We saw some benefit this year of reductions and interest rates, we're not projecting the the underlying interest rate reductions into next year in the in the broader market.
Our final question will come from the light line of Mark Massaro with Canaccord. Please go ahead.
Hey, guys. Thanks for the question I guess.
Brian as we think about the 2020 guidance.
I assume you're contemplating a the inclusion of martialed labs. So it looks like Marshall has about three or four reference labs.
With particular strength in Wisconsin, Minnesota.
Michigan, Ohio, One is can you give us a sense of what your share was for reference lab in those regions and how you think that might bump. It up and then can you give us a sense for what level of growth you think that Marshfield could add 10 basis points to your reference lab line in 2020, yet so just on Marshfield.
It's a it's a lab with national customers. So we see this is adding to our national capability.
Within our guidance markets, roughly 15 million, we the the annualized revenue. We expect is about 15 million for Marshfield, that's what's baked in and it's it's offset by FX. So you know the in terms of when you see our reported and organic growth numbers.
Those two factors offset so it's a you know we've got that factored in we're very excited about adding Marshall to the IODEX family and.
Working with their employees and in very pleased with their capabilities and as Dave mentioned I think there's real opportunities.
For us here nationally to a two to leverage our innovations and expand or alright, ECS business with those customers.
That's excellent.
And so I also wanted to ask about potential expansion internationally I believe you have over 900 people on the field globally, which is certainly a case significant global infrastructure, but I can you give us a sense for where you're at internationally and whether or not you're contemplating future.
Sales hires you asked and I guess related to that you've got the Nu lab in Germany opening up next year can you just speak to some of the dynamics in play.
Both competitively and organically internally focused in Europe for 2020.
Yeah. So work up we just completed art our expansion.
In Europe and internationally and we're comfortable where we are we think we have the right capacity to address the opportunity and our growth projections. So it at this point there is no additional plants that go beyond that it's really our focus at this point Israeli maturing out the organization what we find this that it takes time to continue.
You develop deeper relationships with customers and with us deeper relationships, where we're able to grow so that that's really the focus you know in terms of the reference lab marketplace as as Brian indicated earlier, where we're pleased with where we are right now we focused on being able to improve our reference lab.
Garments, and we think over time with the IDEXX hundred 60 program and the maturing of our VDC sales organization weekend, we can build on that we're excited to be able to bring on the new reference lab in Germany, we think that that positions us well additional capacity.
In the future, but no other specifics at this point.
Okay and okay. So thank you with that will conclude the call I want to thank our place for the very strong progress and performance in Q3, and the advancement of our purpose, which is enhancing the health and wellbeing of pets people and livestock around the world.
Ladies and gentlemen that does conclude our conference for today. Thank you for using ATP teleconference. You.
You may now disconnect.
Okay.