Q1 2022 IDEX Corp Earnings Call

Greetings and welcome to the Q1 2022 IDEXX Corporation earnings Conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please.

Please note this conference is being recorded.

I'll now turn the conference over to your host Allison losses, Vice President and Chief Accounting Officer, you may begin.

Good morning, everyone. This is Allison law says Vice President and Chief Accounting Officer for IDEXX Corporation. Thank you for joining us for the discussion of IDEXX first quarter 2022 financial highlights.

Last night, we issued a press release outlining our company's financial and operating performance for the three months ending March 31st 2022.

The press release, along with the presentation slides to be used during today's webcast can be accessed on our company website at IDEXX corporate dotcom.

Joining me today are Eric Ashlin, our Chief Executive Officer, and President and Bill Grogan, Our Chief Financial Officer.

The format for our call today is as follows we will begin with Eric providing an overview of the state of IDEXX This business.

Then bill will discuss IDEXX first quarter financial results he'll also give an update on segment performance and the markets. They serve and provide our outlook for the second quarter and full year 2022.

Following our prepared remarks, we will open the call for your questions.

If you should need to exit the call for any reason you may access a complete replay beginning approximately two hours. After the call concludes by dialing the toll free number 8776606853, and entering conference I D 137.

Q4, 803 or simply log on to our company homepage for the webcast replay.

And before we begin a brief reminder, this call may contain certain forward looking statements that are subject to the safe Harbor language in last Night's press release and in <unk> filings with the Securities and Exchange Commission.

With that I'll now turn this call over to our CEO and President Eric Castleton.

Thank you Alison and good morning, everyone I'm on slide six the first quarter was an outstanding start to the year for IDEXX I'd like to thank our IDEXX employees around the globe for their hard work and contributions to our success. We saw strong broad based demand for our differentiated technologies with growth across all three of our segments, leading to record orders sales and back.

Walker.

This robust market plus outstanding operating performance resulted in 12% organic sales growth and excellent margins, we achieved adjusted EPS of $1 96, setting another IDEXX record.

Overall, the operating environment in the first quarter was much like the fourth quarter of 2021 , but our teams improve their ability to navigate through this challenging environment, we effectively mapped our eighties and twenties from customers through work cells and back to the supply base in a way that increased overall throughput and velocity. We also work together to attack our most problematic supply challenge.

It is through resourcing or to redesign.

Although we expect these challenges will remain of course in the near term we are confident in our ability to adapt execute and delivered for our customers.

This period of rapid economic recovery, coupled with geopolitical disruptions and constrained supply continues to drive material and freight costs higher we kept pace with our own robust price capture efforts as we leverage the highly differentiated nature of IDEXX as product portfolio and our leadership positions in critical niche markets around the world. We also saw strong benefits from our productivity.

Pivot initiatives, specifically benefits from our site consolidations in FMT capital investments that drove efficiencies and product design changes that reduce material consumption. The results in Q1 are a testament to our team's long view across business cycles as they build productivity roadmaps to support growth and margin expansion.

Turning to capital deployment M&A continues to be a key priority for us, we recently announced our intent to acquire Casey valve a leading manufacturer of electric thousand controllers. This acquisition will extend our expertise in providing Oems with critical solutions for precision agricultural and industrial applications and serve as a complement to our agriculture business within EF.

M T. We're excited to welcome Casey valve to IDEXX. We also closed on next site a complement to our F N T water platform.

Our funnel is strong and we continue to build conviction and interest around faster growing areas that complement the IDEXX style of competition report Reena Krishnan, who joined US in March will be an outstanding addition to these efforts as she leads strategy and corporate development for the company also in the first quarter, we deployed $28 million to repurchase approximately 148000 shares.

Company stock, we employ a disciplined methodology to create long term value for shareholders. When we see a break between our intrinsic assessment of IDEXX enterprise value and our public valuation.

Finally, we continue to make reasonable and modest resource investments to drive long term sustainable growth. These investments typically involve incremental additions to our commercial and engineering resources to support our best organic that's where targeted resources to support our inorganic efforts through M&A with that let me turn it over to bill to discuss our financial results.

Thanks, Eric I'll start with our consolidated financial results on slide eight.

Q1 orders of $856 million were up 20% overall and up 16% organically, we experienced favorable performance across all our segments and build $105 million of backlog.

First quarter sales of $751 million were up 15% overall and up 12% organically, we saw favorable performance within each of our segments led by strong results in HST.

Okay.

Q1, gross margin expanded 70 basis points and adjusted gross margins expanded 60 basis points versus last year at 45, 6% driven by favorable volume leverage operational productivity and favorable price cost despite rising inflation.

First quarter operating margin was 25% up 110 basis points compared to prior year adjusted.

Adjusted operating margin was also 25% of 70 basis points compared to prior year, excluding the impact of acquisition related intangible amortization adjusted operating margin expanded 130 basis points I'll discuss the drivers of our adjusted operating income on the next slide.

Our Q1 effective tax rate was 22, 4% down slightly versus our prior year rate of 22, 6% due to the mix of global pre tax income among our jurisdictions.

First quarter net income was $140 million, which resulted in EPS of $1 83, adjusted net income was $150 million, resulting in an adjusted EPS of $1 96 up 34 or 21% over prior year adjusted EPS.

Finally free cash flow for the quarter was $64 million approximately 43% of adjusted net income.

This result is driven by higher earnings being more than offset by increases in working capital due to the volume impact on receivables as well as additional inventory we have strategically added to help mitigate some of the longer lead times, we are experiencing.

Yeah.

Moving on to slide nine which details the drivers of our adjusted operating income.

Adjusted operating income increased $29 million for the quarter compared to the prior year or 12% organic growth contributed approximately $25 million flowing through at our prior year gross margin rate.

We levered well on the volume increase had strong price capture and our teams drove operational productivity to offset the profit headwinds we experienced from inflation.

Additionally, we saw benefits from her FMT site consolidations and non repeat of prior year inventory reserves associated with the COVID-19 related new product development.

Mix was not a significant driver of this quarter.

We reinvested $4 million, mainly in the form of engineering commercial and M&A resources to enhance our long term growth capabilities.

Lastly, discretionary spending increased by $4 million versus last year Covid related constraints remained in place for a portion of the first quarter limiting our spending as we noted in our full year guidance, we expect discretionary to continue to ramp up as we progress through the year and restored our normal pre pandemic spend base, although on significantly higher sales.

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Our organic flow through was a solid 35% for the quarter closer as are negatively impacted by the dilutive impact of acquisitions and FX getting us to our reported flow through of 29%.

With that I'll provide a deeper look at our segment performance.

I'm on page 10, and our fluid <unk> metering technologies segment, we experienced a strong first quarter for both orders and sales with organic growth of 14 at 11% respectively.

FMT adjusted operating margin expanded by 300 basis points versus last year, driven by strong volume leverage and operational productivity, which includes benefits from our energy in Italy site consolidation projects non repeat of prior year inventory reserve adjustments and some offset from resource investments.

Our industrial Dayrates were strong customers do remain cautious around larger projects, though but we have seen some projects come through in the oil and gas and petrochemical markets.

Agriculture continues to perform well due to strong global crop demand and higher prices.

Our municipal water business is stable, though project activity is increasing.

<unk> are actively submitting applications for infrastructure Bill funding and there is general optimism for funding availability in the second half of the year.

We see potential for larger spending in the long term and we are well positioned to capture this demand.

Our energy business continues to improve higher oil and home heating fuel prices are providing support.

And funnel activity is increasing as global energy supply volatility is expected to drive higher U S production.

Domestic pipeline companies continue to communicate increased capex, but there is some lag due to supply chain constraints and the Russia, Ukraine uncertainty.

Moving on to health <unk> Science technology.

We experienced excellent commercial performance with orders up organically, 21% and organic sales up 16%.

<unk> adjusted operating margin contracted by 40 basis points versus the first quarter of 2021 by expanded by 90 basis points, excluding the impact of incremental amortization tied to the <unk> acquisition. This was driven by strong volume leverage partially offset by increased discretionary spending and resource investments.

<unk> continues to benefit from strong secular growth trends within life Sciences analytical instrumentation semi con and the food and pharma markets.

Life Sciences continues to experience strong demand due to an overall really focused around health care in areas, such as point of care and patient diagnostics as well as increased nexgen sequencing demand as the market for cell based therapies expands in applications like cancer research.

On the semiconductor side, we continue to see broad based growth tied to wafer production and quality inspection.

Other growth areas include optics applications in additive manufacturing as well as broadband satellite technology.

Finally, turning to our fire safety and diversified product segment.

This segment posted favorable orders and sales performance with organic growth of 12, 5% respectively.

<unk> adjusted operating margin contracted by 340 basis points versus last year. This was driven by higher employee related cost and discretionary spending as well as pressure on price costs due to longer term OEM contracts on the fire side and automotive exposure with high metal content in band it we.

We've taken action to address this gap and expect that price cost will improve in the second half of the year.

Our dispensing business continues to experience strong results driven by North American project volume and overall positive global pain market.

Our bandage business performed well with industrial and energy demand more than offsetting lags in automotive driven by supply chain related customer delays.

Within fire and safety, we are seeing core north American and European markets, improving but still challenged due to supply chain.

North American fire Oems continue to experience supply chain constraints slowing their order to revenue conversion cycle.

With that I would like to provide an update on our outlook for the second quarter and full year 2022.

I'm on slide 11, which lays out our updated guidance.

For the second quarter of 2022, we are projecting organic revenue growth of 8% to 9% and operating margin between 23 and 23, 5% Q.

Q2 forecasted op margin is lower sequentially due to a full quarter of next site, which is dilutive to our operating margin by approximately 50 basis points due to intangible amortization as well as increased resource investment in discretionary spend.

We expect GAAP EPS to range from $1 69 to $1 74, and adjusted EPS to range from $1 85 to $1 90.

Turning to the full year.

Given our strong first quarter performance, but potential risks and uncertainty on the back half of the year, we are raising the low end and holding the high end of our organic growth and adjusted EPS guidance.

We now expect full year organic revenue growth of 6% to 8%, which does not imply a significant sales ramp in the second half of the year, rather we are applying a normal seasonal pattern to our current output level. At this time, we see potential risk of further revenue acceleration may be tempered by the Russia, Ukraine War and supply chain effects related to the China <unk>.

Covid policy.

We will continue to monitor the situation and reassess our guidance range in the next quarters update.

We expect GAAP EPS to range between $6 87 to $7 and adjusted EPS to range from $7 50.

To $7 63.

Our operating margin expectations for the full year to be approximately 24% and is diluted by next site intangible amortization of about 50 basis points with that let me pause and turn it over to the operator for your questions.

And at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

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One moment, please while we poll for questions.

And our first question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.

Hey, good morning, everyone.

Hum.

Hey, Derek So maybe just start on the demand side of things, obviously, there's a lot of a lot going on in the environment here.

But it sounds like demand is still pretty healthy order rates still pretty healthy underneath the hood for you you know I know you mentioned in the prepared remarks, maybe some hesitancy on the larger project side of things, but I'd like the little sense for how you're thinking about how those you know the the challenges from a broader perspective are impacting the business from a demand perspective are you seeing any.

Cracks emerging anywhere I was momentum through the quarter or just really any context, you can give around what you're seeing.

Yeah, Yeah. Thanks, Mike I look at it it's holding pretty steady for us all over the place I mean are the sectors. We outline had been strong it was strong through the first quarter.

Momentum has continued into the early part here of the second quarter.

Probably the only thing that we've seen are continually hear that that's been held back a bit is that the large projects category that we talk about a lot I continue to see that honestly is just a question of resource availability ability to focus on doing the work.

You know either in the in the current context or even projecting across the future as people consider all the things that are on the table there that could disrupt that that being said you know we've seen some some projects here and there in places like energy and certainly a few in the chemical space.

Some short term stuff in water that indicates you know people are trying to get at capacity just like we are and throughput.

So that continues to add to the Mexico.

So very very strong overall steady and Oh, that's one thing that makes it pretty easy to navigate.

No that makes sense and then on the margin side of things the FMT margins really stood out this quarter.

Bill highlighted some of the reasons, but maybe just some thoughts on sustainability on that side.

If theres anything that wasn't repeatable in that mix as we look forward here.

Yeah, not look I think we as you can see and I said in the remarks I mean, we made some nice progress on throughput and velocity and that always helps our situation. It's nice from a leverage perspective and it also implies that things are working more efficiently.

You know that being passed the consolidations that we had last year in F. N. T. Specifically has been a has it been a big benefit for us.

We go and then you know what I know will dive into price cost along the way but of course, we've we've done our best there to keep our head above water, you've kind of put that into the mix with more throughput and output that that's a good mix for us overall and you see it reflected in the performance.

I appreciate it thanks for the time thanks.

Thanks, Mike.

Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Good morning, everyone.

Nathan.

Just a couple of questions on the guidance to start with it looks like pretty much your guidance for revenue for the rest of the year, even at the high end.

Relative to the first quarter the quarterly run rate is up finally by about as much as the next site acquisition of ads.

I think Bill you said you built a 100 plus million of backlog during the quarter is this really you guys just assuming that supply chain when they met your output for the remainder of the year.

Maybe call it a man and a little bit better than that but you're just assuming that you don't get a lot of or late from the supply chain constraints in that and that restrains, what you can actually ship.

Exactly Nathan as we looked at obviously the teams ability to increase their output through actions. We're taking internally has improved with some of the external events that have happened recently and the unknown longer term implications just can't count on significant ramp from our current volumes that we're at now obviously if things.

Unwind and resolve theres upside opportunity in the back half definitely based upon the strong backlog that you're we've highlighted.

Yeah, I think caution is there enough things can always get wash right [laughter].

Exactly.

Second question I had is on capital deployment here you guys have certainly stepped up the pace of acquisitions and how aggressive you've been there. The market is clearly worried about a recession in 'twenty three does this change your calculus in and how you are thinking about going after acquisition.

Doug.

How you're de risking your your deal models risk premiums that you're putting on things.

Any change to the calculus that you guys are using IV, there as youre approaching acquisition did them on it.

Yeah.

I mean, not a lot of that in the short term again I come back to kind of the nature of the assets that we're looking at here are there theyre very representative of kind of classic IDEXX businesses.

Hi mission critical solutions risk averse and markets I mean, they're they're not the kind of businesses that Bob and weave a lot in the short term and ultimately the valuation on the part of the seller and for US on the part of the buyer comes down to the assurance of pretty steady growth and cash streams and high quality of our earnings over time.

Of course, what we think we can do to our business on the inside which is mostly under our control anyway. So not to say, we're discounting any of those things, but certainly, particularly in the short term it doesn't really change the view of what we think is favorable for those for the long term health of the company.

Have you seen that uncertainty in the market out there at the moment from the seller's perspective.

The pricing at all in any of these assets that youre looking at.

No I wouldn't say, we've seen that that's often a lagging phenomenon and again, that's where we're in very high quality waters.

With generally long histories that anybody would referred to and you know just degrees of health and in the future all positive so.

It doesn't really enter the mix of these kind of assets too much.

Perfect. Thanks for taking my questions.

Thank you Nathan.

Uh huh.

Okay.

Our next question comes from the line of Deane Dray with RBC capital markets. Please proceed with your question.

Thank you good morning, everyone.

Hey, when we see record orders record sales record backlog in upside in organic.

It's I'm not sure that you did miss any revenues are because of the supply chain, but did you have any ah projects are that you couldn't ship past due anything you could size there.

No I mean, there there was a couple of isolated things I.

The amount left on the table versus the number we quoted quoted in Q4 was down substantially again, the team's ability to work through some of the operational output and then just slight improvements in some of the supply chain areas. You know a lot less than I think we call it around 3% in the fourth quarter you know much.

Much lower number kind of a couple of basis point type type of framework.

That's really helpful and on the the Cascade on.

That shows the growth investments and discretionary I'm always interested in knowing some of the specifics inside there because obviously you could cut back on growth investments anytime and dress up quarterly earnings, but that's not what you all do so what's in the growth investment.

And the discretionary buckets and what kind of payback should we expect.

Yeah, Dana where we're committed to invest making these investments and you know outside of what happens in the short term. These are things that we're committed to that are going to drive growth for us long term.

We talked about engineering resources different commercial initiatives, we have across the portfolio you know Eric highlighted several times just the build out of our M&A team to improve the conversion that you've seen in our our M&A pipeline and we've got great projects in all three segments, you know either through new product launches investigating new markets to leverage a different app.

Locations for our technologies.

And then two you know even in the second quarter here.

We've got some larger trade shows that were back your largest north American trade show for fire and rescue that.

We're going to launch a couple of new products and bring those to market. So a lot of exciting things across the portfolio that we're committed to investing you know as we progress through the year like like we talked about when we gave our initial guidance and American anything else you'd want to add I would just continue to highlight and we talked a lot about the top kind of those that list of top organic bets for the company.

The resources, both talking about maps really really solidly to that list. So it's not it's not spread evenly it's very disproportionately tuned him with that addition for sort of more enterprise work around strategy and sectors were interested in as we think of putting money to work.

That's really helpful and Ara since you are asked to be asked about price cost take us through.

Where the pricing is expected to read through the rest of the year and how you expect to end up on price cost.

Yeah, I'll I'll hit it generally ill, let bill kind of fill in the blanks on in terms of models the numbers, but I mean look we've been as you'd suspect very very aggressive on the pricing front, we've been talking about it for a long time, where.

We think we're entitled to it given the differentiation and the problems that we solve out there. We've worked out you know very systematically across the company and then there is an approach to how we do that we've taken into consideration the long and deep often personal relationships that we have customers and how to navigate that effectively in an environment like this.

I would say here you know we've as.

As we talked through last year, you know we got.

In some ways the cycle came up in the velocity of it was.

In many ways unexpected at the beginning of the year, we kind of caught up with it in the back back half and then I see us in a more favorable position as we enter the year here and I think you'll see that reflected in the margins. Yes, I think continued progression here in the first quarter I think as each month goes by the additional pricing actions. We've taken we have seen an increased inflation.

The teams are doing a much better job getting out in front of it.

And I think towards the back half of the year will be at or in excess of our historical price cost based upon the line of sight to what we have as of now.

That's real helpful. Thank you.

Thanks Dean.

Our next question comes from the line of Allison Pontiac with Wells Fargo. Please proceed with your question.

Hi, Good morning, I also just want.

I'd go back to your comments on the project side, Eric You had mentioned and it seemed like it was more of a when not if kind of scenario with you know obviously elevated concerns that this next downturn, which seem more consumer facing at this time just would love your perspective, if you kind of think forward here in terms of this project is would it support maybe a more shallow.

Recession, if we if and when one comes for industrial just any thoughts on your view there.

Well I mean that in the second half. That's it is a broader question that involves a lot of other things, but I would say just from what we can see here.

It's just been a consistent story I mean, I think a lot of companies who've got work that they need to get at in many ways. It's concentrated in certain areas that are more favorable than others. They would love to deploy capital and get at it sometimes at larger scale, but you just see increasingly I mean that the bigger the project. The harder it is to put together you've got to have the people to do it they've gotta.

Familiar with the company and then you got to be able to Marshal all the resources and count on it across our horizon, that's going to be longer than it has been before so all lead times are much longer than they have been so any projects duration, there's got to be able to traverse.

More essentially more risks and uncertainty and so I think what we're seeing and in fact, even some of the things that I look at that we deploy in our own company in Chicago to the head of our list and you say alright, well Where's the absolute place that we have to put some money to work and you can see the returns sitting in front of us because the demand is pronounced and if he can do it in.

A slightly different way, maybe it's a little bit faster, it's quicker or the scale is of a different nature. Those are the kinds of things that were in are interacting with them and it's the kind of it matches the deployment within our own business, which of course is that sort of a different scale.

Thank you now that bigger transformative projects stuff that's out there. It's just that that's the situations that if base I I don't know when that ends I guess, that's the open question for all of us, but I see a lot of that related to.

It's just got to find a way to settle into a very different planning environment. That's been this way now for a while but I think you know if if folks had a magic wand and they would like it to go away and they'd like to put that capital to work that's what continues to kind.

Kind of give us the.

Confidence in the momentum on the longer term nature of the cycle as you can see how much if it does need to be deployed.

No that's great and then just a question on Max and neutral in the quarter and it just based on the backlog and you know its when its certainly that you know the pricing in the chance that more on the mix side. How should we think about that makes sense is it kind of move through the year based on what you're seeing in your in your order book at this point.

Yeah, no no material impact on the year over year I think for US a lot of the your margin mix will be just the FMT margin expansion that'll be more consistent this year relative to all the productivity initiatives that we had last year. So more of a productivity driving the margin expansion versus favorable or unfavorable mix, having a major impact.

Great. Thank you.

Thank you.

Our next question comes from the line of Joe Giordano with Cowen. Please proceed with your question.

Hey, good morning, everyone.

Hi, Joe.

So I'm just curious like obviously with what's going on.

And Europe major teams around.

How we transfer energy and food shortages globally, I mean I realize these are more international problems in domestic here, but just curious if you can kind of.

Take us through how you might be able to help attack those problems that are emerging now.

Yeah.

Well of course, we go from macro to micro pretty quick when we start to think of how that how that impacts us, but I like the way you framed it which is actually anytime there's disruption there are problems to solve and that's usually healthy for us. So you know as things swing around in production goes from one zone to another that means largely you know the infrastructure might be used in ways that is more aggressive.

RSO for higher rates than it has before we do things like custody transfer on the energy side if.

If we're shipping it around the world or building out ports to do that that's places that we play.

And so I think ultimately I'd put that in the net favorable for us and I think we saw some of that activity in the first quarter in places like energy.

Same thing over on food production I mean is that you know it becomes a bigger deal and it starts to move around in different geographies and things like that where capital may be or may not be a need to be deployed we come along with it with a mission critical fluidics solutions that we have in there as well so a lot of a lot of major trends to track and.

Get a sense of where they're heading or where they're coming from but I would say just the fact that they're changing often presents opportunities for us in ways that are that I described here.

Okay. That's helpful. And then just on the backlog just given the orders and the backlog where it is.

What's your ability to kind of protect what's there I assume that the duration of the backlog as long or longer than it typically is so as you get kind of inflation, while it's still there you are going to protect the margins inherent in the backlog.

Yeah.

And most of it Joe we've been able to pay off all of our terms and conditions over the last 18 months to make sure that we can pass on the incremental inflation as it comes into their certain certain contracts that we have that we can but I think we're well positioned overall.

Thanks, guys.

Yeah.

Our next question comes from the line of our plan.

Be streaky with Citigroup. Please proceed with your question.

Good morning, guys. Thanks for taking my call.

Sure.

So.

Strong results impressive first quarter and when you you you put up strong operating leverage and productivity.

Despite what we know is a challenging period given on the Crown in North America for a lot of the companies we are from <unk>.

So can you just talk more about how you were able to navigate that environment and what you're seeing now in terms of ongoing productivity runway in your plants.

Yep Yep, that's a great question. So there's there's it there's a number of factors that play some of which we turned to our advantage during the quarter I mean from an external perspective, I'd say the supply chain environment is basically the same difficult some subjects better some worse, but you know that that's not really markedly different.

The labor availability piece, I mean, where were low labor content, but it is critical somebody eventually has to put things together that actually improved for us in the first quarter, mainly from absenteeism, we entered the year with high rates and then as we went on February and March that actually improved and I'd say labor availability generally while it's a tough.

Tough market out there for people I mean that that did get a bit better for us and.

We've got less kind of open roles, especially on the production side overall, so that that was a component that turned more favorable for us and then a lot of the work that we do I mentioned in the remarks.

It's tuning 80 20 from beginning to end supply right through the factory right to the customer base, we've kind of always naturally had that orientation and how we produce the harder part is actually to draw those connections all the way back into the supply chain and then move them around well, that's where I'd say we've done the best work here over the last really six months, but it is.

The benefit in that in the last three so all that simply means is you know you've got your best supplier, making the part that's the most critical for our best part of the factory to our best customers that that alignment is in place we've got ways to query that across the company now and we can really see the benefit of that and then that gives you a lot of that volume throughput that we referenced.

And I don't want to lose the other two pieces, we called out I mean, we did very difficult consolidations in the middle of a very difficult time last year. We're now those are completely behind us and they're in parts of the business that have got good order velocity against them. So that's like an additive component here.

That's that's great color and and it shows in the results maybe just one follow up for me on the capital allocation side.

It's nice to see you deploy.

Deploy some cash to share buybacks.

First we've seen in the past year plus can you just talk about you know.

Given the stock performance year to date.

You know how you and the board is thinking about repurchases going forward and whether that's an area we could.

See you be more.

Aggressive through the through the year the shares remain around where they are.

Yeah, no, but I'll I'll take that one yeah. We've historically had a very disciplined approach to our share buyback program. You know when we think the stock's undervalued, what we consider our intrinsic.

Value of the car.

Company, where back in buying shares.

Obviously with the significant decline we've seen here and we think Thats short term related you know a lot of the conversation Eric highlighted where we're really bullish on the next couple of years, both from an industrial cycle and our ability to put broader capital to work in the M&A space. So we're taking advantage of where the share prices are going to continue to buy at the current levels.

If we're still at this valley here as we progressed through the quarter.

Great that's helpful. Thanks.

Sure.

Our next question comes from the line of Scott Graham with Loop capital markets. Please proceed with your question.

Hey, good morning, all thanks for.

Taking my question.

I understand for sure from your commentary that the impact of our supply chain on the top line was a lot less in this quarter than last but is that a number that you guys can maybe give us the impact.

On sales.

Well I mean, so from a how much the you know we would attributed to gating our supply chain.

Shane conditions overall, I mean, it's a slight step down I think we've said typically before we'd been somewhere in a point or two.

If things, we wish we would've been able to get out or otherwise and I'd say. This you know this is a slightly more favorable to us.

Or landing position for us.

For a lot of the work that I just talked through there I mean, I I'd say the one external component is that slight uptick in labor.

The ability for us recognizing again, it's a relatively small part of kind of our spend in P&L.

Understood. Thank you and as far as like the 20 to 25 projects I know that they look a little bit different today than they did a pre COVID-19 .

Call that you talked about the monetization when you you guys pivoted into you know.

Post Covid environment.

Yeah forgive me for not remembering that number I thought it was like a $100 million in incremental sales something like that that you guys envision maybe being able to capture can you kind of tell us where you guys are on that curve.

Well, let's just kind of maybe I'll take that one so yeah back in late 2020, we said hey, $50 million to $100 million of potential incremental COVID-19 opportunities in 2021, we said incrementally it was probably flat.

You know 50 versus 50, so no big increase last year and as we progress through this year, it's been pretty consistent.

Theres been no no material pickup in COVID-19 opportunities or decrease so, but then that would Scott that would still leave you know kind of our standard deck to drive outperformance for us of two to 300 basis points.

And as Bill said, we went through a period, where there was more COVID-19 things in it now those are kind of normalize to some degree and were back looking at fast growing applications that kind of math to the world. We see ahead of us so.

We turned that fairly regularly and we're always looking at what should be up there what should be you know should not we don't do that around sort of calendar cycles, we're continually evaluating that and saying have you hit a milestone that would suggest something needs to come off and we're seeing an opportunity elsewhere.

Got it well, thank you and if I could just squeeze one in on dispensing you fourth quarter.

Call you were you know a little bit of Oh.

Like a lot guarded on the dispensing outlook for this year and then it looks like it had a pretty good first quarter could you kind of update on what you're seeing there and what to expect.

Yes, Scott I think that's a first half versus second half yeah. We continued through through the back half of last year to win some larger projects here in North America that'll be delivered in the first half so.

Getting continued strength here over the second quarter, and then more difficult much more difficult comps in the back half of the year.

Thanks very much thanks.

Thanks Scott.

And our next question comes from Matt Summerville with D. A Davidson. Please proceed with your question.

Hi, This is a little jealous and on for Matt This morning.

Yeah.

Alright.

Yeah.

So I want to ask about our first quarter performance and try to understand better the extent to which the performance was enabled by preparation measures taken throughout 2021 versus things that were more on the fly if you will in response to things as they arose throughout the first quarter.

Well I mean, if I could if I go back to the comments I had just a few moments ago, where I sort of delineated.

The labor impact, which was positive for us I mean, I would say almost all of that that's that's an external situation playing through.

Coming off the omicron infection rates and higher absenteeism, and then that moderated as we went through the quarter.

Think labor availability more generally and some of the regions. We do business improve you know from from conditions last year. So I put that on the external side. That's a component the tuning I talked about relative to 80 20 in supply chain and how we move that through the supply base or Resourcing I made some comments about that engineering resourcing.

And our.

Or or engineering design work in the opening comments prepared remarks.

That's our side of it that's things we've long been doing to try to keep pace with a very very difficult supply environment.

I don't know what the exact balance I would say, but you know you've got some of both coming together, there and you know and both I think likely to continue for us as we go forward.

Understood. That's helpful and then I do want to ask you.

About China I know that at this point, it's a relatively small portion of the footprint, but I know that throughout 2021, you were making investments in facilities. There I'm wondering at this juncture in April .

Given the kinds of Lockdowns activity, we've seen there.

What's your view on the impact or potential impact there might be and how IDEXX might be positioned to respond to it.

Well I think like everybody else, we're watching the current situation play out I mean, it's pretty hard to predict how things are gonna go also hard to imagine that this is a big long term event I mean, there's.

No doubt be some overhang here, but I was just kind of go back to what we said when we made when we thought of the investment and we talk to everyone. Here about it. This is a massive economy. Our approach there is very local completely local so you know we've got resources on the ground. We've got technologies available and we've got domain expertise to solve local probably.

From within the economy.

And so you know that doesn't insulated it entirely from from macro events that happened there, but it does it does minimize the sort of disruptive things you can get them doing lots of cross border and that's never really been our model. There are it isn't the model for India as well we have a similar campus. There. So you know the investments that we talked about the facilities expansion is.

Isn't there actually nearing completion and we look forward as everybody does for you now.

Hopefully a healthy resolution to what's going on over there where we've got a lot of employees in the region and are going to start there with our first concern is with their health and wellbeing and then I still feel very confident about the investments, we're making to be appropriate given the potential of that economy.

I appreciate that thanks for taking my question.

Uh-huh.

Oh yeah.

Our next question comes from the line of Conor.

Morgan Stanley . Please proceed with your question.

Yeah. Thanks, I think we've covered a lot on the full year outlook. So just wanted to ask a couple on the on the near term thoughts here I mean, it seems like your overall messages demand look strong.

And there aren't any sort of warning signs, you're seeing but you wanna be.

<unk> given them the overall macro environment I guess I'm curious just.

In the second quarter. It seems like you are pointing to some potential for some margin compression is that based on what you've actually seen thus far either in March or April .

Or is that just similar sort of conservative being there.

No I think we highlighted sequential margins decline.

50 basis points of it just the Nexsan acquisition coming into the fold fold excuse me on the dilutive impact of the the deal amortization, depending on what your comp is theres kind of another 50 to 100 basis points, primarily through incremental investments on the.

Fresh and Aerie and resource side, you know as we've said hey, we're going to have about $20 million to $25 million.

For each category. This year, we spent four in both incrementally that's going to ramp a little bit here in the second quarter.

Impressed margins.

Slightly.

Okay understood understood and then just in terms of capital deployment for the year. So the capex guidance for the full year would indicate that you're sort of accelerating there just want to make sure. You know we have context for you know what what are the incremental things that you're investing in there you know what are some sort of some of the big focal areas for you.

Over the next year here yeah.

Yeah, I think some of the big ones, Eric highlighted our continued investments in facilities in emerging markets, our China expansion or in the India expansion. The capex associated with that will ramp here over the next two quarters.

And then we talked about a large infrastructure investment of our banjo business with new technology.

Increased automation and overall, but as that business has continued to grow and scale here relative to the differentiation that that product brings to market along with a bunch of other investments to support growth and productivity across the portfolio. You know we've got some some things in life sciences and in our sealing business related to semi.

Icahn expansion too so.

We're investing in that and the machine.

Machine tools and equipment to do that I would say within you know additive emphasis on the on the automation capabilities that are out there today that also has a secondary benefit of helping us on the labor front.

Makes sense, thanks very much.

Yeah.

Yeah.

Our next question comes from the line of Andrew Slosh with vertical research. Please proceed with your question.

Hey, good morning, guys.

Got it.

Well Firstly do you know with total price was in the quarter.

Yeah, It was closer to 3%.

3%.

Great that's great color.

You know the other thing that was kind of curious about you know what what do you think the demand outlook is for kind of bio slash medical flow what are you seeing there.

I mean, that's been that's been very very healthy I mean, obviously theres a piece of that that's involved with you know COVID-19 or at a minimum the vaccine the therapeutic side of that lots of interesting things going on with cell based therapies and other things that are out there. So I mean, it's an area of focus for US we've got a nice presence there that has done well.

And we continue to stay very interested in it.

Great. Thanks for the color I'll pass it on.

Our next question comes from the line of Brett Linzey with Mizuho. Please proceed with your question.

Hi, good morning, all.

Okay.

Wanted to come back to the guidance framework you brought up the low end left some contingency there. It's certainly understandable you mentioned the potential risks and was just hoping you could put a finer point on it are there specific one or two regions or areas of the portfolio that you know where are you. Most and this is really a demand side versus price cost any color would be great.

I would say from a high level. There is none of US really comes back to specific areas of concern that map against where we are and kind of where we intersect the world out there they're more general.

And they're pretty close to the same ones that everybody else is thinking about so you know region locked down in China, and what happens is that all plays out and broader exposure to Asia Pac and supply sides back into mature economies he put us.

But it's on the radar of keeping an eye on that certainly the issues Geo politically in Europe .

You know, we don't have a lot of direct presence there, but there's a bunch of derivative impacts for us and others, we'll see how that plays out but I don't think we're looking at it.

It's a measure that are different than the ones that are on the macro screen for most people and again I think relative to some of the earlier commentary lessen the demand side more on the supply side Yep.

Got it makes sense and then just back to H S. T. The continued wins in sequencing and semiconductor.

Hoping you could just unbundle that and what the contribution was to the 20% order print and then specifically within semiconductor how are you aligning with some of these big capital commitments here in the U S and Europe on the Fabs.

Well I mean, so it's kind of hard to do that specifically because it goes in different businesses and goes in different places I would just say very very strong on both of those categories on the on the semi side. I mean were you know look we're involved in different aspects of that were involved in some businesses, we kept what kind of.

In there on the on the fab side, when we build out infrastructure and other places where we're actually involved in the metrology side of the inspection of things that are made in that infrastructure. So we're well positioned throughout Ah and well positioned with the names that most people think of when they think of that industry.

Okay, Great I appreciate it thanks a lot.

Our next question comes from Rob Wertheimer with.

All of these research. Please proceed with your question.

Hi, Thanks, Good morning, everybody Hi, Brian .

I just wanted to see if he would round out the discussion a little bit on capital deployment and acquisition, where you've obviously been successful in study.

In the past year and into this quarter, a onetime one Q2 Q.

Can you give any just sort of background on how the how the funnel looks versus a year ago versus a year and change ago. The operational focus I think is shifting more and more towards their any changes to how that broadens out the funnel or accelerates progress through it.

And I'll stop there.

Sure.

You know I think the thing for a while we've been talking about the intentionality of the work you know should we resource that I'm in a different way I would put some people on brought some folks in from the outside I mentioned Roomba in my earlier comments. She brings a lot to the to the effort as we go.

A lot of this comes from the bottoms up I mean, it comes out of the businesses you know their worlds and markets. The best and you can kind of see that if you look at the the the last few acquisitions in particular, they're all very close to home to our businesses and in fact, we've known them for a long long time.

So in some ways, we're taking advantage of of targets that have been out there that we've understood with much more focus cultivation understanding and an ability to get the transaction done and then integrate it successfully in the company. So that's that's always going to be a big piece of what we do right next to that then is broadening that work and starting to think about what was.

He go slightly to the left or to the right or extend out the time horizon a bit further what does that suggest about the universe, that's out there which could be known some cases isn't known and so it is very very focused work. Its process driven you can think of it as almost a grid of intersection between the work that we do and the problems that need to be solved in the world and.

Where they crossover.

Again, a lot of it is relatively close to home because we're looking to leverage that domain expertise that we have the market insight and presence and positioning of current businesses, but it's coming together in a in an interesting way and.

We've long et cetera, I'd said ever since I took the seat I was trying to level loaded a bit and that's that's now happened. It makes that resource base more stable and it makes the work more predictable and it's easier to optimize so that's kind of where we are now looking forward to where we're going to take it and talking to you about it as we go.

Well, that's fantastic and so that's obviously the process broke it seems like it's it's paying off.

As you look at your metrics on just the scale of opportunity size of opportunity progress through I assume you anticipate this higher level of acquisition activity as well supported to continue.

That's the plan I mean, we've got the team to complete the kind of growth maps that we have for the businesses. We're gonna often want to you know bring in some technologies and position points that we don't have today.

This is a great way to do it and we've got the great cash generating facility and balance sheet to pull it off and so you know, but doing it in a way that works for us process driven people dependent we liked that that's.

That's what we're trying to build there.

Perfect. Thank you.

Yeah.

Yeah.

Yes.

And our next question comes from the line of Walter Liptak with Seaport Research. Please proceed with your question.

Hey, Thanks, good morning, everyone.

Yeah. We did we did cover a lot of ground, but I thought I'd try and drill into a couple of things you know certainly.

Yeah.

Recognize that the Europe .

I had plenty of geopolitical things during the quarter did you notice anything with with demand like orders or with any kind of project delays or anything like that and if you compare and contrast, it supply chain in the U S versus Europe or can you see any differences.

Yeah.

I would say nothing yet nothing on the front that's hit the radar here Ah Yeah, we have a big broad cross section of different markets different pressure points, and I wouldn't be able to pick anything out specifically yet.

Okay, Alright fair enough and then.

I think bill's remarks about the paint dispensary market.

I think he made a comment that globally.

It was a it.

It was looking okay. That's what I wrote down, but and then a follow up question. You said that it was still the second half where you thought that was going to slow down I just want to make sure I didn't mishear something.

You know it was there some sort of a pickup in dispensing internationally.

Yeah, well I think overall the paint market strong obviously from time to time, there's large replenishment orders in North America and then.

We're coming off of the back of a huge cycle. There I don't have the tougher comps in the second half of the year or so.

A man core demand is still strong across the globe with just tough comps on some of these projects and you're still you still have a lot of especially the Asia side of things is I mean, that's it's just now automating we're still involved in that cycle, which is a little bit more steady state less project specific so it's it's really how these things come together in time out.

Okay, great. Okay. Thanks very much.

Thanks.

And we have reached the end of the question and answer session. I will now turn the call back over to CEO , Eric Ashland for closing remarks.

Thanks, very much I'd like to thank everybody on the call for your interest and support of IDEXX. Just two final points for me one that just a really really big Thank you to our IDEXX teams and business partners that are out there you know bill.

But when I do our best to simplify the story here makes it seem easy enough. It's not I mean, we deliver highly engineered solutions to very demanding customers to solve supercritical problems. That's tough to do on the best of the days. This is there's been a pronounced difficult environment and I'm really really proud of how our teams have come together and made the improvements and progress that they.

Here, so I, just really want to thank them.

And look we talked a lot about the challenges that are out there the things that the folks were wondering about and I just would remind everybody. Our company is uniquely positioned to help with many of those problems to solve them.

It's reflective of our mission and values and when we do our jobs well rewarded financially with gross margin expansion cash to take their business to the next level. So we're leaning forward and feel good about where we are and look forward to talking with you as we go about the progress we're making thanks very much.

And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Yeah.

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