Q1 2023 IDEXX Laboratories Inc Earnings Call
Speaker 1: Good morning and welcome to the IDEX laboratory's first quarter 2023 earnings conference call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jay Mazzelski, President and Chief Executive Officer, Brian McKeon, Chief Financial Officer, and John Raavis, Vice President Investor Relations.
Speaker 1: I'd 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 risk and uncertainties that could cause actual results to differ materially from those discussed today.
Speaker 1: Additional information regarding these risks and uncertainties is available under the four-looking statements notice in our press release issued this morning, as well as in our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website, idx.com.
Speaker 1: During this call we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAPs. 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 found by visiting the investor relations section of our website.
Speaker 1: In reviewing our first quarter 2023 results, please note all references to growth, organic growth, and comparable growth referred to growth compared to the equivalent period in 2022 or most otherwise noted. To allow broad participation in the Q&A, we ask that each participant limits their questions to one with one fall of this necessary. We appreciate you may have additional questions, so please feel free to...
Speaker 2: I'd accept a solid start to 2023.
Speaker 2: 12% organic growth and Cag Diagnostic Recurring Revenants.
Speaker 2: Tag diagnostic recurrent revenue gains were driven by nearly 14% organic growth in the U.S. supported by solid volume gains and benefits from a higher net price realization.
Speaker 2: The execution metrics remain strong globally, reflected in record first quarter premium instrument placements, continued solid new business gains, and sustained high growth and recurring veterinary software revenues.
Speaker 2: $10 million customer contract resolution panda.
Speaker 2: The strong results reflect the durability and resiliency of the Idax business model and benefits from our ongoing focus on execution. We've incorporated our Q1 results in positive adjustments to our four-year financial outlook, which we'll discuss later in my comments.
Speaker 2: Let's begin with the review of our first quarter results.
Speaker 2: First core organic revenue growth in 10% was driven by 11% CAD gains and solid 8% growth in water.
Speaker 2: Overall, organic revenue gains were moderated by 2% declines in our LPB business and approximately $4 million of revenue had went related to lower-huban COVID testing revenues, a business area that we winded out completely in Q1.
Speaker 2: Pagdiagnostic recurring revenue increased 12% organically, reflecting 14% gains in the US, and 8% growth in international regions.
Speaker 2: Taggyagnostic occurred in revenue growth was supported by global met phrase gains in the 8-9% range, consistent with our expectations.
Speaker 2: Overall, organic revenue gains were also supported by 14% organic growth in veterinary software and diagnostic imaging revenues.
Speaker 2: Cagging instrument revenues were down 7% organically reflecting comparisons to high priorier levels, program pricing effects, and global mix.
Speaker 2: Idaq's CAG diagnostic occurred when the growth remains solidly above sector growth levels.
Speaker 2: In the US, we achieved the 1,350 basis point growth premium compared to relatively flat, same store US clinical visit growth levels in Q1.
Speaker 2: These results reflected benefits from execution drivers, including higher net price utilization. Solid U.S. volume growth was supported by new business gains, high customer retention levels, and continued increases in diagnostic frequency and utilization at the practice level.
Speaker 2: International CAG Diagnostic Recurred Revenue Gains were also supported by strong IDEX execution, reflected in higher net price realization, sustained new business gains, and a double-digit expansion of our premium instrument install base.
Speaker 2: Double-digit growth rate benefits from these drivers were moderated by impacts from challenging international macro conditions.
Speaker 2: which continued to pressure same star volume growth trends in the quarter.
Speaker 2: Globally, Idaqs achieve strong or granic revenue growth across their modalities in Q1.
Speaker 2: I'd expect that like Consumer Revenue's increased 12% organically with double digit gains in the U.S. and international regions.
Speaker 2: Consumer gains were supported by 11% year-and-year growth and global premium instrument install base, reflecting double-digit increases across our catalyst, premium heatmetology, and set of e-platforms. We've placed 4,425 CAG premium instruments in Q1.
Speaker 2: an increase of 3% year-on-year compared to very strong priority levels, building on the record placement levels achieved in the fourth quarter of 2022.
Speaker 2: The quality of instrument placements continues to be excellent reflected in 7% growth in new and competitive catalyst placements.
Speaker 2: Procite one momentum also continues to be strong with a wave reflected in a global install base that more than doubled over the last year to 90,400 units. Global rapid assay revenues expanded 12% our gameplay driven by strong growth in the U.S. with collecting solid-bowling gains and benefits from higher net price realization.
Speaker 2: Global lab revenues increased 11% organically with fucking scardgains in the US and mid-sync will be a big growth in international.
Speaker 2: With growth in key international regions moderated by macro economic impacts, we have pressured stage turn sales.
Speaker 2: In terms of other areas of our Cagbus, business, veterinary software, and diagnostic imaging revenues increase 14% organically.
Speaker 2: Water revenues increased 8% organically in Q1, reflected solid gains in the U.S., Europe , and Latin America, including benefits from net price improvement. The integration and performance of our recent Tech2PDS acquisition has progressed well, expanding our capabilities in water safety testing. Life-cycle-free dairy revenue decreased 2% organically, as solid gains in the U.S. and Europe were offset by comparisons to high prior year sales levels and herd health screening and reduced revenues from non-core food and safety products in certain regions.
Speaker 2: Turning to the P&L, Q1 profit results were supported by a 150 basis point improvement and reported operating margins.
Speaker 2: reflecting 10% organic revenue growth, solid gross profit gains, and benefits from a $16 million customer contract resolution payment.
Speaker 2: Was profit increased 9% in the quarter as reported and 12% on a comparable basis.
Speaker 2: gross margins were 60.3% of 120 basis points on a comparable basis. Benefits from higher net price realization, lab productivity issues, improvement in software service gross margins, and business mix offset inflationary cost effects.
Speaker 2: Later timing of lab staffing increases and select operational websites also supported key one gross profit results. As expected, reported gross margin gains were moderated by a 50 basis point negative impact related to foreign exchange changes, including wrapping of prior year hedge gains.
Speaker 2: Operating expenses increased 5% year-and-year as reported in the quarter and 7% on a comparable basis.
Speaker 2: This was net of a $16 million or 6% operating expense growth offset related to the customer contract resolution payment.
Speaker 2: As planned, we saw higher growth in sales and marketing and R&D expense in the quarter related to specific factors, including the return of in-person sales meetings this year in advancement of key innovation initiatives.
Speaker 2: EPS was $2.55 for Sharon Q1, an increase of 12% is recorded and 18% on a comparable basis.
Speaker 2: 4x-chage reduced operating profits by $12 million at EPS by 11 cents per share on the quarter, including impacts on the lapping of priorier hedge gains.
Speaker 2: Pre-cash flow was $144 million in the first quarter. On a trailing 12 month basis, our net income to pre-cash flow conversion ratio was 65%.
Speaker 2: For the whole year, we're maintaining our outlook for free cash flow conversion of 80 to 90 percent, including estimated capital spending of $180 million.
Speaker 2: A balance sheet remains in a strong position. We enter the quarter with leverage ratios of 1.1 times gross and 1 times net of cash, down modestly from Q4 levels.
Speaker 2: Sheriff purchases over the last year supported a 1.9% reduction in diluted shares outstanding.
Speaker 2: We didn't allocate capital to share with purchases in the first quarter as we manage our balance sheet relative with more conservatively in occurred interest rate environment.
Speaker 2: from execution drivers and the potential for reduced clinical visit growth headwinds.
Speaker 2: We raised the low end of our full-year organic revenue growth outlook by 0.5% in our updated guidance incorporating our solid search to the year. We're maintaining our outlook for solid operating margin performance in 2023 with an expectation for reported operating margins and the range of 29% to 29.5% for the full year. At the high end, this reflects an outlook for approximately 340 basis points and comparable operating margin expansion. This includes approximately 280 basis points in combined benefit from the $16 million Q1 customer contract resolution payment.
Speaker 2: and the lapping of $80 million of discrete R&D investment in the second quarter of 2022. We now estimate that poor exchange will reduce reported offering margins by approximately 60 basis points this year slightly higher than earlier projections.
Speaker 2: which included impacts from the lapping of $26 million in 2022 edgegans. Our updated EPS Outlook is $9.33 to $9.75 per share, reflecting a $6 per share increase in our low-end estimate.
Speaker 2: We continue to estimate that foreign exchange impacts will decrease the EPS by approximately 23 cents per share for the full year, but the bulk of this impact in the first half. In terms of our operational outlook for Q2, we're planning for overall organic revenue growth consistent with the midpoint to higher end of our full year growth outlook range.
Speaker 2: with approximately 1% of reported growth headwind from year on year FX changes. In terms of Q2 operating margins, we're planning for reported operating margins in the range of 29% to 29.5%.
Speaker 2: We provided details on our updated outlook in the press release tables and earning snapshot. Overall, we're applying a discipline financial approach that advances our growth strategy and mitigates potential macro risk to ensure delivery of continued strong financial performance. That concludes our financial review. I'll now turn the call over to Jay for his tell us. Thank you, Brian , and good morning. I'm pleased to share that I had a very strong start to 2023 driven by sustained X-ray execution of our growth strategy demand for companion animal medical services continues to grow supported by high-dex innovation and direct customer engagement.
Speaker 2: veterinarians continue to focus on meeting these high levels of demand with the best possible medical care. With diagnostics, it's an essential component of this care equation. IDEX remains a chosen trusted partner to veterinarians who appreciate how our world-class products and connected ecosystem enable high standards of care while resulting in growth of a significant profit center within their clinics.
Speaker 2: I'd access strong execution is reflected in double digit total company organic revenue growth supported by strong expansion of global CAG diagnostics recurring revenues. Growth in this recurring revenue annuity was supported by solid contribution for new business games, sustained high customer retention rates, and net price realization aligned with our expectations. Our commercial teams drove another record quarter for global premium instrument
Speaker 2: I'd excroute as we continue to work effectively through the near-term sector headwinds related to clinic, capacity constraints, and global macro conditions.
Speaker 2: Today I'll discuss how IDEX sustained execution against our strategy to drive the adoption and utilization of diagnostics helped deliver continued strong financial results.
Speaker 2: First, I'll provide an update on our commercial execution, which through education and customer engagement drives relevant utilization of IDECS's innovative solutions. IDEC's commercial team delivered another record-first quarter global premium instrument placements to start 2023.
Speaker 2: Building on very strong prior year results. Our commercial teams demonstrated a continued ability to advance placement, quantity, and quality. This is reflected in strong growth in catalyst placements that new and competitive accounts, globally, driving solid EVI achievement.
Speaker 2: These commercial results are highly encouraging as we address a significant opportunity for an estimated 220,000 worldwide premium instrument placements.
Speaker 2: and give us confidence that we have the right strategic playbook in place.
Speaker 2: Idaq's professionals provide world-class software-enabled products that have earned high demand and supported by a wide many of customer-friendly marketing programs that enable adoption of new technology.
Speaker 2: These results also reflect continued strong clinical interest in using Idexas products and services.
Speaker 2: do not only meet the increased demand for care health care, but to deliver the best possible level of care.
Speaker 2: Our commercial execution is supported by the multiplier benefits that flow from my dex innovations, as evidenced by the success of our newest hematology analyzer, Pro-Z1.
Speaker 2: Proci1 provides customers with an attractive, incline, hematology solution. It's small footprint, easy paper run model, and lower cost come without sacrificing CBC performance.
Speaker 2: IDEX premium placements have benefited from strong Prosite 1 adoption to date, thanks to sustained high attach rates with catalysts, as defined by Prosite 1 placements either with a catalyst, or at an existing catalyst customer.
Speaker 2: The result is a multiplier benefit, supported by clinics who choose the outfit their inclination suite with addict products. As a result, we are nearly halfway to the incremental 20,000 premium hematology placement objective we shared an investor day following ProSide One's launch.
Speaker 2: Well, the strong attach rate should also help I'd expeterate the long-term worldwide placement opportunity.
Speaker 2: The key to developing this long-term opportunity will be increasing customer engagement in international regions. We're leveraging our successful BDC model to build strong relationships with international customers as evidenced by sustained strong new business gains and a 19% increase in catalyst placements. I highly recommend such a fast andcreated definition to anymore business owners.
Speaker 2: A strong performance is allowing us to deliver solid CAG diagnostics recurring revenue growth in international regions despite continued macro headwinds which are pressured
Speaker 2: Same store, clinic visit bubbles.
Speaker 2: Customer engagement remains excellent, as evidenced by high reach to revenue levels in the first quarter, including benefits from our expanded commercial sales force in targeted regions.
Speaker 2: The flywheel is beginning to turn in these countries where we've seen excellent gains from new business, strong interest in engaging with customer marketing programs, and solid overall volume growth. Commercial expansion is an important early step in our international strategy.
Speaker 2: supporting recent efforts to optimize our reference web network. We'll roll out highly relevant products like Pro-Sai-1, and our further adoption of software tools like VectaNet Plus, our cloud-based diagnostic portal. Software innovation continues to be a key driver of our growth strategy globally.
Speaker 2: Idaq software solutions are key in the able of diagnostic civilization. Creating a connected ecosystem that helps improve diagnostics workflow while providing deeper clinical insights and supporting pedo-owner communication.
Speaker 2: It's an attractive standalone business as well. Strong pins placement in the first quarter were supported by continued preference for cloud native products with I'd X well position to address this trend.
Speaker 2: Placements of cloud-based products maintained the strong velocity we saw coming out of 2022 and represented greater than 90% of total placements.
Speaker 2: supported by continued high interest in our EZVET and NEO solutions, which are seamlessly integrated into our product offering. This provides customers with options when it comes to picking the best, most relevant PIM solution for their clinic size and workflow complexity.
Speaker 2: Our strong first quarter placement performance supported double-digit recurring revenue growth with an attractive gross margin profile. And we're on track to achieve this year a PIMS footprint that is over 50% cloud-based.
Speaker 2: This milestone is especially important in occurred veterinary clinic environment, where productivity is a priority in addressing the sustained high level of demand to increase the pandemic.
Speaker 2: By embracing IDEX's cloud-based ecosystem, customers gain the advantage of an easy-to-use software stack that touches every area of the veterinary clinic. And the benefit of these tools is enduring for our customers, evidenced by strong engagement metrics across applications, including increasing rates of our WebPax user base that are power users.
Speaker 2: as well as sustained rates of Vecanect Plus users who use the software as part of their daily routine.
Speaker 2: Adoption and continued use of these products allow veterinarians and their staff spend more time focused on the care they deliver to their patients rather than on costly time-intensive administrative activities. Our software strategy is to increase cloud adoption and build increased business and clinical functionality into IDEC software solutions. Thank you.
Speaker 2: Another use case of our innovation agenda is our 40x Plus test.
Speaker 2: The gold standard test for canine vector board disease testing. The current 40X plus test is our fourth version of a multiplexed canine vector board disease diagnostics over the past 20 plus years with improved sensitivity of antiposmone and two times increase in the ability to store the product at room temperature.
Speaker 2: This is a true testament to our technology for life strategy and supported 12% global organic rapid assay, recurring revenue growth and solid customer gains in the first quarter. A full vector board screen using 40X plus is recommended over hardware monly tests.
Speaker 2: given significant increases in incidence and prevalence of vector-borne diseases over the past 10 plus years. And yet, in 2022, less than one in every five dogs received this comprehensive level of testing.
Speaker 2: 40xPlus enables that variance to deliver this higher standard of care with follow-up testing and care protocol guidance provided through Decision IQ, which aims to drive better health outcomes while encouraging increased diagnostics testing.
Furthermore, our entire Rapid F.A. franchise is supported by the SNAP Pro Analyzer.
The analyzer not only simplifies the workflow when running a snap test, but also ensures the diagnostic results flow seamlessly to VEC Connect Plus and ultimately results in charge capture and invoicing at the point of sale.
This is a clear case of how our products integral components of our connected software ecosystem can improve in value over time while delivering a multiplier benefit to our customers and drive IDEX CAG diagnostics recurring revenue.
The sustained execution against our commercial and innovation agendas is made possible by an unrelenting focus on our customers and ensuring they have world-class experience with IDIX. This takes multiple forms. I'll focus to ensure our customers have the resources they need to provide the best possible levels of medical care. IDIX, IDIX, IDIX.
It's continued 99% plus product availability and reliable, fast reference web service turnaround times provide them with important business continuity and are the result of our investment in manufacturing and supply chain logistics teams, facilities and relationships.
Additionally, the support of the high touch, highly knowledgeable sales teams that we have built out over the decades.
ensures they have the products and services that are right for their busy clinics. Our customers realize the benefits of the IDEX partnership every day and in turn reward us with their business and their enduring loyalty as measured by another quarter of consistent high customer retention rates.
Providing our customers with reliable, consistent support is even more essential right now given the dynamic backdrop of our sector. High demand for animal medical services combined with sustained labor supply constraints continue to create productivity and growth challenges at the clinic level.
Taking our customer support effort to step further, we recently published an empirically-based study, which examined the drivers of productivity within a practice and helped customers to understand their productivity, strengths, and areas for opportunities.
Through this rigorous effort, we found three key drivers of practice productivity.
Number one workflow, which includes staffing models like optimized technician to veterinarian mix and staff and patient friendly physical layout to the practice.
Number two, technology. We're digitizing each step of the patient workload to remove high effort administrative routines. And number three, the role of culture.
including clarity, overalls and responsibilities, investments in training and staff effectiveness.
and aligned incentives to drive teamwork and achievement to practice goals.
As a result of this initiative, we believe there's still great opportunity for clinics to improve productivity measures and we look forward to educating and supporting our customers in these efforts.
Opportunities to do so could result in 30 percent or more incremental visit capacity, even for practices that are in the top cohort of productivity. We are integrating elements of these efforts into our strategy and commercial approach this year.
With that, I'll now conclude the prepared remarks portion of the call by thanking our nearly 11,000 IDEC colleagues for the commitment and passion they bring to our purpose-driven work every day.
Your efforts not only help provide a better future for animals, people, and our planet, but you'll also support the IDECS in starting 2023 on a strong financial note.
We have a track of sector and a strong track record. Any opportunity ahead of us, which is significant, is to work with our customers to elevate, companion, and a healthcare standards, to increase diagnostic utilization. The tireless work of the ITIC team has positioned us well for the delivered solid growth and financial results into the future.
So on behalf of the management team, thank you for your continued focus on enhancing the health and well-being of pets, people, and livestock.
Now, let's open the line for Q&A.
Please make sure your mute function is turned off to allow your signal to reach our equipment.
A voice prompt on the phone will indicate when your line is open. Please state your name before asking your question.
Again, that's star one. To ask a question, we'll take our first question from Nathan Rich.
Thanks for the question.
Hi Nate. Hi. Hi, good morning. Thanks for the questions. I had two on the updated guidance. You know, Brian , on top of line, I think you've talked about targeting the high end of the Cag DX recurring revenue range at 11 percent. You know, first quarter came in a bit better than expected. I guess any change in how you're thinking about getting to that for the
The drivers of that, we highlighted pricing being a positive driver for us this year and the execution is consistent with what we had expected. I think the executional drivers that helped to deliver solid volume growth in the U.S. were very encouraged by and looking to build on that. I think internationally we...
Also, our excellent execution drivers, I mentioned we had double-digit growth benefit from things like new business gains including benefits from strong instrument placements, higher pricing. We are seeing continued headwinds from macro factors in international markets, so the growth was somewhat below our higher end targets, so on balance we feel
impact. Gross margin, I think you said, came in better than expected, but was offset, I guess, by higher op-ex. Could you maybe just talk about how that plays out over the balance of the years? Especially sales and marketing, I think, was up, meaningfully as a percent of revenue in the first quarter. This is what drove that increase and how should we think about the run rate for the full year?
Let me try to break that down. We had an expectation for the first quarter for an improvement in reported operating margins of 50 to 100 basis points. We came in at 150, so that was better than expected. That was principally on the gross margin line. We
We saw some benefit in the quarter from kind of later than time, uh, plan staffing and in areas like our labs, and some specific operational factors, more Q1 related. So I think we feel, we feel good about the overall performance, and, um, you know, do you think that the, the high end goals that we have are still appropriate, we,
As we highlighted coming into the year, we knew that we had some costs coming back here just more interface with our customers, more travel. I think we are anticipating that to continue. We're trying to support our employees in a higher inflation environment as well. We do have investments that we're advancing in areas like R&D. I know we've...
highlighted in the past, a couple new platforms that we're advancing that we're investing behind. Those are all captured in our outlook. I think on balance our performance is very much in line with what we're targeting. We've done a good start to the year and we think the four year goal is on a...
If we adjust out the R&D lapping and the customer contract resolution payment for a solid 60 basis point comparable improvement and you know, right in line with what we were hoping to achieve this year and we'll look forward to working to deliver on that.
Our next question comes from Chris Shah from JP Morgan. Great. Thanks very much. Just two questions for me. The first was just any comments on the Mars Heska proposed acquisition and the impact that could have on the competitive landscape. And the second one was just a question on price. I was turning my hands around just feedback you're getting on the moves you've made. And are you seeing any impact at all on demand from these changes? We think about whether it's wellness visits or less acute conditions. I know it seems to be kind of topic that's top of mind for investors. So just love to have any, you know, just, you know, directional comments of what you're hearing on price would be appreciated. Thank you.
Yeah, good morning, Chris. This is Jay. So let me take your second question first in an address, the acquisition. Overall, we think pricing, our customers, is appropriate within the current environment. From an overall demand standpoint, we see that holding up well.
relative to the macro conditions as we've described it in the different pricing scenarios. From just a pet owner perspective, we think they demonstrated a willingness. We see this both from experience as well as just the survey work that they continue to prioritize healthcare for their pets.
Keep in mind that diagnostics is a relatively small piece of the overall patient spend on their pets. Specifically, to your point around wellness versus non-wellness, we've seen the two pretty much move in lockstep over the last five quarters or so. Of course, if the back row, when we've seen the back row...
deterioration from an environmental standpoint during the pandemic. There was some divergence but you know generally at least over the last year plus they they've moved in in lockstep and you know just an interesting I think proof point of that is you take a look at the 4Dx diagnostics you know testing it's been highly durable that's primarily a you know a wellness test and we think indicative.
of the good end customer demand in PULTHROOM. From the standpoint of the Mars, HESCA acquisition, just as a matter of policy, we don't comment on specific customer relationships, except to say that no single customer comprises more than 10% of our consolidated revenues. Our customer base is very large and diversified.
I think is, you know, and we've maintained and have excellent relationships in a great long-term track record with our corporate customers. They, I think, very much appreciate the broad solution portfolio both on the diagnostics as well as software side where we can support.
their objectives to grow and deliver great care. And probably just as importantly, footprint-wise, to be where they are. You know, I think the acquisition itself reflects what we've said all along, the attractiveness of the animal health sector, and more specifically, diagnostics that we think.
long term that it can help support the overall market or sector development of diagnostics.
question from John Block from Steve.
Steve?
Yeah, it's sharp from staples.
Is it Can you guys hear me? Okay? Yeah, we can't catch it up Sorry, the operator jumped in I guess is there were teaming out. Sorry about that First question Brian , you know, it's a good quarter that the CAG DX revenue of 11-6 was above the high end of your prior eight and a half to eleven and I think you expected on the
U.S. and international, that would be my knee jerk reaction, but would love to hear from you. And then if it is in the U.S. is it more specific to call it IDEC strivers or did you see, you know, some upside call it industry visits relative to where your head was at three months ago?
Yeah, thanks for the question, John . We did have a really good start to the year in the U.S. I think our pricing, as you pointed out, was globally in line with what we had planned, so we feel good about the execution there. I would say that the U.S. clinical visits were overall for the quarter, a little better than we...
anticipated they were flat as you mentioned and we thought we'd still be working through some compares on that front I think you know we the gets them benefit really early in the quarter I think with some positive growth that helped there and the our own volume execution you know the difference between you know how much growth is coming from our volume relative to clinical visits was a solid 5% that's kind of
pre-pandemic level, so we that was in line with kind of where we're hoping to achieve. So on balance, U.S. combined came through quite well. I think international was in line, I would say, with what we were guiding towards. We had very good execution as noted and continued to see some macro headwinds that we're working through. So on balance, I think we feel good about the start to the year as I shared earlier.
feel good about the start. Yeah and I would just build on that to say that I would build on Brian's comments and just emphasize the excellent commercial drivers that we've talked about certainly pricing as Brian mentioned you know new customer acquisition has been has been strong both U.S. and internationally customer retention rates you know continue to remain.
strong. I think the customer interest and appetite for technology, we see that in premium instrument placements as well as software. I think that's really reflective of some of the capacity challenges that they say. So overall, I think from an execution standpoint, very strong quarter.
Perfect. That was helpful, guys. Thanks for that. And then, next one might have a couple parts to it, but Brian , just below the line for the guide, is it essentially a wash? Like, there's some less interest expense, but there's less share repo. You had some wording around the hedges and the way that flows through. A change of just, broadly speaking,
Below the line is it a wash when we think about your current 23 EPS versus where it was back in February . And then the second part of that question is, guys, even if you keep it at a high level, can you just talk about what needs to be done for the two new point of care systems?
And are those initiatives running in parallel? Just when we think about timing there. Thanks for your help. Yeah, just to clarify on the profit guide, our operating margin outlook is consistent. We have a slightly higher headwind from FX, and so on a comparable basis the high end's the same.
the low ends up I think slightly. We obviously have some positive flow through from raising the low end in the revenue, you know, so that's the EPS adjustment and you're correct. We had lower interest expense projected offset by relatively lower projected reductions in shares outstanding so that was a net flat effect.
And I would just say from a product development standpoint, you know, I'm not going to be specific, obviously. But, you know, we are running parallel programs. We continue to invest in software assays, incidents. We spend a lot of money on innovation. We think there's great.
opportunities across support folio and we'll continue to provide updates as we get closer. Our next question comes from Michael Reiskin from Bank of America.
Great, thanks for taking the question guys. Jay, Brian , I want to start on OUS specifically. Could you just clarify, I think you said 8% OUS, was that tag recurring or tag total? Just in general, in everybody's imagination.
Did that come in line with expectations? Anything you need specific you can call out on OUS results? I mean, he's just coming it on the macro environment, but anyone that you can point to either by region or by...
you know, sort of the factors that are driving that. Yeah, let me clarify the numbers. I'll let Jay talk to the regional dynamics. It was 8%...7.6 CAGDX recurring. And, Mike, I would say that's pretty much in line with the outlook that we shared for the quarter. I think we...the execution drivers were very... were strong in line. We had 17% growth in instrument placements, double-digit benefit from...
you know, things that weren't related to same-store sales dynamics, and we continue to see the you know, kind of pressure that we've seen on macro, for macro trends on the same-store side. But we've been building that into our outlook, and I think that was in line with what we were.
anticipating and kind of consistent with their full year view as well. Yeah, I mean just to support that, we've seen, you know, relatively speaking, more macro impacts outside the US. You know, as I had mentioned, you know, previously our execution drivers internationally have been excellent. We've done seven commercial expansions and when you take a look at those targeted expansions.
We're doing well. We think we're bringing more focus from a frequency and business standpoint, the type of successful model that we've implemented in the US. From an instrument and business focus standpoint, we've seen excellent results in premium instrument placements.
And I think 19% on the catalyst side really strong. The quality has been really strong from both competitive and in new placements. And so we're optimistic. And I think the regions are working or the countries within the regions are working through their specific challenges. But we're optimistic that the long-term demand is there.
Okay, great, thanks. And then for the follow up, going back to the organic growth guide for the year and your assumptions on vet visit growth, previously you said that on the high end of the guide you're baking in a relative flattening of clinical vet visit growth trends as you work through the year. And as you said, you kind of saw them in the first quarter already.
So what do you need to see from that visit or the current trends to say, okay, you know, we're here already, things have definitely improved, we're ready to revise that board. Is that just a matter of seeing these trends continue for another quarter or so? Or is there something that you saw in between the numbers that gave you pause? Maybe I can provide a little color there. On the US side where we-
We're more exposed to that, and how we're thinking about the visit trends. As I mentioned, the overall, it was clinical visits were relatively flat in the quarter. I think we are encouraged that it appears that we're working through the headwinds that were related to capacity staffing, so that seems to be normalizing. I would point out it was stronger early in Q1 than how we exited.
through some of those headwinds that we highlighted and an area that we'll continue to monitor and we're actively trying to help clinics through productivity improvement get back to the positive growth rates that they've been able to support in the past. Yeah, you know, to Brian's point that the practices from our perspective to speaking now.
to the US have largely stabilized. We've seen stabilization of hours, for example. I think there's been really strong appetite and enthusiasm for technology, specifically with a focus on productivity and supporting capacity. Certainly, we've seen heightened interest in software as a way of supporting staff productivity, workflow optimization, removing the sort of high administration.
The other thing is finding the time study.
we think identify some things that practices are doing and could do and there's been a lot of receptivity and enthusiasm for that work and how they can find you know a couple minutes here a couple minutes there that cumulatively make a big difference. Got it, really helpful thanks guys.
We'll take our next question from Ryan Daniels from William Blair. Hey guys, this is Jack Sence for Ryan Daniels. Thanks for taking my question. I have two just pretty quick ones. First, can you remind us on the ProSate 1 placement goals or placements goal? I believe the 20,000 goal is for two.
and target. Thanks.
Yeah, so let me address the, so we had said that we had 9,400 pro-SI-1 placements, which is nearly half of the goal itself. And I think what we're seeing is a really nice fit with the platform itself from both the performance and cost and footprint standpoint.
So there's been a lot of, I think, customer adoption based on the fact that it fits their practice needs. You know, keep in mind internationally, which is where we think the larger part of the marketplace is. In many countries, it's hematology first. They do sort of a general.
body systems, you know, diagnostic, and then in some cases include chemistry or may include chemistry with that. So there's a hematology first marketplace. They see this as a key addition to their in-clinic diagnostic suite, and we've done well with that.
Yeah, I just highlight the the multiplier benefits to of the the pro site one launch if you look at The growth and the overall install base weight double did you grow the cross catalyst premium? Immatology and Zenevios, so it's and we had a very strong quarter for Catalyst and Zenevie placements, you know building on the Lapping of the launch last year. It was very successful for site one. So I think the the the benefit of having conditions to a platform isn't just religious platform it's.
the opportunity here. Thanks. Yeah, so new practices are generally, you know, going right into the cloud. So that, you know, they're trying to buy and use contemporary technology. You know, cloud based systems are obviously priced as SAS.
services, so there's a monthly annuity. There's still upfront costs in terms of data migration and onboarding and training and those things associated with getting a practice.
I think that the big difference from a cost standpoint at least is in the life cycle of the solution itself. The practices don't have to worry about replacing servers every three, four, five years and paying for ongoing maintenance. The other big benefit is they get.
software updates pushed to them on a pretty frequent basis without having to necessarily send somebody out to the site and take the system offline, whether it's a couple of hours or more. So I think there's a lot of cost benefits over the lifecycle of the solution as well as feature functionality.
improvements that they get and therefore that's driving, I think, at least in the veterinary industry.
newfound appreciation for updating to more modern or contemporary software solutions.
for updating to more modern or contemporary software solutions.
Our next question comes from Aaron Wright from Morgan Stanley . Oncology Diagnostics, sorry hopefully you can hear me now. We missed the beginning. Yeah sorry we missed the beginning.
No worries, no worries. So can you talk a little bit about the pet oncology diagnostics opportunity? Why does it make sense for you to partner in this category versus buy? And do you think that this could be a more meaningful driver for you longer term or more limited? Just curious how you're thinking about that at this juncture. Thanks.
Yeah, we, thank you, Erin. We think it's a very significant, you know, opportunity just based on the number of pets that develop cancer. It's the biggest cause of death, mortality of, you know, within the pet population. So if you take a look at the US, there's 6 million.
dogs a year that get cancer, three times mortality rate of the next sort of greatest cause of death. The diagnosis and staging and treatment protocols today are very fragmented. They tend to be late. By the time it's very critically obvious and then you have to...
take the sample and send it out to the pathology lab. And at that point, cancer may be stage three, stage four, difficult to treat. The other piece is that there aren't a lot of oncology specialists.
If you take a look at North America, it's 350 to 400. So most of the cancer diagnosing and treatment is happening through the general practitioner who aren't specialists. They have a lot of other responsibilities. And so being able to provide diagnostics as a testing regime for them.
We think is a really attractive opportunity. We both partner and have internal development efforts. Keep in mind that from a cancer standpoint, our pathology submissions on a global basis, over a million three a year. This isn't a new area for us. This is something that we're well versed in and provide.
a service across the glowforest. So this is just really expanding or enhancing so that we move earlier into being able to support our customers to diagnose cancer while it's still, you have better chances of being able to treat it. Great, thanks. And on...
Meaningful at all, what's the competitive response? Yeah, I mean we have, you know, generally we have relationships with most corporate accounts across some of our different testing modalities or product lines. You know, we do think there are some customers who may be sensitive.
continuing with our competitors. It still comes down, it's a very competitive market, it still comes down to, we're gonna have to compete customer to customer, and we think that the broadest possible solution to support their growth objectives is what at the end of the day wins, and we'll continue to focus on that.
Okay, thanks. And our last question comes – oh, sorry, excuse me – from David Westenberg from Piper Sandler.
Hi, thank you for taking the question here. Sorry if it went over my head in terms of the FX here. I think on the change in guide it was from 50 basis points on revenue to 20 basis points on revenue.
but then on EPS it went up. Sorry, I might be a little thick headed here. Can you explain what's happening on the top line? I think of you as an exporter, so I'm just a little bit confused there. I know you've given commentary, but maybe I'm a little slower than others. And then I'll just ask my second one up front here. Can you talk about – again, another one on the Mars, HESCA thing, but I want to go at a different angle.
Your win rate against Antec has been pretty high, and at least my checks with veterinarians tend to see that they kind of don't like going against their competitor. So is there any chance you can have additional win rates in the inside lab here with that angle and how to think about that dynamic? Thank you very much.
Yes, so David, just on your FX questions, you're correct on revenue. We think the full year is relatively flat now versus what we thought was a half point headwind. That's the 10 million positive adjustment in revenue. It didn't flow through to EPS, just given mix of currencies and hedge positions. So it's...
share all the assumptions relative to rates, but we have a model that we go through looking at all those factors and it didn't have a net impact just because we're largely hedged at this point and just the mix of the impacts weren't as favorable.
And then to answer your second question, we don't think about it necessarily as migration of one modality to the other based on the competitive landscape. Customers use both Eclitic as well as reference labs. They choose partners based on a variety of your product and solution differentiation, cost, service, footprint.
I'll reiterate that the IDECS is committed to the significant multi-decade opportunity to increase the standard of care for companion animal health care. We look forward to executing our organic strategy to address this opportunity. IDECS teams continue to perform at a high level building up the investments we've made over the past decades to develop our sector.
And we look forward to continuing strong progress against our strategy through 2023. And now we'll conclude the call. Thank you.
forward to continuing strong progress against our strategy through 2023. And now we'll conclude the call. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.
This concludes today's call. Thank you for your participation. You may now disconnect.
Thank you for your participation. You may now disconnect.
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