Q1 2025 IDEX Corp Earnings Call
Greetings and welcome to the IMAX Corporation first quarter 2025 earnings Conference call.
This time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
And what should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Speaker Change: Now I'll turn the conference over to your host Jim G. On of course. Thank you you may begin.
Jim G.: Thank you good morning, everyone and welcome to IDEXX as first quarter 2025 earnings Conference call.
Jim G.: We released our first quarter financial results earlier. This morning, and you can find both our press release and earnings call Slide presentation in the Investor Relations section of our website IDEXX Corp Dot com.
Eric Gasoline: On the call with me today are Eric gasoline, President and Chief Executive Officer of IDEXX and it be Kendall wall, our senior Vice President and Chief Financial Officer.
Eric Gasoline: Today's call will begin with Eric providing highlights of our first quarter results and a discussion of our current business outlook and the beat will discuss additional financial details and our updated outlook for 2025.
Eric Gasoline: Following our prepared remarks, we will open up the line for questions, but before we begin please refer to slide two of our presentation, where we note that comments today will include forward looking statements based on current expectations.
Eric Gasoline: Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings.
Eric Gasoline: <unk> provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix up our presentation materials, which are available on our website.
Eric Gasoline: With that I will turn the call over to Eric.
Good morning, everyone and thank you for joining us today before I dive in I want to welcome Jim Jan of course, who joined US in March as our VP of Investor Relations, we're thrilled to have Jim and that's what what the experience he brings welcomed into teams yeah.
Eric Gasoline: Now moving to slide three our IDEXX teams delivered better than expected results in the first quarter of 2025 with revenue and profitability coming in slightly above plan in each of our business segments I'd like to thank our IDEXX teams across the globe for all their contributions staying focused on serving our customers and executing through an environment of intensifying Paula.
Eric Gasoline: He driven uncertainty.
Eric Gasoline: I'm, especially encouraged by our orders performance this quarter orders increased both sequentially and versus last year to record levels. Additionally, this represents our fourth consecutive quarter with positive year over year organic growth in our order book, that's combined with underlying stability in our day rates. That's a firm foundation for growth near term.
Eric Gasoline: The trade and geopolitical situation continues to be fluid with the ultimate impact on global demand unknown. We are proactively managing what we can control and have been both quick and very thoughtful and actions designed to absorb the impact of tariffs introduced this year.
Eric Gasoline: Even though we have yet to see indications of a slowdown we have proactively identified another $20 million in savings targets for this year.
Eric Gasoline: Amounts to accumulative $80 million of support for 2025, when combined with the savings expected from our previously discussed platform optimization organizational de layering and baseline productivity initiatives.
Eric Gasoline: I'll discuss this later in the call now.
Eric Gasoline: Now I'd like to take you through our first quarter highlights, we're seeing momentum build in our businesses serving space defense energy transition municipal water and North American fire and safety.
Eric Gasoline: Our analytical instrumentation businesses within IDEXX health and science continues to exhibit improving performance trending towards low single digit growth for the year and our semiconductor MRO facing businesses provide a slight tailwind.
Eric Gasoline: On the industrial side, a rapid turn businesses that often serve as leading indicators of economic change were steady in the first quarter and that stability continued through the month of April we recognized the potential for customer caution going forward and we'll continue to actively monitor inbound order trends as our customers adapt to this fluid environment.
Eric Gasoline: We continue to see some offsetting headwinds in our businesses, serving agriculture and automotive industry. Additionally, the inventory adjustment we were working through with a large semiconductor wafer fab customer continues to be a headwind.
Eric Gasoline: You might expect there is some hesitancy for customers to commit to larger projects, but it's at a level that matches. Both our recent experience exiting 'twenty 'twenty four and supports assumptions within our 2025 annual guidance.
Eric Gasoline: We believe that the emerging order strength described here is a function of the active portfolio shaping shaping.
Eric Gasoline: Shaping driven over the last five years, we will continue this work moving forward as we seek to grow through more increased exposure to advantaged markets.
Eric Gasoline: To achieve the next level of growth performance, we continued to drive our own luck by tuning our technologies towards high velocity applications. We support these efforts with focus cross business collaboration wherever possible as customers push us to innovate faster.
Eric Gasoline: We lean on our intuitive understanding of 80 20 to pull the organizations together in pursuit of clear objectives and outcomes here are some examples.
Eric Gasoline: Our Richter business facing headwinds in its core European chemicals market has adapted its severe duty valves for fast growing pharmaceutical applications, where they wanted a big way.
Eric Gasoline: A rabble pump business is winning an extremely difficult environment supporting mining a strategic minerals. They have another segment of the business focused on marine defense applications. Both of these eighties verticals are extremely advantaged at the moment.
Eric Gasoline: A number of our optics businesses are working together to help solve the most challenging problems for the emerging space sector from low orbit satellite communications support to critical components within hypersonic systems.
Eric Gasoline: Our aerotech business within performance nomadic is helping their customers solve power requirements for the rapidly growing data center market in a way that best supports sustainable solutions.
Eric Gasoline: It recently brought some of March technologies into discussions on next generation solutions to help solve critical problems of scalability.
Eric Gasoline: Speaking about our latest acquisition in our largest to date I'm pleased to report that the teams there continue to deliver against our expectations might recently entered into a 40 million dollar multi year agreement to deploy a custom wastewater filtration solution for a large U S. Dairy farm operation that'll treat over 2 million gallons of wastewater a day.
Eric Gasoline: To give you a sense of timing roughly 25% of this order has been booked in Q1, and it's expected to be delivered as sales in the second half of the year.
Eric Gasoline: I'd ask our teams are laser focused on speed and increased agility to meet the evolving needs of our customers.
Speaker Change: Our teams are fully committed to not only execute on our collective near term commitments, but drive sustainable value creation for all stakeholders in the long run with that I'll turn it over to would be for first quarter financial highlights and some more specifics around our 2025 outlook.
Speaker Change: Thanks, Eric and good morning, everyone.
Speaker Change: Let's go to slide four.
Speaker Change: As Eric mentioned.
Speaker Change: We outperformed our guidance for the first quarter across revenue margin.
And adjusted earnings per share.
Speaker Change: Now all comparisons I will discuss will be against the prior year period unless stated otherwise.
Speaker Change: In the first quarter organic sales declined 1%.
Speaker Change: As he faced difficult comps in our semiconductor agriculture, chemical and energy businesses.
Speaker Change: Which more than offset positive results and space defense and municipal water facing businesses.
Speaker Change: We continued to see Brazilian demand all in for IDEXX with organic orders up 1% and backlog building by about $60 million.
Speaker Change: Adjusted EBITDA margin declined 50 basis points to 25, 5%.
Speaker Change: Given the year over year volume deleverage and near term margin dilution from our acquisition of muck.
Speaker Change: And these were partially offset by positive price cost.
Speaker Change: And productivity, including our announced that from optimization efforts.
Speaker Change: First quarter 2025 of adjusted EPS of $1 75.
Speaker Change: Came in 10 cents better than the high end of our guided range given better than expected sales and margins across segments.
Speaker Change: And timing of corporate cost, most notably share based compensation.
Speaker Change: We generated $91 million of free cash flow in the quarter, which included short term investments and working capital to support higher sales in the second quarter.
Speaker Change: Some modest purchasing ahead of inventory.
Speaker Change: Intended to slow tariff impact.
Speaker Change: Additionally, we deployed $50 million to repurchase shares in the first quarter and we have $490 million left with our current authorization.
Speaker Change: I'm on slide five.
Speaker Change: Turning to the drivers of adjusted EBITA.
Speaker Change: A decline in volume resulted in an $8 million reduction.
Speaker Change: Flowing through at our prior year adjusted gross margin rate the.
Speaker Change: Additionally, <unk>.
Speaker Change: Experienced unfavorable overhead leverage which was more than offset by platform optimization savings and favorable price cost.
Speaker Change: Which was accretive to margins.
Speaker Change: Acquisitions divestitures and FX.
Speaker Change: Benefited adjusted EBITDA by $3 million.
Speaker Change: Now quickly some color on our results by segment.
Speaker Change: I'm on slide six.
Speaker Change: And that's a steep organic sales in the first quarter declined 1%, while our organic orders actually increased 3%.
Speaker Change: We are seeing solid activity in our performance nomadic group.
Speaker Change: Driven by growth in data center power solution.
Speaker Change: And in space and defense with a number of our optics businesses.
We see steady trends in life sciences, with an uptick in analytical instrumentation.
Speaker Change: More than offsetting door DNA sequencing borders.
Speaker Change: Our semiconductor business.
Speaker Change: Specifically, where we provide solutions that support their fabrication faces headwinds.
Adjusted EBITDA margins of 25, 6% was slightly better than we anticipated primarily due to benefits from higher than expected volumes in the first quarter.
Speaker Change: Turning to slide seven and FMT organic sales declined 4% and organic orders declined 3%.
Speaker Change: While we continue to see relative strength in municipal water and downstream energy markets.
Speaker Change: And relative stability in our core industrial markets. We are also experiencing near term pressures in our chemicals and AG businesses.
Speaker Change: Finally, our business supporting pure water applications within semiconductor Fabs has slowed.
Speaker Change: Adjusted EBITDA margin of 32, 8% declined 80 basis points as volume deleverage was only partially offset by price cost and productivity improvements including platform optimization.
Speaker Change: I'm on slide eight.
Don: FSD, Don on the solid quarter with organic sales, increasing 5% and organic orders up 2%.
Don: Our fire and safety business continues to benefit from both strong OEM demand and adoption of integrated solutions.
Don: Band it experienced growth in energy, but aerospace remaining step.
Don: We continue to build upon our leadership position in dispensing their overall global trends are stable.
Don: In auto remains pressured.
Don: Adjusted EBITDA margin of 29, 4% increased 50 basis points due to favorable volume leverage price cost and productivity.
Don: Now please turn to slide nine for a bit of a full year and second quarter guidance we.
Don: We are maintaining our full year organic growth guidance range of 1% to 3% and adjusted EPS of $8.10 to $8 45 States.
Don: Although the situation is still evolving we believe we can fully absorb the impact of the terrorist introduced this year based on our current assumptions.
Don: I will provide our detailed tariff assumptions on the next slide.
Don: We expect to fully mitigate tariff pressure largely through incremental pricing actions.
Don: We're navigating a fluid and uncertain environment and the impact of this underlying demand is challenging to predict particularly in the short lead time, a rapid replenishment areas of our business.
Don: While we have not observed any immediate signs of demand softening through April we acknowledged that it could manifest as the year plays out given policy driven uncertainty.
Don: We have proactively identified an additional $20 million of savings W. Deploying against scenarios of up to 3% to 4% back half volume pressure.
Don: For the second quarter, we anticipate organic revenue growth of flat to 2%.
Don: We expect second quarter, adjusted EBITDA margin to be between 26, 5% to 27% up 100 basis points or more sequentially on higher volumes positive price and greater traction on our platform optimization and de layering savings.
Don: This generates expected second quarter, adjusted EPS of $1 95 to $2 five.
Don: Please turn to slide 10, which outlines our tariff exposure as it stands today we.
Don: We expect tariffs to drive a $100 million of annualized impact based on 2020 five volumes with two thirds of that amount to be recognized in 2025.
Don: On an annualized basis, we expect that tariffs will add 5% to 6% inflation to our cost of goods sold.
Don: Which can be offset by price increases of 3% to 4%.
Don: I want to take a moment to emphasize how IDEXX tried during times of disruption.
Don: In particular <unk> benefits from its local for local manufacturing footprint.
Don: The flexibility provided by its 80 20 principles and the strength of its long standing customer partnerships.
Don: Additionally, as previously mentioned, we have the ability to adapt our technology to new applications, which further position us for success now I'd like to pass it back to Eric.
Eric Gasoline: Thanks Avi.
Eric Gasoline: Please turn to slide 11, I'm excited about the IDEXX. We're building today over half of IDEXX has found ways to collaborate sell and leverage scale within thematic growth platforms.
Eric Gasoline: This is an important strategic shifts we've made to elevate our long term performance and advantaged spaces with combined total addressable markets of just over $20 billion we.
Eric Gasoline: We've identified a series of specific integrative threats that we believe support higher growth and expanded margins as we come together within these groups and a unique IDEXX way.
Eric Gasoline: We deploy flat organizational structures with autonomous decision rights Sharp 80, 20 segmentation, while solving the most critical customer solutions with quick iterative bursts of innovation.
Eric Gasoline: I'm on slide 12.
Eric Gasoline: We have a strong balance sheet supported by superior cash flow generation and to explore multiple avenues of capital deployment, our corporate development team alongside our business leaders continues to work an active M&A pipeline.
Eric Gasoline: We will continue to deploy capital to expand and deepen our capabilities within our growth platforms, and we remain committed to returning capital to shareholders.
Eric Gasoline: Finally, turning to slide 13, we believe IDEXX is advantaged and therefore prepared to navigate an increasingly uncertain trade and geopolitical environment, we generally ideate engineer source produce and sell our products locally our businesses are well positioned with an attractive markets and we enjoy long and productive relationships with outstanding customer.
Eric Gasoline: As the world becomes more regionalized, we can adapt with customers and position local for local support across the globe with speed.
Eric Gasoline: 80, 20 is deeply embedded in our diverse set of businesses. We are constantly looking to tune our solutions to apply them in new applications and markets and we can shift resources quickly.
Eric Gasoline: Some areas with developing slack capacity to structurally advantaged markets, putting it all together, we are improving and leveraging each of our key value drivers organic growth inorganic growth and margin expansion.
Eric Gasoline: We collectively believe that change and uncertainty no matter how unsettling they can be in the near term ultimately present opportunities for our trusted solutions as we help our customers win.
Eric Gasoline: With that I'll turn it over to the operator for your questions.
Eric Gasoline: Thank you we will now be conducting a question and answer session.
Eric Gasoline: To ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Speaker Change: Our first questions come from the line of Mike Halloran with Baird. Please proceed with your questions.
Speaker Change: Hi, Thank you good morning, everyone Hey, Mike.
Speaker Change: Just wanted to make sure I understand the puts and takes in the guidance here and what's embedded I mean, I think the punch line is it takes you feel really comfortable with the guide and the ability to have some flexibility to manage some of the inputs.
Speaker Change: Depending on what materializes, one is that right and then two could you just go through those puts and takes I mean, it seems like FX slightly more of a tailwind, but the incremental $20 million of cost savings with a lower volume a little higher price I mean, maybe just kind of walk through those two different assumptions I talked to there yeah, Mike I can I can I can do it.
Speaker Change: I'll break it up for you and kind of followed the sequential pattern here. So just starting with Q1 again recalibrating everybody on the call here.
Speaker Change: Think about our performance for Q1, our organic came in better than what we had.
Speaker Change: What we provided which was down three to four became an down about a point good start to the year in terms of EPS. So as I kind of look forward and think about the cadence of <unk> and then the rest of the year and I'll touch on tariffs and the second coming into any given quarter, we're about 50% booked so as I look at our outlook.
Speaker Change: Outlook for Q2 coming into this quarter and Eric alluded to it alluded to it in his remarks.
Speaker Change: We haven't seen the order pattern shift.
Speaker Change: In April so as of last night, our orders continue to remain in line with expectations as I think about Q2, and the current outlook of zero to 2%.
Speaker Change: Backlog supports that which then translates into $1 95 to $2.05.
Speaker Change: Then fast forward into Q3, and Q4 and think about the back half of the year, what what this outlook incorporates as of Q3 excess DRAM from two to three of 10 million 10 million from three to four FMT staying at the same levels and after that you'd be staying at the same levels, which then gets you to that.
Speaker Change: 1% to 3% for the year from.
Speaker Change: From a tariff standpoint, what we've assumed in the guide to third impact up to 100 million so call it 66% to $65 million impact in this outlook and we're going to offset that one for one with price.
Speaker Change: Incremental $20 million of Castor as a proactive measure even though we haven't seen our volumes moved we are proactively.
Speaker Change: Deployed dose in the likely event WC are quick lead times of rapid replenishment cycle businesses slow.
Speaker Change: Okay.
Speaker Change: That's super helpful. Here.
Speaker Change: And then maybe just talk about.
Speaker Change: I mean look we're in a little different scenario relative to normal rate, if we get some pressure points from a macro perspective in your business is normally that happens after a period of expansive growth not as much frequency happening against.
Speaker Change: Yeah in the periods of headwinds you've seen over the last couple of years here. So maybe talk about how you see the portfolio shaping up if we do get some sort of pull back.
Speaker Change: With that resilience looks like how you frame. It and then I know you have a lot of those offsets as you have from a growth initiative perspective.
Speaker Change: How does that that sends out.
Speaker Change: Yeah. So.
Speaker Change: Obviously kind of unprecedented times in a number of respects as you've said, but as I as I said you know on the on the slide that highlighted how we sort of set ourselves up with five very very strong growth platforms.
Speaker Change: We've we've got them lined up where we're talking with customers and innovating in areas that in many ways. I think are in markets that are rapidly developing kind of irrespective of some of these forces. We've got a lot of resources and weight tilted towards delivering on those solutions.
Speaker Change: All of IDEXX right now has been leaned out and you know and optimized through multiple rounds of productivity and just to recap that I mean, we came into the year. We always have baseline productivity lined up that starts on January 1st we added that.
Speaker Change: <unk> de layering and platform optimization work a lot of it in these areas of growth platforms, a lot of it in H S. T swayed that ready to go early on.
And then candidly we just thought hey. This this is an environment that says we can do more with less we know how to do that here and we laid that in for you know kind of mitigation and protection in the back half of the year. So when you look at it you've got a bunch of franchises that are well positioned we deliver critical incredibly valuable solutions that frankly low price points, we protect.
Speaker Change: That ourselves from the impact of terrorists at least the ones that have been announced here today and we're engaging in a way that we always do via 80 20 Super Sharp places and areas that are advantaged and probably hold up better to any other shocks that are running around in time, just because of the nature of the solutions that we're after so I think this is where 82.
Speaker Change: Kind of our credibility and reputation as operators the two things come together and putting about as much resilience as we can imagine at a time with no doubt a lot of uncertainty.
Speaker Change: Thank you.
Speaker Change: Thank you our next questions come from the line of Nathan Jones with Stifel. Please proceed with your question.
Nathan Jones: Good morning, everyone. Good morning.
Speaker Change: I guess I'll I'll start with your question about tires and pricing I mean, you're talking about.
Speaker Change: Two thirds of the tariffs falling within the economy and pricing volume in India.
Speaker Change: It implies that market has.
Speaker Change: Not saying tariff impacts of pricing impacts.
Speaker Change: Is that fair.
Speaker Change: I was coming down the pipe probably in <unk>.
Speaker Change: Oh June potentially the catalysts there I mean, it sounds like you are anticipating some of the short cycle business demand drops off is that kind of when you expect to start seeing that impact of.
Speaker Change: Customers actually saying that the dollars on their invoices.
Speaker Change: Yes, Nathan this is Amit let me, let me take a stab at it. So if you kind of think about the 100 million and that's of course, an annualized figure that'd be.
Speaker Change: Provided the details in terms of you know what it is by region that San Jose as I kind of take a step back and think about where we are we're sitting here in April and April.
Speaker Change: Of course of course.
Speaker Change: What we have seen so far as is and we do hold some inventory. So what we have seen so far is.
Speaker Change: Small impact in Q2 with the majority of this impact we're going to see in Q3 and Q4. So if you think about the cadence.
Speaker Change: 665 million I'd say $10 million to $12 million is what we're expecting in Q2 Q2, and the balance 25, and 25 and to end up in Q3 and Q4.
Speaker Change: That's how we're thinking about it but keep in mind. It's also about what you're buying what are you buying it and how much do you hold in inventory.
Speaker Change: I think I get the spirit of parts parts of your question here I mean, you know through much of April I think a lot of this is kind of off the radar. It's something that everybody knows is coming [laughter], it's been announced by us and others.
Speaker Change: See the IDEXX side of it you know take hold probably faster just because of the nature of just don't have as much inventory and we turn things quicker lead times, and we were pretty urgent and aggressive on price capture that we thought we had to have but I think I think you will see this start to Cascade and build as we go through May and probably especially ended June just getting inventory.
Speaker Change: Physicians and announcements and things and then really kind of full steam on the back half and that's where I think where we and others will be looking for okay. What's the what's the collective impact of that.
Speaker Change: And frankly are there other modifications I mean remember that there's sort of two parallel tracks. They are working together.
Speaker Change: Okay. Thanks for that I'm going to ask one that's not related to tariffs.
Speaker Change: I wanted to have you guys talk a little bit more about that the combining of some of these businesses in today's strategic growth platforms.
Speaker Change: Probably I suddenly didn't understand until it was out with you guys on the road in the first quarter and talk tomorrow about it I think.
Speaker Change: It's probably a little bit misunderstood by investors as well about what the potential benefits of what the potential growth outcomes a longer time frame for combining age business de layering in these businesses. So I'm, hoping you could just go into a little more detail and explain the rationale behind that and what you think the benefits are going to be.
Speaker Change: Sure sure and again, where we're always we're always careful with that said it I'd ask you know this.
Speaker Change: This absolutely still leaves decision rights locally with these businesses in these platforms and we're super careful about the integrated threats that we we've between them.
Speaker Change: In terms of what dimension and where that adds value. So you know what this isn't is a massive bureaucracy with multiple organizational layers and in fact actually the opposite but in my prepared remarks.
Speaker Change: Two examples of this starting to come together and so on the growth side I'll kind of highlight those and give you a bit more insight and so I talked I talked about our performance pneumatics business and our recent acquisition are tech and the work that they're doing around power.
Speaker Change: Power solutions, frankly, sustainable power solutions for the datacenter market. So that business singularly has done great work over the years and it's continuing to evolve it and it was a decent part of the story in Q1, but they're actually able to now bring in March and some of the technology that they have there for a different and related specific application that actually helps scalability.
Speaker Change: To the next level in a way that frankly, they are tech business never could buy themselves and no. Other company really could because there is two technologies typically don't exist in a way that they do at IDEXX now it's still early days, we will see where that goes but it but it absolutely is it is it takes that whole frontier and moved it forward.
Speaker Change: I'd say that that aspect right.
Speaker Change: At the tip of the spear technology is probably front and center, what we're really after more than any other thing.
Speaker Change: I talked about it in optics, you know as we've talked about low orbit space communication and hypersonic travel they've got great optics franchises that we've assembled overtime iridium being the last.
Speaker Change: They have multiple points, where they are playing in that space and so and you can picture. This is engineers working together in complementary ways, where one business has 20 years of legacy is now teamed up with another business has 20 years to develop something that again, it's pretty novel it doesn't really exist in.
Speaker Change: And it doesn't really have a competitive offering or offset just simply because of the advantage of scale that we've put together there yeah, it's relative to kind of our world and our size, but it is important in these in these markets.
Speaker Change: And then as we you know we talked about the multiple tranches of productivity that we've laid out and we talked about this last quarter. You know just this organizational ability to span things and spanned functions a little differently gives us a kick in productivity that helps fuel the innovation on the other side so for for selling let's say to a single customer here and.
Doing it across multiple businesses and kind of the all the IDEXX that would've had it been supported with Standalone commercial organizations and then you know the cartoon version of this would've had multiple people in the same lobby calling on the customer we don't have to do that anymore, that's actually advantaged and preferred by the customer and it's a lot cheaper to run on our side, we can take those.
Speaker Change: Sources and fall it right back into technology.
Speaker Change: So it's those little extensions and those connection points between businesses think of them as Sparks and lightning bolt, that's what we're celebrating but doing it in a very very IDEXX way flat organizational structure local decision rights everything we kind of know and expect with IDEXX, but we've been able to amplify it in this way.
Speaker Change: Just to build on what <unk> said, so you touched on the you know the day learning World Debbie we did as part of.
Year end, but theres more chapters to it so as you think about the five scaled back from the Doctor about there's a second chapter around footprint consolidation around looking at that landscape and really starting to.
Speaker Change: Consulted with some footprint, which would be the second layer of this.
Speaker Change: Cost cost allocation towards growth and then the third piece is around with this level of scale to get an opportunity to go after sourcing savings and drive more productivity.
Speaker Change: Chapter two and three more to come on that as we move forward, but but.
Speaker Change: This is the advantage of having this level of scale and being able to drive the.
Speaker Change: The level of integration that you're talking about.
Speaker Change: Very helpful. Thanks, very much for taking my questions. Thanks Nathan.
Speaker Change: Thank you our next questions come from the line of flat by strictly with Citigroup. Please proceed with your questions.
Speaker Change: Good morning, guys.
Speaker Change: Thanks for taking my question here.
Speaker Change: I guess.
Speaker Change: Sure.
Speaker Change: Maybe just start off for me I think the.
Speaker Change: The marked project win that you highlighted was actually quite interesting can you just talk about.
Speaker Change: You know whether that is something that's fairly unique or whether you see that opportunity as something that could be.
Speaker Change: You know repeatable and meaningful for for other customers do you see other opportunities similar opportunities out there for a moment.
Speaker Change: Yeah. So.
Speaker Change: This is this is actually but it was kind of a small acquisition technology acquisition that <unk> made before our acquisition and so the thesis very much was in line with what this project represents so it's really really advanced filtration.
Speaker Change: That is being deployed in this particular case, it pretty massive scale livestock application, but essentially.
Speaker Change: We're we're processing.
Speaker Change: The waste stream of dairy cows, and things like that and you kind of get two products at the end of it.
Speaker Change: Pure fuel fertilizer on the one side and very very clean water on the other side.
Speaker Change: Essentially they're delivering environmental friendliness with kind of result in products that have their own potential for productivity. So that kind of is the core thesis of what this business and business model are represents.
Speaker Change: I must admit this is this is probably at the right edge and in the higher edge of the scale just simply because of where this is being applied in this particular case I mean, it's an outstanding reference case, it's going to take us a while to engineer it put it out there, but I cant get in place. That's why we talked about the specific timing of the bookings and the way it's going to run.
Speaker Change: Out in the back half of the year. It does support partially that H S. T randt that a beat talked about later.
Speaker Change: But it is going to be an outstanding reference case for a business. That's just kind of starting to launch within Ma.
Speaker Change: But this is like right down the fairway of kind of the core argument a core fundamental argument of what we're trying to achieve.
Speaker Change: Yeah.
Speaker Change: No it does.
Speaker Change: Certainly sounds interesting I appreciate that Eric and then maybe just a quick follow up for me I think you mentioned that.
Speaker Change: You did you know taking a little extra inventory here in one queue just ahead of tariffs.
Speaker Change: Just a follow up question to that have you seen any evidence.
Speaker Change: From your customers.
Speaker Change: Some of them.
Speaker Change: Pulling forward any order activity, if you will get.
Speaker Change: As I look at that that's always a tricky one for us across all businesses with a pretty customized products. So it's never been the best inventory to stack on shelves anyway.
Speaker Change: But we absolutely went looking for it just because you can you can imagine the same dimension that we responded to I mean for US it was a pretty modest amount from much of the same reasons. We found a couple of pockets of it I think.
Speaker Change: We went in and talk to people talk to distributors and others I think in the end of the day and B why do we say it was six.
Speaker Change: $6 million to $8 million I think you know we I mean, we went to places look for box levels, where we go where we hang out a lot and just didn't see a ton of it but we allow that theres probably that level.
Speaker Change: It's honestly, it's pretty equivalent to it a little bit that we didn't yeah.
Speaker Change: Great that's helpful I'll get back in queue.
Speaker Change: Thank you our next questions come from the line of Joe Giordano with Cowen. Please proceed with your questions.
Speaker Change: Hey, good morning, guys, Hey, Joe.
Speaker Change: So I wanted to talk on the and apologies. If you mentioned this in the very beginning of your prepared remarks, but [noise].
Speaker Change: The confidence now in the semiconductor recovery or.
Speaker Change: Or at least the resumption of those orders in the second half that we talked about last quarter I mean, I feel like the updates that we've been getting on semi is generally now you did so far this earning season. So I was just curious if there's any update on that.
Speaker Change: Yeah.
Speaker Change: So there's kind of two things going on I think we would agree with your overall sentiment in the industry, there's been more headlines about restrictions and things like that.
Speaker Change: And so if you think of our business. It's it's split we do a we do a fair amount of it and the majority of it is kind of right in the heart of the.
Speaker Change: Essentially the machine tool and the wafer fab and then a companion piece on the metrology and inspection side.
Speaker Change: Did mentioned in the prepared remarks, though that we saw some some pretty good performance. We had some growth tailwind on the MRO facing side of the business now that has historically for us been a ceiling areas and so these are these are consumable items, they wear out overtime and they're reflective of just using the system.
Speaker Change: It's a little better now because as Martin has come into the picture Mott's exposure in this space has a.
Speaker Change: Gas filters. So it was a consumable element as well and so they both win new platforms and then have this recurring revenue stream. So it helps us a little bit more in that direction and that was favorable for us. So I alluded to that but I did say on the back side. The same thing that you're seeing here, we probably see a push out and extension of ultimate.
Speaker Change: Recovery here on high cost cutting edge machine tools and I think we're seeing the same thing as we talk to our customers. So they don't necessarily balanced themselves out. So we have a little bit of net pressure in the back half of the year from that space, but are certainly happy and have or does this higher level of MRO exposure.
Speaker Change: Hey, Joe just to just to kind of a big it altogether in terms of outlook because I think your question towards that would eventually turning to our outlook. So again, let me let me just recalibrate. So if I take a step back and think about Q1 as I mentioned earlier.
Speaker Change: Earlier, we came in better than expected our EPS performance was better than expected coming into the second quarter as I look at our outlook.
Speaker Change: Look at the forward looking you know what.
Speaker Change: We are headed from Q2 and beyond our backlog position in Q2 supports the.
Speaker Change: The 2% organic right and then as I look forward and kind of think about sequentially three three.
<unk> for Q, <unk>, a $10 million ramp from two to three two to four and really that's driven by the backlog that we built for Mark that's going to ship in the back half of the year of the strength that we're seeing in pharma space and defense, Okay and then that's it.
Speaker Change: F N T. It's pretty much going to be at the same levels, an episodic effort you'd be at the same levels of two key revenue.
Speaker Change: To be able to get to our outlook of 1% to 3%. So that's on the top line.
Speaker Change: On the bottom line, though if you think about it a third of our bottom line outlook is driven by the volume pieces I just articulated for you, but the two thirds is tied to.
Speaker Change: Things that are in flight in motion I E cost optimization de layering stepping up in the back half the cost piece that we laid out for $20 million as part of this conversation that's back half and then the timing of share based comp from first half to second half, but just pretty significant which is almost 12%. So again a third of this first half second half.
Speaker Change: Earnings ramp is tied to the revenue pieces that I just laid out two thirds of the state to inflate controllable actions.
Speaker Change: Is that a part of this outlook.
Speaker Change: Can I before I get to my follow up just maybe if I can clarify what you. Just said there are you, saying that some of that semi ramp with maybe like moana and the large customers is effectively been replaced with Mod and <unk> Beach and things like that so we arrive at the same place, but maybe it's not as dependent on those large orders that is correct. Okay.
Speaker Change: And then just a question on the strategic growth platforms, I mean, that's somewhat new.
Speaker Change:
Speaker Change: Is there any sense of like rebranding companies as like a as a as a like go to market as one as one entity or like as one kind of overarching team I know that's not how this is typically done in the past, but it sounds a little bit more like that just in the commentary. So just curious how you think about.
Speaker Change: You know individual brands versus like an IDEXX franchise that goes to customers. That's it's a good point and in actual fact, it's this part has been evolving alongside for a while now I mean to be honest.
Speaker Change: Lot of the thinking here is actually built on you know kind of what happened in IDEXX health and our health Sciences over the last 10 years, and we do and have for a while now and branded that as IDEXX health and science.
Speaker Change: At the same time, we still celebrate the individual brands and the brand equity that we have there so it's a bit of a hybrid because.
Speaker Change: As we move through this and have all you see that today in IDEXX fire and safety I mean, we very much present ourselves that way out in the market, but at the same time, then celebrate her jaws of life Hale you know those individuals' sub brands.
Speaker Change: You know we're doing the same thing probably in an emerging perspective with an intelligent water.
Speaker Change: We've like two three years ago, you would go to a westpac or one of the trade shows and see five different booths [laughter], we actually have brought those together over the last couple of years, but it would never lose sight of the individual accumulated brand equity, it's a much lighter touch and severe duty flow control, that's where frankly those individual equity stories.
Speaker Change: At the highest and all we're really integrating their kind of front end customer acquisition through Digitization at this point. So that's light to none and then over on the material Sciences solution side that that's just it's just purchased just accumulated theres no point and branding that at this level. So.
Speaker Change: I think that matters, but for us. It's it's indicative of when you reach a state of evolution, where frankly the customers are starting to say this is what we want we we actually want the capitalization that IDEXX provides we recognize now that these solutions can only happen because IDEXX.
Speaker Change: <unk> has brought them together and then even when we introduce them put IDEXX on the side of the box, we never subordinate completely those individual brands.
Speaker Change: Great color. Thank you.
Speaker Change: Thank you our next questions come from the line of Bryan Blair with Oppenheimer. Please proceed with your questions.
Speaker Change: Thank you well I guess I can't wait.
Speaker Change: Yeah.
Speaker Change: You've referenced.
Speaker Change: Referenced steady day rates a few times so.
Speaker Change: And that just Directionally and I know what the response will be but I was curious if you could offer some.
Speaker Change: Some detail on the order trends at Warren Rupp, Gast and band it over March and April just curious what the.
Speaker Change: Real time leads have been from those Canary type businesses pre versus post tariffs it wasn't there.
Speaker Change: Yeah, I mean look there.
Speaker Change: Right.
Speaker Change: I had mentioned it I alluded to it as I think about the business as you were talking about Eric and I track them on a weekly basis daily basis.
Speaker Change: We look at the order trends compare them to last week last quarter and what have you seen in Q1 and expect it to five P. M. A flashlight.
Speaker Change: Order trends have been steady and in line with our expectation we have seen no movement. If you will on those order trends.
Speaker Change: They're really really nothing identifiable based on news of the day externally, where the next day, it pivots or changes.
Speaker Change: I I mean, they always ebb and flow of that day to day, but we look at the kind of moving average and we look at the how it tracks and cross them that actually tells you more when they when they wind up and moved the same way.
Speaker Change: Given the breadth and the difference in businesses that that's where we get the most Intel.
Speaker Change: And then we.
Speaker Change: This time of year as well is also good for US we have a fair amount of distributor conferences, where we bring everybody together in the different businesses and we get the opportunity to then have three dimensional conversations around that David because day rate data.
Speaker Change: And we just had one of those the biggest one last week.
Speaker Change: Jim story is kind of consistently people, saying, hey, things are holding up my customers are doing well, they're still requiring things. The systems are working there is hesitancy on bigger projects I talked about that I'd say, that's been pretty consistent for a while now.
Speaker Change: And then lots of captive energy about I Wonder what comes next that's absolutely there too.
Speaker Change: Of course, that's helpful color. Thank you and I understand at any point in time, there's only so much that your team can discuss on this front.
Speaker Change: Maybe just a high level update on the M&A environment and how if at all the uncertainty of this backdrop has set.
Speaker Change: Did your team and your M&A strategy.
Speaker Change: Well, there's I think there's no question that it you know in terms of people looking to transact quickly and Legitimise, where their business is going to go in all the things you would need to do to make a transaction move fast in the near term.
Speaker Change: I think you're seeing that pretty slow for not just us but for everybody.
Speaker Change: We always kind of divide this activity in the buckets you know so that I would say that you know the lion's share of all the work that people are doing is really at that conversational diligence level getting to know people remember about 80% of the deals we've done in the last few years have been proprietary that's the way we prefer it.
Speaker Change: Like taking our time getting to know our business like Mark and so that was a multiyear conversation we have other conversations like that going on and they don't change or ebb and flow in fact in some ways. They get more intensive around changes like this and how that shapes our team thinks about its business.
Speaker Change: Big category work that doesn't get affected.
Speaker Change: You know that work around near term transactions I think you can imagine it's a slower now I mean, the number of people offering us things from out of the Blue is certainly slower I for all the reasons you would expect but that really isn't a feeder stock for us anyways.
Speaker Change: So I think that you know this is a speed bump in many ways, but it doesn't interrupt the overall quality of the work of the work that we're doing and frankly, our future vision for what we can deploy.
Speaker Change: That makes sense and encourage one thanks again.
Speaker Change: Okay.
Speaker Change: Our next questions come from the line of Deane Dray with RBC capital markets. Please proceed with your questions.
Speaker Change: Thank you and good morning, everyone, Hey doing Dan.
Speaker Change: Maybe you can expand on your earlier comment on the strength in municipal water I mean, the idea here is that's probably the most defensive of defensive verticals just because so much of it is opex and non discretionary and projects are locked in and so forth, but just any color there.
Speaker Change: Terms of the outlook. Thanks, Yeah, Yeah, no I think you're right. It's very very defensible business and then again the work that we do very localized around the wastewater side of things and critical analytics as we examine that infrastructure and help our customers dig into how it's working.
Speaker Change: That kind of protect Theres, some natural resiliency there on two fronts, one you know.
Speaker Change: The things that thunderstorms and things that could be affected by climate I mean, they're they're not affected by trade policy.
Speaker Change: You know the need for people to understand that mitigated I think last night I saw there were floods again in Oklahoma.
Speaker Change: That's the work we do a lot of our businesses are helping with flow monitoring and understand where the system broke down and how it should be remediated until you.
Speaker Change: That's really unaffected theres, some natural resiliency from frankly, some probably unfortunate variable inputs on the other side I remember to the extent there's funding support for this it's broad and it extends over multiple years are our end customer for a lot of these businesses is actually specification engineers, which you're putting together the capital.
Speaker Change: That goes and grabs some of that funding.
Speaker Change: So if we're in a multi year wave of stronger strength within municipal water our positioning at the front end of it is it's got some natural resiliency as well just because we're helping people figure out how they're going to.
Speaker Change: Appropriate those funds asked for them request them and put them to work.
Speaker Change: I think some of it is just sector driven as you said Deane I think a lot of it is just the nature of what we do what we've localized a round and the natural the resiliency of that kind of work.
Speaker Change: Yeah. It splits from what we can see the storm water management is one of the fastest growing water sector verticals fall because of the funding, but also defiance. The P. P. A is is pursuing against cities if theyre not addressing it.
Speaker Change:
Speaker Change: Are you seeing in both of these striving for storm water management.
Yeah.
Speaker Change: Sort of a regulatory side of this has always been a driver for this business.
Speaker Change: Good and then just separately you know anytime there is heightened uncertainty it has a fallout on M&A in terms of you.
Speaker Change: You know theres, a falloff in and multiples that sellers have a way of being pretty sticky and remembering what their their business was worth yeah. Just a few months ago, so and they'll even pull some transactions until things settle out you know just what's been your perspective here real.
Speaker Change: Time on their kind of funnel and and multiples.
Speaker Change: Yeah, well I think you're right that quality businesses tend to be.
Speaker Change: Be very sticky around those valuation expectations, if anything uncertainty then try and attempt to draw things out to wait for good times to returns so that everything can be back to normal again, so the timing probably more than variable.
Speaker Change: Valuations I would say being impacted by something like this there's this round of uncertainty.
Speaker Change: You know for US I mean, we just did a period with.
I mean, we're really doing two things in this area and we're spending a lot of time kind of optimizing building and integrating on you know frankly, the higher activity that we brought into the company through M&A. So we're doing a lot of work there.
Speaker Change: And then around these growth platforms I mean as I talked about in our comments is there's a lot of room to run and so we're doing a lot of exploratory work initial conversations so that that whole chapter as I've said before it doesn't really go down at this point in fact in some ways people are more available for it now.
Speaker Change: And then on the other side you know we're looking at some interesting bolt ons. So we've got a framework here with over half of the company with natural attachment points.
Speaker Change: So I think around you know.
Speaker Change: Some nice bolt on work that could happen here over the next couple of quarters, which would be very good.
Jim G.: Terrific and I was remiss at not a welcoming Jim to the team and best of luck.
Speaker Change: Thanks, Dan.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Our next questions come from the line of Brett Linzey with Mizuho. Please proceed with your questions.
Brett Linzey: Hey, good morning, all.
Brett Linzey: Well, one thing I wanted to come back to the organic sales outlook. The one to three unchanged from the previous outlook.
Speaker Change: It sounds like the composition has maybe changed a little bit and I was hoping maybe you could just dimension that so you're getting the three to four points of incremental tariff induced pricing I imagine you had some price embedded in the original assumption is is it fair to say prices up and you're taking a little bit more hedge on the volume side any any thought.
Speaker Change: Sure absolutely I can I can I can walk you through it so the original outlook W had laid out of 1% to three implied a price point.
Speaker Change: Point and a half so as you kind of think about the full year outlook with the way we see it today that hasn't changed what that does incorporate an additional <unk>.
Speaker Change: Additional point and a half with price on a full year basis. So if you think about the current outlook. It is zooming.
Speaker Change: Three points of price for the full year.
Speaker Change: And the volume being down 2% at the low end and being flat at the high end okay.
Speaker Change: Allude it as I've mentioned, we've not seen our April order rates move, but proactively we have gone out and identified an incremental $20 million of cost that we're taking out which then gives us protection from 3% to 4% volume decline in the back half of the year.
Speaker Change: Alright got it I appreciate that and then just a follow up on some of the government spending or the austerity measures under dosed in the New administration are you seeing any spending reductions or impact on grants driving our customer spending decisions.
At this point and then maybe any update on the core life science customer base, and what you're seeing there from an order perspective.
Speaker Change: So on your first question.
Speaker Change: Not a lot directly.
Speaker Change: I don't you kind of work, we do is more iterative and you know not massively project dependent.
Speaker Change: So to the extent, there's there's some impact there it's harder to read in it.
Speaker Change: Isn't really presented itself and we just talked about that in our daily rates.
Speaker Change: Life Science is an area, where it does come up because there's obviously been some.
Speaker Change: Some work towards an NIH funding, but that's you know that's pretty low percentage ultimately for our customers and the read through for US is kind of a low percentage as well and frankly in our life science markets the strength in pharma sort of offsets it.
Speaker Change: And so that's one area, where the headline you can hear about it here about a little closer to home, but it's at a low impact level and we offset it.
Speaker Change: I would say generally in places that it might be presenting itself elsewhere in the business.
Speaker Change: Again, I think it's probably being offset by some of the strength we've seen in defense applications space.
Speaker Change: It's netting out at present, if it's there and again because of the nature of sort of project work that we do or the lack of it.
Speaker Change: You just it doesn't present itself as it is a big impediment at President's sort of one of those things that I think people are speculating about direction and ultimate impact, but really hasn't landed anywhere near us yet.
Speaker Change: Alright got it appreciate the detail best of luck. Thank you.
Speaker Change: Thank you. Our next question is come from the line of Matt Summerville with D. A Davidson. Please proceed with your questions.
Speaker Change: Thanks.
Speaker Change: Just maybe first just a follow up I want to make sure I understand this.
Speaker Change: You're basically saying that through this incremental proactive cost out you can absorb a 3% to 4% organic sales decline in the second half of the year, but that is not how you've guided the top line do I have that correct. So so when you said three to four 4% year over year, what I'm, saying is if you if you.
Speaker Change: Think about the $20 million of cost out and think about our prior outlook to our current outlook. It will absorb 3% to 4% top line decline would that $20 million. So its a its outlook to outlook shift.
Speaker Change: It absorbed the volume component, we would get some of the price capture would stand in for some of your debt.
Speaker Change: Okay.
Speaker Change: As you look at kind of the maybe you can comment too as the year has unfolded through the first four months realize them in inbound orders have been healthy have you seen any discernible trend and sequential cadence and orders are you getting any sort of sense that you have customers, especially in kind of your more.
Speaker Change: Distribution facing businesses are buying ahead and if so can you maybe try to quantify that but.
Speaker Change: But I'd say the cadence has been pretty uniform through each of the four months and the majority of our business you know, maybe maybe elevating and growing a little bit.
Speaker Change: With more strength in H S T, but largely that's because of the wins that we saw at places like Mont in defence and space. I mean, there are attributable to things you'd want to see in our business.
Everything else pretty stable, we talked a little earlier about the buyer had I mean, we looked and looked and looked and think that's it.
Speaker Change: Relatively low levels I think we talked to what do we say just a second ago would be $6 million to $8 million something like that it kind of matches. The same percentage that we did it's unusual for us to do it kind of unusual for our customer base, but.
Speaker Change: Found evidence that we're sort of in line on that so we don't think it's a big number but I wouldn't say it's zero.
Speaker Change: Got it I missed that six to eight thanks for clarifying that.
Speaker Change: Yeah.
Speaker Change: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Eric Ashland for closing comments.
Speaker Change: Thank you very much shape and thanks for everybody for joining the call today, obviously as we discussed this morning, it's it's a dynamic and fluid situation as global trade relationships are reset and redefine but.
Speaker Change: But I just asked that we remembered some things don't change at IDEXX. Our businesses are really strong I mean, they're just outstanding we deliver a ton of critical value at price points that are low relative to the total cost of the customer solution and we are.
Speaker Change: Enjoy really long and productive relationships with world class customers.
Speaker Change: I think our number one job now is to support those same customers as they navigate the same uncertain waters that we were looking at with innovation agility and global breadth.
As we do that we'll keep our fingers on the pulse of prevailing economic trends and control, what we can control adjust where we need to and clearly communicate our latest thinking as we move through the next phase of change. Thanks again for your interest and support of IDEXX and have a great day.
Speaker Change: Yeah.
Speaker Change: Thank you. This does now conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
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