Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- IDEXX Laboratories Inc (IDXX, Financial) delivered solid organic revenue growth of 7% in Q2 2024.
- CAG Diagnostic recurring revenues grew by 7% organically, supported by strong international gains.
- The company achieved record second-quarter global premium instrument placements, with a 4% year-on-year increase.
- IDEXX Laboratories Inc (IDXX) reported a 15% increase in comparable EPS, supported by solid gross margin gains.
- The company maintained a strong balance sheet with leverage ratios of 0.7 times gross and 0.4 times net of cash.
Negative Points
- US same-store clinical visit growth levels declined by 2% in Q2 2024.
- EPS decreased by 9% as reported, impacted by a $62 million discrete expense accrual related to ongoing litigation.
- The company updated its 2024 financial outlook to reflect continued pressure on US clinical visit trends.
- Operating expenses increased by 28% year-on-year, driven by a significant litigation expense accrual.
- IDEXX Laboratories Inc (IDXX) faced macroeconomic headwinds that pressured near-term US clinical visit growth levels.
Q & A Highlights
Q: What do you think is the biggest delta between the outlook you gave in Q1 and the outlook you gave today in terms of what's happened to the market over the past few months? Are you still confident in the traditional 2% or 3% visit growth rate as an appropriate target over time?
A: Brian McKeon, CFO: We saw roughly 150 basis points of headwind coming out of Q1 and carrying through Q2 in the US in terms of clinical visits. We had anticipated some normalization with staffing effects, but continued to see headwinds. There may be macro dynamics at play, and we are capturing that in our second-half outlook. We remain optimistic about long-term growth drivers in the sector. Jay Mazelsky, CEO: Long-term trends remain positive, driven by pet humanization, increased pet lifespans, and prioritization of pet care. Practices are optimistic about demand and are investing in technology.
Q: Are we seeing a broader shift in vet channel dynamics, such as less diagnostic utilization in non-wellness visits due to pain management? Could this impact the growth profile?
A: Brian McKeon, CFO: We see some impact on diagnostic frequency in non-wellness visits due to pain management. Adjusting for these dynamics, diagnostic frequency is likely sustained or expanding. This reflects macro headwinds rather than foundational issues. Jay Mazelsky, CEO: Alternate care channels are largely complementary. Diagnostics remain essential for assessing health status and treatment. Innovation and unmet clinical needs drive growth.
Q: What was the nature of the legal charge, and is there more to come? How are you managing costs effectively?
A: Brian McKeon, CFO: The $62 million discrete expense is related to royalty payments over time. We don't comment on ongoing litigation but have updated our best estimate of probable loss. We continue to manage expenses effectively, focusing on R&D and commercial investments while adapting to the growth environment. Jay Mazelsky, CEO: We invest heavily in R&D and commercial expansion. Our business model allows for productivity investments and cost management.
Q: Can you remind us what's embedded in your guidance for InVue's contribution this year? What about the timing of other platform launches?
A: Brian McKeon, CFO: Our guidance includes expectations for the Q4 launch of InVue, primarily an instrument introduction with recurring revenue building over time. Jay Mazelsky, CEO: We'll provide updates on our innovation agenda at Investor Day, including the launch of InVue and other platforms.
Q: How do you view the trend of US IDEXX CAGEXX recurring premium growth, and should we expect a reversal in 2025 with the InVue launch?
A: Brian McKeon, CFO: The premium has held up well, with solid net new business gains and customer retention. Innovation like InVue will drive long-term growth. International growth is also strong, with solid instrument placements indicating long-term potential.
Q: How do you manage to hold EPS despite lighter revenue and macro headwinds? Are there any projects or initiatives that might come out of '24 and go into '25?
A: Brian McKeon, CFO: Our performance reflects solid gross margin momentum, cost management, and productivity initiatives. We continue to focus on long-term growth while delivering good financial performance. Jay Mazelsky, CEO: We are not concerned about cannibalization from pain meds. Diagnostic utilization remains strong, and innovation will drive future growth.
Q: Do you think there is still room for market share gains in reference labs, or will growth come from innovation and new markets?
A: Jay Mazelsky, CEO: Most growth comes from same-store sales driven by innovation and technology for life. New platforms open up greenfield spaces, contributing to our growth algorithm. Brian McKeon, CFO: Gross margin gains are driven by net price realization, software service margin gains, and favorable business mix.
Q: How do you manage OpEx effectively in a slowing growth environment?
A: Jay Mazelsky, CEO: We invest in R&D and commercial expansion while managing costs through productivity investments and automation. Our business model allows for flexibility and cost management. Brian McKeon, CFO: We continue to deliver strong financial performance by adapting to the growth environment and focusing on long-term growth drivers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
