Good morning, everyone, and welcome to the IDEXX Laboratories' Second Quarter 2013 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jon Ayers, Chief Executive Officer; Will Blanche, Interim Chief Financial Officer; and Ed Garber, Director, Investor Relations. IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that statements that members of IDEXX management may make on this call regarding IDEXX's future expectations, plans and prospects constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as expects, may, anticipates, intends, would, will, plans, believes, estimates, should and similar words and expressions. Such statements include, but are not limited to, statements regarding management's expectations for financial results for future periods. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risks factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and, except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Also during this call, we will be discussing certain financial measures not prepared in accordance with Generally Accepted Accounting Principles, or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release, which can be found on our website, idexx.com. Finally, we plan to end today's call by 10:00 a.m. Eastern. [Operator Instructions] I would now like to turn the conference over to Jon Ayers. Please go ahead.

Okay. Thank you, Bonnie. With me is Will Blanche, our VP of Finance and Interim CFO; and also Ed Garber, who is coming back into the role, one of our veteran finance executives and coming back into the role of Director of Investor Relations. So I'm going to just turn over to Will now to take you through the numbers, and I'll come back with some color commentary.

Thanks, Jon. Good morning, and thank you for joining us for today's call. As reported in our press release, our second quarter revenues were $352.6 million, yielding organic growth of 5.5% and fully diluted earnings per share of $0.99, a year-to-year increase of 9%. Second quarter organic revenue growth was driven by very strong increases in instrument consumables and lab services, partially offset by revenue growth associated with capital and system placements. Earnings per share growth exceeded revenue growth due to strong gross margins, resulting from cost efficiencies and favorable product mix along with augmented shared repurchases. Currency had an immaterial impact on EPS. As for the economic environment, I wanted to share what we are seeing in the U.S. veterinary market based on data from 700 of our own Cornerstone customers. During the second quarter, patient visits were up 0.7% and practice revenues grew 4.9%, representing a modest improvement over patient visits that grew 0.1% and practice revenues that grew 3.5% in Q1. Growth rates for both metrics did accelerate somewhat over the course of Q2. VetLab instrument and consumable revenue of $112 million grew 9% organically. Instrument revenue of $20.7 million declined 10% organically. Chemistry analyzers placed through volume commitment reagent rental programs in Q2 of this year, which were not used in last year's second quarter, negatively impacted our year-over-year instrument revenue growth by roughly 3%. Adjusted for this, chemistry revenues were up slightly in the quarter. Our worldwide chemistry placements and units were very solid for the quarter, with 14% growth versus prior year and more than a 35% step-up versus Q1. This double-digit year-over-year growth reflects increases in both Catalyst and VetTest placements and was driven by our worldwide sales focus on chemistry instruments, given their importance in resultant consumable stream compared to a hematology…

Okay. Thanks, Will, for taking us through the numbers. I'm pleased with the organic revenue growth and the acceleration from 3.3% to 5.5% in the second quarter for the whole company, and that being led by CAG at 6.8%, which reflects the strong momentum in instrument consumables and lab services. Our prospects on momentum give us confidence in a projected roughly 10% organic revenue growth for the company in the second half of 2013, via the road map laid out by Will. As noted in the press release, we're ahead of plan with our diagnostic sales force transformation for the Companion Animal business in North America. North American Companion Animal diagnostics revenues make up approximately 50% of our total revenues, just to give you context. As you know, from our April call, 20% of our diagnostic sales representatives in North America transitioned to their new customer-centric role as a Veterinary Diagnostic Consultant, or VDC, during the second quarter. These VDCs demonstrated their ability in the third month of the quarter to increase the number of customer calls on average by almost 60% versus the prior sales model. In addition, even though these representatives were the first wave of the transformation, had brand-new roles and in most cases a modified or different territory and customers set, they achieved sales performance equivalent to the sales professionals that were operating in our prior model. This is pretty impressive give a performance for the first few months of the first wave. We strongly believe incremental benefits will come as the VDCs enjoy additional time in their new role and new territory. We believe that based on the learnings of the first wave, our second wave, which encompasses the remaining 80% of the diagnostic sales force in North America, including all of that in Canada,…

[Operator Instructions] Your first question comes from the line of Ryan Daniels from William Blair. Ryan Daniels - William Blair & Company L.L.C., Research Division: Jon, I wanted to give you a follow-up on the sales force transformation. I'm curious, your view on how quickly the 60% increase in calls leads to stronger organic growth. And then maybe you could talk about how that manifest and at what rate, via better retention, more utilization with existing clients and then the opportunity to cross-sell them to other modalities of diagnostic testing versus what they currently have.

Yes. Ryan, thank you for the question. First of all, we expect the ramp in call frequency because of the smaller territories and because they moved to a regular calling pattern. That ramp is, in the second wave, is happening very quickly and we would expect that to be well in place by the second month of the quarter. And so I think we'll see a greater increase in productivity in the second wave than in the first wave. Now in this new model, what -- our customer has a single diagnostic representative, and that is what's different than in the past. Not only did they not see the rep as frequent, they didn't see the same rep. So they saw 2 different reps, one for the in-house line and one for the reference line. And so seeing the same rep and seeing that rep more consistently, I think, is going to be able to generate a relationship that will allow us to achieve all 3 of those growth parameters that you mentioned. In fact, we believe the vast majority of customers are going to be able to see -- be seen twice a quarter by this rep. And so what that does is it builds a relationship, increases loyalty and retention. And of course, that rep is also going to be helping the customer appreciate, enjoy the benefits of VetConnect PLUS with our diagnostics, which also increases retention, but it also builds that relationship to help us cross-sell. Ryan, as you recall, the majority of our customers who use 1 or 2 of our chemistry and hematology modalities, reference labs at one side or the in-house equipment on the other side, only 36% of that universe actually uses both. So the cross-selling opportunity is pretty big. And then the…

I think that's very true. One of the areas where we've had -- where you had typically a slow adoption in the veterinary profession is the adoption of new, innovative and highly appreciated test technologies such as, we've launched molecular diagnostics and pancreatitis and cardiac and allergy testing, all new menu, if you will. And the adoption's been slow. And I think one of the reasons the adoption is slow is while we've had a number of resources available to the customer, we haven't had that in-person contact. And one of the things that we found in wave 1 was customer said, "Hey, I heard you started allergy or I wanted to learn a little bit -- more about those pancreatic tests." And so the purpose of these calls is first to address the questions that the customer has. And they're actually quite -- they're quite interested in learning about this, but they really haven't had someone who is fully knowledgeable to be able to take the time as part of the regular call cycle to introduce this. So we could see a more rapid adoption. Clearly, we think the -- while the adoption rate of VetConnect PLUS has been pretty fast relative to our history, we think the adoption rate will accelerate in the new model for the same reason.

Your next question comes from the line of David Clair from Piper Jaffray.

First one for me, I was just hoping to get some color on how you're monetizing VetConnect PLUS. We've seen some pretty solid adoption trends there. Just wondering if you can give us some color on how that trend's impacting the business.

Well, thank you, David. First of all, VetConnect PLUS is a free service to anyone and, of course, populated with diagnostic information that's generated from IDEXX's modalities. And so we're not monetizing it by targeting subscription. I think what we're seeing and as the adoption increases is customers now get a lot more value out of the diagnostic information that they were getting before from anyone, including IDEXX, because it has it in the context of the history. And what that does is it increases the loyalty of our customer base. And any increase in loyalty, of course, all of the things being equal, increases our growth rate. So I think that's probably the earliest monetization. The second is that VetConnect PLUS makes it very effective for -- very easy for a rep to -- first, to add value with a customer by helping appreciate the benefits of VetConnect PLUS in the modalities that they are using and then cross-sell the other modalities, as they understand that those can also populate VetConnect PLUS. And then third and probably much longer term is direct -- the direct impact of VetConnect PLUS could have on growing utilization of diagnostics, including new, as well as more common types of tests.

Okay. And then on the CAG gross margin. In the quarter, I was hoping you could break out the improvement we saw related to mix and price and improved efficiencies. I think you mentioned that the lab business, we saw a nice uptick in efficiency there. Just hoping you can give us some -- quantify the impact.

Sure, I'll take that one. As far as the gross margin for the businesses, reference labs was the primary driver there and it would -- I'd split it out between the 2. It's -- we don't typically do too much of that, but it's primarily reference labs and then supported by the other change with the mix. I'd say more reference labs, though.

We're getting the, of course, the productivity and efficiency and the volume leverage associated with that strong organic growth.

Okay. And then just one more quick one for me. What's the expected list price for SNAP Pro?

Thank you. That's a good question. The list price is going to be a little under $1,500. But probably the AUP will be less than that because we'll have volume discounts and other types of programs to encourage adoption.

Next we'll go to the line of Erin Wilson from Bank of America.

Sorry if I missed this. But can you break down the rental placements in the quarter and the impact it had on the overall instrument sales? And how should we think about the quarterly progression of instrument placements in sales. You'd mentioned that's an easier comp and some other drivers, but if you could break down the key drivers going into the second half, that would be helpful.

In rental, I'm assuming you mean our volume commitment to placements where we don't have upfront recognition of the instrument revenue, so I'll let Will take that.

Sure. So looking at the trend of volume commitment deals over the past several quarters, we did have that -- those commitment deals step down a little bit in Q2. As mentioned, it only impacted us by 3% in the quarter versus what we had seen previously. And that represents roughly somewhere in the neighborhood of 50 or so chemistry instruments. And just for comparative purposes, back in Q1 and Q4, that averaged around 100. So we are seeing a slowing trend there.

It's obviously replaced by other programs because we had a nice pickup in overall chemistry placements and year-over-year growth.

Okay, great. And can you speak to, I guess, any recent changes in distribution, potentially expanding some of your exclusive distribution relationships to include certain instrument products or capital equipment? How much do you forgo on the margin for some of these relationships? And net-net, are the economics favorable to you?

Yes. Thank you. We have -- typically, with distribution in some instruments, had a, what we call a buy-sell relationship with them in the same way that we had consumables. At the request of our distribution partners, we added that. We added the chemistry and hematology instruments to that. A couple of notes: It was -- we don't expect it to be very much of our volume. In fact, I would call it immaterial in the second quarter. And second of all, the economics are no different to us because what we're doing is we're putting this in in replace for a commission or a spiff to distributor rep. And the margin that the company receives is about equivalent to what we would have paid in terms of the spiff. So there's really no change in economics. It's just in some ways, in some cases, the distributor prefer to have this arrangement, and we want to be responsive to our distribution partners.

So sales force on -- or sales representative on the distribution side would have to essentially meet some sort of a threshold to get some sort of commission rate. Is that how it would work?

Well, it's -- they -- with all instruments, our sales reps are highly involved. And in certain situations, we do have involvement of the distributor rep. And in that case and in certain cases, just works out better that the distributor can recognize revenue on that instrument placement. It's really revenue recognition for them. But for us, it's the same price because if we paid them a commission, we would just net that against the purchase price. So by -- well, let me reinforce. The primary way that we sell instruments is, by far and away, is with our direct sales force and we really expect this to be a very small, if not immaterial, aspect of our instrument placements in North America, or I should say, in the U.S., where we have -- where we've made this change. And it's something that we want to be supportive of our distribution partners with.

[Operator Instructions] Next, we'll go to the line of Ross Taylor from CL King. Ross Taylor - CL King & Associates, Inc., Research Division: First question, I just wondered if I could have Will repeat what the impact to the changes in distributor inventories was on the instrument consumable growth. And then more substantial question, I just wondered if you could comment at all about some of the new products, any commentary about how the rollout of Pet Health Network Pro is going. And then with regards to the SNAP Feline proBNP test, how do you -- do think this expands the market or does it simply cannibalize your reference lab business for proBNP? Or how might veterinarians use this differently in practice than the current test?

Perfect. So as far as the impact of the changes in distributor inventory levels, on instrument consumables, there was about 1%. And for Rapid Assays, it was negligible.

So there were a couple of questions in there. So one of them was about Pet Health Network Pro. Just to remind investors, we formally launched Pet Health Network Pro earlier this year, actually I think in March of this year. I think it's become the most robust client patient communication and education service platform out there for the veterinary market. And I'm really quite excited about the impact it's going to have on helping veterinarians communicate and educate pet owners on the attributes of things like preventative health care and in turn, diagnostic testing. The feedback from users really has been outstanding since launch. As you expect with any new software launch like this, penetration is ramping. We have a strong team focused on opportunity. They continue to improve the underlying software. In fact, we had a new release of Pet Health Network Pro. It's a cloud-based system. So when we do a release, everybody benefits from it simultaneously. We had a new release in early July, which adds additional capability. And so I think we're excited about it, both as a revenue generator because it is a subscription-based software as a service but also as a way to help practices to grow. Where we had the most success with Pet Health Network Pro has been with Cornerstone customers, and that makes a lot of sense because it's the only client communication tool that is fully a part of, integrated with and built in to the Practice Management Software. So you can do things like -- have customers generate visits just online as well as direct sharing from the patient record to the patient to the Petly, which is the place that the pet owner has all the patient information. So we're pleased with the ramp and we're building an installed base. Ross Taylor - CL King & Associates, Inc., Research Division: Okay, good. And also if you have time, just any comments about the NT-proBNP part that...

Yes, I'm sorry. Yes, very briefly, it's not going to -- nothing cannibalizes. Testing begets testing. We think this continues to build the cardiac franchise. Feline, with cats, the protocol really is more and more accepted that this is a screening test of healthy cats because cats can get the cardiac condition that this tests for, just as an adult. And it doesn't present very nicely, it kind of presents a sudden death in some cases. So we like to catch it a little earlier than that. And so I think this really -- it's just going to build upon our reference lab franchise for cardiac testing and give more awareness. As I mentioned in one of the earlier questions, building adoption of these things takes some time. And when you have multiple modalities that provide a similar category of protocols, in this case, cardiac testing, it helps to expand awareness.

Next, we'll go to the line of Jon Block from Stifel. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: Maybe, the first one, Jon, for you. I mean, just big picture, if you can to speak to your overall confidence in the back half pickup? And I know you guys gave very good reasons as to why we should see the acceleration in the back part of the year. But to be fair, those reasons also existed before, right, I mean, 3 and 6 months ago when you alluded to them. So you step down the organic by 50 bps in each of the past 2 quarters. Do you feel comfortable that the guidance is where it needs to be? And then maybe, what went on over the past 3 or 6 months that lead to, I mean, it seems capital base, but if you can maybe pinpoint where the shortfall stem from.

Yes, thank you. Thank you for the question. We feel -- we've really taken a close look at the second half. Of course, the second half is where we always thought the step-up would occur. And the second half, at this point, is still in front of us, like it was earlier in the year. The shortfall in the second quarter that you refer to and the step-down in organic growth is associated with capital placements. In some cases, it's really the lower margin capital associated with digital radiography and customer information management, and then the quantity versus the quality of the capital placements. But the -- I'll tell you what the other thing that we feel pretty excited about is the success. As we predicted, overall, in the growing use of the annuity portions of our CAG diagnostic modalities, 76% of the company's revenues are the Companion Animal Group and about 90% of the Companion Animal Group's revenues are the annuity portions of the modality. That'll be all the reference labs, all the instrument consumables and the SNAP kits. And we're now -- we're actually stepping up our guidance for instrument consumables. Those are already pretty strong from -- at 11% to 13% organic growth. And now we're stepping up to 12%, 14%. We are certainly very pleased with the 55% competitive chemistry placements in the second quarter. I think our sales organization has really learned how to do that. They have a lot of confidence now. And then of course we are pleased that lab is progressing, just as we expected, with a 9.5% organic growth in the second quarter. So we think we're on track there. And so that's the important part of the business. And then of course, we have the non-CAG businesses, which are doing,…

Yes. Well, I think the highest number that we had before the second quarter in North America for competitive, for our new Catalyst placements was 45%. So it was a nice jump from 45% to 55%. Now that number has been growing, really, over the last couple of years, but that was a pretty big jump between the first and the second quarter. And obviously, we still have 80% of our sales organization in the old role, so you can't really attribute that to the sales force transformation yet. I think we really attribute that to the fact that the sales organization is getting more and more comfortable with selling the unique benefits associated with our in-house offering and the benefits of that combined with our reference lab offering and VetConnect PLUS. But it's not just VetConnect PLUS. We have a Real-Time Care value proposition that only IDEXX can provide. We're the only ones that can provide the ease of use and turnaround of sample within a 20-minute patient exam. So I think there are a number of things that we have put in place that help our sales reps communicate the unique value to the IDEXX diagnostic offering, that we really put in place over the last 6 to 9 months that we saw the benefit of in the second quarter. So it's nice to see that momentum and why I would expect that to continue into the second half of the year.

Your next question comes from the line of Ben Haynor from Feltl and Company.

Just curious on how much of the organic lab growth was price realization in the quarter?

Sure. So breaking that out, it's about -- for the total company, it's about -- roughly half. But probably closer to 60% of the growth comes from volume and 40% from price.

On a global basis.

On a global basis.

Okay, great. It looks like you guys had a really nice quarter in terms of competitive installs. But the guidance, you're looking for kind of flat hematology and low single digits on chemistry. If you're going to be able to generate that double-digit type consumable growth, how much do you see that coming from growth in testing versus, perhaps, the price realization there?

Yes. The vast majority of that is volume growth. I think it's a very, very small portion of it which is price. But you mentioned the competitive placements, which are, of course, fully contributing to the additional growth. But even when we upgrade existing customers, we see a growth of 25% or more in utilization because of its -- because of the capabilities of the instrument. So we get growth in both types of placements. Of course, the momentum in the first half, this is a momentum business. It doesn't change overnight. You're not going to see -- you're never going to see the change in instrument consumable growth that much from -- on an underlying basis, adjusting for changes in distributor inventory, very much because it's really a quarter's growth is the result of the last 4 or 5 quarters of placement and customer activity. So the fact that we achieved 14% growth in the second quarter tells us -- gives us some confidence for the momentum of going into the second half of the year.

Your next question comes from the line of Nicholas Jansen from Raymond James. Nicholas Jansen - Raymond James & Associates, Inc., Research Division: A lot of discussion so far, but it's all limited to 1 or 2. But in terms of the MWI agreement, I know you gave some color on 1Q about their level of commitment and kind of the revenue growth that you saw. Any step-down or any kind of changes with regards to their commitment 2 quarters into the new change?

Yes. Thank you. Nick, we continue -- there's really absolutely no change in the story from what we said in the first quarter. We continue to be pleased with all of our distributor partners. We look at our distributors very carefully in terms of their -- the revenue that they generate, as well as the engagement their field sales organization have with initiatives that are IDEXX-specific, typically program types and initiatives or initiatives of writing with our -- and working with our sales organization. And when we look at all of those, again, we saw really no change or no difference in these metrics with our nonexclusive versus our exclusive distributors in the second quarter, just as we saw no change. And we really didn't expect any change as we did in the first quarter. What I am excited about going forward is with the new sales -- our direct sales model, where we have a single sales rep for a territory, smaller territory. They now have the opportunity to work with fewer distributor reps because they're not carrying -- covering as large a territory in a more intense basis. And I'm looking forward to that partnership between our rep and our distributor reps in helping the customer grow the practice. And this is what we really need. We know that customers want that help. When they get that help, that their practice responds. And in this economy, they can take control of their destiny a lot more than sometimes they appreciate just by the -- what they're doing with their practice. And so when we partner with our distributors, we can make that happen. And I think that partnership is going to be -- there's going to be a much greater opportunity with that partnership in our new sales -- into CAG diagnostics account manager-type sales model. Nicholas Jansen - Raymond James & Associates, Inc., Research Division: And then maybe secondly, on Europe, obviously, a pretty solid performance there. You didn't mention Leipzig, Germany, the new reference lab, how is that tracking and kind of how much of that is contributing to the sequential rebound in organic growth relative to 1Q?

Yes. Leipzig is tracking very, very well. We extended it to several more countries in the second quarter as we expected. We like the performance of Leipzig and then the other area that's performing quite well, where we had quite a bit of growth was the Nordic countries, where we went direct. And I don't know, Will, maybe you have the growth in Nordic countries, but it's a pretty high number in the second quarter, as we really came on -- we had a pretty good number in the first quarter but the second quarter is even more unbelievable. So we're very pleased with that initiative. And the Nordic countries are -- these are countries where our diagnostic solutions work very well. They're sophisticated practices. They have a strong -- the pet-owning population has a strong bond with their pets, and their economies are strong. So these are very appropriate markets for us to have an effective solution, where we can combine both the in-house and the reference lab offering. And of course, part of it is we're able to go direct with in-house. The other part of it is that we have the Leipzig lab, which is helping us in those Nordic countries with a very, very attractive and heretofore unknown turnaround time. But we also had good performance in some other parts of Europe. Of course, Europe has got a lot of different economies, and some are doing better than others. For example, we have a very good performance in Italy. Leipzig is actually helping us in Italy. And who would have thought Italy, given the economic situation there. So we're pleased and we have a very experienced management team and set of country managers in Europe, and they're really taking the strategy with a lot of excitement.

Jon, as far the Nordics, we saw high double-digit growth in the Nordics. So in...

High double digits.

High teens, high teens. Nicholas Jansen - Raymond James & Associates, Inc., Research Division: Okay. Lastly, maybe just quickly for you, Will. In terms of gross margins, you've been up over 100 basis points in each of the last 2 quarters. And I think even back to 2012, you're up 100 basis points in the back half of the year as well. Now your guidance for full year would suggest less of an improvement in the back half. Is that more attributed to the mix? Or is there anything -- considering the customer utilization pull-through and kind of still flattish like instrument numbers, I would have anticipated this level of success to continue going forward.

Sure. There are definitely some mix dynamics because we do expect the instrument placements to rebound a bit in the back half of the year, and so I think certainly that is...

That's in the second half of the year versus first half.

Second half of the year versus first half.

So we did get mix dynamics in the second half of the year versus the prior year because of the higher proportion of consumables versus instruments. With the drop in instrument revenues, you actually improve your gross margin mix. So I would expect that -- we've seen that sort of sequential step-up in meeting up year-over-year step-up in margin that we saw in the second half of last year and first half of this year. We've kind of gone through that now. So I think we'll continue to enjoy that. But I wouldn't expect it to see a significant further year-over-year increase in the second half of the year, other than what we are achieving in lab versus our productivity.

And sir, there are no further questions. Please continue.

Okay. Well, thank you, everybody. Great questions. I just want to also congratulate everybody on their performance. The company's been working hard on some of these very, very large transformations, certainly, transformation, the way our customers enjoy the benefits of IDEXX diagnostics and then the transformation on our sales organizations around the world. And so I think it really sets us up well for the second half, and we look forward to continuing to report our progress at the next earnings call in October. And with that, we'll complete the call.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.