Good morning, and welcome to the IDEXX Laboratories Fourth Quarter 2021 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jay Mazelsky, President and Chief Executive Officer, Brian McKeon, Chief Financial Officer, and John Ravis, Vice President Investor Relations. IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that our discussion during the call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Additional information regarding these risks and uncertainties is available under the forward-looking statements noticed in our press release issued this morning, as well as in our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website idexx.com. 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 measures is provided in our earnings release, which may also be found by visiting the Investor Relations section of our website. In reviewing our Fourth Quarter 2021 results, please note all references to growth, organic growth, and comparable growth refer to growth compared to the equivalent period in 2020, unless otherwise noted. To allow broad participation in the Q&A we ask that each participants limit their questions to one with one follow-up as necessary. We appreciate you may have additional questions, so please feel free to get back into queue and if time permits, we'll take your additional questions. I would now like to turn the call over to Brian McKeon.

Good morning, everyone. I'm pleased to take you through our fourth quarter and full year 2021 results and to provide an overview of our financial outlook for 2022. In terms of highlights, IDEXX delivered excellent financial performance in Q4 driven by double digit top line gains compared to very strong prior year results. Revenue increased 11% as reported and 10.5%, organically supported by 13% organic growth in CAG Diagnostics recurring revenues. Two year average annual organic growth for CAG Diagnostics recurring revenues was approximately 17% across U.S. and international regions, consistent with the accelerated two year growth trends seen throughout 2021. We achieved record premium instrument placements in Q4 with strong gains across our major platforms supporting a 14% year-on-year expansion of our global premium instrument base. Strong revenue growth enabled delivery of $1.89 and EPS up 12% on a comparable basis as we advanced planned investments in our commercial and innovation capability. Closer benefits from high organic revenue growth in 2021 drove outstanding full year financial performance above our long term goals. IDEXX achieved 16% overall organic revenue growth for the full year, driven by 18% gains in CAG Diagnostics recurring revenues. Full year operating margins reached 29%, an increase of 220 basis points on a comparable basis. And we delivered full year EPS of $8.60 per share up 29% on a comparable basis. We're well-positioned to build on the strong financial performance in 2022. We're targeting revenue gains at the higher end of our long term goals reflected in our outlook for 10% to 12% overall organic revenue growth and 12% to 14% organic growth in CAG Diagnostics recurring revenues. We're also targeting a 50 to 100 basis point improvement in operating margins on a comparable basis, building on the strong profit gains through the pandemic as we…

Thank you, Brian. And good morning. IDEXX sustained a strong performance in Q4 capping an exceptional year for the company. For the full year we delivered 16% organic revenue growth, 29% comparable EPS growth supported by solid operating margin games and 59% ROI fee. These results reflect the attractiveness of our businesses including our core CAG business which is sustaining very strong growth trends benefiting from our commercial expansion in an expanding innovation portfolio. We're well-positioned to build on this momentum in 2022 as reflected in our financial outlook. This morning I'll recap our recent performance and highlight key areas of business focus moving forward including advancement of new innovations in the ongoing expansion of our global commercial capabilities. Both of these are strategic elements of our plan to develop the substantial long term market opportunity still before us. Let me begin with a brief update on sector trends. Overall global companion animal healthcare trends remain strong driven by ongoing robust demand at veterinary clinics for healthcare services, including diagnostics. As Brian highlighted U.S. same-store clinical revenues increased 8% in Q4 supported by 2% growth in same-store clinical visits compared to very strong prior year growth levels. Diagnostic same-store growth continues to expand at a higher pace of nearly 10%. IDEXX U.S. CAG diagnostics recurring revenue growth is leading this expansion reflected in 13% organic gains in Q4 building on 21% gains in Q4 of 2020 as we provide highly desired diagnostics and information management platforms that support our customers care mission. We're seeing sustained strong demand transfer clinic, clinical service globally, building on the step up achieved through the pandemic. As highlighted and data shared in our earning snapshot this includes sustained approximately 2% acceleration in U.S. diagnostics revenue per clinical visit in 2021 building on higher 2020 gains.…

Thank you and now begin the question and answer session. [Operator Instructions] And our first question is from Chris Schott from JPMorgan.

Great, thanks so much for the questions. I just want to get a little bit more color on the magnitude of impact you're seeing from Omicron to the near term results. So basically how much of a step down in visits are you seeing currently? And then maybe just following on that just kind of broader question, can you just elaborate a little bit more on your expectation for vet visit growth as we look out to 2022 and we start to think about annualizing maybe more normalized comps that we've seen over the past few years. Thanks so much.

Good morning, Chris. We haven't quantified it. We did see some impact on testing volumes in the international regions from Omicron, in late Q4. It primarily manifested itself in the modest drop off in some lab volumes. And this trend appears to be continuing just in early ‘22 January as it affects the U.S. clinical visit growth. The thing to keep in mind is the underlying customer demand is very strong. What vet practices tell us is that they're busy as they ever been in terms of forward booking. We're seeing month, two month forward booking of patients and [impediments] (ph) just trying to get into practices. So we think practices have a playbook in which to deal with this. We've all seen this movie a couple times at this point. They've done the curbside drop off and pickup. In some cases there's obviously some staffing issues that they're dealing with, we think that that’s more of a temporary basis. And we're in a really good position also to be able to support them with our field service, organization and technology solutions that help them be more productive and manage that business.

And to your question Chris our 12% to 14% organic growth outlook for CAG Dx recurring revenues assumes positive clinic visit growth in addition to strong performance, ongoing performance by our teams and helping to grow our revenues faster than that.

And maybe just one really quick follow up. I know, last year, you talked about new instrument placement growth adding I think about a percent or so to overall revenue growth. Can you just elaborate on how you're thinking about new instrument placements and its contribution to 2022? Thanks so much.

I'll let Jay talk to the color of the momentum that we have on instrument placements in our priorities. In terms of our outlook we didn't break it out, specifically what we're targeting continued strong placement growth. The revenue growth may lag the placement growth somewhat as we see the expansion of programs like IDEXX 360 and have some mix effects from higher growth in international markets, but we're targeting solid instrument year-on-year growth and that's factored into the overall guidance.

We saw record placements in Q4 of 2021 over 5,000 on the back of record hematology placements in catalyst and SediVue, pretty much across the board. And we think that that momentum will remain intact. Practices are clearly investing in technology to help them from a capacity standpoint. They are looking to us and our solutions that not just support the best standard of care but also support workflow and staff productivity and enable them to handle higher patient volumes.

Okay. Thanks so much for the questions.

Our next question is from Erin Wright from Morgan Stanley.

Great, thanks so much. In the inflationary environment that we're in and you anticipate higher price realization in the 2022 guide. But can you quantify some of the offsetting factors, the higher input costs, labor freight, net net how are these dynamics impacting you from a margin perspective in 2022, just based on your guidance?

So we are seeing some impacts selectively in our business. I think you highlighted some of the key drivers, but freight and distribution costs have been a factor. We are monitoring higher labor input costs. I think that's something that we anticipate will be something we'll need to manage effectively. And we have selective impacts in different parts of our business, but we do use electronic components and things of that nature. I think a lot of our focus, Erin is on making sure we have continued very high business continuity, reliability. So we're really pleased with that. We're at 99% and customer reliability and that's our primary focus. And so we do have some impacts and as you pointed out we have a relatively higher expectation for net margins improvement that helps to mitigate that and is reflective to a degree of that and enables us to support the solid operating margin improvements that we're targeting next year.

Okay, great. And then more of a philosophical question here. So bear with me, but bigger picture, thinking about broader animal health and more specifically diagnostic trends and while there will be an element of normalization here near term, just given the tough comps and barring any sort of Omicron volatility, but it does seem that you suggest that we are emerging from the pandemic at a faster underlying growth rate for companion animal diagnostics that may be pre-pandemic, over the longer term. Does this change how you're thinking about your five year outlook? And how are you thinking about some of those changes over the course of the pandemic that may be actually more structural in nature? Thanks.

Yes, I'll take that. Good morning, Erin. There is a couple of quick longer term trends that the pandemic probably accelerated that were in effect and if anything, as a result of new pet adoptions and the pivot within practices, the more service versus retail type product sales, I think have just accelerated as a result of the pandemic. Clearly as veterinarians focus on medical services and patient care diagnostics is a big piece of that I think they recognize that diagnostics is obviously a very high margin, very high profit center within their practices. And so I think the combination of more patients, pet owners wanting a higher standards of patient care, veterinarians pivoting to services and the role that diagnostic plays, have been important factors. And then you layer on top of that, our strategy as a company which both includes continuing to innovate both in terms of testing platforms and information management and our commercial strategy, which is a high touch model and being able to work with veterinarians to help them use these tools effectively both business and medical wise, I think we continue to see very strong trends that are higher than pre-pandemic.

Okay, great, thank you.

Our next question is from Michael Ryskin from BoA.

Great, thanks for taking the question. And congrats, Jay and Brian on the quarter and on solid guide. I want to ask about some of the new products and new initiatives you announced earlier this year at VMX or around VMX including the PetDx partnership slightly different than some of the things you've done in the past. And it does get to a point we've had questions from investors about in terms of additional testing modalities, additional opportunities beyond sort of what's already on the market. Could you talk about the oncology opportunity? Or if there's others beyond that that you're thinking of in terms of some of the untapped markets and diagnostics? How do you see this partnership playing out over next couple of years? And sort of -- of the things you highlighted earlier this year how meaningful is that a contributor to 2022 overall? Or is that more of a long term factor?

Sure. Good morning, Mike. Pet cancer is the most prevalent cause of death in dogs. So there are about 6 billion positive cases of cancer of dogs just in the U.S., it's very significant. And if you take a look, that I just did a high level in terms of the process by which the veterinarian diagnosis and treats, it's very complex. It's fragmented and there aren't a complete set of diagnostic tools to help support that. So we think that there is a longer term very attractive market opportunity to be able to help veterinarians navigate cancer diagnosis and treatment. So we're building off our expertise in cancer pathology, which is really more today geared towards cancer identification and then really trying to get across the continuum of care which is the identification and staging and treating in monitoring and bring solutions to that full value chain of care. So the partnerships we announced, we think bring best in class technology to support that process. We're excited by it. It's still early stages in terms of market development. So I think it's less about the revenue opportunity near term and more about supporting veterinarians and helping them navigate what's very complex and what is increasingly pet owner driven demand for these types of services. I think over time it's a quite attractive opportunity. We bring, I think credible technical expertise to be able to support the veterinarian through this and we're excited by what we've learned and continuing to build off those capabilities over time.

Great, thanks. And then a follow up question on the guide again. The 12% to 14% recurrent revenue in CAG is very solid guide and relative to initial expectations, you touched on and you commented that you expect clinical visit growth in the market to be positive. And you stated price again, but could you talk about some of the other moving pieces there. Just trying to get at the bridge from that clinical visit growth to the CAG recurring revenues whether it's diagnostic frequency diagnostic utilization? Just sort of the CAG premium could help us bridge what are the moving pieces there? That'd be helpful.

Yes, Mike. So I think the way to think about this as the as we were coming out of 2021 and clearly, we had a big step up in demand through the pandemic that we're confident that we can build off of that. So I think that's one key theme. And as you look at the calibrate this, the exit rate of our business in Q4 we had 13%, CAG DX recurring growth off that higher base. So we were entering the year with that kind of trajectory. And we see some positive drivers here. We're investing in international growth and feel good about the attraction and the potential there and we will have some incremental benefit from net pricing that we highlighted. And so the higher end of the range really reflects kind of building off of the momentum that we had I think to build on kind of Erin's question earlier, one of the metrics we share in our snapshot is just the average revenue per clinical visit in the inventor clinics in the U.S. and that increases Jay noted nearly 200 basis points from pre-pandemic levels from 4% to about 6%. So there's some underlying positive service trends here. And I think what you're seeing in our outlook is confidence that we can execute well, continue to execute well invest in ways that support that and if we can sustain that type of momentum we were, we think we can achieve those higher growth levels. And I think the lower end of the range really is more calibration going back towards more pre-pandemic type growth. It's not where we're necessarily projecting, but I think that that's a potential scenario as well. But all of this is building off of the higher demand. So it's some of this will come down to our execution. And I think things like Omicron or near term dynamics that we'll just need to manage through. As Jay mentioned, we don't see that as indicative of a longer term or an underlying demand issue. But the momentum on our business we feel very positive about and we're investing towards that. I think we've got a good strategy to keep building on that progress.

Great. Thanks so much. Appreciate it.

Our next question is from Jon Block from Stifel.

Hey, guys, great. Good morning. Thanks. First question is on wellness, clinical visits. They can continue to do very well. The two year average actually accelerated from the third quarter 21 levels. So just love management spots on staffing capacity issues at vet practices, we continue to hear a lot about those. I think others do as well. Jay and Brian how difficult are they because you would think wellness would be impacted. But again, an accelerated and maybe you believe the underlying industry demand from consumers is actually potentially higher from what we're seeing work its way through and then I've just got a follow up. Thanks.

Yes. John, in terms of the wellness visits, and a couple of things that are potentially driving that. Obviously there's a lot of puppies and kittens who have now become dogs and cats. And I think there's a lot of pet owners who want to get their pets into the practice and being checked up and there's been an emphasis on wellness visits in the U.S. now for quite some time. So it's not new. Obviously there are some capacity constraints in some of these visits get pushed off a month or six weeks. And I think over time, that'll get relieved, but I think the under what we see as the underlying demand for wellness and checkups, is there and have been very robust as you pointed out, and we expect that to be able to sustain. Certainly we and others in the market place, I really focused and emphasizing preventive care, as they an important part of patient health.

Okay, fair enough. And the second one, built on Chris's earlier question. So Brian, I'll try to maybe push you a little bit more. I think CAG DX recurring guide was, I think solid and a lot of people's view. It implies a two year average of in and around 15.5%. You helped I thought a lot on the cadence of OP margin expansion in 2022. You call that the comps with anything specifically to call out for CAG DX recurring to your average for 1Q? I mean, you got a wildly tough comp. You call that Omicron headwinds that persists. Jan, maybe even in February. Could this be a situation where we're looking at an organic revenue CAG DX of mid single digits when we take that all into account? Or maybe just phrase it, frame it versus that the two year average of 15.5 for full year? Thanks, guys.

Look, the way I think we're thinking about this is we're building off this higher base. So we clearly had a period there where we needed to look at some two year metrics here to calibrate for 2020 effectively the pandemic dynamics. And now we're moving into sort of that phase of building off the higher base, I would say that there was some incremental benefit last year in Q4 from just the puppy boom and that I think is probably the key factor that sustains in the near term but for the most part we're normalizing off that hire base. And so I think that 12% to 14%, is that full year number one. We're not projecting by quarter, but I think we're that reflective of the overall momentum in the business. I think the Omicron dynamic is a near term dynamic in the U.S. that we didn't really see significantly in Q4. And then we're seeing some effects early here, what we'll sort that out as we go through the quarter, but I think the underlying momentum and trends we're targeting to remain strong and we'll work through these near term dynamics as they play out.

All right, thanks, guys.

Our next question is from Nathan Rich from Goldman Sachs.

Hi, good morning. Thanks for the questions. Brian, maybe starting with the OpEx guidance. I think you mentioned kind of the higher levels that you saw in the latter half of this year will continue into 2022. I guess it's kind of running in the back half of ‘21 was in the low 30% range in terms of revenue. Can you maybe talk about what you see the run rate being going forward both for 2022 and beyond because OpEx as a percent of revenue has come down a lot relative to historical levels? Do you see that getting back to historical levels are, you kind of feel like the current rate that we're adding is sort of what to expect as we go forward from here?

So I think the way to think about Nathan is we had a Q4 growth rate year-on-year about 15% and we're working, still working through some compares to some relatively more controlled growth at OpEx levels in the comparable prior year. And so entering into Q1 we expect kind of the that same dynamic will have a relatively higher rate of OpEx that'll be our most challenging compare. And, in general terms, I think, for the full year, you should expect us to be trending back more in line with kind of our overall revenue growth where we want to lean in and invest towards future growth. I think our market dynamics will, as they've been in the past be supported by solid gross margin improvement. And so I think longer term consistent with our longer term outlooks that we've shared at Investor Day, I think OpEx grow closer to revenue growth is a reasonable expectation.

Okay, that's helpful. And then, Brian, I don't know if you have any commentary on how we should expect kind of the weighting of earnings this year between like the first half and the second half, just kind of given the commentary on kind of the early first quarter trends as well as the higher OpEx levels. Is that going to kind of significantly change the typical seasonality that you usually see in the business?

Yes. It's more driven by compares than necessarily a change in seasonality, but I did mention that our margin improvement would be in the second half. And as we just discussed, I think are more challenging compare will be in Q1 in terms of the quarters this year, but that's again more reflective of year-on-year dynamic. The one thing to highlight specifically is we'll still be working through an LPD. We have the decline in the African swine fever revenues that really started in the third quarter of 2021. We'll still be working through those compares. So that'll have a dynamic as well.

Okay, great. Thanks a lot.

Our next question is from Ryan Daniels from William Blair.

Hey guys, Nick Spiekhout in for Ryan, most of my question has been asked. But I guess in the release you mentioned, you're still working your way through the ezyVet integration at least on the OpEx side. I was wondering how far along are you in that until you kind of, fully integrate, and you're no longer dealing with those expenses?

Good morning. Yes the ezyVet integration has gone quite well, where we're far along in terms of really integrating our sales approach and organizations and product roadmaps. And that continues to received extremely well in the marketplace and the things from the growth numbers that there's a lot of traction behind that. It's a key part of our strategy and over 80% of our PIMs placements were cloud based placements this quarter. So really good traction far long in integration and going well.

Great, thanks. And I guess, kind of just a quick follow up on the wellness visit color. With kind of that strong stack wellness growth, I was wondering if you guys are seeing any change in the proportion of those that have included a 10 panel like with a large growth are you seeing that kind of proportion come down are you kind of maintaining what the historical rate was with that growth?

Yes, I mean, it's been pretty constant in terms of panel mix. It's something we don't break out. These are largely configured panels for wellness. So when customers use that get a lot of variation quarter-to-quarter. And so with that, I'd like to thank everybody for joining this morning's call. I know we have some employees who are listening. I would like to say thank you to them for their excellent performance and continued passion for our purpose. Day in and day out, our team delivered excellent results aligned to our long term opportunity while also demonstrating unwavering commitment to our purpose in navigating and evolving landscape through the continued pandemic impacts. Very grateful for the IDEXX team, and the purpose which drives our work. And so with that, we'll conclude the call. Thank you.

Thank you ladies and gentlemen. That concludes today's conference. Thank you for participating and you may now disconnect.