Good morning, and welcome to the IDEXX Laboratories' Fourth Quarter 2024 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; Andrew Emerson, Senior Vice President, Corporate and Companion Animal Group Finance; 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 notice in our press release issued this morning, as well as in our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website, 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 2024 results and initial 2025 guidance, please note all references to growth, organic growth and comparable growth refer to growth compared to the equivalent prior-year period, unless otherwise noted. To allow broad participation in the Q&A, we ask that each participant 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 the queue, and if time permits, we'll take your additional questions. Today's prepared remarks will be posted to the Investor Relations section of our website after the earnings conference call concludes. I would now like to turn the call over to Brian McKeon.

Good morning, everyone, and welcome to our fourth quarter earnings call. Today, I'm pleased to review our Q4 and full year 2024 financial results. Andrew Emerson, who will be assuming responsibility as IDEXX's CFO on March 1st, will take you through the details of the company's outlook for 2025. IDEXX had a solid finish to 2024, reflected in fourth quarter performance ahead of our expectations. Revenue increased 6% organically, supported by 7% organic gains in CAG Diagnostics recurring revenues. Operating profits increased 7% as reported and 8% on a comparable basis, benefiting from solid gross margin gains, which supported operating margin performance at the high end of our guidance range. We also saw positive impacts from increased stock-based compensation activity, which benefited our effective tax rate. These factors supported delivery of $2.62 in EPS in Q4, up 10% on a comparable basis. IDEXX execution drove solid expansion of our business for the full year 2024. This is reflected in 7% full year organic growth in CAG Diagnostics recurring revenues, 9% growth in our global premium instrument installed base, 11% organic gains in recurring software and digital imaging revenues, and 11% organic growth in our Water business. We delivered excellent full year financial performance in 2024, supported by comparable operating margin gains at the high-end of our long-term annual improvement goals. Full year EPS of $10.67 per share, which includes $0.56 per share of negative impact related to a discrete litigation expense accrual, increased 12% on a comparable basis, including 2% of negative growth impact from the lapping of a 2023 customer contract resolution payment. These results were achieved as we successfully advanced our innovation-driven growth strategy and worked through greater-than-expected sector and macro headwinds. As Andrew will discuss, this performance sets a solid foundation for our business to build upon…

Thank you, Brian. Turning to our 2025 full year outlook, IDEXX is planning to deliver solid organic revenue growth and profit gains, led by strong execution and benefits from new innovation. We're providing initial guidance for revenue of $4.055 billion to $4.170 billion, an increase of 4% to 7% on a reported basis. On an organic basis, this reflects a growth range of 6% to 9% overall, supported by 5% to 8% organic growth in CAG Diagnostic recurring revenues. At current exchange rates, we expect foreign exchange to have a 2% negative impact on full year revenue growth. In terms of key drivers for our 2025 organic growth outlook, the midpoint of our CAG Diagnostic recurring revenue growth range incorporates expectations for global net price realization of 4% to 4.5% and volume gains of approximately 2%. The outlook includes assumptions for declines in US same-store clinical visit growth levels with the midpoint reflecting a similar rate of a decline seen in 2024. These targets incorporate continued, solid global growth benefits from IDEXX execution drivers, including new customer gains and increases in testing utilization, supported by IDEXX innovations. The higher end of our CAG Diagnostic recurring revenue growth outlook captures the potential for improved sector visit and same-store growth trends, while the lower end of the range calibrates for further potential effects of macroeconomic conditions. Our revenue growth outlook includes approximately $50 million of projected IDEXX inVue Dx instrument revenue aligned with 4,500 placements. Jay will discuss progress against our inVue Dx launch in his comments. Our reported operating margin outlook for the full year 2025 is 31% to 31.5%. On a comparable basis, this reflects an outlook of 30 basis points to 80 basis points of improvement year-over-year, net of a 160 basis point operating margin benefit related to the…

Good morning, and thank you, Andrew. IDEXX delivered another strong quarter to close out 2024, capped with the initial placements of IDEXX inVue Dx. Our results this quarter exemplified the resilience of our business model, built on the foundation of customer-centric innovation, high-touch commercial execution, and a steadfast commitment to growth, by advancing the standard of care in veterinary medicine. This year, we celebrated significant milestones, including the highly-anticipated launch of IDEXX inVue Dx, a groundbreaking cellular analyzer redefining slide-free Point-of-Care testing. We recently announced the launch of IDEXX Cancer Dx with canine lymphoma, a transformative oncology screening and aid-in-diagnosis panel that will expand over time to address the most common canine cancer. We're also concurrently commercializing three new products and services as part of our Catalyst technology-for-life platform in test menu and enabling software. Introductions include: Pancreatic Lipase Testing, a single-slide solution already embraced by thousands of clinics; SmartQC, which enables very easy monthly calibration on our chemistry platform; and an updated IDEXX VetLab Station with a more modern, intuitive interface supporting workflow efficiencies. IDEXX commercial teams continue to operate at a high-level this year, supporting new business gains, solid net price realization, high-90%s customer retention levels across major testing modalities, and sustained adoption levels of diagnostic testing utilization near post-pandemic highs. High placement levels across our core premium instrument platforms drove a 9% growth in our premium instrument installed base. The team also delivered very strong year-on-year EVI gains when incorporating benefits from nearly 1,600 global pre-orders for IDEXX inVue Dx, which will benefit our business over the coming year. 2024 also saw the extension and expansion of three major customer agreements, which will provide solid volume gains for our reference lab business. These important contractual renewals highlight the value IDEXX solutions bring to our customers, supporting their…

Thank you. [Operator Instructions] The first question is from Erin Wright with Morgan Stanley.

Great, thanks. And Brian, it's been great working with you over the years, and congrats on your retirement. And looking forward to working with you, too, Andrew, as we, kind of, move forward. But, in terms of my questions, I'll start with innovation. So, I guess, can you speak to what guidance assumes now in terms of the innovation contribution in 2025? Is that adding about 1 point to CAG recurring growth assumptions for you? And I just wanted to get an update on inVue on that front. I guess, why are you limiting preorders in the US and the replacements, I guess, of 10, but preorders of 1,600, so I guess why is there such a backlog there? Is there more AI training needed? Is there necessary adjustments to the offering or timing of the rollout or anything like that, or practitioners just waiting for FNA? I guess, when do you expect FNA to launch as well, and what is guidance assumed on that front? Thanks.

Good morning, Erin. This is Andrew. Happy to kick us off with what's included in the guidance and then I'll hand it over to Jay to talk a bit about inVue. Just in terms of what we've provided, we initially get the benefits from the instrument revenues as we launch a platform like inVue. What we noted in the prepared remarks is approximately $50 million and 4,500 placements on the innovation launch of the inVue Dx platform. So, we feel good about that. That's captured in our overall guidance. We haven't necessarily broken out the other innovation areas, but we do expect benefits from PL and Cancer, as Jay highlighted in his remarks. They're going to allow us to continue to build momentum, both domestically and internationally, but we haven't broken those out. We just have included that, and we feel good about the guidance that we've provided at this point.

Yeah. So, I'll take it from there. Good morning, Erin. So, as disclosed, we began shipping in Q4. I'd say that customer interest has been very high, and that's reflected in close to the 1,600 preorders that I indicated. From a customer lens, what customers are responding to is -- are some of the things that we've been talking about, the key attributes of the system, starting with the menu, ear cytology and blood morphology and then FNA later in 2025. The way customers see these clinical use cases, very high volume, well understood, and well-integrated into the workflow of how they practice. They also like the slide-free operation. They see preparing slides as really an intensive bottleneck, sometimes 15 minutes, 20 minutes. And of course, at the end of the day, what they want is consistent, highly accurate results, and they see inVue as being able to deliver that. In terms of the actual launch and approach, we follow a very tried and true controlled launch process for all our analyzers. In fact, this is my fourth premium instrument launch since being at IDEXX, and it starts with the aim of delivering an exceptional customer experience. It's what they expect of us. They know we have a world-class product development organization. There's always tweaks that come up as part of any launch. What I would say is, we're making excellent progress. We plan to deliver the 4,500-plus in 2025, as I indicated, and that will ramp over the year. Manufacturing and installation capacity are ahead of plan, and that puts us in a strong position to achieve the plan and customers aren't waiting -- to answer to your specific question around, are they waiting for FNA to pick delivery, they're not.

Okay, great. That's helpful. And then, does your guidance assume any sort of notable changes from a customer account standpoint at Point-of-Care or ref lab? I just -- presumably you're still lapping through some of that repricing action taken, I guess, in 2024. I guess, can you remind us, when you fully lap that? And can you help us quantify how that headwind lingers into 2025? Is it an incremental headwind net-net or less of a headwind in 2025? Thanks.

Thanks, Erin. So, just on pricing, what we noted was 4% to 4.5% for the full year. In Q1 specifically, we did a remark that we would expect to be on the lower end of that range, just given the three large customer lapping that Brian had captured in his commentary on our Q4 results. So, we will continue to lap that throughout the year, but I think we've captured that in our guidance. And again, we feel good that we have strong momentum in terms of our ability to continue to work with our customers and expand our installed base, both internationally where we saw double-digit growth as well as globally where we had a 9% installed base expansion for 2024.

Okay, great. Thank you.

The next question is from Chris Schott with JPMorgan.

Great. Thanks so much for the questions. Just two on the 2025 guidance. First, can you just elaborate on the vet visit trajectory you expect from here? It sounds like, I think from the prepared remarks, down 3% or so in 1Q, but can you just talk about the recovery and confidence in recovery from there? And the second question was just on US versus ex-US growth this year. Any notable kind of differences or trends that you're expecting as we think about the regions? Thank you.

Good morning, Chris. So, just to talk about the vet visits, in terms of what we've included in the guide for the US, we signaled it was similar to the decline that we intended for 2024. So that would represent approximately 2%, as Brian highlighted. When we think about Q1, we are anticipating that we saw similar trends as we exited the year. Q4 was about a 3% decline on clinical visits overall. And just as we saw in Q4, we saw some modest differences by quarter, but ultimately, again, we're anticipating about a 2% decline in clinical visits for 2025. So, not really an improvement as we head into the year and that could bounce around a little bit by quarter and we'll provide more information as the year goes on.

Good morning, Chris. Maybe just to spotlight our international performance. We've, as you know, invested fairly heavily in expanding our international commercial footprint over the last three-plus years. And we've seen really nice growth in terms of overall installed base of our premium instruments and associated consumable stream. In Europe, in fact, we've seen last seven quarters of double-digit growth, and from a consumable standpoint, in the high-teens. And I think that's just a reflection of really strong execution, longer tenure in [seat] (ph) and customer response to innovations like ProCyte One and other solutions that help them practice good medicine.

Great. Thanks so much.

The next question is from Michael Ryskin with Bank of America.

Great. Thanks for taking the question. I have a couple of quick ones, hopefully, guys. The first on the -- just going back to the visit dynamics, you talked through your assumptions for 2025. I just want to dig into 4Q a little bit. I know we probably shouldn't look into quarter-to-quarter trends and these things are volatile. I understand all that. But just the dispersion here between wellness and non-wellness, is what really struck me. It seems like it sort of accelerated through the course of '24 and sort of reached its broadest dispersion in the fourth quarter. You really saw wellness drop off pretty sharply relative to total clinical visits or non-wellness visits. Just wondering what you're seeing on the ground, what the feedback is you're getting at? Obviously, there's a lot of concern that that's driven by demand, elasticity, price, weak consumer environment, people just sort of backing away from some of those more discretionary visits. I know you've talked in prior quarters about potentially the impact on visit trends from some therapeutic options and turning -- including injectable drugs. Just any color you can provide on wellness specifically and why you've seen that deteriorate over the course of 2024?

Sure. Let me provide some insight on that, Mike. We do think at the margin, there was probably the impacts from the consumer and the overall macro environment, but the interesting thing about wellness is the inclusion of diagnostics actually went up. So, we saw a really nice premium growth. Our belief is that the quality of these visits went up. The pet owner in veterinarian really used that higher intensity of diagnostics. So, though there's probably some marginal pet owners dropping off potentially deferring or delaying some of those visits, the ones that came in, very high quality, and we benefited from that, and we think with our IDEXX Cancer Diagnostics panel included in wellness visits, we'll continue to inspire potentially pull-through on that end, too.

Okay. All right. And then, for my follow-up question, I don't think you really called this out in the prepared remarks, but I noticed that for the guide for 2025, Brian or Andrew, you guys are assuming a little bit more share buyback. I think you said 2% to 3% reduction in shares. I think you've -- most years, you've sort of been in that 1% reduction. Just any additional color there in terms of the rationale for that? Thanks.

Yeah, Mike. So, just in terms of kind of a rationale, we have high confidence in the company's potential growth model here. We've executed exceptionally well, and I think we're really on the cusp of that new wave of innovation, which Jay has highlighted several times. This really reflects strong free cash flow generation. We have a really healthy balance sheet with high liquidity. Brian mentioned on the call in terms of Q4, our gross leverage was about 0.7 times, and this largely sustains those levels at a higher deployment rate. So, it does achieve that 2% to 3% reduction in average shares. And again, we look at this as a positive momentum for the long-term.

All right. Thanks.

[Operator Instructions] The next question is from Jon Block with Stifel.

Thanks, guys. Good morning. It looks like the IDEXX premium for the quarter, so in other words, 4Q '24 was the strongest of the year and that was before the rollout of Cancer Dx, I mean, essentially before inVue for the most part. So, can you just talk about what led to the uptick for the premium in the quarter, allowed you to arguably offset the down whatever was 2.9% in clinical and still put up some pretty good CAG Dx recurring? That's specific to the fourth quarter '24 question. Then, I'll ask a follow-up.

Hey, Jon, it's Brian. As you pointed out, it was a very good quarter, our best volume growth quarter of the year when you normalize for days. We saw very strong consumable growth. I think that that's reflective of the progress that we've made on instrument placements, growing the installed base during the year. Some benefit from innovation, the pancreatic lipase slide is helpful on that front, and globally, just really good international momentum. So, I think, it's reflective of the strong execution that we've seen throughout the year that's enabled us to grow at a faster rate than the sector. And as the team has pointed out, I think the company is really well positioned to build on that heading into 2025 with the new innovations that will be coming.

Got it. Helpful. And then maybe second question on price. So, I think it's -- I think you called it 3.5% in the US. It sort of implies, I don't know, 5%-and-change in the international markets. Jay, can you just talk about your comfort in these pricing levels that the consumer can absorb the likely increases? I think you're going to say we don't dictate price to the consumer, but you sort of do because the vet's not going to take it all on the margin -- on their margin. And to Mike's previous question, do you think this higher pricing environment while providing a temporary fix is acting as a headwind as we continue to see this wellness slide and hence the pet owner avoid wanting to come in for that wellness sticker shock? And then, part B of a very disparate question is, the $42 million in interest expense, can you just reconcile that? It just looks pretty high considering where we were in '24. Thanks, guys.

Yeah, let me talk about pricing and I'll turn it to Andrew to talk about the interest expense. Of course, I'm going to caveat it and say our customers determine in sector pricing. Keep in mind, wellness versus non-wellness pricing are different things. Typically for a wellness visit, the veterinarian doesn't spend more than five, seven, 10 minutes with the pet owner. So, they price it differently, and we offer a number of programs like compliance-based pricing, which I think is positions it positions those panels very advantageously. I would say that we are very mindful of the need to be in front of the differentiation that we offer through innovations. A lot of what we offer, for example, is complementary to the customer, whether it's VetConnect PLUS, whether we add in tapes and Cystoisospora for fecal antigen. I think Cancer Dx is a great example of really keeping that price very moderate at $15-plus per select panels. So overall, we're comfortable in terms of where we've priced. We've seen an increase, as I just indicated, in the inclusion of diagnostics and wellness panels, in fact, very strong increase in Q4. So, the quality of the visits and the quality of diagnostics inclusion has been growing fairly strongly. Andrew, do you want to address the...

Yeah. Jon, just in terms of the $42 million on interest, that does align with the step up in terms of our planned buybacks of $1.5 billion. So, again, we've calibrated that based off of current rates. As Brian noted, we did just about $850 million in 2024. So, there's an increased level there and we've captured that in our interest expense cost.

The next question is from Daniel Clark with Leerink Partners.

Yes. Thank you. I just had a quick clarification on inVue. Are you still limiting preorders or are you fully allowing those now?

Yeah. So, we -- generally, we've opened the funnel in terms of what our field organizations can take in North America. I would say internationally, it's more limited and we'll continue to just offer it in select countries. And throughout the year, we'll revisit that.

Okay, got it. Thank you. And then just a separate question, was there any impact from weather that's worth calling out in terms of visit trends for 4Q or how you're thinking about 1Q? Thanks.

Good morning, Dan. So, just in the fourth quarter, I think we had signaled on the last call that we anticipated about 50 basis points of weather associated with what we saw in early October. Yes, as we head into Q1, certainly, we've seen some weather types of impacts, but at the end of the day, we've captured those in our outlook and again feel good about the guide that we presented today.

The next question is from Navann Ty with BNP Paribas Exane.

Hi, good morning. First on the vet visit, if you can discuss further the underlying factors embedded in the 2% decline, expected midpoint in terms of macro impact and time to replenish vet and vet techs graduate? And do you expect potential improvement in 2026? And then, in terms of margin, should we still expect 2025 margin expansion to be still gross margin-led? And can you discuss the SG&A and R&D this year with the inVue and Cancer Diagnostics launches and expansions? Thank you.

Yeah. Just to provide some -- I'll cover the clinical visit trends. Just to provide some additional color on that, we still think capacity constraints are a challenge for practices less around just absolute employment levels and maybe more related to number of hours worked. In talking to number of the corporate or enterprise accounts, they continue to speak to the desire to hire more veterinarians and staff as they become available. And in that sense, supply can drive demand. Probably the more primary factor is macroeconomic environment, cumulative impacts of inflation and some moderation as a result of that.

Yeah, Navann, just on the gross margin and breakout of OpEx, we didn't provide any explicit detail here. But overall, what we're planning for is an operating margin improvement of 30 basis points to 80 basis points on a comparable basis year-over-year, the midpoint being about 50 basis points. I think you'll expect most of that to be gross margin-led as we reinvest back into the business. Certainly, again, we feel good about the innovation cycle we have here and the potential for growth over time. We want to make sure we're making investments in the right areas in order to support that ultimately.

Okay. I'd like to thank everybody for their questions this morning. We're now going to conclude our Q&A portion of this morning's call. It's been a pleasure to review another quarter and full year of strong IDEXX results. So, thank you again for your participation this morning and we'll conclude the call.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.