Good morning, and welcome to the IDEXX Laboratories Second Quarter 2025 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; Andrew Emerson, 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 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 second quarter 2025 results and updated 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. [Operator Instructions] Today's prepared remarks will be posted in the Investor Relations section of our website after the earnings conference call concludes. I would now like to turn the call over to Andrew Emerson.

Good morning. I'm pleased to take you through our second quarter results and provide an update on our full year 2025 financial outlook. In terms of highlights, IDEXX delivered another quarter of strong financial results supported by continued strong global execution in our companion animal business with momentum building in the adoption of IDEXX innovations. Revenue increased 11% as reported and 9% organically, supported by nearly 7.5% organic growth in CAG Diagnostic Recurring Revenues, reflecting continued gains in the U.S. and double-digit expansion in the international regions. Overall, organic revenue benefited by approximately 200 basis points from CAG instrument revenues, delivering a record quarter of premium instrument placements, including nearly 2,400 IDEXX inVue DX instruments. Partially offsetting these benefits, CAG Diagnostic Recurring Revenue growth in Q2 was constrained by impacts from macro and sector headwinds, leading to a 2.5% decline in U.S. same-store clinical visit growth levels in the quarter. IDEXX's operating performance continued to be strong in Q2, reflected in operating profit growth of 14% on a comparable basis net of approximately 27% benefit from lapping a discrete litigation expense in Q2 2024. Operating profit benefited from solid revenue growth and operating margin gains, which were led by gross margin expansion. High operating profit gains enabled earnings per share of $3.63 in the quarter, resulting in EPS growth of 17% on a comparable basis net of $0.56 EPS growth benefit related to the comparison of the prior year period discrete litigation expense and a $0.10 benefit from share- based compensation. IDEXX execution remains strong as we advance our innovation agenda in the CAG businesses while continuing to work through pressure on clinical visit levels. We're increasing our full year revenue outlook by $90 million at midpoint with an updated range of $4,205 million to $4,280 million. This reflects an…

Thank you, Andrew, and good morning. IDEXX delivered a very strong quarter of performance as reflected in solid execution across all key drivers of our strategy. Our focus on supporting our customers and their mission resulted in the rapid uptake of new innovations and the broader adoption of software tools that support practice workflow and staff. The demand for diagnostics reflects its foundational role in assessing the health of the patient. While macroeconomic pressures persist in many of our key regions, veterinary practices continued to prioritize investments in diagnostics and software that enhance efficiency, deliver clinical insight and support better outcomes. At the same time, pet owners are demonstrating a strong desire for a high standard of care; particularly for an aging pet population. In Q2, diagnostics frequency, the percentage of clinical visits that included a diagnostic test sustained at 50 basis points year-on-year in growth, an important metric we track. The continued growth in diagnostics use underscores pet owners' focus on early detection and comprehensive treatment to support longevity welding. It also highlights the willingness to pay for advanced veterinary services where complex health issues may be of concern. IDEXX is extremely well positioned to support these broad care objectives with our expanding menu of innovative diagnostics, testing platforms and our cloud-native software solutions that provides advantages in detecting disease and supporting patient workflow, helping practices support more patient visits productively comes at a time when many still face staffing and client service challenges. Our commercial teams again demonstrated outstanding execution delivering record premium instrument placements globally and driving solid growth in recurring revenues. In Q2, we delivered double-digit growth in our premium instrument installed base compared to the prior year, led by the ramping of IDEXX inVue Dx placements and high sustained momentum in our chemistry and hematology…

[Operator Instructions] We will take our first question from Chris Schott with JPMorgan.

I was hoping you could just elaborate a bit more on the inVue uptake. And maybe specifically, what type of practices are you seeing the greatest amount of traction here, and then maybe the second part of that, just obviously some very good trends here with placements. But when I look at that 5,500 placements for the year, I do think it implies a bit of a slowdown from what we saw in 2Q for the quarterly placements. Anything notable we should think about in terms of just the gating of placements through the rest of the year?

Good morning, Chris. Thanks for the question on inVue. From just a high-level standpoint, that the feedback we're getting from customers on inVue is excellent. It's really along two lines. One is it helps them with workflow. As we know, both ear cytology and blood morphology are things that are done in the practice today. They tend to be time intensive using microscope. So that's 15 to 20 minutes. The results are often inconsistent. And so what customers tell us is they appreciate not only the workflow benefits, but also the performance, getting consistent highly accurate results is important. And therefore, there's been a lot of demand from it. We did update, as you mentioned, the 5,500 placement forecast. We think that that's a reasonable assumption to take the consumables usage across both euro cytology and blood morphology, tracking very well to the forecasted usage, we think when we release the F&A lumps and bumps later on in the year. It will continue to drive interest in the platform and continue to drive higher consumables usage. The placement in terms of the overall profile of where we're placing, just as you would expect, it's a combination of suites for customers who don't have, let's say, our chemistry and hematology because it fits extremely well with hematology solutions, but also existing IDEXX customers who have our suite, but see the chance of doing ear cytology, both on the blood morphology side and also as a complement to hematology and CBC, but also a new testing category, the ear cytology is very promising.

We will take our next question from Erin Wright with Morgan Stanley.

I'll keep it on inVue here. So -- can you talk a little bit about the contracts that coincide with the placements in terms of consumables agreements and the consumables flow-through there on, like what's surprising you in terms of utilization and are you seeing better uptake from the mom-and-pops versus some chunkier corporate accounts in terms of how we think about that cadence in terms of Chris's question earlier. And then what I'm getting at here, too, is that look, the consumables revenue growth kind of on an organic basis, was probably the strongest in 2 years. I mean how much was inVue a contributor to that?

Yes. So let me take the last part of your question first. We don't break out the consumables usage between the inVue and Pancreatic Lipase and some of the new Catalyst specialty tests that we have I did mention that those were important contributors to our overall results. We have seen nice volume growth, and I think it's a tester reflection. But we have a very large installed base of like Catalyst, for example, and our ability to ramp that we come out with a new test is something that over time with our commercial organization, we've gotten better at. In terms of placements, getting back to independent practices versus corporate practices, for corporate practices, there tends to be a little bit of a longer lead time in terms of they want to first pilot, but it could be a fairly sizable number of instruments that they want to pilot before they place -- before they decide to place, let's say, a new instrument like inVue and all of their practices. Independent practices tend to move much more quickly. And that's not surprising. It's really just of N of 1 and could assess what they need. In terms of usage, it's just as you would expect for -- these are very common clinical use cases. So if you take a look at ear cytology, most practices of a reasonable size, 3 or 4 veterinarians will tell you that's something that they do pretty much on a daily basis. For blood morphology, most practices, let's say, an average practice in the U.S. is doing approximately two chemistry and hematology tests a day, and we know in majority of cases, they would benefit from also adding a blood morphology to a CBC, where they get an aberrant result or something indicating the need to investigate further. So overall, consumables usage is positive. It's in line with where we thought it would be. And the FNA lumps and bumps will only, I think, improve that over time when we come out with it.

And then on guidance, what's reflected in terms of that office visit trends now? What gets you to the high end, low end of the range? And what's -- given what's implied in the second half, how should we be thinking about the quarterly cadence here?

Just in terms of the guide itself, we did highlight in the prepared remarks that we have updated clinical visits more in line with the recent trends that we've had. So the past several quarters, we've been trending more at about the 2.5% range. I think about the midpoint reflecting approximately that amount. As you look at the Q2 to Q3 or Q4 as an example with our second half implied growth expectations, really, it's not a meaningful step-up. I think we'll continue to benefit from the building momentum that we have on innovation, as Jay highlighted, I think there's a lot of excitement around inVue. We launched Cortisol test last week within North America. We're still building on Pancreatic Lipase and Cancer Dx as well. So we feel really good about kind of the momentum that we're building from an innovation and volume perspective within the business and there's not a material step-up in CAG Diagnostic recurring revenue that I think we've captured in our outlook.

We will take our next question from Dan Clark with Leerink Partners.

Just had a question on how you're thinking about the longer-term launch trajectory of inVue. Obviously, you took up the placement guide for this year. But is there any reason to think more positively about the trajectory here relative to SediVue as an outlook.

So we're not updating anything longer term at this point. We have highlighted that we see an opportunity for a 5-year placement of approximately 20,000 for inVue, I think we're off to a really exciting start here within 2025, having a starting point within the year of 5,500 instruments, positions us really well for that. Some of our other instruments as SediVue or hematology may be slightly different just in terms of the categories that they support. So we feel good about the longer term. We may provide updates within our Investor Day in a couple of weeks.

We will take our next question from Michael Ryskin with Bank of America.

I want to tie together a couple of small follow-ups. So first, just on the guide, I think you called out $90 million increase reported, $70 million of which is FX. Of the remaining $20 million, $10 million is inVue placements because you're saying $60 million instead of $50 million for that, if I've done my math right. Just the remaining $10 million, is it just a combination of different moving pieces. I know what you just said you're assuming visits are a little bit weaker. It seems like price you reiterated. Just anything you can talk through on that last little bridge of the revenue guide, so we can tie that off.

Mike, this is Andrew. Yes, just in terms of how we think about the go forward, you highlighted it correctly. We have about $70 million related to foreign exchange impacts aligned with the rates that we published in our press release specifically. The other $20 million is really operationally driven. And we certainly performed exceptionally well in Q2. We're really thinking about that continuing as we move forward, and we're expecting some momentum built with the innovation and the execution. We are investing back into the business as well, as Jay highlighted. We do plan to expand in three additional countries as well as modest expansion in the U.S. to continue to support our customers and grow volumes. And we see that as a pathway to achieve the other $20 million of operational growth between our performance in Q2 and our outlook for the full year despite the fact that it does remain fairly dynamic. Clinical visits have been pressured. We saw a decline of about 2.5% in Q2. And again, we're anticipating that, that trend continues for the remainder of the year.

And then on the inVue Consumables side, I know you don't break it out and you're not going to quantify it. You talked about the 3,500, 5,500 range previously. But just when you place the instrument in the vet clinic, is there an initial bolus of consumables that goes with that, that sort of looks sold in tandem with it? Do you start taking orders right away? Have you noticed -- is there -- can you talk about either the initial placement or maybe the initial ramp-up of utilization? I know you gave the 35% to 55% range previously, but just trying to think through how that played out in the quarter, given the massive box placements. I'm trying to see if there was anything tied in the consumables revenue for that.

A couple of things, Mike. The inVue Dx has paper run and auto replenishment capability with it so that as the customer they may purchase a couple of sleeves to get started of the different cartridge types. But as the customer uses the cartridges and as part of paper run, we are able to track that and then obviously, autoship replacements to it. So it's -- you don't typically see a big bolus at launch. One thing that we have gotten, I think, very good at as a company as part of the onboarding and training process is spending quality time with the customer, making sure that the customer develops muscle memory in terms of how to use the instrument and get very comfortable with it. So there's not typically a longer ramp to get comfortable and train everybody perhaps relative to historical benchmarks.

We will take our next question from Jon Block with Stifel.

Maybe just first one, any color on how things trended throughout the second quarter. And then maybe if you can just talk about the ongoing CAG Dx recurring divergence, if you would, in the results between international and U.S. International continues to be really solid, U.S. I don't want to see stuck in mid-single digits, but still sort of mid-single-digit-ish even though I believe some of the innovation is maybe more prominent U.S. versus the early days of international. And then I'll just ask my follow-up.

Jon, nothing specific to call out on trends within the quarter. I think on our Q1 earnings call, we did highlight we're off to a solid start within inVue with 60 placements. I think beyond that, nothing specific there that I would indicate any material difference with the -- within the months or within the weeks specifically. So I think we feel like we're largely in track from an expectation standpoint compared to our results here. And then on CAG Diagnostic recurring, again, we do see really strong international growth. They're still dealing with some macro and sector headwinds. I think similar to the U.S. We don't have metrics to provide on some of the headwinds by country or within the international region there, but execution continues to perform exceptionally well as we commercialize some of the new products. And in the U.S., we have seen improvement. I think if you look even on a days adjusted basis compared to Q1, we've seen well over 150 basis point increase in Q2. And again, I think that's largely the result of innovation ramping and our focus on really supporting our customers to drive testing. And you see that play out within the diagnostic frequency and utilization within the sector metrics as well. We delivered about a 50 basis point improvement on diagnostic frequency in Q2. So I think it comes back to what we're focused on, which is executing across the diagnostic solution set that we have and continue to partner with our customers on how to leverage diagnostics more effectively.

Jon, maybe just one comment on U.S. versus international. Typically, with the product launch, we started in the U.S., so you do see some -- the first traction is in our North American market and then international and with some tests, there may be regulatory or license requirements before we can sell in those country markets. What I would say is that for a lot of our specialty tests like pancreatic lipase and it's probably going to be true for Cortisol, this very rapid uptake in our international markets. These are very technical markets with PBM sales organization. And so you can't neatly compartmentalize between U.S. and some of these international country markets. So there's really, I think, broad interest.

And then maybe just a follow-up with -- if you can follow the different numbers. With price up 4 visits down 2.5% in the quarter, the 2Q '25 IDEXX premium as we define it, it was up a solid 6% for 2Q. So can you talk to what reaccelerated the premium in 2Q? And then arguably like why the guidance assumes this does not stick in the back part 2025 and 2H '25. Considering you've got these new innovations, right? And they should be ramping like the incremental from those innovations should be greater in 2H and specific to 2Q as they build momentum, yet the premium, again, as we define it, seems to be more modest in 2H versus 2Q. And hopefully, some of that real-time math made sense.

Yes, Jon, I'm not entirely sure I follow all the math, but let me just take a step back and highlight. I think if you take a look at how we performed in the second quarter and then the implied that second half guide, really, we're still in the same range, right? Our midpoint would suggest about a 9% growth on overall organic revenue and CAG Diagnostic Recurring Revenue of about 7.8% versus Q2 of about 7.4%. So we do anticipate that we'll benefit -- we'll see some ramping benefits here in the second half. I think we've calibrated the impact of innovations as well as adjusted for the more recent trends for clinical visits. It does remain dynamic from a clinical visit perspective. We're not anticipating that's going to change at this point. But we are excited by the innovation that we're launching, including Cortisol, which didn't have an impact in the second quarter. We began shipping that last week. So we're really focused on strong execution within our areas of focus within diagnostics and software. And I think we've factored that into our outlook overall. We do expect some pricing benefit in the second half compared to the first half as well. We had noted on prior calls that we were going to begin lapping some of the larger agreements that we had last year in the second quarter specifically, which should give us a little bit of uplift on that as well. So I think overall, we're well positioned. It does remain to be a pretty dynamic environment that we're operating within, and we're just staying calibrated for that.

[Operator Instructions] We'll take our next question from Ryan Daniels with William Blair.

Can you go a little bit more in depth about some of the investments you're making in the sales force. I think it's the first time, maybe in 1.5 years or 2 years, you're investing in the U.S. And then for the other 3 markets, are those just additional investments? Or are those new countries that you're moving into?

Yes. So for the international country markets, those are existing markets that we participate in. And what we're doing with those investments is we continue to increase that commercial density. Our international account management coverage tends to be much higher than what we see in the U.S. In the U.S., it's between 110, 120 accounts per VDC or account manager. Internationally, it's much higher than that. It obviously varies by country. We know that just like in the U.S. and North America, when we call on customers, they grow faster. They use more diagnostics. Of course, we benefit from that. These are investments in the entire ecosystem, so not just the VDCs, but also professional service veterinarians in the field service representatives. And they go hand-in-hand with investments we've made in our reference lab network and software solutions like VetConnect PLUS in terms of expanding menu in these international countries. So that all the pieces are in place for good growth. And what we typically find is, we have a playbook. It's obviously localized by different country markets, but that we're able to get a very nice ROI on those investments in a fairly short period of time. In the U.S., we have good account coverage. We do find that as we have increased the size of our overall portfolio in terms of point of care and reference labs and software, being able to support that selectively. We've done that. I guess, it's been about 18 months or so. We'll continue to do that. Makes a lot of sense. It supports the productivity of our U.S. commercial organization, which is also very, very high and enables us to really commercialize just a very rapid pace and breadth of innovation that we've had over the last couple of years.

And then as a follow-up, I wanted to turn to the other kind of innovation this year in Cancer Dx. And just hear your early feedback. I know you shared some commentary in your prepared comments, but curious if there's anything that surprised you about how it's being used either as part of a broader panel at a lower price or are they seeing more stand-alone use as an individual diagnostic. It sounds like that might be coming from some competitive accounts, in particular, I assume where they're just purchasing that. So I'd love to get some color there.

So we've had a lot of enthusiasm from customers and veterinarians, but also pet owners, a little bit surprising because we don't directly market to pet owners. And I'd say we're right about where we thought we'd be. The initial weighting is probably a bit more heavily weighted towards at aiding diagnosis. And this isn't really surprising as with these type of novel new tests, what customers tend to do is they test the test for performance. And the feedback has been very, very positive. Specificity as we've gotten more data is over 99%. Sensitivity, as we've disclosed earlier, is 79%, and we're achieving the published turnaround times, which is super, super important because pet owners don't want to have to wait more than a couple of days for results. I'd say that the number of independent practices and corporate groups are using the test broadly in wellness screens, it's still low. It's very early days, but I would say that they also have plans to be able to do that, and it's growing, and they see that as a way of really pulling through broader wellness blood work. As we have disclosed, we have over 2,500 practices now using this. Very, I think, pleased with the fact that about 15% of the submissions are coming from competitive practices. So there's fairly rapid uptake across the entire marketplace. Now keep in mind that this is -- canine lymphoma is just the first test of this broader venue. So as this panel expands, the offer can only grow in value, and we think becoming even more compelling.

We will take our next question from Navann Ty with BNP Paribas.

One more inVue. I'm curious whether the sales force has communicated to customers in future that the FNA expansion was imminent. And then if possible, can you discuss revenue contribution for the first full quarter of cancer diagnostics, and maybe one last one, how is competition reacting to inVue and cancer diagnostics?

Yes. So I think Andrew and I will share in this question. I'd say that we have broadly communicated to our customers that our menu will grow over time with FNA for lumps and bumps coming later this year. So that's not a secret. Customers are buying inVue based on existing and available menu, which is the ear cytology and blood morphology. In terms of the Cancer Dx, we don't break out the revenue. As I've mentioned though, it's right about where we thought it would be. We're very pleased with the uptake, and it's only growing, and we think it will have a multiplier benefit over time.

Yes. I think to Jay's point, we haven't broken out any of the specifics associated with some of these newer innovations on the recurring revenue side. We'll continue to monitor that. And if it makes sense, we may in the future. But at this point, we're early in the launches. And yes, I think we're seeing really solid results that we expected play out here, as Jay highlighted, but nothing additional to add at this time.

And maybe on competition, how they are reacting to IDEXX innovation, any near-term launches in different or same areas?

Yes. I mean that hasn't really changed. It's a very competitive landscape. We have to earn -- continue to earn our customers' loyalty. We compete on every deal that's out there as do they. Our growth algorithm really, I think, anticipates being able to grow by expanding the portfolio of testing solutions we offer our customers to these existing customers having being able to provide this broader portfolio and being able to grow with us is the primary means of growing, and we continue to focus on that. But the overall competitive landscape hasn't changed much.

We will take our last question from David Westenberg with Piper Sandler.

So I just wanted to ask maybe on international markets, great job there. Can you talk about what's essentially been driving it between market growth share gains versus just higher utilization/customer support? If you can give us kind of a flavor of which ones are maybe impacting that growth a little bit more. And then as a lot of people have pointed out, the utilization consumables was great in the quarter. Did you see any tariff-related pull forward in Europe maybe or in internal markets that happened in Q2 and just how we might want to think about that for the rest of the year?

Andrew, why don't you take the tariff question and I'll take the international.

Yes, Dave, this is Andrew. On the tariff side, I don't think we saw any meaningful change in order patterns from our customers, as Jay had highlighted related to things like inVue Dx, we do have a paper run approach, which means even if they were to bring in some consumables, it's really at the time that they run it that we will record the revenue. So I think from that perspective, that's not necessarily something we've seen. And then on the lab side, Certainly, it's more local for local type of revenue anyway. So I think we're not necessarily seeing any major impacts related to the trade landscape from a customer perspective at this point.

Yes. Just in terms of the international opportunity, keep in mind, just using blood work inclusion as a benchmark, it's a bit over 1/3 of what we see in the U.S. So the opportunity is just more embryonic in terms of really working with customers supporting their priorities and then driving the use of diagnostics. It tends to be weighted a bit more towards sick patient testing versus wellness. So that varies by market. And I think being able to bring these solutions out individual independent clinics that may just have a veterinarian or two veterinarians. Our point-of-care solutions tend to be tailor-made for that. I think we've done a very nice job from a product market fit. If you take a look at ProCyte One, just from a cost and performance standpoint, it's very economical at lower usage rates, which fits our international markets very well. So I think it's a combination of -- it's earlier days there. We have great product market fit. We've built up an infrastructure of both commercial reference labs, customer-facing software tools like VetConnect PLUS and really have, I think, like we've seen in the U.S. over the last decades, driven a growing belief in the use of diagnostics that help them achieve their practice priorities. And so with that, we'll now conclude the Q&A portion of the call. Thank you for your participation and engagement this morning. Once again, my pleasure to share how IDEXX executed against our organic growth strategy while delivering strong financial results in the second quarter. And so with that, we'll conclude the call. Thank you.

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