IDEXX Laboratories, Inc.

Good morning and welcome to the IDEX Laboratories' Third 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, and John Rabis, Vice President Investor Relations. IDEX 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, idex.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 third quarter 2024 results and updated 2024 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 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, and welcome to our third quarter earnings call. Today I'll take you through our Q3 results and review our updated financial outlook for 2024. IDEX delivered solid organic revenue growth and strong comparable profit gains in the third quarter. In terms of highlights, overall revenues increased 6 percent organically, supported by 7 percent organic growth in CAG diagnostic recurring revenues, and 13 percent organic growth in our water business. Organic revenue gains were supported by benefits from IDEX execution drivers, reflected in consistent, solid new business gains, sustained high customer retention rates, and double-digit growth in our premium instrument install base. While not reported in our quarterly results, IDEX secured nearly 700 orders for our new in-view analyzer, which supported strong growth in EVI metrics that will position the company to build on this momentum. Partially offsetting these benefits, CAG diagnostic recurring revenue growth in Q3 was constrained by impacts from near-term US macro and sector headwinds. As we'll discuss, we're updating our full-year organic revenue growth guidance to reflect expectations for continued near-term macro and sector pressure in the US and to incorporate estimated negative impacts from recent severe weather events. IDEX continues to deliver strong profit performance as we work through these dynamics, reflected in solid comparable operating margin gains in Q3, keeping us on track to achieve our full-year operating margin goals. Solid revenue growth and operating margin gains support an EPS of $2.80 per share in Q3, up 11 percent as reported, and 12 percent on a comparable basis. We'll review our updated guidance detail later in my comments. Let's begin with a review of our third quarter results. Third quarter organic revenue growth of 6 percent was driven by 6 percent organic revenue gains in our CAG business and 13 percent organic growth in water. Partially offset by 2 percent organic declines in LPD. CAG organic revenue growth was supported by 6 percent organic gains in veterinary software, services, and diagnostic imaging revenues, driven by 11 percent organic growth and recurring revenues. CAG instrument revenue decreased 9 percent organically, reflecting comparisons to record prior replacement levels and near-term impacts from our commercial focus on IDEX in-view order generation, which will primarily benefit 2025 reported instrument revenues. Worldwide CAG diagnostic recurring revenue increased 7 percent organically in Q3. This includes approximately 1 percent of global equivalent day growth benefit in the quarter related to increased shipping days in our in-clinic business. Q3 CAG diagnostic recurring revenue growth was supported by average global net price improvement of approximately 5 percent, with US net price realization of approximately 4 percent. US net price realization includes impacts from the successful extension and expansion of three major customer agreements in 2024. These agreements will provide long-term, incremental volume growth benefits for IDEX as we expand our business relationships with these customers. CAG diagnostics recurring revenue growth in the third quarter was supported by 10 percent international organic gains. International growth reflected benefits from net price realization, continued solid volume gains, and approximately 0.5 percent of positive equivalent days effects. International growth was driven by IDEX execution, reflected in continued strong new business gains and high premium instrument placements, which supported a double-digit -on-year expansion of a global premium instrument install base. US CAG diagnostic recurring revenue organic growth was 5 percent in Q3, including approximately 1.5 percent of growth benefit from equivalent days effects. US growth was supported by continued solid, positive growth contribution from new business gains, sustained high customer retention levels, and benefits from net price realization. IDEX's US growth expanded at a solid premium to comparable US same-store clinical visit growth levels. In the US, we continue to work through macro and sector dynamics, which contributed to a 2.1 percent decline in same-store clinical visit growth in Q3, including a relatively higher 3.4 percent same-store decline in more discretionary wellness visits. Overall US clinical visit growth levels include an estimated 1 percent to 1.5 percent growth benefit from the ramping of pain medication visits over the last year, which typically do not include diagnostics. This is added to the near-term clinical visit headwind effect for IDEX's US CAG business. For pets visiting US clinics, pet owners continue to demonstrate interest in a higher standard of care, despite macro pressures. If we adjust US sector metrics for the estimated pain medication impact on clinical visits and diagnostic frequency, we continue to see an increase in the percentage of visits that include at least one diagnostic. Over the last 12 months, the percentage of clinical visits with core blood or conclusion has also sustained at elevated levels, following the accelerated expansion seen during the pandemic. These trends reinforce that the primary headwind to IDEX's growth in the near-term remains pressure on clinical visit growth. Given recent trends and our updated four-year organic growth outlook, we factored in expectations for continued near-term constraints on CAG diagnostic recurring revenue growth from US macro and sector impacts. IDEX continues to achieve solid organic growth and strong financial performance as we work through these near-term headwinds. We're highly confident in the positive long-term drivers of demand for diagnostics, including the future benefits that will flow from IDEX's innovation, as we continue to execute towards our business strategy aligned with raising standards of pet healthcare globally. In terms of growth by modality, third quarter results were supported by strong global gains and consumable revenues. IDEX VetLab consumable revenues increased 11 percent organically, reflecting double-digit gains in the US and international regions, including benefits from increased equivalent shipping days effects. Consumable gains were supported by 10 percent -in-year growth in our global premium instrument install base, reflecting strong gains across our catalyst, premium hematology, and set-up platforms. We achieved 4,128 CAG global premium instrument placements in Q3, a decrease of 443 units, or approximately 10 percent, compared to record prior levels, while securing 691 orders for our new IDEX InView Analyzer in North America. We're on track for initiation of shipments of InView in Q4, with expectations for approximately 50 to 100 shipments this year, with the bulk of the advanced orders targeted for delivery in 2025. Global rapid assay revenues expanded 6 percent organically in the third quarter, reflecting solid global gains, including benefits from net price realization and positive equivalent shipping days effects. Global lab revenues increased 2 percent organically in Q3, net of a modest equivalent days headwind, reflecting low single-digit gains in the US and solid growth in international regions. Reference lab results adjusted for days effects were supported by modest volume growth, aided by new business gains, which offset pressures related to macro and sector conditions constraining same-store sales levels. Net price gains in our reference lab line of business in Q3 were moderated by impacts from major new customer agreements which will benefit long-term reference lab growth. Veterinary software services and diagnostic imaging revenues increased 11 percent as reported, including benefits from our recent Green Line software and data platform acquisition. Six percent overall organic revenue gains were driven by 11 percent organic growth and recurring revenues, reflecting benefits from ongoing momentum and cloud-based software solutions. Water revenues increased 13 percent organically in Q3, supported by double-digit gains in the US and continued solid growth in Europe. Livestock, poultry, and dairy revenues decreased 2 percent organically, as strong gains in the US were offset by lower Asia swine testing and herd health screening revenues. Turning to the P&L, Q3 profit results were supported by solid gross margin gains. Gross profit increased 9 percent in the quarter as reported and 9 percent on a comparable basis. Gross margins were 61.1 percent of 140 basis points on a comparable basis. Gross margin gains reflect favorable business mix, including benefits from high growth and consumable revenues, lower instrument costs, and favorable impacts from growth in veterinary software services and diagnostic imaging recurring revenues. Operating expenses increased 7 percent in the quarter on a reported basis and 8 percent on a comparable basis. OPEX growth was driven by increases in sales and marketing expense and R&D spending aligned with advancing our growth and innovation agenda. Operating margins were 31.2 percent in the quarter of 110 basis points -on-year as reported and 100 basis points on a comparable basis. EPS was $2.80 per share on Q3, an increase of 11 percent as reported and 12 percent on a comparable basis. Foreign exchange increased revenue when operating profit play approximately $1 million, and EPS play approximately $0.01 per share in the quarter, net of a $1 million edge gain. Pre-cash flow was $192 million in Q3. On a trailing 12-month basis, our net income to pre-cash flow conversion ratio was 91 percent. For the full year, we're maintaining our outlook for pre-cash flow conversion of 90 to 95 percent while updating our full-year outlook for capital spending to approximately $160 million, reflecting lower projected spend and project timing. Our balance sheet remains in a strong position. We entered the quarter with leverage ratios of 0.7 times gross and 0.4 times net of cash. In the third quarter, we allocated $225 million in capital to share repurchases, supporting a 1.1 percent -on-year reduction into rooted shares outstanding. Turning to our 2024 guidance, we've updated our full-year overall organic revenue growth outlook to 5.3 percent to 6 percent, and our outlook for CAG diagnostic recurring revenue growth to 5.8 percent to 6.4 percent. At midpoint, this reflects a reduction of 1 percent to 1.5 percent compared to our prior full-year organic revenue growth outlook, primarily driven by recent U.S. macro and sector trends constraining visits and demand at the clinic level. This outlook incorporates Q3 results and reflects expectations for continued pressure on U.S. CAG diagnostic recurring revenue growth in Q4 related to macro and sector trends and recent severe weather impacts. In Q4, at midpoint, the updated outlook reflects expectations for overall organic revenue growth of approximately 3 percent. This aligns with a Q4 midpoint expectation for global CAG diagnostic recurring revenue growth of 3.5 percent to 4 percent, net of an estimated 0.5 percent of negative effect from severe weather impacts in the U.S. We expect global net price improvement in CAG diagnostic recurring revenues of approximately 4 percent to 4.5 percent in Q4, including effects from new business agreements, with a consistent outlook for approximately 5 percent full-year global net price realization. Our updated full-year guidance for reported revenues is ,000,000 to ,000,000, a reduction of $38 million at midpoint. Our updated reported revenue outlook includes a favorable $15 million adjustment related to more recent FX estimates. In terms of our profit guidance, our outlook for 28.7 percent to 29 percent in reported operating margins reinforces our full-year goals for solid comparable operating margin improvement. Our full-year reported margin outlook incorporates effects from the discrete litigation expense accrual recorded in Q2, which will reduce full-year reported operating margins by approximately 160 basis points and EPS by $0.56 per share. Excluding this impact in FX effects at midpoint, our operating margin outlook reflects a consistent 40 to 50 basis point improvement and comparable operating margins net of a negative 40 basis point impact related to lapping of the Q1 2023 customer contract resolution payment. Our updated full-year EPS outlook of $10.37 to $10.53 per share is consistent with our prior EPS guidance at midpoint. At midpoint, we've incorporated approximately $0.14 and negative EPS impact from the reduction to our organic revenue growth outlook offset by $0.02 in favorable foreign exchange adjustments, $0.01 in favorability related to updated interest expense estimates, and a positive $0.11 per share benefit from improvement in our outlook for our effective tax rate. Our updated effective tax rate estimate includes approximately 0.5 percent of full-year rate benefit or approximately $0.06 per share from a non-recurring tax reserve release we expect in Q4 as a result of the lapsing of an applicable statute of limitation. That concludes our financial review. I'll now turn the call over to Jay for his comments.

Jay Fowler, CEO, Idax Thank you,

Brian, and good morning. Idax delivered against their strategic priorities in the third quarter, including strong profit growth as we advance the robust innovation agenda supported by a high-touch commercial model. These pillars of our organic growth strategy position Idax to continue to lead the development of the companion animal diagnostic sector over the long term while supporting solid organic revenue growth in the near term. Third quarter, CAG Diagnostics Recurring Revenue Growth was supported by sustained Idax execution growth drivers, including solid net new business gains, customer retention rates sustaining at over 97 percent, and a net price realization aligned with our expectations, including impacts from extensions and expansions in corporate accounts. Performance was also supported by double-digit growth in our premium instrument installed base, reflecting high interest by practices around the world in adopting Idax technology to obtain differential clinical insights. These consistent growth drivers reflect the benefits from our decades-long strategic commitment to focusing and integrating on companion animal diagnostic assays, instrumentation, and software supported by a highly capable and tenured commercial organization. As Brian noted, the U.S. sector and Idax U.S. growth has been moderated by cumulative macro pressures on pet owners, which has pressured visit and demand trends in U.S. clinics. The results we are providing this morning reflect excellent execution from teams across Idax in a more challenged macro environment. We remain confident in the enduring positive secular growth heroins that create an attractive growth opportunity for our sector over time. From a growing global pet population to longer pet lifespans and increased opportunities to improve the quality of our pets' lives, the future growth opportunity and the value of companion animal medical services remains highly compelling. Further enabled by Idax's innovations and commercial focus, the secular trends position companion animal diagnostics as the fastest growing area in the vet clinic and a key driver of medical services and practice profits. Today, I'll review Idax's progress against our strategic objectives and how strong commercial and operational execution can help deliver excellent financial performance in a quarter. Customers seek insights on both new and existing diagnostic tests to support disease detection, interpretation, and care management and ways to optimize clinic workflows to increase staff productivity. They rely on Idax commercial professionals who bring subject matter expertise and best practice benchmarks to help them achieve their practice objectives. The result is a sustained trend of diagnostics revenue growth outpacing overall clinic revenues, as well as high levels of retention and sector-leading levels of customer satisfaction. Idax commercial teams delivered solid third-quarter global premium instrument placements across regions and platforms, building on high prior year levels. These placements supported the ninth consecutive quarter of double-digit premium instrument-installed base growth on a worldwide basis, as well as for international regions. In the US, the continued strong pace of competitive catalyst placements coupled with overall placements and including Idax InViewDX pre-orders resulted in very strong -on-year EVI gains, highlighting the high quality of placements in the period and the expected future consumable revenues. In Europe, continued strong net customer gains and premium install base growth supported a sixth consecutive quarter of double-digit CAG diagnostic recurring revenue growth, highlighting the benefits from our maturing European sales organization. These are just a few examples of the growth and value our teams are delivering, aided by a new wave of Idax innovation. Customer interest in partnering with Idax was also reflected in the three major corporate account relationship expansions secured this year. These extensions position Idax to benefit from volume gains as new business is brought into the extended agreements. These expanded relationships will benefit growth across our modalities over time. The extension and expansion of these key account agreements demonstrate Idax's ability to deliver value to customers of all types and sizes as these partnership models are increasingly centered on organically driven growth versus through clinic acquisition. In addition to serving strong demand for our current on-market products, commercial execution also includes supporting demand for upcoming Idax innovations, which is especially relevant now given the early stages of our new wave of innovation. As we sit here today, Idax is on a cusp of delivering the newest significant piece of innovation, the Idax InView DX Cellular Analyzer, which remains on target for a Q4 launch. Our commercial teams have been engaging with customers, highlighting the benefits of this transformative new in-clinic testing platform, and the response has been overwhelmingly positive. Since beginning to take orders in North America at the end of July, the Idax commercial team has taken close to 700 InView DX pre-orders in Q3. This demonstrates the high value that clinicians place on the new diagnostic insights they will receive as part of the launch menu with ear cytology and blood morphology in the easy use they attach to slide-free workflow. Early customer enthusiasm for InView DX is very high, as we see InView as a transformative -of-care platform. Additionally, we started to take pre-orders and select international geographies in Q4 as we build global demand. And keep in mind the value of the Idax InView DX Analyzer will expand beyond ear cytology and blood morphology over time. Designed as a technology for life platform, the InView DX menu will expand in 2025 as we add FNA lumps and bumps capabilities. This menu expansion will help address the approximately 25 million dogs around the world that we estimate would benefit from an oncology diagnostics as part of a clinical visit. This opportunity highlights the reason that we focus on purpose-built platforms as an expanded menu over time, where it's both medical and economic value similar to our Catalyst platform. Beyond InView DX, Idax's in-clinic business also continues to benefit from innovation. And in September, we began shipping Catalyst pancreatic light taste tests to customers in North America, with the global raw beginning with Europe and Q4 and extending to other regions over 2025. The Catalyst pancreatic light taste test, a single slide solution for canine and feline patients suspected of pancreatitis, represents the 10th menu addition to the Catalyst platform since 2012. This most recent example of our technology for life innovation strategy delivers improved functionality and diagnostic insights to our customers, all while using Idax analyzers that have already been purchased and built clinical workflows around. This strategy not only increases the medical value of an Idax analyzer to our customers, enabling them to deliver improved standards of care, but also helps drive utilization and increases the economic value to Idax of a premium instrument placement. Early feedback from customers in North America has been extremely positive for this quantitative test, with over 3,000 customers already utilizing the slide for dogs and cats. This important diagnostics test will soon be available to our entire 72,000 plus Catalyst install base globally. Also, at the point of care, Idax Catalyst SmartQC launched recently in North America. It will be shortly followed by a global round. SmartQC greatly simplifies and streamlines the monthly Catalyst quality control process. Early indications estimate SmartQC is 90% faster than the existing process. This is yet another example of our focus on bringing innovations to our customers that enhance workflows and unlock clinical capacity. Idax teams continue to advance work towards the 2025 launch of the Idax Cancer Diagnostic Screening Panel at Idax Reference Labs, launching initially with lymphoma detection in 2025. The Idax Cancer DX Panel will expand over three years to cover the six most common cancers, which represent greater than 50% of canine cancer cases and 1.1 billion addressable revenue opportunity. Extensive research has shown that both veterinarians and pet owners see value in the medical insights that come from oncology screening and are highly likely to adopt this new technology. We look forward to sharing more updates on these critical pieces of innovation as we get closer to launch. Complementary to our diagnostic solutions, Idax software solutions provide customers with robust, intuitive products that support greater diagnostics utilization while simplifying workflows at each stage of the pet owner visit, thereby helping customers unlock capacity for more value-added work. Veterinary clinics see tangible benefits from cloud-based software technologies, and Idax meets these needs with our broad portfolio of cloud-native products, from practice management systems that are tailored to the practice size and needs to workflow management tools. The result of this fit between Idax software products and customer needs resulted in high double-digit growth in cloud-based product placements, which once again comprised over 95% of total software placements. Momentum for software business remains very strong, with quarterly placements growing sequentially through Q3, while future placements are supported by strong bookings and pipeline aided by increased commercial productivity and corporate account interest. These trends are a leading indicator for future death-soft and diagnostic imaging recurring revenue growth. As a growing PIMS install base is the gateway for customers to benefit from our expanding vertical SaaS offerings. These include workflow and pet owner engagement tools, payment processing and other productivity enablers. We are pleased by the early interest in Velo, our modern pet owner engagement application with deep integration into Idax PIMS. As a quarter end, we had over 300 enrolled and active practices. An excellent pet owner engagement is measured by higher clinical visits, clinical revenue and diagnostics usage post-implementation. Based on a robust pipeline, we look forward to growing Velo's clinic user base by more than double by year end. As we shared at Invest Today, we have an exciting development roadmap for Velo to further address practice pain points with pet owner communications, while helping to further drive visit growth and diagnostics utilization. We look forward to providing updates as we advance our software strategy and grow the related high-margin recurring revenues. As we conclude our prepared remarks, I'd like to recognize the Idax employees who are working hard to serve veterinarians and pets in areas impacted by Hurricane Helene and Milton. Our lab operations team took proactive measures to protect employees, mitigate service disruptions and provide critical diagnostic services to advance care for pets and needs. We stand ready to support our customers impacted by these hurricanes as they look to rebuild their practices and resume operations. Now, let's please open the line for Q&A.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. We ask that you please limit yourself to one question and one follow up question. Again, press star one to ask a question. The first question is from Chris Schott with JPMorgan.

Hey, thank you so much. This is Katerina, on for Chris. Thank you for taking your question. So first, you touched upon this earlier in the prepared remarks. Can you maybe just elaborate a bit on the drivers of the reduction outlook and the step down in 4Q? I guess what's the rough split between the weather things you mentioned and the underlying US macro versus anything else you want to call out? And then I guess second question is just on vet visits more broadly. Can you just elaborate a bit on what's the biggest delta, I guess, between the underlying outlook you gave in 2Q versus the one you're giving now? I guess what's different in the market and what's driving this kind of worsening macro environment and where are you expecting to see the most impact? Thank you so much.

Thanks for your questions. On Q4, just to clarify the commentary, we highlighted an outlook for organic growth overall of about 3% and CAGDX recurring revenue growth of 3.5 to 4%. The 3.5 to 4% is net of an estimated .5% growth rate impact from the hurricane. So if you normalize for that, it is 4 to 4.5%. And that is actually aligned with our outlook for price benefit. So in Q4, we're basically looking at normalized for weather relatively flat volume. It is similar to the trends that we saw coming out of Q3. It incorporates a similar outlook for clinical visits that we saw in Q3. X the weather impact, there is some impact from weather. And so it really is more reflecting the trends that we saw in the third quarter. I think the one element in the third quarter that was somewhat different than we anticipated, we saw relatively more kind of pressure on end clinic demand in terms of just independent of clinics, some compression on that. We tried to highlight in our comments that for pets coming into the clinic, the frequency is sustaining. It's actually up in wellness. It's when you adjust for the pay met effect, it's actually up in non-wellness as well. And so I think that is very encouraging that there's still a lot of interest in diagnostics for the pets coming in. It's not expanding like it had historically. I think that's probably an element that we're still working through. And again, we think that's more near-term macro impacts that will both on the visits front and in terms of some of these demand impacts, we think we'll be able to work through over time. But in the near term, we're just incorporating these trends in our balance of your outlook.

Let me address your question about the clinical visit basis. As Brian indicated, we continue to attribute that to the near term macro and sector pressures. Clearly from a macro standpoint, there's the cumulative pressures of inflation and not just affecting animal health, but across the economy as a whole. We continue to see that at the pet owner level, there's a great deal of resilience. I think pet owners continue to prioritize the care for their pets at the expense of other discretionary categories. But that's not to say that they're immune to the broader macro pressures, especially at the margin. We think that from an overall clinical visit standpoint, it will normalize over time. All the sector drivers around pet population growth, pet longevity, human pet bond, aging pets, which will consume more care are important support to the overall clinical visit trends. And then our own innovation and the contribution that our innovation will play, both from a direct leverage standpoint as we add capabilities to practices that support these long term trends

will

drive the increase in

utilization.

Thank you. The next question is from Michael Riskin with Bank of America.

Great. Thanks for taking the question, guys. First to start, the reference lap number came in particularly weak in the quarter. I think we were a little bit surprised with that. That was the biggest delta. And during your prepared remarks, you made some comments about how there was some impact to price in reference lab from those three major customer agreements. Could you expand on that a little bit? Is that I mean, I think we kind of can read the scene why there's a little bit of price to win the contract. Is that standard operating procedure? Were these a little bit more outsized than normal? Just in general, is that something you're seeing a little bit more push back on in terms of price? Or if there's anything else on reference, I have to call out.

Thanks, Mike. Maybe I could just set context on the numbers in the quarter and then allow Jay to talk about the dynamics in reference labs. We had 2.4 percent growth organically. We highlighted there was actually a day's headwind effect in labs. The benefit that we saw in the quarter was all related to shipping days. So normalized roughly 3 percent growth, and we highlighted that volume growth was actually positive. So to your point, there is a level of effect on lab price realization, which is a good news item in that we this year had three major new customer extensions and expansions. And that'll have long term bond growth benefits for IDEX. And that's captured in kind of our gross to net pricing effect. And you see some of that in the key three numbers in labs, but the underlying health of the business is quite solid, particularly with some of the pressures we've seen on things like wellness testing. So Jay can expand on that.

Yeah, a couple. I think there's a couple of ways of looking at this. The execution drivers at the reference lab business continue to be really strong. As Brian indicated, we have seen modest volume growth. There's that new business gains and very high customer retention levels. The price gains were moderated by these major new customer agreements and expansions and extensions. And they will benefit the company and the business over the longer term through volume growth. Keep in mind that the reference labs is relatively more indexed to wellness testing. We know that wellness testing has been has been more pressured. We saw the decline of three point four percent in the US. There hasn't been change in any of the. Mix that we've described over time, and we're very optimistic about the innovation agenda for the reference labs. We think the collagen and stuff and be for kidney health and the IDEX cancer diagnostics in 2025 really continue to position that modality in a highly differentiated way. Just getting back to my prior comment, you know, clinical visits will normalize over time.

Okay, and then if I can squeeze in the follow up, just want to expand more on price in general. You talk about five for the quarter. I think you're kind of sticking with five for the year. Five percent price for Q is going to be a little bit lighter than that for four and a half. I know some of that is probably tied to timing of the price increases you took last year. Again, correct me if I'm wrong. If if your for Q price assumption did get lowered. But just in general, how do you think about prices will ever going forward? You know, you just talked about thinking that visits will come back. You know, we talk about execution and new product launches and sort of the IDEX premium. The third pillar of the model is price. It's been obviously very elevated over the last three years in 22, 23, 24. It looks like it's starting to normalize a little bit. Should we expect that to continue continued normalization of price over time back to that two to three percent historical level? Is that the right way to think about it?

Yes, Mike, just to clarify some of the numbers that we shared, as you noted, we're reinforced the five percent for your outlook. Some moderation in Q4, that's principally just the new business effects that we that we highlighted. So I think this is a consistent kind of trends. We are positioned to communicate our pricing to our customers. It's not a lapping effect is is kind of the I think that was part of your question. It's more the new business effect. And we're positioned to communicate our our price increases for next year. Later this year with our customers continue to feel very good about the value that we're delivering with the focus on innovation and that we've had in the long term as a company. And we have a new wave of innovation that we're really excited about. So I think it'll be anticipated to be a positive driver for us in the in the near term and the longer term.

You know, keep in keep in mind that the way the way we think about pricing is to really maintain. We want to maintain we want to be on the right side of the whole value equation. And so there's obviously new products, new innovation, but then there's products that we continue to really expand from a feature and capability standpoint. So you think about the FECO in the gym and just to I saw Spira tapes and to step and be in that connect plus these were all added to the menu and panels at no additional cost. So the what we strive for is to really make sure that we're adding value and price obviously reflects that. And as Brian indicated, we'll provide more guidance when we provide twenty, twenty five.

All right, thanks guys. I'll follow up offline.

As a reminder, if you would like to ask a question, please press star one. The next question is from John block with Stiefel.

Thanks, guys. Good morning. Brian, the first one, I think there's a step down in the twenty four guidance. Of about one hundred and fifty Bips for total organic revenue versus the hundred Bip step down for the extra occurring, you know, at the midpoint. So maybe if you can speak with that's attributable to in regards to the Delta, I'm guessing it might be, you know, fewer in use going out this year than maybe initially expected, maybe a little bit of LPD as well. So we love your thoughts there and then just attack on that any color on the realized for in view as we start sort of scrubbing the model and the contribution into twenty five and then allows my follow up.

Great thanks. Thanks for your question, John. I think you hit on the themes. It's the the update includes incorporating Q three. So I think we did see, you know, somewhat softer results in areas like LPD than anticipated. So we're carrying that through. I think the we are capturing also the instrument revenue effects. It's principally just the strength of the in view advanced orders. I think that does have some impact in the overall order generation. So we're in terms of our other premium instruments. It's a good news story. Overall, the normalizes up very strongly. And so we're really encouraged by that. And so those are kind of the factors, some tweaking on the software numbers as well, just based on trends. So those are kind of the themes. The bigger driver, of course, is just the calibration on the the diagnostic recurring regarding your specific question on the in view pricing. I think low teens has been the number we've shared. I think that's still a good estimate for the instrument price realization. It'll vary by program. But to the degree, these are placed under things like three sixty contracts. It's primarily upfront revenue.

Okay, got it. Helpful and maybe I'll have to follow up there. But, you know, are there any comments of like, was the plan always to take seven hundred orders and only ship fifty out? You know, obviously, you're beta testing this in the field. Were there any challenges that you? Encouraged throughout that process in terms of why most of those shipments are occurring. Call it in twenty five twenty four. That's that's sort of the follow up. But then the second question is on the corporate renewals. So, you know, you guys don't typically talk a lot about that. But admittedly, corporates are. Like the pricing will be a headwind for the next three quarters. It took effect third quarter of twenty four. It's a headwind for the next three quarters year over year. And then essentially, you lapped the pricing benefit, but continue to. I'm sorry, you love the pricing headwind, but to continue to benefit from the volume tailwind for what I'm assuming is a multi year contract. And hopefully that came across. Okay. Thanks guys.

Yeah, let me let me start with the corporates and I'll dress the the in view launch in and I'll interpret to Brian for some additional power on it. You know, from a corporate standpoint, we've been very successful and these represent not just extensions, but expansions. You know, I think the corporates from a maturity standpoint are focusing more on organic growth. You know, if you go back, they grew through clinic acquisition and there was a lot of. Solidation and arbitrage and so I think that the focus on organic growth, not just within the reference labs, but using technology, whether it's point of care and software and integrating those pieces has positioned us really well. And it has given us an opportunity to really partner with them and help them achieve those objectives. And, you know, as I indicated in my remarks, there are certainly volume benefits that we see over time that will develop as a result of. And we've been able to implement wellness campaigns and programs much more harmonized way versus, you know, one independent, independent clinics as one offs from an in view launch standpoint. You know, we have a very tried intrude approach in terms of how we launch instrumentation. If you look at catalysts, any of you and more recently pro side one, we start in a control fashion. We're very careful that we deliver the right customer experience. Customers expect that, you know, from us and the way we do that is. We, we, we start with a smaller group of of implementation and on board those customers and tweak as necessary. So it's, it's really not driven by, you know, a certain number in Q4. It's really more from overall readiness and that we deliver the right experience and build over time. The receptivity to the product itself has just been outstanding. And we look forward to being able to build global demand, you know, based on the menu, very compelling menu for customers.

And John, to your specific question, I hope I could follow it, but the new business effects and pricing are relatively more in labs, US labs. So that's where some of the. The business opportunity that we're excited about in terms of expanding the relationships is flowing from. And I think your point was about lapping and I think you're correct. There is a. There's kind of a gross to net kind of effect in the near term, but you work through that. Keep in mind it was 3 agreements that kind of built through the year. So it'll be. You know, what we'll get more clarity as we get into 2025, but basically there'll be some favorable lapping dynamics that go on the latter half of next year to

your point. You nailed it. Thanks Ryan.

The next question is from an event T with BMP Perry bar.

Hi,

good morning.

Thanks for taking my question. Can you discuss how industry innovation in the affordability space? So with that practices offering payment plans and. The next credit card interview and Velo could help mitigating lower visits in the near and longer term. And also, can you discuss the as you are monitoring the divergence between wellness and non wellness visits? What are your updated thoughts on the sector conditions? Thank you.

Yeah, just maybe address the payment question first. It are most of our most of our instruments, whether it's in view or or broader bedlabs weights are placed through various programs. And what that typically involves is there's not cash upfront and the customers make a volume commitment over a period of time. So from a. It's built in financing, if you will. So there's not really, you know, practice cash constraints on being able to, you know, purchase new technology or instrumentation. You know, our focus is really being able to provide technology and tools that help with capacity challenges as they exist. You know, the flip side of capacity is obviously productivity. And practices are looking for ways that optimize, you know, workflow within the practice support staff productivity enable them to communicate with with clients or pay owners and Velo helps us do that.

And just your question on on visit trends. It's interesting. We try to highlight this pain medication payment visit effect and in the numbers. And as we noted that overall, the minus two point. It's actually supported by about one to one and a half percent of benefit from these payment visits, which would show up in the non wellness visit, you know, for the data analysis that we've done. And when you adjust for that, you know, we roughly the wellness visits would be down about four percent and non wellness would be done about three percent. And so it's relatively more pressure on on non wellness, actually, payment visits, but I would say it's indicative of a broader kind of challenge that we've had related to the macro dynamics, which is this is your down overall. So, I think, you know, again, somewhat more and wellness, which is logical given that's relatively more discretionary, but it's a broader

theme.

Thank you. The next question is from Aaron right with Morgan Stanley.

Great. Thanks. Good morning. Could you give us an update on cancer to just the timeline magnitude that you're thinking there in terms of the roll out and then and just where should we think about in terms of or what should we think about in terms of price? As this is sort of a premium cancer screening wellness type of platform and any sort of early feedback on your kind of pilot testing, or as you kind of talk to customers about the opportunity, particularly in the initial offering and canine lymphoma. Thanks.

Yeah, thank you.

Good morning. We continue to work on really making nice progress on IDEX cancer diagnostics with lymphoma. You know, the we're still targeting a twenty, twenty five launch from both a price as well as turn around time standpoint. We see it as an appropriate wellness screening really being able to target younger, but address dogs as well as older dogs. The feedback from key opinion leaders and oncologists has been excellent. So we're we continue to fully develop the product, validate the testing platforms, collect data and are really looking forward to being able to build a market. We know that both pet owners and veterinarians see this as a major pain point today in terms of being able to detect cancer earlier than what's currently done. And when you can detect cancer earlier, obviously, the therapeutic options you have

are more numerous and more effective.

Okay, thanks. And then just on the reference lab in general, I know you touched on a little bit on it before, but in terms of kind of the performance in the quarter, how we should think about the quarterly progression, any sort of changes from a competitive landscape standpoint at all. And then also just kind of your strategy, whether it's turnaround times and and service levels and overnight testing and that kind of stuff is anything changed in terms of how you're kind of contracting or working with your customers on the reference laboratory side, particularly in just kind of an inherently lower volume environment. Thanks.

Yeah, we, you know, Aaron, we don't see any change in the competitive dynamic. We track that very closely. You know, we look at net new business gains, which have been positive. For the for the quarter and for the year, we look at retention levels, which remain very high in the reference labs as Brian indicated earlier, we do see volume growth in the reference labs. You know, the differentiation around the overall menu, the co antigen and the whole renal health panels and beckoning plus in the coming IDEX cancer diagnostics. You know, we think continues to position us really well. I think the corporate contract extensions and expansions I talked to. I spoke about really speak to the differentiation of our reference lab business, corporates as well as independent practices want to partner with us and putting together win win partnerships

is part of our strategy.

Okay, thank you. The next question is from Brandon Vazquez with William Blair.

Everyone, thanks for taking the question. I had to. They're both kind of related to kind of end market volume. And so I'll maybe just ask them both up front. The first one is, you know, as part of your snapshot, you guys also disclose the frequency and utilization metrics, maybe X price. If you look at that. Still a little depressed. I always tend to think of those as things that you have a little bit more control over versus the visit volumes.

So

maybe just talk about within frequency and utilization. What levers do you guys have that you can pull on as we go into twenty five to help offset some of the weaker that visit growth. And then the second follow up on that business is just around this pain medication headwinds that you guys are talking about. Can you clarify this is simply You know, the headwind that you're talking about is simply looking at that visit volume. They're actually worse than they are. Or is the impact that less and said, because now they're switching to injectables means that less diagnostic tests are being done for pain medication. Thank you.

So maybe I can clarify the last point and it provides a little bit of data insight on your frequency and utilization question that Jake and expand on. But What we're seeing in the data is that there are a number of visits, particularly older pets. That are related to pain medication. More recently, particularly follow up visits where the pets are being brought in and there typically isn't a diagnostic. There's an administration of the pain medication and that is With the ramp of these pain meds, particularly over the last few quarters. That's been a pretty meaningful positive contributor to visit growth, but obviously doesn't Benefit our business in terms of, you know, driving diagnostics. So we're trying to highlight is that that minus 2% on clinical visits is really for our business. You know, minus three to three and a half percent in terms of visits that drive diagnostics. When you turn to their frequency in the utilization side, what's interesting is adjusting for those dynamics. Frequencies actually up. So for visits for pets that are coming into the clinic, we think it's positive 50 basis points minus minus rather than the minus 50 basis points we show. And it actually we see increases in utilization as well per visit. I'll be at a moderated paces from what we've seen historically, but it's continuing to be positive. So, You know that that's kind of the backdrop. I think there is a, you know, a specific dynamic as it relates to some of the metrics that that our investors focus in on and we focus in on We think the underlying dynamics within the clinic are very healthy. It's, it's really a visit challenge for us. But Jay can talk more about this.

Yeah, so the way we the way we from a strategic standpoint influence both frequency and utilization is really through innovation and our commercial model. Innovation has both direct and leveraged impacts, you know, in terms of being able to drive testing. Obviously with with in view when we begin shipping in view that will use the cartridges and consumables and that drives utilization, but also our programs. Our marketing programs that place instruments through IDEX 360 really inspire use of the reference labs and rapid assay and and our software businesses. So it's We think that over time, and we've shown this over time that historically, where do you bring innovations that solve the most challenging both clinical and business problems. That you know customers end up that marines end up using diagnostics because it's it's really foundational in terms of driving the medical services and care management approaches

within

within their clinics.

The next question is from David Westenberg with Piper Sandler.

Hi, thanks for taking the question. So I'm going to unpack a couple that on the reference lab and then on the pain drug visits and ultimately what I'm trying to get to is potential utilization acceleration, probably next year, maybe the year after, but You know the differential between consumables and reference lab. We haven't seen that big of a gap since 2018 Is there a way maybe veterinary groups are thinking about changing the way they're thinking about diagnostics, perhaps using Inside lab more as a strategy to generate more diagnostics. And again, I'm only saying that because we're seeing the biggest gap that we've seen you say explain some of that stuff, including days. And then also on the the pain drug. In fact, we've seen CITO point. It's been around since 2016 it's been about About half as much of an impact on visits, but still been an impact on visits now elderly patients are more likely to be sold the diagnostics. So You would think that, you know, maybe there's a as you see this captive audience. I mean, we talked to veterinary customers. They love this captive audience. So is there maybe a A longer tail impact to increase diagnostics because now you have the elderly patient. And again, I would like I'm trying to focus this question on utilization of diagnostics. Maybe next year as we build on some of these trends. Thank you.

Yeah, so good morning, David. Let me just talk about the clinic versus the reference lab model. We don't see actually a modality. Shift, I think, you know, a number of things influence that obviously wellness visits, as I called out is primarily a reference lab send out Modality, but just in terms of overall use it's it's based on situational conditions with the pet. If there's if the pet comes in and is not well or acute condition that errands tend to do the clinic testing. So to get to a, you know, Interpretation quickly in in other cases, if it's a specialty test, they'll, they'll send that out. But we haven't seen we actually haven't seen a big shift above and beyond. You know the wellness visit trend that may be impacted by overall macro considerations in terms of the pain medication piece. The point that I would highlight is we haven't seen it for those patients coming in to practice. You know, that are getting, let's say pain medication primarily let's focus on dogs primarily older dogs and we haven't seen any impact on the use of diagnostics. So we don't think there's a substitution. You know, affect or potentially even driving more diagnostics. In those cases, if that's what you were getting it.

And Dave, just your, your question on utilization and utilization drivers over time. I know you're familiar with this, but we've highlighted Frequently in our longer term strategic discussions, the the metric of blood work inclusion in diagnostics and That for a very long period of time as accelerated at 50 basis points. We saw that Going into the pandemic actually accelerated through the pandemic and what we see more recently in this transition post pandemic period with some of the macro headwinds is it's sustaining is just not growing at the 50 basis points. That's a 200 basis point growth upside. If we can get back to the 50 basis point expansion for our US business and 100 150 basis points globally that was highlighted in our investor day discussion. So, you know, we're encouraged that it's just painting so well with some of the macro dynamics going on and building off of the Accelerated growth that we saw them rent pandemic and we feel very confident in our ability to influence that over time as we've done for decades and see that a central to our long term strategy.

So we'll now conclude the Q and a portion of the call. Thank you for your participation this morning. So once again, my pleasure to share how I'd execute executed Against our organic growth strategy while delivering excellent financial results in the third quarter. companion animal diagnostic sector remains an attractive space supported by long term global secular growth drivers. And a significant opportunity to enhance the others care IDEX is current innovation cycle and effective customer engagement playbook. have positioned as well to lead the penetration of this opportunity and I look forward to sharing more updates with you on our solid progress.

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.