IDXX - NASDAQ

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 outlook for overall reported revenue growth of 7.7% to 9.7%, including strong Q2 performance and increased in inVue Dx instrument revenue, along with favorable impacts from foreign exchange updates. Our updated full year overall organic revenue growth outlook is for 7% to 9% with organic CAG Diagnostic recurring revenue growth of 5.8% to 8%. These organic growth ranges represent 0.5% increase at midpoint to our previous outlook supported by strong global execution in our CAG business. We're increasing our EPS outlook to $12.40 to $12.76 per share, up $0.40 per share at midpoint, reflecting 9% to 13% full year comparable EPS growth. We'll discuss our updated 2025 financial outlook later in my comments. Let's begin with a review of our second quarter results and recent sector trends. Second quarter organic revenue growth of 9% was driven by 10% CAG revenue gains, 8% growth in our Water business and 3% gains in LPD. Strong CAG results were supported by CAG Diagnostic recurring revenues, which increased nearly 7.5% organically, including global average net price improvement of approximately 4% and benefits from CAG Diagnostic instrument revenues increasing 62% organically aided by inVue Dx placements. CAG Diagnostic recurring revenue growth in Q2 was supported by 11% organic gains in international regions, another quarter of double-digit expansion. Strong international performance continues to be driven by IDEXX execution reflected in solid volume gains, benefiting from new business and double-digit year-over-year expansion of our premium instrument installed base as well as benefits from net price realization. U.S. organic CAG Diagnostic recurring revenues grew 6% in Q2, supported by solid volume gains and 3.5% benefit from net price realization. U.S. clinical visits declined 2.5% in the quarter, reflecting an IDEXX U.S. CAG Diagnostic recurring revenue growth premium to U.S. clinical visits of approximately 800 basis points up modestly from the first quarter. Diagnostic frequency and utilization for clinical visit continued to expand solidly at the clinic level, highlighting the important and expanding role of diagnostics for those seeking veterinary services. IDEXX innovation and commercial execution delivered organic revenue gains in our major testing modalities globally in the second quarter. IDEXX VetLab consumable revenues increased 14% on an organic basis in the second quarter, reflecting double-digit growth in both the U.S. and internationally. Consumable revenue expansion is supported by testing utilization across regions, including benefits from recent product launches and high customer retention levels, while our commercial teams further build our global premium instrument installed base. CAG instrument placements increased significantly in Q2 compared to prior year levels, reaching a quarterly record aided by broad availability of inVue Dx. Total premium placements reached 6,070 units, an increase of 23% year-over-year. The quality of CAG instrument placements remains excellent, reflected in 1,091 global new and competitive Catalyst placements, including 346 new and competitive placements in North America. IDEXX inVue Dx placements of 2,388 were driven by strong demand for our new highly differentiated platform. These new placements and high customer retention levels supported a 10% year-over-year growth in our premium instrument installed base, and we're looking forward to building on this momentum during the second half of the year. IDEXX Global Reference Lab revenues increased 5% organically in Q2, an increase of approximately 2% from the first quarter on a days adjusted basis. Global reference lab gains continued to be driven by solid volume growth, including initial benefits from IDEXX Cancer DX. Global Rapid assay revenues declined 3% organically in Q2, and Rapid assay results were constrained by customers shifting Pancreatic Lipase Testing to our Catalyst instrument platform, which we estimated to be a 5% headwind in Q2 revenue growth. Veterinary software and Diagnostic imaging organic revenues increased 9%, driven by recurring revenues, reflecting benefits from ongoing momentum in our cloud-based software installations. Water revenues increased 8% organically in Q2 with growth driven by double-digit revenue expansion in our international regions and solid mid-single-digit growth in the U.S. Livestock, Poultry and Dairy revenues increased 3% organically in the quarter, led by commercial execution in North America and Asia Pacific. Turning to the P&L. We had another quarter of strong profit gains in Q2 reflected in 130 basis points of comparable operating margin and expansion, net of approximately 600 basis points benefit from lapping a now concluded discrete litigation expense in Q2 2024. Gross profit increased 12% in the quarter as reported and 11% on a comparable basis. Gross margins were 62.6%, up approximately 110 basis points on a comparable basis. These gains reflected benefits from IDEXX VetLab consumable growth, lab productivity and operational improvements and pricing, which offset inflationary cost effects. Reported gross margin gains were moderated by a 20 basis point negative impacts related to foreign exchange changes, net of our hedge positions. On a reported basis, operating expenses decreased 9% year-over-year, reflecting a 19% favorable growth rate impact from comparison to prior year levels, which included a $61.5 million expense in the now concluded litigation matter. Adjusting for this effect, operating expense growth was modestly below revenue growth at 9% as we continue to invest in innovation and commercial capabilities while supporting operating margin gains. Q2 EPS was $3.63 per share, including benefit of $8 million or $0.10 per share related to share-based compensation activity, and $0.07 from a discrete tax reserve release. Foreign exchange added $3 million to operating profit and $0.03 to EPS in Q2, net of hedge effects reflecting comparable EPS increase of 17%. Free cash flow was $152 million in Q2 and $360 million in the first half of 2025. On a trailing 12-month basis, our net income to free cash flow conversion rate was 80%, including approximately 8% unfavorable impact from the approximately $80 million judgment payment related to the now concluded litigation noted on prior calls. For full year, we're maintaining our outlook for free cash flow conversion of 80% to 85%, reflecting consistent outlook for full year capital spending of approximately $160 million. Our balance sheet remains strong. We finished the period with leverage ratios of 0.8x gross and 0.6x net of cash. During the quarter, we repaid approximately $103 million of long-term notes and continued to deploy capital towards share repurchases, allocating $329 million during the second quarter. For the first half of the year, we've allocated $744 million of capital to share repurchases, supporting a 2.7%, year-over-year reduction in diluted shares outstanding for this period aligned with our previously stated expectations. Turning to our full year 2025 outlook. As noted, we're increasing our projected range for overall revenue to $4,205 million to 4,280 million. At midpoint, this reflects approximately $20 million operational improvement, building on strong second quarter performance and increased InVue Dx revenue expectations along with approximately $70 million benefit from updated foreign exchange impacts at the rates outlined in our press release. Our updated revenue growth outlook is 7.7% to 9.7% as reported, including approximately 0.7% for full year growth benefit from foreign exchange. As a sensitivity, a 1% strengthening of the U.S. dollar would reduce revenue by approximately $8 million and EPS by $0.03 for the year. Our updated overall organic revenue growth outlook of 7% to 9% reflects an estimated organic growth range of 5.8% to 8% for CAG Diagnostic recurring revenues, including consistent 4% to 4.5% benefit of global net price realization and U.S. clinical visit declines aligned with more recent trends at midpoint. We're increasing our expectations for inVue Dx to 5,500 placements during the year, with instrument revenue expected to be over $60 million, building off strong demand signals for the platform. In terms of key financial metrics, we're increasing our reported operating margin outlook for 2025 to 31.3% to 31.6%, reflecting increased expectations for 50 to 80 basis points for full year comparable operating margin improvement, net of 180 basis point operating margin benefit related to the discrete litigation expense impacts an updated foreign exchange effects. This outlook also incorporates commercial expansions in four countries during the second half of the year, including a modest expansion in the U.S. to support our growing portfolio of diagnostic solutions. With respect to the dynamic trade environment, we remain well positioned to navigate the changing tariff landscape with our best estimates included in our outlook. Our primary objectives and ongoing efforts remain focused on continuous supply to customers and minimizing impacts through operational planning. Our updated full year EPS outlook is $12.40 to $12.76 per share, an increase of $0.40 per share at midpoint. Our EPS outlook incorporates increased projections for operational performance of $0.11 and foreign exchange benefit of $0.22 at midpoint compared to our prior guide. We've also updated our tax benefit related to share-based compensation activity, now $15 million for the full year, an increase of $0.09 per share compared to our prior estimate. This is partially offset by $0.02 per share unfavorable tax impacts compared to our prior projections including benefits from the discrete tax reserve release and updated outlook for our base rate. For the third quarter, we're planning for reported revenue growth in line with the implied second half growth range, including approximately 1% growth benefit from foreign exchange. At midpoint, the organic revenue growth outlook includes U.S. clinical visit growth in line with recent trends and expanding benefits from innovation including the Cortisol slide, which began shipping last week. We're planning for modest comparable operating margin expansion aligned with advancing additional commercial investments and timing of project spend. That now concludes our financial review. I'll turn the call over to Jay for his comments.

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 solutions. North America delivered a historic record Q2 quarter of placements and Economic Value, supported by the unrestrained launch of inVue Dx and well over 300 competitive and greenfield Catalysts. We continue to see significant engagement across new greenfield and competitive accounts, reflecting practices' desire to invest in best-in-breed innovative solutions that improve patient care and clinic productivity. Supporting this, there was a strong trend in new practice formation in Q2 with IDEXX selected in a high number of instances as the partner of choice in outfitting these practices with a full portfolio of IDEXX solutions. Internationally, our teams achieved double-digit growth in CAG Diagnostics recurring revenue, supported by the tenth consecutive quarter of double-digit installed base growth. This success is a result of commercial strategies tailored for local country circumstances with excellent product/market fit, a network of reference labs supporting high service levels and an expanding commercial footprint. As Andrew mentioned in his full year guidance, we are making commercial investments to expand three more international country organizations as well as modestly enhancing the U.S. commercial team. These high-return investments are a reflection of the confidence we have in growing these geographies and supporting a broader portfolio of diagnostic products that are resonating strongly with customers. These expansions are key enablers to support an expanding set of innovations ranging from the launch of IDEXX Cancer Dx and inVue Dx, to new additions like Catalyst Cortisol and Pancreatic Lipase. Each of these products represents a meaningful advancement in our veterinary diagnostics offering and their successful adoption supports long-term growth. There are also significant benefits to decreasing the number of customers that each account manager is responsible for, as our experience is that customers use more diagnostics as part of their care protocols when we visit them more often. We expect to have these expanded organizations in place by the start of 2026. A key focus of our commercial organization is ensuring that placements are high quality and positioned to drive strong recurring revenues over time. We continue to prioritize placements in practices where IDEXX solutions can deliver the most value to both clinicians and their clients. With inVue Dx as an addition to our premium instrument offering, we are seeing very strong double-digit growth in EV amongst our field teams as they have an opportunity to place both larger dollar value suites, or a single inVue Dx addition to an existing IDEXX customer. As a testament to the value we deliver, customer retention remained in the high 90s across diagnostic modalities. This enduring loyalty reflects the confidence veterinarians place in IDEXX to be their partner in providing excellent patient care and the ongoing investments we make to keep their solutions at the leading edge. IDEXX inVue Dx continues to be a transformational platform that is reshaping point-of-care cytology testing. Since broad commercial availability commenced in April. Demand has exceeded expectations. We have now placed nearly 2,700 instruments globally this year through June, giving us confidence to increase our 2025 placement estimate by 1,000 units from 4,500 to 5,500. Feedback from early adopters remains highly positive. Practices consistently highlight the slide-free, intuitive workflow, rapid turnaround time and diagnostic confidence provided by inVue DX and its advanced AI-powered insights. Early consumables usage driven by testing in both ear cytology and blood morphology is highly encouraging. And with our expected launch of FNA for lumps and bumps later this year, inVue Dx will play an important role in supporting our long-term recurring revenue goals, inVue Dx also playing an important role in our re-contracting activity as we saw a very high number of customers in Q2 extend their relationship with us, often in advance of the date required to do so. A cornerstone of our strategy remains delivering differentiated diagnostic insights that elevate care and strengthen our leadership in the sector. The IDEXX Cancer Dx panel, launched in late March through our North American reference laboratories, has continued to gain traction among general practice veterinarians as well as oncology specialists. Since launch, over 2,500 practices have ordered the test. Moreover, of these customers adopting the test, almost 15% of sample submissions are coming from competitive lab customers. The broad adoption of IDEXX Cancer Dx is indicative of the value clinicians see in this test and the underserved need of early cancer screening. Cancer remains one of the leading causes of mortality among dogs, and IDEXX Cancer Dx provides veterinarians with a cost-effective, highly sensitive tool to detect canine lymphoma earlier. This enables earlier intervention and the possibility of significantly improved outcomes. Initial utilization patterns are consistent with our expectations, with customers using the test as both an aid-in diagnosis and a small, but growing number of practices more broadly incorporating Cancer Dx into most wellness screening panels. As awareness grows and we broaden the testing menu over time to incorporate new cancer types, we expect a multiplier to our reference lab testing volumes. Building off this early success we've seen in North America, we are preparing for the international rollout of Cancer Dx in 2026. Early excitement from veterinarians in these regions underscores the significant global need for affordable and accessible cancer diagnostics. Last week, we launched Catalyst Cortisol in North America, our third new Catalyst test in less than a year, underscoring our commitment to expanding the platform's menu and our Technology for Life promise. Catalyst Cortisol enables veterinarians to measure cortisol levels rapidly at the point of care, supporting the diagnosis and monitoring of adrenal conditions such as Cushing's disease and Addison's disease. The addition of Cortisol to Catalyst is the most frequently requested menu expansion from our customers. Early customer response has been highly enthusiastic, highlighting the value of real- time results to guide treatment decisions during the patient visit. Catalyst Pancreatic Lipase, launched globally last year, continues to perform well and meet strong customer demand. This innovative test offers a quantitative, single-slide solution that delivers rapid, reliable results for both canine and feline patients suspected of pancreatitis, a common and often challenging condition to diagnose early. Adoption has been robust, with over 40% of our global Catalyst installed base already utilizing the test where available. This strong uptake reflects the test's clinical utility, the value veterinarians place on speed and accuracy in diagnostic workflows, and the continued expansion of our Catalyst menu to address important unmet needs in veterinary care. The Catalyst SmartQC clip, which began shipping late last year, is also seeing strong adoption. Customers value the load-and- go monthly quality control process that ensures accurate results and instrument reliability. New innovations made meaningful contributions to the growth of IDEXX VetLab consumables in the quarter. Our software ecosystem continues to be an essential component of IDEXX's differentiated value proposition. By delivering intuitive, cloud-native solutions that integrate diagnostics, imaging, client engagement, and practice operations, IDEXX software helps clinics improve efficiency and patient care while driving incremental recurring revenues for our business. Our cloud-based PIMS platforms such as ezyVet and Neo delivered solid double-digit installed base growth with particularly strong demand for multi-location practices and corporate accounts. Clinics are choosing these solutions for their modern user experience, scalability, and robust integration with the IDEXX diagnostics ecosystem. Vello, our pet owner engagement application, saw continued momentum in Q2, with double-digit sequential growth in active users compared to Q1. Vello's integrated communication tools are helping clinics improve appointment adherence and drive compliance with recommended care. Early customer data shows that practices using Vello Experience increased visit volume, higher diagnostics utilization and better treatment plan compliance, positive indicators that support our thesis that digital engagement drives better clinical outcomes. Our Diagnostic Imaging business continues to demonstrate strong momentum, too, extending clinical capability and streamlining imaging workflows. Our low-dose, high image quality radiographic imaging systems paired with our IDEXX Web PACS software provides seamless image viewing, sharing, and storage fully integrated into veterinary practice workflows. In the second quarter, we surpassed an installed base of 10,000 imaging systems in North America, with a comparable number of customers subscribing to IDEXX Web PACS, highlighting strong alignment between hardware adoption and recurring software engagement. While macroeconomic and sector dynamics remain fluid, including lingering inflationary impacts pressuring clinical visits. We are confident in the durability of the veterinary market and the resilience of pet health care demand. Pet ownership remains elevated, and the aging pet population continues to expand, supporting higher levels of diagnostics utilization over time. Our focus remains on executing with discipline, supporting our customers through innovative solutions, and investing in capabilities that position IDEXX to capture our significant long-term opportunity. Diagnostics sit at the center of the system of care and pet owner expectations for quality care continues to rise. IDEXX is well positioned to lead, and our focus is on exceptional execution to deliver solid growth and profit gains. As I conclude our prepared remarks, I want to express my deep appreciation for our 11,000 IDEXX employees worldwide. The commitment to innovation, customer partnership, and operational excellence is what enables us to deliver these results quarter after quarter. I'd also like to remind you that we will be hosting our annual Investor Day on August 14 at our Global Headquarters in Westbrook, Maine. This session will be streamed live for those unable to attend in person. With that, we'll conclude the prepared portion of our call and open the line for questions.

[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.