Brian P. McKeon - IDEXX Laboratories, Inc. Jonathan W. Ayers - IDEXX Laboratories, Inc..

Ryan S. Daniels - William Blair & Co. LLC Erin Wilson Wright - Credit Suisse Derik de Bruin - Bank of America Merrill Lynch Jonathan David Block - Stifel, Nicolaus & Co., Inc. Nicholas M. Jansen - Raymond James & Associates, Inc. Mark Anthony Massaro - Canaccord Genuity, Inc. David Westenberg - C.L. King & Associates, Inc.

Benjamin Haynor - Aegis Capital Corp..

Good morning and welcome to the IDEXX Laboratories Third Quarter 2017 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jon Ayers, Chief Executive Officer; Brian McKeon, Chief Financial Officer; and Kerry Bennett, Vice President, Investor Relations.

IDEXX would like to preface the discussion today with a caution regarding forward-looking statements.

Listeners are reminded that statements that members of IDEXX management may make on this call regarding IDEXX's future expectations, plans and prospects constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by the use of words such as expects, may, anticipates, intends, would, will, plans, believes, estimates, should, and similar words and expressions. Such statements include, but are not limited to, statements regarding management's expectations for financial results for future periods.

Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission.

Please refer to these filings for a more detailed discussion of forward-looking statements, and the risks and uncertainties of such statements.

All forward-looking statements are made as of today and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Also 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 measure is provided in our earnings release, which can be found on our website, idexx.com.

In reviewing our third quarter 2017 results, please note all references to growth and organic growth refer to growth compared to the equivalent period in 2016, unless otherwise noted. In order to allow broad participation in the Q&A, we ask that each participant limit his or her questions to one, with one follow-up if 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. I would now like to turn the call over to Brian McKeon..

Good morning and thanks, everyone for joining us in our call. Today I'll take you through our Q3 results and outlook for the full year. I'll also provide an overview of our preliminary guidance for 2018, Jon will follow with his comments.

In terms of our results for the third quarter, we delivered revenue of $492 million or growth of 10% on a reported basis supported by 1% year-on-year benefit from foreign exchange rate changes.

Organic recurring CAG Diagnostics revenue growth was strong in the quarter at 11% despite over 2% in combined growth headwinds from fewer equivalent days in the quarter, year-on-year changes in distributor inventory levels in international markets and natural disaster related impacts.

Overall organic growth for the quarter was 9%, below our expectations for 9.5% to 10.5% gains. The largest element of the shortfall related to the combined growth impacts noted, which lowered overall organic growth by about 2%.

This was about 1% above the growth headwind we had previously projected related to fewer equivalent days heading into the quarter.

We also saw greater than expected end market pressure on our LPD business, as well as some changes in our CAG instrument program mix which resulted in relatively higher levels of deferred instrument revenues in the quarter. We'll discuss these factors in more detail as we review our quarterly performance and our revised 2017 organic growth outlook.

Despite these impacts we continue to leverage high recurring CAG revenue gains to drive strong profit flow-through keeping us on track towards our full-year EPS growth goals. Operating profits in Q3 grew 14% as reported and 13% on a constant currency basis, supported by continued strong gross margin gains.

EPS for the quarter was $0.79, an increase of 27% on a reported and constant currency basis. These results included $0.03 per share of discrete benefit from the expected utilization of foreign tax credits and $0.04 per share from the adoption of new share-based compensation accounting guidance.

Adjusted for these factors comparable constant currency EPS growth was 16%, on track with our goals. Today we're refining our 2017 revenue guidance and raising our EPS outlook to reflect benefits from discrete tax items and a higher projection for full year operating margin gains.

Our new revenue outlook of $1.95 billion to $1.96 billion is consistent at midpoint with our prior guidance reflecting reported growth of 10% to 10.5%. We're maintaining an outlook for CAG Diagnostics recurring organic growth of 12.5% to 13%, consistent with very strong year-to-date trends.

We're updating our outlook for full-year organic growth of 9.5% to 10%, incorporating natural disaster related impacts, a lower projected growth rate for our LPD business, consistent with recent trends, and adjustments to our outlook for instrument revenues reflecting expectations for relatively higher levels of deferred instrument revenues this year based on our projected program mix and current accounting treatment.

These impacts are fully offset by favorable FX changes. We're raising our projections for 2017 EPS to $3.22 to $3.26 per share, compared to our earlier guidance of $3.12 to $3.22 per share, or an increase of $0.07 at midpoint, including about $0.05 of per share benefit related to discrete tax items.

This updated EPS outlook equates to 18% to 20% comparable constant currency growth adjusted to exclude EPS growth benefits related to share-based compensation accounting changes and discrete tax benefits.

This outlook incorporates higher expectations for reported and constant currency operating margin gains of 130 basis points to 150 basis points this year, resulting in approximately $0.02 of operational improvement from our earlier guidance, net of refinements to our organic growth outlook.

Our updated 2017 outlook assumes $0.12 to $0.15 per share in EPS benefit from stock compensation accounting changes and $0.05 per share in discrete tax benefits, which are not expected to benefit future years. This is factored into our 2018 preliminary outlook, which we're also sharing today.

In terms of our 2018 preliminary outlook, we're projecting revenue of $2.14 billion to $2.18 billion and EPS of $3.50 to $3.62 per share with comparable constant currency revenue and EPS growth aligned with our long-term financial goals.

Our 2018 revenue outlook reflects expectations for 9.5% to 11.5% reported revenue growth driven by 9% to 11% organic gains. As we'll discuss later in reviewing our preliminary guidance, we currently estimate that the adoption of the new revenue recognition accounting standard will have an immaterial net impact on our revenue in 2018.

Our EPS outlook assumes achievement of 75 basis points to 125 basis points of improvement in operating margins on a reported and constant currency basis, approximately 25 basis points above the improvement outlook shared at our recent Investor Day.

On a comparable constant currency basis, that is adjusted to exclude share-based compensation impacts and discrete tax items, this preliminary outlook equates to 15% to 19% EPS growth compared to midpoint 2017 projections. We'll discuss our 2017 and preliminary 2018 outlook later in my comments.

Let's begin with a review of our Q3 performance by segment and region. Q3 performance was led by continued strong momentum in our Companion Animal Group.

Global CAG revenues were $427 million, up 10% organically, supported by double-digit gains in recurring CAG Diagnostics revenues and in our veterinary software services and diagnostic imaging systems businesses.

These gains were offset by relatively lower instrument revenues impacted by comparisons to strong prior year results, as well as by relatively higher levels of deferred revenue recognition, which we'll discuss in more detail as we review our product line results.

Water revenues of $31 million grew 10% organically in Q3 supported by solid testing gains in the U.S. and benefits from international go-direct initiatives, which added about 3% to quarterly growth. As noted, Livestock, Poultry and Dairy revenues declined 7% organically to $28 million.

This was about $2 million to $3 million below our flat to modest organic growth outlook for the quarter. Recently, our LPD business has been impacted more than anticipated by end market factors that are pressuring producers that use our diagnostic tests. European deregulation of milk quotas has lowered milk pricing globally.

In addition, imports of powdered milk has been increasing in China, depressing demand for local milk for consumption and for production of dairy products. Combined, these factors had the effect of lowering dairy producer demand for antibiotic testing, pregnancy testing and health herd screening for cattle.

In addition, regulations controlling pork prices in China have led to the closure of farms. And recent poultry disease outbreaks have reduced demand for live poultry, both of which have constrained growth in demand for our diagnostic tests.

For our business, this has lowered revenues in our dairy testing and health herd screening businesses globally and moderated the strong growth trends we've seen in emerging markets.

While we expect these dynamics are transitory and will stabilize and improve over time, we are updating our outlook for the LPD business in the near-term to reflect continued mid-single digit declines in organic revenue growth. This results in about a $5 million of reduction to our previous LPD revenue outlook for 2017. By region, U.S.

revenues were $301 million in Q3, up 9% organically driven by continued strong recurring CAG Diagnostics gains. U.S. recurring CAG Diagnostics revenues grew 11% organically in Q3, despite over 2% in growth headwind from the combined impact of fewer equivalent days in the quarter and natural disaster effects.

Gains were driven by very strong continued growth in U.S. labs, double-digit gains in consumable revenues and solid growth in rapid assay. Recurring CAG Diagnostics revenue gains continue to be primarily volume driven with overall net price gains trending in the 2% to 3% range. Overall, U.S.

revenue growth was moderated by lower instrument revenues related to comparisons to strong prior results, which included benefits from SediVue backlog order fulfillment and higher levels of second Catalyst placements, as well as growth in deferred revenue related to instrument placements.

IDEXX's performance continues to significantly outpace continued strong U.S. veterinary practice market growth, reflecting our dataset from about 5,000 clinics. In Q3, patient visits increased 1.9% and clinic revenues increased 6%.

National disaster impacts could be seen in moderated September patient visit growth of 0.9% and practice revenue growth of 4.8% compared to July and August average growth rates of 2.4% and 6.6%, respectively.

International revenues and in the third quarter were $191 million reflecting 8% organic growth, with overall gains moderated by declines in our LPD business, as nearly 90% of LPD revenues came from international markets.

International results were driven by continued strong 12% recurring CAG Diagnostic organic revenue gains, despite over 2% of combined growth headwind in the quarter related to fewer equivalent days, and year-on-year changes in distributor inventory levels in certain markets.

International CAG recurring growth continues to be led by robust gains in consumable revenues, reflecting ongoing rapid expansion of our Catalyst installed base. In terms of segment performance, our Q3 results were supported by strong global gains across CAG Diagnostic testing modalities and ongoing expansion of our premium instrument base.

Globally we have placed 2,738 premium analyzers in Q3, up 6% compared to prior year levels or 13% when normalizing our comparisons to adjust for prior year fulfillment of SediVue backlog orders. These results included 1,385 Catalyst placements, which were up 14% globally.

We also placed 848 premium hematology instruments, 505 SediVue's, and 1,373 SNAP Pros in the quarter, bringing year-to-date SNAP Pro placements to over 4,300. By region, we continue to achieve high levels of competitive Catalyst placements in North America.

In Q3, we placed 292 Catalysts at competitive or greenfield accounts, in line with strong prior year levels. Competitive placements represented 80% of total North American catalyst placements, reflecting our strategic focus.

We continued to see a shift in our premium instrument placements toward competitive Catalyst, SediVue and SNAP Pro in the U.S., aligned with our economic value or EVI metric which increased in the quarter on a basis adjusted for prior year SediVue backlog fulfillment.

International Catalyst momentum continues to be very strong with over 1,000 placements in the quarter, with close to half of these placements going to new and competitive accounts. Globally, competitive placements increased 19% in Q3.

This progress and continued improvement in retention has supported a 21% year-on-year global expansion of our Catalyst install base to just under 28,000 units reflecting 10% year-on-year growth in North America and 36% gains in international markets.

Overall, instrument revenues declined $2 million in the quarter to $29 million compared to strong prior year results, which included fulfillment of our backlog of about 160 SediVue orders post-launch and about 80 more second Catalyst placements as part of our successful retention programs.

The implementation of our expanded sales force reconfiguration in the quarter in the U.S., which is now complete, also had a moderating effect on Q3 placement gains as we work through this change. As noted, reported revenue results in Q3 reflected an increase in levels of deferred revenue recognition related to customer program mix.

As context, in the U.S. we offer different customer programs for instrument placements with some involving deferred revenue recognition aligned with multiyear agreements, which enhance customer retention. We've seen an increase in CAG instrument placements that are tied to cross category customer commitments that include upfront payments or points.

This is aligned with our expanded penetration of new instrument platforms, such as SediVue as well as with our accelerated growth in the reference lab business.

Under current accounting, instrument revenue recognition related to upfront commitments is deferred over time rather than at the time of placement, with net impacts of these commitments allocated across instrument and consumable revenues.

These changes reflect a shift in the mix of deal types rather than a change in pricing dynamics and we continue to expect net price realization on related recurring revenues in the plus 2% to plus 3% range.

In addition, we expanded bundled rental programs in select international markets in Q3, which supported high levels of placement growth in these markets and also resulted in instrument revenues being recognized over time.

Our revised full-year 2017 revenue guidance has been adjusted to reflect our Q3 instrument revenue results and updated projections related to customer program mix resulting in a $5 million reduction to our prior full-year organic revenue growth outlook.

Growth in our instrument consumer base supported by sustained high retention levels and utilization benefits from the expansion of the Catalyst platform in international markets is driving continued strong momentum in consumable revenues. Instrument consumable revenues of $129 million grew 13% organically in Q3 supported by strong gains across U.S.

and international markets, despite about 3% of combined growth headwind from fewer equivalent days, international distributor inventory changes and natural disaster impacts. Our SediVue installed base continues to expand and contributed 1.7% to consumable growth in the quarter.

Reference laboratory and consulting services, with revenues of $168 million also grew 13% organically in the third quarter. We estimate fewer equivalent days and natural disaster impacts reduced lab revenue growth by about 1% in Q3. Strong reference lab gains were supported by continued mid-teen organic revenue growth in the U.S.

reflecting double-digit organic volume gains with existing customers, augmented by solid price realization and net customer additions. International reference lab gains were solid in the quarter with organic revenue growth at high single-digit rates driven by consistent gains in Europe.

Rapid assay revenues continued to trend well, Q3 revenues of $51 million grew 4% organically net of an estimated 4% headwind related to fewer equivalent days, international distributor inventory changes and natural disaster impacts.

Rapid assay gains continue to reflect solid volume growth in 4Dx and specialty tests and progress from gaining share in first generation products in the U.S. As expected, growth moderated somewhat from high first half levels reflecting relatively less favorable comparisons related to the timing of promotional programs.

Veterinary software services and diagnostic imaging revenues were $33 million in the quarter, up 10% organically driven by increased penetration of recurring services in our Cornerstone installed base and solid growth in digital radiography placements and recurring services, including growth in our Web PACS platform.

Turning to the P&L, operating profit in Q3 was $100 million, up 14% or 13% adjusted for currency, with results driven by continued strong profit gains in our CAG and Water businesses. Operating margins were 20.4%, up 80 basis points on a constant currency basis.

Gains were driven by continued solid gross margin gains reflecting momentum and expanding CAG recurring, diagnostic revenues, supported by moderate price gains and ongoing productivity improvement, aided by volume leverage. For Q3, gross profit was $274 million, up 11% on a reported basis and 10% on a constant currency basis.

With the recent weakening of the U.S. dollar, we recognized $900,000 in foreign exchange hedge losses in gross profit in Q3. Overall foreign exchange, net of hedge impacts in Q3 2016 and Q3 2017 lowered quarterly operating profit by about $400,000 with no material impact on EPS.

Operating expenses grew 10% in Q3, in line with revenue growth and slightly favorable to our earlier projections as we advanced increased commercial and technology related investments in the U.S. We've now reached our staffing goals for the U.S. commercial expansion and expect year-on-year operating expense growth in the low teens range in Q4.

EPS in Q3 was $0.79 per share, including $0.03 in discrete tax benefits from the expected utilization of foreign tax credits and $0.04 per share in benefit from the adoption of new accounting guidance related to share-based compensation, which was about $0.01 below our expectations.

Looking forward to Q4, we are projecting an additional $0.02 in discrete tax benefit related to expected utilization of foreign tax credits and about $0.05 of benefit per share from share-based compensation impacts, which is factored into our updated 2017 outlook.

For the full year, we now expect benefits from the adoption of the new share-based compensation accounting guidance of about $0.30 per share, which is about $0.02 below the midpoint of our last guidance estimate.

Q3 EPS results were supported by share repurchases, which lowered year-on-year shares outstanding by 2.1%, net of a 0.5% negative impact related to adoption of the new share-based compensation accounting guidance.

Our effective tax rate was 23.4% in Q3, including 4.2% of tax benefit from share-based compensation accounting adoption, and 3% of benefit from the discrete foreign tax credit. Comparable constant currency EPS growth in the quarter was 16%, adjusting for share-based accounting and discrete tax effects.

Free cash flow was $95 million in Q3, on track with our full-year outlook for free cash flow of about 95% of net income, and projected full year capital spending of $90 million.

In Q3 we deployed $50 million to repurchase about 300,000 shares in the open market, bringing year-to-date repurchases to $215 million for 1.4 million shares or an average price of $154 per share.

We ended Q3 with $1.296 billion in debt outstanding, $454 million in cash and investment balances, and $163 million of borrowing capacity available under our revolving credit facility. Our leverage ratios as a multiple of adjusted EBITDA were 2.6 times gross and 1.7 times net of cash and investment balances.

Turning to our 2017 outlook, as noted, we're refining our full-year revenue guidance and raising our EPS outlook to reflect benefits from discrete tax items and a higher projection for full-year operating margin gains.

We're narrowing our reported revenue guidance range to $1.95 billion to $1.96 billion or growth of 10% to 10.5%, reflecting a consistent full-year revenue outlook at midpoint. As noted, we're maintaining an outlook for CAG Diagnostics recurring organic growth of 12.5% to 13%, consistent with our strong year-to-date trends.

We're updating our outlook for full-year organic revenue growth to 9.5% to 10% from earlier guidance of 10% to 11%.

This updated revenue outlook incorporates expectations for full-year natural disaster related impacts of about $2 million, a lower projected growth rate for our LPD business, resulting in a $5 million reduction to our earlier outlook and a $5 million adjustment to projections for reported instrument revenues reflecting relatively higher expectations for deferred instrument revenues this year under current accounting standards.

These revenue impacts are fully offset by favorable FX changes. At the updated FX rates noted in our press release, we now project that FX will have a modest favorable impact on reported full-year 2017 revenue growth and a $0.01 negative impact on EPS, primarily reflecting the lapping of 2016 hedge gains.

For the full-year 2017, we're now projecting hedge gains of approximately $1 million. Our updated full-year 2017 organic revenue outlook reflects expectations for 9% to 10% organic revenue growth in Q4, including expectations for an approximate 1% headwind related to fewer equivalent days and natural disaster related impacts.

As noted earlier, we're raising our outlook for full-year 2017 reported and constant currency operating margin improvement to 130 basis points to 150 basis points reflecting updated FX estimates. In terms of our EPS, we're raising our 2017 outlook to $3.22 to $3.26.

This guidance includes a projected $0.05 in discrete tax benefits related to the expected use of foreign tax credits and about $0.02 per share in net operational improvement driven by higher expectations for operating margins.

FX benefits of $0.02 per share relative to earlier guidance offset $0.02 of less projected benefit from share-based compensation impacts in 2017.

Adjusting for share-based compensation accounting impacts and discrete tax effects, our 2017 EPS outlook equates to 18% to 20% comparable constant currency growth, at the high-end of our long-term growth plans.

We continue to estimate that our effective tax rate for 2017 would be about 32% prior to benefits from share based accounting changes and discrete rate benefits. We're refining our estimate for the full year benefit from shared-based compensation accounting changes on our effective tax rate to about 7%.

This includes a projected $5 million or $0.05 per share benefit in Q4. We also project an additional 1% discrete tax benefit from expected utilization of foreign tax credits, including expected $1 million to $2 million or $0.02 per share benefit in Q4.

Incorporating these factors we now estimate a full year effective tax rate for 2017 of about 23.5% and a Q4 effective tax rate of 24% to 25%. The projections for our effective tax rate in 2017 align with an expected $27 million full year benefit from tax reduction related to share-based compensation activity.

A portion of this tax rate benefit in 2017 is related to specific factors including the timing of exercises of stock options, which are not expected to carry over into future periods based on our analysis of future vesting schedules and historical activity.

For future years, we now estimate that the annual benefit from share-based compensation activity will be $13 million to $16 million, or about $0.15 to $0.18 of per share benefit, assuming our current share price and no change in U.S. corporate tax policy.

This means that $0.12 to $0.15 of net EPS benefit projected in 2017 is not anticipated to carry over into 2018. Combined with the discrete tax benefits recognized this year, this means that $0.17 to $0.20 per share of associated EPS benefit recognized in 2017 is not expected to carry over into future years.

We've adjusted for these dynamics in our preliminary 2018 outlook. For the full year 2017, our outlook for share count is a reduction in average shares outstanding from stock repurchases of about 1.5%, net of a 0.5% accounting impact. We now project net interest expense of between $32 million and $33 million.

As we look ahead to 2018, we're targeting continued strong revenue and profit growth, consistent with our long-term goals. As noted, our preliminary revenue outlook is $2.14 billion to $2.18 billion, reflecting expectations for 9.5% to 11.5% reported revenue growth, driven by 9% to 11% organic revenue gains.

Our 2018 outlook reflects expectations for sustained strong organic growth in CAG recurring diagnostic revenues, supported by our launches of SDMA on a slide and our Fecal antigen SNAP. In 2018, we'll be adopting the new revenue accounting standard ASC 606 under the modified retrospective method.

This means that we will be applying the new standard in 2018 and reflecting a cumulative adjustment to our balance sheet accounts for prior years, assuming that the standard had been in effect for those periods.

Based on our analysis to-date, we estimate that the implementation of the standard will have an immaterial net impact on our overall revenue recognition in 2018. Note that this reflects in our estimate of the combined impact of the modified retroactive restatement and the change in timing of revenue recognition for 2018 activity.

On balance, we expect the new standard will result in relatively earlier revenue recognition for IDEXX over time when instruments are placed, aligned with the principles of the accounting standard. Turning to our preliminary EPS guidance for 2018, our outlook is for EPS of $3.50 per share to $3.62 per share.

As noted, this outlook assumes a full year increase of 75 basis points to 125 basis points in operating margins on a reported and constant currency basis. At the rates assumed in our press release, we estimate FX will increase revenue growth by about 0.5% and EPS by about $0.02 per share, net of established hedge positions.

Adjusting for changes in currencies, share-based accounting benefits and discrete tax effects, this equates to a projected 15% to 19% comparable constant currency growth rate next year compared to the midpoint of our 2017 EPS guidance. As noted, our 2018 outlook assumes $13 million to $16 million from share-based compensation accounting.

These benefits are reflected in our projected 2018 effective tax rate of 28.5% to 29%.

We're projecting to generate relatively less uplift in EPS growth from capital allocation leverage in 2018 reflecting expectations for a 1% reduction in shares outstanding and relatively higher floating interest rate costs, which contribute to current projections for a $3 million increase to interest expense next year to $35 million to $36 million.

We look forward to providing an update and more detailed review of our 2018 guidance in our year-end conference call. That concludes our financial review. I'll now turn the discussion over to Jon for his comments..

Okay. Thank you, Brian, for that detailed and fully transparent review of our Q3 results and our guidance.

And as I step back, I'm very, very pleased with our continued progress in expanding our business in the third quarter, reflected in strong CAG recurring growth and expansion of our premium instrument platforms, while delivering strong margin gains, keeping us on track towards our long-term goal of 15% to 20% comparable constant currency EPS growth.

Adjusted for the factors that Brian noted, which impacted organic CAG Diagnostics recurring revenue growth by about 2%, our CAG Diagnostics recurring revenue grew 13% in the U.S.

and 14% international, reflecting the robust durable momentum in expanding our annuity base, driving strong profit flow-through and positioning us for continued strong financial performance in 2018.

A key initiative we are advancing to sustain our enduring CAG recurring revenue growth is our enhanced commercial capability in the U.S., an expansion which we completed at the beginning of Q3.

As we enter the fourth quarter, we have moved beyond the expected transition impacts to sales productivity, as the new IDEXX representatives begin to build experience and develop their relationships with customers. Even during this transition quarter in the U.S.

we saw growth in the EVI of our instrument placements, adjusting for last year's delivered SediVue against preexisting backlog. The Q4 trends, though early, suggest patterns in the past still apply with a jump in productivity as the new reps build on their customer relationships and move to commission-based compensation for instrument placements.

Instrument unit placements were strong in Q3, supported by 19% global growth in placements of competitive and greenfield Catalyst chemistry analyzers. In international, we had a record quarter of Catalyst placements in Q3 and also a record quarter of total premium instrument placements in the quarter.

Continue to expand our instrument customer base around the globe. Our customer retention rates for U.S. CAG Diagnostics recurring revenues remain at exceptional levels of 97% to 98% for reference labs and instrument consumables respectively. And in fact, trends in Q3 continued to show further modest improvement in both modalities.

Customer retention rates internationally for reference lab instrument consumables are even higher, at 98% to 99%, demonstrating the unique and irreplaceable value of our innovations in the eyes of our customers. While we were disappointed in our Livestock, Poultry and Dairy Q3 revenues, this business has historically been more volatile.

It remains an important part of our portfolio with this proprietary line of animal health diagnostics and leveraging the same technologies that we use in our companion animal business. Our Water business had an outstanding quarter of 10% organic growth and 47% operating margin.

In addition, Water had two favorable regulatory developments that bode well for growth in the next several years, one in the U.S. market for wastewater and one in the European market for drinking water.

In the new product pipeline, we continue to make good progress in the planned launch of two exceptionally strategic tests, Catalyst SDMA in the next few months, and SNAP Fecal DX in mid-2018.

The enthusiasm for our Catalyst customers for SDMA is exceptionally high as we continue to build the franchise for this unique and proprietary kidney function marker as an essential element of the chemistry panel, whether run in-house on Catalyst or sent out to the IDEXX reference labs.

SDMA has the benefit of a growing number of third-party studies and the impact of almost 12 million patient samples run in our reference labs over the past two plus years.

SNAP Fecal DX will build on IDEXX's proprietary Fecal antigen technology, that we now offer in our reference labs, and itself is a meaningful driver of growth of same-customer volumes in our North American labs.

We have an attractive pipeline of new product development resulting from our over $100 million annual investment in R&D, that will generate future product launches, a pipeline that remains as attractive as ever, even beyond Catalyst, SDMA and SNAP Fecal.

The pipeline includes instruments, menu, veterinary software, artificial intelligence and Big Data capabilities. In the latter two technologies, we have over 250 employees in software R&D focused on expanding the capabilities of our existing cloud and client server-based software offerings as well as the Big Data opportunities.

Also included here is the further advancement of our cloud-based VetConnect PLUS, a platform that adds unique and growing value to our diagnostic offerings worldwide.

The combination of our innovation and expanded commercial strategies gives us confidence for our 2018 guidance of 9% to 11% organic revenue growth, and as Brian mentioned, the 75 basis point to 125 basis point expansion in constant currency operating margin. So with that, we'll open the call to questions..

Thank you. Our first question will come from the line of Ryan Daniels with William Blair. Your line is open..

Yeah. Good morning, guys. Thanks for all the color commentary thus far. I was hoping to dive a little bit more into the delta and your assumptions behind revenue recognition for the instruments.

And my curiosity is that driven by a change in the instrument sales mix that you're seeing towards different products, is it more bundling or is it kind of a novel program, or end market response to the competition, just any more color what's driving that delta?.

Yeah, thanks. It is basically a change in the mix of previously established programs. Programs can have different kinds of revenue recognition. We are focused on, particularly the metric, economic value index, and we see those holding steady.

And I think we've given the results there, the 19% growth in Catalyst placements at new competitive accounts, the EVI that's up in North America despite the Q3 transitions. So, I think the fundamentals of the instrument placement are strong and the revenues are a reflection of program mix.

Brian, you have further comment?.

Yeah. As Jon said, it's existing programs and more an evolution that we've seen relatively more growth than we were projecting earlier.

And I tried to note that we also had some growth in international markets, we have rental programs in emerging markets which are doing quite well, and that also results in very good placements, great EVI, but you don't recognize the revenue upfront. So....

Yeah. And in Q3 we had one country that started one of those programs that we've had in other markets to exceptional success. But it's a program that doesn't have upfront instrument revenue..

So the placements were good, but the mix and how that flows through instrument revenue was somewhat different than we anticipated, and we tried to flow that through for the full year and make an adjustment there..

Okay. That makes sense. And then, I don't recall you talking about international distributor changes in the past kind of impacting performance.

So is that just normal fluctuation in distributor inventory, are you seeing different ways that they operationalize their inventory trying to shrink lead times, or seeing less end market demand, or anything else we should read into that, or is that just a normal?.

It really is, we – when we went direct in the U.S., we actually stopped normalizing because we had relatively immaterial impacts from this, it's primarily Japan actually.

And it just so happened that the year-over-year changes because it's not just this year, it's also what happened last year, was large enough that it kind of had an impact on the growth rate we wanted to highlight.

So what we're really trying to note is that the underlying growth when you normalize for hurricanes and these changes in days if you look at the growth rate in the – as Jon mentioned in international, it's 14%, in the U.S.....

In the CAG..

...13%, we feel very good about the underlying CAG recurring Diagnostics recurring growth, and wanted to make sure we noted that, so people understand those trends..

Okay. Appreciate it. Thanks, guys..

Thank you..

Thank you. Our next question comes from the line of Erin Wright with Credit Suisse. Your line is open..

Great. Thanks. I think your underlying operating margin improvement is slightly higher than what you were alluding to at Investor Day. How – I guess for 2018, how should we think about sort of that difference, how much of it is attributable to FX and broadly can you speak to maybe the drivers of that metric into 2018? Thanks..

It primarily flows from the strong momentum we're having, growing the CAG recurring diagnostic revenues.

So we're, as noted reinforced 12.5% to 13% organic growth rate this year and we're looking to sustain that into next year and we have some drivers like SDMA on a slide and Fecal Antigen that will help with that and growth in that part of our revenue stream has really nice gross margins....

And we're getting 2% to 3% pricing, which is a demonstration of the unique value we're bringing, by the way, it's at constant currency, so none of that is FX related, the 75 basis point to 125 basis point expansion in operating margin would be in a constant currency..

Okay. Great. And how should we think about the quarterly progression of SediVue placements, do you anticipate placing a, I guess increasing amount into 2018? And can we get an update on the consumables utilization there, is it tracking better than kind of maybe your initial expectations there? Thanks..

Yeah, I think, we had a very good quarter in SediVues. I think we gave guidance, we did 505. We gave guidance to over 2,000 for the year, I think we're well on track for that. We would – SediVue is going exceptionally well. We're going to launch the next version of the algorithmic software called Neural Network 3.0 in January, Erin.

2.0 really was an exceptional success that we launched in April of this year. But we're going to get the benefit of over 50 million images now.

So, and one interesting thing about urine, it's really important to understand this, is that, if you don't take a picture of the urine when it's fresh, I'm talking about within the first half hour of coming out of the bladder, it changes.

I mean, bacteria grows or disappears, crystals dissolve, I mean, you've got to – the algorithm has to be run on fresh urine and of course one of the benefits of SmartService is we have tens of millions of images. So Neural Network 3.0 is just going to take it to a whole new level.

And of course every single SediVue customer will receive that through a SmartService update in January. So, I think we have a good momentum. On the utilization. We're seeing very, very small increases, but we're still really in the 3,000 to 4,500 and maybe a little bit of that, very small modest increase in that.

And of course, our goal through things like the free UA day that we can do with the pay per run is to get customers to grow utilizations. It's kind of a shocker that urine is used so little in diagnostics when it provides so much value, but I think that's going to be a long-term trend..

Excellent. Thank you..

Thank you. Our next question comes from the line of Derik de Bruin with Bank of America Merrill Lynch. Your line is open..

Hi, good morning..

Good morning..

So just a question, you're on the – how much in year 2018 organic revenue growth guidance, is that benefiting from deferred revenues that were pushed out from 2017 to 2018, just trying to get a sense? And can you just give us an idea on what the recognition timelines you're looking at on those, are you're talking about recognition over one-year, two-year? Just a little bit more color on sort of, are you getting pushes from 2017 to 2018 and just sort of the numbers involved?.

So that is all captured in the – we're transitioning to the new revenue accounting standard, Derik..

In 2018..

In 2018 and that is all captured in what we reflected as a net immaterial change overall. To give you a sense of this, the things that we talked about, we talked about bundle programs deferred revenue, associated with upfront points and payments. Under the new accounting standard that actually is primarily recognized upfront.

So, under the modified retroactive restatement though we're going to have to treat the past as if we were using the new statement in the past. So it – we're really going – it gets complicated because we have three different programs, major programs that all have kind of differing changes to them.

The net of what comes out of the wash of all that is we don't necessarily see a net material change one way or the other..

And let me also answer your question, typically you either recognize the revenue upfront in one type of program or you basically recognize instrument revenue over a five-year to six-year period. There's no in between. It's not like you recognize it in the second year. It's either amortized or it's upfront..

So, that's captured in our 9% to 11% and what I did note is, over time in the future, the standard will lead to probably relatively more upfront revenue recognition, which is given the mix of programs that we have..

Great. Thanks, that's really helpful. And I guess – I may have missed this, but can you – did you say anything about how you see the Livestock, Poultry and Dairy business trending in 2018? don't think you can gave any specific segment comments. If I missed them, my apologies..

I think – no we didn't and we haven't given segment guidance in 2018. But we believe that the factors in LPD are transitory in the second half of 2017. I think that's still a solid – it remains a very solid business with a favorable return on invested capital. And so, we would not expect that to be a longer term factor..

And if I can sneak in one final one, the share count – the share buyback is a little bit lower for next year, it's a little bit – some color on that?.

We're trending right now at about $50 million a quarter and we are – our outlook for next year anticipates continuing in that range. We think that's – we feel good about the value of the company and I think we – it supports continued deployment towards repurchases.

We are at a somewhat moderated level from where we've been historically and that's reflected in that outlook..

What is not reflected is any change in our free cash flow. As Brian said, our free cash flow to net income for the guidance for 2017 is 95%..

Great. Thanks very much..

Thank you. Our next question will come from the line of Jon Block with Stifel. Your line is open..

Great. Thanks, guys. Good morning. First one, Brian, for you.

Why the increase in the op margin expansion guidance relative to the Analyst Day two months ago? Maybe if you can give some color there, and just even maybe more importantly, considering the spend was supposed to be higher in the near-term, is the new long-term op margin expansion guidance, sort of that 75 bps to 125 bps per annum, versus that prior 50 bps to 100 bps plus? And I've got a follow up..

As, Jon, I mentioned earlier I think the growth in CAG recurring Diagnostics revenues and the continued solid price realization we're getting there is supporting very good gross margin improvement and we're building that into the outlook next year.

We're not changing our longer term view on the margin potential of business, it's just the preliminary view for next year..

Right.

And I would also say, one of the things that we do between August and this point in time in the late fall, is we build together, we build our plans for – operating plans for 2018, as we built our plans for 2018, we really saw solid margin opportunity that gave us the confidence for next year of 75 basis points to 125 basis points of margin expansion.

And it's going to be primarily gross margin. A lot of good things happening in the gross margin, 2% to 3% net prices is one of them, but favorables on labs and instrument consumables, but so, I mean, as we as we kind of rolled everything together, that gave us the confidence to tweak it up by 25 basis points for 2018..

Yeah. Understood. I guess what I don't understand is, unless some of that spend was deferred, you would think that new higher rate would carry forward in subsequent years. Again, Brian, based on your prior commentary that the most heightened level of expense was targeted for 2018.

But I can follow-up with you offline there?.

Well, we're obviously going to be growing off of higher bases as we move forward, Jon. So, I think we'll continue to look at that, but we're comfortable with the longer-term guidance of 50 bps to 100 bps..

Okay..

I was going to say, Jon, because you asked for it, but no, it was really the fundamentals of....

Exactly..

I appreciate that, Jon. And then, just to shift gears, maybe Jon for you. Any change on the color, the exact timing of SDMA on the slide, in other words, next few months to me sounds slightly different than year end, is that a true assumption? And then the international lab was up high single digits.

That's a good number, but it is down from the low double-digit range, even mid-teens that you guys had gotten too. I know there was a day adjustment, but that wouldn't account for 300 bps or 400 bps or even 500 bps, so maybe you can talk to what you're seeing in the international reference lab? Thanks, guys..

Yeah. Thank you. First of all, we're very excited. We're in the short strokes on the SDMA on the slide launch. We now have it out with Catalyst customers that are running the slide in practice and producing results and providing data in the care of patients.

That's the last step in our development timeline, and just as we get to this level, we always want to make sure that we launch it right. So, we're very comfortable with the next few months timeframe for that. I think what I would say about the reference lab business is, we're – I think we're pleased with the growth international.

I think we're exceptionally pleased with the success of the international had with instrument placements, which are very profitable business model for us and in turn we're very pleased with the continued growth in the U.S.

and Canadian reference lab business, which is also demonstrating nice profit flow-through, allowing us to support our profit guidance for 2018 and 2019. So, I think these are, what we're seeing is growth in the profitable areas of the recurring revenue around the world, that's a little differential.

But I mean, I don't think the reference to the growth in international reference lab, that Brian mentioned, is anything to sneeze at; obviously these are very good numbers. But I think it was a particularly good quarter for instrument placements internationally..

Thank you. Our next question will come from the line of Nicholas Jansen with Raymond James. Your line is open..

Hey, guys. Thanks for all the color. Just two for me.

First, just in terms of any sort of flagging associated with kind of the cadence of 2018 earnings growth, certainly some of the new products kind of build through the year, so just wanted to – I know it's early, but any sort of thoughts on how we should be thinking about the ramp associated with A, the new products and B, the timing of kind of the margin leverage?.

I think it's early for us to be projecting that. I think one thing I would note is obviously we've had some increase in our OpEx base as we staff up in the U.S. and advance some of the U.S. commercial organization and advance some of the IT initiatives, so that'll carry over into the early part of next year in terms of year-on-year growth.

But I think we'll wait until we kind of complete our detailed budget processes before we get into that..

Yeah, I think these new products, like SDMA on a slide, it's going to be helpful on the margin, I actually think we're getting the benefit of SDMA on a slide now, because customers are anticipating it. So it's benefiting things like the retention rates, that I mentioned that are continuing to improve modestly, and the placement rate in anticipation.

So the multiplier effect on the SDMA on a slide is pretty significant and is embedded, of course, in our expectations for overall recurring revenue growth. And then there's also a multiplier effect on SNAP Fecal, which we are very comfortable with a mid-2018 launch..

That's helpful color. And then just thinking about the operating expense budget forecasted for 2018, over the last couple of years, you've made some pretty targeted investments in the U.S.

commercial infrastructure; and just wanted to get a sense of how we should be thinking about the sales force potentially being further expanded in light of these new innovations that are coming to the market? Thanks..

Thank you. I think that's a great question. We're very pleased with the expansion that we put in place and really had the bulk of the costs in Q3 already embedded in the P&L.

And as I mentioned, now they're go through that one quarter of transition that's associated with territory changes and rep changes, which positions us very well, not only for Q4, for 2018. We're at 435 – that's field-based sales professionals, sales and support professionals.

I think we're really in a great position – that is the largest and deepest sales organization in the companion animal market across all of companies, including pharma. And I think we're in a good place for that. I think 2018 will be an opportunity to leverage our investments both, of course, not only in people but also IT that supports that..

Going back to our Investor Day guidance though, for 2018, the margin improvement that we're signaling will be more gross margin driven. So we are going to have some carryover impacts from the investments..

That's great. If I can just squeeze one more in on the tax rate for 2018. It does seem, even if you strip out some of the noise this year, maybe a little bit higher than the Street was modeling. Remind us, maybe is it just mix factors in terms of the U.S.

growing so strongly? But just any thoughts on kind of what the longer-term tax rate we should be thinking about in 2018 and beyond? Thanks..

It actually is the same underlying tax rate of 32% before our estimates for the share-based compensation activity. So I'm not sure how the external views were factoring that in, but that's effectively what it is, it's the 32% before the benefit of the $13 million to $16 million that we signaled..

Thanks for all the color, as always..

Thanks, Nick..

Thank you. Our next question comes from the line of Mark Massaro with Canaccord Genuity. Your line is open..

Hey, guys. Thanks for the questions. And I appreciate a lot of commentary on the call. I guess I wanted to just follow-up on the instrument dynamic in the quarter. Obviously, you called out changes in program mix.

I think some of us are still trying to understand the economic value index, my understanding is that one of the areas of that is to promote competitive Catalyst placements. That number was pretty good in the quarter.

So I guess I'm really trying to get to the bottom of what constituted the expanded bundling in the quarter that really contributed to the bulk of the change in program mix..

Yeah. Just thank you for that observation, I'll let Brian answer on the accounting, which is complex, and of course will even change next year. But we're very pleased with the 19% growth in competitive and greenfield Catalyst placements that we had globally and the 14% overall growth in Catalyst placements..

Yeah, we saw relatively more cross CAG placements, which I think reflect actually the focus of the sales organization. It was relatively more than we had projected, but it's bundling of SediVues and lab deals with competitive Catalyst placements relative of single placements that may be associated with something like a rebate program.

So, it was a relative change in mix that at the end of the day is very positive for the long-term growth of the company and the company's revenues and the recurring revenue base, but does have an effect just in terms of the current accounting that we don't recognize that upfront, and so that was....

But over the life of the contract, five years, six years..

Got it. And I might have missed it.

But, do you envision the possibility of getting back to double-digit growth in instruments for 2018?.

It's early for us to get in....

Are you talking about in revenues?.

For CAG instrument revenue? Yeah..

It's too early for us to be getting down into the modality views. But, I think what we've signaled in the past that it's more about sustaining high levels of instrument placements and that the bigger driver of our growth is going to be growth in the recurring..

Yeah. The primary purpose of instrument placements is to drive the very profitable recurring revenue up. That's not only instrument consumables, but of course can apply also to reference labs and rapid assay, all the components of the CAG Diagnostic recurring revenue.

So instruments is a means towards an end, and that end is profitable recurring revenue, which, as you know, is close to three-quarters of the total company's revenue..

Excellent. If I can sneak this one in. Jon, you talked about new opportunities in artificial intelligence and Big Data opportunities.

Can you speak if that is something that would tie into some of the capabilities you've already built at IDEXX or is this something that you're working on that would provide a completely new, maybe a new architecture or ecosystem?.

Yeah, no. I think one of the benefits of the ecosystem – the answer is the former; it will enhance and leverage the ecosystem that we already have. It allows us to do exceptional work in retrospective analysis, which advances medical insight, it allows our reps to be more productive.

There is a lot of multiplier effect and it's been a focus of our R&D and other folks. And I think you saw some of that at the Analyst Day, when we talked about the number of clinical visits that has a chemistry panel is only 13%, which is pretty low.

And by the way, it's higher for our customers than it is for the market as a whole, but still the opportunity to grow the standard of care by helping customers appreciate where they stand versus their peers, we think could be a long-term growth driver. That's just one of the many examples that the AI and Big Data.

Another example is just the Neural Network 3.0 that we're going to launch in January I mentioned earlier, Mark, on SediVue, we continue to see advancements inside of our products..

Great. Thank you..

Thank you. Our next question comes from the line David Westenberg with C.L. King. Your line is open..

Hey, guys. Thanks so much. So not to belabor the instrument number, I know that's been too much maybe of a focus of this call, but I have noticed that instrument revenues have – they've missed me for three quarters and year-over-year has been challenging for the last, let's say two quarters.

So has this mix been actually something that you've seen for a couple quarters and maybe are just calling out now or is this maybe a mix that you've seen a little bit more in focus this particular quarter and something that you're calling out now because it's something that we should definitely be aware of on a go forward basis?.

I'd say relative to our goals, we've been performing very well in terms of instrument placement. So just to reinforce, the premium analyzer growth was 6% in the quarter, it was up 13% when you adjust for the prior year backlog orders and we've grown our Catalyst base globally 21% year-on-year.

So, we feel very good how we're doing on instrument placements. In terms of the mix and how that flows through our accounting.

We've seen relatively more bundle placements that result in deferred instrument revenues and we're adjusting that in this year's number, and in total that's a $5 million revenue number for this year, which under new accounting going forward will be less of an impact..

And just a reminder on that question, because, David, I know, there's lot of moving parts on revenue recognition.

We introduced a very successful new program in Japan actually, and it really helped accelerate very attractive economic value placements, but it moved from upfront revenue recognition of the historical way we placed programs, to in this 2017 revenue accounting world, to a deferred recognition.

So, that was one of the factors, really something where we – that was new (01:00:25)..

Just don't want to lose sight of that supported the over 1,000 placements of international Catalysts in the quarter. So we're doing great on placing instruments and the mix is a little different, and we're trying to reflect that in the estimates..

Yeah. That was a 35% growth in Catalyst placements internationally in Q3. Pretty attractive..

Yeah, definitely. You guys have definitely beat me on the instrument placement numbers by quite a lot.

So actually can you talk about maybe on the utilization, on the Catalyst as we move internationally, just for sake of our models, how should we look at Catalyst utilization on the per as you become, as Catalyst moves more and more as a percent of your installed base outside the U.S.?.

Yeah. So, I'd say that's an excellent question. As we've talked about in the past, the typical utilization of a Catalyst placement outside the U.S. is going to be less than the utilization of a Catalyst placement inside the U.S.

On the other hand, while we make a big deal about the new and competitive, when we upgrade VetTests outside the U.S., we usually see a larger bump than we would have historically seen in the U.S. We're not upgrading too many VetTests in the U.S. anymore because there aren't many left.

But there are VetTest upgrade opportunities, most of the Catalyst placements that are not new competitive internationally are VetTest upgrades and they support the very strong recurring revenue growth that we've seen..

We've seen nice uplift on the international average utilization as we're upgrading. So, it's been definitely supporting our outlook..

Upgrade from VetTest to Catalyst. So that's a favorable dynamic internationally..

That's a couple of questions. And I'll take a couple more offline, so I'm just going to do one more for sake of time. So, on the reference lab, your primary competitor has now been fully incorporated into a larger private company.

Can you talk about changes that you've seen competitively, not necessarily in terms of competitive wins and losses, but just in terms of shift in the way that they're marketing or maybe going against you, or any sort of color on competitive dynamics as this integration takes place or has taken place?.

The thing I would say there, it really – there remains a very competitive market. It has been a competitive market, I expect it will be a competitive market, but I think one of the interesting things that we've seen in the U.S. market for IDEXX is, we're getting double-digit volume growth in same customers' volume.

That is volume growth, that's being driven by things like the Fecal antigen test and by SDMA and that is, along with price and net new customer wins, but double-digit, over 10% growth in same-store volume is helping us with very favorable reference lab growth in the U.S. market. So I don't see really any change in the competitive environment..

Thanks for the questions. I'll take the rest offline..

Thank you. Our final question will come from the line of Ben Haynor with Aegis Capital. Your line is open..

Good morning, gentlemen. Thanks for taking the questions. First off for me on the bundled rental programs that you've seen success with in the emerging markets and now it sounds like starting to see some success in Japan.

Is there a plan to expand those into more of the developed world or how do you see those programs evolving over time?.

Yeah. I don't – I think we always look at what is the most favorable scenario where we can place instruments with very profitable economic value and sometimes it's an upfront placement where we recognize revenue, and sometimes it's another placement.

And what's going to confuse everything is in 2018, the revenue standards change, as Brian took you through in the prepared comments. But we are always keeping an eye on the economics of these placements.

And we believe that creates long-term shareholder value and we really aren't as concerned about the revenue recognition, that's accounting, it's important that we do that correctly, but what creates value is the net present value of the placement over a five year to seven year period of time.

Okay. That's helpful. That makes sense.

And then lastly for me, is the shift amongst the deal types that you've seen in your view more of a function of increased promotion of certain types of deals by your sales force or is it a function of shifts in the preferences of veterinary practices?.

Yeah. I think what happens is sometimes practices respond to one type of – they're not particularly – I mean I don't think they took managerial accounting in vet school. And so, sometimes one type of program just appeals them more than another, it works for them, but it also works for us.

The economic value of these programs isn't very different by one type or another and isn't different by those that that we recognize revenue on upfront and those that we recognize revenue for the instrument placement over time. It's just not different, but sometimes we'll see trends on how customers respond.

And our job is to place instruments in customers in an economically attractive fashion..

I do think the growth in cross CAG deals aligns with the connectivity that we are bringing to vet practices and the value that they see in having a full set of solutions from IDEXX. So, that's very much (01:06:27)..

That's an excellent point, Brian. We're not just talking about placements of instruments, of course we're growing the reference lab business. SDMA really merges the two. We had SDMA in the reference labs, now customers say, well I also run my chemistry in-house, I want SDMA on the in-house.

So, really is – we call it one business the CAG diagnostics with different modalities, modes of delivering that value.

And we're continuing to see growth in the percentage of customers who use both in-house and reference lab as – with the base being those who use one or the other or both, we're continuing to see growth in that cross-selling that we've talked about in past investor meetings. And yet we've still got – we're still below 50%.

So we've got a lot of runway to go there..

Okay. That's all I had. Thank you very much, gentlemen..

Okay. With that, we will conclude the call. We appreciate everybody's attention and we look forward to reporting our year-end results in January..

Thank you..

With that, I'll conclude the call and huge thanks to all of our employees who have worked very hard to deliver these results and to deliver exceptional value for our customers. It's interesting, our customers actually grow faster than the market as a whole.

And I think that's the result of the great work on innovation and commercial efforts that we have around the world. So with that we'll conclude the call. Thank you..

Thank you, ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive TeleConference Service. You may now disconnect..