Good morning and welcome to the IDEXX Laboratories' First Quarter 2021 Earnings Conference Call. As a reminder, today’s conference is being recorded. Participating in the call this morning are Jay Mazelsky, President and Chief Executive Officer; Brian McKeon, Chief Financial Officer; and John Ravis, Senior Director, 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 earnings 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. These include comparable gross profit growth, comparable gross margin gain or growth, comparable operating expense growth, comparable operating profit growth, and comparable EPS growth. These non-GAAP financial measures exclude the impact of changes in foreign currency exchange rates and non-recurring or unusual items if any. 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 of our website. In reviewing our first quarter 2021 results, please note all references to growth, organic growth, and comparable growth refer to growth compared to the equivalent period in 2019 unless otherwise noted. To allow broad participation in the Q&A, we ask that each participant limit their questions to one, with one follow-up as necessary. We appreciate you may have additional questions, so please feel free to get back into the queue and if time permits, we will take your additional questions. I would now like to turn the call over to Brian McKeon.

Good morning, everyone. I'm pleased to take you through our first quarter results and to provide an update on our initial financial outlook for 2021. In terms of highlights, IDEXX delivered excellent financial results in Q1, driven by continued strong global momentum in our CAG business. Revenue increased 24% as reported and 21% organically supported by 23% organic growth in CAG Diagnostic recurring revenues, reflecting continued high gains across U.S. and international markets. The operating profit gains were particularly strong in Q1, reflecting flow-through benefits from high CAG Diagnostic recurring revenue growth and favorable comparisons to relatively higher prior year pre-COVID operating expense levels. These dynamics and a higher than expected $0.17 per share in stock-based compensation tax benefit enabled delivery of $2.35 in earnings per share, an increase of 73% on a comparable basis. Our strong start to the year has increased our comp and has been achieving high revenue and profit gains in 2021. We're raising our full-year revenue outlook range by $40 million to $3,105 million to $3,160 million, or reported revenue growth of 14.5% to 16.5%. This reflects an updated outlook for 13% to 15% overall organic revenue growth, 1.5% higher than our initial outlook. We're raising our organic growth outlook for CAG Diagnostic recurring revenues to 14.5% to 16%, 2% higher at the midpoint than our initial 2021 growth projections. Our full-year financial outlook now reflects a targeted 150 basis point to 200 basis point improvement in operating margins on a comparable basis. These gains are projected to support EPS of $7.88 to $8.18 per share, reflecting 21% to 26% comparable EPS growth. We're planning to deliver these strong profit gains while advancing investments in our innovation and commercial capability to enable long-term accelerated global market development in our core CAG business. We'll discuss our updated 2020 outlook later in my comments. Let's begin with a review of our first quarter results in recent market trends. First quarter organic revenue growth of 21% was driven by 23% gains in CAG Diagnostic recurring revenues, reflecting 21% growth in the U.S. and 28% growth in international markets, including some benefits from the lapping of prior year COVID impacts in late March. Strong CAG gains also reflected 27% organic growth in CAG Diagnostic instrument revenues. Overall, Q1 organic revenue gains were supported by 9% growth in our LPD (Livestock, Poultry, and Dairy) business, reflecting strong demand for African Swine Fever testing in China, as well as by approximately 1% of growth benefit from our OPTI human COVID-19 PCR test initiative. The key driver of our financial model, CAG Diagnostic recurring revenues expanded the high growth rates across regions through the quarter. First quarter results were largely consistent with the very strong two-year growth trends we saw in the second half of 2020. On a two-year basis, CAG Diagnostic recurring revenues increased at a 70% average annual organic growth rate. We'll be highlighting two-year growth trends selectively in the coming quarters as we calibrate the effect of year-on-year lapping of 2020 COVID impacts on our growth results. High CAG Diagnostic recurring revenue gains were aided by continued high growth in clinical visits. Overall, U.S. clinical visit growth was 12% in Q1; including some benefits from the lapping of prior year COVID impacts in late March. On a two-year basis, same store clinical visit growth increased at an average 6% annual rate, slightly higher than our second half 2020 trends. The IDEXX U.S. CAG Diagnostic recurring revenue growth premium to U.S. clinical visits was 900 basis points in the first quarter, or approximately 1,000 basis points to 1,100 basis points adjusted for equivalent day effects. Q1 U.S. clinic visit growth reflected sustained strong 9% growth in non-wellness visits and an increased 16% growth in wellness visits. These gains were supported by relatively higher benefits from growth in new patients, which we estimated added approximately 3% to overall clinical visit growth and 4% to wellness visit growth in the quarter. Our continued focus on expanded pet healthcare services, including increases in the utilization of diagnostics supported a 15% same-store increase in overall veterinary clinic revenues in Q1 and a 21% same-store increase in diagnostic revenues for practice, well ahead of 5% growth in overall visits to veterinary clinics in the quarter. Positive market dynamics benefits from IDEXX commercial initiatives and technology to support higher standards of care and continued very high customer retention rates drove strong Q1 organic revenue gains across our major testing modalities globally. IDEXX global reference lab revenues increased 22% organically in Q1, reflecting a 20% plus organic gains in U.S. and international markets. Our international reference lab gains benefited from strong growth in Europe, supported by our new German core lab capability, our expanded commercial presence, and growth in IDEXX 360 program agreements. Global reference lab gains continued to be driven by high same-store volume growth with strong gains across testing categories. IDEXX VetLab consumable revenues increased 26% on an organic basis in the first quarter, reflecting continued 20% plus growth in the U.S. and 30% plus organic gains in international markets. Gains continue to be supported by increases in testing utilization across regions, high customer retention levels, and expansion of our global premium instrument install base. CAG instrument placements increased significantly in Q1 compared to constrained prior levels as clinics look ahead to supporting high growth in demand for diagnostics globally. Total premium placements increased 32%, reflecting a 26% gains in North America, and 36% growth in international markets. The quality of CAG instrument placements was excellent, reflected in 302 catalyst placements at new and competitive accounts in North America, up 27%, and 805 new and competitive placements in international markets, a year-on-year increase of 15%. We also benefited from 464 second Catalyst placements driven by continued strong demand from high volume customers. These new placements and high customer retention levels supported a 13% year-on-year growth in our global Catalyst installed base. We achieved 956 premium hematology placements, including our initial shipments of ProCyte One supporting a 10% growth in our global premium hematology base compared to Q1 of 2020. We also placed 577 SediVue's including strong placement levels in international markets leveraging IDEXX 360 agreements, which supported a 21% year-on-year global increase in our premium earned in settlement installed base. We're very encouraged by the momentum we drive in expanding our in-clinic installed base as we prepare for continued improvement and sales access to veterinary clinics globally, and advance the global launch of ProCyte One. Rapid assay revenues also expanded with a strong 20% organic growth rate in Q1, reflecting mid-teen gains in the U.S., supported by high demand for wellness testing, and accelerated growth in international markets. Of note, retention rates for U.S. rapid assay customers reached 97% in Q1, the highest level seen since the initiation of our U.S. go direct effort since 2014. Overall, high CAG Diagnostic recurring revenue growth remains primarily volume driven across our modalities, with consistent overall net price gains of 2% to 3%. In other areas of our CAD business, our veterinary software and diagnostic imaging revenues increased 9% organically overall. Double-digit gains in recurring software and digital imaging service revenues and solid growth and new software system placements were moderated by lower diagnostic imaging instrument revenue levels, impacted by a year-on-year reduction in early regeneration instrument platform sales. Turning to our other business segments, water business revenues declined 3% organically in Q1, compared to strong prior year results, which included an estimated $2 million or 8% growth benefit from accelerated stocking orders. Adjusting for these impacts, water revenues increased solidly year-on-year as we continue to see relative improvement in non-compliance-related testing volumes that have been constrained during the pandemic. Livestock poultry and dairy revenue increased 9% organically in Q1, driven by growth in our Asia Pacific region. Q1 results saw approximately $2 million of favorability from shipment timing, which largely offset favorable shipment timing impacts of Q1 of 2020. LPD results benefited from strong demand for diagnostic testing programs for African swine fever and growth in core swine testing volumes in China, supported by large producer efforts to rebuild swine herds. These gains more than offset lower herd health screening levels, compared to strong prior year results. We expect to see some pressure in our LPD revenue growth rate moving forward, particularly in the second half of this year as we begin to lap the benefits from high prior demand for African swine fever testing programs and see increased levels of local competition in China. Turning to the P&L, we had strong profit flow through in Q1 as we benefited from high CAG Diagnostic recurring revenue gains and comparisons to relatively higher pre-COVID operating expense levels in the first quarter of 2020. Overall operating margins expanded 830 basis points year-on-year on a comparable basis, driving an increase in operating profits of 72% as reported and 65% on a comparable basis. Gross profit increased 31% in Q1. Gross margins increased 320 basis points on a comparable basis, reflecting productivity improvement in our lab operations, supported by higher organic revenue growth, favorable impacts from strong consumable sales, and benefits from moderate net price gains. We’re planning for gross margin gains to moderate over the balance of this year as we tightly control prior spending levels at increased reference lab staffing to support high revenue growth and service levels. Operating expenses in Q1 increased 4% as reported, and 3% on a comparable basis. As noted, operating expense growth was moderated by comparisons to higher prior year pre-COVID spending levels, including much higher prior year first quarter travel, trade show, and sales meeting costs. Our 2020 financial outlook includes expectations for an increased rate of OpEx growth moving forward, as we lap comparisons to control prior year OpEx levels, and invest to support our strong global growth momentum through enhancements to our commercial and innovation capability. We're also planning for year-on-year increases in costs in key areas such as employee health care claims and travel costs as we work through the year in pandemic-related restrictions are raised. Q1 EPS was $2.35 per share, including benefits of $15 million or $0.17 per share related to share-based compensation activity. On a comparable basis, Q1 EPS increased 73%. Foreign exchange added $10 million to operating profits and $0.09 to EPS in Q1, net of approximately $2 million in hedge losses. Free cash flow was $104 million in Q1. On a trailing 12-month basis, our net income to free cash flow conversion rate was 99%, including benefits from delayed capital spending, an extension of tax payments. For the full year, we're maintaining a consistent outlook for free cash flow conversion of 80% to 90% of net income. Our balance sheet remains in a very strong position. We ended the quarter with leverage ratios of 1.0 times gross and 0.6 times net of cash, $350 million in cash and no borrowings and a $1 billion revolving credit facility. We re-initiated share repurchases in Q1 allocating $154 million of capital to repurchase 305,000 shares. Turning to our 2021 full-year outlook, we're increasing our projected ranges for overall revenue growth to 14.5% to 16.5%, as reported. This reflects a 150 basis point increase in our projected organic revenue growth range offset by approximately $5 million in refinements to our FX assumptions, which now point to a positive 1.5% full-year growth benefit this year, at the rate shared in our press release. Our updated organic overall revenue growth outlook of 13% to 15% reflects an estimated organic growth range of 14.5% to 16% for CAG Diagnostic recurring revenue. As noted, we've raised the CAG DX recurring revenue growth outlook by 2% at midpoint to reflect our strong Q1 results, trends that point towards a sustained high rate of U.S. clinic visit growth, and confidence in our global CAG commercial execution, which is driving strong momentum in our international regions. As a benchmark, our updated recurring revenue growth outlook aligns with the higher end of our earlier projections for 2% to 5% same store U.S. clinical visit growth for the full-year 2021 and an expected premium of IDEXX U.S. CAG Diagnostic recurring revenue growth to clinic visit growth of approximately 900 basis points to 1,000 basis points. The increase in our CAG Diagnostic recurring revenue growth outlook, which results in over $50 million of operational revenue upside is being moderated by relatively more conservative full-year projections for IDEXX human COVID testing. We estimate that we'll see approximately $10 million in lower human COVID revenues year-on-year in the second half of 2021 as we lap the benefits of our prior year initiatives and plan for moderation in testing levels. We've also moderated our outlook for LPD growth to reflect increased local competition in China, including our African swine fever testing business. Combined, these effects resulted in a 0.5% headwind compared to earlier overall 2021 organic growth outlook. Given the lapping of prior year COVID impacts, there will likely be significant variability in year-on-year revenue growth rates by quarter, with continued expectations for higher revenue growth in the first half of 2021. In terms of key financial metrics, as noted, we're now targeting 150 basis points to 200 basis points of annual comparable operating margin improvement in 2021, up 100 basis points from our initial outlook. This is reflected in a reported operating margin outlook for 2021 of 28.3% to 28.8%. Our EPS outlook incorporates updated projections for foreign exchange, which we now estimate will provide $0.15 of positive EPS benefit in 2021, net of established hedged positions. Our full-year outlook also includes an updated estimate of $0.19 per share of tax benefit related to share-based compensation activity, $0.09 per share higher than our initial projections. We provided details in our updated estimates in the tables in our press release and earnings snapshot. That concludes our financial review. I'll now turn the call over to Jay for his comments.

Thanks, Brian and good morning. IDEXX had an excellent start to 2021, driven by continued strong market trends in our core CAG business and strong execution. This resulted in 21% quarterly organic revenue growth in the first quarter and high profit flow through supported by 23% organic growth for CAG Diagnostics recurring revenues. There were strong gains across all our market segments. Our business performance reinforces the tremendous long-term opportunity we seek to develop the global market for companion animal healthcare, and gives us confidence to raise our 2021 outlook, just a little over 14.5% to 16% organic growth for CAG Diagnostics recurring revenues, and 21% to 26% gains in comparable EPS growth. Today, I'll provide an update on the trends we're seeing in our companion animal markets and our approach to drive accelerated market growth, leveraging IDEXX innovation to raise the standard of patient care. I’ll also provide an update on our product and commercial initiatives that will enable us to capitalize on our market tailwinds and position the company to deliver continued strong financial returns. Let's begin with an update on market trends. Companion animal healthcare continues to see strong global market momentum. This is reflected, for example, in U.S. market data showing higher growth in clinical visits, and continued high growth in services supported by expanded utilization of diagnostics. As Brian highlighted, we saw continued high U.S. clinic visit growth, up 12% in the quarter with non-wellness visits up 9% and wellness visits up 16%, with strong growth seen across practices of all sizes. New patients continue to be a significant contributor to clinical visit gains. We estimate that new clinical patients added approximately 3% to overall clinical growth versus Q1 2020, up from 1% to 2% in the second half of 2020. And we continue to see record levels in progesterone testing, evidence of a continued step up in breeder activity. The growth in puppies and kittens and continued evidence of the deepening of the pet owner bond, augmented by the growth in new pet parents can provide long-term tailwinds for our business. As a benchmark, we estimate that the average annual diagnostic revenue per senior or geriatric pet is double the amount we see per pet for puppies and kittens. If we do our job well with programs like preventive care, we can help to drive twice the level of annual visits in young well pets and continue to expand diagnostics usage through life stages, thereby helping to advance standards of care. In looking at our U.S. market data, we've seen an acceleration in the utilization of diagnostics. In our earnings snapshot, we shared annual data for the percentage of 2020 clinical visits, including Bloodwork. The percentage of clinical visits with Bloodwork increased approximately 1% to 18% in 2020, double the historical rate of annual increase. Interestingly, the highest increases were in customers doing more testing. With gains across wellness and non-wellness Bloodwork utilization, reinforcing the point that even the highest users of diagnostics have significant potential for further growth. Increased focus on services and adoption of higher standards of care in areas like diagnostics are driving very strong overall growth in veterinary clinics. In the first quarter, same store total practice revenues increased 15% versus the same quarter last year, reflecting a 19% growth in clinical revenue per practice, and 21% growth in diagnostics revenues. Clearly, our customers are extremely busy. It's not surprising that they are looking for help from partners like IDEXX to support their high levels of business growth through our customer-centric solutions offering. We're particularly pleased with our commercial execution to support these customer needs evidenced by a 32% year-over-year growth in premium instrument placements globally, including strong growth and placement in new and competitive accounts. A key area of focus has been leveraging our integrated direct go-to-market model to accelerate international growth. We achieved 28% CAG Diagnostics recurrent organic revenue growth internationally in Q1 with strong gains across all our major regions, while driving a 36% year-over-year increase in premium instrument placements outside of North America, despite continued restrictions and sales access to clinics. IDEXX 360 continues to gain traction internationally, resulting in higher growth with customers leveraging IDEXX technology across modalities. IDEXX 360 is helping to accelerate growth in our international reference labs and key markets like Europe, supported by our state of the art, new core lab in Kornwestheim, Germany, and our expanded commercial presence. The International commercial expansion efforts we've highlighted continued to progress the plan with a goal of completing onboarding of new sales teams in key markets in the first half of 2021. The outstanding growth momentum and long-term potential for IDEXX and international markets reinforces the high return from investments in our global commercial capability. Advancing international commercial expansions will continue to be a key strategy. Innovation is another key pillar in our growth strategy. In late March, we reached an exciting milestone when we began shipments of our next generation hematology analyzer ProCyte One. I’m very proud of the extended team, including our Westbrook, Maine based instrument manufacturing personnel for delivering this world-class analyzer on schedule during a pandemic, to the delight of our customers. Our first sales and installations were to U.S. clinics that participated in our customer experience trials, which is a testament to their highly positive experience with the analyzer. ProCyte One’s exceptional simplicity and accuracy give our customers confidence in running the analyzer and in the patient results. This is helping to gain efficiencies in practices in this truly best-in-class experience. ProCyte One also represents the next step for IDEXX in providing leading edge technology integrated with information management, which enables clinical decision support and supports a wide range of veterinarian partners in providing the highest levels of care. We expect ProCyte One to drive CAG growth as chemistry and hematology testing go hand-in-hand and as part of the IDEXX 360 program to help drive reference lab usage. This quarter, our commercial focus for ProCyte One is on shipment to the clinics that took advantage of our pre-sales program, while concurrently manufacturing and building volume to support our sales representatives through 2021, including the international rollout expected to begin in late Q2, early Q3. The SNAP Pro instrument is another investment in innovation that supports our customers at the point of care by providing workflow benefits, accurate reading of diagnostic results on the SNAP Platform, and smart service connectivity. Our veterinary partners are busier than ever, so providing ease of information management within the practice is a key benefit to help them save precious time, while maintaining accurate records. SNAP Pro provides a tool to address these needs and does help drive recent growth internationally for our rapid assay business. We see high engagement from international customers who are actively using SNAP Pro and are connected to smart service with growth and retention rates consistent with trends across U.S. customers. We're also making excellent progress in expanding our installed base in key geographic markets like Europe, which help to drive 20% organic growth in global rapid assay revenues in the first quarter. Our innovation agenda is also driving favorable business performance for our software portfolio, which had another excellent quarter. Record-breaking worldwide PIMS placements in the quarter grew 43% versus Q1 of last year. With two third increase in PIMS placements driven by cloud-based technology. IDEXX Web PACS saw double-digit growth in subscribers, including improvements in customer retention levels over 96%. We received consistent praise from subscribers about usability, value, and support to the Web PACS system. Important feedback as we look to expand this product into new markets. These integrated offerings together create a diversified technology stack that provides multiple customer benefits to help manage the growing productivity demands of veterinary clinics in a high growth market. Through our PIMS tools and tools like SmartFlow, our focus is on improving clinic workflow by seamlessly connecting data between devices to streamline every step from patient admission to discharge. By bringing AI capability to tools like Web PACS, our platforms enable faster procedures, while leveraging data to deliver insights and reduce efforts by clinic staff. Extending to the client, our communication applications are more compelling than ever with clinics managing a significant portion of visits curbside. Connected software is critical for clinics in creating capacity to meet the increasing demands for veterinary services. IDEXX is uniquely positioned to serve customer needs in this area, enhancing our value proposition and differentiation. In terms of our key initiatives, we continue to promote the advancement of preventive care in annual wellness testing to the IDEXX preventive care program. In addition to increasing the standard of patient care, preventive care programs can help veterinarians improve practice capacity, to more predictable scheduling, and level loading of practice staff. In the first quarter, the commercial team executed over 200 new enrollments, bringing total enrollments to over 5,000, which is an exciting milestone, as we are more than halfway to our goal of 10,000 enrolled customers in the U.S. by 2024. As our customers enter the wellness testing season, and wellness visits accelerated in the market, we are focused on continuing to capture the underdeveloped market opportunity in vector-borne disease testing. There are significant long-term opportunities to expand vector-borne disease testing in particular, given the current prevalence of heartworm only testing in the U.S. Shifting its balance to a full vector-borne disease screening using 40x plus not only enhances the standard of care, it represents a material opportunity for clinics to drive additional revenue. This focus in strong underlying market trends helps to deliver double-digit revenue growth across all regions, led by increases in utilization of 40x plus and feline retrovirus tests. As we look ahead, we're very excited about the opportunity to leverage our commercial capability, innovation in partnerships with our customers to build on our strong growth trends. A key area of focus for us is to continue to invest in the infrastructure necessary to meet high levels of growth, while maintaining top-notch service levels in prioritizing support for our workforce. Our employees and customers have shown high levels of adaptability and resiliency during continued COVID-related restrictions. And we look forward to a post-COVID-19 environment. We anticipate more flexibility in the future, and leveraging new ways of working together with our colleagues and customers. I'd like to add that I'm extremely proud of the way that the IDEXX team is executing. We're on track for strong 2021. That concludes my opening remarks. And we now have time for some questions.

Thank you. Our first question is from Michael Ryskin from Bank of America.

Hey, thanks for taking the question, and congrats on the strong quarter. To start, I want to ask about the OpEx side of things. Obviously, a great quarter here. And on the margin side and coming out of the gate, but Brian and Jay, you both had comments in your prepared remarks sort of on how to manage spend going forward, both from the fact that you're going to be lapping some easier comps, but also that you want to invest in the growth in the business. I think you mentioned, you know, adding on some staffing on the reference lab side. Could you expand on that a little bit? And is there anything on the CAG feel based personnel? Just sort of how should we think about reinvesting some of the gains in the business to support the growth for the rest of the year?

Mike, why don't I start by framing the comparisons that we're trying to highlight as we move forward, because that's a key dynamic? We're just trying to reinforce. Clearly, we had very strong profit results in Q1. We are going to start entering a period here where we're going to be comparing ourselves to the controlled spending levels that we implemented last year. So, if you recall, we had $25 million of OpEx savings that we highlighted in the second quarter, another $5 million of savings from lower healthcare costs. We really, in the early stages of the pandemic tried to be very mindful of how we're controlling labor costs in areas like the labs, and so we're just trying to highlight as we move forward. We're going to see some of those comparison effects moderate the margin gains, the gross margin gains, and we'll see relatively higher OpEx growth. Again, as a benchmark just in Q1, we had over $7 million of cost reduction year-on-year from things like lower sales meeting costs, which is about 7% of OpEx growth. So, moving forward, we won't have those kinds of favorability. So, we're just trying to highlight that. And we're also trying to highlight that we're advancing investment in the business. So, maybe Jay can talk a bit about that.

Yeah, sure. So, just a couple of things to build on Brian's comments. Obviously, we're in a high growth environment, there's excellent opportunity to continue to support that growth. We do that, obviously, in areas like reference labs and production, and field support. And the other area of opportunity for us is just our international markets. We've identified this as being very attractive, and we continue to advance our expansions where it makes sense. We know that there's pretty good short-term return on those expansions. We have, I think, really optimized our ability to identify all the right pieces you need to have in place, including additional field personnel, reference labs, information technology investments, those type of things. So, we're very optimistic about the opportunity, short-term and long-term in our markets, both U.S. and international and will continue to advance as we see opportunities before us.

Great, thanks. And then if I could throw on a follow-up, sort of on some of the underlying figures you provide for market conditions, as always, the snapshot is very helpful in terms of visit growth and revenue growth for practices. I'm just curious, you know, looking at it on one more granularity, it seems like you're actually seeing continued acceleration from Q4, both on a raw number basis and even if you adjust for some of the comp. I think, I guess I would say that we were expecting a little bit more moderation and maybe a gradual phase as you go through the year. But it seems like there's no indication of that. Is that a fair analysis of the data? Have you seen anything that would indicate that things are moderating a little bit as some of these markets sort of come out from COVID, and we're seeing some reopening of the economy? Just wondered if you could talk about the underlying trends there?

I would say, overall, Mike, the theme would be more consistency than change. What we saw in 2020 was an improvement. If you break down the drivers of things like CAG Diagnostic revenue growth in the clinic, we saw higher levels of contribution from frequency and utilization, and those have sustained. If there was one thing that improved a bit in Q1, which we highlighted in the comments was the new patient contribution to clinical visit growth was up about 100 basis points. So, I think some of the building effect of the new puppies and kittens helped, but adjusting for that, the two-year growth rates were largely consistent with Q4. It was more consistency than change. We're entering a period now where we'll have the COVID compares because the growth rate numbers are a little tougher to follow. So, we're trying to highlight some of the two-year trends. And, you know, I think we're encouraged that the two-year trends are holding up well, and you know, that's factored into our outlook for the balance of the year.

I would just add to that Mike. The trends we described, the broader level trends we've described have largely been intact. So, these are obviously new critical business growth driven by new patients. The majority of which are puppies and kittens, higher usage and intensity of diagnostics and more of a pivot to services by the veterinarians. For those that we have seen over the last, you know, second half of 2020, we continue to see in Q1.

One thing I’d highlight in addition to the market trends is, in terms of IDEXX’s execution, our international teams are really doing an excellent job. We had excellent instrument placements, you know, growth in 360. I think the global commercial model that we've been looking to leverage and build upon is really, really in a good place. And we're very pleased with the international momentum. So, we wanted to highlight that.

Our next question is from Erin Wright from Credit Suisse.

Great. Thanks. So, you gave some incremental charts in the snapshot this time where the percentage of clinical visits, including the Bloodwork increased by 1%. So that seems like an acceleration from the prior trends even seen on an annual basis, but was this driven mostly by the greater proportion of acute visits during the pandemic? And how should we be thinking about that acceleration continuing with potentially greater adoption of preventative care measures, as well as other initiatives in a post-pandemic world?

I'll make a couple comments about that, Erin. So the use of Bloodwork has – the growth rate has approximately doubled as we talked about a percent in 2020 and versus about 0.5% the previous year. And so there's a number of things that are driving that. We've seen greater proportion of the higher users of diagnostics continue to increase. And we see that very optimistically, as evidence that even those who were at the higher range from a metrics standpoint of diagnostic users feel like there's a lot more capacity. We also see – as part of clinical visits, greater use of diagnostics, and then when they use them, greater intensity has also gone up. So, all those factors are playing into it. And we think that they'll sustain throughout three plus quarters.

Okay, great and then on ProCyte One, can you provide an update on traction there? Do you anticipate that accelerating throughout the year and how is that tracking relative to your internal expectations at this point?

Yeah, we're very excited and optimistic about ProCyte One. It's been a very successful roll-out. There are things – there's a time and distance dimension to these, you know, as we roll out a new analyzer in terms of building volume in production and creating awareness in the marketplace. You know, the exciting thing about ProCyte One is the opportunity itself is very significant. We think that there are 100,000 plus opportunities for placements in the hematology market, but there's also a nice multiplier impact where if there's hematology, there's chemistry. So, we tend to place those together. There's, as part of IDEXX 360 there's pull-through in terms of, you know, the reference labs and rapid assays, not just in the U.S. now, but internationally. And so, we're excited by the opportunity. I think our experience, our customer experience trials have given us a lot of confidence that the analyzer has hit the mark, both in terms of usability and performance, and we expect our ramp to grow throughout the year. And especially, so internationally as we release late Q2, early Q3 pending on things like regulatory approvals.

Great, thank you.

Our next question is from Jon Block from Stifel.

Thanks, good morning. Maybe two questions from me. Brian, the first one's a little long both for you. I think a level of year-over-year gross margin expansion, I think you said you expect the year-over-year level to moderate, but just to be clear, does it stay in this low 60% range? And then on the balance sheet, the leverage, I think you call that 0.6 net. That might be the lowest level I can remember since you came in the CFO and started to flex it a bit. You've got a couple of big CapEx build-outs. It's now behind you in Germany, and Westbrook. So, just maybe you can comment on how we think about cap deployment going forward? And then I just got a quick follow-up.

Yeah. On your first question on gross margin, we are seeing a really nice flow-through and obviously the high CAG DX recurring mix and just the strong growth were helping, we do anticipate, Jon, we're going to be adding back some costs here to keep up with the growth, particularly in things like lab staffing. And then we'll have, you know, some compares just to the, as I mentioned on a year-on-year basis, but we're still anticipating a high level of gross margin flow-through and that's factored into our outlook. And on leverage, you're correct, we've, you know, we're quite disciplined last year in terms of pausing share repurchases and really controlling our capital spending. Our capital spending on an annual basis was below, kind of the normal levels that we typically have. And we deferred some projects. And we're – you will see a step up in that as we move forward, not a change fundamentally in our long-term view, but just catching up on some of the deferred capital spending. And right now, we're just signaling maintaining the kind of net leverage ratios that you see. We did initiate buybacks in Q1, and feel good about sustaining those. So – but not trying to signal any change to the leverage profile at this point.

Okay. Got it. Very helpful then. Huge quarter, but we got to try to anticipate some of the potential push back. And the only thing that I can try to identify is, you mentioned the 900 basis point U.S. CAG recurring premium to clinical visit growth, you know, that's down from the 1,600 and 1,200 premium in 3Q and 4Q 2020, respectively. I think you said they adjusted it was closer to 1,000 or 1,100 basis points, but any thoughts on why that slight moderation? You know, Jay, maybe in light of the Vets, as you mentioned, still focusing a lot more on services at their practices? And how do we think about the premium going forward, is it still in that 1,000 basis point range? Thanks, guys.

Yeah, you know, Jon, there's always a little bit of variability from quarter-to-quarter. We think that 900 plus, you know premium is, it's what we've seen over the last quarters in 2020 and we think that that is sustainable. I think it's a reflection of a couple of different things. Obviously, the pivot to services, which if anything has accelerated as part of the COVID response in clinics, but it's also in response to our strategy as a company around innovation, the commercial partnership with our customers in bringing testing relevant testing practices. And so, we think that that's a successful formula. And it's supportive of what veterinarians and pet owners want to see in terms of better patient care, better – higher standards of care for patients. And that will continue to be a focus for us from a commercial and innovation strategy standpoint.

And Jon, one thing I'd highlight too, I know you're looking quarter-by-quarter, but Q3, I think you need to factor in there. There was some pent-up demand likely effects and so I think the overall trend is very healthy. It’s at the higher-end of our outlook. It's above where it was pre-COVID. We feel very good about the growth and services trend as being sustainable to something that's going to enhance our growth profile.

Our next question is from Nathan Rich from Goldman Sachs.

Hi, good morning. Thanks for the questions. I actually wanted to start with the follow-up to John's question on the CAG DX guidance. Brian, I think you said it was up 2% relative to the prior outlook. I would just be curious to get some more details on the underlying assumptions around visit growth and increases in diagnostic utilization. I think you had talked about, kind of 2% to 5% visit growth for the year previously, and then that 9% to 10% premium that was just referenced. So, I’d just be curious if you have any, kind of updated assumptions as we think about the balance of the year on those metrics?

Certainly. We began with the global numbers and have set our updated range, which is now at the higher end of the CAG DX recurring range, based on similar growth trends over the past two years as observed in Q4 and Q1. This aligns well with our expectations. The main factor for this update stems from increased confidence in the sustainability of the trends we've seen, along with positive dynamics in critical visit growth. While we are maintaining a range due to the potential for moderation and the challenges of upcoming comparisons, we remain optimistic about the trends, which have shown slight improvement in Q1. We highlight that U.S. clinical visit growth falls within the 2% to 5% range for the year, while the premium is estimated to be around 900 to 1000 basis points. Our updated outlook indicates that clinical visit growth is trending toward the higher end, consistent with our Q1 performance. Overall, we are pleased with the sustained market trends we are witnessing globally, as well as our execution efforts, especially with tools like ProCyte One aiding in that momentum.

Great, that's helpful. If I could just ask a quick follow up on ProCyte One, you know, can you talk about, I guess, maybe Jay, you know, the placements that you've seen so far or maybe the orders that you're getting, you know, how many of those are in new or competitive accounts versus with existing customers? And can you maybe just talk about the opportunity to use ProCyte One as maybe a lever to get into practices that IDEXX is in currently?

It’s early in the rollout, but we are very pleased with its success. The customer experience trials have gone well, which is not an easy feat in the midst of a pandemic. This complex instrument features a world-class user interface and delivers high accuracy. We see the hematology opportunity as significant for our company. Many of our international markets prioritize hematology, often choosing it over chemistry, even when both are available. The opportunity for placements is almost 100,000, with more than two-thirds of those being international. Importantly, this represents a crucial component of our overall in-clinic solution, as we increasingly sell chemistry and hematology together, along with SediVue. This type of solution offers an appealing performance and cost profile. The market is attractive for us. Additionally, the IDEXX 360 program is gaining great traction internationally, and as part of that, we are seeing benefits from capital placements and increased revenues from reference labs and rapid assays. We are excited about the diagnostics opportunity that ProCyte One presents, expecting it to have a long-lasting impact in terms of duration and overall volume. More updates will follow in due course.

And our last question is from Balaji Prasad from Barclays.

Thank you. Sorry, juggling different calls. Thanks for the question. So, just two-fold questions for me. One, pretty broad level one, trying to understand a defective growth, was there any element of growth coming through market share gains in this quarter or was it all what we could perceive broader industry growth, led by visits and increasing utilization? And secondly, our Vet survey indicated a 200 basis points jump in year-over-year revenue contributions for clinics, from diagnostics, does that sound too as right and are aligned with your internal tracking? Thank you.

So, you know, our markets are very competitive, they have always been very competitive. You know, we’re pleased with what we've been able to advance in our commercial agenda. You know, we’ve shared some data of new and competitive placements with catalysts, both in North America, as well as international. So, you can, make your own assumptions in terms of what that means. Our focus is just continuing to support and serve our customers with IDEXX Solutions. We do that both on an instrument side, obviously, the broader diagnostic solutions and software. And what we find is, when customers use all of our solutions, they grow faster, they tend to stay with us longer, and they find it supports their practice needs. In terms of the survey you're mentioning, I'm not familiar with that. So, I'm just going to withhold comment not knowing the underlying methodology.

Fair enough. Thank you. Maybe a specific comment, if you could throw some lights on what you're seeing since the launch of VETSCAN Imagyst in Q4, and if it is disrupting the market, and what you’re seeing on the clinic side, in terms of comments?

Yeah, you know, the thing to keep in mind, I think you’re asking a question more generally about the fecal detection. And, you know, our belief is that the fecal antigen test that we offer at the reference lab is best-in-class. It detects up to two times as much as traditional methods like O&P, you know, there just a number of challenges in doing fecal within the clinic. You know, first and foremost is the sample prep, you know, piece, and that's very time consuming and continues to be, you know, messy, and then you can develop an algorithm that detects eggs, as you know, as part of the parasites or worms. But, you know, at the end of the day, they have to be available that you have to be able to visually see them. The benefit in being able to detect through antigen testing is, you are able to see them in a prepaying period, which is between four and six weeks earlier than physically when the eggs are available. So, you get better detection rates. So, we like our solutions, and our customers appreciate the fecal antigen at the reference labs, and that's where we continue to support them.

Thank you. I’ll now turn it back over to Jay for final remarks.

Thank you, I want to thank everybody for calling in. I want to express my gratitude to the IDEXX team for their ongoing, extraordinary performance during these challenging times. We have an amazing purpose and opportunity as a company, and I couldn't be more appreciative of the IDEXX team and how they live our mission every day. And so with that, we'll conclude the call, and thank you.

Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating, and you may now disconnect.