Good morning, and welcome to the IDEXX Laboratories First Quarter 2024 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jay Mazelsky, President and Chief Executive Officer; Brian McKeon, Chief Financial Officer; and John Ravis, Vice President, Investor Relations. IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that our discussion during the call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Additional information regarding these risks and uncertainties is available under the forward-looking statements notice in our press release issued this morning, as well as in our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website, idexx.com. During this call, we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release, which may also be found by visiting the Investor Relations section of our website. In reviewing our first quarter 2024 results and updated 2024 guidance, please note all references to growth, organic growth, and comparable growth refer to growth compared to the equivalent prior year period unless otherwise noted. To allow 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; please feel free to get back into the queue, and if time permits, we'll take your additional questions. Today's prepared remarks will be posted to idexx.com Investors after the earnings conference call concludes. I would like to turn the call over to Brian McKeon.

Good morning, and welcome to our first quarter earnings call. Today, I'll take you through our Q1 results and review our updated financial outlook for 2024. In terms of highlights, IDEXX achieved solid organic revenue growth and strong profit gains in the first quarter. Overall revenues increased 7% organically, supported by 7% organic growth in CAG Diagnostic recurring revenues. Solid revenue gains were net of negative growth effects from severe U.S. weather in January, which we estimated lowered overall IDEXX organic revenue growth by 0.5% to 1% and added pressure to U.S. same-store clinical visit growth levels. IDEXX execution trends remained strong, reflected in a continued high IDEXX CAG Diagnostic recurring revenue growth premium, 8% global gains in premium instrument placements, and 11% organic gains in recurring veterinary software and diagnostic imaging revenues. Profit delivery was excellent in the quarter, supported by gross margin gains. Strong operating margin performance enabled EPS delivery of $2.81 per share. EPS was up 10% as reported and 9% on a comparable basis, net of a 7% negative EPS growth impact for the lapping of a prior year customer contract resolution payment. Overall, we're pleased with our continued progress in expanding our business and delivering strong financial performance as we continue to work through sector and macro factors that have constrained visit growth at veterinary clinics. We've updated our 2024 financial outlook to incorporate recent sector trends, which we estimate will constrain the high end of our full year organic growth outlook this year. We've also incorporated updated estimates for foreign exchange effects to reflect the recent strengthening of the U.S. dollar. Building on our strong first quarter performance, we're reinforcing our operational EPS outlook at midpoint. This reflects consistent goals for solid comparable operating margin improvement this year and favorable adjustments to estimates for net interest expense benefiting from our strong cash flow generation. We'll review our updated guidance detail later in my comments. Let's begin with a review of our first quarter results. First quarter organic revenue growth of 7% was driven by 7% organic CAG gains and 11% organic growth in our Water business, with overall gains moderated by a 3% organic growth decline in LPD. CAG organic revenue growth was supported by 8% organic growth in veterinary software and diagnostic imaging revenues driven by 11% organic gains in recurring revenues. CAG instrument revenue increased 3% organically, building on high prior year placement levels. CAG Diagnostic recurring revenue increased 7% organically in Q1, supported by average global net price improvement of 5% to 6%, with U.S. net price realization at the lower end of this range. CAG Diagnostic recurring revenue growth in Q1 reflected solid gains across our major regions. International CAG Diagnostic recurring revenue organic growth was 9% reflecting benefits from net price realization and solid volume gains, building on 2023 second half momentum. International results continue to be driven by IDEXX execution reflected in strong business gains and high premium instrument placements, which supported a double-digit year-on-year expansion of our global premium instrument installed base. U.S. CAG Diagnostic recurring revenue organic growth was 6.5% in Q1, which reflects a continued significant growth premium compared to same-store U.S. clinical visit growth levels, which declined an estimated 2.3% overall in the quarter, including negative impacts from severe January weather. IDEXX's solid growth results reflect sustained levels of diagnostic frequency and increased diagnostic utilization per clinical visit at the practice level. It also reflects benefits from IDEXX execution drivers, including solid new business gains, sustained high customer retention levels, and net price realization. Excluding estimated weather impacts, U.S. clinical visit growth levels in the first quarter were relatively softer than targeted in our midpoint outlook. These trends reflect ongoing staffing challenges at veterinary clinics and potentially pressure on U.S. consumers from broader cumulative macro impacts. While pet owner demand for healthcare services remains durable and resilient, and we're confident in IDEXX's ability to execute and drive continued solid organic revenue growth, we believe it's prudent to factor these near-term sector trends into our outlook. This is reflected in adjustments to the high end of our 2024 full-year organic revenue growth guidance. IDEXX achieved solid organic revenue growth across our modalities in Q1. IDEXX VetLab consumable revenues increased 9% organically, reflecting high single-digit gains in the U.S. and double-digit organic growth in international regions. Consumable gains were supported by 11% year-on-year growth in our global premium instrument installed base, reflecting gains across our Catalyst, Premium Hematology, and SediVue platforms. We placed 4,791 CAG premium instrument placements in Q1, an increase of 8% year-on-year compared to high prior year levels. This was supported by strong growth in ProCyte One placements with the global ProCyte One installed base increasing to over 15,000 instruments. Global Catalyst placements decreased year-on-year in the quarter, reflecting comparisons to high prior year placement levels and shifts in placement mix in the international regions. Global Rapid Assay revenues expanded 5% organically in Q1 driven by high single-digit gains in the U.S., including benefits from higher net price realization. Global Lab revenues increased 6% organically, reflecting similar solid gains in the U.S. and international regions. Veterinary Software and Diagnostic Imaging revenues increased 12% as reported, including benefits from our recent software and data platform acquisition, which adds to our software ecosystem. 8% overall organic gains were driven by 11% organic growth in recurring revenues, reflecting benefits from ongoing momentum in cloud-based software placements. Water revenues increased 11% organically in Q1, driven by double-digit gains in the U.S. and Europe, including benefits from higher shipment order timing. Livestock, Poultry, and Dairy revenues decreased 3% organically. Solid gains in the U.S. and Europe were moderated by lower Asia Pacific revenues, including impacts from lower herd health screening revenues related to reduced China import testing in comparison to higher prior year swine testing levels in China. We expect these negative growth impacts to moderate in the second half of 2024. Turning to the P&L. Q1 profit results were supported by solid gross margin gains. Gross profit increased by 9% in the quarter as reported and on a comparable basis. Gross margins were 61.5%, up 110 basis points on a comparable basis. Gross margin gains reflected benefits from business mix, lower instrument costs, and software service margin expansion. On a reported basis, operating expenses increased 12% year-on-year including approximately 6.5% of overall growth impact related to the lapping of a prior $16 million customer contract resolution payment. Q1 OpEx growth was driven by increases in R&D spending aligned with advancing our innovation agenda, including new platform development. EPS was $2.81 per share in Q1, an increase of 10% as reported and 9% on a comparable basis, net of a 7% negative EPS growth rate impact related to the lapping of the prior year customer contract resolution payment. Foreign exchange had a limited impact on gross margin, operating profits, and EPS in the quarter, net of a $1 million hedge gain. Free cash flow was $168 million in Q1, reflecting normal seasonality. On a trailing 12-month basis, our net income to free cash flow conversion ratio was 92%. For the full year, we're maintaining our outlook for free cash flow conversion of 90% to 95%, reflecting estimated capital spending of approximately $180 million. Our balance sheet remains in a strong position. We ended the quarter with leverage ratios of 0.7x gross and 0.4x net of cash as we continue to manage our balance sheet conservatively in the current interest rate environment. We allocated $155 million in capital to share repurchases in the first quarter. Diluted shares outstanding were relatively flat compared to prior year levels. Turning to 2024 guidance. We've updated our full-year P&L outlook to reflect adjustments to the high end of our full-year organic growth goals. Our outlook reinforces our full-year goals for solid comparable operating margin improvement and incorporates favorable adjustments to estimates for net interest expense. We've also revised estimates for foreign exchange impacts, reflecting the recent strengthening of the U.S. dollar. In terms of our revenue outlook, we've updated our full-year guidance for reported revenues to $3.895 billion to $3.965 billion, a reduction of $55 million at midpoint. Compared to earlier estimates, our updated reported revenue outlook includes a $35 million or approximately 1% negative growth rate impact related to the recent strengthening of the U.S. dollar. We've also lowered the high end of our full-year organic growth outlook by 1% to capture more recent trends for U.S. clinical visits, which have constrained the organic revenue growth outlook for the first half of 2024. Our updated full-year guidance for overall organic growth is now 7% to 9%, supported by 7.5% to 9.5% gains in CAG Diagnostic recurring revenues. For the full year, our outlook for overall organic growth continues to reflect expectations for solid CAG Diagnostic recurring revenue gains, supported by IDEXX execution. Our midpoint outlook aligns with expectations of approximately 1.5% declines in U.S. clinic visits in Q2, similar to late Q1 trends. The second half of 2024, our midpoint outlook continues to assume a relative flattening of U.S. clinical visit trends. We expect our H2 organic revenue growth results to benefit by approximately 0.5% overall from equivalent days effects, reflecting approximately 1% organic growth rate benefits in Q3 with limited overall effects to full-year growth. Our full-year CAG Diagnostic recurring revenue outlook reflects consistent expectations for global net price improvement of approximately 5%. In terms of our profit guidance, we're maintaining our outlook for reported operating margins of 30.2% to 30.7% for the full year 2024, supported by continued high levels of operating execution. This outlook aligns with 20 to 70 basis points in full-year comparable operating margin expansion, net of a negative 40 basis point impact related to the lapping of the Q1 2023 customer contract resolution payment. Our updated full-year EPS outlook of $10.82 to $11.20 per share is down $0.08 per share at midpoint, driven by our updated foreign exchange estimates. We now estimate foreign exchange will have a negative $0.09 per share full-year EPS impact, $0.11 per share unfavorable to prior estimates. Operationally, reductions to the high end of our organic revenue growth guidance are mitigated by our sustained operating margin improvement outlook by approximately $0.06 per share of net favorability from updated net interest expense projections. In terms of our outlook for Q2, we're planning for reported revenue growth of 5% to 7.5%, net of an estimated 1.5% growth headwind from FX. This outlook aligns with an organic revenue growth range of 6% to 8.5% and incorporates growth benefits from our recent software acquisition. As noted, at midpoint, the Q2 organic revenue growth outlook aligns with the relatively softer U.S. clinical visit growth trends seen at the end of the first quarter. We're planning for reported operating margins of 31.0% to 31.4% in Q2, flat to down moderately on a comparable basis, factoring in projections for relatively higher quarterly R&D spending in support of new platform advancement. That concludes our financial review. I'll now turn the call over to Jay for his comments.

Thank you, Brian, and good morning. IDEXX had a solid start to the year as we continue to advance our strategy to drive the development of the Companion Animal diagnostics sector through innovation and customer engagement. Our ongoing progress benefits from the durable secular growth drivers that have supported the multi-decade expansion of Companion Animal Medical Services. These drivers include growth in the pet population, the strengthened human-pet bond, and the ongoing expansion of pet healthcare services. Medical services is in turn enabled by diagnostics and is a key element of vet clinic growth and profitability. IDEXX's business strategy is focused on enabling long-term sector growth by providing unparalleled diagnostic insight through our leading testing and software solutions. This is supported by a robust innovation agenda and a high-touch customer-centered commercial model that helps clinicians test with confidence in an intuitive and efficient way, supporting their mission of delivering high levels of care. Our strategy is brought to life by teams across IDEXX, who collectively executed at a high level in the quarter, reflected in continued global expansion of our Diagnostics and Software Solutions and solid growth in recurring revenues. CAG Diagnostics recurring revenues once again grew at a healthy premium to the sector, supported by solid contribution from new business gains, sustained high customer retention rates, and net price realization that reflects the increased value that our products and services deliver to our customers. IDEXX commercial teams delivered strong growth in global premium instrument placements, reflecting high interest in adopting IDEXX's point-of-care innovations including expansion of our newest platform solution, ProCyte One. Cloud-based software placements once again expanded in the quarter, reflecting vet clinic interest in cloud-native solutions and the IDEXX full stack software suite that continues to advance in scope and functionality. These gains supported double-digit organic growth in recurring software revenues as veterinarians turn to IDEXX to help them grow their practices and drive productivity. As Brian noted, we continue to work through dynamics in terms of staffing challenges and broader pressure on consumers that have impacted clinic visit growth levels. Our strong business performance demonstrates our ability to work through these near-term challenges while continuing to expand our business globally to deliver strong financial performance and advance key drivers of our long-term growth strategy and potential. Today, I'll provide an overview of IDEXX's progress against our strategic initiatives during the first quarter. Let's start with an update on our commercial efforts, which are key to driving the adoption and utilization of IDEXX's testing and software solutions. IDEXX commercial teams continue to execute at a high level, bringing a customer-first mindset to their work, helping IDEXX's customers to grow faster. Intuitive point-of-care testing platforms are foundational to this approach. Customer adoption of IDEXX solutions remains high globally, reflected in record first quarter global premium instrument placements for the third consecutive year. This performance, combined with the ability to retain our customers at consistently high levels by delivering an excellent user experience resulted in double-digit growth in our global premium instrument installed base, in total and individually for in-clinic chemistry, premium hematology, and urinalysis platforms. This progress is aligned with the approximately 220,000 global placement opportunity we see today for our business. A key area of commercial focus is international regions that are at earlier stages of development than the U.S. and provide a relatively more greenfield growth opportunity. Leveraging the successful commercial playbook we have developed from our decades of experience in the U.S., our international sales teams continue to deliver high international installed base growth. Progress on this front is reflected in strong international premium instrument placement gains supported by continued global expansion of our new platform innovations such as ProCyte One. ProCyte One provides significant benefits compared to our legacy hematology analyzers from a more intuitive workflow with modular reagents to a smaller benchtop footprint and even back-office productivity benefits due to its paper run model, all of which combined to drive greater utilization for customers who upgrade. A recent analysis revealed a 20-plus percent uplift in runs per day for customers who upgraded from LaserCyte to ProCyte One with consistent benefits noted across major regions. Upgrades and adoption of new platforms also deliver multiplier benefits to our business, to increase customer loyalty and retention and adoption of other IDEXX in-clinic analyzers. Our continued installed base expansion in our international sector results in another quarter of strong CAG Diagnostics recurring revenues. Our integrated platform solutions, including benefits from our software ecosystem are well aligned to also support the formation of new practices in regions like the U.S., which continues to contribute net 0.5% to 1% to sector growth. High interest in IDEXX solutions among new practices in the U.S. has become an increasingly important driver of new and competitive placements. Our flexible and customer-friendly marketing programs like IDEXX 360 modified to appeal to new practice growth dynamics have attracted strong interest in full point-of-care suites with high attach rates of catalysts and increased testing across modalities. Building on our progress advancing adoption and leverage of IDEXX solutions, we continue to make solid progress advancing our ongoing innovation agenda, including the development of new platforms for diagnostic testing. The first of 2 such new testing platforms currently under development was announced recently at VMX. The IDEXX inVue Dx Cellular Analyzer, a first of its kind, cellular analyzer platform, is powered by advanced topics and enabled by AI that has been trained by IDEXX's global pathology network. Development of this platform is proceeding to schedule, and is in its final stages as we plan to begin shipping to customers in the fourth quarter of this year. Our commercial teams have begun educating busy customers on this new piece of technology while also using it to engage with customers on other IDEXX solutions that may be relevant to their practices now. This is another multiplier of new IDEXX innovation, which helps support high reach to revenue metrics in the quarter, which reflect the efficacy of our commercial playbook. Early feedback from customers across the globe remains highly positive, building up the enthusiasm experienced at both domestic and international veterinary conferences. Customers have resonated with both the medical and workflow productivity benefits. Clinicians are well aware, for example, of the powerful technological innovations that appreciate the clinical need for solutions to ear cytology a daily practice and blood morphology, a critical element of a complete hematology exam. The feedback is consistent across general practices, specialists, and corporate accounts who seek cutting-edge tools from IDEXX. We look forward to building on this highly innovative menu by delivering 5 needle aspirate testing that reflect IDEXX's high-performance standards. At IDEXX, innovation goes beyond new platforms. Our technology for life approach means that we're constantly assessing our on-market portfolio for opportunities to add value to our products with new insights, greater efficiency, or improved ease of use. Similar to how blood morphology insights on the IDEXX inVue DX complement our premium hematology analyzers. We recently launched a new generation of our IDEXX VetLab UA platform, which complements inVue DX. The new UA Analyzer brings a highly attractive modernized form factor, is easier to use, and features enhanced integrations with IDEXX VetLab Station and VetConnect PLUS, saving practice teams time on commonly run urine diagnostics. In the 8 essential urine parameters provided on IDEXX VetLab UA, including pH and protein merged with results from SediVue Dx driving actionable interpretive guidance on next steps that support clinicians to make informed medical decisions. IDEXX reference labs are also benefiting from recent innovations, where we see momentum building with the recently launched IDEXX SNAP, a differentiated kidney injury detection test that further bolsters our best-in-class renal health offering for our customers. We've now launched in North America, U.K. and Australia and plan to launch in Europe later this year. Experience is growing with this important innovation with almost 500,000 tests ordered by over 13,000 customers since the December launch. Awareness of the test is solid, estimated at just over 50% of U.S. veterinarians based on recent survey work. There exists significant runway to increase awareness and deepen understanding of the clinical utility of this test. IDEXX's Software and Imaging business continues to perform well and is addressing significant unmet customer needs. Our cloud-first strategy to building a seamlessly integrated software ecosystem delivers workflow and communication advantages across a clinic that drive productivity while supporting double-digit growth of our profitable SaaS recurring revenue stream for IDEXX. Strong software placement growth is now virtually all via cloud-based products. It is supported by customers looking for modern tools to assess diagnostic insights, create and streamline practice workflows, and communicate with an increasingly digitally native end customer. By partnering with IDEXX on these solutions, customers are increasingly freed from unrewarded administrative tests to pursue their care mission for patients. Like our diagnostic platforms and menu, we're also focused on enhancing the IDEXX software ecosystem. Our recent announcement at the Western Veterinary Conference is an example of this, where we were thrilled to announce Vello, our newest Pet Owner Engagement platform, which officially went live in late March. Veterinarians increasingly tell us that their client communication processes and tools are disjointed, high friction, and time-consuming. Vello provides veterinarians with a powerful tool that is directly embedded within our IDEXX Practice Management software, supporting streamlined interactions and more efficient workflows. The benefits of expanding IDEXX's vertical software suite are many, including deeper customer relationships and improved compliance that helps drive better health outcomes. Vello supports the growth of our profitable recurring software revenues while also delivering multiplier benefits to our Diagnostics business as early Vello adopters are benefiting from fewer customer no-shows and increasing their diagnostic stabilization with IDEXX. Another addition to the software ecosystem was the acquisition of GreenLine Pet, a leading digital platform that provides easy practice workflow solutions for coupon and rebate redemptions, which was completed in the first quarter. The Greenline digital platform enhances IDEXX' partnerships with leading manufacturers in the animal health pharmaceutical and nutrition space, supporting sector development through targeted rebating to customers, made possible through deep integrations with IDEXX and third-party practice management systems. By delivering additional relevant solutions to our software customers like Greenline and Vello, we're able to drive strong adoption of our deeply integrated vertical SaaS applications inside of our cloud practice management systems. Providing our customers with a single unified platform for payments, workflow, and client communications, to name a few applications, helps drive efficiency and remove the need to toggle between multiple applications and manual reconciliations. Not only does this accelerated adoption drive practice productivity, but it also supports greater diagnostics revenue growth and very high retention rates, thereby helping drive our key recurring revenue annuity. Overall, we're very proud of how we have advanced our strategic initiatives across multiple business areas in the first quarter, while also delivering an excellent customer experience and strong financial results. I'll now conclude our prepared remarks by thanking the 11,000 IDEXX employees for your ongoing commitment and incredible passion for our purpose-driven work. Your contribution to IDEXX not only helps deliver against our goal of providing a better future for animals, people, and our planet, but also help deliver a strong start against our financial objectives in 2024.

Now let's open the line for Q&A.

I'm just interested in the comments you made earlier that it seems like you're seeing both maybe some capacity challenges and macro impacting visit trends. Can you just maybe elaborate a little bit on the latter? It seems like your initial guidance for the year was a bit more optimistic on stabilization of visits. And I'm just wondering if there's any particular, either regions or trends in corporate versus private practice where you're seeing this macro piece more acutely than others? And maybe just linked to that, I know it would be a guess. But as we think about visit erosion right now, what's your best guess in terms of how much of this is just ongoing capacity dynamics at the vet versus what is actually consumer demand at this point?

Thank you for the question, Chris. I can provide some clarity on the numbers first and then pass it to Jay for further discussion on the dynamics. We noted that clinical visits in the U.S. were softer than we had anticipated in the first quarter. In our previous call, we had expected some weather-related impacts, but we thought the flattening trends we had been planning for would start to show. The trends at the end of the quarter were down about 1.5% compared to the previous year, which was relatively weaker. However, internationally, we had a strong quarter with underlying volume growth continuing to improve on what we experienced in the second half of last year. This issue seems to be more specific to the U.S. We also mentioned ongoing staffing and capacity challenges that practices are managing, but there may be broader consumer-related impacts affecting demand as well. I’ll let Jay address those points.

The way I see it is from both the veterinarian and pet owner perspectives. Pet owners are still prioritizing spending on healthcare services and general expenses for their pets over other areas like dining out, entertainment, and travel. The conversations we're having with customers are very positive; they remain optimistic about the outlook. They are continuing to invest in their practices, which is reflected by an 8% increase in technology placements, as well as growth in software and new practice formations. Customers are generally optimistic about the future of the animal health industry, which continues to show resilience. That said, there are ongoing staffing challenges that practices are addressing, and they view IDEXX as a supportive partner for technology and solutions. We are also aware of broader macro impacts that might be affecting visit trends slightly. Focusing on what we can control, we have strong confidence in the operational effectiveness of our commercial and product development teams, and in those areas, we are performing well.

Great. Can you hear me okay?

We do.

I wanted to follow up on Chris' questions regarding the traffic at the end of the first quarter being a bit below prior expectations. Can you comment on whether April is aligned with that 1.5% decline? More importantly, as we look towards the rest of the year, it seems you anticipate some improvement in traffic levels. What is your confidence in returning to previous levels? I understand there may be a days effect that could provide a slight benefit, but I am curious about how you expect to see improvement across your various lines of business throughout the remainder of the year.

Well, I'll take a moment to just try to help with some of the first half to second half bridging. So you obviously have our Q1 results. And in my comments, I highlighted our expectations around Q2, the organic growth of 6% to 8.5%. What we're assuming in the Q2 outlook at midpoint is that we've assumed clinical visit trends similar to what we saw exiting in March. So that's the minus 1.5%. We don't comment on in-quarter trends just highlighting what we're planning in Q2. And if you take the midpoint outlook with our Q1 results, that would apply approximately 7% organic growth in the first half. The second half would imply approximately 9% organic growth. We have some positive factors that we highlighted. One is we'll have a half days overall equivalent days benefit largely flowing through in Q3 that we noted. We'll have some select other factors that are favorable to us. We should see better lapping dynamics in areas like LPD. We're targeting higher growth in our software business. So those will be positive as well. And we do have an assumption at midpoint for relatively flattening U.S. clinical visit trends, and we see a number of factors that support that assumption that I know Jay can touch on.

Yes, great. I mean, from our perspective, there's a couple of things that I would highlight. One is that the clinical diagnostics revenue growth rates have continued to remain strong. We saw that in Q1 at 5%, actually higher than total practice revenue growth, which is a little bit over 3%. We continue to see healthy diagnostics frequency and utilization. So those metrics continue to remain strong. And it gets back to my earlier message on we see practices continuing to invest. They're investing in technology. They're investing in their staff. We know they're becoming more productive. We think tools like Vello, which is our client engagement software application will be a big help. It integrates very tightly with IDEXX's PIM systems. It enables a reduction in no-shows, which we know is a productivity drag on practices, and we think there will be benefits over time in terms of uplift to diagnostics. So we're doing our part in partnering with clinics, and we think over time, that will play out positively.

Great. If I could maybe just ask a quick follow-up on the gross margin strength. Brian, you talked about the factors that were driving this. It sounds like some of those should be sustainable, but I'd be curious to just kind of get your view on that over the balance of the year. And you didn't change the operating margin guidance, I guess, despite the strength that you saw in the first quarter. So any dynamics that we should be thinking about as we think about the cadence over the balance of the year would be helpful?

Sure. To your point, we feel very good about the start that we had in terms of the profit performance and the gross margin performance. We sustained our outlook despite taking down the high-end organic growth outlook. So I think that just reflects some of the underlying operational execution benefits that we're getting and our confidence in the ability to deliver solid operating margin gains this year. I think there are some select dynamics we noted, instrument costs being lower in Q1. Some of that is sort of an outflow of the pandemic supply chain impacts that have been alleviating. So we saw a relatively more benefit in Q1 than we will expect to see over time through the year. But I think for the most part, the performance is reinforcing the outlook that we had this year for solid comparable operating margin gains and I think reinforces that we can deliver strong financial performance as we work through some of the near-term macro dynamics that we've been highlighting.

I want to address the veterinary visit situation within the broader macro context, but let me rephrase the question. Looking at the bigger picture, this began back in 2022 and was initially seen as a short-term issue related to comparisons and adjustments. Now, nearly 2.5 years later, it continues to fall short of expectations. We are still waiting for a recovery in veterinary visits. If current trends continue, I'm aware of your guidance for the second half and your comments on potential improvements, but if the trends stay the same and we experience further declines, could you discuss other strategies you might implement to meet your targets? In previous years, for example, you raised prices, including a secondary increase. I understand you have new initiatives on the horizon and are looking at operational efficiencies. Please share how you might approach this if visits remain under pressure.

I want to highlight a couple of important points. Firstly, our innovation agenda and the strength of our innovation portfolio are impressive. We expect to begin shipping inVue in Q4, which we believe will have a positive impact on our overall business. Our reference lab menu has never been stronger and continues to grow, particularly with the expansion of fecal antigen testing, which plays a crucial role in preventive care. Additionally, our support for acute kidney injury and our renal franchise has been well received in the market. On the software front, it not only stands out as a successful individual business but also positively influences our diagnostics as a whole. Our commercial execution remains high, and we’re experiencing growth internationally, particularly in EMEA, thanks to the investments we've made in various countries and regions. We are committed to supporting our customers through the challenges they face. We have confidence in the demand from pet owners and the efforts clinics are making in staff retention, training, and increasing productivity, and we believe that clinical visit trends will improve over time.

And Mike, I want to emphasize that we have consistently shown our ability to grow and achieve strong financial performance. As we navigate the growth from the higher base established after the pandemic, along with recent macro dynamics, we believe we will continue to advance our growth agenda and invest in key areas while maintaining strong financial results. We are committed to this approach, and we have built a solid track record to support this outlook.

Okay. But would you consider taking another price increase again or potentially some cost controls in the second half? Is that on the table?

We have outlined our outlook for this year and our assumptions. We expect around a 5% price improvement this year, which supports the operating margin outlook we discussed today and the strong comparable EPS growth as we continue to invest in our R&D agenda. We are excited about what is to come and are confident in the financial outlook we shared today.

Okay. And then just really quick, if I could ask a follow-up. Jay, I think you mentioned in your prepared remarks that inVue continues to be on track. You talked about it at VMX. What has been some of the early feedback from veterinarians? I realize you're still maybe 5 to 6 months from the actual release, but you're 3 months further along than when you first unveiled it. Have there been any learnings regarding the ramp-up of capabilities? Can you discuss some of the offerings that will be available at launch versus later on, and what has been the reception to that?

Customers have been very enthusiastic about the product. They appreciate that it addresses high-volume, time-consuming critical cases in practices, particularly in cytology and blood morphology. Many customers have mentioned that they should be doing more blood morphologies as part of comprehensive CBC or hematology workups. Now, they feel capable of increasing that volume because it makes sense for their workflows, and they are looking forward to this capability. We believe awareness is growing, and they view this as a valuable addition to our overall point-of-care VetLab suite. Additionally, as part of the suite, we have a next-generation VetLab Station, the IVLS station, which offers workflow optimization benefits that customers are also excited about. The response we've received aligns well with feedback from both practice specialists and corporate accounts. This ties into our earlier discussions on enhancing productivity in practices, addressing staff retention and optimization, and we believe this will positively impact both productivity and clinical effectiveness.

Great. Can you talk a little bit about the competitive landscape? Do you think that there's more of an opportunity to see some more meaningful market share gains, either across the smaller practices or corporate accounts as well? And there's clearly been some disruption in terms of ownership structure, in terms of distribution changes. And I'm just thinking about how you can kind of take advantage of that? And if you have seen any notable kind of share gains to date?

Yes, we have always recognized the competitive landscape, which remains challenging globally, not just in the U.S. Our primary focus is to support our customers, whether they are independent practices or corporate entities, by providing a comprehensive end-to-end suite at the point of care, including patient reference labs and increasingly, software solutions. We are encouraged by the progress we have made in enhancing our overall offerings. Customers appreciate the integrated nature of our solutions, which they see as a differentiator compared to our competitors. This integration enables us to connect software that supports their workflow effectively. We believe that Vello, our client engagement application, significantly enhances our ability to help practices communicate digitally with pet owners. Additionally, we are enthusiastic about new practice formation, and we continue to perform well in that area. New practices view IDEXX as a valuable partner in establishing their operations, and we have made it a priority. Overall, I believe our commercial agenda is progressing well. We are open about our placement metrics, both for new and competitive accounts, and our performance is strong both in the U.S. and internationally.

Okay. And then how inVue kind of fits into that strategy as well? I guess initially is the focus on existing customers or swapping out competitor equipment where you have exclusive contracts. Or can you remind us kind of on the timing to of the fine needle aspiration and that seems to be where we're getting some of the earlier feedback, and is that sort of 2025? Or how do we think about the timeline there?

Yes. We have a couple of questions. From a focused standpoint, our primary target is IDEXX customers who already utilize our VetLab suite, as they seamlessly integrate into their workflow and existing partnership with IDEXX. We noticed a similar trend with SediVue, where initial sales were predominantly to existing IDEXX customers. This approach has opened opportunities in competitive markets and allowed us to position ourselves for future offerings in chemistry, hematology, and other solutions. Regarding fine needle aspirate, we have mentioned that it is our next priority. We are dedicated to this development and know that customers are very eager for fine needle aspirate, as it significantly broadens their cancer diagnostic capabilities, which is vital for their clients and enhances their medical practice. We will provide more details as we approach the launch.

I don't think it's surprising that I want to talk about visits because your stock seems to relate to the data. You mentioned that macro capacity constraints are affecting overall vet visits. Some of our observations suggest that pet owners may be more sensitive to pricing, with price increases possibly being 2 to 4 times higher in some cases. I'm curious if you are seeing more sensitivity from pet owners regarding price increases. My broader question is whether the industry has set prices too high in recent years. If that’s the case, Brian, how do we see your price returning to the expected 3% on your LRP, possibly sooner rather than later?

Yes. I'll address that. We don't control pricing for the practices; that's determined by the veterinarians. Several factors influence this, including their investments in staff. We believe it's beneficial when they retain personnel and enhance the support for pet owners, as this contributes to stability in their practices. Coming out of the pandemic posed significant challenges for them. However, in our discussions with practices and customers, there is a sense of optimism. They see improvements in capacity issues over time and are continuing to invest substantially in technology, which we think their pricing supports. From our perspective, we aim to maintain a balance that reflects good value for our services. We provide parameters and biomarkers like Cystoisospora and Cystatin B at no extra charge, which are included in existing panels and enhance their value proposition. We recognize that overall macroeconomic factors may be impacting some pet owners.

Yes. And Jon, just to reinforce Jay's point, I think we align our pricing with the value we are delivering on the underlying inflationary dynamics that we're seeing. And we'll continue to factor that in. And our outlook is consistent with what we shared earlier for 2024, which is approximately 5% net price realization globally.

Okay. Sorry about that. And then let me just maybe try to throw a bunch of small ones in the second question. Brian, you talked about the vet visit data to have embedded the midpoint. I've just gotten some questions. Is it as simple as extrapolating out the negative 1.5%, call it, for the lower end, just when we think about your guidance? And then you still have this other box coming. I think that's really what can really separate almost a stop from the visit data as people are getting more excited about the premium, right? So just taking a step back, do we think about you guys like handling it in a similar manner? Just if I recall last year, I think it was graded out in the investor presentation in August, officially introduced at VMX in January and then hitting the market 9 or 10 months after that in 4Q '24 maybe just at a high level, if you can just talk about from a timing perspective when we think about that second still TBD box that you've alluded to in the past?

Jon, could you clarify your first question? I wanted to understand what you were asking when you mentioned if it was related to a full year inquiry. Just trying to clarify...

Yes. Sorry, Brian. Is it just as simple as I think and maybe hopefully, I'm just right, but the midpoint of your guide has visits down 1.5% in 2Q and then essentially flat in 2H. Is it a simple for the lower end, call it, just take that 1.5% and like extrapolate it out for 2H, and that's sort of what's call it embedded in the lower band of your CAG DX recurring? That's where I was sort of going with the first part.

It's a broader set of considerations, but I believe your point is valid. If trends continue to be softer, that could lead us towards the lower end.

And then on the new box?

I look forward to sharing more. As we get closer to launch, we'll maintain our past approach and share updates when we are nearer to the commercial launch. We are very excited about inVue's advancements, which are on track and will directly contribute to our business, bringing multiple benefits. Our sales force is also very excited about this, as are we. We continue to develop our second platform and will provide more details over time, seeing it as an additional driver for our business in the future.

A few follow-ups on vet visits. If you could comment on the U.S. vet industry progress on addressing shortages and mental health of vets and using more vet technicians to assist vets, has this continued? And can you discuss any progress to date? And another follow-up on the macro headwinds on the pet owner side, what are your assumptions for the full year vet visits, wellness and non-wellness, please?

Yes. From an industry profession side, what customers tell us and what we see is that the staffing churn has largely stabilized. Coming out of the pandemic, I think there was a lot of challenges and the veterinarian pet owners responded by, I think, increasing salary and benefits and cutting back some hours. So those impacts, I think, have largely stabilized. I think practices to the extent that they were able to hire more, have hired more; in some cases, they've instituted training, more internal training programs and have taken those sorts of steps. They've also, as I mentioned earlier, invested more in technology. I think they're just far more receptive around technology, software, equipment, use of our reference labs that helps them save time. Sometimes it may be 10 minutes, 15 minutes per procedure, but on the other hand, cumulatively, that matters, that I think can be highly worthwhile.

Maybe just one quick one in the interest of time. You've talked about the longer-term dynamics of higher diagnostic utilization as pets age through their life cycle. And I know you also have some data about kind of larger than normal pet population growth post the pandemic. So I'm curious if you could give us your thoughts on when we might start seeing the benefits of that flowing through in the industry in regards to diagnostic use?

What we observe is that it really increases over time, even with young adult dogs. There are obviously many visits from puppies and kittens, and as they grow into young adult cats and dogs, there is a slight dip in healthcare services. However, overall, healthcare services and diagnostics, both in total dollars and as a percentage, generally expand. This growth accelerates even more as pets enter adulthood and their geriatric stage. Our focus is on accelerating that across all life stages, including young adults, through wellness testing and exams. The increase occurs over time, but it is not a linear progression through different stages. With that, we'll conclude the Q&A portion of the call. Thank you for your questions and for participating this morning. I want to emphasize that IDEXX is committed to significantly enhancing the standard of care for Companion Animal Healthcare diagnostics. IDEXX’s organic growth strategy is propelling the development of our sector, and we anticipate continued strong execution on our growth initiatives with support from teams throughout the organization. Our growth prospect for 2024 is built upon decades of investments in business capabilities and reflects ongoing sector development and financial results aligned with our long-term framework. Now, we'll end the call. Thank you.

This does conclude today's conference call. You may now disconnect.