IDEXX Laboratories, Inc. (IDXX) Earnings Call Transcript & Summary

Ladies and gentlemen, the program is about to begin. [Operator Instructions] At this time, it is my pleasure to turn the program over to your host, Michael Ryskin.

Great. Thank you for joining us, everyone. My name is Mike Ryskin, BofA analyst covering Life Science Tools Diagnostics and Animal Health. For our next session, we're excited to be hosting IDEXX Labs. We're joined by Brian McKeon, Executive VP and CFO. And we also have Michael Schreck, Senior VP and Veterinary Software and Services and Corporate Accounts. So Brian, Michael, thank you taking your time to speak about this.

Thanks for having us.

Thanks, Mike.

So maybe just to kick things off, I'll start with my standard intro question. You guys reported 4Q results, you guided for 2023, just a couple of weeks ago. Maybe give us a quick rundown of key points, both from recap in 2022 and also how are you seeing the year coming up ahead?

Yes. Why don't I summarize kind of the key messages that came out of our year-end conference call. We had a very solid finish to 2022. I think as context, our -- during the pandemic, our business, we focus on recurring revenues as a company, or CAG diagnostic recurring revenues. They actually expanded by over 1/3 in terms of growth in 2020 and 2021. So we were building off of a higher base last year, and we're able to grow our recurring revenues 8% organically, and that was despite some headwinds from -- that we'll -- I'm sure we'll talk a bit about from pullback in clinic capacity and just lapping of some of the step-up in the pet population, and that was supported by very strong execution across our company. We focus on executional drivers that include new business gains, including sustaining high levels of customer retention, expanding utilization and things like net price improvement and combine those drivers were very healthy from a volume point of view and from a price point of view, which was relatively higher than we've achieved historically. And that was reflected in a 1,200 basis point growth premium to U.S. clinical visit growth levels for our U.S. business. So we feel very good about that, and that really set the context for heading into 2023, we're looking to build off of that momentum. We had an outlook at the higher end of the guidance that we shared on the call of targeting 11% CAG diagnostic recurring growth and that is a -- will enable us to deliver the consumer we could hit our goals, the 10% plus kind of long-term organic growth goals that we have as a business. And again, that's centered in driving strong levels of execution and working through some of the compares that were a headwind for us from a growth point of view in 2022. So very much our financial goals are very aligned with our long-term profit improvement metrics. And we feel coming out of the last few years, we feel more optimistic than we've ever been about the long-term potential for diagnostics and veterinary healthcare and looking to build on the momentum that we've had as a business.

Great. That's great. Maybe to dive into that a little bit. There's a bunch of pieces we want to follow up on here. First, I want to ask your CAG diagnostics recurring 8.5% to 11% for fiscal year '23. Can you sort of just give us what needs to happen to hit the 8.5% versus what needs to happen to hit the 11%? What are the big levers that you see between the low end and the high end of the guide?

Yes. Why don't I start with the higher end because again, that reflects like what we're targeting to deliver this year And we tried to break that down between U.S. and international goal. So the higher end reflects 11.5% growth for the U.S., 10% for international. We're going to have a healthy level of price improvement this year, reflective of the inflationary environment that we've been in and also the value that we're delivering. So we're -- we've built into that as 700 to 800 basis points of growth realization from pricing. And at the higher end, the volume -- the implied volume growth assumption roughly 4% is to achieve that sustaining the strong execution that we've been able to deliver over the last year. We are assuming that in the U.S. that we see stabilization in clinical growth levels as we work through the year, there will be some compares earlier in the year to the pullback effects that we saw that kind of transition through the first half of 2022, but we're at the higher end, assuming that, that stabilizes. And in the international markets, that 10% growth is up from about 6% growth in the second half of 2022. We saw about mid-single-digit same-store growth headwinds. So it was somewhat more significant than the U.S. And again, we're expecting to -- at the higher end to see some improvement in that year-over-year and the same kind of strong executional drivers that we achieved globally, we're looking to deliver. The lower end of our growth outlook is really just trying to capture that there can be executional risk, there can be macroeconomic risk. It's more the latter, candidly, just reflecting that we're in an uncertain environment in terms of just the overall macro outlook. I think our business has traditionally been very resilient to economic changes, and we -- but we are reflecting that we could see some -- it's just a range of performance or a range of outcomes on factoring some of those dynamics.

And that I believe you said that the lower end of the outlook assumes no improvement in that [indiscernible] growth, whereas the upper end you said stabilization, the lower end, there's no improvement, frankly.

We didn't really break it out. I just think our underlying assumption is at the higher end or we see stabilization. And so it could be a number of factors that contribute to a combination of things that might transpire as more of a risk calibration, if you will, Mike, versus our targeted growth goals.

Okay. All right. That's fair. And anything you say in terms of pacing through the year, you touched a little bit on comps, dynamics last year, both U.S. and OUS. How do you think about first half versus second half?

Yes. I think the -- there will be different dynamics going on. I think we will have some relatively tougher comps in the first half, just given the capacity pullback that occurred kind of through 2022. We'll have some benefits in terms of relatively higher year-over-year net price realization in the first half. So I think it will be balanced. And I think we captured that in our outlook that we shared for the -- directionally for the first quarter in terms of what we talked about on the call.

Got it. That makes sense. So next, I want to touch on one pivoted price. You talked about 700 bps to 800 bps this year, which is well above your historical. Will you be able to take historically excluding 2022. Can you help us understand how that pass on these price increases to the pet owner? Is it just a clean going pass through or they having to absorb any of these price increases? What are you seeing in terms of what happens from that side of the business?

Yes. I think Michael can add some color here. But historically, I think practices have typically had an ability to achieve price realization with pet owners. I think pet owners see the value in veterinary services. And that's what we saw in 2022 was kind of a pass-through of not just our changes, but I think overall cost changes within the sector and demands held up quite well. If you look at the dynamics that we try to zero-in on and some of the data that we report with things like diagnostics frequency, diagnostics utilization, they actually expanded, built on the expansion, higher than normal expansion we saw during the pandemic. And so I think the -- we saw consistent kind of growth across wellness and nonwellness categories. So I think the pricing has been passed through, and we'd anticipate that to continue. And I think that we're helping veterinarians to reinforce the value that they deliver through the services. And I think pet owners are willing to pay for care of their loved ones. So...

Maybe I can add a strategic point of view. We -- you may remember at Investor Day, we had Dr. Francke here, and he talked a lot about how he's dealing with his own inflationary pressures, right, which were around how do I maintain the right staff and keep them here. And so our customers obviously are experiencing their own inflationary pressures that are independent of a diagnostic price change. So I don't think we're working in a vacuum in that sense. I think as Brian said, diagnostic remains a fraction, what is it 0.1% of consumer spending is spent on diagnostics. And we know that the younger generations, in particular, but most pet owners will sacrifice much of their consumer spending to make sure that their pets are well cared for. And so while I don't want to minimize the inflation, I think the consumers feel broadly, I don't think that this stands out in any particular way.

Got it. That makes sense. Can you talk through -- can you talk to the mechanics of the price increases is a question we get a lot from investors. It's just sort of given how many of your customers, how many of your vets are in these long-term 5- to 6-year contracts, let's say you had a contract with a vet for $100,000 a year in spend with you. And then you take that 7% to 8% price increase, what are the mechanics of how that flows through, how that's incorporated into the contract, how you can tweak that over time?

We have the ability in our contractual arrangements to raise pricing. So I think we're -- that is -- we typically do that on an annual basis. And so there are some variation in different agreements based on the specifics of the customer relationship. But it's -- we do have the ability to raise pricing. And that there are some adjustments that are made in terms of the list to net realization that happens every year. And I think that's reflective of a number of factors, including some of the specifics related to contracts. It could relate to promotional activity or kind of new business gains or a number of dynamics that go into that. But we -- even though we are within a contractual kind of set up, we do have the ability to raise pricing and work through that on an annual basis, typically, with our customers.

Okay. And all that's done on a relatively customer-by-customer basis, right? It's not 700 bps to 800 bps everywhere globally across the board, some get more price, some get less price. It might vary based on various products, reference lab, in-house, right? There's a decent amount of customization there, or...

Yes. I think that's fair. There's a lot of -- I think we have similar programs that we put in place, and we clearly work off of a list price change. But I think that each customer in terms of what we're doing with them to help them grow their business and the modalities that they're using and the specifics of this business relationships, there can be a level of customization.

Okay. And last year, I think it was the first year, at least I can remember, the you implemented a midyear price increase as well in August, just given the inflationary environment. It doesn't seem like you're assuming you'll do one this year for now, but that could change. So I guess my question is, what are you watching to determine if you need to make that price increase or not? Is it pay if inflation ticks up again, then we'll revisit it? Is it the economic, like what are the deciding factors forward? I know the price increase...

Yes. I would say last year was unusual for us. So it was -- it's not our typical practice. We candidly kind of, I think, under clubbed coming out of the year in terms of the price increase with the understanding of the inflationary environment at that time and felt the need to make an adjustment there that I think our customers understood, particularly if you look back at just what happened with CPI and things like that. Last year, it was quite reasonable in that context. So we're not planning -- we have an annual planning cycle for pricing. And to your point, Michael, we'll always look at if something really changes dramatically different than we expected. But I think we're -- we've updated our approach this year and are now planning for a midyear change.

Okay. That makes sense. I just want to stop. I've got a question come in from a client. Are you expecting to getting their pricing back once cost inflation normalizes?

I think we'll address that as we go. I think we will look at those types of factors each year in terms of the context of how we think about pricing, including what we're doing with our products and services and the value that we're bringing. And I think we'll factor that into how we think about that going forward, and we'll share more on that as we go closer to 2024.

Okay. And there's a lot I want to talk about COGS and inflation, but I'll save that for later. We'll circle back here. I want to pivot to something else you talked about, Brian, in your initial comments about 2023 and that's global macro [indiscernible] OUS. So can you talk a little bit about what's going on outside the United States, just a little bit hard for us to do the channel checks there? So particularly in Europe, what are you seeing? How does it compare to what the dynamic environment is in the United States? It seems like Europe has been more resilient than people feared maybe 6 months ago or a year ago, but what's your take on it?

Yes. I'll keep the comments more on 2022 in terms of the trends that we saw. But I think we did see relatively more macro headwind in international markets early -- starting early last year. And throughout the year, I mentioned earlier in our comments that it was more kind of a mid-single-digit kind of same-store sales decline. We don't have the same granularity on vet clinic data that we do in the U.S., but it was relatively more of a headwind on that front. And we do think that was impacted by macro conditions. I think the -- our executional drivers were very strong. So consistent with what we saw in the U.S., we had globally record instrument placement gains, utilization gains sustained by record levels of retention -- customer retention. And so you're really interested in adopting our innovation. So I think our -- we feel very good about our execution in that dynamic, but it was a relatively more challenging macro environment. And I think that that's something that we're continuing to monitor. We're obviously targeting a level of improvement, but the level of growth is somewhat below the U.S. And I think reflect of us being a little cautious on that front, just given the backdrop that we saw in 2022.

Sorry, I'll make sure I get last one right. So you're assuming in your guide framework, what's built into that is some improvement OUS as well, but again, not to the same degree as the U.S.?

Right. So the high end for CAG diagnostics recurring 11.5% U.S., 10% international. And usually, we'll have -- we would have -- our long-term objectives are to have higher growth in international. So I think that's reflected for the macro. But that 10% goal is out from roughly a 6% growth trend in the second half of 2022. So we -- and that is reflective of us working through kind of -- it's really working through these kind of -- the growth rate effects in 2022 were off of this higher base, the pandemic step-up. And so we're not expecting that same level of headwind that we saw in 2022. And some of that improves -- assumes some stabilization of trends. But there's a level of headwind that we're expecting to continue, and that's built into our outlook.

Okay. Got it. That -- maybe as [indiscernible] jump in to sort of like the broader recession question, I'm sure it's one you get asked all the time. We've looked at the data historically how IDEXX fared in 2008, 2009? How the entire industry fared typically think of a space as being resilient in the face of economic pressure. But can you talk about sort of what your contingency plans? What would you implement if, let's say, tomorrow, goal recession strikes? How do you change the business? How do you change your approach? What will we see from IDEXX in that scenario?

So the guidance that we shared going back to what we talked about earlier, the lower end for CAG diagnostics recurring was 8.5%. And as I mentioned, we had assumed 7% to 8% of pricing in that number. So that's basically saying we have a range in terms of what we built our plans for this year to capture a scenario where you'd have limited volume growth. And I think going back to your point about what happened in the Great Recession was we were roughly 4%, 5% kind of organic revenue growth with less pricing, probably about 100 bps or so of pricing. So it's actually -- I think we're calibrated for a risk scenario, and we have financial goals aligned with those kind of growth ranges. So we try to capture that in our planning and our thinking heading into this year. And we'll -- we -- I think we demonstrated last year our ability to adapt to -- we saw roughly a 600 basis point swing in kind of clinical visit growth levels in a pretty short period of time. And we were able to sustain our profit margins on a comparable basis for the full year by adapting during the year. So I think we're very much committed to delivering strong financial performance. We want to balance that with making sure that we're investing and supporting the key priorities for the long term. And I think we've got a good set of plans to do that this year.

Got it. That's really helpful. Maybe look at it a little bit to you, Michael. One of the [indiscernible] on software and technologies and the solutions there. So one of the ways that IDEXX has talked about improving practice efficiency, easing some of these capacity constraints that we see in clinic is some of your software, some of your cloud-based offerings. So first, can you give us a little bit of an overview for that? What is IDEXX bring to the table? What are some examples of your software solution set? And how are they using in vet practice today?

Yes. No, happy to do that, Mike. Thanks. Let me step back for a second, right? We released last week at Western Vet Conference, a really nice position paper on -- and in some ways, it's the first of its kind in the industry to really look at practice productivity and begin to segment those that are performing really well and those maybe that aren't performing quite as well and trying to understand the drivers of those differences. And I'll summarize quickly, but it ultimately came down to workflow efficiencies, how technology locks in those workflows, right, to reinforce them? And then ultimately, does the team or staff have the right alignment and culture to support those things? And so when you think about our workflow from a diagnostic perspective and then you add the practice management system, which is driving the workflow of the practice on the front end, we've got -- we're really positioned in a strong -- it's really a great strong moment for us to bring all of our connected ecosystem to bear against our customers' needs. And I'm not sure we could be better positioned than we are now to do that. And so to answer your question directly, our commitment, I think it's unique in the industry to be cloud-first. We committed to that. We said we're going to be that. And some point early in the first half of this year, 50% of our PIMS space will be cloud, where the rest of the industry is probably somewhere around a quarter. And we look at that and say, that's how we can help, one way we can help our customers get -- gain the efficiencies. We call the position paper finding time. So whether it's minutes or hours, that's what they need. And so small things add up in a big way. I'll give you an example. When you use just an appointment reminder in our systems or one of our integrations that you got, that alone can reduce no shows 38%. That's at least 1 visit more a day for an average small practice. So whether they use that time to do better medicine or have another visit or even get a chance to eat lunch, that's a choice, right. But it's ultimately giving them time back. And so we look at our ecosystem, say, look, if you're a cloud-first, then you can get much more flexible about how quickly you can integrate payments, right? And so if you're not integrating payments, as an example, you're asking staff at the end of the day to reconcile hundreds of transactions, and you hope that you don't miss a transaction, for example, or you hope that the client experience was positive where you didn't fat finger the wrong number, and now you've got to go give a refund to a customer. Those kinds of things when you're in the cloud, we can upgrade them in real time. I'll give you an example. We know that during the COVID Gen Zers really flock towards a buy now pay later feature, which allowed them to afford things that maybe otherwise they couldn't. And as a consequence of being -- knowing that, that was a big deal, we added that quickly to our payment platform and then it was immediately available in our cloud-based PIMS. So if you're not -- if you're able to do there, then you can gain that benefit immediately, right, by being on a cloud-based platform. And so we look at it and say, it's really not just a PIMS platform. It's PIMS with seamless integration with payments, seamless integration with digital workflow, seamless integration with client communications. And then if you're a corporate group who really understand the value of software, how do they do that -- how do they get analytics and data across the network. And then finally, how does that tie into our incredible diagnostic software suite that's going to help you figure out what was the result, what should be the next step, and we're using artificial intelligence, which we can talk about more later, to help them interpret and make next step recommendations in a very rapid way. And so as that is all cloud-based, we can deliver value in a much faster way through that suite, that connected ecosystem across both the diagnostic parameters, but also just how to run a better practice. And as that study suggested, those that have leaned in, and by the way, corporate groups, in particular, have leaned in, recognizing this is critical to their future operational efficiency. They know they've got to get to a cloud-based ecosystem. They just can't get there using an on-prem approach.

Okay. Yes, that's very helpful. One follow-up on a couple of those points. One is, before we jump to [indiscernible] want to ask on that as well. Can you talk a little bit about the -- again, the contract structure, the payment structure? Are these annual contracts, sort of like what are the renewal rates? How do you drive that conversion more on to PIMS? You mentioned the 50%. How has that trended over time? The vets that aren't on PIMS -- that aren't on cloud, what's holding them back?

Yes. Yes. Good questions. Let me start with we've seen an acceleration in the software business over the last few years in a pretty powerful way. We shared at Investor Day that we've had a 40% compound annual growth rate in terms of PIMS placements since 2019. And the mix between what was cloud and on-prem used to be about 50-50, it's now 90-10. So our new customers, whether they're coming from our base or increasingly from others are leaning in towards cloud. And so we're seeing an incredible growth in that context. And as Brian shared...

90-10 is the new placements in any given year, 90%...

Our cloud, our cloud, yes. That's right, Mike. And as Brian shared in his earnings calls comments, we're seeing rapid revenue growth, no surprise as those recurring revenues stack up. And so last year, for example, our diagnostic and software reporting segment had 22% growth in the year. And our recurring revenues since 2019 have grown 22% on a compound basis. So you're seeing sort of that acceleration as those recurring revenues stack up, which will kind of get to your comment, Mike, about how are these structured. This is a SaaS -- I mean, ultimately, this is a SaaS business model, and we love the recurring revenue part of the business. And this is, as Brian said, we've not only seen net retention -- record net retention with diagnostics, we've seen net retention records with software, which is even slightly higher than our diagnostics. So we're seeing something very powerful happen in the industry where folks are realizing the deeper you get, I mean, this is a vertical software play that's been run by Thoma Bravo or Vista or whatever it's -- the deeper you go, the more value you create, the more sticky the program becomes because, obviously, you're creating more consistent value across the practice. And we're seeing that. We're seeing us -- last year, as an example, people are -- our customers are increasingly buying a second or third or fourth product from us because it integrates so tightly with the platform. And so not only do we have the retention of the original platform but now we've got these other recurring revenue flows that play off of it. And when you look at it from a retention perspective, the average life of these customers is as far as you can see and so on average. So these are incredibly durable revenue streams for us. And as Brian said, in many cases, these are wrapped into our 360 programs. So they've -- that would imply -- or an explicit life, but the actual net retention well outstripped even the contractual period for these customers on average.

Got it. I want to ask -- I mean you touched a little bit there on share gains and the ability to cross-sell. How often are you placing software into a clinic that either is greenfield, it doesn't do diagnostics at all? Or maybe [indiscernible] customer? And then that will get your foot in the door because of your software offering [indiscernible] over time to convert the either point-of-care or reference lab?

Yes. That's a great question. I'll start with -- about 40% of our net new adds in a given year are greenfield in some form. And so whether that's an expansion of a corporate doing a de novo or whether that's a practice owner or someone who wasn't a practice owner wants to become a practice owner. 1 of our 2 cloud products, Neo, which is our smaller practice and ezyVet, which is our flagship advanced practice, both of them have about 40% share of new customers that are greenfield. So really interesting to see that continued growth in that mix. I think the other thing that we've seen is every one of those new customers in '22 compared to '21 in previous years was buying another product from us simultaneous with the platform purchase. In the past, it was 30% to 40%. It doubled in '22. So as people began to see the value of the connection between the platform and the related applications and the integration became tighter, we ultimately saw our customers going, "Well, I need time so I better get payments. So I need time so I better get client communications." And ultimately -- and this is true, especially with corporate groups. They're recognizing that they want to maintain staff who are younger generations, Gen Z types. You need to have a practice software experience that would be consistent with something they experience outside of work. If you got -- if you have an experience at work that's so inconsistent with your iPhone experience, typically, in your real life, that's going to create staff discontentment. And increasingly, our customers are recognizing. It's a powerful enabler, but it's also a powerful way to retain staff. Now to answer your diagnostic competitive opportunity, I'll give you an example. When we acquired ezyVet in 2021, mid-2021. That obviously was an entity that was not affiliated with any particular diagnostic company. So their mix of diagnostic base was different than our core platforms like Cornerstone and Neo at the time. And what we're seeing is probably unsurprisingly that as our experience like VetConnect PLUS inside of ezyVet is our flagship diagnostic experience. You can order on VetConnect PLUS. Now in an automated way, it will go into ezyVet. The charge will be automatically captured on the invoice. And as a consequence, it's a one-step decision to order. That's such a powerful diagnostic experience and unmatched by anyone else in any PIMS anywhere that -- no surprise that, that allows us to have a different conversation with these customers about this is an efficiency benefit, but also better medicine. And you also get the benefit of our artificial intelligence, helping you drive the next steps or interpret maybe a test, you don't see that often. So the real efficiencies we can bring come from that opportunity. And so no surprise, we're seeing a net gain in those -- in that base of ezyVet customers that had a different mix of diagnostic than we had in our cloud base.

I think the important thing to reinforce as well as the -- we talk about relative to competition, but our -- the bigger part of our strategy, of course, is trying to grow pet healthcare and as part of that diagnostics. And we have compelling consistent data that as practices engage with our solutions or software solutions, the more they're engaged with that what we -- the innovations that we can bring, the faster they grow. And it's very consistent over time, and it's accelerating now in terms of the differentiation that we're able to offer. And this is reflective of years of investment and integration of information management with diagnostic solutions. And so I think the -- for us, it all comes back to helping our customers provide better care. And through that process, they will go faster. And the steps that we've taken have only reinforced that. And we're -- as we're going through this, we're building a big and successful profitable software business as well.

Got it. Maybe one quick one came in from client on that topic. What's the penetration rate in U.S. clinics for PIMS software overall? And what is IDEXX market share in PIMS?

We typically don't get too specific on kind of share estimates. I think that -- most practices, I think, have PIMS. I think the solutions of some type. I think what Mike was highlighting is that has transitioned to be particularly where the growth dollars are being invested being cloud-based. And so I think we're very well positioned to support that ongoing transition, which we think makes a lot of sense for most practices globally in terms of the size of these businesses and just the capabilities we can bring. And so I think that will help us to continue to grow our software business and our overall presence in practices.

Okay. Fair enough. Michael, I want to touch on one other part of your umbrella at IDEXX, and that's corporate [ tax ] as you're talking a little bit. We've seen a continued drive towards consolidation in veterinary care. And by most estimates, we see something like 30% to 35% of vet clinics are consolidated and represents 40% to 45% of the industry revenue. So can you talk a little bit about how IDEXX is positioned with corporate practices, your relationship, what are the value adds you provide?

Yes. Thanks for that, Mike. As you suggest, 40-ish percent of revenue in the U.S. market is consolidated. That's a pretty strong market. They've been very aggressive, as you know, in putting equity checks to work, to buy practices and consolidate. Given the cost of capital and some of that dynamic, I think it's not surprising that there'll be a shift, we're sensing a shift as these customers lean in to focus on operationalization of that network that they've built and the timing we can just sense from the leadership teams who we have deep relationships with recognizing that the way they're going to operationalize many of the things, whether it's a medicine -- medical protocol or it's a consumer practice engagement program or it's a preventive care wellness environment they want to deliver. All of those things have to be in some ways locked in via software. And so those conversations have been really rich for us, in particular, in the last 6 months where we're just seeing those decision-makers sense that they've got to focus there and they're going to have to make some decisions on software, in particular, to support the workflows that they want to drive across their networks. And so we just feel really fortunate to be able to help them do that. And our relationships are really strong, right? We've got deep diagnostic relationships with them. We've got deep software relationships with them. As Brian said, the more you use, the better it gets with us. And no surprise, if you use all of our things together, you buy 25% -- 20% to 25% more diagnostics than if you don't. And so it's just -- and the corporate groups understand maybe even better than the individual practices that this is a key driver of their business, and they need growth. So we're an increasingly important partner not only on the diagnostic as a revenue driver and better medicine but also just software to lock in those workflows on a consistent basis across hundreds, and in some cases, thousand plus hospitals. The only way to do that consistently, you can train and train and train and then people will just go back to the way they do things in some cases. If you do that plus -- workflow plus software, plus training, which is really powerful, then you're going to get a more consistent outcome and that's going to drive the profitability and growth of our customers.

Got it. Makes sense, Michael. We just have a couple of minutes left. So Brian, I want to give you a couple of rapid fires on the P&L. I want to make sure we don't ignore that. Anything that we should be mindful of in terms of year-over-year from 2022 to 2023 in terms of investment priorities? Where is the -- where are the incremental dollars going? And then I have a couple of more specific ones to follow up on there.

Yes, consistent with what we've emphasized throughout our development. I think we lean in on innovation and commercial engagement, and that's where you'll see growth in terms of our investment year-over-year in terms of what we're prioritizing. And I think that's factored into our financial outlook, and I think we'll look forward to sharing as we always do progress on those fronts as we work through the year.

And we had a lot of questions specifically on new product introductions, R&D. At the Analyst Day, you've highlighted 2 new instruments you're focusing on. I realize that's still at some point down the road and you haven't exactly announced them. But any way we could think about launch -- historical development or launch examples we can think of Catalyst, SediVue. Is there a pressing that we should think about in terms of how to think about new boxes coming to market?

Yes, I think we've had -- we've mentioned in the past, it's usually a few year cycle, depending on what you're developing. These are new platforms in clinic diagnostics, incremental testing categories. And we have a great track record of working with -- it's not just our own development, but working with other companies that have innovations, and we had some investment in in-licensing of technology and that helps us to advance those. So you should expect more on this in the future. And these -- the benefits of these innovations are multiyear, right? We're continuing to see the ProCyte or hematology platform is we have over 8,000 installs to date. So we're tracking towards that 20,000 placement opportunities that we highlighted. And these things build on each other and kind of a Technology for Life orientation that we have as a company enables us to build on the long-term growth and utilization that we continue to see in this business. So we're excited about bringing new innovations that will build on that track record and look forward to sharing more on that as we -- we'll typically share more on that as we get close to commercial announcements and that will be our time table for providing information on the front.

Okay. Maybe I'll squeeze in one last quick one just on new products. You've showed some updates in recent months in the area of oncology testing that you've got the OncoK9 that you're offering through the reference lab, and you also got the new [indiscernible] test that you started talking about a couple of months ago. So can you talk about cancer diagnostics, Companion Animal care, how these assays fit in, what do you see as the opportunity here longer term?

Well, we're excited about the oncology space. It's 6 million senior dogs a year are diagnosed with cancer. And naturally, we'd like to diagnose it earlier because every cancer that gets diagnosed earlier results in a better outcome. And so [indiscernible] is one of those examples where we're able to get really quality diagnosis early, and it's consistent with our company approach of preventive care, right? So it reinforces the power of this being a more consistent panel way to run a medical protocol and confirm things earlier rather than waiting for the symptom to become evident. And so we're super excited about that partnership. We think it's going to be -- it's an expansion of our oncology platforms. And we think increasingly, it's going to be a growing opportunity...

It fits in well our emphasis on preventative care and adding screening capabilities. So it's a nice expansion of those offerings.

Got it. Thanks, Mike, Brian. I would keep going as a lot more we can talk about, but we're already over time. So I'm going to have to end it there. Thanks again for joining us. Always great to chat and catch up and appreciate your time.

Thanks, Mike.

Thanks, Mike.