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

Good morning, and welcome to IDEXX's 2023 Investor Day. It's a great pleasure to welcome you to our worldwide headquarters here in Maine, and welcome those of us who are joining through our global webcast. I'm Jay Mazelsky, President and CEO of IDEXX. And we have what I think you'll find to be a very informative 4-hour program this morning. I'll also be joined by members of our management team, who will highlight selected topics and areas of their responsibility. Let me quickly go through the agenda and set the stage for this morning. I'll start off with a review of the IDEXX opportunity, our strategy and the overall sector. I'll be followed by Dr. Tina Hunt, who has responsibility for corporate strategy, sector development and global operations. Dr. Hunt will spend time providing an industry update as well as the Companion Animal diagnostics sector. Dr. Mike Erickson follows. He heads up our industry-leading point-of-care franchise. He'll talk about its capabilities, our strategy as well as the opportunity. Mike Lane, who has responsibility for our global reference lab business, telemedicine as well as our IT group. We'll talk about the depth and breadth of our reference lab offering and how it serves as an extension of the veterinary practice. Michael Schreck who has responsibility for our software business and corporate accounts, spend time talking about the strategic nature of software, how it's used by independent practices and, increasingly, corporate groups who look to standardize their processes at scale using IDEXX software. So that's the overview of the businesses. And then Jim Polewaczyk, our Chief Commercial Officer, will bring it to light with a facilitated discussion with Dr. Daniels, a Caring Paws Animal Hospital at Odessa, Florida. Thank you, Dr. Danielson, for joining us this morning and participating, sharing your perspective on the state of industry practice at IDEXX partnership and helping you achieve your objectives. And then we'll conclude the formal parts of the presentation with a financial review by Brian McKeon, our Chief Financial Officer. And we'll have, if all goes to schedule, 20 minutes for question and answer at the end. Just a quick reminder, our safe harbor disclaimer is available on our website. And so with that, let's get started. Today, we'll spend time framing the enduring growth opportunity enabled by our long-term strategy. The key to our success -- the key to our strategic success has been consistency centered on this notion of developing the global Companion Animal diagnostics marketplace. And in doing so, remaining consistent, we've enabled very strong top line growth, represented by the near doubling of annuity revenues over the last 5 years. And we still see a significant decades-long opportunity before us to develop the sector. Consistent with an updated view of a $45 billion TAM. Innovation has been the foundational component, solving, bringing solutions that solve the veterinarian's most vexing clinical and business problems. A commercial model where we engage through partnership and trusted matter advisers, all consistent with our customers' priorities. And these factors combined, provide an opportunity for double-digit top line growth, higher profit margins and a higher return on invested capital. The great thing about being in this business and supporting the profession is it's purpose-driven. Our employees are here because they resonate, they're passionate about the purpose. And our strategy is consistent with our purpose, which is to be a great company that provides exceptional long-term value for our customers, our employees and our shareholders. And as we grow, we have this incredible opportunity to help make the world a better place for pets and animals, people and our planet, very consistent and aligned with our strategic priorities and initiatives. At IDEXX, innovation is key to our success. As a growth company, we rely on great employees. We're diverse and engaged in workplaces which are dynamic, supportive and representative of the customers in which we serve and the communities in which we live and work. I would refer you to our corporate responsibility report, which we published last month in which it has information through 2022 on the initiatives that we support: providing greater access to care for animals, protecting life's essentials like water supply and doing our part to create the future better workforce. Let's move into a little bit of how we've done as a company. And the financial profile in front of you is over the last decade plus. And you can see that we've accelerated growth over time based on our focus on innovation, our expanded commercial model, but also our integrated multi-modality solutions in clinic instrumentation and global reference labs. The key driver of this revenue growth has been this durable high return CAG diagnostics recurring revenue. These revenues are generated by consumables in our expanding installed base of premium instruments, animal test like 4Dx Plus and tests that we sent out to the reference hubs. And included in that are specialty tests. CAG Diagnostics recurring revenue, as you take a look as a percentage of the company through 2022, is 80% -- approximately 80% of the company. It is -- revenues have grown faster, faster than the organic revenues of the company, building off this accelerated pace that we saw during the pandemic. And one of the reasons for this faster growth is the incredibly attractive and dynamic sector tailwinds, which make the industry in which we are blessed to serve and support so attractive. And you can see a number of these tailwinds in front of you. My colleagues and I will talk this morning about the implication -- the impact and the implications of these. But the expanded pet population as an example, which grew pretty dramatically through the pandemic and continue to build off that higher base, evidence that the average lifespan of pets, especially those who are going to the veterinarian are increasing. And Dr. Hunt will spend some time where we have some pretty, I think, unique data and a view on what that looks like and the implications for the business. The strength in pet-parent bond continues to strengthen, the humanization of pets, the younger demographic of pet-owner households we think are all incredibly positive. And then the role of innovation, not just product innovation, which may be more obvious, but care delivery channel innovation and the way it provides greater access that the patient care. So our decade's long focus on innovation and developing the companion animal diagnostics opportunity, testing and software, we think, positions us extremely well to be able to take advantage of these opportunities. Technology. So the IDEXX business is highly resilient even through potential macroeconomic impacts in part due to the sector tailwinds that I described. You can see from the chart in front of you that we've grown at a healthy premium to personal consumption expenditure. In fact, at the peak of the Great Recession in 2009, we grew the CAC business from a revenue standpoint grew at approximately 5%. And our business is appreciably different than it is back then, far more capable, which gives us confidence in the durability of our business and business model. So for example, we now commercially represent ourselves with our customers as trusted matter advisers. It's a big difference. And we continue to expand. We continue to expand our commercial footprint in partnership to support our customers. Our innovation portfolio is so much stronger than it was. Look at our premium instruments and the new premium instruments, CAT One, since then, SediVue, ProCyte One, a biomarker assays and menu like SDMA and fecal antigen, our software portfolio and the extensive nature of that software portfolio, and the list goes on. And we offer very customer-friendly programs, which we didn't have back then like IDEXX 360, which provides access to technology. So all these things in combination give us confidence that we're really well positioned as a company. And you combine that with the secular trends that I spoke to, we think supports the durability of the business. Let me talk about one of the most important secular trends in some additional detail. And this is the strengthening pet human bond, the humanization, the pet. And this is some data, this is IDEXX data, more recent from a survey standpoint. And I think what it highlights is those of us who are pet parents have a deep emotional connection with the pets as members of our household and family and our willingness to really support them in their health and happiness and well-being. The number I'd like to cite, which I find to be absolutely amazing is that 84%, taking care of my pet's health is as important as taking care of my own. And this isn't just an empty sentiment. Pet owners tell us that they're willing to prioritize. They're willing to prioritize health care spend at the expense of other categories to be able to support the health and well-being of this member of their family. And you can see from this chart that even though overall pet spending is relatively modest at about 2% of PCE total, some of these categories, depending upon the consumer or pet owner, are fairly substantial. And they're willing to prioritize personal grooming services, live entertainment, going out for dinner, all of those things to support the health of their pet. So we think that this is a significant and an important data point as you look at potential -- current and potential macroeconomic factors. So next, I'd like to pivot from talking about demographics and the sector as a whole, now going to the companion animal diagnostics opportunity on a global basis. So this is a chart that we've shown in the past, updated, and represents approximately a $45 billion TAM for companion animal diagnostics space based on the significant opportunity to enable an increase in the standard of care across all regions, supported by these attractive sector dynamics, but also our strategy and the successful execution of our strategy as well as others. And the foundation of this estimate, it all comes down to increasing the relevance and appropriateness of diagnostics testing over time. And even in the U.S., which is, by far, the most advanced market in terms of the use of diagnostics testing, it's still underdeveloped. And I'll share with you data that makes that point. Let me quickly go through this TAM buildup and the assumptions behind it. We start with the U.S. We take a look at wellness and non-wellness visits, and we apply to that best practice benchmarks, and I'll share with you what those benchmarks look like in a couple of minutes. We also take a look at clinical standards as a way of ascertaining what should the relevant use of diagnostics be. We do something very similar internationally. We make some adjustments for mix because it's more of a sick patient testing market. We apply a reasonable manufacturer level estimate of between $75 and $80 for wellness, $115 to $120 for non-wellness, and you get the numbers in front of you. So no matter how you look at this, U.S. versus international, wellness versus non-wellness the served TAM at only 15% of this $45 billion potential represents a very, very sizable opportunity. Let me go now a step deeper and go into the split of U.S. and our international regions, keeping in mind that our international regions is not a single country. It's a mix of many countries and regions. But this is a good place to start to go to the next level. And you could see from the chart in front of you, that the mix in the U.S. between wellness and non-wellness visits is relatively balanced. And we think that's an important benchmark because we know from our own that, in fact, 1 in 4 well dogs are not actually well. They may have a chronic condition, they may have an early sick -- or illness that hasn't been detected, which then drives the medical services envelope. In contrast, our international regions are more sick patient testing from a practice standpoint. And it may be that the veterinarian has hypothesis in terms of what may be ailing a patient and test to roll out that particular condition. But when you talk to veterinarians in these regions, they'll tell you they're very open preventive care testing, very open to wellness testing and open to using diagnostics as part of those testing protocols. It's really just a question of belief system and creating awareness and education around the importance of it. So no matter where they are in their own belief journey, we're there to support them. We have innovation and differentiated innovation. We have programs like our Simple Start program for preventive care, which takes a programmatic approach to being able to support the practice and their objectives. We have a commercial organization, which is so much more than account managers to include professional service vets, field service representatives, internal medicine consulting, a group to really support the practice and their objectives. So as we move these customers through this journey, what we have seen as a result of this and other factors, is that medical services continues to grow. It has become fastest-growing part of at least the major categories within the practice. So this is an interesting chart. This is for the U.S. And what this shows, a couple, I think, of important takeaways: that the average size of the practice over the last decade-plus has nearly doubled. It's gone from $1 million to just south of $2 million. But the mix of medical services has grown very substantially as part of that. In fact, if you take a look at the growth rate on columns on the right, what you see is medical services has accelerated in terms of its growth relative to the other areas. And when you speak with veterinarians, they'll tell you, "We're not surprised by that. That's what pet owners want. They want the absolute best possible care. And that's why we went to school. This is our passion as veterinarians, to provide this care." And then there are some other factors like product sales have migrated outside the practice, especially in areas like specialty diets. And so we think that -- and you see that diagnostics is considered really part and parcel. It's the enabler to medical service growth. You can't treat unless you first diagnose. And to diagnose, you very often have to use blood work. So it's a key driver in being able to enable a step-up in the standard of care, but it's also a key driver in practice economics and practice profitability, representing nearly 30% of the practice profit contribution. And it's, again, not surprising. Diagnostics is a profit center within the practice. It's not only used to cover the cost of the diagnostics, but other products depending upon the procedure as well as the veterinarian's activity and value add as well as his or her staff. And so it's a collection, if you will, of our consolidation of the medical activity within the practice. And we think that, if anything, it's going to continue to grow and become a more prominent, or from a mix standpoint, a more substantial part of the overall practice. And one of the reasons it's going to continue to grow is that the pet population continues to grow. We saw this like enormous step-up in the number of pet additions over the 2 years of the pandemic, 10% versus 2% for that 2-year period. And Dr. Hunt will spend some time, and she'll go into some additional detail and speak about that. But it continued to grow in 2022 about 2x faster than what we've seen from a pre-pandemic level. And the significance of that is that as these puppies and kittens, they will become young adults and cats, and as they age, they use more health care and they use more diagnostics, both in an absolute dollar sense as well as a proportion of the total mix. So our strategy as a company is to be able to drive the relevant use of diagnostics through all life stages of a pet's life because we think it's just so effective in uncovering disease and providing the veterinarian with the tools to identify with the best possible treatment is. And so we've seen a steady increase in diagnostics both from an adoption and utilization standpoint. In fact, almost 50%, almost 50% of clinical visits include some diagnostic. It could be just heartworm or vector-borne disease, fecal screening. And if you go a bit deeper and subset, you can see from the chart on the right, that blood work which includes chemistry or hematology is much, much less. That's about 19% of clinical visits. And you see there's wide variability across the deciles and then there's a group of practices that use a lot. So this is a chart you're going to see throughout this morning that includes chemistry or hematology -- or chemistry and hematology -- chemistry hematology and urine. It's, I think, a great representation of picking what -- you often think about as an average into the real-life world situation of the -- on a practical level, the wide variability that you see. And so when you talk to those practices, at the top 2%, which are a very substantial number, what they'll tell you is, "Diagnostics is a part of our care protocols. It's embedded in our workflow. All the doctors within the practice follow the same protocols themselves. We think it's just the way you should practice medicine." And so they made that they made that journey. And we have a number of strategies. Throughout this morning, for me and my colleagues, you'll hear about these strategies. Then we have to drive this utilization from left, right to increase what we think are relevant, important enablers to better health care. And it starts really with innovation in our solution set, that we provide an integrated multi-modality solution set. And so my colleagues this morning will talk about point-of-care and reference labs and software and the way it all ties together to support the workflow in the practice. I want to spend a couple of minutes and talk about software because of its importance and then Michael Schreck will go much deeper and talk about our strategy with respect to that, which is customers consume or they access our test, the software, take that VetConnect PLUS, it not only provides the test result, it provides the trending in point of care as well as reference labs for 10-plus years, if that data is available. It provides patient context and patient interpretation. And, in some cases, with DecisionIQ, next step recommendations. So it's an important part of our overall solution set, it's an approach that we've taken that really puts the customer at the center of very purpose-built solutions. And we know our customers appreciate that. They have told us so that this combined innovation-enabled offering results at a very high level of customer satisfaction and customer loyalty. So let me now describe how we do this because it's not an easy thing to actually accomplish, and it requires a large cumulative investment in R&D and innovation. And the mix of that investment is spread fairly evenly across research, new instrumentation, platforms, biomarker, assays, software and data, all of those things to get this best-in-class integrated solution offer. And we develop products and solutions to the very firm set of first principles. So for example, for our platform approach, we looked and develop a platform versus a single point solution, a platform that offers extensibility, that provides more capability, more features over time. And this isn't just for point of care, it's in our reference labs and also software business. Catalyst is a great example of this, and Dr. Erickson will speak at some level of detail to that. We also have a highly productive biomarker assay discovery process. This is an area that we've invested decades in. We have really advanced it in terms of discovery, but also getting new assays out on the market. In fact, we've taken, in many cases, 2 to 3 years of the product development schedule. And you've seen the practical efforts of that. We also develop supporting disease franchises, not just single conditions that may be at the systems level. So if you think about our vector-borne disease franchise, 30-plus years of development; our renal franchise, where we've in the past year just released FGF-23 for felines that identify the window or the stage or appropriate intervention. And Cystani B, which Mike Lane will speak to it some depth which identifies acute kidney injury, which we think is a very, very important contribution. Next, I'm going to talk about our point of care strategy and our platforms and how we think about that, as I set out what Dr. Erickson is going to go in more detail. So I'm very excited to share that we intend to announce our new point-of-care platform -- newest point-of-care platform at VMX in 2024 and begin shipping later in the year. So VMX, for those of you who may not be familiar with it, biggest global animal health trade show in the world, 23,000, 24,000 attendees last year. Just a great platform -- a great event platform to introduce a new point-of-care platform to. And point-of-care platforms, it's a big deal for us. Point-of-care platform -- all things considered, when you talk to veterinarians, they'll tell you, "If I can test in that clinic within that 10 to 20 minute patient window, I would like to be able to do that or I'd like to be able to have the option to do that." But I don't want to sacrifice performance. I don't want to sacrifice accuracy. I want it to be easy to use so it doesn't take 10 minutes or 20 minutes from a sample preparation standpoint. I wanted to fit within the workflow of how we practice. I don't want to turn the practice upside down to be able to use that." So these are -- this is a philosophy that we've adopted that we live to that we think is important. Think about ProCyte One and the easy use of Procyte One, the accuracy that we've been able to deliver. SediVue 5 drops, 3 minutes. It automates, I think, what is otherwise a very manual process. So this is something that we're very proud of, that we adhere to a fixed set of design principles designed to really support the objectives of our customers and represents an important vector of growth for us when we introduce a new point-of-care platform. There are some very obvious things, we call it direct benefits. The revenue you get from the equipment itself, the consumable stream as we update from a technology or life standpoint, you get a more expansive menu. Dr. Erickson will share with you some modeling that we've done based on real-life examples and the importance of that. I'd also say it expands access for us and our commercial organizations into new greenfield accounts as well as competitive accounts. For whatever reason, we haven't been able to form the type of partnership we would like with those customers. And increasingly, these platforms generate an enormous amount of data and insights that we can use within our software solutions to be able to support patient interpretation as well as overall clinical decision support. And keep in mind that most of our platforms, and I'll share some data in a minute, are placed through these very customer-friendly programs, marketing programs like IDEXX 360, that provide access to this technology and that inspire use of our broader solutions in global reference labs, in rapid assay and software. So it's an extremely important event for us and we think it's -- our customers -- it's something our customers are looking forward to. So let me talk a bit about our customer-friendly marketing program, IDEXX 360. This has been extremely well received by customers. You can see that for the U.S., the majority of our placements now happen through this. And in fact, outside the U.S., we got started a bit late by intention, by the way. It requires some level of localization. But customers tell us they love it, too. It's a way to access technology on a very, I think, friendly set of terms and potentially inspire the use of our broader solution set. So it's this combination of our commercial organization, the way we engage innovation existing but update it through technology for life as well as new innovation, customer-centric programs like IDEXX 360. All of these things combined help drive diagnostics testing utilization. And you'll hear more about these this morning. You also hear some other strategies we have, but it's an important part of our overall business approach. And this is a picture, think IDEXX 360 and point-of-care instrument placements, of the opportunity still before us. We have today, our installed base of premium analyzers. It's about $120,000 or so. But if you look at this, and this is an on-market -- currently on market product, we think the opportunity before us is about who 2x that. And so our playbook that I described of being able to continue to provide the most contemporary technology to technology for life, working with customers, helping to support their objectives and workflow represents really a sizable opportunity still before us. And this is for existing platforms. With new point-of-care platforms, the opportunity is only going to be even more significant than what you see in front of us. Very importantly, I often get asked, okay, so you have this great opportunity for point-of-care placements. Doesn't that cannibalize, doesn't that hurt your reference lab business? It's a fair question. The answer to that is it doesn't. There isn't cannibalization. In fact, what this decile chart shows you is that testing begets testing. As the customer -- as the veterinarian test more, they use more of both modalities. And veterinarians will tell you they use a combination of point of care and reference of, and just the mix depends on a number of things. What's my individual preference from a practice standpoint? What's a patient's situation? Is the patient coming in sick? Maybe I want a test result in 10 minutes and be able to treat that patient. Or maybe it's a well patient or a specialty test and I need to send it out to the reference lab. So it really does represent an opportunity to allow the customer to practice on their terms. On their terms, they get to be able to choose what they want to do. And in fact, what we see is customers who use our diagnostics, our full integrated multi-modality suite, grow faster. They stay with us longer. They use more diagnostics. So let me share with you some data, I think, which characterizes this well. But an important first question that always comes to mind is, why is this the case? You can see from the bars and the chart in front of you that our data tells us it is the case. And there are a couple of reasons. And the first reason comes down to the fact that we're not just placing or selling a solution. We're supporting the customer. The relationship starts after that solution gets placed. This commercial organization we have has a partnership mentality. There, they're a subject matter experts to support the customer through what I described as professional service vets, the internal medicine group, field service representatives who are all prior veterinary technicians of 10-plus years. So they support the customer and they're there to be able to help them. The second reason is, and Michael Schreck will go into this in great detail, is that our solutions are integrated. So you're able to capture the activity, the charge, invoice the customer, support staff productivity, optimize workflow, do all the things -- communicate to the client, all the things that are important to running a successful practice. And you could see that the clinical visit growth of the IDEXX practice is faster than non-IDEXX right? They can see more patients. They're more efficient. And the third reason and an important one, is the differentiation of our solutions. We uncover more. We uncover more when the well patients is not well, think fecal antigen or a vector-borne disease or when the patient is sick and being able to provide highly differentiated parameters and biomarkers as part of a manual that is able to give the veterinarian the tools that he or she needs to determine what the problem is. And you can see, based on average diagnostics revenue and average clinical revenue, there's about a 200 basis point advantage in terms of using IDEXX diagnostics. So we think that's very significant. And our integrated multi-modality approach, because we give the customer the flexibility to choose on their terms how they want to use our solutions, but we've inspired them to use more of our solutions and testing products over time. And you can see for the U.S., we're well over 50% at this point. And that's something we're very proud of. We think our solutions all work better together. But importantly, it's also true internationally. These are 2 expansion countries, I picked out significant expansion countries 2019 to 2022. What you see is they're also inspired to use more of our solutions and growing quite quickly. We think this supports the premise, the importance of giving customers solution sets on their terms, being able to make sure that the investments that we've made, integrating it and providing seamless workflow experience is realized and, in our belief, further supports the investments we've made in our commercial footprint and commercial expansions to be able to work with customers. But it's not just existing customers, new practices are an important part of our focus. And this is for North American data, new practice formation represents about 1% or so of total practices on an annual basis. And you've seen through our IDEXX 360 new practice program that we've been able to grow fairly substantially the partnerships, 4x, the partnerships we have with new practice formations. This is an extremely important initiative and result for our business. These are new practices that are starting. They want the best in technology, contemporary modern technology, not just from a diagnostic standpoint, from a software standpoint. They want consultation. They want to be able to ramp and grow over time. As they grow, we grow. And we've designed programs to be able to support them. In fact, a couple of, I think, important data points. 75% -- approximately 75% of these new practice formations that we partner with buy our entire in-clinic suite, so chemistry, hematology and SediVue. Over half of these practices are also using our diagnostic imaging equipment as well as our software equipment. And there's a lot of focus on software, as you can imagine, in these practices. They want to make sure that they get off to the right start. I think practice owners appreciate that when they buy a PIMS system and a technology end-to-end technology stack, that's something typically that they're going to live with or very long time. And you could see that there's benefits for the and there's benefits for us. These are IDEXX practices. On the left, those are practices that don't use their software. In the middle, those are practices that use our diagnostics but also use our PIMS systems. And then on the right, more of an end-to-end technology approach where they're also using VetConnect PLUS in mobile for. And you see the amount of diagnostics, the use is fairly substantially more. And Michael Schreck will speak to that and speak to some of the reasons for that. Let me begin to tie a couple of things together. Over the past 5 years, diagnostics revenue has grown faster than practice revenue, which has grown much faster with premium clinical business as veterinarians are providing the care that we, as pet owners, ask of them and that want, and as veterinarians, they want to be able to deliver. And this is supported at a practice level, and this is for the sector, 10-plus percent diagnostics revenue growth. But what you see is, as IDEXX, we've outgrown the sector, and we've outgrown the sector at a fairly appreciable basis over 300 basis points of recurring revenue. And the reason for that are all the reasons that I described this morning: the differentiation, the way we engage our customers in a partnership model, subject matter experts; the overall value proposition, including customer support and customer success; the end-to-end. So it's all these things, all these things matter, and has resulted in this very strong value proposition. And I'm going to share with you a little bit of a different cut, these are for our international countries and region expansions. And what this shows is the role, to highlight or spotlight, on the commercial engagement piece. What this highlights the role of our commercial team, again, within this partnership mindset as trusted advisers. When they call on customers as subject matter experts and are trusted, the customer grows faster. And we, in turn, grow faster and sometimes appreciably faster. So these are 3 expansion countries you see. It actually doesn't matter whether these are existing IDEXX accounts, we still grow faster, or competitive accounts. Obviously, we grow much faster because these are -- they're not using ourselves today. So the playbook that we've developed in the U.S. very successfully works extremely well outside the U.S., and I think supports the investment thesis of the importance of partnering with customers with an ecosystem, with a commercial system that supports their objectives and is aligned with their objectives. And so the investments that we've made just over the last several years, 7 international country expansions outside the U.S., really, over the last 2-plus years. And from our perspective, this has been successful. We know how to do this. It's typically a relatively short return on the investments that we make. And I announced this part of our Q2 earnings call that we're doing a modest investment in the U.S. So we're excited by that. We think there's still tons and tons of opportunity even in the U.S., our most advanced market, but still relatively underdeveloped from the standpoint of best practice benchmarks and clinical standards. And in doing so, along with the other elements of our strategy, we believe that this supports the $45 billion TAM in that opportunity I described earlier. But it's not just commercial engagement. As people tell you, it's the customer experience. And all those things are extremely important to them. They want to be able to focus on their patients and they want us to be able to focus on supporting them and do what we do best. And you can see that we -- there's lots of different ways measuring this. We have customer satisfaction surveys for events. This is a Net Promoter Score, which gets at the loyalty element of this. And across all our major modalities, we have world-class customer loyalty, as represented by Net Promoter Score to a double-blinded survey. And this gets back to a couple of things that we do, and I think we do quite well as a company. During the pandemic, customers didn't have to worry about business and product continuity. We were there for them. They could focus on the patients and the surge in patients. We were able to maintain turnaround times, invest in logistics. We had, in some cases, spend money on things like broker buys to make sure that the products that they needed were there when they needed them. And then coming out of the pandemic, we continued to invest. And you'll see some of the investments we made, whether it's in reference labs or logistics centers or IT systems, all the things that create what we think is world-class capability. And what our customers tell us is world-class capability. And then this gets reflected in very high retention levels. And these retention levels, it's a dimension of our growth formula, and this is for the U.S., but we have very similar or even higher retention levels outside the U.S. for our products. And these are customers who are voting with their wallet and loyalty and saying, "We like what you're doing for us. We appreciate the investments that you make in the profession and our practice that allows us to achieve our objectives." And we think that, again, it's this combination of the approach that we take, our technology for life, orientation of keeping customers completely updated on features and functionality and capability, which is important and then which reinforces the durability of our CAG Diagnostics recurring revenue business. So let me now tie it together over the next couple of minutes. We see this consistent approach and opportunity for a $45 billion TAM, supported by the diagnostics sector growth, strong execution and increasing the standard of care. These projections are calibrated to reflect the increase in blood work utilization in a couple of different ways. In the U.S., it's really a function of taking what the top end of the marketplace, our sector is doing today and saying, "Let's bring up the average across the sector." So 25 years, we believe that from a sector development opportunity, that the use of diagnostics will be much more substantial, more in line with what that top tier is doing. Internationally, we're saying as a result of the efforts that I've described and what you'll hear this morning, we believe that on average, which is about 7% of clinical business include blood work, it can be at the average of what we see in the U.S. today. So I think that these are reasonable estimates, reasonable approaches as a result of the potential to bring innovation and commercial engagement and awareness education and, ultimately, consideration and use of our diagnostics. So in conclusion, we have an amazing business. It's attractive, durable, recurring revenue business model. We're a leader in a sector with tremendous growth opportunity. We're well positioned based on decades-long investment in capability and infrastructure to really be able to tap into this opportunity, increase the standard of care, enabled with the use of diagnostics and services and software, and grow this business while continuing to provide exceptional financial returns. And so with that, I'd like to introduce Dr. Tina Hunt, who heads up our Corporate Strategy, Sector Development and Global Operations Business. She's going to provide an overview of the overall companion animal diagnostics sector and industry update and share with you some, I think what you'll find to be very interesting data. Tina.

Thank you, Jay. Good morning. That's my beautiful girl, Ishka up there. Very good morning to all of you. At IDEXX, we are very fortunate to participate in the pet health care industry, which is strong, resilient and very attractive globally. So this morning, we will review some of the underlying sector trends that point to the long-term and very durable favorable tailwinds. As Jay highlighted, there is massive multi-decade opportunity ahead of us to continue developing this sector by executing strongly on our strategy as a company. One of the big headlines during the pandemic was an unprecedented increase in pet adoptions. The health benefits of pets are pretty well documented, but there was an even more acute focus on the companionship and well-being, the absolute joy of having pets as part of our family. Even last year, with an increasing number of remote employees returning to on-site work, the pet population, this is the net pet population, increased at double the pre-pandemic average of about 1% globally. So in U.S., over the past 3 years, the pet population has increased by 12%. And we see this phenomena pretty much everywhere around the world. Pets have become an increasingly important part of our lives and our families, and we expect that this trend will continue. So who are these new pet parents? I see many of you in the room. While all generations have adopted pets over the last couple of years, there is an outsized contribution from the Gen Z and Millennial pet parents. Together, these cohorts make up 45% of the dog owners in the U.S. today. They will soon be the majority. These younger pet parents are even more attached to their pets. They pay a lot more attention to their health. They are, as Jay highlighted, much more willing to spend on the medical care, sometimes even above their own. As the data in the middle row shows, each generation of pet parents places a greater importance on regular checkups, on wellness exams as well as preventive diagnostics than the generation before. So a very favorable demographic trend. And these younger parents, they have -- they're digitally native so they have different expectations. They want online scheduling, digital communications, immediate access to information. So veterinary clinics are leaning in with the latest software and technology in order to meet the needs of these younger customers. So now let's look at the pet demographics. This data from almost 9,000 U.S. practices shows that as pets age, they have increasing needs for medical services, medical care. And diagnostics increases both in percent and dollars of the total spend. Now let's add to this the surge in pet population, the 12% in U.S. over the last 3 years. And most of these pets were adopted as puppies and kittens. As these pets continue to age, they're going to have growing health care needs over their lifetime. It's a very strong tailwind for our business. And we can further help build on this trend by executing on our core strategy of advancing pet health care with our innovations and our unrelenting focus on the success of our customers and their mission, which is very closely aligned with our own mission of helping pets live healthier, longer lives. It's based on the fundamental belief that access to higher-quality health care, enabled by our diagnostics and technology, will have the same benefit for pet life spans as it has done for human longevity. I am so thrilled to share this brand-new data with all of you this morning. These are pet life spans for 2.5 million dogs and cats. Since 2010, the average lifespan of a dog has increased by 12% or 1.4 years, and for cats, by 1.7 years or 14%. Wow. There could be several reasons for this. The stronger bond resulting in a higher quality of life, more pets have access to health care, better diagnostics, diet, drugs, which results in more positive patient outcomes, health outcomes. For dogs, smaller breeds have a longer lifespan, so mix is a factor. And more cats are exclusively staying indoors now, which is safer for them. Whatever the causal reasons, these longer lifespans translate to a meaningful driver in the growth of diagnostics spend over the life of a pet. This is very encouraging data. And also on a personal level, I'm sure many of us in this room have lived through the heartbreak and sorrow of losing a pet. Their lives are way too short. I personally have lived through many life spans of my own pets, and I'm elated at the prospect of having a couple of extra years with Ishka and my 2 wonderful cats. But there is much more that can be done here to keep building on this trend. Let's go deeper into the data that Jay shared earlier. Of the pets coming in for a clinical visit, 81% do not get any chemistry or hematology blood work, which is just routine diagnostics to understand the health status of a pet. On a more positive note, the clinic visits that do include blood work, at 19%, today have been steadily increasing at a clip of 50 bps annually. It is instructive to look at the chart on the right, which shows the blood work inclusion rate by practice deciles. Huge variability in behaviors, ranging from only 6% of the practices including blood work in the lowest decile to 34% in the top decile, all the way up to 40%. The practices on the right are showing what's possible. It's just not widely distributed yet. Let's double click into this data. As Jay highlighted, non-wellness testing remains the largest driver of diagnostic utilization and revenue globally. Broadly speaking, a non-wellness visit includes pets that are not well, maybe coming in for surgery, or are just not feeling like themselves, which is a common pet parent descriptor. Only 1 out of 4 of these pets on average, pets who were not well and cannot tell the clinician what's wrong with them, only 1 out of 4 gets any blood work. There is a huge opportunity to continue increasing the frequency and utilization of diagnostics. We can do this without adding one more clinical visit, just a frequency and utilization of diagnostics. Most veterinarians will agree that they would love to have that information as they're trying to diagnose what's wrong and dwell up the care plan for the best possible health outcome for the pet. As a pet parent, I would expect nothing less. Would you? We are further expanding the breadth and depth of the tool set, the clinicians tool set with our new test menu innovations, contextualizing the patient -- individual patient health status with deeper clinical insights with the technology. My colleagues will talk more about this in their presentations this morning. Shifting gears from non-wellness to wellness testing. Here, on average, only 1 in 9 pets gets blood work during a wellness visit. The charts on the right going to the massive opportunity to increase preventive diagnostics in young and adult pets who make a majority of the wellness visits today. The wide distribution at practice level that you see in this decile chart and the ones on the previous 2 slides is a result of it's underpinned by a set of beliefs. Our job is to help customers along their belief journey with our medical evidence and education before we can convince them to change deeply embedded behaviors. The top 2% of clinics, there were almost every second pet get preventive diagnostics, intuitively know or believe the data that I'm about to share. Why are diagnostics during a wellness exam important? There is strong evidence that incorporating routine diagnostics, chemistry with SDMA, hematology and urinalysis in preventive visits at every age. It not only helps establish a healthy baseline for their pet, it can uncover hidden or subclinical health issues which may not be as obvious. This latest data shows the likelihood of finding clinically relevant abnormalities with preventive diagnostics in seemingly healthy dogs at every life stage. Of note, by adding urinalysis, we see 50% more findings. There is a reason why urine is called liquid gold in veterinary medicine. This data is even more compelling for cats, who are very good at hiding their illness and pain. Is my cat who is laying comatose by the window just enjoying the sunshine or is there something else wrong with him? The only way I can know for sure is through regular check-ups with diagnostics. This translates to extra years with our pets, keeping them healthy by diagnosing things earlier because you have to diagnose before they can be treated. Our commercial teams are partnering with clinics with a full suite of tools, best practices, protocols, client communication resources to help them implement preventive diagnostics. The trends that we talked about, humanization of pets, increasing pet ownership, greater access to medical care. These are true in most countries around the world. While we see tremendous runway to increase utilization in U.S., there is phenomenal potential to keep growing this sector globally. As part of our broad sector development efforts, we follow the proven playbook of developing and publishing rigorous scientific evidence, getting the buy-in of opinion leaders and extensive customer education. Let me share some examples of some of the work that we do in these 3 areas. Our customers rely on our evidence-based approach to help guide diagnostic protocols and clinical behavior. An example of this is the dog parks and dog walks study that highlighted the broad prevalence of intestinal parasites in dog parks across U.S. and Europe. Our medical marketing and sales teams are doing a remarkable job of bringing this information to our customers so they're aware and can act on it. This has translated to over 150% increase in the fecal volume coming to our reference labs in U.S., where we started much earlier. And an increasing majority of these panels include fecal antigen, our highly differentiated offering. Since we often introduce innovative diagnostics that are brand new to the industry, we partner with key industry groups and global thought leaders and meet their very rigorous standards first. We did this when we added tapeworms to our fecal antigen offering with CAPC, or Companion Animal Parasite Counsel. Mike Lane will talk more about this new menu addition. Another example is the strong advocacy and endorsement of our renal biomarker innovations by IRIS, which is a global organization of highly regarded nephrology experts. It started before the launch of IDEXX SDMA. Its subsequent inclusion in IRIS' chronic kidney staging guidelines, all the way up to the upcoming launch of Cystatin B, which already has strong advocacy for the role that it will play in diagnosing and treating acute kidney injury. This early endorsement of key opinion leaders is critical for us as we prepare and educate the broader customer base on our new innovations and helps accelerate market adoption. To inspire belief journey and help influence customer behavior change, we deliver extensive education to our customers globally. They look to IDEXX and over 700 veterinary professionals to expand their understanding of the latest advancements in veterinary medicine. We delivered this free continuing education through multiple channels: our professional services veterinarians in the field, an online learning center, a myriad of in-person education events, an example of which you see up there, and publishing hundreds of peer-reviewed articles. Our customers also value consulting with our highly qualified specialists on difficult cases. So there's a lot that we do in order to -- this is the broader ecosystem that Jay talked about, our innovations and the efforts that we do to continue developing this sector. Now let me pivot to talk about the demand and capacity dynamics of the veterinary industry that many of you are very familiar with. We believe that the underlying demand for global -- global underlying demand for pet health care is strong and durable and will continue to grow. After a tumultuous of like highs and lows, veterinary clinics have established a more stable operating rhythm. They're adding staff and no longer cutting back on hours. They have adapted to a new more balanced normal. This chart illustrates the significant, very significant uptick in clinical visits during the pandemic, especially in '21. Veterinary clinics were very busy, complex hectic places to begin with. Now you add this unsustainable growth on top of that. It is no surprise that they needed to reset to a more manageable operating cadence. If you step back and look at it, the pullback is actually very modest. Over the last 5 years, clinical visits have grown at a CAGR of 3%. Veterinary staff is seeing a lot more pets today than they were in 2018. And they are building off this much higher base, but they're also realizing that they can't keep doing things the same way. It is not sustainable. So they're investing in software and technology. And we are positively influencing with productivity to help them serve these growing pet health care needs because there's still a latent demand out there that is not being met. Almost 1/3 of the pet parents that we surveyed in U.S., U.K. and Germany just a couple of months ago said that they had a hard time obtaining veterinary care when they needed it. So the demand is clearly there. These pet parents are looking to take their pets to a clinic. They just haven't been able to get timely care. The data from Bureau of Labor Statistics shows that veterinary clinics are adding staff. Their ability to pay better wages as a result of the recent price increases is probably helping here. This doesn't show, however, the hours worked or the productivity of the employees. We believe that we can help clinics with significant untapped productivity opportunities. Earlier this year, we published our landmark, Finding the Time study, based on very robust data, clinic observations and analytics. This publication includes very practical playbooks that veterinary staff can leverage to first understand where they are on the productivity index and then how to dial up specific productivity levers in 3 categories: workflow, technology and culture. This study was very well received by the industry, and we're starting to partner with clinics to help them incorporate some of the best practices tools and technology. There is much more that we can do here, especially by scaling with digital workflows and best practices with our corporate customers, Michael Schreck will touch on this a lot more during his presentation. IDEXX's deeply integrated software and diagnostics ecosystem greatly optimizes clinic workflow, resulting in significant efficiency and productivity benefits. The more we can automate the manual and repetitive tasks in a clinic, the more the staff is freed up to do work that only they can do, practice to the top of their license. For example, by digitizing communications with pet parents, which is a very manual and time-consuming process today, or helping busy clinicians move faster through case management, leveraging our AI-powered insights and tools. Saving even a few minutes per patient can quickly add up to hours in a day for the veterinary staff, hours freed up that they can now devote to seeing more patients all while keeping balance in their lives. We are hugely vested in making our customers very successful. There are a lot of pets and pet parents that are counting on it. So let me wrap up by summarizing some of the key points. We stay very bullish about the animal health industry and believe in its tremendous long-term potential. Pet populations increase everywhere around the world. In U.S. alone, there were 21 million net new pets over the last 3 year. As these pets grow older, they are going to have increasing healthcare needs and they are living longer. The pet-human bond is only getting stronger, with pet parent demographics moving increasingly towards a younger generations who have an even stronger conviction on the importance of diagnostics. And at IDEXX, we're not sitting still as we continue to help develop this sector with our technology, diagnostics, software and deep customer engagement. My colleagues will share a lot more about this, starting with Dr. Mike Erickson, our Head of Global Point of Care portfolio. Mike will provide an update on the strong execution and the very exciting innovation strategy across that portfolio. But first, we'll take a 15-minute break. Thank you. [Break]

Okay. Welcome back from break, everybody. We're going to get started here. Good morning. I'm Mike Erickson, and I'm delighted to share an update with all of you on our IDEXX Point-of-Care Diagnostics lines of business. The stakes are high at the point of care. The pet is in the practice and the clinical team needs answers fast while the pet is still there. Doctors need results that they trust, with accuracy that matches our highly sophisticated reference labs. They want to know that their diagnostic equipment is outfitted with the latest and best technology that's available. And of course, all of this has to be integrated back into their clinical workflow and their practice software. These are the incredibly stringent veterinary practice operating requirements that our IDEXX Point-of-Care diagnostic solutions deliver on more than 400,000 times a day all around the world on behalf of more than 0.5 million practice team members and more than 100 million pets every year. So let me talk a little bit more about this requirement around time to results. We call it the IDEXX Real-Time Care workflow. All of our IDEXX point-of-care analyzers are load and go. And what that means is that the sample goes from the pet to the analyzer with less than a minute of handle time and the results come back in under 10 minutes. This 10-minute time to result is crucial. This is what enables the practice team to plan and actually implement a treatment plan while the pet is still in the practice. This is what enables them to go into surgery with confidence that the patient will survive anesthesia. This is what enables them to communicate their diagnostic results, and importantly, the value of their clinical interpretation of those results to the pet parents when they come in to pick up their beloved family member. We know that practice teams are slammed, Tina showed the data, and they don't have time for messy, multistep sample preparation. Diagnostics in the practice has to be intuitive, it has to be hassle-free. It has to be all of those things without in any way compromising the quality of the results. We understand the requirements, and we are executing on behalf of our customers all around the world to ensure that they're getting the point-of-care diagnostics experience that they require to be successful. So I want to talk a little bit more about our execution track record. 2022 was another record year for premium instrument placements, and that continued into this year with more than 9,000 premium instrument placements in the first half of the year and a record second quarter, both for overall placements as well as placements into new and competitive accounts. And as part of this, we've just been absolutely delighted by the positive response to ProCyte One, our latest new platform innovation. Strong ProCyte One placements have brought that installed base to just shy of 11,000 globally, and we're just 2.5 years into the launch of that instrument. And keep in mind that all of these different platforms work together as a suite, such that the, for example, attach rate of ProCyte One, the Catalyst is over 95%. So if you take all of these things together, these high-quality placements, a growing installed base, expanding menu and utilization, high satisfaction and loyalty and realization of price for the value that we're providing our customers, all of these together underpin our consistent double-digit growth in VetLab recurring revenue. And that's continued into this year. We saw 15% VetLab recurring revenue organic growth in the second quarter. So what enables this kind of consistent execution? It's really 2 things. It's a combination of the strength of our customer-facing teams, partnering with customers all around the world, and our industry-leading point-of-care solutions. It's people and its product. Jay talked a bit about the people in our customer-facing organization. I want to talk more about our point-of-care product suite and what sets it apart. It starts with our instruments. At IDEXX, we design and develop our instruments from the ground up to meet those stringent performance and cost requirements for veterinary practice that I talked about. Our instruments are purpose-built for that use and they're purpose built to work together. Over the past 40 years, we've invested to build world-class capabilities across the entire multidisciplinary spectrum of assay development, instrument engineering, data science and embedded software, practice workflow optimization, large-scale manufacturing and clinical study validation. Now at times, we do in-source innovation from partners on the outside, but we never just put an IDEXX name badge on someone else's piece of equipment. We are intimately involved in every step. We customize, we tailor, we integrate, we make sure that it meets that high bar and that everything works together. And when we build a new platform, we're not interested in being incremental. We bring forward new platforms where we are confident that we can provide game-changing capabilities at the point of care in the form of dramatically expanded clinical insight and transformational workflow. Take SediVue, for example, a complete urinalysis 4 to 5 drops a urine in under 3 minutes, a fraction of the effort and time that's otherwise required to do that using a centrifuge, making a slide with a microscope or a slide scanner. Take ProCyte One as another example, unprecedented ease of use in point-of-care hematology combined with sophisticated laser flow cytometry, all in a very compact benchtop footprint and at a very accessible price. Jay talked about the new platform that we're announcing at VMX next year. And I'm very proud to say that, that platform will be built by IDEXX here in Maine right alongside the ProCyte One and Catalyst One instruments. Now as good as our instruments are, they also just keep getting better. And this is because of our technology for life strategy, this constant drumbeat of new innovation, new capabilities that we bring to all of our platforms over time. This is an example for the Catalyst, 9 new tests, 12 years. Catalyst does chemistry testing, immunoassay and electrolyte testing all at the point of care, multiple new slide programs in flight. In fact, our next new slide for the Catalyst will launch in the second half of next year. And I should add that customers who adopt our new specialty slides on the Catalyst also exhibit a 7% higher growth in their core chemistry slide utilization. So there's a very compelling multiplier benefit from these new slides in addition to their greenfield growth contribution. The outcome of technology for life for our customers is that their investment in their IDEXX platforms actually appreciate over time. A Catalyst that was purchased 8 years ago is every bit as capable and every bit as valuable as a Catalyst that's purchased today. The practice team could go home on a Tuesday, come back to the practice on a Wednesday and find that their catalyst has new capabilities, more menu, updated software. And all of this happens behind the scenes automatically via the IDEXX smart service connected network. So let me talk a little bit more about one of our newest slides on the Catalyst, and that's IDEXX SDMA. Now as a reminder, IDEXX SDMA is remarkable for its ability to detect a decline in kidney function far earlier than the alternative. And this is really important, not just for early detection of kidney disease, but also because the kidneys are a way station for a whole myriad of different clinical issues, everything from hypertension to cancer. And so as a result, inclusion of SDMA is very important for the blood work for all pets, sick and well. Now in our Reference Labs at IDEXX, we automatically include at no additional charge SDMA in every chemistry panel that we want. So the inclusion is 100% by definition. It's a little different for the catalyst. For the Catalyst, customers need to see the value and opt in and actually pay to add the IDEXX SDMA slide to the catalyst. And you can see, in North America, we're closing in on 1/3 of all the chemistry panels run on the Catalyst now including SDMA, strong affirmation of its value. [Other] way, around the world, 2/3 of all Catalyst customers are actively purchasing SDMA slides. And last year alone, we sold more than 5.3 million of these slides. And we expect this to continue to grow as we continue to partner with customers and inspire the inclusion of SDMA. Now when we bring new innovations like IDEXX SDMA to the Catalyst or to any of our platforms, I shared how the platforms appreciate in value for our customers. They also appreciate in value for IDEXX. We measure this with something we call the economic value. It's just a 7-year forward-looking cumulative gross profit view. And what you can see is that the economic value for the Catalyst has more than doubled since 2014 when we launched the Catalyst One. This is a powerful example of technology for life combined with instrument platforms that are fully connected and have the versatility to expand their clinical use cases over time. So I've talked about our instruments, talked about how we make those instruments. I talked about technology for life. The next source of value that underpins our consistent execution at the point of care is the fact that all of our IDEXX point-of-care platforms are part of IDEXX's fully integrated diagnostics and software ecosystem. Jay showed this slide earlier depicting how our point of care diagnostics, our Reference Lab diagnostic software, it all comes together into a seamless solution for our customers. I just want to focus you on the circle there on the left, the point-of-care circle. All of our IDEXX point of care platforms, instruments are connected to IDEXX smart service. This is our global Internet of Things platform connecting all of our instruments around the world. This is what enables us to automatically bring new capabilities to these platforms, as I described before. This is what enables us to proactively monitor and manage instrument health all around the world. This keeps practices up and running. This keeps doctors focused on their patients. This is what ensures that when customers run their diagnostics on IDEXX instruments, all the charges are captured into their practice management software and on the invoice. This is also what enables us to support seamless diagnostic workflow protocols where testing may begin in the practice but then reflects to the IDEXX Reference Lab for deeper analysis. And all the results for that patient merge into VetConnect PLUS and are powered by IDEXX DecisionIQ. All of our instrument platforms are plug and play into this existing ecosystem. This ensures that at launch, they're part of the suite, they're integral part of our total offering. We've been on this integration journey for decades. It's hard work, but it's built into the fabric of how we innovate at the point of care. So let me now turn to our point-of-care suite and to the question of adding new platforms to the suite. I first just want to echo Jay's excitement about our 2 new point-of-care platforms and our announcement at VMX next year. Now with this news, you could be asking or probably asking how these new platforms generate value both for our customers and for IDEXX. And Jay shared an overview of that. I shared some examples with the Catalyst. I wanted to further bring this to life using SediVue as an example of a new point-of-care platform and a new testing category. The first part is the direct economics. And here, it's important to appreciate that new platform economics grow in value over time. In the beginning, we're focused on building an installed base. And consistent, strong instrument placement drives that steady revenue, instrument revenue line that you see there. But as the installed base rose, it drives layer upon layer of diagnostic recurring revenue. And as we expand utilization with those customers, that adds another vector of growth. And so you see, over time, that diagnostic annuity stream accelerating. Now in addition to these direct economics, there are also very compelling multiplier benefits that come from new platforms. Take a look at the left-hand side of this slide. And what you'll see is that SediVue dramatically expanded our overall contributions in the urinalysis testing category. And note to Jay's earlier point with respect to point of care in labs, it did not cannibalize the Reference Labs at all. The Reference Labs grew really strongly over the same period. It turns out that practices, doctors, they have very distinct clinical reasons for wanting to run their diagnostics either in the practice or sent to our Reference Labs. And in the case of urinalysis, even when they're sending samples to our Reference Labs, they're almost always also running urinalysis in the practice. It's just that it was really kind of labor-intensive to do that before SediVue with its [ slide-free ], load-and-go technology and AI and highly accurate base interpretation. So that's the story on the left. If we look at the right-hand side, what you'll see is that our best customers see the value in our total, suite and they go all in with us, including SediVue. And these customers enjoy a 3.5x higher growth in virtually every category of testing that we measure. Testing begets testing. This is a consistent benefit that we see from all of our new platforms. Now another multiplier benefit is data. New platforms generate new streams of data and insights that we, in turn, can harness to provide even more powerful and more intuitive diagnostic interpretation algorithms for our customers. With SediVue, [indiscernible] we've seen more than 1.2 billion images. And we've used that to roll out a whole series of updates to SediVue's AI-based neural network interpretation engine, which is enabled faster, more accurate and more decisive insights for SediVue customers. So to summarize, new platforms generate value in multiple ways for our customers and for IDEXX in both direct ways and indirect ways. And this is the outcome of the instruments being in their own right outstanding, but also the combination of these instruments into a comprehensive, cohesive and purpose-built suite. Next, I want to close out my presentation by sharing a brief update on our Rapid Assay business, which is a very important part of our overall point-of-care offering. Our SNAP franchise and platform is a truly remarkable story. It goes back 3 decades to the launch of our canine heartworm SNAP in 1992 followed by a number of investments in innovation, moving into multiplex capabilities, expanding into new testing categories. More than 700 million SNAPs have been run over the past 3 decades benefiting countless millions of pets. And today, there's just no question that SNAP is the trusted standard for rapid testing. It has superior accuracy. It's the only rapid test that's a true end-to-end solution. And it has a Net Promoter Score of 80. And that means that effectively, it's all promoters. And there's essentially no detractors, very, very high advocacy. And as you can see on the left, these investments that we've made in the SNAP have resulted in accelerating growth in the franchise, which has continued into this year. We saw 11.5% global recurring revenue organic growth for SNAP in the first half of the year. Now I just want to expand a little bit on what I mean by end-to-end solution. What this means is SNAP brings together these 4 different components. It starts with superior accuracy, and SNAP stands apart for being backed by more than 350 peer-reviewed publications. The second piece is SNAP Pro. So customers put SNAP into the SNAP Pro, and it does all the work for them. It runs the test. It records the results. It gives time back to the practice. And in fact, if you add up all of the time from this, it amounts to over 48,000 FTE days worth of capacity that our customers are benefiting from as a result of SNAP and SNAP Pro. That's a lot of capacity that we're giving back to the profession. And then because SNAP Pro is part of IDEXX's fully integrated ecosystem, SNAP is fully integrated. So all the benefits of integration also accrue to customers when it comes to SNAP. That includes charge capture. We know that when diagnostics aren't integrated, charges get lost, but that doesn't happen with SNAP. And we're giving our customers upwards of $70 million back into their practice P&Ls every year, thanks to SNAP integration. And then again, because of this integration, SNAP results are powered by VetConnect PLUS and IDEXX DecisionIQ. This end-to-end solution is highly beneficial for our customers. And in turn, it translates into higher utilization growth and loyalty for SNAP. Now what's also remarkable about SNAP is that as long as we've been at this and as strong as the growth has been, we're still in the early innings of addressing the unmet need for vector-borne disease screening all around the world. This is a slide for the U.S. And what you can see is only 1 out of 5 dogs are getting full screening, which includes not just heartworm, but also Lyme disease, anaplasmosis and Ehrlichiosis. These are 3 tick-borne diseases that are -- been rapidly spreading across the country. They've got confirmed presence in all 50 states. And if we just focus in on that 17% segment there, those are dogs that are coming in, are getting screened, but only for heartworm. That segment alone represents a $200 million opportunity for SNAP. So we're focused on that, and we're focused on working with our customers, bringing this data and helping to inspire a higher standard of care with full 4Dx Plus screening technology. The bottom line here is that there is a huge runway for a growth and for elevating the standard of care when it comes to vector-borne disease screening all around the world. And so in closing, I just want to thank our entire cross IDEXX team that supports our point-of-care businesses. This team is steadfast in the commitment to partnering with customers and to elevating access to high standards of care for point-of-care diagnostics all around the world. And we are executing on this mission day in and day out. And by doing this, we're generating material value for our customers, for independent practice customers, for our corporate customers as well as for IDEXX. And we have line of sight to a tremendous path ahead for continued growth and innovation, both in our existing platforms and our new platforms. So thank you very much. And with that, I want to invite my colleague to the stage, Mike Lane. Mike leads our Global Reference Laboratory business and IT. Mike will talk about innovation and service excellence in the lab.

Thank you, Mike. Good morning. It's a pleasure to be here with all of you to share the significant momentum and tremendous opportunity we have in front of us as we execute our innovation, growth and profitability strategies for Global Reference Laboratory services. The momentum of our execution is the result of 30 years of cumulative investment in developing highly advanced capabilities, unparalleled global network. From our first laboratory in Japan 30 years ago to our newest laboratory in Perth opened just last month, this global network of 80 laboratories delivers the full breadth and depth together to our customers of our diagnostic menu, now 65,000 customers around the world to give you a sense of the timeliness of the diagnostic results. 7 million courier stops a year, picking up samples in the morning and delivering results that same day or picking up samples in the evening and having those results back the next morning or during the next day, all supported by a global network of medical specialists that form a follow-the-sun service network, increasingly 24 hours a day, 7 days a week, 365 days a year to provide exceptional service and extension of the veterinary practice in their care team, also supported by a lab information ecosystem that supports the unique needs of our global network and powers VetConnect PLUS with the most differentiated and timely diagnostic results. Now 1.2 billion in scale, these highly advanced capabilities in R&D, IT, logistics, network, menu, commercial capability enable us to deliver exceptional service day in and day out to our customers. Foundational to delivering this service day in and day out is VetConnect PLUS. And we've invested heavily in VetConnect PLUS as the go-to diagnostic resource for clinical insight and workflow efficiency, elevating standards of care. VetConnect PLUS is one of a kind, combining and unifying diagnostic results across modalities in the palm of your hand, available anytime, anywhere at no charge to our customers, from diagnostic ordering to checking on status of results to sharing results in high-resolution digital images with pet parents so they understand the health of their beloved pet. This is a foundational element to delivering this exceptional service. This is what I mean by exceptional service. Jay shared our high customer loyalty north of 97%. We measure customer loyalty in a variety of ways. This is a recent Net Promoter Score result for VetConnect PLUS world-class north of 60. And you can see the value that our customers place on VetConnect PLUS. In fact, those practices engaged with VetConnect PLUS grow twice as fast and are 6x more loyal. Also foundational to this delivery of exceptional service day in and day out is our highly differentiated diagnostic menu in consulting services. We've got a long track record of investing in R&D to develop novel markers to help veterinarians elevate the care that they can provide to their patients. And we've done it again in 2023 with 3 significant menu additions starting the year with the Nu.Q canine cancer screen, further expanding our portfolio of cancer diagnostics. Also over the past year, introducing flea tapeworm to our fecal antigen technology, expanding our parasitology offering. I'm really excited about further expanding our leading renal diagnostic portfolio later this year with the addition of Cystatin-B. We have tremendous opportunity to continue to grow diagnostics, support our customers and partner with our customers through our trusted advisers in the field. This is a snapshot of our U.S. customer base, 23,500 practices. Over 2/3 of U.S. veterinary practices send some diagnostics to the IDEXX Reference Lab. But you can see a full breadth and depth here. And there are many practices that don't send us all of their testing, and there's tremendous opportunity to further partner to increase this. This may be because they use multiple laboratories for certain testing or it may be because they're doing some of the testing themselves. For example, looking through a microscope for eggs in a parasitology sample, which with our fecal antigen technology, we can support them as an extension of their practice and help their practice efficiency. In other cases, they may not be doing the testing at all. For example, maybe not fully having adopted care protocols like IDEXX Preventive Care. We see similar patterns of adoption and penetration and opportunity around the world and tremendous opportunity for our field trusted advisers to partner with our customers to continue to grow diagnostics. An example of this is IDEXX medical consulting. IDEXX medical consulting is a team of 700 medical specialists. These are highly trained veterinarians that generally have either PhDs, board certification in advanced disciplines, for example, anatomic pathology, clinical pathology, radiology, cardiology. And they partner as a direct extension of the care team of the veterinary practice generally on the most difficult cases that the general practitioner is facing. Important to recognize a general practitioner is dealing with such a wide variety of patients in any given day, dealing with well and preventive, providing nutrition advice to pet parents. And when they're dealing with their most difficult cases, this is often when they reach out to this team of IDEXX experts to support them. An example of how we support the veterinary practice with these most difficult cases is cancer diagnostics and our end-to-end solution around cancer diagnostics that we continue to develop. Nearly 150 million dogs and 90 million cats around the world are at risk of developing cancer. In fact, in the U.S., cancer is a leading cause of death for dogs. 6 million dogs a year impacted by cancer. But cancer is complicated. It's not one disease. It's a collection of diseases and conditions. And this is an example where we can help the veterinarian. Starting with our core diagnostics at the point of care, as Mike described, ProCyte hematology being so important to cancer case management or our point-of-care digital cytology solution where we can provide in less than 2 hours, 24/7, 365 an expert interpretation for a lump and for a bump that's commonly found by a pet parent or by a veterinarian on a dog or a cat. This leads further to advanced genomic tests and liquid biopsy tests at the laboratory, all supported by this network of board-certified radiologists and clinical pathologists, building on 1.5 million cancer pathology cases that we receive already today. And we look forward to continue to innovate and invest and develop this diagnostic category to support tens of millions of pets around the world that can face cancer An example of a diagnostic category that we have developed over a number of years is parasitology. Tina touched on the global opportunity here. Recent pan-European study, 1 in 4 dogs tested positive for parasite. With the addition of flea tapeworm, our fecal antigen panel is now that much more relevant globally because flea tapeworms are anywhere there are fleas, and there are essentially fleas all around the world. Notoriously difficult to detect because flea tapeworm often does not result in eggs in the sample. This is a real breakthrough in testing with thousands of patients benefiting from the detection of flea tapeworm. So whether it's a laboratory looking through a microscope for eggs or it's the practice themselves looking through a microscope or a point-of-care instrument that's looking for eggs, it's not generally going to find flea tapeworm. In fact, the way flea tapeworm is generally detected prior to IDEXX fecal antigen is by the pet parent finding these worms on the pet or in their home. Highly unpleasant for the pet parent and unhealthy for the pet to go undetected. So fecal antigen technology finds what the microscope misses, in fact, 5x more of these common parasites. Another diagnostic category that we've been developing for a number of years is in renal category, and Mike Erickson touched on this. This is the importance of the kidney to the health of the patient. This is why IDEXX has invested so much over a number of years to develop this area to support our customers. And we're really excited to introduce Cystatin-B with a play out of the SDMA playbook adding Cystatin-B to 2 million non-well panels looking for kidney injury, first in the industry test for kidney injury, which is about 1/3 of kidney cases. This novel biomarker backed by IDEXX IP is a breakthrough in kidney injury detection. And we'll support all the recurring revenue growth drivers just like IDEXX SDMA, supporting our trusted advisers in the field to earn new customers. You can help customers grow with this higher standard of care as well as support loyalty. And Cystatin-B is integrated as part of our full renal diagnostic solution with SDMA for kidney function, SediVue at the point of care where urine [fresh is] best, FGF23 we introduced last year to support veterinarians with nutrition decisions related for cats with chronic kidney disease and now Cystatin-B, all integrated in the middle here with VetConnect PLUS and DecisionIQ. Now as we develop these diagnostic categories, whether it be cancer or parasitology or renal, we see that as standards of care increase, testing increases at both the Reference Laboratory and point of care. You heard this multiple times today. Here are 2 more big data studies, decile charts like Jay described, for chemistry and hematology. And you can see the split that as practices test more, they test more both at the point of care and the Reference Lab. If you think about a couple of care journeys that illustrates this, think about that well pet coming in, in that early preventive care screen goes to the Reference Lab. But 1 in 4, just based on chemistry and hematology, the veterinarian and the pet parent discover more. They discover an abnormality. And that abnormality may then be monitored at the point of care ongoing or another patient may come in not well. And of course, the veterinarian takes advantage of the full power of the IDEXX VetLab suite in real-time care as Mike Erickson described. And then they may find something that they need more advanced or confirmatory testing at the lab. So testing begets testing. As we grow diagnostics, as we expand standards of care through our differentiated diagnostic tests and services, we're also by design enhancing productivity and efficiency in the laboratory. Each of our laboratory departments utilizes a combination of automation, digitization, AI to deliver the most accurate and timely results, which leads to efficiency and productivity in the laboratory. For example, the way we develop assays like IDEXX SDMA and Cystatin-B on our high throughput chemistry allow us to add this higher standard of care to panels at no additional charge without impacting lab productivity or add fecal antigen to our novel multiplex platform with flea tapeworm now with actually higher productivity and efficiency in the lab. And we're increasingly digitized across our global network of images for our specialists, providing the ability to level load and support the productivity of our specialists with cases around the world and increasingly with AI tools that help our laboratory technicians and our specialists focus on what only they can do with expert interpretation and take away some of that administrative in workflow steps to enhance their productivity. So as we expand standards of care by partnering with our practices to deliver these novel markers to expand and elevate care, we see high loyalty, the foundation of recurring revenue growth and as you can see, accelerated growth. And we also see expansion of profitability through efficiency. And we've got a long runway, as I've described, to continue to grow diagnostics and see this dynamic of growth and expansion of productivity and efficiency. So let me summarize by saying our customers rely on us deeply as an extension of their practice, as an extension of their care team. And we take that very seriously. And what we do is not easy to support that. And we're after it every day, all day around the clock, developing advanced capabilities over 30 years in network, in IT, R&D, commercial capability, logistics in an incredibly talented and dedicated global team that wakes up every day to support the really important mission that the veterinarian has and their team to care for the pets in their hands. Thank you. I'd now like to introduce Michael Schreck, my colleague, who leads IDEXX Veterinary Software and Services and Corporate Accounts.

Well, thank you, Mike and Mike. I hope you're enjoying the Mike triple play. It's like having 3 Mikes for the price of one. It's great to be here with you. I'm Michael Schreck, and I'm responsible for our Global Veterinary Software business as well as corporate accounts, which is our enterprise -- our largest enterprise customers, and we support them through that group. I'm excited to be talking about software today and the momentum we have in the business and particularly talking about it in the light of our corporate accounts and their changing dynamic. So that's something I'm going to highlight as we walk through. The convergence, you'll note that I've added corporate accounts to my [indiscernible] since we last met. And that's no accident. IDEXX is committed supporting the growth of our customers through the commercial software and diagnostics. And you've gotten a sense from that from every presentation previously presented. It's critical. It drives growth for our customers. It creates capacity [indiscernible]. Our corporate customers are looking for organic growth in a way that they need it. And software is going to deliver it in a more powerful way at scale, and so that relationship is very powerful. Now on a personal note, I've been here at IDEXX for 3 years. And I can tell you that we've been preparing for this moment the whole time I've been here. This is a once-in-a-generation moment. This industry is migrating at scale from on-prem to cloud systems. And those modern tools and technologies, which I'll highlight, are critical to finding time, creating capacity and raising the standard of care. And only IDEXX has prepared to do this at scale with resources, technology, talent. That's why we're so committed to cloud-based software. To kick us off, I want to highlight a few things that I talked about last year and a few things that are new. On the continuation front, I said software would be at the center of our customers' most important priorities, raising practice productivity, elevating the standard of care, deepening connections with pet parents. That's never been more true than today. Now IDEXX committed to be a cloud-first software company, and I'll describe as I walk through this why that's so critical to the success of this industry and the growth of our customers. It's also yielded a high margin, high growth, high retention standalone business. But I hope you've gotten a glimpse. It does way more than that. It delivers what this industry needs right now. It needs to find time. It needs to deliver capacity. It needs to help balance the lives of these practitioners, and software is going to play an outsized role in that. Now corporate groups, I've mentioned already, and you've heard their experiences are changing. Acquisitions are down. Inorganic growth is not the lever it was. Organic growth is going to be the key. Now speaking as a management -- member of a management team, going from one side with inorganic growth to organic growth quickly, swiftly, that's hard to do. And so IDEXX is leaning in to support our customers, especially our large enterprise customers, with enterprise-class software, best practice digital workflows and obviously, the instruments and lab environment that we have, that integrated ecosystem. And it will all be further enhanced and powered through artificial intelligence. It's put simply this way. You've gotten the sense through this morning, I hope, the more you rely and use our ecosystem, the faster you grow. And the more diagnostics you utilize, and your standard of care rises. Now this is a different visualization of the slide that Mike and Jay presented, which is our software ecosystem. You've heard we've been investing in this for decades, and it's critical to our diagnostic experience. Our customers experience their diagnostics through our software. And software is how we add differentiated and sustainable value to our customers, whether it's through workflow or whether it's through insights or whether it's through integrations. And you get a sense for that here. And ultimately, we want -- however you order your diagnostics from us, we want you to have a seamless and consistent experience. Now one of the things here that's new is the other [revenue], which is, again, giving what our enterprise customers need. This industry has built most of its software applications focused on the practice and its needs, which makes total sense. But the enterprise customers, who will be over 50% of the revenue in this industry, they need different tools. The C-suite needs different tools. Regional management needs different tools. Whether that's the insights at the C-suite level, control of the practices, creating automation and standardization, having unified data platforms, having security that's appropriate for an enterprise-class organization, all those things are things that we are bringing that have never been done in this industry before. Now this is the strategy that I presented last year. It's a vertical SaaS strategy. It's creating a deep and purpose-built platform so our customers get more value the more applications we add to it. And given that this is a once-in-a-generation moment, where the entire industry will be moving to cloud, we committed to be a cloud-first software company. And we've committed to build value-add applications on top of that platform that creates incredible value for our customers. And I'll walk you through some of that. We also have a software team where the sun never sets on our development teams. And we did that by design. Essentially, that gives us 3 shifts globally every day to work on our software. And so we're committed to accelerating the value that we deliver to our customers through software. Now I mentioned that one of our key objectives is to add enterprise class features to support our enterprise customers. I'll highlight particularly best practice digital workflow helps our customers find time. And then I'll highlight how artificial intelligence also lets them deliver clinical outcomes with high confidence. So let me walk you through this. I said it all starts with cloud. I'll describe why that is in a second. You can get a sense for the acceleration that's happening in this industry. And when you see how we're performing, you'll probably get a sense for how we're driving it. We committed to this because our industry needs this, and we're committed to leading that change. Now you can see now that the acceleration is already at least 50% faster than it was just a few years ago in terms of the number of practices that are looking at and migrating to cloud. Now why does cloud matter? Let me give you 3 good reasons. There are many, but I'll give you 3. One is, and you've heard it, there is not a single customer that we serve who said, I'm going to go to medical school so I can practice IT. They didn't say that. They said, I want to practice medicine. But when you have a server that's in your closet, I've seen it in their practice's back hub. I've seen it as a lunch table. That's tough. You're practicing IT. And so cloud takes that off their hands, and we take care of that. Second, if you have that lunch table server, you probably didn't upgrade your software recently. So all the great work that our team does around the clock and others in this industry may not be in their software right now. On the cloud, it happens seamlessly, instantaneously overnight. We always -- our customers always have our latest work always. And that's critical because they tell us things every day that they need, and we can deploy it overnight. So that's the second reason. The third reason is really the vertical SaaS strategy that I'm going to walk through, which is we can now create seamless native-like integrations between the platform and value-add applications like payments and workflow and the like. We -- it's much harder to do that on a server. So there's a lot of reasons why helping our customers move to a modern platform to help them find the time that we know they need and deliver clinical outcomes that they want to deliver because that's why they got into the business: to practice medicine. Now we survey our customers a lot. You've gotten a sense for this. One of the things we ask a lot is about their intent to migrate from their on-prem to a cloud-based system. These practice management migrations have been going as the previous chart showed at a modest pace, but it's accelerating. And so you can see here that these practices are telling us that they are 2x more likely to look at a new cloud platform migration than they were just 2 years ago. So we've been watching this because we know it's coming, and we knew we had to prepare for this kind of scale. And you can see and it's -- we're grateful that when asked what would they consider unprompted as far as what would they migrate to, what would be the most likely consideration set, our 2 cloud-based software platforms, we're #1 and #2. Now for those of you that aren't familiar, ezyVet is our advanced cloud-based flagship PIMS platform and Neo is our brilliantly simple general practice platform. And you can see that ezyVet is 3x more likely to be considered than its nearest cloud competitor. So we love our position and we're ready for this acceleration of demand. So how is this playing out in the marketplace? Well, you can see that we're placing 3x as many practice management systems as we did just a few years ago. But what we're most excited about is that almost all cloud. We declared we'd be a cloud-first company, and it's working and the industry is moving. And so we're delighted about that. And we have a large practice management base, as you know. And we are passing over half of them will be on our cloud platforms in 2023. We're the only major player who can say that because we're this committed to bringing modern technology to our customers. So the second part of any good vertical SaaS strategy is you've got to add more value for your customers along the way on top of that platform. And so whether it's payments, or procedure workflow or whether it's marketplaces or whether it's pet parent engagement applications. We've built a whole line of things that add value to our customers. And so the ezyVet and Neo placements this year, over 70% of them have included payments and/or workflow. So it's working. And our ezyVet customer, as an example, their annual recurring revenue this year is over 50% greater than it was in 2020. So it's working for them. It's working for us. And there's a long runway here as far as additional applications and value add that we can deliver to our customers that help them grow, deliver better care and deepen their engagement with pet parents. So how is it delivering -- as far as financial results, Brian will walk through this in more detail, but I just wanted to give you sort of a high-level view. This software segment has been growing its recurring revenue even faster than the company's recurring revenue growth. Since 2019, we've had a 21% compound annual growth rate in recurring revenue in this segment. and it's accelerating. In Q2 of '23, we had 23% growth year-over-year in recurring revenue in this segment. So when you have recurring durable revenue and you add value through additional applications, and then you have high 90% retention you get operating leverage, you get gross margin leverage. And so you can see here that has grown even faster than our recurring revenue. That's a beautiful thing. And so you can see our gross profit in absolute dollars is over 2x bigger than it was just a few years ago. So we're excited about our software business. Let me pivot a little bit our enterprise-class customers have had a really significant change in their context. You can see that their cost of capital has shifted, high multiples have remained so acquisition activity has slowed. And as a management team and our C-suite customers have made a pretty aggressive pivot towards organic growth. And organic growth is going to require you to run these acquired networks of hundreds and hundreds of hospitals in a standardized way. And the only way you can do that at scale is with software. Now you've seen a version of this chart on the left, a few times. This is slightly different, which is this is an aggregation of a number of our larger customers. But you'll notice, the message is the same, right? The deciles are basically the same. That's because they were acquired and then their practice as they practice independent, they still practice the same as a part of a group. Now if you have to pivot to organic growth, this is an opportunity. This is the single biggest opportunity, which is deliver standardized care across the network. Now to do that, they're facing a situation where they have a collection of practice management system. To be able to operate consistently, you're going to need to have one. And we're grateful. Our customers have leaned in. We've leaned in with them to say, we can help you do this at scale. We've been preparing for this moment. We have the expertise. We have the technology. We have the talent. We have the resources to support you at scale. And so our enterprise sales funnel is 10x bigger than it was just a year ago. The scale here is different. Now in addition to having that, we've also tuned our product in our channel, and our support in our delivery. Because what they need is different than what practices need at the practice level. They need C-suite insight to run these networks at scale. So we've tuned our ezyVet enterprise product, we are unveiling it in 2024. It will be tuned to their specific needs. But as importantly, if you're going to do this at scale, you don't well better have resources, technology and talent to support that kind of scale. And so we've created the first software platform tuned to enterprise, but we've also created the first channel and support mechanism that's purpose-built just for our corporate customers. Let me pivot to workflow. This is critical to our practices, both independent and our corporate accounts. I brought 2 examples today. On the left, this is an example of customers on our software platforms, when they engage with us around best practice workflow, which includes inventory management, digital intake, automated protocols, those customers grow faster. They grow faster, 4x faster than those that don't. They're on the same software platform, but when they train and the software reinforces the best practice, they grow faster. On the right is a different example. To do a consult, often you have to look at multiple tabs in a practice management system. And just to prepare for the console, it's probably 6 to 10 clicks. So we took -- we said, let's just put that in one place, a one-stop console page, and we put that inside of Neo. And our customers that have adopted this we're seeing a 4-minute improvement in how long each visit takes. Now 4 minutes may not seem like a lot, but think about that 4 minutes, that's over an hour per DVM per day that, that creates in terms of capacity, an hour. So whether they use that to treat additional underserved demand, which we know is there or whether they elevate the standard of care or whether they go to their sun soccer game all worthy and software creates that for them and speaks to the important needs of our industry. Mike mentioned this. I think everybody mentioned this, that connects is critical. It is essentially our most powerful and most distributed workflow product. It is how you interface with our diagnostics, whatever modality you choose to use. And we're constantly adding value to this experience. And as Mike said, you'll grow faster if you use it and you're more loyal to IDEXX if you use it. For good reason, I'll give you an example. This is our flagship diagnostic experience. ezyVet is our flagship practice management experience. We spent a year building it, so it's natively embedded inside of ezyVet. You don't need clicks. It's all right there. you can have the full VetConnect experience directly inside of your practice management system. You know what happened? These customers were already ordering 5% more diagnostics than they were before. Nothing else has changed, just brilliant workflow, native integrations, creating value on a cloud platform. Jay showed you this slide. Hopefully, you get a sense for best practices, locked in with software creates value. It creates time. It elevates the standard of care -- it also means you're going to grow faster, and we want to support that and utilize diagnostics at a different level. So whether you're large or small, these are our most loyal customers. Large or small, you'll grow faster if you're on an ezyVet PIMS. You'll utilize diagnostics up to 24% more if you're on an IDEXX or in this case, easy. And as Jay said, if you adopt the workflow that a mobile Vet Connect PLUS will do -- and you do that every day, you'll grow even faster. And in this case, utilized diagnostics to 50% more. You've heard a bit about our artificial intelligence applications. We do that in our instruments. We do that in our labs. We do that in our software. It's a powerful part of how we create value for our customers. This is an illustration because we haven't seen it. I wanted to show it to you. On the left is the VetConnect PLUS result on the right is the embedded artificial intelligence that we call DecisionIQ. So the right looks at the left, using millions and millions of data points and says, I can tell you what the interpretation should be. So now with clinical confidence and hyper efficiency, that clinician can make a diagnosis with absolute confidence. In addition to that, it will recommend a next step. And those that engage with this platform order follow-up testing more often than those that don't. Another example of workflow and data and cloud, creating growth and value for our customers. Now how does that come together? We're excited as this expands to all of the disease categories that we test for. We're excited to come back and tell you about how that's creating additional growth at scale. So stay tuned for this. So let me close. Software is at the heart of the most important things our customers are prioritizing. They need and want practice productivity. They need to find time and we can help them do that through digital workflow, through better user experiences through artificial intelligence. Similarly, they all want to deliver the best care possible. So elevating the standard of care is embedded in their DNA and software can help them see additional opportunities to do that. And if you're a corporate group, having standardized protocols, taking that decile chart and flattening it out creates massive operational efficiency, consistency and organic growth. And of course, you've heard about these digital natives who come out of the wound with an iPhone. They're here, and they're almost half of the pet parents, and they adopted at an incredible rate. And so they expect to be interacted with on their phone. So this all gets accomplished through cloud-based software, bringing our customers to modern tools that allow them to do this and prepare for today and the future. And we couldn't be more excited about that. It clearly yields a very attractive stand-alone software business, and we're delighted about that. But as you can tell, I think we're more excited about the fact that this helps our clients, our customers, find time and deliver better care. It's about enabling growth, and that's what we're most excited about. Now the bottom line is the more you engage with our software ecosystem, the better it gets, the faster you grow and the more diagnostics you utilize. I hope this has given you a sense for why we're so passionate and so committed to being a world-class cloud-first software company. And I hope you've gotten a real sense for why this is so important to our industry and to our customers and how uniquely positioned IDEXX is to deliver against this once-in-a-generation moment to support massive cloud migration and to lead our industry to the future. And I assure you, we're just getting started. Thank you. After break, after a 10-minute break, I'm being told, which meant I went over 5, awesome. My colleague, Jim Polewaczyk, is going to have a conversation with one of our customers, Dr. Danielson. So 10-minute break. Thanks, everyone. [Break]

All right. Welcome back, everyone, and good morning. I'm, Jim Polewaczyk, Executive Vice President and Chief Commercial Officer here at IDEXX. And I am so pleased to be joined this morning for a virtual fireside chat by Dr. David Danielson. Dr. Danielson has been a practicing veterinarian in the beautiful Tampa, Florida area for almost 30 years now. And then 2 years ago, ventured into practice on and he and his wife, Michelle, opened the doors of Caring Paws Animal Practice in Odessa, Florida. And so if we do our job correctly over the next 30 minutes, you're going to hear some great insights from Dr. Danielson relative to our industry the dynamics within a practice and both as a practicing veterinarian as well as now a practice owner as well. So thank you so much for joining us. Thank you for making the track up to Maine.

It's a lot cooler up here, so...

It is a lot cooler. Yes. We ordered the weather especially for you.

It worked.

Yes. That's awesome. So let's dive right into it. So we'll turn the clock back 2 years ago. We're in the midst of a pandemic.

We were -- I was working at a 5 doctor practice at that time and the pandemic changed everything. We were -- we closed the doors, we let anybody in the practice. We -- actually, my wife had a plan to take a trip to Africa. I've been practicing long enough, I had acute a lot of time, everything changed. So we're sitting at home and kind of caused reflection. And this is something that we've talked about over the years, and it's kind of a dream I've had to have my own vision for practice. And decided to do it. And I think it gave us the incentive to take the leap, and it's been amazing.

Yes. So you're 2 years in now. So talk a little bit about sort of the operating rhythm of the practice and what you're seeing from clients these days?

So it's been extraordinarily busy, of course, for everybody. We are -- I had a thought in regards to how to position the practice I do depend a lot on the staff as a sole practitioner. I see about 30 clients a day. And to do that, I actually have teams of both the technician and assistance. I have to 3 teams that I work with. And specifically, they do all the technical work. So it's allowed me to really see a ton of patients and give them good care, but it's been a real growth. I mean, we're out now about 2 to 3 weeks as far as getting booked. So you're still accepting new clients. And we are. It's exciting. And again, I do slide urgent care slots. And actually, I'm I just actually hired an other doctors, so we're trying to ramp up capacity to anticipate him coming on and having that. So that's exciting for us.

So can you share a little bit about sort of the growth you've experienced over the past few years?

Yes. It's been, again, profound over the last 2 years, I think we looked into that. It's growth, and it has been a tremendous amount of, I guess, I'd say IDEXX that helped in that. I have a lot of clients that are seeking me out in the clinic out to solve problems. So I really like the fact that they're seeing value in what we do. And I think it's really fueled our growth.

Yes. So let's take a step back, your sole practitioner for the most part and open 6 days a week. Yes. So we talked a lot today about increasing your capacity and focusing on your productivity. And I know your wife, Michelle, is beating on you every day. Michelle handles all the Backstage operations for the clinic.

So she was Vice President of Raymond James Associates. So when she retired and she has a profound business mine. So we decided she goes the business. I do the medicine, and it's worked out wonderfully well. As far as the practice and trying to maintain that growth, it's really been a matter of having -- empowering the technicians, specifically, it's allowed me to do my diagnostic working stuff that they really do help to run it. And I think of it almost -- I don't say like a restaurant, but I do have an expeditor who helps to guide room 2, room 3, room 4 and I move kind of through the day. And as animals come in, they already have an expectation of what types of diagnostics they want. They've pulled the blood, they do the processor sent it and I don't have to spend a lot of time convincing clients to do things. There's an expectation of what is needed by the patients, by the children actually.

But that takes a lot of work, right? I mean the finding the time study we referenced talks about drivers of productivity and capacity, workflow, culture, technology, you've created a culture in a short period of time that sort of optimizes your capacity. Talk a little bit about how you've gone about doing this?

So over the years, some of the problems have had another in my other practice was I have a vision, to be honest, pets or children. And this has been something I've advocated and for my entire career. I have had children now, daughter, too. But it's mean so much to me that I've expressed that in the practice. And it's a philosophy that from front to back, I want everyone to think about the animal first. It's always a focus down to the animal. And this has allowed the staff to buy in or understand the value of diagnostics. I think of it as a 5-year-old child. If you brought your 5-year-old child in, what would you want? The best. You got the best diagnostics, you wouldn't want anything to be missed. So it isn't difficult or haven't found it to be difficult in getting the staff to understand my desire and to the express that to the clients. and it seems to work. I don't find them spending time struggling to get clients to do what's right by that all because the philosophy is this is a child. And of course, I track people who have that like mind.

So communication is a key piece of culture and some training our staff to have that communication with clients throughout that journey. And so talk a little bit about how you as you recruit and try to retain staff, what's that feel like these days?

It's been hard. It's a different world now. We get -- and again, I don't believe it, but we get costed sometimes we'll have them come in and then just not call or -- so it's a challenge. But I feel that if they do have -- maybe that's a blessing because I want those that join me to share my philosophy, and we are busy. So if they can't handle that environment, then it wouldn't work out anyway. I find that a lot of the staff that have come and are working with me, maybe those I knew when they were little. I've had several now that where part of the other practice years ago maybe work in the time or new of me and kind of then reach out. And I like the fact that they already understand where I'm coming from and share that philosophy. That makes it a lot easier. But I have a conversation right at the beginning about what I expect and what I'm passionate about in regards to if you don't feel the same way I do, that this is a trial and deserves that level of care. It doesn't work, and they don't stay or they decide to go elsewhere, but it's strange that they wouldn't, right? Because I know that we all feel that. I think we all feel that way about our pets and you'd want the person caring figure all have that same like mine.

I think you told me that pets are the new children and plants are to the new pets.

Yes. Exactly that, exactly that.

So you're dealing with clients every day, you're seeing 30 patients a day. What's sort of the average mindset of the pet owner coming in these days? And what are they looking for?

I think that in our practice, they're looking for a relationship where there's a connection there. They know that I'm really trying to keep that bond going for as long as they can. A lot of people seek me out because they know that I'm going to try to achieve longevity, so quantity and quality of life. And so it's also a matter of solving problems A lot of clients are very frustrated rightly so that he's been through 3 or 4 different iterations of trying to fix an issue. And unfortunately, a lot of times, they're not getting good service. So I don't know why that do the culture, do the biopsy, run the allergy screen, do the new cube, if you're fearful of cancer, there's opportunities that I found specifically through IDEXX, where I can answer questions, and it's really a peace of mind. People are looking to know that their animals being cared for, but they want to not have to fear but there's a problem undetected. And so that's really not having that many issues in getting clients to understand that and to buy into it is, it's peace of mind for me, too. I do blood work on my own children for the same reason because I don't want to miss something and feel that I could have done something and didn't have that opportunity.

You've talked a little bit about technology and it has a number of connotations associated with, but what are some of the sort of investments you've made in technology and your practice if you started up that you find most beneficial?

So again, the computer systems, we are using a cloud base, which has helped too, but I've actually invested in tablets now that the staff, I don't really try not to touch the computer actually. I have -- the way I've worked the teams as I have of a technician and assistant, one of acts as a scribe. And as I'm speaking to the client, they're entering those, they entered all the notes. I go over my assessment plan. They have been able to write it out digitally and able to get it put into the system. So I can spend my time interfacing with the client. They hate it. If I spend 3 seconds in, they come over and say, get away because I just -- it's annoying to watch me type. But that has helped. The other things that we've obviously invested in with IDEXX is the -- all the systems. So we're able to do in-house work but also send those out pretty quickly and trying to communicate with clients. I have had to force to get away from voice mail and trying to get away from calling because people dealt answer the phone anymore. People don't listen to voicemails, so I am using e-mail and texting, and that's actually starting to help so I can at least interface with the client and express the value of what we're doing.

You mentioned diagnostics a couple of times. So share with us sort of your thoughts, philosophy on diagnostics, both as a clinical enabler, but also how they contribute to the economic health of the practice as well?

Well, it's been mentioned many times this morning about how doing diagnostics then drives other diagnostics. And that has been absolutely true. I think the value that I find is we are screening specifically to see if there's a problem. But to give a peace of mind for everything is good to get a benchmark and so that we can compare down the road. I think there's a level of expectation from at least my clients, and I'm going to be doing diligence. If I miss something, then I feel guilty, why didn't they do that task? Why didn't I have the forethought to care enough to at least screen for it? And I think the beauty of this now from my perspective is -- and I actually have apologized to clients because if they mentioned to me, why don't you culture that? I should have been willing to say that, right? To thank you or can we more testing. It's always important that it's a shared experience, but I want them to have the expectation that we're going to do that kind of thing. And almost they're driving for it. They seek me out for that purpose because of frustration. They've already been through a bunch of stuff. I had 13 days ago where this year that had been vaccining this poor dog forever, has a horrible infection. I don't know how many different places it's been to now in it ever cultured it. And she actually came to me because you'd heard that I would culture, and I did. And then I think it's going to cure it because we'll know what we're fighting.

So we talked a lot about clinical belief today, and that sort of separates sort of utilization of diagnostics and so forth. From your perspective as a clinician, what helps inspire clinical belief in a veterinarian?

What inspires a client to believe in a veterinarian?

Well, both. I mean you need to believe in as the clinician and then you need to be able to communicate that value to the client.

So from my perspective, first, it's communication and it's being able to articulate what it is that I'm looking for in that blood work. Where is the value? I've -- and this is where it becomes challenging because you want to be sure that, that client knows they've invested that money well that you're doing this for a reason, but it's expressed you can't just call them up and say, "Hey, look, it's great," and then hang up. Does it mean anything? And they won't do it again. What you have to do is go through the CBC and the profile and say, I was looking for this. This is good. There's no infection here, every little bit of it. And then, of course, with the profile, you're looking at. I do -- SDMA has been a tremendous benefit to my practice and that I'd like to even point it out as a purpose to do, but also when it's normal, I would say, it's getting normal go. We have an option now where there's an early marker. And I explained that it's 8 and 14, we're looking for, this will be something we can watch for trend. And so it gives us an opportunity to know what's going on with the kidney to check function and to realize when we see that cleaning, we need to start paying attention. And lastly, the value here for many a time when I've had an SDMA that might be slightly up, hey, we're doing low pressure. So it brings them back into the practice. It allows another interface we might find skin infection or other issue, but also it's excellent medicine because we made and do find hypertension, which is something that I wish I thought about doing more in general. But certainly, the SDMA has allowed me to do it much more frequently. And this is good medicine.

So you're -- so let's switch topics just a second. So you're going to be bringing on a second veterinarian very shortly. So you're going to have a life again.

Maybe.

Yes. Yes. So talk to us a little bit about sort of how difficult it was it finding somebody else to join?

It's -- again, I have a very specific philosophy in regards to how I want to practice. And so I've really strive to the gentleman who's come and join me. And again, is somewhat I knew in the very beginning when he was in the kennel, the other practice. And I saw him a smart compassion for this and kind of cultivate that. So throughout the years, when we did work together, he was my technician. He was my surgical tech. I really organically grew him. I'd like to be honest, my perfect me. I wanted him to that have the phobias and anxieties that I do. I wasn't very proficient in surgery, where I might not be maybe orthopedics, things that I have got good at I wanted to flesh out in him, and I think he's an excellent clinician and he brings a new perspective for me. I'm old enough. So having someone who may be more adept and aware of things I might not, it's going to be good for practice.

I don't know how old you are. So a little peak read about Dr. Danielson, he's actually a TikTok star. So if you want to look them up after this, he's got a number of very instructional videos on tips and tricks for your dogs and cats. So share a little bit about that?

So well, I don't have TikTok on my phone. I never do -- I don't -- I never see myself. I can't because it makes me sick. But to be honest, but I do surround myself with young people who are more in the know. So I have -- or had an intern she actually just got into vet school so I had to let her go. But she was very much into this stuff and actually pushed me to get more involved because she does her own thing. So I made a commitment that I would do a daily TikTok. And I guess I've heard I'm very popular in South Korea. But I don't know how -- I think it helps in the practice. I have a few people that say, "Oh, that's so cool." But as whether it really affects the growth rate, I'm not sure. Where it is, I think, helpful is it does give me an opportunity to -- if I have a question or rather than people go out and Dr. Google and say, you know what talked about that. I have it out there checking I don't receive or a YouTube or I've addressed some of these things and people will sometimes comment that they enjoyed the fact that they could understand something that I mentioned in the room. I listen to me explaining rates on their phone. It saves me time to having to repeat and repeat. I can say I have beautiful -- sometimes I even do graphics. So it really helps to better articulate some of the conditions that we're dealing with.

Well, I think it touches upon traditional dynamics and how this rising duration of owners want to be communicated with as well. So talk a little bit about your thoughts on the role of technology versus that personal interaction on expressing client value.

And that is something that actually motivated me to go out on my own way back, beginning with practice. I love the intimate relationship, the family kind of live that the practice had. And of course, as things grow and even as we're growing, find that, it gets busy, and it's hard to have that kind of connection and family atmosphere, this connection where people call you and you could say, hey, this is Smith, how fluffy and you kind of know or have an intimate understanding. And I think the fear or the purposes is that loss -- with the new generations and with now the fact that technology is taking such a role, I think there is a loss of that and to fear that connection. And so that's really something that I've really strived to reconnect. And then also to have the staff do. So it's not just me that a client feels comfortable with a staff member can get a phone call and or they come in and they have created a bond. And I think that's been part of the reason we have this success. I do feel that the next generation is even more in need of human connection. There's such a distance to created through the phone and these other technologies that having someone that you can be face-to-face with that you can -- I'm touching the dog, they're seeing this connection. And we can bond, it's been -- I really think that's important and something that I really want to emphasize, I think, is needed in the profession to recapture that connection.

I appreciate that. Appreciate that. Maybe just touch upon the relationship you have with IDEXX. What are some of the things you appreciate about it? And what are some of the things we could do a little bit better?

So IDEXX has been a very important part of the practice. In fact, at the very beginning, it was a matter of having to make choices, right? You're opening a new practice. I had used IDEXX at my other practice, and we also had other entities. And at the beginning, I needed to be sure that the lab that I used would be able to give me that clinical support, but also would have available those things like SDMA and now proBNP that would allow me to be able to answer questions regarding things that I'm worried about. And so it really it's been amazing. The growth and my ability to kind of use those tools to help my patients and the integration, I think of my practice philosophy with having that knowledge, having that support has made a big difference. I almost -- gosh, just -- it's 3 years ago. I was in a room, I listened to this dog's heart and picked up a murmur. It was like it's a great tune. And I look back and it had been noted in another practice and then another practice still. The client had never been told apparently and had no understanding of it. And I think the implication of that, he said, "Well, is it causing clinical harm? I'm not waiting for that." So I explained to what people is about, and we can do something to get an objective and understanding this is the damage to the heart and something we could watch for trends. She was ecstatic. And we did the blood but there was a bonding there now because she realizes that I have a way of giving her peace of mind. So that's been an excellent relationship for that purpose. And as these new things come out like a cue and all, I have a very dear client of mine who again had lost a dog to cancer. And by having that available, I did it. Actually, it came back. So we may have gone now to oncology. I did ultrasound. I found an issue in the liver. And so it has afforded us the opportunity to be aware of something that we wouldn't have been and they are so worried but ecstatic I think we've bought time and maybe resolution by having that for now.

Yes, I appreciate that. So that's sort of the clinical benefits to the diverse portfolio of what we can offer. You've also touched upon the economic benefits that diagnostics is a category authors to particularly a new practice. Can you expound on that a little bit?

Yes. The -- I've been around long enough now that I've seen -- initially, it was vaccine and food and pharmacy. That's gone. I mean pharmacy is not -- I mean you get it online. People want to price shop and they get food, it's very important. I'm a big advocate for that too but there's so much of that saturation now that it's not certainly a profitable part of the practice. And then pharmacy through the thing is in there. So you really are stuck. Vaccines, shot clinics, I do have several clients that -- they use me for the diagnostics and want me to look, they go elsewhere vaccine, which I think is silly because vaccine I could do anyway. But I've had that happen several times where clients have gone down some place and not get a shot. But when they have a problem, they're calling me up and they're coming in. So really, what we are about is diagnostics. I mean it's the core focus because it's something that no one else can do, right, and it creates this relationship that's long term and ongoing. People feel committed to come in now, for me, twice a year, for bloods and exam and it just -- it drives it. And these other things become more secondary to the profitability of the practice, as I think they're going to have to be as the world changes and these other I guess, competitions rise up. So it's been a very important part for our practice. So providing a lot of value. And I think your pricing strategy right out of the gate as a new clinic sort of reflected the value providing. Maybe talk a little bit about where you're positioned in the community from with brand pricing perspective. we're the most expensive place for. The fact that we are offering solutions and we set ourselves up as, I guess, 1 tier below a specialty practice, I've priced it accordingly. I don't I mean there's no shopping around. We feel strongly and I feel strongly that there's great value in what we do. And people appreciate that, and they're willing to pay. There's no -- yes, I have no sadness or doubt of it because I want my staff too, to be paying well because I do demand a lot of them. And I do also feel that the fact that we have ability and technology to give these -- get these answers most, to give this peace of mind, it's proper that we pay properly for it. It gives value by charging.

Yes, I know, it's great. So let's sort of bring it up 30,000 feet. We talked a lot today about the opportunity -- multi-decade opportunity globally, pet-owner demand continue to be very high. From your perspective, what is the best opportunity we can seize upon as an industry to ensure that we're driving the growth moving forward.

I think you're doing well in that offering these insights, this foreknowledge regarding issues with the animals, specifically things like SDMA. It gives knowledge to the client, to the practicing veterinarian, things that they can do to keep that animal healthy and alive longer. I do feel and I see it even now over the last 2 years, the longevity, I have 20-year-old cats, and it's amazing. They're doing great. I'm shooting now for 23, 24. People are willing to invest in the diagnostics because they see the benefit occurring. And I think from the industry the opportunity to add more of those types of insights is going to make a difference. The communications side of it is also extremely important because of the busy aspect of my practice and all having some way to express to the client maybe through those interfaces where you can e-mail them or send them the reply. Yes, I am old. I have them print a lot of my blood work, so I can look at it and anticipate, but I found what's great value is handing that to the client. So they literally have a textual expression of what we did. And I might have even during the course it, highlight or circle those things, I was just -- having a way of doing that digitally on the phone and sending it to the client is also going to be valuable, both in saving me time, but giving a perception of value to them.

That's fantastic. Yes. Thank you. So just a couple of minutes left here. We could go on all day. But -- so what maybe as a new -- relatively new practice owner, what's next for you? Like where do you want to take your practice? Where do you want to go from here?

So in the practice, obviously, I -- always looking to expand, I have to see if I can bump the chiropractor office next door, so I can hop through. It's hard, capacity -- I did not have an expectation of having this level of growth when I started. I didn't know whether we would be able to -- would I be reading magazines or what I'd be -- and I have not had a break from day one. We've been solid booked. So expansion, ultimately maybe moving to a different site or getting a bigger area. But I would -- I'm very much into progressive medicine doing -- we've already do stem cell, PRP, laser. I do think cancer therapy, too, some of these things. So I'd like to start more integrated medicine and expansive. I think there's a lot of opportunities to give quality to older animals, so the large geriatrics. And I just always thinking of other ways that we can help these animals to feel better and the technology from you guys, but also in the markets or different medications and things have really helped so that we can do that. And it locks us in, right? People must come to us to get this information, people must come to us to have these things done. So it just creates a stronger bond.

It's fantastic. So just I guess, in concluding, we talk a lot about corporate consolidation and larger enterprises. But it's wonderful to see the smaller 1-to-2 dog practices, thriving, growing, in demand and you provide such a special service to the pets we also love. Really, thank you for your time, everything that you do. And how about a round of applause for Dr. Danielson.

Thank you.

So we're going to take now a 5-minute break -- 15-minute break, and we'll come back and hear from Brian McKeon, our CFO on a financial review. So thank you. [Break]

I think we're going to get started back up again. Good morning, everyone. I'm Brian McKeon, IDEXX's CFO. It's good to see everybody in Maine again this year. This is a photo of a very important member of our family, our forever puppy, Daisy, who just celebrated her 12th birthday. So we're very -- I feel very fortunate to have a healthy, happy Daisy as part of our lives. I'm pleased to take you through our financial review today. We'll be discussing how we're advancing a consistent strategy and financial approach that's building on the significant expansion of the business that we've seen in recent years. Today, we'll talk about our financial performance and our long-term financial framework. And we'll revisit the building blocks of our long-term annual organic revenue growth potential, that's the foundation for our ability to continue delivering strong financial performance. So in terms of the key messages from today's review, you should take away. The first is that we're advancing a consistent growth strategy that's focused on long-term development of attractive core businesses that combined with strong execution is yielding outstanding financial results. And this focus and execution is enabling us to continue expanding our business and deliver strong financial results as we work through a dynamic macro environment. We'll talk a bit more about that today. Second key message is that we continue to see a significant long-term growth opportunity for our Companion Animal business, the foundation for our consistent 10% plus annual organic revenue growth potential. As I mentioned, we'll go through the building blocks of that outlook today and with a focus on the drivers of our CAG Diagnostic recurring revenue growth across our U.S. and international regions. A global growth in our CAG Diagnostic recurring revenues, plus the increasing benefits that we're seeing from expanding our software business, we think, position us very well to continue delivering solid operating margin gains, strong comparable EPS growth and high return on invested capital. So let's start with a review of our financial performance. IDEXX has delivered very strong financial performance over time through a consistent focus on developing attractive core businesses. The largest of these businesses are Companion Animal Group that represents about 90% of our revenues. All of our businesses have significant durable recurring revenue streams that generate high incremental returns as we grow, and that enables us to reinvest towards long-term annuity growth, as we deliver strong profit gains and high returns on invested capital in businesses that we know very well. And then you can see that in our financial results over the last 6 years. This is a format we'll show a couple of times today. We try to group our financial performance for the 3 years heading into the pandemic, the more recent 3 years. And in this case, we're comparing it to our long-term financial framework goals. And what you can see here is consistently strong financial results. Our organic revenue growth was 11% heading into the pandemic actually accelerated to 12% over the last 3 years. We've had consistently strong operating margin gains as we benefit from our business focus and that supported comparable EPS growth at the high end of our long-term goals. And all of this, combined with our disciplined capital allocation approach supports a very high return on invested capital. It's 44% in our last fiscal year. A key driver of our long-term financial results is expansion of our CAG Diagnostic recurring revenues. This is the financial engine of our business, it represents about 80% of our overall revenues. Again, we've done a very good job consistently growing these revenues over time. 13% compounded growth heading into the pandemic, 14% over the last 3 years and that reflects solid gains across our U.S. and international regions at the high end of our long-term framework goals. And we benefited in the last few years from a significant step up in demand that we saw during the pandemic. So in 2020 and 2021 combined, we actually saw a 35% increase on our CAG Diagnostic recurring revenues. And this benefited from several factors. We saw an acceleration in diagnostics frequency and utilization. Consistently over time in our business, we've seen growth in frequency and utilization, a metric that was referenced several times in the presentations was the percentage of clinical visits that have blood work. That's historically grown at about 50 basis points in our U.S. business. As an example, that grew 100 basis points in 2020. We also saw benefits from the expanded pet population. So the pet population has typically grown about 1% net annually. We saw a 5% average annual growth over the pandemic period and even faster growth in clinical visit levels during that time. As well as we saw favorable changes in pet owner demographics, increasing adoption of pets by younger pet owners that are more interested and more willing to spend on pet health care. Basically, all of that provided a significant uplift in sector demand that we're growing off of, and it created some near-term dynamics in terms of influencing growth drivers in our sector. Both in terms of how clinics have adapted to initially to serve all this incremental demand and more recently to reset to have a more sustainable basis to support their clinic growth going forward and in our business in terms of varying some of the growth drivers that have supported our performance. And we've been able to deliver consistently strong results through a focus on execution. This is a chart that shows for our U.S. CAG Diagnostic recurring revenues, growth contribution that comes from what we call IDEXX execution drivers that add to expansion of clinical visit growth over time. And what you can see here is that we've consistently driven a high level of benefit from a combination of volume drivers that include new customer acquisition as well as expansion of utilization of diagnostics supported by our innovations as well as net price realization aligned with our strategy as a differentiated innovative company. And that has historically been on top of what has been steady expansion of pet clinical visit growth trends over time. Now as we've worked through some of the transition with the reset on the clinical visit levels, this increase -- this focus on execution has enabled us to sustain strong performance that's resulted in an expansion of our growth premium. We had a growth premium above clinical visits of nearly 1,400 basis points in the first half, and that included benefits from relatively higher net price realization in the current inflationary environment. And we'll talk more about this. But as we move forward, we're very confident in our ability to continue to drive a continued strong IDEXX growth premium through our focus on execution and that will benefit from this next wave of innovation, including the launch of the new platforms that we expect in the coming years. And we believe this is going to build on -- offers the opportunity to build on, what we expect to be a return to positive clinical visit growth over time, supported by the underserved demand that we see for pet health care in our sector. Now our focus on execution extends to our international regions as well. As we'll discuss when we go through the long-term financial framework, a big part of our international expansion plans involve growing our premium instrument installed base in our international regions over time. And we've had excellent progress on this front in recent years. This is evidenced by record premium instrument placements in both 2022 and the first half of 2023 despite some of the macro headwinds that we've been highlighting in our business. And when you combine this with the very high levels of customer retention that we're able to achieve in clinic, this has supported a 60 basis -- 60% increase in our international premium instrument installed base over just the last 3.5 years. That progress is very much aligned with the long-term financial framework that we've been advancing. It supports high growth in consumable gains, which have been at solid double-digit rates, again, supporting the executional focus that's enabled us to deliver continued strong growth in these regions as we move forward. And I think this is reflective of the benefits that we get from advancing a global strategy in our business. We have common platforms that we sell across regions, U.S. and internationally. Best-in-class instrument platforms, menu, and we get multiplier benefits from new platform introductions like ProCyte One, which were actually specifically designed to benefit practice -- newer practices or emerging practices in terms of expanding their hematology offerings, which is very important internationally. We've also benefited from a global approach in terms of our commercial engagement. We leverage our capabilities that -- a model that we've deployed so successfully in the U.S. over time, including our VDC customer engagement model and programs like IDEXX 360, increasingly to support the very strong execution that we've seen in our international business. Now our execution drivers also include the success that we're having expanding our software business, which Michael shared in his presentation earlier. This is a chart that shows for our segment revenues include the veterinary software business and our digital imaging business. And we've had solid growth in that business overall. And what this shows is for comparison, these are first half numbers, how that business has grown over time in terms of recurring versus nonrecurring revenues. And it reinforces that we're generating very high growth in terms of recurring revenues as an additional element of our growth strategy. This benefits from the very successful ezyVet acquisition that we incorporated in 2021. And that acquisition, along with advancement of our other solutions in the software space supported a 50% increase in our worldwide installed base for PIMS since 2017. And this is adding an additional vector of growth to our business. So we historically talked about CAG Diagnostic recurring revenue growth as the annuity driver for our business. If we added these revenues in the first half, which grew over 20% organically, two, the CAG Diagnostic recurring revenue growth that would have added an additional percent to our overall annuity revenue growth. Now as we continue to expand our annuity revenue base, this is aiding confidence in our long-term financial strategy to continue improving gross margins. As we grow CAG diagnostic recurring revenues, the accretive margin, the incremental margin that we generate from that growth is accretive to our overall CAG gross margins. And in addition to the base that we continue to develop in terms of our diagnostic offerings, software now is an additional element of incremental growth benefit that we're recognizing from the very attractive returns that come from growing our cloud business. And this is reinforcing, as I'll discuss in our long-term financial framework, our confidence in continuing to expand gross margins as a key part of our strategy to deliver solid comparable operating margin improvement. Turning to our long-term growth potential, we see a consistent potential for 10%-plus overall organic revenue growth for our business over time. The foundation of this growth is expansion of CAG Diagnostic recurring revenues at double-digit rates in both our U.S. and international regions, reflected in a combined global growth potential of 11% to 14% growth annually. We see the potential to add 15% plus organic growth annually in our recurring software revenues. We also plan to continue expanding our premium installed base, globally contributing positively to revenue growth as we focus on new and competitive placement expansion, growth across our catalyst ProCyte and SediVue platforms and also benefit from new platform introductions. And we're continuing to target high single-digit growth in our very profitable and durable Water business and mid-single-digit gains on our synergistic Livestock business. Now the largest absolute driver of our long-term growth potential is expansion of CAG Diagnostic recurring revenues in the U.S. This is a breakdown of the building blocks for our potential for 10% to 13% organic growth on this front over time. Now a foundational element of this growth is an expectation for 3% gains in clinical pet visit growth levels. This is consistent with historical trends in terms of expansion of same-store growth levels as well as an assumption that we'll see about 1% growth benefit from new practice foundation over time. We're targeting 4% to 5% of organic growth benefit from expansion of utilization of diagnostics, including benefits from our new innovations. Underlying this assumption is an expectation of a continued addition of about 50 basis points annually an improvement in inclusion of blood work in terms of clinical visits. And it also incorporates benefits that we expect to gain from the introduction of our new platforms. We project about 1% of annual growth benefit from net customer additions. This is consistent with our progress in continuing to expand our loyal customer base. And our long-term model assumes 2% to 4% benefit from net price improvement and again, consistent with what we've been able to achieve historically. This is a long-term assumption. We obviously adapt these -- the assumptions on this front as we work through dynamics like the inflationary dynamics that we've worked through this year. Now in terms of clinical visit growth, you've heard throughout our presentations today, the benefits that we see from tailwinds for demand in our sector from expanding pet population that's living longer, favorable demographics and the increased importance of diagnostics and services in terms of clinical visit growth. This is just revisiting a chart that we shared last year where we took the average levels of clinical visits over time in the U.S. and compare that to what you would expect to see happen over time given the 12% growth in the pet population. And there are kind of 2 key takeaways here. One is that clinical visits have continued to expand over time. This is, as Tina mentioned earlier, there's been an average 3% expansion in average clinical visit levels. It also points to what we think is a significant and growing level of underserved demand in the sector. Our long-term framework assumes that clinics adapt to address this demand. And we do expect that we will return to positive clinical visit growth over time and that we can be a part of that solution in helping to achieve that outcome through our productivity solutions. Turning to our international growth model. We see the potential for 13% to 16% organic growth in our international regions over time. In terms of building blocks, we have similar assumptions for clinical pet visit growth and net price realization in our international regions. As I mentioned earlier, a bigger part of our growth equation internationally is expansion of our premium instrument platforms. We expect that to contribute 5% to 6% of growth potential over time. That includes expansion across our platforms and the benefit of new platform introductions. And as we grow, we expect to get about 3% of annual growth benefit from expansion of utilization as our customers adopt our technologies, and this is supported by our customer engagement through the VDC model and 360 programs, which benefits growth across our modalities. Now as we grow, we're going to continue to target solid annual operating margin improvement. This is an area that we have a very strong track record over time, benefiting from our business focus. In fact, we've added approximately 1,000 basis points of comparable operating margin improvement over the last 7 years. We continue to target average annual operating margin gains in the 50 to 100 basis point range. This is reinforced by the opportunity that we continue to see in expanding our gross margins from accretive growth from our CAG Diagnostic recurring revenues, from the incremental benefits that we'll be getting from cloud-based software expansion, from our ongoing focus on lab productivity that Mike Lane highlighted in his presentation as well as benefits from solid net price realization. We also have the ability to get OpEx leverage as we grow, particularly in areas like G&A, as we reinvest back towards annuity growth in our commercial capabilities and our innovation agenda. Now we're often asked how high it can operating margins go, and we tend to look at that through the lens of our own unique business model. We thought we'd share some analysis that our team did here just comparing some profit metrics for IDEXX to health care benchmarks. There's 2 dimensions here. There's a gross margin element and then a ratio of SG&A to COGS. And I think it reinforces to us that there is plenty of room for -- runway for continuing to enhance gross margins, aligned with being an innovative health care company, which is at the core of our strategy. We think it also reinforces that we've got an efficient cost structure and for us, which is very much aligned with driving commercial engagement and our innovation agenda. Now as we grow, our long-term framework assumes that we will continue to generate strong free cash flow. We benefit as a business from our business focus. We've historically had a very high net income to free cash flow conversion ratio of 80% to 90%. That's consistent with our long-term outlook. As mentioned, we benefit from our business model, which also has a relatively low level of capital intensity, so our CapEx spending has ranged about 4% to 5% of revenue over time, mostly focused on growth capital investments. That's consistent with our longer-term outlook and consistent with our outlook for this year following a period of investment that flowed from dealing with the big step-up in growth coming out of the pandemic and ensuring that we had supply chain continuity. In terms of our balance sheet, we're in very good shape. We have a business that is very predictable and has a recurring revenue stream that allows us to use leverage as part of an efficient capital structure. We've leveraged, we've used leverage effectively over time. We've been in a more conservative position in recent years. One part of this was just dealing with the pandemic, the combination of being conservative and having growth above what we anticipated. And more recently, we felt comfortable being in a more conservative posture just given the macro dynamic and some of the increases in interest rates. We're comfortable maintaining that posture in this context. We think we're very well positioned to support our growth strategies as well as it gives us plenty of capacity to support capital allocation priorities. In terms of capital allocation, our priorities start with support of our organic growth strategy, it also includes corporate development activity that's very much related to advancing our core business agenda. Historically, this has involved things like closing acquisitions of Reference Labs as we expanded our lab network globally. More recently, we've had an increased emphasis on expanding our software capability, as evidenced by the acquisition of ezyVet in 2021. It also includes activity and investments related to advancing our R&D agenda, and including partnerships with innovative companies that are looking to apply their technologies in the veterinary health care space. We have a very strong track record on this front. We're a natural partner for companies that are looking to apply their insights and innovations in pet health care, both given our innovation capability, ability to translate that technology into what's relevant for veterinarians as well as in terms of our commercial footprint and ability to turn that into a growth opportunity for the business. And this is consistent with the investments that we made last year and the in-licensing of technology related to the new platform advancements which given our track record and our understanding of the space have an excellent potential for very high returns for our business over time. Now the high returns that we earn on corporate development activity related to our business are evidenced by the ezyVet acquisition. Whenever we do an acquisition, we're going to look at the direct investment return benefits we're going to get from that acquisition. And ezyVet has been a great addition to the family and is very much on track towards our growth and financial goals in terms of direct contribution. We're projecting a mid-teen ROIC from the acquisition in the next few years. And these returns do not include the incremental benefits that we get from adding these types of capabilities to our business model, engaging with customers and seeing their overall businesses grow faster, including growth of diagnostics. So as we move forward, you should expect us to have a consistent capital allocation strategy, focused on organic business development and close-in corporate development activity. We also expect to continue to allocate excess capital to share repurchases. This is something that we've done very effectively over time with a varied investment pace. We've had a moderated pace more recently consistent with the discussion we had on our leverage structure just given a relatively higher interest rate environment and some of the macro uncertainty. You should expect us to manage this area thoughtfully over time with a focus on leveraging share repurchases to enhance per share returns and support our return on invested capital. Now as we move forward, we're really optimistic about the long-term potential for our business and feel that our space and our business is well positioned to be resilient through times of macro uncertainty. Jay spoke about this earlier, but you can see in the consistent solid levels of growth that we've delivered over time. IDEXX and the pet health care space in general has been quite resilient in terms of working through times of macro cycle changes. And we think that the resilience in our sector and our business has only grown over time, reflective of the deepening pet-owner bond as well as the expansion of our capabilities in terms of our commercial presence and the strength of the solutions that we provide. So as we move forward, we think our business model and our financial approach positions us very well to continue delivering solid organic revenue growth and strong financial results as we work through macro cycles. In terms of organic growth drivers, we're going to be -- continue to be focused on driving great execution that involves commercial engagement and supports a high IDEXX growth premium. We see additional benefits from the new innovation and the -- that we're bringing to the sector as well as innovation that we've brought in recent years. And we see significant sector tailwinds in terms of pet population growth, increased pet owner engagement and importantly, the increasing importance of diagnostics as part of the veterinary clinics business model, growth model and we see that as an area that's building momentum over time and will be supportive of our growth outlook. And as we grow, we'll adapt to our financial approach as we have in recent years to make sure we deliver really strong financial results. We've got -- we benefit from a business model that as we grow, we get high incremental returns. We know this business really well. We can prioritize what we're focusing our investments on to make sure we're advancing our long-term agenda while delivering solid operating margin gains and strong profit growth as well and high ROIC. So we're confident we can build on that track record. So in summary, we're very optimistic about our long-term business potential. We're very confident in our ability to manage our business effectively, keep advancing our long-term growth strategy, while we're delivering strong financial performance, and that's reflected in consistent long-term goals for 15% to 20% comparable EPS growth, supported by potential for 10% plus annual organic revenue growth, continued operating margin gains and benefits from capital allocation. So that concludes our financial review. I'll now invite Jay to join me on stage, and we'll have the management team available as well to answer your questions.

Great. Chris Schott at JPMorgan. I appreciate all the detail and color today. Just 2 questions for me. Maybe just touch a bit on visit growth. I know in the long-term algorithm, you're talking about this 3% rate. I know it's been kind of bumping along the bottom as we go through this year. Just as we think about 2024, just your view, is that kind of a year we can think about normalized clinic growth? Or are we going to -- is this going to be kind of a multiyear process to get back to that? And maybe -- the second question I had was on pet growth. We had 2% growth in 2022 after these very strong kind of pandemic trends. Is this kind of a new norm that we're going to be seeing maybe growth above that historic 1% from your perspective? And just any color on that piece.

Yes. So I'll take the question, Chris. In terms of the pet growth, it was, I think, very nice to say that, that huge step-up we saw during the pandemic sustained itself. The survey work that we've done, what pet owners are saying is that they want the second dog or they want a cat in addition to the dog. So there's a lot of, I think, momentum behind pet ownership. And as we said, this is really just a U.S. phenomenon. We've seen this across our major markets in terms of just the role that pets are playing. Some of the things that we identified that may be driving that younger demographic as a pet -- household owners. Think about that, before children, and so there's a sequencing, dimension to this that I think is important. So without predicting what 2023 is going to end up or 2024, I think that's a trend that has some legs and we'll see how that plays out over time. From a clinical-visit standpoint, the way we're thinking about that is we're increasingly -- what we're seeing are practices have stabilized. And I think a number of the presenters this morning have indicated as such. They've hired folks. We've seen that in employment data. And as Tina mentioned, we don't know necessarily whether or not those are folks working -- staff working 40 hours a week at practices or 25. But the bases of staff and receptionists and technicians is building. That's a very positive thing. We've seen investment in appetite for technology. And we know not just premium instruments and Reference Lab, but software, and we know that that's a positive supporting force. And then you layer on top of that the fact that there's just underserved demand. Pet owners, it's not like pet owners woke up last year or over the last quarters and said, we no longer want to provide the very best care we can provide on behalf of this member of our family. They haven't. There is, I think, some capacity constraints. We consistently see that in surveys. We consistently see that through forward booking data. So our expectation is without putting an exact date on it, is it's working through the system. And some practices have worked it through the system, and I think they're in a really good place that others are in the process of still doing that. So we do expect over time that demand and supply equation to balance how.

Great. Jon Block with Stifel. Guys. Maybe I'll just break up the 2 questions. The first one for the new point-of-care system at VMX in '24, everyone's obviously excited about that. Does that mean it's right to think about the other system that you previously alluded to, more likely a 2025 event? And then Brian, if I think back to SediVue, which you sort of alluded to could be a good analog, I think SediVue was introduced at VMX, I think the systems went out around April in the U.S. and then international was more of a back half launch. Is that the right cadence when we start thinking about the intro versus when the rev rec or the shipments might start to occur?

Yes. So in terms of the new point of care platform, the second one you referenced, Jon, we'll talk about that as we get closer to launch. We're not specifying whether -- at what point that gets launched. From a SediVue standpoint, what I would remind you is that was primarily -- our focus was primarily in the U.S., initially in North America. And then 2, 3 years later, we focused on the -- on our international region. So it was a little bit -- I think that was a little bit unique SediVue in terms of how we thought about it. And part of the rationale behind that is we saw a really nice opportunity internationally to continue to still place chemistry, which is a key driver with hematology, of our business and urinalysis, second. Now that's changed. And I think what you're seeing is a fairly nice step-up in SediVue sales outside the U.S.

Okay. Then let me just ask the second question. Sort of based on that growth algorithm for 2024, where we get a lot of questions, and I know we're not going to get specific guidance, Brian, today. But maybe a little bit of a different approach. We've broken it down for you guys on visits plus price, plus what we call sort of the IDEXX premium. I think it was similar to Slide 123 that you guys put up there. Just at a high level, do we think about visits for '24 sort of an up arrow price -- this is relative to '23, I'm sorry, an up arrow, price a down arrow, but not reverting all the way back to the historic 2% to 3% and then call it that IDEXX premium maybe with an up arrow partially due to the new system that you've talked about at VMX in Jan of '24.

Yes. I think the longer-term trends, we do think that there will be benefit with the clinical visits from the demand dynamic. I think we do feel we've worked through the reset aspect of this. So I think the question is how quickly do we rebound given some of the macro backdrop in terms of the growth. So I think that, that is something we're not calling as a -- when that happens, but I think that is a positive driver. Yes, I think in terms of price increases over time, as I mentioned, our long-term framework is 2% to 4%, I think we're still working through a dynamic inflationary environment. We'll sort that out between now and the beginning of the year and don't have anything specific to share on that front over time. And I do think that we're -- the benefits of new innovations are really an important part of what supports that volume growth premium that we've continued to drive in terms of utilization gains and benefits from adoption of innovation. That builds over time. As you know, when you -- when we do things like new platforms early on, it's getting -- I think we had a build of the revenues from the instrument placements from SediVue and how that translated to recurring revenue gains over time. The nice thing is it isn't one thing that we're introducing, right? We've got ProCyte One building. We've got a new menu that's been added. And so I think we really have a healthy equation that we're confident those executional dimensions can add to the return to positive clinical visit growth over time and support the continued strong long-term growth that we see in the business.

Ryan Daniels from William Blair. Curious if you could go into a bit more detail about some of the investments you've made in ezyVet and the cloud-based systems. It was pretty fascinating hearing how the organic growth opportunities are going to be more important for corporate partners and you can provide them with things like benchmarking and analytics and decision support. My question is really, how do you then use that longer term to serve as a pseudo owner for all the unaffiliated practices? Meaning kind of using data that you can help them improve their protocols, maybe arm your sales force with information on a real-time basis to get to those clients and kind of push all the clients towards that upper decile. It seems like that's a huge opportunity for IDEXX.

Yes. So we're doing that today. Let me just set up the response and then Michael, I'll invite you to also join us. The insight behind our software solutions is really the fact that, if you look at the practices as independent practices as part of corporate group, they operate as small businesses at one level. And then at the corporate suite, there's interest in harmonization and standardization across their processes. And I would say that that's maybe more of a recent trend. I think they were all growing through acquisition and to some extent, arbitrage but that wasn't a big priority for these folks. So when you shift from a mindset standpoint, whether it's independent practice, how do I get capacity? How do I run my practice better? Or corporate groups, how do I take some of the variability out of what we're doing? I think everybody looks at software as a solution. And we -- it's interesting because we have data that helps them do that. And you were mentioning the insights and the analytics space. We're able to show them what they're actually doing. And it's usually a bit of a surprise relative to what they think they're doing. And so that becomes the starting point of, okay, now what do I need to do to change? How do I get that? How do I get the productivity? How do I get workflow optimization? How do I get a better standardized approach to care. So Michael, I would ask you to also chime in and -- okay. So do you want to cut that off then? Okay. Sorry Mike.

Sorry about that. All right. I'll be really quick. Mike Ryskin, Bank of America. And I'm going to ask one quick one, this is just a follow-up to Jon's earlier, the new POC platform next year, you talked about announcing it at VMX, launching later in the year. Is there -- why not launch immediately? Is there a training? Is there event-education step with this? Or does it have to do more with manufacturing capacity and getting your internal sales force ramped up?

Yes. No, it all comes -- the plan is really around readiness. And we launched when the -- our products have the right performance and quality. We're able to train our sales organization and do it appropriately. One of the great things about our organization and its capability is we move quickly, and we build installed base and we build customer interest and receptivity quickly because of this infrastructure we have and the size of our footprint. But we also -- customers expect a lot of us from a performance and quality and integration standpoint. So we also want to make sure that when we launch, we're ready and it supports the customer and it doesn't disrupt their operations. So it's really making sure that the work gets done.

And then just really quick on -- Brian, on price elasticity. Obviously, you took the unusual practice of taking a second price increase last year. You talked about the long-term algorithm of 2% to 4% still in play. But any learnings in terms of pushback from vet clinics or their ability to pass that price on to their customer, realize it's an unusual inflationary environment but just sort of like what are the learnings on price elasticity and how far -- how much willingness there is with that lever?

I think we've consistently found that if we work with clinics effectively and help them understand the value that we're delivering and the context for the price increases that we're able to work with them. We obviously don't control how they price to pet owners, but I think the value that they've been delivering supported by solutions we bring have enabled them to be able to get good price realization, good value for their services. And we look to build upon that. I think it's -- it really comes back to the pet owner seeing value in what they're paying for. And I think our strategies are aligned to support that. And so I think we're confident on that as growth lever over time that we will manage in the context of a long-term business algorithm that's about strong -- high retention and strong long-term relationships. So really -- the underlying value of IDEXX as a business.

Okay. So thank you so much for joining us this morning. It's been just a great session. Thank you for joining us last night, I appreciate the time you took out of your day and safe travels back. And for those of you who are staying in Maine enjoy the beautiful summer weather. Thank you again.