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

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

Great. Thanks, everyone, for joining us. My name is Mike Rysk, and I'm on the BofA Life Science Tools Diagnostics and Animal Health team. And joining us for our next session is IDEXX Laboratories. With us, we're pleased to have Brian McKeon, EVP and Chief Financial Officer; and Tina Hunt, EVP of Strategy, Sector Development and Global Ops. Brian, Tina, thanks so much for being here.

Good morning. Thanks for having us.

Good morning.

And the IR team is with us as well as you can tell. So we're going to have the similar format to what we normally do. We'll do a fire chat Q&A for about 40 minutes. And if anyone's got any questions, feel free to have us on Bloomberg, e-mail or the other the webcast portal, and we'll work those in. Brian, Tina, I guess, just to take things off, our usual opening question is you recently reported 4Q results and you initiated your 2024 guidance about a month ago. Can you just quickly run through what you thought were sort of the key points to keep in mind about how '23 wrapped up and how do you see the coming year?

Happy to. Thanks, Mike. Just in terms of 2023, we had a solid finish to the year. Our fourth quarter. We had 8% overall organic growth, 10% growth in CAG Diagnostic recurring revenues, which is about 80% of our overall revenues as a critical driver of our results. And when you normalize for days effects, we had strong growth across U.S. and international was adding in the days effect about 10% U.S., 13% international in Q4. We actually had a 4% volume growth in the quarter, both U.S. international, that was the strongest quarter for the year on the volume front. So we feel good about that performance. And I think it reflects the ongoing progress we've had in driving good execution in the business, new business gains, sustaining high levels of customer retention. We obviously had price realization and new product -- new placements of instruments. We actually had 11% year-on-year growth in our overall premium instrument installed base, and that's a key driver of our long-term strategic growth. So it helped us to finish what was a very good year for us. We had 9% organic growth overall, double-digit organic gains in CAG Diagnostic recurring revenues across the U.S. and international markets. We had strong financial results. If we normalize out some of the discrete R&D expense compares and the onetime impact. So it was a 17% EPS growth on a comparable basis, about 110 basis points of margin improvement normalized, very much in line with our long-term goals. So we feel very good about the execution delivery heading into 2024, and we have an outlook for sustained strong growth and strong financial performance. In 2024, we shared our full year goals on our last earnings call. Just a reminder, we don't update our guidance. We're not [ reporting ] or updating guidance today, but we will give you an update on our next earnings. But in terms of what we shared on the last call, we had an outlook for 7% to 10% organic revenue growth, 7.5% to 10.5% growth in CAG Diagnostic recurring revenues, really to understand the midpoint of that view is 9% growth. It basically reflects expectations for solid volume gains similar to what we achieved in the second half of 2023 and about 5% price improvement. And we are still working through and have been working through the some headwinds on clinical visit gains and same-store sales growth. Our expectation reflected in that midpoint view is for roughly flat clinical visit growth post Q1, we highlighted in January, there's some weather impacts that will likely impact the Q1 results. But overall, I think we're well positioned to deliver solid top line growth and continued margin improvement and strong EPS gains. So that was reflected, and we're very excited about the innovation agenda that we're advancing this year that Tina can share more on, but we're launching major new platform later in 2024 and have a lot going on in the innovation front, on menu expansion and in our software business. So we think we're really advancing key elements of the strategy that positions us to sustain long-term growth aligned with our goals.

Okay. And yes, we'll definitely touch on new innovation and view. There's a lot I want to discuss there. But first, I want to start on some of the market dynamics you just talked about, Brian, in terms of what you saw in '22 and '23 and your expectations for '24. So just on the clinic trends, I mean that's an area where we're getting constant questions for investors. That's a major area of focus given how that's trended in the last couple of years. So you talked about that view of roughly flat clinic visits post 1Q and again and 1Q has the weather impact we saw it in January, we're seeing a lot of it in February. What sort of pushed you to expect flat visits post 1Q? What are you -- I mean, I'm just thinking about visits used to grow historically, declined in '22 and '23. So what was the thought process to say that, flat is the appropriate mindset, again, excluding weather?

Yes. I think we we're trying to calibrate and estimate what some of the effects that we've been working through in terms of the capacity dynamics at clinics. There was -- we can spend some time talking about the context here, but the -- there was a significant step up in the demand that went on during the pandemic. And I think we've got a combination of kind of clinics adapting to that new local capacity as well as some macro dynamics for doing more so in our international regions. Maybe Tina can expand on some of the client visit.

Yes. Yes. So just to kind of build on the context a little bit. So historically, we've seen about 2% to 3% annual clinical visit growth. And as we know, during the pandemic, there was a huge step-up because of the increased pet population. There was an acceleration in the clinic visits. We saw up to 5% annual increases in clinic visits. So now the clinics are operating off of that and building off of that much higher base. So that's an important thing to keep in mind. It also points to the underserved demand that is out there. And what we've seen happen is that the demand has outpaced the current clinic models and, of course, the tight labor dynamics also played a role in here. So as we think about -- we know that clinics are hiring. That's what the data from the Bureau of Labor statistics show that they are hiring. The piece that we're very focused on is the productivity element of it. When we talk to customers, 87% of clinics say that they see great opportunities for increasing productivity and efficiency within the clinics. We talked about the landmark study that we did last year, finding the time that put forward very data-driven analytically robust framework that talked about the practice productivity index, how practices can measure themselves against it, but more importantly, how they can enhance productivity, looking through the dimensions of workflow technology and culture. And we offered playbooks to in order for practices to start doing that. So one thing we're seeing is that it was very well received by practices. Of course, it will take time for them to really operationalize some of those learnings. And this is where we continue to work with our customers, with our high-touch commercial model, I think that we really focus on is that deep partnership with customers and helping them work through that. And then the other thing I would say is the solutions that we bring to our customers, yes, the diagnostic solutions, but also we're very excited about addressing a huge need that customers had told us that they have with the launch of Vello, which is our customer pet parent engagement product, deeply embedded within our PIMS solutions. And that is being very well received by customers. We're very excited about it, and we think it's going to really help with productivity. And I can talk more about what Vello will bring Mike, when we get a chance.

Yes. That's a good flag. We'll come back in again. There a couple of things you just flagged there Tina that I want to follow up on. But first, maybe going back to something you were talking about, Brian, in terms of sort of the long-term view of the market and Tina, especially as well just talking about the comps and the expansion in the pet population that we saw in 2020, 2021. Is the view on the long-term the same -- and I guess another way to phrase that is, you've got your LRP your 10% plus revenue growth that's been in the model for years and years and years, you reiterated every year at your Analyst Day. But if I sort of break that apart, there's a volume component, there's a price component, there's an innovation component. There's a little bit of a share gain component. There's a productivity or the IDEXX benefit component, but volume has been weaker, right, in terms of the business trends. So longer-term, do you see the market -- if it was declining in terms of basis the last couple of years, you're talking about a big flat this year. I'm not asking for a view on '25 vet visits. But just longer-term, do you think that we're back to a 1% to 2% vet visit market that this is just a temporary, maybe to be 4-year temporary, but still temporary dislocation in terms of visits?

Yes. Let me set some context on the overall growth algorithm, and I think Tina can help with the visit component. But to your point, we have a longer-term potential on our CAG Dx recurring of 11% to 14%. If you take the U.S. view on that, we've assumed about 3% of that comes from visit expansion. We'll talk about that in a moment. I think the important thing to understand is the bigger part of our growth algorithm is elements that we can influence and execute against. And so I think in terms of expanding utilization of diagnostics, new business gains, getting price realization relative to the value we're delivering, we've been executing very well. So that aspect of our growth algorithm is the same. When you look at our international growth potential, which is even higher, we're counting on more growth potential from the expansion and adoption of our in-clinic platforms, and we've got great momentum on that front, we had 13% increases in our in-clinic installed base internationally last year -- obviously have a new platform that we're an additive new platform much of this year and a new platform to come in the future. So the key execution drivers we feel excellent about I think the dynamic that we've been working through growing off this higher demand base post-pandemic, is the clinical visit trends. We do believe that, that is going to come back over time reflecting demand in the market. Maybe you can talk about the demand drivers.

Yes. So just building off of what Brian talked about, we have very high confidence in the resilience and attractiveness of this market, and we believe that it is highly underserved. And we will return to that about 3% clinic visit grows. When it happens, we'll have to see, but we do have faith in that. And a huge part of that is coming from the sector tailwinds that we are seeing. And we've talked about the sector tailwinds, but just to kind of frame them again, first off is let's just look at the pet human bond. It continues to strengthen. And more importantly, the younger generations are adopting a lot of the pets, the increase in population that we see. In fact, millennials and Gen Z now own 45% of the dogs in U.S. And these populations are even more emotionally attached to their pets. Our research shows again and again that they're even more inclined to prioritize the health care of their pets even than the prior generation, that was always very high, but the younger generations are even more focused on the health of their pets and they see the value in diagnostics. So there's a very positive demographic trends that we see. And then you look at the increase in pet population, we talked about 12% increase between '20 and '22. In U.S., we saw similar increases globally. And so there's this higher pet population. I talked about our very exciting data that we're seeing that pets are living longer, increase in the lifespan of dogs of about 12% or 1.4 years since 2010, and cats is 14% or 1.7 years. And so now why does that matter? It matters because our data shows -- and this data is from 9,000 practices in the U.S. that as pets age, they consume more medical services and diagnostics, both as dollars and percent continues to grow. So if you start thinking about all these tailwinds adding up to what we believe is huge long-term potential for our business.

Okay. That's helpful. And Tina, I want to come back to something else you brought up in the previous answer. You talked about the productivity -- the practice productivity index, things like that. One thing we're always kind of debating is what's the right metric to track in terms of underlying health of the vet clinic, right? There's visits and even visits itself to be broken out into wellness versus sick versus clinical and nonclinical. But there's also a total practice revenue. So visits have been choppy or downright weak. But for the most part, revenue is staying robust. And at the end of the day, you've got 2 customers where you've got the clinic as a customer, you've got the pet parent as a secondary customer. How do you think about that part, right? Like are you -- does the fact that clinic revenue remains strong is a little bit of an offset for the fact that even if visits are a little bit more challenged.

Yes. The way we think about that is -- and you're absolutely right, clinic revenues are strong and price has played a part in the clinic revenues trend. So we also see that when we partner with our customers, so they tend to grow faster. This is where part of the high-touch commercial model that we have comes into play. All of our data shows that practices that have IDEXX products and services grow faster than the market. So we continue -- we hope that this is going to continue, and this is a deep partnership that we have with our customers.

And Mike, I think it's a great point, which is that they the clinics themselves, I think, are healthy. Diagnostics within the clinic is actually in fact growing faster rate than clinic revenue. So I think that reinforces the value that we bring in partnership with our customers. I think that's all positive as a backdrop. I think over the long-term, for clinics to be healthy, volume will grow as well and needs to grow as well. And so I think what you're seeing is customers, and there's your increasingly sophisticated ownership of veterinary practices that a lot of capital that's come into the industry over time. The focus is shifting towards organic growth and trying to find ways to drive demand and to align that with ways to manage productivity within the clinic. So this -- what we see as underserved demand can be met. And so I think the -- in the near-term, clinics are quite healthy and able to realize value. And I think over the long-term, we're very optimistic there are a lot of incentives to drive the volume growth and aligned with the opportunities that we see to improve at health care.

And I'll just quickly double click into a point that Brian made, as we focus on diagnostics. And clinics are increasingly recognizing that diagnostics is an important revenue generator for them with 17% of the revenue coming from diagnostics, but more importantly, a profit center with almost 30% of the clinic profit comes from diagnostics. So it's just a win-win. It's better medicine. They're providing elevated standard of care and economically, it is very attractive.

Okay. And then one of -- a lot of ground you want to cover, but I want to pivot to the price and both the pricing you've taken in recent years and your price expectations for 2024 and how that feeds into the broader LRP. As you said, Brian, in your opening remarks, you were able to achieve really favorable price contribution in terms of your total revenue growth in 2023. You're guiding for another solid year of 5% net price benefits in 2024 -- that's above your historical numbers that you were taking previously and especially if you think about it on a multiyear basis, if you add up the price from '21, '22, '23, '24, you're getting that one was almost 20% price in a matter of 3 years. So how do you think about price elasticity in this market, what's been the feedback from vets from the community? Is there a level where you start being uncomfortable that you're taking too much price?

Yes. I'll answer part of the question, and then I'll hand it over to Brian. So -- we have taken high price increases over the last couple of years, reflective of the inflationary pressures that all of us saw. And our customers have been very understanding of that. They also are very comfortable that the pricing that we have is commensurate with the value that we deliver. They really understand and want the value that IDEXX brings to them, both through our innovations as well as the deep partnerships that we have with them. They rely on our commercial teams as an extended part of their team. So we see all of that value. They really appreciate our technology for life story as an example. So -- if you think about some of our newer products that we have announced, I will take the expansion of our gold standard fecal antigen portfolio in our reference labs. We just added a very important new biomarker to that portfolio, and we're going to include that at no additional charge to customers. So they see the value that we bring. Catalyst is another example. We have 69,000 catalyst customers out there today, and we have been increasing the menu and capabilities of that platform with 9 new menu additions over the last 10, 12 years as just an example. So customers see that. They see the integrated offering that we bring. They recognize that diagnostics as a performance category and all of that really adds up to the pricing is being accepted by our customers. And then the last thing I would say is the diagnostic spend is just really a small part of the overall -- even the medical services, but definitely the spend that a pet parent as on their pets.

Yes, just to reinforce, we obviously don't control the end pricing that the vet clinic offers to the pet owner. And we're -- as Tina pointed out, we're a small part of the relatively smaller part of the overall equation. So I think that -- there has been some inflationary environment. There have been higher price increases, I think, reflective of the cost of providing services and the enhanced value that vet clinics are delivering. I think that pet owners have consistently shown a strong commitment to pet health care and prioritize their pets health over their own for all the research that we've seen. And so I think that, that's something that -- it has been able to manage effectively within the sector. I think we're all aligned with trying to do best we can to deliver good value and expand pet health care over time, our longer-term outlook for things like pricing is, as you know, when our algorithm is 2% to 4%. So I think we're -- the near-term is more reflective of the inflationary dynamics we've seen. But I think we'll continue to focus on delivering value and helping our customers to communicate the value they're delivering through our solutions, including software and pet owner communications and we think there is a broad acceptance of the value that comes from pet health care and hopefully, we can contribute to that.

And as far as the mechanics of it, I think a lot of it is tied to the IDEXX 360 program, is how that -- how pricing is incorporated to that. Could you just remind us of sort of again, the mechanics of the price increases how they incorporate every year and how that comes up when the renegotiation comes up, when do those contracts roll over, just to think about how it's passed on to the vet.

We -- most regions, we do a once-a-year communication of a list price change that gets reflected into the various broad range of agreements we have with customers. Some customers may have discounts off of that list price, et cetera but that's a pretty formulaic exercise, if you will. There is an element of the gross to net conversion that is just reflective of new business activity that we'll have through the year or it could be things like program spending on rapid assay initiatives or product-specific initiatives. And we do an estimate of what we think that will be over time. But -- the bigger part of the pricing is basically more of a formulaic communication within the context of, as you pointed out, it was increasingly become a set of agreements with our customers where we're aligned with helping them to grow over the long-term and delivering value to help support those.

And because it's locked in, you normally have really good visibility on that. I mean you called it with very high level of precision in 2022 and 2023, almost quarterly so, not something an area where you're really going to see surprises in over the course of the year, right?

We have a very good handle of where we think it will land again, there can be some variability. Sometimes it's could be new business-related things of that nature. But within the year, we feel that's a good estimate for us.

Okay. All right. And then moving on to some of that innovation and new products you talked about. A lot of the focus was on the inVue analyzer. You talked about it. I believe the first time you mentioned it or the first time you got explicitly -- you discussed it was the Analyst Day last year. And then obviously, you unveiled it in January and gave us a lot more color. So it's been about 1.5 months since that any early feedback from vets? Any early conversations you can share? Obviously, you're not actually selling it until later this year, but sort of what's been the reception you've gotten since the VMX unveil.

Yes. Let me take that one, Mike. And let me just step back and frame this for any folks who may not be as familiar with it. So at a very high level, I'm going to just start with the ecosystem that we bring to our customers, which is a diagnostics and software ecosystem. And then from the diagnostics end of things, we have, of course, a multimodality offering with in-clinic and reference labs. And now if you double-click into the in-clinic side of things, we have a portfolio of analyzers that are in a suite with a catalyst 1 that offers chemistry, 70,000 installed base that I have mentioned, ProCyte Dx and ProCyte One with hematology, which is about 40,000 installed base, SediVue, which is our urine sediment analyzer, and we're at about 17,000 installed base for that. That's like broadly speaking, we have more, but that's broadly speaking, the premium offering that we have. Now inVue Dx is adding into that ecosystem -- and it is going to provide solution for new testing categories that we don't provide anything for today. So let me just talk about what those are. So the first 1 is air cytology. Air cytology is something that is very commonly done in multiple times a day in a clinic today, one in every 5 pets comes in with an air issue. There's about 30 million air cytology cases out there. About [ 19 million ] of those that we know of, based on the data, clinics look at a slide in order to figure out what's going on with that. In order to do that, they're going to take the air bud, they're going to put it on the slide. Fix and stain a slide, a whole process that takes about 10, 20 minutes. So about 19 million of those are done in this very manual subjective technique sensitive way, only about 1 million are sent to reference labs. So we're going to provide a solution for them that's going to completely automate this. There's going to be no slide involved. It is going to be less than a minute of hands on time, and they'll get results in 10 minutes, with looking at cells in their native state. So more information, accurate, consistent with work really being taken out of it as much as possible. So that's the air cytology piece. The second piece that we are going to launch with is blood morphology. So I talked about ProCyte as a hematology analyzer that provides CBC results. Best Medicine says that you should also look at the blood morphology for sick pets or any time there's an abnormality. And we see that in 2/3 of the case, when there's a CBC, there is abnormality that suggests that blood morphology should be looked at. Today, that's done in that same labor-intensive slide processing and looking under the microscope that I talked about. But because it is so hard, clinics are not doing it as much. So it only gets done about 10% of the time today. And we believe that there is another opportunity of 20 million blood morphology tests. So those are the 2 that we're going to launch with. And as you can imagine, the blood morphology is going to have a very high attach rate with our ProCyte analyzers and also opportunity to place the 2 together in the future. The third one that we are not going to have at launch but it falls under our technology for life approach, and we will be -- we're working diligently on it to bring it up next is the FNA, and that is when a pet comes in with a [ lump or bump ], the veterinarian will stick a needle into the lump and try to figure out is this cancerous? Is there something else going on? So really, really high-value testing category that either they're doing it in clinic and trying to see to the extent they can tell under microscope or they're sending it out to the reference lab. So really a huge opportunity of solving some pretty serious pain points within a clinic and bringing new revenue streams to IDEXX. And now as I talked about, these are going to be placed within our ecosystem, it will have a multiplier impact because they will be placed with our very customer-friendly IDEXX 360 program that you referenced earlier, and it's going to have a multiplier impact on our overall business. So Brian, I don't know if you want to add anything to that?

Yes. I think Tina summarize it well. It's a new platform that really -- I know there's a lot of focus on the direct impacts, but I think what we're really excited about is the opportunity to open up dialogues with clinics about overall IDEXX solutions. We've seen that with things like ProCyte One, SediVue is things that had helped to accelerate discussions and can help us place more catalysts and sell more lab services and just expand our overall business relationship. So we're -- I know our sales force is really excited about this, and we're excited as well and something we can build upon. And as you know, it's -- we look forward to sharing information on an additional platform to come in the future to build on the [indiscernible].

And Mike, as to specifically your question, yes, we announced with VMX and customers are so excited about it. I mean we're hearing high, high level of interest from customers on the technology because it's really hit a huge pain point that they have.

Okay. That's great. I appreciate a lot of color. A couple of quick follow-ups on inVue and then I've got a bunch of rapid fire, small ones to close at the end. So the 2 big questions we've got on it since the VMX announcement is you talked about it in August last year at the Analyst Day, you unveiled it in January, but you're not fully shipping or launching it until December or not December, 4Q 2024. I don't want to put words in your mouth, but you said 4Q 2024. So why did the way? Why is it -- what are you still working to optimize it? Is it on the manufacturing side? Is it the workflow? Is it some of the analytics? And then the other question I have was both when you unveiled and today, you kind of talked about the evolution of the inVue, right are they going to have more capabilities coming online with fine-needle aspirate -- we talk about blood morphology, something that's not really done today but it's something you think that vets will use over time. How do you see that both of those factors, FNA and blood morphology impacting the brand? Is this -- you talked about utilization for it. in terms of consumable spend and how that correlates with SediVue. Is that what a year 3 numbers, is that a year 5 number? How -- will take time for vets to adopt this and learn how to use it and really go from 0 to full speed on it.

Yes, I can answer the first part of your question, Mike. So we have a very robust tried and true process that we leverage for platform development. So there is an actual development that we do within IDEXX, but then also we really test it in customer environments. And what we have learned time and time again is that the operating environment within clinics, the samples they see how they operate it can be very different. So we're following that whole robust process, making sure that when we do start shipping the analyzer, it's going to be very high performance. It's going to delight customers and everywhere possible, not disrupt because we have any sort of issues. So it's a very extensive testing process that we go through. Just ProCyte One as an example, right out the gate, it was just so well received because it was performing at such a high level. And that's the kind of expectation that customers have of us, and we don't want to short change that in any way with a premature launch. So that's part of what we're going through right now is just making sure that it's going to perform at very, very high levels in the operating -- the clinic operating environment.

Mike, I just want to share, I think we -- as you know, we've historically not talked about platform launches until they're ready for commercialization in part for this reason. And the dynamic was we made some investments, some in-licensing investments last year related to this platform and another platform that we obviously felt the need to highlight given the materiality of it, what we're investing in. So we feel our launch is very much on track with what we had highlighted in we're -- as a company, I think we've got a great R&D team and operations team that has experience in developing, launching new platforms and executes really well. And I think we're really pleased with the progress that they made with inVue excited about bringing it to market. And just building out that capability, which we think is unique in terms of what I'd express to the market.

And this is a capability that we have built over time over decades, and it's a very strong capability that we have. And then I'll just quickly address the front part of your question, and Brian, I will let you take the ramp part. So we are launching with both air cytology and morphology, and they're both very high volume frequently done tests on a daily basis at a clinic. So customers are very open to having this solution in their practices. Also knowing that over time, it's going to add other menus. So we see no issues that they're going to wait for any menu. They're going to -- they're really valuing what we're going to bring. And as I said, it's high volume. But Brian, do you want to talk about that ramp?

Yes. No, I think the -- this is principally kind of a 20, 25-plus kind of a factor we'll start placing instruments in Q4. I think that what we've seen is that there's relatively quick adoption of menu and you get customers who are excited about these solutions. The first adopters are folks that are very interested in adding to their practice. We gave a range of the consumable revenue that includes the 3 categories that we talked about. So obviously, that will build over time with -- as we add capability to fine needle aspirate. And -- but I think that's a reasonable estimate. And if you go back in time, our SediVue estimates where we delivered against those and they're kind of in a similar kind of range to what we've highlighted here. So we'll look forward to building on that. And this is a multiyear effect as it has been for SediVue and we highlighted 20,000 placement opportunity. We look forward to marching towards that with our expanding global sales capability. I know they're excited about having this new solution. So we look forward to reporting progress on that.

Okay. Sounds good. And then a couple of quick ones, somewhat one-off. Maybe I'll start with an innovation question. So in terms of other potential new products, something you've discussed in the past and maybe you could talk about it qualitatively. We often get questions if there's an opportunity in diagnostics to complement some of the innovation we've seen on the therapeutic side of things. So let's say, for example, Zoetis has [indiscernible] and Cytopoint out there for derm and there's other derm products expected. There's been a lot of innovation in the pain side of things with Librela for example and Solensia. Have you looked at opportunities for more like companion diagnostics on new companions and companion pets. But in terms of to complement the therapeutic side out there to see the test if the pet will respond to the drug or to test there could be side effects just sort of complement some of the innovation that's happened on the therapeutic side. Is that an opportunity out down the road?

We do -- I mean, we -- most of the products that we bring to market are really based on the needs that our customers express, and we are tied in very, very closely with our customers on what are those pain points, what are some of those needs? And you're absolutely right, before they can treat, you have to diagnose. So we are constantly looking at what the opportunities are ahead of us.

Okay. All right. Fair enough. And then one more, and this is a little bit on the competition side of things. We don't often talk about competition because we think the diagnostics market is fairly well entrenched and relatively stable. But you did have a shakeup in the last year where Mars acquired Heska announced now they have the Heska point-of-care business, and they also own the VCA and [ reference lab ] business. You've got an existing contract that you talked about previously with Banfield -- how should we think about the renewal for that that's coming up in a couple of years? And how do we think about their portfolio where they have both clinics with Banfield and VCA, they have reference labs, they have point of care, how is that interplaying with your portfolio?

Yes. Just at a high level, it's -- look, it's always been a very competitive sector. We actually see the increased level of investment in the sector as reflective of people's confidence in long-term growth opportunities. So I think the -- we're all committed to growing pet health care. And so I think having smart people thinking about how we do that is a good thing overall for sector development. It's not a new dynamic for us to have customers owning competitors and working through that. Our focus is on helping our customers grow faster. We think we have great solutions, $2 billion of cumulative R&D investment. I think we're in a great position to build on that progress and bring value. And if we help our customers go faster, we'll be successful as a company and the industry will be successful as well.

All right. I think that's actually a really nice concluding remark to touch on, Brian. I think it's a good way to wrap it up. With that, unfortunately, we're out of time every one we could keep going, there's a lot more discussed. But I really want to thank you, everyone. Thank you for joining Brian, Tina. Everyone that's on the line from the investor community. Really appreciate your attention, and we're around if there's any follow-ups. Talk to you soon, guys.

Thank you Mike.

Thank you.