IDEXX Laboratories, Inc. ($IDXX)

Jon Block with Stifel. Good to see everyone. We're going to push forward. And next up on stage, we have IDEXX Laboratories, the leader in animal health diagnostics and joining me on the stage is the company's relatively new President and CEO, Mike Erickson, as well as John Ravis, Vice President of IR. Guys, thanks very much for Jaws & Paws again. .

Thanks for having us, Jon.

Mike, I got sort of the typical tee-up question, 30 days on the job, give or take, but you have been at IDEXX for 15 years roughly. So just walk us through maybe those top 2 or 3 goals that you see for the company that you're looking to implement going forward?

Well, first off, huge, huge honor to be leading IDEXX and serving our customers and really serving this industry that I love 14 years at IDEXX, really across all the different parts of the company, software, diagnostic, our commercial organization. And for me, it's also personal. I've seen the power of pets in my family. I see it in other families. We're a very purpose driven company, people love their pets all around the world, and we feel that. We really think about our customers and how we can empower them through our platform, diagnostics and software together to do more and see more in their practices with deeper insights and productivity and how we support them commercially. In terms of big goals, I mean, we're really focused on innovation, I have the privilege of seeing behind the curtain, I've never been more excited about our portfolio of innovations. We're in a real cycle right now. It's very broad-based, point of care, reference labs across the board. I'm sure we'll talk about several of those. But we're seeing that really provide a lot of opportunity in how we work with our customers and helping to propel our growth. Commercially, we continue to advance and expand our footprint around the world. That will continue to be a top priority. What we find is when we spend more time with our customers, we help them adopt and incorporate more of these innovations into their practices. We get a very nice return on that. And then on the software front, I mean, that's always been an important part, combined with diagnostics of our overall platform. We see a lot of demand in that area and also a lot of opportunity. And I think we heard from the prior speaker some of those types of opportunities, the opportunity to really bring technology in, not just to support deeper insights, but to support productivity in the overall practice environment. So those are some of the things that I'm focused on. But I feel a deep responsibility to our customers, to IDEXX-ers around the world and to our shareholders. We have a long-term growth strategy, and we've been very transparent around our long-term goals, and that's what I'm focused on.

And I always have a sort of the structure of the talk track, but then I'll just bounce around all over the place. I mean we did here in that last presentation, software, AI, pardon me, I sort of think of you as a software guy going back at your time at IDEXX. And just even when I asked you about the opportunity, you obviously brought up diagnostics to put right behind that with software as well. Not a bad business, right? When we think about recurring and high margin. Is that something that you anticipate leaning into a little bit at IDEXX?

I do. Yes. I mean there's a lot of opportunity there. I think when you go into a practice, there's still a lot of friction and how the work gets done in putting together the protocols, all of those things really can yield to better technology adoption. And again, I think we heard some of that in the last discussion. If I take a step back, we look through a number of lengths. So one of them is just what we can do through software and AI on the insights front. And we've been doing that for many years. I mean we have AI embedded into solutions like inVue Dx or SediVue Dx. I mean with inVue Dx, this takes what's been an incredibly manual process, very tech sensitive of making a slide every hospital around the world, every practice has a microscope, they make slides. And we basically have completely transformed that with this technology where you don't have to make a slide you put the sample effectively into the instrument and with advanced optics and onboard AI, you get a really reliable objective answer in 10 minutes and our cytology blood morphology. So that's an example of AI really transforming a particular category of diagnostics. AI in the actual work that gets done in the practice, whether it's ambient scribe, like we heard about getting time back, we're helping to yield new insights around what's happening in that really important discussion between the doctor and the pet parent is another area of opportunity. We have that in our software as well. And then just how we use AI for the work that we do at IDEXX. I mean we're seeing tremendous impact from doing that. We have teams -- software teams that are using all AI to generate code and we're seeing things that took weeks or months, take days or weeks. It's just an incredibly -- I see a lot of opportunity to use that and how we do work at IDEXX as well.

Okay. So maybe just one more on my end. I mean you mentioned the AI that IDEXX has been pursuing for years and added point of care, something like in view right? You mentioned AI at IDEXX to maybe streamline and become more efficient, et cetera, something that the prior panel talked about was like AI to train the docs and maybe sell better, maybe better utilization, uptake on diagnostics is, IDEXX going to lead that charge? Is that going to come from IDEXX laboratory? Is that going to come from other parties that maybe IDEXX partners with or watches from the sidelines. I'm just wondering how that plays out and if IDEXX going to be a forefront of that or maybe just hopefully benefit from that transition?

I think all of the above. I mean, we -- we're in that space, but we also partner. We have a very connected software ecosystem over 100 different third parties connected into that. And so we look at both of those types of opportunities. The insight that comes out of scribes participating in the conversation in the exam room, I think, can be very formative to help doctors just improve the kind of value proposition that they can provide to their clients coming through. The other interesting thing around AI, if you take that example with inVue Dx is longer run, we see AI as an opportunity to bend the cost curve in veterinary medicine as well. Again, you think about cytology traditionally being done with a slide, it's a very hands-on, labor-intensive process. In most cases, that slide needs to be sent out to a reference laboratory. That could be a $150 charge when that gets marked up to the pet parent. It could be a $300 or $400 thing to do. And that can be kind of expensive. If you look at inVue, one of the key applications is what's called the fine needle aspirate for a lumber bump all the time, every day, people are bringing in their dogs with a bump and asking the question, is this is cancer? So then you've got to go through this whole process. And it turns out less than 10% of the bumps ever get looked at because of how hard it is to do and because it's kind of expensive. With inVue Dx, we can do that at an order of magnitude less cost and take all of the work out of doing it. So there's opportunity to fundamentally expand access to care and trade volume for price, we see as a really tremendous opportunity across the board. That's sort of one example of it to help more pets get access to what they need from a care perspective.

Okay. That's very helpful. And a good sort of segue you mentioned to go down that road. I think last year, when you launched and sort of said, "Hey, we're going to do around 400, 500 boxes in 2025, ended up doing over 6,000, I think close to 6,400. For 2026, you said, look, the placements will be 5,500. And international is now playing a bigger role. And the placements in 1Q '26 were 1,100, which I think was viewed you guys didn't give a specific number, but it was viewed as below expectations. Maybe help us out with the cadence throughout the year. The launch of the international markets is more recent. Does that book sort of means to build in coming quarters?

Yes. So I'd say, I mean, the launch of inVue Dx has been one of the most successful launches we've had in the history of IDEXX. It hits the sweet spot. I talked a little bit about cytology as a use case that every practice has and how hard it is to do. And so to have a kind of product market fit into that particular use case with inVue Dx has been -- it's really hit the mark. And so demand has been very high. We're very happy with the overall trajectory. There's always some lumpiness from quarter-to-quarter, so we feel good about the overall forecast for the year. The categories that we came into between cytology and blood morphology, these are massive categories of testing, volume that's happening in hospitals today that really were able to enable and transform do it at a higher level of diagnostic quality but also turn it into highest volume with our customers. And we're seeing that happen. The instrument is the way it's wired, it's able to learn and grow at an incredibly unprecedented pace. So on our Q1 call, we talked about adding, that's a red blood cell morphology to the menu. Literally since that call, we've added 2 more with [indiscernible] just able through -- because all of our instruments around the world are connected to our Internet of Things network. And so we're able to just push innovation out the practice, team can go home on a Tuesday, come in on a Wednesday and their instruments on their bench top can do more. And so through that, we're able to continue to expand the capability of this platform with years, with blood and then we're going to control launch refining to last bird as well. And as we look over the long, long run, we see 100 million cytologies be done all around the world in additional categories. And so we just see a very, very long runway to expand the value of this platform. So we're very happy with where we're at and the trajectory, and we see a long runway ahead of us.

Okay. And that was helpful. And that FNA into the back part of the year, will FNA be fully launched at some point in the back part of 2026. Is that the point? .

Yes. Yes. Later this year, we're in a controlled launch. I mean FNA is a -- the way to think about that, it's really a platform within a platform. And so we -- as we -- we've launched just in my time at IDEXX for different instrument platforms. So we go through a standard process of controlling the launch, making sure that we get everything perfect in that practice environment. That's the stage that we're in right now. We're actually expanding that, right now, we shared that in our last quarterly call that we're expanding that. But as we look to the later part of the year, we'll move from control to more of an untrained launch. And we just -- we know that this again hits a use case that's very high demand and very important and high stakes because a lot of times what we're talking about here is cancer.

And so maybe just to wrap that part up. IDEXX is not seeing a pause or hesitancy to adopt inVue with this next tranche of practices as they sort of await the full rollout of FNA. You're comfortable in the cadence, you're comfortable in the 5,500, because FNA, I didn't think in January of '25, FNA was going to be a late '26, to be honest with you, right? I mean we knew it was ear cytology and blood morphology, and FNA on the come. But here we are almost 18 months later. But even with that, maybe elongated FNA launch, you're still confident on the cadence of how we get there.

Yes, there are always some practices that will say, we don't force this on anybody. So there's always some practices that could say, hey, I want to have FNA before. So that's always possible. But we haven't seen that as a headwind to make in our goals.

Okay. Maybe one more on inVue sort of list of questions. And I might just have this wrong in my head. Where are you on revenue per box? I know you guys gave 3,500, 5,500. Are you already in that band that I'm asking because everyone is trying to figure out this 2H acceleration, and we'll get there. But I think what I'm trying to figure out is the growth contribution specific to inVue, you're kind enough to get me the boxes, but now you've got to figure out the revenue per box. Are you already in that band? Or are you approaching the lower end of that? .

Yes. So to be clear, we're already comfortably in that band with where that band for as a reminder, included blood ear in FNA. But we're in that band today with blood ear. And so as FNA comes on board and moves from controlled unconstrained. I think that will also be a good thing.

That's a pretty -- I don't know, notable accomplishment, no. And I just asked because the way that at least our checks, what our check was people peeled it or a use it for FNA was always supposed to be I think the highest utilization of comping FNA. That's what they seem most excited about. So does that give you some comfort that if and when we're fully launched, that maybe you're sort of pushing up to the higher band of that revenue per box versus...

We give a range to sort of encompass all of these things I mean we've got large practices, small practices. You've got practices. 1/3 of our placements are international. And so we provide that range to encompass all of those scenarios. The majority of the practices that have inVue Dx have adopted it and are using it for both ear cytology and blood morphology. These are totally complementary use cases. And I think the same thing will be true with fine needle aspirate. And we've got a number of customers that want to have multiple inVue Dxs in order to handle all the volume that's coming through. So I mean, if you take a look at catalyst, and we've shared these numbers in the past, this -- similarly, this is a platform that expands in value over time. If you look over the last 10 years with Catalyst, the economic value per instrument has grown 2.5x, and that's a consequence of continuously bringing forward new menu innovation, which then provides more opportunities and inspires more testing. I mean, we just rolled out SDMA package into our catalyst clips. We rolled out pancreatic lipase slide cortisol. So we keep bringing forward these innovations, which expands over time, the economic value of the instrument for our customers, by the way, and then by virtue of that for us. And that's our same approach and strategy for inVue Dx for the long run.

That's really good color. I'm going to go back to innovation in a second, but I do want to ask -- I want to ask you probably the most pressing question I get, right? And new CEO, so I want to talk strategy and big picture, but -- and I won't do a bunch of back of the envelope implied math up here. But I get the question, hey, look, the guy, they beat, they raised. We can all look at the 2-year stacks. They need to accelerate for the balance of the year for you guys to get to just call it the midpoint of the guidance. And I think there's a misconception out there where everyone's so obsessed with inVue. I don't think it's inVue that makes or breaks the guidance. I think it's other dynamics of like international utilization, maybe visits. But as we sit here today, Mike, what are the enablers that allow that 2-year stack to for the next 3 quarters?

Yes. So it's really multiple things. I mean, they come back, Q1, we had a really solid quarter with double-digit growth across the board. And I think the thing to appreciate about our business, you sort of said it, but it's not one thing. It's many, many things contributing to this. I mean we were double-digit growth point of care, 15% on the consumable side, double-digit growth in reference labs. Within each of those, it's not just inVue, it's multiple platforms. We have new slides and catalysts. So really, the short answer is innovation is really propelling our growth and you look at our growth as a premium to overall sector growth. But I should talk about the sector, too. I mean we see long run, just this incredibly durable growth trends that ties back to what I said earlier, it's personal, right? People have this relationship with pets as members of their family. And as we talk to younger and younger generations of pet owners, that's only more and more true. So that's an up and to the right trend. We've been facing into some of the headwinds on the visit side, as you know, but what we're seeing is that whole bolus of pets that came through and were adopted as part of the pandemic, particularly these dogs are aging. And so we're seeing green shoots of growth in dogs over 5 and we've seen this now for 3 quarters. And in Q1, we saw it both in well and in non-well dogs. And so we can look at that and look forward and see that. And by the way, the visits that are happening are happening with even more quality from an overall care perspective, medicalization...

Dx utilization.

Dx utilization standpoint. So it's really the combination of aging pets, that are driving volume. So we see that, the higher quality visits and our innovation, which supports more and more reasons to test in that context. And so we have now seen several quarters of some moderation on the overall clinical visit side of things. So we did say we're going to modestly adjust for the rest of the year from minus 2% down to minus 1.5%, so still negative, but reflecting some of those things. And so the combination of our execution and our performance on the innovation front with that is really what gives us a lot of confidence in the year ahead and really in the long run.

And Mike, I would just add to that, we're also seeing solid benefit from net customer gains, including adoption of our ovations in the form of growth of our installed base. So that grew 12% in the first quarter, really building on very solid commercial momentum. That direct customer engagement is really helping us. And we're seeing that also pull through in our reference lab business, which has seen accelerating growth. So really strong performance across our major modalities and geographies, including international. .

Okay. Yes. I mean if I take that, just as an example, with Cancer DX, I mean we're seeing a tremendous reception to this breakthrough innovation in early cancer detection with Cancer DX starting out with lymphoma. 20% of the volume in that case is coming from practices that don't have IDEXX as their primary reference lab. Yes. So there -- and so these are practices that are appropriately prioritizing the health and well-being of their patients and the kind of care that they can provide over whatever relationship that they have on the vendor side of things and that's helping to further drive new customer growth on the lab side. So to John's point, it's really it's a combination of intensity of utilization, but also a lot of new customer growth.

Okay. Last time, you mentioned inVue and I use that as sort of the the transition a handful of questions. I'll do the same with Catalyst Dx. So I think I've got these metrics correct 7,500 practices that are ordering the test. I think almost all of those are U.S., 25% share of U.S. practices. I'm rounding, call it, roughly 30,000...

Cancer Dx.

Cancer Dx, 30,000 practices, 7,500 are ordering Cancer DX. I met IDEXX's reference lab share probably 60%-plus, 60% or 70%. So talk to us on, you guys have 60% to 70% share, 7,500 are ordering the test. How do you bring that closer to the representation that you have well north of 50%. And what does it take to get there? Do we have to wait for the test to expand and broaden out in the other types of cancers to be brought on board?

So we're -- first off, I'll just say we're incredibly happy with the demand in the overall trajectory that we have for Cancer DX. I mean this is a real breakthrough in a category that frankly hasn't -- it's really been incredibly underdeveloped in veterinary medicine. I mentioned earlier this is personal. I mean I've lost 2 dogs in my family to cancer. And in both cases, it was too late to do anything about it by the time it was found. And that's just an all too common story. If you talk to dog owners, probably many people in this room have been impacted by this as well. And so the ability to detect lymphoma up to 8 months before there are any clinical signs. And then you can take action and to be able to type the lymphoma, to take the right kind of care, it's transformational. And then because of our technology, we're able to roll it out at only $15 when packaged with an IDEXX blood panel. And so the overall strategy supports access to this technology, but also helps provide overall pull-through of blood work, and we're seeing that. So in the 7,500 practices and all the volume, 70% of what's being run is actually being run together with blood work at the IDEXX reference lab. So the strategy is working. What I'll say, this is a long-term strategy. I mentioned that this part of the sector has really not been developed. In the U.S., they're only around 470 oncologists. And in the entire developed world, there's like less than 600 of them. And so while we're working with specialists to help support their use of the test for diagnosis and monitoring therapy, the broader strategy is really to enable and empower general practitioners to incorporate this into their wellness protocols and how they practice medicine. And that's -- we support them with the test, with data. We have specialist oncologists in the fields and that are on call to support with that. That's a long-term development opportunity. As we go from a single test to a panel, I think that will be pretty formative adding mast cell tumor later this year will be important.

So I was going to go down the road, adding mass cell tumor to this year, I think a third indication disclose but 1/3 as well by the end of '26. Do you feel like that that's the tipping point to start to get this into a well in the panel because, hey, John, your dog is 7 years old. I want to run this as part of a geriatric panel. Oh, great, you identify cancer? No, we identified one type of cancer, right? Lymphoma. That's a tougher sell, right? If it's, hey, we identify 50%. So maybe talk to us on, are these 3 the tipping point? And then the follow-up question is, remind us when you get to the 50%? .

Yes. So we get to 50% we've said is by 2028. So as we continue to expand the panel, we'll be at about 1/3 of the major cancers covered when we add mast cell tumor later this year. So it's good coverage. And I think there are multiple tipping points. I wouldn't say there's one tipping point. This is really -- if you look at our business across the board, we're developing the sector. These innovations have very long and durable tails to them. Cancer Dx, I think, will be like that as well. So as we continue to expand the panel, that creates more and more reasons to test to capture broader net, so to speak. We're also able to help doctors and pet parents identify which dogs really should be getting cancer deck. We have really good insight on these dogs, dogs or particular breeds were over 4 and we can help to identify those patients, both in their client base and even through our software, help prompt that in advance it is it to help pet parents think about, hey, you for your pet, you want to think about a cancer testing. So we're able to help develop this sector through technology and data and specialist support. Ultimately, we see this as being a really important new part of medicine and veterinary.

Okay. And when I think about these 2 innovations, inVue and Cancer DX, and we can all do -- as I mentioned earlier, I'll do the boxes. I'm taking your word of 5,500 to under 11,900 box. .

3,500, 5,500.

Right. And the revenue per box and you get the contribution to growth, is Cancer DX a little bit more like this wild card. It's out there. It's gaining some momentum now, but there's really sort of you turn the dial when you really get into wellness and becomes a little bit more widespread. So I know you said it will increase over time, but is that more of like an inflection point '27 into '28 in terms of a growth contribution or inVue is more of the steady state as you layer on more boxes and maybe cut the revenue per box a little bit.

What I would say this might not help your math. But all of these things have a lot of sort of multiplier value built into them. I mean if you take Cancer DX, for example, I share this is driving -- this is supporting new customer growth. This is supporting more blood work. And then there's the use of the test. It's not just used for early detection. It's also used for diagnosis. It's used for monitoring therapy. I mean we have a claim out there that Cancer DX can detect molecular remission if you're running a pet through CHOP, that's never been possible before for lymphoma. So it creates all these reasons to test, it expands our customer footprint, and it drives additional testing. And the same thing is true with inVue Dx. When we look at an instrument platform like inVue Dx or Catalyst, it also drives lab, our lab business because a lot of the ways we work with customers, really, they appreciate having an IDEXX 360 program where they get instruments, combined with labs, so pull-through testing, testing begets testing. And as I mentioned, we continue to add to many of these instruments. And so over time, it's not a straight line. It's a curve. And so that's the way we think about it. And all these things together factor into our overall growth confidence in our growth.

Okay. Talking about growth, Multi-Q. We actually called out that trademark that we found in March of last year.

Yes, very perceptive of you, Jon.

Thank you. I got a good team. the trademark is general and is intended to cover laboratory consumables for veterinary purposes, that's pretty broad. Just talk to us about what the core functionality of the boxes and then maybe the timing as well.

So we haven't commented on either of those things. I mean the one thing that we've said before, which I'll just reinforce today is that what Multi-Q Dx will do, it will transform the category that it's in, and it will be entirely complementary to what we have today in our our VetLab suite. So we haven't said specifically what it does, though.

I'll ask it a different way. What you've done a really good job of is going to a veterinary practice, identifying the pain points and then trying to simplify and streamline it for example, ear cytology maybe taking out some of that objective nature to behind it what are some of the remaining pain points that exist in a veterinary practice today? .

We have a long list of opportunities that we identify as pain points. And so Multi-Q Dx fits into that list, and we see more opportunity beyond that as well.

Would you likely handle it the same way that you had in prior years like you did with inVue? You've got an Analyst Day coming up in 2 or 3 months. You have in the past unveiled and talked about the box and then subsequently launched it 4 or 5 months later at VMX, would it be a similar playbook that you would run for the next box?

Yes. I mean the playbook that we follow is we talk about it when we're ready -- when we're ready to talk about it. We don't want to get ahead of ourselves on that. So we'll follow that playbook when we're ready, we'll talk about it. And then we'll talk more about what it does and all of these things.

Talked about it a little bit last year. About 20 seconds that you talked about.

A little bit, yes.

Okay. Okay. Last one down this road. Can the commercial organization handle these 2 point-of-care analyzer innovation simultaneously because inVue while introduce Gen 1 in '25 is still relatively new as FNA comes on board. So is there a bandwidth or a capacity issue from that perspective? .

No. I mean our -- if you look at our commercial organization, we continue to invest in the capacity of our commercial organization, adding our commercial organization and also how we support globally our commercial team through centers of excellence. I mean we, every year, have continued to invest to expand the footprint in the U.S. and also around the world. And looking forward, we would intend to continue to do that. But we have a tremendous amount of capacity in our commercial organization to spend time with customers. I mean, really, customers view our team as extensions of their practice, helping them to reach their goals and to practice a higher level of medicine. And that's what our team does every day.

Okay. We've got 2 or 3 minutes left. We touched on this a little bit earlier, but I want to talk about future innovation. And maybe just help me out, Mike. I mean is this a hardware thing? Is it a software thing? Is it AI in a separate bucket. I don't know if you say all of the above, do you want to rank order them? How do we think about what's in that pipeline for IDEXX and where priorities may lie?

Yes. So as I mentioned, I have the privilege of being able to be behind the curtain and see an innovation pipeline that I've just never been more excited about. And one of the things that differentiates us at IDEXX is that we really have this full stack innovation capability across instruments novel, assay development, software, AI, all of these things. And then of course, the integration of these things into platforms like inVue Dx or Cancer DX and so forth. And so our strategy has really been a multifront innovation strategy, and we'll continue to be that. I think there's opportunities in the AI space, like we talked about earlier that are -- we've been in that space for a while. We'll continue to be in that space, but I think some of those opportunities are opening up inside IDEXX and outside IDEXX...

That could be organic or inorganic.

I think there's opportunity there to continue to -- with just some of the advancements that are happening, but across the board, I mean, we see instruments, assay development, software as being more of an integrated solution approach that will continue to drive forward.

Guys, any last one question from the audience? .

Mike and John, perfect.