Erin Wright: Great. Does your guidance for 2023 assume any sort of contribution from the two new platforms that you plan to launch here, hopefully, in the near future? And how should we think about those? Are they more of a 2024 event? And how should we also just be thinking about the timing of magnitude in terms of the contribution from the innovation pipeline?
Jay Mazelsky: Yes. No, we haven’t provided any specifics on the two new point-of-care platforms. And as we get closer to launch, we’ll talk about this.
Brian McKeon: Yes. They’re not in the there’s nothing related to those platforms in the guidance.
Erin Wright: Okay. So — and then.
Brian McKeon: Other than the cost to support continuing.
Erin Wright: Okay, great. And on the cost side, I guess, 7% to 8% price realization obviously tracking above historical. And I think Brian, you talked about some of this in your prepared remarks, but what are some of those key factors that we should be kind of aware of that are limiting the full drop through from a pricing perspective to the bottom line?
Brian McKeon: The inflationary costs are real. On the product cost front, took a number of steps this year to ensure that we have high product availability and it’s been a challenging kind of environment to manage the supply chain dynamics. Our operational team has done a fantastic job on that front, but we did make choices to ensure we’ve got supply, and that’s going to be flowing through in our product costs for a period of time, and there are higher labor costs as well. I think we’re the price increases that we advanced, I think reflected in our margin outlook where appropriate, given some of the dynamics that we’re working through. And we’re able to improve gross margins through initiatives like productivity activity and our initiatives in our lab operations and just continued focus on growing our recurring revenues at a strong rate.
But the — on the gross margin front, that’s the primary impact. And I think we’re always trying to be balanced with our base of overall investment and that’s allowing us to deliver solid margin improvement overall at the higher end of our guidance range.
Jay Mazelsky: Yes. I would also add, just on the commercial front, we’re back to more of a normal type operational cadence. We attended the VMX and VMX was the biggest show in its history. We’ve had sales summits from a customer visit standpoint, our field organization is — the majority of visits are now in person. So it’s much more of a pre- pandemic type operational cadence.
Operator: Michael Ryskin with Bank of America. Your line is open.
Michael Ryskin: Great. Brian, I think in your earlier comments, you talked a little bit about the IDEXX premium, the bridge between the underlying vet visit volume and price and then your actual revenue growth. I think you said that the high end of the guide assumes a similar premium to what you’ve seen previously. Is there a lower premium at the lower end of the guide? Can you talk us through sort of what your expectations are for that between the 7% and the 10%, sort of what are you thinking in terms of the IDEXX growth premium?
Brian McKeon: Right. Thanks for the question, Mike. So, just starting with the high end, let me use the U.S. So if we’ve got an 11.5% growth goal with 7% to 8% pricing, that’s approximately implied about 4% volume growth and with some level of headwind from visits as we work through the first half of the year. That gets us to go to the volume growth premium that we’ve been delivering and kind of consistent with pre-pandemic trends. So that’s how we’re thinking about it. We have a range which we think is appropriate to calibrate for risks to that outlook, primarily macroeconomic impacts and, you know, so I think that’s not linked to one specific factor, but I think it’s something that we think is prudent, is the way we plan the business to make sure that we have financial plans where we can deliver solid profit gains, if things don’t all go the way that we anticipate.
And so again, it’s not linked to one specific factor, but it builds in potential macro headwinds or if things don’t recover the way that we’re targeting in terms of the clinical visit trends.
Michael Ryskin: Okay. And then for the follow-up, we’re seeing last year in 2022 and this year, some very specific product launches coming from HESKA and ABAXIS and others in the space. So, I’m wondering if you could touch on the competitive landscape just a little bit kind of tied into that previous question as well. Any changes you’re seeing there? Any come conversations with customers, how that might factor into your pricing strategy?
Jay Mazelsky: Yes. We’ve said for a long time, the diagnostics market is a very attractive market. There’s a lot of competitive intensity. Nothing has changed on that front. We believe that through the customer lens that our overall solution portfolio is highly differentiated the combination of our in-clinic laboratory reference laboratory software, the connectivity of it all really helped support the practice mission. We see that if you take a look at our new and competitive placements, which we provided both for Catalyst and now for premium hematology, we’re doing extremely well. We’re growing our software in Web PACS and Diagnostic Imaging businesses very well. We feel very good about our focus on the customers and helping them to achieve their goals and we think it’s reflected in the results.
Operator: Mr. Block you have anything further or Mr. Ryskin, my apologies.
Michael Ryskin: No, that’s it. Thank you.
Operator: We will move next to Jon Block with Stifel.
Jon Block: Great. First one, Brian, maybe just a clarification. I thought you said a $16 million customer contract resolution. Was that in the first quarter of ’23? I’m not sure I heard you properly. And if so, is that in the GAAP 2023 EPS guide, I’m landing at $0.15-ish to the bottom line. Maybe you can comment on that. And then last, just bolt-on. Is that an offset to OpEx, if I’m right on all these assumptions, not a rev line item, and I’ll start with that clarification, please?
Brian McKeon: I think you had got all that right. It is a Q1 2023 factor that we highlighted in our Q1 outlook and it is recorded as an — it’s an other income item for us which is recorded as an offset to G&A, and that’s correct.
Jon Block: I got it all right. I don’t know if I should push it. But the 9% to 16% comparable earnings growth that you sort of have in the release once you back out the 10%, is it in that one as well? The 9% to 16% also benefits from the $0.15?
Brian McKeon: Perfect. And then just maybe to follow on Mike’s question, I’m just sort of coming at it a little differently. For2023 clinical visits, it sounds like you’re landing around down 1% to 2% for the full year, I don’t know, around there. So vals are down, 1% to 2%, and price is up 7% to 8%, and just to be clear on price — it’s 7% to 8%, right. The press release read a little funny saying like 7% to 8% was the case if you were at the high end of your range. I’m guessing prices price, maybe you guys can clarify that.
Jonathan Mazelsky: Yes. That is correct.
Jon Block: Okay. So price is right. So yes, there was a confusion incoming on that. So if vals are down 1% to 2% and price is up 7% to 8% if I take your 10% CAG Dx recurring you land at what we’re calling 400 to 500 bps of non-price non-visit growth, which seems like an ongoing deceleration throughout sort of ’22, certainly the back half of ’22. And I know there’s moving parts with U.S. and international, Brian, but sometimes we don’t get such great granularity too. Just your thoughts on that 400 to 500 bps non-priced on visit growth the deceleration comments, and broadly speaking, is that sort of how we should view the business in the near term until maybe innovation kicks back in?
Brian McKeon: Thanks, John. I was trying to follow your analytics. We focus those discussions on our U.S. numbers, just to be clear because that’s where we actually have the reporting. So, the 11.5% overall growth if you use the midpoint of the pricing guide. And I do want to clarify the expected pricing benefit is something that we feel very good about across our performance range. So that is — we were focusing on kind of the analytics around our high end to help people understand that. But going back to the high end of 11.5% CAG U.S. recurring diagnostic revenue growth, netting out the price benefit, use the midpoint that would be about 4% volume benefit. And we didn’t explicitly highlight the clinical visit trend, but it bridges back to that that 5% to 6% kind of volume growth premium that we saw in the second half.
That’s about what we’ve seen pre-pandemic. And so, we’re looking — that’s what we’re shooting for. And all indications our execution is holding up really well. If you look at the performance of trips and just how we’ve consistently done, so looking to build on that momentum.
Jay Mazelsky: Yes. I would just add to that, if you take a look at the execution metrics around customer retention, new customer acquisition, Brian highlighted price realization, which we think is appropriate given the current context. Overall, commercial execution has been excellent, and we anticipate being able to continue to execute well in the current year.
Operator: Ryan Daniels from William Blair. Your line is open.
