IDEXX Laboratories, Inc. (IDXX) Q1 2016 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the IDEXX Laboratories First Quarter 2016 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jon Ayers, Chief Executive Officer; Brian McKeon, Chief Financial Officer; and Ed Garber, Director, Investor Relations. IDEXX would like to preface the discussion with a caution regarding forward-looking statements. Listeners are reminded that statements that members of IDEXX management may make on this call regarding IDEXX's future expectations, plans and prospects constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as expects, may, anticipates, intends, would, will, plan, believes, estimates, should and similar words and expressions. Such statements include, but are not limited to, statements regarding management's expectations for financial results for future periods. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today. And except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Also, during this call, we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release, which can be found in our website, idexx.com. In reviewing our first quarter 2016 results, please note all references to growth and organic growth refer to growth compared to the equivalent period in 2015, unless otherwise noted. In order to allow broad participation in the Q&A, we ask that each participant limit his or her questions to one with one follow-up, as necessary. We do appreciate you may have additional questions. So please feel free to get back into the queue. And, if time permits, we'll be more than happy to take your additional questions. I would now like to turn the call over to Brian McKeon. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: Good morning. IDEXX had a strong start to 2016 in Q1. Based on our solid performance trends and more favorable projections for foreign exchange rates, we are increasing our full year financial outlook today. In terms of first quarter highlights, we achieved organic revenue growth of 11%, supported by 10% organic growth in the U.S. and 12% organic revenue gains in international markets. Recurring CAG Diagnostics revenues increased 11% organically as benefits from our innovation pipeline and strength in commercial capability supported 15% gains in reference lab revenues and 12% consumable revenue growth globally. We had another strong quarter in terms of expanding our instrument base with nearly 2,000 premium analyzers placed globally, up 18% from strong prior year levels. Strong top-line growth and better-than-expected operating margin performance supported Q1 EPS of $0.51. On a constant dollar basis, Q1 EPS increased 14%. As expected, foreign exchange was a headwind to reported results, lowering reported revenue growth by 2% and EPS by $0.05 per share, including the impacts from the lapping of 2015 hedge gains. Foreign currency rates strengthened relative to the U.S. dollar during Q1. Compared to our earlier estimates of exchange rates shared in our January earnings call, this change added about $5 million to Q1 revenue and about $0.01 to EPS. For the full year 2016, at new exchange rate assumptions shown in our press release, the recent strengthening of foreign currency rates relative to dollar will add approximately $27 million to 2016 revenue and $0.05 to EPS. Along with our stronger-than-expected operational performance, this supported an increase in our full-year revenue and EPS guidance of $40 million and $0.08 per share, respectively. We'll review our updated 2016 outlook later in my comments. Let's begin with a review of our Q1 performance by segment and region. Q1 results were supported by strong CAG results and accelerated growth in our Water business. Global CAG revenues were $358 million reflecting 11% organic growth. CAG gains were supported by strong recurring Diagnostic gains across the U.S., Canada, Europe, Asia Pacific and Latin America. As expected, we saw approximately 1% of growth benefit from extra days in the quarter. Favorable U.S. weather comparisons also supported strong CAG performance. Our Water business grew 11% organically to $24 million supported by double-digit gains in the U.S. and benefits from global commercial investments. Water results also benefited from the extra leap year day and warmer U.S. weather. Our Livestock, Poultry and Dairy business grew 4% organically to $31 million benefiting from new product gains, porcine and poultry testing in China, and livestock services testing offsetting expected declines in Western Europe bovine testing associated with successful disease eradication programs. Overall, U.S. revenues were $259 million in the quarter, up 10%. U.S. CAG recurring diagnostic revenues grew 9% organically supported by high-single-digit consumable volume gains and high-teen revenue growth in our U.S. Lab business. Recurring CAG revenue gains continue to be primarily volume-driven. Consistent with trends in Q4 of 2015, we continue to see a moderation of growth in net customer acquisition cost, reflecting our success in differentiating IDEXX's diagnostic technologies from competitive offerings, which should provide benefits to realized net pricing levels moving forward. U.S. market growth reflected in our data set of 5,200 clinics continues to trend solidly. In Q1, patient visits normalized per equivalent days increased 6.0%, and clinic revenues increased 9.2% overall, supported by double-digit gains in February. International revenues in the first quarter were $159 million, reflecting 12% organic growth. CAG Diagnostic's recurring revenue growth was 13% in international markets in Q1. These strong results reflect accelerating consumable revenue growth supported by high levels of instrument placements as well as improved lab revenue gains. Global instrument revenues for IDEXX were $23 million, up 16% organically, supported by continued strong growth in premium instrument placements globally, particularly Catalyst One. Globally, we placed 1,157 catalysts and 823 premium hematology analyzers, up 25% and 10%, respectively compared to strong prior-year results. International performance was exceptional, reflected in 1,150 premium instrument placements, up 28% over prior year levels. In North America, we placed 443 catalysts in total with 258 or 58% going to new and competitive accounts, reflecting our commercial emphasis. These gains and continued improvement in placement retention supported a 15% expansion of our U.S. catalyst instrument base over prior year levels. Strong placement gains continue to expand our foundation for growth in CAG Diagnostic recurring revenues. Global CAG Diagnostic recurring revenues were $305 million in Q1, up 11% organically. By modality, instrument consumable revenues of $108 million grew 12% organically, reflecting strong volume-driven gains across all major regions. Our reference laboratory and consulting services modality with revenues of $141 million grew 15% organically in the first quarter, driven by very strong U.S. gains and improved performance in Western Europe. Strong global lab momentum reflects leverage of our expanded commercial capability and benefits from our test menu expansion including SDMA. Rapid assay revenues decreased 1% organically in Q1 to $43 million. As expected, U.S. Rapid assay revenues were down modestly, reflecting timing of promotional programs and relatively tougher prior-year comparisons. Rapid assay trends over the past two quarters have remained basically consistent with sustained 4Dx volumes and stabilized impacts from competitive first-generation assay products. Customer information management and digital imaging system revenues were $29 million in the quarter, up 14% organically. Solid information management revenue gains were supported by continued penetration of the Cornerstone services in our loyal installed base as we, in parallel, advanced the introduction of our cloud-based Neo platform. Digital revenue growth continued to improve reflecting strong unit sales and benefits from recognition of deferred revenues associated with long-term business commitments. Turning to the P&L, as expected, the lapping of $4.5 million in 2015 hedge gains and unfavorable year-on-year changes in foreign exchange rates had a moderating impact on a reported first quarter financial results. Despite these headwinds, we delivered solid financial performance in the quarter. Operating profit was $74 million, up 1% compared to the prior year, supported by gains in our CAG segment, which offset FX effects. Please note that our segment reporting now includes a more comprehensive view of the financial performance of our operating segments by including the capitalization of manufacturing variances in operating segment results. These impacts were previously disclosed in unallocated amounts. Excluding currency impacts, operating profits increased 10%, supported by strong revenue gains. Operating margins of 17.7% were better than expected due to volume leverage and timing of operating expenses, which moderated cost growth in Q1. Gross profit was $228 million in Q1, up 6% on a reported basis. Excluding foreign exchange impacts, including the lapping of prior year hedge gains, gross profit margins declined approximately 70 basis points, reflecting comparisons to favorable prior year product costs and product mix impacts from higher instrument sales. For 2016, we had a foreign exchange hedge gain reported in gross profit of approximately $800,000 in Q1. Operating expenses increased 8% in Q1, modestly below revenue growth, reflecting increases in capabilities supporting the U.S. go-direct strategy and global increases in commercial spending advanced through 2015. As noted, EPS was $0.51 per share, up 4% on a reported basis and 14% adjusted for currency impacts. The federal R&D tax credit, which benefited 2016 but not 2015 first quarter results, had a favorable 2% EPS growth impact. EPS growth continues to benefit from share repurchases advanced over the last year, supported by our strong free cash flow and optimization of our capital structure, which reduced the average share count year-on-year by approximately 5%. In Q1, we repurchased over 700,000 shares for $50 million. Absolute levels of share repurchases moderated in Q1 from accelerated levels in recent years as we've achieved debt leverage ratios within our long-term target range. We ended Q1 with approximately $1.2 billion in debt outstanding with an average interest rate of 2.5% and a balanced multiyear tenor. Cash and investment balances were $351 million at quarter-end. Looking ahead, we're updating our full year guidance today to reflect our strong start to 2016 and favorable changes to foreign exchange rates. We're increasing our 2016 revenue guidance range to $1.73 billion to $1.75 billion, an increase of $40 million. As noted, we're raising our 2016 organic growth guidance to 9% to 10%. We're also incorporating updated FX rates in our outlook, which contributed approximately $27 million to our full year revenue guidance. At the updated exchange rates outlined in our press release, we now estimate that foreign exchange rates will reduce year-on-year revenue growth in 2016 by approximately 1%. We're raising our EPS outlook range by $0.08 to $2.18 to $2.25, reflecting closure benefits from higher organic revenue growth and FX changes, offset by a 50-basis-point increase in our expected tax rate. The increase in our effective tax rate estimate to 30.5% to 31% reflects updated estimates for higher U.S. profit growth. In terms of FX impacts at updated exchange rates, we now estimate that foreign exchange will reduce 2016 EPS by approximately $0.21 per share, including net impacts from the lapping of $21 million in 2015 hedge gains, compared to projected hedge gains of approximately $2 million in 2016. We're maintaining our outlook for strong cash flow generation of 95% to 100% of net income this year. For Q2, we reported revenue gains of 7.5% to 8.5% supported by organic growth of 8% to 9%. In addition to expectations for continued strong CAG recurring diagnostic gains, benefits from the launch of SediVue will mitigate effects from comparisons to very strong prior year instrument placement results. In terms of the P&L, we expect that operating margins will be approximately 150 basis points to 200 basis points below prior Q2 levels, reflecting impacts from FX operating profit headwinds of approximately $7 million, including the lapping of $5 million and 2015 foreign exchange hedge gains and timing of 2016 operating expenses. That concludes our financial review. I'll now turn the discussion over to Jon for his comments. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Okay. Thank you, Brian. Q1 performance was outstanding and was a result of a combination of factors. First, we achieved strong performance in our commercial organizations in the U.S. and around the world. Second, we are seeing the sustained benefits of a highly innovative line of veterinary diagnostics. Finally, we are seeing generally, favorable market trends, particularly in the U.S. As we exited the fourth quarter of 2015 with revenue and profit performance that built from Q3 results, I think most concluded that we had indeed successfully completed the transition in the U.S. to our fully direct sales model. With these Q1 results and our revised 2016 organic growth guidance, we are now beginning to see the power of this new sales model and what it can achieve. We went fully direct because we believe that by being closer to our customers, we could augment revenue growth and adoption of our first and only innovations in the veterinary market. This has been our strategic plan executed over several years, not only in the U.S., but in markets around the world. It's very simple. The more IDEXX representatives as subject matter experts in our category visit customers, the faster our customers grow their adoption and use of IDEXX's unique and innovative solutions. So, let's look at a few numbers. In Q1 of 2016 in the U.S., we made nearly 63,000 field visits to veterinary practices, up 31% year-over-year. 23% of this growth came from productivity in the form of more visits per field representative, and the remainder was a consequence of more feet on the street year-over-year. This visit rate is higher than I quoted in Q4 2015 and it includes not only our 180-plus veterinary diagnostic consultants, but also other types of Companion Animal Group diagnostic rules in our field organization, namely our highly-experienced professional service veterinarians and their wonderful team of field support representatives. As there are roughly 25,000 veterinary practice locations in the U.S., 63,000 visits is an average of more than 2.5 visits per practice in a quarter or 10 per year. And this number does not include a variety of other ways we interact with customers, including trade shows, group educational dinners, online education, phone sales and support, corporate account interactions and sales roles in information management and digital radiography that are part of the field team activities. We are finding that when we show up regularly at the practice quarter-after-quarter, the cumulative effect is a continuing strengthening of relationships with customers and prospective customers alike. Veterinarians are more and more seeing a unique company that is truly committed to bringing an impressive set of first and only diagnostic and software solutions that advance their practice. Internationally, we are also seeing the benefits of enhanced commercial capability that we have built over the past few years. In all markets outside the U.S., the level of pet care, and the adoption of diagnostic technologies is far earlier in the curve than the U.S., even though people love their pets just as much. Our Companion Animal Group recurring diagnostic revenues grew 13% organically over Q1 of 2015 outside the U.S., supported by our ever-increasing level of Catalyst One placements. In addition, strong recurring gains in major developed economies in markets such as Europe, we are also seeing exceptional growth in the companion animal revenues in emerging markets such as China and Brazil, demonstrating the substantial long-term growth potential we see in our markets globally. A reason for our optimism on our long-term growth potential flows from the strength of our innovative pipeline, which is expanding the market for diagnostics globally. So, let's do a couple of updates here on these newest technologies. In Q1, we generated over 250 orders for SediVue, our first and only urine sediment analyzer. We have begun shipping SediVue to fulfill this backlog in April and the early customer response has been simply off the charts. So that means that while the field was busy generating customer orders, our Q1 results do not yet recognize the benefit of revenues from SediVue. If you consider U.S. order generation rate for all premium instruments in Q1, adding catalysts or two hematology platforms and SediVue together, our sales team achieved 36% growth over Q1 of 2015. We see a high level of excitement about SediVue in our commercial organization and customers alike, as the new instrument addresses a critical pain point in the practice, while increasing the quality and consistency of urinalysis results. We continue to educate the market on the remarkable value that SDMA brings in diagnosing and managing chronic kidney disease, a common condition in pets likened to heart disease in humans. The veterinary nephrology committee is fully bought into the unique medical and clinical value of SDMA. And the International Renal Interest Society has incorporated SDMA as a key parameter in their diagnosis, staging and treatment protocols. As investors know, SDMA is automatically included in every chemistry panel that is sent to IDEXX Reference Labs. Interestingly, our chemistry panel unit volumes and revenues in the U.S. are now growing faster than the Reference Lab overall, an acceleration that coincides with the SDMA launch last summer. This is likely because the number of veterinary practices sending us chemistry panels in the latest month is up 15% over March of 2015, when we had yet to launch SDMA. SDMA is now essentially fully launched on our global Reference Lab network. And to date, we have run 3.5 million SDMA tests for vets and pet owners globally. Finally, kudos to our Water team. We haven't taken the opportunity lately to talk about our Water business. This is a terrific business for IDEXX, and part of our core portfolio of businesses with attractive recurring revenues. Our Water team delivered 11% organic growth in the first quarter, a continuation of its strong 7% to 8% organic revenue growth over the prior two years. This global business delivered a 41% operating margin in Q1, requiring only nominal invested capital. Our Water Testing business addresses a market that appears to be able to sustain high-single-digit organic revenue growth and sustained operating margins for years to come. Overall, we believe that we are well positioned for sustained organic revenue growth and margin expansion in the company all together over the next several years, building on our accomplishments over the last several years and serving our core markets of animal health and water diagnostics, markets that are exhibiting underlying long-term, secular growth globally. With these introductory comments, I'll now open the call to Q&A.

Thank you. We'll go to the line of Ryan Daniels with William Blair. Your line is open. Ryan S. Daniels - William Blair & Co. LLC: Yeah. Thanks for taking my questions and good morning. Jon, maybe I'll start with one for you. Just in regards to the data you provided on the significant increase in the visit rate on a year-over-year basis, can you give us a little bit more color on what the vet participants that you're talking to are most interested in? Is it some of the new technologies? Is it kind of going back and learning about the entire IDEXX portfolio? Is it – just anything in particular that you're noticing in the numbers that might be sparked by those increased visits. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Well, first of all, I think they're most interested in the fact that we keep showing up, and we're there. The consistency of our presence is being noted by veterinarians. We're not like showing up and then not showing up for a long period of time. We keep coming back. And this is true with our customers that are using all of our diagnostic modalities. We're supporting them with – helping them to grow their practice, but it's also true with customers that may be using very little of IDEXX, but we keep showing up with ideas. They are very interested in our point-of-care solutions, real-time care, our reference lab modalities, our advances. I mean, SDMA is a big topic. Obviously, SediVue is a big topic. But generally what we're finding is, well, initially, as we get through to a decision maker, it may be something new that captures their initial attention. But then, it really opens up the door for how IDEXX is really profoundly different in terms of integrated solutions, in terms of VetConnect PLUS, in terms of the real fundamental technological innovation we're bringing to the Reference Lab venue. So we may start with SDMA, but then we move on to fecal antigen or molecular diagnostics or several of our other areas of specialized tests that, quite frankly, they just hadn't fully appreciated that we have. And they're seeing that we really are bringing innovation to the market, which really differentiates us and kind of unique. So I think the consistency of the presence is capturing the attention, and then the new innovations are drawing those relationships closer. Ryan S. Daniels - William Blair & Co. LLC: Great. That's very helpful color. And then maybe a follow-up. As you move more of your IT platforms into the cloud, and I know you already have links directly to the equipment and what's being used, can you talk a little bit about your future thoughts on things like vendor managed inventory where customers really don't even have to think about consumable re-orders so that even more of the time spent in the office can be discussing innovations or things like cost accounting to show the true value in something like SediVue? Thanks. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Thank you. Ryan, I do believe that's a big deal. Obviously, you've been ahead of the Internet of Everything innovation that's going on in industries around the world with cloud-based technology. And the vast majority, for example, of U.S. Catalyst and premium hematology are connected to IDEXX with SmartService. And so we're now beginning to see, with the example of the introduction of SediVue, one of the exciting responses we're getting from the customers is that they don't have to buy inventory. They only pay or run when they actually do the run. And here's just an interesting thing, as I said, we started to – we probably now have installed a couple of dozen SediVue analyzers as part of the backlog, that doesn't include the couple of dozen analyzers that we had as part of the beta field trial. But these are new customers who are paying customers for six months with (27:19) SediVue as part of the launch. As we do the initial installation, our field reps – our service reps do a lot of training. And historically, customers are very nervous about using the consumables. But with SediVue, we only charge during the run and we don't charge them for any of the runs on the first day. And so we get every single person in the practice to run the analyzer because they aren't worried about using up their inventory or paying for consumables. This idea that they don't have to manage their inventory and we're just going to ship them supplies like the Reference Lab model, we're going to ship them supplies on a demand generation basis based on their usage is very, very well appreciated by the customer and really I think the beginning of a new wave of innovation that we can bring to the market. And we'll learn a lot with SediVue over the course of this year on things that we can do in future years, on things like auto ship and vendor managed inventory. Ryan S. Daniels - William Blair & Co. LLC: Okay. Perfect. Thanks for the color. Congrats on the strong start to the year.

Thank you. Next, we'll go to the line of Erin Wilson with Credit Suisse. Your line is open. Erin Wilson - Credit Suisse Securities (USA) LLC (Broker): Great. Thanks for taking my questions. The first one is sort of a follow-up to the first part of Ryan's question. I guess, can you speak to the one-lab approach and the competitive advantages of that offer and then what you can offer now from a bundling standpoint or promotional standpoint? Has that promotional activity changed in response to this one-lab effort and the direct approach? Are you really starting to take advantage of what you can do there with the direct strategy as it matures? Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Yes. Thank you. Obviously, first of all, the one-lab approach starts with one diagnostic consultant that's showing up regularly at the practice and can support a customer by growing their practice through adopting – what's interesting is that we have advanced menu on both our in-house analyzers and in the reference labs that isn't fully utilized by our customers. So we go in there and we have a discussion about how they can advance their diagnostics regardless of modality. So let's just start with the relationship is one which is agnostic to whether they want to run it in house or reference lab, and that really – customers appreciate that and they take their guard down because they know we're not coming with a point of view. And of course, what I didn't mention in my opening comments is we've continued to see the growth in VetConnect PLUS utilization, not only for results, by the way, and not only for results, but results with images. And now, of course, with SediVue, we're going to have in-house urinalysis images as part of the VetConnect PLUS, but now for ordering and status and alerts, the whole online ecosystem which is integrated between in-house and reference labs. So the so-called bundling isn't just a marketing program. It's an overall approach to the way they're utilizing diagnostics in their practice that just makes it easier to run, utilize and interpret and see the results of their diagnostics because it's fully integrated between reference labs and in-house. Erin Wilson - Credit Suisse Securities (USA) LLC (Broker): Okay. Great. And then the strong growth in the domestic lab business, that was a pretty significant step up. What's driving that? Is it market share gains, pricing, volume, the new testing capabilities such as SDMA or is it just seemingly a fundamental kind of demand trend that's driving that? Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Well, we're very pleased with the high-teens growth in the U.S. Reference Lab business, volume-led growth. And I think the simple answer is it's all of the above. I noted the increasing number of customers who are sending us chemistry panels because they want the SDMA result. It's either because it's part of their core protocol or maybe they have a pet where they want to send us the panel. But this is true also with our fecal antigen is growing same-store sales. Obviously, I think you're seeing from the phenomenal metrics that Brian quoted, the 6% visit growth year-over-year and the 9%, it was a very strong quarter in terms of the overall business dynamics. Those numbers, by the way, are normalized for days including leap year. And so, obviously, it was a very strong market in general and I think that was supporting our Reference Labs. So there are a lot of contributing factors. We're certainly pleased with the results, and we're pleased with the fundamentals in the Reference Lab business that – well, the first quarter I think was an exceptional quarter because of some unique aspects of the quarter. I think we're pleased with the fundamentals of growth in the reference lab modality. And I will mention it's the largest of the three recurring revenue, CAG Diagnostic recurring revenue modalities at IDEXX. So it's nice to see that one doing so well. Erin Wilson - Credit Suisse Securities (USA) LLC (Broker): Quickly, did you break out that percentage of SDMA that's sent out on a one-off basis? And is there any change to the pricing there? Jonathan W. Ayers - Chairman, President & Chief Executive Officer: No, there is a – with regard to SDMA and one-off basis, what we're really seeing is that when a customer who may not be using us as a primary lab or maybe they're splitting their lab volume among more than one lab, they're not sending us the SDMA only sample, they're sending us the whole chemistry panel because it just makes sense to do so. Why would they split – go to the trouble actually of splitting the sample? It's just easier just to send us the whole sample. And economically, it's more attractive to do so because the cost of sample, the total chemistry panel includes SDMA at no incremental charge. Where we're really seeing the one-off SDMA are customers who are our loyal customers for both in-house and reference labs, and they might have been running the SDMA on the – I mean, they might have been running the chemistry panel on the in-house Catalyst and they want to augment that with an SDMA at the Reference Lab. And for that, we charge a nominal shipping charge, but we don't – we want to encourage people to continue to run real-time care if that's the modality they're most comfortable with. Erin Wilson - Credit Suisse Securities (USA) LLC (Broker): Excellent. Thanks.

Thank you. We'll go to the line of Jon Block with Stifel. Your line is open. Jon Block - Stifel, Nicolaus & Co., Inc.: Great. Thanks and good morning, guys. Maybe two from me. First one, Jon, back to what you mentioned on the sales and marketing, is that in business per year – is that the right number? Does it need to go higher as the company's innovation increases, meaning the need for more reps? Or now that you're almost 18 months into the go-direct experience, just your conviction level that you have the right number of reps and OpEx leverage may start to ramp a bit going forward? Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Yes. Thank you for that question. I would have approached that from a couple of dimensions. Fundamentally, from a financial model, we do see operating expense leverage in the North American commercial market. Now, with kind of growths that we're seeing, we can have operating expense leverage and we can add a few more feet on the street along the way. So those two are not inconsistent with each other because of the strong growth rates that we're seeing, and certainly that would be our intent. But it's really kind of backing and filling little places that we haven't quite gotten to the optimal level. We believe that the roughly 180-plus veterinary diagnostic consultants within a couple percent is the right set to fully cover the market. But the other thing that I want to mention is, I mentioned the 23% year-over-year growth in visits on a same-rep basis for the veterinary diagnostic consultants. While we've seen tremendous productivity advances already that we've booked and those will have a cumulative effect, as I said, quarter after quarter. We're not anywhere near gaining the full productivity of this new organization. We've got some work to do over the next couple of years. We're going to be putting in Salesforce.com as a more advanced – we've done a lot in terms of sales force automation, but that's going to be a productivity driver. We're continuing to refine our calling patterns, so we're going to see greater presence in the market per rep. And so these productivity drivers, I think, as you've seen, they're going to be probably the number one contributor to the impact of our field organization, and that's going to translate into operating expense leverage. Jon Block - Stifel, Nicolaus & Co., Inc.: Okay, great. Very helpful. And one more, Jon and Brian, actually, some interesting comments on the promotion dollars. I believe I heard you correctly, decreasing sort of helping to aid results. So again, Jon, your thoughts on sustainable going forward is the belief that as long as the company's innovation is there you can sort of keep those promotion dollars under wraps because of the differentiation. And then, Brian, just one sort of from an accounting perspective, are there fewer promotions? Is that less dollars netted against revenues? I think that's correct or is it an OpEx expense? Thanks, guys. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: We obviously have a number of different ways that we go to market with our customers, but we've gotten a lot of questions on the net customer acquisition costs. And you can see that in our balance sheet actually and in our disclosures in terms of the short and long-term customer acquisition costs net. And the key thing to look at there is, as we add business, we add customer acquisition costs. So growth is a good thing. We did see accelerated growth last year, and that has moderated significantly in Q4 and Q1. So that's kind of key point one, which is this normalization of the competitive environment that we've seen and we just wanted to highlight that. Those costs do get amortized over time in terms of the long-term business commitments that we have. So the degree that we have, basically less money going against kind of defending customer retention, that will improve our net price realization over time. So our current results, really, where we had actually modest net price increases even with some of these carryover impacts, as we move forward, assuming kind of a continued normalization in the competitive environment, that could be a tailwind for us on the pricing front. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Yeah. And I would just add, I think, it's because we do see increasing loyalty with our customers across the modalities. And so what we're seeing here is two nice trends that are not inconsistent with each other. Moderation in the growth of the customer acquisition costs, but no moderation in the growth of customer acquisitions. Jon Block - Stifel, Nicolaus & Co., Inc.: Got it. Thanks, guys. I appreciate it. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: You're welcome.

Thank you. Our next question will come from the line of Mark Massaro with Canaccord Genuity. Your line is open.

Hey, guys. Thanks for taking the questions. Jon, can you provide us an update on when you initially started putting the SediVue in the hands of the initial users? And I think your guidance assumes 1,000 units. Can you just give us some context as to how you think that will track as we look out for the balance of the year? Jonathan W. Ayers - Chairman, President & Chief Executive Officer: So we had really – I talked about two things. We had a couple of dozen units in the field that were non-revenue units in the first quarter that is part of our beta trial. It's part of our normal, refined instrument development and bringing it to market. We've gotten really good at bringing instruments to market, and one of those is to make sure we put the analyzer in the customer's hands in a beta to fully integrate all the learnings when the customers start using it because they do things we would never imagine they would do when we're looking at it in our test labs. What customers do with instruments in a veterinary environment, or maybe it's not just customers, but their pets, do to instruments surprises us. By the time we started shipping revenue units in April, we already had very good experience of how the unit would perform in the field from those beta trials. And so then, simultaneous to that, of course, we generated a revenue order backlog, as I said in Q1, and we started shipping revenue units against that, and we have a couple dozen in as part of a controlled launch process. We're always checking with customer feedback along the way to make sure we captured those learnings before we ramp the volume. The initial customer feedback has been extraordinarily positive. We're very pleased with where we were on the instrument launch. We are very excited – SediVue is going to be a major new modality. The value of a SediVue placement is closer to a value of a competitive catalyst than it is to a competitive hematology. And so, we're very – we feel very good about our outlook for the year, and that is incorporated in all the puts and takes in our revised organic growth guidance.

Okay. Great. And so you raised 2016 revenue guidance by $40 million; $27 million is FX related. So as we're looking at our model, how would you suggest we allocate the incremental $13 million beat? Is it broad-based or is there a particular bucket we should be focusing on? Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: Q1 was clearly a key part of that, right? We had signaled in the 8% to 9% growth rate and we achieved 11% So, that's flowing through the Q1 benefit. And the balance is really kind of through the year. I think we gave you some specific numbers, Mark, for Q2. And I think we're feeling good about the SediVue trends. So, over time, we think that can flow through, but I think a meaningful part of that is the Q1 beat.

Okay. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Look, there are a lot of – I just want to remind you there are a lot of moving parts at IDEXX. Obviously, we had a lot of focus on parts of our business and not as much focus on other parts. We're an international company. We're in a lot of markets. Let's just take – the Water business had a phenomenal, knocking out of the park in the first quarter of 11%. That is not likely a sustainable number. We believe that's a high-single-digit growth business, and so all that's corporated [sic] in the annual guidance.

Great. Thanks. And maybe just one last one. You commented that the rapid test declined 1% organically in the quarter. How should we handicap the possibility that you return to a low to mid-single-digit growth outlook in 2016, and what are some of the challenges you're seeing in the field as you go out and compete against other providers? Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Yeah. I would say I think that's – by the way, our rapid assay performance is as we expected, and I think we indicated that we felt it would be flat in the first quarter. And that's because the compares are toughest in the first quarter versus the balance of the year. We don't give guidance by modality by region, but we don't really see any change in the fundamental trends that we've seen over the back half of the last year terms of the strength of the 4Dx franchise and the trends in our first generation SNAP products. All those trends are continuing as we expected.

Great. Thank you.

Thank you. We'll go to the line of David Westenberg with C.L. King. Your line is open. David Westenberg - C.L. King & Associates, Inc.: Hi, guys. Thanks for taking my question and great quarter. You're seeing good traction abroad. Can you talk about the expected utilization internationally compared to the U.S.? Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: Thank you for the question. I think you're probably referring to the instrument and consumable utilization there. David Westenberg - C.L. King & Associates, Inc.: Exactly, the catalyst utilization. I mean the catalyst placement numbers abroad have been really good for the last few quarters. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: And we're really seeing really nice consumable growth that's coming out of that augmented rate of placements. And so, the accounts outside the U.S. are smaller than the U.S. generally speaking. So the utilization per account is lower and we were – there's still a very significant installed base of tests that we're upgrading, although we continue to – none of those numbers included VetTest placements. We continue to place VetTest in some markets too, expanding our overall chemistry base, which is now over 40,000 active customers globally. But the rate of placements is really quite good in what are, generally speaking, have and always been smaller accounts. I think Catalyst One is just a phenomenal instrument because of all the things that brings complete menu, unique menu with things like T4 integrated, ease of use using whole blood with no issues, the footprint, the integration, the VetConnect PLUS, these are all unique aspects of Catalyst One that make it very attractive for these smaller practices outside the U.S. Let alone practices in the U.S. where, if they need the capacity, it's very economical to add another Catalyst One to the same IDEXX VetLab station. So, it's a very flexible analyzer that works in big practices and the types of practices that we see internationally. Combined with a phenomenal and experienced commercial organization, we have very experienced set of country mangers. Many of our – some of our country mangers have been in that roles over a decade. They've grown with IDEXX. They know their markets inside-out. We are fully direct in most developed countries now. It's been a systematic process that we've been putting in place over the last several years and I think we're seeing the benefits of that. And then when you talk about utilization, the thing is that – things like preventative care are just things that are actually doing a full panel on a sick pet, it's surprising how little that has done today. And so, part of what we're doing is we're growing the market. We're expanding the market through education and providing them the tools with things like Catalyst One and reference lab to be able to do that. So, a lot of this is market development. I really don't see any end in sight in the opportunity to develop the market in these – in what some people refer to as mature, developed continents (46:54). Well, they're not matured and developed to us, let alone the kind of growth we're seeing in markets like Brazil and China. David Westenberg - C.L. King & Associates, Inc.: Great. That's helpful. And then, you and your competitor are just seeing massive growth rate in reference lab. I believe you quoted high-teens in the U.S. Your competitor quoted 9. Can you talk about what's driving that in North America specifically? Are you seeing some cannibalization of inside lab or is this just an overall, just incredibly healthy market that's doing a lot more diagnostic testing? Jonathan W. Ayers - Chairman, President & Chief Executive Officer: First of all, it's a very attractive market, and I think you can see that from our visit data and same-store sales practice data that Brian quoted of 9.2% in the first quarter and that was a very, very strong underlying market that we're seeing. We don't really speak to what we're seeing. But the other thing we're seeing is volume growth in existing customers, that's not just things like existing panels, but adoption of our advanced menu, things like fecal or molecular diagnostics or some of our other specialty test categories. So, what we're seeing is a growing utilization of things that only the reference lab can provide, but we're still seeing strong growth in the in-house modality, so, in chemistry in-house. And so, I think testing begets testing. I don't think there's any kind of fundamental shift happening between one and the other. They just have their own growth dynamics. David Westenberg - C.L. King & Associates, Inc.: Thanks. And congratulations on a good quarter. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: Thank you. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Thanks.

Thank you. Our final question will come from the line of Nicholas Jansen with Raymond James. Your line is open. Nicholas M. Jansen - Raymond James & Associates, Inc.: Hey, guys. Nice quarter. Just wanted to get a better sense of constant currency gross margins. Obviously, hedging gains and FX is playing a role there but gross margins were a little bit below our estimate. I'm just trying to get a better sense of how underlying trends are performing. I know you had a strong instrument quarter, so that might play a role. But just wanted to get more thoughts on constant currency gross margins. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: Yeah. I mentioned that the constant currency change year-on-year was 70 basis points down. So, taking out the currency hedge gain impacts, and it was really two dynamics. It was the – part of this was the – compared to – we had some favorable capitalized variances last year in terms of particularly in our LPD business that just had a high volume rate that flowed into lower product costs but you can see that in our reporting last year that we highlighted and that was a key part of it. The other piece of this is the instrument revenues and the instrument mix. Let's say that our comparable margins in our business are quite good. We're improving gross margins and labs. Our margins in our core instrument businesses and things like that are doing quite well. So, net-net, we think we're right on track relative to where our gross margin goals. We knew we had some of the compare issues on to FX heading into the year, but we're reinforcing the operating margin outlook, which was – effectively where (50:15) sustained gross margins this year constant currency and some OpEx leverage, and we're right on track for that. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Yeah. I also, Nick, want to reinforce that we see the opportunity over time over the next several years for gross margin expansion driven by our reference lab business around the world as well as the instrument and consumable business and also, again, it's smaller group, it's a smaller business, our information management business as we shift to the cloud. So, these are all long-term trends, we think, that will support our overall margin expansion strategy. Nicholas M. Jansen - Raymond James & Associates, Inc.: That's helpful. And then, you think about the organic growth guidance for the full year, obviously off to a very strong start. Is there anything that you're seeing in the marketplace that would suggest to you that the end market could potentially decelerate because it's clear to me that you have momentum across a variety of modalities. You have a burgeoning sales force that's successfully undertaking this transition. So I'm just trying to get a sense of why you would think that potentially growth would decelerate off of the strong 1Q levels? Thanks. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: Well, there are a couple of factors in Q1 that we did highlight. I think the extra day was about a point, and it's tough to parse weather, but clearly, we had some favorable U.S. weather compares. And so, let's say that was about 1 point. It's again hard to estimate. But that's kind of in line with what we said we were going to do this year, net of those effects, and we feel very good about the trends in the business and we've obviously raised our guidance reflecting that. And so, we're not projecting a – it's not reflective of an expected deceleration in the business. It's more reflecting some – a couple of the unique factors to Q1. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: I think Brian did appropriate call out of some special factors in Q1 which is embedded in our guidance. Certainly, we don't see a deceleration. Our crystal ball isn't any better than anybody else's with regard to the general economy. But what I will say is that what happens is, overtime, as consumer confidence remains okay, maybe not fabulous, but okay, then they add pets to their household and then they need to take care of them. I think the fundamental underlying environment that we've been in, that's built up over the last couple of years of consumers feeling okay or reasonably confident or having moved further away from the financial crisis, it really means that it's – that the trends in pet healthcare growth are pretty solid. And it takes a lot to change those trends because people love their pets and they're going to make sure that their pets are taken care of even if they get pressed in other areas of their wallet. Now, they may not always replace their pet if they face a great recession like they did in 2019 (sic) [2009] (53:32) and that moderated the growth for a couple of years, 2010-2011, but now we've kind of come back out of that. And I think we've seen it was just generally a very, very good market. And, of course, the level of care that can be provided now by veterinarians is ever expanding. And so, we are blessed by serving an importing growing secular growth market. Nicholas M. Jansen - Raymond James & Associates, Inc.: That's it for me. Nicely done, guys. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: Thank you. Brian P. McKeon - Chief Financial Officer, Treasurer & Executive VP: Thank you. Jonathan W. Ayers - Chairman, President & Chief Executive Officer: I just want to thank everybody for signing on the call. We are just wanted my huge congratulations to the work that's been done by IDEXX around the globe across all the functions. We've done a lot of work to reposition the company over the last couple of years, and I think we're now in a place where we can perfect our new model. We're not making any big model changes like we've had in the past. And it's very, very gratifying that we could see the results of the hard work, including innovation and customer contact and the supporting organizations. So, I just want to really thank our organization for that and we recognize that we're here to create shareholder value and that's part of our job, part of our model, part of our purpose. And we are very focused on continuing to grow the company in a way which will generate and continue to generate attractive returns on invested capital. So, that will conclude the call.