愛德士 (IDXX) 2002 Q3 法說會逐字稿

Good day, everyone. Thank you for holding and welcome to the Idexx Laboratories third quarter 2002 earnings conference call. Today's call is being recorded. For opening remarks and introductions, we turn the call over to John Ayers, Chairman and Chief Executive Officer of Idexx Laboratories. Please go ahead, sir.

Thank you, Kevin, and good morning. First, I'd like to start by asking Conan Deady, our Vice President and General Counsel, to review our Safe Harbor language.

Thanks, John. As always statements we make on the call regarding future expectations and plans and the company's future prospects, including statements relating to expectations about revenues or earnings for future periods, the status of products under development, or timing of new product introduction, are forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Factors that could cause results to differ materially in the forward-looking statements include those that are discussed in our annual report on Form 10-K year ending December 31,2001 and our quarterly report on Form 10-Q for the quarter ending June 30, 2002. In addition any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates for any subsequent date. While we may update elect to update forward-looking statements in the future, we disclaim obligations to do so even if estimates may change.

Thank you, Conan, consummate linguist. Now let me introduce the other members of the managment team joining me today. Sitting with Conan and me are Dr. Erwin Workman, Chief Scientific Officer and President, Idexx Pharmaceuticals, which, as our investors know, is part of our companion animal group; Merilee Raines, Corporate Vice President of Finance; Lou Pollock, Corporate Senior Vice President of the companion animal group; and Bob Hulsey, Corporate Vice President of the companion animal group. I'd like to review the third quarter performance and some comments about our product lines, and then I'll ask Merilee Raines to review the financials before we wrap it up and open it to questions. As you saw in the press release, in the quarter we saw 7.2% revenue growth to $104.5 million, and our net income came in at $12.5 million, up 22%. EPS came in line with expectations of 36 cents per share. FAS 142, which is the illuminiation of goodwill in 2002, contributed 3 cents per share to the growth. Free cash flow, which we define as cash flow provided by operating activities minus capital expenditures, was a very healthy $36 million for the quarter bringing our free cash flow for the year to $82 million. This definition of free cash flow, which we think is the most appropriate cash flow metric, takes into account, in operating, working capital but excludes cash from options exercises in the acquisitions or divestitures or financing activity. Cash equivalents on the balance sheet were $152 million at the end of the quarter, and debt was less than a million.

I'd like to turn to our two business segments starting with our companion animal group. Revenues from this segment are close to 80% of the total ,and revenues were up 7% year-over-over. Reviewing the individual lines of business that comprise the segment, rapid af phase, which are the single-use point-of-care test kits we sell to the companion animal veterinarian, were up 10% in out the door revenues which we consider strong performance for this high margin line. US clinic level sales were up 12%. Breaking this down further, the largest rapid af phase product line is canine test kits. US clinic level sales were up 17% due to the continued success of our heartworm line and, in particular, the 3DX panel test which screens dogs for heartworm from a single blood sample. 3DX comprises 45% of our heartworm unit sales this quarter, and, due to its price premium, this product generates 50% of our heartworm revenue dollars. Overall, on heartworm, we are pleased with our continued performance in the market, and we are benfiting from strong sales and distribution performance and, in the case of 3DX, the continued increase on customer's willingness to screen their canine patients for three parasitic diseases, including Lyme disease and arlithiosis. Feline test kits, the other important product line in our rapid af phase business, where our principle product line is feline combo which tests for two diseases, feline leukemia and feline immuno deficiency virus, which is the cat version of AIDS. This is the only FIV in-clinic test available in the US market. US clinic level sales for feline test kits were up 7% led by the feline combo product which was up 12%. Both off strong compared to last year. We continued to be successful in spreading the medical message to test all sick cats, cats at risk, that these would be your outdoor cats and all kittens for these two diseases.

Moving on to the consumeables business, out-the-door revenues were up 5% and US clinic level sales up 8%. We think this 8% is a good number because there were no distorting circumstances such as marketing programs in the comparison periods. We continue to look for sales of instrument consumeables to grow in the 6-8% range supported by three strategies: first, a variety of marketing programs that support the practice of better medicine and, thus, instrument utilization; second, continued instrument placements; and third, strong customer loyalty and retention. Speaking of instrument placements which we sell direct, that is not through distribution, continued at a good pace and 666 VetTests and auto readers were placed this quarter. These numbers are about level with the last quarter and continue to show strength in hematology despite the imminent launch of lasercyte. I've mentioned out-the-door sales, distribution and clinical sales, the difference being changes in distributor inventory; this quarter our distributor inventory ended at 4.5 weeks. No change from the end of Q2. The dollar level was $13 million down almost about half a million from Q2. With no change in the overall distributor inventory week on hand, out-the-door sales is in line with US clinic level sales, a pattern we expect to continue in future quarters. As we've said in the past, the range of four to five weeks is a best-in-class distributor level for this industry and product line. That is, it's the level required by our distributors to be able meet and satisfy the same day or next day needs for the vast majority of our veterinary clinic customers.

Okay, lasercyte. Let me turn now to this next generation hematology instrument. Lasercyte, as you know, is the revolutionary in-clinic analyzer which we expect to begin shipping commercially before the end of the month. This platform will give the veterinary clinic the ability to obtain comprehensive hematological information at the point of care. This is the same diagnostic comprehensive diagnostic data that was previously only available to the veterinarian when they sent the blood sample to the outside laboratory. With lasercyte, we are bringing the technology, laser-flow cyclometry, heretofore only available to the reference lab, to the vet's clinic at an affordable price. Having the capability in-clinic allows the doctor to generate hematology diagnostic information realtime during the pet visit and provides the medical justification to run many more hemotology samples per week which increases veterinarian office profitability not to mention the sale and use of our propriatary and highly profitable consumeables for this instrumet. Our objective has been to ensure that when we launch lasercyte, we have a product that exceeds our customer's expectations not only in performance but also reliability, and we've taken every precaution to ensure the outcome.

To give you background here, we've completed the validation and veriification process including thoroughly testing the machine with three different protocols. First, in the R&D labs; second, in the reference labs with the big iron; and third, in clinics with almost 20 beta test sites. We've done an extensive review of the data from thousands of tests on a number of dimensions including accuracy against method comparison, liniary and carryovers. After having completed this comprehensive analysis, we are able to and have approved final design as meeting the market's techinical and performance requirement. The analyzer generates 24 different hematological values, and, I got to tell you, the data looks outstanding. In addition, we've completed third and final pilot production runs and are taking the learnings from that to plan the manufacturing ramp-up. Two weeks ago we completed training the sales force and delivered demo units to the field. We've also completed planning for customer support for the emerging install data, and we've begun taking orders. Given that we need to carefully manage the manufacture of ramp-up during the first few months, we are estimating we will deliver, install and book revenue on 100 units in Q4. In 2003, I would target 1600 units for the year; although, we won't feel constrained to do the best we can. I can also report that the early customer responses are fantastic from the beta sites and initial orders. The veterinary market is looking forward to having this in-clinic hematology capability. We expect the lasercyte launch will be a key driver to accelerate our strong and solid business to double-digit top line growth in Q4 and 2003.

Okay. Turning to our reference lab and a key service business as part of the companion animal group, labs continue to show excellent growth in sales and profitability with 13% topline growth in the quarter and strong and improving operating performance in this business. Currency added about 1% to the growth. In the telemedicine line of business in the quarter, we acquired VetMed Telemedicine which, while small, adds 1200 customers to our telemedicine business and expands the Idexx offering of board certified consultation in cardology, radiology, internal medicine, oncology, dermatology and ophthalmology. Since the acquisition was completed in September, revenue contribution from VetMet in this quarter was the minimum. In our informatics business, our software business, the sale and support of practice management systems, revenues were up 5%. Backlog is extremely strong pointing to a strong double-digit fourth quarter. Our newest version of Cornerstone version 5.0, a premium practice management software in the industry, is well received for ease of use and support in the practice of better medicine. This quarter we launched the veterinary pharmacy reference, the first vet interactive formulary as part of our practice management software line, which identifies for the veterinarian drug interaction, calculates correct dosages and generates drug information sheet for staff and the pet owner for their education. It is another example of Idexx products and services supporting our customers through the practice of better veterinary medicine.

At Idexx Pharmaceuticals in September, we launched the commercial version of protomine zinc insulin, or PZIvet, which we had been selling as a medically necessary veterinary product. The agreement we reached with the FDA in July allows us to eliminate paperwork required by our customers and allows us to sell and market PZI through our sales force and distribution channel. PZIvet is the only insulin that has been clinically proven effective in treating diabetes in cats which is a chronic condition. Once a diabetic cat is on insulin, specifically PZIvet, it's a lifelong therapy. It is estimated there are about 200,000 cats in the US that are diabetic of which half are treated with insulin. Right now we're serving only about 20% of the market of those cats on insulin let alone what might be going undiagnosed or untreated. Regarding our two pharmaceutical products in FDA review, MTC and diclofenac (ph), we didn't expect nor do we have anything new to report at this time. To remind investors of our status with these products, the first, nitadoxide (ph), is our proposed treatment for equine protozoal myeloencephalitis, a debilitating neurological condition in horses with 55,000 cases treated per year. This is an attractive market of 50 million annually. Our product here as an 81% success rate in open trial. The status is that last summer we were requested by the FDA to provide more safety data and we conducted a trial based on their recommended protocol. This data was submitted to the FDA in early April, and we hope to have satisfactorily addressed their issues and obtain regulatory approval. While no one can ever be sure of the regulatory timeline given an April submission, we hope to hear something before the end of this year and, if approved, to launch the product in Q1 of 2003.

Our other product in FDA review is a topical nonsteroidal anti-inflammatory drug diclofenac (ph). This is developed for the treatment of lameness in horses. The active diclofenac (ph) is formulated in a life [INAUDIBLE] delivery system which provides targeted drug delivery in at one of five to the point of lameness. It's easy to use, and there is no issue with client compliance. Importantly, the topical application avoids the reactions found with the systemic nonsteroidal which is a gastrointestinal problem. It is a very attractive market, currently about $60 million is spent on lameness and sore joints in horses. Our status here is that in response to FDA questions, we have submitted revised manufacturing data in June that we believe comprehensively addresses their questions. Again with the FDA, while we can't be sure of the timing of the response, we hope to receive approval in Q1 of 2003 and thus be in a position to launch this product in the equine market toward the end of the second quarter of next year.

In our other segment, the food and environmental group which contributes 20% of our total revenues, we saw top line growth of 9% in the quarter. Operating margins saw a nice improvement in the segment of 2 points when you make two adjustments: one is for good will, and the other is for the right off of intangibles that we had this quarter. So on an apples to apples basis, about 2 points improvement. The standout was our production animals services business which had year-over- year growth of 21% continuing the 20% in top line growth this business has performed at all year. The quarter's business was generated by strong livestock and poultry sales, and, geographically, we had 30% plus growth in Europe and Asia. The water quality testing business achieved 11% growth for the quarter due to strong volumes, particularly in Europe, and were pleased to announce we have received approval for our flagship products and water quality, Prolar 18 (ph) and Quanitrade (ph), in Germany. With our approvals now in the U.K., Denmark and Germany, we expect the rest of the EU to follow. The opening in Germany, a major market in the EU, will help us sustain double-digit growth in this business in 2003 that we've been achieving historically in the business. The dairy testing line of business saw revenues decline 6%. Operating margins are up due to focus on cost reduction. Going forward we expect dairy's revenues to at least stabilize with a nice improvement in the profitability of this business. At this point I'd like to turn it over to Merilee and have her take you through the financials.

Thanks, John. As John has mentioned, total revenues were $104.5 million or 7% growth year-to-year. Companion animal group revenues were $82.2 million, an increase of 7% year-to-year, and food and environmental revenues were $22.3 million, an increase of 9% year-to-year. International revenues in the quarter were up 15% to $30 million or 29% of total revenues. There was a positive impact from exchange on revenues in the quarter of about $1.5 million or 1.5%. Moving to growth margin, third quarter growth margin was 48.6% of revenues which is a point or so higher than expectations and from second quarter growth margin. Growth margin for the companion animal group was 45% for the quarter which was the same as the second quarter. The increase in total company growth margin was primarily attributable to our food and environmental group where growth margin increased from 55% in the second quarter to 62% in the third quarter.

The primary driver for the sequential growth margin improvement was a lower net provision for excess and obsolete inventory as we work to bring down inventory levels as well as favorable impact from mit of water and production animal products and also favorable impact from exchange. Turning to operating expenses, R&D was $7.3 million in the quarter or 7% of revenues which compares to $7 million or 7% of revenues in the third quarter last year. R&D spend in the companion animal segment was $5.6 million or 7% of revenues and $1.3 million or 6% of revenues in the food and environmental segment. In addition there was corporate R&D spending of half a million dollars in this quarter. As I did last quarter when discussing SG&A and the remainder of the income statements, I will give you reported numbers for total company and a normallized year-over-year comparison which backs good will amortization out of 2001 numbers for total company and companion animal and food and environmental segments. Total SG&A was $25.1 million or 24% of revenues which compares to $24 million or 25% of revenues for the third quarter of last year. After normallizing, SG&A increased year-to-year by $2.4 million and was up as a percentage of revenues by 1%. Companion animal group SG&A was $19.8 million or 24% of revenues compared to normallized SG&A of $18.6 million or 24% of revenues in the third quarter last year.

In addition to spending to support higher revenue levels, the year-to-year dollar increase included higher legal spending and unfavorable impacts from currency partially offset by continued reductions in provisions for bad debt driven by improvements in the accounts receivables. Additionally the third quarter last year contained some severance costs in our pharmaceutical business related to changes in management and the consolidation of the pharmaceutical sales efforts with diagnostic businesses. Environmental SG&A of $5.3 million or 24% of revenues compared to normallized expenses of $4.2 million or 20.5% of revenues last year. The increase of approximately $1 million was primarily attributable to the writeoff of intangibles associated with technology acquired as part of the Genera acquisition and cost associated with litigation. We do not expect these to recur in the fourth quarter. Total operating profit was $18.3 million or 18% of revenues compared to $15.4 million or 16% of revenues last year. Adjusting of good will amortization, the third quarter last year would have been $16.7 million or 17% of revenue. Companion animal group operating profit was $11.6 million or 14% of revenues versus normallized operating profit of $11 million or 14% of revenues in the third quarter of 2001.

Food and environmental group operating profit of $7.2 million or 32% of revenues compares to normallized 2001 operating profit of $6.6 million or 32% of revenue. Interest income in the quarter was $600,000. Net income of $12.5 million or 12% of revenues compares to $10.2 million or 10.5% of revenues last year as reported or $11.3 million, 12% of revenues as adjusted. Earnings per share of 36 cents for the quarter compares to 30 cents for the third quarter last year as recorded or 33 cents adjusted for good will, an increase of 10%. Moving to the balance sheet, cash increased by $37 million in the quarter to $152 million. Cash from operating activity was $40 million and purchases of fixed assets were $4 million producing $36 million of free cash flow as John has mentioned. Receivables were $48 million and DSO at 42 days decreased by one day sequentially and was down by ten days year-to-year. Inventory at the end of the quarter was $75 million which was a slight decline from the end of the second quarter. In the third quarter we negotiated an amendment to our slide purchase agreement with our supplier which reduces our contractual commitment by 30 million slides for 2002. As a result, we now expect inventory levels at the end of the year to be $75-80 million which is down from our earlier expectations of $90-95 million. Back to you, John.

Merilee, I can't resist adding color commentary to our working capital numbers. I want to congratulate the finance team. The receivables balances were great for 42 days off the [INAUDIBLE]. Outstanding quarter at the end of last quarter, and we've been doing a good job with inventories and are pleased to reduce our year-end inventory projection based primarily on the ammended slide purchase contract. This includes a one-time reduction to our contractual commitment in 2002 by 30 million slides, and the remainder of the contract remains unchanged in the years beyond 2002. Of course, we've got a lot more work to do improving our inventory turnover which is part of our operational excellence. Now let me turn to guidance for the full year 2002. I'd like to reaffirm our 2002 revenues of approximately $412 million and earnings per share of $1.30 or $1.35 before the one-time charge incurred in Q1 associated with the retirement of our founding CEO. Our revenue guidance would translate to 11% in Q4 topline growth over the prior quarter Q4, and our target is the sustained double-digit growth in 2003 maybe by a couple of ticks higher than the Q4 target; our rough EPS for 2003 is $1.50 which remains unchanged from our last quarterly call when we raised 2003 EPS target by 5 cents due to strong operational profitability that we see in the business.

Just to conclude my opening remarks, Idexx is a great business model with market leadership in our related businesses and a unique combined position in animal health. In the third quarter we saw growth tick up at nice profit performance continues to make progress in working capital and asset management and maintained best in class distributor inventories of 4.5 weeks. We launched new products such as the PZIvet in our farmer group and veterinary pharmacy reference in software business and made progress toward the launch of lasercyte which we expect to ship before the end of the month, and we continue to have a strong balance sheet with virtually no debt and a cash position of $152 million. My priorities continue to be focused on accelerating topline growth to the new product launches that come from our great technology portfolio and to accelerate penetration of our underserved market through great sales, marketing and customer support and, of course, to continue our track record of continuously improving operational excellence. With that wrap-up, I'd like to now open it up for questions.

Thank you. If you have any questions, signal us by pressing the star key followed by the 1. Your questions will be addressed in the order that you signalled. Press star-1 if you have questions. In addition please release your mute function when signalling to make sure that our equipment can recognize you signal. We'll take a moment to assemble the roster. Star-1 to ask a question. First up today is Rick Wise at Bear Stearns.

Good morning, everybody.

Hi, Rick.

A couple of questions. First, wondered if you could remind us, in lasercyte, about the pricing per unit which I assume will remain $15,000, the growth margins on the products and how that might relate to improving growth margins next year and also the reoccurring sales per unit in the margins there and, again help us think through the implications next year.

Okay. That's a lot. I'll first turn to Lou with regard to the average unit price.

Your $15,000 estimate is on target.

And I think we feel with our initial order consistent with that. I'd like to turn to Merilee for the growth margin comment.

Rick, for the early instruments as we work our way up to scale with the product, growth margins will be in the low 30s and as we get a little bit further into production next year and, again wrap up the volume, those margins should improve in the 40s, low 40s.

And then on the consumeable question, Rick, as we place machines, we would anticipate that we're going to see a good growth in utilization of the hemotology unit off our existing experience with the auto reader. Today we see an average of eight tests per week with the auto reader. We think we can see 15 average per week with the lasercyte. We sell that consumeable at $4.25 minus the 15% that we give to our distributors for distribution there. And that's a very high nice margin consumeable for us because we manufacture it, it's not a third party consumeable.

Right. Can you help us think through the implications for animal growth margins for next year. Obviously the units will be improving throughout the year, I assume that, again, the consumeable is a higher margin. Do margins go up or stay flattish and we are really focused on the sales growth driver?

It's Merilee. I'll handle the growth margin. Overall, given that lasercyt,e when you look at that margin, the instrument sale is going to be the primary revenue driver next year, the consumeable will not be a big revenue driver and you look at the margin on lasercyte, the ramping from the low 30s to low 40s percent, I think how I would address it now is that I would expect the gross margin overall next year would be about on par with where we'll end this year at 47%, and there are a lot of moving parts within that, and I think as we get further along this year in our planning process, the breakout and how that might change and scale over quarters will give guidance on what we do fourth quarter.

And one last quick question, the cash position looks fantastic, of course the $162 million, your thoughts on how you might deploy that cash in the next twelve months? Buy back shares again, might be a few more aquisitions,help us think through that. Thank you.

Okay. Just to remind investors, I know you know this, Rick, we bought back about $30 million of stock this year, which was our activity in the second quarter and the third quarter we haven't added to that number but that was a good number for the second quarter. With regard to cash utilization, we're going to be disciplined in looking for a high return on investment with that cash. Could be in the form of additional stock repurchases from time to time as well as a core acquisition that fit nicely with our portfolio.

Thanks, very much.

Thanks, Rick. Nice to have you on the call.

We have a question from Timothy Lee at Merrill Lynch.

Good morning a couple questions with the lacercyte here. With launch you expect in the next ten days or so, what's the factor now that holds you back from shipping tomorrow? That's question one. Second, if you give us a sense of the backlog, you said you were taking orders, how that backlog is filling out. And thirdly, the 100 units expected for this year is a little below what we were looking for, is that a manufacturing issue such that if you could make the systems, you could ship them out the door given the strong demand?

Good. I think I'll first turn to Erwin to answer the question with regard to what we have to do over the next couple days; we're being disciplined about this.

We're in the process of manufacturing instruments right now. We'd like to have a number on the shelf before we started shipping. There are instruments that are ready to go out the door. We could ship some now. From the stand point of having all of our working parts ready in terms of sales and so forth, they would be right now.

And our whole quality process to add to that. I'd like to, Tim, turn to Lou Pollock and make comments with regard to customer reception. Lou.

Good morning, Tim. As already been indicated, we continue -- we completed our US field sales training early in Q4. Demo units are out in the field. We are successful in setting up demonstrations. We continue to see high levels of interest from our customers, and our early indications from our order taking indicate that sales activity will support the current forecast. You know, we are feeling like we're off to a good start here in the quarter, Tim.

If I could recall our commentary on eveything that you heard, we don't feel that the market demand is going to be our constraining factor, the orders we receive to date which was well -- we've only been on the market for a couple of weeks and we're well on our way to our fourth quarter target, and we're being disciplined about the manufacturing ramp-up. That is our gaiting factor, we want to do this right.

Second, just follow up on the pharma side of the equation. Just kind of sense of what your contributions is expect in the '03 timeframe the two products currently in queue.

Tim, again, sort of depending on timing for approvals, but we haven't changed our stance at all on that that you can expect that the pharma area might have incremental revenues of maybe $9 or 10 million above this year's level. So that we would be in the you know $15 million or so range, $14-15 million next year.

Great. Thank you.

Thanks, Tim.

From Fadiciary Management, this is Rob Health.

Good morning, Rob.

Good morning. Merilee, I don't have last quarter's balance sheet in front of me, the $40 million that you generated from operations was excellent and I wanted to -- it looked like a lot of that was on the working capital management. Over the -- can you go through the component again on the working capital side, what that contributed to the $40 million if you don't mind and congratulations on renegotiating the slide situation. That was a point you talked about previously. Congratulations on that.

Thank you.

Yep. Hi, Rob. The components on the working capital side was primarily driven by increases in payables and accrued liabilities and that really had to do with the timing of our payments of invoices. Importantly, a big driver for us every quarter, our slide purchases, and we did happen to make one that came in at the end of the quarter. But in addition to that and that component was about $20 million.

Okay. That makes sense.

And that number is, those slides that we purchased are in our inventory.

Okay.

And, in addition there was some improvement as I mentioned in receivables and inventories.

Great job. That's all I had.

Thanks, Rob.

Just a reminder again if you have a question to press star-1. We continue with Chris Arnt, Select Equity Group.

Since you renegotiated that agreement in the third quarter, can you tell us what that might mean for inventories going forward? Do you think with your current contractual agreement on the slides that you'll be required to raise inventories ahead of sales in 2003 or keep them relatively constant? Can you give us an outlook in that regard?

Yeah, with our outlook now and our contractual commitments, we could see a very slight uptick at the end of 2003 in our inventories by a couple million bucks. Not going to be much. After that it goes down.

Okay.

Pretty much in line now.

Okay. When you see a slight uptick, that's an uptick in the dollar amount of inventory or the day sales?

I'm sorry, in the dollar amount. It's not going to be a big number. Just a little bit higher purchases in 2003 than sales and reverses itself beyond that. We're going to be -- we're going to be pleased. I want to say we're -- at the end of this year we'll be about 7.5 months of inventory which is -- which we're happy with.

Your operating cash flow for 2003 would be closer to your net income.

Well, yeah. Although, we may -- I don't think our inventory this year actually -- Merilee, remind me what our inventories were. If you look at the end of 2001 versus today it's about the same number.

About 86 million.

We've generated $11 million of our cash flow from reduction inventories from the end of last year to September 30th. But we got -- we'd like to make improvement in our inventory turnover overall. We have other categories of inventories we'll be working on in 2003.

Okay. Also going forward, you expect the sales of the clinic level to be similar to sales out the door?

Yeah. Overall. There'll always be push and takes with regard to specific product categories and those are more up to our distributors than us with more or less of this or that. Overall we think we're in our range now as I said between four and five weeks. We ended the second quarter at 4.5 and ended the third quarter at 4.5, kind of in the middle of the range.

Is there a target for SG&A as a percentage of sales next year or any additional promotional expenses you'll have with launching lasercyte.

I don't think we fully put together our 2003 number. I can tell you we don't think there's going to be a fundamentally shift in the cost structure. We're building our sales resources as we sell lasercytes. It's a kind of a pay as you go scenario, and we know how to do this. We've done these capital cycles before first with VetTest and -- the same team here -- and auto readers so we know how to build it.

Great. A terrific report.

Thanks.

That will include the question-and-answer session. Mr. Ayers, I'll turn things back over to you.

I'd like to congratulation the Idexx Laboratories team for a good quarter. We are entering an exciting time as we launch a new instrument platform and reinforce our position as the premier and most innovative companion animal health company. Thank you for joining us today.

That concludes today's conference. Thank you for joining us and have a good day.