IDEXX Laboratories Inc (IDXX) Q3 2018 Earnings Conference Call Transcript

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IDEXX Laboratories Inc  (NASDAQ:IDXX)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the IDEXX Laboratories Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Participating in the call this morning are Jon Ayers, Chief Executive Officer; Brian McKeon, Chief Financial Officer; and Kerry Bennett, Vice President, Investor Relations.

IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that our discussion during the call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Additional information regarding these risks and uncertainties is available under the forward-looking statements noticed in our press release issued this morning as well as our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website, idexx.com.

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 may also be found by visiting the Investor Relations section of our website. In reviewing our third quarter 2018 results, please note all references to growth, organic growth, constant currency growth and comparable constant currency growth referred to growth compared to the equivalent period in 2017 unless otherwise noted.

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 appreciate you may have additional questions, so please feel free to get back into the queue, and if time permits, we’ll take your additional questions.

I would now like to turn the call over to Brian McKeon.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Thanks, and good morning, everyone. I appreciate you joining us for our third quarter earnings call.

IDEXX delivered strong revenue and profit gains in Q3, keeping us on toward our full year goals. Today, I’ll take you through our third quarter results and our updated outlook for the full year 2018. I will also provide an overview of our preliminary guidance for 2019. Jon will follow with his comments.

In terms of highlights for the third quarter, revenues of $545 million grew 11% on a reported basis, net of 1% foreign exchange growth headwind. Organic revenue gains of 12% continued at a strong pace, driven by 13% organic growth in CAG Diagnostic recurring revenues, supported by 13.5% growth in the US. Overall organic revenue growth was slightly below our midpoint projections for the quarter, reflecting moderated growth in international reference lab revenues, impacted in part by hot weather conditions in Europe.

Operating profit of $117 million increased 17% as reported and 20% on a constant currency basis, reflecting continued high organic revenue growth and 140 basis point constant currency improvement in operating margins. EPS was $1.05 per share, an increase of 39% on a comparable constant currency basis, reflecting strong operating profit gains and benefits from US tax reform. Reported EPS results also benefited by approximately $0.08 per share from share-based compensation tax benefits that were approximately $0.05 above our expectations for the quarter, reflecting earlier timing of exercises.

In terms of our 2018 outlook, we’re updating our full year revenue guidance to $2,205 million to $2,215 million based on an outlook for 11.5% to 12% organic revenue gains and updated estimates for FX impacts. In terms of our outlook, we expect to deliver full year organic growth trend — growth in CAG Diagnostic recurring revenues in line with our year-to-date trend of 13.2%, supported by continued strong growth trends in the US and in expanding international consumable revenues.

We’re pulling down the high end of our most recent projected overall organic growth range by 0.5% to reflect expectations for near-term pressures on LPD revenues and tough Q4 comparisons for instrument replacements as well as updated expectations for international lab growth, which will constrain the additional CAG Diagnostic recurring revenue growth acceleration, we targeted for the second half of this year.

We’re refining our 2018 EPS guidance to $4.16 to $4.21 or 33% to 35% growth on a comparable constant currency basis, a $0.04 per share increase at midpoint, reflecting $0.01 per share increase for operational performance, supported by our expectations for operating margin gains at the high end of our previous guidance range and $0.03 of upside related to higher projections for share-based compensation tax benefits.

In terms of our 2019 preliminary outlook, we’re projecting revenue of $2,385 million to $2,425 million, supported by organic revenue growth of 9.5% to 11% and EPS of $4.61 to $4.75 per share, resulting in comparable constant currency EPS growth of 15% to 18% aligned with our long-term financial goals. Our organic revenue growth outlook reflects expectations for sustained strong CAG Diagnostic recurring organic revenue growth of 11.5% to 12.5% in line with 2018 trends adjusted for the approximately 1% and non-recurring growth rate benefit from the new revenue accounting standard change. Our EPS outlook incorporates $0.03 per share in projected headwinds from FX and expectations for $0.10 to $0.13 per share and lower tax benefits from share-based compensation activity in 2019, which I will review in more detail in my comments.

Let’s begin with a review of our Q3 performance by segment and region. Strong Q3 results were driven by ongoing momentum in our Companion Animal Group. Global CAG revenues were $478 million, up 13% organically, reflecting continued strong gains in recurring CAG Diagnostic revenues. Global CAG Diagnostic recurring revenues increased 13% organically, including a $5 million or approximately 1% in growth rate benefit from the new revenue accounting standard changes, primarily related to our modified retrospective restatement.

Veterinary software services and diagnostic imaging systems revenues also increased 13% organically. These results were supported by solid growth in recurring software services associated with our practice management platforms and continued strength in our digital diagnostic imaging business, reflected in a 29% increase in diagnostic imaging system unit placements.

Our Water business revenues grew 9% organically in third quarter to $33 million, supported by solid growth in the US and double-digit gains in international regions, including very strong growth in Brazil.

Livestock, poultry and dairy revenue in Q3 was $29 million, up 7% organically. Quarterly growth was aided by favorable comparisons to low prior year revenues related to health herd screening of export cattle into China. Gains in poultry revenues were offset by end market impacts related to African swine fever outbreaks in China, which is our largest market for swine diagnostic testing. We also continue to see impacts from lower milk prices in key markets, which is constraining dairy testing and Bovine pregnancy test sales. Given these factors, we expect flat to modest declines in LPD organic revenues for the full year 2018 with mid-to-high single-digit revenue declines projected for the fourth quarter.

By region, US revenues were $341 million in the quarter, up 13% organically, driven by a 13.5% increase in CAG Diagnostic recurring revenues. US recurring revenue gains were supported by mid-teen revenue growth and US reference labs and consumables and continued solid growth in rapid assay sales. US CAG recurring diagnostic growth was primarily volume driven, with overall net price gains continued to trend in the 2% to 3% range. US recurring CAG Diagnostic customer retention metrics also sustained at very high levels, supported by steadily increasing levels of customers under long-term contracts. IDEXX’s US recurring CAG growth performance continues to significantly outpace solid overall US veterinary practice market growth, reflected in our dataset from about 5,000 clinics. In Q3, patient visits were up 1% and clinic revenues increased 5% compared to the prior year period.

International revenues in Q3 were $205 million, up 10% organically. International results were supported by 12% organic gains in CAG Diagnostic recurring revenues. These results continue to be driven by consumable revenue gains of over 20%, reflecting expansion of our Catalyst instrument base, and increased utilization and adoption of new tests, including SDMA. We’re benefiting from our focus on high economic value placements in international regions, which drove a 36% increase in placements at new or competitive accounts in Q3.

International lab revenue growth moderated to the low-to-mid single-digit range in Q3, including slower growth in key European markets, which were impacted by weather conditions which constrained sample volume sent to our labs in the quarter. Our executional emphasis on driving high competitive Catalyst placement growth in international markets has also shifted some sales execution focus from driving international lab business, which we expect will contribute to mid-to-high single-digit international lab revenue growth in the near-term, which is factored into our refine growth outlook.

In terms of segment performance, our Q3 results benefited from ongoing global expansion of our Catalyst and SediVue base. Globally, we placed 3,026 premium analyzers, up 10%, supported by 20% growth in North America, which benefited from a favorable comparison to relatively moderated placement gains in last year’s third quarter, as we implemented our 2017 US field sales expansion. Our focus on high economic placements drove a 26% global increase and global Catalyst placements at new and competitive accounts and strong double-digit EVI gains in both North America and International. As expected, our focus on high economic placements shifted some emphasis from chemistry upgrades in hematology instrument placements in the quarter, which constrained overall international premium placement growth of 4% compared to very strong prior-year levels.

Globally, we placed 611 Catalyst in total in Q3, a 16% year-on-year increase, and 821 premium hematology analyst instruments globally, down 3% year-on-year. We achieved 922 placements — Catalyst placements at new or competitive accounts in Q3 or 57% of total. In North America, we placed 319 Catalyst placements at new or competitive accounts or 75% of total. This represented a 10% year-on-year increase with 15% gains in the US. As noted, international Catalyst placements at new or competitive accounts increased 36% year-on-year in Q3. We also drove strong continued momentum with SediVue, reflected in 594 global placements or 18% growth, driven by 30% year-on-year growth in North America. In addition to the strong premium instrument results, we placed 1,495 SNAP Pros in Q3 globally, expanding our SNAP Pro installed base to almost 23,000.

Overall, CAG Diagnostic instrument revenues in Q3 were $32 million, up 10% organically, including $7 million in revenues attributed to the accounting standard change, which now more closely aligns instrument revenue recognition with the timing of the instrument placement. This amount was primarily related to the launch of the IDEXX 360 customer program in the US. Our expanding instrument base and benefits from new test innovation continues to drive strong recurring CAG Diagnostic revenue gains.

Instrument consumable revenues of $153 million grew 19% organically in Q3. Results reflected continued strong gains in international markets and accelerated double-digit growth in the US. High volume driven consumable gains were supported by expansion of SediVue pay-per-view — Pay per Run and SDMA slide revenues, which contributed approximately 4% combined to year-on-year consumable revenue gains in the quarter.

Reference laboratory and consulting services with revenues of $184 million grew 11% organically in the third quarter. US lab momentum remains very strong reflected a mid-teen volume driven organic reference lab revenue gains. As noted, overall lab revenue growth was moderated by low-to-mid single-digit gains in international markets.

Rapid assay revenues of $54 million grew 6% organically in Q3, reflecting solid gains across the US and international markets. Rapid assay gains were primarily volume driven, reflecting continued growth of 4Dx PLUS, specialty and first-generation products.

Turning to the P&L. Operating profit in Q3 was $117 million, up 17% as reported or 20% on a constant currency basis, with results driven by continued high profit growth in our CAG business. Operating margins were 21.5%, up 110 basis points as reported and 140 basis points on a constant currency basis.

Gross profit of $306 million in Q3 was up 12% as reported or 13% on a constant currency basis. Gross margins of 56% increased approximately 40 basis points on a constant currency basis compared to prior year levels, net of approximately 25 basis points of negative impact related to cost reclassifications in our lab business from OpEx to cost of revenue. Gross margin expansion was driven by lower product costs in LPD and VetLab consumables, solid price gains and benefits from high consumable growth. Overall gross margin gains were moderated by investments in lab service capacity and employee benefits, including the increase in our 401(k) match levels as part of the tax reform reinvestment as well as unfavorable impacts related to instrument program mix under the new revenue accounting standard. Foreign exchange hedge gains, which benefit gross profit were limited in Q3.

Operating expenses in the quarter increased 8% on a reported and 9% on a constant currency basis, resulting in approximately 100 basis points of positive operating expense leverage. Constant currency operating expense increases were driven by higher global sales and marketing investment and higher G&A costs in the quarter, offset in part by the lab cost reclass. We incurred a $2.6 million impairment of work in progress assets related to the SNAP fecal product in Q3, which was recorded in G&A, which was offset by favorable changes in and other accruals.

As noted, EPS in Q3 was $1.05 per share, including $7 million or approximately 8% per share in tax benefits related to share-based compensation activity, which as noted, was about $0.05 per share above our expectations. On a comparable constant currency basis, EPS increased 39% including benefits from US tax reform.

Our effective tax rate was 14.5% in Q3, including approximately 6% of tax rate benefit from share-based compensation impacts. Foreign exchange, net of hedge impacts in Q3 2017 and 2018, decreased operating profit by $3 million and EPS by $0.03 per share.

Year-to-date free cash flow was $180 million. We continue to expect free cash flow of about 70% to 75% of net income for 2018. This reflects a consistent outlook for full year capital spending of $140 million, including approximately $50 million of combined incremental capital spending related to our Westbrook, Maine headquarter expansion and our German core laboratory location as well as additional projected cash deployment related to strong program instrument placements.

Our strong cash flow generation supported the allocation of $73 million in capital toward the repurchase of 300,000 shares in the quarter. Year-to-date, we repurchased $1.3 million shares in an average price of $207 per share, while maintaining a strong balance sheet. We ended Q3 with $1.22 billion in debt, $147 million in cash and $435 million capacity under our revolving credit facility.

Our leverage ratios as a multiple of adjusted EBITDA were 1.74 times gross and 1.49 times net of cash. We continue to maintain a 2018 full year outlook for reduction in average shares outstanding from stock repurchases of approximately 1%, which we assumes that we maintain net leverage at 1.5 times EBITDA. We now project annual net interest expense of $34 million to $35 million, reflecting additional benefits from capital structure optimization.

In terms of our updated P&L outlook for 2018, as noted, we’re refining our full year revenue guidance to $2,205 million to $2,215 million, reflecting an organic growth outlook of 11.5% to 12%. This reflects a full year outlook for CAG Diagnostic organic revenue growth in line with our strong year-to-date trends, which include about 1% of growth benefit related to the implementation of the new revenue standard.

For the full year, we now expect a 0.5% reported revenue growth benefit from foreign exchange, slightly less favorable than earlier estimates, as the recent strengthening of the dollar offsets first half gains. Our updated organic — overall organic growth outlook lowers the high end of our prior guidance range of 11.5% to 12.5% by 0.5%. As noted, we’re planning for near-term pressure on our LPD business related to end market factors, impacted swine testing in China and dairy testing globally. We’ve also factored in expectations for moderated growth in our international lab business, which will constrain the additional acceleration in CAG Diagnostics recurring revenue growth that we had targeted for the second half of 2018.

For the fourth quarter, we expect reported revenue growth in the 7% and 9% range, net of an estimated 2% FX headwind. We expect to sustain high recurring CAG Diagnostic revenue gains in Q4, supported by continued strong US trends. We are projecting a moderation overall organic growth to the 9% to 11% range related to tough prior year comparisons in global instrument placements and expectations for lower revenues in our LPD business.

In terms of EPS, we’re raising our 2018 full year guidance by $0.04 per share at midpoint to $4.16 to $4.21 and narrowing our projected EPS range to reflect an outlook for 33% to 35% comparable constant currency EPS growth. This outlook incorporates expectations for 110 to 130 basis points in full year constant currency operating margin improvement at the higher end of our prior guidance range, which supports approximately $0.01 per share and operational improvement at midpoint. Our EPS guidance assumes $0.01 in full year benefit related to FX changes net of hedge impacts in line with earlier estimates.

Our updated EPS guidance assumes 2018 effective tax rate of 18% to 18.5%, 100 to 150 basis point improvement compared to earlier guidance, netting approximately $0.03 of EPS upside. This tax rate includes an updated estimate of approximately $21 million or about 5% in full year projected tax rate benefit from exercises of share-based compensation. At the midpoint of our guidance estimates, this equates to about $0.23 per share in full year benefit. This level of benefit is much higher than we previously expected for this year and reflects increased realized benefits related to the rapid appreciation of IDEXX’s stock price, including earlier timing of exercises.

As we’ll discuss in our preliminary guidance of 2019, we anticipate that about 10% or 13% per share of the EPS tax benefit we realized this year, will not carry over into 2019. As we look ahead to 2019, we’re targeting continued strong revenue and profit growth consistent with our stated long-term goals. Our preliminary revenue outlook is $2,385 million to $2,425 million, reflecting expectations were 9.5% to 11% organic revenue gains, supported by 11.5% to 12.5% growth in CAG Diagnostic recurring revenues.

Note that our 2019 results will now be fully comparable under the new revenue standard, which we estimate will provide about 1% of growth rate benefit to CAG Diagnostic recurring revenues in 2018, that will not recur in 2019. Our guidance reflects expectations for overall reported revenue growth of 8% to 9.5%, net of an estimated 1.5% foreign exchange headwind related to the recent strengthening of the US dollar.

Our preliminary 2019 EPS guidance of $4.61 to $4.75 per share incorporates expectations for operating margin improvement of 50 to 100 basis points on a constant currency basis, also consistent with our long-term goals. At the rates assumed in our press release, we estimate FX will decreased revenue growth by about 1.5% and EPS by $0.03 per share, net of established hedge positions, which at current rates would result in approximately $10 million of net pre-tax gains.

Our projected 2019 effective tax rate is 20% to 21%. This outlook assumes $9 million to $11 million in share-based compensation tax benefits assuming our current share price and no change in US tax policy. As noted, this is $0.10 to $0.13 per share below the tax benefits we’re projecting in 2018. We are projecting a 1% reduction in shares outstanding related to share repurchases that consistent leverage levels and relatively higher floating interest rate cost, which contributed current projections for net interest expense next year of about $38 million.

Adjusting for changes in currency, share-based accounting benefits and discrete tax effects, this 2019 EPS outlook equates to projected 15% to 18% comparable constant currency growth rate, on track with our long-term goals. Our preliminary 2019 guidance factors in our most recent understanding of tariff related effects, which we currently estimate would have a relatively limited financial impact in IDEXX. This is an area we’ll continue to monitor and update in our business plan as we move forward.

We look forward to providing an update in more detail review of our 2019 guidance in our year-end conference call. That concludes our financial review. I’ll now turn the discussion over to Jon for his comments.

Jonathan W. AyersChairman, President and Chief Executive Officer

Hi, thank you, Brian, very comprehensive as always.

Overall, IDEXX’s organic growth remained strong, driven by our companion animal diagnostic recurring revenue, which increased 13.1% globally in Q3, including 13.5% growth in the US. This diagnostic recurring revenue globally constitutes about 75% of IDEXX’s overall revenue. The quality of our instrument placements was strong in the quarter. Globally, we achieved 26% growth in Catalyst placements to new and competitive accounts. Important because these placements are the primary driver of our organic instrument revenue — consumable growth, which was 19.1% globally in Q3. New and competitive Catalyst at 922 units grew 10% in North America and 36% internationally, which is supporting that very strong instrument consumable growth. This reflects our continued focus on the economic value index of different types of instrument placements.

EVI is an index of value to IDEXX of the instrument placement in a particular market that comes from both the instruments and consumables over the many future years. SediVue placements also continue (ph) to track in line with our robust plans, a 594 placements, up 18% year-over-year. As part of a multi-year customer agreements under our US-based IDEXX 360 program, SediVue instrument placements also help expand all IDEXX Diagnostic revenues. This builds customer retention and allows our fuel organization to focus on advancing the standard of care through the appropriate use of diagnostics, including adoption of preventative care blood work.

We continue to drive mid-teens growth in our US reference lab business, which accounts for almost $7 out of every $10 of our global reference lab revenues. Q3 continues to benefit from fecal testing, up 25% year-over-year in the quarter, with the growth in this category of lab testing driven entirely by panels that include our proprietary fecal antigen technology. And now in 2018, constitute a majority of our fecal revenues. Fecal testing along with preventive care blood work is driving strong same customer sales growth of reference lab services.

European lab growth slowed in Q3, due in part to the heatwave impacting parts of Continental Europe over the summer, which reduce patient sample volumes into the reference labs. Also with the introduction of our EVI incentive program to our international commercial organizations this year, while we’ve seen exceptional instrument placement quality growth year-to-year as noted, the prioritized (ph) focus on instrument placements in our international markets has led to some unforeseen impacts on growth rate of our international reference lab testing services.

We are already refining our international executional approach to benefit all of our modalities, including importantly the introduction of our IDEXX 360 program internationally, which has had a highly successful launch in the US at the beginning of this year.

Rapid assay test kits with over 80% of revenue coming from US had an excellent quarter, particularly in light of the launch of a competitive product with SNAP 4Dx earlier in the year.

Peer-reviewed research with head-to-head product performance comparisons published in the quarter demonstrates SNAP 4Dx Plus’s significant superior ability to detect tick-borne disease compared to the competitive product. Customers tell us unsurprisingly that test accuracy is their highest priority. Accuracy in detecting the test is after all the whole point of the test. Our commercial team is doing a great job getting the results of these peer-reviewed research to our customers as they make their purchasing decisions.

Overall customer retention trends in the US continue at world-class levels of 97% and 98%, and as customers adopt, use and value our unique innovations, including but not limited to SDMA, including Catalyst SDMA, SediVue, fecal antigen, VetConnect PLUS, software integrations and the differentiated IDEXX 360 program, and we know our customers value the IDEXX Diagnostic professionals who visit their practices. As a result, we see continued solid net price realization in the US diagnostics market in the 2% to 3% range. Customer retention outside the US is even higher at 98% as high as 99.9%, supporting similar solid net price gains.

We are on track with our field-based expansions. The US 2018 expansion is complete and we have transition to the larger number of territories in Q4, thus shrinking the number of customers covered by a veterinary diagnostic consultant, as a result of our 13% expansion in field-based resources. There’s always some adjustments when territories are redrawn, although with the experience of two prior expansions under our belt, we’re getting even better at the transition process in the US. Regardless, we have a strong instrument placement compare from Q4 of 2017. And so while we expect a strong Q4 2018 instrument placement quarter in the US, the year-over-year growth of Q4 placements will reflect both the transitional impacts of the US expansion and the tough compare.

Internationally, our plan is to have the expansion completed in early 2019, when we are on track to have over 400 field-based professionals. These global field expansions, the ongoing momentum in the US and the continued high potential for growth we see in international markets, gives us confidence in our put preliminary outlook of 11.5% to 12.5% organic growth of our Companion Animal Group Diagnostic recurring revenue in 2019, consistent with 2018 trends, adjusting for the 1% new revenue standard growth benefit for 2018.

I want to recognize the exceptional Companion Animal Group performance in Q3 of our international teams in Germany, Spain, Netherlands, the four Nordic countries, Russia, Brazil, Mexico, China, Japan and Southeast Asia. These commercial team show us how international as a whole can advance the adoption of IDEXX innovations to help pets and pet practices all over the world.

A couple of other notes. Our Digital Imaging business had an exceptional Q3, building on our Lower the Dose (ph) campaign leveraging our unique digital radiography offering that reduces radiation exposure by veterinary technicians. Q3 and year-to-date performance of digital radiography placements growth rate is in the high-20s percent, with Q4 order rate trends also looking very strong as we begin to lap some tougher year-over-year comparisons.

Our Water business also continues to achieve impressive organic revenue growth of 9% in Q3, due to commercial and innovation investments worldwide. We continue to make steady progress in building our Legiolert franchise in the Water business, which contributed 1% to revenue growth in the quarter. Our Legiolert product has a long runway of growth opportunity over the next few decades. Water’s year-to-date organic growth of 10%, operating margins of 46%, limited investment capital and world-class levels of customer retention above 90% make the Water business and the team truly exceptional.

Overall, our business trends are strong and our revenue performance is on track with our longer-term goals, which is reflected in our 2019 guidance. We are proud to have built a business model with enduring and predictable growth and profit dynamics. Perhaps this is why we are part of a small minority of companies that provides earning guidance in the Q3 call for the next calendar year. Note that this has been our practice for every year for the last 15. And further, we have an unbroken track record of subsequently delivering within or above that next year’s earnings guidance range on an adjusted constant currency basis, quite a 15-year record. Perhaps unique and a testament to our business model and our team focus on innovation and the customer in delivering financial returns. And I am deeply proud of them.

So we’ll open it up to questions now.

Questions and Answers:

Operator

Thank you (Operator Instructions) And our first question will come from the line of Ryan Daniels with William Blair. Your line is open.

Ryan DanielsWilliam Blair — Analyst

Yes, good morning, and thanks for taking the question. My first one for you, just on the international lab growth. Can you speak to a little bit more detail there in regards to your comfort that there’s no competitive changes, I know you mentioned the weather, you mentioned some sales force focus on instrument placements which makes sense, given the recurring nature of that and the high margin there, but any other color you could have and maybe how much was weather related, how much was the sales force refocus? And then what the retention rates were in regards to clients in US?

Jonathan W. AyersChairman, President and Chief Executive Officer

Yes, thank you for the question, Ryan. The retention rates may remain exceptional in the international reference lab business as a whole. So we really don’t see that was a factor. I think it’s probably a roughly equal parts weather, which impacted Continental Europe where we have a lot of reference lab business, of course, out of our German core lab network. And in part, the executional focus obviously the 36% year-over-year growth in new and competitive Catalyst placements, which drove over 20% growth in the instrument consumable revenue, very profitable revenue for us was the good aspect of our international performance. And as we move forward, and we’re introducing the IDEXX 360 program, which is really wraps in all the modalities. This is something that the international organization has just started to adopt. And I think we’ll build competencies there at areas as we complete the commercial expansion through the end of the year and should bode well for 2019 CAG Diagnostic recurring revenue in international market, which we’ve targeted generally at 12% to 16% range.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

And Ryan, just to Jon’s point on some of the impact being weather, we’ve seen an improvement early in Q4 relative to some of the trends we saw in this summer, so that’s clearly was part of the dynamic. But I think the execution will shift. I think it’s proved in the near-term for us to have that mid-to-high single-digit growth rate overall in Q4.

Ryan DanielsWilliam Blair — Analyst

Yes, that makes sense. Thank you. And then as my follow-up, maybe a bit too nuance, Brian, but looks like sales and marketing at about $95 million was actually down on a sequential basis, which doesn’t appear to be seasonal looking back over the last few years and somewhat surprising given the sales force investments we’re making. So anything nuance there to explain why that actually took a downtick in the third quarter?

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Sometimes we can have just the charges or reversal in charges that impact those areas. We’re on track for the additions that we had talked about in the US expansion, and I think that’s reflected in the year-on-year growth, which was high-single digit. And I think that’s more indicative of how we’re managing it there. There can always be some noise quarter-to-quarter.

Jonathan W. AyersChairman, President and Chief Executive Officer

I mean, also I don’t know that’s on absolute basis, so obviously the dollar strength.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Yes, I know that’s a good point, Jon. There were some changes in the reported numbers (inaudible).

Ryan DanielsWilliam Blair — Analyst

Okay, thanks. I will hop in the queue.

Operator

Our next question comes from the line of Derik De Bruin with Bank of America Merrill Lynch. Your line is open.

Derik De BruinBank of America Merrill Lynch — Analyst

Hello, good morning.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Good morning.

Jonathan W. AyersChairman, President and Chief Executive Officer

Good morning.

Derik De BruinBank of America Merrill Lynch — Analyst

Hey, just one broad question, but I’m getting this across my overall coverage universe, I mean there’s a lot of concern about slowing the consumer markets and macro concerns going on, and obviously, your 2019 guide doesn’t seem to imply that you’re still worried about the market. And I guess could you just talk about the broader (inaudible) what you’re seeing? And I guess what do you sort of looking for in terms of economic indicators that you started too worried? Then I have a follow up.

Jonathan W. AyersChairman, President and Chief Executive Officer

Yes, we have a very strong business in the US, obviously, very large part of the global IDEXX revenues. We are really — we’re very effective in creating our own growth. I think in general, our diagnostic recurring revenue has grown 800 basis points higher than nominal personal consumption expenditures. And that’s been expanding over the last many years as we have — people to really appreciate the importance of blood work and care. One thing we talk about, Derik, as you recall in the Investor Day was preventative care, it’s really interesting. There’s just a deep well there. We have about a little over 2,000 customers who have adopted our preventative care challenge program. These customers are growing their IDEXX diagnostics revenue at 16% on average, it’s over 2,000 customers. That’s less than 10% of our total customers. So that’s driving very strong same-store sales growth and that’s a result of the commercial investments we’re making.

And so if these kinds of efforts, which I think have allowed us to actually expand the differential between our recurring growth and nominal (inaudible) in the US. So — and we’re seeing, obviously, the economy certainly didn’t affect our 36% year-over-year growth in instrument placements across international markets, and you noted the diverse set of countries that I mentioned. And so we’re pretty diversified there. So we’re not going to say we’re completely immune to the economy, but we’re very confident. If you think — if you look back on the 15 years, we may have had a recession somewhere in the past. And yet we’ve delivered on our earnings guidance that we give, which I’ve mentioned is relatively small number of companies actually provides 2019 guidance. And we’ve delivered every year including in 2007, 2008 and 2009, each year we gave guidance, the October, the year before that year, and we delivered within or above on a constant currency adjusted earnings placement on those, which really shows on those — on that guidance, which really shows the enduring predictability of the business model.

Derik De BruinBank of America Merrill Lynch — Analyst

Great. And then just one follow-up. If I heard you correctly, you said that your US sales force expansion was done. And then I’m just curious on sort of like the international push, and how much more you’re going to spend incrementally on the national sales force?

Jonathan W. AyersChairman, President and Chief Executive Officer

Yes, so our international is on its way. It’s going to build over the Q3, Q4 and really into 2019 and so international group are hard at work on that. And so I saw that the numbers are all factored into our guidance. Obviously, when you’re growing at double-digit rates, while we are — even with the issues in the international reference lab growth in Q3 that were weather related. We grew 12% internationally, so it really gives us confidence. The opportunity we see internationally that took 36% growth in new competitive Catalyst placements as a result of the adoption of EVI. This really gives us confidence to continue to build on, we’re really some world-class country teams around the world.

Derik De BruinBank of America Merrill Lynch — Analyst

And just one follow-up, just because I’ve gotten hit by a couple of clients (inaudible). So I guess people feel like that the ’19 guide is a little bit conservative at this point in time. I mean, obviously you’ve got the stock-based compensation headwinds that are sort of factored in. I guess what are some of the puts and takes on the guide for next year? And just walk through it — estimates of different levels of consensus estimate and so I’m just — I think people are looking for a little more color?

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

So I think, Derik, the key place to start is our CAG Diagnostic recurring revenue growth outlook, the 11.5% to 12.5%. That’s basically right on our 2018 trend. So if you take the current guide that we have that our full year numbers going to be about in line with our year-to-date growth rate of — it’s 13.2%. And then just where the benefit growth rate — benefit we’re getting from the revenue accounting standard change, which is a little bit above one (ph). It’s effectively approximately 12%, that’s the midpoint for next year. So I think our guide on CAG extra (ph) recurring revenues is right in line with trend.

We did point out that I think our overall organic growth will be up against some tougher comparison on just higher levels of instrument replacements. We’re looking to grow instruments and get benefit from the investments we’re making, but we’ve had an exceptional year and we’re going to have a tougher compare there. And I think LPD, we’re appropriately kind of cautious just given the — some of the market dynamics, it’s a business that’s 90% international and more heavily weighted to emerging markets and I think we’re being appropriate and having a more cautious view on growth in that area. But I think the underlying core driver of our economics in our business, the CAG recurring is very much in line with trend and that’s supportive of the strong operational — financial operational outlook that we shared (ph).

Jonathan W. AyersChairman, President and Chief Executive Officer

And then with regard to the additional comments from Brian, with regard to the earnings, I do want to reinforce the point that Brian made in his prepared remarks that we’re going to see a step down in the tax rate benefit, projected step down tax rate benefit from stock option compensation of 10% to 13% and that may not have been — since we’ve talked about the benefits in 2018 all along, we have been very, very transparent about that. In 2019, we’re going to have fewer options exercise. We have fewer options expiry. We had some pull forward into this year. So that’s really a non — that’s an accounting change, but is — when we look at comparable constant currency earnings growth, we get the 15% to 18%, which is in our guide for a long-term debt (ph).

Derik De BruinBank of America Merrill Lynch — Analyst

Okay, thank you.

Operator

Our next question will come from the line of Jonathan Block from Stifel. Your line is open.

Jonathan BlockStifel — Analyst

Great, thanks guys, and good morning. Brian, I’ve been jumping between calls, I apologize if you addressed this. But just want to address or — I think how we should view margin expansion in ’19. And I guess I’m going with this is, is it more shared between gross margin and OpEx leverage relative to what we’ve seen in 2018? And then sort of a follow up to that, I’m guessing when we think about the quarterly cadence, is the OpEx leverage maybe a little bit bigger in 2H relative to 1H as you lap some of the more recent investments?

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Yes, I think that’s a good way to look at it, Jon. I think we’re expecting to have gross margin improvement, driven by the things that we’ve been focused on, which is sustaining solid price gains and improving productivity in our operations, including global labs. And those in growing areas like our consumable revenues which have benefits for us. And we expect to build on that. I think that the OpEx leverage we do have another wave of investment here around the US expansion as well as the international expansions that we’ve highlighted that, we will — we think our (inaudible) high return investments have been very successful for us as we’ve accelerated our growth in recent years, and just reinforces the opportunity that we see — continue to invest in growing the market. And I think to your point that will create relatively more of a challenge earlier or we’re in the year in terms of comparison later in the year. We’ll share more color on that obviously as we get to finalize our plans and provide the full year numbers for you on the Q4 call. But I think that’s an appropriate way to look at it.

Jonathan W. AyersChairman, President and Chief Executive Officer

We always appreciative of your questions Jon and recognize the situation you are in. We are very committed to our long-term goals of 200 basis point operating margin expansion, which we’re over delivering — expect over delivering in 2018 and expect to continue to deliver on 2019 and over the long term.

Jonathan BlockStifel — Analyst

Got it. Thanks, Jon. And maybe one or two more if I may. Jon, anything on the competitive update, I mean are you seeing any changes in the field with the recent acquisition of the batches and the deal actually closing positive or negative for you guys in any alterations to pricing in the market or changes in the ways, what is coming to market overseas? And then I’ve got one quick follow-up to that. Thanks.

Jonathan W. AyersChairman, President and Chief Executive Officer

I think we have — the answer is really no. The one comment you may have missed in the prepared comments is that we published peer reviewed research, which shows a substantial superiority in our SNAP 4Dx, obviously an important franchise in detecting tick-borne disease and heartworm. And as I commented, accuracy is the number one criteria for customers in purchasing decisions after all, that’s the whole point of running the test disease. And we’re doing a great job with our close to 500 field-based professionals getting the word out on the differential.

And we had a very strong rapid assay quarter in Q3, mostly US business 3% in the base of a competitive product launch against the important 4Dx franchise. The year-over-year growth of 26% globally in new and competitive Catalyst placements (inaudible) right along. And so really we haven’t skipped a beat here in Q3. From a competitive point of view, our customer retention rates remain very strong and consistent maybe even slightly improved in the US and very, very high, even higher internationally. Our price realization continues in the 2% to 3% range in the US and somewhat type of price realization internationally.

We believe that our opportunity here is to create our own growth. And when we can get over 2,000 practices, 16% same-store sales growth in their diagnostics, when they start adopting preventative care. And I know you did some studies on that. That’s really less than 10% of our total customers who work with us on preventative care. We get 16% overall diagnostics recurring revenue growth in these customers year-over-year — in the last year when they adopt this program. This is the opportunity that we have. And of course, we’re unique in being able to do that, because our diagnostic line finds more underlying disease and finds it earlier. And so with all the additions of the SDMA or differentiated hematology fecal antigen, the quality 4Dx, it actually increases, just the medical justification and evidence based medicine to run preventative care blood work on pets of all ages. And that story is resonating and has a very, very long term runway and is unique opportunity for IDEXX to do. So really no changes in the competitive environment to answer your question.

Jonathan BlockStifel — Analyst

Got it. I will just take my last one offline. Thanks for your time guys.

Operator

Thank you. (Operator Instructions) Our next question will come from the line of Erin Wright with Credit Suisse. Your line is open.

Erin WrightCredit Suisse — Analyst

Thanks. You discussed the international lab business, but I’m just curious what you’ve seen in terms of the competitive landscape, growth was pretty strong in the US in particular, any major changes there or what are you kind of hearing in the field? Thanks.

Jonathan W. AyersChairman, President and Chief Executive Officer

Thank you. No real changes in the US. A very strong performance continuing to edge every quarter a little bit higher customer retention in the US. I think this is the continued adoption of unique value of innovations that IDEXX brings to the reference lab services, SDMA, Molecular Diagnostics, fecal antigen, VetConnect PLUS, and of course, 500 diagnostics subject matter experts that are calling on practices across the US every day. And so customers value our professionals coming in and helping them on how to advance their standards. And so it’s a very strong — the US reference lab business is very, very strong component of our overall diagnostic offering in the US. And as I mentioned in the prepared remarks, US generates almost $7 out of every $10 of global reference lab business. So an important element of the equation.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Yes. Just to reinforce with some of the metrics we shared, Erin, we had 15% growth in Catalyst placements at new and competitive accounts. We had accelerated growth in consumable revenues, continued mid-teen growth in reference labs, solid continued volume growth in rapid assay, net price gains in the 2% to 3% range, the 13.5% overall, the US is really continuing to execute well, record levels of retention, record levels of customers on the contract, that steadily increases. So I think we’re feeling great about the US business and…

Jonathan W. AyersChairman, President and Chief Executive Officer

Yes, I don’t want to say it’s not competitive environment, it’s always been a competitive environment. I just don’t see any change in that competitive — we’re competing with innovation and growth and that’s resonating with our customers. In addition, we have more and more of our customers who have elected to partner with IDEXX with our IDEXX 360 program, which is a very friendly way to add capital and combined with a multi-year commitment to IDEXX.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

And supported 30% growth in SediVue year-on-year North America (ph).

Jonathan W. AyersChairman, President and Chief Executive Officer

So SediVue, many times when we place SediVue within IDEXX 360, we get the entire diagnostic revenue of that customer under a five, six-year agreement.

Erin WrightCredit Suisse — Analyst

Okay, great. Thanks. And then one last one, just drilling into rapid assay in particular here, any changes or surprises relative to your thinking on the competitive positioning on 4Dx Plus and how is the success in bundling in SNAP Pro? Are you seeing that improve overall kind of retention rates for what may be and inherently more vulnerable segment? Thanks.

Jonathan W. AyersChairman, President and Chief Executive Officer

Yes, thank you. Thank you very much for that question. We published peer-reviewed research on the superior accuracy of 4Dx. And of course, this is very important to customers. I mentioned that in my prepared remarks. But I do want to add a little bit more color on SNAP Pro. We had a very strong quarter for SNAP Pro placements, up 10% year-over-year in the US. And customers who have adopted SNAP Pro into their workflow are more loyal and grow their rapid assay test utilization faster than those — that haven’t. That’s why we had a very solid I think rapid assay quarter in Q3. As of Q3, Erin, customers who are active and connected with SNAP Pro, meaning they are integrated with IDEXX and SmartService and everything, and they’re using SNAP Pro. They constitute 57% of our SNAP 4Dx revenues in the US. This is a growing percentage over time as we continue to place instruments. And thus, we’re well on our way to turning the SNAP 4Dx Plus market into an instrument-based razorblade business model.

And Erin, I think you know, because SNAP Pro leverages IDEXX’s unique integration of the instrument through IDEXX VetLab Station with the overall software of the practice, the practice information management system. You get big staff productivity and economic benefits from charge capture from this integration. Still totally unique to IDEXX after 10 years. And SNAP Pro built upon our overall VetLab integration ecosystem increasing the loyalty for not just rapid assay, but the overall diagnostic offering. So we are — that strategy just continues to march along. And we are — I think that’s — there are a lot of reasons why we had a solid rapid assay quarter in Q3 in the phase of competitive launch accuracy and also the evolution of the customer base with SNAP Pro.

Erin WrightCredit Suisse — Analyst

Thank you.

Operator

Our next question will come from the line of David Westenberg with CL King. Your line is open.

David WestenbergCL King — Analyst

Thank you for taking my question. So the other one kind of on the European reference lab dynamic. You mentioned that you’re talking to customers about getting them on to a little bit more of an EVI focus. And that would imply that you will have a revenue kind of catch up as these customers migrate, say, maybe more instrument. So just for the sake of our models, can you kind of just talk about how this might play out over the next few quarters and just to kind of reconcile what reference lab is going to do versus what instruments they’re going do in Europe?

Jonathan W. AyersChairman, President and Chief Executive Officer

So I think we feel very good with the instrument replacement momentum in Europe. Certainly, Q3 was strong quarter with a 36% year-over-year growth in new and competitive Catalyst placements outside the US, which of course was the EVI focus. And what we’re going to be doing going into 2019 is starting to roll out the IDEXX 360 program internationally, which really wraps in growing the reference lab business as well as the in-house business in a multi-year partnership, along with instrument replacements. We think this will help us continue with strong instrument placements. And of course, consumable growth and also help us build the reference lab growth.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

And David, I think it’s important to understand, EVI as a metric is very helpful for our sales teams and thinking about it when they’re replacing or trying to replace instruments, what type of placements drive the most value. It’s not intended to be something that shifts attention from growing the customer relationship and that is reflected in how we approach compensation, where we have the majority of our compensation is oriented toward overall recurring growth. I think what — so I don’t think the EVI metric should drive an issue in terms of reference lab growth. I think what we’re acknowledging is that we’ve got a huge opportunity for instrument placements internationally in Catalyst and that’s been our focus. And we’ve had somewhat of a shift from the sales execution toward that and that is something that we are anticipating we cab — we move back and balance over time. And so don’t see the near-term kind of dynamics is being something to be concerned about the long-term. But I think the — just to be clear, EVI is I think not something that should negatively impact our growth in reference labs.

David WestenbergCL King — Analyst

Even in the near-term. Okay. Thank you very much. And then maybe just to go a little bit further on the European area, is there — was there be any different kind of customer dynamics with the fact that there is fairly deep consolidation in Northern Europe, and maybe kind of offer what some of the challenges are there and maybe kind of some of the opportunities there are?

Jonathan W. AyersChairman, President and Chief Executive Officer

Yes. So with the corporatization or consolidation that’s taking place in Northern Europe, we are in excellent shape with most of the consolidators except for one, who has a competitive reference lab. And so, we think we’re in very good shape to — and in many of these are very interested in our opportunity to help them grow same-store sales, because what’s happening is one hand (ph) they can grow through acquisitions. They’d also kind of like to grow four wall revenue, which have very nice drop through particularly with diagnostics and they are appreciative of the fact that we can bring resources to bear the current level through our commercial organizations. And of course, unique innovation to help drive growth. We’re also have a fabulous software offering. We have leading cloud-based software in Europe, Animana. But the Smart Flow acquisition, which we’re really excited about, we closed in early Q3 is a global platform and we have a strong base of customers in Europe, US and Australia. It’s actually — and adds value to really all customers with different practice information management systems, because it’s workflow software.

And then when we integrated with the PIMs, which we’re already well on our way of doing with Neo, Cornerstone and Animana. It brings even more unique value to these customers. And so this is something I think will help us both in Europe and the US with these corporate customers that are looking for a partner who can bring a sophisticated enterprise software approach and there really isn’t anyone else with the competencies and product ecosystem, software ecosystem, including cloud-based software ecosystem that can partner with our customers. And so, I think this will benefit us on both the software side as well as the diagnostic side.

David WestenbergCL King — Analyst

Yes, and I realize we’re out of — we’re low (ph) on time, you can just answer this, yes or no. Does the 2019 guidance factor any sort of maybe late product launch?

Jonathan W. AyersChairman, President and Chief Executive Officer

It factors all of our plans in place. So generally speaking, you can — if you look at IDEXX growth in any particular year, most product launches have not really been a major component. It’s really the core growth, the adoption of products we’ve launched over the last five to seven years. And so we’re not making any product launch announcements at this point in time, but it factors in all of our plans for 2019.

David WestenbergCL King — Analyst

Thank you so much.

Operator

And we will go to the line of Mark Massaro with Canaccord Genuity. Your line is open.

Mark MassaroCanaccord Genuity — Analyst

Hey, guys, thanks. You had some hot weather in Europe in Q3, as we think about Q4 and into the first half of ’19, can you just speak to reference lab growth? Brian, I think you might have made comments about potentially mid-to-high single-digit growth in the near-term from international reference lab. Historically, — yes historically, you’ve been in the 13% to 14% growth rate in reference lab. So I guess excluding weather, is there any reason to think that, that level of growth might decelerate?

Jonathan W. AyersChairman, President and Chief Executive Officer

You’re talking about that would be global growth that you’re referring to the 13%, 14%.

Mark MassaroCanaccord Genuity — Analyst

Correct. Correct.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Yes. I think there is nothing to say that we can’t get back to those levels. We’re certainly growing better than that in the US and have been. And I think we’ve got…

Jonathan W. AyersChairman, President and Chief Executive Officer

And US is $7 out of every $10 with global reference lab buying, so an important contributor to the whole.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

So to your question, this is more of a near-term impact. We haven’t gotten that granular heading into 2019, Mark, but I think there is an aspect of this that we’ve shifted some executional focus (inaudible).

Jonathan W. AyersChairman, President and Chief Executive Officer

The other thing was there’s really two facts going on, one is obviously lowers foot traffic, but the other thing is customers get concerned about sending samples to lab, when it’s really hot out there, they’re going to get explode along the way. And so those are the two factors which can — and it was very clear the six weeks or so and some are (inaudible) that impacted our revenue. It wasn’t the only thing for the slowdown, but it was…

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

And Mark I just reinforce, the 2019 guidance basically for overall recurring growth is right in line with our year-to-date data trends (multiple speakers)

Jonathan W. AyersChairman, President and Chief Executive Officer

Great. Look at the adjusted for the 1% — 11.5% to 12.5%. So we’re really seeing the fundamentals of the business continuing 2019 that we see year-to-date and through the balance of 2018 for total CAG Diagnostic recurring revenues, which as you know is 75% of the total IDEXX revenues.

Mark MassaroCanaccord Genuity — Analyst

Terrific. And then practice revenue of 5% was strong in the quarter. Historically, you’ve been somewhere in the 4% to 7% range. In terms of end user demand, did you see any changes there?

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

It’s remained very solid. And as you pointed out in a similar range of growth, and of course, as the overall growth in the vet clinics and we believe…

Jonathan W. AyersChairman, President and Chief Executive Officer

Our customers are growing faster.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Our customers grow faster, diagnostics grow faster and we influence that growth. So I think we’re — we feel good about the market trends particularly in the US.

Mark MassaroCanaccord Genuity — Analyst

Great. Just one last quick one. I think you indicated at your Analyst Day that you intend to launch a new slide onto Catalyst sometime in 2019. Is that still your intention, and can you provide any color around what that might look like?

Jonathan W. AyersChairman, President and Chief Executive Officer

Well, I think just to review the history in 2018, we launched the Catalyst SDMA slide and that has had great success. It’s adopted by almost 50% of our global Catalyst base. We launched the SDMA T4 combo kit in the June-July time frame. We launched the CRP slide, which has been a great success outside the US. The US doesn’t fully appreciate the value of CRP, they will in time, and we will continue to expand the menu. And we also expanded the menu on (inaudible) hemoglobin and other perimeter. So this is really a steady diet of menu expansion. We’re not talking about any specific further expansions at this time, but they are in the pipeline of course.

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

(inaudible) innovation.

Okay. Thanks, guys.

Jonathan W. AyersChairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. And Mr. Ayers I would like to turn it back over to you for any closing comments.

Jonathan W. AyersChairman, President and Chief Executive Officer

I just want to thank everybody and appreciate your attention during a very busy day. And also I want to thank all the employees. We just continue to have a great performance in terms of bringing advanced care to veterinarians, pet owners (inaudible) what drives us, it’s what our purposes, and we look forward to finishing the year.

And again, we are really proud to be able to provide 2019 guidance, which is something that not too many companies do. And we even more proud that we’ve done this for the last 15 years. And then we — in terms of the earnings guidance and we’ve delivered against that earnings guidance within or above the range on an adjusted constant currency basis in the subsequent year that we provided guidance for. So it really is a testament to the team and the predictability and enduring growth characteristics of this business, driven by a very high degree of recurring revenue.

So with that, we’ll close the call. Thank you very much.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

Duration: 66 minutes

Call participants:

Brian P. McKeonExecutive Vice President, Chief Financial Officer and Treasurer

Jonathan W. AyersChairman, President and Chief Executive Officer

Ryan DanielsWilliam Blair — Analyst

Derik De BruinBank of America Merrill Lynch — Analyst

Jonathan BlockStifel — Analyst

Erin WrightCredit Suisse — Analyst

David WestenbergCL King — Analyst

Mark MassaroCanaccord Genuity — Analyst

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