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Good morning, and welcome to the IDEXX Laboratories Second Quarter 2026 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Mike Erickson, President and Chief Executive Officer; Andrew Emerson, Chief Financial Officer; and John Ravis, 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 notice in our press release issued this morning as well as in 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 second quarter 2026 results and updated 2026 guidance, please note all references to growth, organic growth and comparable growth refer to growth compared to the equivalent prior year period unless otherwise noted. Today's prepared remarks will be posted to the Investor Relations section of our website after the earnings conference call concludes. I would now like to turn the call over to Andrew Emerson.
Good morning. I'm pleased to take you through our second quarter results and provide an updated outlook for our full year 2026 financial expectations. During the second quarter, IDEXX delivered excellent financial results, building on strong execution and expansion of IDEXX innovations in our Companion Animal business. Revenue increased approximately 10% as reported and 9% organically, supported by over 10% organic growth in CAG Diagnostics recurring revenues, with double-digit gains in both the U.S. and international regions, and strong global growth in our Water and LPD businesses. CAG Diagnostics recurring revenue growth was led by expanded volumes, while U.S. same-store clinical visits declined an estimated 1.3% in the quarter. Premium instrument placements reached over 5,200 units in the quarter, including approximately 1,600 IDEXX inVue Dx analyzers, on pace for our full year inVue Dx placement goal of 5,500 units. IDEXX's operating performance was excellent with comparable operating margin gains of 110 basis points, supported by gross margin expansion with benefits from strong recurring revenue growth and favorable product costs in the quarter. Operating profit gains enabled earnings per share of $4.27 in the quarter, resulting in EPS growth of 15% on a comparable basis. Strong second quarter performance supports an increase to our full year outlook while advancing incremental growth investments. We're updating our full year revenue range to $4,700 million to $4,745 million, an increase of $5 million at midpoint, net of a $20 million increase in operational performance, offset by a $15 million headwind from updated foreign currency effects. Our updated full year overall organic revenue growth outlook is 8.5% to 9.7%, and with organic CAG Diagnostics recurring revenue growth of 9.5% to 10.7%. These organic growth ranges represent an increase of approximately 40 basis points at midpoint to our previous guidance, aided by global momentum in our CAG Diagnostics recurring revenues. We're also increasing our full year EPS outlook to $14.69 to $14.94 per share, an increase of $0.14 per share at midpoint, reflecting a 13% to 15% comparable EPS growth range. We'll provide further details on our updated 2026 financial expectations later in my comments. Let's begin with a review of the second quarter results. Second quarter organic revenue growth of 9% was driven by nearly 9% CAG revenue gains, 13% growth in our Water business, and 9% growth in LPD. Strong CAG results were supported by CAG Diagnostics recurring revenue growth of 10.3% organically, net of a 50 basis point negative impact related to equivalent days and average global net price improvement of approximately 4%. As expected, CAG Diagnostics instrument revenues declined 20% organically as we lap the broad commercial availability of inVue Dx in the prior year period. U.S. organic CAG Diagnostics recurring revenues grew nearly 10% in Q2, including strong volume gains and net price realization aligned with our full year expectations. U.S. same-store clinical visits declined 1.3% in the quarter, reflecting an IDEXX U.S. CAG Diagnostics recurring revenue growth premium to U.S. clinical visits of approximately 1,100 basis points. Pressure on wellness visits remains the primary constraint to clinical visits, with non-wellness visits showing modest growth. We continue to see growth in pets 5 years and older across both categories. IDEXX benefits from quality of clinical visits with an increasing number, including diagnostics and broader use of diagnostic testing menu. With a substantial majority of wellness visits today not including bloodwork, we see inclusion as a long-duration volume lever that does not depend on visit recovery. International CAG Diagnostics recurring revenues grew nearly 12% organically in Q2, sustaining double-digit gains, led by volume growth. International performance continues to be driven by IDEXX execution with volume gains from net new customers, supported by expansion of our premium instrument installed base and same-store utilization, including benefits from IDEXX innovations. IDEXX continued to deliver strong organic revenue gains across our major global testing modalities in the second quarter. IDEXX VetLab consumable revenues increased 14% on an organic basis, reflecting double-digit growth in both the U.S. and international regions. Consumable revenue growth included benefits from net new customer gains in our premium instrument installed base and expanded testing utilization. IDEXX innovations, including our expanded Catalyst menu and growing benefits from inVue Dx recurring revenue continue to support utilization gains across our customer base. CAG premium instrument placements reached 5,265 units during the second quarter, resulting in an expected year-over-year decline as we lapped the broad commercial availability of inVue Dx in the prior year. Instrument placements remained high quality. Globally, we placed 1,602 IDEXX inVue Dx instruments in Q2 and over 1,000 new and competitive Catalyst instruments globally, with nearly 300 in the U.S. IDEXX Global Reference Lab revenues increased over 10% organically in Q2, led by volume gains. Reference Lab carries a higher index to wellness visits, which declined 3.4% in the U.S. during the period. Performance was driven by net customer gains and increased same-store utilization, as existing customers adopted broader testing menu, including IDEXX Cancer Dx. Global Rapid Assay revenues increased approximately 1% organically in Q2, returning to growth as the impact from customer shifting of pancreatic lipase testing to our Catalyst instrument platform eases. Veterinary software and diagnostic imaging organic revenues increased approximately 12%, driven by recurring revenue growth of approximately 10% during the quarter and continued strong placements of the DR50 Plus platform. Our cloud-native PIMS installed base grew double digits, creating an expanded customer footprint to improve workflow and enhance diagnostic protocols in the clinic. Water revenues increased 13% organically in Q2, with strong double-digit growth in both the U.S. and international regions, including benefits from order recovery in the Middle East. Livestock, Poultry and Dairy revenues increased 9% organically in the quarter, with solid gains across our regions. Turning to the P&L. Strong recurring revenue growth and favorable product costs enabled 12% comparable operating profit gains in the quarter, with reported operating margins achieving 35%. Gross profit increased 12% in the quarter as reported and 11% on a comparable basis. Gross margins were 64%, up approximately 120 basis points on a comparable basis. These gains reflect benefits from strong recurring revenue growth in IDEXX VetLab consumables and Reference Lab volumes, operational productivity, and favorable business mix, including strong margin gains in our Water and LPD businesses. Pricing benefits offset inflationary cost pressures, which eased in the quarter compared to our expectations. On a reported basis, operating expenses increased 10% year-over-year and 9% on a comparable basis. We expect to maintain growth in operating expenses through the remainder of the year as we advance investments in our innovation agenda and global commercial capabilities given strong revenue performance. Q2 EPS was $4.27 per share, an increase of 18% as reported and 15% on a comparable basis. EPS in the quarter included a $0.14 per share benefit related to share-based compensation activity, compared to a $0.10 benefit in the prior year period, and foreign exchange added $6 million to operating profit and $0.06 to EPS in Q2, net of hedge effects. Free cash flow was $323 million in Q2 and $557 million for the first half of 2026. On a trailing 12-month basis, our net income to free cash flow conversion rate was 110%. For the full year, we're increasing our outlook for free cash flow conversion to 90% to 100% of net income, including full year capital spending consistent at approximately $180 million. Our balance sheet remains strong, finishing the period with leverage ratios of 0.6x gross and 0.5x net of cash. We maintained deployment of excess capital towards share repurchases, allocating $332 million during the second quarter and $693 million year-to-date. Capital allocated to share repurchases supported approximately a 2% year-over-year reduction in diluted shares outstanding in Q2. Turning to our full year 2026 outlook. As noted, we're increasing our outlook for overall revenue to $4,700 million to $4,745 million. At midpoint, this reflects a $20 million operational improvement from our prior guidance, building on strong second quarter performance, including CAG Diagnostics recurring revenue expansion. Our updated reported revenue outlook includes a $15 million headwind related to foreign currency changes compared to our prior estimates. This reflects a reported revenue growth of 9.1% to 10.3%, including approximately a 60 basis point benefit to full year growth from foreign exchange at the rates outlined in our press release. As a sensitivity, a 1% strengthening of the U.S. dollar would reduce revenue by approximately $8 million and EPS by $0.03 per share for the remainder of the year. Our updated overall organic revenue growth outlook of 8.5% to 9.7% includes organic growth range of 9.5% to 10.7% for CAG Diagnostics recurring revenue, including approximately a 4% benefit for global net price realization. At midpoint, we're anticipating second half U.S. clinical visit declines of approximately 1.5%, reflecting similar Q2 trends. Business momentum combined with recent and upcoming product launches support our outlook for the second half and the full year. In terms of key financial metrics, we're updating our reported operating margin outlook to 32.3% to 32.5% for 2026, reflecting an increased expectation of 70 to 90 basis points for full year comparable operating margin improvement, supported by gross margin gains from strong recurring revenue growth. We're advancing incremental investments in commercial and R&D during the second half, supporting our long-term growth agenda. Our updated full year EPS outlook is $14.69 to $14.94 per share, an increase of $0.14 per share at midpoint, driven by operational performance compared to our prior guide. EPS also includes an increase of $0.05 per share related to share-based compensation benefits, offset by a $0.05 headwind from updated foreign exchange rates. For the third quarter, we're planning for organic revenue growth in line with the implied second half growth range, and foreign currency impacts creating a 70 basis point headwind to reported revenues at rates outlined in the press release. In the quarter, we're planning for modest comparable operating margin expansion of 20 to 50 basis points, with reported operating margins expected to be 32.5% to 32.8%. That concludes our financial review. I'll now turn the call over to Mike for his comments.
Thank you, Andrew, and good morning. IDEXX delivered an exceptional second quarter with execution across all key growth drivers: expansion of diagnostic utilization, growth in our instrument and customer base, and continued advancement of our broad-based innovation pipeline. The structural importance of diagnostics in the veterinary practice supported increased diagnostic frequency and utilization, even as overall clinical visit growth remained a modest headwind. We continue to see tailwinds from the aging pet population, with pets aged 5 and older contributing positive growth across both well and non-well visits. Pets are living longer, and we know that pets, like humans, require more care, including diagnostics as they age. Turning to commercial execution. Instrument placements in both competitive conversions and greenfield accounts remain strong, and our installed base grew 11% year-over-year. Each new placement is a long-term platform investment, and with every menu expansion, the recurring value of that installed base grows. Customer retention globally remains in the high 90s for our CAG Diagnostics business. This is a metric that we work hard to earn every day, as it is a key part of our growth algorithm reflecting the trust veterinarians place in IDEXX and the durable value of our integrated diagnostics and software solutions. We know from experience that diagnostics is a performance category. Practices on our platform, point of care, reference labs, software and imaging, see materially higher growth in both their diagnostics and overall practice revenue. We are also advancing investments in our global commercial capabilities. During the remainder of the year, we will expand our field presence across 4 international countries, as well as targeted additions in the U.S. This builds upon last year's international and domestic expansions and is a statement of our confidence in these geographies, our innovative diagnostic portfolio, and the opportunity to grow testing utilization. We have a well-proven operating playbook for these expansions. When we work closely with customers in the practice, helping them integrate innovations into their everyday protocols, we see higher adoption, higher utilization and stronger long-term relationships. Turning to innovation. inVue Dx momentum continues to be strong. We placed 2,700 instruments through the first half and are on pace to achieve our full year placement goal. We're seeing a steady ramp internationally as our commercial teams support integration of inVue Dx into practice workflows and awareness builds across regions. Customer feedback is positive and consistent across geographies, with veterinarians highlighting the integrated slide-free workflow, the diagnostic confidence of objective AI-powered results, and the productivity gains of having cytology answers while the patient is in the clinic. We've also continued expanding the clinical value of inVue Dx through menu additions. In the second quarter, we added new pathologic red blood cell morphologies associated with underlying diseases of the liver, spleen and kidneys. These updates push automatically to every connected inVue Dx instrument worldwide, with no action required by the practice. As blood and ear cytology capabilities expand, customers find more reasons to run samples on inVue Dx, and utilization grows. In parallel, fine needle aspirate, or FNA, is progressing as expected through the controlled launch process and we've meaningfully expanded the base of customers entering Q3. With inVue Dx FNA, veterinarians can evaluate lumps and bumps for mast cell tumors during the patient visit with optional expert pathologist review available in a single click. Today, fewer than 10% of lumps and bumps ever get evaluated, largely due to the cost and workflow complexity of glass slides. We're seeing early indications that the slide-free workflow, real-time results and affordable pricing of inVue Dx FNA are associated with an increased number of masses evaluated. Given the platform within a platform nature of FNA, we're providing clinical practice team training as part of the rollout process with planned broad availability by the end of the year. IDEXX Cancer Dx reached another milestone, surpassing 10,000 global clinics ordering since launch, a reflection of how this test is addressing the critical need for early cancer detection and becoming part of routine veterinary care. Cancer Dx is now available in North America, Europe and Australia. Momentum in both screening and monitoring applications continues to build. Approximately 70% of Cancer Dx tests are run as part of a broader bloodwork panel, reflecting integration of cancer testing into everyday clinical protocols. Globally, over 20% of Cancer Dx orders come from practices using a competitive lab, an indication that clinicians are putting their patients first and breaking from their typical workflow to access this innovative test from IDEXX. As customers adopt Cancer Dx, they experience the broader value of our IDEXX Reference Lab ecosystem, contributing to strong new customer growth in the quarter. Cancer Dx will expand from a test to a panel in late Q3 with the addition of mast cell tumor detection. That means veterinarians will soon be able to screen at-risk dogs for 1/3 of all canine cancer types during a single routine wellness visit. Mast cell tumors are among the most common cancers in dogs, but also among the most frequently missed, as they can resemble benign lesions and go undetected, particularly in dogs with long coats. Importantly, this expansion comes at no increase in price to our customers. The full Cancer Dx panel, including mast cell tumor detection, will remain approximately $15 when run as part of a profile in our lab. We're committed to doing our part to support broadly available, affordable cancer screening that also inspires wellness bloodwork. Our Technology for Life strategy continues to create broad-based value for customers and for IDEXX, and Q2 delivered 2 meaningful expansions to our platform capabilities. In June, we enhanced our most common Catalyst chemistry profiles, known as CLIPs, to include IDEXX SDMA for all customers in North America. This built-in integration expands access to SDMA at the point of care, helping veterinarians identify kidney function loss earlier and detect up to 1/3 more renal dysfunction in sick pets, all within a more streamlined workflow. Since introducing IDEXX SDMA in 2015, customers have run nearly 120 million patient tests globally, a reflection of its widely recognized clinical importance. Early response to the new Catalyst CLIPs is positive, with strong adoptions and favorable feedback on workflow and inventory management. Catalyst menu additions, such as these SDMA CLIPs, Pancreatic Lipase, and Cortisol, expand the value of our nearly 80,000 Catalysts around the world. We also expanded our Reference Laboratory Fecal Dx antigen testing platform, adding taeniid tapeworm detection in late June for U.S. and Canadian customers at no additional cost. This is our third Fecal Dx menu expansion in 4 years, and the platform now covers 7 of the most clinically relevant intestinal parasite groups. Each expansion reinforces the clinical value of running this panel as part of every routine wellness visit, enabling detection of 2x more infections than fecal flotations. Our software and imaging business delivered strong results in Q2. Independent practices and corporate groups choose IDEXX software to drive productivity through workflow efficiency, deep diagnostic integrations, and the ability to centrally manage operations across a large-scale network. Vello, our pet owner engagement platform, continues to expand, with double-digit sequential growth in active users. Vello brings personalized outreach, diagnostic-driven campaigns, and forward booking capabilities that improve practice efficiency. Practices on ezyVet with Vello show higher wellness bloodwork inclusion rates than practices on competitive on-premise PIMS, a direct measurable impact from the convergence of software and diagnostics in support of expanded care. In diagnostic imaging, we saw our sixth straight record quarter of digital radiography system placements. These results reflect strong commercial execution and customer demand for the DR50 Plus launched in January, which combines AI-powered imaging quality with up to 60% lower radiation dose than premium competitors. Radiation safety leadership is an important area of focus for us, given that 75% of veterinary technicians working in practices are women of child-bearing age. As I reflect on IDEXX and the veterinary care industry we have the privilege to serve, I'm energized by the opportunity ahead. The long-term drivers of animal health remain sound. The bond between people and their pets continues to deepen. Pet owners remain committed to high-quality care and to being lifelong pet parents. The aging pet population supports durable, increasing demand for diagnostics across dogs and cats. And expectations for quality care continue to rise, with high-performing diagnostics at the center of clinical decision-making. We're in the early stages of an innovation cycle that is broad-based and building: inVue Dx, Cancer Dx, Catalyst menu, Fecal Dx expansions, DR50 Plus, software and AI. Our innovations support higher standards of care, increased diagnostic intensity, and expanded access to diagnostic insights for more pets globally. We look forward to sharing more on all of this at our Investor Day on August 13 at our headquarters in Maine and live-streamed for those unable to attend in person. Lastly, in my first few months as CEO, I've had the privilege of connecting with many IDEXXers around the world. Those conversations reinforce what I've long understood about the strength of our talent and our growth mindset culture. I want to thank our employees for their steadfast commitment to our customers and to advancing innovations that empower clinical teams to see more and do more in their practices. That singular focus, turning diagnostic, software, and AI innovations into everyday clinical value is what will keep compounding into long-term durable growth for our customers and IDEXX. With that, I'll open the line for Q&A. Thank you.
分析師問答
We will take our first question from Erin Wright with Morgan Stanley. I've long understood the strength of our talent and our growth mindset culture. I want to thank our employees for their steadfast commitment to our customers and to advancing innovations that empower clinical teams to see more and do more in their practices. That singular focus, turning diagnostic, software, and AI innovations into everyday clinical value is what will keep compounding into long-term durable growth for our customers and IDEXX. With that, I'll open the line for Q&A. Thank you.
Great. So can you speak a little bit about the rollout of FNA and how that's progressing relative to your expectations? Is that helping to fuel some of the inVue placements in the quarter? And can you remind us of just how the consumables flow-through is tracking relative to your expectations for inVue, and the overall consumables number was solid in the quarter. Just can you remind us of, I guess, in terms of potential upside even to the consumables targets that you have, especially as you kind of broadly launch FNA?
Erin, thanks for the question. Yes. So the overall consumable revenue performance on inVue Dx is comfortably within the range that we've discussed around $3,500 to $5,500 per instrument. And so we're really happy with what we're seeing. And just overall, the launch and progression of inVue Dx has been just outstanding, really one of the most successful product rollouts that we've had at the company. As you heard, 2,700 placements in the first half of the year, 9,000 overall. You asked about the progression of FNA. It's going well. It's on track with our controlled launch process that we've talked about in the past. This is the process that we follow to make sure that we really get all the details of the customer experience nailed. That's what our customers expect from us. And it makes sense to do that because we know that these things have very long tails. So we want to make sure we get the flywheel running well. So we broadened the rollout, the controlled rollout of FNA as we headed into Q2. And based on the great feedback that we're getting from customers, we're broadening that again meaningfully as we go into Q3 with planned full availability by the end of the year. And I think it's just worth mentioning, each of these applications on inVue Dx is really a platform within a platform. When we rolled it out, we started with 2 large areas of testing with ear cytology and blood morphology, and we continue to add menu to those. And when we do that, we can just push that out to our customers. FNA is a whole new application. So it's like a platform within the platform of inVue Dx. And so we're taking the time to train customers as we roll this out to make sure that they get the very best experience. And as you heard me share in the comments, we're really excited to see that in the early results with FNA, we're seeing even more masses getting looked at, which just reflects the fact that we're addressing the real challenge in the practice around the cost and complexity of glass slides with this new application. So very excited. And as this continues to roll out, we do see upside in that consumable number over time.
Okay. That's great. And you hit double-digit growth in the Reference Lab for the first time since the beginning of 2023, if I have my numbers right. And I guess, can you break down the components of that growth and the sustained market share gains that you're seeing there? And we always seem to find that segment to be more correlated to vet office visits. And just on that front, there is this swirly narrative out there as well as some supportive analysis from the former CEO and Chairman of IDEXX calling out some sustained pressure in vet visits over the next several years. I guess, how do you think about that in the context of the data that you are seeing and the pushes and pulls you see there from an underlying demand standpoint, given some of the metrics you shared in terms of aging pet population and other metrics as well? How does that fit into your long-term growth algo?
Great, Erin. So I'll talk a little bit about the Reference Lab and then Andrew can talk more about visit trends. So we're really happy with the growth in the lab. It really reflects a broad set of execution and performance across the team, where we've added to the lab offering with what I shared around Fecal Dx, adding taeniid tapeworm, and then Cancer Dx has just really hit the mark addressing this critical need for early cancer screening, monitoring and diagnosis. As I shared, we're seeing 20% of the volume with Cancer Dx coming from practices that have been using a competitive lab. That means they're prioritizing their patients' needs over existing workflows, and that's associated with record lab conversions. We're seeing that worldwide. So the growth in the lab reflects the investments we're making in innovation, strong commercial execution, customer conversions and overall strong volume growth. We're seeing that internationally as well, which we're very pleased to see.
Yes. And Erin, just on the sector, certainly, I think we've continued to see declines in U.S. same-store clinical visits, 1.3% within the quarter, largely on track with our expectations from our previous guidance. We are continuing to see pressure more on the discretionary areas, wellness visits being down below 3% compared to the prior year. And we're seeing some positive benefits on the non-well side. Certainly, I think the economic pressure that consumers are facing just on broad inflationary dynamics and challenges with things like gas prices and housing prices put pressure on those discretionary categories. But there's also been a more muted puppy impact here given the pace of adoptions that we have seen. I think we've called that out in the past: during times of economic pressure, consumers are slower to add or replace pets within their household, and I think that's playing out to some degree. But I think the foundation of the overall pet population continues to be positive. And I think we're paying close attention to that. Ultimately, we'll continue to provide updates for our longer-term growth algorithm at our Investor Day event here coming next week. So we're excited to provide more details at that point.
We will take our next question from Chris Schott with JPMorgan.
Just wanted to come back to vet visits and just a little bit more color on the trends you're seeing. I guess any big differences as you look at the trends that you're seeing from corporate versus independent practices or urban versus suburban locations? And maybe just a secondary question on that same topic. What do you think it's going to take to get wellness visits back to growth given the continued erosion there? It seems like the non-wellness trend is going the right way, but that wellness piece of the business, just any directional outlook of how to think about that going forward?
Chris, we don't see differences looking across different parts of the country or across corporates or independents. In fact, talking to CEOs at some of our large corporate partners, they're seeing exactly what Andrew talked about: this wave of older pets coming through COVID pets. That's driving growth not just in non-well, but in well and non-well within that particular age cohort. I think the key is—and what we really focus on—is visit quality. That's the diagnostic frequency and utilization within the visit. So we're focused on developing the sector to keep enhancing that quality, and that's what we're seeing happen. That's a combination of innovations that provide new opportunities, new episodes of testing—things like Cancer Dx, for example—and also commercial execution, working with our customers on education and really honing and optimizing their diagnostic protocols, including their well testing protocols. There's massive headroom to keep growing this. For example, in the U.S., only around 1 out of 10 wellness visits are getting bloodwork today. Outside the U.S., it's much less, around 1/3 or even less in most countries. So there's substantial headroom through innovation and commercial execution to continue to drive growth in wellness testing. That's where we're focused: driving that quality of visit.
We will take our next question from Jonathan Block with Stifel.
Mike, maybe you could talk a little bit more about these commercial investments that you called out. They've certainly yielded good returns in the past. But why now for the next tranche? I think you just did a recent tranche over the past 4 quarters or so. Are these different international markets? And then maybe most importantly, does it mean anything from an innovation standpoint? In other words, beefing up the sales force in certain areas as maybe that innovation bucket could continue to grow when we look forward?
Jon, thanks for the question. We're really excited about the opportunity internationally. There's a lot of headroom to grow placements and utilization and to develop the sector for diagnostics, particularly around wellness, which is less developed than in the U.S. We've been consistently making investments internationally to support that. This includes investing into expanding our field presence, which ties to a playbook we've seen deliver reliable returns. When we work more closely with customers and get our territory sizing dialed in right, we can help them adopt innovations into their protocols. We see higher adoption, higher flow-through, stronger relationships—all the positive things that drive the flywheel for customers and for us. It's not just innovation: we've invested significantly to expand our lab network globally and to ensure service levels are outstanding. We've invested in software, for example, with VetConnect PLUS tuned for local geographies. We've invested in innovation specific to regional needs with products like SNAP 4Dx Leishmania or ProCyte One, which address performance and cost needs in different parts of the world. We're seeing inVue Dx pick up internationally with 40% of our placements coming abroad. So stepping back, we see a lot of opportunity internationally and a reliable return on these investments. We're going to continue to make them to develop the sector and help more pets globally.
Fair enough. And I'll pivot for the second question. Andrew, a recurring theme here. The 2H '26 2-year stacks would not have had to accelerate further if you did not raise the guidance, but once again, you did. So I guess, I got to ask you the silly question that almost penalizes you for raising that guidance. When I look forward, it seems like visits are expected to be more of the same in the back part of the year as the first half; price at 4% is pretty much the same in 2H versus 1H. So like what aids that premium on that stack basis, if the question is making sense? Maybe I'll ask a question and maybe answer it. I mean, do we think those customer wins, which have been solid, they're growing recurring from inVue, Cancer Dx broadening? I'm just looking for maybe some color on the drivers behind that really solid stack 2-year CAG Dx recurring in 2H?
Jon, as you highlighted, we are planning for continued strong CAG Diagnostics recurring revenue growth over the balance of the year. We did raise our expectations from our prior guidance. Some of that was certainly the strong Q2 that we had. We're continuing to build momentum within the business, both in the U.S. and internationally. As Mike highlighted, we continue to make investments in reaching our customers and translating the value of these innovations to help them leverage diagnostic and software capabilities to support overall pet health. The guidance increase at midpoint reflects strong first-half performance. We're also excited by recent and upcoming product launches. Mike highlighted several on the call: the new SDMA menu within the CLIP simplifies clinic workflow and inventory management; we added to our Fecal Dx panel, which will benefit customers; we continue to broaden the rollout of FNA on inVue Dx; and we'll be adding mast cell tumor detection to Cancer Dx. These continued innovations, combined with high customer loyalty in the high 90s across our modalities, support the back half, and we feel good about the guidance we've set.
We will take our next question from Ryan Daniels with William Blair.
Sorry about that, guys. Can you hear me now?
We can.
Yes, we got you, Ryan.
Great. A quick question for you regarding the SDMA move to the Catalyst. Do you think that will have any cannibalization on the reference lab?
No. What we consistently see is whenever we invest into one modality, point of care or reference lab, we actually see that testing begets testing and we drive overall more diagnostics. When you think about using SDMA at the point of care, it can include well-pet situations but very often it's more of an acute or sick-pet use case. With SDMA combined with the CLIP, customers can detect up to 1/3 more true renal dysfunction than using creatinine alone in sick pets. We've taken the SDMA slide on the Catalyst, which could be added manually to the CLIP, and put it there for them. That streamlines workflow and inventory management. We've gotten great customer response to this innovation at the point of care. At the same time, for many years we've included SDMA in every single chemistry panel run at the reference labs. So SDMA is an integral part of chemistry testing whether at point of care or in the reference labs—it's simply best medicine.
Okay. Perfect. Very helpful. And then as a follow-up, also on the lab. I think you mentioned 20% of Cancer Dx is coming from competitive labs. And I think that's helping you with some conversions. And we've heard during our conversations that expanding the panel later this year could really be a big catalyst because it will identify more cancers and make it a more valuable panel. So I'm curious if you could talk a little bit about your expectations for that, both in regards to helping lab growth and then maybe what that could do to market share gains for the lab in the future?
We're really excited about Cancer Dx moving from a test to a multi-cancer panel with the addition of mast cell tumors. These tumors are among the most common canine cancers and are frequently missed because they can resemble benign lesions, particularly in dogs with long coats. Systemically detecting them and taking early action when found is valuable. Pairing Cancer Dx with inVue Dx is particularly powerful: when you find a positive mast cell tumor, you want to know which mass to act on and remove, and that's where FNA on inVue Dx helps. So the pairing of those two is a valuable end-to-end solution for general practice veterinarians. We see this as a potential tipping point for cancer screening—multi-cancer screening that is affordable as part of bloodwork for at-risk dogs (all dogs over 7 and at-risk breeds over 4) could become the de facto standard over time. We're hearing this from customers. One large partner in Australia has added Cancer Dx to all senior dog premium wellness program participants and has seen strong uptake in enrollments and overall bloodwork. Over time, we think this will help develop the sector further.
We will take our next question from Daniel Clark with Leerink Partners.
I wanted to ask about your second half expectations. How are you kind of thinking about in CAG growth between the U.S. and the international segments just given the strong run we've kind of seen ex-U.S.?
Thanks for the question, Dan. We've seen really strong momentum in both the U.S. and international regions. We see a lot of opportunity internationally to continue developing the sector. We've invested from a commercial perspective and in infrastructure to support customers. Internationally, we're now multiple quarters of double-digit growth and continue to see strong momentum across regions like Europe and APO in particular. On the U.S. side, clinical visit challenges have been the key constraining factor. But IDEXX U.S. CAG Diagnostics recurring revenue has maintained a premium to those clinical visits and we've been ramping that up over the past several quarters. That has a lot to do with our ability to maintain high customer loyalty and provide solutions and best practices alongside customers in partnership. We don't have a specific directional split for growth ranges within those areas to share, but we feel confident across regions on a global basis.
Okay. Got it. Super helpful. And then just a quick follow-up on kind of the visit trends in pet aged 5 plus, where you said they're contributing to both well and non-wellness positively. Have you seen any changes on a quarterly basis from that cohort? Or is it just generally positive?
It's generally positive, Dan. We've now seen this trend for multiple quarters in a row, and we're seeing it in our data and hearing about it from customers as well. We think it's a consistent trend.
We will take our next question from Michael Ryskin with Bank of America.
Great. I want to touch on inVue placements in the quarter, a little over 1,600. You reiterate the full year guide, but it's still a really nice step-up versus your 1Q instrument placement number for inVue. Is this just sort of normal lumpiness that we should expect in the business? Is there anything that you kind of turned back on just related to FNA, lumps and bumps? Just kind of what drove that momentum? Or should we just sort of ignore it and just sort of assume this is the normal noise quarter-to-quarter on placement numbers?
For inVue Dx placements, there has been variability across quarters. Placements depend on when the customer is ready to take on new instruments and plan for them, and we partner with customers on that. There's always some level of variability in placement metrics. Year-to-date, about 2,700 placements puts us essentially 50% of the way toward the full year target, so we're on pace for about 5,500 for the full year. We didn't guide by quarter for inVue placements, but Q4 tends to be a bit stronger capital quarter for us, and that's something to keep in mind as you think about placement metrics. Overall, we see strong demand and momentum for the inVue Dx analyzer both in the U.S. and internationally.
The overall feedback from practices has been very positive. Every practice does cytology and struggles with the workflow, hands-on complexity, and technique sensitivity of slides. inVue Dx addresses those challenges—repeatable results for things like ear rechecks, slide-free workflow, and reliable cytology. Ear cytology and blood morphology are very large categories of cytology that we're addressing as we add FNA to inVue Dx. We also added two new red cell morphologies to our blood morphology offering in this quarter. Each platform within the platform continues to expand. We're very happy with the performance—9,000 placements since launch makes this one of the most successful launches we've had.
Okay. That's great. And then maybe a quick follow-up. You talked about the Analyst Day a number of times, looking forward to it, as always. One thing you haven't touched on is Multi-Q. It's something you announced a little while ago, but we haven't had a lot of updates. Maybe I'll just ask conceptually, if you could talk about the bandwidth and the capacity to launch 2 platforms, to ramp 2 platforms. Obviously, you have things like FNA and lumps and bumps and Cancer Dx. So you're not unfamiliar with launching multiple solutions at the same time, but 2 instrument platforms would still be somewhat of a new venture. So just talk about bandwidth and capacity to do that if that was to come about.
We're very comfortable with our commercial capacity. We continue investing internationally, which is focused on sector development rather than capacity constraints—it's about opportunity. We also make targeted additions domestically. Overall, we're comfortable with our capacity to launch and support the innovations we have, ensuring customers have the right information, data and workflow guidance so they can successfully incorporate these into their protocols.
We already manage multiple fronts today: core analyzers with Catalyst chemistry and hematology, SediVue, inVue, and broader platforms like Cancer Dx that require sector development work. We have a model focused on doing more than one thing at a time, and that's a key focus as we go forward.
We will take our next question from Daniel Grosslight with Citi.
Congrats on a strong quarter here. I wanted to double-click on the margin degradation in the second half of this year. Obviously, you've got investments, which you've outlined here, and you also have FX being a headwind in the second half. But I was hoping you can provide a little bit more detail on the phasing of incremental investments in the second half. And as we think about the split between 3Q and 4Q, how should we be modeling out the margin and investments you're making in the business?
Dan, on the margin outlook, gross margins will likely lead our overall operating margin profile. In the first half, gross margins benefited from strong recurring revenue growth and we see high incremental margins with the volume growth we've achieved, and we expect that to continue in the second half. Gross margins should lead operating profit flow-through. We'll continue to make incremental investments in the second half to support longer-term growth. Mike highlighted commercial investments, and there's variability in project timing in areas like R&D and IT infrastructure, including AI initiatives. We didn't provide a Q3 versus Q4 split, but we did highlight that in Q3 we expect 20 to 50 basis points of comparable operating margin expansion, which gives you a sense of our quarter-to-quarter thinking. We'll continue to make investments throughout the second half.
Makes sense. And you guys also raised your free cash flow conversion, which is great to see. How are you balancing buybacks against potential M&A opportunities? Are there any specific capability gaps or geographic markets where inorganic investment may be more efficient than growing organically?
We remain focused on investing in our organic growth profile; that's our core focus. We actively assess opportunities outside our four walls and business development remains an area we look at opportunistically. We're focused on core areas within diagnostics and software. We've seen more assets recently in the software space and it's something we continually evaluate. We're willing to leverage capital for business development or in-licensing as appropriate. For excess cash, we have conviction in the company's long-term orientation and view share buybacks as an effective way to return capital to shareholders, but we continually reassess that allocation versus potential strategic acquisitions.
Thank you for the questions. Thank everybody for the questions. We'll now conclude our Q&A portion of this morning's call. It's a pleasure to share IDEXX's continued strong execution against our organic growth strategy, while delivering strong financial results in the second quarter. Thank you for your participation this morning. Now we'll conclude the call.
Once again, this will conclude today's call. We thank you for your participation. You may now disconnect.