Chris Schott: Great. Thanks so much for the question. I’m just interested in the comments you made earlier that it seems like you’re seeing both maybe some capacity challenges and macro impacting vet visit trends. Can you just maybe elaborate a little bit on the latter? It seems like your initial guidance for the year was a bit more optimistic on stabilization of visits and I’m just wondering if there’s any particular, either regions or trends in corporate versus private practice where you’re seeing this macro piece more acutely than others? And maybe just linked to that, I know it would be a guess, but as we think about visit erosion right now, what’s your best guess in terms of how much of this is just ongoing capacity dynamics at the vet versus what is actually consumer demand at this point? Thanks so much.
Brian McKeon: Thanks for question, Chris. Maybe I can provide a little clarity on the numbers upfront, then turn over to Jay to talk about the dynamics. We mentioned that clinical visits were relatively softer than we expected in the US in the first quarter. On our last call we had talked, we did anticipate some weather impacts, but I think we were expecting the flattening trends that we’ve been planning for to emerge and the trends coming out of the quarter were down about 1.5% versus prior year and so that was relatively softer. I would highlight internationally we had a very good quarter. The underlying volume growth was — continues to make progress, building on what we saw on H2. So this is relatively more of a US-specific issue.
And we did highlight I think there are ongoing staffing challenges, capacity challenges that the practices are working through, but there may be also be some impact here in the margin related to broader consumer impacts that could be impacting demand, but I’ll let Jay talk to those dynamics.
Jay Mazelsky: Sure. Good morning, Chris. The way I think about it is both from a customer standpoint, meaning the veterinarian and then a consumer or the pet owner standpoint, and we know that pet owners continue to prioritize spend for healthcare services, in general spend on their pets vis-a-vis other priorities, be they going out to dinner, entertainment, travel, that sort of thing. When we — that the conversation we’re having with customers is largely very positive, very positive on the outlook. They continue to invest in their practices. We see that from a technology standpoint, very significant increase we saw in placements of 8%. We’re seeing it in software, to practice formation. So I think customers continue to be optimistic on the outlook for the animal health industry as a whole and this continues to remain both adorable and resilient sector.
To Brian’s point, we do see some ongoing staffing challenges that the practices have been working through. They see IDEXX as a partner from both the technology and solution standpoint in being able to help them and we also potentially recognize the cumulative macro impacts which maybe, which maybe affecting visit trends at the margin. We have a lot from our approach and standpoint and orientation, we really focus on those things that we can control. We have a lot of confidence in the operational execution of the commercial teams and the product development teams from an innovation standpoint and I think on those dimensions we’re really very positive in hitting on all cylinders.
Chris Schott: Thank you.
Operator: We’ll go next to Nathan Rich with Goldman Sachs.
Nathan Rich: Great. Can you hear me okay?
Brian McKeon: We do.
Jay Mazelsky: Yes, we can, Nate.
Nathan Rich: Okay. Great. Good morning. I wanted to follow up on Chris’s questions. I guess you talked about the kind of end of first quarter traffic running a bit below the prior expectations, I guess would you be able to comment on, is April kind of in line with that 1.5% decline and I guess more importantly as we think about over the balance of the year, it sounds like you expect some improvement in traffic levels. I guess just kind of relative degree of confidence in getting back to that, I know you mentioned there may be a day’s effect in there too, that’s the slight benefit. But just curious about where you may be within your different lines of business see that improvement playing out over the balance of the year?
Brian McKeon: Thanks for the question, Nate. Why don’t I take a moment to just try to help with some of the first half to second half bridging. So you obviously have our Q1 results, and in my comments I highlighted our expectations around Q2, the organic growth of 6% to 8.5%. What we’re assuming in the Q2 outlook at midpoint is that we’ve assumed clinical visit trends similar to what we saw exiting in March, so that’s the minus 1.5%. We don’t comment on in-quarter trends, just highlighting what we’re planning in Q2. And if you take the midpoint outlook with our Q1 results, that would apply approximately 7% organic growth in the first half. The second half would imply approximately 9% organic growth. We have some positive factors that we highlighted.
One is, we’ll have a half day’s overall equivalent days benefit largely flowing through in Q3 that we noted, that we’ll have some select other factors that are favorable to us. We should see better lapping dynamics in areas like LPD. We’re targeting higher growth in our software business. So those will be positive as well. And we do have an assumption at midpoint for relatively flattening US clinical visit trends, and we see a number of factors that support that assumption that I know Jay can touch on.
Jay Mazelsky: Yeah, great. I mean from our perspective there’s a couple of things that I would highlight. One is that the clinical diagnostics revenue growth rates have continued to remain strong. We saw that in Q1 at 5%, actually higher than total practice revenue growth, which is a little bit over 3%. We continue to see healthy diagnostics frequency and utilization, so those metrics continue to remain strong and it gets back to my earlier message on, we see practices continuing to invest. They’re investing in technology, they’re investing in their staff. We know they’re becoming more productive. We think tools like Vello, which is our client engagement software application will be a big help. It integrates very tightly with IDEXX PIMS systems.
It enables a reduction in no-shows which we know is a productivity drag on practices, and we think there’ll be benefits over time in terms of uplift to the diagnostics. So we’re doing our part in partnering with clinics, and we think over time that will play out positively.
Nathan Rich: Great. If I can maybe just ask a quick follow-up on the gross margin strength. Brian, you talked about the factors that were driving this. It sounds like some of those should be sustainable, but be curious to just kind of get your view on that over the balance of the year and you didn’t change the operating margin guidance, I guess, despite the strength that you saw in the first quarter. So any dynamics that we should be thinking about as we think about the cadence over the balance of the year would be helpful.
