Unknown 1:35
Hello, Hello, this is john Raven with Isaac's laboratory. I'm joined by my colleague, Glenna Hansen, the senior manager of investor relations. How are you today?

Unknown 1:49
Doing great, thank you very much.

Unknown 1:53
This is Sunday, July.

Unknown 1:57
Hello. Nice to meet you on the phone.

Unknown 2:01
Can you hear me?

Unknown 2:04
Yes, we can hear you perfectly.

Unknown 2:05
Okay. Okay, that's good. Thank you. Thank you for your time today. And as we have already send out questionnaires to you Have you got it?

Unknown 2:17
Yes, we have.

Unknown 2:18
Okay. Thank you. Sorry. We have a lot of questions. I don't know whether we can finish it within one hour. So we'll try our best. And then our questions will be around the edX is strengths and the growth upside in both us and international. And then the margin, the capital policies and the risks. So that goes straight to the first questions. Okay.

Unknown 2:48
And, in the interest of time, we'll try to keep our responses fairly brief. And then if you need additional clarification or wanted to dig deeper, we're happy to do that. Any of you have a lot of ground you want to cover?

Unknown 3:03
Thank you. And the first several questions is about the strengths of ITEX. And we want to know the key competitive age for edX and, and the key competitive age for both the product and service segment respectively. And then, based on this competitive age, what sort of the benefits can you bring to the material arenas, if they using the added products

Unknown 3:34
or if you're offered, ultimately we are a company who is focused on the very attractive companion animal health markets. And that is our primary business. And it's been the source of our growth for the last 30 years as a company. We're focused a company that uses an innovation strategy to

Unknown 3:59
to Bringing innovative products and services to veterinarians around the world. In the innovative products give us a differentiated solution, which ultimately provides better diagnostic tools and services for veterinarians that help to advance the care for companion animal pets around the world. Who are our significant differentiators of which we have many. One is the innovation strategy where we develop unique products and services many covered by patents, or trade secrets. We developed analyzers such as panelists, one set of you and in our other instruments lines in clinic and proprietary tests and our reference lab, such as fdma, and fecal antigen, these are all unique kydex we also have a significant competitive advantage from our deep level of integration at the information technology ecosystem that we've built into our products and services, they all connect together, they work well together. And that really makes it easy for our customers to use the services to get value from the services, and really differentiates our services. That includes connectivity from our analyzers. From a workflow perspective, our in clinic analyzers are all connected with the vet land station. That's the conventional hub that allows the back technicians to to schedule tests for a patient, whether it's a hematology chemistry or analysis, or infectious disease tests to schedule those across the analyzers have their test be queued up, test run the results fed back into the vet set position. They are then pushed to the Pim, which is the practice information management system, so that the charge is captured. Didn't the patient's record is updated, they're also pushed to the cloud with our proprietary back Connect plus patient training portal where you can see those results over time, whether they were done in clinic or at the reference lab with trying to reference ranges in results for that path. And then they are available to be shared with the pet owner, or the veterinarian via the iPad or iPhone, or who works with other specialists providers. So it's a very deep level of integration. Our analyzers also allow for connectivity using smart service, so that we can update those analyzers remotely, we should have allowed us to have a technology for life strategy, when we're able to make the analyzers better by pushing software updates. That is allowed us to add a new menu items to our panel of one analyzer over the last eight years. So our analyzer is actually get better with age as the invest in innovation and bring those enhancements to the customers. So it's very powerful. So that deep level of integration is very important. What else another advantage we have is a dedicated commercial model that's very much customer focused. We take the view of trying to drive the growth of diagnostics as part of both sick and welcome wellness visit. And we don't care what type of tests whether it's in house or in the clinic around a reference lab that the customer uses. We just want them to use it to innovate it test to improve the standard of care. And that's unique to ITEX as many of our competitors sell just point solution while we're really partnering with them to embrace and utilize more diagnostics, versus choosing what product or service to use, so that's very unique. We also partner with them with best Veterinary Diagnostic consultants. We have an Extensive field based service rep team that helps with training and service and implementation. And then we also have a professional service engineering team of certified veterinarians that are available to help with medical questions and messaging in support of the the sales process and the consultative process. So, that is a significant differentiator for IMAX, all of those and then the last one is that we are the worldwide leader in both in clinic and record clubs. So that is unique. We are the leader in the both in us and all those global basis. That gives us significant scale advantage that gives us ability to provide unique service levels and so forth. That's the unique advantage tied x and lastly, we also have a payments business where we are a significant player in the in the US and have a product for the international market and that allows us to You provide a more seamless internet integration with our diagnostics with the patient portal. That's a quick summary of some of our innovations and strengths and business strategy. it's it's it's a it's very consistent over time. And even with our new CEO who's been here with us for like eight years, he's very much committed to that strategy.

Unknown 9:27
And according to your disclosures, I also found that you mentioned direct channel model is also the your strength is it right?

Unknown 9:38
Yeah, very much.

Unknown 9:42
Yes. So we're direct I think we've disclosed now is it 94% of our revenues approximately are direct globally in the US our largest market where direct or indirect in most of the European major your European markets were directed. Most of Asia, where we use distribution is still in some of the emerging market. So we use distribution in China, we use distribution in portions of Brazil. And in some of Latin America, we do have direct commercial presence in those markets. So we use a hybrid model. So we do have direct sales people in China in Brazil, but given the size of the countries in, in, in all the various difficulties of doing business in those regions, we also rely on distribution partners as well.

Unknown 10:37
Next conference is about the technology side.

Unknown 10:42
Since your launch of the catalyst, one in the cells and market share scans allowed. So could you give us examples on how the catalyst was different and innovative compared to your competitors products?

Unknown 11:01
catullus one is our latest generation chemistry platform. And we introduced that on the market in 2014. Our previous platform was catalyst, VX, which have very similar functionality, but a little bit of higher throughput, higher footprint and a bit more expensive. So the catalyst one, what we're able to do is take the functionality from the catalyst dx, and shrink that in costs and footprint. So we can offer that same menu and same functionality to customers that are perhaps a little bit more price sensitive, and they didn't need a tire. Swift, but that was also very attractive to some of our international customers, we're, you know, counterspace might be more limited. So having a, you know, a smaller footprint and reduce cost was very attractive for them. So basically, we use the costs in half and we're able to offer that in a library to our customers. In breach those customers that will perhaps smaller that we couldn't reach before. So with the catalyst one, the that is the only platform that we're basically selling currently in the US. But we have four chemistry. But we have, you know, two other generations that are still out there. We have our original chemistry platform, which is called the backpack, which was introduced in the market 30 years ago in 1992. And we still have a number of those out in the field, primarily internationally. And we also have the catalyst dx platform, which remains in the field. And we continue to upgrade our international customers who are a catalyst one platform, and there's also plenty of Greenfield opportunities, in terms of differentiation and how our platform differs from others. You know, there's many players on the market, so maybe we can just highlight a couple of comparisons. So one of the competitors we have here in the USA is called a bad They are now on by the lettuce, and to use a chemistry platform with a rotor technology. So the rotor technology has a fixed panel model where there are certain tests that are fixed from the rotor. And if you want to add a test or perhaps run a different variety of tests, then you would have to run that on a separate rotor. Our technology the rotor as a consumable has a higher costs than our slide technology. And the fight technology that we have is more of an Al carte menu where you could take how many slides you want to run in one on one of your patient samples, we can run up to over 20 different tasks with one sample and we have some panels that are already predefined that the customer can just pick up or they could literally add individual slides and just one individual fly from the platform as john mentioned earlier,

Unknown 14:01
I'm sorry.

Unknown 14:05
As Don mentioned earlier, one unique aspect of our vice lab diagnostic suite is that the instruments are connected to the internet. So we're able to update the functionality for software updates and add me to our analyzers, which is unique identity. We're also able to service the analyzers without conductivity. We're also able to gather all the data from our customers and use that for various reasons. One example is all the images that we collect from our debut analyzer we're using to further advance the technology through

Unknown 14:43
AI, and update the software on the analyzer which now has an image library of 360 images that it's using in its algorithm, million 360 million images sorry. So that is another unique differentiator Fridays and Then, of course, the QA conductivity that john talked about earlier, which is really our analyzers are connected in the practice into the system for a two way, connectivity, which helps promote workflow and charge capture. And have there been studies that have said that as much as 15% of diagnostic results aren't included in the patient bill. And so that's a significant loss of revenue for practice that 30 using point solutions that are integrated

Unknown 15:31
into the next questions is about the reference lab. And do you always only use the edX instrument in your lab also your competitors and how about your competition like VCA? Do they use edX the instruments in their labs?

Unknown 15:51
optimally when you look at the reference lab, the sounds they are high throughput, high volume laboratory The labs, including itix Labs use much more industrial scale system from companies such as bakhtin been attacked in Dickinson and Siemens and Max. And we would customize those choose to be calibrated for our parameters. And any I'm eating tests that we might run. So, very different model than the in clinics business where we have high tech analyzers that are that are used for, you know, small batches of testing a small footprint.

Unknown 16:41
Do the in the VC also use the ITEX instruments in their labs?

Unknown 16:50
So VC has two different things. So in our lab, they would not use it insurance and I'd excuses very few instruments in our lives. We do some small samples or we might have an instrument, but we can use much larger high throughput analyzers where they would run thousands of tests. As far as their clinics, the hospital, there are VA hospitals that have, you know, itix analyzers. But in general, your VCA has, you know, partnered with have access as far as other aspects of Mars family of which GPAs one element, we do have Banfield and Banfield uses ITEX evangelizers for their chemistry, and they're infectious disease testing that's not Pro. So it's a little bit of a mixed bag there.

Unknown 17:46
Okay, let's go to the grossest side. in us, as we know the market shares is already rising to about 55% Do you think there is more room to increase their and to what extent in college.

Unknown 18:09
So, as we look at the US market, it says it's a highly competitive market. And it's a market where we have been very successful doing two things. One is, you know, we've been growing share, but the bigger source of growth freid X has been actually increasing same source sales with our existing customers, as we work with them to grow their utilization of diagnostics and adoption of edX is genique innovation. So that's actually the bigger driver of our growth and and is the big opportunity that we laid out at investor day, as we look at the global Tam of over $33 billion, of which we estimate were approximately 11% served as of the end of 2018 as you Think about the US market. We shared it investor day that our our growth algorithm. Over the next five years, we estimate that our key x recurring revenue growth was was realized approximately one to 2% benefit from share increase from customer wins. And what we see driving that over time, is there are many customers that might meet at excellent restaurant reference labs for specialty tests that maybe not as their primary provider, or might use this as the lab but maybe don't have an in house. So what we what we are looking to do is inspire those customers to use it for all of their diagnostic needs. And we do think there's that opportunity to move that share over time. We estimate that approximately 50% of our existing customers use us for both their in house Reference lab that's kind of their primary provider. So that gives you a sense that there's still runway for us to have them move all their business require them to do more business with dynamics.

Unknown 20:17
And the your presentations, you also disclosed clinical visit growth record a quarterly, I think, and then the growth is kind of limited recently to you. Could you give us the upside for the clinical visit growth and also the spending growth if possible?

Unknown 20:39
Yeah, so would you publish the clinical visit growth quarterly, which has been ranging in the few percent which is also part of our long term growth potential though the outside investor day. So if you have the materials in front of you that is outlined on the slide 45 for the US and flying 46 for international and Clinical visit growth is part of the build up to our emoting growth. And we expect about 3% contribution, which includes clinical visit growth of 2%. And also 1% of new practice formation, which is not included in those numbers that we report on a quarterly basis. So the combination of the two is about 3% contribution to growth internationally, similarly, were expected or through a contribution, a little bit higher three to 4%. From clinical visit growth, again, including new practice formation, which is a little bit higher outside of the lab.

Unknown 21:41
Okay, and then next question is, could you give us the you're the product of pipelines in the US, and is there any, any areas that which you think we still haven't worked out but we'll have good opportunities going forward?

Unknown 22:01
So as we mentioned, we definitely have an innovation strategy. And I've had a nice cadence of product launches through the years and including your products like scent of you that basically created a new category of in clinic testing, replacing what was human process, an automated process. As far as the future pipeline, as a policy, we don't comment on specific given competitive dynamics. But at the DMX trade show in January, we launched the new innovation. One is a new tech on the catalyst, liver tests for bile acids. We launched a new digital cytology service for our working class that offers TV two hour turnaround time, seven days a week travels 65 days a year for very exciting for customers that are looking for a fast turnaround time for their cytology and then we also announced the enhancements to set of you As you think about our investments going forward, we tend to invest in, in three areas. That's where we have core competencies, and you know where our resources are tend to be grouped. Those three areas are menu expansions and new tests for our in clinic analyzers, and for our reference laboratories, that PB essays, etc. Then we have we platforms. So that could be your new analyzers or refreshes of existing analyzers, and or new categories of analyzers. So that's something that we have good technical competence. And the third area of investment is on customer facing software. That would be tools such as pins, we announced that we're migrating courses to the cloud are leading him and investing into Such as that connect plus. We also announced recently that we added test results on the bet labs patients for the reference laboratory right in the in clinic. analyzer. So, those levels of investment really helps to further differentiate our overall suite of products. I would say that we're always canvassing for opportunities. We have a very active business development team. We partner with universities, key opinion leaders, we pay attention to innovations in in the human market, and we look for opportunities where we might be able to partner to bring

Unknown 24:47
those tools or solutions to companionable market. Sometimes, you were we see the opportunity but the markets not there yet. It has to make sense for the, you know, the confines of a cash pay model. So the price point for some of the technologies needed to get to the point where pet owners willing to invest for to improve the quality of their pets life. So I think over time, we'll see more your advancements of of tools, you know, relating to, you know, whether it's cancer detection or genetics, or, you know, you know, additional PCR or other tests. But it also, you know, we need to price points to come down as well for it to make sense. And those are all areas that were active in. We have a very great team of scientists and software engineers and process engineers and, and they're all co located at our Westbrook headquarters. So they work very collaboratively with the product marketing team, and the commercial leadership and I think that is one of our other secret advantages is that we're all together, working closely and, and that's, that's been very successful for one thing to point out about the email health industry and diagnostics specifically is that adoption is very slow over time. So we mentioned earlier that the first chemistry analyzer, you know, was introduced in the US in 1992. When we look at blood work and how that's being used as diagnostics today, in the US in 2018, so only 17% of clinical visits included blood work. So that's when, you know, they will draw blood and run the tests on one of the analyzers. You can mythology or chemistry. And we've seen, you know, some of the adopters in the field, the top 2% are actually running out bloodwork, 30 and 37% of the visits when they're seeing a patient So, you know, that is kind of the standard, the higher standard of care that we're seeing today in practice. So there's plenty of runway to grow that adoption of diagnostics as part of, you know, political visit in internet Nomar campus that is even lower. And really it's part of the education like john mentioned that, you know, the use of diagnostics is not wide. During Manas business especially it's more focused on slick business internationally. So there's lots of opportunity, even with the existing products that we have on the market to continue to improve the standard of care for pets into increasing inclusion of bloodwork and diagnostics as part of us.

Unknown 27:37
That veterinarian office gross

Unknown 27:46
reference to lab. So

Unknown 27:56
the lab and the incline and the reference lab ultimately have the same growth drivers which is your growth and clinical visit New Product We practice formation, you know, increased number of pets coming in to the clinic and and then ultimately the adoption of itix innovation and increasing the utilization of diagnostics as part of the sick and wellness visit. What we're seeing in the reference lab is that there's a role to see like uplift and revenue growth supported by preventive care. So we've launched a preventive care commercial initiative called preventive care challenge. We have over 1300 customers enrolled in that through the end of 2019. And that is a turnkey solution that helps that Marion's to begin marketing and utilizing diagnostics, in wellness visits. And we're in it's really helping their practice set up the process. machine the protocols, setting up the panels and pricing, providing marketing materials and etc. And then of care testing, we believe is well suited for the reference lab because the patient is presenting Well, they don't need a real time results. And therefore, they can send the test to the lab get next day results but the lower cost option and and improve the workflow within the clinics and they don't have to worry about trying to get the results so quickly. So we're seeing a nice to uplift from preventive care helping to support and sustain our double digit revenue growth in the reference lab business.

Unknown 29:52
Yes, we we also know that the upsides potentials for the Wellness Business is very big, as you mentioned, but yeah, but I just think is very different. codes to expand this area. Even for like human beings, it's very hard to persuade people to get the preventive care if they are still house healthy. So in the in terms of the animal, I think there will be a more difficult part to persuade the owners to.

Unknown 30:25
So I So the good news is the dogs and the cats are already coming to the vet. The issue is that that's not asking. So really, it's been the veterinarians and mock the pet owner. In general, that has been the limiting factor. And we've been providing data to the industry. And now Aha, the American Hospital Association, and their reconned guidelines, has endorsed that, that wall visits are appropriate for adult animals and including a baselines well before they turn to so that you can track their progression and Monitor hidden subtleties that might be happening within their body because that you can name this creative care program. So that big data is really helping us to inform the market and change behaviors. And we're seeing benefits on convincing veterinarians that it is appropriate. And there is value using high taxes unique differentiated offerings, which includes FEMA, and fecal antigen, which uniquely identify one and four in a well presenting adult dog that there is something that requires some clinical aligning follow up. So you think it's not the pet owners in general, they trust the veterinarian. They veterinarians are held in high regard around the world. And it's really just convincing the veterinarian to implement these protocols. Now to help Make that a better, easier sale. We encourage veterinarians to use compliance based pricing for wellness testing, which is basically to take a smaller markup on a wellness test. Because a wellness test requires less effort from the veterinarian, you're sending it to the reference lab, instead of doing it in house, the dogs presenting cats presenting well, so you would expect that you would have less needs, you wouldn't be as intense of a visit or scrutiny of the result. The good news is if they do discover something now you have follow on monitoring and downstream revenue suid, ultimately, an enabler of revenue growth. So we have those discussions as part of the preventive care challenge. It requires you earning their trust and many visits in in close partnership. But ultimately, it results in more revenue to the practice and improved outcomes. For the patent owners as as you're providing a higher standard of care.

Unknown 33:11
Yes, I see. Thank you. And the next is about

Unknown 33:18
Do you have any like specific KPIs your follows into your value to access to house of your

Unknown 33:29
buy, we point to that snapshot, again that we publish every quarter and that's where we we reference, the clinical visit growth. That is a key understanding. Key key way to understand the health of the market company we monitor and report on as far as the health of our business. We look at the growth in the install base, we look at your CAG recurring revenues. And we look at customer retention and and then we track various initiatives like practice. Carrot challenge enrollees or adoption of FEMA. But, you know, we take a very long term view of our relationships with veterinarians and our sales force is compensated two thirds of their compensation is helping to grow things for sales. So, that was that helps them to align their interests with their customers and helping them to grow their business which helps profitably grow the customer and it

Unknown 34:38
and then next is about international growth.

Unknown 34:42
Know is very Greenfield area. So so far, is there any competitors which also offers the all inclusive comprehensive services just like I DAX, and if yes, what is your different different differentiation points relative to theirs

Unknown 35:05
international markets there's no one that has the complete portfolio that we do. The closest would be in Japan. CG has a reference lab and has the in clinic analyzer for chemistry. So that would be the closest but they don't have the the integration, the that connect portal and other things that in the pin that we have that creates the cohesion of workflow and information flow that makes everything easier to use the differentiated menu in the other regions, we do not see combined owners of labs and, and in clinic analyzers. So ultimately, we really don't have anyone with a similar capability on the international market

Unknown 35:58
and in the international markets

Unknown 36:03
could you provide us your the Five Year expensive grossie specially for the high potential Latin America and Asia Pacific.

Unknown 36:14
And also we have not

Unknown 36:15

Unknown 36:17
you know, guidance in terms of growth for international we think we think about it in total. So, we did provide a revenue build up your point a much larger contributor and there is we killed opportunity. So placing analyzers and expanding our channel list and surveys. We just provided investor day. Now page 106 breakdown, historical breakdown of revenue growth by region. So in Latin America, for example, you know, the growth exceeded 20% for the 2009 to 2014 period. And it wasn't worth of, you know, 31% or north of 30% following 2014 for Asia Pacific region, you know, growing in the mid teens, basically, from 2009 to today, and then Europe, you know, growing double digits from, you know, 2014 onwards. So that's the regional breakdown that we have provided. And so that all rolls up to a total revenue build for CAG de extra recurring of 12 to 16% for international nine to 13% for the US, and then for our 2020 guidance, which is just on a worldwide basis, which we just gave on our call p for call, we guided to a consistent 11 to 12%. Worldwide tag the extra recurring. So I would say that very similar trends with what we've been seeing the last few years where we've sustained a high level of Organic revenue growth

Unknown 38:09
is in some developed area like Canada and Europe. So far, you already started the direct distribution in that area. So going forward to expand to provide the comprehensive solutions, like in the US for these areas.

Unknown 38:33
In Canada, we have the same model in the US now. And in most major markets in Europe, we have the VDP model as well. I would say we have like, we have larger territory sizes, so in Europe than we do in the US where we had multiple rounds of commercial expansion. So we do see opportunity to continue to add commercial resources, international markets to support and market development. When we signal that we would you know what your gross sales and marketing investments internationally at a paid equal to revenue growth for those markets? So

Unknown 39:21
So Canada you mentioned that has the same water like us currently. What?

Unknown 39:27

Unknown 39:29
What do you still market share in Canada by the way?

Unknown 39:33
We have not shared that yet, but we'll take some more to the you out of us.

Unknown 39:42
And we also have the data the market share in Europe.

Unknown 39:48
So internationally, we have an, you know, share in the market share, I would say, you know, in the aggregate, it's probably similar to where we are in the US. The big difference internationally is that and, you know, there's a huge variance from Market to Market and really more countries. country. So there are some markets primarily the English speaking markets. We're in Coulson reference lab there ballards markets meaning that most practices, you know, will use both in health diagnostics and reference law. And then there's other markets that are more in health focus or reference off focus. So examples of those would be Germany, for example, they are more focused on breakfast lab and they consider the reference lab testing the golden standard. And France is an example of an in house market and so it's China. So it varies you know, around the world, but I would say in the aggregate will probably similar in the markets were where we have labs, we tend to be the market leader and we are tend to be the market leader in in how offered

Unknown 40:51
across DeBakey market.

Unknown 40:57
So the next question is about the emerging markets.

Unknown 41:03
The emerging market like like You're currently only half lab, your current, you don't have lab there. So in the future would you also want to study out that area,

Unknown 41:16
you got something we would look at when, when that would make sense if the market just hasn't developed that way. It's primarily and in clinic market. And so it's primarily a testing market as well, which is support being clinic testing. So, you know, you, you, we would look to develop those capabilities. To the extent the market looks to meet that direction, but that hasn't been the current market structure there. In Brazil, another key emerging market there we do have a language for it. And, and that's an area where we have gotten direct. For the majority of our revenues, we give you some distribution to cover some of the more wall mountainous

Unknown 42:07
regions of the country.

Unknown 42:10
So do you think the

Unknown 42:13
direct dispute distribution model, the comprehensive solutions so far successful in US will be copied to these emerging markets?

Unknown 42:27
We ultimately think that model seems to have worked well in the more developed melts markets, you know, over time as we have a rising middle class around the world and we know that that pet owner bond is a strong across the world, people love their dogs and pets everywhere. So that's that's encouraging. We see as countries develop, family sizes become smaller. And we see families waiting to have children and have smaller family sizes and all those things tend to reinforce companion pet ownership. Increased disposable income for all of those all simulation, reinforced market development and opportunities for us to sell our products and services. And, you know, as we grow and helping to support those markets, then we will, you know, partner with veterinarians, to the extent they want us to partner them with some based upon the initiatives that we're looking to drive. So I think long term there's there is that opportunity. I think the cape, the pic, the cadence of that development will vary by region and by country. Because even in regions like Asia, the countries move at very different speeds. Korea and Japan are obviously much more mature markets versus, you know, you know, China and other South southeastern Asian countries.

Unknown 43:56
Okay, thank you. And you mentioned the, in us the KPIs you're following is the base grows, the install base and retention rates, the How about the KPIs in the international business EC, the same as the US business.

Unknown 44:15
We look at international you as the fact that invest today the US were the big opportunities to drive utilization, increase the standard of care. So basically driving same store sales growth in international regions, the near term opportunities to grow the install base with over 70,000 placements available worldwide. And the majority of those are international markets. So the team is very focused on going after that those opportunities. So those are the metrics that we report on externally which is the number of competitive and a new new placements. We have over 1100 competitive in the placements and in q4, internationally, very strong results. And we look forward to building on that going forward. And then yes, we will follow with looking to drive utilization to the markets where we implemented vdcs which is our US model models markets such as Germany and the UK. And those will be areas where we're looking to drive increased testing and, and things like wellness testing. So we're slightly different cases by market. But ultimately, it's the same business. Similar opportunities, it's just different like levels of market development.

Unknown 45:38
Since since the time is only about 10 minutes left, we go quickly to the next part is about the margins. The gross margin expansions since the last five years has already improved 490 babes and you also assume a another 400 to 600 gross margins patients can use tells us Expand the driving force behind these modules patients.

Unknown 46:10
Yep. So the lab big boost is is, is a great business. And we have started investing this business 20 years ago. And I think our first lab was actually in Japan, which is fascinating. And, and we've grown to now have over 80 Labs worldwide and over 50 in the US. So it's really important to know about this business is there are high expectations for customers from a service delivery perspective. They went twice a day pickup during the business day, which results during a day they want results. They want pick up set when they closed for the day with results by 30 The next morning, and so to meet the service level G to invest in a laboratory network that provides that coverage to the you can meet the turnaround time and you need To have a courier network to pick up the samples, and then have efficiencies within your lab to be able to process those results in short periods. So what what, what was interesting about this is it's very much a scale business, right. So once you have the networks in place, the incremental volume of testing samples that flow through the career network, or through the reference lab network flows through at a very high incremental margin. And that has been the driver of our gross margin expansion in the reference lab. As we have been building out this network over time as the volume comes online. You know, a new lap a dilute of a new career rooted, diluted, but as the sample pick up, as the commercial team sells those services, the incremental margins flow through it at a very high rate. And we've seen that benefit, which closely aligns with the growth the double digit growth in our reference lab business in us and we're projecting that tip to increase our continue over time as we continue to grow that business conditions like preventive care. And collectively we should get the benefits from the scale leveraging the higher volume.

Unknown 48:23
So, the long term operation margins patients about 50 to 100 basis every year is also based on the same reasons as you mentioned.

Unknown 48:37
Yet So, um, so we have that the same rate. So we have, we have expansion from the reference lab, that's definitely a key contributor. We also get leverage from from our considerable business to the vet lab consumable. So we have efficiencies from, you know, both shipping and distribution and procurement and other things where we have cost reductions by hitting volume targets. So that helps as we grow the install base and grow the utilization. We do realize margin expansion from from that higher volume. So that's those are the kind of the drivers within costs of sales and products. And then we get leverage on our corporate costs, we're seeing a growing at a pace below. Revenue. While we continue to invest the high level in our AG, in sales and marketing year we have periods where we might have some leverage as we do an expansion us for the next period of time, the resources are getting into their growing into their territory, etc, and into the incremental revenue slow through you at a with a rate higher than the investment in sales and marketing. So very high returns from the investments. So what we've seen is we've had a balanced contribution between gross margin and obex leverage over time and, you know, normalizing for for margin for sale, forced expansion that happening here. You're in there. But we projected that to continue. And we're projecting 50 to 100 basis points of expansion in 2020, after adjusting Libya, to charge for 100 and 150 on a constant currency basis.

Unknown 50:23
And as you expand your international business, the below contribution from the international business will have negative impacts on your margins.

Unknown 50:39
the fascinating thing is the US business has been growing at such a high rate as well, that we've actually been sustaining a very similar kind of mix of domestic to international revenue. That's a great it's a great outcome that we do believe there's so much international opportunity, but that yes, the International revenues as they realize that opportunity was growing 12 to 16% on recurring revenue, we should see them growing even faster. But, you know, based upon those same characteristics, which includes, you know, some modest net price realization that two to 3% coupled with the lab efficiencies and volume benefits for our for high high margin recurring revenue, we should be able to achieve those margin goals. New each market is slightly different from a margin perspective. I would just say they're all still attractive, they're all good. They are relatively different. We do have some international markets that have even higher margin than the US. So if there's a lining and but ultimately they're they're all really attractive.

Unknown 51:56
And then the capital policies you currently doing the share powerpack buyback programs called the You're listening, and we'll continue this program after you're reaching the current targets.

Unknown 52:14
Yes, we have signaled for the for 2020 that we'd like to maintain sustain our current leverage of around one and a half times debt to become and that and that, that funds to be used to continue to share repurchase programming, and the targeting approximately one to one and a half percent share count reduction in 2020. We're looking further our APS algorithm, you know, that we state and invest today is looks for one to 2% contribution from sharehouse production over time, you know, we might, you know, you know, advanced or moderate the pace of repurchases based upon the evaluation or our opportunities to to redeploy in the business, your first priority is to invest in growing that high margin high and highly durable, recurring revenue. But to the extent we have access cash flows that we can't deploy, either within the business, informal growth capital or m&a capital, that we will look to, to redeploy that, to share buybacks. We've been very good stewards of shareholder capital. And, you know, we would look to continue that, obviously, we pay attention to investors and in our outlook and intrinsic value, all those help to influence or inform our decisions, but we would look to to continue the current practices unless there is something we change in the future.

Unknown 53:40
So can we assume that the one to 2% of the capital allocations leverage to attribute contribution to the UPS gross will is a long term commitment from either?

Unknown 53:57
I would say that that's what we've taken our long term growth algorithm. So yes, you know, that's, that's what we're targeting. You know, Whether we're at a 1% level or the 2% level, some of that depends on share price shifts, as far as the benefit that we received from from that capital allocation. And I think also it's sensitive to interest rates as well.

Unknown 54:24
Since we are going to make a long term investments, what would be the major risk factors that we should be aware of?

Unknown 54:35
I think the key thing to note is so the one thing that's great about our business, it's a long, very long, great cycle up across lots of great tailings that are supporting the market developments in the growing middle class that strong at humans a pet find you a rising middle class, rising years of living a smaller family sizes, all these demographic trends, including that younger generations love their pets even more and are willing to prioritize their pets over anything, including their their TV, streaming subscription. So lots of great talents and supporting the business. I think the some of the challenges that are out there are really related to execution. So one is they're very long adoption cycles in this industry. Glenna mentioned that you we still have over 12,000 vet tech analyzers out there worldwide looking back at our industry day figure, and you know, that's, that's the analyzer that was launched in 1992. Yeah, that's a pre iPhone type of an analyzer, but it works well and customers like it. And, you know, we would love to upgrade those to the latest technology given all the workflow benefits and the many benefits etc. But it gives you a sense that it was an initial That moves slowly. And that's a great, that's great because it gives us a long time to sell these innovations. And to partner with our customers, and you don't have to worry about too much disruption from the next big thing. I would also say the other item that that impacts your growth algorithm is that we want to grow faster than the market. And we do that by having our customers grow their same store sales by using iTunes innovations to uncover war, clinical findings and compile them to do more testing and raise the standard of care. We've been successful doing that. But our growth and new axis is really about driving that market development and then realizing that same opportunity International, you know, it's hard work. We've invested around it. It will require continued investments and we have a plan that allows us to do that while still expanding our margins and meeting our Harvard Our financial targets for investors. And it's something we need to balance that pace of investment relative to the market note the ability for the market to grow. And, you know, kind of threading the needle but we've been very good at doing that. So look forward to you executing against the plan. And I think if you follow us from investor to investor day, you will see the strategy is very much consistent. We like to highlight opportunities and market differences and so forth. But it's really it's really a focused strategy on growing companionable backgrounds diagnostics globally.

Unknown 57:48
About your competitors do you feel any like growing threats from our boxes after a spot them?

Unknown 57:58
Do we have seen very little change so far in the marketplace? Is he No no, no girl on the backs of girls. Year, one of the KPI that we commented on earlier that we share our new and competitive placements. And, you know, based on what we're seeing on the market, it would indicate that we continue to gain share. And we know they're going to be players in the market in the US, so there has to be a loser. And a beer appears that, you know, a backflip is probably, you know, unable to defend their and so based in the US, their product portfolio really has not evolved under the sort of Sunbrella I think they're a great company and, you know, in therapeutics, you know, obviously, they're

Unknown 58:44
a leader and they have good relationships with their customers. We have not seen much in their ability to compete with us yet.

Unknown 58:52
We have seen some offerings coming up recently in the form of bundling, you know pharma with have access products, but it's the same product portfolio and when we think about veterinarians 10 how they want to operate, you know, diagnostics is not a commodity, it's not something you can move out of the practice or, you know, easily replaced with another provider. And we believe the veterinarians want to work with and partner with, you know, the best in class and both therapeutics and diagnostics and so we, you know, we haven't seen a threat from the competitors are potentially continue at very, very high levels, in feel confident about our ability, you know, to continue to bring that higher value proposition to our customers.

Unknown 59:44
The instrument you used in the love, highest rated instrument, manufactured by Siemens, those instruments are really different from yours.

Unknown 59:56
Yes, they're much bigger, maybe the size of like a small car I you know, like, you know, very different than a point of care. tabletop, a desktop analyzer.

Unknown 1:00:10
Do you have the technology of High Street? Like see me?

Unknown 1:00:17
I'm sorry, we used we partner with many providers. But so we came in for first of hematology analyzers, I mean for actually metrology, and then bakhtin, and Siemens, for different things within the lab as well. I don't have the specifics of you know, what we use each one for across the various laboratories with a much larger larger high throughput very, you know, much more expensive analyzers than you would have at a player care setting

Unknown 1:00:49
is the exclusive

Unknown 1:00:52
contracts between your partners and you

Unknown 1:00:58
know, so we, when it when it comes to those analyzes, we will ultimately use our orange BPMN configure the analyzers so that they provide a consistent reference layer across our, our network. And then we do a proprietary test, which we've developed, such as fdma, which is part of our chemistry panel. That would be unique high tech, but others are not able to offer and we have a patent on that process.

Unknown 1:01:33
Okay, thank you. Thank you for your time today. Thank you very much.

Unknown 1:01:38
Thank you Have a wonderful evening. Thank you.

Unknown 1:01:42
Additional questions. Great. Happy to schedule a follow up.

Unknown 1:01:45
Okay. Thank you.

Unknown 1:01:49
Thank you.

Transcribed by https://otter.ai

● 在庫をしておくものはすべてVONA。流通事業である。出来上がったものをたくさん用意しておく。ミスミブランドでも、他社ブランドでも。(VONAの場合、ミスミブランドでも自分たちで作ることはない。すべて協力会社が作る)
● ミスミブランドで協力会社が作る場合、規格をミスミが考える。その企画は、協力会社は作れない。50年くらい前から製造現場に寄り添ってるから、一番客が求める企画を知っている。
● この企画は特許というか、意匠の登録がされており、権利として守られている。ほかの人は作ることができない。仮に、ある協力会社が作ってくれなくたっらら、他社に作ってもらえる。

● ・FA、金型ビジネスは半製品で作っておくビジネスモデル。
● ・FAも金型も駿河精機を買う前からやっていたビジネス。40年前、金型を調達するとき、金型部品は地場メーカーが作っていた。トヨタでも、図面を書いて、価格とか納期の交渉して1.2週間の納期で地場メーカーに作ってもらっていた。価格高く、納期長い。(少量生産なので)。
● ・その中でミスミ参入し、よく作る部品だけ金型にしてしまった。商品を標準化し、カタログにのっけて、図面をいらなくした。量産効果あるので製造原価を3割にできたし、納期も1.2日にすることができた。作る先を探す必要もなくなった。(ミスミに言えば、ミスミが作ってくれるか、ミスミ経由で協力会社に投げてくれた」
● ・その中で、優良地場メーカーを協力会社にしてきた。彼らと一緒に成長してきた。今はシェア4割。
● ・なぜ納期を短くできたのか:半製品でつくっておくビジネスモデルを確立したから。800該個の部品を、図面かかなくてもカタログでカバーできている。これは、半製品をベトナムで安く量産して持っているから。2005年に買った駿河精機の工場で作り、船で日本に輸送。客から注文来たら、削って完成し、1.2日で出荷できる。
● ・値段が安いのは大量生産だから(製造の前半)。細かいオーダーに対応できるのは、カス・タムオーダーメイドだから(製造の後半)。量産×カスタムメイド。
● 駿河の海外工場で半製品作った場合、駿河の国内工場で完成される。国内を協力会社でやっちゃうと、技術の細かい伝承がしにくい。技術がつながらない。(海外協力会社→国内協力会社のパターンもある)
● 技術:丸い穴をあけるのが得意な会社、四角い穴をあけるのが得意なな会社など。
● まずは金型からビジネス開始。次にFAにもビジネスを展開。このビジネスモデルがミスミ成長の要因。
● 協力メーカーは日本で1000社いる。ミクロン単位で加工できる会社が1000社あるのは、実は日本くらい。協力会社とのつながりが強みの一つ。海外に金型部品を扱う会社あるが、カタログで800該個も扱っているのはミスミだけ。しかも納期は最短1日。グローバルで競合いない。
● 三枝さんがFAに展開&海外展開を進めた。
● 金型ではシェア4~5割。残りはカタログで網羅できない、オーダーメイド性の高い部品。mevieで残りを取りに行く。
● 金型、パンチ工業、シェア4割。標準化できないものをオーダーで。
● 残りは内製。同じような金型を、同じように作っている。工作機械持っていて、自分たちで削る。
● FAでいうと、標準化されていないのは、地場の加工屋が作っている。mevieは特にFAに注力。ここからシェアを奪っていく。
● mevie、CADで作ったものをそのまま入れれば、見積もりができて、製造データもできて、ミスミの中にある工作機械でそのまま作れる。
● こういう半製品使えるとか、こういう部分が物理的に弱くなるとかを、ミスミのAIで考えて、データ作る。現存するほぼすべてのCADとリンクしている。CADデータを製造データに変換。
● 現在、ミスミがいない場合は3Dプリンタで試しに作ったのを2Dデータにして、地場の加工やにもっていって、目利きで見積もりして、1週間で作る、というプロセス。mevieがあれば、見積もりまでは一瞬で。
● 今年の3月にようやくFAにも対応。その時点でユーザー8000人。分母は6~7万ユーザー。足元では3万ユーザー獲得している。FAにしてから急にユーザー増えた。これは、FAと金型事業にそれぞれ。今は認知が進んでいるくらいのフェーズ。リピート率は8割。納期短いし、価格が一瞬で出るので、試作段階でコスト意識できる。s