IDEXX Laboratories Announces Fourth Quarter Results

WESTBROOK, Maine, January 27, 2006—IDEXX Laboratories, Inc. (NASDAQ: IDXX), today reported that revenue for the fourth quarter of 2005 increased 16% to $167.0 million from $144.3 million for the fourth quarter of 2004. Earnings per diluted share for the quarter ended December 31, 2005 were $0.60, compared to $0.49 for the same period in the prior year.

During the quarter ended December 31, 2005, the Company incurred acquisition integration costs of $0.02 per diluted share and income tax expense on the repatriation of foreign earnings under the American Jobs Creation Act of $0.03 per diluted share. During the quarter ended December 31, 2004, the Company incurred acquisition-related costs of $0.02 per diluted share. Excluding the effects of these discrete items in the fourth quarters of 2005 and 2004, adjusted earnings per diluted share grew approximately 28%. The Company believes adjusted earnings per diluted share is a useful financial measure to indicate the results of ongoing operations, excluding significant infrequent items.

Companion Animal Group (“CAG”) revenue for the fourth quarter of 2005 increased 16% to $135.9 million from $117.3 million for the fourth quarter of 2004. Incremental sales from businesses acquired during 2004 and 2005, consisting of veterinary reference laboratories and a digital radiography business, contributed approximately 5% to CAG revenue growth. Aside from acquisitions, the increased CAG revenue resulted primarily from higher sales of instruments and consumables, laboratory and consulting services, rapid assay products, and, to a lesser extent, computer and digital radiography systems and pharmaceutical products. The unfavorable impact of foreign currency decreased CAG revenue growth by 2%.

Water segment revenue for the fourth quarter increased 4% to $14.6 million from $14.0 million for the fourth quarter of 2004 primarily due to higher worldwide sales volume. The unfavorable impact of foreign currency decreased Water revenue growth by 3%.

Food Diagnostics Group (“FDG”) revenue for the fourth quarter increased 27% to $16.4 million from $13.0 million for the fourth quarter of 2004. Incremental sales from businesses acquired in the fourth quarter of 2004 contributed approximately 9% to FDG revenue growth. The remainder of the growth resulted primarily from higher sales volume of established product lines in the production animal diagnostic products business. The unfavorable impact of foreign currency decreased FDG revenue growth by 7%.

“IDEXX Laboratories wrapped up a strong year in 2005 with organic revenue growth, adjusting for acquisitions and foreign exchange, of nearly 14%, bringing organic growth for the year to 10%,” said Jonathan W. Ayers, President and CEO. “The fourth quarter was a particularly strong quarter for the instrument and consumables business as well as production animal diagnostic products. Solid growth trends in the business, several recent product introductions and the benefits from our focus on world class quality over the last twelve months put us in good position to meet our revenue and profit plans for 2006.”

Additional operating results

Gross profit for the fourth quarter of 2005 increased $16.0 million, or 23%, to $84.9 million from $68.9 million for the fourth quarter of 2004. As a percentage of revenue, gross profit increased to 51% from 48%. The increase in the gross profit percentage was attributable, in part, to relatively favorable pricing in certain businesses; the net favorable change in the impact of foreign currency rates; higher proportional sales of higher margin products and services; lower costs of slides sold for use in our VetTest® instruments under the agreement with our supplier; and lower acquisition-related costs in the fourth quarter of 2005 compared to the same period of the prior year.

Research and development (“R&D”) expense for the quarter was $10.6 million compared to $9.4 million for the fourth quarter of 2004. R&D expense was approximately constant as a percentage of total revenue at 6% for the fourth quarters of 2005 and 2004.

Selling, general and administrative (“SG&A”) expense was $44.1 million, or 26% of revenue, compared to $36.3 million, or 25% of revenue, in the fourth quarter of 2004. The increase in SG&A expense as a percentage of total revenue reflects the investment made to expand our sales and marketing organizations in both the U.S. and Europe, as well as higher integration costs and intangible amortization expenses associated with the businesses acquired in the fourth quarter of 2004 and in 2005. The increase in SG&A expense in total dollars was also attributable to costs incurred to support the operating activities of businesses acquired in the fourth quarter of 2004 and in 2005.

Full year results

Revenue for the year ended December 31, 2005 increased 16% to $638.1 million from $549.2 million for the year ended December 31, 2004.

Earnings per diluted share for 2005 were $2.30, a 5% increase over earnings per diluted share of $2.19 for 2004. In 2005, earnings per diluted share included net expenses of $0.08 resulting from (i) integration costs associated with businesses acquired in the fourth quarter of 2004 and in 2005, including costs incurred in connection with the consolidation of our European production animal diagnostics operations in Bern, Switzerland, and (ii) income tax expense on the repatriation of foreign earnings under the American Jobs Creation Act. In 2004, earnings per diluted share included a net benefit of $0.08 resulting from (i) a reduction in the Company’s provision for income taxes primarily related to the completion of a tax audit through the year 2001 and the receipt of certain state tax benefits, (ii) reductions in the estimated liability for a third party claim, and (iii) a payment received in settlement of certain litigation, offset partly by acquisition-related costs associated with businesses acquired in the fourth quarter of 2004. Excluding the effects of these discrete items in 2005 and 2004, adjusted earnings per diluted share grew approximately 13%.

Companion Animal Group revenue for the year ended December 31, 2005 increased 16% to $520.8 million from $448.7 million for 2004. Incremental sales from businesses acquired during 2004 and 2005, consisting of veterinary reference laboratories and a digital radiography business, contributed approximately 7% to CAG revenue growth. Aside from acquisitions, the increased CAG revenue resulted primarily from increased sales of instruments and consumables, laboratory and consulting services, rapid assay products, and, to a lesser extent, pharmaceutical products and computer and digital radiography systems.

Water segment revenue for the year ended December 31, 2005 increased 7% to $56.8 million from $53.1 million in 2004 primarily due to higher worldwide sales volume.

Food Diagnostics Group revenue for the year ended December 31, 2005 increased 28% to $60.5 million from $47.4 million in 2004. Incremental sales from businesses acquired in the fourth quarter of 2004 contributed approximately 11% to FDG revenue growth. The remainder of the growth resulted primarily from higher sales volume of established product lines in the production animal products business.

Outlook

The Company offers the following revised guidance for the full year of 2006:
• Revenue is expected to be approximately $700 to $710 million.
• Diluted earnings per share are expected to be approximately $2.40 to $2.50, which includes the expensing of equity-based compensation as required by Statement of Financial Accounting Standards No. 123 (revised 2004).

IDEXX Laboratories to Present at Merrill Lynch Global Pharmaceutical, Biotechnology and Medical Device Conference

The Company also announced today that it will participate in the Merrill Lynch Global Pharmaceutical, Biotechnology and Medical Device Conference. Jonathan W. Ayers, President and CEO, is scheduled to make a presentation on the Company on Tuesday, February 7, 2006 at 10:20 a.m. (ET) at the Grand Hyatt in New York City. Individuals can access the live webcast audio presentation through a link on the home page of the IDEXX Laboratories Web site, idexx.com. An archived edition of the presentation will be available for 14 days via the same link.

About IDEXX Laboratories

IDEXX Laboratories, Inc. is a leader in companion animal health, serving practicing veterinarians around the world with innovative, technology-based offerings, including a broad range of diagnostic products and services, practice-management systems and therapeutics. Our products enhance the ability of veterinarians to provide advanced medical care and to build more economically successful practices. IDEXX is also a worldwide leader in providing diagnostic tests and information for the production animal industry and tests for the quality and safety of water and milk. Headquartered in Westbrook, Maine, IDEXX Laboratories employs more than 3,000 people and offers products to customers in over 100 countries.

Note Regarding Forward-Looking Statements

This press release contains statements about the Company’s business prospects and estimates of the Company’s financial results for future periods that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's expectations of future events as of the date of this press release, and the Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. Actual results could differ materially from management’s expectations. Factors that could cause or contribute to such differences include the following: the Company’s ability to develop, manufacture, introduce and market new products and enhancements to existing products; the effectiveness of the Company’s sales and marketing activities; the Company’s ability to develop, license or obtain rights to new technologies; the Company’s ability to identify acquisition opportunities, complete acquisitions and integrate acquired businesses; the impact of competition and technological change on the markets for the Company’s products; the effect of government regulation on the Company’s business, including government decisions about whether and when to approve the Company’s products and decisions regarding labeling, manufacturing and marketing products; the impact of distributor purchasing decisions on sales of our products that are sold through distribution; changes or trends in veterinary medicine that affect the rate of use of the Company’s products and services by veterinarians; the Company’s ability to obtain patent and other intellectual property protection for its products, successfully enforce its intellectual property rights and defend itself against third party claims against the Company; disruptions, shortages or pricing changes that affect the Company’s purchases of products and materials from third parties, including from sole source suppliers; the effects of government regulatory decisions, customer demand, pricing and other factors on the realizability of the Company’s inventories; the Company’s ability to manufacture complex biologic products; the effects of operations outside the U.S., including from currency fluctuations, different regulatory, political and economic conditions, and different market conditions; and the loss of key employees. A further description of these and other factors can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2004 (2.6 MB) and the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (2.6 MB), in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations."