IDEXX Laboratories Announces Second Quarter Results

WESTBROOK, Maine, July 28, 2006—IDEXX Laboratories, Inc. (NASDAQ: IDXX), today reported that revenue for the second quarter of 2006 increased 19% to $191.4 million from $160.6 million for the second quarter of 2005. Earnings per diluted share (“EPS”) for the quarter ended June 30, 2006 increased 32% to $0.78 from $0.59 for the same period in the prior year.

Non-GAAP adjusted earnings per diluted share for the second quarter grew 37% compared to the same period of the prior year. Non-GAAP adjusted diluted EPS for the second quarter of 2006 excludes the after-tax impact of share-based compensation expense of $0.07 per diluted share, including the impact of SFAS No. 123(R), and income tax benefits from certain discrete events of $0.04 per diluted share, which are described below. For the quarter ended June 30, 2005, non-GAAP adjusted diluted EPS excludes acquisition integration costs of $0.01 per diluted share. Management believes adjusted earnings per diluted share is a useful non-GAAP financial measure to evaluate the results of ongoing operations, excluding significant specified items, period over period, and therefore believes that investors may find this information useful in addition to the GAAP results.

“The first half of 2006 was a period where we saw our investments in sales and marketing, innovation and quality pay off with strong top line and bottom line growth,” said Jonathan Ayers, Chairman and CEO. “We were also benefiting from the strong market fundamentals for our businesses around the world. Our new guidance for the full year of 2006 reflects this performance. However, we still have much work ahead of us to implement the key strategies that will allow us to realize the full potential of our business model.”

Companion Animal Group (“CAG”) revenue for the second quarter of 2006 increased 19% to $156.9 million from $131.3 million for the second quarter of 2005 due to higher sales in all CAG product and service categories, with the largest growth in revenue dollars from instruments and consumable products followed by laboratory and consulting services. Businesses acquired since April 2005, consisting primarily of veterinary reference laboratories and a digital radiography business, contributed 2% to CAG revenue growth. Changes in foreign exchange rates did not impact the CAG revenue growth rate.

Water segment revenue for the second quarter increased 6% to $15.1 million from $14.3 million for the second quarter of 2005 primarily due to higher sales volume. The favorable impact of foreign currency contributed less than 1% to Water revenue growth.

Food Diagnostics Group (“FDG”) revenue for the second quarter increased 29% to $19.4 million from $15.0 million for the second quarter of 2005 primarily due to higher sales volume of livestock and poultry diagnostics. The unfavorable impact of foreign currency decreased FDG revenue growth by less than 1%.

First half 2006 results

Year-to-date revenue increased 15% to $359.5 million from $313.1 million for the same period in 2005. Changes in foreign currency rates reduced reported revenue growth by 1%, while acquisitions completed since the beginning of 2005 added 2% to revenue growth. Revenue for the first half of 2006, adjusted for the impacts of foreign currency and acquisitions, increased 14%.

Year-to-date earnings per diluted share increased 21% to $1.33 from $1.10 for the same period in the prior year. Non-GAAP adjusted earnings per diluted share for the six months ended June 30, 2006 grew 26% compared to the same period in the prior year. Non-GAAP adjusted diluted EPS for the six months ended June 30, 2006 excludes the after-tax impact of share-based compensation expense of $0.14 per diluted share, including the impact of SFAS No. 123(R), and income tax benefits from certain discrete events, described below, of $0.04 per diluted share. For the six months ended June 30, 2005, non-GAAP adjusted diluted EPS excludes acquisition integration costs of $0.03 per diluted share.

Companion Animal Group (“CAG”) revenue for the six months ended June 30, 2006 increased 16% to $296.3 million from $256.2 million due to higher sales in all CAG product and service categories, with the largest growth in revenue dollars from laboratory and consulting services followed closely by instruments and consumable products. Businesses acquired since the beginning of 2005, consisting primarily of veterinary reference laboratories and a digital radiography business, contributed 2% to CAG revenue growth, while the unfavorable impact of foreign exchange reduced year-to-date CAG revenue growth by 1%.

Water segment revenue for the six months ended June 30, 2006 increased less than 1% to $27.2 million from $27.1 million primarily due to higher average unit sales prices, partly offset by lower sales volume. The unfavorable impact of foreign currency reduced year-to-date Water revenue growth by 1%.

Food Diagnostics Group (“FDG”) revenue for the six months ended June 30, 2006 increased 21% to $36.1 million from $29.8 million for the same period in 2005. This increase is due to higher sales volume of livestock and poultry diagnostics. The unfavorable impact of foreign currency reduced FDG revenue growth by 4%.

Outlook

The Company offers the following revised guidance for the full year of 2006:

• Revenue is expected to be $730 to $734 million, updated from $704 to $712 million.
• Diluted earnings per share are expected to be $2.64 to $2.70 (including $0.04 of certain income tax benefits as described below), updated from $2.44 to $2.52.

Additional operating results

Gross profit for the second quarter of 2006 increased $18.5 million, or 23%, to $99.0 million from $80.6 million for the second quarter of 2005. As a percentage of revenue, gross profit increased to 52% from 50% in the second quarter of 2005. The increase in the gross profit percentage was attributable, in part, to lower overall manufacturing and purchased materials costs including lower cost of instruments and consumables; relatively favorable pricing in certain businesses; and higher relative sales of higher margin products.

Research and development (“R&D”) expense for the quarter was $13.3 million compared to $10.0 million for the second quarter of 2005. R&D expense as a percentage of total revenue increased to 7% from 6% in the second quarter of 2005. The increase in R&D expense resulted from increased product development spending, largely related to IDEXX VetLab® instrumentation.

Selling, general and administrative (“SG&A”) expense for the quarter was $48.7 million, or 25% of revenue, compared to $41.7 million, or 26% of revenue, in the second quarter of 2005. Increased SG&A expense was due primarily to higher personnel-related costs due, in part, to expanded worldwide sales, customer service and marketing headcount; share-based compensation expense, including the impact of SFAS No. 123(R) which we adopted on January 1, 2006; higher spending on information technology, facilities, and other general support functions; and incremental expenses associated with businesses acquired since April 2005, comprised mainly of incremental general and administrative expenses of a recurring nature to support the acquired businesses and amortization expense for intangible assets acquired.

The discrete income tax benefits of $0.04 per diluted share, mentioned above, were composed of a tax benefit of $0.03 per diluted share due to a reduction of previously recorded international deferred tax liabilities as a result of obtaining certain multi-year tax incentives and a tax benefit of $0.01 per diluted share due to the release of a valuation allowance on international deferred tax assets as a result of a subsidiary demonstrating consistent sustained profitability. These income tax benefits are noted because they have a favorable impact on net income and EPS that is not indicative of future performance since the items are not likely to recur within a reasonable period.

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, 2005 (1.5 MB) and on the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (874 MB), in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”