IDEXX Laboratories Announces Second Quarter Results

WESTBROOK, Maine, July 22, 2011—IDEXX Laboratories, Inc. (NASDAQ: IDXX), today reported that revenues for the second quarter of 2011 increased 13% to $317.9 million, from $281.5 million for the second quarter of 2010. Organic revenue growth, as defined below, was 8%. Earnings per diluted share ("EPS") for the quarter ended June 30, 2011 increased 34% to $0.83, compared to $0.62 for the same period in the prior year.

Organic revenue growth excludes the impact of changes in foreign currency exchange rates, which contributed 5% to revenue growth, and revenue from acquisitions subsequent to March 31, 2010, which contributed less than 1% to revenue growth in the second quarter of 2011.

"Our second quarter results exceeded our expectations," stated Jonathan Ayers, Chairman and Chief Executive Officer. "Our 8% organic revenue growth, in an economic environment that remains challenging, demonstrates our continued success in bringing innovative products and services to our veterinary and other customers, as well as strong commercial execution in markets around the world."

"Our results reflect continued momentum in advancing our strategic and operational initiatives aimed at helping veterinarians practice better medicine and run more efficient practices. Market response to our ProCyte Dx® hematology analyzer continues to be very positive in domestic and international markets with 284 placements in the second quarter, including our first placement of a ProCyte Dx® instrument in the Asia Pacific region. ProCyte Dx® provides reference lab quality test results in just two minutes and is a key enabler of our real-time care strategy, working seamlessly with our Catalyst Dx® chemistry analyzer. I was also pleased with the performance of our global reference laboratory and consulting services business where we achieved 10% organic revenue growth for the second consecutive quarter."

 

Revenue Performance

Please refer to the table below entitled "Revenues and Revenue Growth Analysis by Product and Service Categories" in conjunction with the following discussion.

Companion Animal Group. Companion Animal Group ("CAG") revenues for the second quarter of 2011 were $259.7 million compared to $232.3 million for the second quarter of 2010. Changes in foreign currency exchange rates contributed 4% to revenue growth. Organic revenue growth of 7% was due primarily to performance in our reference laboratory diagnostic and consulting services business and in our instrument and consumables product lines. In the reference lab business, revenues increased due to higher sales volume due primarily to the acquisition of new customers and to an increase in sales prices. The revenue increase in our instruments and consumables business was largely the result of higher sales volume of consumables used with our IDEXX VetLab® instruments, primarily sales of consumables used with our Catalyst Dx® instrument, and higher sales volume of ProCyte Dx®, our new hematology analyzer introduced in the third quarter of 2010.

Water. Water revenues for the second quarter of 2011 were $21.5 million compared to $19.4 million for the second quarter of 2010. Changes in foreign currency exchange rates contributed 5% to revenue growth. Organic revenue growth of 6% was due primarily to higher Colilert® product sales volume driven by new account acquisitions, partly offset by lower average unit sales prices of this product.

Livestock and Poultry Diagnostics. Livestock and Poultry Diagnostics ("LPD") revenues for the second quarter of 2011 were $25.4 million compared to $19.2 million for the second quarter of 2010. Changes in foreign currency exchange rates contributed 11% to revenue growth. Organic revenue growth of 21% was primarily the result of higher sales volumes of certain bovine tests, especially in Germany where we have won several government tenders in connection with a country-wide eradication program for a virus impacting beef and dairy production yields, partly offset by lower average unit sales prices due to increasing competitive pressures.

 

Additional Operating Results for the Second Quarter

Gross profit for the second quarter of 2011 increased $24.7 million, or 17%, to $174.0 million from $149.3 million for the second quarter of 2010. As a percentage of total revenue, gross profit increased to 55% from 53% as a result of reduced overall manufacturing costs, primarily those associated with our IDEXX VetLab® instruments, and higher relative sales of higher margin products. These favorable impacts were partly offset by hedging losses in the second quarter of 2011 compared to hedging gains in the second quarter of 2010.

Research and development ("R&D") expense for the second quarter of 2011 was $18.6 million, or 6% of revenue, compared to $17.2 million, or 6% of revenue for the second quarter of 2010. The increase in R&D expense was due primarily to increased personnel-related costs.

Selling, general and administrative ("SG&A") expense for the second quarter of 2011 was $84.1 million, or 26% of revenue, compared to $77.2 million, or 27% of revenue, for the second quarter of 2010. The increase in SG&A expense resulted primarily from the net unfavorable impact of changes in foreign currency exchange rates and higher personnel-related costs.

 

Supplementary Analysis of Results

The accompanying financial tables provide more information concerning our revenue and other operating results for the three and six months ended June 30, 2011.

 

Outlook for full year 2011

The Company provides the following updated guidance for the full year 2011. This guidance reflects an assumption that the value of the U.S. dollar relative to the other currencies will remain at its current level for the balance of 2011. Fluctuations in foreign currency exchange rates from current levels could have a significant positive or negative impact on our actual results of operations in 2011.

• Revenues are expected to be $1.205 to $1.215 billion, which represents reported revenue growth of 9 to 10% and organic revenue growth of 7 to 8%. This outlook is unchanged from our previous guidance provided in April of this year.
• EPS are expected to be in the range of $2.68 to $2.73, compared to our previous guidance of $2.66 to $2.71. This increase in guidance reflects business performance in the second quarter that exceeded our expectations.
• Our total capital expenditure plan for 2011 is approximately $55 million.
• Free cash flow is expected to be approximately 115% of net income.(1)

 

(1) Free cash flow is a non-U.S. GAAP measure. It indicates the cash generated from operations and tax benefits attributable to stock option exercises and vesting of restricted stock units, reduced by investments in fixed assets. We feel free cash flow is a useful measure because it indicates the cash the operations of the business are generating after appropriate reinvestment for recurring investments in fixed assets that are required to operate the business. We believe this is a common financial measure useful to further evaluate the results of operations. With respect to this particular forward-looking projection, the Company is unable to provide a quantitative reconciliation at this time as the inputs to the measurement are difficult to predict and estimate and are primarily dependent on future events.

 

Conference Call and Webcast Information

IDEXX Laboratories will be hosting a conference call today at 9:00 a.m. (eastern) to discuss its second quarter results and management's outlook. To participate in the conference call, dial 1-612-234-9960 or 1-800-230-1074 and reference confirmation code 210465. An audio replay will be available through July 29, 2011 by dialing 1-320-365-3844 and referencing replay code 210465.

The call will also be available via live or archived Webcast on the IDEXX Laboratories' web site at www.idexx.com.

 

About IDEXX Laboratories

IDEXX Laboratories, Inc. is a leader in pet healthcare innovation, serving practicing veterinarians around the world with a broad range of diagnostic and information technology-based products and services. IDEXX products enhance the ability of veterinarians to provide advanced medical care, improve staff efficiency and build more economically successful practices. IDEXX is also a worldwide leader in providing diagnostic tests and information for livestock and poultry and tests for the quality and safety of water and milk. Headquartered in Maine, IDEXX Laboratories employs more than 4,800 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. Forward-looking statements can be identified by the use of words such as "expects," "may," "anticipates," "intends," "would," "will," "plans," "believes," "estimates," "should," and similar words and expressions. 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 Company's ability to achieve economies of scale in its worldwide network of laboratories; the impact of a weak economy on demand for the Company's products and services; the effectiveness of the Company's sales and marketing activities; the Company's ability to identify acquisition opportunities, complete acquisitions and integrate acquired businesses; disruptions, shortages or pricing changes that affect the Company's purchases of products and materials from third parties, including from sole source suppliers; the Company's ability to manufacture complex biologic 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 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; the impact of distributor purchasing decisions on sales of the Company's products that are sold through distribution; the impact of competition, technological change, and veterinary hospital consolidation on the markets for the Company's products; changes or trends in veterinary medicine that affect the rate of use of the Company's products and services by veterinarians; the impact of the Company's inexperience in the human point-of-care market; the effects of operations outside the U.S., including from currency fluctuations, different regulatory, political and economic conditions, and different market conditions; the effects of interruptions to the Company's operations due to natural disasters or system failures; the loss of key employees; class action litigation due to stock price volatility; the effect on the Company's stock price if quarterly or annual operations results do not meet expectations of market analysts or investors in future periods; and potential exposures related to our worldwide provision for income taxes. 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, 2010 (PDF), and quarterly report on Form 10-Q for the quarter ended March 31, 2011 (PDF), in the section captioned "Risk Factors."