IDEXX Laboratories, Inc. (Nasdaq: IDXX), today reported that revenues for the third quarter of 2009 were $259.1 million compared to $251.1 million for the third quarter of 2008. Organic revenue growth, as defined below, was 5%. Earnings per diluted share ("EPS") for the quarter ended September 30, 2009 grew 24% to $0.52 from $0.42 for the same period in the prior year.
Organic revenue growth excludes the impact of changes in currency exchange rates, which reduced revenue growth by approximately 2%, and revenue from businesses acquired or divested subsequent to the beginning of the prior year period, which had minimal impact on revenue growth.
"In the third quarter IDEXX continued to execute against our strategy of technological innovation and international expansion, while addressing an economy that remains challenging," said Jonathan W. Ayers, Chief Executive Officer. "Our overall performance varied by line of business and geography, but our core companion animal businesses achieved solid organic growth worldwide. Growth of instrument and consumable sales, our largest business, continued to be led by sales of Catalyst Dx®, our next generation chemistry analyzer. Third quarter placements of 469 units put us on track for around 1,900 placements for the year. We continue to feel good about the progress in the Catalyst performance in the field and the energy and alignment in our sales channels, and thus, we expect a strong finish in the fourth quarter in both North America and Europe."
"Our international performance was a highlight of the quarter, particularly in Asia where we have experienced organic growth of 17% year-to-date, driven by more than 20% organic growth in the last two quarters. All of our major lines of business are present in the region, and we believe that some of our most attractive growth opportunities are found in Asia as well as other international markets. The relative strength of certain markets outside the U.S. is helping us continue to achieve growth despite the difficult economy."
"Strong bottom line performance during the quarter was driven to a large extent by our ongoing close management of operating expenses, where we have achieved some meaningful efficiencies. We also continue to see bottom line impact from careful management of the tax rate, finance leverage and share count."
"While we are cautious about the near-term economy, we remain confident in our long-term outlook based on the fundamental attractiveness of our markets, our unique and innovative product and service offerings, our international footprint, and our ability to achieve increasing operating efficiencies based on our growing experience and the scale of our businesses."
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 third quarter of 2009 were $214.5 million compared to $204.8 million for the third quarter of 2008. Changes in foreign currency exchange rates reduced revenue growth by approximately 2%. Organic growth of 7% was the result of increased sales volume across all product lines and higher average unit sales prices. In the IDEXX VetLab® product line, higher sales volume was driven by sales of our Catalyst Dx® chemistry analyzer and related consumables. These favorable impacts were partly offset by lower sales volume and lower average unit sales prices for LaserCyte® hematology analyzers.
Water. Water segment revenues for the third quarter of 2009 were $19.7 million compared to $20.3 million for the third quarter of 2008. The decrease in Water revenue was due to the unfavorable impact of changes in foreign currency exchange rates, which reduced reported revenue by 3%. The favorable impact of higher sales volumes was offset by lower unit sales prices.
Production Animal Segment. Production Animal Segment ("PAS") revenues for the third quarter of 2009 were $15.9 million compared to $17.8 million for the third quarter of 2008. Changes in foreign currency exchange rates unfavorably impacted revenue by approximately 3%. Organically, PAS revenue declined due primarily to lower sales volumes.
Year-to-Date Results
Year-to-date revenues were $761.3 million compared to $780.7 million for the nine months ended September 30, 2008. Organic growth for the nine months ended September 30, 2009 was 4%.
Year-to-date diluted EPS were $1.50 compared to $1.48 for the nine months ended September 30, 2008. As shown in the reconciliation of non-GAAP diluted EPS to earnings per share in the supplementary table provided below, diluted EPS of $1.50 grew 3% compared to 2008 non-GAAP diluted EPS of $1.46.
Additional Operating Results for the Third Quarter
Gross profit for the third quarter of 2009 increased $2.3 million, or 2%, to $130.5 million from $128.1 million for the third quarter of 2008. As a percentage of total revenue, gross profit decreased to 50% from 51%. The decrease in gross profit percentage was due primarily to higher overall manufacturing costs and higher relative sales of lower margin IDEXX VetLab® instruments and digital radiography systems, partly offset by lower depreciation expense related to IDEXX VetLab® instruments placed at customer sites and the impact of higher selling prices.
Research and development ("R&D") expense for the third quarter of 2009 was $16.6 million, or 6% of revenue, compared to $17.9 million, or 7% of revenue for the third quarter of 2008. The decrease in R&D expense was due primarily to the absence of pharmaceutical business R&D spending in the third quarter of 2009, resulting from the disposition of substantially all of our pharmaceutical business and assets in the fourth quarter of 2008.
Selling, general and administrative ("SG&A") expense for the third quarter of 2009 was $69.7 million, or 27% of revenue, compared to $71.2 million, or 28% of revenue, for the third quarter of 2008. The decrease in SG&A expense resulted primarily from the favorable impact of exchange rate changes on foreign currency denominated expenses, the absence of pharmaceutical business SG&A spending in the third quarter of 2009 and lower bad debt expense. These impacts were partly offset by higher personnel costs due, in part, to an increase in customer support resources.
Supplementary Analysis of Results
The accompanying financial tables provide more information concerning our revenue and other operating results for the three and nine months ended September 30, 2009, as well as a reconciliation of earnings per share to non-GAAP diluted EPS.
Outlook for 2009 and 2010
The Company provides the following updated guidance for the full year of 2009 and preliminary guidance for 2010. This guidance reflects an assumption that the value of the U.S. dollar relative to other currencies will remain at its current level for the balance of 2009 and 2010. Fluctuations in foreign currency exchange rates from current levels could have a significant positive or negative impact on our actual results of operations in both years.
2009
- Revenues are expected to be approximately $1.02 billion, which represents relatively flat reported revenues compared to 2008 and organic revenue growth of approximately 4%. This guidance is unchanged from the previous guidance provided in July 2009, as modest additional currency benefits from the weakening of the U.S. Dollar relative to other major currencies since July are offset by a slight reduction in organic revenue growth.
- Diluted EPS are expected to be $1.92 to $1.95, an increase from our previous guidance of $1.88 to $1.92, reflecting the anticipated currency benefits discussed above, third quarter tax benefits from the expiration of certain statutes of limitation and projected lower operating expenses.
- Free cash flow is expected to be approximately 105% of net income.
2010
- Revenue is expected to be $1.08 to $1.1 billion, which represents revenue growth of 6% to 8% compared to projected revenue for 2009. Revenue growth adjusted to exclude a projected 2% benefit from foreign exchange rate changes is estimated to be in the range of 4% to 6%.
- Diluted EPS are expected to be in the range of $2.15 to $2.25.
Conference Call and Webcast Information
IDEXX Laboratories will be hosting a conference call today at 9:00 a.m. (eastern) to discuss its third quarter results. To participate in the conference call, dial 1-612-288-0340 or 1-877-209-9923 and reference confirmation code 119780. An audio replay will be available through Friday, October 30, 2009 by dialing 1-320-365-3844 and referencing replay code 119780.
The call will also be available via live or archived Webcast on the IDEXX Laboratories' web site at www.idexx.com.
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