IDEXX Laboratories reports revenues for fourth-quarter of 2009

Jan 29 2010

IDEXX Laboratories, Inc. (Nasdaq: IDXX), today reported that revenues for the fourth quarter of 2009 increased 11% to $270.3 million, from $243.3 million for the fourth quarter of 2008. Organic revenue growth, as defined below, was 6%. Earnings per diluted share ("EPS") for the quarter ended December 31, 2009 were $0.51, compared to $0.39 for the same period in the prior year. EPS grew 16% when compared to fourth quarter 2008 non-GAAP EPS, which adjusted EPS for the 2008 disposition of the pharmaceutical product lines and related restructuring. Please refer to the non-GAAP financial measures table below.

Organic revenue growth excludes the impact of changes in currency exchange rates, which contributed approximately 5% to revenue growth, and revenue from businesses acquired or divested subsequent to the beginning of the prior year period, which had minimal impact on revenue growth.

"IDEXX had a strong fourth quarter that exceeded our expectations," stated Jonathan W. Ayers, Chairman and Chief Executive Officer. "Organic revenue growth, led by our Companion Animal Group, increased modestly to 6%, as strong demand for certain products such as our Catalyst Dx^® chemistry analyzer offset continued economic weakness and soft consumer spending."

"Sales of instruments and consumables, our largest business, benefited from Catalyst sales as we placed 763 units in the fourth quarter and over 2,046 units for the year."

"International markets, particularly the Asia Pacific region, continued to perform very well. In that region, organic growth was 30% for the quarter and 20% for the year, reflecting a further acceleration of growth in this region."

"Throughout the year, we continued to identify opportunities for increased operating efficiency while maintaining investment in areas critical to achieving our longer-term strategic and operational objectives. This focus on operational efficiency enabled us to exceed our earnings guidance for the year, despite weaker than anticipated top-line growth."

"As we look to 2010, we remain confident in our growth strategies due to the fundamental attractiveness of our markets, our unique and innovative product and service offering, and our global footprint.  We also are targeting earnings to grow faster than revenue, reflecting operating margin expansion in our two largest businesses, instruments and consumables and reference laboratory services."

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 fourth quarter of 2009 were $217.9 million compared to $196.5 million for the fourth quarter of 2008. Changes in foreign currency exchange rates and revenues from a recently acquired business contributed approximately 4% and 1%, respectively, to revenue growth. Organic growth of 6% was the result of increased sales volume, primarily in the IDEXX VetLab^® and laboratory and consulting services product lines. In the IDEXX VetLab^® product line, higher sales volume was driven by sales of our Catalyst Dx^® chemistry analyzer and instrument consumables. In the laboratory and consulting services product line, revenue growth was due to higher volume and higher unit sales prices on reference laboratory tests. 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 fourth quarter of 2009 were $18.5 million compared to $17.2 million for the fourth quarter of 2008. Changes in foreign currency exchange rates contributed approximately 5% to revenue growth. Organic revenue growth of 3% was the result of higher unit sales prices due, in part, to higher relative sales in geographies where products are sold at higher unit sales prices.

Production Animal Segment. Production Animal Segment ("PAS") revenues for the fourth quarter of 2009 were $23.4 million compared to $20.3 million for the fourth quarter of 2008. Changes in foreign currency exchange rates contributed approximately 10% to revenue growth. Organic revenue growth of 5% was the result of higher sales volumes, partly offset by lower unit sales prices.

Year-to-Date Results

Revenues for the year ended December 31, 2009 increased 1% to $1.032 billion, from $1.024 billion for the year ended December 31, 2008. Organic growth for the year ended December 31, 2009, was 5%. Changes in currency exchange rates and the impact of divestitures and discontinued products, net of revenues from businesses recently acquired, reduced revenue growth by approximately 4%.

EPS for 2009 were $2.01, compared to $1.87 for the year ended December 31, 2008. EPS grew 6% when compared to 2008 non-GAAP diluted EPS of $1.90. Please refer to the non-GAAP financial measures table below.

Additional Operating Results for the Fourth Quarter

Gross profit for the fourth quarter of 2009 increased $12.4 million, or 10%, to $132.9 million from $120.5 million for the fourth quarter of 2008. As a percentage of total revenue, gross profit decreased slightly to 49%. The decrease in gross profit percentage was due primarily to the unfavorable net impact of foreign currency exchange rates, as the favorable impact on revenue of changes in foreign currency exchange rates was more than offset by losses on foreign currency hedge contracts and by the unfavorable impact on foreign currency denominated expenses. Gross profit percentage was also impacted by higher relative sales of lower margin IDEXX VetLab^® instruments and laboratory and consulting services and lower average sales prices in certain product lines. These unfavorable items were partly offset by gross profit improvement in our laboratory and consulting services product line, lower royalty expense, and lower depreciation expense associated with IDEXX VetLab^® instruments that are under rental agreements with customers.

Research and development ("R&D") expense for the fourth quarter of 2009 was $16.0 million, or 6% of revenue, compared to $17.1 million, or 7% of revenue for the fourth quarter of 2008. The decrease in R&D expense was due to the absence of pharmaceutical business R&D spending in the fourth quarter of 2009, resulting from the disposition of substantially all of our pharmaceutical product line and assets in the fourth quarter of 2008.

Selling, general and administrative ("SG&A") expense for the fourth quarter of 2009 was $72.8 million, or 27% of revenue, compared to $66.1 million, or 27% of revenue, for the fourth quarter of 2008. The increase in SG&A expense resulted primarily from higher personnel costs in selling, customer support and administrative functions, and the unfavorable impact of exchange rate changes on foreign currency denominated expenses. Fourth quarter 2008 SG&A included a charge of $1.5 million related to the 2008 disposition and the related restructuring of the remaining pharmaceutical product line.

Supplementary Analysis of Results

The accompanying financial tables provide more information concerning our revenue and other operating results for the three and twelve months ended December 31, 2009, as well as a reconciliation of earnings per share to non-GAAP EPS.

Outlook for 2010

The Company provides the following updated guidance for the full year of 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 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 2010.

• Revenues are expected to be $1.1 to $1.115 billion, which represents reported revenue growth of 7% to 8% and organic revenue growth of 5% to 6%. This guidance is higher than the previous guidance of $1.08 to $1.1 billion, provided in October 2009, as a slight increase in anticipated organic revenue growth is anticipated to be partially offset by lower estimated currency benefits from the weakening of the U.S. Dollar relative to other major currencies.
• EPS are expected to be $2.20 to $2.25, compared to our previous guidance of $2.15 to $2.25.
• Free cash flow is expected to be approximately 110% of net income.