IDEXX Laboratories, Inc. (IDXX) Announces Fourth Quarter and Full-Year Financial Results
1/29/2013 6:20:17 AM
WESTBROOK, Maine, Jan. 29, 2013 /PRNewswire/ – IDEXX Laboratories, Inc. (NASDAQ:IDXX), today reported that revenues for the fourth quarter of 2012 increased 4% to $319.5 million, from $307.2 million for the fourth quarter of 2011. Organic revenue growth was 4%. Changes in foreign currency exchange rates reduced revenue growth by less than 1% and were almost entirely offset by revenue contributed from acquired businesses. Operating profit for the fourth quarter of 2012 increased 15% to $63.4 million, or 20% of revenue, compared to $55.3 million, or 18% of revenue for same period of the prior year. Earnings per diluted share (“EPS”) for the quarter ended December 31, 2012 increased 16% to $0.78, compared to $0.67 for the same period in the prior year. Fourth quarter 2012 EPS includes a $3.5 million milestone payment earned related to the 2008 sale of product rights previously included in our pharmaceutical product line, which added $0.04 to EPS. Fourth quarter 2011 EPS included a similar milestone payment, which added $0.03 to EPS.
Revenues for the year ended December 31, 2012 increased 6% to $1.293 billion, from $1.219 billion for the year ended December 31, 2011. Organic revenue growth for the year ended December 31, 2012 was 7%. Changes in foreign currency exchange rates reduced revenue growth by 2% and revenue from acquisitions contributed 1% to revenue growth for the year ended December 31, 2012.
Operating profit for the year ended December 31, 2012 increased 11% to $262.6 million, or 20% of revenue, compared to $236.2 million, or 19% of revenue, for the prior year.
EPS for the year ended December 31, 2012 increased 14% to $3.17, compared to $2.78 for the prior year. 2012 EPS includes a $3.5 million milestone payment earned related to the 2008 sale of product rights previously included in our pharmaceutical product line, which added $0.04 to EPS. 2011 EPS included a similar milestone payment, a gain from the sale of certain raw material inventory in connection with the restructuring of our pharmaceutical business and a benefit from the federal research and development (“R&D”) tax credit, all of which contributed $0.08 to EPS.
“We were very pleased with the fundamental trends behind revenue growth in the fourth quarter. As a result of the revenue mix reflected in these results, operating profit margins were well on track toward our longer term goals,” stated Jonathan Ayers, Chairman and Chief Executive Officer. “With the early success of new information technology offerings, including Vetconnect® PLUS and Pet Health Network® Pro, we remain confident in accelerating organic growth through 2013, expected to average 8% – 9% for the year as a whole.”
Revenue Performance for the Fourth Quarter
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 2012 were $263.5 million compared to $251.3 million for the fourth quarter of 2011. Organic revenue growth of 5% was due primarily to higher sales volumes of consumables used with our Catalyst Dx® chemistry instrument and an increase in net sales prices and sales volumes in our reference laboratories. These favorable impacts were partly offset by lower sales of our Catalyst Dx® instrument. Revenue from acquired businesses contributed less than 1% to revenue growth and was offset almost entirely by the reduction in revenue growth from changes in foreign currency rates.
Water. Water revenues for the fourth quarter of 2012 were $20.9 million compared to $20.0 million for the fourth quarter of 2011. Organic revenue growth of 5% was due primarily to higher Colilert® product sales volumes, driven by new account acquisitions. Changes in foreign currency exchange rates reduced revenue growth by less than 1%.
Livestock and Poultry Diagnostics. Livestock and Poultry Diagnostics (“LPD”) revenues for the fourth quarter of 2012 were $22.6 million compared to $24.1 million for the fourth quarter of 2011. The 4% decline in organic revenue was due primarily to lower sales volumes of certain bovine tests, driven principally by a reduction of government testing programs in Europe. Changes in foreign currency exchange rates reduced revenue growth by 2%.
Additional Operating Results for the Fourth Quarter
Gross profit for the fourth quarter of 2012 increased $10.2 million, or 6%, to $169.1 million from $158.9 million for the fourth quarter of 2011. As a percentage of total revenue, gross profit increased to 53% from 52%. The increase in the gross profit percentage was due primarily to higher relative sales of high margin consumables used in our IDEXX VetLab® instruments and the favorable impact of currency. The net effect of currency was positive as hedging gains more than offset the net unfavorable impact of changes in foreign currency exchange rates. Fourth quarter gross profit percentage is typically lower than the gross profit percentage for the full year due to higher relative sales of lower margin instruments in the fourth quarter.
Selling, general and administrative (“SG&A”) expense for the fourth quarter of 2012 was $84.6 million, or 26% of revenue, compared to $83.4 million, or 27% of revenue, for the fourth quarter of 2011. The increase in SG&A expense was due primarily to higher personnel-related costs, partly offset by the favorable impact of changes in foreign currency exchange rates. The milestone payments earned in the fourth quarters of 2012 and 2011 related to the 2008 sale of pharmaceutical product rights were reflected as reductions to general and administrative expenses. Research and development (“R&D”) expense for the fourth quarter of 2012 was $21.1 million, or 7% of revenue, compared to $20.2 million, or 7% of revenue for the fourth quarter of 2011. The increase in R&D expense resulted primarily from higher personnel-related costs and an increase in external consulting and development costs.
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, 2012.
Outlook for 2013
The Company provides the following updated guidance for the full year of 2013. The guidance reflects an assumption that the value of the U.S. dollar relative to other currencies will remain at our current assumptions of the euro at $1.32, the British pound at $1.60 and the Canadian dollar at $1.00 for the balance of 2013. Every 1% weakening of the U.S. dollar relative to our basket of currencies is expected to increase revenue by approximately $5 million and operating profit by approximately $0.8 million on an annual basis. A 1% strengthening of the U.S. dollar is expected to have the opposite effect. Fluctuations in foreign currency exchange rates from current assumptions could have a significant positive or negative impact on our actual results of operations for 2013.
•Revenues are expected to be $1.405 to $1.42 billion, which represents reported growth of 8.5% to 9.5% relative to 2012. Organic revenue growth is estimated to be in the range of 8% to 9% and is consistent with our previous guidance.
•EPS are expected to be $3.47 to $3.57, compared to our previous guidance of $3.37 to $3.47. Relative to EPS guidance provided in October 2012, our current guidance reflects the estimated impact of the federal R&D tax credit for 2012 and 2013. The impact of the R&D tax credit for both years will be reflected in 2013 results. The increase to the high end of our guidance reflects an estimated benefit of $0.10 related to the federal R&D tax credit. The increase to the low end of our guidance reflects an estimated benefit of $0.08 related to the federal R&D tax credit, as well as a tightening of our EPS range. We expect the federal R&D tax credit to contribute $0.05 to $0.06 to EPS in the first quarter of 2013, as we recognize the tax credit for 2012 and a portion of our expected tax credit for 2013.
•Free cash flow is expected to be approximately 105% to 110% of net income.
•Capital expenditures are expected to be approximately $75 million.
Conference Call and Webcast Information
IDEXX Laboratories will be hosting a conference call today at 9:00 a.m. (eastern) to discuss its fourth quarter and full-year results and management’s outlook. To participate in the conference call, dial 1-612-288-0340 or 1-800-230-1093 and reference confirmation code 278731. An audio replay will be available through February 5, 2013 by dialing 1-320-365-3844 and referencing replay code 278731.
The call will also be available via live or archived webcast on the IDEXX Laboratories’ web site at http://www.idexx.com.
About IDEXX Laboratories, Inc.
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 5,000 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. 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 cost improvements in its worldwide network of laboratories and in the manufacture of in-clinic instruments;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 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 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 the resolution of the U.S. Federal Trade Commission investigation into the Company’s marketing and sales practices; the impact of a change in the status of one of the Company’s distributors on the Company’s results of operations;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, veterinary hospital consolidation, and the prevalence of buying consortiums 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 and small scale 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 impact of any 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 and the potential loss of tax incentives. A further description of these and other factors can be found in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012,in the section captioned “Risk Factors.”
 Organic revenue growth is a non-U.S. GAAP measure and represents the percentage change in revenue net of acquisitions and the effect of changes in foreign currency exchange rates.
 Free cash flow is a non-U.S. GAAP measure. We calculate free cash flow as cash generated from operations, excluding tax benefits attributable to share-based compensation arrangements, reduced by our 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. Refer to our reconciliation below for our calculation of free cash flow for the twelve months ended December 31, 2012 and 2011. 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.
Contact: Merilee Raines, Chief Financial Officer, 1-207-556-8155
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