IDEXX Laboratories, Inc. Announces Fourth Quarter And Full Year 2015 Results

WESTBROOK, Maine, Jan. 29, 2016 /PRNewswire/ -- IDEXX Laboratories, Inc. (NASDAQ: IDXX) today reported revenues for the fourth quarter of 2015 of $400 million, an increase of 14%¹ compared to the prior year period. Normalized organic revenue growth² for the quarter was over 11%, supported by strong growth in the Companion Animal Group ("CAG") segment. Revenue for the full year of $1,602 million increased 8% on a reported basis, supported by 11% normalized organic revenue growth.

Earnings per diluted share ("EPS") for the quarter was $0.48. Adjusted EPS growth³ was 2% compared to the prior year period, while absorbing a negative $0.03 per share impact related to net changes in foreign exchange, resulting in constant currency⁴ Adjusted EPS growth of 9%. The quarter benefited from recording the full year impact of the decision to make the federal research and development ("R&D") tax credit permanent, which had a $0.03 favorable impact on EPS, consistent with the prior year quarter. 

"We were very pleased with the Company's performance in the fourth quarter, supported by record instrument placements in both North American and international markets. Total premium instrument placements were up 35% over a very strong prior year period, with Catalyst placements up 61% compared to last year. We achieved 694 Catalyst placements in North America and 868 in international markets, leveraging our expanded commercial presence globally.  In North America, 395 units or 57% of our Catalyst placements were to new and competitive accounts, up 37% over Q4 2014, a testament to the increasing effectiveness of our all-direct sales force. For the full year, we placed 9,771 chemistry and hematology instruments worldwide, substantially higher than any year in our history. SediVue Dx, our novel urine sediment analyzer for use in-clinic, and the recent regulatory approval of Catalyst One^® in Japan, will add to our already substantial momentum in placing instruments as we move through 2016," said Jonathan Ayers, the Company's Chairman and Chief Executive Officer.

"SediVue is a breakthrough innovation that helps improve accuracy and streamlines workflows of a historically challenging manual process involving microscopic interpretation. SediVue presents veterinarians with a huge opportunity to enhance the quality of patient care while simultaneously helping to drive practice revenue growth and staff efficiency. Working in concert with chemistry and hematology, urinalysis forms the essential third pillar of the minimum diagnostic database in pet care," continued Ayers.

"We also continue to be pleased by the enthusiastic response of our customers to IDEXX SDMA, our unique test for kidney disease, a common condition in pets. IDEXX SDMA has now been automatically added to all chemistry panels for customers in all of our major reference laboratory markets globally. This novel kidney parameter is being well received globally by our customers, helped in part by the inclusion of SDMA in the International Renal Interest Society (IRIS) guidelines. IRIS is led by a board of 15 world-renowned independent veterinarians from 10 different countries, so the inclusion of SDMA as an important marker for renal function is a worldwide endorsement."

"Our solid finish to 2015 is positioning us to deliver continued strong constant currency⁴ revenue and profit gains in 2016."

Fourth Quarter Financial Performance Highlights

Fourth quarter revenue increased 14% to $400 million. Normalized organic revenue growth was 11% and benefited in part from incremental margin capture associated with the move to an all-direct sales model for US CAG Diagnostics.

• Companion Animal Group normalized organic revenue growth was 13% for the fourth quarter, driven by 12.5% normalized growth in recurring CAG Diagnostics revenues and a 28% increase in organic revenue growth² in CAG Diagnostics instruments. CAG Diagnostics recurring revenue gains were driven by 16% normalized organic growth in IDEXX VetLab^® consumable revenues, reflecting solid volume gains and benefits from margin capture, and 11% organic growth in reference laboratory diagnostic and consulting services revenues, supported by continued strong double-digit reference lab revenue gains in the US. Rapid assay revenues achieved 9% normalized organic growth, supported by higher 4Dx product volumes and benefits from margin capture.
• Livestock, Poultry and Dairy ("LPD") organic revenue increased 2% for the fourth quarter reflecting solid growth in new products worldwide and strong poultry and swine sales in emerging markets, offset partially by lower livestock services revenue in Australia and lower Europe bovine revenue.
• Water's organic revenue growth was 10% in the fourth quarter, due to worldwide increases in core coliform and E.coli products, as well as benefits from the launch of our new Quanti-Tray^® Sealer PLUS product.

The following table presents adjusted revenue, gross profit, gross margin, operating profit, operating margin, EPS, and EPS growth, which are non-GAAP financial measures that have been adjusted for the following items in the prior year periods:

Gross Profit increased 20% compared to the prior year period.  Gross Margin adjusted for the impact of the prior year US channel inventory reductions increased from 53.8% to 54.5%, reflecting lower manufacturing costs and benefits from moderate price gains, which offset mix impacts from strong instrument sales.

Operating Margin was 16.7% in the fourth quarter, down slightly from prior year period adjusted operating margin of 17.3%.  This change reflects increases in operating expenses compared to the prior year period primarily due to recurring costs associated with the all-direct US CAG Diagnostics sales strategy and other increases in global commercial resources, partly offset by the favorable impact of foreign exchange.

Outlook for 2016

The Company is maintaining its organic revenue growth outlook while updating reported revenue guidance for the strengthening of the US dollar relative to foreign currencies. Despite unfavorable currency impacts, the Company is raising its EPS guidance to reflect the permanent extension of the Federal R&D tax credit and solid operating trends. Excluding foreign currency change impacts, our guidance aligns with constant currency Adjusted EPS growth of 12% to 15%.

 At current foreign exchange rates, we estimate that the effect of the stronger US dollar will adversely impact 2016 reported revenue growth by approximately 2.5%, EPS by an estimated $0.26 per share, and Adjusted EPS growth by 12% compared to rates in effect in 2015. Compared to assumptions used in our prior guidance for 2016 provided during our third quarter earnings call on October 28, 2015, the continued strengthening of the US dollar has the effect of lowering projected revenue by approximately $25 million and EPS by $0.04 per share, net of hedge benefits. These effects are mitigated by benefits from the decision to make the Federal R&D tax credit permanent, which is estimated to have a $0.03 positive impact on EPS, and expected stronger operating performance, which is expected to add $0.02 to EPS.

The Company provides the following updated guidance for 2016:

The guidance above assumes that the value of the US dollar relative to other currencies will reflect the euro at $1.07, the British pound at $1.41, the Canadian dollar at $0.68, the Australian dollar at $0.68 and the Japanese yen at ¥118 to the US dollar for the full year of 2016.

We expect that operating margins for the full year will be 18.0% to 18.5%, or approximately 100 basis points below 2015 adjusted operating margin levels, driven by foreign exchange impacts including comparisons to benefits from 2015 hedge gains. Adjusted for currency impacts and the 2015 software impairment charge, we are targeting operating margin improvement of approximately 50 basis points from 2015 levels.

We expect an effective tax rate of 30% to 30.5%, including projected benefits from the Federal R&D tax credit.  We are projecting a reduction in weighted average shares outstanding of approximately 3.5% to 4.0%, and interest expense, net of interest income, of approximately $32 million reflecting current and projected borrowings. 

Statement Regarding Non-GAAP Financial Measures

The following provides information regarding certain measures used in this earnings release that are not required by, or presented in accordance with, generally accepted accounting principles in the United States of America ("GAAP"), otherwise referred to herein as non-GAAP financial measures. To supplement the Company's consolidated results presented in accordance with GAAP, the Company has disclosed non-GAAP financial measures that exclude or adjust certain items. Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of the Company's business performance and are useful for period-over-period comparisons of the performance of the Company's business and to the performance of our peers. While management believes that these non-GAAP financial measures are useful in evaluating the Company's business, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly titled measures reported by other companies. See the notes to this earnings release for information regarding these non-GAAP financial measures and the reconciliations included in the notes and elsewhere in this earnings release for a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

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