IDEXX Laboratories, Inc. Announces Second Quarter Results

WESTBROOK, Maine, Aug. 2, 2016 /PRNewswire/ -- IDEXX Laboratories, Inc. (NASDAQ: IDXX) today reported revenues for the second quarter of 2016 of $467 million, an increase of 13% compared to the prior year period. Organic revenue growth for the quarter was also 13%, supported by strong growth in the Companion Animal Group ("CAG") and Water segments.

Earnings per diluted share ("EPS") for the quarter was $0.74, an increase of 23% compared to the prior year period, while absorbing a negative $0.06 per share impact related to net changes in foreign exchange, resulting in constant currency EPS growth of 33%. The federal research and development tax credit, which benefited the current but not the prior year period, had a 2% favorable impact to EPS growth. 

"We accelerated growth in the second quarter, further demonstrating the benefits of bringing our innovations to an attractive global market with an expanded commercial presence, including our move to a fully-direct sales strategy in the US companion animal market in 2015," said Jonathan Ayers, the Company's Chairman and Chief Executive Officer. "Our teams accomplished strong revenue gains across US and all international regions, with flow-through benefits that drove very strong profit results.

"We successfully launched SediVue Dx, our novel urine sediment point-of-care analyzer, with placements of 467 units in the quarter. This performance reflects the positive customer response to the streamlined workflow, high quality images, and consistency of results from the analyzer compared to the traditionally challenging manual process involving microscopic interpretation. 

"We also achieved continued productivity gains in our commercial capabilities to drive another highly successful quarter for placements of Catalyst chemistry instruments, with placement of 1,334 systems, including 502 in North America. Impressively, an estimated 663 of our worldwide placements were to new and competitive accounts. Our global momentum in instrument placements drove accelerated 14% global reported and organic revenue gains in the recurring revenue of instrument consumables. 

"Strong global commercial execution further drove the revenue growth of reference laboratory diagnostic and consulting services, with 15% reported and 14% organic gains, including strong double-digit growth in both the US and international regions. Reference lab revenue performance was supported by the growing appreciation of veterinarians around the world that IDEXX SDMA is a more reliable indicator of kidney related health than the traditional key kidney parameter, creatinine.

"We also continued to drive strong global growth in our Water business, with revenues up 11% reported and 12% organically in the quarter, expanding this base of highly profitable and durable recurring revenue.

"IDEXX innovations are resonating with customers, and with our expanded commercial capabilities, we are helping to transform the role of diagnostics in our markets. We clearly are firing on all cylinders.  

"Given these strong results and related momentum, we are on track towards delivering on the consistent, long-term 10%+ annual constant currency revenue growth potential we see for our business," said Ayers.

Second Quarter Financial Performance Highlights

Companion Animal Group revenue grew 14%, or 13% on an organic basis, in the second quarter. These results were driven by 13% reported and 12% organic growth in CAG Diagnostics recurring revenues, and 35% reported and organic revenue growth in CAG Diagnostics instruments. As noted, CAG Diagnostics recurring revenue gains were supported by strong growth in reference laboratory diagnostic and consulting services and IDEXX VetLab^® consumables. Rapid assay reported and organic revenue growth increased 7% due to higher volume and timing of promotional programs.

Water revenue grew 11%, or 12% on an organic basis, in the second quarter, driven by worldwide increases in core coliform and E.coli products, as well as an approximate 4% growth benefit from project related revenues and incremental revenues associated with the 2015 Crypto outbreak in the UK.

Livestock, Poultry and Dairy ("LPD") revenue increased 2%, or 4% on an organic basis, in the second quarter, reflecting solid growth in China and Latin America, partially offset by lower bovine revenue in Europe.

Gross profit increased 12% compared to the prior year period. Gross margin decreased from 56.3% to 55.8%, reflecting the unfavorable impact of foreign exchange rates (including 1.2% of negative gross margin impact related to the lapping of prior year hedge gains). On a constant currency basis, gross margin improved solidly driven by benefits from moderate price gains and productivity achieved in our reference laboratory and veterinary software service businesses, which offset mix impacts from higher instrument revenues.

Operating expenses increased 8% in the second quarter, in line with first quarter growth levels and relatively lower than expected, in part reflecting delays in timing for certain investments. Operating margin was 22.3% in the second quarter, up from prior year period operating margin of 21.4%, reflecting flow-through benefits from very strong second quarter revenue growth.

Outlook for 2016

The Company is increasing its 2016 revenue guidance by $25 million and its 2016 EPS guidance by $0.14 per share to reflect its strong second quarter operating results, positive revenue growth trends, and expectations for relatively higher operating margins.

At the revised current foreign exchange rates assumptions below, the effect of the stronger US dollar compared to rates in effect in 2015 will adversely impact 2016 reported revenue growth by approximately 1%, EPS by an estimated $0.20 per share (including lapping of prior year hedge gains), EPS growth by 10%, and Adjusted EPS growth by 9%.

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 $1.10, the British pound at $1.30, the Canadian dollar at $0.77, the Australian dollar at $0.75 and the Japanese yen at ¥104 to the US dollar for the remainder of 2016.

We now expect that operating margins for the full year will be approximately 19.0%. Adjusted for foreign currency impacts (including comparisons to 2015 hedge gains) and the 2015 software impairment charge, we have targeted operating margin improvement of approximately 100 basis points from 2015 levels.

We continue to expect an effective tax rate of approximately 30.5% to 31.0%. We are now projecting a reduction in weighted average shares outstanding of approximately 3.0%, and expect interest expense, net of interest income, of approximately $29 million reflecting current and projected borrowings. 

Conference Call and Webcast Information

IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (Eastern) to discuss its second quarter results and management's outlook. To participate in the conference call, dial 800-230-1096 or 612-332-0107 and reference confirmation code 397786. An audio replay will be available through Tuesday, August 9, 2016 by dialing 800-475-6701 or 320-365-3844 and referencing replay code 397786.

The call will also be available via live or archived webcast on the IDEXX Laboratories' website at www.idexx.com and will be available for one year.

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 7,000 people and offers products to customers in over 175 countries.

Statement Regarding Non-GAAP Financial Measures

The following provides information regarding certain measures used in this earnings release and/or the accompanying earnings conference call that are not required by, or presented in accordance with, generally accepted accounting principles in the United States of America ("GAAP"), otherwise referred to 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 liquidity and are useful for period-over-period comparisons of the performance of the Company's business and its liquidity and to the performance and liquidity of our peers.

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