IDEXX Laboratories, Inc. Announces Third Quarter Results

WESTBROOK, Maine, Oct. 28, 2015 /PRNewswire/ -- IDEXX Laboratories, Inc. (NASDAQ: IDXX) today reported revenues for the third quarter of 2015 of $406 million, an increase of 6% compared to the prior year period. Impacts from the strengthening of the US dollar reduced reported revenue growth by 6%. Normalized organic revenue growth^1,2 for the quarter was 12%, supported by strong growth in the Companion Animal Group ("CAG") segment, including over 11% normalized organic growth in CAG Diagnostics recurring revenues. Earnings per diluted share ("EPS") for the quarter was $0.48. During the third quarter we recognized an $8 million non-cash impairment charge for capitalized software associated with changes in our customer information management business strategy which had a $0.06 negative impact on EPS and has been excluded from Adjusted EPS³. Adjusted EPS was $0.54 for the quarter, an increase of 2% compared to the prior year period while absorbing a negative $0.04 per share impact related to net changes in foreign exchange.

"The Company's strong growth momentum continued, supported by exceptionally strong instrument placements in both North American and international markets. Total premium instrument placements were up 54%, with Catalyst placements up almost 100%, compared to last year. We achieved 569 Catalyst placements in North America and 756 in international markets, benefiting from our expanded global launch of Catalyst One^® in Asia and Brazil. Growth in instrument placements is fundamental to our strategy of driving high margin CAG Diagnostics recurring revenue, and we are well positioned to achieve well over 9,000 chemistry and hematology instrument placements for the full year 2015," said Jonathan Ayers, the Company's Chairman and Chief Executive Officer.

"We also continue to see very strong growth in reference laboratory diagnostic and consulting services.  SDMA, our unique kidney function test which is now included in all IDEXX reference lab chemistry panels in both the US and Canada, continues to gain traction. We have seen a substantive increase in the number of customers that use a competitive lab requesting SDMA panels, an indicator of overall market recognition of the importance of having an SDMA result.

"Normalized organic revenue growth for our rapid assay products improved to 7%, supported by growth in SNAP^® 4Dx^® Plus in-clinic volume and stabilized trends in first generation products. These results are a testament to our superior test accuracy, as demonstrated by published head-to-head comparison studies. The expanded reach of our fully direct US sales organization allows us to effectively detail these accuracy differences to our customers.

"As we look forward, we are refining our 2015 revenue outlook to reflect expectations at the lower end of our earlier guidance range. This outlook reflects moderated market growth trends in Europe and recent macroeconomic impacts, including effects from foreign currency erosion, limiting emerging market gains. We are also refining our 2015 Adjusted EPS outlook to reflect additional headwinds from recent foreign currency changes in emerging markets and a higher effective tax rate, impacted by updated estimates for regional profit mix including foreign currency impacts. Our revised outlook is for 2015 Adjusted EPS performance of $2.04-$2.07 per share, an increase of 11% to 12% on a constant currency⁴ basis.

"For 2016, we are providing preliminary financial guidance today for 8% to 9% normalized organic growth and EPS of $2.09-$2.16 per share, supported by a targeted 50 basis point improvement in constant currency operating margins, adjusted to exclude the third quarter 2015 software impairment charge. Excluding foreign currency impacts, our outlook equates to 13% to 16% Adjusted EPS growth. Foreign exchange impacts will create year-over-year EPS headwinds of ~ $0.21 per share in 2016, reflecting the lapping of 2015 hedge gains, year-on-year foreign exchange impacts and impacts on our effective tax rate from changes in our regional profit mix related to the strengthening dollar."

Third Quarter Financial Performance Highlights

Third quarter revenue increased 6% to $406 million. Normalized organic revenue growth was 12% 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 14% for the third quarter, supported by a 54% increase in organic revenue growth² in diagnostic instruments, including a 17% growth benefit from recognition of deferred revenue associated with the Catalyst One introductory offer. Strong gains were also driven by 16% normalized organic growth in IDEXX VetLab^® consumable revenues, reflecting both volume increases and benefits from margin capture, and 10% organic growth in reference laboratory diagnostic and consulting services revenues, supported by continued strong double-digit reference lab revenue gains in the US.
• Livestock, Poultry and Dairy ("LPD") organic revenue increased 6% for the third quarter reflecting growth in new products worldwide, strong poultry sales in emerging markets, and growth in Europe bovine revenue.
• Water's organic revenue growth was 7% in the third quarter, supported by the launch of our new Quanti-Tray^® Sealer PLUS product and worldwide increases in core coliform and E.coli products.

Gross profits increased 5%, and gross margins decreased slightly to 55.2% from 55.6% in the prior year period. The decrease in gross margins was primarily due to mix impacts from higher instrument revenue.

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

Adjusting for items included in the table above, operating margins were 19.7% in the third quarter, down slightly from prior year period adjusted operating margins of 20.1%, including operating expenses that increased 6% 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.

Financial Outlook

The following guidance for 2015 and 2016 reflects the assumptions that the value of the US dollar relative to other currencies will remain at our current assumptions of the euro at $1.11, the British pound at $1.52, the Canadian dollar at $0.75, the Australian dollar at $0.70 and the Japanese yen at ¥120 to the US dollar for the balance of 2015 and the full year of 2016, and that the Federal R&D tax credit is not renewed for 2015 or 2016.

Outlook for 2015

The Company is adjusting its previous 2015 financial guidance as summarized below:

As noted, we have adjusted our revenue range to the lower end of our prior guidance. This outlook reflects moderated market growth trends in Europe and recent macroeconomic impacts, including effects from foreign currency erosion, constraining targeted emerging market gains. Our Adjusted EPS outlook also incorporates an approximate $0.03 combined negative impact from updated foreign exchange rate projections and a higher effective tax rate.

At current foreign exchange rates, we estimate that the effect of the stronger US dollar will adversely impact 2015 revenue and Adjusted EPS growth by 6% and 9%, respectively. Our full year financial outlook includes the benefit of hedge contracts which we expect will favorably impact EPS by approximately $0.15 per share.

The favorable deferred revenue impact of our Catalyst One introductory offer is expected to increase revenue growth for the full year 2015 by approximately 0.5%.

We expect an effective tax rate of 30.5%, an increase of approximately 50 basis points over our previous guidance due to updated estimates of regional profit mix. This outlook has not assumed that the Federal R&D tax credit, which benefited EPS by $0.03 per share in 2014, will be renewed in 2015.

We are projecting a reduction in weighted average shares outstanding of approximately 7.5%, and interest expense, net of interest income, of approximately $27 million reflecting current and projected borrowings.

Adjustments to 2015 used for calculating Adjusted EPS and Adjusted EPS growth are summarized below:

Adjustments to EPS for 2014 used for calculating Adjusted EPS growth are summarized below:

Outlook for 2016

The Company provides the following guidance for 2016:

Our 2016 profit outlook reflects expectations for a 50 basis point increase in operating margins compared to 2015, excluding exchange impacts and the 2015 software impairment charge.

Excluding foreign currency change impacts, our guidance aligns with constant currency Adjusted EPS growth of 13% to 16%. In 2016, impacts of prior changes in foreign exchange rates will have a significant impact on our reported results. At foreign exchange rates outlined in this press release, we expect foreign exchange will reduce 2016 revenue growth by ~1%, 2016 operating margins by ~150 basis points and negatively impact EPS by ~$0.21 per share. The operating profit impacts reflect the expiration of hedging contracts that provided ~$20 million ($0.15 per share) of benefit in 2015. We also expect that year-over-year changes in foreign exchange rates, including recent erosion in emerging market currencies, will reduce operating profits by ~$6 million ($0.04 per share). In addition, given negative impacts of these changes on our regional profit mix, we estimate that our effective tax rate will be 31% impacted by ~50 basis points negatively ($0.02 per share) related to foreign exchange movements, net of benefits from tax planning initiatives. 

We are projecting a reduction in weighted average shares outstanding of approximately 3.5% and interest expense, net of interest income, of $31.5 million to $32.5 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.

To read full press release, please click here. Help employers find you! Check out all the jobs and post your resume.