WESTBROOK, Maine, Nov. 1, 2016 /PRNewswire/ --
- Reports revenue growth of 10% on both a reported and organic basis, reflecting CAG Diagnostics recurring revenue growth of 12% and strong premium instrument placements
- Delivers EPS of $0.62, a 29% increase year over year as reported, or 22% on an Adjusted constant currency basis
- Achieves 18% growth in premium instrument placements, including 562 IDEXX SediVue Dx placements
- Adjusts 2016 revenue growth and EPS outlook toward the high end of previous guidance range, and provides preliminary 2017 financial guidance for organic revenue growth of 9% - 10.5% and earnings per share of $2.77 - $2.93
IDEXX Laboratories, Inc. (NASDAQ: IDXX) reports revenues for the third quarter of 2016 of $448 million, an increase of 10% compared to the prior year period, on both a reported and organic basis. Q3 results were driven by robust global CAG Diagnostics recurring revenue, including strong IDEXX VetLab® consumables and reference laboratory revenue growth in both the US and international regions, as well as high single-digit growth in the Water business. Based on this continued strong performance and commercial model traction, the Company is adjusting its full year 2016 revenue growth and earnings per diluted share ("EPS") toward the high end of its previous guidance ranges. The Company is also providing preliminary 2017 guidance for organic revenue growth of 9% 10.5%, driven by high growth in CAG Diagnostics recurring revenues, and reported EPS gains of 17% - 24%, supported by constant currency operating margin expansion, consistent with its long-term goals.
"With sustained strength in our global markets, our third quarter results reflect the power of our durable, recurring revenue business model. Momentum continues to build in our commercial organization, as customers accelerate their adoption of our latest stream of innovations based on sound clinical evidence and the beneficial impact on their practices' economics," said Jonathan Ayers, the Company's Chairman and Chief Executive Officer. "We believe the sustained strong growth in companion animal health care, including the increasing use of diagnostics, is supported by the deeply-rooted, global trend of the strengthening bond between humans and their pets.
"We are seeing the recognition of the clinical value of IDEXX SDMATM steadily expand, as practicing veterinarians build their experience with this unique renal biomarker. IDEXX SDMA is a driving force for our reference laboratory revenues globally, as the subcategory of chemistry panels, driven by the inclusion of SDMA, continues to grow faster than other diagnostic categories of our reference laboratory revenues. The demand for SediVue also continues to track very well, with 562 placements in Q3 and positive feedback from the over 1,000 customers running SediVue Dx to date. We expect to begin our SediVue launch outside of North America before the end of the year, starting with the UK and Australia. We also continue to expand our global Catalyst® instrument installed base, up 25% at the end of the quarter relative to Q3 2015, a major factor in driving our 15% growth in IDEXX VetLab consumables revenues this quarter.
"Excellent execution of our strategy is keeping us on track towards delivery of our long-term goals of an annual rate of 10%+ constant currency revenue growth and 15% - 20% constant currency EPS gains."
Third Quarter Performance Highlights
Reported and organic revenue growth for the quarter were both 10%. EPS for the quarter was $0.62, an increase of 29% compared to the prior year period. Adjusted EPS growth on a constant currency basis for the quarter was 22%, before a negative $0.04 per share impact related to net changes in foreign exchange, and excluding a $0.06 per share software impairment charge in the prior year period. 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.
Companion Animal Group
The Companion Animal Group ("CAG") generated 12% reported and organic revenue growth for the quarter, supported by CAG Diagnostics recurring revenue growth of 12% and instrument revenue growth of 22%.
- IDEXX VetLab consumables revenue generated reported and organic revenue growth of 15% in the quarter, driven by continued rapid expansion of our premium instrument base in US and international markets. IDEXX VetLab premium diagnostic instrument placements grew 18% to 2,590, including 1,214 Catalysts, 814 premium hematology instruments and 562 IDEXX SediVue Dx analyzers.
- Reference laboratory diagnostic and consulting services grew 13% on a reported and organic basis, reflecting continued strong gains in US and international markets, supported by accelerated growth in chemistry volumes driven by IDEXX SDMA, our novel kidney function test, launched in Q3 2015.
- Rapid assay products had reported and organic revenue growth of 2%, supported by continued growth in 4Dx® revenues. As expected, rapid assay growth moderated from strong prior quarter levels, reflecting timing of promotional programs.
Livestock, Poultry and Dairy ("LPD")
Reported revenue declined 2% for the quarter as strong testing gains in China and Brazil were offset by declines in bovine disease eradication testing in Europe and in herd health screening revenue.
Reported revenue growth was 7% and organic revenue growth was 9% in the quarter, supported by increased traction from our expanded commercial capability and increases in core coliform and E.coli sales in all major regions.
Gross Profit and Operating Profit
Gross profits increased 10%, and gross margin decreased slightly to 55.0% from 55.2% in the prior year period. The decrease in gross margin was due to currency impacts, primarily related to the lapping of 2015 hedge gains. Constant currency gross margin was 55.9% for the quarter, 70 basis points higher than Q3 2015, driven by high consumable growth and mix impact, price gains, volume leverage in reference labs and improvements in practice management service offerings. These drivers were partially offset by growth of lower-margin instruments.
Operating margins were 19.7% in the quarter, consistent with prior year period Adjusted operating margins of 19.7%, which excludes a 2.0% operating margin impact from the 2015 software impairment charge. Solid operating margin performance reflects constant currency gross margin gains and operating expense leverage, which offset a negative 1.0% operating margin impact from foreign exchange.
2016 and 2017 Financial Outlook
The following guidance for 2016 and 2017 reflects the assumptions that the value of the US dollar relative to other currencies will remain at the following rates: the euro at $1.08, the British pound at $1.20, the Canadian dollar at $0.75, the Australian dollar at $0.76 and the Japanese yen at ¥106 to the US dollar for the balance of 2016 and the full year of 2017.
Outlook for 2016
The Company is refining its 2016 revenue outlook to $1,763 million - $1,773 million, at the high end of our earlier guidance range. The refined revenue outlook takes into account adjustments to foreign exchange assumptions that have reduced our 2016 reported revenue guidance range by $2 million. We are also adjusting our 2016 EPS outlook to $2.35 - $2.39 per share, reflecting targeted growth of 15% - 17% on a reported basis and 21% - 23% Adjusted EPS constant currency growth. This Adjusted EPS growth is calculated based on our 2015 Adjusted EPS of $2.11, which excludes a software impairment charge of $0.06 per share. The Company is also raising its free cash flow outlook to approximately 105% of net income to reflect continued strong trends in reducing inventories and expectations for relatively lower capital spending in 2016.
At assumed foreign exchange rates, we estimate that the effect of the stronger US dollar will adversely impact 2016 revenue by less than 1%. We estimate that these foreign exchange rate changes will reduce reported 2016 EPS by $0.20, including the net impact from the lapping of $21 million in 2015 hedge gains compared to projected hedge gains of approximately $4 million in 2016.
The Company provides the following updated guidance for 2016:
Amounts in millions except per share data and percentages
$1,763 - $1,773
10% - 11%
Organic Revenue Growth
10.5% - 11.5%
$2.35 - $2.39
15% - 17%
11% - 13%
Adjusted Constant Currency
21% - 23%
Operating Cash Flow
~135% of net income
Free Cash Flow
~105% of net income
We expect an effective tax rate of 30.5% - 31.0%, consistent with our previous guidance. We are projecting a reduction in weighted average shares outstanding of approximately 2.5% - 3%, and interest expense, net of interest income, of approximately $29 million reflecting current and projected borrowings.
Outlook for 2017
The Company provides the following preliminary guidance for 2017:
Amounts in millions except per share data and percentages
$1,910 - $1,935
8% - 9.5%
Organic Revenue Growth
9% - 10.5%
$2.77 - $2.93
17% - 24%
18% - 25%
Our EPS outlook includes approximately $0.08 - $0.12 per share of projected benefit from the implementation of the new Accounting Standards Update 2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment Accounting, related to accounting for the tax benefit of employee stock-based compensation. We estimate that this will reduce IDEXX's 2017 effective tax rate by approximately 250 - 350 basis points and decrease our projected annual reduction in shares outstanding from share repurchases by 50 basis points. Including these effects, our preliminary outlook for our effective tax rate is 27% - 28.5% and for a reduction in weighted average shares outstanding from continued stock repurchases of 1.0% - 1.5%, net of the accounting impact noted. We are projecting interest expense, net of interest income, of $30 million - $31 million, reflecting current and projected borrowings. At the foreign exchange rates assumed in this earnings release, we estimate that foreign exchange impacts will reduce 2017 reported revenue growth by approximately 1%, reported operating profit by ~$4 million and EPS by ~$0.03 per share.
Adjusting for the accounting change benefit and foreign currency impacts, our 2017 outlook reflects expectations for 15% - 20% EPS constant currency growth, supported by a targeted 70 basis point constant currency increase in operating margin compared to 2016.
Conference Call and Webcast Information
IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (Eastern) to discuss its third quarter results and management's outlook. To participate in the conference call, dial 1-800-230-1093 or 1-612-234-9959 and reference confirmation code 403934. An audio replay will be available through Tuesday, November 8, 2016 by dialing 1-800-475-6701 or 1-320-365-3844 and referencing replay code 403934.
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 more than 7,000 people and offers products to customers in over 175 countries. For more information about IDEXX, visit: www.idexx.com.
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. 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.
The following section defines terms and conventions used in this earnings release and/or the accompanying earnings conference call, including non-GAAP financial measures, and includes applicable information regarding reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as appropriate:
Adjusted EPS, Adjusted EPS growth, Adjusted operating profit and Adjusted operating margin - Adjusted EPS, Adjusted EPS growth, Adjusted operating profit and Adjusted operating margin are non-GAAP financial measures. Adjusted EPS, Adjusted operating profit and Adjusted operating margin exclude from the prior year period reported earnings, the third quarter 2015 non-cash software impairment charge of $8.2 million, which represents 200 basis points in operating margin and $0.06 per share in EPS. The Adjusted EPS growth calculation for both the third quarter of 2016 and full year 2016 uses Adjusted EPS for the applicable prior year period.
Constant currency - Constant currency references are non-GAAP financial measures which exclude the impact of changes in foreign currency exchange rates and are consistent with how management evaluates our performance and comparisons with prior and future periods. We estimated the net impacts of currency on our revenue, gross profit, operating profit, EPS and Adjusted EPS results by restating results to the average exchange rates or exchange rate assumptions for the comparative period, which includes adjusting for the estimated impacts of foreign currency hedging transactions and certain impacts on our effective tax rates. These estimated currency changes reduced third quarter 2016 gross profit growth by 2%, operating profit growth by 6%, and Adjusted EPS growth by 7%; reduced projected 2016 revenue growth by less than 1%, projected 2016 EPS growth by 10%, and projected 2016 Adjusted EPS growth by 9%; reduced both projected 2017 revenue growth and projected 2017 constant currency EPS growth by approximately 1%. Constant currency revenue growth represents the percentage change in revenue during the applicable period, as compared to the prior year period, excluding the impact of changes in foreign currency exchange rates. See the supplementary analysis of results below for revenue percentage change from currency for the three and nine months ended September 30, 2016.
Free cash flow - Free cash flow is a non-GAAP financial measure and means, with respect to a measurement period, the cash generated from operations during that period, including tax benefits attributable to share-based compensation arrangements, reduced by the Company's investments in property and equipment. Management believes 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 property and equipment that are required to operate the business. See the supplementary analysis of results below for our calculation of free cash flow for the nine months ended September 30, 2016 and 2015. To estimate projected 2016 free cash flow we have deducted projected purchases of property and equipment (also referred to as capital expenditures) and added the projected tax benefits from share-based compensation arrangements consistent with those reported for the nine months ended September 30, 2016 in the supplementary analysis of results below.
Growth and organic growth - All references to growth and organic growth refer to growth compared to the equivalent prior year period unless specifically noted.
Organic revenue growth - Organic revenue growth is a non-GAAP financial measure. Organic revenue growth for the third quarter of 2016 excludes the impact of changes in foreign currency exchange rates, which had a 0.2% unfavorable impact on revenue growth, and revenue from business acquisitions, which contributed 0.1% to revenue growth. See the supplementary analysis of results below for a reconciliation of reported revenue growth to organic revenue growth for the three and nine months ended September 30, 2016. See commentary above for the impacts of constant currency to the projected 2016 and 2017 organic revenue growths for the Company.
Note Regarding Forward-Looking Statements
This earnings 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 are included above under "Outlook for 2016," "Outlook for 2017" and elsewhere and 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. Our forward-looking statements include statements relating to our revenue growth and EPS outlooks; operating and free cash flow forecast; projected impact of foreign currency exchange rates; and projected operating margins, capital expenditures, tax benefits from share-based compensation arrangements, effective tax rate, weighted average shares outstanding and interest expense. These statements are based on management's expectation of future events as of the date of this earnings release, and the Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments.
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