WESTBROOK, Maine, April 28, 2015 /PRNewswire/ -- IDEXX Laboratories, Inc. (NASDAQ: IDXX) today reported revenues for the first quarter of 2015 of $382 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 growth1,2 for the quarter was 11.4%, supported by solid growth across business segments. Earnings per diluted share (“EPS”) was $0.98 for the quarter, an increase of 10% compared to the prior year period despite a negative 8% growth impact related to changes in net foreign exchange rates.
“We had a solid start to the year. Expansion of our commercial capability globally drove very strong instrument placements across US and International markets, supporting continued expansion of our CAG Diagnostics recurring revenues globally,” said Jonathan Ayers, the Company’s Chairman and Chief Executive Officer. “During the quarter in Europe, the launch and number of placements of Catalyst One, our next generation chemistry analyzer, has exceeded all of our expectations. This full-function and yet cost effective point of care instrument is well suited to the smaller sized clinics that are typical of our International markets.”
“As we look forward, we are adjusting our full-year financial outlook to reflect the continued strengthening of the US dollar,” added Ayers. “We are also revising our 2015 normalized organic revenue growth outlook by 1.5% to 12% to 13% normalized organic growth. While our growth trends remain strong in instrument consumables and reference lab sales, we are re-calibrating our outlook for rapid assay revenue growth by ~$15 million to reflect current trends, which are below our growth expectations. We are also adjusting our outlook to reflect expectations for moderated gains in our digital imaging business, as well as for revenue implications in our customer information management business of an anticipated transition in the second half of the year to a subscription-based, software-as-a-service model.”
“In the US Companion Animal business, we have now completed the first quarter of our field sales expansion that is a component of our all-direct sales strategy. I am pleased with the performance of our field sales organization in this regard, particularly in the instrument and reference lab diagnostic modalities, as well as our advanced vector borne disease rapid assay tests. We know from our previous expansion in 2013 that we will see accelerated performance of our sales professionals with each passing quarter as they gain experience and deepen customer relationships in their territories.”
“Our growth in CAG Diagnostics recurring revenue in North America will also benefit from several significant new product introductions, including SDMA and fecal antigen tests in the reference labs, and the total T4 slide for our Catalyst Dx® customers, all of which are on track to move to full launch in the next 90 days. And our innovation pipeline calls for other product introductions and advancements over the balance of 2015, including SaaS-based technologies in our customer information management and digital imaging systems. In early 2016 we expect to introduce a highly innovative point of care urine sediment analyzer, which replaces manual in-house microscopy or send out testing, and creates a new revenue stream for our in-house suite of diagnostic solutions. The combination of the deeper customer relationships that come with our all-direct strategy, and our continued advancement of diagnostic and information management solutions, bodes well for our growth in this attractive market for years to come.”
First Quarter Financial Performance Highlights
First quarter revenue increased 6% to $382 million. Normalized organic revenue growth was 11%, or 8% adjusted for incremental margin capture3 associated with the now completed move to an all-direct sales model for US CAG Diagnostics.
- Companion Animal Group (“CAG”) normalized organic revenue growth was 13% for the first quarter. Normalized CAG Diagnostics recurring organic revenue growth was 14%, including a 5% growth benefit from margin capture. Gains were driven by 22% normalized organic revenue growth in IDEXX VetLab® consumables, including a 9% growth benefit from margin capture, and 12% organic revenue growth2 in reference lab and consulting services. These gains offset softer than expected performance in rapid assay and digital imaging sales.
- Catalyst placements increased 35% and premium hematology instrument placements increased 13% in the first quarter compared to the prior year period. Instrument revenues increased 19% organically, including a 6% growth benefit from recognition of deferred revenue associated with the Catalyst One introductory offer.
- Livestock, Poultry and Dairy (“LPD”) organic revenue growth was 3% for the first quarter, primarily as a result of strong global dairy and poultry product volume partially offset by lower bovine testing volume.
- Water’s organic revenue growth was 6% in the first quarter, supported by higher worldwide volume including strong customer acquisitions in North America.
Operating margins were 19.0% in the first quarter, down moderately compared to prior year period margins of 19.4%. Gross profits increased 7%, reflecting a moderate increase in gross margins to 56.4% from 56.1% in the prior year period. Operating expenses increased 8% primarily due to 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 for 2015
The Company is updating its 2015 financial guidance to reflect expectations for 12% to 13% normalized organic revenue growth and to reflect additional strengthening of the US dollar relative to foreign currencies. At current foreign exchange rates, we estimate that the effect of the stronger US dollar will adversely impact 2015 reported revenue and EPS growth by 6% and 9%, respectively. Compared to assumptions used in our prior guidance for 2015 provided during our fourth quarter earnings call on January 30, 2015, the continued strengthening of the US dollar has the effect of lowering projected revenue by approximately $15 million and EPS by $0.05 per share. We are also updating our free cash flow forecast to reflect expectations for higher capital spending in support of business growth.
The Company provides the following updated guidance for 2015:
Amounts in millions except per share data and percentages | |||
Guidance Range | Growth Definition | Year-over-Year | |
Revenue | $1,600 - $1,620 | Normalized Organic Revenue Growth2 | 12% to 13% |
Normalized Organic Revenue Growth, | 8.5% to 9.5% | ||
Reported | 8% to 9% | ||
EPS | $4.14 - $4.24
| Adjusted Reported | 4% to 6%4 16% to 18% |
Free Cash Flow5 | 80% - 90% of net income | ||
Capital Expenditures | ~$100 | ||
The guidance above reflects the assumptions that the value of the US dollar relative to other currencies will remain at our current assumptions of the euro at $1.08, the British pound at $1.48, the Canadian dollar at $0.79, the Australian dollar at $0.76 and the Japanese yen at ¥120 to the US dollar for the remainder of 2015. Our full year financial outlook includes the benefit of hedge contracts which favorably impact EPS by approximately $0.33 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%. This outlook has not assumed that the federal R&D tax credit, which benefited EPS by $0.065 per share in 2014, will be renewed in 2015.
We are projecting a reduction in weighted average shares outstanding of approximately 7.0% to 7.5%, and interest expense, net of interest income, of approximately $28 million reflecting current and projected borrowings.
Adjustments to EPS for 2014 used for calculating adjusted EPS growth are summarized in the table below:
Earnings per share: Diluted (as Reported) | $3.58 |
Incremental expenses associated with transition to an all-direct sales strategy | |
- Non-recurring transition costs | 0.12 |
- Expense ramp-up in advance of transition to new sales strategy | 0.06 |
Impact of distributor inventory drawdown | 0.27 |
Non-recurring income tax benefit related to the deferral of intercompany profits | (0.04) |
Adjusted earnings per share: Diluted4 | $3.99 |
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. 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.
Conference Call and Webcast Information
IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (Eastern) to discuss its first quarter results and management’s outlook. To participate in the conference call, dial 1-800-230-1951 or 1-612-332-0107 and reference confirmation code 357408. An audio replay will be available through Tuesday, May 5, 2015 by dialing 1-320-365-3844 and referencing replay code 357408.
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.
Annual Meeting
IDEXX Laboratories, Inc. today announced that it will host a simultaneous webcast of its Annual Meeting of Stockholders, to be held on Wednesday, May 6, 2015, at 10:00 a.m. (Eastern) at the Portland Marriott Hotel, 200 Sable Oaks Drive, South Portland, Maine.
Chairman and Chief Executive Officer Jonathan Ayers will chair the meeting. Investors may listen to live audio of the Annual Meeting via a link on the Company’s website, www.idexx.com. An archived edition of the meeting will be available after 1:00 p.m. (Eastern) on that day via the same link and will be available for 14 days.
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 6,000 people and offers products to customers in over 175 countries.
1All references to growth and organic growth refer to growth compared to the equivalent period in 2014.
2Normalized organic revenue growth and organic revenue growth are non-GAAP financial measures. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers. Organic revenue growth for the first quarter of 2015 excludes the impact of changes in foreign currency exchange rates, which had a 6% unfavorable impact on revenue growth, and revenue from business acquisitions, which contributed 0.5% to revenue growth. See the supplementary analysis of results below for a reconciliation of reported revenue growth to organic revenue growth for the three months ended March 31, 2015. Management also believes that reporting normalized organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue growth performance with prior and future periods. Normalized organic revenue growth excludes the impact of changes in our significant distributors’ inventory levels on organic revenue growth. When selling our products through distributors, changes in distributors’ inventory levels can impact our reported sales, and these changes may be affected by many factors, which may not be directly related to underlying end-user demand for our products. Effective January 1, 2015, we fully transitioned to an all-direct sales strategy in the US, however changes in prior year US distributors’ inventory levels can still impact current year reported growth results. In certain countries internationally, we continue to sell our products through third party distributors. Although we are unable to obtain data for sales to end users from certain less significant non-US third party distributors, we do not believe the impact of changes in these distributors’ inventories had or would have a material impact on our growth rates in the relevant periods. Reconciliation of organic revenue growth to normalized organic revenue growth for the first quarter of 2015 includes the following positive/(negative) impacts to organic revenue growth from changes in our significant distributors’ inventory levels; Total Company 0.2%, US 0.1%, International 0.4%, CAG 0.2%, CAG Diagnostics Recurring 0.3%, VetLab consumables 1.8%, VetLab service and accessories 0.4%, and Rapid Assay (1.9%).
3Normalized organic revenue growth excluding margin capture is a non-GAAP financial measure. Management believes that reporting normalized organic revenue growth excluding margin capture provides useful information to investors by facilitating easier comparisons of our normalized organic revenue growth performance with prior and future periods. Normalized organic revenue growth excluding margin capture is normalized organic revenue growth as described in the footnote 2 above, adjusted to exclude the impact of margin gained from selling our products directly to our US based customers as opposed to through third party distributors. Reconciliation of normalized organic revenue growth to normalized organic revenue growth excluding margin capture for the first quarter of 2015 includes the following positive impacts to organic revenue growth from margin capture; Total Company 3.2%, US 5.3%, International 0.0%, CAG 3.9%, CAG Diagnostics Recurring 4.5%, VetLab consumables 8.9%, VetLab service and accessories 1.0%, and Rapid Assay 9.1%.
4Adjusted EPS and Adjusted EPS growth are non-GAAP financial measures. Management believes that reporting Adjusted EPS provides useful information to investors by facilitating easier comparisons of our EPS performance with prior and future periods.
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