IDEXX Laboratories, Inc. Announces Fourth Quarter Results

WESTBROOK, Maine, Jan. 30, 2015 /PRNewswire/ -- IDEXX Laboratories, Inc. (NASDAQ: IDXX) today reported revenues for the fourth quarter of 2014 of $352 million. Continued strong normalized organic revenue growth^1,2 was offset in the quarter by a one-time $25 million reduction in US channel inventory related to the Company’s transition to a fully-direct CAG Diagnostics sales strategy in the US and foreign exchange impacts from a stronger US dollar, resulting in a 1% reported revenue decline. Adjusting for one-time channel inventory reductions, the effect of foreign exchange rate changes, and revenue attributable to acquisitions, normalized organic revenue growth for the quarter was 9%, and 10% for the full year, supported by 11.5% normalized organic growth in CAG Diagnostics recurring revenues in Q4 and 11.4% for the full year.

Earnings per diluted share (“EPS”) was $0.54 for the fourth quarter and $3.58 for the year. Reported EPS includes impacts related to the transition to the all-direct CAG Diagnostics sales approach in the US of $0.41 per share for the fourth quarter and $0.45 for the full year 2014, consistent with expectations. Adjusted EPS³, which excludes these impacts, was $3.99 for the full year including a $0.065 per share benefit from the 2014 extension of the federal research and development (“R&D”) tax credit. Adjusted EPS grew 15% for the year despite a negative 3% growth impact related to changes in net foreign exchange rates.

“We are very pleased with the market and financial performance we achieved in the quarter, in particular the record levels of premium instrument placements that we reported earlier in the month and the continued strength in our CAG Diagnostics recurring revenue in both the US and international operations. CAG Diagnostics recurring revenue grew in total over 11% on a normalized organic basis,” said Jonathan Ayers, the Company’s Chairman and Chief Executive Officer. “These results cap a year where we successfully accelerated our normalized organic revenue growth 3 points to 10%, while completing the transformation of our US Companion Animal Group to a fully-direct model.”

“Our continued innovation includes the announcement of our new reference lab SDMA test for chronic kidney disease, as well as an advanced reference lab fecal panel for intestinal parasites. These introductions, along with Catalyst One and SNAP Pro, will combine with a stronger presence with customers resulting from our US all-direct sales strategy and continued development of our international operations to drive continued advancement in the standard of care practiced by veterinary practices globally and our Company’s profitable organic revenue growth. These significant accomplishments give us confidence that the enduring growth annuity of our CAG Diagnostics recurring revenue, which makes up over 70% of the Company’s total annual revenue, will continue to exhibit strong growth in 2015 and years beyond. Reflecting our strong momentum, we are raising our guidance for 2015 normalized organic revenue growth to 13.5% to 14.5%,” added Ayers.

Fourth Quarter Financial Performance Highlights

Fourth quarter revenue was $352 million, net of $25 million of impact related to reductions in US channel inventories. This one-time impact and foreign exchange rate changes which lowered reported revenue growth by 3%, resulted in a 1% reduction in reported revenues.

Underlying operating trends remained strong, reflected in fourth quarter normalized organic revenue growth of 9%. These results were supported by continued solid normalized organic revenue growth across regions and business segments.

• Companion Animal Group (“CAG”) normalized organic revenue growth was 9% for the fourth quarter. Normalized CAG Diagnostics recurring organic revenue growth of 11.5% benefited less than 1% from incremental margin on sales through our US direct sales channel and was driven by 15% gains in IDEXX VetLab^® consumables and 13% growth in reference lab and consulting services.
• Catalyst placements increased 19% and premium hematology instrument placements 23% in the fourth quarter compared to the prior-year period. Instrument revenues in the fourth quarter of 2014 declined 9% organically, reflecting the lower price point for Catalyst One, greater instrument placements with a deferred revenue component including placements associated with the Catalyst One introductory offer, and lower average prices for certain instruments internationally.
• Livestock, Poultry and Dairy (“LPD”) organic revenue growth² was 10% for the fourth quarter, primarily as a result of strong worldwide bovine product volume.
• Water’s organic revenue growth was also 10% in the fourth quarter, supported by worldwide customer acquisitions.

Gross margins for the fourth quarter decreased to 51.8% from 53.3% in the prior-year period, primarily due to transitional expenses associated with expanding US distribution and the impact of US channel inventory reductions on product mix, both associated with the transition to the US all-direct sales model. Adjusting for these impacts, comparable gross margins increased moderately benefitting from lower product costs and modest net price increases.

Operating expenses for the fourth quarter increased 16%, or 8% excluding $10 million of expenses associated with the transition to an all-direct sales strategy for US CAG Diagnostics, reflecting planned increases in global commercial resources.

Operating margin decreased from 17.3% in the prior-year period to 9.9% for the fourth quarter. This reduction entirely reflects the transitional impacts related to the all-direct CAG Diagnostics sales strategy implementation in the US. The following table adjusts fourth quarter and full-year operating margin results to normalize for these effects:

The accompanying financial tables provide more information concerning our revenue and other operating results for the three months and twelve months ended December 31, 2014.

Financial Outlook for 2015

The Company is updating its financial guidance, in part to reflect the significant 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 growth by approximately 5% and EPS by an estimated $0.22 per share compared to rates in effect in 2014. Compared to assumptions used in our prior guidance for 2015 provided during our third quarter earnings call on October 24, 2014, the continued strengthening of the US dollar has the effect of lowering projected revenue by approximately $55 million and EPS by $0.13 per share. These effects are mitigated by the Company’s raised expectation for normalized organic revenue growth and assumptions for a 30% effective tax rate, resulting in a net $0.05 per share reduction in our 2015 EPS guidance range compared to our prior guidance provided in October of 2014.

The Company provides the following updated guidance for 2015:

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 $1.12, the British pound at $1.50, the Canadian dollar at $0.80, the Australian dollar at $0.81 and the Japanese yen at ¥120 to the US dollar for the full year of 2015.

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%. Changes in net foreign exchange rates are projected to reduce Adjusted EPS growth by 6% in 2015.

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. The comparison of 2015 guidance excluding the federal R&D tax credit, to 2014 results including this tax credit, reduces projected Adjusted EPS growth by 2%.

We are projecting a reduction in weighted average shares outstanding of approximately 6.5% to 7.0%, and interest expense, net of interest income, of approximately $27 to $28 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. 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 fourth quarter results and management’s outlook. To participate in the conference call, dial 1-800-230-1092 or 1-612-332-0530 and reference confirmation code 351513. An audio replay will be available through Friday, February 6, 2015 by dialing 1-320-365-3844 and referencing replay code 351513.

The call will also be available via live or archived webcast on the IDEXX Laboratories’ website at http://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 6,000 people and offers products to customers in over 175 countries.

¹ All references to growth and organic growth refer to growth compared to the equivalent period in 2013.

² Normalized 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 fourth quarter of 2014 excludes the impact of changes in foreign currency exchange rates, which had a 3% unfavorable impact on revenue growth, and revenue from business acquisitions, which contributed 0.5% to revenue growth. Organic revenue growth for the full year of 2014 excludes the impact of changes in foreign currency exchange rates, which had a 0.7% unfavorable impact on revenue growth, and revenue from business acquisitions, which contributed 0.6% to revenue growth.

To read full press release, please click here.

Help employers find you! Check out all the jobs and post your resume.