WESTBROOK, Maine, July 28 /PRNewswire-FirstCall/ -- IDEXX Laboratories, Inc. , today reported that revenue for the second quarter of 2006 increased 19% to $191.4 million from $160.6 million for the second quarter of 2005. Earnings per diluted share (“EPS”) for the quarter ended June 30, 2006 increased 32% to $0.78 from $0.59 for the same period in the prior year.
Non-GAAP adjusted earnings per diluted share for the second quarter grew 37% compared to the same period of the prior year. Non-GAAP adjusted diluted EPS for the second quarter of 2006 excludes the after-tax impact of share-based compensation expense of $0.07 per diluted share, including the impact of SFAS No. 123(R), and income tax benefits from certain discrete events of $0.04 per diluted share, which are described below. For the quarter ended June 30, 2005, non-GAAP adjusted diluted EPS excludes acquisition integration costs of $0.01 per diluted share. Management believes adjusted earnings per diluted share is a useful non-GAAP financial measure to evaluate the results of ongoing operations, excluding significant specified items, period over period, and therefore believes that investors may find this information useful in addition to the GAAP results.
“The first half of 2006 was a period where we saw our investments in sales and marketing, innovation and quality pay off with strong top line and bottom line growth,” said Jonathan Ayers, Chairman and CEO. “We were also benefiting from the strong market fundamentals for our businesses around the world. Our new guidance for the full year of 2006 reflects this performance. However, we still have much work ahead of us to implement the key strategies that will allow us to realize the full potential of our business model.”
Companion Animal Group (“CAG”) revenue for the second quarter of 2006 increased 19% to $156.9 million from $131.3 million for the second quarter of 2005 due to higher sales in all CAG product and service categories, with the largest growth in revenue dollars from instruments and consumable products followed by laboratory and consulting services. Businesses acquired since April 2005, consisting primarily of veterinary reference laboratories and a digital radiography business, contributed 2% to CAG revenue growth. Changes in foreign exchange rates did not impact the CAG revenue growth rate.
Water segment revenue for the second quarter increased 6% to $15.1 million from $14.3 million for the second quarter of 2005 primarily due to higher sales volume. The favorable impact of foreign currency contributed less than 1% to Water revenue growth.
Food Diagnostics Group (“FDG”) revenue for the second quarter increased 29% to $19.4 million from $15.0 million for the second quarter of 2005 primarily due to higher sales volume of livestock and poultry diagnostics. The unfavorable impact of foreign currency decreased FDG revenue growth by less than 1%.
First half 2006 results
Year-to-date revenue increased 15% to $359.5 million from $313.1 million for the same period in 2005. Changes in foreign currency rates reduced reported revenue growth by 1%, while acquisitions completed since the beginning of 2005 added 2% to revenue growth. Revenue for the first half of 2006, adjusted for the impacts of foreign currency and acquisitions, increased 14%.
Year-to-date earnings per diluted share increased 21% to $1.33 from $1.10 for the same period in the prior year. Non-GAAP adjusted earnings per diluted share for the six months ended June 30, 2006 grew 26% compared to the same period in the prior year. Non-GAAP adjusted diluted EPS for the six months ended June 30, 2006 excludes the after-tax impact of share-based compensation expense of $0.14 per diluted share, including the impact of SFAS No. 123(R), and income tax benefits from certain discrete events, described below, of $0.04 per diluted share. For the six months ended June 30, 2005, non-GAAP adjusted diluted EPS excludes acquisition integration costs of $0.03 per diluted share.
Companion Animal Group (“CAG”) revenue for the six months ended June 30, 2006 increased 16% to $296.3 million from $256.2 million due to higher sales in all CAG product and service categories, with the largest growth in revenue dollars from laboratory and consulting services followed closely by instruments and consumable products. Businesses acquired since the beginning of 2005, consisting primarily of veterinary reference laboratories and a digital radiography business, contributed 2% to CAG revenue growth, while the unfavorable impact of foreign exchange reduced year-to-date CAG revenue growth by 1%.
Water segment revenue for the six months ended June 30, 2006 increased less than 1% to $27.2 million from $27.1 million primarily due to higher average unit sales prices, partly offset by lower sales volume. The unfavorable impact of foreign currency reduced year-to-date Water revenue growth by 1%.
Food Diagnostics Group (“FDG”) revenue for the six months ended June 30, 2006 increased 21% to $36.1 million from $29.8 million for the same period in 2005. This increase is due to higher sales volume of livestock and poultry diagnostics. The unfavorable impact of foreign currency reduced FDG revenue growth by 4%.
Outlook
The Company offers the following revised guidance for the full year of 2006:
* Revenue is expected to be $730 to $734 million, updated from $704 to $712 million. * Diluted earnings per share are expected to be $2.64 to $2.70 (including $0.04 of certain income tax benefits as described below), updated from $2.44 to $2.52. Additional operating results
Gross profit for the second quarter of 2006 increased $18.5 million, or 23%, to $99.0 million from $80.6 million for the second quarter of 2005. As a percentage of revenue, gross profit increased to 52% from 50% in the second quarter of 2005. The increase in the gross profit percentage was attributable, in part, to lower overall manufacturing and purchased materials costs including lower cost of instruments and consumables; relatively favorable pricing in certain businesses; and higher relative sales of higher margin products.
Research and development (“R&D”) expense for the quarter was $13.3 million compared to $10.0 million for the second quarter of 2005. R&D expense as a percentage of total revenue increased to 7% from 6% in the second quarter of 2005. The increase in R&D expense resulted from increased product development spending, largely related to IDEXX VetLab(R) instrumentation.
Selling, general and administrative (“SG&A”) expense for the quarter was $48.7 million, or 25% of revenue, compared to $41.7 million, or 26% of revenue, in the second quarter of 2005. Increased SG&A expense was due primarily to higher personnel-related costs due, in part, to expanded worldwide sales, customer service and marketing headcount; share-based compensation expense, including the impact of SFAS No. 123(R) which we adopted on January 1, 2006; higher spending on information technology, facilities, and other general support functions; and incremental expenses associated with businesses acquired since April 2005, comprised mainly of incremental general and administrative expenses of a recurring nature to support the acquired businesses and amortization expense for intangible assets acquired.
The discrete income tax benefits of $0.04 per diluted share, mentioned above, were composed of a tax benefit of $0.03 per diluted share due to a reduction of previously recorded international deferred tax liabilities as a result of obtaining certain multi-year tax incentives and a tax benefit of $0.01 per diluted share due to the release of a valuation allowance on international deferred tax assets as a result of a subsidiary demonstrating consistent sustained profitability. These income tax benefits are noted because they have a favorable impact on net income and EPS that is not indicative of future performance since the items are not likely to recur within a reasonable period.
About IDEXX Laboratories
IDEXX Laboratories, Inc., is a leader in companion animal health, serving practicing veterinarians around the world with innovative, technology-based offerings, including a broad range of diagnostic products and services, practice-management systems and therapeutics. Our products enhance the ability of veterinarians to provide advanced medical care and to build more economically successful practices. IDEXX is also a worldwide leader in providing diagnostic tests and information for the production animal industry and tests for the quality and safety of water and milk. Headquartered in Westbrook, Maine, IDEXX Laboratories employs more than 3,000 people and offers products to customers in over 100 countries.
Note Regarding Forward-Looking Statements
This press 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. These statements are based on management’s expectations of future events as of the date of this press release, and the Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. Actual results could differ materially from management’s expectations. Factors that could cause or contribute to such differences include the following: the Company’s ability to develop, manufacture, introduce and market new products and enhancements to existing products; the effectiveness of the Company’s sales and marketing activities; the Company’s ability to develop, license or obtain rights to new technologies; the Company’s ability to identify acquisition opportunities, complete acquisitions and integrate acquired businesses; the impact of competition and technological change on the markets for the Company’s products; the effect of government regulation on the Company’s business, including government decisions about whether and when to approve the Company’s products and decisions regarding labeling, manufacturing and marketing products; the impact of distributor purchasing decisions on sales of our products that are sold through distribution; changes or trends in veterinary medicine that affect the rate of use of the Company’s products and services by veterinarians; the Company’s ability to obtain patent and other intellectual property protection for its products, successfully enforce its intellectual property rights and defend itself against third party claims against the Company; disruptions, shortages or pricing changes that affect the Company’s purchases of products and materials from third parties, including from sole source suppliers; the effects of government regulatory decisions, customer demand, pricing and other factors on the realizability of the Company’s inventories; the Company’s ability to manufacture complex biologic products; the effects of operations outside the U.S., including from currency fluctuations, different regulatory, political and economic conditions, and different market conditions; and the loss of key employees. A further description of these and other factors can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and on the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
IDEXX Laboratories, Inc. and Subsidiaries Consolidated Statement of Operations Amounts in thousands except per share data (Unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 Revenue: Revenue $191,364 $160,630 $359,528 $313,056 Expenses and Income: Cost of revenue 92,328 80,055 174,467 156,401 Gross profit 99,036 80,575 185,061 156,655 Sales and marketing 28,679 25,848 55,617 50,918 General and administrative 20,039 15,846 39,473 30,944 Research and development 13,292 9,995 25,970 19,769 Income from operations 37,026 28,886 64,001 55,024 Interest income, net 594 871 1,363 1,374 Income before provision for income taxes and partner’s interest 37,620 29,757 65,364 56,398 Provision for income taxes 11,879 9,934 21,463 18,986 Partner’s share of consolidated loss (39) (110) (152) (211) Net Income: Net Income $25,780 $19,933 $44,053 $37,623 Earnings per share: Basic $0.82 $0.61 $1.39 $ 1.15 Earnings per share: Diluted $0.78 $0.59 $1.33 $ 1.10 Shares outstanding: Basic 31,467 32,627 31,633 32,790 Shares outstanding: Diluted 33,014 34,060 33,216 34,250 IDEXX Laboratories, Inc. and Subsidiaries Key Operating Information (Unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 Key Operating Gross profit 51.8% 50.2% 51.5% 50.0% Ratios (as a Sales, marketing, percentage of general and revenue): administrative expense 25.5% 26.0% 26.5% 26.1% Research and development expense 7.0% 6.2% 7.2% 6.3% Income from operations 19.3% 18.0% 17.8% 17.6% International International Revenue: revenue (in thousands) $68,000 $57,419 $126,400 $110,968 International revenue as percentage of total revenue 35.5% 35.7% 35.2% 35.4% IDEXX Laboratories, Inc. and Subsidiaries Non-GAAP Financial Measures Amounts in thousands except per share data (Unaudited) Three Months Ended Income from Gross Profit Operations June 30, June 30, June 30, June 30, 2006 2005 2006 2005 GAAP measurement $99,036 $80,575 $37,026 $28,886 Specified items: Share-based compensation costs 421 - 2,669 - Acquisition integration costs - 127 - 429 Discrete income tax benefits - - - - Non-GAAP comparative measurements(1) $99,457 $80,702 $39,695 $29,315 Three Months Ended Earnings per Share Net Income Diluted June 30, June 30, June 30, June 30, 2006 2005 2006 2005 GAAP measurement $25,780 $19,933 $0.78 $0.59 Specified items: Share-based compensation costs 2,182 - 0.07 - Acquisition integration costs - 286 - 0.01 Discrete income tax benefits (1,281) - (0.04) - Non-GAAP comparative measurements(1) $26,681 $20,219 $0.81 $0.59 (1) The sum of the individual items may not equal the non-GAAP measurement due to rounding of the individual items in this presentation.
We use these supplemental non-GAAP financial measures to evaluate the Company’s comparative financial performance. The specified items that are excluded in these non-GAAP measures are actual charges that impact net income, however, we believe that it is useful to evaluate our core business performance period over period excluding these specified items, in addition to relying upon GAAP financial measures.
We adjusted 2006 GAAP financial measures to exclude the after-tax impact of the share-based compensation expense, except for the impact of deferred stock units issued under our Director Compensation Plan and our Executive Deferred Compensation Plan that do not have vesting conditions, in order to evaluate the Company’s performance relative to 2005 financial performance. We do not consider the pro forma 2005 financial measures that are included in our Annual Report on Form 10-K and quarterly reports on Form 10-Q to be reasonably comparable to 2006 financial measures with respect to the impact of share- based compensation expense due to several factors, including changes in 2006 in the types, terms and total fair value of share-based compensation awards; changes in the timing of expense recognition for 2006 awards; and differences between periods in income tax benefits. We believe that the change from period to period due to the significant acquisition integration costs recognized in 2005, which did not recur in 2006, creates a favorable impact on financial measures that is not indicative of future performance. We believe that the change from period to period due to the significant discrete income tax benefits in 2006 creates a favorable impact on financial measures that is not indicative of future performance because the items are not likely to recur within a reasonable period.
IDEXX Laboratories, Inc. and Subsidiaries Non-GAAP Financial Measures Amounts in thousands except per share data (Unaudited) Six Months Ended Income from Gross Profit Operations June 30, June 30, June 30, June 30, 2006 2005 2006 2005 GAAP measurement $185,061 $156,655 $64,001 $55,024 Specified items: Share-based compensation costs 799 - 5,465 - Acquisition integration costs - 879 - 1,497 Discrete income tax benefits - - - - Non-GAAP comparative measurements(1) $185,860 $157,534 $69,466 $56,521 IDEXX Laboratories, Inc. and Subsidiaries Non-GAAP Financial Measures Amounts in thousands except per share data (Unaudited) Six Months Ended Earnings per Share Net Income Diluted June 30, June 30, June 30, June 30, 2006 2005 2006 2005 GAAP measurement $44,053 $37,623 $1.33 $1.10 Specified items: Share-based compensation costs 4,493 - 0.14 - Acquisition integration costs - 995 - 0.03 Discrete income tax benefits (1,281) - (0.04) - Non-GAAP comparative measurements(1) $47,265 $38,618 $1.42 $1.13 (1) The sum of the individual items may not equal the non-GAAP measurement due to rounding of the individual items in this presentation.
We use these supplemental non-GAAP financial measures to evaluate the Company’s comparative financial performance. The specified items that are excluded in these non-GAAP measures are actual charges that impact net income, however, we believe that it is useful to evaluate our core business performance period over period excluding these specified items, in addition to relying upon GAAP financial measures.
We adjusted 2006 GAAP financial measures to exclude the after-tax impact of the share-based compensation expense, except for the impact of deferred stock units issued under our Director Compensation Plan and our Executive Deferred Compensation Plan that do not have vesting conditions, in order to evaluate the Company’s performance relative to 2005 financial performance. We do not consider the pro forma 2005 financial measures that are included in our Annual Report on Form 10-K and quarterly reports on Form 10-Q to be reasonably comparable to 2006 financial measures with respect to the impact of share- based compensation expense due to several factors, including changes in 2006 in the types, terms and total fair value of share-based compensation awards; changes in the timing of expense recognition for 2006 awards; and differences between periods in income tax benefits. We believe that the change from period to period due to the significant acquisition integration costs recognized in 2005, which did not recur in 2006, creates a favorable impact on financial measures that is not indicative of future performance. We believe that the change from period to period due to the significant discrete income tax benefits in 2006 creates a favorable impact on financial measures that is not indicative of future performance because the items are not likely to recur within a reasonable period.
IDEXX Laboratories, Inc. and Subsidiaries Segment Information Dollars in thousands (Unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 Revenue: Companion Animal Group $156,903 $131,332 $296,266 $256,212 Water 15,087 14,271 27,153 27,077 Food Diagnostics Group 19,374 15,027 36,109 29,767 Total $191,364 $160,630 $359,528 $313,056 Gross Profit: Companion Animal Group $78,131 $62,825 $146,736 $122,088 Water 9,866 9,622 17,827 18,099 Food Diagnostics Group 11,460 8,128 21,297 16,468 Other (421) - (799) - Total $99,036 $80,575 $ 185,061 $156,655 Income from Operations: Companion Animal Group $29,501 $21,411 $52,105 $40,299 Water 6,817 6,540 11,639 12,044 Food Diagnostics Group 4,741 1,760 8,412 4,338 Other (4,033) (825) (8,155) (1,657) Total $37,026 $28,886 $64,001 $55,024 Gross Profit (as a percentage of revenue): Companion Animal Group 49.8% 47.8% 49.5% 47.7% Water 65.4% 67.4% 65.7% 66.8% Food Diagnostics Group 59.2% 54.1% 59.0% 55.3% Income from Operations (as a percentage of revenue): Companion Animal Group 18.8% 16.3% 17.6% 15.7% Water 45.2% 45.8% 42.9% 44.5% Food Diagnostics Group 24.5% 11.7% 23.3% 14.6% IDEXX Laboratories, Inc. and Subsidiaries Revenues by Product and Service Categories Dollars in thousands (Unaudited) Three Months Ended Percentage Percentage Change Net Change from of Acqui- Acquisit- sitions and June 30, June 30, Dollar Percentage ions(1) and Currency 2006 2005 Change Change Currency(2) Effect Net CAG Revenue: Instruments and consumables $61,211 $53,045 $8,166 15.4% 0.3% 15.1% Rapid assay products 32,627 27,397 5,230 19.1% - 19.1% Laboratory and consulting services 47,811 40,367 7,444 18.4% 3.7% 14.7% Practice information systems and digital radiography 10,782 7,199 3,583 49.8% 19.6% 30.2% Pharmaceutical products 4,472 3,324 1,148 34.5% - 34.5% Net CAG revenue 156,903 131,332 25,571 19.5% 2.4% 17.1% Net Water Revenue: Water 15,087 14,271 816 5.7% 0.3% 5.4% Net FDG Revenue: Production animal products 15,450 10,956 4,494 41.0% (0.4%) 41.4% Dairy-testing products 3,924 4,071 (147) (3.6%) (0.3%) (3.3%) Net FDG revenue 19,374 15,027 4,347 28.9% (0.4%) 29.3% Net Revenue: $191,364 $160,630 $30,734 19.1% 1.9% 17.2% (1) Represents the percentage change in revenue attributed to incremental revenues from businesses acquired since April 2005. (2) Represents the percentage change in revenue attributed to the effect of changes in currency rates from the three months ended June 30, 2005 to the three months ended June 30, 2006. IDEXX Laboratories, Inc. and Subsidiaries Revenues by Product and Service Categories Dollars in thousands (Unaudited) Six Months Ended Percentage Percentage Change Net Change from of Acqui- Acquisit- sitions and June 30, June 30, Dollar Percentage ions(1) and Currency 2006 2005 Change Change Currency(2) Effect Net CAG Revenue: Instruments and consumables $117,031 $105,918 $11,113 10.5% (1.4%) 11.9% Rapid assay products 58,631 52,149 6,482 12.4% (0.5%) 12.9% Laboratory and consulting services 91,394 76,911 14,483 18.8% 2.8% 16.0% Practice information systems and digital radiography 20,477 14,660 5,817 39.7% 13.2% 26.5% Pharmaceutical products 8,733 6,574 2,159 32.8% - 32.8% Net CAG revenue 296,266 256,212 40,054 15.6% 0.9% 14.7% Net Water Revenue: Water 27,153 27,077 76 0.3% (1.0%) 1.3% Net FDG Revenue: Production animal products 28,403 21,818 6,585 30.2% (3.9%) 34.1% Dairy-testing products 7,706 7,949 (243) (3.1%) (2.4%) (0.7%) Net FDG revenue 36,109 29,767 6,342 21.3% (3.5%) 24.8% Net Revenue: $359,528 $313,056 $46,472 14.8% 0.3% 14.5% (1) Represents the percentage change in revenue attributed to incremental revenues from businesses acquired since January 2005. (2) Represents the percentage change in revenue attributed to the effect of changes in currency rates from the six months ended June 30, 2005 to the six months ended June 30, 2006. IDEXX Laboratories, Inc. and Subsidiaries Consolidated Balance Sheet Amounts in thousands (Unaudited) June 30, December 31, 2006 2005 Assets: Current Assets: Cash and cash equivalents $50,023 $67,151 Short-term investments 27,034 65,580 Accounts receivable, net 84,473 71,688 Inventories 85,540 69,369 Other current assets 24,724 25,457 Total current assets 271,794 299,245 Property and equipment - cost 172,770 142,777 Less: accumulated depreciation 83,975 77,080 Property and equipment, net 88,795 65,697 Other long-term assets, net 140,789 125,734 Total assets $501,378 $490,676 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $24,240 $19,842 Accrued expenses 89,476 78,208 Notes payable 655 551 Deferred revenue 8,950 7,965 Total current liabilities 123,321 106,566 Total long-term liabilities 21,023 14,800 Partner’s interest in subsidiary - 300 Stockholders’ Equity: Common stock 4,638 4,594 Additional paid-in capital 463,198 437,394 Deferred stock units 1,760 1,316 Retained earnings 440,989 396,936 Treasury stock, at cost (557,339) (472,096) Accumulated other comprehensive income 3,788 866 Total stockholders’ equity 357,034 369,010 Total liabilities and stockholders’ equity $501,378 $490,676 IDEXX Laboratories, Inc. and Subsidiaries Key Balance Sheet Information (Unaudited) June 30, December 31, 2006 2005 Key Balance Sheet Total cash, cash equivalents Information: and investments (in thousands) $77,057
