WESTBROOK, Maine, Oct. 27 /PRNewswire-FirstCall/ -- IDEXX Laboratories, Inc. , today reported that revenue for the third quarter of 2006 increased 19% to $187.4 million from $158.1 million for the third quarter of 2005. Earnings per diluted share (“EPS”) for the quarter ended September 30, 2006 increased 25% to $0.76 from $0.61 for the same period in the prior year.
Non-GAAP adjusted diluted EPS for the third quarter grew 36% compared to the same period of the prior year. Non-GAAP adjusted diluted EPS for the third quarter of 2006 excludes the after-tax impact of share-based compensation expense of $0.06 per diluted share, including the impact of SFAS No. 123(R). For the quarter ended September 30, 2005, non-GAAP adjusted diluted EPS excludes acquisition integration costs of $0.01 per diluted share. Management believes adjusted diluted EPS 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.
“We are pleased with the third quarter performance of all of our lines of business,” said Jonathan Ayers, Chairman and CEO. “In addition to this strong operating performance, reported revenues and earnings benefited from the timing of shipments of companion animal products to distributors. We expect that this timing issue will have a corresponding negative impact on fourth quarter results as distributor inventories are reduced. Additionally, the third quarter benefited from a lower tax rate than we saw in the first half of the year. Therefore, we have not increased our 2006 full year EPS guidance other than to raise the low end of the range to $2.67 from $2.64. The high end of our EPS guidance remains at $2.70.”
Companion Animal Group (“CAG”) revenue for the third quarter of 2006 increased 19% to $153.1 million from $128.7 million for the third quarter of 2005 due to higher sales in all CAG product and service categories, with the largest growth in revenue dollars from laboratory and consulting services and from instruments and consumables. Changes in distributor inventory levels, which are not fully indicative of end-user demand, had a 3% favorable impact on revenue growth and had a significant impact on the reported growth of our Rapid Assay business. Businesses acquired since July 2005, consisting primarily of veterinary reference laboratories, a digital radiography business, and intellectual property and distribution rights of a veterinary diagnostics business, contributed 3% to CAG revenue growth. The favorable impact of foreign currency exchange rates contributed 1% to CAG revenue growth.
Water segment revenue for the third quarter increased 10% to $16.6 million from $15.1 million for the third quarter of 2005 primarily due to higher worldwide sales volume, partly offset by lower average unit sales prices. The favorable impact of foreign currency exchange rates contributed 2% to Water revenue growth.
Food Diagnostics Group (“FDG”) revenue for the third quarter increased 24% to $17.7 million from $14.3 million for the third quarter of 2005 primarily due to higher worldwide livestock diagnostics sales volume, particularly of the IDEXX HerdChek(R) test for transmissible spongiform encephalopathies. The
favorable impact of foreign currency exchange rates contributed 3% to FDG revenue growth.
Year-to-date results
Year-to-date revenue increased 16% to $546.9 million from $471.1 million for the same period in 2005. Businesses acquired since the beginning of 2005 added 2% to revenue growth. Changes in foreign currency exchange rates did not have a significant impact on the reported revenue growth rate. Revenue for the nine months ended September 30, 2006, adjusted for the impacts of acquisitions and foreign currency exchange rates, increased 15%.
Year-to-date earnings per diluted share increased 23% to $2.09 from $1.70 for the same period in the prior year. Non-GAAP adjusted diluted EPS for the nine months ended September 30, 2006 grew 29% compared to the same period in the prior year. Non-GAAP adjusted diluted EPS for the nine months ended September 30, 2006 excludes the after-tax impact of share-based compensation expense of $0.20 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 nine months ended September 30, 2005, non-GAAP adjusted diluted EPS excludes acquisition integration costs of $0.04 per diluted share.
Companion Animal Group (“CAG”) revenue for the nine months ended September 30, 2006 increased 17% to $449.3 million from $384.9 million due to higher sales in all CAG product and service categories, with the largest growth in revenue dollars from laboratory and consulting services and from instruments and consumable products. Businesses acquired since the beginning of 2005, consisting primarily of veterinary reference laboratories, a digital radiography business, and intellectual property and distribution rights of a veterinary diagnostics business, contributed 2% to CAG revenue growth. Changes in foreign currency exchange rates did not have a significant impact on the CAG revenue growth rate.
Water segment revenue for the nine months ended September 30, 2006 increased 4% to $43.7 million from $42.2 million primarily due to higher sales volume in the Americas and Europe. Changes in foreign currency exchange rates did not have a significant impact on the Water revenue growth rate.
Food Diagnostics Group (“FDG”) revenue for the nine months ended September 30, 2006 increased 22% to $53.9 million from $44.1 million for the same period in 2005. This increase is primarily due to higher worldwide sales volume of livestock diagnostics. The unfavorable impact of foreign currency exchange rates reduced FDG revenue growth by 1%.
Outlook
The Company offers the following revised guidance for the full year of 2006:
* Revenue is expected to be $732 to $735 million, updated from $730 to $734 million. * Diluted earnings per share are expected to be $2.67 to $2.70, updated from $2.64 to $2.70 (including $0.04 of certain income tax benefits as described below). The Company offers the following guidance for the full year of 2007: * Revenue is expected to be $820 to $830 million. * Diluted earnings per share are expected to be $3.00 to $3.12. Additional operating results
Gross profit for the third quarter of 2006 increased $16.9 million, or 21%, to $98.2 million from $81.3 million for the third quarter of 2005. As a percentage of revenue, gross profit increased to 52% from 51%. The gross profit percentage was favorably impacted by the lower cost of slides sold for use in IDEXX VetTest(R) chemistry analyzers and by higher average sales prices in certain businesses.
Research and development (“R&D”) expense for the quarter was $13.7 million compared to $10.5 million for the third quarter of 2005. As a percentage of revenue, R&D expense was constant at 7% for the third quarters of 2006 and 2005.
Selling, general and administrative (“SG&A”) expense for the quarter was $50.0 million, or 27% of revenue, compared to $40.7 million, or 26% of revenue, in the third 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 was adopted on January 1, 2006; and higher spending on information technology and other general support functions.
The discrete income tax benefits of $0.04 per diluted share for the nine months ended September 30, 2006, 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.
Conference Call and Webcast Information
IDEXX Laboratories will be hosting a conference call today at 9:00 a.m. (eastern) to discuss its third quarter results. To participate in the conference call, dial 800-967-7185 or 719-457-2633 and reference confirmation code 3237643. An audio replay will be available through November 3 by dialing 719-457-0820 and referencing replay code 3237643.
The call will also be available via live or archived Webcast on the IDEXX Laboratories’ web site at http://www.idexx.com.
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. IDEXX 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 3,500 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 June 30, 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 Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 Revenue: Revenue $ 187,380 $ 158,069 $ 546,908 $ 471,125 Expenses and Income: Cost of revenue 89,181 76,740 263,648 233,141 Gross profit 98,199 81,329 283,260 237,984 Sales and marketing 29,051 24,303 84,668 75,221 General and administrative 20,990 16,360 60,463 47,304 Research and development 13,696 10,543 39,666 30,312 Income from operations 34,462 30,123 98,463 85,147 Interest income, net 609 918 1,972 2,292 Income before provision for income taxes and partner’s interest 35,071 31,041 100,435 87,439 Provision for income taxes 10,118 10,547 31,581 29,533 Partner’s share of consolidated loss - (110) (152) (321) Net Income: Net income $24,953 $20,604 $69,006 $58,227 Earnings per share: Basic $0.80 $0.63 $2.19 $1.78 Earnings per share: Diluted $0.76 $0.61 $2.09 $1.70 Shares outstanding: Basic 31,210 32,482 31,491 32,686 Shares outstanding: Diluted 32,731 34,044 33,022 34,183 IDEXX Laboratories, Inc. and Subsidiaries Key Operating Information (Unaudited) Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 Key Operating Gross profit 52.4% 51.5% 51.8% 50.5% Ratios (as a Sales, marketing, percentage of general and revenue): administrative expense 26.7% 25.7% 26.5% 26.0% Research and development expense 7.3% 6.7% 7.3% 6.4% Income from operations 18.4% 19.1% 18.0% 18.1% International International Revenue: revenue (in thousands) $63,955 $52,464 $190,355 $163,432 International revenue as percentage of total revenue 34.1% 33.2% 34.8% 34.7% 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 Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 GAAP measurement $98,199 $81,329 $34,462 $30,123 Specified items: Share-based compensation costs 423 - 2,539 - Acquisition integration costs - 45 - 406 Non-GAAP comparative measurements(1) $98,622 $81,374 $37,001 $30,529 Earnings per Share Net Income Diluted Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 GAAP measurement $24,953 $20,604 $0.76 $0.61 Specified items: Share-based compensation costs 2,111 - 0.06 - Acquisition integration costs - 268 - 0.01 Non-GAAP comparative measurements(1) $27,064 $20,872 $0.83 $0.61 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 and cash flows, 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 results 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 results. We do not consider the pro forma 2005 financial results 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 results 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. IDEXX Laboratories, Inc. and Subsidiaries Non-GAAP Financial Measures Amounts in thousands except per share data (Unaudited) Nine Months Ended Income from Gross Profit Operations Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 GAAP measurement $283,260 $237,984 $98,463 $85,147 Specified items: Share-based compensation costs 1,222 - 8,004 - Acquisition integration costs - 924 - 1,903 Discrete income tax benefits - - - - Non-GAAP comparative measurements(1) $284,482 $238,908 $ 106,467 $87,050 Earnings per Share Net Income Diluted Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 GAAP measurement $69,006 $58,227 $2.09 $1.70 Specified items: Share-based compensation costs 6,603 - 0.20 - Acquisition integration costs - 1,263 - 0.04 Discrete income tax benefits (1,281) - (0.04) - Non-GAAP comparative measurements(1) $74,328 $59,490 $2.25 $1.74 (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 and tax benefits that impact net income and cash flows, 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 results 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 results. We do not consider the pro forma 2005 financial results 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 results 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 create 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 Amounts in thousands (Unaudited) Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 Revenue: Companion Animal Group $ 153,058 $ 128,676 $ 449,324 $ 384,888 Water 16,579 15,077 43,732 42,154 Food Diagnostics Group 17,743 14,316 53,852 44,083 Total $ 187,380 $ 158,069 $ 546,908 $471,125 Gross Profit: Companion Animal Group $76,739 $62,926 $ 223,475 $185,014 Water 11,026 10,226 28,853 28,325 Food Diagnostics Group 10,856 8,177 32,153 24,645 Other (422) - (1,221) - Total $98,199 $81,329 $283,260 $237,984 Income from Operations: Companion Animal Group $26,436 $21,303 $78,541 $61,602 Water 7,843 7,276 19,482 19,320 Food Diagnostics Group 4,153 2,518 12,565 6,856 Other (3,970) (974) (12,125) (2,631) Total $34,462 $30,123 $98,463 $85,147 Gross Profit (as a percentage of revenue): Companion Animal Group 50.1% 48.9% 49.7% 48.1% Water 66.5% 67.8% 66.0% 67.2% Food Diagnostics Group 61.2% 57.1% 59.7% 55.9% Income from Operations (as a percentage of revenue): Companion Animal Group 17.3% 16.6% 17.5% 16.0% Water 47.3% 48.3% 44.5% 45.8% Food Diagnostics Group 23.4% 17.6% 23.3% 15.6% IDEXX Laboratories, Inc. and Subsidiaries Revenues by Product and Service Categories Amounts in thousands (Unaudited) Three Months Ended Percentage Percentage Change Change from Net of Acquisi- Acquisi- tions(1)& tions& Sept. 30, Sept. 30, Dollar Percentage Currency(2)Currency 2006 2005 Change Change Changes Effect Net CAG Revenue: Instruments and consumables $60,295 $52,438 $7,857 15.0% 1.5% 13.5% Rapid assay products 30,181 25,291 4,890 19.3% 2.4% 16.9% Laboratory and consulting services 47,893 39,987 7,906 19.8% 5.1% 14.7% Practice information systems and digital radiography 10,287 7,166 3,121 43.6% 23.0% 20.6% Pharmaceutical products 4,402 3,794 608 16.0% - 16.0% Net CAG revenue 153,058 128,676 24,382 18.9% 3.9% 15.0% Net Water Revenue: Water 16,579 15,077 1,502 10.0% 1.8% 8.2% Net FDG Revenue: Production animal products 13,907 10,558 3,349 31.7% 3.3% 28.4% Dairy-testing products 3,836 3,758 78 2.1% 1.4% 0.7% Net FDG revenue 17,743 14,316 3,427 23.9% 2.8% 21.1% Net Revenue: $187,380 $158,069 $29,311 18.5% 3.6% 14.9% (1) Represents the percentage change in revenue attributed to incremental revenues from businesses acquired since July 2005 during the three months ended September 30, 2005 compared to the three months ended September 30, 2006. (2) Represents the percentage change in revenue attributed to the effect of changes in currency rates from the three months ended September 30, 2005 to the three months ended September 30, 2006. IDEXX Laboratories, Inc. and Subsidiaries Revenues by Product and Service Categories Amounts in thousands (Unaudited) Nine Months Ended Percentage Percentage Change Change from Net of Acquisi- Acquisi- tions(1)& tions& Sept. 30, Sept. 30, Dollar Percentage Currency(2)Currency 2006 2005 Change Change Changes Effect Net CAG Revenue: Instruments and consumables $177,326 $158,356 $18,970 12.0% -0.2% 12.2% Rapid assay products 88,812 77,440 11,372 14.7% 0.5% 14.2% Laboratory and consulting services 139,287 116,898 22,389 19.2% 3.6% 15.6% Practice information systems and digital radiography 30,764 21,826 8,938 41.0% 16.5% 24.5% Pharmaceutical products 13,135 10,368 2,767 26.7% - 26.7% Net CAG revenue 449,324 384,888 64,436 16.7% 2.0% 14.7% Net Water Revenue: Water 43,732 42,154 1,578 3.7% - 3.7% Net FDG Revenue: Production animal products 42,310 32,376 9,934 30.7% -1.4% 32.1% Dairy-testing products 11,542 11,707 (165) -1.4% -1.1% -0.3% Net FDG revenue 53,852 44,083 9,769 22.2% -1.3% 23.5% Net Revenue: $546,908 $471,125 $75,783 16.1% 1.5% 14.6% (1) Represents the percentage change in revenue attributed to incremental revenues from businesses acquired since January 2005 during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2006. (2) Represents the percentage change in revenue attributed to the effect of changes in currency rates from the nine months ended September 30, 2005 to the nine months ended September 30, 2006. IDEXX Laboratories, Inc. and Subsidiaries Consolidated Balance Sheet Amounts in thousands (Unaudited) September 30, December 31, 2006 2005 Assets: Current Assets: Cash and cash equivalents $50,950 $67,151 Short-term investments 43,641 65,580 Accounts receivable, net 79,301 71,688 Inventories 93,242 69,369 Other current assets 24,760 25,457 Total current assets 291,894 299,245 Property and equipment - cost 179,328 142,777 Less: accumulated depreciation 88,163 77,080 Property and equipment, net 91,165 65,697 Other long-term assets, net 141,913 125,734 Total assets $524,972 $490,676 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable $23,193 $19,842 Accrued expenses 84,434 78,208 Current portion of long-term debt 665 551 Deferred revenue 8,440 7,965 Total current liabilities 116,732 106,566 Total long-term liabilities 20,655 14,800 Partner’s interest in subsidiary - 300 Stockholders’ Equity: Common stock
