IDEXX Laboratories, Inc. ( IDXX)

Q2 2011 Earnings Conference Call

July 22, 2011 09:00 ET


Merilee Raines – Chief Financial Officer

Jon Ayers – Chief Executive Officer


Nicholas James – Raymond James and Associates

Ryan Daniels – William Blair and Company

Miroslava Minkova – Leerink Swann

David Clair – Piper Jaffray

Ross Taylor – C. L. King

Jonathan Block – SunTrust

Erin Wilson – Bank of America/Merrill Lynch

Mitra Ramgopal – Sidoti



Good morning everyone and welcome to the IDEXX Laboratories Second Quarter 2011 Earnings Conference Call. Just a reminder, today’s conference is being recorded. Participating in the call this morning are Jon Ayers, Chief Executive Officer; Merilee Raines, Chief Financial Officer; and Pete Levine, Director, Investor Relations.

IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that statements that members of IDEXX management may make on this call regarding management’s future expectations and plans and IDEXX’s future prospects constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements 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. Such statements include, but are not limited to statements regarding management’s expectations for financial results for future periods.

Listeners are reminded that actual results could differ materially from management’s expectations. Factors that could cause or contribute to such differences are described in IDEXX’s quarterly report on Form 10-Q for the quarter ended March 31, 2011 and annual report on Form 10-K for the year ended December 31, 2010 in the section captioned Risk Factors, which are on file with the SEC and also available on IDEXX’s website,

In addition, any forward-looking statements represent IDEXX’s estimates only as of today and should not be relied upon as representing the company’s estimates as of any subsequent date. The company disclaims any obligation to update or revise any forward-looking statements in the future even if its estimates or expectations change.

Also during this call, we will be discussing certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. A definition of these non-GAAP financial measures is provided in our earnings release, which can be found on our website

Finally, we plan to end today’s call by 10 AM Eastern and in order to allow broad participation in the Q&A, we ask that each participant limit his or her questions to one with one follow-up as necessary. We do appreciate you may have additional questions, so please feel free to get back into the queue. And if time permits, we’ll be more than happy to take your additional questions.

I would now like to turn the conference over to Merilee Raines. Please go ahead.

Merilee Raines – Chief Financial Officer

Good morning and thank you for joining us today. First, a quick overview of our second quarter results. In our press release this morning, we reported revenues of $317.9 million, a year-to-year growth of 13% and diluted earnings per share of $0.83, a growth of 34%.

Revenues were somewhat favorable to our thinking at the time of our April call and earnings per share were about $0.05 above our thinking at that time. Revenue performance relative to our expectations was the results of a few factors. First, U.S. distributor inventory levels for instrument consumables and rapid assays ended the quarter slightly above our customary range of three to four weeks. Additionally, revenues from livestock and poultry diagnostic kits were higher than expected, offsetting somewhat lower revenues from instrument placements. The higher distributor inventory levels contributed 2 pennies of earnings favorability. The remaining $0.03 of favorability came from operating performance, as manifested in the gross margin, primarily due to favorable revenue mix, as well as lower spending on operating expenses.

The economic environment continues to provide no benefit to our largest market the companion animal veterinary market. Second quarter data from a subset of customers who used our Cornerstone Practice Management System show that in aggregate patients visits were down just over 0.5% year-to-year and practice revenue growth was about 2% both very consistent with what we observed in the first quarter. What we see causes us to maintain our views at while the market is stabilizing in North America. A return to more robust growth will be very gradual and somewhat uneven, given the sensitivity of consumer sentiment to vast leading economic news.

The situation in Europe varies by country, but we believe overall it is consistent with the U.S. As per the Asian markets, the fundamentals are generally stronger, and we have not seen a significant impact to our businesses resulting from the natural disasters in Japan back in March. Second quarter revenues grew organically 8% after adjusting for a 5% favorable impact from currency. This organic growth is on par with the first quarter and up 2 points from the 6% we achieved in Q4 and for the full year last year. Our instruments and consumables with second quarter revenues up $98.6 million posted organic growth of 9%. When further adjusted for changes in distributor inventory levels for consumables, the growth rate was 8%. As for the individual components, revenues from sales for our IDEXX VetLab instruments at $21.1 million grew 5% organically.

Total placements for our primary consumable generating instruments, chemistry and hematology increased 17% year-to-year. Our ProCyte and LaserCyte Hematology placements increased by nearly 70% driven by ProCyte with 284 installations in the quarter. Even with the success of ProCyte, the interest in LaserCyte remained strong and placements were only down about 10% year-to-year despite the fact that ProCyte was not in the market in the second quarter of last year. This interest affords us the opportunity to sell both new LaserCytes and those we take in trade from the ProCyte sale and refurbish.

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