IDEXX Laboratories, Inc. (IDXX)

Q3 2011 Earnings Call

October 21, 2011 9:00 am ET


Jon Ayers - CEO

Merilee Raines - CFO

Pete Levine - Director, IR


Ryan Daniels - William Blair

David Clair - Piper Jaffray

Miroslava Minkova - Leerink Swann

Jonathan Block - SunTrust

Nicholas Jansen - Raymond James & Associates

Ross Taylor - C.L. King & Associates

Anne Wilson - Bank of America



Good morning everyone and welcome to the IDEXX Laboratories Third 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 expect, may, anticipate, intend, would, will, plans, believe, estimate, 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 June 30, 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 will 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

Good morning and thanks for joining our call today. The quarter's financial performance overall was largely in line with our expectations at the time of our second quarter call in July.

Our third quarter revenues of $301 million grew organically 8% after adjusting for a 4% favorable impact from currency. The mix of revenues was somewhat different from our thinking back in July with relatively stronger performance in out VetLab instrument placements offsetting a somewhat lighter performance in our Digital Radiography and Practice Management product line.

Diluted earnings per share of $0.66 were slightly above our expectation due largely to the receipt of the final balance owed to us of just over $1 million for inventory sold when we divested certain pharmaceutical product lines at the end of 2008. this payment which contributed $0.01 to earnings was recorded as a reduction to G&A expense. Beyond this payment, lower operating expenses offset a slightly lower gross margin primarily a function of revenue mix.

Our organic revenue growth performance continued to get little to no benefit from the macroeconomic environment. Our internal gauge for the vitality of the US companion animal health market practice managed practice metrics from a consistent subset of veterinary clinics who use our Cornerstone Practice Management System showed that in aggregate patient visits were flat year to year in the third quarter and practice revenue growth was about 3%. This is ever so slight an improvement from what they have observed in the previous two quarters when patient business were down 0.5% and practice revenue growth was about 2%. In our view, this indicates a market that continues to stabilize and reaffirms our belief that improving trends will be very gradual.

Though Europe has its own set of fiscal and monetary issues, our companion animal business in that region had strong performance in the third quarter with organic revenue growth of about 10%.

Now, for some further detail on revenue performance in some of our business. Our IDEXX VetLab Instruments and Consumables with third quarter revenue of $99.7 million posted organic growth of 9%. Sales of instruments in our IDEXX VetLab suite at $24.8 million grew organically 14% year to year in the third quarter, a nine point increase over our second quarter instrument organic growth.

Our ProCyte and LaserCyte hematology placements increased 38% year-over-year and our Catalyst and VetTest Chemistry placements increased 19% year-over-year. Once again ProCyte, with third quarter placements up 279 units, was a significant contributor to our overall instrument growth. With year-to-date placements of nearly 800, we are well on track to exceed our initial 2011 target of 1000 units by 10 to 15%.

LaserCyte placements were also solid, up 16% year to year and roughly two-thirds of those placements were instruments that we had taken in trade and certified for resale.

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