IDEXX Laboratories, Inc. (IDXX)

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IDEXX Laboratories, Inc. (IDXX)

Q4 2012 Earnings Call

January 29, 2013 9:00 AM ET


Jonathan Ayers - Chairman, President and Chief Executive Officer

Merilee Raines - Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary

Pete Levine - Director, Investor Relations


David Clair - Piper Jaffray

Kristina Blaschek - William Blair

Erin Wilson - Bank of America

Ross Taylor - CL King

Jonathan Block - Stifel Nicolaus

Nicholas Jansen - Raymond James & Associates

Ben Haynor - Feltl and Company

Jeff Frelick - Canaccord



Good morning everyone and welcome to the IDEXX Laboratories' fourth quarter 2012 earnings conference call. 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 IDEXX's future expectations, plans and 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. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences are described in IDEXX's quarterly report on Form 10-Q for the quarter ended September 30, 2012, in the section captioned Risk Factors, which is 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 expectations as of any subsequent date. The company specifically disclaims any obligation to update or revise any forward-looking statements in the future even if its 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 reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release which can be found on our website,

Finally, we plan to end today's call by 10:00 AM Eastern. 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.

Merilee Raines

Good morning and thanks for joining us today, as we discuss our fourth quarter 2012 results and outlook for 2013. As we reported this morning, our fourth quarter revenues were $319.5 million, yielding organic growth of 4% and diluted earnings per share were $0.78, a year-to-year increase of 16%. Organic revenue growth was a couple of points shy of our expectation at the time of our third quarter call, with the primarily shortfalls coming from revenue associated with capital placements and our reference labs and consulting services.

As I will explain in further detail momentarily, there were some transitory factors that impacted results such as weather, most notably Hurricane Sandy as well as the timing of the Christmas and New Year holidays. We estimate that their combined impact reduced topline growth by nearly one point.

And looking at the components of overall growth, the metrics for the fundamental growth and value drivers in our principal companion animal businesses, which are chemistry and hematology instrument placements, instrument consumable growth, reference laboratory and rapid assay growth are all very sound and portend well in our view for accelerating growth in 2013.

Earnings per share exclusive of the third and final milestone payment of $3.5 million or $0.04 related to the sale in late 2008 of our feline diabetes therapeutics were a couple of pennies above our thinking, due primarily to efficiencies achieved in operating expenses. Currency had an immaterial impact on EPS versus our expectations.

Before discussing our fourth quarter performance, as we customarily do, I want to share what we are seeing in the U.S. veterinary market based on data from a subset of our Cornerstone Practice Management customers. In the fourth quarter patient visits grew by about 3% and practice revenues grew by 5%. Growth in patient visits in October was roughly a point lower than the average for the quarter and based on the geographic trends, we attribute this largely to the effects of Hurricane Sandy.

Normalizing for Sandy's impact, we project patient visit growth for the quarter would have been about 3.5%, very much in line with the second and third quarter metrics. Quite consistently throughout the year, we have seen practice revenue growth a couple of points higher than patient visit growth, which we believe indicates that practices are achieving some modest price realization.

In Europe overall, our Companion Animal Group businesses grew organically at just over 4%, about a point step-down from the growth rate for the first nine months. Though, Spain remains troubled and we saw a slight deterioration in growth in France, performance in Italy improved and Germany remains solid and steady.

We were pleased with a nice acceleration and growth in the U.K. and emerging markets in Eastern Europe. Q4 was a quarter of readying for our transition towards direction companion animal sales force in the Nordic region and we expect that to be a growth contributor in 2013.

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