IDEXX Laboratories, Inc. (IDXX)

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IDEXX Laboratories, Inc. (IDXX)

Q1 2008 Earnings Call

April 25, 2008 9:00 am ET


Jim Moraldi – Director Investor Relations

Jonathan Ayers - CEO

Merilee Raines - CFO


Ryan Daniels – William Blair

Dawn Brock - JP Morgan

Ross Taylor - CL King & Associates



Good day everyone and welcome to the IDEXX Laboratories first quarter 2008 earnings conference call. Just as a reminder today's conference is being recorded. Participating in the call this morning are Jonathan Ayers, Chief Executive Officer, Merilee Raines, Chief Financial Officer, and Jim Moraldi, Director of Investor Relations.

IDEXX would like to preface the discussion 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. Such statements include but are not limited to, statements regarding management's expectations for financial results for future periods and the timing of new product introductions.

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 Form 10-K for the year ending December 31, 2007 in the section captioned Risk Factors, which are on filed 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 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.

Now at this time I would like to turn the conference over to Merilee Raines; please go ahead.

Merilee Raines

Good morning and thank you for joining us today. I will start off with a review of financials for the first quarter and our thoughts for the year. Jonathan Ayers will share with you an update on the business and we will then welcome your questions.

As you have seen in our earnings press release today revenues for the quarter were $249.1 million; a year-to-year increase of 18% and diluted earnings per share were $0.43. Revenues though essentially in line with the street were slightly below our thinking at the time of our fourth quarter call in January. Earnings per share were favorably impacted $0.02 by a tax-related discrete item this quarter and negatively impacted $0.01 by acquisition-related discrete items in the first quarter of 2007. Adjusting for both of these impacts, earnings per share growth was 21%.

Earnings excluding a discrete item were essentially on par with our thinking due to lower operating expenses and a somewhat more favorable growth margin as a percentage of revenues and a couple of pennies above street consensus. Before I provide further financial highlights I would like to let you know that we will be filing our 10-Q today; the first time we have done this filing concurrent with our earnings call. This accomplishment is the result of a focused coordinated effort between our finance team and businesses and we hope that providing more timely detailed and financial and business information will be of greater relevance and value to our investors.

Now on to the first quarter P&L. The first quarter revenue growth of 18% included just under 5% from currency and just over 3.5% from acquisitions; so organic growth was 10%. The top compare created as a result of last year’s pet food recall negatively impacted year-to-year growth by about a point so the organic growth adjusted for that event is 11%. This adjusted growth is a couple of points lower than the 13% organic growth we experienced for the full year 2007 when normalizing for the estimated impact of the pet food recall.

As the US economy shows continuing signs of weakness we believe that we are seeing some tangential impact in a couple of our companion animal group product lines and that is a contributor to the modest decline in our overall organic growth rate as adjusted for the pet food recall. Nonetheless our companion animal segment overall experienced 12% growth adjusted for currency, acquisitions and the estimated impact of the pet food recall. Our IDEXX VetLab instrument revenues were $14.6 million and unit placements were up 12% year-over-year despite a very strong first quarter 2007 comparison and seasonal high fourth quarter placements.

As we announced we successfully launched our chemistry platform Catalyst Dx and amnio assay reader SNAPshot Dx in the last days of the quarter. We placed literally a handful of each type of instrument so there was very little revenue impact from these launches in the first quarter. The careful launch planning and execution across our entire organization has yielded the kind of customer experience we were striving to achieve and our first sites are pleased with the performance of the instruments. We will continue with our controlled rollout, ramping placements gradually over the remaining quarters and we feel that we are on track to place 1,000 to 1,200 of each instrument type in 2008. We have leaned much from the launches of several instruments over the last few years and we are successfully incorporating those learnings into the introductions of these two major instruments.

Our instrument consumable sales, up $53.1 million grew organically 5% for the quarter or 10% when adjusted additionally for changes in distributor inventories and the estimated first quarter 2007 impact of the pet food recall. Our point-of-care rapid assays with revenues of $38.2 million had organic growth of 20% or 18% when adjusted for changes in distributor inventories. As noted in previous quarters, price including price realized from the movement of customers to our canine parasitic disease panels from heartworm-only tests is a significant contributor along with unit volume to overall revenue growth. We expect this price impact will decline over time as the rate of conversion slows. In the first quarter of 2008 SNAP 4DX accounted for nearly 50% of the unit volumes of our multi analyde panels, this is up about 10 points from the first quarter of 2007.

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