IDEXX Laboratories, Inc. (IDXX)

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IDEXX Laboratories, Inc. (IDXX)

Q2 2008 Earnings Call

July 25, 2008 9:00 am ET


Jonathan Ayers - Chief Executive Officer

Merilee Raines - Chief Financial Officer

Susan Astro - Director of Investor Relations


Ryan Daniels - William Blair

Ross Taylor - C.L. King

Dawn Brock - J.P. Morgan



Welcome to the IDEXX Laboratories second quarter 2008 earnings conference call. (Operator Instructions) Participating in the call this morning are Jonathan Ayers, Chief Executive Officer; Merilee Raines, Chief Financial Officer; and [Susan Astro], Director of 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. 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 IDEXX's quarterly report on Form 10-K for the quarter ended March 31, 2008 and Form 10-K for the year ended 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 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.

At this time I would like to turn the conference over to Merilee Raines. Please go ahead.

Merilee Raines

As we noted in our earnings press release today, revenues for the quarter were $280.6 million a year-to-year increase of 18% and diluted earnings per share were $0.63, an increase of 85% from the second quarter of 2007. To remind you we had discrete items last year of $0.10 relating to acquisitions and the write down of pharmaceutical inventory and related assets, so earnings per share growth adjusted for discrete items was 43%.

This quarter’s revenue and earnings were impacted by the timing of sales of our feline insulin product (PZI VET). As we noted in our first quarter call and 10-Q we expected we would be selling substantially all of the remaining inventory of this product in the second quarter as we communicated to customers that the product would no longer be available once the current supply was depleted. We in fact did sell all of this inventory in the second quarter and the incremental revenue impact was approximately $10 million, with an earnings impact of $0.09 inline with our thinking.

As we also noted in April our financial plans had anticipated sales of this product facing by the end of 2008. So this event does not impact full year financial guidance. Earnings for the quarter were about $0.03 to $0.04 above our expectations at the time of our call in April and this was the result of a somewhat more favorable growth margins and continued operating expense management in response to slightly lower revenue, and now for some further detail on the P&L.

The second quarter revenue growth of 18% included 5% from currency and virtually no impact from acquisitions, so organic growth with 13%. As we further normalized for the timing of PZI VET sells up 4% favorable impact to growth and the top compare created by our last year’s pet food recall of 1% negative impact. The adjusted organic growth was about 10.5% or about 2.5 points below the 13% we experienced for the full year 2007 when adjusting for the pet food recall.

Consistent with our thinking, at the time of our first quarter call we believed that the weakness in the economy is having a modest effect on some of our product line and have impacted total company growth by a point or so. I will discuss other factors influencing organic growth now as we look at revenue performance by each product and service line.

Our IDEXX VetLab instrument revenues were $15.3 million, up 10% on a reported basis and 4% when adjusted for currency. Placements were essentially flat year-to-year against a very strong compare in the second quarter of 2007 when placements were up approximately 35%. We continued with our control launch of Catalyst and SNAPshot Dx and delivered, and recognized revenue on only a small number of each instrument in the second quarter.

However, our sales forces spent time detailing the instruments to customers and they’ve been building a significant order book for both. Our instrument consumables sales of $57.1 million grew 8% organically and also 8% when taking into consideration the further impact of changes in distributor inventories and the pet food recall. We estimate that the weakness in the economy impacted consumable growth by 1 to 2 points in the second quarter. However we’ve maintained our longer range growth rate of 9% to 11% driven primarily by the impact of new instrument placement.

Our point-of-care rapid assays with revenues of $41.3 million had organic growth of 11% or 12% when adjusted additionally for changes in distributor inventories. There is some seasonality in this business with the second quarter experiencing the greatest volume of canine parasitic disease testing. Customers continue to convert their testing protocols to our most comprehensive parasitic panel SNAP 4Dx, and in this quarter it accounted for more than 50% of our multi analyde panel volume and nearly 60% on a dollar basis

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