IDEXX Laboratories, Inc. (IDXX)
Q3 2012 Earnings Conference Call
October 19, 2012 09:00 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
Ryan Daniels - William Blair
David Clair - Piper Jaffray
Erin Wilson - Bank of America
Ross Taylor - CL King & Associates
Debbie Wang – Morningstar
Ben Haynor - Feltl and Company
Nick Jansen - Raymond James
Mitra Ramgopal - Sidoti & Company
Previous Statements by IDXX
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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 June 30, 2012, in the section captioned Risk Factors, which are on file with the SEC and also available on IDEXX’s website idexx.com.
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 those non-GAAP financial measures is provided in our earnings release which can be found on our website idexx.com.
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. Please go ahead.
Good morning and thank you for joining our call today. As reported in our press release this morning, our third quarter revenues were $315.5 million, yielding organic growth of 6% and diluted earnings per share were $0.76, a year-to-year increase of 15%. Organic revenue growth was a couple of points or so below our expectation at the time of our July call, primarily the result of lower revenues from instruments and from our livestock and poultry business.
Earnings per share were essentially in line with our expectations as lower spending mitigated the gross profit impact of the revenue shortfall. While currency was slightly more favorable to reported revenues in our thinking in July, the impact to earnings per share was immaterial.
As for what we are seeing in the US veterinary market based on data from approximately 500 customers using our Cornerstone Practice Management System. In the third quarter, patient visits grew by 3.5% and practice revenues grew by 6%. These metrics are relatively consistent with what we saw in the second quarter, with patient visit growth of 4% and practice revenue growth of 5.5%. The consistency of the second and third quarter data once further validation to the hypothesis that the strong first quarter metrics of 5% patient visit growth and 7% practice revenue growth were favored by the mild winter weather experienced in much of the country.
In Europe overall we saw organic growth for our companion animal group of businesses hold steady at 5%, consistent with the first half of the year. The countries, primarily in southern Europe that are experiencing the greatest fiscal issues, are showing relatively lower growth, however we are seeing solid growth in Germany and strong growth in more emerging markets in eastern Europe.
For the balance of 2012 and into 2013 we remain cautious about the impact of the macro environment in both the US and Europe and the markets served by our core businesses. Europe continues to be fragile and in the US mixed economic data indicates that the fundamentals are not strong.
Asia-Pacific is a different story. The stronger economies and the relatively less mature markets have provided a tailwind to our innovation and commercial execution to produce 20% growth year-to-date collectively across our businesses. Implicit in our guidance today is a very modest benefit from the macro environment on volume growth over the next few quarters. And so, as over the past three or so years, our growth will largely be driven by our innovation and ability to build strong value-based partnerships with our customers.
Let me now give some further detail on the top line performance of our companion animal group. VetLab instruments and consumable revenue of $101.3 million grew 4% organically. Sales of instruments at $21.7 million declined 10% organically year-to-year. As we noted last quarter, the success of our protocol-based rebate program that was introduced in the third quarter of last year in North America makes for difficult comparison in the second half of this year, but particularly for the third quarter. And accordingly we had anticipated a year-to-year decline in unit chemistry placements. Nonetheless total chemistry placements which were down 14% year-to-year and relatively flat sequentially were a bit below our expectations. Though we had a strong finish to the quarter in September, we could not make up completely for the slow start experienced early on. This strong finish has given us a healthy order backlog and some positive momentum heading into the fourth quarter.