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IDEXX Laboratories Announces Fourth Quarter and Full Year 2015 Results
Date:1/29/2016

WESTBROOK, Maine, Jan. 29, 2016 /PRNewswire/ -- IDEXX Laboratories, Inc. (NASDAQ: IDXX) today reported revenues for the fourth quarter of 2015 of $400 million, an increase of 14%1 compared to the prior year period. Normalized organic revenue growth2 for the quarter was over 11%, supported by strong growth in the Companion Animal Group ("CAG") segment. Revenue for the full year of $1,602 million increased 8% on a reported basis, supported by 11% normalized organic revenue growth.

Earnings per diluted share ("EPS") for the quarter was $0.48. Adjusted EPS growth3 was 2% compared to the prior year period, while absorbing a negative $0.03 per share impact related to net changes in foreign exchange, resulting in constant currency4 Adjusted EPS growth of 9%. The quarter benefited from recording the full year impact of the decision to make the federal research and development ("R&D") tax credit permanent, which had a $0.03 favorable impact on EPS, consistent with the prior year quarter. 

"We were very pleased with the Company's performance in the fourth quarter, supported by record instrument placements in both North American and international markets. Total premium instrument placements were up 35% over a very strong prior year period, with Catalyst placements up 61% compared to last year. We achieved 694 Catalyst placements in North America and 868 in international markets, leveraging our expanded commercial presence globally.  In North America, 395 units or 57% of our Catalyst placements were to new and competitive accounts, up 37% over Q4 2014, a testament to the increasing effectiveness of our all-direct sales force. For the full year, we placed 9,771 chemistry and hematology instruments worldwide, substantially higher than any year in our history. SediVue Dx™, our novel urine sediment analyzer for use in-clinic, and the recent regulatory approval of Catalyst One® in Japan, will add to our already substantial momentum in placing instruments as we move through 2016," said Jonathan Ayers, the Company's Chairman and Chief Executive Officer.

"SediVue is a breakthrough innovation that helps improve accuracy and streamlines workflows of a historically challenging manual process involving microscopic interpretation. SediVue presents veterinarians with a huge opportunity to enhance the quality of patient care while simultaneously helping to drive practice revenue growth and staff efficiency. Working in concert with chemistry and hematology, urinalysis forms the essential third pillar of the minimum diagnostic database in pet care," continued Ayers.

"We also continue to be pleased by the enthusiastic response of our customers to IDEXX SDMA™, our unique test for kidney disease, a common condition in pets. IDEXX SDMA has now been automatically added to all chemistry panels for customers in all of our major reference laboratory markets globally. This novel kidney parameter is being well received globally by our customers, helped in part by the inclusion of SDMA in the International Renal Interest Society (IRIS) guidelines. IRIS is led by a board of 15 world-renowned independent veterinarians from 10 different countries, so the inclusion of SDMA as an important marker for renal function is a worldwide endorsement."

"Our solid finish to 2015 is positioning us to deliver continued strong constant currency4 revenue and profit gains in 2016."

Fourth Quarter Financial Performance Highlights

Fourth quarter revenue increased 14% to $400 million. Normalized organic revenue growth was 11% and benefited in part from incremental margin capture associated with the move to an all-direct sales model for US CAG Diagnostics.

  • Companion Animal Group normalized organic revenue growth was 13% for the fourth quarter, driven by 12.5% normalized growth in recurring CAG Diagnostics revenues and a 28% increase in organic revenue growth2 in CAG Diagnostics instruments. CAG Diagnostics recurring revenue gains were driven by 16% normalized organic growth in IDEXX VetLab® consumable revenues, reflecting solid volume gains and benefits from margin capture, and 11% organic growth in reference laboratory diagnostic and consulting services revenues, supported by continued strong double-digit reference lab revenue gains in the US. Rapid assay revenues achieved 9% normalized organic growth, supported by higher 4Dx product volumes and benefits from margin capture.
  • Livestock, Poultry and Dairy ("LPD") organic revenue increased 2% for the fourth quarter reflecting solid growth in new products worldwide and strong poultry and swine sales in emerging markets, offset partially by lower livestock services revenue in Australia and lower Europe bovine revenue.
  • Water's organic revenue growth was 10% in the fourth quarter, due to worldwide increases in core coliform and E.coli products, as well as benefits from the launch of our new Quanti-Tray® Sealer PLUS product.
  • The following table presents adjusted revenue, gross profit, gross margin, operating profit, operating margin, EPS, and EPS growth, which are non-GAAP financial measures that have been adjusted for the following items in the prior year periods:

    Amounts in millions except per share data and percentages

     Revenue

    Gross

    Profit

    Gross

    Margin

    Operating

    Profit

    Operating Margin

     

    EPS

    EPS GrowthReported Fourth Quarter 2015

    $399.7

    $217.7

    54.5%

    $66.9

    16.7%

    $0.48

    77.8%No adjustments required  

    Adjusted Fourth Quarter 2015

    $399.7

     

    $217.7

     

    54.5%

    $66.9

    16.7%

    $0.483

    2.1%3Reported Fourth Quarter 2014

    $352.0

    $182.2

    51.8%

    $34.8

    9.9%

    $0.27Impact of distributor inventory drawdown

    25.1

    20.820.80.14Non-recurring expenses
    associated with transition to all-
    direct sales strategy5.20.03Expense ramp-up in advance of
    transition to new sales strategy4.60.03 

    Adjusted Fourth Quarter 2014

    $377.1

    $203.0

    53.8%

    $65.4

    17.3%

    $0.473

     

    Gross Profit increased 20% compared to the prior year period.  Gross Margin adjusted for the impact of the prior year US channel inventory reductions increased from 53.8% to 54.5%, reflecting lower manufacturing costs and benefits from moderate price gains, which offset mix impacts from strong instrument sales.

    Operating Margin was 16.7% in the fourth quarter, down slightly from prior year period adjusted operating margin of 17.3%.  This change reflects increases in operating expenses compared to the prior year period primarily due to recurring costs associated with the all-direct US CAG Diagnostics sales strategy and other increases in global commercial resources, partly offset by the favorable impact of foreign exchange.

    Outlook for 2016

    The Company is maintaining its organic revenue growth outlook while updating reported revenue guidance for the strengthening of the US dollar relative to foreign currencies. Despite unfavorable currency impacts, the Company is raising its EPS guidance to reflect the permanent extension of the Federal R&D tax credit and solid operating trends. Excluding foreign currency change impacts, our guidance aligns with constant currency Adjusted EPS growth of 12% to 15%.

     At current foreign exchange rates, we estimate that the effect of the stronger US dollar will adversely impact 2016 reported revenue growth by approximately 2.5%, EPS by an estimated $0.26 per share, and Adjusted EPS growth by 12% compared to rates in effect in 2015. Compared to assumptions used in our prior guidance for 2016 provided during our third quarter earnings call on October 28, 2015, the continued strengthening of the US dollar has the effect of lowering projected revenue by approximately $25 million and EPS by $0.04 per share, net of hedge benefits. These effects are mitigated by benefits from the decision to make the Federal R&D tax credit permanent, which is estimated to have a $0.03 positive impact on EPS, and expected stronger operating performance, which is expected to add $0.02 to EPS.

    The Company provides the following updated guidance for 2016:

    Amounts in millions except per share data and percentagesGuidance Range

    Growth Definition

    Year-over-Year
    GrowthRevenue 

    $1,690 - $1,710

    Organic Revenue Growth2

    Reported

    8% to 9%

    6% to 7%EPS

    $2.10 - $2.17

     

    Adjusted

    Constant Currency Adjusted

    Reported

    0% to 3%3

    12% to 15%4

    2% to 6%Free Cash Flow:
    95% - 100% of net incomeCapital Expenditures:
    $90 million


    The guidance above assumes that the value of the US dollar relative to other currencies will reflect the euro at $1.07, the British pound at $1.41, the Canadian dollar at $0.68, the Australian dollar at $0.68 and the Japanese yen at ¥118 to the US dollar for the full year of 2016.

    We expect that operating margins for the full year will be 18.0% to 18.5%, or approximately 100 basis points below 2015 adjusted operating margin levels, driven by foreign exchange impacts including comparisons to benefits from 2015 hedge gains. Adjusted for currency impacts and the 2015 software impairment charge, we are targeting operating margin improvement of approximately 50 basis points from 2015 levels.

    We expect an effective tax rate of 30% to 30.5%, including projected benefits from the Federal R&D tax credit.  We are projecting a reduction in weighted average shares outstanding of approximately 3.5% to 4.0%, and interest expense, net of interest income, of approximately $32 million reflecting current and projected borrowings. 

    Statement Regarding Non-GAAP Financial Measures

    The following provides information regarding certain measures used in this earnings release that are not required by, or presented in accordance with, generally accepted accounting principles in the United States of America ("GAAP"), otherwise referred to herein as non-GAAP financial measures. To supplement the Company's consolidated results presented in accordance with GAAP, the Company has disclosed non-GAAP financial measures that exclude or adjust certain items. Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of the Company's business performance and are useful for period-over-period comparisons of the performance of the Company's business and to the performance of our peers. While management believes that these non-GAAP financial measures are useful in evaluating the Company's business, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly titled measures reported by other companies. See the notes to this earnings release for information regarding these non-GAAP financial measures and the reconciliations included in the notes and elsewhere in this earnings release for a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

    Conference Call and Webcast Information

    IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (Eastern) to discuss its fourth quarter results and management's outlook. To participate in the conference call, dial 1-800-230-1092 or 1-612-332-0107 and reference confirmation code 384558. An audio replay will be available through Friday, February 5, 2016 by dialing 1-320-365-3844 and referencing replay code 384558.

    The call will also be available via live or archived webcast on the IDEXX Laboratories' website at www.idexx.com and will be available for one year.

    About IDEXX Laboratories, Inc.

    IDEXX Laboratories, Inc. is a leader in pet healthcare innovation, serving practicing veterinarians around the world with a broad range of diagnostic and information technology-based products and services. IDEXX products enhance the ability of veterinarians to provide advanced medical care, improve staff efficiency and build more economically successful practices. IDEXX is also a worldwide leader in providing diagnostic tests and information for livestock and poultry and tests for the quality and safety of water and milk. Headquartered in Maine, IDEXX Laboratories employs more than 6,000 people and offers products to customers in over 175 countries.

    1All references to growth and organic growth refer to growth compared to the equivalent prior year period.2Normalized organic revenue growth and organic revenue growth are non-GAAP financial measures. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers. Organic revenue growth for the fourth quarter of 2015 excludes the impact of changes in foreign currency exchange rates, which had a 5.7% unfavorable impact on revenue growth, and revenue from business acquisitions, which contributed 0.7% to revenue growth. See the supplementary analysis of results below for a reconciliation of reported revenue growth to organic revenue growth for the three months ended December 31, 2015. Management also believes that reporting normalized organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue growth performance with prior and future periods.  Normalized organic revenue growth excludes the impact of changes in our significant distributors' inventory levels on organic revenue growth.  When selling our products through distributors, changes in distributors' inventory levels can impact our reported sales, and these changes may be affected by many factors, which may not be directly related to underlying end-user demand for our products.  Effective January 1, 2015, we fully transitioned to an all-direct sales strategy in the US, however changes in prior year US distributors' inventory levels can still impact current year reported growth results.  In certain countries internationally, we continue to sell our products through third party distributors.  Although we are unable to obtain data for sales to end users from certain less significant non-US third party distributors, we do not believe the impact of changes in these distributors' inventories had or would have a material impact on our growth rates in the relevant periods.  Reconciliation of organic revenue growth to normalized organic revenue growth for the fourth quarter of 2015 includes the following positive impacts to organic revenue growth from changes in our significant distributors' inventory levels; Total Company 7.5%, US 13.0%, International 0.3%, CAG 9.4%, CAG Diagnostics Recurring 11.5%, VetLab consumables 18.4%, VetLab service and accessories 3.4%, and Rapid Assay 45.4%. Reconciliation of organic revenue growth to normalized organic revenue growth for the full year of 2015 includes the following positive impacts to organic revenue growth from changes in our significant distributors' inventory levels; Total Company 2.0%, US 3.4%, International 0.1%, CAG 2.5%, CAG Diagnostics Recurring 3.0%, VetLab consumables 5.1%, VetLab service and accessories 1.0%, and Rapid Assay 7.6%.3Adjusted EPS and Adjusted EPS growth are non-GAAP financial measures.  Management believes that reporting Adjusted EPS provides useful information to investors by facilitating easier comparisons of our EPS performance with prior and future periods.  See table above for a reconciliation of fourth quarter 2014 and 2015 EPS adjustments, and the supplementary analysis of results section for a reconciliation of full year 2015 EPS adjustments. 4Constant currency references are non-GAAP financial measures and exclude the impact of changes in foreign currency exchange rates. Management believes that providing constant currency information provides valuable supplemental information regarding our revenue, operating margin, and EPS performance because it is consistent with how management evaluates our performance and facilitates comparisons with prior and future periods. We estimated the net impacts of currency on our revenue, operating profit and Adjusted EPS results by restating results to the average exchange rates or exchange rate assumptions for the comparative period, which includes adjusting for the estimated impacts of foreign currency hedging transactions and certain impacts on our effective tax rates.  These estimated currency changes reduced 2015 Adjusted EPS growth by 8%, projected 2016 revenue growth by 2.5%, and projected 2016 Adjusted EPS growth by 12%.  Constant currency revenue growth represents the percentage change in revenue during the applicable period, as compared to the prior year period, excluding the impact of changes in foreign currency exchange rates.5Free cash flow is a non-GAAP financial measure and means, with respect to a measurement period, the cash generated from operations during that period, excluding tax benefits attributable to share-based compensation arrangements, reduced by the Company's investments in fixed assets.  Management believes free cash flow is a useful measure because it indicates the cash the operations of the business are generating after appropriate reinvestment for recurring investments in fixed assets that are required to operate the business. See the supplementary analysis of results below for our calculation of free cash flow for the years ended December 31, 2015 and 2014.  With respect to this particular forward-looking projected non-GAAP financial measure, the Company is unable to provide a quantitative reconciliation as the inputs to the measurement are difficult to predict and estimate and are primarily dependent on future events.


    Note Regarding Forward-Looking Statements 

    0

    GOOD


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