IDEXX Laboratories Announces Third Quarter Results

WESTBROOK, Maine, Oct. 31, 2017 /PRNewswire/ --

• Reports revenue growth of 10% on a reported basis and 9% on an organic basis, driven by CAG Diagnostics recurring revenue growth of 12% reported and 11% organic. Quarterly revenue growth was reduced by approximately 2% by the combined impact of fewer equivalent days, international distributor inventory changes and natural disaster impacts
• Delivers EPS of $0.79, a 27% increase year over year on both a reported and constant currency basis, including a $0.04 per share benefit from accounting guidance related to share-based compensation and a $0.03 discrete tax benefit
• Refines 2017 reported revenue guidance with a consistent midpoint relative to prior outlook and updates 2017 revenue growth guidance to 10% - 10.5% on a reported basis and 9.5% - 10% on an organic basis
• Increases EPS outlook range to $3.22 - $3.26, $0.07 above the midpoint of prior guidance, reflecting $0.05 in discrete tax benefits and expectations for higher 2017 operating margin improvement
• Provides preliminary 2018 financial guidance for revenue growth of 9.5% - 11.5% on a reported basis, 9% - 11% on an organic basis, and EPS of $3.50 - $3.62

IDEXX Laboratories, Inc. (NASDAQ: IDXX), a global leader in veterinary diagnostics, veterinary practice software and water microbiology testing, reports revenues for the third quarter of 2017 of $492 million, an increase of 10% compared to the prior year period on a reported basis and 9% on an organic basis. Third quarter results were driven by 11% global organic growth in Companion Animal Group ("CAG") Diagnostics recurring revenue, despite more than 2% in estimated growth headwind from the combined impact of fewer equivalent days, international distributor inventory changes and natural disaster impacts.

Strong CAG Diagnostics recurring revenue growth reflects robust gains across modalities, including continued double-digit organic growth in global reference laboratory and IDEXX VetLab® consumables revenues. Third quarter revenue results were also supported by double-digit gains in both veterinary software, services and diagnostic imaging systems and the Water business. Overall organic revenue growth in the quarter was constrained by lower revenues in the Company's Livestock, Poultry and Dairy ("LPD") business related to end market demand dynamics, and growth in certain instrument placement programs that result in deferred instrument revenue recognition. 

The Company is refining its full-year 2017 revenue guidance to a tighter range with the same midpoint as previous guidance, reflecting expectations for 12.5% - 13% organic growth in CAG Diagnostics recurring revenues.  The Company is updating its full-year 2017 overall organic revenue growth outlook to 9.5% – 10%, incorporating projections for full-year natural disaster impacts, continued moderate near-term revenue declines in its LPD business and refinements to expectations for instrument revenues, based on higher expectations for deferred instrument revenues this year under current accounting standards.  These impacts are offset by favorable foreign exchange rate changes.

The Company is increasing 2017 guidance for earnings per diluted share ("EPS") to $3.22 - $3.26, supported by updated expectations for 130 to 150 basis points in full-year constant currency operating margin improvement and $0.05 per share in projected discrete tax benefits. The Company is also providing preliminary 2018 guidance for organic revenue growth of 9% – 11%, driven by continued strong growth in CAG Diagnostics recurring revenues, and reported EPS of $3.50 - $3.62, supported by 75 to 125 basis points of reported and constant currency operating margin expansion. This 2018 EPS guidance reflects projected year over year EPS growth of 8% - 12%, or 15% - 19% on a comparable constant currency growth basis, which excludes the impact of the Company's adoption of share-based compensation accounting change (ASU 2016-09) and a discrete 2017 tax benefit related to a foreign tax credit.

"We are pleased with the continued strong momentum in our CAG Diagnostics recurring revenue growth around the world, as we partner with the veterinary profession to increase the standard of care. Our premium instrument placements were strong as well, including a 14% year over year increase in Catalyst® placements in the third quarter driven by a 19% increase in placements at competitive and new accounts, reflecting the demand for best-in-class technology and diagnostic insight," said Jonathan Ayers, the Company's Chairman and Chief Executive Officer.

"We are on track toward delivery of strong EPS gains this year of 32% - 34% on a reported basis, or 18% - 20% on a comparable constant currency basis, supported by continued strong growth in CAG Diagnostics recurring revenue.  This momentum, supported by a 20% year over year expansion of our premium instrument base, positions us to deliver continued strong financial performance in 2018, consistent with our long-term goals.

"We're looking forward to the launch of what we believe will be the next two significant IDEXX innovations, IDEXX SDMA® on a slide for use on our Catalyst in-house chemistry platform - expected to launch in the next few months - and SNAP Fecal Dx™ - expected to launch in mid-year 2018. These additions to in-house testing will complement our reference laboratory offering, further building awareness of these important and unique technologies, while advancing veterinary care and diagnostic utilization."  

Third Quarter Performance Highlights

Third quarter revenue increased 10% to $492 million, supported by a 1% year over year benefit attributable to foreign exchange impact. EPS for the quarter was $0.79, an increase of 27% compared to third quarter 2016, on a reported and constant currency basis. These results include a $0.04 EPS benefit in the quarter from the adoption of the accounting guidance related to share-based compensation (ASU 2016-09) and a $0.03 EPS benefit from discrete tax benefits related to foreign tax credits. 

Companion Animal Group

The Companion Animal Group generated 11% reported and 10% organic revenue growth for the quarter. CAG Diagnostics recurring revenue growth remained strong at 12% reported and 11% organic, despite an estimated aggregate headwind of more than 2% from fewer equivalent days in the quarter, distributor inventory changes in international markets and natural disaster impacts. Veterinary software services and diagnostic imaging systems revenues grew 11% on a reported basis and 10% on an organic basis.

• IDEXX VetLab consumables generated reported revenue growth of 14% and organic revenue growth of 13% in the quarter, despite an estimated 3% aggregate headwind related to fewer equivalent days, international distributor inventory changes and natural disaster impacts. Quarterly growth was supported by continued expansion of our premium instrument base in U.S. and international markets, as well as ongoing increases in testing utilization and moderate price gains. IDEXX VetLab premium diagnostic instrument placements grew 6% to 2,738, including 1,385 Catalysts, 848 premium hematology instruments and 505 IDEXX SediVue Dx® analyzers. Prior-year instrument placement results included fulfillment of approximately 160 SediVue Dx backlog orders following the Company's second quarter launch. Excluding this fulfillment, premium instrument placements grew approximately 13%, compared to third quarter 2016.
• Reference laboratory diagnostic and consulting services revenue grew 14% on a reported basis and 13% on an organic basis, despite an estimated 1% aggregate headwind related to fewer equivalent days and natural disaster impacts. Reference laboratory revenue growth reflected continued strong gains globally, with higher gains in the U.S. supported by double-digit growth in organic revenue per customer, net customer additions and moderate pricing gains.
• Rapid assay products had reported revenue growth of 5% and organic revenue growth of 4%, despite an estimated 4% aggregate headwind related to fewer equivalent days, international distributor inventory changes and natural disaster impacts. Rapid assay revenue growth was supported by continued growth in SNAP 4Dx® Plus Test revenues, driven by the market's appreciation for the clinical superiority of IDEXX's differentiated rapid assay portfolio.

Water

Reported revenue growth was 11% and organic revenue growth was 10% in the quarter, supported by continued solid volume growth in our core Colilert® products, solid net price realization and benefits from our go-direct initiatives.

Livestock, Poultry and Dairy ("LPD")

LPD revenue declined 5% on a reported basis and 7% on an organic basis for the quarter, due to lower milk prices around the world that have reduced producer demand for antibiotic residue testing, pregnancy testing and herd health screening for dairy cattle.

Gross Profit and Operating Profit

Gross profits increased 11%, and gross margin increased to 55.7% from 55.0% in the prior year period. The increase in gross margin was driven by strong CAG Diagnostics recurring revenue gains, supported by moderate net price realization and productivity improvements, aided by volume leverage. Constant currency gross margin was 55.9% for the quarter, 90 basis points higher than third quarter 2016.

Operating margin was 20.4% in the quarter, compared to 19.7% in the prior year period.  On a constant currency basis, operating margin improved 80 basis points, compared to the prior year period, driven by gross margin gains, partially offset by accelerated growth in our sales and marketing investment, including our U.S. commercial expansion.

2017 and 2018 Financial Outlook

The following guidance for 2017 and 2018 reflects the assumptions that the value of the U.S. dollar relative to other currencies will remain at the following rates for the balance of 2017 and the full year of 2018: the euro at $1.16, the British pound at $1.30, the Canadian dollar at $0.78, the Australian dollar at $0.77, the Japanese yen at ¥114, the Chinese renminbi at RMB 6.71 and Brazilian real at R$3.20 to the U.S. dollar.

Outlook for 2017

We are refining our 2017 revenue outlook to $1,950 million - $1,960 million, narrowing our earlier guidance range.  The refined revenue outlook reflects favorable adjustments to foreign exchange rate assumptions and incorporation of expectations for full-year unfavorable natural disaster impacts of $2 million, continued moderate near-term declines in LPD revenues and updated projections for instrument revenues, including estimates for placement program mix which will result in relatively higher levels of deferred instrument revenue in 2017 than projected in earlier guidance. These factors are incorporated in the updated full-year organic growth estimate of 9.5% – 10%. We are raising our 2017 EPS outlook to $3.22 - $3.26 per share, reflecting an incremental increase of $0.07 per share at the midpoint of our earlier guidance range from $0.05 in projected discrete tax benefits and $0.02 in operational improvement supported by expectations for relatively higher margin improvement. We are now projecting 2017 benefits from share-based compensation accounting changes of approximately $0.30 per share, or $0.02 per share below the midpoint of earlier estimates. These impacts are offset by $0.02 of improvement in our outlook for foreign exchange impacts at updated rate assumptions. The updated outlook represents EPS growth of 32% - 34% on both a reported and a constant currency basis, and 18% – 20% on a comparable constant currency growth basis.

The estimated $0.30 per share of EPS benefit in 2017 from adoption of accounting guidance related to share-based compensation, reflects an estimated $27 million reduction in our tax provision. These impacts may vary significantly by quarter based on the timing of actual settlement activity, and we estimate that $0.12 - $0.15 of the projected full-year 2017 benefit reflects higher than normal stock option exercising in 2017, a level of activity that is not expected to continue in future periods. For 2018 and future years, we estimate the annual benefit from share-based compensation will be approximately $13 million - $16 million assuming the current share price and no change in U.S. tax policy. Combined with the $0.05 in expected benefits related to discrete tax items recognized in 2017, we estimate that $0.17 - $0.20 of 2017 EPS benefit will not flow through to future years.

At assumed foreign exchange rates, we estimate that the effect of the stronger U.S. dollar will positively impact 2017 revenue by approximately 0.5%. We estimate that these foreign exchange rate changes will reduce reported 2017 EPS by $0.01, including the net impact from the lapping of approximately $4 million in 2016 hedge gains compared to projected hedge gains of approximately $1 million in 2017.

The Company provides the following updated guidance for 2017:

We expect an effective tax rate of approximately 23.5%, incorporating expectations for a benefit from share-based compensation accounting of approximately 700 basis points and discrete benefit from foreign tax credits of approximately 100 basis points. We are projecting a reduction in weighted average shares outstanding of approximately 1.5%, net of a 0.5% accounting impact, and interest expense, net of interest income, of approximately $32 million - $33 million reflecting current and projected borrowings.

Outlook for 2018

The Company provides the following preliminary guidance for 2018:

Our EPS outlook includes approximately $0.15 - $0.18 per share of projected benefit from the implementation of ASU 2016-09, related to accounting for the tax benefit of employee share-based compensation. Our preliminary outlook for our effective tax rate is 28.5% - 29% and for a reduction in weighted average shares outstanding from continued stock repurchases of approximately 1.0%. We are projecting interest expense, net of interest income, of $35 million - $36 million, reflecting current and projected borrowings and relatively higher floating interest rate costs.  At the foreign exchange rates assumed in this earnings release, we estimate that foreign exchange impacts will increase 2018 reported revenue growth by approximately 0.5%, and EPS by approximately $0.02 per share.

The preliminary outlook represents EPS growth of 8% - 12% on a reported basis and 7% - 11% on a constant currency basis. Excluding the accounting change benefit and foreign currency impacts, our 2018 outlook reflects expectations for 15% - 19% comparable constant currency EPS growth, supported by an increase of 75 to 125 basis points in operating margins on a reported and constant currency basis.

Conference Call and Webcast Information

IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (Eastern) to discuss its third quarter results and management's outlook. To participate in the conference call, dial 1-800-230-1092 or 1-612-288-0340 and reference confirmation code 431383. Replay of the conference call will be available through Tuesday, November 7, 2017 by dialing 1-800-475-6701 or 1-320-365-3844 and referencing replay code 431383. Individuals can access a live webcast of the conference call through a link on the IDEXX website, www.idexx.com/investors. An archived edition of the webcast will be available after 1:00 p.m. (Eastern) on that day via the same link and will remain available for one year.

About IDEXX Laboratories, Inc.

IDEXX Laboratories, Inc. is a member of the S&P 500® Index and 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 7,000 people and offers products to customers in over 175 countries. For more information about IDEXX, visit: www.idexx.com.

Note Regarding Forward-Looking Statements 

This earnings release contains statements about the Company's business prospects and estimates of the Company's financial results for future periods that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are included above under "2017 and 2018 Financial Outlook," "Outlook for 2017," "Outlook for 2018" and elsewhere and can be identified by the use of words such as "expects," "may," "anticipates," "intends," "would," "will," "plans," "believes," "estimates," "projected", "should," and similar words and expressions. Our forward-looking statements include statements relating to our product launches; revenue growth and EPS outlooks; operating and free cash flow forecast; projected natural disaster-related impacts; projected impact of foreign currency exchange rates and instrument placement program mix; and projected operating margins and expenses, capital expenditures, gains from foreign currency hedging transactions, tax and EPS benefits from share-based compensation arrangements, discrete tax benefits related to foreign tax credits, effective tax rates, weighted average shares outstanding and interest expense. These statements are based on management's expectation of future events as of the date of this earnings release. These forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. A description of the risks and uncertainties that could cause results to differ materially from those described in the forward-looking statements can be found in the Company's 2016 Annual Report on Form 10-K and the Company's other filings with the U.S. Securities and Exchange Commission available at www.sec.gov.

Statement Regarding Non-GAAP Financial Measures

The following provides information regarding certain measures used in this earnings release and/or the accompanying earnings conference call that are not required by, or presented in accordance with, generally accepted accounting principles in the United States of America ("GAAP"), otherwise referred to 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 liquidity and are useful for period-over-period comparisons of the performance of the Company's business and its liquidity and to the performance and liquidity 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.

The following section defines terms and conventions used in this earnings release and/or the accompanying earnings conference call, including non-GAAP financial measures, and includes applicable information regarding reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as appropriate:

Accounting Standards Update 2016-09 (ASU 2016-09): Effective January 1, 2017, we adopted the FASB issued amendments which simplify several aspects of the accounting for share-based payment transactions, including income tax consequences, recognition of share compensation award forfeitures, classification of awards as either equity or liabilities, the calculation of diluted shares outstanding and classification on the statement of cash flows.

Constant currency - Constant currency references are non-GAAP financial measures which exclude the impact of changes in foreign currency exchange rates and are consistent with how management evaluates our performance and comparisons with prior and future periods. We estimated the net impacts of currency on our revenue, gross profit, operating profit, and 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 increased third quarter 2017 revenue growth by 1%, reduced gross profit growth by 1%, reduced gross profit margin growth by 20 basis points, reduced operating profit margin growth by 10 basis points, and had an immaterial impact on EPS growth; are expected to increase projected full-year 2017 revenue growth by approximately 0.5%, reduce projected operating profit margin growth by 10 basis points, and reduce projected 2017 EPS growth by approximately 0.5%; are expected to increase projected full-year 2018 revenue growth by approximately 0.5% and projected 2018 EPS growth by approximately 1%. 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. See the supplementary analysis of results below for revenue percentage change from currency for the three and nine months ended September 30, 2017.

Growth and organic growth - All references to growth and organic growth refer to growth compared to the equivalent prior year period unless specifically noted. Organic revenue growth is a non-GAAP financial measure that excludes the impact of changes in foreign currency exchange rates and revenue from business acquisitions. See the supplementary analysis of results below for a reconciliation of reported revenue growth to organic revenue growth for the three and nine months ended September 30, 2017.  See the constant currency note above for the impacts of estimated currency changes to the projected 2017 and 2018 organic revenue growth for the Company.  The percentage change in revenue resulting from acquisitions represents incremental revenues attributable to acquisitions that have occurred since the beginning of the prior year period. For the calculation of projected 2017 and 2018 organic revenue growth, the impacts of revenue from acquisitions is immaterial.

Comparable constant currency EPS growth – Comparable constant currency EPS growth is a non-GAAP financial measure that excludes the impact of the Company's adoption of share-based compensation accounting change (ASU 2016-09) for the periods after its adoption on January 1, 2017, as well as a discrete tax benefit described below.  The adoption of ASU 2016-09 increased third quarter 2017 EPS growth by 6%, is expected to increase projected full-year 2017 EPS growth by 12%, and is expected to decrease projected full-year 2018 EPS growth by 6%.  A discrete tax benefit related to the expected utilization of foreign tax credits increased third quarter 2017 EPS growth by 5%, is expected to increase projected full-year 2017 EPS growth by 2%, and is expected to decrease projected full-year 2018 EPS growth by 2%. These impacts and those described in the constant currency note above reconcile reported EPS growth to comparable constant currency EPS growth for the Company.

Free cash flow - Free cash flow is a non-GAAP financial measure and means, with respect to a measurement period, the cash generated from operations during that period, including tax benefits attributable to share-based compensation, reduced by the Company's investments in property and equipment.  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 property and equipment that are required to operate the business. See the supplementary analysis of results below for our calculation of free cash flow for the nine months ended September 30, 2017 and 2016.  Since adoption of ASU 2016-09 in 2017, the tax benefit from share-based compensation is included in cash generated from operations and will no longer be an adjustment in our free cash flow calculation.  To estimate projected 2017 free cash flow, we have deducted projected purchases of property and equipment (also referred to as capital expenditures) of $90 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contact: Kerry Bennett, Investor Relations, 1-207-556-8155

View original content with multimedia:http://www.prnewswire.com/news-releases/idexx-laboratories-announces-third-quarter-results-300545926.html

SOURCE IDEXX Laboratories, Inc.