IDEXX Laboratories, Inc. (Nasdaq: IDXX), today reported that revenues for the fourth quarter of 2010 increased 5% to $283.8 million, from $270.3 million for the fourth quarter of 2009. Organic revenue growth, as defined below, was 6%. Earnings per diluted share ("EPS") for the quarter ended December 31, 2010 increased 22% to $0.62, compared to $0.51 for the same period in the prior year. Fourth quarter 2010 EPS includes the full year 2010 benefit from the reinstatement of the Federal Research and Development tax credit, which added $0.04 to EPS, and a $2 million milestone payment earned related to the 2008 sale of product rights previously included in our pharmaceutical product lines, which added $0.02 to EPS.
Organic revenue growth excludes the impact of changes in foreign currency exchange rates, which reduced revenue growth by 1%, and revenue from businesses acquired or divested subsequent to the beginning of the prior year period, which had no impact on revenue growth.
"Our fourth quarter results marked a strong conclusion to the year," stated Jonathan Ayers, Chairman and Chief Executive Officer. "Organic revenue growth accelerated 1% from the rate achieved in the prior two quarters, resulting in 6% organic growth for the year. Earnings for the quarter exceeded our October projection, as benefits from higher than planned revenues, a lower tax rate and an unforecasted milestone payment offset the negative impact of a slightly stronger U.S. dollar."
"Market response to our ProCyte Dx™ hematology analyzer, launched in the third quarter, has been very positive. The 449 units that we placed in the third and fourth quarters exceeded our expectations. ProCyte Dx™ provides reference lab quality test results in just two minutes and is a key enabler of our real-time care strategy, working seamlessly with our Catalyst Dx® chemistry analyzer. The real-time care strategy aims to provide veterinarians with the tools to transform the pet owner experience with veterinary medical care, while also growing veterinary practice revenues and improving staff efficiency, even in a challenging economy."
"We also are encouraged by early indications that the U.S. economy and overall consumer sentiment is stabilizing. These indications, combined with our confidence in the fundamental strength and the long-term growth prospects for our core markets, lead us to project 7 to 8% organic revenue growth and double-digit earnings growth in 2011."
Revenue Performance
Please refer to the table below entitled "Revenues and Revenue Growth Analysis by Product and Service Categories" in conjunction with the following discussion.
Companion Animal Group. Companion Animal Group ("CAG") revenues for the fourth quarter of 2010 were $229.0 million compared to $217.9 million for the fourth quarter of 2009. Changes in foreign currency exchange rates reduced revenue growth by less than 1%. Organic growth of 6% was due primarily to increased sales volume and sales prices in our laboratory and consulting services business and increased sales volumes of IDEXX VetLab® instruments and consumables. The increase in instruments sales volume was driven primarily by sales of ProCyte Dx™, our new hematology analyzer introduced in the third quarter of 2010.
Water. Water segment revenues for the fourth quarter of 2010 were $19.2 million compared to $18.5 million for the fourth quarter of 2009. Changes in foreign currency exchange rates reduced revenue growth by less than 1%. Organic revenue growth of 4% was the result of higher Colilert® product sales volume.
Livestock and Poultry Diagnostics. Livestock and Poultry Diagnostics ("LPD") revenues for the fourth quarter of 2010 were $24.6 million compared to $23.4 million for the fourth quarter of 2009. Changes in foreign currency exchange rates reduced revenue growth by approximately 5%. Organic revenue growth of 11% was the result of higher sales volumes of certain bovine tests, partly offset by lower average unit sales prices.
Year-to-Date Results
Revenues for the year ended December 31, 2010 increased 7% to $1.103 billion, from $1.032 billion for the year ended December 31, 2009. Organic revenue growth for the year ended December 31, 2010 was 6%. Changes in foreign currency exchange rates and revenue from businesses acquired or divested subsequent to the beginning of 2009 each contributed less than 1% to revenue growth.
EPS for the year ended December 31, 2010 increased 18% to $2.37, compared to $2.01 for the same period in the prior year.
Additional Operating Results for the Fourth Quarter
Gross profit for the fourth quarter of 2010 increased $11.8 million, or 9%, to $144.8 million from $132.9 million for the fourth quarter of 2009. As a percentage of total revenue, gross profit increased to 51% from 49%. The increase in gross profit percentage was due primarily to lower overall manufacturing and service costs associated with our IDEXX VetLab® analyzers and lower costs of service in our laboratory diagnostic and consulting services business.
Research and development ("R&D") expense for the fourth quarter of 2010 was $17.5 million, or 6% of revenue, compared to $16.0 million, or 6% of revenue for the fourth quarter of 2009. The increase in R&D expense resulted primarily from increased headcount. Selling, general and administrative ("SG&A") expense for the fourth quarter of 2010 was $76.5 million, or 27% of revenue, compared to $72.8 million, or 27% of revenue, for the fourth quarter of 2009. The increase in SG&A expense resulted primarily from increased headcount in sales and customer support functions and an overall increase in compensation and benefit costs. This increase was partly offset by the absence of an impairment charge during the fourth quarter of 2010 in comparison to the fourth quarter of 2009 and the net favorable impact of changes in foreign currency exchange rates. The impairment charge recorded in the fourth quarter of 2009 was to write off an acquired intangible asset associated with our equine digital radiography business.
Supplementary Analysis of Results
The accompanying financial tables provide more information concerning our revenue and other operating results for the three and twelve months ended December 31, 2010.
Outlook for 2011
The Company provides the following updated guidance for the full year of 2011. This guidance reflects an assumption that the value of the U.S. dollar relative to other currencies will remain at its current level for the balance of 2011. Fluctuations in foreign currency exchange rates from current levels could have a significant positive or negative impact on our actual results of operations for 2011.
- Revenues are expected to be $1.19 to $1.20 billion, which represents reported revenue growth of 8 to 9% and organic revenue growth of 7 to 8%. The increase to the low end of our previous guidance range is reflective of our improved 2010 performance as we exited the year.
- EPS are expected to be $2.62 to $2.68, compared to our previous guidance of $2.55 to $2.65. This increase in guidance reflects a decrease in the effective tax rate due primarily to benefits from the extension of the U.S. R&D tax credit for 2011. The increase to the low end of our guidance range also incorporates the higher organic revenue growth guidance noted above.
- Free cash flow is expected to be approximately 115% of net income.
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