IDEXX Laboratories, Inc. (Nasdaq: IDXX), today reported that revenues for the first quarter of 2010 increased 14% to $268.5 million, from $236.5 million for the first quarter of 2009. Organic revenue growth, as defined below, was 9%. Earnings per diluted share ("EPS") for the quarter ended March 31, 2010 increased 28% to $0.55, compared to $0.43 for the same period in the prior year.
Organic revenue growth excludes the impact of changes in currency exchange rates, which contributed approximately 4% to revenue growth, and revenue from businesses acquired or divested subsequent to the beginning of the prior year period, which contributed less than 1% to revenue growth.
"Overall for the quarter, our revenue growth was solid and our strong earnings growth exceeded our expectations from January," stated Jonathan Ayers, Chairman and Chief Executive Officer. "Having generated high single-digit organic revenue growth in an economic environment that remains challenging is a testament to our success in continued technology innovation and strong commercial execution across our markets around the world. Earnings were ahead of our projection in January, as we achieved operating efficiencies in our two largest lines of business, instruments and consumables and reference laboratories, and continued to tightly manage expenses."
"Capital placements in the first quarter were strong, led by sales of our Catalyst Dx® chemistry analyzer and our line of digital radiography systems. We placed 484 Catalyst Dx instruments during the quarter and remain on track to place 2,400 for the year."
"Today, we also announced our plans to introduce ProCyte Dx™, a new hematology analyzer that will complement our Catalyst Dx in the higher test volume segment of the veterinary market. ProCyte Dx is a compact bench-top analyzer that will provide a complete blood cell count with 24 different parameters in just two minutes. Together with Catalyst Dx, which provides results in eight minutes, ProCyte Dx will enable veterinarians to practice what we call "real-time care," which is about providing results from blood work easily and quickly during the pet owner's appointment, and thus delivering a higher standard of care, realizing valuable practice efficiencies, and improving pet owner satisfaction and compliance to the veterinarians' recommendations."
"With over three years of development and 18 months of field trials in clinical settings and universities, the ProCyte Dx analyzer has surpassed our performance expectations in terms of speed, accuracy and reliability. Our comprehensive hematology offering now covers all segments of the in-house hematology market, with ProCyte meeting the needs of our higher volume customers, LaserCyte® providing the same complete menu of tests for mid- to smaller-sized accounts, and VetAutoread™ providing a basic CBC for lower volume customers, especially in international markets. ProCyte Dx will be show-cased at the American College of Veterinary Internal Medicine (ACVIM) meeting in June. We expect to begin taking orders this quarter and to commence shipments in Q3, which is consistent with our 2010 financial guidance as provided in January."
"The momentum in our business, as evidenced by our Q1 results, and our strategy of continually introducing innovations to our markets, exemplified by our new ProCyte Dx hematology analyzer, lead us to maintain our revenue outlook and increase our earnings guidance for 2010, despite additional currency headwinds caused by the recent strengthening of the U.S. dollar."
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 first quarter of 2010 were $221.4 million compared to $193.7 million for the first quarter of 2009. Changes in foreign currency exchange rates and revenues from a business acquired in the second half of 2009 contributed approximately 4% and 1%, respectively, to revenue growth. Organic growth of 10% was primarily the result of increased sales volume of IDEXX VetLab® instruments and consumables and laboratory diagnostic and consulting services. Organic growth in laboratory diagnostic and consulting services revenues also resulted from higher unit sales prices on reference laboratory tests.
Water. Water segment revenues for the first quarter of 2010 were $17.9 million compared to $15.9 million for the first quarter of 2009. Changes in foreign currency exchange rates contributed approximately 5% to revenue growth. Organic revenue growth of 8% was the result of higher Colilert® sales volume, partly offset by lower sales prices due, in part, to higher relative sales in geographies where products are sold at lower unit sales prices.
Production Animal Segment. Production Animal Segment ("PAS") revenues for the first quarter of 2010 were $19.9 million compared to $18.3 million for the first quarter of 2009. Changes in foreign currency exchange rates contributed approximately 5% to revenue growth. Organic revenue growth of 5% was the result of higher sales volume of certain bovine tests, partly offset by lower average unit sales prices.
Additional Operating Results for the First Quarter
Gross profit for the first quarter of 2010 increased $17.9 million, or 14%, to $142.4 million from $124.4 million for the first quarter of 2009. As a percentage of total revenue, gross profit increased slightly to 53.0% due to the net result of several factors. The gross profit percentage was positively impacted by a reduction in overall spending on service and product manufacturing in our IDEXX VetLab® product line combined with a reduction in depreciation expense associated with certain IDEXX VetLab instruments that are under customer usage agreements. Productivity improvements and higher sales prices in our laboratory and consulting services business also contributed to the increase in gross profit percentage. These favorable effects were offset by the unfavorable impacts of the weaker U.S. dollar on foreign currency hedge contracts and foreign currency denominated expenses, net of the favorable impact on sales denominated in foreign currencies. Gross profit percentage also was unfavorably impacted by higher relative sales of lower margin instruments and reference laboratory services.
Research and development ("R&D") expense for the first quarter of 2010 was $16.7 million, or 6.2% of revenue, compared to $15.9 million, or 6.7% of revenue for the first quarter of 2009.
Selling, general and administrative ("SG&A") expense for the first quarter of 2010 was $77.2 million, or 28.8% of revenue, compared to $70.1 million, or 29.6% of revenue, for the first quarter of 2009. The increase in SG&A expense resulted primarily from higher personnel costs in selling, customer support and administrative functions, and the unfavorable impact of exchange rate changes on foreign currency denominated expenses.
Supplementary Analysis of Results
The accompanying financial tables provide more information concerning our revenue and other operating results for the three months ended March 31, 2010.
Outlook for 2010
The Company provides the following updated guidance for the full year of 2010. 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 2010. Fluctuations in foreign currency exchange rates from current levels could have a significant positive or negative impact on our actual results of operations in 2010.
- Revenues are expected to be $1.1 to $1.115 billion, which represents reported revenue growth of 7% to 8% and organic revenue growth of 6% to 7%. While reported revenue growth is unchanged from previous guidance provided in January 2010, a slight increase in organic revenue growth is offset by a decrease in the expected benefit provided by foreign currency exchange rate changes.
- EPS are expected to be $2.23 to $2.28, an increase from our previous guidance of $2.20 to $2.25.
- Free cash flow is expected to be approximately 110% of net income, consistent with our previous guidance.
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