IDEXX Laboratories, Inc. (Nasdaq: IDXX) (otherwise referred to herein as "IDEXX," "the Company," "we," and "our"), today reported that revenues for the second quarter of 2010 increased 6% to $281.5 million, from $265.7 million for the second quarter of 2009. Organic revenue growth, as defined below, was 5%. Earnings per diluted share ("EPS") for the quarter ended June 30, 2010 increased 13% to $0.62, compared to $0.55 for the same period in the prior year.
Organic revenue growth excludes the impact of changes in foreign currency exchange rates and revenue from businesses acquired or divested subsequent to the beginning of the prior year period, each of which contributed less than 1% to revenue growth in the second quarter of 2010.
"I am very pleased with our second quarter results," stated Jonathan Ayers, Chairman and Chief Executive Officer. "Our achievement of 5% organic revenue growth in an economic environment that remains challenging is a testament to our continued success in bringing innovative products and services to our veterinary and other customers. Earnings were ahead of our projection in April despite currency headwinds caused by a stronger U.S. dollar. This performance was due to continued gains in operating efficiency and our focus on disciplined expense management.
Capital placements in the second quarter were strong, led by sales of our Catalyst Dx® chemistry analyzer and our line of digital radiography systems. Total chemistry placements for the quarter, which include our VetTest® and Catalyst Dx® analyzers, grew nearly 15% to 950, of which 556 were Catalyst Dx® analyzers. We remain on track to place 2,400 Catalyst Dx® analyzers in 2010. Already in the third quarter we have launched ProCyte Dx™, our new hematology analyzer, and early customer response to this revolutionary new instrument has been highly enthusiastic.
We remain confident in the fundamental strength of our business model and in the long-term growth prospects for our core markets. Our focus on operating efficiency and disciplined expense management has enabled us to maintain our full year earnings per share guidance despite the strengthening of the U.S. dollar since we provided guidance in April and a slightly more conservative view of the pace of the recovery in our markets."
Revenue Performance
Companion Animal Group. Companion Animal Group ("CAG") revenues for the second quarter of 2010 were $232.3 million compared to $217.3 million for the second quarter of 2009. Changes in foreign currency exchange rates and incremental revenues attributable to a business acquired in August 2009 each contributed less than 1% to revenue growth. Organic growth of 6% was primarily the result of higher testing volume in our laboratory diagnostic and consulting services business and increased sales volume of IDEXX VetLab® instruments and consumables. To a lesser extent, organic growth was favorably impacted by higher sales volume of companion animal radiography systems. These favorable effects were partly offset by lower average unit sales prices resulting from economic and competitive conditions.
Water. Water segment revenues for the second quarter of 2010 were $19.4 million compared to $19.2 million for the second quarter of 2009. Changes in foreign currency exchange rates contributed less than 1% to revenue growth. Organic revenue growth of 1% was the result of higher Colilert® sales volume, partly offset by higher relative sales of Colilert® products in geographies where products are sold at lower unit sales prices.
Livestock and Poultry Diagnostics. During the second quarter of 2010, we changed the name of our Production Animal Services segment to Livestock and Poultry Diagnostics ("LPD") to more accurately describe to customers and others the products and services provided by this business. LPD revenues for the second quarter of 2010 were $19.2 million compared to $19.6 million for the second quarter of 2009. The decline in revenue was attributable to changes in foreign currency exchange rates, partly offset by organic revenue growth of less than 1% as higher sales volumes of certain bovine tests were substantially offset by lower average unit sales prices for certain bovine tests and lower sales volumes of certain swine tests.
Additional Operating Results for the Second Quarter
Gross profit for the second quarter of 2010 increased $10.8 million, or 8%, to $149.3 million from $138.4 million for the second quarter of 2009. As a percentage of total revenue, gross profit increased to 53.0% from 52.1%. The increase in the gross profit percentage was primarily attributable to reduced overall manufacturing costs associated with our IDEXX VetLab® instruments and lower depreciation on instruments placed at customer sites under usage agreements. Lower costs of service and higher selling prices in our laboratory diagnostic and consulting services business also contributed to the increase in gross profit percentage. These favorable effects were partly offset by lower average unit sales prices.
Research and development ("R&D") expense for the second quarter of 2010 was $17.2 million, or 6.1% of revenue, compared to $16.6 million, or 6.2% of revenue for the second quarter of 2009. The increase in R&D expense was primarily due to increased headcount and increased personnel-related costs.
Selling, general and administrative ("SG&A") expense for the second quarter of 2010 was $77.2 million, or 27.4% of revenue, compared to $72.7 million, or 27.3% of revenue, for the second quarter of 2009. The increase in SG&A expense resulted primarily from increased headcount and increased personnel-related costs. The net unfavorable impact of changes in foreign currency exchange rates and an increase in costs attributable to information technology investments also contributed to the increase in SG&A expense.
Supplementary Analysis of Results
The accompanying financial tables provide more information concerning our revenue and other operating results for the three and six months ended June 30, 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 in the range of $1.090 to $1.100 billion, updated from guidance of $1.100 to $1.115 billion provided in April of this year, which represents reported and organic revenue growth of 6% to 7%. This change in the revenue outlook is largely due to the strengthening of the U.S. dollar against certain currencies since the date of our previous guidance.
- EPS are expected to be in the range of $2.23 to $2.28, which is unchanged from our previous guidance as improved business performance is expected to offset the negative impact from changes in foreign currency exchange rates.
- Free cash flow is expected to be approximately 110% of net income.
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