IDEXX Laboratories' revenues increase 7.2% to $338.3 million in Q3 2013

IDEXX Laboratories, Inc. (NASDAQ: IDXX), today reported that revenues for the third quarter of 2013 increased 7.2% to $338.3 million, from $315.5 million for the third quarter of 2012. Organic revenue growth was 7.4% in the third quarter of 2013 versus the same period of the prior year. Earnings per diluted share ("EPS") for the quarter ended September 30, 2013 increased 13% to $0.86, compared to $0.76 for the same period in the prior year.

"For the quarter, I am pleased with the Company's 7.4% organic revenue growth, driven by the Companion Animal Group's 8.7% organic growth. This performance represents a significant improvement from first half organic growth of 4.4% for the total Company and 5.3% for the Companion Animal Group, respectively," said Jonathan Ayers, the Company's Chairman and Chief Executive Officer.

"The third quarter saw the first full quarter of the sales transformation of our North American diagnostic sales professionals to a new, customer centric, sales role. In all, our sales professionals performed well against their diagnostic sales goals. While unit instrument placements were a little short of our expectation, the quality of placements was outstanding, supporting continued strong instrument consumable growth. We are encouraged that the one fifth of the regions that were in the new sales model for the second full quarter achieved instrument placements that were almost 20% higher than the prior year's third quarter. Further, we saw in the third quarter that more frequent sales representative visits resulted in both stronger loyalty and additional testing from our reference lab customers," Ayers added.

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 third quarter of 2013 were $283.8 million compared to $262.4 million for the third quarter of 2012. Organic revenue growth of 8.7% was due to balanced performance across all annuity portions of CAG, including reference laboratory diagnostic and consulting services, VetLab® consumables and Rapid Assay products. The revenue increase in reference laboratory diagnostic and consulting services was largely the result of higher sales volumes driven by the acquisition of new customers, increased testing volumes from existing customers, improved customer retention, and, to a lesser extent, price increases. The revenue increase in VetLab consumables was primarily the result of higher sales volumes of consumables used with our Catalyst Dx® instruments due to the quality of our placements and our increasing installed base of instruments. Changes in foreign currency exchange rates reduced revenue growth by 0.9%, which was partly offset by revenue from acquisitions.

Water. Water revenues for the third quarter of 2013 were $23.2 million compared to $22.2 million for the third quarter of 2012. Organic revenue growth of 5.3% was due primarily to higher sales of our Colilert® products and increased sales volumes of our Filta-Max® products, driven by new account acquisitions. Changes in foreign currency exchange rates reduced revenue growth by 0.7%.

Livestock, Poultry and Dairy. Livestock, Poultry and Dairy ("LPD") revenues for the third quarter of 2013 were $25.1 million compared to $24.7 million for the third quarter of 2012. Revenue from the acquisition of a Brazilian distributor and changes in foreign currency exchange rates contributed 2.8% and 1.1%, respectively, to revenue growth. The 2.1% decline in organic revenue was due primarily to lower sales volumes of Bovine Spongiform Encephalopathy ("BSE") tests resulting from changes in European Union testing requirements, partly offset by higher sales volumes of certain swine tests.

Additional Operating Results for the Third Quarter

Gross profit for the third quarter of 2013 increased $15.1 million, or 8.9%, to $185.8 million from $170.6 million for the third quarter of 2012. As a percentage of total revenue, gross profit increased to 54.9% from 54.1%. The increase in the gross profit percentage was due primarily to price increases for our reference laboratory diagnostic and consulting services and a combination of higher relative sales of higher margin VetLab consumables and lower relative sales of lower margin VetLab instruments.

Selling, general and administrative ("SG&A") expense for the third quarter of 2013 was $98.7 million, or 29.2% of revenue, compared to $87.4 million, or 27.7% of revenue, for the third quarter of 2012. The increase in SG&A expense was due primarily to higher personnel-related costs associated with expanding and transitioning our sales force that previously represented either in-house or reference laboratory diagnostics to diagnostic consultants who now represent all CAG diagnostic modalities. Research and development ("R&D") expense for the third quarter of 2013 was $21.6 million, or 6.4% of revenue, compared to $20.3 million, or 6.5% of revenue for the third quarter of 2012. The increase in R&D expense resulted primarily from increased personnel-related costs and higher external consulting and development costs.

Supplementary Analysis of Results

The accompanying financial tables provide more information concerning our revenue and other operating results for the three and nine months ended September 30, 2013.

Outlook for 2013 and 2014

The Company provides the following updated guidance for 2013 and preliminary guidance for 2014.

2013

• Organic revenue growth in the fourth quarter is expected to be 8.0% to 8.4%, resulting in full year revenue of approximately $1.370 billion to $1.372 billion.
• Diluted earnings per share for the full year are expected to be in the range of $3.44 to $3.48 per fully diluted share compared to our previous guidance range of $3.42 to $3.48 per fully diluted share.
• Free cash flow[2] for the full year is expected to be approximately 95% to 100% of net income, consistent with our previous guidance.
• Capital expenditures for the full year are expected to be approximately $90 million.

2014

• Revenues for the full year are expected to be in the range of $1.48 billion to $1.50 billion, which represents reported revenue growth of 8% to 9% and organic revenue growth of 7% to 8% compared to projected revenue for 2013.
• Diluted earnings per share for the full year are expected to be in the range of $3.76 to $3.86 per fully diluted share.

The above guidance reflects an assumption that the value of the U.S. dollar relative to other currencies will remain at our current assumptions of the euro at $1.35, the British pound at $1.60, the Canadian dollar at $0.97, the Australian dollar at $0.94 and the Japanese Yen at ¥ 97 to the U.S. dollar for the balance of 2013 and 2014. For 2013, a 1% strengthening of the U.S. dollar would decrease revenue by approximately $5.0 million and operating profit by approximately $0.8 million on an annual basis. For 2014, a 1% strengthening of the U.S. dollar would decrease revenue by approximately $5.0 million and operating profit by approximately $1.0 million on an annual basis. Fluctuations in foreign currency exchange rates from current assumptions could have a significant positive or negative impact on our actual results of operations in both years.