10-QPeriod: Q2 FY2012

IDEXX LABORATORIES INC /DE Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 20, 2012For Securities:IDXX

Summary

IDEXX Laboratories, Inc. reported solid financial results for the second quarter and first half of 2012. Total revenue increased by 5.6% and 7.8% respectively, driven by growth in the Companion Animal Group (CAG), particularly in reference laboratory services and practice management systems, as well as a notable increase in the 'Other' segment. Net income also saw a healthy increase, rising by 5.5% for the quarter and 7.4% for the first half year-over-year. The company maintained a strong balance sheet with increasing cash and cash equivalents and managed its expenses effectively, leading to improved operating income across most segments, notably in the Water segment. Despite positive revenue and profit trends, the company faced headwinds from foreign currency fluctuations, which negatively impacted reported revenue. The Livestock and Poultry Diagnostics (LPD) segment experienced a decline in revenue and gross profit, primarily due to changes in European Union testing requirements for BSE. Investors should note the ongoing FTC investigation, which the company is actively addressing by seeking to modify distributor agreements, a move expected to be effective by January 2013. The company continues to execute its share repurchase program, indicating confidence in its financial health and return of capital to shareholders.

Financial Statements
Beta

Key Highlights

  • 1Total revenue increased by 5.6% to $335.6 million for Q2 2012 and by 7.8% to $658.3 million for the first six months of 2012.
  • 2Net income attributable to IDEXX stockholders increased by 5.5% to $51.3 million for Q2 2012 and by 7.4% to $92.1 million for the first six months of 2012.
  • 3The Companion Animal Group (CAG) remains the largest segment, showing a 7.1% revenue increase for Q2 2012, driven by reference laboratory services and practice management systems.
  • 4The company's cash and cash equivalents increased to $201.8 million as of June 30, 2012, from $183.9 million as of December 31, 2011, indicating strong liquidity.
  • 5Operating income increased by 6.3% for Q2 2012 to $75.8 million and by 9.1% for the first six months of 2012 to $136.2 million.
  • 6Foreign currency exchange rates negatively impacted revenue by approximately $8.2 million in Q2 2012 and $9.8 million in the first six months of 2012.
  • 7The company is actively addressing an FTC investigation into its marketing and sales practices and is seeking to modify distributor agreements to resolve concerns.

Frequently Asked Questions

For the three months ended June 30, 2012, IDEXX reported total revenue of $335.6 million, an increase of 5.6% compared to $317.9 million in the same period of 2011. The Companion Animal Group (CAG) was the primary driver of this growth.

For the six months ended June 30, 2012, IDEXX reported net income attributable to stockholders of $92.1 million, an increase of 7.4% compared to $85.3 million in the same period of 2011. Diluted earnings per share were $1.63, up from $1.45 in the prior year.

The FTC is investigating IDEXX's marketing and sales practices for companion animal veterinary products and services, specifically focusing on relationships with national distributors and potential limitations on competitors' access. IDEXX is seeking to modify its agreement with one distributor to eliminate a 'competitive products' policy, which it believes will address the FTC's concerns. The company anticipates this modified agreement will be effective by January 1, 2013, and expects the FTC may then seek a consent order.

The strengthening of the U.S. dollar negatively impacted IDEXX's reported revenue. For the three months ended June 30, 2012, currency changes decreased total company revenue by approximately $8.2 million. For the six-month period, the impact was a decrease of approximately $9.8 million.