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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.
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"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((TM)), 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
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 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.
(1) Free cash flow is a non-GAAP measure. It indicates the cash generated from operations and tax benefits attributable to stock option exercises, reduced by investments in fixed assets. We feel free cash flow is a useful measure because it indicates the cash the operations of the business are generating after appropriate reinvestment for recurring investments in fixed assets that are required to operate the business. We believe this is a common financial measure useful to further evaluate the results of operations. With respect to this particular forward-looking projection, the Company is unable to provide a quantitative reconciliation at this time as the inputs to the measurement are difficult to predict and estimate and are primarily dependent on future events.
Conference Call and Webcast Information
IDEXX will be hosting a conference call today at 9:00 a.m. (eastern) to discuss its second quarter results and management's outlook. To participate in the conference call, dial 1-612-332-0718 or 1-800-288-8960 and reference confirmation code 165207. An audio replay will be available through July 30, 2010 by dialing 1-320-365-3844 and referencing replay code 165207.
The call will also be available via live or archived webcast on the IDEXX web site at www.idexx.com.
About IDEXX Laboratories, Inc.
IDEXX Laboratories, Inc. is a leader in pet healthcare innovation, serving practicing veterinarians around the world with a broad range of diagnostic and information technology-based products and services. IDEXX products enhance the ability of veterinarians to provide advanced medical care, improve staff efficiency and to build more economically successful practices. IDEXX is also a worldwide leader in providing livestock and poultry diagnostic tests and tests for the quality and safety of water and milk. Headquartered in Maine, IDEXX Laboratories, Inc. employs more than 4,800 people and offers products to customers in over 100 countries.
Note Regarding Forward-Looking Statements
This press release contains statements about the Company's business prospects and estimates of the Company's financial results for future periods that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as "expects," "may," "anticipates," "intends," "would," "will," "plans," "believes," "estimates," "should," and similar words and expressions. These statements are based on management's expectations of future events as of the date of this press release, and the Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. Actual results could differ materially from management's expectations. Factors that could cause or contribute to such differences include the following: the Company's ability to develop, manufacture, introduce and market new products and enhancements to existing products; the Company's ability to achieve economies of scale in its worldwide network of laboratories; the impact of a weak economy on demand for the Company's products and services; the effectiveness of the Company's sales and marketing activities; the Company's ability to identify acquisition opportunities, complete acquisitions and integrate acquired businesses; disruptions, shortages or pricing changes that affect the Company's purchases of products and materials from third parties, including from sole source suppliers; the Company's ability to manufacture complex biologic products; the impact of changes and disruptions in financial and currency markets; the effect of government regulation on the Company's business, including government decisions about whether and when to approve the Company's products and decisions regarding labeling, manufacturing and marketing products; the Company's ability to obtain patent and other intellectual property protection for its products, successfully enforce its intellectual property rights and defend itself against third party claims against the Company; the impact of distributor purchasing decisions on sales of the Company's products that are sold through distribution; the impact of competition, technological change, and veterinary hospital consolidation on the markets for the Company's products; changes or trends in veterinary medicine that affect the rate of use of the Company's products and services by veterinarians; the impact of the Company's inexperience in the human point-of-care market; the effects of operations outside the U.S., including from currency fluctuations, different regulatory, political and economic conditions, and different market conditions; the effects of interruptions to the Company's operations due to natural disasters or system failures; the loss of key employees; class action litigation due to stock price volatility; the effect on the Company's stock price if quarterly or annual operations results do not meet expectation of market analysts or investors in future periods; and potential exposures related to our worldwide provision for income taxes. A further description of these and other factors can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, and quarterly report on Form 10-Q for the quarter ended March 31, 2010, in the section captioned "Risk Factors."
Contact: Merilee Raines, Chief Financial Officer, 1-207-556-8155
-- 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. (1)
SOURCE IDEXX Laboratories, Inc.
