IDEXX Laboratories Announces Second Quarter Results
WESTBROOK, Maine, July 30, 2021 /PRNewswire/ --
- Achieves reported revenue growth of 30% and organic revenue growth of 25%, driven by CAG Diagnostics recurring revenue growth of 30% as reported and 26% organic
- Delivers EPS of $2.34, representing 36% growth as reported and 33% on a comparable basis
- Increases 2021 revenue guidance to $3,170 million - $3,205 million, reflecting higher expectations for reported growth of 17% - 18.5% and organic growth of 14.5% - 16%, supported by projected CAG Diagnostics recurring revenue growth of 18% - 19.5% as reported and 16% - 17.5% organic
- Raises 2021 EPS outlook to $8.20 - $8.36, reflecting an increase of 1% - 1.5% in the organic revenue growth outlook and expectations for higher operating margins of 28.6% - 29.1%
IDEXX Laboratories, Inc. (NASDAQ: IDXX), a global leader in veterinary diagnostics, veterinary practice software and water microbiology testing, today announced second quarter results, as well as an update on U.S. companion animal diagnostics sector trends.
Second Quarter Results
The Company reports revenues of $826 million for the second quarter of 2021, an increase of 30% as reported and 25% organically. Second quarter results were driven by Companion Animal Group ("CAG") Diagnostics recurring revenue growth of 30% reported and 26% organic, reflecting continued high gains in the U.S. and internationally, as well as 86% reported and 78% organic growth in CAG Diagnostics capital instrument revenue. Overall revenue growth was also supported by 32% reported and 27% organic revenue growth in the Water business.
Earnings per diluted share ("EPS") of $2.34 for the second quarter was supported by solid operating margin gains despite comparisons to highly controlled cost levels in the prior year. Overall operating margins expanded 110 basis points on an as reported and comparable basis. EPS results also benefited from a higher than expected $0.07 per share in tax benefits from share-based compensation.
"The IDEXX team delivered another quarter of outstanding performance, reflected in continued high growth in CAG Diagnostics recurring revenues and accelerated gains in instrument placements, as the global animal healthcare sector sustained strong growth momentum globally," said Jay Mazelsky, the Company's President and Chief Executive Officer. "We doubled prior year CAG premium instrument placements, as our customers look ahead to supporting continued strong global demand for companion animal diagnostics in their practices. We look forward to building on this momentum with the ongoing successful rollout of ProCyte OneTM, our next-generation hematology point-of-care instrument. We continue to drive exceptional performance across our major regions driven by strong commercial execution and adoption of IDEXX innovation. We also continue to build on our capabilities, including expansion of our cloud-based software solutions that support veterinary clinic productivity. We were excited to announce the acquisition of the ezyVet practice management software platform in the quarter and to welcome the talented ezyVet team to IDEXX. Our best-in-class in-clinic platforms and unparalleled global lab services capabilities, integrated with our cloud-based information management solutions, position us to drive accelerated advancement of the global standard of healthcare for companion animals."
Companion Animal Diagnostics Trends Update
Favorable global trends in companion animal healthcare continue to support high growth for CAG diagnostic products and services across regions. U.S. same-store clinical visit growth at veterinary practices was 13% in the second quarter, reflecting year-over-year growth of 11% in non-wellness visits and 14% in wellness visits. These gains include benefits from comparisons to prior year impacts on demand related to the COVID-19 pandemic. Average same-store revenue growth at U.S. veterinary practices was 16% in the second quarter, driven by high growth in healthcare services, including increased utilization of diagnostics. Additional U.S. companion animal practice key metrics are available in the Q2 2021 Earnings Snapshot accessible on the IDEXX website, www.idexx.com/investors.
Second Quarter Performance Highlights
Companion Animal Group
The Companion Animal Group generated 32% reported and 27% organic revenue growth for the quarter, supported by CAG Diagnostics recurring revenue growth of 30% on a reported basis and 26% on an organic basis. High growth across IDEXX's major modalities in the second quarter reflected continued high growth in clinical visits, which benefited in part from lapping of prior year COVID-19 impacts in April and May. Overall CAG revenue growth included 86% reported growth and 78% organic growth in CAG Diagnostics capital instrument revenues, compared to constrained prior year levels.
- IDEXX VetLab® consumables generated 31% reported and 26% organic revenue growth, supported by increased testing utilization across regions, high customer retention levels, ongoing expansion of our global premium instrument installed base, and moderate net price gains.
- Reference laboratory diagnostic and consulting services generated 28% reported and 25% organic revenue growth, with high organic growth across regions reflecting strong volume gains across testing categories and benefits from moderate net price gains.
- Rapid assay products revenues grew 30% as reported and 28% on an organic basis, with continued worldwide growth in SNAP® 4Dx Plus Test volumes, benefiting from strong overall sector conditions, including high growth in wellness testing, high customer retention levels, and moderate net price gains.
Veterinary software, services and diagnostic imaging systems revenues grew 33% reported and 26% on an organic basis, driven by double-digit growth in subscription-based service revenues and strong growth in new veterinary software system placements and recurring software services. Reported growth includes initial benefits from the recent acquisition of ezyVet which closed in June.
Water
Water revenues grew 32% on a reported basis and 27% on an organic basis for the quarter, compared to prior year results, which reflected a 16% organic revenue decline driven by early pandemic-related impacts. Solid revenue growth reflects increased demand for water testing as economies re-open, including continued recovery in non-compliance related testing volumes.
Livestock, Poultry and Dairy ("LPD")
LPD revenues grew 4% reported and declined 2% on an organic basis, as strong results were constrained by the lapping of high prior year demand in key areas such as African Swine Fever testing and relatively lower herd health screening levels due to reduced export levels.
Gross Profit and Operating Profit
Gross profits increased 29% as reported and 25% on a comparable basis. Gross margin of 59.2% decreased 30 basis points compared to prior year period results as reported and 20 basis points on a comparable basis. Gross margin results were impacted by mix impacts from high instrument revenue growth and the lapping of tightly controlled prior year cost levels in key areas including lab operations, which moderated reference lab gross margin gains. These effects were partially offset by a mix benefit from strong CAG Diagnostics recurring revenue growth and moderate net price gains.
Operating margin was 31.4% in the quarter, 110 basis points higher than the prior year period results on both as reported and comparable bases, supported by operating expense leverage on strong revenue growth. Operating expenses increased 24% as reported and 20% on a comparable basis, reflecting comparisons to lower prior year levels impacted by early pandemic-related cost controls, as well as the advancement of investments in our global commercial and innovation capabilities. The Company is planning for constrained gross margin gains and higher levels of operating expense growth over the balance of the year as we continue to lap tightly controlled prior year spending levels, with increases in specific cost areas as pandemic restrictions are eased and advancement of investments aligned with our goals for sustained high revenue growth.
2021 Growth and Financial Performance Outlook
The following table provides the Company's outlook for annual key financial metrics in 2021:
Amounts in millions except per share data and percentages
Growth and Financial Performance Outlook | 2021 | |||||
Revenue | $3,170 | - | $3,205 | |||
Reported growth | 17% | - | 18.5% | |||
Organic growth | 14.5% | - | 16% | |||
CAG Diagnostics Recurring Revenue Growth | ||||||
Reported growth | 18% | - | 19.5% | |||
Organic growth | 16% | - | 17.5% | |||
Operating Margin | 28.6% | - | 29.1% | |||
Operating margin expansion | 290 | - | 340 bps | |||
Comparable margin expansion | 175 | - | 225 bps | |||
EPS | $8.20 | - | $8.36 | |||
Reported growth | 22% | - | 25% | |||
Comparable growth | 25% | - | 27% | |||
Other Key Metrics | ||||||
Net interest expense | ~ $30.5 | |||||
Share-based compensation tax benefit | ~ $22 | |||||
Share-based compensation tax rate benefit | ~ 2.5% | |||||
Effective tax rate | 18.5% | - | 19.5% | |||
Share-based compensation EPS impact | ~ $0.25 | |||||
Reduction in average shares outstanding | 0% | - | 0.5% | |||
Operating Cash Flow | 100% - 110% of net income | |||||
Free Cash Flow | ~80% of net income | |||||
Capital Expenditures | $150 - $160 |
The following table outlines estimates of foreign currency exchange rate impacts, net of foreign currency hedging transactions, and foreign currency exchange rate assumptions reflected in the above financial performance outlook for 2021.
Estimated Foreign Currency Exchange Rates and Impacts | 2021 | ||||
Revenue growth rate impact | ~ 2% | ||||
CAG Diagnostics recurring revenue growth rate impact | ~ 2% | ||||
Operating margin growth impact | ~ 10 bps | ||||
EPS impact | ~ $0.17 | ||||
EPS growth impact | ~ 3.0% | ||||
Foreign Currency Exchange Rate Assumptions | |||||
In U.S. dollars | |||||
euro | $1.17 | ||||
British pound | $1.37 | ||||
Canadian dollar | $0.79 | ||||
Australian dollar | $0.73 | ||||
Relative to the U.S. dollar | |||||
Japanese yen | ¥112.00 | ||||
Chinese renminbi | ¥6.56 | ||||
Brazilian real | R$5.33 |
Conference Call and Webcast Information
IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (EDT) to discuss its second quarter 2021 results and management's outlook. To participate in the conference call, dial 1-888-771-4371 or 1-847-585-4405 and reference confirmation number 50183464. Individuals can access a live webcast of the conference call through a link on the IDEXX website, www.idexx.com/investors. An archived edition of the webcast will be available after 1:00 p.m. (EDT) on that day via the same link and will remain available for one year.
2021 Virtual Investor Day
IDEXX Laboratories, Inc. will host its 2021 Virtual Investor Day on Thursday, August 12, 2021 from 10:00 am to approximately 1:00 pm (EDT). A live audio webcast and accompanying slide presentations will be available at www.idexx.com/investors. An archived webcast replay of the event will be available approximately one hour following the event at www.idexx.com/investors.
About IDEXX Laboratories, Inc.
IDEXX Laboratories, Inc. is a member of the S&P 500® Index and is a leader in pet healthcare innovation, offering diagnostic and software products and services that deliver solutions and insights to practicing veterinarians around the world. IDEXX products enhance the ability of veterinarians to provide advanced medical care, improve staff efficiency and build more economically successful practices. IDEXX is also a worldwide leader in providing diagnostic tests and information for livestock and poultry and tests for the quality and safety of water and milk and point-of-care and laboratory diagnostics for human medicine. Headquartered in Maine, IDEXX employs approximately 9,800 people and offers products to customers in over 175 countries. For more information about IDEXX, visit: www.idexx.com.
Note Regarding Forward-Looking Statements
This earnings 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 are included above under "Second Quarter Results", "Gross Profit and Operating Profit", "2021 Growth and Financial Performance Outlook", and elsewhere and can be identified by the use of words such as "expects", "may", "anticipates", "intends", "would", "will", "plans", "believes", "estimates", "projected", "should", and similar words and expressions. Our forward-looking statements include statements relating to a product roll-out; revenue growth and EPS outlooks; operating and free cash flow forecast; projected impact of foreign currency exchange rates; projected operating margins and expenses and capital expenditures; projected tax, tax rate and EPS benefits from share-based compensation arrangements; projected effective tax rates, reduction of average shares outstanding and net interest expense; projected gross margin growth; and anticipated cost area increases. These statements are intended to provide management's expectation of future events as of the date of this earnings release; are based on management's estimates, projections, beliefs and assumptions as of the date of this earnings release; and are not guarantees of future performance. These forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, among other things, the matters described under the headings "Business," "Risk Factors," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 and in the corresponding sections of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, as well as those described from time to time in the Company's other filings with the U.S. Securities and Exchange Commission available at www.sec.gov. The Company specifically disclaims any obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
Statement Regarding Non-GAAP Financial Measures
The following defines terms and conventions and provides reconciliations regarding certain measures used in this earnings release and/or the accompanying earnings conference call that are not required by, or presented in accordance with, generally accepted accounting principles in the United States of America ("GAAP"), otherwise referred to as non-GAAP financial measures. To supplement the Company's consolidated results presented in accordance with GAAP, the Company has disclosed non-GAAP financial measures that exclude or adjust certain items. Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of the Company's business performance and liquidity and are useful for period-over-period comparisons of the performance of the Company's business and its liquidity and to the performance and liquidity of our peers. While management believes that these non-GAAP financial measures are useful in evaluating the Company's business, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly titled measures reported by other companies.
Constant currency - Constant currency references are non-GAAP financial measures which exclude the impact of changes in foreign currency exchange rates and are consistent with how management evaluates our performance and comparisons with prior and future periods. We estimated the net impacts of currency on our revenue, gross profit, operating profit, and EPS results by restating results to the average exchange rates or exchange rate assumptions for the comparative period, which includes adjusting for the estimated impacts of foreign currency hedging transactions and certain impacts on our effective tax rates. These estimated currency changes impacted second quarter 2021 results as follows: increased gross profit growth by 3.8%, decreased gross margin growth by 10 basis points, increased operating expense growth by 3.5%, increased operating profit growth by 4.2%, had an immaterial impact on operating profit margin growth, and increased EPS growth by 4.1%. Constant currency revenue growth represents the percentage change in revenue during the applicable period, as compared to the prior year period, excluding the impact of changes in foreign currency exchange rates. See the supplementary analysis of results below for revenue percentage change from currency for the three and six months ended June 30, 2021 and refer to the 2021 Growth and Financial Performance Outlook section of this earnings release for estimated foreign currency exchange rate impacts on 2021 projections and estimates.
Growth and organic revenue growth - All references to growth and organic growth refer to growth compared to the equivalent prior year period unless specifically noted. Organic revenue growth is a non-GAAP financial measure that excludes the impact of changes in foreign currency exchange rates, certain business acquisitions, and divestitures. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers. Two-year average organic growth rates are provided to facilitate easier comparisons between periods impacted by the COVID-19 pandemic with prior and future periods, calculated as the average of the growth rates over the two referenced periods. Organic revenue growth should be considered in addition to, and not as a replacement of or a superior measure to, revenue growth reported in accordance with GAAP. See the supplementary analysis of results below for a reconciliation of reported revenue growth to organic revenue growth for the three and six months ended June 30, 2021. Please refer to the 2021 Growth and Financial Performance Outlook section of this earnings release for estimated full year 2021 organic revenue growth for the Company and CAG Diagnostics recurring revenue. The percentage change in revenue resulting from acquisitions represents incremental revenues attributable to business acquisitions that have occurred since the beginning of the prior year period. Revenue from acquisitions is expected to increase projected full year 2021 revenue growth by 50 basis points and increase CAG Diagnostics recurring revenue growth by 20 basis points.
The reconciliation of the two-year average annual organic growth of CAG Diagnostics recurring revenue is as follows:
Reported | Percentage Currency | Percentage | Organic | |||||||||
CAG Diagnostics recurring revenue growth rates for the quarter ended June 30, 2021 | 29.6 | % | 3.7 | % | 0.3 | % | 25.6 | % | ||||
CAG Diagnostics recurring revenue growth rates for the quarter ended June 30, 2020 | 6.9 | % | (1.1) | % | 0.8 | % | 7.2 | % | ||||
2-year average annual growth rates | 18.3 | % | 1.3 | % | 0.6 | % | 16.4 | % | ||||
1See Statement Regarding Non-GAAP Financial Measures, above. Amounts presented may not recalculate due to rounding. | ||||||||||||
Comparable growth metrics - Comparable gross profit growth, comparable gross margin gain (or growth), comparable operating expense growth, comparable operating profit growth and comparable operating margin gain (or growth) are non-GAAP financial measures and exclude the impact of changes in foreign currency exchange rates and non-recurring or unusual items (if any). Please refer to the constant currency note above for a summary of foreign currency exchange rate impacts. Management believes that reporting comparable gross profit growth, comparable gross margin gain (or growth), comparable operating expense growth, comparable operating profit growth and comparable operating margin gain (or growth) provides useful information to investors because it enables better period-over-period comparisons of the fundamental financial results by excluding items that vary independent of performance and provides greater transparency to investors regarding key metrics used by management. Comparable gross profit growth, comparable gross margin gain (or growth), comparable operating expense growth, comparable operating profit growth and comparable operating margin gain (or growth) should be considered in addition to, and not as replacements of or superior measures to, gross profit growth, gross margin gain, operating expense growth, operating profit growth and operating margin gain reported in accordance with GAAP.
The reconciliation of these non-GAAP financial measures is as follows:
Three Months Ended | Year-over-Year | Six Months Ended | Year-over-Year | |||||||||||||||||
June 30 | June 30, | Change | June 30 | June 30, | Change | |||||||||||||||
Dollar amounts in thousands | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
Gross Profit (as reported) | $ | 489,308 | $ | 379,342 | 29 | % | $ | 960,090 | $ | 738,932 | 30 | % | ||||||||
Gross margin | 59.2 | % | 59.5 | % | (30) | bps | 59.9 | % | 58.5 | % | 140 | bps | ||||||||
Less: comparability adjustments | ||||||||||||||||||||
Change from currency | 14,578 | — | 26,017 | — | ||||||||||||||||
Comparable gross profit growth | $ | 474,730 | $ | 379,342 | 25 | % | $ | 934,073 | $ | 738,932 | 26 | % | ||||||||
Comparable gross margin and gross margin gain (or growth) | 59.3 | % | 59.5 | % | (20) | bps | 59.9 | % | 58.5 | % | 140 | bps | ||||||||
Operating expenses (as reported) | $ | 230,055 | $ | 186,094 | 24 | % | $ | 453,215 | $ | 401,359 | 13 | % | ||||||||
Less: comparability adjustments | ||||||||||||||||||||
Change from currency | 6,590 | — | 8,201 | — | ||||||||||||||||
Comparable operating expense growth | $ | 223,465 | $ | 186,094 | 20 | % | $ | 445,014 | $ | 401,359 | 11 | % | ||||||||
Income from operations (as reported) | $ | 259,253 | $ | 193,248 | 34 | % | $ | 506,875 | $ | 337,573 | 50 | % | ||||||||
Operating margin | 31.4 | % | 30.3 | % | 110 | bps | 31.6 | % | 26.7 | % | 490 | bps | ||||||||
Less: comparability adjustments | ||||||||||||||||||||
Change from currency | 7,988 | — | 17,816 | — | ||||||||||||||||
Comparable operating profit growth | $ | 251,265 | $ | 193,248 | 30 | % | $ | 489,059 | $ | 337,573 | 45 | % | ||||||||
Comparable operating margin and operating margin gain (or growth) | 31.4 | % | 30.3 | % | 110 | bps | 31.4 | % | 26.7 | % | 470 | bps | ||||||||
Amounts presented may not recalculate due to rounding. |
Projected 2021 comparable operating margin expansion outlined in the 2021 Growth and Financial Performance Outlook section of this earnings release reflects the following adjustments: (i) full year 2020 reported operating margin adjusted for impacts of the expired royalty litigation matter charges in the third quarter of 2020, which reduced full year 2020 operating margin growth by approximately 100 basis points; and (ii) projected full year 2021 reported operating margin adjusted for estimated positive year-over-year foreign currency exchange rate change impact of approximately 20 basis points.
These impacts and those described in the constant currency note above reconcile reported gross profit growth, gross margin gain, operating expense growth, operating profit growth and operating margin gain (includ
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