IDEXX Laboratories Announces First Quarter Results

Achieves first quarter revenue growth of 8% reported and 10% organic, driven by CAG Diagnostics recurring revenue growth of 9% reported and 12% organic

Strong organic revenue growth supported by IDEXX execution drivers, including record first quarter global premium instrument placements

Delivers EPS of $2.55, supported by operating margin expansion of 150 basis points as reported and 210 basis points on a comparable basis

Incorporates positive adjustments to full year revenue and EPS guidance ranges, raising low end and maintaining consistent targeted strong performance at high end

Increases 2023 revenue guidance to $3,615 million – $3,700 million, reflecting 7.5% – 10% growth as reported and organically

Updates 2023 EPS outlook to $9.33 – $9.75, a year-over-year increase of 16% – 22% as reported and 20% – 26% on a comparable basis, including ~12% combined growth benefit from a customer contract resolution payment in Q1 2023 and lapping of discrete 2022 R&D investments

WESTBROOK, Maine–(BUSINESS WIRE)–IDEXX Laboratories, Inc. (NASDAQ: IDXX), a global leader in pet healthcare innovation, today announced first quarter results.

First Quarter Results

The Company reports revenues of $900 million for the first quarter of 2023, an increase of 8% reported and 10% organic, driven by Companion Animal Group (“CAG”) Diagnostics recurring revenue growth of 9% reported and 12% organic. First quarter results were supported by continued solid demand for veterinary services and benefits from strong IDEXX execution, reflected in 14% reported and organic growth in U.S. CAG Diagnostics recurring revenues and double-digit organic gains across IDEXX’s major testing modalities. IDEXX innovation and commercial engagement drove record first quarter global premium instrument placements, supporting 11% annual growth in IDEXX’s global premium instrument installed base. Veterinary software, services and diagnostic imaging systems revenue grew 13% as reported and 14% organically, reflecting high growth in recurring revenues and continued strong quarterly placements of cloud-based software solutions. Overall first quarter revenue gains were also supported by Water revenue growth of 7% reported and 8% organic.

First quarter earnings per diluted share (“EPS”) were $2.55, an increase of 12% as reported and 18% on a comparable basis, reflecting solid gross margin gains and benefits from a $16 million customer contract resolution payment. EPS results included $0.06 per share in tax benefits from share-based compensation, and $0.11 per share negative impact from currency changes.

“Strong execution by IDEXX commercial and operational teams drove excellent growth results and financial performance in the first quarter,” said Jay Mazelsky, President and Chief Executive Officer. “Commercial engagement and IDEXX innovations are supporting our customers as they work to address growing demand for pet healthcare. IDEXX’s ongoing focus on addressing the needs of veterinary clinics is aligned with developing the long-term global growth opportunity for companion animal diagnostics.”

First Quarter Performance Highlights

Companion Animal Group

The Companion Animal Group generated revenue growth of 9% reported and 11% organic for the quarter. Strong growth performance was supported by CAG Diagnostics recurring revenue growth of 9% on a reported basis and 12% organically. U.S. CAG Diagnostics organic recurring revenue growth of 14% remained solidly above sector growth levels in the first quarter, reflected in a 1,350 basis point growth premium to U.S. same store clinical visit growth.

Additional U.S. companion animal practice key metrics are available in the Q1 2023 Earnings Snapshot accessible on the IDEXX website, www.idexx.com/investors.

Strong global growth was achieved across IDEXX’s testing modalities.

IDEXX VetLab® consumables generated 9% reported and 12% organic revenue growth, with strong gains across U.S. and international regions supported by benefits from higher net price realization and an expanded global premium instrument installed base.

Reference laboratory diagnostic and consulting services generated 10% reported and 11% organic revenue growth, driven by strong gains in the U.S. and moderate overall growth in international regions. International growth was constrained by pressure on same-store clinical visit levels, reflecting ongoing macro-economic impacts.

Rapid assay products revenues grew 10% as reported and 12% organically, driven by strong growth in the U.S. reflecting solid volume gains and benefits from higher net price realization.

Veterinary software, services and diagnostic imaging systems revenues grew 13% as reported and 14% organically, supported by double-digit organic gains in recurring software and digital imaging revenues. Strong demand for cloud-based products continues to support momentum in software solution placements and customer gains.

Water

Water revenues grew 7% on a reported basis and 8% on an organic basis for the quarter, reflecting solid volume gains in the U.S. and key international regions, including benefits from net price improvement.

Livestock, Poultry and Dairy (“LPD”)

LPD revenues declined 5% as reported and 2% organically for the quarter, as solid gains in the U.S. and Europe were offset by comparison to high prior year herd health screening levels and reduced revenues from non-core food and safety products in certain regions.

Gross Profit and Operating Profit

Gross profits increased 9% as reported and 12% on a comparable basis. Gross margin of 60.3% increased 70 basis points as reported and 120 basis points on a comparable basis. Benefits from net price gains, lab productivity initiatives, improvement in software service gross margins and business mix offset inflationary effects.

Operating margin was 31.1% in the quarter, 150 basis points higher than the prior year as reported and 210 basis points higher on a comparable basis, reflecting gross margin gains and benefits from a $16 million customer contract resolution payment. Operating expense grew 5% as reported and 7% on a comparable basis, net of a ~6% favorable growth rate impact from the customer contract resolution payment. Operating expense growth was driven by higher levels of sales and marketing spending, including impacts from the return of in-person sales meetings, and R&D investments.

2023 Growth and Financial Performance Outlook

The Company is updating its full year revenue growth outlook range to 7.5% – 10% as reported and organically. This reflects consistent goals for organic revenue growth at the high end and an increase of 0.5% at the low end. The overall reported revenue range was also increased by $10 million, or ~0.5%, for updated foreign exchange effects.

The Company refined its full year reported operating margin outlook to 29.0% – 29.5%. The operating margin guidance range includes an estimated 60 basis points in year-over-year unfavorable net margin impact from updated foreign currency exchange rate changes, ~10 basis points higher than earlier estimates.

The Company’s EPS outlook range of $9.33 – $9.75 maintains a consistent high end estimate and raises the low end by $0.06 to reflect the factors noted above. This includes a consistent outlook for $0.23 of full year impact from foreign exchange changes, primarily related to lapping 2022 hedge gains.

The following table provides the Company’s updated outlook for annual key financial metrics in 2023:

Amounts in millions except per share data and percentages

 

Growth and Financial Performance Outlook

 

2023

 

 

 

 

 

 

 

Revenue

 

$3,615

$3,700

 

Reported growth

 

7.5%

10%

 

Organic growth

 

7.5%

10%

 

CAG Diagnostics Recurring Revenue Growth

 

 

 

 

 

Reported growth

 

9%

11%

 

Organic growth

 

9%

11%

 

Operating Margin

 

29.0%

29.5%

 

Operating margin expansion

 

230 bps

280 bps

 

Negative impact of foreign exchange

 

~ 60 bps

 

Comparable margin expansion

 

290 bps

340 bps

 

Positive impact of discrete in-license of technology and customer contract resolution

 

~ 280 bps

 

EPS

 

$9.33

$9.75

 

Reported growth

 

16%

22%

 

Comparable growth

 

20%

26%

 

Other Key Metrics

 

 

 

 

 

Net interest expense

 

~ $43

 

Share-based compensation tax benefit

 

~ $8

 

Share-based compensation tax rate benefit

 

~ 1%

 

Effective tax rate

 

21.5%

22%

 

Share-based compensation EPS impact

 

~ $0.10

 

Reduction in average shares outstanding

 

0.5 %

1%

 

Operating Cash Flow

 

100% – 110% of net income

 

Free Cash Flow

 

80% – 90% of net income

 

Capital Expenditures

 

~ $180

 

 

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 2023.

Estimated Foreign Currency Exchange Rate Impacts

 

2023

 

 

 

 

Revenue growth rate impact

 

(~ 20 bps)

CAG Diagnostics recurring revenue growth rate impact

 

(~ 20 bps)

Operating margin growth impact

 

(~ 60 bps)

EPS impact

 

(~ $0.23)

EPS growth impact

 

(~ 3%)

 

 

 

 

Go-Forward Foreign Currency Exchange Rate Assumptions

 

2023

In U.S. dollars

 

 

 

euro

 

$1.08

British pound

 

$1.23

Canadian dollar

 

$0.73

Australian dollar

 

$0.66

Relative to the U.S. dollar

 

 

 

Japanese yen

 

¥135

Chinese renminbi

 

¥6.99

Brazilian real

 

R$5.14

 

 

 

 

Conference Call and Webcast Information

IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (EDT) to discuss its first quarter 2023 results and management’s outlook. To participate in the conference call, dial 1-800-776-0420 or 1-323-794-2442 and reference passcode 217879. 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.

2023 Annual Meeting of Shareholders

IDEXX Laboratories, Inc. will hold its 2023 Annual Meeting of Shareholders (the “2023 Annual Meeting”) on Wednesday, May 17, 2023 at 10:00 a.m. (EDT). The 2023 Annual Meeting will be a virtual meeting via a live audio webcast at www.virtualshareholdermeeting.com/IDXX2023. The online pre-meeting forum can be accessed before the 2023 Annual Meeting at www.proxyvote.com for beneficial owners and www.proxyvote.com/idxx for registered shareholders. At this online pre-meeting forum, you can submit questions in writing in advance of the 2023 Annual Meeting, vote, view the Rules of Conduct and Procedures relating to the 2023 Annual Meeting and access copies of the Company’s proxy materials and annual report.

Shareholders as of the close of business on March 20, 2023 are entitled to attend the 2023 Annual Meeting, vote their shares electronically and submit questions before and during the live audio webcast. As part of the 2023 Annual Meeting, the Company will answer the questions submitted by our shareholders during a live Q&A session, as time permits. The Company will publish the answer to each question, including any for which there is not sufficient time to address during the 2023 Annual Meeting, on the Company’s Investor Relations website as soon as practicable after the meeting. An archived replay will also be available at www.virtualshareholdermeeting.com/IDXX2023 after the conclusion of the 2023 Annual Meeting and will remain available for one year. Further information on the 2023 Annual Meeting can be found in the Company’s proxy materials.

About IDEXX Laboratories, Inc.

IDEXX is a global leader in pet healthcare innovation. Our diagnostic and software products and services create clarity in the complex, constantly evolving world of veterinary medicine. We support longer, fuller lives for pets by delivering insights and solutions that help the veterinary community around the world make confident decisions—to advance medical care, improve efficiency, and build thriving practices. Our innovations also help ensure the safety of milk and water across the world and maintain the health and well-being of people and livestock. IDEXX Laboratories, Inc. is a member of the S&P 500® Index. Headquartered in Maine, IDEXX employs nearly 11,000 people and offers solutions and products to customers in more than 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 “2023 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 our expectations regarding financial performance; revenue growth and EPS outlooks; operating and free cash flow forecast; projected impact of foreign currency exchange rates and interest rates; projected operating margins and expenses and capital expenditures; projected tax, tax rate and EPS benefits from share-based compensation arrangements; and projected effective tax rates, reduction of average shares outstanding and net interest expense. 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, 2022 and in the corresponding sections of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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 first quarter 2023 results as follows: decreased gross profit growth by 3%, decreased gross margin growth by 50 basis points, decreased operating expense growth by 2%, decreased operating profit growth by 5%, decreased operating profit margin growth by 60 basis points, and decreased EPS growth by 5%. 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 months ended March 31, 2023 and refer to the 2023 Growth and Financial Performance Outlook section of this earnings release for estimated foreign currency exchange rate impacts on 2023 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 represents the percent change in revenue, as compared to the same period for the prior year, net of 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. 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 months ended March 31, 2023. Please refer to the constant currency note above for a summary of foreign currency exchange rate impacts. Please refer to the 2023 Growth and Financial Performance Outlook section of this earnings release for estimated full year 2023 organic revenue growth for the Company and CAG Diagnostics recurring revenue. The percentage change in revenue resulting from acquisitions represents revenues during the current year period, limited to the initial 12 months from the date of the acquisition, that are directly attributable to business acquisitions. Revenue from acquisitions is not expected to have an impact on projected full year 2023 revenue growth or CAG Diagnostics recurring revenue growth.

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

 

 

 

 

 

 

 

March 31

 

March 31

Change

Dollar amounts in thousands

 

 

 

 

 

 

2023

 

2022

 

Gross Profit (as reported)

 

 

 

 

 

 

$

542,971

 

 

$

498,753

 

9 %

Gross margin

 

 

 

 

 

 

 

60.3

%

 

 

59.6

%

70 bps

Less: comparability adjustments

 

 

 

 

 

 

 

 

 

 

Change from currency

 

 

 

 

 

 

 

(15,826

)

 

 

 

 

Comparable gross profit growth

 

 

 

 

 

 

$

558,797

 

 

$

498,753

 

12 %

Comparable gross margin and gross margin gain (or growth)

 

 

 

 

 

 

 

60.8

%

 

 

59.6

%

120 bps

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (as reported)

 

 

 

 

 

 

$

262,572

 

 

$

250,409

 

5 %

Less: comparability adjustments

 

 

 

 

 

 

 

 

 

 

Change from currency

 

 

 

 

 

 

(4,182

)

 

 

 

 

Comparable operating expense growth

 

 

 

 

 

 

$

266,754

 

 

$

250,409

 

7 %

 

 

 

 

 

 

 

 

 

 

 

Income from operations (as reported)

 

 

 

 

 

 

$

280,399

 

 

$

248,344

 

13 %

Operating margin

 

 

 

 

 

 

 

31.1

%

 

 

29.7

%

150 bps

Less: comparability adjustments

 

 

 

 

 

 

 

 

 

 

Change from currency

 

 

 

 

 

 

 

(11,644

)

 

 

 

 

Comparable operating profit growth

 

 

 

 

 

 

$

292,043

 

 

$

248,344

 

18 %

Comparable operating margin and operating margin gain (or growth)

 

 

 

 

 

 

 

31.8

%

 

 

29.7

%

210 bps

Amounts presented may not recalculate due to rounding.

 

Projected 2023 comparable operating margin expansion outlined in the 2023 Growth and Financial Performance Outlook section of this earnings release reflects projected full year 2023 reported operating margin adjusted for estimated positive year-over-year foreign currency exchange rate change impact of approximately 60 basis points.

These impacts described above reconcile reported gross profit growth, gross margin gain, operating expense growth, operating profit growth and operating margin gain (including projected 2023 operating margin expansion) to comparable gross profit growth, comparable gross margin gain, comparable operating expense growth, comparable operating profit growth and comparable operating margin gain for the Company.

Comparable EPS growth – Comparable EPS growth is a non-GAAP financial measure that represents the percentage change in earnings per share (diluted) (“EPS”) for a measurement period, as compared to the prior base period, net of the impact of changes in foreign currency exchange rates from the prior base period and excluding the tax benefits of share-based compensation activity under ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, and non-recurring or unusual items (if any). Management believes comparable EPS growth is a more useful way to measure the Company’s business performance than EPS growth 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 a key metric used by management.

Contacts

John Ravis, Investor Relations, 1-207-556-8155

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