IDEXX Laboratories Announces Third Quarter Results
- Achieves third quarter revenue growth of 9% reported and 8% organic, driven by CAG Diagnostics recurring revenue growth of 10% reported and 9% organic
- Solid revenue growth reflects benefits from IDEXX execution drivers including double-digit year-over-year installed base growth across global premium instrument platforms
- Delivers EPS of $2.53, representing 18% growth as reported and 16% on a comparable basis, supported by operating margin expansion of 100 basis points as reported and 140 basis points on a comparable basis
- Adjusts 2023 revenue guidance to $3,635 million – $3,650 million, reflecting 7.9% – 8.4% growth as reported and 8.3% – 8.8% organically, driven by projected CAG Diagnostics recurring revenue growth of 9.4% – 9.9% as reported and 9.8% – 10.3% organically
- Updates 2023 EPS outlook to $9.74 – $9.90, a year-over-year increase of 21% – 23% as reported and 25% – 27% on a comparable basis, including ~12% combined EPS 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 third quarter results.
Third Quarter Results
The Company reports revenues of $916 million for the third quarter of 2023, an increase of 9% reported and 8% organic, driven by Companion Animal Group (“CAG”) growth of 9% reported and 8% organic and Water revenue growth of 9% reported and 7% organic. CAG Diagnostics recurring revenue growth of 10% reported and 9% organic was supported by sustained benefits from IDEXX execution drivers and reflects high single-digit organic growth in the U.S. and double-digit organic growth internationally. Commercial engagement and sustained high interest in adopting IDEXX innovation drove high levels of premium instrument placements, supporting 11% annual growth in IDEXX’s global premium instrument installed base. Veterinary software, services and diagnostic imaging systems revenue grew 14% as reported and 13% organically, reflecting high recurring revenue growth and ongoing momentum in cloud-based software placements.
Third quarter earnings per diluted share (“EPS”) were $2.53, an increase of 18% as reported and 16% on a comparable basis, including $0.04 per share in tax benefits from share-based compensation and $0.01 per share negative impact from currency changes.
“Strong execution by IDEXX teams and sustained interest in adopting IDEXX’s differentiated multi-modality testing and workflow solutions helped deliver solid organic revenue gains and strong financial results in the third quarter,” said Jay Mazelsky, President and Chief Executive Officer. “Busy veterinarians appreciate that they must very often first test before they can determine the most optimal treatment course, which drives the medical services activity in their practice. They also want these testing solutions to seamlessly connect to a modern cloud-based PIMS, and have shown an increased appetite to invest in software that supports higher staff productivity and client communications. IDEXX remains very well positioned to address these needs while driving development of the companion animal diagnostics sector through relevant innovation and commercial engagement.”
Third Quarter Performance Highlights
Companion Animal Group
The Companion Animal Group generated revenue growth of 9% as reported and 8% organic for the quarter. Solid growth was supported by CAG Diagnostics recurring revenue growth of 10% on a reported basis and 9% organically. U.S. CAG Diagnostics recurring revenue organic growth of 8.3% included an ~50 basis point negative impact from fewer equivalent selling days and remained solidly above sector growth levels in the third quarter, reflected in an ~1,100 basis point growth premium to U.S. same store clinical visit growth.
Additional U.S. companion animal practice key metrics are available in the Q3 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 13% reported and 11% organic revenue growth, with double-digit 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 8% reported and 7% organic revenue growth, driven by high single-digit gains in the U.S. and improved, mid-to-high single-digit growth in international regions.
- Rapid assay products revenues grew 9% as reported and 8% organically, driven by strong growth in the U.S., supported by benefits from higher net price realization.
Veterinary software, services and diagnostic imaging systems revenues grew 14% as reported and 13% organically, driven by continued high levels of organic gains in recurring software and diagnostic imaging revenues. Strong demand for cloud-based products continues to support momentum in software solution placements and customer gains.
Water
Water revenues grew 9% on a reported basis and 7% on an organic basis for the quarter, reflecting solid gains across regions, including benefits from net price improvement.
Livestock, Poultry and Dairy (“LPD”)
LPD revenues grew 5% on a reported basis and grew 2% organically for the quarter, as solid gains in the U.S. were offset by lower herd health screening levels internationally.
Gross Profit and Operating Profit
Gross profits increased 8% as reported and on a comparable basis. Gross margin of 59.9% decreased 30 basis points as reported and increased 30 basis points on a comparable basis, supported by benefits from net price gains, business mix and improvement in software service gross margins.
Operating margin was 30.1% in the quarter, higher than the prior year by 100 basis points as reported and 140 basis points on a comparable basis. Operating margin expansion reflects gross margin gains benefiting from strong CAG Diagnostics recurring revenue growth and operating expense growth of 4% as reported and on a comparable basis. Reported operating expense growth reflects benefits from cost controls and lapping of prior year R&D and commercial investments.
2023 Growth and Financial Performance Outlook
The Company is updating its full year revenue growth outlook range to 7.9% – 8.4% as reported and 8.3% – 8.8% organically. This updated outlook is centered on the lower end of the Company’s most recent full year guidance range and at the midpoint of its original full year organic growth estimates, reflecting third quarter results and continued headwinds to clinical visit growth rates globally. The overall reported revenue range was decreased by $20 million for updated foreign exchange impact estimates compared to earlier guidance estimates, reflecting the recent strengthening of the U.S. dollar.
The Company raised its full year reported operating margin outlook to 29.6% – 29.8%, incorporating strong year-to-date profit performance. Operating margin guidance includes an increased ~70 basis points in year-over-year unfavorable net margin impact from updated foreign currency exchange rate changes, including effects from comparisons to prior year foreign exchange hedge gains.
The Company updated its EPS outlook range to $9.74 – $9.90, increasing midpoint estimates by $0.05 per share and maintaining its high end EPS outlook. The Company is maintaining a similar operational outlook at midpoint, as positive revisions to the Company’s operating margin outlook offset adjustments to organic revenue growth estimates. Positive adjustments of ~$0.11 per share to projections for interest expense and effective tax rates, including share-based compensation tax benefits, offset an ~$0.05 negative EPS impact related to updated foreign currency exchange rate estimates — which is now estimated to provide a $0.25 per share headwind to full year EPS results.
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 | ||
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|
|
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|
|
| Revenue |
| $3,635 | – | $3,650 |
| Reported growth |
| 7.9% | – | 8.4% |
| Organic growth |
| 8.3% | – | 8.8% |
| CAG Diagnostics Recurring Revenue Growth |
|
|
|
|
| Reported growth |
| 9.4% | – | 9.9% |
| Organic growth |
| 9.8% | – | 10.3% |
| Operating Margin |
| 29.6% | – | 29.8% |
| Operating margin expansion |
| 290 bps | – | 310 bps |
| Negative impact of foreign exchange |
| ~ 70 bps | ||
| Comparable margin expansion |
| 360 bps | – | 380 bps |
| Positive impact of discrete in-license of technology and customer contract resolution |
| ~ 280 bps | ||
| EPS |
| $9.74 | – | $9.90 |
| Reported growth |
| 21% | – | 23% |
| Comparable growth |
| 25% | – | 27% |
| Positive impact of discrete in-license of technology and customer contract resolution |
| ~ 12% | ||
| Other Key Metrics |
|
|
|
|
| Net interest expense |
| ~ $37 | ||
| Share-based compensation tax benefit |
| ~ $12 | ||
| Share-based compensation tax rate benefit |
| ~ 1% | ||
| Effective tax rate |
| 21% | – | 21.5% |
| Share-based compensation EPS impact |
| ~ $0.14 | ||
| Reduction in average shares outstanding |
| 0.5% | – | 1% |
| Operating Cash Flow |
| 100% – 110% of net income | ||
| Free Cash Flow |
| 85% – 90% of net income | ||
| Capital Expenditures |
| $160 – $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 | |
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|
| |
| Revenue growth rate impact | (~ 40 bps) | |
| CAG Diagnostics recurring revenue growth rate impact | (~ 40 bps) | |
| Operating margin growth impact | (~ 70 bps) | |
| EPS impact | (~ $0.25) | |
| EPS growth impact | (~ 3%) | |
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| |
| Go-Forward Foreign Currency Exchange Rate Assumptions | 2023 | |
| In U.S. dollars |
| |
| euro | $1.05 | |
| British pound | $1.21 | |
| Canadian dollar | $0.73 | |
| Australian dollar | $0.63 | |
| Relative to the U.S. dollar |
| |
| Japanese yen | ¥151 | |
| Chinese renminbi | ¥7.40 | |
| 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 third quarter 2023 results and management’s outlook. To participate in the conference call, dial 1-800-289-0459 or 1-773-377-9037 and reference passcode 917383. 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.
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 and territories. 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 Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023 and September 30, 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 third quarter 2023 results as follows: decreased gross profit growth by 0%, decreased gross margin growth by 60 basis points, increased operating expense growth by 0%, decreased operating profit growth by 1%, decreased operating profit margin growth by 40 basis points, and decreased EPS growth by 0%. 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 and nine months ended September 30, 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 and nine months ended September 30, 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 growth. 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 |
| Nine Months Ended |
| Year-over-Year | |||||||||||||||
|
| September 30, |
| September 30, |
| Change |
| September 30, |
| September 30, |
| Change | |||||||||||
| Dollar amounts in thousands | 2023 |
| 2022 |
|
|
| 2023 |
| 2022 |
|
| |||||||||||
| Gross Profit (as reported) | $ | 547,982 |
| $ | 506,626 |
| 8 | % | $ | 1,663,803 |
| $ | 1,519,411 |
| 10 | % | ||||||
| Gross margin |
| 59.9 | % |
| 60.2 | % | (30 | )bps |
| 60.3 | % |
| 59.8 | % | 40 | bps | ||||||
| Less: comparability adjustments |
|
|
|
|
|
| ||||||||||||||||
| Change from currency |
| (290 | ) |
| — |
|
|
| (24,793 | ) |
| — |
|
| ||||||||
| Comparable gross profit growth | $ | 548,272 |
| $ | 506,626 |
| 8 | % | $ | 1,688,596 |
| $ | 1,519,411 |
| 11 | % | ||||||
| Comparable gross margin and gross margin gain (or growth) |
| 60.5 | % |
| 60.2 | % | 30 | bps |
| 60.9 | % |
| 59.8 | % | 100 | bps | ||||||
|
|
|
|
|
|
|
| ||||||||||||||||
| Operating expenses (as reported) | $ | 272,699 |
| $ | 261,798 |
| 4 | % | $ | 811,977 |
| $ | 847,173 |
| (4 | )% | ||||||
| Less: comparability adjustments |
|
|
|
|
|
| ||||||||||||||||
| Change from currency |
| 1,008 |
|
| — |
|
|
| (3,797 | ) |
| — |
|
| ||||||||
| Comparable operating expense growth | $ | 271,691 |
| $ | 261,798 |
| 4 | % | $ | 815,774 |
| $ | 847,173 |
| (4 | )% | ||||||
|
|
|
|
|
|
|
| ||||||||||||||||
| Income from operations (as reported) | $ | 275,283 |
| $ | 244,828 |
| 12 | % | $ | 851,826 |
| $ | 672,238 |
| 27 | % | ||||||
| Operating margin |
| 30.1 | % |
| 29.1 | % | 100 | bps |
| 30.9 | % |
| 26.5 | % | 440 | bps | ||||||
| Less: comparability adjustments |
|
|
|
|
|
| ||||||||||||||||
| Change from currency |
| (1,298 | ) |
| — |
|
|
| (20,996 | ) |
| — |
|
| ||||||||
| Comparable operating profit growth | $ | 276,581 |
| $ | 244,828 |
| 13 | % | $ | 872,822 |
| $ | 672,238 |
| 30 | % | ||||||
| Comparable operating margin and operating margin gain (or growth) |
| 30.5 | % |
| 29.1 | % | 140 | bps |
| 31.5 | % |
| 26.5 | % | 500 | 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 negative year-over-year foreign currency exchange rate change impact of approximately 70 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. Comparable EPS growth should be considered in addition to, and not as a replacement of or a superior measure to, EPS growth reported in accordance with GAAP.
Contacts
John Ravis, Investor Relations, 1-207-556-8155
