Add
IDXX to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| IDXX > SEC Filings for IDXX > Form 10-Q on 24-Oct-2008 | All Recent SEC Filings |
24-Oct-2008
Quarterly Report
• Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
is based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the U.S.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates. We base our estimates on historical
experience and on various assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates. The significant
accounting policies used in preparation of these condensed consolidated
financial statements for the nine months ended September 30, 2008 are consistent
with those discussed in Note 2 to the consolidated financial statements included
in our Annual Report on Form 10-K for the year ended December 31, 2007, except
as discussed in Note 2 to the condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q. The critical accounting policies
and the significant judgments and estimates used in the preparation of our
condensed consolidated financial statements for the nine months ended
September 30, 2008 are consistent with those discussed in our Annual Report on
Form 10-K for the year ended December 31, 2007 in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Estimates," except as discussed
below.
Share-Based Compensation
We grant share-based compensation to certain classes of employees annually in
the first quarter of each year, including stock options. We have used subjective
assumptions to value stock options, particularly for the expected stock price
volatility and the expected term of the options that we believe are reasonable.
To develop the expected term assumption for option awards, we previously elected
to use the simplified method described in the Securities and Exchange Commission
Staff Accounting Bulletin No. 107, which is based on vesting and contractual
terms. Beginning in January 2008, we derive the expected term assumption for
options based on historical experience and other relevant factors concerning
expected employee behavior with regard to option exercise. Expected term for
future awards will be determined using a consistent method. Longer expected term
assumptions increase the fair value of option awards and therefore increase the
expense recognized per award.
Share-based compensation expense is based on the number of awards ultimately
expected to vest and is, therefore, reduced for an estimate of the number of
awards that are expected to be forfeited. The forfeiture estimates are based on
historical data and other factors, and compensation expense is adjusted for
actual results. Net share-based compensation costs for the nine months ended
September 30, 2008 were $7.9 million, which is net of a reduction of
$1.1 million for estimated forfeitures. Changes in estimated forfeiture rates
and differences between estimated forfeiture rates and actual experience may
result in unanticipated increases or decreases in share-based compensation
expense from period to period.
• Results of Operations Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007 Revenue Total Company. Revenue increased $21.7 million, or 9%, to $251.1 million for the three months ended September 30, 2008 from $229.4 million for the same period of the prior year. The favorable impact of currency exchange rates contributed 2% to revenue growth. The following table presents revenue by operating segment:
For the Three Months Ended September 30,
Percentage
Change Net of
Percentage Percentage Acquisitions
Net Revenue Dollar Percentage Change from Change from and Currency
(dollars in thousands) 2008 2007 Change Change Currency (1) Acquisitions (2) Effect
CAG $ 205,050 $ 187,481 $ 17,569 9.4 % 1.3 % 0.3 % 7.8 %
Water 20,321 17,431 2,890 16.6 % 1.2 % - 15.4 %
PAS 17,801 17,377 424 2.4 % 5.6 % - (3.2 %)
Other 7,921 7,096 825 11.6 % 3.0 % - 8.6 %
Total $ 251,093 $ 229,385 $ 21,708 9.5 % 1.8 % 0.2 % 7.5 %
|
(1) Represents the percentage change in revenue attributed to the effect of changes in currency rates from the three months ended September 30, 2007 to the three months ended September 30, 2008.
(2) Represents the percentage change in revenue attributed to incremental revenues during the three months ended September 30, 2008 compared to the three months ended September 30, 2007 from businesses acquired subsequent to July 1, 2007.
Companion Animal Group. Revenue for CAG increased $17.6 million, or 9%, to $205.1 million for the three months ended September 30, 2008 from $187.5 million for the same period of the prior year. The favorable impact of currency exchange rates contributed 1% to the increase in CAG revenue. Incremental sales from veterinary reference laboratory businesses acquired subsequent to July 1, 2007 contributed less than one-half of a percent to CAG revenue growth. The following table presents revenue by product and service category for CAG:
For the Three Months Ended September 30,
Percentage
Change Net of
Percentage Percentage Acquisitions
Net Revenue Dollar Percentage Change from Change from and Currency
(dollars in thousands) 2008 2007 Change Change Currency (1) Acquisitions (2) Effect
Instruments and
consumables $ 80,587 $ 71,443 $ 9,144 12.8 % 1.2 % - 11.6 %
Rapid assay products 36,212 33,639 2,573 7.6 % 0.7 % - 6.9 %
Laboratory and consulting
Services 73,536 64,914 8,622 13.3 % 2.0 % 0.8 % 10.5 %
Practice information
management systems and
digital radiography 13,333 12,197 1,136 9.3 % 0.3 % - 9.0 %
Pharmaceutical products 1,382 5,288 (3,906 ) (73.9 %) - - (73.9 %)
Net CAG revenue $ 205,050 $ 187,481 $ 17,569 9.4 % 1.3 % 0.3 % 7.8 %
|
(1) Represents the percentage change in revenue attributed to the effect of changes in currency rates from the three months ended September 30, 2007 to the three months ended September 30, 2008.
(2) Represents the percentage change in revenue attributed to incremental revenues during the three months ended September 30, 2008 compared to the three months ended September 30, 2007 from businesses acquired subsequent to July 1, 2007.
The following revenue analysis reflects the results of operations net of the
impact of currency exchange rates on sales outside the U.S. and net of
incremental sales from veterinary reference laboratory businesses acquired
subsequent to July 1, 2007.
The increase in sales of instruments and consumables was due primarily to higher
unit sales volume across most instrument and consumables product categories.
Higher instrument sales volumes were due primarily to sales of Catalyst Dx™
chemistry analyzers and SNAPshot Dx™ analyzers, both of which we began shipping
to customers in the first quarter of 2008, and increased sales of Coag Dx™
analyzers, which we began shipping to customers in the fourth quarter of 2007.
These favorable impacts were partly offset by a decrease in sales of LaserCyte®
hematology analyzers. Higher consumables sales volumes were due primarily to
higher worldwide practice-level sales of tubes used with our hematology
analyzers, slides used with our chemistry analyzers and cassettes used with our
VetStat® Analyzer. Higher instrument service revenue was due to the higher
number of instruments covered under service contracts resulting from an increase
in the installed base of instruments. Instruments and consumables sales were
also favorably impacted by higher average unit sales prices for slides that are
sold for use in our chemistry analyzers, although this impact was largely offset
by lower average unit prices on sales of our LaserCyte® hematology and VetTest®
chemistry analyzers due primarily to increased promotional discounting. Changes
in distributors' inventory levels decreased reported instruments and consumables
revenue growth by 1%.
The increase in sales of rapid assay products was due to higher average unit
sales prices and, to a lesser extent, higher sales volumes. Higher average unit
sales prices were due, in part, to higher relative sales of canine combination
test products versus single assay test products, as well as price increases of
certain canine and feline combination test products. We expect that the rate of
end users' conversion from canine heartworm-only tests to combination test
products will slow in future periods, which will decelerate the rate of increase
in average unit sales prices. Increased volume was due primarily to increased
U.S. practice-level sales of canine combination test products, such as SNAP®
4Dx®, partly offset by unfavorable changes in U.S. distributor inventory levels
of canine and feline combination test products. The impact from changes in
distributors' inventory levels decreased reported rapid assay revenue growth by
7%.
The increase in sales of laboratory and consulting services resulted from higher
testing volume and the impact of price increases. Higher testing volume was
attributable primarily to sales to new customers. Acquisitions of veterinary
reference laboratories in the United States and Europe contributed 1% to
reported laboratory and consulting services revenue growth.
The increase in sales of practice information management systems and digital
radiography resulted primarily from higher sales volumes of companion animal
radiography systems and, to a lesser extent, increased sales of hardware and
peripheral equipment used with practice information management systems. These
favorable impacts were partly offset by lower average unit prices for companion
animal digital radiography systems and increased discounting of
Cornerstone®practice information management systems.
The decrease in sales of pharmaceutical products resulted primarily from the
discontinuation of sales of PZI VET®, our insulin product for the treatment of
diabetic cats, at the end of the second quarter of 2008. As discussed in our
Quarterly Report on Form 10-Q for the second quarter of 2008, we sold our
remaining inventory of PZI VET® in the second quarter following our announcement
that we would be discontinuing this product since the raw material used in the
product is no longer commercially available. Sales of PZI VET® were $3.5 million
for the three months ended September 30, 2007.
Water. Revenue for Water increased $2.9 million, or 17%, to $20.3 million for
the three months ended September 30, 2008 from $17.4 million for the same period
of the prior year. The increase resulted primarily from higher sales volume and,
to a lesser extent, higher average unit sales prices due to higher relative
sales in geographies where products are sold at higher average unit sales
prices. Higher sales volumes were attributable to the commencement in
September 2007 of distribution of certain water testing kits manufactured by
Invitrogen Corporation ("Invitrogen"), which increased reported Water revenue
growth by 6%, as well as higher sales of our Colilert® products, used to detect
total coliforms and E. coli in water, and
Filta-Max® products, used to detect Cryptosporidium and Giardia in water. The
favorable impact of currency exchange rates contributed 1% to the increase in
Water revenue.
Production Animal Segment. Revenue for PAS increased $0.4 million, or 2%, to
$17.8 million for the three months ended September 30, 2008 from $17.4 million
for the same period of the prior year. The increase resulted primarily from
higher livestock diagnostics sales volume and the favorable impact from currency
exchange rates, which contributed 6% to PAS revenue growth, partly offset by
lower average unit sales prices for our post-mortem test for bovine spongiform
encephalopathy ("BSE") and for our test for mycobacterium paratuberculosis ("M.
pt").
Other. Revenue for Other operating units increased $0.8 million, or 12%, to
$7.9 million for the three months ended September 30, 2008 from $7.1 million for
the same period of the prior year due primarily to higher sales volume of Dairy
SNAP® antibiotic residue tests and of OPTI Medical products.
Gross Profit
Total Company. The following table presents gross profit and gross profit
percentages by operating segment:
For the Three Months Ended September 30,
Gross Profit Percent of Percent of Dollar Percentage
(dollars in thousands) 2008 Revenue 2007 Revenue Change Change
CAG $ 99,945 48.7 % $ 93,949 50.1 % $ 5,996 6.4 %
Water 12,825 63.1 % 10,919 62.6 % 1,906 17.5 %
PAS 12,035 67.6 % 10,412 59.9 % 1,623 15.6 %
Other 3,324 42.0 % 3,081 43.4 % 243 7.9 %
Unallocated amounts 20 N/A 117 N/A (97 ) (82.9 %)
Total Company $ 128,149 51.0 % $ 118,478 51.7 % $ 9,671 8.2 %
|
Companion Animal Group. Gross profit for CAG increased $6.0 million, or 6%, to
$99.9 million for the three months ended September 30, 2008 from $93.9 million
for the same period of the prior year due to increased sales volume across all
CAG product and service lines, with the exception of the pharmaceuticals
business, partly offset by a decrease in gross profit percentage to 49% from
50%. The decrease in the gross profit percentage was due primarily to higher
relative sales of lower margin laboratory and consulting services and IDEXX
VetLab® instruments, and higher manufacturing costs of our instruments,
including our Catalyst Dx™ chemistry analyzer where we have not yet achieved
economies of scale. These unfavorable items were partly offset by the favorable
impact of foreign currency rates on sales denominated in those currencies,
inclusive of foreign exchange hedge contract gains and foreign currency
denominated expenses.
Water. Gross profit for Water increased $1.9 million, or 17%, to $12.8 million
for the three months ended September 30, 2008 from $10.9 million for the same
period of the prior year due to increased sales volume and an increase in the
gross profit percentage of approximately one-half of a percentage point. The
increase in the gross profit percentage was due primarily to the impact of
foreign currency rates on sales denominated in those currencies, inclusive of
foreign exchange hedge contract gains and foreign currency denominated expenses;
lower overall costs of manufacturing; and, to a lesser extent, higher relative
sales in geographies where products are sold at higher unit prices. These
favorable impacts were partly offset by greater relative sales of lower margin
products, consisting primarily of water testing kits manufactured by Invitrogen.
Production Animal Segment. Gross profit for PAS increased $1.6 million, or 16%,
to $12.0 million for the three months ended September 30, 2008 from
$10.4 million for the same period of the prior year due to increased sales
volume and an increase in the gross profit percentage to 68% from 60%. The
increase in gross profit percentage was due primarily to the impact of foreign
currency rates on sales denominated in those currencies, inclusive of foreign
exchange hedge contract gains and foreign currency denominated expenses; net
lower production costs; the gross profit impact of revenue recognized on
shipments prior to July 1, 2008 to a customer that is on the cash basis of
accounting due to uncertain collectibility; and the favorable settlement of a
royalty liability. These favorable impacts were partly offset by lower average
unit sales prices.
Other. Gross profit for Other operating units increased $0.2 million, or 8%, to
$3.3 million for the three months ended September 30, 2008 from $3.1 million for
the same period of the prior year due primarily to increased sales volume,
partly offset by a decrease in the gross profit percentage to 42% from 43%. The
decrease in gross profit percentage was due primarily to comparatively higher
costs of production and relatively higher sales of Dairy SNAP®antibiotic residue
tests in geographies where the products are sold at lower unit prices. These
unfavorable impacts were partly offset by the favorable impact of foreign
currency rates on sales denominated in those currencies, inclusive of foreign
exchange hedge contract gains and foreign currency denominated expenses, and
proportionally higher sales of higher margin OPTI Medical consumable products.
Operating Expenses and Operating Income
Total Company. The following tables present operating expenses and operating
income by operating segment:
For the Three Months Ended September 30,
Operating Expenses Percent of Percent of Dollar Percentage
(dollars in thousands) 2008 Revenue 2007 Revenue Change Change
CAG $ 71,007 34.6 % $ 65,420 34.9 % $ 5,587 8.5 %
Water 3,960 19.5 % 3,707 21.3 % 253 6.8 %
PAS 8,553 48.0 % 7,851 45.2 % 702 8.9 %
Other 3,335 42.1 % 3,054 43.0 % 281 9.2 %
Unallocated amounts 2,297 N/A 2,349 N/A (52 ) (2.2 %)
Total Company $ 89,152 35.5 % $ 82,381 35.9 % $ 6,771 8.2 %
Operating Income Percent of Percent of Dollar Percentage
(dollars in thousands) 2008 Revenue 2007 Revenue Change Change
CAG $ 28,938 14.1 % $ 28,529 15.2 % $ 409 1.4 %
Water 8,865 43.6 % 7,212 41.4 % 1,653 22.9 %
. . .
|
|
|