IDEXX(IDXX) - 2024 Q3 - Quarterly Results

Third Quarter 2024 Financial Highlights IDEXX reported strong third-quarter performance with 7% revenue growth and an 11% increase in EPS, driven by robust CAG Diagnostics recurring revenue and operating margin expansion Q3 2024 Key Performance Metrics IDEXX achieved 7% reported and 6% organic revenue growth in the third quarter, driven by strong performance in CAG Diagnostics recurring revenue. EPS increased by 11% to $2.80, benefiting from a 110 basis point expansion in operating margin Q3 2024 Financial Highlights | Metric | Value | Growth (As Reported) | Growth (Organic/Comparable) | | :--- | :--- | :--- | :--- | | Revenue | $976 million | 7% | 6% | | CAG Diagnostics Recurring Revenue | - | 7% | 7% | | EPS | $2.80 | 11% | 12% | | Operating Margin Expansion | - | 110 bps | 100 bps | - Growth was supported by strong execution, including continued new business gains and double-digit year-over-year growth in the global premium instrument installed base[1] Updated 2024 Full-Year Guidance The company adjusted its 2024 revenue guidance downward by approximately 1% at the midpoint to $3,865 - $3,890 million, citing negative macroeconomic impacts on pet owner visits in the U.S. However, the EPS outlook midpoint was maintained at $10.37 - $10.53, supported by solid operating margin performance and lower projected interest and tax expenses Updated 2024 Full-Year Guidance | Metric | Updated 2024 Guidance | | :--- | :--- | | Revenue | $3,865 million - $3,890 million | | Revenue Growth (Reported) | 5.5% - 6.2% | | Revenue Growth (Organic) | 5.3% - 6.0% | | EPS | $10.37 - $10.53 | - The revenue guidance reduction incorporates expectations for near-term negative impacts from macro and sector conditions that are constraining pet owner visits and demand at U.S. veterinary clinics[2] Third Quarter 2024 Performance Analysis The company's third-quarter performance was driven by strong CAG and Water segment growth, while the LPD segment experienced a decline Segment Performance The Companion Animal Group (CAG) was the primary growth driver with 7% reported revenue growth. The Water segment also showed strong performance, growing 13%. In contrast, the Livestock, Poultry and Dairy (LPD) segment experienced a 3% revenue decline due to weakness in the Asia Pacific region Companion Animal Group (CAG) CAG revenue grew 7% as reported and 6% organically, supported by a 7% increase in diagnostics recurring revenue. Growth was strong internationally (10%) and outpaced the sector in the U.S. (5%). IDEXX VetLab consumables were a key contributor with 11% growth, while reference lab services grew more modestly at 2% organically CAG Revenue Growth Breakdown (Q3 2024) | Category | Reported Growth (%) | Organic Growth (%) | | :--- | :--- | :--- | | Total CAG | 7% | 6% | | CAG Diagnostics Recurring Revenue | 7% | 7% | | - U.S. | 5% | 5% | | - International | 10% | 10% | | IDEXX VetLab Consumables | 11% | 11% | | Reference Lab Services | 3% | 2% | | Rapid Assay Products | 6% | 6% | | Vet Software, Services & Imaging | 11% | 6% | Water The Water segment delivered robust performance, with revenues growing 13% on both a reported and organic basis. This growth was driven by double-digit gains in the U.S. and continued solid growth in Europe - Water revenues grew 13% as reported and organic, reflecting double-digit gains in the U.S. and solid growth in Europe[12] Livestock, Poultry and Dairy (LPD) LPD revenues declined by 3% as reported and 2% organically. While the U.S. and global poultry tests showed solid gains, these were more than offset by lower revenues in the Asia Pacific region, particularly from reduced swine testing and herd health screening - LPD revenues declined 3% as reported (2% organic), with gains in U.S. and poultry tests offset by lower Asia Pacific revenues from reduced swine testing[13] Profitability Analysis The company's profitability improved in the third quarter, with gross margin expanding by 120 basis points to 61.1% and operating margin increasing by 110 basis points to 31.2%. Margin expansion was driven by a favorable business mix, particularly high growth in VetLab consumables and software recurring revenues, and lower instrument costs Q3 2024 Profitability Metrics | Metric | Q3 2024 Value | Change (As Reported) | Change (Comparable) | | :--- | :--- | :--- | :--- | | Gross Profit | - | +9% | +9% | | Gross Margin | 61.1% | +120 bps | +140 bps | | Operating Margin | 31.2% | +110 bps | +100 bps | - Operating expense growth of 7% was driven by higher sales and marketing expenses and increased R&D spending to support the company's growth and innovation initiatives[15] 2024 Full-Year Financial Outlook IDEXX updated its 2024 full-year guidance, adjusting revenue expectations while maintaining its EPS outlook due to offsetting factors Updated Guidance Details IDEXX updated its full-year 2024 guidance, reducing the revenue forecast to $3,865 - $3,890 million (5.3% - 6.0% organic growth) due to moderating U.S. clinical visit trends. The operating margin outlook remains consistent at 28.7% - 29.0%. The EPS range was narrowed to $10.37 - $10.53, maintaining the midpoint as the revenue impact was offset by favorable foreign exchange, interest expense, and tax rate estimates 2024 Full-Year Financial Outlook Comparison | Metric | Updated Outlook | Prior Outlook | | :--- | :--- | :--- | | Revenue | $3,865 million - $3,890 million | $3,885 million - $3,945 million | | Organic Growth | 5.3% - 6.0% | 6.2% - 7.8% | | Operating Margin | 28.7% - 29.0% | 28.7% - 29.0% | | EPS | $10.37 - $10.53 | $10.31 - $10.59 | | Comparable EPS Growth | 10% - 11% | 9% - 12% | | Capital Expenditures | ~$160 million | ~$180 million | - The updated guidance includes a ~$15 million favorable impact from recent foreign exchange estimates[16] - The full-year operating margin outlook includes a negative impact of ~160 basis points from a discrete litigation expense accrual[17] Foreign Currency Assumptions The company's 2024 financial outlook is based on updated foreign currency exchange rate assumptions. The net impact of currency is estimated to be favorable by approximately 20 basis points on revenue growth and result in a negative impact of about $0.03 on EPS for the full year 2024 Foreign Currency Exchange Rate Assumptions (vs. USD) | Currency | Assumed Rate | | :--- | :--- | | Euro | $1.08 | | British Pound | $1.29 | | Canadian Dollar | $0.72 | | Australian Dollar | $0.66 | | Japanese Yen | ¥152 | | Chinese Renminbi | ¥7.18 | - Estimated foreign currency exchange rates are expected to have a favorable impact of ~20 bps on both total revenue growth and CAG Diagnostics recurring revenue growth for 2024[20] Financial Statements and Supplementary Data This section provides detailed financial statements, including the consolidated statement of operations, segment information, balance sheet, and cash flow statement Condensed Consolidated Statement of Operations For the third quarter of 2024, IDEXX reported total revenues of $975.5 million, up from $915.5 million in the prior year. Net income attributable to stockholders increased to $232.8 million, or $2.80 per diluted share, compared to $212.2 million, or $2.53 per diluted share, in Q3 2023 Q3 2024 Statement of Operations Highlights (in thousands) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Revenue | $975,543 | $915,527 | | Gross Profit | $596,038 | $547,982 | | Income from Operations | $303,892 | $275,283 | | Net Income | $232,841 | $212,231 | | Diluted EPS | $2.80 | $2.53 | Segment Information In Q3 2024, the Companion Animal Group (CAG) was the largest segment, contributing $892.0 million in revenue and $277.1 million in operating income. The Water segment generated $50.2 million in revenue and $23.6 million in operating income, while the LPD segment had $29.0 million in revenue and $0.9 million in operating income Q3 2024 Revenue and Operating Income by Segment (in thousands) | Segment | Revenue | Income from Operations | | :--- | :--- | :--- | | CAG | $891,990 | $277,082 | | Water | $50,162 | $23,608 | | LPD | $28,992 | $889 | | Other | $4,399 | $2,313 | | Total | $975,543 | $303,892 | Revenue Growth Analysis For Q3 2024, total company organic revenue growth was 6.1%, with the U.S. growing 5.2% and International markets growing 7.8%. Within CAG, recurring diagnostics revenue grew 6.7% organically, led by 11.1% growth in IDEXX VetLab consumables. For the nine months ended, total company organic growth was 6.6% Q3 2024 Organic Revenue Growth by Segment and Geography | Category | Organic Revenue Growth (%) | | :--- | :--- | | Total Company | 6.1% | | - United States | 5.2% | | - International | 7.8% | | CAG Segment | 6.0% | | - CAG Diagnostics Recurring | 6.7% | | Water Segment | 13.2% | | LPD Segment | (2.4)% | Condensed Consolidated Balance Sheet As of September 30, 2024, IDEXX had total assets of $3.35 billion, compared to $3.26 billion at the end of 2023. Total stockholders' equity increased to $1.62 billion from $1.48 billion over the same period. Cash and cash equivalents stood at $308.6 million Balance Sheet Highlights (in thousands) | Account | Sept 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $308,636 | $453,932 | | Total current assets | $1,433,744 | $1,495,254 | | Total assets | $3,350,766 | $3,259,925 | | Total current liabilities | $1,009,224 | $951,547 | | Total long-term debt | $524,758 | $622,883 | | Total stockholders' equity | $1,618,054 | $1,484,530 | Condensed Consolidated Statement of Cash Flows For the nine months ended September 30, 2024, net cash provided by operating activities was $667.0 million. The company used $167.2 million in investing activities, primarily for business acquisitions and equipment purchases, and $645.3 million in financing activities, largely due to $591.0 million in common stock repurchases. Free cash flow for the nine-month period was $575.3 million Nine Months 2024 Cash Flow Summary (in thousands) | Category | Nine Months Ended Sept 30, 2024 | | :--- | :--- | | Net cash provided by operating activities | $666,976 | | Net cash used by investing activities | ($167,219) | | Net cash used by financing activities | ($645,291) | | Net (decrease) in cash | ($145,296) | | Free Cash Flow | $575,309 | Non-GAAP Financial Measures and Other Disclosures This section clarifies the company's use of non-GAAP financial measures and provides details on an ongoing litigation matter Explanation of Non-GAAP Measures The company uses several non-GAAP financial measures, such as organic revenue growth, constant currency, comparable growth metrics, and free cash flow, to provide supplemental information for evaluating business performance. These measures exclude items like foreign currency impacts, acquisitions, and other non-recurring or unusual items to facilitate period-over-period comparisons - Organic Revenue Growth: Represents revenue growth net of impacts from changes in foreign currency exchange rates, business acquisitions, and divestitures[27] - Comparable Growth Metrics (e.g., Comparable EPS Growth): Excludes the impact of foreign currency changes, non-recurring items (like the ongoing litigation matter), and tax benefits from share-based compensation[30][32] - Free Cash Flow: Defined as cash generated from operations reduced by investments in property and equipment[36] Reconciliation of Non-GAAP Measures The report provides detailed reconciliations of GAAP to non-GAAP measures. For Q3 2024, reported EPS of $2.80 reconciles to a comparable EPS of $2.79 after adjustments. Similarly, the 110 bps reported operating margin gain reconciles to a 100 bps comparable gain after excluding currency effects Q3 2024 EPS Reconciliation (GAAP to Comparable) | Description | Per Share Amount | | :--- | :--- | | Diluted EPS (as reported) | $2.80 | | Change from currency | $0.01 | | Comparable EPS | $2.79 | Q3 2024 Operating Margin Reconciliation (GAAP to Comparable) | Description | Margin | Gain | | :--- | :--- | :--- | | Operating Margin (as reported) | 31.2% | 110 bps | | Change from currency | (0.2%) | (10 bps) | | Comparable Operating Margin | 31.0% | 100 bps | Ongoing Litigation Matter The company is a defendant in an ongoing litigation matter concerning an alleged breach of contract for underpayment of royalty payments. In the second quarter of 2024, the company increased its accrual for this matter by $61.5 million, bringing the total accrual to $89.0 million, which represents its best estimate of the probable loss - The company increased its litigation accrual by $61.5 million in Q2 2024, resulting in a total accrual of $89.0 million for an ongoing matter related to alleged underpayment of royalties[38][39]