IDEXX LABORATORIES, INC.
AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH
FLOWS
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
46,025
|
|
|
$
|
46,578
|
|
Adjustments to reconcile net income to net cash provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,546
|
|
|
|
16,154
|
|
Impairment charge
|
|
|
1,110
|
|
|
|
-
|
|
Benefit of deferred income taxes
|
|
|
2,520
|
|
|
|
565
|
|
Share-based compensation expense
|
|
|
4,922
|
|
|
|
4,652
|
|
Other
|
|
|
586
|
|
|
|
625
|
|
Tax benefit from share-based compensation arrangements
|
|
|
(2,063)
|
|
|
|
(7,713)
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(21,504)
|
|
|
|
(51,438)
|
|
Inventories
|
|
|
1,764
|
|
|
|
(10,142)
|
|
Other assets and liabilities
|
|
|
(27,516)
|
|
|
|
(10,746)
|
|
Accounts payable
|
|
|
(1,801)
|
|
|
|
(4,332)
|
|
Deferred revenue
|
|
|
637
|
|
|
|
1,153
|
|
Net cash provided (used) by operating activities
|
|
|
23,226
|
|
|
|
(14,644)
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(21,906)
|
|
|
|
(23,017)
|
|
Purchase of marketable securities
|
|
|
(72,079)
|
|
|
|
(140,448)
|
|
Proceeds from the sale and maturities of marketable securities
|
|
|
70,186
|
|
|
|
3,228
|
|
Acquisitions of a business, net of cash acquired
|
|
|
-
|
|
|
|
(383)
|
|
Net cash used by investing activities
|
|
|
(23,799)
|
|
|
|
(160,620)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facilities, net
|
|
|
49,000
|
|
|
|
500
|
|
Debt issue costs
|
|
|
(57)
|
|
|
|
(90)
|
|
Issuance of long-term debt
|
|
|
-
|
|
|
|
150,000
|
|
Repurchases of common stock
|
|
|
(53,480)
|
|
|
|
(133,647)
|
|
Proceeds from exercises of stock options and employee stock purchase plans
|
|
|
5,760
|
|
|
|
12,325
|
|
Payment of acquisition-related contingent consideration
|
|
|
(2,084)
|
|
|
|
-
|
|
Tax benefit from share-based compensation arrangements
|
|
|
2,063
|
|
|
|
7,713
|
|
Net cash provided by financing activities
|
|
|
1,202
|
|
|
|
36,801
|
|
Net effect of changes in exchange rates on cash
|
|
|
3,330
|
|
|
|
(1,913)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,959
|
|
|
|
(140,376)
|
|
Cash and cash equivalents at beginning of period
|
|
|
128,994
|
|
|
|
322,536
|
|
Cash and cash equivalents at end of period
|
|
$
|
132,953
|
|
|
$
|
182,160
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
|
2
IDEXX LABORATORIES, INC.
AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements of IDEXX Laboratories, Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the requirements of Regulation S-X, Rule 10-01 for financial statements required to be filed as a part of this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "IDEXX," the "Company," "we," "our" or "us" refer to IDEXX Laboratories, Inc. and its subsidiaries.
The accompanying condensed consolidated financial statements include the accounts of IDEXX Laboratories, Inc. and our wholly-owned and majority-owned subsidiaries. We do not have any variable interest entities for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
The
accompanying condensed consolidated financial statements
reflect, in the opinion of our management, all adjustments necessary for a fair statement of our financial position and results of operations. All such adjustments are of a recurring nature. The consolidated balance sheet data at December 31, 201
5
was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three
months ended
March
3
1
, 201
6
are not necessarily indicative of the results to be expected for the full year or any future period. These condensed consolidated financial statements should be read in conjunction with this Quarterly Report on Form 10-
Q for the quarter ended
March
3
1
, 201
6
and our Annual Report on Form 10-K for the year ended December 31, 201
5
(the “201
5
Annual Report”) filed with the
U.S.
Securities and Exchange Commission (“SEC”).
Stock Split
On May 6, 2015, we announced a two-for-one split of our outstanding sh
ares of common stock which was e
ffected through a stock dividend that was paid through the issuance of treasury shares. The stock split entitled each stockholder of record at the close of business on May 18, 2015 to receive one additional share of common stock for each outstanding share of common stock held. The additional shares of our common stock paid pursuant to the stock split were distributed by the Company’s transfer agent on June 15, 2015. All share and per share amounts in the condensed consolidated balance sheets, condensed consolidated statement of operations and notes to the condensed consolidated financial statements
for the three months ended March 31, 2015
retroactively reflect the effect of the stock split unless otherwise noted.
Reclassifications
Certain prior year amounts have been reclassified to conform with the c
urrent year presentation. R
eclassifications had no material impact on previously reported results of operations, financial position or cash flows.
Note 2. ACCOUNTING POLICIES
Significant Accounting Policies
T
he significant accounting policies used in preparation of these condensed consolidated financial statements for the three
months ended March 31
, 201
6
are consistent with those discussed in Note 2 to the consolidated financial statements in our 201
5
Annual Report, except
as noted below.
New Accounting Pronouncements Adopted
Deferred Income Taxes
During
the first quarter of 2016, the C
ompany early adopted
Financial Accounting Standards Board (“
FASB
”)
amendments which require us to classify all deferred tax assets and liabilities as noncurrent within our condensed consolidated balance sheet. In accordance with the
FASB’s
permitted transition guidance, we applied this guidance prospectively and did not revise our prior period balance sheet presentation for the effects of this amendment. These amendments did not have a material impact on our financial statements.
Deferred Financing Costs
Effective January 1, 2016, the C
ompany adopted FASB amendments that require debt issuance costs related to a recognized debt liability be presented within the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This reclassification of the presentation of deferred financing costs did not have a material impact on other long-term assets or long-term debt amounts reported in our March 31, 2016 condensed consolidated balance sheet and additionall
y would not
have a material impact on such amounts reported in a prior period. As such, these amendments have been reflected prospectively in 2016; prior period amounts have not been revised for the effects of this amendment.
The FASB confirmed in August 2015 that the aforementioned amendments did not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. For line-of-credit arrangements, borrowers have the option of presenting debt issuance costs as an asset which is subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any related outstanding borrowings. As such, we continue to present deferred financing costs associated with our unsecured revolving credit facility within other long-term assets in the accompanying condensed consolidated balance sheets. Following recognition within the condensed consolidated balance sheets, all deferred financing costs are amortized to interest expense using the effective interest rate method over the term of the related debt agreement. These amendments did not have a material impact on our financial statements.
Additional Pronou
n
cements
During the three months ended March 31, 2016, the adoption of other effective FASB amendments addressing measurement-period adjustments for business combinations, accounting for cloud computing arrangements that include a software license, and
to the fair value hierarchy of
investments measured at net asset value did not have a material impact on our financial statements.
New Accounting Pronouncements Not Yet Adopted
In May 2014, the
FASB
issued an amendment which will replace most of the existing revenue recognition guidance within U.S. GAAP. The core principle of this guidance is that an entity should recognize revenue for the transfer of goods or services to customers in an amount that it expects to be entitled to receive for those goods or services. In doing so, companies will be required to make certain judgments and estimates, including identifying contract performance obligations, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price among separate performance obligations. Additionally, the amendment requires disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, significant judgments reached in the application of the guidance and assets recognized from the costs to obtain or fulfill a contract. In July 2015, the FASB voted to defer the effective date of the amendment to apply to public business entities for annual and interim periods ending after December 15, 2017. The amendment allows for two methods of adoption: a full retrospective method or a modified retrospective approach with the cumulative effect recognized at the date of initial application. We are in the process of determining the method of adoption and the impact of this amendment on our consolidated financial statements.
In August 2014, the FASB issued an amendment that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments in this update provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for one year after the date that the financial statements are issued and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments in this update apply to all entities and are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This amendment is not expected to have a material impact on our financial statements.
In February 2015, the FASB issued amendments which change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities, placing more emphasis on risk of loss when determining a controlling financial interest.
The amendments in this update apply to all entities and are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This amendment is not expected to have a material impact on our financial statements.
In July 2015, the FASB issued amendments which simplify the existing guidance which requires entities to subsequently measure inventory at the lower of cost or market value. Under the amendments, an entity should measure inventory valued using a first-in, first-out or average cost method at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This update is effective for public business entities during fiscal years beginning after December 15, 2016. Early adoption is permitted. This amendment is not expected to have a material impact on our financial statements.
In February 2016, the FAS
B issued amendments to increase transparency and comparability among organizations’ leasing arrangements. The principal difference from previous guidance is that effective upon adoption, the lease assets and lease liabilities arising from operating leases will be recognized in the statement of financial position. For public business en
tities, the amendments in this u
pdate are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In transition, we are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, including the option to utilize a number of practical expedients.
We are i
n the process of determining
the impact of this amendment on our consolidated financial statements.
In March 2016, the FAS
B issued amendments which simplify several aspects of the accounting for share-based payment transactions, including income tax consequences, recognition of stock compensation award forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The most significant change resulting from these amendments is recording all the tax effects related to share-based payments at settlement through the income statement. Under existing guidance, tax benefits in excess of compensation costs (“windfalls”) are recorded in equity. Similar
ly
, tax deficiencies below compensation costs (“shortfalls”) are recorded in equity to the extent of previous windfalls, while shortfalls in excess of this are recorded to the income statement. For public business entities, this update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. We are in the process of determining the method of adoption and the impact of this amendment on our consolidated financial statements.
NOTE 3
. SHARE-BASED COMPENSATION
The fair value of
options, restricted stock units, deferred stock units and employee stock purchase rights awarded
during the three
months ended March 31, 2016 and 2015
totaled
$24.0
million
and
$22.0
million, respectively.
T
he total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensatio
n awards outstanding at March 31, 2016
was
$54.7
million, which will be recognized over a weighted average period of approximately
2.
3
yea
rs.
We determine the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at each grant date. As such, we may use different assumptions for options granted throughout the year.
Option awards are granted with an exercise price equal to the closing market price of our common stock at the date of grant.
We have never paid any cash dividends on our common stock, and we have no intention to pay such a dividend at this time; therefore, we assume that no dividends will be paid over the expected terms of option awards.
The
weighted averages of the
valuation assumptions used to determine the
fair value of each option award on the date of grant and the weighted average estimated fair values were as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Expected stock price volatility
|
|
|
25
|
%
|
|
23
|
%
|
Expected term, in years
|
|
|
5.7
|
|
|
5.6
|
|
Risk-free interest rate
|
|
|
1.2
|
%
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
$
|
17.54
|
|
$
|
19.99
|
|
Note 4
. marketable securities
The amortized cost and fair value of marketable securities were as follows (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
152,383
|
|
$
|
85
|
|
$
|
(90)
|
|
$
|
152,378
|
|
Asset backed securities
|
|
|
24,430
|
|
|
37
|
|
|
-
|
|
|
24,467
|
|
U.S. government bonds
|
|
|
17,057
|
|
|
11
|
|
|
-
|
|
|
17,068
|
|
Commercial paper
|
|
|
9,840
|
|
|
-
|
|
|
-
|
|
|
9,840
|
|
Certificates of deposit
|
|
|
8,600
|
|
|
-
|
|
|
-
|
|
|
8,600
|
|
Agency bonds
|
|
|
2,401
|
|
|
-
|
|
|
-
|
|
|
2,401
|
|
International government bonds
|
|
|
1,457
|
|
|
-
|
|
|
(1)
|
|
|
1,456
|
|
Municipal bonds
|
|
|
1,400
|
|
|
7
|
|
|
-
|
|
|
1,407
|
|
Total marketable securities
|
|
$
|
217,568
|
|
$
|
140
|
|
$
|
(91)
|
|
$
|
217,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
177,810
|
|
$
|
24
|
|
$
|
(221)
|
|
$
|
177,613
|
|
U.S. government bonds
|
|
|
12,881
|
|
|
-
|
|
|
(10)
|
|
|
12,871
|
|
Agency bonds
|
|
|
12,068
|
|
|
-
|
|
|
(3)
|
|
|
12,065
|
|
Certificates of deposit
|
|
|
3,500
|
|
|
-
|
|
|
-
|
|
|
3,500
|
|
Commercial paper
|
|
|
3,491
|
|
|
-
|
|
|
-
|
|
|
3,491
|
|
International government bonds
|
|
|
1,462
|
|
|
-
|
|
|
(3)
|
|
|
1,459
|
|
Municipal bonds
|
|
|
1,400
|
|
|
-
|
|
|
(1)
|
|
|
1,399
|
|
Treasury bill
|
|
|
1,192
|
|
|
1
|
|
|
-
|
|
|
1,193
|
|
Total marketable securities
|
|
$
|
213,804
|
|
$
|
25
|
|
$
|
(238)
|
|
$
|
213,591
|
|
As of March 31, 2016, unrealized losses on marketable securities that have been in a continuous loss position for more than twelve months were not material. Our portfolio of marketable securities had an average AA- credit rating as of March 31, 2016. There were
no
marketable securities that we consider to be other-than-temporarily impaired as of March 31, 2016.
Remaining
contractual maturities of marketable securities were as follows (
in thousands
):
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
162,177
|
|
$
|
162,198
|
|
Due after one year through three years
|
|
|
55,391
|
|
|
55,419
|
|
|
|
$
|
217,568
|
|
$
|
217,617
|
|
Note
5
. Inventories
Inventories, which are stated at the lower of cost (first-in, first-out) or market, include material, conversion costs and inbound freight charges.
The components of inventories were as follows
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
32,029
|
|
$
|
31,184
|
|
Work-in-process
|
|
|
19,439
|
|
|
18,698
|
|
Finished goods
|
|
|
132,291
|
|
|
138,951
|
|
Inventories
|
|
$
|
183,759
|
|
$
|
188,833
|
|
Note
6
. Goodwill
and
Intangible Assets, NET
The increase in goodwill during the three months ended March 31, 2016 resulted from changes in foreign currency exchange rates. The decrease in intangible assets other than goodwill during the three months ended March 31, 2016 resulted primarily from the continued amortization of our intangible assets and a
n impairment
related to our OPTI line of business, partly offset by changes in foreign currency exchange rates.
During the first quarter of 2016, management reviewed
our OPTI Medical product offerings
. As
a
result of this review,
we discontinued
our product development activities in the human point-of-care medical diagnostics market
during March 2016
and instead
will
focus our commercial efforts
in this market
on supporting our latest generation OPTI CCA-TS2 Blood Gas and Electrolyte Analyzer.
We assess
ed
the realizability of
the related tangible and
intangible assets
a
s
a
result of the afo
rementioned change in
strategy
and determined the expected future
cash flows were less than the carrying value of the asset group
. As a result, we
recorded a non
-
cash intangible
asset
impairment of $1.1 million within our condensed consolidated statement of operations for the three months ended March 31, 2016.
NOTE
7
. Other current and long-term ASSETS
Other current assets
consisted of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
23,970
|
|
$
|
27,244
|
|
Taxes receivable
|
|
|
13,219
|
|
|
11,792
|
|
Customer acquisition costs, net
|
|
|
16,573
|
|
|
16,412
|
|
Other assets
|
|
|
8,843
|
|
|
6,621
|
|
Other current assets
|
|
$
|
62,605
|
|
$
|
62,069
|
|
Other long-term assets
consisted of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Investment in long-term product supply arrangements
|
|
$
|
12,305
|
|
$
|
12,165
|
|
Customer acquisition costs, net
|
|
|
45,663
|
|
|
43,570
|
|
Other assets
|
|
|
33,465
|
|
|
29,755
|
|
Other long-term assets
|
|
$
|
91,433
|
|
$
|
85,490
|
|
Note
8
. Accrued liabilities
Accrued liabilities consisted of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
62,649
|
|
$
|
65,665
|
|
Accrued employee compensation and related expenses
|
|
|
46,688
|
|
|
77,027
|
|
Accrued taxes
|
|
|
24,815
|
|
|
18,963
|
|
Accrued customer programs
|
|
|
44,115
|
|
|
43,875
|
|
Accrued liabilities
|
|
$
|
178,267
|
|
$
|
205,530
|
|
Note 9
. Repurchases of common STOCK
We primarily acquire shares by means of repurchases in the open market. However, we also acquire shares tha
t are surrendered by employees in
payment for the minimum required withholding taxes due on the vesting of restricted stock units and the settlement of deferred stock units, otherwise referred to herein as employee surrenders.
We issue shares of treasury stock upon the vesting of certain restricted stock units and upon the exercise of certain stock options. The number of shares of treasury st
ock issued during both the three months
ended
March 31, 2016
and 201
5
was not material.
The following is a summary of our open market common stock repurchases
, reported on a trade date basis, and shares acquired through employee surrender
for the three
months ended March 31
, 201
6
and 201
5
(in thousands, except per share amounts)
:
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Shares repurchased
(1)
|
|
|
708
|
|
|
1,718
|
Shares acquired through employee surrender
(1)
|
|
|
52
|
|
|
61
|
Total shares repurchased
(1)
|
|
|
760
|
|
|
1,779
|
|
|
|
|
|
|
|
Cost of shares repurchased
|
|
$
|
49,715
|
|
$
|
133,647
|
Cost of employee surrenders
|
|
|
3,529
|
|
|
4,866
|
Total cost of shares repurchased
|
|
$
|
53,244
|
|
$
|
138,513
|
|
|
|
|
|
|
|
Average cost per share
|
|
$
|
70.06
|
|
$
|
77.85
|
_____________
|
(1)
|
|
Shares repurchased and acquired through employee surrender for payment of minimum required withholding taxes on and before June 15, 2015 and the associated average cost per share have been adjusted to reflect the June
15,
2015 two-for-one stock split. Actual shares repurchased were approximately 890,000 for the three months ended March 31, 2015
.
|
Note 10
. Income Taxes
Our effective income tax rate was
30.6%
and
30.4%
for the t
hree months ended March 31, 2016 and 2015
, respectively
. The increase in our effective rate for the three months ended March 31, 2016 as compared to the same period of the prior year was related to lower relative earnings subject to international tax rates that are lower than domestic tax rates, including the impact of foreign currency exchange rates, partly offset by the
benefit of the
U.S.
research and development (“
R&D
”)
tax credit. There was no available
U.S.
R&D tax credit during the period ending March 31, 2015 because the credit had not yet been extended. In December 2015, the
U.S.
R&D tax credit was permanently extended with retroactive application to January 1, 2015.
Note 1
1
. ACCUMULATED OTHER Comprehensive Income
The changes in accumulated other comprehensive income (“
AOCI
”), net of tax, for the three months ended March 31
, 201
6
consisted of the following
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016
|
|
|
Unrealized Gain (Loss) on Investments, Net of Tax
|
|
|
Unrealized Gain (Loss) on Derivative Instruments, Net of Tax
|
|
|
Unrealized Gain on Net Investment Hedge, Net of Tax
|
|
|
Cumulative Translation Adjustment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
(225)
|
|
$
|
2,217
|
|
$
|
1,894
|
|
$
|
(46,151)
|
|
$
|
(42,265)
|
|
Other comprehensive (loss) income before reclassifications
|
|
|
205
|
|
|
(3,266)
|
|
|
2,224
|
|
|
6,016
|
|
|
5,179
|
|
Gains reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
(429)
|
|
|
-
|
|
|
-
|
|
|
(429)
|
|
Balance as of March 31, 2016
|
|
$
|
(20)
|
|
$
|
(1,478)
|
|
$
|
4,118
|
|
$
|
(40,135)
|
|
$
|
(37,515)
|
|
The following is a summary of reclassifications out of
AOCI
for the three
months ended March 31
, 201
6
and 201
5
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
Details about AOCI Components
|
|
Affected Line Item in the Statement of Operations
|
|
|
Amounts Reclassified from AOCI For the Three Months Ended March 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Gains (losses) on derivative instruments classified as cash flow hedges included in net income:
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Cost of revenue
|
|
$
|
809
|
|
$
|
4,479
|
|
Interest rate swaps
|
|
Interest expense
|
|
|
(210)
|
|
|
(262)
|
|
|
|
Total gains before tax
|
|
|
599
|
|
|
4,217
|
|
|
|
Tax expense
|
|
|
170
|
|
|
1,253
|
|
|
|
Gains, net of tax
|
|
$
|
429
|
|
$
|
2,964
|
|
|
|
|
|
|
|
|
|
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains statements which, to the extent they are not statements of historical fact, constitute “forward-looking statements.” Such forward-looking statements about our business and expectations within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities E
xchange Act of 1934, as amended (the “Exchange Act”),
include statements relating to future revenue growth rates,
business trends,
earnings and other me
asures of financial performance;
t
he effect of economic downturns
on our business performance;
projected impact of foreign currency exchange rates; demand for our products;
realizability of assets; future cash flow and uses of cash; future repurchases of common stock; future levels of indebtedness and capital spending; interest expense; warranty expense; share-based compensation expense;
future commercial efforts;
and competition. Forward-looking statements can be identified by the use of words such as “expects,” “may,” “anticipates,” “intends,” “would,” “will,” “plans,” “believes,” “estimates,” “should,” and similar words and expressions. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements.
These forward-looking statements involve a number of risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Annual Report”) and this Quarterly Report on Form 10-Q, as well as those described from time to time in our other periodic reports filed with the U.S. Securities and Exchange Commission (the “SEC”).
A
ny forward-looking statements represent our estimates only as of the day this Quarterly Report
on Form 10-Q
was fi
rst filed with the
SEC and should not be relied upon as representing our estimates as of any subsequent date. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates or expectations change.
You should read the following discussion and analysis in conjunction with our 2015 Annual Report that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Operating Segments
. We operate primarily through three business segments: diagnostic and information technology-based products and services for the veterinary market, which we refer to as the Companion Animal Group (“CAG”), water quality products (“Water”) and diagnostic
products and services
for livestock and poultry health and to ensure the quality and safety of milk and food, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other oper
ating segment combines and pres
ents products for the human point-of-care medical diagnostics market (“
OPTI
Medical”) with our pharmaceutical product line and our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments.
CAG develops, designs, manufactures and distributes products and performs services for veterinarians and the bioresearch market, primarily related to diagnostics and information management. Water develops, designs, manufactures and distributes a range of products used in the detection of various microbiological parameters in water. LPD develops, designs, manufactures and distributes diagnostic tests and related instrumentation and performs services that are used to manage the health status of livestock and poultry, to improve bovine reproductive efficiency, and to ensure the quality and safety of milk and food. OPTI Medical manufactures and distributes point-of-care electrolyte and blood gas analyzers and related consumable products for the human medical diagnostics market.
Certain costs are not allocated to our operating segments and are instead reported under the caption “Unallocated Amounts”. These costs include costs that do not align with one of our existing operating segments or are cost prohibitive to allocate, which primarily consist of our R&D function,
regional or country expenses, certain foreign currency revaluation gains and losses on monetary balances in currencies other than our subsidiaries’ functional currency and unusual items. Corporate support function costs (such as information technology, facilities, human resources, finance and legal), health benefits and incentive compensation are charged to our business segments at pre-determined budgeted amounts or rates. Differences from these pre-determined budgeted amounts or rates are captured within Unallocated Amounts.
Effective January 1, 2016, we modified our management reporting to the Chief Operating Decision Maker (“CODM”) to provide a more comprehensive view of the performance of our operating segments by including the capitalization of variances between standard and actual manufacturing costs, which adjusts the timing of cost recognition from when the variance is created to the period in which the related inventory is sold. Prior to January 1, 2016, the capitalization and subsequent recognition of these variances were not allocated to our operating segments and were instead reported under the caption “Unallocated Amounts”.
The segment gross profit and income (loss) from operations within this report for the three months ended March 31, 2015 has been retrospectively revised to reflect the changes to our segment performance metrics described above.
The following is a summary of
restated segment gross profit and income (loss) from operations for the three months ended March 31, 2015
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
|
Net Impact of Standard Cost
|
|
|
For the Three
|
|
|
|
|
|
Months Ended
|
|
|
|
Variance Capitalization and
|
|
|
Months Ended
|
|
Adjusted
|
Gross Profit
|
|
March 31, 2015
|
|
Percent of
|
|
Subsequent Recognition
|
|
|
March 31, 2015
|
|
Percent of
|
(dollars in thousands)
|
|
As Previously Reported
|
|
Revenue
|
|
to the Operating Segments
|
|
|
As Adjusted
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAG
|
|
$
|
175,845
|
|
54.2%
|
|
$
|
1,089
|
|
$
|
176,934
|
|
54.5%
|
Water
|
|
|
15,246
|
|
70.3%
|
|
|
(98)
|
|
|
15,148
|
|
69.8%
|
LPD
|
|
|
19,003
|
|
60.8%
|
|
|
1,005
|
|
|
20,008
|
|
64.0%
|
Other
|
|
|
2,601
|
|
52.2%
|
|
|
(128)
|
|
|
2,473
|
|
49.7%
|
Unallocated Amounts
|
|
|
2,849
|
|
N/A
|
|
|
(1,868)
|
|
|
981
|
|
N/A
|
Total Company
|
|
$
|
215,544
|
|
56.4%
|
|
$
|
-
|
|
$
|
215,544
|
|
56.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
|
Net Impact of Standard Cost
|
|
|
For the Three
|
|
|
|
|
|
Months Ended
|
|
|
|
Variance Capitalization and
|
|
|
Months Ended
|
|
Adjusted
|
Operating Profit (Loss)
|
|
March 31, 2015
|
|
Percent of
|
|
Subsequent Recognition
|
|
|
March 31, 2015
|
|
Percent of
|
(dollars in thousands)
|
|
As Previously Reported
|
|
Revenue
|
|
to the Operating Segments
|
|
|
As Adjusted
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAG
|
|
$
|
52,429
|
|
16.2%
|
|
$
|
1,089
|
|
$
|
53,518
|
|
16.5%
|
Water
|
|
|
9,459
|
|
43.6%
|
|
|
(98)
|
|
|
9,361
|
|
43.1%
|
LPD
|
|
|
5,951
|
|
19.0%
|
|
|
1,005
|
|
|
6,956
|
|
22.2%
|
Other
|
|
|
(194)
|
|
(3.9%)
|
|
|
(128)
|
|
|
(322)
|
|
(6.5%)
|
Unallocated Amounts
|
|
|
5,158
|
|
N/A
|
|
|
(1,868)
|
|
|
3,290
|
|
N/A
|
Total Company
|
|
$
|
72,803
|
|
19.0%
|
|
$
|
-
|
|
$
|
72,803
|
|
19.0%
|
Effects of Certain Factors
and Trends
on Results of Operations
Distributor Purchasing and Inventories
. We employ an all-direct sales strategy in the U.S., however we continue to sell our products through third party distributors in certain international markets. When selling our products through
international
distributors, changes in distributors’ inventory levels can impact our reported sales, and these changes may be affected by many factors, which may not be directly related to underlying demand for our products by veterinary practices, which are the end-users.
W
e do not believe the impact of changes in these distributors’ inventories had or would have a material impact on our growth rates in the relevant periods.
Currency Impact
. For the three
months ended
March 31, 2016
,
approximately 26% of
our consolidated revenue was derived from products manufactured in the U.S. and sold internationally in l
ocal currencies, as compared
to 25% for
the three months ended March 31, 2015
.
Strengthening of the U.S. dollar exchange rate relative to other currencies has a negative impact on our revenues derived in currencies other than the U.S. dollar and on profits of products manufactured in the U.S. and sold internationally, and a weakening of the U.S. dollar has the opposite effect. Similarly, to the extent that the U.S. dollar is stronger in current or future periods relative to the exchange rates in effect in the corresponding prior periods, our growth rate will be negatively affected. The impact of foreign currency denominated operating expenses and foreign currency denominated supply contracts partly offsets this exposure. Additionally, our designated hedges of intercompany inventory purchases and sales help delay the impact of certain exchange rate fluctuations on non-U.S. denominated revenues. See “Part II, Item 7A. Quantitative and Qualitative Disclosure About Market Risks” included in our 2015 Annual Report for additional information regarding currency impact. Our future income tax expense could also be affected by changes in the mix of earnings, including as a result of changes in the rate of exchange for the U.S. dollar relative to currencies in countries with differing statutory tax rates. See “Part I, Item 1A. Risk Factors.” included in our 2015 Annual Report for additional information regarding tax impacts.
Our foreign currency exchange impacts are comprised of three components: 1) revenues and expenses denominated in a foreign currency; 2) the impact of hedge contracts; and 3) intercompany and monetary balances for our subsidiaries that are denominated in a currency that is different from the functional currency used by each subsidiary. Based on projected revenues and expenses for 2016, excluding the impact of intercompany and trade balances denominated in currencies other than the functional subsidiary currencies, we estimate a 10% strengthening of the U.S. dollar would reduce operating income for the remainder of 2016 by approximately $11 million. This level is higher than in previous years due to the addition of estimated unhedged foreign currency exposures, including emerging market currencies that have higher relative revenue growth and volatility. The impact of the intercompany and monetary balances referred to in the third component above have been excluded, as they are transacted at multiple times during the year and we are not able to reliably forecast the impact that changes in exchange rates would have on our operating income.
The impact on revenue resulting from changes in foreign currency exchange rates is not a measure defined by accounting principles generally
accepted in the United States of America (“U.S. GAAP”), otherwise referred to herein as a non-GAAP financial measure. We calculate the impact on revenue resulting from changes in foreign currency exchange rates by applying the difference between the weighted average exchange rates during the current year pe
riod and the comparable prior
year period applied to foreign currency denominated revenues for the prior year period.
As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of results
normalized for changes in currency in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods.
During the three
months ended March 31, 2016, as compared to the same period of the prior year,
changes in foreign currency exchange rates decreased total company revenue by
approximately
$
7.6 million, due primarily to the strengthening of the U.S. dollar
against the euro and British pound. Additionally, these changes in foreign currency exchange rates reduced total company operating profit by $6.2 million and diluted earnings per share by $0.05 during the three months ended March 31, 2016. This unfavorable impact was net of offsetting foreign currency hedging gains, which increased total company operating profit by $0.8 million and diluted earnings per share by $0.01 during the three
mo
nths ended March 31, 2016
.
At our current currency exchange rate assumptions as compared to actual 2015 exchange rates, we anticipate that the strengthening of the U.S. dollar relative to major foreign currencies in which we transact will decrease total company revenue by approximately
$13.4
million in the year ending December 31, 2016. Additionally, these changes in foreign currency exchange rates are expected to reduce total company operating profit by $24.5 million and diluted earnings per share by $0.21. This unfavorable impact is net of offsetting foreign
currency hedging gains, which are expected to increase total company operating profit by $2.4 million and diluted earnings per share by $0.02 in the
year ending December 31, 2016. The above estimate incorporates actual exchange rates for the three months ended March 31, 2016 and assumes
that the value
of the U.S. dollar relative to other currencies will reflect the euro at $1.12, the British pound at $1.4
0
, the Canadian dollar at $0.75, the Australian dollar at $0.75 and the Japanese yen at ¥113 to the U.S. dollar for the remainder of 2016.
Effects of Economic Conditions
.
Demand for our products and services is vulnerable to changes in the economic environment, including slow economic growth, high unemployment and credit availability. Negative or cautious consumer sentiment can lead to reduced or delayed consumer spending, resulting in a decreased number of patient visits to veterinary clinics. Unfavorable economic conditions can impact sales of instruments and diagnostic imaging systems, which are larger capital purchases for veterinarians. Additionally, economic turmoil can cause our customers to remain sensitive to the pricing of our products and services. In the U.S., we monitor patient visits and clinic revenue data provided by a subset of our CAG customers. Although this data is a limited sample and susceptible to short-term impacts such as weather, which may affect the number of patient visits in a given period, we believe that this data provides a fair and meaningful long-term representation of the trend in patient visit activity in the U.S., providing us insight regarding demand for our products and services.
Economic conditions can also affect the purchasing decisions of our Water and LPD business customers. Water testing volumes may be susceptible to declines in discretionary testing for existing home and commercial sales and in mandated testing as a result of decreases in home and commercial construction. Testing volumes may also be impacted by severe weather conditions such as drought. In addition, fiscal difficulties can also reduce government funding for water and livestock testing programs.
We believe that the diversity of our products and services and the geographic diversity of our markets partially mitigate the potential effects of the economic environment and negative consumer sentiment on our revenue growth rates.
Effects of Patent Expiration
. Although the Company has several patents and licenses of patents and technologies from third parties that expired during 2015 and are expected to expire during 2016 and 2017,
the expiration of these patents or licenses, individually or in the aggregate, is not expected to have a material effect on the Company’s financial position or future operations due to a range of factors including
our brand strength and reputation in the marketplace; the breadth, quality and integration of our product offerings; our existing customer relationships and our customer support; our sales force; the applicable regulatory approval status for certain products; our continued investments in innovative product improvements that often result in new technologies and/or additional patents; and
our
significant know-how, scale and investments related to manufacturing processes of associated product offerings. See
“Part I.
Item 1.
Business -
Patents and Licenses”
of our 2015 Annual Report
for more information.
|
§
|
|
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 U.S. GAAP. 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. We evaluate our estimates on an ongoing basis. 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
. T
he critical accounting policies and the significant judgments and estimates used in the preparation of our condensed consolidated financial statements for the three months
ended March 31, 2016 are consistent with those discussed in our 2015 Annual Report in the section under the heading “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”
The following revenue analysis and discussion focuses on organic revenue growth, and references in this analysis and discussion to “revenue,” “revenues” or “revenue growth” are references to “organic revenue growth.” Organic revenue growth is a non-GAAP financial measure and represents the percentage change in revenue during the three months ended March 31, 2016, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, acquisitions and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for or as a superior measure to, revenues reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies. 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. We exclude the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under
management’s control, are subject to volatility and can obscure underlying business trends. We exclude the effect of acquisitions and divestitures because the nature, size and number of these transactions can vary dramatically from period to period, require or generate cash as an inherent consequence of the transaction, and therefore can also obscure underlying business and operating trends.
Organic revenue growth and the percentage changes in revenue from
foreign
currenc
y exchange rates and acquisitions are non-
GAAP
financial
measures. See the subsection above titled “
Effects of Certain Factors on Results of Operations
– Currency Impact
”
for a description of the calculation of the percentage change in revenue resulting from changes in foreign currency exchange rates. The percentage change in revenue resulting from acquisitions represents incremental revenues attributable to acquisitions that have occurred since the beginning of the prior year period.
Three Months En
ded March 31, 2016 Compared to Three Months Ended March 31, 2015
Revenue
Total Company.
The following table presents revenue by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
For the Three
|
|
|
|
|
|
Percentage
|
|
Percentage
|
|
Organic
|
Net Revenue
|
|
Months Ended
|
|
Months Ended
|
|
Dollar
|
|
Percentage
|
|
Change from
|
|
Change from
|
|
Revenue
|
(dollars in thousands)
|
|
March 31, 2016
|
|
March 31, 2015
|
|
Change
|
|
Change
|
|
Currency
|
|
Acquisitions
|
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAG
|
|
$
|
357,639
|
|
$
|
324,531
|
|
$
|
33,108
|
|
10.2%
|
|
(1.5%)
|
|
0.5%
|
|
11.2%
|
Water
|
|
|
23,552
|
|
|
21,698
|
|
|
1,854
|
|
8.5%
|
|
(2.7%)
|
|
-
|
|
|
11.2%
|
LPD
|
|
|
30,856
|
|
|
31,270
|
|
|
(414)
|
|
(1.3%)
|
|
(4.8%)
|
|
-
|
|
|
3.5%
|
Other
|
|
|
5,503
|
|
|
4,978
|
|
|
525
|
|
10.5%
|
|
(0.3%)
|
|
-
|
|
|
10.8%
|
Total
|
|
$
|
417,550
|
|
$
|
382,477
|
|
$
|
35,073
|
|
9.2%
|
|
(1.9%)
|
|
0.5%
|
|
10.6%
|
U.S. and International Revenue.
The following table provides further analysis of total company revenue by
domestic and international markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
For the Three
|
|
|
|
|
|
Percentage
|
|
Percentage
|
|
Organic
|
Net Revenue
|
|
Months Ended
|
|
Months Ended
|
|
Dollar
|
|
Percentage
|
|
Change from
|
|
Change from
|
|
Revenue
|
(dollars in thousands)
|
|
March 31, 2016
|
|
March 31, 2015
|
|
Change
|
|
Change
|
|
Currency
|
|
Acquisitions
|
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
258,939
|
|
$
|
235,408
|
|
$
|
23,531
|
|
10.0%
|
|
-
|
|
|
0.3%
|
9.7%
|
International
|
|
|
158,611
|
|
|
147,069
|
|
|
11,542
|
|
7.8%
|
|
(5.0%)
|
|
0.7%
|
|
12.1%
|
Total
|
|
$
|
417,550
|
|
$
|
382,477
|
|
$
|
35,073
|
|
9.2%
|
|
(1.9%)
|
|
0.5%
|
|
10.6%
|
The increase
in both U.S. and international organic revenues was driven by CAG Diagnostics recurring revenue
primarily resulting from higher sales volumes
. The increase in organic international revenues was driven primarily by
growth in
Europe and
the
Asia-Pacific markets and, to a lesser extent, Canada and Latin America.
Companion Animal Group.
The following table presents revenue by product and service category for CAG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
For the Three
|
|
|
|
|
|
Percentage
|
|
Percentage
|
|
Organic
|
Net Revenue
|
|
Months Ended
|
|
Months Ended
|
|
Dollar
|
|
Percentage
|
|
Change from
|
|
Change from
|
|
Revenue
|
(dollars in thousands)
|
|
March 31, 2016
|
|
March 31, 2015
|
|
Change
|
|
Change
|
|
Currency
|
|
Acquisitions
|
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAG Diagnostics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recurring revenue:
|
|
$
|
305,510
|
|
$
|
278,766
|
|
$
|
26,744
|
|
9.6%
|
|
(1.6%)
|
|
0.6%
|
|
|
10.6%
|
IDEXX VetLab consumables
|
|
|
107,959
|
|
|
98,392
|
|
|
9,567
|
|
9.7%
|
|
(1.8%)
|
|
-
|
|
|
11.5%
|
IDEXX VetLab service and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accessories
|
|
|
13,757
|
|
|
13,530
|
|
|
227
|
|
1.7%
|
|
(1.2%)
|
|
-
|
|
|
2.9%
|
Rapid assay products
|
|
|
43,086
|
|
|
43,637
|
|
|
(551)
|
|
(1.3%)
|
|
(0.6%)
|
|
-
|
|
|
(0.7%)
|
Reference laboratory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diagnostic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consulting services
|
|
|
140,708
|
|
|
123,207
|
|
|
17,501
|
|
14.2%
|
|
(1.8%)
|
|
1.3%
|
|
|
14.7%
|
CAG Diagnostics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital - instruments
|
|
|
22,974
|
|
|
20,113
|
|
|
2,861
|
|
14.2%
|
|
(1.8%)
|
|
-
|
|
|
16.0%
|
Customer information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
management and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diagnostic imaging systems
|
|
|
29,155
|
|
|
25,652
|
|
|
3,503
|
|
13.7%
|
|
(0.7%)
|
|
-
|
|
|
14.4%
|
Net CAG revenue
|
|
$
|
357,639
|
|
$
|
324,531
|
|
$
|
33,108
|
|
10.2%
|
|
(1.5%)
|
|
0.5%
|
|
11.2%
|
The increase in CAG Diagnostics recurring revenue was due primarily to higher sales from our reference laboratory diagnostic services and of our
IDEXX
VetLab
®
consumables resulting from increased volumes and, to a lesser extent, higher realized prices.
IDEXX
VetLab
®
cons
umables revenue growth was due primarily to
higher sales volumes
in the U.S., Europe and the Asia-Pacific region for our Catalyst consumables and, to a lesser extent, ProCyte Dx
®
consumable
s, resulting from
growth in testing
by
existing customers, an expanded menu of available tests and the net acquisition of new customers. These
favorable impacts were partly offset by lower consumables volumes from our VetTest
®
chemistry
instrument due
to customer upgrades from our previous generation VetTest to our Catalyst analyzer
s. IDEXX
VetLab
consumables revenue
also
benefited from higher average unit sales prices.
IDEXX
VetLab service and accessories revenues for the three months ended March 31, 2016 were generally consistent with the same period of the prior year.
Rapid assay revenue was generally consistent with the same period of the prior year as the unfavorable impact of lower average unit sales prices in the U.S. for certain earlier generation rapid assay products was offset by higher sales volumes of canine and feline specialty
single analyte
SNAP
®
products.
The increase in reference laboratory diagnostic and consulting services revenue was due primari
ly to the impact of higher
testing volumes
throughout our worldwide network of laboratories, most prominently in the U.S.
, resulting from increased testing from existing customers and the net acquisition of new customers. Additionally, the increase in revenue was the result of higher average unit sales prices due to price increases.
Testing volumes benefitted slightly from favorable weather trends as compared to the same period of the prior year and an extra business day in the first quarter of 2016 due to a leap year.
CAG Diagnostic capital instrument placements drive highly profitable recurring diagnostics revenue. The launch of Catalyst One
®
analyzer internationally continues to drive strong worldwide chemistry placements. Our hematology placements continue to be driven by Procyte Dx in the U.S. and Europe. The increase in CAG Diagnostics capital instruments revenue was driven by an increase in ProCyte Dx revenues and to a lesser extent, Catalyst One revenues.
The increase in customer information management and diagnostic imaging systems revenue was due primarily to an increase in diagnostic imaging system placements, higher service revenue resulting from an increase in our active installed base of diagnostic imaging and practice management systems, increased revenues from other customer information management services and higher revenues from an increasing
IDEXX
Pet Health Network
®
Pro subscriber base. These favorable f
actors were partly offset by the impact of
fewer licensed-based Cornerstone placements as we evolve to
a
subscription-based model for new practice management customer acquisitions.
Water.
The increase in Water revenue
was attributable to
all regions in which
we operate, most notably from
strong performance in North America. Higher revenues resulted primarily from higher sales volumes of our Colilert test products and
related accessories used in
coliform and
E. coli
testing, placements of our Quanti-Tray Sealer PLUS instrument
,
which we launched in June 2015
,
and higher sales volumes of our products designed to detect cryptosporidium.
Testing volumes benefitted slightly from favorable weather trends as compared to the same period of the prior year and an extra business day in the first quarter of 2016 due to a leap year. Additionally, we also benefitted from price increases enacted in 2016.
Livestock, Poultry and Dairy.
The increase in LPD organic revenue resulted from
strong performance in emerging markets, most notably resulting from higher sales volumes of
swine testing products and new products including bovine pregnancy tests in China and higher dairy volumes in Latin America, and
increased livestock testing services in the Asia-Pacific region
.
These favorable factors were partly offset by decreased sales volumes of bovine testing
products within
Western Europe in large part due to the success of certain
disease
eradication programs.
Other.
The increase in Other revenue was due primarily to higher sales of our OPTI Medical blood gas analyzers and related consumables in the Asia
-
Pacific region.
Gross Profit
Total Company.
The following table presents gross profit
(loss)
and gross profit percentages by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
For the Three
|
|
|
|
|
|
|
|
Gross Profit (Loss)
|
|
Months Ended
|
|
Percent of
|
|
Months Ended
|
|
Percent of
|
|
|
Dollar
|
|
Percentage
|
(dollars in thousands)
|
|
March 31, 2016
|
|
Revenue
|
|
March 31, 2015
|
|
Revenue
|
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAG
|
|
$
|
190,792
|
|
53.3%
|
|
$
|
176,934
|
|
54.5%
|
|
$
|
13,858
|
|
7.8%
|
Water
|
|
|
16,106
|
|
68.4%
|
|
|
15,148
|
|
69.8%
|
|
|
958
|
|
6.3%
|
LPD
|
|
|
17,977
|
|
58.3%
|
|
|
20,008
|
|
64.0%
|
|
|
(2,031)
|
|
(10.2%)
|
Other
|
|
|
2,923
|
|
53.1%
|
|
|
2,473
|
|
49.7%
|
|
|
450
|
|
18.2%
|
Unallocated amounts
|
|
|
(261)
|
|
N/A
|
|
|
981
|
|
N/A
|
|
|
(1,242)
|
|
(126.6%)
|
Total Company
|
|
$
|
227,537
|
|
54.5%
|
|
$
|
215,544
|
|
56.4%
|
|
$
|
11,993
|
|
5.6%
|
Gross profit increased due to higher sales, partly offset by a
pproximately a 1%
decrease
in the gross profit percentage.
The decrease in gross profit percentage was due primarily to
the unfavorable impact of currency, an increase in IDEXX VetLab and LPD products costs, and
unfavorable CAG product mix, resulting from higher relative instrument revenue and lower relative
revenue from our rapid assay test kits. The negative effect of currency resulted from lower relative hedging gains during
the three months ended March 31, 2016, as compared to the same period of the prior year, and the unfavorable impact from changes in foreign currency exchange rates
. These unfavorable factors were partly offset by higher average unit sales prices for our reference laboratory diagnostic services and IDEXX VetLab consumables.
Companion Animal Group.
Gross profit for
CAG
increased due to higher sales, partly offset by a decrease in the gross profit percentage from 55% to 53%. The decrease in the gross profit percentage was due to the unfavorable impact of currency, an unfavorable product mix resulting primarily from higher relative instrument revenue and lower relative revenue from our rapid assay test kits and an
increase in IDEXX VetLab product costs
.
The unfavorable impact of currency
during the three months ended March 31, 2016, as compared to the same period of the prior year
, resulted from
lower relative hedging gains and changes in foreign currency exchange rates.
These unfavorable factors were partly offset by higher average unit sales prices for our
reference laborator
y diagnostic services and
IDEXX
VetLab consumables
and profitability improvements in our information management business supported by expanded service offerings.
Water.
Gross profit for Water increased due to higher sales, partly offset by a decrease in the gross profit percentage from 70% to 68%. The
decrease in the gross profit percentage resulted from
the unfavorable impact of currency
during the three months ended March 31, 2016, as compared to the same period of the prior year
, due to
lower relative hedging gains and changes in foreign currency exchange rates. This unfavorable factor was partly offset by the impact of higher average unit sales prices on our
C
olilert testing products
and related accessories
.
Livestock, Poultry and Dairy.
Gross profit for LPD decreased due a decrease in the gross profit percentage from 64% to 58%
and lower sales
. The decrease in the gross profit percentage resulted
primarily
from the unfavorable impact from changes in foreign currency exchange rates, higher overall product costs due to
the recognition
during the prior year period
of
previously capitalized
favorable manufacturing variances, and lower average unit sales prices on our dairy products. The negative effect of currency resulted from hedging losses realized during the period ending March 31, 2016
, as compared to hedging gains during the same period of the prior year and the impact from changes in
foreign currency exchange rates. These unfavorable factors were partly offset by the expiration of royalties on
certain of
our swine testing products.
Other.
Gross profit for Other increased due to
higher sales and
an increase in the gross pro
fit percentage from 50% to 53%
. The increase in the gross profit percentage was due
primarily to lower overall OPTI Medical product costs
,
partly
offset by lower average unit sales prices on OPTI Medical instruments and related consumables.
Unallocated Amounts.
Gross profit for Unallocated Amounts decreased due primarily to higher personnel-related costs.
We estimate certain personnel-related costs and allocate the budgeted expenses to the operating segments. This allocation differs from the actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.” The increase in personnel-related costs was due primarily to higher self-insured healthcare costs and higher than budgeted employee incentives reported within Unallocated Amounts during the three months ended March 31, 2016 as compared to the same period of the prior year.
Operating Expenses and Operating Income
Total Company.
The following tables present operating expenses and operating income by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
For the Three
|
|
|
|
|
|
|
|
Operating Expenses
|
|
Months Ended
|
|
Percent of
|
|
Months Ended
|
|
Percent of
|
|
|
Dollar
|
|
Percentage
|
(dollars in thousands)
|
|
March 31, 2016
|
|
Revenue
|
|
March 31, 2015
|
|
Revenue
|
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAG
|
|
$
|
129,414
|
|
36.2%
|
|
$
|
123,416
|
|
38.0%
|
|
$
|
5,998
|
|
4.9%
|
Water
|
|
|
6,427
|
|
27.3%
|
|
|
5,787
|
|
26.7%
|
|
|
640
|
|
11.1%
|
LPD
|
|
|
13,407
|
|
43.5%
|
|
|
13,052
|
|
41.7%
|
|
|
355
|
|
2.7%
|
Other
|
|
|
3,760
|
|
68.3%
|
|
|
2,795
|
|
56.1%
|
|
|
965
|
|
34.5%
|
Unallocated amounts
|
|
|
736
|
|
N/A
|
|
|
(2,309)
|
|
N/A
|
|
|
3,045
|
|
131.9%
|
Total Company
|
|
$
|
153,744
|
|
36.8%
|
|
$
|
142,741
|
|
37.3%
|
|
$
|
11,003
|
|
7.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
For the Three
|
|
|
|
|
|
|
|
Operating Income
|
|
Months Ended
|
|
Percent of
|
|
Months Ended
|
|
Percent of
|
|
|
Dollar
|
|
Percentage
|
(dollars in thousands)
|
|
March 31, 2016
|
|
Revenue
|
|
March 31, 2015
|
|
Revenue
|
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAG
|
|
$
|
61,378
|
|
17.2%
|
|
$
|
53,518
|
|
16.5%
|
|
$
|
7,860
|
|
14.7%
|
Water
|
|
|
9,679
|
|
41.1%
|
|
|
9,361
|
|
43.1%
|
|
|
318
|
|
3.4%
|
LPD
|
|
|
4,570
|
|
14.8%
|
|
|
6,956
|
|
22.2%
|
|
|
(2,386)
|
|
(34.3%)
|
Other
|
|
|
(837)
|
|
(15.2%)
|
|
|
(322)
|
|
(6.5%)
|
|
|
(515)
|
|
(159.9%)
|
Unallocated amounts
|
|
|
(997)
|
|
N/A
|
|
|
3,290
|
|
N/A
|
|
|
(4,287)
|
|
(130.3%)
|
Total Company
|
|
$
|
73,793
|
|
17.7%
|
|
$
|
72,803
|
|
19.0%
|
|
$
|
990
|
|
1.4%
|
Companion Animal Group.
The following table presents
CAG
operating expenses by functional area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
For the Three
|
|
|
|
|
|
|
|
Operating Expenses
|
|
Months Ended
|
|
Percent of
|
|
Months Ended
|
|
Percent of
|
|
|
Dollar
|
|
Percentage
|
(dollars in thousands)
|
|
March 31, 2016
|
|
Revenue
|
|
March 31, 2015
|
|
Revenue
|
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
70,566
|
|
19.7%
|
|
$
|
66,387
|
|
20.5%
|
|
$
|
4,179
|
|
6.3%
|
General and administrative
|
|
|
41,097
|
|
11.5%
|
|
|
38,934
|
|
12.0%
|
|
|
2,163
|
|
5.6%
|
Research and development
|
|
|
17,751
|
|
5.0%
|
|
|
18,095
|
|
5.6%
|
|
|
(344)
|
|
(1.9%)
|
Total operating expenses
|
|
$
|
129,414
|
|
36.2%
|
|
$
|
123,416
|
|
38.0%
|
|
$
|
5,998
|
|
4.9%
|
The increase in sales and marketing expense was due primarily to increased personnel-related costs as we continue to build our global sales infrastructure, partly offset by the
favorable impact from changes in foreign currency exchange rates. The increase in general and administrative expense resulted primarily from higher personnel-related costs and, to a lesser extent, incremental information technology
investments
. These
un
favorable factors were partly offset by the favorable impact from changes in foreign currency exchange rates. Research and development expense for the three months ended March 31, 2016 was generally consistent with the same period of the prior year.
Water.
The following table presents Water operating expenses by functional area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
For the Three
|
|
|
|
|
|
|
|
Operating Expenses
|
|
Months Ended
|
|
Percent of
|
|
Months Ended
|
|
Percent of
|
|
|
Dollar
|
|
Percentage
|
(dollars in thousands)
|
|
March 31, 2016
|
|
Revenue
|
|
March 31, 2015
|
|
Revenue
|
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
3,222
|
|
13.7%
|
|
$
|
2,910
|
|
13.4%
|
|
$
|
312
|
|
10.7%
|
General and administrative
|
|
|
2,498
|
|
10.6%
|
|
|
2,171
|
|
10.0%
|
|
|
327
|
|
15.1%
|
Research and development
|
|
|
707
|
|
3.0%
|
|
|
706
|
|
3.3%
|
|
|
1
|
|
0.1%
|
Total operating expenses
|
|
$
|
6,427
|
|
27.3%
|
|
$
|
5,787
|
|
26.7%
|
|
$
|
640
|
|
11.1%
|
The increase in sales and marketing expense
and general administrative expenses were
due primarily to higher personnel related costs. Research and development expense for the three months ended March 31, 2016 was generally consistent with the same period of the prior year.
Livestock, Poultry and Dairy.
The following table presents LPD operating expenses by functional area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
For the Three
|
|
|
|
|
|
|
|
Operating Expenses
|
|
Months Ended
|
|
Percent of
|
|
Months Ended
|
|
Percent of
|
|
|
Dollar
|
|
Percentage
|
(dollars in thousands)
|
|
March 31, 2016
|
|
Revenue
|
|
March 31, 2015
|
|
Revenue
|
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
5,579
|
|
18.1%
|
|
$
|
5,435
|
|
17.4%
|
|
$
|
144
|
|
2.6%
|
General and administrative
|
|
|
4,836
|
|
15.7%
|
|
|
4,671
|
|
14.9%
|
|
|
165
|
|
3.5%
|
Research and development
|
|
|
2,992
|
|
9.7%
|
|
|
2,946
|
|
9.4%
|
|
|
46
|
|
1.6%
|
Total operating expenses
|
|
$
|
13,407
|
|
43.5%
|
|
$
|
13,052
|
|
41.7%
|
|
$
|
355
|
|
2.7%
|
The increase in sales and marketing expense was due primarily to
commercial infrastructure investments within emerging markets
, partly offset
by
the favorable impact of changes in
foreign currency exchange rates. The increase in general and administrative expense resulted from higher personnel related costs, partly offset by the favorable impact from changes in foreign currency exchange rates. Research and development expense
for the three months ended March 31, 2016 was generally consistent with the same period of the prior year.
Other.
Operating expens
es for Other, which totaled $3.8
million for the three months ended March 31, 2016, increased $1.0 million as compared to the same period of the prior year due primarily to an intangible impairment within our OPTI Medical business.
During the first quarter of 2016, management reviewed
our OPTI Medical product offerings
. As
a
result of this review,
we discontinued
our product development activities in the human point-of-care medical diagnostics market
during March 2016
and instead
will
focus our commercial efforts
in this market
on supporting our latest generation OPTI CCA-TS2 Blood Gas and Electrolyte Analyzer.
We assess
ed
the realizability of
the related tangible and
intangible assets
a
s
a
result of the afo
rementioned change in
strategy
and determined the expected future
cash flows were less than the carrying value of the asset group
. As a result, we
recorded a non
-
cash intangible
asset
impairment of $1.1 million within our condensed consolidated statement of operations for the three months ended March 31, 2016.
Unallocated Amounts.
Operating expenses that are not allocated to our o
perating segments increased $3.0 million to $0.7
million for the three months ended March 31, 2016, due primarily to
higher personnel-related costs.
We estimate certain personnel-related costs and allocate these budgeted expenses to the operating segments. This allocation differs from actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.” Higher personnel related costs during the three months ended March 31, 2016 were the result of increased employee incentives and higher self-insured healthcare costs. Additionally, during the three months ended March 31, 2015, operating expenses reported in Unallocated Amounts benefitted from favorability due to cost control initiatives enacted subsequent to the development of our 2015 budget.
Interest Income and Interest Expense
Interest income was $0.8 million and $0.4 million for the three months ended March 31, 2016 and 2015, respectively. The increase in interest income was due primarily to a larger relative portfolio of marketable securities during the three months ended March 31, 2016 as compared to the same period of the prior year.
Interest expense was $8.3 million for the three months ended March 31, 2016 as compared to $6.3 million for the same period of the prior year. The increase in interest expense was d
ue primarily to approximately $2
50 million in senior notes that we issued and sold through private placements
during
2015, for which fixed interest
rates range from 1.785% to 3.72
%
and higher relative interest rates on our unsecured revolving credit facility (“Credit Facility”) during the three months ended March 31, 2016 as compared to the same period of the prior year
. See Note 11 to the consolidated financial statements in our 2015 Annual Report for additional information regarding our senior notes
and Credit Facility
.
Provision for Income Taxes
Our effective income tax rate was
30.6%
and
30.4%
for the t
hree months ended March 31, 2016 and 2015
, respectively
. The increase in our effective rate for the three months ended March 31, 2016 as compared to the same period of the prior year was related to lower relative earnings subject to international tax rates that are lower than domestic tax rates, including the impact of foreign currency exchange rates, partly offset by the benefit of the U.S. research and development (“R&D”) tax credit. There was no available U.S. R&D tax credit during the period ending March 31, 2015 because the credit had not yet been extended. In December 2015, the U.S. R&D tax credit was permanently extended with retroactive application to January 1, 2015.
|
§
|
|
Recent Accounting Pronouncements
|
We are evaluating the impact that several recent accounting amendments related to share-based payment transactions, leases, and revenue recognition will have on our consolidated financial statements. Other recently issued accounting pronouncements did not have and are not expected to have a significant effect on our financial condition
and results of operations.
Liquidity and Capital Resources
Liquidity
We fund the capital needs of our business through cash on hand, funds generated from operations,
proceeds from long-term senior note financings
and amounts available under our $
850
million Credit Facility. At
March 31
, 201
6 and December 31, 2015
, we had
$350.6
million and $
342.6
million, respectively, of cash, cash equivalents and marketable securities. Working capital, including ou
r Credit Facility, totaled
negative $
69.7 million and negative $35.1
million, respectively, at
March 31, 2016 and December 31, 2015
. Additionally, at
March 31, 2016
, we had remainin
g borrowing availability of
$227
million under our $
850
million Credit Facility. We believe that, if necessary, we could obtain additional borrowings at similar rates to our existing borrowings to fund our growth objectives. We further believe that current cash and cash equivalents, our portfolio of short-duration marketable securities, funds generated from operations and committed borrowing availability will be sufficient to fund our operations, capital purchase requirements, and anticipated growth needs for the next twelve months. We believe that these resources, coupled with our ability, as needed, to obtain additional financing on favorable terms will
also
be sufficient for the foreseeable future to fund our business as currently conducted.
We consider the majority of the operating earnings of certain
of our
non-U.S. subsidiaries to be indefinitely invested outside the U.S.
No provision has been made for the payment of U.S. federal and state or international taxes that may result from future remittances of these undistributed earnings of
our
non-U.S. subsidiaries.
Changes to this position could have adverse tax consequences.
A determination of the related tax liability that would be paid on these undistributed earnings if repatriated is not practicable for several reasons, including the complexity of laws and regulations in the various jurisdictions where we operate, the varying tax treatment of potential repatriation scenarios and the timing of any future repatriation.
We manage our worldwide cash requirements considering available funds among all of our subsidiaries. Our foreign cash and marketable securities
are generally available without restrictions to fund ordina
ry business operations outside the U.S.
Of our total cash, cash equivalents and m
arketable securities at March 31, 2016, approximately
$348.
4
million wa
s held by our foreign subsidiaries and was subject to material repatriation tax effects.
We held
marketable securities with original maturities of three years or less that had an average
AA- credit rating
as of March 31, 2016.
Of
the $217.6
milli
on in marketable securities held as of March 31, 2016
approximately 70% of the fair value of our marketable securities consisted of corporate bonds, 11% consi
sted of asset backed securities, with the remainder consisting of
agency bonds, U.S. and Canadian government bonds, municipal bonds, commercial paper and certificates of deposit. Of the
$133.0
mil
lion of cash and cash equivalents held as
of March 31, 2016
,
91% was held as bank deposits, 6% was invested in money market funds invested in highly liquid investment-grade fixed-income securities
and the remainder was invested in
commercial paper
and agency bonds
with original maturities of less than ninety
days and
money market funds restricted to U.S. go
vernment and agency securities
. As of
March 31, 2016, approximately 68
% of the cash, cash equivalents and marketable securities held by our foreign subsidiaries was held in U.S. dollars.
Should we require more capital in the U.S. than is generated by our operations domestically, for example to fund significant discretionary activities, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. These alternatives could result in higher effective tax rates or increased interest expense and other dilution of our earnings. We have borrowed funds domestically and
believe we will
continue to have the ability to borrow funds domestically at reasonable interest rates.
The following table presents additional key information concerning working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days sales outstanding
(1)
|
|
|
43.7
|
|
|
43.3
|
|
|
43.8
|
|
|
43.7
|
|
|
41.6
|
Inventory turns
(2)
|
|
|
1.6
|
|
|
1.5
|
|
|
1.5
|
|
|
1.5
|
|
|
1.6
|
(1)
Days sales outstanding represents the average of the accounts receivable balances at the beginning and end of each quarter divided by revenue for that quarter, the result of which is then multiplied by 91.25 days.
(2)
Inventory turns represent inventory-related cost of product revenue for the 12 months preceding each quarter-end divided by the inventory balance at the end of the quarter.
Sources and Uses of Cash
The following table presents cash
provided (
used
)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
Dollar Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
$
|
23,226
|
|
$
|
(14,644)
|
|
$
|
37,870
|
|
Net cash used by investing activities
|
|
|
(23,799)
|
|
|
(160,620)
|
|
|
136,821
|
|
Net cash provided by financing activities
|
|
|
1,202
|
|
|
36,801
|
|
|
(35,599)
|
|
Net effect of changes in exchange rates on cash
|
|
|
3,330
|
|
|
(1,913)
|
|
|
5,243
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
3,959
|
|
$
|
(140,376)
|
|
$
|
144,335
|
|
Operating Activities.
Cash
provided
by operating activities was $
23.2
million for the
three months ended March 31, 2016,
as compared to
cash used of
$
14.6
million for the same period of the prior year. The total of net income and net non-cash charges,
excluding the impact of reclassifying the tax benefit from share-based compensation arrangements to a financing activity, was $
73.7 million
for the
three months
ended
March 31, 2016
, as compared to $
68
.
6
million for the same period in 201
5
, resulting in increme
ntal operating cash flows
of $5.
1 million driven primarily by the impa
ct of higher
depreciation and amortization expense and higher deferred income tax benefits during
the three months ended March 31, 2016
. The total of changes in
operating assets and liabilities and the tax benefit from share-based compensation arrangements
decreased cash by $
50
.
5
million
and $83.2
million for the
three months ended March 31, 2016
and 201
5
, respectively, resulting in an incre
mental increase in cash of $32.7
million.
The following table presents cash flows from changes in operating assets and liabilities and the tax benefit from share-based compensation arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(dollars in thousands)
|
|
2016
|
|
2015
|
|
Dollar Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(21,504)
|
|
$
|
(51,438)
|
|
$
|
29,934
|
|
Inventories
|
|
|
1,764
|
|
|
(10,142)
|
|
|
11,906
|
|
Accounts payable
|
|
|
(1,801)
|
|
|
(4,332)
|
|
|
2,531
|
|
Deferred revenue
|
|
|
637
|
|
|
1,153
|
|
|
(516)
|
|
Other assets and liabilities
|
|
|
(27,516)
|
|
|
(10,746)
|
|
|
(16,770)
|
|
Tax benefit from share-based compensation arrangements
|
|
|
(2,063)
|
|
|
(7,713)
|
|
|
5,650
|
|
Total change in cash due to changes in operating assets and liabilities and the tax benefit from share-based compensation arrangements
|
|
$
|
(50,483)
|
|
$
|
(83,218)
|
|
$
|
32,735
|
|
The decrease in cash used by accounts receivable during the three months ended March 31, 2016 resulted from the absence of one-time impacts related to our change in U.S. commercial strategy beginning in the fourth quarter of 2014. Our transition to an all-direct strategy in the U.S., including
the establishment of accounts receivable directly with our U.S. end-users that previously purchased from our U.S. distribution partners,
resulted in a significant use of cash during the first quarter of 2015
.
Cash provided
by inventory during the three months ended March 31, 2016, as compared to
cash used during
the same period in the prior y
ear, was the result of operational
in
i
tiatives to optimize inventory levels.
Higher i
ncremental cash used by other assets and liabilities during the three
months ended March 31, 2016 as
compared to the same
period of the prior year was due primarily to higher relative cash paid for payroll as a result of the timing of quarter end relative to payment dates, as well as due to the timing of other prepaid and accrued expenses
.
We
have
historically experienced proportionally lower net cash flows from operating activities during the first quarter and proportionally higher cash flows from operating activities for the re
mainder of the year and for the annual
period driven primarily by
payment
s related to
annual employee incentive programs in the first quarter following the year for which the bonuses were earned and the seasonality of vector-borne disease testing, which has historically resulted in significant increases in accounts receivable balances during the first quarter of the year.
Investing Activities.
Cash used by investing activities was $2
3.8
million for the three months ended Marc
h 31, 2016 as compared to $160.6
million for the same period of the prior year. The decrease in cash used by investing activities was due primarily
to
lower relative net purchases of marketable securities during the three
months ended March 31, 2016 as
compared to the same period of the prior year
.
Our total capital expenditure plan for 201
6
is e
stimated to be approximately $9
0 million, which includes capital investments in manufacturing and reference laboratory equipment, investments in internal use software and information technology infrastructure and the renovation and expansion of our facilities and reference laboratories.
Financing Activities.
Cash provided by financing activities was $1.2 million for the three months ended March 31, 2016 as
compared to cash provided of $36.
8
million for the same period in 2015. The decrease in cash provided
by financing activities was due to the absence of a long-term debt issuance in
the first quarter of
2016, as compared to the aggre
gate
issuance of approximately $150 million of senior notes during the same period of the prior year, partly offset by a decrease in cash used to repurchase our common stock and higher relative net borrowings under the Credit Facility during the three months ended March 31, 2016, as compared to the same period of the prior year.
Cash used to repurchase shares of our common stock decreased $80
.
2
m
illion during the three months ended March 31, 2016, as compared to the same period of the prior year. From the inception of our share repurchase program in August 1999 to March 31, 2016, we have repurchased 58.9
million shares. During the three months ended March 31, 2016, we purchased 0.7 million shares for an aggregate cost of $49.7 million, as compared to purchases of 1.8 million shares for an aggregate cost of $133.6 million during the same period of the prior year.
Share repurchases have moderated relative to the same period of the prior year as we have achieved a debt leverage ratio consistent with our long-term target range.
We believe that the repurchase of our common stock is a favorable means of returning value to our shareholders and we also repurchase
our stock to offset the dilutive effect of our share-based compensation programs. Repurchases of our common stock may vary depending upon the level of other investing activities and the share price. See Note 9 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information about our share repurchases.
Net borrowing and repayment activity under the Credit Facility resulted in incremental cash provided of $48.5 million during the three months ended March 31, 2016, as compared to the same period of the prior year.
At March 31, 2016, we had $622
.0 million outstanding under the Credit Facility.
The general availability of funds under the Cr
edit Facility was further reduced by $1.0 million for a letter of credit
that was issued in connection with claims under our workers’ compensation policy.
The Credit Facility contains affirmative, negative and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates, certain restrictive agreements and violations of laws and regulations. The obligations under the Credit Facility may be accelerated upon the occurrence of an event of default under the Credit Facility, which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under the Employee Retirement Income Security Act of 1974, the failure to pay specified indebtedness, cross-acceleration to specified indebtedness and a change of control default.
Since December 2013, we have issued and sold through private placements senior notes having an aggregate principal amount of
approximately $600 million
pursuant to certain note purchase agreements (collectively, the “Senior Note Agreements”). The Senior Note Agreements contain affirmative, negative and financial covenants customary for agreements of this type. The negative covenants include restrictions on liens, indebtedness of our subsidiaries, priority indebtedness, fundamental changes, investments, transactions with affiliates, certain restrictive agreements and violations of laws and regulations. See Note 11 to the consolidated financial statements in our 2015 Annual Report for additional information regarding our senior notes.
Should we elect to prepay the senior notes, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Senior Note Agreements. Additionally,
in the event of a change in control of the Company or upon the disposition of certain assets of the Company the proceeds of which are not reinvested (as defined in the Senior Note Agreements), we may be required to prepay all or a portion of the Senior Notes.
The obligations under the Senior Notes may be accelerated upon the occurrence of an event of default under the applicable Senior Note Agreement, each of which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under the Employee Retirement Income Security Act of 1974, the failure to pay specified indebtedness and cross-acceleration to specified indebtedness.
The sole financial covenant of our Credit Facility and Senior Note Agreements is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation and amortization and certain other non-cash charges (“Adjusted EBITDA”) not to exceed 3.5-to-1. At March 31, 2016, we were in compliance with the covenants of the Credit Facility and Senior Note Agreements.
The following details our consolidated leverage ratio calculation as of March 31, 2016:
|
|
|
|
|
|
|
March 31,
|
|
Trailing 12 Months Adjusted EBITDA:
|
|
|
2016
|
|
|
|
|
|
|
Net income attributable to stockholders
|
|
$
|
191,503
|
|
Interest expense
|
|
|
31,239
|
|
Provision for income taxes
|
|
|
80,944
|
|
Depreciation and amortization
|
|
|
71,348
|
|
Share-based compensation expense
|
|
|
20,154
|
|
Extraordinary and other non-recurring non-cash charges
|
|
|
9,322
|
|
Adjusted EBITDA
|
|
$
|
404,510
|
|
|
|
|
|
|
|
|
March 31,
|
|
Debt to Adjusted EBITDA Ratio:
|
|
|
2016
|
|
|
|
|
|
|
Line of credit
|
|
$
|
622,000
|
|
Long-term debt
|
|
|
600,021
|
|
Total debt
|
|
|
1,222,021
|
|
Acquisition-related contingent consideration payable
|
|
|
3,665
|
|
Capitalized leases
|
|
|
740
|
|
U.S. GAAP change - deferred financing costs
|
|
|
601
|
|
Gross debt
|
|
|
1,227,027
|
|
Gross debt to Adjusted EBITDA ratio
|
|
|
3.03
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
(132,953)
|
|
Marketable securities
|
|
|
(217,617)
|
|
Net debt
|
|
$
|
876,457
|
|
Net debt to Adjusted EBITDA ratio
|
|
|
2.17
|
|
Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA and net debt to Adjusted EBITDA ratio are non-GAAP financial measures which
sh
o
u
ld
b
e
c
o
ns
i
d
e
r
ed
in
a
dd
ition
t
o
, a
n
d
n
o
t
a
s
a
r
e
p
lac
e
m
e
n
t
f
o
r, financial measures presented according to U.S. GAAP.
M
a
n
a
g
e
m
e
n
t
b
elie
v
es
t
h
at
reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility.
Other Commitments, Contingencies and Guarantees
Significant commitments, contingencies and guarantees at
March 31, 2016
are consistent with those discussed
in the section under the heading “Part
II
, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” and
in Note 14
to the consolidated financial statements in our
2015
Annual Report
.