IDEXX Laboratories, Inc. Q2 2008 Earnings Call Transcript

| About: IDEXX Laboratories, (IDXX)

IDEXX Laboratories, Inc. (NASDAQ:IDXX)

Q2 2008 Earnings Call

July 25, 2008 9:00 am ET


Jonathan Ayers - Chief Executive Officer

Merilee Raines - Chief Financial Officer

Susan Astro - Director of Investor Relations


Ryan Daniels - William Blair

Ross Taylor - C.L. King

Dawn Brock - J.P. Morgan



Welcome to the IDEXX Laboratories second quarter 2008 earnings conference call. (Operator Instructions) Participating in the call this morning are Jonathan Ayers, Chief Executive Officer; Merilee Raines, Chief Financial Officer; and [Susan Astro], Director of Investor Relations.

IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that statements that members of IDEXX management may make on this call regarding management's future expectations and plans and IDEXX's future prospects constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to statements regarding management's expectations for financial results for future periods and the timing of new product introductions.

Listeners are reminded that actual results could differ materially from management's expectations. Factors that could cause or contribute to such differences are described in IDEXX's quarterly report on Form 10-K for the quarter ended March 31, 2008 and Form 10-K for the year ended December 31, 2007, in the section captioned Risk Factors which are on filed with the SEC and also available on IDEXX's website In addition, any forward-looking statements represent IDEXX's estimates only as of today and should not be relied upon as representing the company's estimates as of any subsequent date. The company disclaims any obligation to update or revise any forward-looking statements in the future even if its estimates or expectations change.

At this time I would like to turn the conference over to Merilee Raines. Please go ahead.

Merilee Raines

As we noted in our earnings press release today, revenues for the quarter were $280.6 million a year-to-year increase of 18% and diluted earnings per share were $0.63, an increase of 85% from the second quarter of 2007. To remind you we had discrete items last year of $0.10 relating to acquisitions and the write down of pharmaceutical inventory and related assets, so earnings per share growth adjusted for discrete items was 43%.

This quarter’s revenue and earnings were impacted by the timing of sales of our feline insulin product (PZI VET). As we noted in our first quarter call and 10-Q we expected we would be selling substantially all of the remaining inventory of this product in the second quarter as we communicated to customers that the product would no longer be available once the current supply was depleted. We in fact did sell all of this inventory in the second quarter and the incremental revenue impact was approximately $10 million, with an earnings impact of $0.09 inline with our thinking.

As we also noted in April our financial plans had anticipated sales of this product facing by the end of 2008. So this event does not impact full year financial guidance. Earnings for the quarter were about $0.03 to $0.04 above our expectations at the time of our call in April and this was the result of a somewhat more favorable growth margins and continued operating expense management in response to slightly lower revenue, and now for some further detail on the P&L.

The second quarter revenue growth of 18% included 5% from currency and virtually no impact from acquisitions, so organic growth with 13%. As we further normalized for the timing of PZI VET sells up 4% favorable impact to growth and the top compare created by our last year’s pet food recall of 1% negative impact. The adjusted organic growth was about 10.5% or about 2.5 points below the 13% we experienced for the full year 2007 when adjusting for the pet food recall.

Consistent with our thinking, at the time of our first quarter call we believed that the weakness in the economy is having a modest effect on some of our product line and have impacted total company growth by a point or so. I will discuss other factors influencing organic growth now as we look at revenue performance by each product and service line.

Our IDEXX VetLab instrument revenues were $15.3 million, up 10% on a reported basis and 4% when adjusted for currency. Placements were essentially flat year-to-year against a very strong compare in the second quarter of 2007 when placements were up approximately 35%. We continued with our control launch of Catalyst and SNAPshot Dx and delivered, and recognized revenue on only a small number of each instrument in the second quarter.

However, our sales forces spent time detailing the instruments to customers and they’ve been building a significant order book for both. Our instrument consumables sales of $57.1 million grew 8% organically and also 8% when taking into consideration the further impact of changes in distributor inventories and the pet food recall. We estimate that the weakness in the economy impacted consumable growth by 1 to 2 points in the second quarter. However we’ve maintained our longer range growth rate of 9% to 11% driven primarily by the impact of new instrument placement.

Our point-of-care rapid assays with revenues of $41.3 million had organic growth of 11% or 12% when adjusted additionally for changes in distributor inventories. There is some seasonality in this business with the second quarter experiencing the greatest volume of canine parasitic disease testing. Customers continue to convert their testing protocols to our most comprehensive parasitic panel SNAP 4Dx, and in this quarter it accounted for more than 50% of our multi analyde panel volume and nearly 60% on a dollar basis

As the rate of conversion to this higher value test declines overtime, we continue to project an 8% to 10% long range growth for this product line. U.S. distributor inventories for instrument consumables and rapid assays, averaged after just over three weeks at the end of the quarter based on forward-looking demand.

Our laboratory and consulting services delivered reported growth of 16% for the second quarter with acquisitions contributing 1%, and currency contributing 5% to produce organic growth of 9%. We estimate that last year’s pet food recall impacted organic growth by about 2%, so organic growth as adjusted additionally for this factor was approximately 11%. As we believe that this business along with instrument consumables is the most likely to experiences a slight drag from the economy. We estimate that growth rates over the next few quarters will continue to be in the 10% to 11% range.

Our Practice Information Management and Digital Radiography systems had another strong quarter with 18% organic growth. As in the first quarter we excited this quarter with a healthy backlog, which positions us well for this start of the second half. Additionally, a recently released update to Cornerstone, our Practice Management software enabled customers to connect their IDEXX digital imaging systems to Cornerstone in a manner that permits more efficient requesting, capturing, viewing, sharing and invoicing of digital X-rays all from within the Cornerstone system.

As for pharmaceuticals the acceleration of the PZI VET sales into the second quarter will reduce our run rate in the second half. We anticipate that pharma sales in the second half will be approximately $3 million, as compared to $20 million for the first half. As noted in our April call, we are currently working our way to the regulatory approval process for a replacement insulin product, which we expect to be on the market next year.

Our Production Animal Services line had 15% reported growth and 4% organic growth. The entire difference in growth rates is attributable to currency. As noted in the first quarter the impact of lower selling prices for BSE test is the primary driver for the lowering of organic growth rates from the 8% we experienced in 2007.

Sales of our water products were very strong in the second quarter with 14% organic growth. The collaboration made, it commenced last year within Invitrogen contributed approximately half of the organic growth in the quarter. International markets also experienced solid growth in the second quarter including China, as that country incorporates our Microbial testing products into their post earthquake recovery efforts and also their preparations for the Olympics.

Once we passed the first anniversary of our Invitrogen collaboration in the third quarter, we anticipate that growth in our water business will be in the mid-single digit. Looking at the rest of the P&L, gross margin had 54% of revenues was nearly half a point better than our expectations. This was driven largely by revenue mix with our relatively higher margin instrument, consumables and kits comprising a larger than anticipated portion of our revenue.

As an additional note the seasonal ramp of our rapid assay products and the bullish of pharmaceutical field, were the key contributors to our higher gross margin in the second quarter than that which we have seen in recent quarters as margins are adjusted for discrete items.

Operating expenses at 33% of revenues were about a 150 basis points lower than our expectations. As in the first quarter we carefully managed expense growth to keep it in check with top-line growth, and at the same time to ensure that key initiatives received appropriate resources.

I also know note that the operating expense percentages has reduced in the second quarter by the incremental PZI VET sales that required minimal operating expense support. Our normalized percentage would be approximately 34%. Our effective tax rate of 32.4% was essentially inline with our thinking as with net interest expense. As for the balance sheet and cash flow we ended the quarter with $75 million of cash and $158 million of debt for a net debt position position of $83 million.

Free cash flow, as defined in our press release was $46 million or 117% of net income for the quarter. With regard to our latest outlook for the full-year 2008, we project revenues up $1.06 billion to $1.07 billion. This would represent a reported growth of 15% to 16%, with acquisitions estimated to contribute 1%, and currency to contribute 4%, so organic growth of 10% to 11%.

This is a $5 million reduction in the high-end of our previous guidance range and is primarily driven by the change in anticipated revenues from Catalyst and SNAPshot Dx instrument placements during their controlled launch base. Year-to-year growth rates for the second half would be about 5 points lower than the first half, primarily due to the impact of the timing of PZI VET shipments.

We continue to project gross margin as a percentage of revenues to be 51% to 52% for the full-year, with the second-half margin about 3 points below the first half, driven largely by revenue mix. The first half margin benefited from the seasonal sales obtained on rapid assay products and the timing of PZI VET sales, as both products have relatively high gross margin.

In the second half, we anticipate that instrument sales, with relatively lower gross margins will play a more prominent role in the revenue mix, with a ramp of Catalyst and SNAPshot Dx combining with traditionally strong capital sales in the fourth quarter.

Operating expenses are projected to be 35% to 36% of revenues for the full-year, with the second-half one to two points above the first half do in large part to the PZI VET revenue timing. Giving the timing of some program spending, we anticipate that the third quarter operating expenses will increase 4% to 5% sequentially and then decline in the fourth quarter. Our thinking about gross margin and operating expenses leads to a projected full-year operating margin of 16% to 16.5% of revenues.

As we have done in the first half, we will carefully monitor spending. The biggest watch area will be the cost to manufacture and support Catalyst and SNAPshot Dx. Our priority remains to ensure our first grade customer experience and we will dedicate the resources necessary to make that happen. Achieving scale and learning curve experience, instrument manufacture will be a driver of future margin expansion in addition to grow the consumable revenue resulting from the expansion of the installed base of our instrument.

We also expect to gain overtime volume leverage and operating efficiencies in our global network of reference lab. We continue to project the effective tax rate to be approximately 31% for the full-year with rates in the third quarter and fourth quarter at 31.5% to 32%. As a reminder a discrete event in the amount of $0.02 in the first quarter yielded an effective rate of 28%. Our projection does not incorporate the benefit of the federal research and development credit that has not been renewed post the expiration at the end of last year.

Should the credit get renewed we anticipate that it would reduce our full-year effective rate by a 150 basis points. We project the weighted average share comp for the year to be roughly at second quarter level. All of these factors lead us to a full-year EPS projection of $1.89 to $1.92 on a reported basis or $1.87 to $1.90 as adjusted for the first quarter discrete tax items. Our previous guidance adjusted for the discrete item was a $1.82 to $1.85.

The $0.05 increase in our guidance is due to our stronger than anticipated second quarter performance and our belief that we will continue this momentum into the second half of the year, with focused on our key priorities and appropriate control of spending. With regard to other items we project free cash flow as 60% of net income and capital expenditures of approximately $100 million.

I’ll turn it over to John, for some further comments on the business.

Jonathan Ayers

We are very pleased with the second quarter, and the first half of the year. Revenue for the second quarter finished just above, on our expectations was a 14% year-over-year growth adjusting out the exceptional pharma revenues. In addition we achieved impressive earnings growth. I think the most informative way to view earnings growth is to reduce the non-GAAP number in the press release by the nine tenths of income that resulted from the exceptional pharma revenue, and if you do that you get 23% growth and earnings per share for the quarter. Good revenue and earnings results on any measure to be sure.

I’d also like to observe that IDEXX is now cross the $1 billion threshold looking at our trailing four quarters of reported revenues. This is a really exciting accomplishment for IDEXX and our employees. As it was a goal of the strategic plan we put together just a short three year ago when we were only a little more than half this size. At the time internally we dubbed this plan or our blueprint to a $1 billion, and I would like to take this opportunity to congratulate and thanks the IDEXX team for completing the construction of this blueprint and ahead of schedule no less.

At the same time we still have much work ahead of us in building a great company. We are a company focused on bringing innovative technology to our served markets, most notably diagnostic and information systems technology to the pet veterinarian, and the second quarter showed that our global markets continue to exhibited growth even during times when U.S. consumers, many of them pet owners are facing difficult economic times.

People take care of their pets and generally do not view there, vets pet’s help as of discretionary expenses. In addition to our comp line growth that Merilee has referenced, I’m very pleased to see our cost management and productivity efforts resulted in good margin performance for the quarter and half year adjusted for the exceptional pharma revenues and gross margin.

Even as we continue to invest in the most important new product innovations in our R&D pipeline and other key initiatives that will, drive sustained growth and profitability at IDEXX. Our focus on productivity and cost control through such well established tools as SixSigma, Process Reengineering, Lien, Global Supplier Management and continuous improvement of all types is continuing to take shape and will add an important dimension to the company’s financials performance in the years to come.

Our most significant side set of innovations recently brought to the market involves our IDEXX VetLab, integrated suite and point-of-care instruments and related consumables. As investors know we made our first deliveries of our next generation bench top analyzers Catalyst Dx and SNAPsnot Dx at the end of the first quarter. Customer’s feedback continues to be excellent, customers are being to truly appreciate how the IDEXX VetLab suite upgraded with Catalyst Dx and SNAPsnot Dx has the potential to create paradigm shift and how lab work is performed in the veterinary practice.

Catalyst is so easy to run, that it only saves times versus other existing in-clinic instruments system. It also provides a tech productivity advancement compared to the time required to prepare that sample we are sending to the outside lab. What we are hearing from customers who have Catalyst in their practices now and built into the routines is that they are surprised at how efficient their in-house labs run in the morning, during the rush hour if you will.

A lot of in-house blood work is run first thing, ahead of surgery schedules for the day. Catalyst Dx has three features, which really help at this point in time. The eight minute turnaround time, the high through put by being able to run multiple samples simultaneously and very little tech hands on time, in fact customers tell us the Catalyst is a delight to the technicians and an important element of the subtractive staffing model.

These work flow and through put advantages in the morning are particularly appreciated by medium to larger vet hospitals, which of course are higher volume consumable users. So the larger the practice, the more interesting are the economies and efficiencies in Catalyst Dx as part of our full integrated in-house IDEXX VetLab suit.

During the second quarter our sales force easily achieved, there are a lot order limitations Catalyst and SNAPshot that we gave them at the beginning of the quarter. This market response is gratifying and demonstrates the reasons why we do not think we will be demand constrained with sales of the instruments anytime soon.

Our focus all along is to conduct a controlled launch process that gives our rate of instrument deliveries in such a way as to insure great customer experience and allows us to learn along the way. In the second quarter we built and installed base of instruments large enough for us to identify the design and software refinements needed to insure that we could deliver an excellent customer at much higher production volumes. So for example, as of today we have almost 100 units between Catalyst Dx and SNAPshot Dx placed with our customers.

As a result of our early feedback that we have received during this part of the controlled launch process, we are incorporating some modest changes to the instruments and more importantly continuing to advance the software programming. This will allow us to continue to achieve a great customer experience with a less intensive customer support approach as the installed base grows. In the meantime we are obviously building a nice backlog of orders, as orders were significantly hiring deliveries in Q2.

As a result of our controlled launch approach, we expect that we will shift about 6 to 800 units of each instrument type to customers in the second half of the year. In our rapid assays line of business we continue to see strong growth in parasitic disease screening market with our SNAP 4Dx product, which kept simultaneously for heartworm, lyne disease and two other tick borne diseases.

We also had an excellent reception by customers during our limited launch of SNAP Feline Triple. To remind investors were existing SNAP Feline Combo test for two important infectious diseases. Feline immunodeficiency virus and Feline leukemia virus, Feline Triple adds heartworm spot to this SNAP test kit.

Heartworm is an under-appreciated and under-diagnosed parasitic disease in cats, although is getting a lot more attention lately. Feline Triple will provide expanded value to Feline Combo customers and for no increase in price. For this reason we will be simply replacing Combo offering with Triple from most U.S. segments.

We currently expect that switched to happened in the fourth quarter. Speaking of the rapid assay business, we continue also to progress with the instruction of expanded capability of SNAPshot Dx later in the year. We anticipate - by the end of 2008 subject to USDA regulatory approval timelines. SNAPshot Dx will have the abilities to read, interpret and log the result of our core SNAP devices including Feline Triple, Canine 4Dx and the SNAP CPL.

With our other SNAP products following early next year. This increased capability of the IDEXX VetLab instrument suite in the area of infectious decease screening significantly broadens the customer’s ability to move to the electronic medical record and the printout of all in-house lab results in a single report for that patient. SNAPshot Dx with rapid assay capability, will also provide another gratifying boost to technician productivity and satisfaction.

We have made several other product advances that help our customer move to the paperless factors. As Merilee mentioned we have launched new version of our Cornerstone practice management software that fully integrates our digital radiography offerings and its associated PACS software with our practice management system. These two systems are designed to work as one, were the radiology study can be ordered from the customers record and the result in digital images are included automatically back in the single patient medical record, all the while ensuring the invoice captures, the charge associated with the study.

We are by far the first in the market with this level of integration between a world class digital radiography system and a market leading practice information management system. We continue to see a very attractive growth market for digital radiography and I am pleased with the progress this business has made in the last 12 months. At the same time we also lead the way with the integration of our product and services with many other leading practice information management software providers.

In fact our IDEXX VetLab instrument suite electronically downloads results over to 70 different information systems in use in the veterinary practice worldwide. We are committed to an open systems approach to electronic medical record integration and this approach is much appreciated by our broad customer base.

In summary a combination of continued double-digit organic growth from a diverse side portfolio global technology base businesses and important new product cycle with our instrument business with Catalyst Dx, or SNAPshot Dx and a strong future new product pipeline, not only give us confidence for updated financial guidance for the full year of 2008 but our long-term outlook of low double digit revenue growth and mid teams earnings per share growth, driven by both, the top line and productivity initiatives that drive margin improvement. Particularly, in our two largest businesses the IDEXX VetLab instruments and consumables business and our global reference laboratory business. So, Roxan at this time I’d like to open it up for questions.

Question-and-Answer Session


(Operator Instructions) Our first question will come from Ryan Daniels with William Blair. Please go ahead.

Ryan Daniels - William Blair

Couple of quick questions on Catalyst, John I don’t know if you’ve been able to track this yet, but I’m curious if those people using it. If you could comment on the use of the consumables i.e. for your earlier doctors have you actually seen increase utilization in consumables and then the second derivative of that if have you seen a decline in your outsource lab work with them given the ease pf use at the point out here?

Jonathan Ayers

It’s really, I think too early to draw any kind of conclusions with the parts of utilization. There are just a lot of moving parts there. In general, we do not expect there is supposed to be particularly shift between in-house testing and reference lab testing. What we would like to see here is maybe a growth in overall testing just because of the ease of use, but I think, to answer your question its just too early to be able call on any trends.

Ryan Daniels - William Blair

On Catalyst it sounds like maybe your thoughts now are a 100 or so less than you may previously though. Is that just taking more time to make sure the software is upgraded appropriately before you get it on to the market or anything else in there particular that’s bringing that down just a little bit?

Jonathan Ayers

We are in the controlled launch process and the gaining factor here is the positive customer experience with every new system installation and its important platform for the practice, it needs to operate consistently and flawlessly and as we gained early installed base experience we have some improvements in the software, in fact we are going to be releasing a new version of the software in next week which will take that up notch.

Ryan Daniels - William Blair

Okay and then on the Feline Triple you’ve mentioned successful early launch of that. Can you give us a feel for how many of the feline assays have been replaced or shifted in the triple and then maybe any color on. If that’s leading to market share gains or at this point it’s really just kind of upgrading your existing customers and distributors who use it?

Jonathan Ayers

We have a couple of 100 customers who are using the Feline Triple and I think it’s basically a one for one replacement, our Combo product is used in roughly 20,000 practices in the U.S.. So it’s a pretty widely utilizes, that the way that to test for these feline diseases and so we really see this as a one for one replacement.

Ryan Daniels - William Blair

Okay, and then last question and I hop back in the queue. I am just curious if you have any commentary about what’s going on with the economy. I guess if I look at your ex-currency growth it seems like most of your divisions actually saw a better growth this quarter, certainly the labs was a lot stronger than we would have anticipated. It had an uptake from Q1 as that instrument, and even at practice management systems. So that assigned, you’re actually seeing some stabilization or improvement or is there anything you need that has driven some of the organic growth higher this quarter than last?

Merilee Raines

Ryan its Merilee. I don’t think we see really any significant changes from the first quarter as we said. The impact from the economy, I think it has been pretty minor on a couple of our product lines, but overall the growth trends I think are just fairly consistent.

Ryan Daniels - William Blair

Okay, fair enough. Thanks a lot guys.


Our next question is from Ross Taylor with C.L. King. Please go ahead.

Ross Taylor - C.L. King

Hi, just a couple of questions. I wonder within some of your key companion animal lines new instruments, consumables in the lab. Whether you can give any color on how the U.S. business did versus, outside the U.S.?

Jonathan Ayers

We are a global business in the companion animal business. I think as Merilee said we saw, everybody ask us the question about the economy. We saw a modest impact in the U.S. on that, but it’s a good growth business worldwide. So I don’t think there is a particular story there one way or another.

Ross Taylor - C.L. King

Okay, so you are not to out words in your mouth, but so the organic growth rates probably weren’t that, much difference between U.S. and outside U.S.?

Merilee Raines

Ross I would say from the trends that each area had been exhibiting, we didn’t see a lot of change.

Ross Taylor - C.L. King

Okay, and another question, the reference lab growth was very strong in the quarter and I just wondered if you get the sense that you are capturing much market share, within the U.S. or if anything is changed between, Q2 and Q1?

Jonathan Ayers

Well the reference lab business, I think everybody knows very competitive business in North America and at the same time we are pleased with the global performance of the reference lab business, we continue to invest in that business, we’re pleased with the service levels that we provide in that business worldwide and the advancements in the technology innovation, and so it’s a great business for us.

Ross Taylor - C.L. King

Okay, and yeah there is two other questions. I wonder with regard to the economy whether regionally you can see much impact on your business in different areas of the United States and lastly and final question and you might have addressed this earlier in response to the Ryan’s questions, but with regards to market share shifts between in-house testing and the reference labs. Are you seeing much change in behavior on the part of your customers in response to change in economy or changing desires on the part of pet owners?

Jonathan Ayers

I won’t say that we spend a great deal of time looking regionally, we are a global business so, there is a lot of regions to look at it, we’ve started doing that, because it’s really been a modest impact to the economy, it hasn’t been a huge focus if regional differentiation to answer your first question.

With regard to your second question on in-house versus reference lab testing, we have released that consistently and wouldn’t change that based on our recent trends that we would see any difference in utilization of in-house testing and reference lab testing. They both have their roles in the practice; they both have some unique solutions that they are providing. We don’t see a particular shift in one direction or the other and what we really like about the business is that, in general testing against testing as customers appreciate the value as our customers or clients, meaning the veterinarian appreciates the value of diagnostic testing and advancing their standard of care to get more confident in utilizing it in different protocols and that’s just a reinforcing behavior.


And our next question from Dawn Brock with J.P. Morgan. Please go ahead.

Dawn Brock - J.P. Morgan

Good morning. John maybe if you could talk a little bit about Catalyst placements. Yet again, I know you said they were effected between SNAPshot and Catalyst they’re about a 100 placements. Can you give us a better idea of how many Catalysts exactly?

Jonathan Ayers

Well that’s a mix of the two systems they generally go hand-and-hand. It’s really not much different than the equal share as you would expect.

Dawn Brock – J.P. Morgan

Okay, yeah thanks a lot, and then maybe just moving onto some more macro issues and speaking with your vets, with your clients. Did you hear or were you getting any pushback that as far as differences in the way that specific consumables volume is being utilized? In other words, I guess what I’m trying to get is, it seems as though in-house may have seen a little bit of pressure in that quarter and I guess my curiosity is where was it more on the emergent side, where maybe there were more blood test, because you had more emergencies coming in for that or was it on your wellness and preventative profiles?

Jonathan Ayers

Whether it’s in-house or reference lad testing, they are both used in emergency and they’re both used in wellness, because we don’t actually practice medicines. We don’t compete with our customers, we serve our customers. We’re not able to have the visibility of how they’re using are our diagnostic technology, but I will did see same-store sales growth and in both sides of the equation. So, we don’t really see a big shift one way or the other.

Dawn Brock – J.P. Morgan

Okay. So just from an ordering perspective, you didn’t see any difference in the ordering patterns for consumables based on any shift and say equity at the VET clinic?

Jonathan Ayers


Dawn Brock – J.P. Morgan

Okay, and then again just kind of more macro, I mean have you seen any changes other than the typical seasonality for heartworm in the demand side over the last couple of months. Let’s say, was April or May different than June or July for that matter?

Jonathan Ayers

Well, I think in general what we are, the trend that we’re really seeing is the substitution of heartworm only testing which is sort of the - in most places where there is tick-borne diseases, is sort of the old way of testing to full parasitic disease testing and really protecting the animal for the kinds of diseases that they can be subject and that annual screen in the penetration that occurs has been continuing theme as we’ve introduced 3Dx and then 4Dx.

We kind of kind of look at our overall, we did see a volume growth in our entire K-9 test portfolio test portfolio that includes heartworm only or 3Dx or 4Dx, all three of those have heartworm, so we kind of throw all together. We did see, good unit of volume growth, some people said that anecdotally that some of the testing was occurring a little later in the spring than earlier in the spring, it’s kind of hard for us to tell because we sell to the veterinary practice and then they subsequently use it, we can’t measure when they use our product, we can just measure when they purchase our product.

I mean that’s an important point, is that we do have very, very good systems that give us visibility to sales by practices, through distributions. We’ve always had for a number of years now an excellent handle on what’s happening at the point of purchase to the practice and as result, I’ve done a good job in terms of maintaining low distributor inventories and having an appreciation and thus lack of surprises on what happens in terms of distributor back and forward.

What we can’t measure of courses is when the products are used in the practice, so that would be a anecdotal information that the testing had heard a little bit, in some cases a little bit later in the spring.

Dawn Brock – J.P. Morgan

I wouldn’t be asking you when the actual testing was done just when the ordering was done, because that would be in anticipation of the testing. So I was just curious whether or not you guys saw any sort of shift or any sort of change, say from a year ago in that pattern.

Jonathan Ayers

No, I would say, we had good growth in the first quarter and we had good growth in the second quarter, year-over-year in our canine rapid assay business.

Dawn Brock – J.P. Morgan

Excellent, the last thing is the Med Tech side was actually quite strong. It’s seems as though vets don’t mind spending money, but pet owners are tightening up a little bit. Can you just talk a little bit about that?

Jonathan Ayers

Sorry, can you be more specific on Med Tech, so I’ll make sure I answer the question correctly?

Dawn Brock – J.P. Morgan

Just as far as the TIM and the digital radiography side of the business is concerned.

Jonathan Ayers

Well I think that’s more of the technology cycle for us. We are very pleased with our digital radiography offering right now. We’ve made significant advancements in that offering both in hardware and software and we have a pipeline of continued advancements in that, and we’ve really seen great performance particularly on the digital side which is driving the majority of that growth. This year over last and I think we’re just in a very interesting technology substitution cycle of people seeing the numerous of benefits associated with digital radiography over film radiography, but we are still early days in that substitution curve, so we are excited about that business.


There are no further questions at this time, if you would like to continue.

Jonathan Ayers

Okay, I want to thank everybody for joining in the call and again I want to congratulate IDEXX employees for good quarter, for good half year and for crossing the $1 billion threshold. Thank you all, that ends our call.

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