IDEXX Laboratories' CEO Hosts Annual Shareholder Meeting Conference (Transcript)

| About: IDEXX Laboratories, (IDXX)
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IDEXX Laboratories, Inc. (NASDAQ:IDXX) Annual Shareholder Meeting Conference Call May 9, 2012 10:00 AM ET


Jonathan W. Ayers – Chairman and Chief Executive Officer

Conan R. Deady – General Counsel and Secretary

Ted Wiener – Sales, American Stock Transfer & Trust Company, LLC

Jonathan W. Ayers

Good morning. I like to welcome everybody who is here in person at IDEXX Drive in Westbrook, Maine, and I’d also like to welcome stockholders and others who are listening to this meeting via live webcast. I’m sure there are many. Everyone should have received meeting agenda as well as set of procedures for today’s meeting. We’ll start the meeting by considering the proposals that we described in our proxy statement. The votes will be followed by my presentation regarding our business, and finally we’ll open the floor to your questions after we close the webcast. It might be grateful if people would hold their business related questions and answers for the question-and-answer period at that time.

Before we get to the proposals, I’m delighted to introduce the members of our Board of Directors and our Officers, who are here at the meeting, and I would like to ask each person who I introduce to stand as I introduce you. And beginning in alphabetical order, our Board of Directors, Tom Craig, thank you Tom; Bill End, thank you Bill; Rebecca Henderson, thank you Rebecca; Barry Johnson, thank you Barry; Brian McKeon; forgot Bob Murray, here Bob Murray, got it right away here and Joe Vumbacco.

So our Executive Officers are also here today and I’d like to ask each of them to stand as they are introduced. Bill Brown, Corporate Vice President and Chief Scientific Officer; Merilee Raines, our Corporate Vice President and Chief Financial Officer; Conan Deady, our Corporate Vice President, General Counsel and Secretary; Dan Meyaard, Corporate Vice President and Head of Worldwide Operations, and I thank Dan and his team for the managing logistics of this meeting, Ali Naqui, Corporate Vice President and Head of International and Commercial Operations; Jim Polewaczyk, Corporate Vice President and Head of our Rapid Assay, Digital and Telemedicine businesses; Johnny Powers, Corporate Vice President, Head of IDEXX Reference Laboratories business; Giovani Twigge, Corporate Vice President and the Head of Human Resources; and Michael Williams, Corporate Vice President and Head of our Instrument Diagnostics businesses. We also have representatives from PricewaterhouseCoopers are here today, and will be available for your questions. Here from PWC are Kevin Burney, thank you, Kevin; Kenneth Richardson, and John Charters. Thank you, Ken and John.

Okay, now I’ll turn the meeting over to Conan Deady who will conduct the formal part of the meeting and after that, I’ll give a presentation regarding our business, and then following that presentation the webcast portion of the meeting will conclude and at the end of the meeting our officers and I will be available to answer questions. Conan, please.

Conan R. Deady

Thanks, John. Good morning, we have three matters to be voted upon today. The first thing we need to do is to confirm that we have a quorum; I received an affidavit from our transfer agent, American Stock Transfer & Trust Company, certifying that the notice of annual meeting we sent all stockholders a record as of March 12, 2012. The affidavit and the list of stockholders entitled to vote at this meeting are available for inspection by any stockholder. As always, we have a representative from American Stock Transfer & Trust Company here today at the meeting. This year, Ted Wiener has been appointed to act as inspector of election.

now I’ll ask Mr. Wiener to furnish us with a account of the number of shares present at the meeting through representation by proxy.

Ted Wiener

There are present at this meeting through representation of our proxy 53,116,813 shares of common stock.

Conan R. Deady

Thank you, there are being 53,116,813 shares of common stock represented at this meeting, out of a total of 55,129,353 shares of common stock entitled to vote, which is a pretty good percentage. I hereby declare that the quorum exists.

As indicated in the notice of meeting and proxy statements that were made available to all stockholders we’re here today to consider three business items. The election of three class one directors for three year-terms, the approval of a non-binding advisory resolution on the Company’s executive compensation program, and to ratify the selection of PricewaterhouseCoopers as the Company’s independent registered public accounting firm.

Are there any stockholders present today who wish to vote by ballot, if so could you please raise your hand. Doesn’t appear as if we have any. What I will now do is go through each of the three items on the ballot and ask if there is any discussion. Following discussion, we will proceed to vote on each item.

The first item of business is the election of three class one directors listed in the Company’s proxy statement, the nominees for election are William T. End, Barry C. Johnson, and Brian P. McKeon.

So any discussion on this item and before we proceed to vote? We will not proceed to vote. Second item of business is the approval of a non-binding advisory resolution on the company’s executive compensation program, which reads as follows: Result that the compensation page to the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, compensation tables and narrative discussion is hereby approved. Is there any discussion on this matter before we proceed to vote.

Third item of business is the ratification on the selection in PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm for the current fiscal year, as a main discussion on this matter before we proceed to vote. We’ll now proceed to vote. The polls are now closed. The minutes of the meeting will reflect the time at which the polls were closed. We’ll now announce the results of the vote and I’d like to ask Mr. Wiener to his report on the voting.

Ted Wiener

On the notion for the three nominees to be elected as Class I Directors of the company to serve until 2015 Annual Meeting of Stockholders or until the successors are duly elected and qualified, the holders have a plurality of votes cast in favor of each of the nominees. As holders have a plurality of the votes cast by the stockholders entitled to vote at the meeting have voted in favor of the election of each of the nominees, I hereby declare Mr. End, Dr. Johnson, and Mr. McKeon have been elected as Class I Directors.

On the notion of non-binding advisory resolution of the company’s executive compensation programs to be approved, the holders of 44,243,498 shares vote in favor of this resolution; 729,310 shares voted against the resolution; and 2,518,609 shares have abstained from voting on this resolution. The holders of majority of the shares voted in favor of the non-binding advisory resolution on the company’s executive compensation program. I hereby declare that the resolution is approved.

On the notion of selection of PricewaterhouseCoopers LLP as a company’s independent auditors for the current fiscal year to be ratified, the holders of 52,638,568 shares have voted in favor of this resolution; 431,634 shares have voted against the resolution and 46,610 shares had abstained from voting on this resolution. The holders have a majority of the shares voting have voted in favor of the ratification of PricewaterhouseCoopers LLP as the company’s Independent Registered Public Accounting Firm for the current fiscal year. I hereby declare that the selection of such firm has been ratified. This concludes the formal portion of the meeting and close to record time.

At this time I would like to turn the meeting back over to Jon Ayers for his presentation. Before the presentation begins, I would like to remind everyone that the presentation contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. This presentation contains statements about the company’s business prospects and estimates of the company’s financial results for future periods that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management’s expectations of future events as of the date of this presentation and the company assumes no obligation to update any forward-looking statements as a result of new information or future events or development.

Actual results could differ materially from management's expectations. Factors that could cause or contribute to such differences are described in the Company’s Quarterly Report on Form 10-Q, for the quarter ended March 31, 2012 and filed with the SEC in the section captioned “Risk Factors”. Thank you.

Jonathan W. Ayers

Thank you, very much Conan. And thank you all for the votes and my congratulations to Bill and Brian McKeon, and Barry Johnson on their election as Directors for new term. I can now turn to a business update. Our purpose in part is to enhance the health and well-being of pets, people and livestock. And we’re in a number of businesses each of which contributes to the purpose. And I’ll come back to the purpose at the end of my conversation.

We’ve had a very good year, I’d like to report on where we are in different aspects of our business. As you can see from this pie chart that shows the revenue contributions from our segments, the largest by far is the Companion Animal Group, where we develop and offer a variety of diagnostic and information technology solutions. And I’d like to spend a little bit time on that business as a global business for us and some of the trends and some of the product developments.

If we take a look at that 82% and we create a separate pie of that particular business, we have several – what we refer to as lines of business and these are really contributing components to the overall integrated offering, and they are a little bit different business models, but they’re really part of the whole. And I’d like to go through each of them.

The largest is the instrument and consumable business, what we call the IDEXX VetLab business and then follow the rapid assay, which is also point-of-care test, VetLab services and some digital and information technology businesses. These are as I said they’re all – it’s a global business we operate around the world of course the largest region would be the U.S. and North America.

Let me turn to the point-of-care businesses. This is a value proposition for our diagnostics that are run inside the veterinary hospital. And it’s the ability to, at the time of check-in to be able to have the exam, collect the blood, run the results, have the results and discuss them in any potential implications with the pet owner during that 20 to 30 minute exam all within time for – time for a checkout. So point-of-care testing of course, has been around for a long time, we have been innovators in point-of-care testing for many decades, but the new element of the value proposition that we’ve launched over the last several years has been the real-time care component that is all of – everything that’s required to be able to run this easily, quickly, with complete first-line diagnostic results within this 20 to 30 minute visit.

Now our systems are designed to do that. we’re going to go through that in a little bit. but the benefits of course, are that you have the results right there to discuss some purposes, person who is the pet owner, you have a better case management, because you’re going to talk about the implication. you have a more efficient workflow, because there isn’t work that needs to be done after the visit to be followed up, and of course, it’s a value-added proposition for the pet owner to actually have a result there to discuss in person and we know how powerful one-on-one in-person conversation can be versus something that happens remotely or in some cases electronically.

the IDEXX VetLab instrument and consumer business is the leading element of our real-time care, and in 2011, it was $395 million business, it was about a third 33% of the company revenues and 40% of the CAG revenues. If we take a little closer look at this business model, from an economic point of view, we have a comprehensive suite of instruments that allow for that point-of-care testing, a large global customer base or what we call an installed base where these instruments are in place and I said what’s most important is as these instruments are used to run the patient’s blood work and they use consumables, which are all unique and proprietary instruments that we sell and that in related service revenue is 75% of this line of business revenue, so the recurring revenue model based on the demand generated by installed base of instruments. And the whole platform is designed to achieve real time care. This large real customer base ever growing customer base, house the opportunity run a complete menu with real time care, the reliability and customer experience with the instruments of the last couple of years as a result of diligent product development and engineering efforts on behalf of IDEXX is world class now, with live (inaudible) commence of over four years before they require any kind of service on average, it’s pretty phenomenal. And they have a high degree of information technology connectivity.

The consumable base, the consumable revenue growth as a result of new instrument placements and growth in the utilization of the existing installed base has been around 9% to 10%, and organically, what I call organic growth in 2011 in the first quarter of 2012. And I refer to organic growth as adjusted for changes in currency and excluding the growth impact of any acquisitions within the – where which they were none, in most of our businesses, but I’ll keep coming back to the organic growth number.

The flagship instruments are two modalities, chemistry, hematology on the chemistry side is our Catalyst Dx Chemistry Analyzer, with the ability to turnaround samples within eight minutes with very little tech time, and we have over 8,000 of these instruments installed since its launch in 2008, and the Companion flagship is ProCyte Dx Hematology Analyzer, which has a even faster two minute run time and as a comprehensive complete blood count capability, which are not just be abilities of the advanced reference lab and so this launch in 2010, 1,900 analyzers got placed.

We were really excited about some new developments on the catalyst side, just this month. We did full launch of a new test for a therapeutic drug called Phenobarbital while it’s a small test, it's a very, very important new opportunity available to all existing catalysts. Our customers, this is characteristic of IDEXX’s strategy of continuing to add value to instruments that have already been purchased and in use. And the reason why it’s important is if you have a dog that is suffering from seizures and as a practice, you put them on a medication called Phenobarbital, you want to make sure that they’re not getting too much or too little, and that’s what our test does, and this is the first time it’s ever been able to be tested at the point-of-care. previously, it had to go to the reference lab and you can imagine with a lead-time that’s a little bit more awkward when you're trying to ensure that the dosage is right.

The IDEXX VetLab is integrated with what we call the IDEXX VetLab stations. we have over 15,000 IDEXX VetLab stations in operation. they play a multipart role. They bring all the instruments together and provide a comprehensive report, and say they connect to the practice management software that in many cases is where the electronic medical record is kept. and so the diagnostic information can be added to the electronic medical record. and then the majority approximately 75% in North America of these instruments are connected real-time with IDEXX in a capability that we call SmartService, which allows us to provide even a superior customer experience from a – keeping the instrument in the operating order, downloading software and providing some incremental benefits. SmartService is also an important platform for some more new information technology initiatives that I’ll be talking about in a minute.

The VetLab business as I said is 33% of the company’s revenues and is and will continue to be important contributor to the operating margin growth of the company. We’ve had about 600 basis points or 6% operating margin growth in last three years in the VetLab business, and we expect that there is a more opportunity going forward. And that’s because the consumable growth, which are the higher margin part of the business.

Our supply contracts on a global basis that where costs come down with increasing volumes. We continue to move down the learning curve, experience curve in terms of manufacturing and service costs and improving the reliability. As I said, we’re world-class, but we’re not satisfied with where we are in world-class and we know we can always do better. And then we expected some modest operating leverage. So the VetLab business will be one of the two major contributors to continue margin expansion for the company as a whole.

The other business, which is very directly related to Real-Time Care is the rapid assay, test kit business is the ability to test for variety of diseases primarily, but not exclusively infectious disease with the kit and without the need for an instrument although an instrument can optionally aid in the recording of that information into the practice management software and electronic, medical record. This is $154 million business for us in 2011. It grew 4% organically and we think kind of long-term referring 2012 is 4% to 6%.

We just this month, I guess last month launched a very important addition or upgrade, our biggest product in this line has been what we call SNAP 4Dx, which is one test second measure for four different vector-borne diseases in the dog. And we have now replaced that with the same price, with what we call 4Dx Plus, which adds two more nasty tick-borne diseases. Let me tell you, you don’t want ticks and you don’t want your dog to have ticks as just about because they are kind of not very pleasant, but they also transact carry a lot of bacterial diseases that are quite a problem in this case for the dog. And this really this test is a convenient screening test to ensure the dog is free of those diseases or so if not can be treated.

So we’re we can do, we’d be excited about the growth in the rapid assay businesses we continue to innovate with new products. Now these two businesses in the U.S.; the VetLab business, it was ticks and consumables in the VetLab business and in the rapid assay business are sold. We generate the primary demand with our sales force, but the physical distribution of the product and some value added sales happens through our distributors. And I think as investors know on April 20, we announced a perspective change to our U.S. distributor strategy and I just want to give a brief update on that. Distributors are still digesting this perspective change and we are continuing our discussions with our three major distributors, as you all recall we said that we’ll move one of those from what we call value add distributors, one of the three to generalist, no later than at the end of the year.

To this point, none of our distributors have expressed a desire to move from a value-added distributor to a generalist distributor, although when they move distributor to generalist that gives them the ability to freely carry all competitive products. None of them has expressed the desire to become a generalist at this point, or changed the nature of their relationship IDEXX, prior to the end of the calendar year, which is that also coincides with the end of their current contract, our distributor agreement for IDEXX. So our conversations with them continue. These businesses are also good on international businesses and we’ve been very pleased with the growth to a variety of direct and distribution mechanisms around the world.

Moving to the reference lab business; we think of the reference lab as the primary portion of our value-added, which is – provides deeper insight into the patient. While our point-of-care businesses also provide deep insight and Real-Time Care scenario, the lab has a far greater capability. This has been a great business for us, a 10% growth in 2011. and again, that's what we expect in terms of organic growth in 2012. We have a world-class service levels and quality levels, expanding coverage through routes and new labs were up to 57 labs on a global basis that served 37 different countries.

We continue to add new test capability to test for specific diseases like pancreatitis and heart diseases that come out of our lab. And we continue to add value to the data or information presentation of the test results, and the reference lab I should say has a Real-Time Care component, because we have an extraordinary level of service where in most geographies, our customers reference labs can pickup the phone and get an internal medicine, our consultant online to help them interpret and determine the best course of action with a particular patient, who is brought to our systems and to the reference lab, so even though it’s reference lab that’s a real-time care component. This line of business also, (inaudible) has a leadership position in North America and telemedicine, and it allows a small business as a very rapidly growing business and that’s really the ability to get external consults on the radiographs and other imaging modalities that are taken within the practice.

This business is $374 million business, it 37% of the Companion Animal Group and 31% of IDEXX, and is the other major margin driver again similar to the VetLab business we had about 600 points of margin expansion in the last three years, in this line of business, and we expect that there is a continuing opportunity through leveraging a fixed costs infrastructure over higher volumes and with 10% organic growth. We’re achieving those volumes. Test consolidation in high-volume core labs continued dissemination. You can imagine if we got 57 labs in a variety of different countries, one lab is probably doing something better than another lab and a lot of that is lean processing.

And then advanced lab automation and information management capabilities to help run the labs, it actually in information technology intensive business. And again similar to the VetLab business, they’d be opportunity to work with suppliers on a global basis given good volume and give us good operating economics. So we’re very pleased with that.

The other part of our Companion Animal business consist of a couple of businesses. One is what we call practice management software business. The franchise product there is Cornerstone. We’re really pleased with the Cornerstone as a software system and the capabilities, that it’s providing the practice both in terms of running the practice and driving the electronic medical records capability, which is rapidly being adopted now across the profession as it is in other parts of the medicine.

Placements in Cornerstone in the first quarter were up 15%, year-over-year good growth there, and just like some of these other things Cornerstone allows real-time care by providing patient report card at the end of the exam that can be discussed, and also puts its electronic medical record capability, support deeper insights into patient care, and some other important issues, client communications, integration with all the diagnostic offerings and really has the most complete functionality, so it’s why we believe we are the leader in new placements of practice management software in North America Cornerstone.

Part of this line of business is also what we refer to as digital radiography; and digital radiography is the ability to capture a radiograph electronically and all the benefits that come from moving from film to digital. We’ve been very innovative in this business, last October we announced and launched what we call I-Vision mobile, which was the ability to look at a radiograph on a tablet, such as an iPad and have some other advanced integration, product functionality they can be run right-off that iPad.

We believe we were the first to launch this capability not only in the veterinary profession but in medicine generally, and I think it’s a testament to really two things; quality of our development teams and the fact that we actually aren’t encumbered as much by a lot of regulation that the human industry undergoes that allows us to move faster on product development in the veterinary profession.

The willpower of (inaudible) radiograph isn’t just to support the veterinary and although it does do that, but it’s been said that a picture tells a thousand words. And it’s nothing like showing your pet owner, a picture of your pet and whatever the problems may or may not be right there in the exam, very, very powerful experience then the pet owners can have that (inaudible) of the image, so it creates tremendous value in that conversation. And it’s been well received in the market, and I think it’s helped us continue to be a leader in digital radiography.

I actually would like to take the opportunity with some of these innovations step back, and talk a little bit about the evolution of the veterinary profession as we’ve seen it particularly in North America, although some of these trends also are in some of the other geographies that we participate, every country is a little bit different as you can imagine, but it’s a very interesting story. If you look at that the time even in a decade or longer, leading up to 2008 before the great recession, basically, pet owners had a very strong bond with their pet. many of them knew that they had to go to the vet. They knew they had to go to vet for their annual vaccines or Heartworm testing and control.

we introduced tick-borne testing in North America and the majority of North America there are ticks. And so the animal tick-borne testing in control, obviously the pet became sick or injured they knew to go to vet, and to some extent, the vet was successful in providing wellness care. So hey, why don’t you do some wellness, what was called wellness care at that time and pet owners were opened to that and of course, the economy was good and the veterinarian was one of – if not the most trusted professions remaining at that time. And in general, these are all generalizations, but in general the pet owner trusted the best recommendation and really didn’t question whether there was any other way to do it, other than just to go with that for these standard kinds of services, a high degree of trust and a modest degree of compliance and the pet owner didn’t comply that matter because there are many other pets that were coming in.

And as a result, we saw a growth in pet visits. There is not a great industry data, but we think it was around 0% to 2% pet visit growth and 5% to 7% practice growth. Some of that growth came because that’s – as a result of some analysis that was done at the beginning of the prior decade, appreciate maybe they’re under pricing their services and they raised their prices and of course medicine advanced and the intensity of the services that could be offered also advanced. So that’s why you saw 5% to 7% revenue growth with 0% to 2% visit growth.

So everything happy up till 2008 and then we had the great recession. And of course the great recession shook everything up and pet owners were forced to make choices with regard to where they spent their discretionary income and everybody was under pressure, and I think the peak of this was 2009.

And they started questioning everything, including whether they needed to go over that. And at the same time, there were some emerging alternative channels to provide what they may have perceived have been the value that (inaudible) was providing to them, and if they could get fully and pick a control and some basic back scene services to retail, there was a low cost vaccine clinics.

The internet provided not only the opportunity to buy some of the medications, but in fact the internet was becoming a great source of information, so they could play that themselves and diagnose their patients just I’d rather than you’d take the pet to the vet, not always a great suggestion I would say, but it happened and they became very price sensitive in general. And when they became price sensitive, they didn’t always appreciate the value of the services particularly wellness care. Hey, my pet is well, why do I need to pay for anything. Why are we do anything if the pet is well. Wellness care as you think about it, it’s kind of a contradiction term. It’s kind of actually more on wellness care, why do we need care if it’s well.

And so you had despite all of this the bond continue to be strong and we saw modest decline. We think we saw around 3% or 4% decline in 2009 in visits and 0% to 2% in 2010 and 2011 kind of industry wide, and this put vets under a lot of pressure. Things have changed. They had competition, and the pet owner wasn’t just taking the recommendation anymore for granted without questions. And again these are broad generalizations, but it really did put a lot of pressure on veterinarians.

Now what we love about veterinarians is, they trust it for a reason and they really do have a love for animals and a love for medical care. They’ve had years and years of training on that medical care. Their ability to provide that through vet school and internships and practice. One of things they did not have any years and years of training on was what we in business would might call marketing, that’s not what vets would call it, but they could call it client communications. They realized that they actually had to explain things to pet owners. They couldn’t – the pet owners just wasn’t they won’t take for grated and the pet owner knew the level of sophisticated medicine that they could provide and the value they would have for the pet and the pet owner.

So they realized, that’s realized over this period of time and it's taken a while that they had to adopt to new workers as competition wasn’t going away and some of their colleagues were adopting and so there was a general pressure to adopt. so, we saw all this, and we saw opportunity, because what we saw was when that’s got a little better, they didn’t have to get a lot better, but as they got a little better in client communications in this whole client management that the pet owner responded, because after all, the care does enhance the help, and well-being and longevity of the pet. And there is real value there.

And so we said, well how can we help given that our offering of diagnostics and information technology. and we said, vets who focus on some client outreach and engagement and communications and we see this with our most leading veterinary practices.

even though maybe the industry is declining in visits 0% to 2%, these vets were going in visits and revenue by 5%, 10%, 15% year-over-year, and it wasn't explained by geography and it wasn’t explained by other things, it seemed to be explained by simply the ability to have a client-centric approach, a more client-centric approach to veterinary, not just the medical centric-approach, which we all take for granted (inaudible), but also a client-centric approach.

And with that, pet owners respond. it's not like they’re getting different pet owners, the same pet owners that were coming in before are responding with valuing a higher level of care, whether it be sick animal preventative or chronic care. and then as we looked at that, we said okay, how can we support that growth and you’ve seen announcements and many of these are over the last 12 months since our last annual meeting, different offerings that have been part of our diagnostics and information technology portfolio. Pet Health Network provides both the trusted source of information because that pet owners do go to the Internet and one of the things Pet Health Network does is it explains things in lay terms and reinforces the need to go see your veterinarian about that specific issue.

We’ve talked about the Real-Time Care value proposition where it’s not just as the blood work was running, everything was fine. But the actual blood work as one is explained and the results are provided. We’re working on pet owner friendly diagnostic reports, for example really what is the value of testing for all those tick-borne diseases and seeing that none of them are there. The value is congratulations. You’re doing a good job with your tick control on your dog, and that’s a positive reinforcing message.

Wellness, plans are called wellness, plans that are level pay plans. We partnered in partners and wellness on that. Dogs and Ticks is another pet owner site to educate on tick-borne disease. Our workflow consultations help the practice become more efficient and delivering Real-Time Care.

I-Vision Mobile app is obviously an example that we’ve talked about in terms with our client communication. And so these all are supporting leading up to the exam experience, the visit experience and the in-practice experience.

We’re very excited that we’re about to launch a major capability, which will leverage and tie a lot of these together, which we call VetConnect PLUS, and I’d like to spend just a minute on VetConnect PLUS. This is going to be an offering that we’re going to offer to all our diagnostic customers in the next couple of months in North America and we’ll have a slow rollout over the world as our capability expands. And it is a platform to provide integrated diagnostic information in a patient-centric way.

So any blood work that was run in the reference lab, plus any blood work that was run on the IDEXX in-house lab can be seen together and can be seen over time. So imagining, your doctor sitting down with you and having many years of your [cluster] levels or whatever is that you wanted to track and being able to see what the trends were. this is a cloud, uses the current, most current cloud and Tablet, iPad capability and is also would be fully integrated into the Cornerstone practice management software. And it really adds value to the real-time care, a piece of our portfolio and the deeper insights, in fact provides even deeper insights with a historical data and later we’ll include digital radiography and telemedicine capability.

What we’re launching is levering some of the platforms that we’ve already talked about, SmartService and another platform called VetConnect, this slide is called VetConnect PLUS, which we have well over 10,000 customers already using, and it’s actually a result of years of work and product developments, it turns out not simple to create something simple like this and the years of understanding how to track parameters, how to compare parameters, how to put them together in a cloud-based scenario.

So let me just use as an example here, so you’ve got a real appreciation for this. This is a real patient who is the benefit of VetConnect PLUS just a week ago. Gretchen is a 16-year old Dachshund. Our (inaudible) is our Chief Scientific Officer like to say, because he has one, not Gretchen. Gretchen is getting older, and it turns out her kidney function is starting to fail. but fortunately, she has been getting regular checkups, preventative care, wellness care checkups and we have years of history of blood work.

so in this case, with Gretchen, she was actually hospitalized. You can see (inaudible) entry into VetConnect PLUS. what we are able to do with Gretchen, and this is a screen that could be shown on an iPad or inside the practice electronic medical record is the current results on the left where those results fit within the reference range, that’s what those bars are in the middle and in comparison to results that were run on the right. In this case, we’re actually interested in kidney values for dog that would be BUN and creatinine.

and so we've got some trending, they’re on the right, but why don’t we look at in a little more detail. and you can see that Gretchen’s creatinine in this case was rising, in that grey area that is within the reference range, anything within that range is supposedly normal, but you can see that dot there that’s above isn’t normal for Gretchen. and then things went critical and in acute situation above the reference range and Gretchen was hospitalized given the right kind of fluids and other kinds of therapy, and then that parameter that kept being measured was brought down within the reference range.

So now you can see you’re tracking this pet. So vet is tracking it. They have deeper insight into this important parameter over time. and they can show the pet owner. During the exam, what's happening with the pet and how the pet is responding to treatment and again, I want to say that this can be run, didn’t matter where that those kidney values are run whether they were run in the reference lab or they were run on the in-house equipment or they were run in both overtime.

We have the technology that allows us to show it in a comparable fashion and can be compared over time. So very, very powerful data for your financial types, and there might be a few financial types in the audience. It’s really difference between looking at a profit and loss statement in one year without any contact with the past and looking at a P&L over several years, and how much more valuable that is, the same kind of value with blood parameters.

So they are just tremendous benefits to VetConnect PLUS and we see it as an important platform. Its patient centric, as you can see, we’re really able to have deeper insight into the patient by looking at comprehensive blood work, it’s medically centric. You can easily spot trends and track our progress. it’s practice efficient, so much easier, while all this data had previously been available, it was never looked at this way, because it was simply too complicated. and so very simple, simplified workflow, maybe the blood work was run on the IDEXX VetLab in a real-time care scenario and available seconds later on the iPad to show, (inaudible) reading you’ll have to wait for the report to be printed out, and you didn’t have to mail it or print out a separate copy to give to the pet owner because you can email to them. And of course client-eccentric, because you’ve got the power of the iPad or Tablet to show real-time results, our results overtime with the pet owner.

So this is going to be a large differentiator. IDEXX is in a unique position. Because we’re the only company that provides a broad comprehensive one-lab approach to diagnostics where we both have the in-house portion and the reference lab portion that can be put together in an integrated and very visible way for the veterinarian, for the staff, and for the pet owner.

So an exciting area that really leverages the trends for greater value to the client, the pet owner, and we know when we can show that veterinarian can show that value, the pet owner responds with a greater level of care that generates growth for the practice, and it generates growth for IDEXX, because of the demand for our kits and consumables that support that diagnostic work.

We are in some other businesses, and I would remiss if I didn’t talk about these businesses as part of our mission to enhance and help in well-being of pets, people, and livestock. our water business is a good mid single-digit global growth business for us, $82 million of revenue in 2011 has been a steady, steady high margin business for us with a really differentiated technology testing for the potential for microbial contamination in the water supply, and the other one of note of larger size here is our livestock and poultry diagnostic business, which is really diagnostics for the other portion of the animal health. LPD is the leader in the diagnostic testing for a variety of producing, food producing segments in the animal health market.

What’s interesting is that these businesses in aggregate and individually, they’re primarily revenues are majority outside the U.S. These are very global businesses close to 90% or roughly 90% of livestock and poultry diagnostics revenues are actually outside of the U.S., for all the businesses are more international than they are domestic. And their one of the reasons why IDEXX as a whole has 43% of our revenues in 2011 that came from geographies outside the U.S., 26% in Europe, 10% in Asia, and 7% in other parts of Americas. and we continue to see the growth opportunity not only domestically, but in all the different geographies, we really do participate around the world in those geographies. So we’re excited about it.

Those of you who are here physically, I had to navigate your way through our construction site. Some day it will look like this picture, which is a representation of our building expansion, here at IDEXX Drive and we’re very excited about this, we’ll add 100,000 square feet of administrative space. Right now it’s a big construction site and makes a little bit challenging for employees, but they know that if we’re on schedule by August of 2013, we’ll have occupancy.

The purposes of this building is very simply to accompany employment growth at IDEXX Drive, and that employment growth is organic growth, when we innovate, when we grow with our customers then we reinvest in the business, and we reinvest in R&D and marketing and all the other parts to help support that business. We reinvest, even though we’re getting operating margin leverage and expansion and that reinvestment means we have to hire people and that means we have to put them somewhere.

So we’re really excited about this facility. This is not going to replace any of our other facilities. We have another facility here in Westbrook at Thomas Drive and we had some major facilities in other parts of the U.S. are important to us in Roswell, Georgia, in Memphis and Eau Claire, Wisconsin. These are all continuing important facilities and that doesn’t even mention the 30 some odd labs that are in the U.S. that are of course operations to contribute to our lab services.

So we’re excited about this. It will be employee centric consistent with our purpose to create extraordinary long-term value for our customers, employees and shareholders by enhancing the health and well-being of pets, people and livestock. And so we think supporting our employees through 12,000 square foot wellness center is good for employees. It’s good for productivity and it’s good for economics because if we can enhance the health and well-being of our employees and have them health control their own health care and health care costs then we can pay for being able to fund a wellness center. So we’re excited about all that and we can’t wait and in the meantime, it’s real tight in the existing facility.

Speaking of growth, we’ve had a good track record of growth. We’re proud of our growth over the period of the great recession. Speaking of organic growth, we had organic growth in 2009 of 5%, in 2010 of 6%, in 2011 of 8% and we would expect with this guidance here 8% to 9% organic growth in 2012, in our global revenues, and we continued to generate profits.

And we’d like to say that from a shareholder point of view, profit growth is very important. And from a business point of view, it’s not the only reason that we’re in business, but without profits it’s hard to be in business and so you almost think of it like oxygen. It’s not the purpose of life, but it’s very important part of business, and certainly its part of the component of our mission to create extraordinary long-term value for our shareholders as well as our customers and our employees.

We’ve had some good – not just top line revenue growth, but operating margin expansion. You’ll see the operating margin progression over the last three years and another hallmark of IDEXX is we have very good free cash flow, and free cash flow is cash, net income plus depreciation. So we already paid for the capital expenditures and we pry for majority of this free cash flow to an ongoing well more than decade long share buyback program, which has reduced the share count overtime. In the last seven years, we’ve had 19% share count reduction, which is beneficial to the shareholders and it’s been a steady program for us. Even with all of that we have a very, very modest level of leverage company of our size with cash – with debt minus cash of net debt of 72 million, and so very strong balance sheet and the opportunity to continue to reinvest for growth in our business.

So, I’ve mentioned our purpose on a couple of occasions. Our purpose here is supported also by six guiding principles and these guiding principles really came out of introspection that we undertook a couple of years ago that says, what is about IDEXX that thus make us successful that we want to continue, that we want to grow, that we want to propagate and also what is about IDEXX that we’d like to be better, what do we aspire to? And as a result of that introspection and that aspiration we came up with these six guiding principles, which you can see here and if you’ve got more interest there on a claimed website and they are very important to our employees and they are truly guiding principles, they help us sometimes find a right approach to a discussion. So, I really am grateful to the over 5000 employees that we have and growing at IDXX today, and their contribution to the Company’s purpose.

So we’ve had a strong year. Our outlook is strong, we’re not expecting huge things from the economy, but in the meantime we’re continuing our strategy innovation in serving the customer and our core businesses around the world and we as a result of that would expect at the same time to continue to contribute and create shareholder value.

So with that I’d like to thank everybody for your attention here today and with those comments, we will conclude the webcast portion of the meeting.

Question-and-Answer Session

[No Q&A session for this event]

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