idexx growth strategy… · 8/17/2016 · source: analysis of data from survey of u.s. pet owners...

IDEXX Growth StrategyJonathan Ayers, Chairman and Chief Executive Officer

August 17, 2016

2 © 2016 IDEXX Laboratories, Inc. All rights reserved.

Safe Harbor Disclaimer

The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and beliefs, as well as a number of assumptions concerning future events. These statements are subject to risks, uncertainties, assumptions and other important factors. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied. The reports filed by the Company pursuant to United States securities laws contain discussions of these risks and uncertainties. The Company assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to review the Company’s filings with the United States Securities and Exchange Commission (which are available from the SEC’s EDGAR database at www.sec.gov and via the Company’s website at www.idexx.com).

Non-GAAP Financial MeasuresIn this presentation, we refer to some non-GAAP financial measures. For a reconciliation to the most comparable GAAP financial measures, we refer you to our footnotes and the Appendix to this presentation.

Please refer to additional footnotes in the Appendix.

http://www.sec.gov/http://www.idexx.com/


IDEXX Serves Exceptionally Attractive Spaces

Pet Health Livestock Health

Water Quality


IDEXX is a Global Leader in Companion Animal Health Software and Diagnostics

85%*

IDEXX’s Companion Animal Group (CAG)

* of IDEXX’s 2015 revenue


The Human-animal Connection has a Strong Evolutionary Foundation“I believe that a defining trait of the human species has been the connection with animals that has intensified in importance since at least some 2.6 million years ago. Defining traits are what make humans human . . and they are partially or wholly encoded in our genes.”

“ . . relationships with animals benefited our ancestors and gave them a selective advantage.”

“ Our connection with animals has been critical to our evolutionary survival, and despite huge changes in our mode of subsistence, we still have a deep need to be involved with animals.”

- Dr. Pat Shipman, Professor Emerita of Biological Anthropology, Pennsylvania State University

Source: Shipman, P., 2010.The Animal Connection and Human Evolution. Current Anthropology 51 (4): 519-532; and The Animal Connection, Shipman, W.W. Norton, 2011.


Physicians are Increasingly Incorporating Pets in their Treatments

97%

Large majority of family physicians believe there are health benefits to pet ownership.

75%

Most family physicians have seen their patients’ health improve as a result of pet ownership.

Source: Family Physician Survey conducted by Human-Animal Bond Research Initiative (HABRI) Foundation and Cohen Research Group, August, 2014 (n = 1,000 family physicians and general practitioners).


The Pet-human Bond is Growing

41%

51%50%

65%

0%

25%

50%

75%

Percentage of U.S. Pet Owners Saying Their Pet Sleeps in a Human’s Bed in Their Household

2004 2014 2004 2014

Source: American Pet Products Association 2015-16 Pet Owners’ Survey. A total of 2,581 pet owner surveys were completed; Dog owner sample: 521, cat owner sample: 457; Surveys were conducted with a nationally representative sample of the Ipsos Online Panel.


An Increasing Percentage of Pet Owners are Purchasing Toys for their Pets

43%

62%70%

0%

20%

40%

60%

80%

1994 2004 2014

51%

66%

0%

20%

40%

60%

80%

2004 2014

Percentage of U.S. Pet Owners Buying Toys for Their Pets

Source: American Pet Products Association 2015-16 Pet Owners’ Survey. A total of 2,581 pet owner surveys were completed; Dog owner sample: 521, cat owner sample: 457; Surveys were conducted with a nationally representative sample of the Ipsos Online Panel.


Across Age Segments, the U.S. Population Values Pets in Increasing Proportions

Millennials(19 yrs to 35 yrs)

Generation X(36 yrs to 51 yrs)

Baby Boomers(52 yrs to 70 yrs)

Silent Generation(71 yrs to 88 yrs)

% of Respondents Strongly Agreeing or Agreeing with each Statement1

1 Respondents were asked to rate his/ her agreement with a series of statements on a 6-point scale. Percentages represent total responding ‘Strongly Agree’ or ‘Agree’. Silent Generation segment results should be interpreted as directional due to small sample size.

Source: Analysis of data from survey of U.S. pet owners fielded in May, 2016 (n = 1,208 dog owners and 303 cat owners). Figures above calculated weighting dog owner responses and cat owner responses in proportion to their contribution to 2015 total U.S. veterinary practice revenue.

80% 80% 82% 80%

40%50% 50%

57%

0%

20%

40%

60%

80%

100%

“My pet is not just an animal, but a member of my family.”“My pet(s) make me happier than almost anything else.”


Millennials Show the Greatest Willingness to Pay for Pet Health Services

How much of a tradeoff in your personal finances are you willing to make in order to pay for services and goods for your pets?

*“Silent Generation” segment results should be interpreted as directional due to small sample size. Source: Analysis of data from survey of U.S. pet owners fielded in May, 2016 (n = 1,208 dog owners and 303 cat owners). Figures above calculated weighting dog owner responses and cat owner responses in proportion to their contribution to 2015 total U.S. veterinary practice revenue.

45% 50%57% 61%

28%23%

19% 13%0%

25%

50%

75%

Millennials(19 yrs to 35 yrs)

Generation X(36 yrs to 51 yrs)

Baby Boomers(52 yrs to 70 yrs)

Silent Generation(71 yrs to 88 yrs)

“I would go out for food or entertainment less.”“I would NOT make any tradeoffs.”

% of Respondents Strongly Agreeing or Agreeing with each Statement*

Millennials have greatest willingness to spend on their pets.


In the U.S., Pet-related Spending Growth has Outpaced Personal Consumption

0

400

800

1,200

1,600

2,000

1980 1985 1990 1995 2000 2005 2010 2015

U.S. Personal Consumption Expenditure for Key Categories*Indexed (1980 = 100)

Total Personal Consumption Expenditure (PCE)

Veterinary and Related Services

Pets and Related Products

CAGR 1980-2015

8.9%

6.5%

5.7%

* Analysis based on data from Bureau of Economic Analysis Last Revised on March 28, 2016.

Yet, veterinary services, pets and related products together still comprise only ~0.8% of total consumption expenditure


Veterinary Services Spending has Demonstrated Recession Resistance

-4%

0%

4%

8%

12%

16%

20%

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

Year-over-year Growth (%)*

Total Personal Consumption Expenditure

CAGR 1980-2015

8.9%

5.7%

Recession(July, 1981 – Nov. 1982)

Recession(July, 1990 – March, 1991)

Recession(March, 2001 – Nov., 2001)

Recession(Dec., 2007 – June, 2009)

*Analysis based on data from Bureau of Economic Analysis, Personal Consumption Expenditure, Last Revised on March 31, 2016.

Veterinary andRelated Services


-2%

0%

2%

4%

6%

8%

10%

Annual Pet Healthcare “Same Store Sales” Growth has Averaged 5.5% – 6.5% Annually*

2010 2011 2012 2013 2014 2015 20162008 2009

Annual Practice Same Store Revenue Growth Percent2

* Other than the Great Recession.2 Same store (practice location) sales. Does not include net new practice formation. Source: IDEXX Practice Intelligence Data (n~5,200 practices).

5.5% - 6.5%


Significant Share of Wallet Opportunity Remains

2015 Average U.S. Spending per Household ($)*

Pet-related Spending2

Cell Phone Service3

Eating Out

Cable & Satellite TV Services

$765$990

$745

$2,476

* For the purpose of this analysis, assume a ‘consumer unit’ is equivalent to a ‘household’.2 Includes all pet food, veterinary care, other pet services, medicines, vaccines, products and supplies. Average pet-related spending figure is adjusted to reflect average spending by pet-owning households.3 For reference, total telephone services spending per consumer unit was $1,327 in 2015.Source: Analysis of data from Bureau of Labor Statistics Consumer Expenditure Survey for the 12 months ending June, 2015.


International Markets Present Even Greater Runway for Growth

Number of PetsGDP Companion Animal Medicines &

Vaccines Revenue

Companion Animal Dx & Software

Revenue

Estimated 2015 International Total as Multiple of U.S. Total

2.0 x

3.1 x

1.6 x

0.5 x


IDEXX Leads the ~$3.3B Global Companion Animal Diagnostic and Veterinary Software Market

Estimated 2015 Total Companion Animal Diagnostic and Software Spending*

Canada

LatinAmerica

EMEA

OtherAsia

Japan

Australia & New Zealand

China

U.S. 40%$1.35 B

* Revenue at the manufacturer level. Includes reference lab, in-house instruments & consumables, rapid assay, digital, ultrasound and veterinary software. Excludes bioresearch. Figures calculated in USD to best reflect our understanding of the relative regional revenue figures.


2

12

76

1

13

82

2

14

88

1

15

98

2

18

100

0

20

40

60

80

100

IDEXX’s Leadership is Driven by a Sustained Investment in Innovation

Comparison of Annual R&D Investment of Major Veterinary Diagnostics Companies$ MM, calendar years shown

VCA Inc.* Heska Abaxis IDEXX Laboratories

* * * * *

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

* VCA does not report any R&D investments in its filings with the U.S. Securities and Exchange Commission (“SEC”). Sources: Company SEC filings; earnings releases.

IDEXX invests over 5Xthe R&D investment of the

next largest competitor


Our Focus on Innovation and Customer Presence Generates Sustainable Growth of Recurring Revenues

Annual Recurring Revenue1 ($B)

% of Total IDEXX Revenues

81% 82% 83% 85% 86% 87% 87%

IDEXX VetLab®

Rapid Assay

Reference Labs

Veterinary Software Services & Diagnostic Imaging Systems

Water

LPD

2

1 Please refer to Appendix for descriptive footnote. 2Non-GAAP financial measure, please refer to Appendix for footnotes.


IDEXX’s Recurring Revenue Model: Drivers of Growth

• High customer retention

• New customer additions

• Growth in test utilization

• Modest annual price realization CAG Diagnostics

Recurring Revenue 72%

Other Recurring Revenue

15%

Other Revenue

13%

Composition of IDEXX 2015 Revenues by Type

CAG Diagnostics Recurring Revenue

(72%)

Other Recurring Revenue

15%

Other Revenue

13%


IDEXX SDMA™ – Driving Growth One Year Later

Newkidney

function test: SDMA

• Global lab rollout complete

• 5 million pets tested

• IRIS CKD guidelines

• IRIS Renal Week: “More Reliable than Creatinine”

• 15 new clinical studies – demonstrates value beyond chronic kidney disease

• Contributed 2 – 3% to U.S. Reference Lab growth in Q2


IDEXX SDMA™ Customer Validation is Growing Daily

Five million pets tested to date

Over 2 times the number of pets could be diagnosed with kidney disease

6% 6%

7%

Without SDMA With SDMA

n = 2.5 million samples

11% 11%

17%

Without SDMA With SDMA

Perc

ent o

f all

sam

ples

n = 1.1 million samples

Creatinine increased

SDMA increased, Creatinine normal

2.5x

2.2x

Feline* Canine*

*IDEXX results data from the first 3.6 million pets tested.


Catalyst One® Catalyst Dx®

IDEXX SDMA™ on Catalyst One and Catalyst Dx

Source: SDMA Acceptance research April, 2016 (n = 395).

• Expands SDMA clinical experience

• Reinforces high Catalyst retention

• Grows Catalyst utilization

• Further differentiates IDEXX value to new customers

• Q4 2017 expected launch


IDEXX Reference Lab ONLY Customers

Customer of both IDEXX

In-house and reference labs

~45% overlap

IDEXX VetLab® ONLY

Customers

Catalyst SDMA Supports Continued Cross Selling Opportunities

U.S. Market: Represents what percent of customers that either use IDEXX as their primary reference lab or use IDEXX as their primary in-house chemistry system, use both.


SediVue Increases the Value of the IDEXX In-House Lab

Catalyst One®Chemistry, T4,

SDMA

ProCyte Dx®Complete CBC

SediVue Dx™Urine Sediment

SNAP Pro®Infectious Diseases

VetConnect® PLUSSmartService IVLS


SNAP Pro® Results Interpretation Coming next Quarter

• Automatic Software upgrade

• Makes SNAP workflow even easier

• 11,000 Devices in 8,000 accounts, 51% of US Rapid Assay Revenue

• Expands IDEXX ecosystem of integration


IDEXX Water has ~95% Recurring Revenue, Accelerating Growth to High Single Digits, with 40+% Operating Margins

4.8%4.4% 4.2%

7.1%7.8%

0%

2%

4%

6%

8%

10%

2011 2012 2013 2014 2015 2016E

Organic Growth3 in IDEXX Water RevenueYear-over-year %

9 – 10%

3Non-GAAP financial measure, please refer to Appendix for footnotes.


10% - 12%

*Midpoint of 2016 revenue guidance as referenced on August 2, 2016. This slide’s guidance speaks only as of August 2, 2016 and shall not be deemed to be a reiteration or affirmation of the guidance or an indication that the Company’s expectations have not changed since that time.

10%+ CAGR2016

Estimated Revenue

$1.765 B*

~2021IDEXX

Revenue

U.S. CAG Dx Recurring

Base6% - 8%

Greenfield 4% - 5%

6% - 8%

Int’l CAG Dx Recurring

Other

5% - 7%

~$200 MM

SDMA

~$100 MM

SediVueTM

~$100 MM

Fecal Antigen/ SNAP®

~$50 MM

Pregnancy

Market Growth, Innovation and Greenfield Diagnostics Drive 10%+ Constant Currency Revenue Growth Potential


IDEXX: Our Strategy for Sustained Creation of Shareholder Value

• Attractive markets

• Leadership

• Innovation

• Recurring revenues

• Financially disciplined

• Portfolio focus


IDEXX Financial Strategy

“Powerful Model Delivering Its Potential”Brian McKeon, Executive Vice President and CFO August 17, 2016


Safe Harbor Disclaimer

The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and beliefs, as well as a number of assumptions concerning future events. These statements are subject to risks, uncertainties, assumptions and other important factors. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied. The reports filed by the Company pursuant to United States securities laws contain discussions of these risks and uncertainties. The Company assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to review the Company’s filings with the United States Securities and Exchange Commission (which are available from the SEC’s EDGAR database at www.sec.gov and via the Company’s website at www.idexx.com).

Non-GAAP Financial MeasuresIn this presentation, we refer to some non-GAAP financial measures. For a reconciliation to the most comparable GAAP financial measures, we refer you to our footnotes and the Appendix to this presentation.

Please refer to additional footnotes in the Appendix.

http://www.sec.gov/http://www.idexx.com/


• Consistent Approach Focused on Expanding High Margin Recurring Annuity in Attractive Core Businesses

• Strategy Yields Consistently Strong Outcomes- Strong, long-term constant currency4 revenue and EPS growth

- High cash flow conversion

- High ROIC and shareholder returns

• We Are on Track Towards Achieving Multi-Year Financial Goals - 10%+ annual constant currency revenue growth

- 15% - 20%+ annual constant currency EPS gains – supported by operating margin expansion

IDEXX Financial Strategy Overview



0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005 2010 2015

Core Business Characteristics

• Global market leadership –grounded in innovation

• Strong underlying market growth

• High margin, durable annuity revenue streams

• Strong cash generation

Focus on Attractive Core Businesses

10% Total CAGR*

IDEXX Revenue5 ($MM)

7% LPD

5% Water

10% CAG

*Compound Annual Growth Rate (CAGR). 5Please refer to Appendix for descriptive footnote.

Other


Annual Recurring Revenue1 ($B)

Expanding Highly Profitable, Durable Recurring Revenues

1Please refer to Appendix for descriptive footnote. 2Non-GAAP financial measure, please refer to Appendix for footnotes.

% of Total IDEXX Revenues

81% 82% 83% 85% 86% 87% 87%

LPDWaterVeterinary Software Services & Diagnostic Imaging Systems

Rapid Assay

IDEXX VetLab®

Reference Labs

2


0%

2%

4%

6%

8%

10%

12%

14%

2012 2013 2014 2015 2016 YTD

Driving Strong Long-Term Financial Performance

18%16% 16%

14%

19%-23%

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015 2016E

Constant Currency Adjusted Annual Revenue Growth6

Constant Currency Adjusted EPS Growth7,8

6,7,8Non-GAAP financial measure, please refer to Appendix for footnotes.*All references to 2016 YTD means January 1, 2016 through June 30, 2016.

*


0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1/3/2011 1/3/2012 1/3/2013 1/3/2014 1/3/2015 1/3/2016

Strengthening of Dollar Has Moderated Recent Reported Financial GainsU.S. Dollar Index

Source: Bloomberg U.S. Dollar Currency Index

~25% international revenue sourced in US dollars for export

Cumulative foreign exchange impact 2013 – 2016E:($0.46) EPS / (2.2%) operating margin


Consistently Strong Cash Flow Generation

114%104%

97%105%

76%

100%

$0

$50

$100

$150

$200

$250

2011 2012 2013 2014 2015 2016E

Free Cash Flow9 ($MM) and % of Net Income


• Cash conversion ~100% of net income

• Low capital investment intensity (~5% of revenues)

• ~80% of excess cash available for U.S. deployment


0

100

200

300

400

500

600

700

2011 2012 2013 2014 2015 2016 YTD

$1.9 billion capital deployed -

repurchases

28% cumulative share count reduction

$54 per share average purchase price

Disciplined Capital Allocation

Annual Capital Allocated to Share Repurchases ($MM)

• Emphasis on organic growth investment

• Limited acquisitions (core business fold-ins, distribution and technology)

• Allocation of excess capital to share repurchases (varied investment pace)


Strategy Yields High Returns2015 Return on Invested Capital

Source: Bloomberg

IDXX Historical Share Price ($)

Source: Bloomberg

0%

4%

8%

12%

16%

20%

Zoetis Heska VCA Abaxis IDEXX

ROIC in excess of weighted average cost of capital

0

20

40

60

80

100

120

2000 2005 2010 2015

IDXX Share Price CAGR 22%


Unique Growth and Value Creation Opportunity

• Strong market growth

• Leading global market position –only global, multi-modality, integrated offering

• Robust innovation pipeline

• Enhanced global commercial capability

• High and improving returns –reflecting power of focused, recurring revenue model


Long-Term Financial Model: Well Positioned to Drive Sustainable, Strong Performance

Revenue Growth

10%+

Operating Margin Expansion

50-100 bps

Capital Allocation Leverage

+2%-3%IncrementalEPS Growth

Long-Term EPS Growth Potential

15%-20%+

Annual revenue growth, operating margin expansion and long-term EPS growth potential are all on a constant currency basis and non-GAAP financial measures. Please refer to footnote 4 in the Appendix.


10% - 12%

Drivers of Long-term Revenue Growth Potential

*Midpoint of 2016 revenue guidance as referenced on August 2, 2016. This slide’s guidance speaks only as of August 2, 2016 and shall not be deemed to be a reiteration or affirmation of the guidance or an indication that the Company’s expectations have not changed since that time.

On Track for 10%+ Annual Constant Currency Revenue Growth

10%+ CAGR2016

Estimated Revenue

$1.765 B*

~2021IDEXX

Revenue

U.S. CAG Dx Recurring

Base6% - 8%

Greenfield 4% - 5%

6% - 8%

Int’l CAG Dx Recurring

Other

5% - 7%

~$200 MM

SDMA

~$100 MM

SediVueTM

~$100 MM

Fecal Antigen/ SNAP®

~$50 MM

Pregnancy


Expanding Global CAG Foundation: CatalystWW Catalyst® Install Base

International

U.S.


Nearly 80,000 Additional Global Chemistry Placement Opportunities

Further Placement Opportunity

US International Worldwide

~30k*

U.S. International Worldwide

~70k

~100k

Current Catalyst Installed Base

78k

60k

18k22k

10k12k

*Including opportunity to place a second Catalyst instrument at select accounts.


0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012 2013 2014 2015 2016E

Expanding Global CAG Foundation: Labs

+14% Organic Growth 2016 YTD10

Global Lab Revenue ($MM)*

*Reference Laboratory and Diagnostic Consulting Services. 10Non-GAAP financial measure, please refer to Appendix for footnotes.


International CAG Constant Currency Revenue Growth11

0%

5%

10%

15%

20%

2009 2010 2011 2012 2013 2014 2015 2016YTD


Accelerating International CAG Growth

• 2016 YTD premium instrument placement +26%

• Global leverage of innovation pipeline

- Catalyst One

- SDMA, Fecal

- VetConnect PLUS

• Expanding reference lab network

• New region development


Relative 7 Year Net Present Value of a 2016 Placement

Building Valuable Greenfield Franchises:SediVue

Competitive Catalyst SediVue Competitive ProCyte Competitive LaserCyte


Building Valuable Greenfield Franchises: SediVue

SediVue Revenue

Recurring

Instrument


On Track to Build on Solid Operating Margin Gains

Key Long-Term Improvement Drivers:

Gross margin expansion• CAG recurring annuity growth• Moderate price gains (2% net)• Growing global lab scale• Sourcing productivity

Operating cost leverage• US commercial• Corporate G&A

12,13Non GAAP financial measures, please see Appendix for footnotes.

Longer-Term Potential 50-100 bps Annual Improvement

2013 - 2015 2016E

10

~100

Constant Currency Adjusted Operating Margin Change12,13 (bps)


Well Positioned with Optimized Capital Structure

• Gross leverage within target range (2.5x-3.5x adjusted EBITDA14)

• Low cost financing structure (2.4% average interest rate)

• Balanced variable and fixed structure (50/50)

• Significant liquidity $0

$40

$80

$120

$160

$200

2021 2022 2023 2024 2025 2026 2027

Borrowing Maturities by Year*

*No borrowing maturities until 2021. 14Non-GAAP financial measure, please refer to Appendix for footnotes.

3.3%Interest rate of maturity:

3.3% 3.9% 3.8% 2.0% 3.7% 3.7%


• IDEXX business model well positioned in highly attractive, growing industry

• Consistent financial strategy yielding strong returns

• On track to deliver long-term financial potential

– Annual revenue growth of 10%+

– Annual EPS growth of 15% - 20%+

IDEXX Financial Strategy

Annual revenue growth, operating margin expansion and long-term EPS growth potential are all on a constant currency basis and non-GAAP financial measures. Please refer to footnote 4 in the Appendix.


Q&A


Appendix


Footnotes1 Annual recurring revenue for LPD, Water, Veterinary Software Services and Diagnostic Imaging Systems and IDEXX VetLab include and exclude the following as applicable: LPD excludes government sponsored eradication programs and herd health screening revenues, Water excludes sealer instruments, Veterinary Software and Diagnostic Imaging Systems excludes client server based placements and radiography instruments, and IDEXX VetLab includes consumables, service and accessories.

2 Reported revenues adjusted to exclude the impact of distributor inventory draw-down of $25 million in Q4 2014 associated with our transition to US all-direct sales strategy.

3 Organic revenue growth is a non-GAAP financial measure. 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. Water organic revenue growth excludes the impact of changes in foreign currency exchange rates which had a positive/(negative) impact on reported growth of 2.5% in 2011, (1.4%) in 2012, (0.6%) in 2013, (0.4%) in 2014, and (5.5%) in 2015, and also excludes the impact of acquisitions that had a favorable impact on reported revenue growth of 0.3% in 2013, and 1.0% in 2014.

4 Constant currency references are non-GAAP financial measures and exclude the impact of changes in foreign currency exchange rates. Management believes that constant currency information provides valuable supplemental information regarding our revenue, gross profit and margin, operating profit and margin, and EPS performance because it is consistent with how management evaluates our performance and facilitates comparisons with prior and future periods. We estimated the net impacts of currency on our revenue, gross profit, operating profit, EPS and Adjusted EPS results by restating results to the average exchange rates or exchange rate assumptions for the comparative period, which includes adjusting for the estimated impacts of foreign currency hedging transactions and certain impacts on our effective tax rates.

5 Prior to January 1, 2015, our CAG segment included herd testing diagnostic services processed within and managed by our CAG reference laboratories. We have transitioned the responsibility for these diagnostic services to our LPD segment to more effectively align our business with the nature and customers of these livestock services. Revenue and revenue growth calculations have been retrospectively revised to reflect this change in the composition of our reportable segments.

6 Constant currency adjusted annual revenue growth excludes the impact of distributor inventory draw-down of $25 million in Q4 2014 associated with our transition to U.S. all-direct sales strategy, which negatively impacted 2014 reported growth and positively impacted 2015 reported growth by approximately 2%, and also excludes the impact of foreign exchange on total Company revenue growth which had a negative impact on reported growth of 1.6% in 2012, 0.7% in 2013, 0.7% in 2014, 6.2% in 2015, and 1.1% year-to-date through June 30, 2016.


Footnotes7 Adjusted EPS and Adjusted EPS growth are non-GAAP financial measures. Adjusted EPS excludes non-recurring items. Management believes that reporting Adjusted EPS provides useful information to investors by facilitating easier comparisons of our EPS performance with prior and future periods. Refer to Exhibit A in the appendix for a reconciliation of reported to Adjusted EPS growth.

8 Excludes the impact of foreign exchange on Adjusted EPS growth which had a negative impact on growth of 2.9% in 2012, 3.2% in 2013, 2.8% in 2014, 8.0% in 2015, and a projected negative impact of 9.5% on our 2016 estimate.

9 Free cash flow is a non-GAAP financial measure. Free cash flow, with respect to a measurement period, is the cash generated from operations during that period, including tax benefits attributable to share-based compensation arrangements, and specific to year ended December 31, 2012 a royalty prepayment to obtain exclusive patent rights, reduced by the Company’s investments in property and equipment. Management believes free cash flow is a useful measure because it indicates the cash the operations of the business are generating after appropriate reinvestment for recurring investments in property and equipment that are required to operate the business. Refer to Exhibit B for our calculation of free cash flow for years ending December 31, 2011 through December 31, 2015, and calculation of estimated free cash flow for year ending December 31, 2016.

10 Organic revenue growth is a non-GAAP financial measure. 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. Reference Laboratory and Diagnostic Consulting Services organic revenue growth for the six months ended June 30, 2016 excludes the impact of changes in foreign currency exchange rates, which had a 1.1% unfavorable impact on revenue growth, and revenue from business acquisitions, which contributed 1.4% to revenue.

11 Excludes the impact of foreign exchange on International CAG revenue growth which had a positive/(negative) impact on reported growth of (6.5%) in 2009, 1.5% in 2010, 6.7% in 2011, (4.0%) in 2012, (2.5%) in 2013, (2.2%) in 2014, (15.4%) in 2015, and (2.7%) for six-month period ending June 30, 2016.

12 Adjusted Operating Margin is a non-GAAP financial measure. Adjusted Operating Margin excludes non-recurring items. Management believes that reporting Adjusted Operating Margin provides useful information to investors by facilitating easier comparisons of our Operating Margin performance with prior and future periods. Refer to Exhibit A in the Appendix for a reconciliation of reported to adjusted Operating Margin.


Footnotes13 Excludes the impact of foreign exchange on Adjusted Operating Margin which had a negative impact of ~33 bps on 2014 Adjusted

Operating Margin and a negative impact of ~23 bps on 2015 Adjusted Operating Margin, and is projected to have an ~120 bps negative impact on 2016 Adjusted Operating Margin.

14 Adjusted EBITDA and gross debt to Adjusted EBITDA are non-GAAP financial measures. Adjusted EBITDA is earnings before interest,taxes, depreciation, amortization and certain other non-cash charges. Gross debt includes line of credit, long-term debt, acquisition-related contingent consideration payable, capitalized leases, and U.S. GAAP change – deferred financing costs.


Reported to Adjusted Summary P&L ReconciliationExhibit A

Adjusted Operating Margin and EPS Growth

(Dollars in millions)2011 2012 2013 2014 2015 2016 Estimate

Oper Oper Oper Oper Oper Oper Oper Oper Oper Oper OperRev Profit Marg EPS Rev Profit Marg EPS Rev Profit Marg EPS Rev Profit Marg EPS Rev Profit Marg EPS Rev Marg EPS

Reported $1,218.7 236.2 19.4% $1.39 $1,293.3 262.6 20.3% $1.59 $1,377.1 266.8 19.4% $1.74 $1,485.8 260.3 17.5% $1.79 $1,601.9 299.2 18.7% $2.05 $1,755 - $1,775

~19.0% $2.32 - $2.39

Reported EPS Growth 14% 9% 3% 15% 13% - 17%

Impairment charge 8.2 0.06Impact of distributor inventory drawdown 25.1 20.8 0.14Non-recurring expenses associated with transition to all-direct sales strategy

9.5 0.06

Expense ramp-up in advance of transition to new sales strategy

5.0 0.03

Non-recurring income tax benefit related to the deferral of intercompany profits

-0.02

Third-party service provider bankruptcy 3.9 0.03Pharmaceutical milestone payment -3.5 -0.02Pharmaceutical milestone payment and gain from sale of raw material inventory

-4.1 -0.02

Adjusted $1,218.7 232.1 19.0% $1.37 $1,293.3 259.1 20.0% $1.57 $1,377.1 270.7 19.7% $1.77 $1,510.9 295.6 19.6% $2.00 $1,601.9 307.4 19.2% $2.11 $1,755 - $1,775

~19.0% $2.32 - $2.39

Adjusted EPS Growth 15% 13% 13% 5% 10% - 13%

Recon

Adjusted Operating Margin and EPS Growth

(Dollars in millions)

201120122013201420152016 Estimate

OperOperOperOperOperOperOperOperOperOperOperOper

RevProfitMargEPSRevProfitMargEPSRevProfitMargEPSRevProfitMargEPSRevProfitMargEPSRevProfitMargEPS

Reported$1,218.7236.219.4%$1.39$1,293.3262.620.3%$1.59$1,377.1266.819.4%$1.74$1,485.8260.317.5%$1.79$1,601.9299.218.7%$2.05$1,755 - $1,775~19.0%$2.32 - $2.39

Reported EPS Growth14%9%3%15%13% - 17%

Impairment charge8.20.06

Impact of distributor inventory drawdown25.120.80.14

Non-recurring expenses associated with transition to all-direct sales strategy9.50.06

Expense ramp-up in advance of transition to new sales strategy5.00.03

Non-recurring income tax benefit related to the deferral of intercompany profits-0.02

Third-party service provider bankruptcy3.90.03

Pharmaceutical milestone payment-3.5-0.02

Pharmaceutical milestone payment and gain from sale of raw material inventory-4.1-0.02

Adjusted$1,218.7232.119.0%$1.37$1,293.3259.120.0%$1.57$1,377.1270.719.7%$1.77$1,510.9295.619.6%$2.00$1,601.9307.419.2%$2.11$1,755 - $1,775~19.0%$2.32 - $2.39

Adjusted EPS Growth15%13%13%5%10% - 13%

Area below not included in the reconciliation

Memo:

Restatement to Prior Year Fx19.06.80.2%0.048.57.70.4%0.0511.07.20.3%0.0589.721.20.2%0.161.2%0.20

At Prior Year Fx Rates1,312.3265.920.3%1.611,385.6278.420.1%1.821,521.9302.819.9%2.051,691.6328.619.4%2.2720.2%$2.52 - $2.59

Constant Currency Adjusted EPS Growth18%16%16%14%19% - 23%

Impact of Fx on Operating Margin-0.23%-0.44%-0.33%-0.24%-1.20%

Impact of Fx on Adjusted EPS Growth-2.9%-3.2%-2.8%-8.0%-9.5%

Note - no years adjusted for YOY differences in R&D Tax Credit

Tax Rate0.32

Adjusted Share Count112.31

Op Margin Change

Adj Constant Currency Op Margin Change Analysis - 2013 through 2015

OperOperIncrease/

RevProfitMargin(Decrease)

2013 Adjusted1377.1270.719.7%

2014 Adjusted @ 2013 Fx1521.9302.819.9%0.24%

2014 Adjusted1510.9295.619.6%

2015 Adjusted @ 2014 Fx1691.6328.619.4%-0.14%

Cumulative Impact 2013 - 20150.10%

Cum Fx Impact

Impact of Fx on Operating Margin and EPS

OMEPS

2013 Impact-0.4%-0.05

2014 Impact-0.3%-0.05

2015 Impact-0.2%-0.16

2016 Estimated Impact-1.2%-0.20

Cumulative Est Impact-2.2%-0.46


Operating to Free Cash Flow ReconciliationExhibit B

Year Ended December 31

Amounts in thousands 2011 2012 2013 2014 20152016

Estimate

Net cash provided by operating activities 220,700 230,282 245,996 235,846 216,364 ~300,000

Royalty prepayment to obtain exclusive patent rights - 6,250 - - -

Financing cash flows attributable to tax benefits from share-based compensation arrangements 16,007 14,676 14,158 16,078 11,315 ~10,000

Investing cash flows attributable to purchases of property and equipment (52,464) (65,492) (77,612) (60,523) (82,921) ~(90,000)

Free Cash Flow 184,243 185,716 182,542 191,401 144,758 ~220,000

IDEXX Growth StrategySafe Harbor DisclaimerIDEXX Serves Exceptionally Attractive SpacesIDEXX is a Global Leader in Companion Animal Health Software and DiagnosticsThe Human-animal Connection has a Strong Evolutionary FoundationPhysicians are Increasingly Incorporating Pets �in their TreatmentsThe Pet-human Bond is GrowingAn Increasing Percentage of Pet Owners are Purchasing Toys for their PetsAcross Age Segments, the U.S. Population Values Pets in Increasing ProportionsMillennials Show the Greatest Willingness to Pay for Pet Health ServicesIn the U.S., Pet-related Spending Growth has Outpaced Personal ConsumptionVeterinary Services Spending has Demonstrated Recession ResistanceAnnual Pet Healthcare “Same Store Sales” Growth has Averaged 5.5% – 6.5% Annually*Significant Share of Wallet Opportunity RemainsInternational Markets Present Even Greater Runway for GrowthIDEXX Leads the ~$3.3B Global Companion Animal Diagnostic and Veterinary Software MarketIDEXX’s Leadership is Driven by a Sustained �Investment in InnovationOur Focus on Innovation and Customer Presence Generates Sustainable Growth of Recurring RevenuesIDEXX’s Recurring Revenue Model: Drivers of GrowthIDEXX SDMA™ – Driving Growth One Year LaterIDEXX SDMA™ Customer Validation is Growing DailySlide Number 22Slide Number 23SediVue Increases the Value of the �IDEXX In-House LabSNAP Pro® Results Interpretation �Coming next QuarterIDEXX Water has ~95% Recurring Revenue, Accelerating Growth to High Single Digits, with 40+% Operating MarginsMarket Growth, Innovation and Greenfield Diagnostics Drive 10%+ Constant Currency Revenue Growth PotentialIDEXX: Our Strategy for Sustained �Creation of Shareholder ValueIDEXX Financial StrategySafe Harbor DisclaimerIDEXX Financial Strategy Overview�Focus on Attractive Core BusinessesExpanding Highly Profitable, Durable Recurring RevenuesDriving Strong Long-Term Financial PerformanceStrengthening of Dollar Has Moderated �Recent Reported Financial GainsConsistently Strong Cash Flow GenerationDisciplined Capital AllocationStrategy Yields High ReturnsUnique Growth and Value Creation Opportunity�Long-Term Financial Model: �Well Positioned to Drive Sustainable, Strong PerformanceOn Track for 10%+ Annual �Constant Currency Revenue GrowthExpanding Global CAG Foundation: CatalystNearly 80,000 Additional Global Chemistry Placement OpportunitiesExpanding Global CAG Foundation: LabsAccelerating International CAG GrowthBuilding Valuable Greenfield Franchises:�SediVueBuilding Valuable Greenfield Franchises: �SediVueOn Track to Build on Solid Operating Margin GainsWell Positioned with Optimized Capital StructureIDEXX Financial StrategySlide Number 51AppendixFootnotesFootnotesFootnotes�Reported to Adjusted Summary P&L Reconciliation�Operating to Free Cash Flow Reconciliation

idexx growth strategy… · 8/17/2016 · source: analysis of data from survey of u.s. pet owners...

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