愛德士 (IDXX) 2005 Q2 法說會逐字稿

Good day everyone and welcome to this IDEXX Laboratories second quarter 2005 earnings analyst call. Just a reminder, today's call is being recorded. For opening remarks and introductions we will now turn the conference over to Mr. Conan Deady, Vice President and General Counsel for IDEXX Laboratories. Please go ahead, sir.

Thank you, Tracy. Good morning everyone. With me this morning on the call as always are Jon Ayers, CEO and Merilee Raines, our Chief Financial Officer, and also Laurel LaBauve, Vice President, Worldwide Operations.

Going to start this morning as I always do with our Safe Harbor language, which is actually abbreviated for this call. I'll then turn it over to Merilee who will review the financial results and then John will add some further commentary, and we'll wrap up with questions. Statements we may make on the call regarding management's future expectations and plans and the Company's future prospects constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from management's expectations.

Factors that could cause or contribute to such differences are described in our quarterly report on form 10-Q for the quarter ended March 31, 2005 and our annual report on form 10-K for the year ended December 31, 2004, which are on file with the SEC and also available on our website, www.idexx.com.

In addition any forward-looking statements represent our estimates only as of today, and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future we specifically disclaim any obligation to do so, even if our estimates change.

I'll turn it over to Merilee now.

Thanks, Conan. I like the streamlined version, and I bet our transcriptionist will, too. Let me extend my welcome to all of us joining for our earnings call this morning. As is our customary practice, I will provide the financial highlights for the second quarter, along with the outlook for the second half of the year, and Jon will provide some commentary on the business. We will then welcome your questions.

Our press release from this morning reported fully diluted earnings per share for the second quarter of $0.59 on revenues of 160.6 million. Versus last year revenues were up 17%, and earnings per share were down 11%. If you will recall, the second quarter of last year had a number of discreet items enumerated in our press release which together positively impacted earnings by $0.07, and in the second quarter of this year we recorded integration costs associated with fourth quarter 2004 acquisitions of $0.01. Adjusting for these discrete items earnings per share growth was about 2%.

Revenue was within our guidance of 160 to $162 million, and earnings were $0.01 above our range, of $0.56 to $0.58. Acquisition integration costs came in at the $0.01 we projected, so Q2 was essentially a solid in-line quarter. The 17% revenue growth consisted of 7% contributed by 2004 and 2005 acquisitions, 1% from favorable currency and 9% organic growth. International revenues were $57.4 million or 36% of total revenues. They increased year-to-year by 36%, and as in the first quarter, this growth was due in large part to European acquisitions completed in the previous two quarters. Growth from international, excluding these acquisitions and the impact of currency was 11%.

Our companion animal group revenues of $131.3 million increased 17% on a reported basis. The growth components for this segment were the same as for the total Company. With acquisitions contributing nearly 7%, currency contributing 1%, and 9% organic growth.

Point of care rapid assay revenues were $27.4 million or a reported growth of 5%. When adjusted for the positive impact of currency and negative impact of changes in U.S. distributor inventory levels, the growth becomes 6% for the quarter. This growth, though an improvement over first quarter's 2%, growth due to a difficult year-to-year compare, was still a bit lower than our expectations, primarily due to lower feline growth. However, based on our ongoing commercial efforts and our new product pipeline, we reaffirm our projection for rapid assay products to grow in the 7 to 9% range for the remainder of 2005 and over the longer term.

Sales of our IDEXX Vet lab instruments and related consumables, accessories and services totaled $53 million for the quarter an increase of 10% over the second quarter of last year. Instrument sales increased 16% to 10.4 million and we experienced continued strong placement activity, both in the U.S. and Europe. Total placements to new customers in the quarter were up over 10% year-to-year. Placement growth for the first half of 2005 was also up more than 10%, over a very impressive first half of 2004 with about 50% growth. We placed 396 LaserCytes in the second quarter bringing our installed base to nearly 3500.

The average enterprise remains strong at over 17,000, and the percentage of sales which represent churn of our QBC® VetAutoread base continues to steadily decline from about 75% in the early quarters post-launch to less than 40% in the second quarter. Though this percent will vary obviously will vary somewhat from quarter to quarter, the trend is moving in the right direction, and bodes well for incremental consumable usage. The sale of the LaserCyte instrument to a customer who did not previously own a QBC® VetAutoread generates a new consumable stream for us as opposed to displacing one consumable stream with another.

The strength in instrument placements has translated into consumable growth. Instrument reagent sales were $38.2 million, a growth of 7% on a reported basis which was also the growth when netting the favorable impact of currency against the unfavorable impact of changes in distributor inventory levels.

As this is the third consecutive quarter where we have seen consumable growth in excess of 4 to 6% range, we had previously cited, we believe the more appropriate growth range for consumables is now 5 to 7%. U.S. distributor inventory levels for rapid assay test kits and instrument consumables remained between 3 and 4 weeks at the end of the quarter based on forward-looking demand.

As I mentioned, the relative change in inventory levels for the second quarter this year versus the second quarter last year, had a negative impact on both product lines year-to-year growth rates. In each case, relative inventory changes reduced growth rates by nearly 2%. We monitor growth rates for each of these product lines adjusted not only for currency but also for distributor inventory changes as these adjustments help us to approximate the real growth and sales of our products to our end customers, the veterinary clinic or hospital.

Laboratory and professional services revenues of $40.4 million increased 42% year-to-year. Acquisitions completed in the fourth quarter of 2004 and the first quarter of 2005 contributed 27% to growth. And favorable currency contributed 1%. So organic growth was about 14%. We continue to be very pleased with the performance of Vet Med Lab, the fourth quarter 2004 addition to our laboratory business, that brought us a well-established market-leading presence in continental Europe. Integration efforts are proceeding smoothly and as planned. The organic growth rate for the laboratory and professional services business for the first half of 2005 was 10%, and we continue to forecast organic growth in this area at 8 to 10%.

Our computer systems and digital radiography product lines posted revenues of $7.2 million an increase of 9% from the second quarter of 2004, and just shy of the double-digit growth we were projecting. Though system placements are tracking well, we are seeing a relatively greater proportion of sales of our more basic systems, which carry lower unit prices. We do expect to achieve low double digit growth in the back half of this year, with a fully staffed, increasingly experienced sales team.

Pharmaceutical products contributed 3.3 million to companion animal group revenues in the second quarter.

As for our other business segments, the water business recorded sales of $14.3 million an increase of 10% year-to-year or 8% adjusted for currency. Second quarter performance was in-line with our expectations and we saw nice volume growth in the Americas. The food diagnostic segment reported revenues of $15 million a year-to-year increase of 29%, or 26% adjusted for currency. As in the first quarter, our production animal services line had very strong performance with revenues of $11 million or 41% growth on a constant currency basis.

2004 acquisitions contributed 22%, so organic growth was 19% on continued strong demand in Europe from livestock testing programs. We recorded our first, albeit modest sales of BSE in Europe in the second quarter. We currently have purchase commitments from customers totaling about $3 million which range in duration from one to two years, and will begin to yield revenues in the second half of this year. Based on our experience to date, we now project BSE revenues of 1 to $2 million for the year.

Looking forward to the third quarter, we project revenues of 155 to $157 million, year-to-year growth of between 16 and 17% with acquisitions contributing about 6%, and currency being relatively neutral. For the full year we are reducing our range modestly to 625 to $630 million, a growth of 14 to 15%, substantially due to the strengthening of the U.S. dollar since our last forecast at the end of the first quarter.

Our guidance for both revenue and earnings presumes that currencies stay at current rates which are down about 6% from the levels at the time of our previous guidance.

Moving to other components of the P&L, growth margin at 50% for the quarter was right in-line with our guidance. We continue to expect that gross margin will gradually improve over the balance of 2005, and the second half gross margin will be about a 100 basis points higher than what we have seen in the first half. The fundamental trends which will be driving gross margin improvement over time are improving cost positions associated with instruments including cost to manufacture and cost to provide support after sale, and increasing instrument install base, driving high margin consumable sales and improving cost profile for consumables, and improving margins in our laboratory services business as a result of volume and efficiency programs.

R&D expenses at $10 million or 6% of revenues were in line with our guidance and we expect R&D to be about 6.5% of revenues over the balance of the year. Selling general and administrative expenses at $41.7 million or 26% of revenues compares to $32.3 million or 23% of revenues for the second quarter of 2004. This quarter's spending was consistent with our guidance and as we have noted previously the increased investment year-over-year reflects the expansion we have made in our commercial organizations in both the U.S. and Europe, as well as the integration and amortization costs associated with our recent acquisition. We expect to see SG&A spending as a percentage of revenues remain at about 26% for the balance of the year.

Operating margin up $28.9 million or 18% of revenues compares to $31.1 million or 23% of revenues for the second quarter of 2004. Adjusting last year's margin for the impacts of discrete items, the operating margin becomes $29.6 million or 22% of revenues. As we said during our first quarter call, we expect operating margin as a percent of revenues to continue to gradually improve over the course of the year, and margins in the second half of the year should be about 1 point better than in the first half. This improvement mirrors and is driven by the improvement in gross margin.

We estimate earnings per share for the third quarter to be $0.57 to $0.59 and we are increasing our full-year guidance to $2.26 to $2.29. The increase in guidance reflects our second quarter performance. We are not factoring in additional upside for the balance of the year as we remain cautious with regard to the weakening of international currencies vis-a-vis the U.S. dollar.

Though the anticipated unfavorable impact to revenues resulting from exchange rate movements versus previous forecast is reduced at the earnings line by natural local currency expense hedges and financial hedges, we still anticipate there will be a modest negative impact to the bottom line in the back half of the year if currency rates remain at current levels. Included in the third quarter and year estimates, are integration costs of a $0.01, and $0.05 respectively. Implicit in our guidance is an acceleration of EPS growth over the second half of the year, as both a function of strong compares in the first half of 2004 versus the second half of the year, and improving operating margins over the course of 2005.

On a reported basis, we expect earnings per share growth in the second half of the year will be in the low double digits. Adjusting for discreet items in 2004 which favorably impacted earnings by $0.09 and for integration costs in 2005 of approximately $0.05, we expect the adjusted earnings growth rate for the second half of 2005 to be in the mid to upper teens compared to the 6% adjusted growth for the first six months.

As for the balance sheet and cash flow, cash and investments ended the quarter at $139 million, which was an increase of about $16 million from the end of March. Cash from operations was $38 million and purchases of fixed and other assets were $7 million to generate free cash flow of $31 million. After an anticipated weak first quarter for operating cash flow, year-to-date free cash flow is about 70% of net income, and we continue to project free cash flow to be at 80 to 90% of net income for the year. Day sales outstanding was 42 days, flat sequentially and up 2 days year-to-year. Inventory of $82 million increased $3 million from the end of the first quarter, due principally to the timing of purchases of chemistry instrument consumables.

For the balance of the year, we project DSOs to remain at current levels and inventory to be between 80 to $85 million. Fixed asset purchases will be 30 to $35 million for the full year. We repurchased 376,000 shares of stock in the second quarter for a total cost of approximately $21 million.

Now to you, Jon.

Thank you, Merilee. Fellow shareholders, I'd like to touch base on just a couple of updates and then open it up to your questions. The quarter's results came in pretty much as expected against a strong second quarter of last year. Merilee's taken you through all the numbers and what they reflect is the executional plan we put together for 2005 that focused on investment in our business in such a way that the first of this year's adjusted EPS growth would be lower than the second half of 2005 EPS growth.

We're confident that this plan will be a driver of growth in shareholder value over the next couple of years. We came in a little above plan through the first half of the year considering our Q1 performance, and the fact that current quarter EPS is a penny ahead. As Merilee has mentioned, we're adding the Q2 penny to our full-year guidance.

Our business of serving the market for providers of pet health care continues to be our strategic growth priority. This worldwide market is exhibiting steady growth driven by long-term demand and technology trends that we believe will continue to be in place for many, many years. This makes our business a very investable one.

Turning to comments on some of the lines of business within our companion animal group segment, let me first comment on our instrumentation and consumables, or IDEXX Vet lab business. It is our largest line within the companion animal group comprising 40% of the segment's revenues. As investors know, the IDEXX vet lab is a comprehensive suite of integrated blood analyzers, designed for the unique needs of the veterinarian, allowing labwork to be completed in the hospital, during the patient visit. The IDEXX vet lab has a large and growing global install base, and Merilee has mentioned the strong instrument unit placements in Q2 that build our stream of profitable reagent revenue. This reagent stream along with services and accessories accounts for 80% of this business line's revenues.

We saw excellent performance in the instrument placements both in North America and Europe for both LaserCyte and the rest our suite. LaserCyte sales had a banner quarter at 396 units which was above our expectations and significantly above, up sequentially. The sum total of all the metrics that we used to measure LaserCyte's performance have been looking really impressive over the last few months, and so we're really pleased with how this platform is turning out both for our customers. and for IDEXX and our shareholders.

We continue to bring innovation to the IDEXX vet lab suite including adding new tests to the suite's already broad and flexible menu, software upgrades that expand the suite's analytical information management and educational capability, and introducing additional instruments that expand the suite's diagnostic range.

For example, in the last 12 months we've announced the urine protein creatinine ratio or UPC, and bile acids, as new tests, and VetStat as the new instrument for the suite. We launched VetStat, an electrolyte and blood gas analyzer last month and early customer feedback is very positive. Consistent with our expectations. The launch looks pretty clean from an IDEXX cost perspective. Of course it is still very early days. We expect that the VetStat instrument will start contributing to revenues in Q3 while their placements will also support the growth of reagents that comes from the growing installed base. We're on track to launch bile acids this quarter, a new liver test that adds to the menu of the IDEXX vet lab endocrinology instrument called the VetTest SNAP® Reader.

In the fourth quarter of 2005 we'll be adding another new chemistry test to the vet lab, lactate, useful in critical care situations. With the introduction of UPC, VetStat, bile acids, and now lactate, you can see that we're continuing to bring new innovations to our IDEXX vet lab customers, increasing the value of their investment in their in-clinic IDEXX benchtop lab, and reaffirming that they have partnered not only with the largest , but most innovative vet diagnostic company.

Finally we're also in the process of shipping the next upgrade of software for our LaserCyte hematology analyzer. Recall that the LaserCyte platform is more than a unique and innovative analyzer setting a new standard of care in hematology. The personal computer that comes with LaserCyte, what we call the vet station, acts as an information hub for the whole suite of IDEXX vet lab instruments.

The new LaserCyte vet station software release that I just mentioned, adds additional an analytic, education, and reliability capabilities to our 3500 LaserCyte customers. So a steady stream of new diagnostic test, menu, product and software updates, combined with a strong sales and customer support strategy is driving a strong IDEXX vet lab instrument placement and retention business. As a result, as Merilee has mentioned, we are increasing our guidance for the longer term growth in vet lab consumables to the 5 to 7% range.

We also continue to work on the development of our next generation chemistry platform. In Q2 we passed some important milestones in the development including finalizing plans for automated assembly of the instrument consumables with Johnson & Johnson's ortho clinical diagnostics division, or OCD. As part of that agreement, we and OCD extended our supply contract from 2018 to 2020, on the same terms. This extension is a sign of the commitment that we and OCD have to our long-standing and successful partnership and the underlying commitment in that partnership to the dry slide chemistry consumable, the gold standard in biochemistry diagnostics, in both the human and veterinarian world.

Our laboratory services business as Merilee has mentioned continues to be strong and we continue to be pleased with the integration of Vet Met Lab in Germany. The top line and bottom line contribution from that acquisition continue to exceed our original expectations. Europe continues to be an attractive driver of growth for not only our laboratory services business, but also for our in-house diagnostic lines such as the instrument and the rapid assay businesses.

Switching to the production animal service line within the food diagnostics group, we introduced our IDEXX HerdChek BSE antigen test kit, and we're working to build volumes with this newly-approved test in Europe. As this market has evolved, we have found it challenging to ramp up sales quickly, despite customer interest and acceptance of our technology. As a result, as Merilee has mentioned, we now see lower revenue for BSE in 2005 in the 1 to $2 million range. The longer-term opportunity is still there although that too, could evolve as the market matures.

The core nonBSE production animal service business had strong organic growth of 18%, further augmented by the European acquisition that we did in this business in Q4 2005. Integration of that acquisition, Bommeli, continues on schedule. Our water business showed steady performance bolstered by good performance in the U.S. another confirmed regulatory approval for our technology in Denmark, and the launch in Europe of a niche product line called [QuantiTest].

As we look at IDEXX in total for the second half of 2005 our plan calls for accelerating EPS growth as our investments start to drop through to the bottom line although of course we will be continuing to invest in the business. We have a strategic plan for beyond 2005 that generates an average of 10% plus revenue growth in mid-teens earnings growth.

Our confidence in this outlook comes from a set of factors which we reviewed on prior calls, including growth in the market for pet health care, our new product development pipeline, our improving cost position in several of our business lines including instrumentation and their consumables and laboratory services, and use of our strong cash flow and balance sheet in a shareholder focused way. Of course our business, like any business, has risks and uncertainties which were referenced by Conan at the beginning of the call, and in more detail in our SEC filings. However, we also have a strong investable business with a good strategic position, and a market which will exhibit sustained growth.

Tracy, I'd like to open it now for questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Rick Wise, Bear Stearns.

Hi, this is Mike Bailey for Rick Wise. Just a couple quick questions for you. Looking at the European market for the mad cow tests, were there any other tests approved or launching, rather in the second quarter and I have a follow-up?

Well, I believe as part of the approval of our tests, there were actually several other tests approved from existing competitors and new competitors, none of them were differentiated in the way that our test is differentiated, in eliminating an important sample preparation step, and we can see the existing competitors -- continue to think it's the existing competitors, who will continue to be the main players in the market.

Okay, got you. We're just trying to understand if maybe some of the other newer products might be having kind of similar slow ramp up period there.

Right.

Okay. And then just another question. Looking at the Banfield announcement that you guys made a few months ago, has that contributed to the second quarter results and if so, maybe you can also give us an idea of how you think that might help the back half of the year, as well.

No, it hasn't -- well, of course, Banfield, the agreement that we had was an extension of our existing agreement with them that we've had for a number of years so obviously Banfield did in that way contribute to the results, but the extension of that agreement really didn't, and that's going to be a ramp, a slow ramp

Great, thanks. And any other updates on the new instrument system? I think last time the timeframe there was sort of sometime after 2006. Is that still on track or how should we think about that?

That's still accurate.

Okay. Great, thanks very much.

We'll move next to Ryan Daniels with William Blair and Company.

Yeah, good morning, guys. A couple of quick questions. Merilee, you mentioned that there was about a 2% hit to the rapid assay due to distributors' inventory issues. Will that anniversary in the back half of the year, so we see that not having a negative impact, or is that something that will carry through '05?

Ryan, that is very difficult to predict, the changes in distributor purchasing patterns. You know, it can fluctuate and so that's why we always just do this normalization. We look and we see how inventory levels changed last year. We look at the change this year, and we'll always adjust for that so that we can get underlying growth.

It used to be that a couple years ago those swings would be even larger but I think as inventory levels have come down and kind of reached a more steady-state here over the last several quarters, the changes have been relatively less, but, you know, across product lines you're still going to have variation in levels.

Okay, fair enough. And then on the BSE test, I know that's an extremely small piece of revenue overall, but have you actually got country by country approval across the EU? I know you got it by the EU but had to go get country by country. Is that process pretty much complete?

Pretty much.

Okay, great. And then I guess last question I had, Jon, for you, if we look at the guidance, it looks like Q4 may actually be +20% earnings growth. Is that, you know, a good precursor to what we might see in 2006 or is it still a little bit too early to talk about '06 growth at this point?

I think one-quarter does not a trend make. That's a saying that we have in our business. We learn that over time. We're not really in the position to give a Q '06 guidance other than our longer term guidance of 10% plus top line growth, and mid-teens earnings growth. That's not a Q '06 guidance. That's just longer term guidance.

Okay. Fair enough. One quick follow-up, if I could. Just an update on [Tomicacin]?

Yeah, thanks. We're on track there. No change from last call. Expect approval and launch sometime in 2006, and we continue to think that's going to be an attractive product for us, as it goes through its -- you know, with successful launch and ramp, that could more than double the existing pharmaceutical revenues.

Okay, great. Thanks, guys.

[OPERATOR INSTRUCTIONS] We'll go next to Lee Brown with Merrill Lynch

Hi, how are you?

How are you doing?

Just a quick question on your new product pipeline and additional commercial efforts on your POC rapid assay business. Could you provide more details?

In -- I'm sorry, when you say POC, that's not a term we typically use. Are you saying point of care?

Yes, I'm sorry, point of care rapid assay, yes.

And the question is with regard to the new product pipeline?

Yes. You talked about the assays being a bit weaker than you'd anticipated but you thought that growth would accelerate in the second half, due to new product pipeline and additional commercial efforts. Could you just provide more color in that regard?

Okay. We have nothing specific to announce in the new product pipeline. Obviously we do have a pipeline in that business, and we'll be introducing it over time.

But I think we're more -- the second half comment has to do with the underlying trends in that business. And our commercial efforts which gives us confidence of being in-line with the 7 to 9% longer-term growth rate for the -- what we call the rapid -- I think you're referring to the rapid assay business.

That's correct.

Yeah. I just mention that because of course our instrumentation is also point of care.

Oh. well, in terms of rapid assays, you're not looking to launch any additional reagents in the second half?

There's nothing that we're -- nothing that we're going to be talking about on this call. Obviously, we have a pipeline but nothing that's gotten to the point where we're ready to discuss it.

Okay, fair enough. And then the LaserCyte placements were strong relative to our expectations at nearly 400. Where do you see second half placements?

Okay, thanks for that question. You know, -- they were strong, and thank you for that observation. We're very pleased with the second quarter. We think we have some momentum with those placements but instrument placements are a quarter-by-quarter thing. Typically the fourth quarter is always the strongest quarter for instrument placements generally, and has been also the case with LaserCyte. Has to do with sort of year-end tax planning on our customers' behalf and such.

We don't expect this year to be any different in terms of that particular trend. Third quarter is usually the weaker of the four quarters. Europe kind of goes on holiday for part of that, and the U.S. tends to be a little bit lower in terms of placements for Q3, because I think people feel differently in September when all the kids go back to school. We're not going to really provide guidance for this year, or going forward on LaserCytes other than just to say we feel good about the program and certainly Q2 was great.

It was very solid placement quarter both in the U.S. and in Europe. We're very, very happy to see the turnaround in Europe because we had some issues with Europe performance as we got our salesforce organized and I think they started the work that we've been doing in Europe, really started to come through in the second quarter with LaserCyte placements overall instrument placements, and overall growth in our -- in what we call the in-clinic business, as well as the lab business

I realize you don't want to be at tethered to a certain number, but would you be comfortable with LaserCyte placements approaching 1500 for the year?

I'll really let you work out the details to that.

Okay.

It's not out of the question.

Okay. I just want to move on. We use installed base to some extent, and I know you don't really like to talk about that, but we use it to project reagent revenue, and I was wondering what your comments tied to the QBC attrition, in terms of the churn lessening, what the installed base approximates for QBC, given that there has been some churn as people move to LaserCyte?

We're going to have to get back to you on that question. I'm not sure we have -- that is a very tough number to get, particularly on a global basis. You know, we don't have as good a data outside the U.S. as we do in the U.S. We were pleased that it was only 40% neighborhood this quarter. I don't know if it will always stay that way, but obviously we've got a lot of people who are not only sticking with the QBC, and we're continuing to place QBCs by the way. That was continuing to be a platform that we're placing and supporting and will for a long time, and yet we're also getting a lot of new LaserCyte customers. I'm not --

Yeah, I'll follow-up with you on that. That was a tough question and just lastly in terms of pricing and then I'll finish my questions there, on pricing on the vet testing QBC, are you seeing some -- a bit of erosion there from historic pricing? Could you give me some ranges for those instruments?

For instrument pricing?

Yes, just the VetTest and the QBC

I don't think that we -- I don't think pricing is changing one way or the I think it's pretty flat.

Okay. Thank you very much.

We'll move now to Christopher Montano with Wells Fargo Securities.

Thank you. Quick question on your use of cash. Do you intend to continue to be acquisitive, or perhaps is there any thoughts about returning the money to shareholders in the form of dividends?

Okay, thank you. And of course a third use of cash is share buy back. We do have an ongoing share buy back program. I believe the Board's approved a 14 million share buy back and I'm going to ask Merilee to ask how far along we are on that, on the buy back. We did continue to buy back shares in the second quarter. That does -- I think if you look historically over the last couple of years and twelve months, that's been the major way that we've used cash in a shareholder-friendly way.

We do make acquisitions from time to time when they are ones that are in our core business, and strengthen our franchises, although I don't want to get anyone excited that there's a big acquisition pipeline. I would expect that share buy back would continue going forward to be the major use of free cash flow.

We -- as a fiduciary matter, from time to time evaluate a dividend. The Board evaluation it. It's a Board decision. And, you know, every time we've done that evaluation our conclusion has been that the right use of cash, in terms of returning it to shareholders is through share buy back program.

Thank you very much. And a follow-up question on currencies. In what particular currencies do you see the biggest shift that's caused a bit of a downward guidance?

Yeah, the big currencies for us, the primary one is the Euro, the second is the pound Sterling, and so those are really the areas. And as I mentioned, Chris, at the time that we gave our guidance at the end of the first quarter, so that was in, you know, early April, we were building our models, you know, the Euro was at about a $1.30. So that's where we've seen the decline of over 6%. And that's what we're basing our current forecast on, and since we don't know and can't predict where currencies are going to go in the future, we build our forecasts based on where they are today.

Thank you very much.

And there are no further questions at this time. Mr. Ayers, I'll turn it back to you for any closing comments.

All right, well, I'd like to thank everybody for joining us for our second quarter conference call, and certainly also like to take this opportunity to thank the employees of IDEXX for achieving an exciting plan that we have that's building the Company towards the future. Thank you everybody. That ends the call.

And that does conclude today's conference. Thank you all for joining.