愛德士 (IDXX) 2006 Q4 法說會逐字稿

Good day everyone and welcome to the IDEXX Laboratories fourth quarter earnings conference call. Just a reminder, today's conference call is being recorded. Participating on the call this morning are Jon Ayers, Chief Executive Officer; Merilee Raines, Chief Financial Officer; and Ed Garber, Director, Investor Relations.

IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that statements that members of IDEXX management may make on this call regarding management's future expectations and plans and Idexx's future prospects constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995.

Such statements include, but are not limited to, statements regarding management's expectations for financial results for future periods and the timing of new product introductions. Listeners are reminded that actual results could differ materially from management's expectations, factors that could cause or contribute to such differences are described in IDEXX's quarterly reform on Form 10-K, for the quarter ended September 30, 2006 an annual report on form 10-Q for the year ended December 31, 2005 which are on file with the SEC and are also available on Idexx's website, Idexx.com.

In addition, any forward looking statements represent Idexx's estimates only as of today and should not be relied on as representing the Company's estimates as of any subsequent date. The Company disclaims any obligation to update or revise any forward-looking statements in the future even if its estimates or expectations change. At this time, I would like to turn the conference over to Merilee Raines. Please go ahead.

Thank you, [Roki]. Good morning and thank you for joining us today. As is our usual practice, I'm going to start off by reviewing our fourth quarter financial results and outlook for 2007 and Jon will provide an update on the business. We will then welcome your questions. As you've seen in our earnings press release today, we reported revenues for the fourth quarter of $192.2 million and diluted earnings per share of $0.75, year-over-year increases of 15% and 25%, respectively.

There were a couple of discrete items impacting earnings that were noted in our press release. Adjusting for these items earnings per share were $0.62 cents for the quarter and $2.67 for the full year after adjusting for the additional discrete items in the first three quarters. This compares to our guidance of $2.63 to $2.66 as adjusted for discrete items that we gave at the time of our third quarter earnings release.

A couple of quick notes regarding the quarter's performance versus our expectation. Revenues were about $5 million higher than our implied guidance. Gross margin as a percentage of revenue came in about a point below our thinking. Operating expenses were about in line with our thinking in dollar terms and were at the low end of our 35% to 36% range as a percentage of revenue due to the strong top line performance.

I refer you to the table we have furnished in our press release that adjusts 2006 earnings per share share for the impact of share-based compensation and adjusts 2005 and 2006 for items we consider to be discrete in nature. The year-to-year earnings per share growth for the quarter, adjusting for these factors, was 6%. Again, in line with our thinking.

The fourth quarter revenue growth of 15% was favorably impacted 3% by currency and 2% by acquisitions, so the organic growth rate adjusting for these two factors was 11%. Organic growth for the full year was 14%. We have provided tables in our press release detailing revenues for the quarter and year by product and service category with related reported growth and impacts on growth from currency and acquisitions. I refer you to these tables for comprehensive data and I will comment now on a few highlights.

The stronger than anticipated revenue performance for the quarter was primarily attributable to the continued very strong performance of our production animal services product line. The inclusion of revenues from central laboratory for veterinarians, which we acquired at the end of November, greater favorable impact of exchange, and the fact that distributor inventory levels did not decline in the fourth quarter as we had projected at the time of our third quarter call.

U.S. distributor inventory levels expressed in weeks based on forward-looking demand ended the year about on par with levels at the end of Q3, just slightly over four weeks and at the high end of the three to four-week range we have seen for the last several quarters. Inventory levels remained relatively constant throughout the fourth quarter and we believe that the higher inventory levels are in part reflective of a positive outlook for the 2007 parasitic disease testing season and the addition of the 4Dx Heartworm and tick test panel to our rapid assay product offering.

If you will recall, we did a full launch of this expanded multiple parasite test in September of 2006 and in the fourth quarter 4Dx represented nearly 20% of our canine parasitic disease test volume and nearly 25% on a revenue basis. We continue to think that the inventory levels may drop back modestly over time, however, given the number of distributors, SKUs and other factors that influence distributor purchasing predicting movement of distributor inventories is not a very exact science as we have proved this quarter.

We continue to execute well on our point of care VetLab instrumentation strategy. We launched our new urinalysis analyzer in the fourth quarter and it got off to a very strong start. Though this instrument and related consumables are not significant revenue generators in and of themselves, they enhance our in-house laboratory suite with broader testing capability. The enhanced capability we've been adding to our IDEXX VetLab suite over time leads to increased placements of new instruments. For instance, LaserCyte placements, in particular, were up nearly 10% over a strong fourth quarter of 2005. Enhanced capability also helps to retain current customers and increased utilization of in-clinic testing.

These are all important contributors to the growth of our increasingly profitable consumable revenue. Consumable growth was 7% in the quarter on a currency adjusted basis. As noted, we completed the acquisition of Central Laboratory for Veterinarians in the latter part of the fourth quarter. This lab is the largest provider of veterinary reference services in western Canada and though still in the early days, we are very pleased with the progress of the integration into our lab network.

With regard to longer term growth rates for our Companion Animal product and service lines, we reaffirm a 7% to 9% growth rate for instrument consumables, and 12% to 14% for laboratory and consulting services. Based on the strong growth we saw in 2006 for our canine product offering and the momentum we see going into 2007 we are revising upward our growth rate for rapid assays from 7% to 9% to 8% to 10%.

Our water product line revenues were down slightly year-to-year when adjusted for currency. If you will recall, this business had very strong performance in the third quarter, 8% year-to-year growth. We indicated during our last call that the strong performance was impacted by timing of a large order between the third and fourth quarters and we continue to project water revenue growth in the low to mid-single digits.

As mentioned, our Production Animal Services product line continues to show strong growth, 25% for the quarter and 30% for the year. We announced today that we have entered into a definitive agreement to purchase Institut Pourquier located in southern France. As with the acquisition of Dr. Bommeli back in 2004, Institut Pourquier provides a complementary portfolio to our current livestock and poultry diagnostic offerings and enhances our manufacturing and R&D capabilities. In addition, it has a strong reputation in France and throughout Europe, and we expect to close on this transaction in late Q1.

Moving down the P&L, as noted the gross margin at 50% came in a point below our expectation. This was due to a variety of factors, none of singular significance, including product and customer mix, impact of the Canadian lab acquisition, and promotional programs. These factors are largely particular to the quarter as would be suggested by our thinking about the 2007 gross margin outlook, which I will get to in a second. Also noted, operating expenses, including R&D and SG&A, were 35% of revenues in line with our thinking.

Our tax rate was favorably impacted by the completion of an IRS audit for the years 2003 and 2004. The rate for the year, adjusting for this favorable item and for the other favorable discrete items we discussed in previous quarters, was 33% in line with our thinking of 32% to 33%.

With regard to the balance sheet and cash flow we ended the quarter with $97 million in cash and free cash flow as defined in our press release with $27 million for the quarter. For the year free cash flow was $73 million or 78% of net income. With regard to 2007 guidance, we now project revenues of $860 million to $870 million for the full year. This would represent a reported growth of 16% to 18% with acquisitions estimated to contribute 4% and currency to contribute 1%. So organic growth of 11% to 13%.

We project the growth rate for the first half to be two to three points above the total year growth due to the impact of acquisitions, currency, and a relatively easier compare with the first quarter of 2006. We project the gross margin as a percentage of revenue to be 52% to 53% for the total year. Margins should begin the year at the low end of the range and be highest in the second quarter due to normal seasonal revenue mix. The second half of the year should be on par with the full year percentage.

I will note that discrete items associated with acquisitions relating to integration and purchase accounting are projected to negatively impact our margins by about 50 basis points. So the gross margin adjusted for these discrete items would be one to two points above the full year 2006 gross margin percentage. Improving costs on our OEM instrument consumables, productivity, and selling price increases will be among the key drivers for the increase.

Operating expenses are projected to be about 36% of revenues for the year. We anticipate that these expenses as a percent of revenues will be highest in the first quarter, say 200 basis points or so above the full year percentage due to the timing of R&D spending, commercial activities, and acquisition integration expenses. Amortization of intangibles associated with our recently announced acquisitions are estimated to increase operating expenses as a percentage of revenues by about 40 basis points.

As a result of our thinking about gross margin and operating expenses the operating margin as a percentage of revenue is projected to be 16% to 17% of revenues for the full year, which reflects a negative impact of approximately 1% due to discrete items associated with acquisitions and intangibles amortization. Margins will be lowest in the first quarter based on the relatively lower gross margin and higher operating expenses.

We expect the tax rate to be 33.5% to 34.5% of pre-tax income, up from the 33% recurring rate experienced in 2006. Although the this rate my fluctuate as we continue to analyze the implications of a new accounting standard effective in 2007, based on our current view, the primary reason for the projected increase in our 2007 effective rate versus the 2006 recurring rate is the elimination of U.S. tax incentives related to exports and the resolution of the IRS audit for 2003 and 2004.

Net interest income is projected at $2 million down from 2006 due to lower cash balances as a result of acquisitions and capital expenditures. And we would project share count to be about on par with fourth quarter 2006 levels. All the aforementioned factors lead us to an EPS projection for 2007 of $2.90 to $2.98 which is down from our guidance of $3 to $3.12 given at the time of our third quarter call. All the change is the result of the acquisitions we have announced since our call, Central Laboratory for Veterinarians, the Critical Care Division of Osmetech, which we are naming OPTI Medical Systems and Institut Pourquier.

Collectively, these acquisitions are estimated to be about $0.14 dilutive to earnings per share with about $0.07 relating to discrete 2007 items associated with purchase accounting and integration efforts. Additionally, amortization of intangibles associated with these acquisitions is projected to be $0.06.

Growth adjusting for discrete items in both 2006 and 2007 is projected at 11% to 14%. As for the balance sheet, we project DSO at approximately 40 days, inventories to range from $95 million to $100 million and capital expenditures to be $60 million to $65 million with about one-third of the expenditure targeted for expansion and renovation of our main headquarters facility. Free cash flow is projected to be about 90% of net income. Thank you, and now to Jon.

Okay, thank you, Merilee, for that comprehensive review. My take on our Q4 results. Strong organic revenue growth. Some very successful new products launched, including SNAP 4Dx from the rapid assay business, the IDEXX VetLab UA, the urinalysis reader and associated reagent strips, as well as eight other product and service announcements in the last two months, all of which are listed on our website. We have also been making investments that give us confidence in the longer term outlook for IDEXX's growth, particularly in our animal health businesses which comprise 90% of our revenue.

In addition, Merilee has mentioned the three recent acquisition announcements. Each of these acquisitions strengthens one of our core businesses and also provides attractive organic growth opportunities. Central Laboratories for Veterinarians in western Canada serves veterinary practices in the three major markets of Vancouver, Calgary and Edmonton. We certainly like the economies of these cities given the oil markets and demographic trends and I'm very pleased to welcome the CLV employees and customers to the IDEXX family.

The OPTI Medical acquisition puts another key piece in place in executing our strategy of becoming a world class bench-top instrument design and development company for the veterinary market. OPTI Medical gives us access to the R&D and manufacturing organization that produces our very successful VetStat Electrolyte and Blood Gas Analyzer introduced in mid-2005. I might note that in under two years we have placed over 2,000 VetStat instruments. This acquisition gives us permanent ownership of the consumable technology and thus permits us to capture an increased margin on this growing revenue annuity.

OPTI Medical also provides IDEXX the electrolyte module and associated proprietary slide consumable incorporated in our next generation chemistry analyzer, Catalyst Dx, which I will be speaking to in a moment. We have known and worked with the OPTI Medical management team for well over a decade going back to the VetLyte introduction. And the OPTI engineering and manufacturing team is amazingly innovative and capable in the realm of electrolytes and blood gases.

They have done a wonderful job for us in the development of electrolyte capability of Catalyst Dx. OPTI Medical also has an attractive niche business on the human side in the electrolyte and blood gas point-of-care business. OPTI's instruments are used when the patient's values can change in a matter of minutes due to impaired respiratory function or fluid imbalances.

The OPTI instrument and consumable line is differentiated through ease of use, menu, and portability in the attractive niche point-of-care market, which is distinguished from the central laboratory equipment market where much larger instruments are used. And OPTI Medical is also an attractive razor, razor blade business model supported by our worldwide install base of instruments in the human market. We expect the OPTI Medical acquisition to close next week.

Finally, Merilee mentioned our announcement today regarding Institut Pourquier. With this addition to our business we continue to build on a worldwide leadership position in food animal diagnostics. I think you'll agree that our Production Animal services business, with organic growth of 30% for the full year of 2006, has executed extremely well in an attractive market. Of course, while we are excited about the impact that these acquisitions will have on our growth and market positions, we also continue to innovate internally with new product introductions.

I'm very pleased to report that we have set January 2008 as the launch date for our next generation chemistry analyzer. That, as I mentioned, is called Catalyst Dx. We also have in development, on the same time line, a second platform called SnapShot Dx which will provide enhanced amino assay capability to the IDEXX VetLab suite.

Over the last few years, we have been building our instrument R&D engineering and manufacturing and marketing capabilities at IDEXX. It is this group that has introduced 15 new innovations to the IDEXX VetLab in the last two years, including two new instrument platforms and the IDEXX VetLab station, which ties the whole suite together as one integrated, easy to use and highly capable in-house laboratory.

Catalyst Dx is an extraordinary instrument. Our design philosophy is first to preserve all the elements that make VetTest the preferred point-of-care chemistry instrument worldwide today. Vet test provides uncompromising accuracy by using dry-slide technology, which is effective even when the blood sample has interfering substances, a common occurrence in veterinary medicine. VetTest also has by far the most comprehensive breadth of chemistry tests now numbering 24 with complete menu flexibility. And best of all VetTest provides results in eight minutes.

Catalyst Dx builds on these unique differentiators by adding incredible ease of use and significantly higher throughput. The instrument also has expanded menu, including, but not limited to, on-board electrolytes, of course, courtesy of OPTI Medical. Let us say you are a veterinarian presented with a sick patient. How about a panel of 21 chemistry results in eight minutes to supplement your LaserCyte CBC? Catalyst Dx will be able to provide this complete panel directly from the blood draw.

A busy morning of dentals lined up and in line, need for pre-anesthetic testing? Catalyst Dx will be able to process three patients simultaneously and provide the third result within 15 minutes. Both a blood and urine sample to test from the patient? Eight minutes to result in one simple run.

Catalyst Dx will also be extremely simple to use and require minimum technician hands on time as a result of three innovations. First, the instrument is able to process whole blood direct from the patient stick. Second, Catalyst will leverage the IDEXX VetLab's station and its information management capabilities. For example, in many cases the patient [data set] will already have been pre-entered or easily accessed from the electronic records, further eliminating steps and wasted technician time. Third, Catalyst Dx will be launched with a variety of differentiated and different panels, each a set of slides that are packaged into a single clip.

For all these reasons we believe that this new instrument, along with all the other advanced capabilities of the complete IDEXX VetLab, will catalyze the practice of veterinary medicine. Catalyst Dx enables comprehensive blood and urine lab results simply, conveniently, and virtually immediately upon presentation of the patient.

As a further enhancement to the IDEXX VetLab, we intend to launch a second instrument system, SnapShot Dx at the same time. This instrument will provide enhanced amino assay capability, including T4, cortisol and bile acids, with similar design goals to Catalyst Dx and convenience, ease of use, speed to result and throughput. In addition, later in 2008, this platform will electronically interpret our entire line of SNAP kits that make up the rapid assay business, such as 3Dx and 4Dx for canine and equine and feline combo.

As a result our customers' work flow will become even simpler and thus drive further staff productivity. At the same time, SnapShot Dx will ensure that all SNAP results are captured and pictured in the electronic medical record, added to the patients' diagnostic printout and importantly automatically included in the patient's invoice. SnapShot will bring together two of our key in-house diagnostic franchises, SNAP and IDEXX VetLab into one integrated laboratory system.

As investors know, today the vast majority of [practors] in the U.S. use at least one of our SNAP test kits, not to mention our worldwide SNAP franchise. We expect that these two systems will realize an average unit price, when added together, in the neighborhood of what LaserCyte realizes today. Of course, they could be purchased together or separately.

In the meantime we continue to expand the installed base of customers with IDEXX VetLab. Approximately 2,000 of these customers already have an IDEXX VetLab station. This is important because VetLab stations serves as the user interface and information system for our integrated suite of instruments, including these two new platforms. We would expect that this worldwide installed base of customers with VetLab stations to double in 2007 to over 4,000 as a result of additional placements of LaserCytes and upgrades in advance of Catalyst Dx.

This will mean that 4,000 customers will have already purchased the first element of the new Catalyst Dx system before its full launch in 2008. Thus, with the launch of Catalyst Dx and SnapShot Dx we'll provide a smooth and seamless upgrade path for our worldwide installed base of IDEXX VetLab customers. I would note that we also expect to continue placing VetTests with customers for many years to come and to supporting that platform well into the future. This strategy will provide us a very low cost entry level dry-slide chemistry platform and upgrade path to an advanced system.

So where are we today in the development program for Catalyst Dx and SnapShot Dx? We have essentially completed the design of the instruments and have successfully built a number of R&D pilot instruments with final components, including form, fit and function. We are in the final stages of our verification plan and are very pleased with assay performance of the instruments, including accuracy and reliability. Over the course of 2007, we'll be focused on bringing our supply chain up to scale, completing our validation of instruments internally and with external sites.

Over the last few years, we've been building a world class instrument R&D function, and I'm very pleased with the timeline that we've been keeping on these two projects over the last year. And as you can tell, we have made no design compromises along the way.

In summary, before I open it up to the call, for Q&A, I'd like to say that we remain confident in our long-term financial goals of organic growth of 10%+ supplemented from time to time with acquisitions that strengthen the core business. We continue to target over the long-term mid-teens earnings per share growth. The year 2006 ended up with top line growth of 16% and earnings per share growth on an adjusted basis, as laid out in our press release, of 23%. This performance, along with our investments in the organization, is the foundation from which we will drive further growth and fundamental shareholder value creation in 2007, '08 and beyond. So with those introductory comments, [Roki], we're pleased to open up the call for questions.

Certainly. The question-and-answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] We'll hear from Rick Wise with Bear Stearns.

Good morning, Jon. Good morning, Merilee. I guess let's start off just with the Catalyst clinical chemistry launch and SnapShot Dx. Not that you'd ever promised it was going to be an '07 launch, but I think we had the impression it might come this year. Maybe just a little bit more, expand a little more on your thoughts about the timing and I don't want to call it pushed out, but why not sooner? Is this building the installed base with what you have, again, to facilitate the upgrade path? Just help us understand all that.

Well, Rick, the first point is that this is the first time that we've actually given a launch date. Investors have wanted to know information that would, you know, give us an understanding of the revenue profile in forward years and we've given full year guidance for 2007, and, of course, you've seen what Merilee has done for that. I think the point here is that we have designed the system that has everything the customer wants.

Basically diagnostic results easily and now and complete and flexible with no design compromises and so we're very, very pleased with how all that came through and at this point we're confident with a launch date of January 2008 for these two systems. In the meantime, we have done a number of innovations, as I mentioned, to the IDEXX VetLab which allows us to continue to grow the install base over the course of 2007 and those innovations are greatly appreciated by our customer.

Merilee mentioned, for example, the IDEXX VetLab UA, the urinalysis analyzer. That got off to a great start, it's not a big revenue driver, but huge convenience to our customer. We actually sold about twice the number of units in the fourth quarter than we initially expected.

Two more questions a little more strategic in nature with the recent acquisitions, if I'm doing my rough math correctly, lab service is about a quarter of the Company. I'd just be curious if you'd talk a little bit about your longer term views, Jon, on what the appropriate mix of the IDEXX portfolio should be and maybe specifically this area and maybe also touch on businesses like water that I'm sure are very stable but are very slow growing and sort of drag your overall growth rate down. Is this something important to your long-term vision of the Company? Maybe give us some perspectives there?

Well, first of all with regard to the companion animal business which comprises today about 82% of the revenues, I think we like the mix of the business. All the businesses are growing at a healthy rate, with regard to diagnostics, there's the role for outside laboratory services and in-house testing. We think the two work together.

We think testing begets more testing. Diagnostic testing is the most rapidly growing area of the veterinary practice. It's important because it's replacing other areas that are no growth in the veterinary practice, vaccines and others, and it's practicing better medicine and the pet owner has demonstrated a willingness to pay for better medicine for their family members. And so we think that diagnostics in a growing area and we're making investments in both the in-house side and the laboratory services side, as well as information management.

Information management, both in the area of the electronic medical record and the financial area, are key areas of investment growth and profitability for our customers and we're very happy with the rate of innovation coming out of IDEXX to support our customers' growth in those areas.

We have been putting most of our investment into animal health and if you include the Production Animal Services that gets us to about 90% of our revenues and those have been growth businesses for us. As we've mentioned, water business in the past is a low-growth business at this point in time. It's a great profitability business, it's a very stable business. I think it grew organically 2% this year and it's a low single-digit growth business for us, provides good cash and we take that cash flow and we reinvest it in the higher businesses, which fortunately in this case represent 90% of our revenues.

Thanks. I'll get back in queue.

[OPERATOR INSTRUCTIONS] We'll now hear from Ryan Daniels with William Blair.

Yes, good morning everyone. Couple of quick questions. First off, Jon, you mentioned the pricing on the two instruments together would be similar to LaserCyte. Should we read into that $15,000, $16,000, $17,000 price range for both of them? Am I thinking of that correctly?

We said it's the neighborhood, I think, the AUPs that we realize and LaserCyte has always been in the neighborhood of $17,000.

Okay, great. And then what are your thoughts on, you've already got 4,000 placed that will allow the upgrade to catalyst Dx, what's your impression in the first year based on your channel checks speaking with customers, how many of those may upgrade very quickly and how quick might the launch go when it hits the market in January '08?

Well, that's a great question, Ryan. First of all, our research and our review with customers of the designing of Catalyst Dx has been, shall I say, overwhelmingly positive. On the other hand, we'll have a ramp process with regard to the launch and the manufacturing process. We had that kind of ramp process when we introduced LaserCyte in 2003. Although, I think we're a more capable organization today with regard to overall instrument development and manufacturing than we were back then. But any new system will have a ramp. And I'm at this point not, you know, ready to talk about 2008 revenue guidance or its components.

Sure. That's fair. n regards to the rapid assays taking out the long-term growth rate there, is that primarily due to the some of the internal developments like 4Dx and the quick traction you've got in switching over 3Dx to 4Dx or is it the basic end market growth, or can you help us a little bit with what drives the confidence there?

The question was with regard to, we missed part of that question. Ryan. Was it in regard to 4Dx?

No, no. In regards to your rapid assay guidance going up to 8% to 10%, how much of that is attributable to internal product launches and quicker conversions of things like 4Dx versus a growing end market, more parasitic testing, et cetera?

I would say it's primarily related to our innovation in the market and the growth of what we call parasitic disease screening, which is really our franchise. There is a very, very low growth in the amount of what you'd call canine Heartworm testing, but the much bigger story here, I think, is the upgrading of that testing from a Heartworm test to a full parasitic disease screen and, of course, from a 3Dx test to a 4Dx test as a sub-component of that growth and substitution.

Okay, great. And then one final quick question, maybe to Merilee, on the guidance you just delivered it looks like if we take out the acquisitions you've already upped your revenue guidance $10 million to $12 million, taking the bottom end of your EPS guidance up a little bit, is that primarily due to increased thoughts on rapid assays or is there anything else that has changed over the last three months that makes the guidance a little higher?

Ryan, we did take up the growth rate on our current businesses and it is -- there's strength in rapid assay, there's strength in production animals, and strength in labs growth. I think we're really seeing pretty good growth across the business and it is reflective of a number of areas.

Okay, great. Thanks guys.

Thank you, and we'll now hear from Lee Brown with Merrill Lynch.

Good morning, Jon, Merilee, Ed. How are you?

Yes, good morning, Lee.

Thanks for taking my call. Just some quick clarification on your earnings guidance, the 290 to 298. It's my understanding that there's $0.14 of dilution tied to the acquisitions, of which, I believe you said $0.06 of that was non-cash amortization of intangibles with [INAUDIBLE]. Is that correct?

That's correct.

So on a pro forma basis if we were to include the non-cash amortization but exclude the other related discrete items the range would be 298 to 306, in terms of street estimates on a pro forma basis?

When I gave the pro forma guidance there, I did take out and adjust for just discrete items, left amortization in and that gave the growth rate of the 11% to 14%. Excluding just discrete items, but not excluding amortization.

So just to clarify, the range excluding just discrete items is what?

So you would take out $0.07 from the 290 to 298 just take $0.07 off of that.

Add it.

I'm sorry, add it. Add it on to that.

Yes, I think there's some rounding there. I came up with like 298 to 306. Okay. Fair enough. The second thing is, I don't believe you gave exact instrument and consumables revenue for the quarter, unless I missed it?

Well, it's in our, probably in the press release.

I didn't see that. I saw a combination of the two.

Yes, it is combined in there and if the numbers for instruments were about a million -- just about a million dollars and for the consumables for the quarter it was about 5 -- sorry, about $4.6 million in total.

In growth.

In growth.

Okay. And then what about actual unit growth as opposed to revenue growth for instruments?

You know, we've got so many kinds of instruments and mix now that we're just doing -- we're just really talking about instrument revenue at this point in time.

Okay, okay. Fair enough.

For example, the list price on the urinalysis instrument is $895. So it really becomes less of an important number.

Okay, I've been tracking it just in aggregate based on assumptions, but maybe I should pull that out of the model. Also, could you just tell me what the overall contribution from BSE was within Production Animal in the quarter and for the year?

Yes, the BSE sales were just a little bit over $3 million in the quarter and for the year they were about $10.5 million.

Okay, so obviously, that's starting to ramp pretty nicely. Any expectations for the full year run rate in '07 BSE?

It will continue to grow, but certainly 2006 gave us a nice foundation. You know we only had $1 million in revenue in 2005. We won't grow at that rate, but it will continue to grow in 2007, particularly as customers that we have taken on over the course of 2006 become full year customers in 2007.

Thank you. And then in turns to the computer systems and digital radiography, I think your call it information systems, obviously, that's doing extremely well, realize it's a somewhat small base. But could you just provide us all with what's going so well in that business and what your outlook is going forward?

Yes, both of those -- we've got a couple of different product lines, of course, the practice management systems business and the digital radiography business are in that line of business. They're both growing at good double digit rates.

Very successful the launch of the companion animal direct digital system in the third quarter did well with that system in the fourth quarter and we're also by far and away the leader in the U.S. and worldwide in the lower end digital radiography system called Computer Radiography. We've also done very well with placements in the practice management software business.

We're pleased with those businesses and how their number of customers and installed base are growing.

And just to dig deeper into the practice management, does that have a consultant aspect to it in terms of installation and training where you would get sort of those service level type margins?

It has two major components. Of course, there's the initial sale. We sell both the software and the hardware generally as a complete system.

Veterinary clinics would rather us handle the whole thing and have one integrated system, and then there's an ongoing, after a short warranty period, there's a maintenance contract that is a good business for us. But much smaller per customer than, of course, the initial up front installation.

Since we've been installing customers for a long time, that's become a meaningful portion of that business. We also have a computer supplies business as part of the revenues of that business.

Great. Thank you for that. And one last question with regards to the outstanding shares that are expected in '07. Merilee said that she expected that to remain on average at the Q4 level, so that obviously implies, I suppose, some level of stock repurchase. Could you just talk about what your goals for spending are on retiring shares in '07 and beyond?

I think we have on ongoing stock repurchase program. We've been doing it over the course of the year. And we will continue that in '07. We have another 700,000 shares or so remaining in the current board authorization. Typically, when we get near the end of that the board considers expanding that authorization. And I really don't see any change in our strategy there.

When is the next board meeting? I guess the real question here, instead of beating around the bush, is with 700,000 shares remaining how far will that take you before you need another authorization in terms of timing? I guess relative to maintaining a static share count?

Oh. I think we're -- that's an internally consistent model with regard to our cash balances and interest income and share count. So you know, if we need more, I know the board will actively consider it.

Okay, thank you everyone. I appreciate it.

We now move on to Ross Taylor with C.L. King.

Hi. Most of my questions have been answered, but I just have two or three others. You listed a couple things you need to accomplish in 2007 before you launch the Catalyst Dx and the SnapShot. And I just wondered which of those are the most significant hurdles or most difficult tasks to accomplish before you can launch those two?

I think it's in the area of blocking and tackling. The system is completed. All technical feasibility. It's operating and it's essentially its final configuration. It's system integration. It's the, bringing up the supply base so that they can produce not just one-off parts but in scale. It's software. Although, I will note that the instrument controller, the IDEXX VetLab station is a product that we already have on market. And it's really in the area of blocking and tackling. I wouldn't say there's any one factor. If there would have been a factor it would have been some technical aspect of the instrument that we had not yet demonstrated feasibility. But we're way beyond that.

It sounds like that. I mean a lot of the validation of actually the test results and the test processes have already been done and that's complete?

Correct. We feel very good about it. Of course, we're starting with dry-slide technology, or in the case of the electrolytes, the OPTI, or in the case of the amino assay the SNAP technology, all of which are technologies we're very familiar with.

Okay, and also you gave us a lot of information on the call. But can you just go over again, you know, some of the ease of use advantages the Catalyst Dx is going to have over your current product again?

Well, it's basically -- you draw the blood. You stick it in a separator. You put the slide clip in. And you close the door. And you get the results in eight minutes later, or if you -- there's a couple of doors there so you can load multiple patients and it processes them simultaneously.

And typically, with the information systems that we are providing today, and the integration that we are offering the customer with their practice management software, the patient data has already been pre-entered or pulled off the Cornerstone Practice Management software and so, you know, a lot of times people forget to include the amount of tech time involved with a data entry and we're not excluding that. We're dramatically reducing, if you will, the paperwork or the data component of what a technician does.

Okay. And then just two questions related to your acquisitions. Was there only a few days of the Central Lab revenues included in your Q4 results or for some accounting reason do you include all 90 days in the quarter results?

It was about 30 days.

Okay. And with regards to the acquisition in France, do you have much opportunity to build revenues with these products through expanded distribution and other geographies outside of Europe or anything like that or are there any revenue synergies or benefits you might get?

Yes. We very much do. That business is based in France. The majority of the revenues do come from French customers, although it does get revenues from the rest of Europe.

It gives us some very nice product lines, particularly in the ruminant area that have the ability for us to pump through our international sales and distribution network which in the Production Animal Services business for us is our most international business. And we also have margin opportunities as a result of both revenue and what we can bring to that. We expect that we would have profitability growth in all the acquisitions.

Okay. Great, thank you.

At this time, I would like to turn the call back over the John Ayers.

Okay, well, I want to thank everybody for tuning in to the call and your continued interest in IDEXX, and I certainly want to congratulate the employees of IDEXX on a great year in 2006, and, of course, my gratitude to our customers for their continued confidence in us as one of their suppliers. Thank you all very much. That concludes the call.

Thank you. That does conclude today's conference call. We thank you for your participation. Have a great day.