IDEXX LaboratoriesIDXX

The company earned $4.27 per share last quarter, which was better than the $3.94 analysts expected. Total revenue reached about 1.22 billion dollars. This growth was led by the core business that sells testing kits and services to pet clinics, which saw a 10 percent increase in recurring sales. This is the most important part of the business because it creates a steady stream of cash every time a vet runs a blood or urine test.

Management also raised its profit outlook for the full year. A key highlight was the placement of 1,600 new high-end diagnostic instruments, bringing the total number of these machines in clinics to over 9,000. These machines act like a hook: once a clinic installs one, they are much more likely to keep buying the expensive testing supplies that only work with IDEXX hardware.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Recurring revenue growth accelerated: The companion animal division, which is the largest part of the business, saw its recurring revenue grow 10% on an organic basis to $974.7 million. This growth, which strips out currency swings and acquisitions, is the main engine of the company and was driven by customers using more tests and paying higher prices.
• International markets lead gains: International sales grew 11.2% on an organic basis compared to a year ago, outperforming the 7.7% growth seen in the United States. This overseas strength helped the company overcome a $15 million hit to its total revenue forecast caused by a stronger U.S. dollar.
• InVue Dx placements hit record: The company placed 1,600 units of its new InVue Dx instrument during the quarter, bringing the total number of these machines in the field to over 9,000. While sales of big equipment fell 20% compared to a year ago, these placements are vital because they lock in future sales of the high-margin chemicals used to run the tests.
• Profitability margins expanded: Comparable operating margins, which measure the profit left after running the business, grew 110 basis points to 35.0%. This improvement over last year was driven by the team finding ways to be more productive and a shift toward selling more high-profit recurring services.
• Annual profit outlook raised: Management raised its full year profit forecast to a range of $14.69 to $14.94 per share, up from the prior midpoint of $14.67. This higher target comes despite expecting a $0.22 per share hit from unfavorable exchange rates, showing that the core business is performing better than originally planned.

Our take: A very strong quarter that shows the business is winning on the metrics that matter most. While the headlines focus on the revenue beat, the real story is the 110 basis point margin expansion and the record pace of new instrument placements. This quarter reinforces the long-term case that pet owners will keep spending on high-tech diagnostics even when the broader economy is uncertain.