Good day, everyone and welcome to the IDEXX Laboratories fourth quarter 2007 earnings conference call. Just a reminder, today's conference is being recorded. Participating in the call this morning are Jon Ayers, Chief Executive Officer, Merilee Raines, Chief Financial Officer, and [Jim Moraldi], Director of 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 such differences are described in IDEXX'S quarterly report on Form 10-Q for the quarter ended September 30, 2007, and annual report on Form 10-K for the year ended December 31, 2006 in the section captioned Risk Factors, which are on filed with the SEC and 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 upon 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, Matt. Good morning and thank you for joining us today. In our earnings press release this morning, we reported fourth quarter revenue of $245 million, a year-to-year increase of 27% and diluted earnings per share of $0.40, a year-to-year increase of 5%. While the impacted discrete items on this quarter's earnings was negligible, last year discrete items had a net favorable impact on reported earnings. Year-to-year earnings growth adjusting for these items was 29%. I also remind you that we affected a two-for-one stock split in the fourth quarter. Accordingly prior year earnings per share and share counts have been adjusted for comparability in our press release. The quarter's results contributed to produce full year revenues of $922.6 million, a growth of 25% and full year earnings per share of $1.46 on a reported basis. Full year earnings per share adjusted for discrete items were a $1.58, a growth of 19% when also adjusting 2006 reported earnings per share for discrete items. Reconciliation of adjusted to reported earnings per share is included as always in our press release. Consistent with the prior quarters in 2007, we saw impressive revenue performance in the fourth quarter that brought us ahead of the full year guidance of $910 to $915 million we gave in October. Greater than anticipated impact from currency in the fourth quarter contributed about $2 million to our revenue over delivery. Our full year earnings per share were at the high end of our guidance on both the reported and adjusted basis, as better than anticipated revenue performance was somewhat offset by a slightly lower gross margin than we expected. Let me now provide some highlights on the P&L. The fourth quarter revenue growth of 27% included 5% growth from currency and 7% growth from acquisitions. So organic…

Thanks Merilee, for that review our financial performance for the fourth quarter, full year and our outlook. We have strong revenue performance driven by the organic growth of our businesses and aided by a variety of other factors, including favorable currency in acquisitions. We finished an already strong year with a great finish in most of our business, particularly, the Companion Animal Group, which comprises 82% of the company’s revenues. Instrument placements worldwide in the fourth quarter were extremely impressive as Merilee reviewed. The most important of these instruments is our chemistry analyzer VetTest, which generates by far the most consumable demand of any of the analyzers in the suite. Global placements of VetTest were up an amazing 68% for the fourth quarter over last year. As a result of great year and placements and royalty, we now have an estimated active worldwide installed base of 30,000 VetTest customers. We also exceeded our targeted sales of IDEXX VetLab Station since the launch in Q1 of 2006 achieving almost 5,900 cumulative placements, versus the target of 5500 that we discuss in the quarterly calls over the course of 2007. As a reminder this cumulative number stood at about 4,600 at the end of the third quarter. Customers who had purchased an IDEXX VetLab Station, either by buying a LaserCyte Hematology Analyzer or the standalone unit, benefit from some highly appreciated data management and reporting features that increases the convenience of the their in-house IDEXX VetLab. In addition, they've also taken the first step getting ready for the future as IDEXX VetLab Station is also the controller soon to be launch next generation analyzers from IDEXX. We also launched, on schedule, in December the IDEXX Coag Dx instrument, which adds to the IDEXX VetLab suite the capability to detect bleeding disorders. It…

(Operator Instructions). Our first question today will come from Rick Wise with Bear Stearns.

Good morning, Jon, good morning, Merilee.

Good morning, Rick.

Good morning, Rick.

Let's start maybe if you worked with a little more perspective and color on gross margins. Merilee you highlighted some of the factors involved and I'm guessing like the strong VetLab placements which I assume are low margin. I mean that's another factor that could have helped. And Merilee you emphasized again in your comments that margin improvements are very achievable. Can you help us think to some other moving pieces and talk about, a little more clarity, whether gross margin improvements are rebounds or are going to come from? Thanks.

Sure Rick. As we look forward with gross margins, I think that some of the things that we've talked about are, we've got the dynamic of a razor blade business. We've had a lot of focus on instrument placements, our lower gross margins relatively than our other product lines. And so as we get those placements what we've seen is greater consumable growth, we rate that guidance on consumable growth rates a number of times pretty consistently over the last couple of years. And those consumables are at a high margin and because as we've mentioned a number of times of the economics of our contractual commitments, both margins continue to get more attractive over time. So there is a piece there on the mix side with our IDEXX VetLab product offering. In addition, the reference laboratory business, we've grown quite a bit there over the last few years. And a lot of that growth has come through acquisition of laboratories. Typically those laboratories we've seen are at lower gross margin than our longer-standing laboratories. So we need to work on operating efficiencies with those labs in particular. But also when you look at our worldwide network, we see lots of opportunities for additional efficiencies, things like global purchasing, commitments and what not that we can drive best practices across laboratories. And importantly, a big driver in the reference lab business will be continuing volume leverage, as we get more and more growth in that business, we get nice drop-through.

All right. Not to pick on this at all. But I was still struck by the fact, I mean, I think in every quarter, they are moving pieces and obviously capital placements have been strong for last few years. But I am still struck that it's the lowest, if I am looking at right, the lowest fourth quarter gross margins since 2004. Is there anything unusual that happened in this quarter? Is that the acquisition, is that the biggest factor making that happen?

Well, acquisitions certainly are affect of reckon that. The acquisitions that we've done on the labs are those were the areas where we saw the lowest gross margins. We know and have plans in mind, we understand that the areas that we need to address there and we are working on that. So, that certainly is a piece of it. And again the very, very strong instrument placements were another impact, just really a mix issue for us that does certainly should bold well for the future.

Exactly. One last question for now. Coming back to Catalyst Dx, Jon, I think you highlighted the experience in the past that the testing you talked about in your conference there. And maybe just a little color on the curve with the roll out, I mean they are going to roll out four sites initially, let them use it for month or 10 or 20. May be give us a little more detail on that. Thanks so much.

Okay, thank you Rick, those are two quick questions. Yeah, we are in much better shape in the launch of Catalyst internally. LaserCyte was a very very successful commercial launch for us, but we devoted a lot of resources post-launch to come down a learning curve and devote a lot of recourses to ensuring that the customer experience was positive. And so, we've really – we've got three things that are different I think with Catalyst and then with hematology analyzer. First is, we have the experience of having already launched a major instrument platform, and many, most of people that are in leadership position sure have been through that experience and that just very very helpful and was involved in the design of instrument all the way through. Second, is that the fundamental technology of hematology is more complex than chemistry, by its very nature you are measuring a biological, variable cell in hematology and we were using a breakthrough technology in introducing that and there were some learning associated with that laser-flow cytometry and a point-of-care instrument had never been done before and we did achieve it to great results, but it was a higher technological risk that we took on with chemistry. And then third, one of the great things about our chemistry strategy is we are using the exact same reagents. The slides have a little bit different shape, but the actual what's on the – and the way they measure the chemistry is no different than the goal standard that we use in VetTest. And so we don’t have any risk with the reagents or how they work or if anything along those lines with chemistry, they're well understood, well characterized and we feel good about that. So it also reduces the risk. With regard to the rollout, thank you for that question. We expect to ramp this up higher similar to LaserCyte. If you recall Rick, , we launched LaserCyte in the fourth quarter of 2002 and we sold about 1200 in the first year of 2003 after the launch in the fourth quarter. We expect with regard to Catalyst, our plans are not totally down precise to the unit, but we'll be launching that of course, at the end of the first quarter. And expect to probably in this case to have placements of a 1000 to 1200 over the course of the year, and that will be accelerating towards the end of the year, as we go through our ramp process.

And our next question will come from Ryan Daniels with William Blair.

Yeah. Good morning, everyone. Merilee, another quick question on the gross margin. I know you said on the last conference call that you would anticipate gross margins could be under some pressure in the first quarter, due to scale up in the new product launches. Do you still anticipate that we should see a drop from Q4 to Q1 looking forward?

Hi, Ryan. I think that, we are not going to have a significant impact from Catalyst particularly in the first quarter that the launch is going to be ramping. So, I suspect that we, as I guided here even with that range of margin about 51% to 52% that it'll be slightly lower towards the lower end or maybe in the first quarter and then we'll be ramping up. Typically, as I mentioned I think, second quarter because of revenue mix and seasonality for heartworm products in particular drives the gross margin up, that will be higher. But then you'll see margin sort of more relative on par. So I suspect again, our big driver in Q4 was the mix, the product mix here of instrument sales. So, I suspect we will see some improvement from that in the first quarter.

Okay. That's helpful. And then you mentioned in your prepared comments, that you had a kind of sales or distribution change over Japan going to an exclusive distribution arrangement. Can you just give us a little more color on, what that is and maybe what drove that decision more importantly?

Yeah. Ryan, we have, I don’t want to go into the details of the distributor, but we were really using a variety of distributors and they won't really adding much value other than logistics. And we started conversations with one distributor and had a value added sales force that could work in partnership with us, to help grow our business there. And so we felt that aligning with that just more full functioned or more like maybe the distributes that we have in the US. That is the more function cover the entire country. I was very, very familiar with that Companion Animal business carry some other important and complementary lines in the companion animal business that if the more of a integrated solutions, would benefit us and in that case they are also a stocking distributor and we had a initial stocking order that came with carry inventory ongoing basis.

Sure. Okay, that's helpful color. And then two more quick ones, this is the bit of a follow-up you've obviously shared your thoughts on the potential for domestic market slowdown and the ability to continue grow through that, but now with 40% or so of your revenues oversees. Can you give us a little bit of an update on what you are seeing in some of those markets and what's the growth outlook, looks like in your outside of US operation?

Our growth outlook is really unchanged in either the US market or in our international operations. And we feel a pretty good about the opportunity actually across all of our lines of business with interesting. As you mentioned, we do have 40% of our revenues that come from outside the US. The other businesses, then the Companion Animal businesses are more represented internationally of an even Companion, the majority of the revenues for example in the Production Animal Services business comes from the outside the US. So, our revenue guidance put forward all of our businesses, incorporates really an unchanged and favorable outlook for growth. And we are pretty diversified, we are really, really in all major geographies in one way or another and most of our businesses and most of the geographies.

Okay, great, helpful color. Then last question, Jon. You mentioned that the VetTest, if I heard you right was up 68% on a year-over-year basis, which is obviously a remarkably strong growth metric. Can you give a little more color was that an easy year ago comp or is it a just a lot more traction internationally or more market share gains here, any color you can get on what's driving that, that really solid growth there.

It was great growth, 68% you could have a, that's not going to be measured by simply an easy comp because typically the fourth quarter is an important quarter. So, I think standalone itself that is a pretty amazing statistic. It wasn't a particularly easy or hard comp last year. I think what, what we really learned with how to market the integrated VetLab and the value of the pieces coming together, not just VetTest and all the new elements that we have included in VetTest that really is a very, very different instrument platform, today than it was two or three years ago and lot of that came together in our sales and marketing of the instruments suite in 2007. And then on top of that, I think we really learned how to use IDEXX VetLab Station, as a value added piece to the initial placement of the suite. Again adding more capabilities, than we had with us, with a simple analyzer and customers are really appreciating and they're pretty wowed by the kinds of things out there, IDEXX VetLab Station news, it's very visual, it's very information rich, it's designed to make diagnostic information easily presented to the veterinarian. And so I think we really learned how to go beyond just marketing individual instruments to marketing a modular suite that can come together in different configurations to provide in-house lab capability, specifically designed for a particular customer. And we did that both in the U.S. and internationally outside the U.S too so. But we still have an opportunity to improve in that area.

Great. Thanks guys.

Our next question will come from Dawn Brock with JPMorgan Securities.

Good morning, Jon. Good morning Merilee.

Good morning, Dawn.

Good morning, Dawn.

A couple of questions here. On the operating margin side, it looks like G&A and R&D actually came in quite nicely, probably a little bit ahead of expectations while sales and marketing ramped up. Can you give us just some idea as to what you are looking at through 2008 for those expense lines?

Yes, Dawn. I think that, just as I had indicated in the guidance going forward, we expect that the operating expenses as a percentage of revenue are going to be about 36% of revenue. I think that's fairly consistent with what we have been seeing.

Is there anyway for you to just give us a little bit more clarity in breaking down those three different expense lines leading into the operating margin?

Well, I think typically I would see things as being kind of fairly similar to the profile that we have seen in 2007 when you adjusted for discrete items obviously. So our R&D typically is about 7% of revenues and the SG&A will be the balance there 28%, 29%.

Okay. Fair enough. The strong instrument placements, how does this typically, if you can just give us a little bit of color on how you expect the instrument placements and the timing of the strength of these placements, to play out from a consumables perspective? Are you expecting a nice ramp in the first quarter based on the way that instruments were replaced on in the fourth quarter?

Well, Dawn, thank you for that question. We have a very large install base, so the nice thing about our growth is we are growing instrument consumables and we've given that longer-term guidance of 9% to 11% off of the worldwide install base instruments. Certainly the attractive placement success that we've had really over the course of 2007 combined with really high loyalty, meaning continuing existing customer base, a very high percentage of loyalty which we measure and which is really part of our strategy as we had more and more capability to even existing customers. And every quarter we've launched and announced something new that's make things, the VetLab have more capability than it had before, gives us strong confidence in continued consumable growth in that area.

Okay. Maybe just taking a little bit further, Jon, when we are looking at the VetTest analyzers, there was obviously great demand for the instrument. Taking that, the next step, demand for refurbished VetTest analyzers that are going to come, kind of out of offices as people order the Catalyst. Where are you seeing the most demand for those refurbished instruments? And I think that, at least the way that I am thinking about it, you are going its really going to be Catalyst additive. It's not going to be nearly a swap out. So, where do you expect a lot of those kind of older refurb instruments to go? Are you looking at them being mostly international, I know you do a lot of reagent rentals now, but where you are seeing the greatest demand for that?

Well, thank you. That's, I think you characterize that the situation correctly, of course, because the placement of Catalyst instruments will be weighted towards the backend of the year. If those recertified instruments from the VetTest side will also be available towards the backend of the year. We've to take them in trade, we have to go through a recertification process, doesn't take that long, but if they won't become available until we're really, into volume on the Catalyst. We will be placing VetTest over the course of the year, and actually we have a very good outlook for the first quarter in terms of continued instrument placement really as a result of the great worldwide sales and marketing organization. With regard to where the incremental lower cost VetTest will go, I would say, I wouldn't see too much of a change in our strategy in the US with regard to smaller clinics, starter clinics wanting the value with integrated VetLab. So, really where the incremental opportunity will be, that will come from instead of a little higher cost new VetTest, lower cost recertified VetTest will be for us to accelerate penetration in international market where typically practices can be a lot smaller. Nice thing about VetTest in those international markets is that the ability to actually use single slides is more appreciated in smaller clinic internationally, because the way they practice medicine, they aren’t use to, as much using profiles than they are. They do like using singles and very small sort of testing exactly for what they want to test would like them to test more, but that's really how they were trying with [Vetpo], and so the VetTest works really well in say emerging markets and that’s where, and of course they are also little bit more price sensitive with regard to the instrument initial placement and that’s probably on the margin where we are going to see, the opportunities spill over as we have a greater number of recertified instruments available.

Okay great. And my last question is the revenue bump, may I guess wasn’t listening carefully enough, but I am wondering if you can just give us an idea of what its really representative of as we move in ’08? Is it continued momentum at instrument placements are you getting some pricing traction?

Dawn, just to be clear you are talking about is it the strong delivery in the fourth quarter and implications for 2008 is that or.

It was increase in our guidance.

The increase in the guidance.

Yeah it really is, we're definitely now launching off of a higher base we had in fourth quarter and I do we see, we really see strength across all the businesses clearly as we have indicated. We see continued momentum in the instruments placements, we will see some ability to have price increase as we have seen in previous year as we continued to just add more value to our products, we’ve been able to realize the price. I think its what we've seen here are really just continuation of all of the scenes, as we go into 2008 from 2007. Is that clear?

Yeah it is. Is there a lot of -- this is probably a little bit of check question, but is there a lot of conservatives on in, you are looking at margins as being flat. I mean, if you think about just that the product launches sales and marketing needing to ramp up that for that, but being able to pull back a little bit on that, even at the gross profit level of that were two remain in that 51 to 52 range. It seems us though there is a little bit of leverage in the model from the operating expense line. Am I misreading that?

No. Let me just say that clearly one of thing that we said that, next 2008 a little bit tricky for us, is just the instrument launches that we have. And so it's a just we feel like, we have a lot of great experience here. We are very well positioned as we have indicated. But it also a scenario that we have relatively left history with you, we are just launching. So I think we -- that becomes a key watch area for us. As well as with acquisitions and integration of acquisitions, we have plans and actions to achieve margin improvement and these things take a while to execute. So, we try to build into our guidance performance best, we believe it is achievable and as we said is robust in offset -- not everything goes right. We can still meet our guidance and I think that's what we try to do...

History shown that, not everything always goes right.

Yeah, got you. Thanks so much.

Thank you.

And next we will hear from Ross Taylor from C.L. King.

Hi. I had a couple of questions. The first one relates to the SNAP platform. I think you mentioned, on your prepared remarks that was 4Dx penetration might be maturing some at around 30%. And I just wanted to know is there addition you can make to that product line going forward to keep it fresh and keep customers trading up to higher priced, more value-added products.

Thank you, Ross for that question. I think what we were saying was the impressive rate of growth that we had in the adoption of 4Dx from really 6% to 30%, might not continue at the same rate. Although, we do not feel that 4Dx or even 3Dx is by any means mature in a penetration. I think it just as a, you are building on larger base in 2008, than you were growing in 2007. And therefore the favorable mix shift will be at a smaller amount. But I will tell you, we have a long time, long-term very attractive franchise for continued growth in parasitic disease testing. We are certainly less than I would say, less than half of ultimately, what we think we could be penetrated in that market and the veterinary world's penetration rates are slow, but they are also sustained a result. In answer to your question, I guess more generally about the pipeline for the SNAP product. We have a continued very exciting pipeline. We will have some more information on that in later calls over the course of 2008. All of that really gives us confidence for sustained 8% to 10% growth in important franchise. It is a good margin franchise source. One of the things that we didn't talk about is we continue to be very excited. It's not a big product, but we continue to be excited about the launch of our pancreatitis test, point-of-care SNAP cPL. And we achieved an extraordinary, over 25% penetration of the U.S. customer base in the first six months of launch and that's really, given that, it takes a lot get the word out in veterinary world. That's an extraordinary, our first success and while that's not going to be anywhere near as big as our canine parasitic disease franchises. It's just a good single level continue to help us deliver growth. But we also have other areas in the pipeline beyond our existing franchises that will continue to build the SNAP family. And then finally, I just remind Ross, all investors, I know you know this that we're excited that one of the features of SNAPshot Dx that we anticipate adding as a software update later in 2008 has the ability to interpret and log electronically the result from our entire SNAP family, not just the three quantitative assays that we have on SNAPshot Dx and SNAP Reader right now, but all the canine parasitic disease that screen the feline and SNAP cPL etcetera. All of those will be able to be interpreted adding another convenience feature to the IDEXX VetLab and one of the nice things about the SNAP family is really the vast majority well over probably 90% of veterinary practices in the U.S, purchase some form or another SNAP. So it gives us a cross-selling opportunity.

Okay. That's really helpful. And with regards to the SNAPshot, I mean any estimates or projections as to how quickly that might be adopted by veterinary practices? And would you anticipate that consumption or utilization of some of the SNAP tests increases among the vets who do have the SNAPshot, particularly when it has the capability to read the parasitic test?

Yes. I think with regard to placement for the SNAPshot Dx, they will probably follow right along in lines with Catalyst. I would say the vast majority of purchasers of Catalyst will buy a SNAPshot or along with it. I think the thing we are most excited about with SNAPshot Dx is the ease that is going to provide in doing the thyroid test which is important part of a full panel for a senior or geriatric pet had over in this case, typically over seven years of age. Typically you want to T4 to your panel, and today the vast majority of T4 that's run, the vast majority is actually send us to the reference lab because while we've had in-house people who are testing capability, it's hasn't been as convenient as it takes longer as chemistry or hematology and we are going to be changing that with the new capabilities of SNAPshot Dx that we will be introducing over the course of the year. And so again it's just nice when you have more complete capability in-house.

Okay good. And last question. It's, I guess, close to a year now since you all have completed any acquisitions. Are you all still active evaluating potential acquisitions? Or do you still want to digest which you've acquired about a year ago before adding some new businesses?

Right. Thank you. We did do four acquisitions across our businesses really spread between towards the tail end of fourth quarter of 2006 and the first quarter 2007. And that was an unusual period of acquisition activity for us. I think it was really, acquisitions aren’t necessarily something that you think the time and that was up certainly higher rate of acquisition than we’ve done historically or that we would anticipate doing going forward. We're always considering on acquisitions there are little niche acquisitions sometimes this is the technology acquisition that we do, that we can do something with in terms of introducing a product. But with regard to the overall, sort of outlook if you will, I think we’re mostly an organic, a technology driven company and an organic growth story acquisitions historically before that period and probably going forward and playing minor role in contributing to revenue growth.

Okay. That’s helpful thank you.

And that is all the time we do have for questions. Mr. Ayers, I will turn the conference back over to you.

Okay. Again, just to conclude I want to thank everybody for calling in and just again thank our customers and our shareholders more broadly and certainly our employees for a great 2007 and we’re very, very excited to be looking forward to 2008. Our opportunities for the next five years, I think our next five year plan looks as exciting as it ever has in the period that I have been with IDEXX and we look forward to accomplishing another great year in 2008. So, thank you very much for that and this concludes the call.

That does conclude today’s teleconference. We would like to thank everyone for their participation and wish everyone a great day.