Ladies and gentlemen, thank you for standing by and welcome to the IDEXX Laboratories fourth quarter 2008 Earnings Call. (Operator Instructions). We will now begin the conference.

Good morning, everyone, and welcome to the IDEXX Laboratories fourth quarter 2008 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 Susan Astro, 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 to such differences are described in IDEXX's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and Form 10-K for the year ended December 31, 2007 in the section captioned Risk Factors, which are on file 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, Bonnie. Good morning and thank you for joining us today. In our press release this morning, we reported fourth quarter revenue of $243 million and diluted earnings per share of $0.39. As anticipated at the time of our last earnings call, we completed the sale of certain of our pharmaceutical product lines in the fourth quarter, and the transaction and related restructuring cost reduced earnings per share by $0.06. As we had indicated at the end of October, the updated 2008 EPS guidance we gave at that time was exclusive of this discrete item. Fourth quarter EPS of $0.44 as adjusted for the transaction grew 10% year-to-year. Full year earnings per share adjusted for discrete items were $90, an increase of 20% over 2007 earnings of a $58, as similarly adjusted for discrete items. Please refer to the table in our earnings press release for full detail on the discrete items in both years. Adjusted earnings were a $0.01 above the high end of the guidance we gave in the third quarter call, as the impact of slightly lower than anticipated revenues was more than offset by careful control of operating expenses. Before I further discuss operating results, I would like to briefly discuss our pharmaceutical transaction. The financial details of the product line divestiture have been highlighted in our press release. The net loss of $3.6 million, or $0.06 a share, consists of two components. The first is a pre-tax loss of $1.5 million that is inclusive of all transaction-related fees, severance and restructuring costs. The second is the tax provision of $2.1 million, which results from the tax bases of that divested assets, being less than the book basis and consequently producing a taxable gain. Although the impact to earnings from these transactions is negative, from…

Thank you, Merilee, for the overview and supporting detail of our financial and business result for the quarter and year. Given the very challenging economic environment that the world faced in Q4, and the consequent pressures on our customers, I am very satisfied with these results, both on the top line and the bottom. IDEXX continues to respond effectively to market conditions with the appropriate focus on cost efficiency and execution against objectives. I am also pleased that the pharmaceutical divestiture and out licensing deals were completed in the fourth quarter in a timely fashion, which allows us to focus on our core diagnostics and information technology strategies. I would like to note that with the reporting of the 2008 fourth quarter and full year revenues; we can confirm that our 11% annual revenue growth propelled us over the $1 billion threshold. The $1 billion mark was the company goal established a little over three years ago when we developed a strategic plan we call the blueprint to a $1 billion. Since that time, we built out this blueprint by investing and growing our core businesses and by making a few selected acquisitions that strengthened this quarter. I would like to take this opportunity to congratulate the employees of IDEXX on the hard work, innovation and customer focus that achieved this accomplishment. Our blueprint to a $1 billion called, in part, for investment in new product and service innovation that brings value to our customers. And as a result of the sustained level of investment over several years, we continued to introduce new offerings. For example, in a large tradeshow for the North American veterinary market held just last week, we introduced several new products and services and highlighted others that were launched in the fourth quarter for total of…

(Operator Instructions) We'll first go to the line of David Clair of Piper Jaffray. Please go ahead.

Good morning.

Good morning.

Just a quick question on guidance. You grew 6.5% organically this quarter. Your guidance was 7% to 9% in fiscal '09. Just, if you can kind of walk us through there. I mean, it seems like the economy continues to be a drag year. I am just curious how you get into the 7% to 9%?

David, I think that nobody can really predict where the economy is going to go and so all that we can do is really with our projections is, kind of presume that what we saw in the fourth quarter continues into 2009, so we kind of looked at that. That is being the impact of the economy. And then, as John and I both mentioned, we do have some growth that's coming from new products. Our instrument launches will contribute a couple of percentage to the organic growth next year. And so, we just looked at everything all in the mix economy and then factoring growth of and contribution from new products is delivering the 7% to 9%.

Okay. And you kind of hit on this on the commentary, but can you give us any clarity on pricing and volume impacts on the consumables and the rapid assay businesses? I mean if you can just kind of split impact on each of those?

Do you mean the impact in Q4?

Yes.

Well, in comparison to what prior periods?

Well, year-over-year, I mean, was pricing up 2% and volume down 2% or how?

In rapid assay, in particular, looking year-over-over and the quarter, pricing was a little bit under 2% and the rest was volume and this is on the growth of 5%, that's adjusted for distributor inventories.

Okay.

So pricing a little bit under 2% and then volume therefore a bit above 3% or closer to 4% for the total of 5%.

Okay, great. And well I think that's it for me. Thank you.

Thank you.

Thank you. And our next question comes from Ryan Daniels from William Blair. Please go ahead. Ryan Daniels - William Blair & Company: Yeah, good morning, Jon and Merilee. A couple of more detailed questions on the outlook. If we thing of the share repurchases, I know you guys have been averaging about 3% from the last, I don't know three to five years, it sounds like you expect that again. Have you considered taking that up given where the stock is and given the fact that your free cash flow should be so strong next year? Is that an option that we might see that tick up a little bit or maybe provide a little cushion at the bottom line as the year goes on, any thoughts there?

Ryan, yes, I think that's our base assumption that we gave you. We continue to be very excited about IDEXX's longer-term outlook. We think at the current price, the share is an attractive investment opportunity for us. We're going to have a strong free cash flow in this environment. We're going to be balancing our share repurchase against other things that we could do with that cash flow, but we do feel very good about in investment in IDEXX stock at this point. Ryan Daniels - William Blair & Company: Okay. That's helpful color. And, then if we think of the R&D, I know that that's run about 7% historically maybe a $70 million plus or minus run rate. Does that change it all with the divestiture of the pharma business? I don't know, what type R&D spend was related to that but I'm curios looking out to '09, '010 what we might see on the R&D front?

It is somewhat impacted by the divestiture of the pharma business. But, we had been keeping very controlled investment in R&D there in limiting to products that were very near term. So, I think that we might see, I mean -- basically the percentage will hover around 7% and it might be a little bit less than that as a percent of revenues for this year. Ryan Daniels - William Blair & Company: Okay. And then, you mentioned I know last quarter specifically about $3 million in pharma sales for '09. Is that still a good metric to be thinking about? I know Navigator, you're not producing anymore, does that change of assumptions in the pharma side?

Yeah. The revenues for 2009 will be slightly less than $3 million.

And, while they were part of the pharma segment, there basically some licensing fees and actually an equine diagnostic that just happened to be in the pharma group because of the Equine Pharmaceuticals. Ryan Daniels - William Blair & Company: Okay.

From a strategy point of view it is -- our focus is on diagnostic technology and information technology and so that 3 -- little bit less than $3 million is more of a assay of some other things. Ryan Daniels - William Blair & Company: Sure. Okay, that's helpful. And, then there's been a little bit of noise, obviously some new competition in the rapid assay market and based on all our channel checks. It sounds like really to compete with some of your 3Dx, 4Dx that Lyme disease is pretty critical to have a multi-analyte test. I was wondering, if you could talk a little bit about your patent protection around that is that something you guys are pretty comfortable with? It's going to be hard replicate or just any color you might have there I think would be helpful.

Thank you for that question, Ryan. Our 3Dx and 4Dx of course tests for several tick borne diseases the most, probably the one that investors understand the most is Lyme disease, but there are a couple of other tick borne diseases Ehrlichia canis and anaplasmosis, they are also kind of treacherous diseases to test for. We have a variety of intellectual property positions against 3Dx and 4Dx. Some of them are associated with the platform, the ability to do multi-analyte on the same platform. The ability to our SNAP bidirectional ELISA on a test kit is patented. I think what you are also referring to is the technology that we used for Lyme disease, which is the gold standard in both human and companion animal Lyme disease testing. It's called C6 technology. I don't want to get too technical here, but it's actually very difficult to test for Lyme disease, because it doesn't really – Lyme disease itself doesn't float around in the blood. It migrates to the tissues. And so what you can only test for is antibodies and that is much trickier and our C6 is a very clever technology. That technology, we've licensed of course exclusively worldwide for the life of the patent that goes through 2019. Ryan Daniels - William Blair & Company: 2019. Okay, great. And then last question, I'll jump off here. I know to date, you guys have really just been putting Catalyst and I think SNAPshot to its existing customers. You purposely have not gone after market share shifts. Can we -- looking into 2009 expect that to be part of the strategy too? Obviously, the curiosity here stems because of the consumable sales or probably incrementally better when you upgrade the Catalyst that would markedly better if you are actually changing share. So I don't know if you want put right color there, but anything would be helpful. Thanks.

Yeah, Ryan, we have been taken care of our friends and family as we call it, our existing customers with Catalyst, so far through the launch the vast majority of the catalyst that we have placed are with existing VetLab customers, who had the Vet test and upgraded. They have been waiting for high throughput ease of use some platform such as Catalyst, and we felt important to take care of the customers. We are going to continue with that strategy through probably good part of the first half of this year. But catalyst is an extraordinarily efficient instrument for any high volume practice and when we are talking about high volume here, let's not -- let's understand what that means. That means, it could be 5, 10, 15 test a day. That would be very high volume in a veterinary practice, but that's good business. And so, I think catalyst will be a very attractive option, whether it happens to be an IDEXX customer or somebody who is not currently using IDEXX equipment, and so we are going to be migrating as the year progresses to target the segment that is most appropriate for catalyst and we'll be moving beyond the friends and family, as we get into the second quarter and of course more into the second half of the year. Ryan Daniels - William Blair & Company: Okay, great. Thanks.

Thank you. Next we'll go to the line of Jonathan Block from SunTrust Robinson. Please go ahead.

Thanks and good morning, guys.

Good morning

First question, Jon, just the gross margins for both of Water and the PAS business were up very nicely year-over-year. And so sort of two part question, one what drove that and then to how should we view the mature margins in both of those businesses?

Jon, it's Merilee, I'll take that one. Actually both of those businesses, because they have a high percentage of international revenues, actually benefitted quite nicely from our hedging practices. So they had gains related to the financial hedges that we put in. And we also have seen for some of the areas that there's been a little bit of a favorable price mix, that's been going on.

And, we also have some licensing fees in the water business that are falling away.

Okay. So Merilee, I mean, is there a way to just try to quantify approximately what do you think the hedges may have added on the bottom line?

I, Jon, I wouldn't have that for you.

If you look at over the course of 2008, we have obviously very favorable currency environment for half or then more than half of the year and then the hedges when they play to factor there. They are just to the extent that those businesses benefit from volume that's manufactured in the U.S. and exported which is basically all the water international business and a portion of the PAS international business then.

Well, and another thing to think about. Just looking at year-over-year comparisons, we also last year in the PAS business had done an acquisition in Europe and so there were some of the integration fees were reflected in gross margin percentage. So, yes, there are just a number of factors that are going on there.

Those are generally very, very good gross margin and operating margin businesses for us.

Okay, great. And then maybe just a move on. Thoughts on the Catalyst, I think previously it was thought the control launch would last through the end of the year and then sort of glows off scenario and that I thinks' to be, maybe just push back a little bit. So Jon, when do you think you are going to go after those market share gains if you want sort of a question little bit ask differently than Ryan? And then, if you can just address the deal what I believe it was IRIS International, what does that give you guys or you didn't have before, does that alleviate any of the quality control issues?

Yes. Thank you. Let me address the second question first, it's relatively easy. We have a long-standing relationship with IRIS and really what that deal allowed us to do was to move to a high volume manufacturer of consumables to support the volume growth that we would anticipate. What they helped us design was the whole blood separator, which is the little plastic piece that you put the blood in and allows you to run whole blood on Catalyst. And so, we're moving that from manufacturers to a supplier with high volume medical plastic manufacturing as the core competency. So it's a pretty strict forward evolution of the supply base and we continue to enjoy very good relationship with IRIS. They make the centrifuges and an important centrifuges component for Catalyst Dx. More generally, we are very excited by having now launched some of the remaining capability for Catalyst as I mentioned in my opening remarks with electrolytes, which gives the ability to a full Chem-22 panel in eight minutes and also some important ease-of-used features on automated dilution and automated something we call urine protein/cretonne ratio made it far easier to now analyze urine on the analyzer. And so, as we've launched these and as we're taking care of friends and family which we continue to need to do in the first quarter, we're going to be opening it up to competitive, what we call competitive or [IONEX] places, starting a little bit in the second quarter and certainly more as the year progresses and that those are factored into our plans and our placement numbers.

Okay. And, then just moving on to your guidance, I mean simply you got a little bit more conservative on the organic growth. But just curious implicit in the guidance Jon early, are there any assumptions about share losses in your rapid assay market, you have got a new competitive today, you have got 90% of this market. Within your '09, do you assuming that you exit, beginning the exit in the 90% share?

I think it's important to state that we feel we have a really strong position in the rapid assay business strategically. A vast majority of our products are protected by a variety of patterns or even in both the platforms and the reagents. The area that has traditionally not been the case and there's nothing new about that is the straight heartworm-only testing segment. That's been an open field since the middle to late 90s. And, there have been lateral flow competitors in that segment since that time. What we have been doing has been migrating heartworm-only testing to 3Dx and 4Dx as people appreciated the importance of parasitic disease screening. But, we have always competed in that segment, now relatively small portion of our rapid assay business and obviously becoming small as we continue that migration. But even then, we think we have a superior platform, a product that would third-party clinical data has higher sensitivity and specificity, a strong sales and distribution network and as we put that on SNAPshot Dx and integrate that into the instrument suite is our additional values that we are going to be bringing to our rapid assay business. Now, having said all that, more because of the economy, we have a very conservative assumption for rapid assay revenues built into our 2009 guidance. Just because of -- it's kind of a trend that we've seen in the fourth quarter.

Okay. And just last one and then I'll just jump back in the queue. But past two our three quarters revenue has decelerated again. You are pointing to 7% and 9%. I think what you had in '08 and I think I am correct here, you had a little bit of tail and maybe 200 bps from a couple of lab wins that you'll lap in '09. So Jon, is it safe to say, again and pushing this guidance do you think that we shake out of this thing in the back half of the year. That's sort of the general thoughts on how you still get to that 7% to 9%?

Well, we are kind of assuming status quo. I bet -- if things improve, that would be good. If things deteriorate, that would not be good. We are assuming status quo. Now what happens of course is as you get to the fourth quarter, you anniversary the recession. So your comps become easier in the fourth quarter of 2009. But, I think what we are seeing with our 7% to 9% organic growth is that we feel very good about the markets we are going to create with our new products introductions. Catalyst Dx, we have a very, very strong digital radiography offering and digital radiography is an area of investment by our customers that saves them money and gives them higher productivity and gives them higher revenue capture. So we are right at the most attractive point for substitution from film, to digital in that trend as is demonstrated in for quarter seems to be a strong enough trend because of its economic inspects, not to be effected by the economy. Just in those two categories, Catalyst and Digital that's been generally close to half of our -- if you take 10% of the number, it's being close to half of the 7% of the organic growth alone. So you take the rest of the assumptions there are pretty conservative. The other thing I would say is we reported the 6.5% organic growth in the fourth quarter. We do that consistently throughout, but if you listen to Merilee's comments, we don't make an adjustment for changes in distributor inventories, but we felt very good about the quality of that underlying organic growth of 6.5% in the fourth quarter which gives us confidence with regard to our trends ended 2009.

Okay, great. Thanks very much guys.

Thank you. And next we'll go to the line of Ross Taylor with C.L. King. Please go ahead. Ross Taylor - C.L. King & Associates: Hi, I might start by just kind of continuing that same thought on distributor inventories. I think Merilee maybe answered this question with some other number she gave. But, if you exclude the distributor in Japan, can you estimate I mean how much inventory reduction on the part of distributors and maybe also that that's reduced your instrument consumable growth and rapid assay growth in the quarter?

The numbers that I gave included the distributor impact from both Japan and the US, so they were only numbers, so for instrument consumables it was a 2% impact to growth and on rapid assay that was a 7% impact from those two categories on growth. Ross Taylor - C.L. King & Associates: Okay.

And then with regard to what happened inside the practices, this is really, we of course don't measure inventory inside the practices. I wish we could, one of the problems, reason why we don't do it because the practice themselves don't measure the inventory. Inside their practice is very well. [Weigh it all] and they consider supply side inventories, when they bought it they have spent the money and then -- they don't think about when they have used it. So, the economic concept in inventory is not something they think about. However, as we look at the ordering patterns in the fourth quarter, and we compare them to the ordering patterns of the prior fourth quarter, we noticed a little bit tick up in the frequency, and a little bit tick down in the size for order. And so one could speculate that, that might have had a small impact, 1%, maybe 2% impact on the growth rate that they were buying less than they were selling, they were using in comparison to the compared quarters of 2007. Ross Taylor - C.L. King & Associates: Okay. That's helpful. I am sure they did very, very dramatically byproduct line. But what would you consider to be a normalized, kind of day sales inventory that distributor add of that might have in their clinic?

Well, distributor is, very typically, it's three to four weeks. It's been that way for us, as that US, outside the US might be a little bit more or less, depends on the distributor. Well, inside the clinic it's probably also weeks, I would say, that would be our guess, it would be weeks, not months. Ross Taylor - C.L. King & Associates: Okay, all right. And just maybe two other questions…

And as you say, it varies by product line too. Sometimes they, like they buy up for the season on parasitic disease screening, for example, and with instrument consumables is probably more steady state. Ross Taylor - C.L. King & Associates: Okay. And then maybe two others questions. But can you all make any estimates as to what might actually be happening at the average clinic level in terms of revenues, I mean are there average practice, I mean do you think their revenues are up down flat, can you make any estimates there?

That's a great question. And we get reports from our customers, our big customers, our little customers. We also are able to analyze some data, some sample data that comes from our Cornerstone customers and as part of the service that we provide them to help them understand what their business is doing. And as we put all this together, it looks like the clinic growth, if you will, in the fourth quarter in the U.S. was somewhere between a zero and 1% or 2%. But that's very anecdotal. We're trying it like the three or four ways, and unfortunately the data is just not, there is no way that get this in a way would give you a lot of confident around those numbers, but it's the ballpark. Ross Taylor - C.L. King & Associates: Okay. That's actually helpful. And maybe the water business is some times hard for at least me to analyze, but the Colilert product in China, I mean do you think that has much potential to accelerate your organic growth within that business?

I think it will allow us to continue our organic growth in that business. We've talked about a 5% to 7% organic growth and that organic growth really comes from as we introduced the product into new geographies, we get new approvals and we get tick up in those geographies over time. And China is one of those geographies that we have not yet really penetrated until relatively recently. We were delighted to be the technology that was used in the Beijing Olympics for the potable water in the village. And I think that gave us some visibility inside the country and what we've introduced in there is not just to scare it, but it's actually a very similar product, but it's all in Chinese. So they can understand that and use a little bit different marketing and distribution approach and that seems to be a very effective early returns. Ross Taylor - C.L. King & Associates: Okay. And, last question, I want to make sure I understood something that I think Merilee said, but did you mention that the Feline Combo test can now be performed on Catalyst or is that you read by SNAPshot?

If I said Catalyst, I meant SNAPshot Dx and that got approval in this month in January and so we expect then it will be out on the market in the second quarter.

As we introduce the software in SNAPshot Dx. So, two products SNAP cPL, which is pancreatitis test that we use and which do not require USDA approval and Feline Combo which did. We'll be introducing that capability on SNAPshot as the first off our plan to rule out the entire SNAP line on SNAPshot Dx. And we've got a lot of excitement from customers. We've done some field trials and basic productivity with their technicians. They see charge capture. They see information capture in the electronic medical record. It's funny. They don't actually fully appreciate until they start using it and then they really see the benefit. And, so we think that's always been a little bit of a sleeper opportunity. But as we actually show the customers it and they actually see it, see how it works, they get pretty excited. Ross Taylor - C.L. King & Associates: Okay. That's great. That's all I have. Thanks very much.

Thanks, Ross.

Thanks you, Ross.

Thank you. And, we have time for one final question and that will come from the line of Daniel Owczarski from Avondale Partners. Please go ahead.

Yes, thanks and good morning. Just I had one question on the digital radiography side. You had talked about still having a meaningful order book. Are you seeing your backlog increasing or decreasing? I was just curious as to even customer response. Are you seeing cancellations or delays? And then finally, can you explain again like in this line who are you competing with? Is it older technology or you selling into clinics that don't have any of that capability whatsoever?

Thank you. Those are great questions. We are very happy with our digital radiography line. There are actually a two different price points that we sell. One is called computer radiography and one is called direct digital radiography. Computer radiography might be a $40,000 to $50,000 system. The direct digital might be double that, $85,000 to $90,000 system. The only difference between the two is, you get the image in the direct digital in five to ten seconds and in computer radiography, it takes you 60 seconds to create the image. The image quality is indistinguishable between the two as is stated by third-party radiologists. So we have outstanding image quality across our product line. We used the same software. It's a very, very software-intensive business because you got to not only take the images, you got to have software that allows you to read them, store them and manipulate them. And then the other aspect of our offering which I think is unique is it's ability to integrate with Cornerstone. And as we roll out over the course of 2009 third-party software, this high level of two-way integration that we call SmartLink and so people are appreciating that. It's not so easy, if you just order a digital radiography system, you're going to have like a whole different medical record system then anything else if its not integrated, and they would rather have one medical records then multiple line in different systems. We compete against a wide -- there are a lot of people who are getting into digital radiography, I think they will probably be few of them. A year from now, that they are now, somebody counted something like 15 different companies in the trade show that we just came back from. We believe, we have a very strong, if not leadership position, it was result of our success over the second half of 2008 in digital radiography, most of the volume is coming from practices who are converting from film to digital, so that that's the bulk of the revenue as conversion. There are some who are adding a second system or third system and some cases they have a very old technology that they are upgrading, but that's really not as, not very big part of the market at this stage.

Okay. But if that price point you are not saying, or are you saying delays or cancellations?

Not anything out of the ordinary, we had a very strong fourth quarter, we went into the fourth quarter with a strong order book. We delivered against that order book. We had good year-over-year growth. We developed orders in the fourth quarter, that where gave us a backlog that went into the first quarter and so at this point the market looks very good.

Thank you.

Thank you, and with that Jon and Merilee, I'd like to turn it back over to you for any closing remark.

Well, I'd just like to thank everybody that came on the call. We remain very excited about our business and our market despite the challenges that all those who are facing with the economy. And again, I'd like to congratulate all the employees of IDEXX to have cross the billion dollar threshold and reach our blue print $2 billion like, actually earlier than we originally anticipated. And we look forward to updating investors on our progress at our first quarter conference call in April. Thank you and that concludes the call.

Thank you. And ladies and gentlemen that does concludes your conference call for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.