Good morning, everyone, and welcome to the IDEXX Laboratories’ Q2 2012 Earnings Conference Call. As 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 Pete Levine, 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. Forward-looking statements can be identified by the use of words such as “expects,” “may,” “anticipates,” “intends,” “would,” “will,” “plans,” “believes,” “estimates,” “should,” and similar words and expressions. Such statements include but are not limited to statements regarding management’s expectations for financial results for future periods. 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 March 31, 2012, in the section captioned “Risk Factors,” which are on file with the SEC and also available on IDEXX ‘s website at www.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. Also during this call we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A definition of these non-GAAP financial measures is provided in our earnings release which can be found on our website at www.idexx.com. Finally, we plan to end today’s call by 10:00 AM Eastern. In order to allow broad participation in the Q&A, we ask that each participant limit his or her questions to one with one follow-up as necessary. We do appreciate you may have additional questions so please feel free to get back into the queue, and if time permits we’ll be more than happy to take your additional questions. I would now like to turn the conference over to Merilee Raines. Please go ahead.

Good morning, and thank you for joining our call today. As we reported in our press release this morning, our Q2 revenues were $335.6 million yielding organic growth of 7%; and diluted earnings per share were $0.91, a year-to-year increase of 10%. Revenues were slightly below our thinking at the time of our April call, the result of a few factors; first, unfavorable changes in currency rates relative to our thinking in April resulted in about $2 million of lower revenues. Post currency input, somewhat lower growth in reference lab revenues currently offset by stronger growth in instrument consumables revenue in North America, were the primary factors netting to organic revenue growth that was about 1% lower than our expectations. Earnings per share for Q2 were in line with our thinking in April. The impact of lower revenues was offset by lower-than-anticipated spending on operating expenses, in part due to discretionary spend and in part due to timing. While actual currency rates versus expectation yielded a modest unfavorable impact on revenues for the quarter the impact to EPS was immaterial. As a backdrop to the discussion of our Q2 performance in our companion animal group, the following is what we are seeing in the US veterinary market based on a subset of roughly 500 practices using our Cornerstone Practice Management System. In Q2, patient visits grew by 4% and practice revenues grew by just over 5.5%. While both metrics continue to be favorable to the growth rates seen throughout 2011 when patient visits were flat and practice revenues were up 2.5%, they were slightly lower than the Q1 metrics of 5% patient visit growth and 7% practice revenue growth. Further, the growth rates for both metrics decelerated somewhat over the course of Q2. We believe this trend indicates that some…

Thanks, Merilee. Overall we had a solid quarter and are tracking to our goal of achieving 8% to 9% organic growth set at the constant currency. Like all companies that do business internationally, we’re impacted by the strong dollar and our guidance reflects the current foreign exchange rates accordingly. Regarding the economy, after the early part of the year that benefited from favorable weather comparison in North America we see the resumption of a more continued slow improvement in our markets. Success comes at the individual customer level in the companion animal market. It is this segment of our customers that are effectively responding to the needs of the pet-owning clients that are seeing strong growth in their practice, and our strategy is to provide the tools to help drive that growth and get more customers to adopt those tools. In the area of new products we’ve been particularly productive in 2012 within our companion animal group, which makes up 82% of the company’s sales. So far this year we have introduced or plan to introduce shortly an impressive list of new tests, services, and software solutions. Let me list a few. In April as investors know, we started shipping SNAP 4Dx Plus, an upgrade to our highly successful SNAP vector-borne disease test that added two new tick-borne diseases to a single kit, bringing the total number of diseases detected in one SNAP to six. The response on that has been very, very favorable. In April we introduced the Pet Wellness Plan service in partnership with [VerenaCare]. In April we began shipping phenobarbital for our Catalyst Dx chemistry analyzer, a new test that is receiving rave reviews for the value it brings to a patient that is prescribed phenobarbital for therapeutic treatment and the ability to test right on site…

Certainly. (Operator instructions.) Our first question will come from the line of Ryan Daniels with William Blair. Please go ahead. Ryan Daniels – William Blair: Yeah, good morning; thanks for taking my question. I’ve got one macro and then one company-specific follow-up. On the macro you mentioned in your prepared comments that the end market slowed a bit in Q2, which is not surprising, but also that you saw some deterioration throughout the period. And I’m curious first off if you can talk about the magnitude of that slowdown through Q2, and then number two, is there any ability to perhaps determine how much of that was weather-related? Maybe it was more flea and tick weakness throughout the quarter; anything you can help with kind of setting that between macro weakness and pull forward weakness would be helpful.

Ryan, it’s certainly a question of great interest to us all. To answer the first part of the question, I think the growth was a couple points less in the third month than it was in the first two months but I do caution that monthly data can be quite noisy because you’ve really got a very small amount of time that you’re measuring that year-over-year compare. It’s hard for us. We don’t really have direct visibility to the flea and tick piece and pull forward and such, so it’s just really hard to speculate. Certainly there was a very favorable weather compare in Q1 which we mentioned in April, and I think it’s not a secret to anyone that consumer confidence and general economic trends seemed to deteriorate a little bit over Q2 and that was consistent with I think what we saw in our markets, again subject to, with a caveat, a volatility in monthly data. Ryan Daniels – William Blair: Okay, that’s helpful. And then the company-specific, just with the resolution of the distribution agreement it sounds like it now may be in place by Labor Day. Does that mean in Q4 you’ll start to make some changes and is that contemplated in your guidance related to things like maybe ramping up your direct sales force? Or will that really mostly take place in F13? Thanks.

Yeah, thanks. Of course I’ll remind investors that our distributor contracts do go through the end of the year, and it is our anticipation in our discussion with our distributors, although anything can happen, that they would like us to honor those contracts through the end of the year. So any actual changes that would take place in that conflated scenario would be at the beginning of a new contract year of January, 2013. And so our guidance really incorporates all the different moving parts of the company and we would see that that transition is something that we can manage within our numbers. Ryan Daniels – William Blair: Okay, thanks a lot.

Thank you. And our next question comes from the line of David Clair with Piper Jaffray. Your line is open. David Clair – Piper Jaffray: Hi, good morning, Jon, and congratulations, Merilee. The first question I have, just if you could maybe give us an update on Europe? It sounds like on the reference lab side we might have seen a little weakness there. Do you think this has stabilized or are you expecting some additional deterioration throughout the year?

David, as I mentioned, even though the overall companion animal group growth in Europe was constant at 5% in Q2 as with Q1, it did vary by product line, vary by country. It’s really hard for us to predict where that will go. I think implicit in our guidance is we’ve kind of presumed that what we’ve seen will just continue, and obviously we’re closely monitoring the situation. But you know, that was just a little bit tough to call.

Yeah, and in the meantime of course we will be starting that new significant lab during Q4 and we’ll get a little benefit from that as it starts up. David Clair – Piper Jaffray: Okay. And then I’m not asking for any 2013 guidance here, but just as we kind of think about the impact from the distributor change, any kind of initial thoughts of should we assume there’s a little bump up in sales and marketing or any kind of color there?

Well, we anticipate that the impact on the changes and the modest refinements in the composition of our marketing and sales and channel costs, where we have… Whenever we will have a difference in advocacy at the distributor level we will replace with direct costs – I don’t think the bottom line will be different or the trends will be different, although of course the composition might be a little bit different. So we really see as we mentioned in the April call, that any shifts will offset each other. David Clair – Piper Jaffray: Okay, thank you.

Thank you. Our next question comes from the line of Erin Wilson with Bank of America Merrill Lynch. Your line is open. Erin Wilson – Bank of America Merrill Lynch: Hi, thanks for taking my questions. On the consumables side of the business can you break that down by volume and maybe how it was trending in the US in particular?

Erin, as far as the instrument consumables, almost all that growth and virtually all the growth is due to volume; it’s very, very minimal price. And as I mentioned, the growth was particularly strong in North America. As you might expect it was a little bit less though actually, up a bit in Europe from Q1 to Q2 and the increase continues to be strong in Asia-Pacific. So it’s a good solid growth across regions. Erin Wilson – Bank of America Merrill Lynch: Okay, and then on the reference laboratory type of business it’s obviously with the slight deviation from that 10% trajectory you’ve seen I guess over the last several quarters. You mentioned some of the marketing changes before, but were some of the more competitive pressure involved particularly in the US?

I don’t think there’s really any change in the competitive environment. That’s always been pretty intense, as we’ve said, and I really do think that what we’ve found is that you know, our ability with our strong offerings and the fact that they’re increasingly becoming more integrated in the way that they work together, that there’s just a real opportunity for us to drive growth in all areas by selling these products and services together. And it’s just the way that accounting works that the expense of these programs is largely born by [less] but the benefit accrues across our companion animal group business. Erin Wilson – Bank of America Merrill Lynch: Okay, great. Thanks so much.

Our next question comes from the line of Ross Taylor with CL King. Please go ahead. Ross Taylor – CL King & Associates: Hi, this is my first question. I just wondered if you could give any color on what the role or function of the new Executive that you hired from Philips is going to be.

We are, between the three, they’ll take large responsibility collectively for the lines of business and the regions of the company. Michael Williams is going to move to run our international business, and also the water, livestock and poultry diagnostics, dairy; and retain responsibility for OPTI Medical Systems. All four of those businesses are the majority international. We really see a very significant opportunity around the world to grow our businesses and we’re really delighted to have Michael do that, and so that leaves the instrument business where Jay Mazelsky will take leadership in addition to the software businesses of the companion animal group and our North American commercial region. And then Johnny Powers will continue to run the lab services business but will have an expanded portfolio that includes also what we call the rapid assay or the [neo] assay business, really the specialized test development business that goes both into the test kits and reference labs, as well as our worldwide operations and our bioresearch strategy. As you know, we made an acquisition in November which we’re very excited about it. It’s not a big opportunity but we’re excited about the growth opportunity in bioresearch so that will be his portfolio. They’re going to work very closely together. They’ll work very closely with me because really everything is connected to everything else at IDEXX and so we’ve very pleased with this new team. Ross Taylor – CL King & Associates: Okay, that’s helpful. And then my second question is I just wondered if you’d help me understand the lower price realization on the lab side compared to I think your earlier expectations. Is that simply a function of you’re just selling a lot more products through the bundle of deals and that’s where the impact is coming from, or is it just something else?

Yes, that is the case, Ross. Really the change there is largely a result of these marketing programs, and again, just the way that the accounting works for those. The cost is borne primarily by the reference labs. I do want to just emphasize, though, that we are getting price realization. There is price growth in the lab business; it’s just that, as we talked about a year ago at this time, maybe a third of our growth was coming from price realizations. Now that price realization is a good 2.0 points to 2.5 points left on that. So there is still growth there. Ross Taylor – CL King & Associates: Okay, thanks very much.

Thank you. (Operator instructions.) We’ll go to the line of Nicholas Jansen with Raymond James and Associates. Please go ahead. Nicholas Jansen – Raymond James and Associates: Hi, yeah, just a quick question on the distribution changes. I wasn’t sure if you guys were anticipating any impact on inventories in Q4 as you would anticipate the generalists to perhaps cut back on inventories, or how does that change?

Well one of our anticipated elements of this is that the generalists would continue to carry our product lines, so I don’t really see… We would fully anticipate they would continue to carry the product line as generalists into 2013. And so I’m not sure that that would impact much of a change. Nicholas Jansen – Raymond James and Associates: Okay, and then back on the reference lab side of things, I know you guys have been successfully capturing share over the last three or four years relative to your largest peer. Are you starting to see maybe the easier share gains starting to subside and maybe that’s what’s contributing a little bit to the slower growth? Or is it just on the European side and you’re continuing to have success on the North American side? Thanks

Nick, I would just reiterate that the volume growth that we are seeing in North America is very consistent with what we saw last year. So I think that this really, as far as volume goes the primary contributor was Europe; and as I said, in equal parts though, a contributor is the impact of price.

Exactly. And in addition we continue to be excited about the reference lab opportunity and to make investments in the reference lab. I mentioned in my opening comments the allergy testing which I think is a major category. Dogs get really itches and skin rashes and it’s really a real problem, and we have really not been a large commercial lab that’s offered a comprehensive allergy testing and immunotherapy business. And so we’re excited about that. The other thing that I want to reiterate is VetConnect Plus and the ability to see the historical data on a patient, whether that data came from IDEXX reference labs or the in-house, it’s really exciting. And I think it’s adding a new dimension, a new level of excitement to our customers. You can see it by close to 500 practices have already started using, not only just signed up but they’re actively using this capability. They’re seeing just as you see, it’s a lot more interesting to look at several years of a company’s financial history than it is to look at a one-year snapshot. They’re really valuing it and it’s given a lot of energy to our sales force to continue to sell the IDEXX innovation into the market. So the nice thing is that we’ve got some nice new, we’re taking it to a new level in the reference lab as we are in the in-house side of our diagnostic offering. Nicholas Jansen – Raymond James and Associates: Thanks, and maybe if I can just squeeze in one more in terms of the companion group gross margin. It was down a little bit year-over-year, and is it more just on the reference labs not getting the price realization? I would have assumed that with the pretty strong consumable growth that we would have saw a little bit of leverage there. Thanks.

Nick, it is really not a result of pricing. I mean look, year-over-year again there was price realization so that was not a drag. We did, there is however some mix impact just as you again, are looking year-to-year in the relative growth rates of the business. Some of our relatively lower gross margin businesses have been growing at a faster rate than the relatively higher businesses, and so that mix impact was really about a point of un-favorability year-on-year. So counterbalancing that is really a couple of different things: we had some favorable impact from currency and that is a function of the hedging gains that we have this year versus having hedging losses last year; and also the price realization that we’ve been getting in our rapid assay business. So there’s a few puts and takes going on there but that kind of all in all led things to be relatively on par year-over-year, but mix is the primary unfavorable impact. Nicholas Jansen – Raymond James and Associates: Alright, thanks very much, guys.

Thank you. (Operator instructions.) We will go to the line of [Del Hader with Salestel and Company]. Please go ahead. [Del Hader – Salestel and Company]: Good morning, thanks for taking my questions. On VetConnect Plus, is there a revenue component associated with that or does it just help to solidify your position within the practice?

Yeah, thank you for that question. There is not a revenue component today. We’re offering this as a service at no charge associated with using IDEXX diagnostics, whether they be in-house or reference labs. It is a cloud-based service. It can be accessed via browser and that would be on a PC or laptop; it can be accessed inside of Cornerstone if you’re managing your medical records with Cornerstone, and we have 6000 Cornerstone customers; and it can be accessed on a tablet such as an iPad. So you run the diagnostics in the back, with the in-house lab for example, and second you’ve got it on the tablet to show it to the pet owner. It just really supports real-time care in addition to that whole integrated view of the patient with the history. So it is a real differentiator for our four diagnostics lines and really it brings the context that whether the diagnostics are run in-house or in reference labs they’re important parameters, and it doesn’t matter. And what’s really important is monitoring the health of the patient. [Del Hader – Salestel and Company]: That sounds like a very nice product. And then on the distribution side of things, have multiple distributors expressed interest in taking on the generalist role or do you plan on choosing a single distributor to be the generalist come next year?

In our conversations, I think the first preference of all three distributors was to be value-added. I think they built value on the IDEXX relationship over the long time period they’ve been associated with us and our level of innovation. And so but we are in discussion with all three of them with regard to that value-added role going forward versus what a generalist role would be going forward. We want to have a relationship with the generalist that is strong and we need to be able to compensate them at a level that will maintain the acceptable level of services that we receive from them; and our goal is to provide the best result for both our business and the business of our distributors while being attentive to the issues of the FTC’s concerns. And as I said we believe, while we can’t guarantee we believe that moving this would address the FTC’s concerns. And so we’re in discussions with distributors and flexible as to how we might get there, and in the context of two value-added and one generalist. [Del Hader – Salestel and Company]: Okay great, that’s helpful. Thank you very much.

Thank you. Our next question will come from the line of Mitra Ramgopal with Sidoti & Company. Your line is open. Mitra Ramgopal – Sidoti & Company : Yes hi, good morning. Just a quick question as it relates to Europe: you said you had another lab there. Are you seeing some opportunity in terms of just [speaking of] to grow or expand as a result of the weakness there?

I would say just to be clear, we are going to be opening another central lab in continental Europe in Q4 but we have been opening labs there all the time. I say that our growth is despite the economic [reasons], not as a consequence; but there clearly is an opportunity to provide superior reference lab services across the geographies of Europe. That’s a growth opportunity and that’s a growth opportunity that’s there somewhat independent of the economy. Certainly the economy impacts our business but not to the extent that we aren’t generating good solid, continued mid-single digit growth in our labs in Europe which I think is a pretty impressive accomplishment given all that we’ve heard that Europe is dealing with at this point in time. Mitra Ramgopal – Sidoti & Company : Thanks. I also have a quick question as it relates to the medical device tax for next year. I just wanted to be sure, does that impact you in any way?

Not in the veterinary business, and I guess I would put this in the area of very, very immaterial: our OPTI Medical Systems sells in the human market but the majority of those revenues are, a good majority of those revenues are outside the US. To the extent they’re inside the US I think they are. I’m not entirely sure but I think they would be subject to that tax, but that’s a very, that’s well less than 1% of IDEXX’s revenues. Mitra Ramgopal – Sidoti & Company : Okay, thank you very much.

Thank you. We have a follow up from the line of Erin Wilson with Bank of America Merrill Lynch. Your line is open. Erin Wilson – Bank of America Merrill Lynch: Hi, thanks for taking my follow-up. I guess there seems to be some varying news out there on the market opportunity associated with the anticipated distribution changes. And I guess it seems to be different than maybe what you have articulated. Where is the disconnect here, or how should we think about this disconnect amongst the industry constituents?

Well, I would say, I can really only speak from our perspective. First and foremost, our strategy is providing great innovative products and services that help the practice deliver a higher standard of care, be more efficient, provide more client value. And that is the hallmark of IDEXX; it’s the hallmark of our strategy. Our sales and marketing, of which distribution is a piece but of course we have a very significant direct sales force in the US, is a way to bring those innovations to the market, but really it starts with the innovations and then we have some marketing and channel strategies to do so. So we remain excited, and as you can see just in the last five-month period the level of additional innovations that we’re bringing to the market that build upon real-time care and the deeper insight of our highly differentiated reference labs, and the unique capabilities of our SNAP test kits – the vast majority of that is unique and proprietary capability; not to mention the information technology offerings which saw a really nice growth in Q2. We really think that that is the hallmark of IDEXX, and so these changes in our distribution strategy are a refinement to a piece of our go-to-market strategy in one, albeit an important, country – the US – that is the executional component of that innovation strategy. So I think when you start from that perspective you really see that this is a refinement as opposed to thinking that distribution is everything. It’s different in this market. Erin Wilson – Bank of America Merrill Lynch: Yep, that’s great. Thanks.

Thank you. Next we’ll go to the line of David Clair with Piper Jaffray. Your line is open. David Clair – Piper Jaffray: Hi, thanks for taking my follow-up question. The question that I have, I just want to get an update: has FTC actually signed off on this as kind of a strategy to resolve their concerns?

Well, we can’t ever guarantee what the FTC might or might not do. And there’s always the risk of regulatory action – I mean that’s just the nature I think of the environment that we’re in, and that doesn’t really go away until we have a consent decree in place. But as we said in April, we’ve gone down this path of identifying a generalist distributor both because we felt it was an acceptable solution from a business perspective and because we believed it would satisfy the FTC’s concerns. Of course those beliefs came from our discussions with the FTC. As you can imagine, we wouldn’t have undertaken this very public process if we didn’t have confidence in the prospects of avoiding litigation based on our discussions. And I just might note, David, that since April we’ve communicated regularly with the FTC regarding the status of the process and we know they’re also in regular communications with our distributors. And to our knowledge, the FTC is still putting their process on hold of proceeding to litigation as we pursue this solution. David Clair – Piper Jaffray: Okay, thank you.

Thank you. And our final question is a follow-up from the line of [Del Hader with Salestel and Company]. Your line is open. [Del Hader – Salestel and Company]: Hi, thanks for taking the follow-up. Do you plan on any increased incentives or rebate offerings in the second half of this year prior to the distribution agreements or one of them changing?

No, not anything in the context of the evolving nature of our distributor relationships. [Del Hader – Salestel and Company]: Okay, thank you very much.

Thank you, and with that, speakers, I’d like to turn it back over to you for any closing comments.

Alright, thank you. I’d like to thank everybody for attending the call. I want to congratulate also all the IDEXX employees that have been involved in bringing Q2 to conclusion and bringing these innovations to the market. We really have just really a lot of excitement at IDEXX on this, and so I do appreciate the investors’ interest in IDEXX and we look forward to continuing to update you as the year progresses to its conclusion. That completes the call, thank you.

Thank you. And ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.