Good morning everyone and welcome to the IDEXX Laboratories' fourth quarter 2012 earnings conference call. 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 IDEXX's future expectations, plans and 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. Actual results could differ materially from those indicated by such forward-looking statements. 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, 2012, in the section captioned Risk Factors, which is 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 expectations as of any subsequent date. The company specifically disclaims any obligation to update or revise any forward-looking statements in the future even if its 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 reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release which can be found on our website, 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 will be more than happy to take your additional questions. I would now like to turn the conference over to Merilee Raines.

Good morning and thanks for joining us today, as we discuss our fourth quarter 2012 results and outlook for 2013. As we reported this morning, our fourth quarter revenues were $319.5 million, yielding organic growth of 4% and diluted earnings per share were $0.78, a year-to-year increase of 16%. Organic revenue growth was a couple of points shy of our expectation at the time of our third quarter call, with the primarily shortfalls coming from revenue associated with capital placements and our reference labs and consulting services. As I will explain in further detail momentarily, there were some transitory factors that impacted results such as weather, most notably Hurricane Sandy as well as the timing of the Christmas and New Year holidays. We estimate that their combined impact reduced topline growth by nearly one point. And looking at the components of overall growth, the metrics for the fundamental growth and value drivers in our principal companion animal businesses, which are chemistry and hematology instrument placements, instrument consumable growth, reference laboratory and rapid assay growth are all very sound and portend well in our view for accelerating growth in 2013. Earnings per share exclusive of the third and final milestone payment of $3.5 million or $0.04 related to the sale in late 2008 of our feline diabetes therapeutics were a couple of pennies above our thinking, due primarily to efficiencies achieved in operating expenses. Currency had an immaterial impact on EPS versus our expectations. Before discussing our fourth quarter performance, as we customarily do, I want to share what we are seeing in the U.S. veterinary market based on data from a subset of our Cornerstone Practice Management customers. In the fourth quarter patient visits grew by about 3% and practice revenues grew by 5%. Growth in patient visits in October…

Thank you, Merilee. As you can tell, we're very pleased with the fundamentals of the business and the growth rate of the core annuity revenue streams ensuring most of our profit. I want to touch lightly on a couple of things before we open it up to Q&A. First, I'd comment on the VetLab instrument and reagent business performance, which investors know as a razor and blade business model. While we realized lower instrument revenues than expected in Q4, the number in quality placements was strong, specifically considering the increase in competitive Catalyst placements from 40% to nearly 50% and the size of accounts that we upgraded. In addition, we're seeing even higher growth in consumable usage from customers who upgrade from VetTest to Catalyst than we have seen in the past. Our more recent placement show increased testing in the neighborhood to 20% to 25%, as current IDEXX customers upgrade their in-clinic lab with Catalyst and ProCyte, 5 points higher than what we saw for customers upgrading in prior years. Clearly, real-time care works for our customers and for IDEXX, as they are running more in-house diagnostics for IDEXX's new product. This is because in part our instruments, both Catalyst and our hematology units are designed for just this goal, as they have superior workflow, a more complete test menu and much shorter turnaround time than anything else from the market. We continue to see impressive loyalty of our Catalyst customers, greater than 99% in 2012. In fact, even with a significantly higher installed base, we have roughly half the number of catalyst losses in 2012 to 2011. Once a customer experiences our in-house lab, including a Catalyst and our hematology offerings, they don't ever want to go backwards. I'll remind investors that our two hematology offerings consisting of…

(Operator Instructions) Our first question will come from the line of David Clair with Piper Jaffray.

The first one from me, I was just curious on the reagent rental program, is that just for Catalyst Dx? And then secondly, do you expect the counts with the reagent rental agreements to generate higher consumables compared to accounts buying instruments?

Yes, that's exactly right. They're really for higher volume accounts.

And I would say that that also is true for the first part of your question, David, that generally the reagent rental programs work that from both the customer perspective and our perspective, when there are higher consumable usage accounts. So whether that would be high VetTest or Catalyst that would be the case, but primarily we are seeing success with this with Catalyst.

I guess what I'm trying to ask is, are you setting the bar a little bit higher in terms of the consumable agreement with these accounts, so that they're expected to actually use a little bit more?

Yes, exactly. You are exactly right, David.

And then for the 8% to 10% reference lab growth target, what are your expectations from volume versus price in there? And should we expect additional lab openings during the year?

The breakout between price and volume is probably about, 70% of that growth would be due to volume and about 30% for price.

And we have a couple of lab openings, but I think the primary growth driver is going to be leveraging our whole network of 60 plus labs and the hub. And the other driver of growth is a growth in our, specialty testing, which generally speaking new categories of testing that that can't be run in-house and uniquely accrue to the benefit of the reference lab.

Next, we'll go to the line of Ryan Daniels from William Blair.

It's Kristina Blaschek for Ryan today. To start, on the change in distributor margin from MWI, have you thought about how that will be reinvested. I assume some of it will be OUS with the Scandinavian opportunities, anything domestic though that you thought about specifically?

I'll tell you, it's kind of hard to allocate here or there. We continue with an appropriate and aggressive investment in our commercial organizations, whether they'd be at sales, support. We have couple of dozen people who supports specifically our distribution, as well as other elements of the marketing mix. So I think we're very comfortable with that mix. And it was really a modest change. Referring to the Scandinavian situation, what we're doing there is going directly. Obviously, we have a number of customers who use our equipment today. The distributor that we had wasn't very effective in placing new instruments and we think that's a very attractive market. And so with direct, we think we'll be in a much better position to place our instruments, which are well designed for the Scandinavian markets. It's an excellent match. But of course, we get the up lift from going from distribution in 2012 to direct in 2013. So yes we are investing in commercial resources in Scandinavia to go direct, although we're already leveraging our warehouse and distribution network because we're direct in the other countries and Europe. But that is in essence, being more than paid for by the pickup in the margin in those same countries.

And then I guess, staying under distributor topic, at NAVC this year, it seemed like the two large exclusive distributors were more engaged than in the past, with Henry Schein even commenting, they were much more active in attempting to place IDEXX analyzers OUS. Can you share with us your view on how these relationships have improved since going through this distribution few last years?

We're really pleased with the relationships that we have with our U.S. distribution and I think one of the hallmarks of IDEXX is that over two decades of having work with distribution we're continuing to learn how to make that partnership stronger and stronger. And so we're pleased with the engagement of our exclusive distributors that you mentioned in an increase level of engagement. And we're also pleased with the continued high level of engagement of MWI, which remains an important partner for us. So distribution is an important element that supplements, of course, our direct sales organization. In the U.S. market, they work hand in glove. And we're very pleased with where things are as we move to 2013. And the ability of this entire, our commercial organization to communicate the benefits of the transformation of value of that our diagnostics provide. And as I mentioned in the call, I think it's kind of important, when people make that transition, they just realize they never want to go back, because, they've kind of asked us, so who should've been doing this all along. And so our challenge is really to bring people to that point across the market. And with our direct sales and our distribution engagement that we have now and they're pretty excited about things like VetConnect PLUS and the product line. We're thinking we're in a good position to do so.

Next, we will go to line of Erin Wilson from Bank of America.

I guess, can you just speak to what you're seeing as far as the competitive dynamics on the reference laboratory front, and I guess domestic market? But also, can you speak to the dynamics internationally?

In the competitive situation in the U.S. is different than international. And every country is a little bit different. We are really not seeing any change, and what I would characterize is historically been a very competitive market that we participate in U.S. and indeed all of North America. It's really the same level of competition. I think what we're excited about as we're bringing a new wave of innovation, on top of things like the specialized testing and the expansion of our coverage, of our lab network in North America, this new way of innovation really driven by VetConnect PLUS. And just as, I said a different way to see the value, and have much higher value in the usage of diagnostic information in the clinics, so that's really the biggest change we're seeing is what we're brining to the market. None of our competitor's in North America are competitors. Outside of North America, it's usually a country-specific competitors, in rare cases may move across a couple of countries. For example, we're really only reference lab network in Europe that's across the continent level, and then in the U.K. and of course, leveraging our global scale and capability. And the same is true in Australia, and in Japan, just a very different local competitive environment. So we're excited about it, because we can bring innovations that really come out of our global investment reference lab. And they might be in specialized testing, in advanced lab technologies and LIMS, which is our new Laboratory Information Management System that we're over the course of several years rolling out through the global lab business, internally developed system that we put over $10 million investment in. And very pleased by the way to be able to say that we've launched our first lab in the U.S. under LIMS after having successfully rolled linked out to our four labs in the U.K., and our four labs in Australia. So that rollout will continue and the U.S. of course is a pretty big opportunity to get a significant ROI in the LIMS investment. So we can bring those types of scale benefits internationally, and we're dealing really with local competition.

And then how do you expect, I guess, VetConnect PLUS to ultimately impact reference laboratory retention longer-term? And I guess I understand how VetConnect PLUS links to equipment and the reference lab results, but what happens when for instance its rapid assay test when it's not used with the SNAPshot reader. I mean, it seems like maybe that would be a little bit more vulnerable to competition.

First of all, we really do think that VetConnect PLUS will be transformational in the way that diagnostic results are viewed and used. It's kind of the move to digital media from print media would be the analogy there. Right now, of course, it applies quite relevantly to the reference lab offering and to the in-house instrument offering. We do have a couple of different ways that rapid assay results can be entered into VetConnect Plus through SNAPshot as you mentioned or also directly through IDEXX VetLab station. One of the benefits of doing so is now VetConnect PLUS has what we call client-friendly reports, and in the case of our rapid assay business, preventative screening used in 4Dx for parasitic disease screening, the VetConnect PLUS can generate report that congratulate the customer on having protected their pet from vector-borne diseases, which gives a lot more of value to that 4Dx comprehensive test. I'm just saying there wasn't any negative result. And that's all integrated into VetConnect PLUS. As one of the benefits, but clearly as we look forward, we're going to be looking for ways to continue to leverage VetConnect PLUS as a way of communicating and disseminating diagnostic information and rapid assay included, Erin.

We'll go the line of Ross Taylor from CL King.

Wanted to go back to the instruments and the reagent rental program, what factors led you to adopt that program now? And I guess related to that intuitively I would think that larger clinics, you will be better able to afford than just an outright purchase of the instrument. I mean, why is that you're proving to be popular with the larger clinics at this point? Is Catalyst is just getting more mature or fully penetrated since been in the marketplace for about five years now?

Well, I think we've been very successful in placing Catalyst in larger accounts since we launched it in 2008. And as you know we had launch, what we called the in-house protocol agreement, the IPA, about year and a half ago. And so we're continuing to find ways to move these larger accounts to the IDEXX diagnostic advantage, and with in-house equipment. And I think what we found was that every accounts will differ, they all will have different needs, they all will have different way of thinking. Many accounts do want to purchase the equipment. And there are programs that are beneficial to them, that place equipment, and there are other accounts that are more interested in this type of arrangement. The economics are actually not different, although the revenue recognition will be little bit different, but the economics and the cash flow, isn't really that different between different types of programs. But we just found that there is a segment of the market that this works. And of course, we really see that any account, certainly a large account, but any account, when they move to Catalyst and ProCyte and they are integrated with the complete solution and VetConnect PLUS, they realize that they just never want to go backward again. And so we're just finding ways to be able to bring them to that solution. We found that for a segment of customers, a minority of customers that this happens to be an effective tool.

And if I can just squeeze in a second question, the 2% impact you mentioned for the reference labs of Hurricane Sandy and the holidays. Can you quantify how much you might be due to each one of those?

About maybe 0.5% was due to Sandy and about a 1.5% would be due to the timing of the holidays.

With Christmas, and New Years falling on a Tuesday that's the toughest calendarization of the calendar cycle?

Going from a weekend to the middle of the week, basically it's a challenge.

Our next question comes from the line of Jonathan Block from Stifel Nicolaus.

Maybe the first one just on the instrument placement, I think Merilee you said about 3% for the year for 2012 and expectations for low single digits in 2013. It seems like you lowered the bar a little bit by the consumable reagent program. So can you talk to just market share? And I know John, you're going to say, well, it's about where the box goes and I realize that but your chief competitor on the point-of-care side has been placing instruments closer to about 7% to 9%. You guys have decelerated and instilled steady it about 2% to 3%. Can you just talk to the dynamics of box placements with market share going forward?

We are a global business. So there a lot of moving parts there, John, but the purpose of placing the box is to generate the consumables. And that's where the profit driver is, and razor and blade of business model. And our objective is to find the ways to grow. And in fact accelerate, as we've seen that consumable revenue. And we're very pleased with what we're seeing over the course of 2012 with the accelerating volume. And as I mentioned, unit volumes is even higher than the revenue. In 2012, we think that will equalize volume and revenue in 2013, which will help to drive to 11% to 13% growth. So I mean, if you look at the 11% to 13% growth in the profit driver, which is three quarters of the business, we think that compares favorably with the market growth.

Maybe just one or two more, if I can fit it in. The first one, Merilee, you mentioned a lot of areas where you might be able to realize price in '13. John, you just alluded to the consumables, the Scandinavian going market going directs, some price at the lab, but your gross margin guidance, I think of 54% would be flat in '13, flat versus '12. So can you talk to sort of where you're giving back in the COGS, if you're able realize a lot more price in '13 than '12?

We again, currency and the impact of hedge gains this year that we do not project would reoccur in 2013, create quite a bit of headwind. In fact, gross margin expansion that would be about 50 basis points, if you were to normalize for that. So we are expecting gross margin expansion and some price as a piece of that, as well as manufacturing efficiencies, and just really volume leverage and other things that we've been driving, and again, primarily our reference lab and our VetLab business. So those kind of recurring things we still see that manifesting, and we expect to see that manifesting continued margin expansion in 2013.

And that's a little bit offset by some of the areas that we're investing and that will generate attractive revenue streams in the future of such as Pet Health Network Pro and the expansion of bioresearch with our point-of-care of instruments and associated consumables. Those are going to be little bit negative, and those will be unfavorable to the gross margin in terms of mix as they pick up in the near term, but attractive in the long-term.

Maybe one last one, wasn't able to ask in 3Q '12, so I was trying to pull-in forward. Just here we are on the first month of the year and distribution has changed, John, and I understand NWI is still a very important partner. But anything you've seen in the first 30 days, now that we're in sort of the new regime or different dynamic that you can speak to? And I'm guessing, you really don't expect much of any impact, because if you isolate your rapid assay growth of 4% to 6% for '13, that's the line, I don't know, might be most vulnerable? So do you really expect little to no noise in the distribution front?

I'll tell you, we're very pleased with our engagement. And just returning to the rapid assay business, these are very unique, valuable combination assays. The 4Dx Plus, which of course, by far, the largest product line in the rapid assay business test for six different vector-borne diseases that are prevalent in test. And it's the gold standard. We have a lot of benefits. We can easily distinguish, in many cases, between a vaccinated animal and an infected animal, which is unique to that assay. And it's easy-to-use, people know it. And there is just nothing else that compares on the market. So I think the strength of our products, which particularly in the rapid assay side, speaks well for our position. And of course, we're continuing to innovate in the rapid assay line. And have a pipeline in the rapid assay line, as we do in our other lines. So we're never standing still.

Our next question comes from the line of Nicholas Jansen from Raymond James and Associates. Nicholas Jansen - Raymond James & Associates: On the rental reagent agreements, did you get higher margins on the consumables under the new relative to, let's say, if they were associated under the old methodology?

I really think this is more about the utilization. It's not so much about a higher margin. What we really have found is that with particularly, as we've now focused on customers' that are new to IDEXX and that's been an increasing focus for us, we found that there are plenty of high-test users out there. And because they are very confident about their consumable usage that this type of program, they feel very comfortable with it because they are already very confident about their consumable usage, so this is about high-volume users and really appealing. And, again, different things appeal to different customers, but this particularly resonates in some cases with some of these higher volume clinics. Nicholas Jansen - Raymond James & Associates: Then speaking of Pet Health Network Pro, what do you guys have embedded in terms of your expectations for '13 for revenue growth? Certainly it's falling more of a longer-term revenue opportunity, but just trying to sense of how many customers do you think you could add on this year, vis-à-vis competition or on your market growth?

We do have very specific plans in that area. For competitive reasons, won't go into much detail, but it is a contributor to our accelerated revenue growth. And I would mention with the Pet Health Network Pro, that these are annuity revenues. It's different than the instrument business where in the good majority of the cases. Even with the reagent rental program, you get the instrument revenue upfront and then you get the consumables after this. This is just the consumables business. So in other words, annuity business that comes from the subscription and the usage of traditional mail, which generates incremental revenue. So it's growing, I think it will be a new revenue stream in 2013. And it will be one which we'll build nicely in an annuity fashion in the years to come. We're very excited with the market response to Pet Health Network Pro. And really just had an unbelievable show at the North American Veterinary Conference, and of course, we're very pleased that the American Animal Hospital Association, which has tremendous credibility with 5,000 more sophisticated practices gave the exclusive endorsement for Pet Health Network Pro combined with Cornerstone as the way to take it to the next step in practice management. So we think we're well positioned to achieve our objectives in 2013 with Pet Health Network Pro. Nicholas Jansen - Raymond James & Associates: And Merilee, if I can may, just maybe the 1Q tax rate, considering it's going to include the 2012 R&D portion, I know you gave us the full year but 1Q would be helpful?

Let's say, that probably more talking about something in the neighborhood of 27% or something by nature. Nicholas Jansen - Raymond James & Associates: Tax rate?

Tax rate.

Our next question comes from the line of Ben Haynor with Feltl and Company.

You mentioned the instrument organic growth was impacted by about 8% due to the reagent rental program. Could you quantify the impact to the consumable organic growth during Q4?

I would say it really didn't have much of an impact, because generally those instruments are placed over the course of the quarter. Usually, it's a little bit more towards the end of the quarter. So not really, I would think any noticeable material impact in Q4. Really the impact will be in the quarters to come.

And then, do you expect differential reference lab growth rates outside the U.S. versus inside the U.S. in 2013?

Yes. We're expecting a growth in all of our reference labs in every single country market or region that we participate in, and they all will contribute to the growth. There are very different economies and different situations in each economy, and we generally don't go through each one, one-by-one. But for instance, in Europe, we have a new (licensing) opening which will really help the continental Europe. We have good momentum in our other markets, whether it would be U.K., Canada, Australia, or Japan, and of course, we're really excited about the U.S. because U.S. is the first beneficiary, the benefits of VetConnect PLUS in terms of the transformational way to experience and use diagnostics in practice. So all the regions will contribute to growth.

We'll go to the line of Jeff Frelick with Canaccord.

Did you say the reagent rental program you are able to combine hematology with chemistry? And then should we also assume in general, the reagent renal program, the business should be little bit more sticky, given the five-year contracts that you're engaged?

The program is really mostly geared towards chemistry. I don't know, there may have been a hematology or two, that was placed along with that but it primarily is geared at the chemistry market.

I wouldn't say just to the answer of stickiness, it's hard to get stickier than plus 99%. And so I think our instrument line is already amazingly sticky. And so this is not going to really change that, I don't think. I think it will continue to be amazingly sticky, not just because of the regional rental but because of the value that people see in these instruments and bring in to their practice. And the capabilities that once they start using, they appreciate and that are unique to the IDEXX offering. And that really runs across so many different dimensions, whether it's the speed of the instruments and being able to deliver the results inside an appointment, to the far more complete menu to the menu-flexibility, to the ease-of-use, to integration and to practice management software, and of course the benefits of VetConnect PLUS. So the list goes on. And I think people once they experience that they really don't want to lose any of that. And that's why these are so sticky.

Just a quick follow-up to that then, John, the success you had with the Catalyst and you had said about I guess an excess of 60% had been into competitive accounts. What was the practice doing previously for chemistry, were they using a competitive in-house instrument or they're sending out to reference labs?

In terms of Catalyst placements, I think we said a nearly 50%.

That was the combined Catalyst and VetTest with 60% to new accounts, just to clarify.

So with the VetTest, we're are still placing a lot of VetTest in emerging markets, and even some markets you would consider established markets or emerging markets from a veterinary perspective. And so a lot of that is new instruments, where the practice is adding the instrument for the first time. But you know, with regard to Catalyst placement nearly 50% which is up from the 40% in the first three quarters of the year, and 30% really last year, so nice tickup. That's really going into accounts that have existing mostly, accounts that have some kind of existing analyzer that doesn't provide the same capability Catalyst, that's why they upgrade the Catalyst. And in minority cases its new practices. There are some practices out there, it's true. Not too many, but some of that that don't have in-house instrumentation. But that's more rare than customers who are using exclusively or primarily another analyzer not from IDEXX. And they decide to upgrade to the IDEXX diagnostic advantage.

Thank you. And with that Mr. Ayers, I'd like to turn it back over to you for any closing comments.

Well, thank you very much everybody for listening in the call. And I want to congratulate the IDEXX team for all of our successes in 2012 and the momentum that we've established going into 2013. And we look forward to updating investors at our first quarter call as we continue to achieve our strategic objectives over the course of 2013. Thank you.

Thank you. And ladies and gentlemen, today's conference will be available for replay after 11:00 AM today, until midnight February 5. You may access the AT&T Teleconference Replay System by dialing 800-475-6701 and entering the access code of 278731. International participants dial 320-365-3844. And those numbers once again, 800-475-6701 or 320-365-3844 and enter the access code of 278731. That does conclude your conference call for today. Thank you for you participation and for using AT&T Executive Teleconference Service. You may now disconnect.