Good morning. And welcome to the IDEXX Laboratories' Fourth Quarter 2014 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jon Ayers, Chief Executive Officer; Brian McKeon, Chief Financial Officer; and Ed Garber, 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. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 measure is provided in our earnings release, which can be found on our website, www.idexx.com. In reviewing our fourth quarter and full year 2014 results, please note all reference to growth and organic growth refer to growth compared to the equivalent period in 2013 unless otherwise noted. Also when we refer to normalized organic growth, in addition to adjusting for exchange in acquisitions, we have adjusted for changes in distributor inventory levels. 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 call over to Brian McKeon.

Good morning. I am pleased to take you through the solid progress we achieved in the fourth quarter and for the full year 2014 that has us well positioned for continued strong performance in 2015. In reviewing our financial results today, we'll focus on our underlying operating trends excluding transitional impacts in Q3 and Q4, 2014, related to the move towards the all-direct sales and distribution model in the U.S. These impacts reduce full year revenues by $25 million, operating profit by $35 million and EPS by $0.45 consistent with our prior guidance range. With the majority of these effects reflected in the fourth quarter performance. We had a solid finish in 2014. Highlights included 9% normalized organic growth in Q4 supported by 11.5% normalized CAG recurring growth. We saw continued robust trends in recurring revenue growth globally driven by strong double digit growth in instrument consumables and Reference Lab volume. We finished the year with 10% normalized organic growth supported by overall 11% full year growth in CAG diagnostic recurring revenues. Reported revenue growth was negatively impacted by about 3% in Q4 related to the strengthening of the US dollar. Despite these impacts we delivered strong profit performance. We achieved full year adjusted EPS of $3.99 including $6.50 per share benefit from the extension of the US Federal R&D tax credit. This represents growth of 15% or 18% adjusted for currency impacts. EPS gains reflected accelerated revenue growth, modest operating margin gains and benefits from our accelerated capital allocation towards share repurchases, which resulted in a 6% year-on-year reduction in average share count. Finally, we effectively manage our transition to an all-direct model in the US reducing channel inventory to immaterial levels at yearend. Today, we'll take you through our 2015 outlook. Of note, we are raising our normalized…

Thank you, Brian. We finished the year with strong momentum in our business. Our business model is nearly 90% recurring revenue including the contribution of over 70% from CAG diagnostics. These revenues form an enduring profitable growth factor and we are pleased to be able to raise our organic revenue growth guidance adjusted in 2015 building on our success and accelerating growth in 2014. Our performance reflects the key elements of our company's strategy. First, a sustained focused on innovation which transforms the capabilities of our customers. Second, our new greatly expanded commercial model in the US now fully in operation. And third, a strengthened global presence supported by key investments driving strong growth in virtually all regions and lines of business. Let me provide an update on these operating strategies starting with innovation. During Q4 we started shipping our next generation flagship Catalyst One point of chemistry analyzer to the North America market. We now have over 350 of these instruments in a field and the customer feedback has been extremely positive. Catalyst One combines the unique capabilities of catalyst Dx with a smaller and even simpler instrument. And at a 40% lower cost. We are excited to offer a very competitive Catalyst One solution in 2015 to the market of well over 10,000 US veterinary practices that are not yet IDEXX in house customers. The majority of this market consists of practices using outdated competitive instruments that lack menu turnaround time. And advanced software integration that are capable of what Catalyst One. Not to mention VetConnect PLUS results on the smartphone, all at the lowest price per test. The international market opportunity for Catalyst One is even more than twice as large as US. With the launch of Catalyst One this month in Europe, we expect to build…

[Operator Instructions] We will take our first question from the line of Ryan Daniels with William Blair. Please go ahead

Yes, good morning. Thanks for taking the questions. I guess my first one the one number that really stands out is a Reference Lab same client volume growth and how rapidly that accelerated. Do you guys have any more details or color on what's driving that? If it is -- your clients moving more their test to you, more overall testing or they are doing more of your proprietary testing. Just kind of what is that and how sustainable do you think that big organic uplift is?

Yes, Ryan, thank you for the question. We believe the primary driver for that is the adoption of our unique advanced test menu that we've launched over the last virtually a decade combined with the new customer account model where our sales reps are calling existing Reference Lab customers. We believe that is clearly sustainable. It has the opportunity for upside because we had actually expanded not only the number of specialized tests in our Reference Lab of course with big launch of SDMA and now that the new fecal antigen tests but of course we are expanding the number of calls that we are going to be making on our Reference Lab customers. I will know is an important observation because the Reference Lab modality is the number one contributor to our recurring diagnostic revenues.

Okay appreciate that. Then maybe just a follow- up there as well. If we think about your R&D pipeline and what it is yield and specifically in the Reference Lab was SDMA on the way with extended fecal test, is those become I think as you mentioned kind of industry standards, do you think that will start to kind of need IDEXX laboratories from a Reference Lab standpoint because there will be demand from patients are within the communities for these and in fact you are the only one they can get them from?

We believe absolutely that it is important to expand the standard of care. Let's just take SDMA. The reason why we are offering it at no additional charge in all of our reference panel is because you really shouldn't be running chemistry with creatinine and without SDMA and creatinine is in virtually every chemistry panel. So we believe this will create uplift in the standard of care that will be well appreciated by pet owners. If you talk to any multi cat owner, they probably had a cat that passed away of chronic kidney disease. So it is well appreciated and we would expect that over time pet owners will demand high standard of care.

Thank you. With that we will go to the next question from Erin Wilson with Bank of America/Merrill Lynch. Your line is open.

Great, thanks for taking my question. Have you seen I guess any meaningful shift in overall kind of retention rate across consumables and equipment, and surely there were some customers that were really loyal to the distributors but could you talk, speak to some of the dynamics and the feedback you are getting on the go direct strategy so far?

Yes. We've seen no meaningful shift. We are pleased to have continued to expand our catalyst and install base, our active installed base in Q4. We measure the active installed base. Of course the record number of Hematology placement also continues to expand and now we are really moving into 2015 with Catalyst One which is a very competitive priced and highly capable, really uniquely capable instrument. And so I think as we move to 84% sequential growth in the number of calls that we are making on customers from Q4 to Q1 in 2015, we will see the continued business benefit of the direct model play out.

Okay, great. And then thinking about VCA how much I guess of an impact towards that over the past year and I guess will be lapping that to some extent but in --I guess this brings an important point on like the quality of customers and thinking about the way you look at your book of business, book of customers here, do you have metrics around like quality of customer in terms of consumable utilization that might be an interesting metric to sort of track in light of all these shift?

We do track that. We find that the larger the customer the more they appreciate our technology and all of the benefits that it brings. With regard to your question on VCA, that was really an immaterial impact and the reason is that VCA is primarily drives their diagnostic volume to the Reference Lab as you can imagine. And thus each of VCA practice is we have found a very small user of the in-house chemistry analyzer.

Thank you. Our next question comes from the line Jon Block with Stifel. Your line is open.

Thanks and good morning. Two questions. First one Jon, we had done some work, it seems like you are increasing your utilization with your current customers by your go direct strategy, seems to be resonating but maybe if you can help tease out for us, where you guys having the most impact? Are you seeing the biggest lift on explaining these specialty test at the Reference Lab, is it left in clinical consumables, is it VetConnect PLUS, where you are seeing that approach resonate across your different modalities?

Thank you for the question, John. Of course we have been direct with Reference Lab modality from the beginning, I think when we move to the account manager model, we were calling on existing Reference Lab customers, and we began to see the acceleration in the same store utilization that I referenced. We have now only move to a direct model calling on our customers directly for the in-house consumable. So we are really at the beginning of that utilization trend in 2015 and we have a number of tests whether they are menu on the in-house instrument suite such as fructosamine or phenobarbital [ph] are coming shortly a T4 or snap test that are not well adopted yet by customers. They have the same adoption and utilization potential that we have seen in the Reference Lab. And so we really do see that as one of the avenues same store utilization growth and expanding the market and expanding the standard of care that will be driven by this model. As I mentioned the pet owner is really not well served yet. And I think veterinarians want to learn how to better close that gap of three to four times. And that's what our diagnostic subject matter experts, the only ones in the profession who are regularly calling on veterinary practices and help them with since diagnostic is such a key component of the practice quick care equation.

Okay, very helpful. And the other question maybe the biggest is, I am really not kind of start a war words here but they were very big numbers from your primary competitor last night and I guess I have two questions to that. You also had big chemistry numbers, why are there so many chemistry boxes going out the door in what is largely a saturated chemistry market where 88%, 89% or 90% according to our work of the clinics out there do have an in clinic analyzer, that sort of question number one. And question number two is based on some of those numbers last night they actually place more chemistry analyzers to end users than you guys in the fourth quarter. So what are you seeing within your customer base? In other words, are you seeing some of the guys who had VetTest and just never ran volume on it or very little volume on it over the past 6 or 12 or 18 months? Are you conceding those accounts and you are willing to do that just because they might be your Reference Lab customers they were never committed to in clinic. Can you parse through some of that Jon? Thank you.

Well, we believe that there are well over 10,000 accounts that are really using technology that was launched a decade ago. And if you think about what happen with IDEXX over the last decade, we launched Catalyst One, we launched ProCyte, we launched Catalyst Dx, we launched VetConnect PLUS, we've expanded the venue on catalyst platform. And so we see a great opportunity to upgrade those accounts that have outdated technology and of course to continue upgrade our vet test install base as Brian mentioned 92% of our chemistry volumes exclusive corporate account is coming from the catalyst and installed base already. That's only 8% that does represent many thousand vet test customers. So it is very large number of customers but a very small amount of our volume. What we see is the greater opportunity is the 10,000 customers out there that do not have the real time care, the advanced menu, the flexibility and the lower cost per test, let alone the connection into a full diagnostic solution that is at the current standard of care that we will establish to 2015 that include SDMA, I will mention that for accounts that use catalysts and use us as their primary Reference Lab, we will be ensuring that they can practice the current standard of care that include SDMA even when they are running their chemistry panel in-house because they will be able to include that Reference Lab SDMA at no incremental charge. So we see a very significant opportunity and that's our framework, that's our outlook for the market. We are pleased with the 14% growth that we had adjusted even for margin capture. And the instrument consumable modality and we think that's a very good number. And we expect to continue to grow the instrument modality.

Thank you. Our next question will come from the line of Kevin Ellich with Piper Jaffray. Your line is open.

Good morning. Thanks for taking the questions. Jon, just kind of following up on SDMA. Could you give us some color as to kind of the work you guys did to see what type adoption you should see out of the vet clinics in the market? I guess where is the demand? And then combined with your new fecal test that you talked about that will be out later, how much do you think that will boost your Reference Lab growth?

Well, we expect that both those menu items will be beneficial to all of our recurring revenues even though they are both Reference Lab modalities because they are part of integrated diagnostic solution. Just to give you a little bit background. Basically the current way that you screen for chronic kidney disease, the primary parameter is creatinine The problem is that when creatinine goes up that's basically means that the kidney ran out of capacity and it is being overwhelmed by the bodies and creation of creatinine which is a metabolic waste product. So basically it is too late. 75% of the kidney is gone. So what SDMA does is it catches this progress of this disease far earlier, 40% or even 25% when the pet is clinically totally healthy. You can donate one of your kidneys if you are healthy and still live on one kidney. So 50% loss of kidney function is not a problem, but it is a problem if progresses to 75%. And then there are a number of treatments. This is a big category in the therapeutic diet area for kidney diets that preserve a kidney function. So we suspect that there going to be others that are going to be jumping on board and promoting SDMA because there will be a market which will demonstrate the need for their diets or in other cases for therapies, for drug therapies. Chronic kidney disease, there isn't any ambiguity about chronic kidney disease in the practice. You talk to any veterinarian they are going to see I see it all the time in my practice. This is a major category. We expect this will be the standard of care, that's why we decided to exclude SDMA automatically in the chemistry panel; of course we can do so with our innovation because we felt that running a panel without SDMA was really incomplete and this has been extraordinarily well accepted. Immediately, instantaneously as we informed customers of what we are doing here. There is just no-- it is all good. It actually expands the reason to do preventive care testing because they can get to it, now they are more -- they are with the higher energy to recommend preventive care testing to pet owners.

Thanks. Then my follow is with changes in the competitive landscape as Jon was talking about, how should we think about your catalyst retention rate, can you guys breakout the mix between Cat One and Dx and how will this impact your consumable revenue stream and margins going forward? Thanks.

Yes. It is the practice owned to Catalyst Dx, they have all the capability of Catalyst One. So Catalyst One is really targeted at any practice that doesn't currently enjoy the benefits of catalyst technology. And so we see Catalyst One as a very competitive way to grow the catalyst and installed base. And as we've mentioned we've really seen an immaterial impact on our catalyst retention rates which is what gives confidence for continued double digit growth in this modality.

Yes. I just want to reinforce that. Today, we raised our outlook for CAG recurring diagnostic revenue growth and make clear that we are expecting continued strong double digit growth in consumable revenues in 2015. So we are maintaining the very strong momentum -- accelerated momentum that we achieved this year.

[Operator Instructions] We will go to line of Mark Massaro with Canaccord Genuity. Your line is open.

Hey, guys. Thanks very much for taking the questions. Your customer retention rates have always been quite good in the high 90s. Overall, has there been any change to the -- I think it is for 96% to 99% retention rate that you have decided?

No.

Okay, great. And then with respect to US catalyst placement, perhaps to competitive account, can you maybe walk us through where you see that metric going in the next couple of quarters? I know I think you have been reporting roughly 60% going to competitive account and the number came in I think around 54% this quarter, so how should we think about that metric going forward? Thank you.

I think if you look at the last four quarter we had between 50% and 60% in competitive placement I saw obviously we saw big jump in the absolute number placement in Q4 and 54% is pretty solid and there is obviously as the number of vet test accounts diminishes that are out there and you got well over 10,000 competitive account, we are going to see that is attractive opportunity for the continue placement of Catalyst One. And its unique capabilities and price point.

Next we will go to line of Ben Haynor with Feltl and Company. Your line is open.

Good morning, gentlemen. Thanks for taking the questions. Just a couple of numbers questions for you. On the tax rate I did see the $6.50 called out in the press release, but I was wondering what else alter the tax rate there. I recall the guidance on the Q3 call been for 29% tax rate for 2014 excluding the $0.04 benefit in Q3. I think that would have implied 28%, 29% in Q4. So how would you categorize the remainder of the benefit relative to the 30% rate that you have reported?

We literally had five things that are smaller in nature, are all moving in the right direction in the quarter. And it is not one specific thing, they created a little bit of an upside there and get the benefit of some of those were related to planning initiatives and that's one of the reasons why lowered our outlook for the 2015 tax rate to 30%, the prior guidance has been 30.5%

Okay, thanks for that. And then with your plans for share repurchases and the financial outlook, it seems you're going to continue to take on debt to repurchase shares, by my math kind of back of the envelop that would put your book value at maybe negative $5 a share existing 2015 which would be a pretty similar decline to the $7.50 a share we saw during 2014. Am I in the ballpark here and I guess at what point would you consider slowing down taking on debt to conduct share buyback?

Well, we are very comfortable with the path we've been on in terms of our capital structure. As I mentioned, we are ending the year at little over 2.4x EBITDA in terms of our leverage ratios adjusted for the transitional impacts. We are very comfortable with leveraged range in the 2.5 to 3 range. We said that consistently and in terms of our capital allocation strategy we want to ensure that we are maximizing value for shareholders. And as long as we are comfortable with our business outlook which today we reinforced and raised our operating outlook. Our confidence will help us to assess how we look at allocating capital to share repurchase and we would anticipate continue to allocate capital because we feel great about our strategic plan and the deposit momentum we are driving.

I also just might mention, of course that we have a pretty strong cash flow coming out of the operation of the business. And it is one of the benefits of our business model which allows us to have capital to allocate to share repurchase.

Thank you. Our final question will come from the line of Kevin Ellich with Piper Jaffray. Please go ahead.

Thanks for the follow up. Brian, just a quick question. I know there is a number of moving parts but free cash flow was only 20% of GAAP net income or$9 million this quarter just wondering what's going on there and I guess what's your outlook for free cash flow in 2015? Thanks.

I would have to look at more closely; I would assume that's related to the transitional impacts. So I wouldn't look at the quarters indicative can be related to timing of capital spending and things like that. We did share that our outlook for free cash flow in 2015, it was 90% to 100% of net income and keep in mind that we got-- and we've signal this earlier we are going to add about $15 million to $20 million of working capital primarily receivables related to the go direct change which is 7% or 10% or so of net income. So it is effectively the same range that we've been around a 100% of net income or better normalized for those impacts.

Thank you very much for the calls. And for joining the conference call. I just want to wrap again by really expressing my appreciation to IDEXX. We celebrated our 30th anniversary over the last 12 months, 30 years of innovation. And I just extraordinarily grateful for what we've accomplished both on the innovation front and on the global commercial front, which positions us so well for the next many years to serve our customers and to continue to transform their capabilities to achieve their objectives and in the case of, of course the companion animal business to serve the pet owner. We believe there is just very significant opportunity to both grow their capabilities to provide high standard of care. And to expand the level of standard of care that is provided both in the US and even more so in the international market. And the accomplishments that we've achieved in the 2014 have just positioned us very, very well to do that. And therefore to continue to see sustained growth in the attractive and profitable growth factor of our recurring revenue. And with that we will conclude the call. Thank you.