1. The Whitman Investment Company
March 1st, 2017
Introduction
The Whitman Investment Company

2. 1 March 2017
Stock Pitch
Idexx Laboratories
NASDAQ: IDXX
$144.94

3. Key Financials Market Cap: $12.76B Price/Earnings: 59.4 (37.5)
1 March 2017
Key Financials
Market Cap: $12.76B
Price/Earnings: 59.4 (37.5)
EV/EBITDA: 31.23
Price/Book: (3.5)
Annual Rev. Growth (yoy): 8.00%
Debt to Equity Ratio: 5.48
Quarterly Revenue Growth (yoy): 10.80%
Operating Margin: 19.85%
Return on Equity: % (8.9%)
Return on Assets: 14.66% (3.8%)
Earnings Per Share (EPS): 2.44
Total Revenue (2016): $1.78B

4. Management Discussion
1 March 2017
Management Discussion
Strong presence in international markets
39% of 2016 revenue from services and goods provided
Revenue is highly concentrated on Companion Animal Group (CAG) with $1,522,689,000 of 2016 revenue
Total company revenue in 2016: $1,775,423,000
Nearly 85% of CAG revenue is recurring revenue from diagnostics products
Revenue from LPD segment has been declining over past few years, but the revenue from CAG and Water has increased strongly
Research and Development expenditures hover around $100 million each year (~6% of revenue)
The company feels that failure to differentiate products and advance them will lead to lost customers and revenue
Customer retention rating is approximately 99%
Organic growth rate 7%-11% over
Quinn

5. Management Discussion (Continued)
1 March 2017
Management Discussion (Continued)
Idexx has interest rates around 2.66%
$800 million of the debt has an interest rate of 1.95%
Idexx has been borrowing money to buy back shares
Share buyback program has been active since 1999
65 million shares were authorized for buyback. Approximately 3.7 million remain
Idexx currently has 85 million shares on the market
~116.8% of operating cash flow spent on buybacks in last 10 years
Idexx spends more than 2x as much money on buyback than it does R&D and capex combined
Four patents expiring in the next few years
Two of these are concerning
Short-term debt is $611 million (due within 12 months)
Cash, cash equivalents, and marketable securities total $391.8 million
Average payoff to investors: 2% over last 10 years
Average interest rate: 2.66%
Nikolay

6. Share Buy-Back Program
A company buys it own shares on the open market
raising the share price (via increased demand)
Decreases number of shares so every share gets a bigger cut of the profits
Idexx is spending, on average over 100% of their operating cash flows on their share buyback program
Share Buy-Back as a % of Operating Cash Flow
10 year Avg.
116.8%
90.75%
186.1%
261.8%
149.5%
57.39%
115.8%
79.89%
47.43%
92.31%
87.41%
Matt Levy

7. Possible Debt Problems
They are borrowing money to cover day to day expenses, as well as, pay a part of the share buyback program
Millions of $
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
Mean
Geo. Mean
total debt ($)
1204
1170
899
428
214
247
133
124
156 79
Debt growth rate
2.91%
30.14%
110.05%
100%
-13.36%
85.71%
7.26%
-20.51%
97.47%
44.41%
rolling 5 yr avg
45.95%
12’-16’
62.51%
11’-15’
57.93%
10’-14
31.82%
09’-13’
31.31%
08’-12’
45.90%
44.05%
EBITDA $
432
371
321
323
317
286
251
226
224
180
EBITDA growth rate
16.44%
15.58%
-0.62%
1.89%
10.84%
13.94%
11.06%
0.89%
24.44%
10.50%
8.83%
8.33%
7.42%
7.73%
12.24%
8.91%
8.76%
Tom

8. Debt Debt EBITDA Debt growth rate EBITDA growth rate Debt/EBITDA 2016
432.00
1.4405
1.0876
2.79
2017
469.84
3.69
2018
511.00
4.89
2019
555.77
6.48
2020
604.45
8.58
2021
657.40
11.36
2022
714.99
15.05
2023
777.62
19.93
2024
845.74
26.39
2025
919.83
34.96
2026
46.30
Debt
Section 6.7 Financial Covenants. (a) The Administrative Borrower will not permit the Consolidated Leverage Ratio as of the last day of any Reference Period to be greater than 3.50:1.00.
(d) any Borrower or any Loan Party shall fail to observe or perform any covenant, condition or agreement
If any of the following events (“Events of Default”) shall occur: ...
then, and in every such event (other than an event with respect to the any Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Administrative Borrower, take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, (including the Swingline Commitments and the Letter of Credit Commitments), and thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of each Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind
Matt Hill

9. DCF Discounted Cash Flow
Looks at a business's current cash flow and projects it into the future
Takes into account their growth rate and cost of capital (WACC)
g = terminal growth rate
CFn
r - g
Sawyer

10. WACC Equity Cost Debt Cost Take a weighted average of these two
Risk-Free Rate of Return + Beta of the Company * (Expected Return of the Market - Risk-Free Rate of Return)
Risk-Free return = 10 year treasury
Beta = volatility of the company relative to the market (usually the S&P 500)
Debt Cost
Coupon rate or Yield To Maturity (YTM) of outstanding bonds
Take a weighted average of these two
market cap
equity cost
Debt
debt cost
capital
equity weight
Debt Weight
WACC
WACC %
growth
$12.6
7.8466%
$1.204B
2.66%
1$3.804B
91.277%
8.722%
7.394 8%
Jimmy Jacobson

11. Equity Cost Equity Cost
= risk free rate of return +(beta *(expected market return- risk free rate of return))
Risk free rate of return = yield on US treasuries
Beta = volatility of said company relative to the market (usually the S&P 500)
Expected market return = expected return of the market over the next 12 months
(use S&P 500 historical annualized returns)

12. Debt Cost Weighted average cost of debt For all outstanding bonds
Interest on bonds (as a %) * [$ amount of bond / all debt]
Sum up results for all bonds
Alternatively you can use Yield To Maturity

13. Weight Capital Costs

14. Cash Flow Growth Rate Growth rate Rolling Mean 9.02% Rolling GeoMean8%
2016
2015
2014
2013
2012
2011
2010
2009
2008
Average
OCF growth
55.09%
-8.47%
-4.07%
6.96%
4.07%
23.46%
2.29%
22.38%
5.93%
11.96%
rolling 5 yr OCF growth
10.72%
4.39%
6.54%
11.83%
11.63%
Sawyer

15. Terminal value
Last year of cash flow/ (WACC-growth rate)

16. Final notes Add back cash and equivalents and non-operating assets
Subtract debt

17. Idexx DCF 27.62% upside from current price
Start
growth
WACC
total
year 1
335,000,000.00
1.08
311,934,853.58
year 2
361,800,000.00
313,694,391.37
year 3
390,744,000.00
315,463,854.22
year 4
422,003,520.00
317,243,298.12
year 5
455,763,801.60
319,032,779.37 TV
492,224,905.73
0.04
14,501,860,251.82
Total
16,079,229,428.48*
27.62% upside from current price
20% upside taking into account debt and cash
Sawyer

18. Alternate DCF WACC falls from 7.4% to 6.4% Start growth WACC total
year 1
335,000,000.00
1.08
1.063
315,145,813.73
year 2
361,800,000.00
313,694,391.37
year 3
390,744,000.00
315,463,854.22
year 4
422,003,520.00
317,243,298.12
year 5
455,763,801.60
319,032,779.37 TV
492,224,905.73
0.04
21,401,082,857.74
Total
22,981,662,994.55

19. Alternate DCF 2 Terminal growth rate falls from 4% to 3% Start growth
WACC
total
year 1
335,000,000.00
1.08
311,934,853.58
year 2
361,800,000.00
313,694,391.37
year 3
390,744,000.00
315,463,854.22
year 4
422,003,520.00
317,243,298.12
year 5
455,763,801.60
319,032,779.37 TV
492,224,905.73
0.03
11,201,646,941.81
Total
12,779,016,118.46

20. 1 March 2017
Valuation
Target Price $173.43
Tom

21. Conclusion/ Your Thesis
1 March 2017
Don’t buy this.
JP Morgan has a large stake in Idexx and is giving Idexx the means to inflate their own price
Current operations are not sustainable
No way stock price doesn’t crash
Tom