UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

COMMISSION FILE NUMBER: 000-19271

IDEXX LABORATORIES, INC.

(Exact name of registrant as specified in its charter)


Delaware			01-0393723
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

One IDEXX Drive	Westbrook	Maine	04092
(Address of principal executive offices)			(ZIP Code)

207-556-0300

(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 par value per share

IDXX

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant’s Common Stock, $0.10 par value per share, was ~~84,793,608,~~83,253,705 on ~~October~~July 27, ~~2021.~~2022.

GLOSSARY OF TERMS AND SELECTED ABBREVIATIONS

In order to aid the reader, we have included certain terms and abbreviations used throughout this Quarterly Report on Form 10-Q below:


~~Term/~~Term / Abbreviation			Definition

AOCI			Accumulated other comprehensive income or loss
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
CAG			Companion Animal Group, a reporting segment that provides veterinarians diagnostic products and services and information management solutions that enhance the health and well-being of ~~pets.~~pets
Credit Facility			Our $1 billion unsecured revolving credit facility, also referred to as line of ~~credit.~~credit
Clinical visits			The reason for the visit involves an interaction between a clinician and a ~~pet.~~pet
FASB			U.S. Financial Accounting Standards Board
LPD			Livestock, Poultry and Dairy, a reporting segment that provides diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer ~~efficiency.~~efficiency
OPTI Medical			OPTI Medical Systems, Inc., a wholly-owned subsidiary of IDEXX Laboratories Inc., located in Roswell, Georgia. This business provides point-of-care and laboratory diagnostics (including electrolyte and blood gas analyzers and related consumable products) for the human medical diagnostics ~~market,~~sector, as well as COVID-19 testing products and services. The Roswell facility also manufactures electrolytes slides (instrument consumables) to run Catalyst One®, Catalyst Dx®, and blood gas analyzers and consumables for the veterinary ~~market;~~sector; also referred to as OPTI. OPTI Medical is reported in our Other operating segment.
Organic revenue growth			A non-GAAP financial measure and represents the percentage change in revenue, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for or as a superior measure to, revenue growth reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies.
PCR			Polymerase chain reaction, a technique used to amplify small segments of DNA
R&D			Research and ~~Development~~development
Reported revenue growth			Represents the percentage change in revenue reported in accordance with U.S. GAAP, as compared to the same period in the prior ~~year.~~year
SaaS			Software-as-a-service
SEC			U.S. Securities and Exchange Commission
Senior Note Agreements			Note purchase agreements for the private placement of senior notes, referred to as senior notes or long-term ~~debt.~~debt
U.S. GAAP			Accounting principles generally accepted in the United States of America
Water			Water, a reporting segment that provides water microbiology testing ~~products.~~products

IDEXX LABORATORIES, INC.

Quarterly Report on Form 10-Q

Table of Contents



Item No.		Page

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of ~~September~~Jun e 30 ~~2021~~, 2022 and December 31, ~~2020~~2021	3
	Condensed Consolidated Statements of Income for the Three ~~and~~ ~~Nin~~eMonths and Six Months Ended ~~September~~June 30 ~~30,~~, 2022 and 2021 ~~and 2020~~	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and S ~~Nin~~eix Months Ended ~~September~~June 30 ~~30,~~, 2022 and 2021 ~~and 2020~~	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June ~~30,~~3 0 , 2022 and 2021 ~~and 2020~~	6
	Condensed Consolidated Statements of Cash Flows for the Three ~~Nine~~and Six Months Ended ~~September~~June ~~30,~~3 0 , 2022 and 2021 ~~and 2020~~	87
	Notes to Condensed Consolidated Financial Statements (Unaudited)	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5254
Item 4.	Controls and Procedures	5456
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	5457
Item 1A.	Risk Factors	5457
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5658
Item 6.	Exhibits	5759
Signatures		5860

PART I— FINANCIAL INFORMATION

Item 1. Financial Statements.

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021

ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	145,203	$	383,928	Cash and cash equivalents	$	114,362	$	144,454
Accounts receivable, net	Accounts receivable, net	376,760		331,429		Accounts receivable, net	412,898		368,348
Inventories	Inventories	258,484		209,873		Inventories	332,565		269,030
Other current assets	Other current assets	157,590		137,508		Other current assets	183,000		173,823
Total current assets	Total current assets	938,037		1,062,738		Total current assets	1,042,825		955,655
Long-Term Assets:	Long-Term Assets:					Long-Term Assets:
Property and equipment, net	Property and equipment, net	573,385		555,167		Property and equipment, net	594,224		587,667
Operating lease right-of-use assets	Operating lease right-of-use assets	106,962		91,171		Operating lease right-of-use assets	115,461		105,101
Goodwill	Goodwill	355,240		243,347		Goodwill	355,528		359,345
Intangible assets, net	Intangible assets, net	94,976		52,543		Intangible assets, net	100,594		99,035
Other long-term assets	Other long-term assets	317,144		289,595		Other long-term assets	398,553		330,400
Total long-term assets	Total long-term assets	1,447,707		1,231,823		Total long-term assets	1,564,360		1,481,548
TOTAL ASSETS	TOTAL ASSETS	$	2,385,744	$	2,294,561	TOTAL ASSETS	$	2,607,185	$	2,437,203

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	86,684	$	74,558	Accounts payable	$	127,262	$	116,140
Accrued liabilities	Accrued liabilities	431,047		415,648		Accrued liabilities	387,510		458,909
Line of credit						Line of credit	611,000		73,500
Current portion of long-term debt	Current portion of long-term debt	74,990		49,988		Current portion of long-term debt	—		74,996
Current portion of deferred revenue	Current portion of deferred revenue	41,128		42,567		Current portion of deferred revenue	40,775		40,034
Total current liabilities	Total current liabilities	633,849		582,761		Total current liabilities	1,166,547		763,579
Long-Term Liabilities:	Long-Term Liabilities:					Long-Term Liabilities:
Deferred income tax liabilities	Deferred income tax liabilities	15,306		11,707		Deferred income tax liabilities	10,852		8,935
Long-term debt, net of current portion	Long-term debt, net of current portion	778,025		858,492		Long-term debt, net of current portion	767,995		775,205
Long-term deferred revenue, net of current portion	Long-term deferred revenue, net of current portion	40,391		46,163		Long-term deferred revenue, net of current portion	36,965		41,174
Long-term operating lease liabilities	Long-term operating lease liabilities	89,720		77,039		Long-term operating lease liabilities	98,041		87,377
Other long-term liabilities	Other long-term liabilities	72,993		85,604		Other long-term liabilities	69,777		70,941
Total long-term liabilities	Total long-term liabilities	996,435		1,079,005		Total long-term liabilities	983,630		983,632
Total liabilities	Total liabilities	1,630,284		1,661,766		Total liabilities	2,150,177		1,747,211

Commitments and Contingencies (Note 16)	Commitments and Contingencies (Note 16)	0		0		Commitments and Contingencies (Note 16)	0		0

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 106,806 shares in 2021 and 106,457 shares in 2020; Outstanding: 84,880 shares in 2021 and 85,449 shares in 2020		10,681		10,646
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,075 shares in 2022 and 106,878 shares in 2021; Outstanding: 83,428 shares in 2022 and 84,562 shares in 2021						Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,075 shares in 2022 and 106,878 shares in 2021; Outstanding: 83,428 shares in 2022 and 84,562 shares in 2021	10,707		10,688
Additional paid-in capital	Additional paid-in capital	1,358,813		1,294,849		Additional paid-in capital	1,419,709		1,377,320
Deferred stock units: Outstanding: 90 units in 2021 and 87 units in 2020		5,669		4,503
Deferred stock units: Outstanding: 58 units in 2022 and 90 units in 2021						Deferred stock units: Outstanding: 58 units in 2022 and 90 units in 2021	5,170		5,719
Retained earnings	Retained earnings	2,757,669		2,175,595		Retained earnings	3,246,384		2,920,440
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(52,057)		(53,615)		Accumulated other comprehensive loss	(67,705)		(53,484)
Treasury stock, at cost: 21,926 shares in 2021 and 21,008 shares in 2020		(3,326,021)		(2,799,890)
Total IDEXX Laboratories, Inc. stockholders’ equity		754,754		632,088
Noncontrolling interest		706		707
Treasury stock, at cost: 23,647 shares in 2022 and 22,317 shares in 2021						Treasury stock, at cost: 23,647 shares in 2022 and 22,317 shares in 2021	(4,157,257)		(3,570,691)
Total stockholders’ equity	Total stockholders’ equity	755,460		632,795		Total stockholders’ equity	457,008		689,992
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,385,744	$	2,294,561	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,607,185	$	2,437,203

The accompanying notes are an integral part of these condensed consolidated financial statements.	The accompanying notes are an integral part of these condensed consolidated financial statements.					The accompanying notes are an integral part of these condensed consolidated financial statements.

IDEXX LABORATORIES,INC.ANDSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021

Revenue:	Revenue:									Revenue:
Product revenue	Product revenue	$	471,787	$	422,283	$	1,406,850	$	1,153,114	Product revenue	$	492,518	$	480,715	$	970,895	$	935,063
Service revenue	Service revenue	338,634		299,506		1,007,420		832,603		Service revenue	368,028		345,427		726,200		668,786
Total revenue	Total revenue	810,421		721,789		2,414,270		1,985,717		Total revenue	860,546		826,142		1,697,095		1,603,849
Cost of Revenue:	Cost of Revenue:									Cost of Revenue:
Cost of product revenue	Cost of product revenue	166,748		146,804		483,850		396,282		Cost of product revenue	167,323		169,832		329,394		317,102
Cost of service revenue	Cost of service revenue	170,752		152,379		497,409		427,897		Cost of service revenue	179,191		167,002		354,916		326,657
Total cost of revenue	Total cost of revenue	337,500		299,183		981,259		824,179		Total cost of revenue	346,514		336,834		684,310		643,759
Gross profit	Gross profit	472,921		422,606		1,433,011		1,161,538		Gross profit	514,032		489,308		1,012,785		960,090
Expenses:	Expenses:									Expenses:
Sales and marketing	Sales and marketing	124,434		108,202		358,277		318,526		Sales and marketing	130,257		119,032		262,549		233,843
General and administrative	General and administrative	82,098		105,031		226,194		231,111		General and administrative	81,488		73,326		159,437		144,096
Research and development	Research and development	40,427		37,517		115,703		102,472		Research and development	123,221		37,697		163,389		75,276
Income from operations	Income from operations	225,962		171,856		732,837		509,429		Income from operations	179,066		259,253		427,410		506,875
Interest expense	Interest expense	(7,134)		(8,110)		(22,331)		(25,297)		Interest expense	(8,317)		(7,613)		(15,313)		(15,197)
Interest income	Interest income	122		208		265		417		Interest income	334		91		477		143
Income before provision for income taxes	Income before provision for income taxes	218,950		163,954		710,771		484,549		Income before provision for income taxes	171,083		251,731		412,574		491,821
Provision for income taxes	Provision for income taxes	43,772		17,633		128,698		77,376		Provision for income taxes	39,104		49,125		86,630		84,926
Net income	Net income	175,178		146,321		582,073		407,173		Net income	131,979		202,606		325,944		406,895
Less: Net (loss) income attributable to noncontrolling interest		(57)		102		(1)		187
Less: Net income attributable to noncontrolling interest										Less: Net income attributable to noncontrolling interest	—		24		—		56
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders	$	175,235	$	146,219	$	582,074	$	406,986	Net income attributable to IDEXX Laboratories, Inc. stockholders	$	131,979	$	202,582	$	325,944	$	406,839

Earnings per Share:	Earnings per Share:									Earnings per Share:
Basic	Basic	$	2.06	$	1.71	$	6.82	$	4.77	Basic	$	1.57	$	2.37	$	3.87	$	4.76
Diluted	Diluted	$	2.03	$	1.69	$	6.71	$	4.70	Diluted	$	1.56	$	2.34	$	3.82	$	4.69
Weighted Average Shares Outstanding:	Weighted Average Shares Outstanding:									Weighted Average Shares Outstanding:
Basic	Basic	85,123		85,314		85,325		85,293		Basic	83,922		85,325		84,164		85,427
Diluted	Diluted	86,511		86,690		86,712		86,635		Diluted	84,858		86,654		85,222		86,794

The accompanying notes are an integral part of these condensed consolidated financial statements.	The accompanying notes are an integral part of these condensed consolidated financial statements.									The accompanying notes are an integral part of these condensed consolidated financial statements.

IDEXX LABORATORIES, INC.ANDSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME

(in thousands)

(Unaudited)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 175,178 $ 146,321 $ 582,073 $ 407,173
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (12,967) 7,329 (20,213) (7,871)
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $498 and $1,335 in 2021 and $(890) and $(1,092) in 2020 1,581 (2,824) 4,235 (3,466)
Unrealized gain (loss) on investments, net of tax expense (benefit) of $0 and $48 in 2021 and $52 and $(129) in 2020 (1) 166 153 (408)
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on foreign currency exchange contracts, net of tax expense (benefit) of $940 and $1,595 in 2021 and $(1,408) and $(161) in 2020 4,109 (6,161) 7,300 (623)
Unrealized gain (loss) on cross currency swaps, net of tax expense (benefit) of $744 and $1,438 in 2021 and $(933) and $(347) in 2020 2,359 (3,941) 4,561 (1,339)
Reclassification adjustment for loss (gain) included in net income, net of tax benefit (expense) of $330 and $1,206 in 2021 and $53 and $(526) in 2020 1,253 538 5,522 (2,036)
Unrealized gain (loss) on derivative instruments 7,721 (9,564) 17,383 (3,998)
Other comprehensive gain (loss), net of tax (3,666) (4,893) 1,558 (15,743)
Comprehensive income 171,512 141,428 583,631 391,430
Less: Comprehensive income (loss) attributable to noncontrolling interest (57) 102 (1) 187
Comprehensive income attributable to IDEXX Laboratories, Inc. $ 171,569 $ 141,326 $ 583,632 $ 391,243
The accompanying notes are an integral part of these condensed consolidated financial statements.


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021

Net income	$	131,979	$	202,606	$	325,944	$	406,895
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(31,081)		12,087		(27,804)		(7,246)
Benefit plans, net of tax expense of $(991) and $(991) in 2022 and $0 and $0 in 2021	(5,056)		—		(5,056)		—
Reclassification adjustment for benefit plans included in net income, net of tax of $51 and $51 in 2022 and $0 and $0 in 2021	260		—		260		—
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $1,286 and $1,725 in 2022 and $(313) and $837 in 2021	4,124		(994)		5,533		2,654
Unrealized gain (loss) on investments, net of tax expense (benefit) of $(7) and $(12) in 2022 and $2 and $48 in 2021	(25)		7		(42)		154
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on foreign currency exchange contracts, net of tax expense (benefit) of $4,298 and $5,734 in 2022 and $(594) and $655 in 2021	11,343		(1,224)		13,440		3,191
Unrealized gain (loss) on cross currency swaps, net of tax expense (benefit) of $1,335 and $1,646 in 2022 and $(349) and $694 in 2021	4,282		(1,106)		5,278		2,202
Reclassification adjustment for loss (gain) included in net income, net of tax benefit (expense) of $(1,577) and $(2,187) in 2022 and $340 and $876 in 2021	(4,204)		2,375		(5,830)		4,269
Unrealized gain on derivative instruments	11,421		45		12,888		9,662
Other comprehensive gain (loss), net of tax	(20,357)		11,145		(14,221)		5,224
Comprehensive income	111,622		213,751		311,723		412,119
Less: Comprehensive income attributable to noncontrolling interest	—		24		—		56
Comprehensive income attributable to IDEXX Laboratories, Inc.	$	111,622	$	213,727	$	311,723	$	412,063

The accompanying notes are an integral part of these condensed consolidated financial statements.

IDEXX LABORATORIES, INC. ANDSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

(Unaudited)

Common Stock
Number of Shares $0.10 Par Value Additional Paid-in Capital Deferred Stock Units Retained Earnings Accumulated Other Comprehensive (Loss) Income Treasury Stock Noncontrolling Interest Total Stockholders’ Equity
Balance December 31, 2020 106,457 $ 10,646 $ 1,294,849 $ 4,503 $ 2,175,595 $ (53,615) $ (2,799,890) $ 707 $ 632,795
Net income — — — — 204,257 — — 32 204,289
Other comprehensive loss, net — — — — — (5,921) — — (5,921)
Repurchases of common stock, net — — — — — — (154,033) — (154,033)
Common stock issued under stock plans, including excess tax benefit 219 22 17,408 — — — — — 17,430
Share-based compensation cost — — 8,829 46 — — — — 8,875
Balance March 31, 2021 106,676 $ 10,668 $ 1,321,086 $ 4,549 $ 2,379,852 $ (59,536) $ (2,953,923) $ 739 $ 703,435
Net income — — — — 202,582 — — 24 202,606
Other comprehensive income (loss), net — — — — — 11,145 — — 11,145
Repurchases of common stock — — — — — — (188,378) — (188,378)
Common stock issued under stock plans, including excess tax benefit 72 7 9,771 — — — — — 9,778
Deferred stock units activity — — (1,035) 1,035 — — — — —
Share-based compensation cost — — 9,591 46 — — — — 9,637
Balance June 30, 2021 106,748 $ 10,675 $ 1,339,413 $ 5,630 $ 2,582,434 $ (48,391) $ (3,142,301) $ 763 $ 748,223
Net income — — — — 175,235 — — (57) 175,178
Other comprehensive income (loss), net — — — — — (3,666) — — (3,666)
Repurchases of common stock — — — — — — (183,720) — (183,720)
Common stock issued under stock plans, including excess tax benefit 58 6 9,921 (12) — — — — 9,915
Share-based compensation cost — — 9,479 51 — — — — 9,530
Balance September 30, 2021 106,806 $ 10,681 $ 1,358,813 $ 5,669 $ 2,757,669 $ (52,057) $ (3,326,021) $ 706 $ 755,460


	Common Stock
	Number of Shares	$0.10 Par Value		Additional Paid-in Capital		Deferred Stock Units		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity
Balance December 31, 2021	106,878	$	10,688	$	1,377,320	$	5,719	$	2,920,440	$	(53,484)	$	(3,570,691)	$	—	$	689,992
Net income	—	—		—		—		193,965		—		—		—		193,965
Other comprehensive income, net	—	—		—		—		—		6,136		—		—		6,136
Repurchases of common stock, net	—	—		—		—		—		—		(273,058)		—		(273,058)
Common stock issued under stock plans, including excess tax benefit	125	12		11,583		(5)		—		—		—		—		11,590
Share-based compensation cost	—	—		11,122		51		—		—		—		—		11,173
Balance March 31, 2022	107,003	$	10,700	$	1,400,025	$	5,765	$	3,114,405	$	(47,348)	$	(3,843,749)	$	—	$	639,798
Net income	—	—		—		—		131,979		—		—				131,979
Other comprehensive loss, net	—	—		—		—		—		(20,357)		—		—		(20,357)
Repurchases of common stock, net	—	—		—		—		—		—		(313,508)		—		(313,508)
Common stock issued under stock plans, including excess tax benefit	72	7		7,779		(1,060)		—		—		—		—		6,726
Deferred stock units activity	—	—		(459)		459		—		—		—		—		—
Share-based compensation cost	—	—		12,364		6		—		—		—		—		12,370
Balance June 30, 2022	107,075	$	10,707	$	1,419,709	$	5,170	$	3,246,384	$	(67,705)	$	(4,157,257)	$	—	$	457,008



Balance December 31, 2020	106,457	$	10,646	$	1,294,849	$	4,503	$	2,175,595	$	(53,615)	$	(2,799,890)	$	707	$	632,795
Net income	—	—		—		—		204,257		—		—		32		204,289
Other comprehensive loss, net	—	—		—		—		—		(5,921)		—		—		(5,921)
Repurchases of common stock, net	—	—		—		—		—		—		(154,033)		—		(154,033)
Common stock issued under stock plans, including excess tax benefit	219	22		17,408		—		—		—		—		—		17,430

Share-based compensation cost	—	—		8,829		46		—		—		—		—		8,875
Balance March 31, 2021	106,676	$	10,668	$	1,321,086	$	4,549	$	2,379,852	$	(59,536)	$	(2,953,923)	$	739	$	703,435
Net income	—	—		—		—		202,582		—		—		24		202,606
Other comprehensive loss, net	—	—		—		—		—		11,145		—		—		11,145
Repurchases of common stock, net	—	—		—		—		—		—		(188,378)		—		(188,378)
Common stock issued under stock plans, including excess tax benefit	72	7		9,771		—		—		—		—		—		9,778
Deferred stock units activity	—	—		(1,035)		1,035		—		—		—		—		—
Share-based compensation cost	—	—		9,591		46		—		—		—		—		9,637
Balance June 30, 2021	106,748	$	10,675	$	1,339,413	$	5,630	$	2,582,434	$	(48,391)	$	(3,142,301)	$	763	$	748,223

The accompanying notes are an integral part of these condensed consolidated financial statements.

Common Stock
Number of Shares $0.10 Par Value Additional Paid-in Capital Deferred Stock Units Retained Earnings Accumulated Other Comprehensive (Loss) Income Treasury Stock Noncontrolling Interest Total Stockholders’ Equity
Balance December 31, 2019 105,711 $ 10,571 $ 1,213,517 $ 4,462 $ 1,595,648 $ (46,182) $ (2,600,543) $ 352 $ 177,825
Cumulative effect of accounting changes — — — — (1,829) — — — (1,829)
Net income — — — — 111,827 — — 29 111,856
Other comprehensive loss, net — — — — — (9,064) — — (9,064)
Repurchases of common stock — — — — — — (187,767) — (187,767)
Common stock issued under stock plans, including excess tax benefit 203 20 9,730 — — — — — 9,750
Share-based compensation cost — — 7,238 46 — — — — 7,284
Balance March 31, 2020 105,914 $ 10,591 $ 1,230,485 $ 4,508 $ 1,705,646 $ (55,246) $ (2,788,310) $ 381 $ 108,055
Net income — — — — 148,940 — — 56 148,996
Other comprehensive loss, net — — — — — (1,786) — — (1,786)
Issuance of common stock — — — — — — 258 — 258
Common stock issued under stock plans, including excess tax benefit 117 12 10,068 — — — — — 10,080
Deferred stock units activity — — (894) 894 — — — — —
Share-based compensation cost — — 7,797 — — — — — 7,797
Balance June 30, 2020 106,031 $ 10,603 $ 1,247,456 $ 5,402 $ 1,854,586 $ (57,032) $ (2,788,052) $ 437 $ 273,400
Net income (loss) — — — — 146,219 — — 102 146,321
Other comprehensive loss, net — — — — — (4,893) — — (4,893)
Repurchases of common stock, net — — — — — — (360) — (360)
Common stock issued under stock plans, including excess tax benefit 251 25 18,706 (12) — — — — 18,719
Share-based compensation cost — — 7,907 21 — — — — 7,928
Balance September 30, 2020 106,282 $ 10,628 $ 1,274,069 $ 5,411 $ 2,000,805 $ (61,925) $ (2,788,412) $ 539 $ 441,115
The accompanying notes are an integral part of these condensed consolidated financial statements.

IDEXX LABORATORIES, INC. ANDSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OFCASHFLOWS

(in thousands)

(Unaudited)


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021

Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net income	Net income	$	582,073	$	407,173	Net income	$	325,944	$	406,895
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	76,901		71,437		Depreciation and amortization	54,633		50,434
Impairment charge		5,148		1,993
Impairment charges						Impairment charges	2,346		3,795
Provision for credit losses	Provision for credit losses	1,719		5,235		Provision for credit losses	3,358		768
Deferred income taxes	Deferred income taxes	4,049		(3,363)		Deferred income taxes	(23,517)		4,193
Share-based compensation expense	Share-based compensation expense	28,042		23,008		Share-based compensation expense	23,543		18,512
Other	Other	2,402		488		Other	1,200		1,300
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(49,050)		(72,409)		Accounts receivable	(53,794)		(50,721)
Inventories	Inventories	(46,891)		(25,091)		Inventories	(49,349)		(20,412)
Other assets and liabilities	Other assets and liabilities	(51,961)		30,579		Other assets and liabilities	(94,729)		(55,162)
Accounts payable	Accounts payable	637		512		Accounts payable	(6,735)		3,812
Deferred revenue	Deferred revenue	(7,487)		(10,433)		Deferred revenue	(2,344)		(5,037)
Net cash provided by operating activities	Net cash provided by operating activities	545,582		429,129		Net cash provided by operating activities	180,556		358,377
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:
Purchases of property and equipment	Purchases of property and equipment	(87,761)		(92,768)		Purchases of property and equipment	(61,924)		(42,744)
Acquisition of intangible assets and equity investments		—		(918)
Acquisition of intangible assets						Acquisition of intangible assets	(10,000)		—
Equity investment						Equity investment	(25,000)		—
Acquisitions of a business, net of cash acquired	Acquisitions of a business, net of cash acquired	(161,166)		—		Acquisitions of a business, net of cash acquired	—		(156,506)
Net cash used by investing activities	Net cash used by investing activities	(248,927)		(93,686)		Net cash used by investing activities	(96,924)		(199,250)
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
Repayments on revolving credit facilities, net		—		(289,625)
Issuance of senior debt		—		200,000
Borrowings under revolving credit facility, net						Borrowings under revolving credit facility, net	537,500		—
Payment of senior debt	Payment of senior debt	(50,000)		—		Payment of senior debt	(75,000)		—
Debt issuance costs		—		(4,995)
Payments of acquisition-related contingent considerations and holdbacks		(1,500)		(1,580)
Payments of acquisition-related contingent consideration and holdbacks						Payments of acquisition-related contingent consideration and holdbacks	(2,816)		(1,500)
Repurchases of common stock, net	Repurchases of common stock, net	(502,021)		(182,815)		Repurchases of common stock, net	(573,060)		(320,787)
Proceeds from exercises of stock options and employee stock purchase plans	Proceeds from exercises of stock options and employee stock purchase plans	37,428		39,230		Proceeds from exercises of stock options and employee stock purchase plans	18,379		27,371
Shares withheld for statutory tax withholding payments on restricted stock	Shares withheld for statutory tax withholding payments on restricted stock	(15,501)		(9,029)		Shares withheld for statutory tax withholding payments on restricted stock	(10,390)		(14,952)
Net cash used by financing activities	Net cash used by financing activities	(531,594)		(248,814)		Net cash used by financing activities	(105,387)		(309,868)
Net effect of changes in exchange rates on cash	Net effect of changes in exchange rates on cash	(3,786)		(1,368)		Net effect of changes in exchange rates on cash	(8,337)		(1,053)
Net (decrease) increase in cash and cash equivalents		(238,725)		85,261
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(30,092)		(151,794)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	383,928		90,326		Cash and cash equivalents at beginning of period	144,454		383,928
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	145,203	$	175,587	Cash and cash equivalents at end of period	$	114,362	$	232,134

Supplemental Cash Flow Information:	Supplemental Cash Flow Information:					Supplemental Cash Flow Information:
Cash paid for income taxes	Cash paid for income taxes	$	96,103	$	79,909	Cash paid for income taxes	$	128,325	$	81,923
Unpaid property and equipment, reflected in accounts payable and accrued liabilities	Unpaid property and equipment, reflected in accounts payable and accrued liabilities	$	14,734	$	7,708	Unpaid property and equipment, reflected in accounts payable and accrued liabilities	$	10,340	$	9,676

The accompanying notes are an integral part of these condensed consolidated financial statements.	The accompanying notes are an integral part of these condensed consolidated financial statements.					The accompanying notes are an integral part of these condensed consolidated financial statements.

IDEXX LABORATORIES, INC.ANDSUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements of IDEXX Laboratories, Inc. and its subsidiaries have been prepared in accordance with U.S. GAAP for interim financial information and with the requirements of Regulation S-X, Rule 10-01 for financial statements required to be filed as a part of this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “IDEXX,” the “Company,” “we,” “our,” or “us” refer to IDEXX Laboratories, Inc. and its subsidiaries.

The accompanying unaudited condensed consolidated financial statements include the accounts of IDEXX Laboratories, Inc. and our wholly-owned and majority-owned subsidiaries. We do not have any variable interest entities for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of our management, all adjustments necessary for a fair statement of our financial position and results of operations. All such adjustments are of a recurring nature. The condensed consolidated balance sheet data atas of December 31, ~~2020,~~2021, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, are not necessarily indicative of the results to be expected for the full year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with this Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2021,~~2022, and our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, (the ~~“2020~~“2021 Annual Report”) filed with the SEC.

The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments, and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenues and expenses.

We have included certain terms and abbreviations used throughout this Quarterly Report on Form 10-Q in the “Glossary of Terms and Selected Abbreviations.”

NOTE 2. ACCOUNTING POLICIES

Significant Accounting Policies

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, are consistent with those discussed in ~~Note~~“Note 2. Summary of Significant Accounting ~~Policies~~Policies” to the consolidated financial statements in our ~~2020~~2021 Annual Report, ~~except~~and as ~~noted~~updated below.

~~New~~Investments in Companies Accounted for Using the Equity or Cost Method of Accounting ~~Pronouncements Adopted~~

~~Effective January 1, 2021,~~Investments where we ~~adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying~~have the ~~Accounting~~ability to exercise significant influence, but do not control the entity, are accounted for ~~Income Taxes.” The new guidance is intended~~under the equity method of accounting. Significant influence generally exists if we have a 20% to ~~simplify~~50% ownership interest in the ~~accounting~~investee. Equity investments in entities for ~~income taxes by removing certain exceptions~~which we do not have the ability to exercise significant influence and by updating accounting requirements around goodwill recognized for tax purposes and the allocation of current and deferred tax expense among legal entities, among other minor changes. The adoption of ASU 2019-12 didwhose securities do not have a ~~material impact on our consolidated financial statements.~~readily determinable fair value are carried at cost less impairment, if any, adjusted for changes resulting from qualifying observable price changes for the identical investment of the same issuer should they occur.

~~In July~~We evaluate our investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

As of June 30, 2022 and December 31, 2021, the FASB issued ASU 2021-05, “Leases (Topic 842); Lessors - Certain Leases with Variable Lease Payments.” ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rateour equity investments of $30.3 million and $5.3 million, respectively, are recorded at cost as an operating lease if another lease classification (i.e., sales-type or direct financing) would result in recognition of a day-one loss. We have elected to adopt this standard as of the third quarter of 2021, on a prospective basis. The adoption of ASU 2021-05 did not have an impact on our consolidated financial statements.other long-term assets.

New Accounting Pronouncements Adopted

None

New Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities.” ASU 2021-08 is intended to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination by providing consistent recognition guidance. This standard is effective for fiscal years beginning after December 15, 2022. Adoption of the ASU 2021-08 should be applied prospectively. Early adoption is permitted, including in an interim period, for any period for which financial statements have not yet been issued. We are currently evaluating the impact, if any, of ASU 2021-08 on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, ~~"Facilitation~~“Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The FASB also issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope," in January 2021. It clarifies that certain optional expedients and exceptions apply to derivatives that are affected by the discounting transition. The amendments in this ASU affect the guidance in ASU No. 2020-04 and are effective in the same timeframe as ASU 2020-04. The relief offered by this guidance, if adopted, is available to companies for the period March 12, 2020 through December 31, 2022. WeOur Credit Facility includes a provision for the determination of a benchmark replacement rate as a successor to the LIBOR rate; therefore, we do not expect the discontinuation of LIBOR to have ~~a material~~an impact on our consolidated financial statements.

NOTE 3. REVENUE RECOGNITION

Our revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. We exclude sales, use, value-added, and other taxes we collect on behalf of third parties from revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer. To accurately present the consideration received in exchange for promised products or services, we apply the five-step model outlined below:

1.Identification of a contract or agreement with a customer

2.Identification of our performance obligations in the contract or agreement

3.Determination of the transaction price

4.Allocation of the transaction price to the performance obligations

5.Recognition of revenue when, or as, we satisfy a performance obligation

We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The timing of revenue recognition, billings, and cash collections results in accounts receivable, lease receivables, and contract assets ~~and lease receivables~~ as a result of revenue recognized in advance of billings (included within other assets), and contract liabilities or deferred revenue as a result of receiving consideration in advance of revenue recognition within our unaudited condensed consolidated balance sheet. Our payment terms generally range from 30 to 60 days, with exceptions for certain individual customers and geographies. Below is a listing of our major categories of revenue for our products and services:

Diagnostic Products and Accessories. Diagnostic products and accessories revenues, including IDEXX VetLab® consumables and accessories, rapid assay, LPD, Water, and OPTI testing products, are predominantly recognized and invoiced at the time of shipment, which is when the customer obtains control of the product based on legal title transfer and we have the right to payment. We also provide customers with certain consumables that are recognized upon utilization by the customer, which is when we have the right to payment and the risks and rewards of ownership transfer. Shipping costs reimbursed by the customer are included in revenue and cost of sales. As a practical expedient, we do not account for shipping activities as a separate performance obligation.

~~Reference~~ Laboratory Diagnostic and Consulting Services. ~~Reference laboratory~~Laboratory diagnostic and consulting services revenues are recognized and invoiced when ~~the services are~~ performed.

Instruments, Software and Systems. CAG Diagnostics capital instruments, veterinary software, and diagnostic imaging systems revenues are recognized and invoiced when the customer obtains control of the products based on legal title transfer and we have the right to payment, which generally occurs at the time of installation and customer acceptance. Our instruments, software, and systems are often included in one of our significant customer programs, as further described below. For veterinary software systems that include multiple performance obligations, such as perpetual software licenses and computer hardware, we allocate revenue to each performance obligation based on estimates of the price that we would charge the customer for each promised product or service if it were sold on a standalone basis.

Lease Revenue. Revenues from instrument rental agreements and reagent rental programs are recognized either as operating leases on a ratable basis over the term of the agreement or as sales-type leases at the time of installation and customer acceptance. Customers typically pay for the right to use instruments under rental agreements in equal monthly amounts over the term of the rental agreement. Our reagent rental programs provide our customers the right to use our instruments upon entering into agreements to purchase specified amounts of consumables, which are considered embedded leases. For some agreements, the customers are provided with the right to purchase the instrument at the end of the lease term. Lease revenues from these agreements are presented in product revenue on our unaudited condensed consolidated income statement. Lease revenue was approximately ~~$6.3~~$4.9 million and ~~$15.8~~$9.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively,~~2022, as

compared to ~~$4.5~~$4.7 million and ~~$12.2~~$9.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, including both operating leases and sales-type leases under ASC 842, Leases, for leases entered into after January 1, 2019, and ASC 840, “Leases,”~~Leases,~~ for leases entered into prior to 2019. ~~See~~Refer to below for revenue recognition under our reagent rental programs.

Extended Warranties and Post-Contract Support. CAG Diagnostics capital instruments and diagnostic imaging systems extended warranties typically provide customers with continued coverage for a period of one to five years beyond the first-year standard warranty. Customers can either pay in full for the extended warranty at the time of instrument or system purchase or can be billed on a quarterly basis over the term of the contract. We recognize revenue associated with extended warranties over time on a ratable basis using a time elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

Veterinary software post-contract support provides customers with access to technical support when and as needed through access to call centers and online customer assistance. Post-contract support contracts typically have a term of 12 months and customers are billed for post-contract support in equal quarterly amounts over the term. We recognize revenue for post-contract support services over time on a ratable basis using a time elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

On December 31, ~~2020,~~2021, our deferred revenue related to extended warranties and post-contract support was ~~$35.1~~$30.0 million, of which approximately $~~2.8~~2.5 million and ~~$20.8~~$17.2 million was recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Furthermore, as a result of new agreements, our deferred revenue related to extended warranties and post-contract support was ~~$31.0~~$27.5 million ~~at September~~as of June 30, ~~2021.~~2022. We do not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less and do not adjust for the effect of the financing components when the period between customer payment and revenue recognition is one year or less. Deferred revenue related to extended warranties and post-contract support with an original duration of more than one year was ~~$17.1~~$13.0 million ~~at September~~as of June 30, ~~2021,~~2022, of which approximately ~~14%~~26%, ~~43%~~38%, ~~25%~~20%, ~~11%~~8%, and 7%8% are expected to be recognized during the remainder of ~~2021,~~2022, the full years ~~2022,~~ 2023, 2024, 2025, and thereafter, respectively. Additionally, we have determined these agreements do not include a significant financing component.

SaaS Subscriptions. We offer a variety of veterinary software and diagnostic imaging SaaS subscriptions including ~~IDEXX Neo~~ezyVet®, Animana®, Neo®, Cornerstone® Cloud, Pet Health Network® Pro, Petly® Plans, Web PACS, rVetLink®, and Smart Flow™~~, Cornerstone~~®~~, ezyVet~~®~~, and VetRadar~~®. We recognize revenue for our SaaS subscriptions over time on a ratable basis over the contract term, beginning on the date our service is made available to the customer. Our subscription contracts vary in term from monthly to two years. Customers typically pay for our subscription contracts in equal monthly amounts over the term of the agreement. Deferred revenue related to our SaaS subscriptions is not material.

Contracts with Multiple Performance Obligations. We enter into contracts with multiple performance obligations where customers purchase a combination of IDEXX products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires significant judgment. We determine the transaction price for a contract based on the total consideration we expect to receive in exchange for the transferred goods or services. To the extent the transaction price includes variable consideration, such as volume rebates or expected price adjustments, we apply judgment in constraining the estimated variable consideration due to factors that may

cause reversal of revenue recognized. We evaluate constraints based on our historical and projected experience with similar customer contracts.

We allocate revenue to each performance obligation in proportion to the relative standalone selling prices, and recognize revenue when transfer of the related goods or services has occurred for each obligation. We utilize the observable standalone selling price when available, which represents the price charged for the performance obligation when sold separately. When standalone selling prices for our products or services are not directly observable, we determine the standalone selling prices using relevant information available and apply suitable estimation methods including, but not limited to, the cost plus a margin approach. We recognize revenue as each performance obligation is satisfied, either at a point in time or over time, as described in the revenue categories above. We do not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less.

The following customer programs represent our most significant customer contracts which contain multiple performance obligations:

Customer Commitment Programs. We offer customer incentives upon entering into multi-year agreements to purchase annual minimum amounts of products and services.

Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide customers with incentives in the form of cash payments or IDEXX Points upon entering into multi-year agreements to purchase annual minimum amounts of future products or services. If a customer breaches ~~its~~their agreement, they are required to refund all or a portion of the up-front cash or IDEXX Points, or make other repayments, remedial actions, or both. Up-front incentives to customers in the form of cash or IDEXX Points are not made in exchange for distinct goods or services and are capitalized as customer acquisition costs within other current and long-term assets, which are subsequently recognized as a reduction to revenue over the term of the customer agreement. If these up-front incentives are subsequently utilized to purchase instruments, we allocate total consideration, including future committed purchases less up-front incentives and estimates of expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance. To the extent invoiced instrument revenue exceeds recognized instrument revenue, we record deferred revenue as a contract liability, which is subsequently recognized upon the purchase of ~~future~~ products and ~~services.~~services over the term of the contract. We have determined these agreements do not include a significant financing component. Differences between estimated and actual customer purchases may impact the ~~amount~~timing and ~~timing~~amount of revenue recognition.

On December 31, ~~2020,~~2021, our capitalized customer acquisition costs were ~~$148.1~~$158.3 million, of which approximately ~~$10.7~~$12.5 million and ~~$33.3~~$25.2 million was recognized as a reduction of revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Furthermore, as a result of new up-front customer loyalty payments, net of subsequent recognition, our capitalized customer acquisition costs were ~~$157.1~~$156.4 million ~~at September~~as of June 30, ~~2021.~~2022. We monitor customer purchases over the term of their agreement to assess the realizability of our capitalized customer acquisition costs and review estimates of variable consideration. Impairments, revenue adjustments that relate to performance obligations satisfied in prior periods, and contract modifications during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, were not material.

Volume Commitment Programs. Our volume commitment programs, such as our IDEXX 360 program, provide customers with a free or discounted instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of products and services. We allocate total consideration, including future committed purchases and expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance in advance of billing the customer, which is also when the customer obtains control of the instrument based on legal title transfer. Our right to future consideration related to instrument revenue is recorded as a contract asset within other current and long-term assets. The contract asset is transferred to accounts receivable when customers are billed for future products and services over the term of the contract. We have determined these agreements do not include a significant financing component. Differences between estimated and actual customer purchases may impact the ~~amount~~timing and ~~timing~~amount of revenue recognition.

On December 31, ~~2020,~~2021, our volume commitment contract assets were ~~$115.5~~$159.9 million, of which approximately $~~6.5~~9.6 million and $~~20.1~~18.9 million was reclassified to accounts receivable when customers were billed for related products and services during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Furthermore, as a result of new placements under volume commitment programs, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our contract assets were ~~$146.1~~$179.1 million ~~at September~~as of June 30, ~~2021.~~2022. We monitor customer purchases over the term of their agreement to assess the realizability of our contract assets and review estimates of variable consideration. Impairments, revenue adjustments that relate to performance obligations satisfied in prior periods, and contract modifications during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, were not material.

For our up-front customer loyalty and volume commitment programs, we estimate future revenues related to multi-year agreements to be approximately ~~$2.7~~$3.0 billion, of which approximately 6%14%, ~~25%~~27%, ~~23%~~22%, ~~19%~~17%, and ~~27%~~20% are expected to be recognized during the remainder of ~~2021,~~2022, the full years ~~2022,~~ 2023, 2024, 2025, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied, for which customers have committed to

purchase goods and services, net of the expected revenue reductions from customer acquisition costs and expected price adjustments, and, as a result, are lower than stated contractual commitments by our customers.

Instrument Rebate Programs. Our instrument rebate programs require an instrument purchase and provide customers the opportunity to earn future rebates based on the volume of products and services they purchase over the term of the program. We account for the customer’s right to earn rebates on future purchases as a separate performance obligation and determine the standalone selling price based on an estimate of rebates the customer will earn over the term of the program. Total consideration allocated to identified performance obligations is limited to goods and services that the customer is presently obligated to purchase and does not include estimates of future purchases that are optional. We allocate total consideration to identified performance obligations, including the customer’s right to earn rebates on future purchases, which is deferred and recognized upon the purchase of future products and services, partially offsetting future rebates as they are earned.

On December 31, ~~2020,~~2021, our deferred revenue related to instrument rebate programs was ~~$39.3~~$33.0 million, of which approximately $~~3.5~~3.1 million and ~~$11.0~~$6.5 millionwas recognized when customers purchased eligible products and services and earned rebates during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Furthermore, as a result of new instrument purchases under rebate programs, net of subsequent recognition, our deferred revenue was ~~$33.9~~$29.4 million ~~at September~~as of June 30, ~~2021,~~2022, of which approximately ~~10%~~20%, ~~34%~~31%, ~~23%~~21%, ~~15%~~14%, and ~~18%~~14% are expected to be recognized during the remainder of ~~2021,~~2022, the full years ~~2022,~~ 2023, 2024, 2025, and thereafter, respectively.

Reagent Rental Programs. Our reagent rental programs provide our customers the right to use our instruments upon entering into multi-year agreements to purchase annual minimum amounts of consumables. These types of agreements include an embedded lease for the right to use our instrument, and we determine the amount of lease revenue allocated to the instrument based on relative standalone selling prices. We evaluate the terms of these embedded leases to determine classification as either a sales-type lease or an operating lease.

Sales-type Reagent Rental Programs. Our reagent rental programs that effectively transfer control of instruments to our customers are classified as sales-type leases, and we recognize instrument revenue and cost in advance of billing the customer, at the time of installation and customer acceptance. Our right to future consideration related to instrument revenue is recorded as a lease receivable within other current and long-term assets, and is transferred to accounts receivable when customers are billed for future products and services over the term of the contract. On December 31, ~~2020,~~2021, our lease receivable assets were ~~$11.1~~$15.3 million, of which approximately ~~$0.5~~$0.9 million and ~~$1.6~~$1.7 million was reclassified to accounts receivable when customers were billed for related products and services during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Furthermore, as a result of new placements under sales-type reagent rental programs, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our lease receivable assets were ~~$14.3~~$15.8 million ~~at September~~as of June 30, ~~2021.~~2022. The impacts of discounting and unearned income ~~at September~~as of June 30, ~~2021,~~2022 were not material. Profit and loss recognized at the commencement date and interest income during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, were not material. We monitor customer purchases over the term of their agreement to assess the realizability of our lease receivable assets. Impairments during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were not material.

Operating-type Reagent Rental Programs. Our reagent rental programs that do not effectively transfer control of instruments to our customers are classified as operating leases, and we recognize instrument revenue and costs ratably over the term of the agreement. The cost of the instrument is capitalized within property and equipment. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we transferred instruments of ~~$2.8~~$4.6 million and ~~$8.6~~$7.6 million, ~~respectively,~~ as compared to ~~$2.6~~$3.3 million and ~~$6.6~~$5.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, from inventory to property and equipment. ~~We had impairments of $1.3 million and $5.1 million for the three and nine months ended September 30, 2021, respectively, associated with a~~

~~write-down of rental assets in certain regions.~~

We estimate future revenue to be recognized related to our reagent rental programs of approximately ~~$39.1~~$35.9 million, of which approximately 9%17%, ~~31%~~29%, ~~25%~~23%, ~~18%~~17%, and ~~17%~~14% are expected to be recognized during the remainder of ~~2021,~~2022, the full years ~~2022,~~ 2023, 2024, 2025, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied for which customers have committed to future purchases, net of any expected price adjustments, and, as a result, may be lower than stated contractual commitments by our customers.

Other Customer Incentive Programs. Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified

purchase threshold of goods and services. We account for these discounts as variable consideration and estimate the likelihood of a customer meeting the threshold in order to determine the transaction price using the most predictive approach. We typically use the most-likely-amount method for incentives that are offered to individual customers and the expected-value method for programs that are offered to a broad group of customers. Revenue adjustments that relate to performance obligations satisfied in prior periods during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, were not material. Refund obligations related to customer incentive programs are recorded in accrued liabilities for the actual issuance of incentives, incentives earned but not yet issued, and estimates of incentives to be earned in the future.

Program Combinations. At times, we combine elements of our significant customer programs within a single customer contract. We separate each significant program element and include the contract assets, customer acquisition costs, deferred revenues, and estimated future revenues within the most relevant program disclosures above. Each customer contract is presented as a net contract asset or net contract liability on our unaudited condensed consolidated balance sheet.

IDEXX Points. IDEXX Points may be applied to trade receivables due to us, converted to cash, or applied against the purchase price of IDEXX products and services. We consider IDEXX Points equivalent to cash. IDEXX Points that have not yet been used by customers are included in accrued liabilities until utilized or expired. Breakage is not material because customers can apply IDEXX Points to trade receivables at any time.

Accounts Receivable. We recognize revenue when it is probable that we will collect substantially all of the consideration to which we will be entitled, based on the customer’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. We have no significant customers that accounted for greater than 10% of our consolidated revenues, and we have no concentration of credit risk as of ~~September~~June 30, ~~2021.~~2022.

Disaggregated Revenues. We present disaggregated revenue for our CAG segment based on major product and service categories. Our Water segment is comprised of a single major product category. Although our LPD segment does not meet the quantitative ~~thresholds~~requirements to be reported as a separate segment, we believe it is important to disaggregate these revenues as a major product and service category ~~within~~separately from our Other reportable segment given its distinct markets, and therefore we have elected to report LPD as a reportable segment.

The following table presents disaggregated revenue by major product and service categories:


(in thousands)	(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				(in thousands)	For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
CAG segment revenue:	CAG segment revenue:									CAG segment revenue:
CAG Diagnostics recurring revenue:	CAG Diagnostics recurring revenue:	$	638,358	$	567,416	$	1,916,938	$	1,565,595	CAG Diagnostics recurring revenue:	$	685,413	$	661,300	$	1,350,223	$	1,278,580
IDEXX VetLab consumables	IDEXX VetLab consumables	252,714		218,605		755,158		603,379		IDEXX VetLab consumables	266,079		256,352		533,252		502,444
Rapid assay products	Rapid assay products	76,974		70,593		230,472		192,681		Rapid assay products	87,481		83,887		162,000		153,498
Reference laboratory diagnostic and consulting services	Reference laboratory diagnostic and consulting services	282,301		254,223		851,757		703,300		Reference laboratory diagnostic and consulting services	304,130		293,675		599,205		569,456
CAG Diagnostics services and accessories	CAG Diagnostics services and accessories	26,369		23,995		79,551		66,235		CAG Diagnostics services and accessories	27,723		27,386		55,766		53,182
CAG Diagnostics capital - instruments	CAG Diagnostics capital - instruments	39,401		29,336		105,645		72,040		CAG Diagnostics capital - instruments	36,227		35,054		73,224		66,244
Veterinary software, services and diagnostic imaging systems	Veterinary software, services and diagnostic imaging systems	54,736		41,265		148,274		118,478		Veterinary software, services and diagnostic imaging systems	62,447		49,241		121,824		93,538
CAG segment revenue	CAG segment revenue	732,495		638,017		2,170,857		1,756,113		CAG segment revenue	784,087		745,595		1,545,271		1,438,362

Water segment revenue	Water segment revenue	38,143		33,272		109,374		95,537		Water segment revenue	39,195		37,191		75,566		71,231
LPD segment revenue	LPD segment revenue	29,126		36,971		101,920		103,369		LPD segment revenue	29,889		33,524		60,759		72,794
Other segment revenue	Other segment revenue	10,657		13,529		32,119		30,698		Other segment revenue	7,375		9,832		15,499		21,462
Total revenue	Total revenue	$	810,421	$	721,789	$	2,414,270	$	1,985,717	Total revenue	$	860,546	$	826,142	$	1,697,095	$	1,603,849

Revenue by principal geographic area, based on customers’ domiciles, was as follows:


(in thousands)	(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				(in thousands)	For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
United States	United States	$	514,343	$	454,836	$	1,502,219	$	1,257,617	United States	$	559,825	$	515,238	$	1,085,731	$	987,876
Europe, the Middle East and Africa	Europe, the Middle East and Africa	167,956		147,193		510,759		400,928		Europe, the Middle East and Africa	161,993		171,553		335,801		342,803
Asia Pacific Region	Asia Pacific Region	78,239		77,401		246,645		212,663		Asia Pacific Region	80,100		83,624		163,961		168,406
Canada	Canada	32,813		28,710		105,608		78,314		Canada	39,533		39,337		74,765		72,795
Latin America		17,070		13,649		49,039		36,195
Latin America & Caribbean										Latin America & Caribbean	19,095		16,390		36,837		31,969
Total revenue	Total revenue	$	810,421	$	721,789	$	2,414,270	$	1,985,717	Total revenue	$	860,546	$	826,142	$	1,697,095	$	1,603,849

Costs to Obtain a Contract. We capitalize sales commissions, and the related fringe benefits earned by our sales force when considered incremental, and recoverable costs of obtaining a contract. Our contracts include performance obligations related to various goods and services, some of which are satisfied at a point in time and others over time. Commission costs related to performance obligations satisfied at a point in time are expensed at the time of sale, which is when revenue is recognized. Commission costs related to long-term service contracts and performance obligations satisfied over time, including extended warranties and SaaS subscriptions, are deferred and recognized on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. We apply judgment in estimating the amortization period, which typically ranges from 3 to 7 years, by taking into consideration our customer contract terms, history of renewals, expected length of customer relationship, ~~as well as~~and the useful life of the underlying technology and products. Amortization expense is included in sales and marketing expenses in the accompanying unaudited condensed consolidated statements of income. Deferred commission costs are periodically reviewed for impairment.

On December 31, ~~2020,~~2021, our deferred commission costs, included within other assets, were ~~$17.5~~$19.5 million, of which approximately ~~$1.3~~$1.6 million and ~~$4.3~~$3.4 million of com~~mission~~commission expense was recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, net of subsequent recognition, our deferred commission costs were ~~$19.0~~$19.3 million ~~at September~~as of June 30, ~~2021.~~2022. Impairments of deferred commission costs during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, were not material.

NOTE 4. ACQUISITIONS, ASSET PURCHASES AND INVESTMENTS

We believe that our acquisitions of businesses and other assets enhance our existing businesses by either expanding our geographic range and customer base, or expanding our existing product lines. From time to time we may acquire small reference ~~labs~~laboratory or radiology practices that we account for as either asset purchases or business combinations.

Asset Purchases and Investments

During the ~~third~~second quarter of 2022, we entered into two arrangements to license intellectual property for which we paid $50.0 million and accrued $30.0 million in subsequent payments. The $80.0 million in the aggregate was charged to research and development expense for these license rights. These 2 arrangements were treated as asset acquisitions under U.S. GAAP and resulted in the full amount being expensed to research and development expense as in-process research and development costs with no alternative future use. The acquisition of these licensing arrangements supports new instrument platform advancements. The expense was recorded in our CAG segment. We also purchased $25.0 million of preferred shares for a noncontrolling minority interest in one of these entities. We have elected to measure the investment as an equity security investment, under ASC 321, “Investment - Equity Securities,” and recorded the investment at cost. The investment is included in other long-term assets.

During the first quarter of 2022 we made a $10.0 million payment for a perpetual intellectual property license, which will be amortized over 10 years and included in our CAG segment.

Business Combinations

During the fourth quarter of 2021, we acquired the ~~assets~~shares of a ~~teleradiology business~~reference laboratory located in Finland for approximately ~~$5.4~~$13.4 million in cash, including a ~~contingent payment~~holdback of ~~$0.3~~approximately $1.4 million. This acquisition expands our ~~current teleradiology capability.~~international reference laboratory presence and was accounted for as a business combination. The ~~acquired~~fair values of the assets ~~primarily~~acquired consist of a customer relationship ~~intangible~~intangibles of approximately $7.4 million, with a life of 10 years; a non-compete agreement of approximately $0.8 million, with a life of 3 years; approximately $6.9 million of goodwill, representing synergies within our broader CAG portfolio; and approximately $1.7 million in net tangible liabilities, including deferred taxes associated with ~~a weighted average life of~~ ~~10 years, and approximately $3.7 million in goodwill. The purchase price allocation is subject to revision as additional information becomes available regarding tax-related matters and contingencies.~~the acquired intangible assets. Goodwill related to this acquisition is ~~expected to be deductible for tax purposes. Pro forma information has~~ not ~~been presented for this acquisition because such information is not material to the financial statements.~~ ~~The results of operations have been included in our CAG segment since the acquisition date. The acquisition expenses were not material.~~

During the second quarter of 2021, we acquired the assets of the ezyVet cloud-based veterinary software businesses and the shares of ezyVet US, Inc., as well as the VetRadar business assets, for approximately $157.2 million, including an estimated contingent payment of $5 million. The acquired assets include the ezyVet cloud-native practice management system software and the VetRadar cloud-based workflow management software. The acquisition expands our cloud-based software offerings to support our customers with technology solutions that raise the standards of care for patients, improve practice efficiency, and enable more effective communication with pet owners. The fair value of assets acquired were as follows: approximately ~~$32.0 million~~ ~~in customer-related intangible with a weighted average life of~~ ~~10 years, approximately~~ ~~$8.4 million~~ ~~in technology-related intangibles with a weighted average life~~ of~~6 years, approximately~~ ~~$2.4 million~~ ~~in trademarks with a weighted average life of~~ ~~14 years, approximately~~ ~~$1.8 million~~ ~~in non-compete agreements with a weighted average life of~~ ~~5 years, approximately~~ ~~$109.4 million~~ ~~in goodwill, representing synergies within our broader CAG portfolio, and approximately $3.2 million~~ in net tangible assets. Goodwill has been allocated based upon the fair value of projected earnings as of the date of the acquisition. The goodwill was allocated as follows: approximately $23.4 million to IDEXX VetLab®, approximately $27.0 million to Reference Laboratory, approximately $11.1 million to Rapid Assay, and approximately $47.9 million to Veterinary Software Services. Goodwill related to this acquisition is expected to be deductible for tax purposes. Pro forma information has not been presented for this acquisition because such information is not material to the financial statements. The results of operations have been included in our CAG segment since the acquisition date. The acquisition expenses were ~~approximately $2.1 million.~~not material.

During the first quarter of 2021, we acquired the shares of a reference laboratory located in Switzerland for approximately $5.5 million in cash, including holdback and contingent payments of approximately $1.1 million. This acquisition expands our international reference laboratory presence and was accounted for as a business combination. The fair value of the assets acquired consists of approximately $4.3 million in intangible assets, primarily for customer relationships, which will be amortized over 9 ~~years,~~years; approximately $1.8 million for goodwill, representing synergies within our broader CAG ~~portfolio,~~portfolio; and approximately $0.6 million of liabilities, including deferred taxes associated with the acquired intangible assets. Goodwill related to this acquisition is not deductible for tax purposes. Pro forma information has not been presented for this acquisition because such information is not material to the financial statements. The results of operations have been included in our CAG segment since the acquisition date. The acquisition expenses were not material.

NOTE 5. SHARE-BASED COMPENSATION

The fair value of options, restricted stock units, deferred stock units, and employee stock purchase rights awarded during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, totaled ~~$1.8~~$4.4 million and ~~$50.1~~$55.4 million, respectively, as compared to ~~$1.3~~$4.0 million and ~~$39.9~~$48.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding ~~at September~~as of June 30, ~~2021,~~2022, was ~~$72.6~~$87.2 million, which will be recognized over a weighted average period of approximately ~~1.6~~1.7 years. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we recognized expenses of ~~$9.5~~$12.3 million and ~~$28.0~~$23.5 million, respectively, as compared to ~~$7.9~~$9.6 million and ~~$23.0~~$18.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, related to share-based compensation.

We determine the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term, or risk-free interest rate may necessitate distinct valuation assumptions at each grant date. As such, we may use different assumptions for options granted throughout the year. Option awards are granted with an exercise price equal to or greater than the closing market price of our common stock at the date of grant. We have never paid

any cash dividends on our common stock, and we have no intention to pay such a dividend at this time; therefore, we assume that no dividends will be paid over the expected terms of option awards.

The weighted averages of the valuation assumptions used to determine the fair value of each option award on the date of grant and the weighted average estimated fair values were as follows:

For the Nine Months Ended
September 30,
2021 2020

Share price at grant $ 527.49 $ 290.15
Share price at exercise $ 531.24 $ 290.15
Expected stock price volatility 30 % 27 %
Expected term, in years 6.2 6.0
Risk-free interest rate 0.7 % 1.4 %
Weighted average fair value of options granted $ 169.13 $ 84.60


	For the Six Months Ended June 30,
	2022			2021

Share price at grant	$	494.95		$	542.57
Share price at exercise	$	499.09		$	546.43
Expected stock price volatility	30		%	31		%
Expected term, in years	6.4			6.2
Risk-free interest rate	2.0		%	0.7		%
Weighted average fair value of options granted	$	167.25		$	167.94

NOTE 6. CREDIT LOSSES

We are exposed to credit losses primarily through our sales of products and services to our customers. We maintain allowances for credit losses for potentially uncollectible receivables. We base our estimates on a detailed analysis of specific customer situations and a percentage of our accounts receivable by aging category. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current economic conditions.

Additional allowances may be required if either the financial condition of our customers were to deteriorate, or a strengthening U.S. dollar impacts the ability of foreign customers to make payments to us on their U.S. dollar-denominated purchases. We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliations, dispute resolution, and payment confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We may require collateralized asset support or a prepayment to mitigate credit risk. We do not have any off-balance sheet credit exposure related to our customers.

Accounts Receivable

The allowance for credit losses associated with accounts receivable was ~~$6.5~~$8.0 million and ~~$6.8~~$5.7 million ~~at September~~as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Accounts receivable reflected on the balance sheet is net of this reserve. Based on an aging analysis, ~~at September~~as of June 30, ~~2021,~~2022, approximately ~~91%~~92% of our accounts receivable had not yet reached the invoice due date and approximately 9%8% was considered past due, of which ~~substantially all~~approximately 0.2% was ~~less~~greater than 60 days past due. AtAs of December 31, ~~2020,~~2021, approximately ~~88%~~90% of our accounts receivable had not yet reached the invoice due date and approximately ~~12%~~10% was considered past due, of which approximately ~~1.5%~~1.8% was greater than 60 days past due.

Contract assets and lease receivables

The allowance for credit losses associated with the contract assets and lease receivables was ~~$4.3~~$4.9 million and ~~$3.7~~$4.4 million ~~at September~~as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The assets reflected on the balance sheet are net of these reserves. Historically, we have experienced low credit loss rates on our customer commitment programs and lease receivables. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

1716

NOTE 7. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The components of inventories were as follows:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021

Raw materials	Raw materials	$	59,609	$	45,986	Raw materials	$	85,297	$	60,427
Work-in-process	Work-in-process	24,617		20,374		Work-in-process	30,735		26,397
Finished goods	Finished goods	174,258		143,513		Finished goods	216,533		182,206
Inventories	Inventories	$	258,484	$	209,873	Inventories	$	332,565	$	269,030

NOTE 8. LEASES

Maturities of operating lease liabilities were as follows:


(in thousands, except lease term and discount rate)	(in thousands, except lease term and discount rate)	September 30, 2021		(in thousands, except lease term and discount rate)	June 30, 2022

2021 (remainder of year)		$	4,586
2022		24,124
2022 (remainder of year)				2022 (remainder of year)	$	10,683
2023	2023	20,195		2023	23,714
2024	2024	15,581		2024	19,657
2025	2025	12,049		2025	15,502
2026				2026	12,661
Thereafter	Thereafter	48,987		Thereafter	54,124
Total lease payments	Total lease payments	125,522		Total lease payments	136,341
Less imputed interest	Less imputed interest	(15,364)		Less imputed interest	(18,562)
Total	Total	$	110,158	Total	$	117,779

Total minimum future lease payments for leases that have not commenced as of ~~September~~June 30, ~~2021,~~2022, are ~~immaterial.~~approximately $8.1 million, and those leases will commence between 2022 and 2024.

Supplemental cash flow information for leases was as follows:

(in thousands) For the Nine Months Ended
September 30, 2021 For the Nine Months Ended September 30, 2020

Cash paid for amounts included in the measurement of operating leases liabilities $ 17,232 $ 14,619
Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations (a)
$ 33,052 $ 17,064

~~(a) Additions for the nine months ended September 30, 2021, include $7.9 million of right-of-use assets obtained with the acquisition of ezyVet.~~


(in thousands)	For the Six Months Ended June 30, 2022		For the Six Months Ended June 30, 2021

Cash paid for amounts included in the measurement of operating leases liabilities	$	12,110	$	11,914
Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations	$	23,019	$	24,427

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NOTE 9. OTHER CURRENT AND LONG-TERM ASSETS

Other current assets consisted of the following:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021

Customer acquisition costs	Customer acquisition costs	$	48,164	$	43,751	Customer acquisition costs	$	49,657	$	48,942
Contract assets, net (1)						Contract assets, net (1)	40,364		37,772
Prepaid expenses	Prepaid expenses	37,462		34,556		Prepaid expenses	36,287		41,997
Contract assets, net		31,446		23,837
Taxes receivable	Taxes receivable	16,823		19,476		Taxes receivable	19,854		19,464
Foreign currency exchange contracts						Foreign currency exchange contracts	14,863		6,512
Deferred sales commissions	Deferred sales commissions	6,302		5,738		Deferred sales commissions	6,504		6,475
Other assets	Other assets	17,393		10,150		Other assets	15,471		12,661
Other current assets	Other current assets	$	157,590	$	137,508	Other current assets	$	183,000	$	173,823

(1)Contract assets, net, are net of allowances for credit loss. Refer to "Note 6. Credit Losses."

Other long-term assets consisted of the following:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021

Contract assets, net (1)						Contract assets, net (1)	$	138,776	$	122,160
Customer acquisition costs	Customer acquisition costs	$	108,947	$	104,369	Customer acquisition costs	106,727		109,392
Contract assets, net		114,668		91,681
Deferred income taxes	Deferred income taxes	24,861		31,549		Deferred income taxes	40,548		24,784
Equity investments						Equity investments	30,250		5,250
Investment in long-term product supply arrangements						Investment in long-term product supply arrangements	22,642		13,348
Deferred sales commissions	Deferred sales commissions	12,695		11,719		Deferred sales commissions	12,804		13,019
Investment in long-term product supply arrangements		9,790		12,065
Taxes receivable	Taxes receivable	2,450		6,329		Taxes receivable	361		1,806
Other assets	Other assets	43,733		31,883		Other assets	46,445		40,641
Other long-term assets	Other long-term assets	$	317,144	$	289,595	Other long-term assets	$	398,553	$	330,400

(1)Contract assets, net, are net of allowances for credit loss. Refer to "Note 6. Credit Losses."

NOTE 10. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	June 30, 2022		December 31, 2021

Accrued expenses						Accrued expenses	$	158,623	$	133,978
Accrued employee compensation and related expenses	Accrued employee compensation and related expenses	161,579		167,649		Accrued employee compensation and related expenses	110,342		182,926
Accrued expenses		$	124,465	$	112,526
Accrued customer incentives and refund obligations	Accrued customer incentives and refund obligations	81,029		75,064		Accrued customer incentives and refund obligations	76,705		79,469
Accrued taxes	Accrued taxes	43,536		42,676		Accrued taxes	22,102		42,605
Current lease liabilities	Current lease liabilities	20,438		17,733		Current lease liabilities	19,738		19,931
Accrued liabilities	Accrued liabilities	$	431,047	$	415,648	Accrued liabilities	$	387,510	$	458,909

Other long-term liabilities consisted of the following:

(in thousands) September 30, 2021 December 31, 2020
Accrued taxes $ 58,727 $ 60,313
Other accrued long-term expenses 14,266 25,291
Other long-term liabilities $ 72,993 $ 85,604


(in thousands)	June 30, 2022		December 31, 2021

Accrued taxes	$	50,530	$	56,466
Other accrued long-term expenses	19,247		14,475
Other long-term liabilities	$	69,777	$	70,941

1918

NOTE 11. DEBT

Credit Facility

As of June 30, 2022, we had $611.0 million outstanding borrowings under our Credit Facility with a year-to-date weighted average effective interest rate of 1.6%. As of December 31, 2021, we had $73.5 million outstanding borrowings under our Credit Facility with a weighted average effective interest rate of 1.1%. As of June 30, 2022, we had a remaining borrowing availability of $387.6 million under our $1 billion Credit Facility. The funds available under the Credit Facility reflect a further reduction due to the issuance of letters of credit, which were issued in connection with our workers’ compensation policy, for $1.4 million.

The Credit Facility contains affirmative, negative, and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates, certain restrictive agreements, and violations of laws and regulations. The sole financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation, amortization, and share-based compensation defined as the consolidated leverage ratio under the terms of the Credit Facility, not to exceed 3.5-to-1. As of June 30, 2022 and December 31, 2021, we were in compliance with the covenants of the Credit Facility.

Senior Notes

The following describes all of our currently outstanding unsecured senior notes issued and sold in private placements (collectively, the ~~"Senior Notes"~~“Senior Notes”) as of ~~September~~June 30, ~~2021:~~2022:


(Principal Amount in thousands)	(Principal Amount in thousands)								(Principal Amount in thousands)

Issue Date	Issue Date	Due Date	Series	Principal Amount		Coupon Rate		Senior Note Agreement	Issue Date	Due Date	Series	Principal Amount		Coupon Rate		Senior Note Agreement

12/11/2013	12/11/2013	12/11/2023	2023 Series A Notes	$	75,000	3.94	%	NY Life 2013 Note Agreement	12/11/2013	12/11/2023	2023 Series A Notes	$	75,000	3.94	%	NY Life 2013 Note Agreement
12/11/2013	12/11/2013	12/11/2025	2025 Series B Notes	$	75,000	4.04	%	NY Life 2013 Note Agreement	12/11/2013	12/11/2025	2025 Series B Notes	$	75,000	4.04	%	NY Life 2013 Note Agreement
9/4/2014	9/4/2014	9/4/2026	2026 Senior Notes	$	75,000	3.72	%	NY Life 2014 Note Agreement	9/4/2014	9/4/2026	2026 Senior Notes	$	75,000	3.72	%	NY Life 2014 Note Agreement
7/21/2014	7/21/2014	7/21/2024	2024 Series B Notes	$	75,000	3.76	%	Prudential 2015 Amended Agreement	7/21/2014	7/21/2024	2024 Series B Notes	$	75,000	3.76	%	Prudential 2015 Amended Agreement
6/18/2015	6/18/2015	6/18/2025	2025 Series C Notes	€	88,857	1.785	%	Prudential 2015 Amended Agreement	6/18/2015	6/18/2025	2025 Series C Notes	€	88,857	1.785	%	Prudential 2015 Amended Agreement
2/12/2015	2/12/2015	2/12/2022	2022 Series A Notes	$	75,000	3.25	%	MetLife 2014 Note Agreement	2/12/2015	2/12/2027	2027 Series B Notes	$	75,000	3.72	%	MetLife 2014 Note Agreement
2/12/2015		2/12/2027	2027 Series B Notes	$	75,000	3.72	%	MetLife 2014 Note Agreement
3/14/2019	3/14/2019	03/14/2029	2029 Series C Notes	$	100,000	4.19	%	MetLife 2014 Note Agreement	3/14/2019	03/14/2029	2029 Series C Notes	$	100,000	4.19	%	MetLife 2014 Note Agreement
4/2/2020	4/2/2020	04/02/2030	MetLife 2030 Series D Notes	$	125,000	2.50	%	MetLife 2014 Note Agreement	4/2/2020	04/02/2030	MetLife 2030 Series D Notes	$	125,000	2.50	%	MetLife 2014 Note Agreement
4/14/2020	4/14/2020	04/14/2030	Prudential 2030 Series D Notes	$	75,000	2.50	%	Prudential 2015 Amended Agreement	4/14/2020	04/14/2030	Prudential 2030 Series D Notes	$	75,000	2.50	%	Prudential 2015 Amended Agreement

~~On July 21, 2021,~~In February 2022, we paid off our ~~$50.0~~$75.0 million ~~2021~~2022 Series A Notes with cash provided by ~~operations.~~ operations and financing activities.

The ~~aggregate principal amount~~Senior Note Agreements contain affirmative, negative, and financial covenants customary for agreements of this type. The negative covenants include restrictions on liens, indebtedness of our subsidiaries, priority indebtedness, fundamental changes, investments, transactions with affiliates, certain restrictive agreements, and violations of laws and regulations. The sole financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation, amortization, and share-based compensation, as defined in the Senior Note Agreements, not to exceed 3.5-to-1. As of June 30, 2022 ~~Series A Notes for $75.0 million will become due~~ and ~~payable on February 12, 2022.~~December 31, 2021, we were in compliance with the covenants of the Senior Note Agreements.

NOTE 12. REPURCHASES OF COMMON STOCK

We primarily acquire shares by repurchases in the open market. However, we also acquire shares that are surrendered by employees in payment for the minimum required statutory withholding taxes due on the vesting of restricted stock units and the settlement of deferred stock units, otherwise referred to herein as employee surrenders. We issue shares of treasury stock upon the vesting of certain restricted stock units and upon the exercise of certain stock options. The number of shares of treasury stock issued during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was not material.

The following is a summary of our open market common stock repurchases, reported on a trade date basis, and shares acquired through employee surrender:


(in thousands, except per share amounts)	(in thousands, except per share amounts)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				(in thousands, except per share amounts)	For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021

Shares repurchased in the open market	Shares repurchased in the open market	274		—		892		721		Shares repurchased in the open market	809		341		1,311		618
Shares acquired through employee surrender for statutory tax withholding ~~(1)~~	Shares acquired through employee surrender for statutory tax withholding ~~(1)~~	1		1		29		31		Shares acquired through employee surrender for statutory tax withholding ~~(1)~~	—		—		21		28
Total shares repurchased	Total shares repurchased	275		1		921		752		Total shares repurchased	809		341		1,332		646

Cost of shares repurchased in the open market	Cost of shares repurchased in the open market	$	183,315	$	—	$	510,937	$	179,623	Cost of shares repurchased in the open market	$	313,455	$	188,409	$	576,238	$	327,622
Cost of shares for employee surrenders	Cost of shares for employee surrenders	515		360		15,501		9,029		Cost of shares for employee surrenders	52		3		10,390		14,986
Total cost of shares	Total cost of shares	$	183,830	$	360	$	526,438	$	188,652	Total cost of shares	$	313,507	$	188,412	$	586,628	$	342,608

Average cost per share - open market repurchases	Average cost per share - open market repurchases	$	668.33	$	—	$	572.10	$	249.20	Average cost per share - open market repurchases	$	387.78	$	552.08	$	439.63	$	529.45
Average cost per share - employee surrenders	Average cost per share - employee surrenders	$	688.35	$	393.12	$	547.90	$	292.03	Average cost per share - employee surrenders	$	369.63	$	550.59	$	504.60	$	544.08
Average cost per share - total	Average cost per share - total	$	668.38	$	393.12	$	571.36	$	250.96	Average cost per share - total	$	387.78	$	552.08	$	440.63	$	530.07

~~(1) For the quarters ended September 30, 2021 and 2020, the number of shares acquired though employee surrender for statutory tax withholding were below rounding thresholds.~~

NOTE 13. INCOME TAXES

Our effective income tax rate was ~~20.0%~~22.9% for the three months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~10.8%~~19.5% for the three months ended ~~September~~June 30, ~~2020, and 18.1%~~2021, the increase in the effective tax rate for the ~~nine~~three months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~16.0%~~the same periods in the prior year, was primarily driven by higher taxes on international income and decreases in tax benefits related to share-based compensation.

Our effective income tax rate was 21.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2022, as compared to 17.3% for the six months ended June 30, 2021. The increase in our effective tax rate for the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to the same ~~period~~periods in the prior year, was primarily driven by ~~a decrease~~decreases in ~~the~~ tax benefits ~~from~~related to share-based compensation and ~~the resolution of uncertain tax positions.~~ higher taxes on international income.

The ~~increase in our~~ effective tax rate for the ~~nine~~three months ended ~~September~~June 30, ~~2021, as compared~~2022, differed from the U.S. federal statutory tax rate of 21% primarily due to ~~the same period in the prior year, was primarily driven~~U.S. state income taxes, net of federal benefit, partially offset by ~~a decrease in the~~ tax benefits from share-based ~~compensation and~~compensation.

The effective tax rate for the ~~resolution~~six months ended June 30, 2022, was equivalent to the U.S. federal statutory tax rate of ~~uncertain~~21%. The impact on the effective tax ~~positions.~~rate from U.S. state income taxes, net of federal benefit, was substantially offset by tax benefits from share-based compensation.

The effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, 2021, differed from the U.S. statutory tax rate of 21% primarily due to tax benefits from share-based compensation.

NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME

The changes in AOCI, net of tax, consisted of the following:

For the Nine Months Ended September 30, 2021
Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax Unrealized (Loss) Gain on
Net Investment Hedges, Net of Tax
(in thousands) Unrealized Gain (Loss) on Investments,
Net of Tax Foreign Currency Exchange Contracts Euro-Denominated Notes Cross Currency Swaps Cumulative Translation
Adjustment Total

Balance as of December 31, 2020 $ (272) $ (9,934) $ (5,982) $ (2,159) $ (35,268) $ (53,615)
Other comprehensive income (loss) before reclassifications 153 7,300 4,235 4,561 (20,213) (3,964)
Loss reclassified from accumulated other comprehensive income — 5,522 — — — 5,522
Balance as of September 30, 2021 $ (119) $ 2,888 $ (1,747) $ 2,402 $ (55,481) $ (52,057)


	For the Six Months Ended June 30, 2022
			Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax		Unrealized Gain (Loss) on Net Investment Hedges, Net of Tax
(in thousands)	Unrealized Gain (Loss) on Investments, Net of Tax		Foreign Currency Exchange Contracts		Euro-Denominated Notes		Cross Currency Swaps		Benefit Plans, Net of Tax		Cumulative Translation Adjustment		Total

Balance as of December 31, 2021	$	(126)	$	4,979	$	422	$	3,240	$	—	$	(61,999)	$	(53,484)
Other comprehensive income (loss) before reclassifications	(42)		13,440		5,533		5,278		(5,056)		(27,804)		(8,651)
Reclassified from accumulated other comprehensive income	—		(5,830)		—		—		260		—		(5,570)
Balance as of June 30, 2022	$	(168)	$	12,589	$	5,955	$	8,518	$	(4,796)	$	(89,803)	$	(67,705)

For the Nine Months Ended September 30, 2020
Unrealized Gain (Loss) on Cash Flow Hedges,
Net of Tax Unrealized Gain (Loss) on
Net Investment Hedges, Net of Tax
(in thousands) Unrealized (Loss) Gain on Investments,
Net of Tax Foreign Currency Exchange Contracts Euro-Denominated Notes Cross Currency Swaps Cumulative Translation
Adjustment Total

Balance as of December 31, 2019 $ 110 $ (736) $ 1,396 $ 3,467 $ (50,419) $ (46,182)
Other comprehensive (loss) income before reclassifications (408) (623) (3,466) (1,339) (7,871) (13,707)
Gain reclassified from accumulated other comprehensive income — (2,036) — — — (2,036)
Balance as of September 30, 2020 $ (298) $ (3,395) $ (2,070) $ 2,128 $ (58,290) $ (61,925)


	For the Six Months Ended June 30, 2021
			Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax		Unrealized Gain (Loss) on Net Investment Hedges, Net of Tax
(in thousands)	Unrealized (Loss) Gain on Investments, Net of Tax		Foreign Currency Exchange Contracts		Euro-Denominated Notes		Cross Currency Swaps		Benefit Plans, Net of Tax		Cumulative Translation Adjustment		Total

Balance as of December 31, 2020	$	(272)	$	(9,934)	$	(5,982)	$	(2,159)	$	—	$	(35,268)	$	(53,615)
Other comprehensive income (loss) before reclassifications	154		3,191		2,654		2,202		—		(7,246)		955
Reclassified from accumulated other comprehensive income	—		4,269		—		—		—		—		4,269
Balance as of June 30, 2021	$	(118)	$	(2,474)	$	(3,328)	$	43	$	—	$	(42,514)	$	(48,391)

The following tables present components and amounts associated with cash flow hedges reclassified out of AOCI to net income:


(in thousands)	(in thousands)	Affected Line Item in the Statements of Income	Amounts Reclassified from AOCI For the Three Months Ended September 30,				(in thousands)	Affected Line Item in the Statements of Income	Amounts Reclassified from AOCI For the Three Months Ended June 30,				Amounts Reclassified from AOCI For the Six Months Ended June 30,
			2021		2020				2022		2021		2022		2021
Gain (loss) on derivative instruments classified as cash flow hedges included in net income:	Gain (loss) on derivative instruments classified as cash flow hedges included in net income:						Gain (loss) on derivative instruments classified as cash flow hedges included in net income:
Foreign currency exchange contracts	Foreign currency exchange contracts	Cost of revenue	$	(1,583)	$	(591)	Foreign currency exchange contracts	Cost of revenue	$	5,781	$	(2,715)	$	8,017	$	(5,145)
		Tax expense (benefit)	(330)		(53)			Tax expense (benefit)	1,577		(340)		2,187		(876)
		Gain (loss), net of tax	$	(1,253)	$	(538)		Gain (loss), net of tax	$	4,204	$	(2,375)	$	5,830	$	(4,269)

(in thousands) Affected Line Item in the Statements of Income Amounts Reclassified from AOCI For the Nine Months Ended September 30,
2021 2020
Gain (loss) on derivative instruments classified as cash flow hedges included in net income:
Foreign currency exchange contracts Cost of revenue $ (6,728) $ 2,562
Tax expense (benefit) (1,206) 526
Gain (loss), net of tax $ (5,522) $ 2,036

The following tables present components and amounts associated with pension reclassified out of AOCI to net income:


(in thousands)	Affected Line Item in the Statements of Income	Amounts Reclassified from AOCI For the Three Months Ended June 30,				Amounts Reclassified from AOCI For the Six Months Ended June 30,
		2022		2021		2022		2021
Gain (loss) on pension plans included in net income:
Pension plans	Cost of revenue and operating expenses	$	(311)	$	—	$	(311)	$	—
	Tax benefit	(51)		—		(51)		—
	Loss, net of tax	$	(260)	$	—	$	(260)	$	—

NOTE 15. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to our stockholders by the weighted average number of shares of common stock and vested deferred stock units outstanding during the year. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and assumed issuance of unvested restricted stock units and unvested deferred stock units using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes that proceeds, including cash received from the exercise of employee stock options and the total unrecognized compensation expense for unvested share-based compensation awards, would be used to purchase our common stock at the average market price during the period. Vested deferred stock units outstanding are included in shares outstanding for basic and diluted earnings per share because the associated shares of our common stock are issuable for no cash consideration, the number of shares of our common stock to be issued is fixed, and issuance is not contingent. ~~See~~Refer to Note 5 to the consolidated financial statements in our ~~2020~~2021 Annual Report for additional information regarding deferred stock units.

The following is a reconciliation of weighted average shares outstanding for basic and diluted earnings per share:


(in thousands)	(in thousands)	For the Three Months Ended September 30,		For the Nine Months Ended September 30,		(in thousands)	For the Three Months Ended June 30,		For the Six Months Ended June 30,
		2021	2020	2021	2020		2022	2021	2022	2021

Shares outstanding for basic earnings per share	Shares outstanding for basic earnings per share	85,123	85,314	85,325	85,293	Shares outstanding for basic earnings per share	83,922	85,325	84,164	85,427

Shares outstanding for diluted earnings per share:	Shares outstanding for diluted earnings per share:					Shares outstanding for diluted earnings per share:
Shares outstanding for basic earnings per share	Shares outstanding for basic earnings per share	85,123	85,314	85,325	85,293	Shares outstanding for basic earnings per share	83,922	85,325	84,164	85,427
Dilutive effect of share-based payment awards	Dilutive effect of share-based payment awards	1,388	1,376	1,387	1,342	Dilutive effect of share-based payment awards	936	1,329	1,058	1,367
		86,511	86,690	86,712	86,635		84,858	86,654	85,222	86,794

Certain awards and options to acquire shares have been excluded from the calculation of shares outstanding for diluted earnings per share because they were anti-dilutive. The following table presents information concerning those anti-dilutive awards and options:


(in thousands)	(in thousands)	For the Three Months Ended September 30,		For the Nine Months Ended September 30,		(in thousands)	For the Three Months Ended June 30,		For the Six Months Ended June 30,
		2021	2020	2021	2020		2022	2021	2022	2021

Weighted average number of shares underlying anti-dilutive awards	Weighted average number of shares underlying anti-dilutive awards	—	1	0	—	Weighted average number of shares underlying anti-dilutive awards	79	—	40	1
Weighted average number of shares underlying anti-dilutive options	Weighted average number of shares underlying anti-dilutive options	129	10	114	236	Weighted average number of shares underlying anti-dilutive options	284	135	248	102

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

~~See~~Refer to “Note 8. ~~Leases”,~~Leases,” for more information regarding our lease commitments.

Contingencies ~~and Guarantees~~

We are subject to claims that may arise in the ordinary course of business, including with respect to actual and threatened litigation and other matters. We accrue for loss contingencies when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. However, the results of legal actions cannot be predicted with certainty, and therefore our actual losses with respect to these contingencies could be higher ~~and~~or lower than our accruals. Except for the litigation matter described below, ~~at September~~as of June 30, ~~2021,~~2022, our accruals with respect to actual and threatened litigation were not material.

We are a defendant in an ongoing litigation matter involving an alleged breach of contract for underpayment of royalty payments made from 2004 through 2017 under an expired patent license agreement. The plaintiff has asserted a claim of approximately $50 million, inclusive of interest through June 30, 2020, alleging that the incorrect royalty provision was applied to certain licensed products and services throughout the agreement term and that royalties were also due on non-licensed diagnostic services that were provided concurrently with licensed services. The trial court previously ruled in favor of the plaintiff in this matter and we are appealing the judgment and continue to vigorously defend ourselves against the plaintiff’s allegations. While we believe the claim is without merit, litigation is inherently unpredictable and there can be no assurance that we will prevail in this matter. During the third quarter of 2020, we established an accrual of $27.5 million related to this ongoing matter, which represents the amount of ~~a possible~~the contingent loss that we have determined to be probable and estimable. We have not made any adjustments to this accrual since it was established. The actual cost of resolving this matter may be higher or lower than the amount we have accrued.

From time to time, we have received notices alleging that our products infringe third party proprietary rights, although we are not aware of any pending litigation with respect to such claims. Patent litigation frequently is complex and expensive, and the outcome of patent litigation can be difficult to predict. There can be no assurance that we will prevail in any infringement proceedings that may be commenced against us. If we lose any such litigation, we may be stopped from selling certain products and/or we may be required to pay damages as a result of the litigation.

~~We have had no significant changes to our contingencies and guarantees discussed in Note 16 to the consolidated financial statements in our 2020 Annual Report.~~Guarantees

We enter into agreements with third parties in the ordinary course of business under which we are obligated to indemnify such third parties for and against various risks and losses. The precise terms of such indemnities vary with the nature of the agreement. In many cases, we limit the maximum amount of our indemnification obligations, but in some cases, those obligations may be theoretically unlimited. We have not incurred material expenses in discharging any of these indemnification obligations and, based on our analysis of the nature of the risks involved, we believe that the fair value of potential indemnification under these agreements is minimal. Accordingly, we have recorded no liabilities for these obligations as of June 30, 2022 and December 31, 2021.

NOTE 17. SEGMENT REPORTING

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. Our reportable segments include diagnostic and information technology-based products and services for the veterinary ~~market,~~sector, which we refer to as the Companion Animal Group (“CAG”), water quality products (“Water”), and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Although our LPD segment does not meet the quantitative thresholds to be reported as a separate segment, we believe it is important to disaggregate these revenues as a major product and service category within our Other reportable segment given its distinct markets, and therefore we have elected to report LPD as a reportable segment. Our Other operating segment combines and presents products and services for the human medical diagnostics ~~(“OPTI Medical”) market~~sector with our out-licensing arrangements. Assets are not allocated to segments for internal reporting purposes.

The following is a summary of segment performance:


(in thousands)	(in thousands)	For the Three Months Ended September 30,										(in thousands)	For the Three Months Ended June 30,
													CAG		Water		LPD		Other		Consolidated Total
2022												2022
Revenue												Revenue	$	784,087	$	39,195	$	29,889	$	7,375	$	860,546

Income from operations												Income from operations	$	156,526	$	17,920	$	3,230	$	1,390	$	179,066
Interest expense, net												Interest expense, net									(7,983)
Income before provision for income taxes												Income before provision for income taxes									171,083
Provision for income taxes												Provision for income taxes									39,104
Net income												Net income									131,979
Less: Net income attributable to noncontrolling interest												Less: Net income attributable to noncontrolling interest									—
Net income attributable to IDEXX Laboratories, Inc. stockholders												Net income attributable to IDEXX Laboratories, Inc. stockholders									$	131,979
		CAG		Water		LPD		Other		Consolidated Total
2021	2021											2021
Revenue	Revenue	$	732,495	$	38,143	$	29,126	$	10,657	$	810,421	Revenue	$	745,595	$	37,191	$	33,524	$	9,832	$	826,142

Income from operations	Income from operations	$	201,947	$	17,599	$	3,600	$	2,816	$	225,962	Income from operations	$	234,735	$	17,228	$	6,868	$	422	$	259,253
Interest expense, net	Interest expense, net									(7,012)		Interest expense, net									(7,522)
Income before provision for income taxes	Income before provision for income taxes									218,950		Income before provision for income taxes									251,731
Provision for income taxes	Provision for income taxes									43,772		Provision for income taxes									49,125
Net income	Net income									175,178		Net income									202,606
Less: Net loss attributable to noncontrolling interest										(57)
Net income attributable to IDEXX Laboratories, Inc. stockholders										$	175,235

2020
Revenue		$	638,017	$	33,272	$	36,971	$	13,529	$	721,789

Income from operations		$	139,434	$	15,243	$	10,505	$	6,674	$	171,856
Interest expense, net										(7,902)
Income before provision for income taxes										163,954
Provision for income taxes										17,633
Net income										146,321
Less: Net income attributable to noncontrolling interest	Less: Net income attributable to noncontrolling interest									102		Less: Net income attributable to noncontrolling interest									24
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	146,219	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	202,582

2425


(in thousands)	(in thousands)	For the Nine Months Ended September 30,										(in thousands)	For the Six Months ended June 30,
													CAG		Water		LPD		Other		Consolidated Total
2022												2022
Revenue												Revenue	$	1,545,271	$	75,566	$	60,759	$	15,499	$	1,697,095

Income from operations												Income from operations	$	379,651	$	34,574	$	9,967	$	3,218	$	427,410
Interest expense, net												Interest expense, net									(14,836)
Income before provision for income taxes												Income before provision for income taxes									412,574
Provision for income taxes												Provision for income taxes									86,630
Net income												Net income									325,944
Less: Net income attributable to noncontrolling interest												Less: Net income attributable to noncontrolling interest									—
Net income attributable to IDEXX Laboratories, Inc. stockholders												Net income attributable to IDEXX Laboratories, Inc. stockholders									$	325,944
		CAG		Water		LPD		Other		Consolidated Total
2021	2021											2021
Revenue	Revenue	$	2,170,857	$	109,374	$	101,920	$	32,119	$	2,414,270	Revenue	$	1,438,362	$	71,231	$	72,794	$	21,462	$	1,603,849

Income from operations	Income from operations	$	649,892	$	49,599	$	24,276	$	9,070	$	732,837	Income from operations	$	447,945	$	32,000	$	20,676	$	6,254	$	506,875
Interest expense, net	Interest expense, net									(22,066)		Interest expense, net									(15,054)
Income before provision for income taxes	Income before provision for income taxes									710,771		Income before provision for income taxes									491,821
Provision for income taxes	Provision for income taxes									128,698		Provision for income taxes									84,926
Net income	Net income									582,073		Net income									406,895
Less: Net loss attributable to noncontrolling interest										(1)
Net income attributable to IDEXX Laboratories, Inc. stockholders										$	582,074

2020
Revenue		$	1,756,113	$	95,537	$	103,369	$	30,698	$	1,985,717

Income from operations		$	426,062	$	43,383	$	28,417	$	11,567	$	509,429
Interest expense, net										(24,880)
Income before provision for income taxes										484,549
Provision for income taxes										77,376
Net income										407,173
Less: Net income attributable to noncontrolling interest	Less: Net income attributable to noncontrolling interest									187		Less: Net income attributable to noncontrolling interest									56
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	406,986	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	406,839

~~See~~Refer to “Note 3. Revenue Recognition” for a summary of disaggregated revenue by reportable segment and by major product and service category for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

NOTE 18. FAIR VALUE MEASUREMENTS

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

We have certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets and liabilities that may be measured at fair value on a non-recurring basis, and certain financial assets and liabilities that are not measured at fair value in our unaudited condensed consolidated balance sheets but for which we disclose the fair value. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows:


Level 1						Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2						Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3						Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We did not have any transfers in or out of Level 3 of the fair value hierarchy during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

Our cross currency swap contracts are measured at fair value on a recurring basis in our accompanying unaudited condensed consolidated balance sheets. We measure the fair value of our cross currency swap contracts classified as derivative instruments using prevailing market conditions as of the close of business on each balance sheet date. The product of this calculation is then adjusted for counterparty risk.

Our foreign currency exchange contracts are measured at fair value on a recurring basis in our accompanying unaudited condensed consolidated balance sheets. We measure the fair value of our foreign currency exchange contracts classified as derivative instruments using an income approach, based on prevailing market forward rates less the contract rate multiplied by the notional amount. The product of this calculation is then adjusted for counterparty risk.

The amounts outstanding under our unsecured revolving credit facility (“Credit Facility” or “line of credit”) and senior notes (“long-term debt”) are measured at carrying value in our unaudited condensed consolidated balance sheets though we disclose the fair value of these financial instruments. We determine the fair value of the amount outstanding under our Credit Facility and long-term debt using an income approach, utilizing a discounted cash flow analysis based on current market interest rates for debt issues with similar remaining years to maturity, adjusted for applicable credit risk. Our Credit Facility and long-term debt are valued using Level 2 inputs. The estimated fair value of our Credit Facility approximates its carrying value. The estimated fair value and carrying value of our long-term debt were ~~$928.2~~$765.0 million and ~~$853.6~~$768.5 million, respectively, as of ~~September~~June 30, ~~2021,~~2022, and ~~$1.0 billion~~$916.3 million and ~~$909.1~~$850.7 million, respectively, as of December 31, ~~2020.~~2021.

The following tables set forth our assets and liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy:

(in thousands)
As of September 30, 2021 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Balance at September 30, 2021

Assets
Money market funds (1)
$ 76 $ — $ — $ 76
Equity mutual funds (2)
$ 913 $ — $ — $ 913
Cross currency swaps (3)
$ — $ 3,158 $ — $ 3,158
Foreign currency exchange contracts (3)
$ — $ 5,075 $ — $ 5,075
Liabilities
Foreign currency exchange contracts (3)
$ — $ 1,698 $ — $ 1,698
Deferred compensation (4)
$ 913 $ — $ — $ 913
Contingent payments - acquisitions $ — $ — $ 5,230 $ 5,230

(in thousands)
As of December 31, 2020 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Balance at December 31, 2020

Assets
Money market funds (1)
$ 76 $ — $ — $ 76
Equity mutual funds (2)
$ 1,145 $ — $ — $ 1,145
Foreign currency exchange contracts (3)
$ — $ 125 $ — $ 125
Liabilities
Cross currency swaps (3)
$ — $ 2,841 $ — $ 2,841
Foreign currency exchange contracts (3)
$ — $ 12,373 $ — $ 12,373
Deferred compensation (4)
$ 1,145 $ — $ — $ 1,145


(in thousands)
As of June 30, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2022

Assets
Equity mutual funds (2)	$	586	$	—	$	—	$	586
Cross currency swaps (3)	$	—	$	11,179	$	—	$	11,179
Foreign currency exchange contracts (3)	$	—	$	16,799	$	—	$	16,799
Liabilities

Foreign currency exchange contracts (3)	$	—	$	5	$	—	$	5
Deferred compensation (4)	$	586	$	—	$	—	$	586
Contingent payments - acquisitions	$	—	$	—	$	3,730	$	3,730


(in thousands)
As of December 31, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2021

Assets
Money market funds (1)	$	76	$	—	$	—	$	76
Equity mutual funds (2)	$	826	$	—	$	—	$	826
Cross currency swaps (3)	$	—	$	4,256	$	—	$	4,256
Foreign currency exchange contracts (3)	$	—	$	6,512	$	—	$	6,512
Liabilities
Foreign currency exchange contracts (3)	$	—	$	601	$	—	$	601
Deferred compensation (4)	$	826	$	—	$	—	$	826
Contingent payments - acquisitions	$	—	$	—	$	7,230	$	7,230

(1)Money market funds with an original maturity of less than ninety days are included within cash and cash equivalents. The remaining balance of cash and cash equivalents as of ~~September 30, 2021 and~~ December 31, ~~2020,~~2021 consisted of demand deposits. As of June 30, 2022, we did not have any money market funds outstanding.

(2)Equity mutual funds relate to a deferred compensation plan that was assumed as part of a previous business combination. This amount is included within other long-term assets. ~~See~~Refer to footnote (4) below for a discussion of the related deferred compensation liability.

(3)Cross currency swaps and foreign currency exchange contracts are included within other current assets, other long-term assets, accrued liabilities, or other long-term liabilities depending on the gain (loss) position and anticipated settlement date.

(4)A deferred compensation plan assumed as part of a previous business combination is included within accrued liabilities and other long-term liabilities. The fair value of our deferred compensation plan is indexed to the performance of the underlying equity mutual funds discussed in footnote (2) above.

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, approximate carrying value due to their short maturity.

Contingent Consideration

We have classified our liability for contingent consideration related to acquisitions within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which includes the achievements of future revenues. The contingent consideration is included within other short-term liabilities.

We record changes in the estimated fair value of contingent consideration in the condensed consolidated statements of income. Changes in contingent consideration liabilities are measured at fair value on a recurring basis using unobservable inputs (Level 3) and during the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, are as follows:


(in thousands)	Fair Value

Contingent consideration as of December 31, ~~2020~~2021	$	—7,230
~~Contingent~~Payment of contingent consideration ~~recorded from acquisitions (Note 4)~~	~~5,230~~
~~Change in estimated fair value~~	— (3,500)
Contingent consideration as of ~~September~~June 30, ~~2021~~2022	$	~~5,230~~3,730

During the second quarter of 2022, we determined that the $7.0 million contingent consideration associated with our ezyVet acquisition in the second quarter of 2021 would be earned based on revenue achievements obtained. The remainder of the contingent consideration is expected to be paid during the third quarter of 2022.

NOTE 19. HEDGING INSTRUMENTS

Disclosure within this note is presented to provide transparency about how and why we use derivative and non-derivative instruments (collectively “hedging instruments”), how the instruments and related hedged items are accounted for, and how the instruments and related hedged items affect our financial position, results of operations, and cash flows.

We are exposed to certain risks related to our ongoing business operations. The primary risk that we currently manage by using hedging instruments is foreign currency exchange risk. We may also enter into interest rate swaps to minimize the impact of interest rate fluctuations associated with borrowings under our variable-rate Credit Facility.

Our subsidiaries enter into foreign currency exchange contracts to manage the exchange risk associated with their forecasted intercompany inventory purchases and sales for the next year. From time to time, we may also enter into other

foreign currency exchange contracts, cross currency swaps, or foreign-denominated debt issuances to minimize the impact of foreign currency fluctuations associated with specific balance sheet exposures, including net investments in certain foreign subsidiaries.

The primary purpose of our foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions, including transactions denominated in the euro, British pound, Japanese yen, Canadian dollar, and Australian dollar. We also utilize natural hedges to mitigate our transaction and commitment exposures. Our corporate policy prescribes the range of allowable hedging activity. We enter into foreign currency exchange contracts with well-capitalized multinational financial institutions, and we do not hold or engage in transactions involving derivative instruments for purposes other than risk management. Our accounting policies for these contracts are based on the designation of such instruments as hedging transactions.

We recognize all hedging instruments on the balance sheet at fair value at the balance sheet date. Instruments that do not qualify for hedge accounting treatment must be recorded at fair value through earnings. To qualify for hedge accounting treatment, cash flow and net investment hedges must be highly effective in offsetting changes to expected future cash flows or fair value on hedged transactions. If the instrument qualifies for hedge accounting, changes in the fair value of the hedging instrument from the effective portion of the hedge are deferred in AOCI, net of tax, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We immediately record in earnings the extent to which a hedging instrument is not effective in achieving offsetting changes in fair value. We de-designate hedging instruments from hedge accounting when the likelihood of the hedged transaction occurring becomes less than probable. For de-designated instruments, the gain or loss from the time of de-designation through maturity of the instrument is recognized in earnings. Any gain or loss in AOCI at the time of de-designation is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. ~~See~~Refer to “Note 14. Accumulated Other Comprehensive Income” for further information regarding the effect of hedging instruments on our unaudited condensed consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

We enter into master netting arrangements with the counterparties to our derivative transactions which permit certain outstanding receivables and payables to be offset in the event of default. Our derivative contracts do not require either party to post cash collateral. We elect to present our derivative assets and liabilities in the unaudited condensed consolidated balance sheets on a gross basis. All cash flows related to our foreign currency exchange contracts are classified as operating cash flows, which is consistent with the cash flow treatment of the underlying items being hedged.

Cash Flow Hedges

We have designated our foreign currency exchange contracts as cash flow hedges as these derivative instruments mitigate the exposure to variability in the cash flows of forecasted transactions attributable to foreign currency exchange. Unless noted otherwise, we have also designated our derivative instruments as qualifying for hedge accounting treatment.

We did not de-designate any instruments from hedge accounting treatment during either the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 or ~~2020. At September~~2021. As of June 30, ~~2021,~~2022, the estimated amount of net gains, net of tax, which are expected to be reclassified out of AOCI and into earnings within the next 12 months, is ~~$2.0~~$11.2 million if exchange rates do not fluctuate from the levels ~~at September~~as of June 30, ~~2021.~~2022.

We target to hedge approximately 75% to 85% of the estimated exposure from intercompany product purchases and sales denominated in the euro, British pound, Canadian dollar, Japanese yen, and Australian dollar. We have additional unhedged foreign currency exposures related to foreign services and emerging markets where it is not practical to hedge. We primarily utilize foreign currency exchange contracts with durations of less than 24 months. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year. As a result, our risk with respect to foreign currency exchange rate fluctuations and the notional value of foreign currency exchange contracts may vary throughout the year. The U.S. dollar is the currency purchased or sold in all of our foreign currency exchange contracts. The notional amount of foreign currency exchange contracts to hedge forecasted intercompany inventory purchases and sales totaled ~~$223.8~~$259.4 million and ~~$202.7~~$286.7 million ~~at September~~as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The following tables present the effect of cash flow hedge accounting on our unaudited condensed consolidated statements of income and comprehensive income, and provide information regarding the location and amounts of pretax gains or losses of derivatives:

(in thousands) Three Months Ended September 30,
2021 2020
Financial statement line items in which effects of cash flow hedges are recorded Cost of revenue $ 337,500 $ 299,183
Foreign exchange contracts
Amount of (loss) gain reclassified from accumulated other comprehensive income into income $ (1,583) $ (591)


(in thousands)	(in thousands)		Nine Months Ended September 30,				(in thousands)		Three Months Ended June 30,				Six Months ended June 30,
			2021		2020				2022		2021		2022		2021

Financial statement line items in which effects of cash flow hedges are recorded	Financial statement line items in which effects of cash flow hedges are recorded	Cost of revenue	$	981,259	$	824,179	Financial statement line items in which effects of cash flow hedges are recorded	Cost of revenue	$	346,514	$	336,834	$	684,310	$	643,759
Foreign exchange contracts	Foreign exchange contracts						Foreign exchange contracts
Amount of (loss) gain reclassified from accumulated other comprehensive income into income			$	(6,728)	$	2,562
Amount of gain (loss) reclassified from accumulated other comprehensive income into income							Amount of gain (loss) reclassified from accumulated other comprehensive income into income		$	5,781	$	(2,715)	$	8,017	$	(5,145)

Net Investment Hedges, Euro-Denominated Notes

In June 2015, we issued and sold through a private placement an aggregate principal amount of €88.9 million in euro-denominated 1.785% Series C Senior Notes due June 18, 2025. We have designated these euro-denominated notes as a hedge of our euro net investment in certain foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the euro relative to the U.S. dollar. As a result of this designation, gains and losses from the change in translated U.S. dollar value of these euro-denominated notes are recorded in AOCI rather than to earnings. We recorded gains of ~~$1.6 million and gains of $4.2~~$4.1 million and $5.5 million, net of tax, within AOCI as a result of this net investment hedge for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and losses of ~~$2.8~~$1.0 million and ~~$3.5~~gains of $2.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. The related cumulative unrealized ~~loss~~gain recorded ~~at September~~as of June 30, ~~2021,~~2022, will not be reclassified in earnings until the complete or substantially complete liquidation of the net investment in the hedged foreign operations or a portion of the hedge no longer qualifies for hedge accounting treatment. ~~See~~Refer to Note 13 to the consolidated financial statements included in our ~~2020~~2021 Annual Report for further information regarding the issuance of these euro-denominated notes.

Net Investment Hedges, Cross Currency Swaps

We have entered into several cross currency swap contracts as a hedge of our net investment in foreign operations to offset foreign currency translation gains and losses on the net investment. These cross currency swaps have maturity dates beginning on June 30, 2023, through June 18, 2025. At maturity of the cross currency swap contracts, we will deliver the notional amount of €90.0 million and will receive approximately $104.5 million from the counterparties on June 30, 2023, and

we will deliver the notional amount of €15 million and will receive approximately $17.5 million from the counterparties on June 18, 2025. The ~~change~~changes in fair value of the cross currency swap contracts are recorded in AOCI and will be reclassified to earnings when the foreign subsidiaries are sold or substantially liquidated. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we recorded gains of ~~$2.4~~$4.3 million and ~~gains of $4.6~~$5.3 million, ~~respectively,~~ net of tax, respectively, within AOCI as a result of these net investment hedges, and losses of ~~$3.9~~$1.1 million and ~~$1.3~~gains of $2.2 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. We will receive quarterly interest payments from the counterparties based on a fixed interest rate until maturity of the cross currency swaps. This interest rate component is excluded from the assessment of hedge effectiveness and ~~thus~~ is recognized as a reduction to interest expense over the life of the hedge instrument. We recognized approximately $0.7 million and ~~$2.1~~$1.4 million related to the excluded component as a reduction of interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and $0.7 million and ~~$2.0~~$1.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.

Fair Values of Hedging Instruments Designated as Hedges in Consolidated Balance Sheets

The fair values of hedging instruments and their respective classification on our unaudited condensed consolidated balance sheets and amounts subject to offset under master netting arrangements consisted of the following derivative instruments, unless otherwise noted:


(in thousands)	(in thousands)		Hedging Assets				(in thousands)		Hedging Assets
			September 30, 2021		December 31, 2020				June 30, 2022		December 31, 2021

Derivatives and non-derivatives designated as hedging instruments	Derivatives and non-derivatives designated as hedging instruments	Balance Sheet Classification					Derivatives and non-derivatives designated as hedging instruments	Balance Sheet Classification
Foreign currency exchange contracts	Foreign currency exchange contracts	Other current assets	$	3,996	$	125	Foreign currency exchange contracts	Other current assets	$	14,863	$	6,512
Foreign currency exchange contracts							Foreign currency exchange contracts	Other long-term assets	1,936		—
Cross currency swaps	Cross currency swaps	Other long-term assets	3,158		—		Cross currency swaps	Other long-term assets	11,179		4,256
Foreign currency exchange contracts		Other long-term assets	1,079		—
Total derivative instruments presented as hedge instruments on the balance sheet	Total derivative instruments presented as hedge instruments on the balance sheet		8,233		125		Total derivative instruments presented as hedge instruments on the balance sheet		27,978		10,768
Gross amounts subject to master netting arrangements not offset on the balance sheet	Gross amounts subject to master netting arrangements not offset on the balance sheet		(1,630)		(125)		Gross amounts subject to master netting arrangements not offset on the balance sheet		(5)		(601)
Net amount	Net amount		$	6,603	$	—	Net amount		$	27,973	$	10,167


(in thousands)	(in thousands)		Hedging Liabilities				(in thousands)		Hedging Liabilities
			September 30, 2021		December 31, 2020				June 30, 2022		December 31, 2021

Derivatives and non-derivatives designated as hedging instruments	Derivatives and non-derivatives designated as hedging instruments	Balance Sheet Classification					Derivatives and non-derivatives designated as hedging instruments	Balance Sheet Classification
Foreign currency exchange contracts	Foreign currency exchange contracts	Accrued liabilities	$	1,686	$	12,373	Foreign currency exchange contracts	Accrued liabilities	$	5	$	601
Cross currency swaps		Other long-term liabilities	—		2,841
Foreign currency exchange contracts		Other long-term liabilities	12		—
Total derivative instruments presented as cash flow hedges on the balance sheet	Total derivative instruments presented as cash flow hedges on the balance sheet		1,698		15,214		Total derivative instruments presented as cash flow hedges on the balance sheet		5		601
Non-derivative foreign currency denominated debt designated as net investment hedge on the balance sheet (1)	Non-derivative foreign currency denominated debt designated as net investment hedge on the balance sheet (1)	Long-term debt	103,555		109,125		Non-derivative foreign currency denominated debt designated as net investment hedge on the balance sheet (1)	Long-term debt	93,451		100,711
Total hedging instruments presented on the balance sheet	Total hedging instruments presented on the balance sheet		105,253		124,339		Total hedging instruments presented on the balance sheet		93,456		101,312
Gross amounts subject to master netting arrangements not offset on the balance sheet	Gross amounts subject to master netting arrangements not offset on the balance sheet		(1,630)		(125)		Gross amounts subject to master netting arrangements not offset on the balance sheet		(5)		(601)
Net amount	Net amount		$	103,623	$	124,214	Net amount		$	93,451	$	100,711

(1) Amounts represent reported carrying amounts of our foreign ~~currency denominated~~currency-denominated debt. ~~See~~Refer to “Note 18. Fair Value Measurements” for information regarding the fair value of our long-term debt.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains statements which, to the extent they are not statements of historical fact, constitute “forward-looking statements.” Such forward-looking statements about our business and expectations within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), include statements relating to, among other things, the impact of the COVID-19 pandemic; our expectations regarding LPD financial performance and supply chain and logistics ~~disruptions;~~challenges; our operations in Russia; future revenue growth rates; revenue recognition timing and amounts; business trends, earnings and other measures of financial performance; the effect of economic downturns on our business performance; projected impact of foreign currency exchange rates; demand for companion animal healthcare and our products; realizability of assets; future cash flow and uses of cash; future repurchases of common stock; future levels of indebtedness and capital spending, the working capital and liquidity outlook; the ~~adoption and~~ projected impact of new accounting standards; critical accounting estimates; deductibility of goodwill; research and development expense estimate; and future commercial and operational ~~efforts; competition; and intercompany and corporate structure-related activities.~~efforts. Forward-looking statements can be identified by the use of words such as “expects,” “may,” “anticipates,” “intends,” “would,” “will,” “plans,” “believes,” “estimates,” “should,” “project,” and similar words and expressions. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, including, among other things, the adverse impact, and the duration, of the effects of the current war in Ukraine and the ongoing COVID-19 pandemic on our business, results of operations, liquidity, financial condition, and stock price, supply chain and logistics delays and disruptions, as well as the other matters described under the headings “Business,” “Risk Factors,” “Legal Proceedings,” “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosure About Market Risk” in our ~~2020~~2021 Annual Report and in the corresponding sections of this Quarterly Report on Form 10-Q, and ~~our Quarterly Reports of Form 10-Q~~ for the ~~quarters~~quarter ended March 31, ~~2021, and June 30, 2021,~~2022, as well as those described from time to time in our other periodic reports filed with the SEC.

Any forward-looking statements represent our estimates only as of the day this Quarterly Report on Form 10-Q was filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates or expectations change.

You should read the following discussion and analysis in conjunction with our ~~2020~~2021 Annual Report that includes additional information about us, our results of operations, our financial position, and our cash flows, and with our unaudited condensed consolidated financial statements and related notes included in ~~Part~~“Part I. Item 1. Financial ~~Statements~~Statements” of this Quarterly Report on Form 10-Q.

Our fiscal quarter ended on ~~September~~June 30. Unless otherwise stated, the analysis and discussion of our financial condition and results of operations below, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior-year periods.

Business Overview

We develop, manufacture, and distribute products and provide services primarily for the companion animal veterinary, livestock, poultry and dairy, and water testing ~~markets.~~sectors. We also design, manufacture, and distribute point of care and laboratory diagnostics for the human medical diagnostics ~~market.~~sector. Our primary products and services are:

•Point-of-care veterinary diagnostic products, comprising instruments, consumables, and rapid assay test kits;

•Veterinary reference laboratory diagnostic and consulting services;

•Practice management and diagnostic imaging systems and services used by veterinarians;

•Health monitoring, biological materials testing, and laboratory diagnostic instruments and services used by the biomedical research community;

•Diagnostic, health-monitoring products for livestock, poultry, and dairy;

•Products that test water for certain microbiological contaminants; and

•Point-of-care electrolytes, blood gas analyzers, and SARS-CoV-2 RT-PCR (COVID-19 test) used in the human ~~medical~~ diagnostics ~~market.~~sector.

Operating Segments. We operate primarily through three business segments: diagnostic and information technology-based products and services for the veterinary ~~market,~~sector, which we refer to as the Companion Animal Group (“CAG”), water

quality products (“Water”), and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other operating segment combines and presents products for the human medical diagnostics ~~market (“OPTI Medical”)~~sector with our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments.

CAG develops, designs, manufactures, and distributes products and software, and performs services for veterinarians and the biomedical analytics ~~market,~~sector, primarily related to diagnostics and information management. Water develops, designs, manufactures, and distributes a range of products used in the detection of various microbiological parameters in water. LPD develops, designs, manufactures, and distributes diagnostic tests and related software and performs services that are used to manage the health status of livestock and poultry, to improve bovine reproductive efficiency, and to ensure the quality and safety of milk. OPTI Medical develops, designs, manufactures, and distributes point-of-care and laboratory diagnostics (including electrolyte and blood gas analyzers, COVID-19 PCR test, and related consumable products) for the human medical diagnostics ~~market.~~sector.

Effects of Certain Factors and Trends on Results of Operations

CAG ~~Market~~ Trends. ~~Positive global trends~~The continued growth in demand for companion animal healthcare ~~continue to support strong growth~~supported solid gains for CAG diagnostic products and services across ~~regions.~~regions, compared to very strong prior year demand levels. Average diagnostics revenues grew 6% at U.S. veterinary practices on a same-store basis in the second quarter, ahead of 3% growth in overall clinic revenues, reflecting continued expansion of demand for pet healthcare services. U.S. same-store clinical ~~visit growth~~visits at veterinary practices ~~was 2%~~declined 3% in the ~~third quarter. These clinical visit gains are~~second quarter compared to ~~strong~~ prior year period clinical visit growth of 7%13%, which included benefits from ~~pent-up demand from delayed veterinary visits~~increases in new pet ownership during the COVID-19 pandemic.

~~Other Market~~LPD Trends. ~~We anticipate reduced~~Our LPD revenues, on a year-over-year comparison, declined due to continue during future quarters, as we compare to high prior-year demand for our African Swine Fever testing in China. We also expect that revenues from our China LPD business may decline for the remainder of the year from lower pork prices, the relaxation of local African Swine Fever disease management programs, as well as additional impacts in China from lower pork prices and changing government requirements related to live animal imports and livestock infectious disease ~~programs.~~programs, which began in the second quarter of 2021. The comparisons to prior year are expected to improve in the second half of 2022.

Supply Chain and Logistics Challenges. We believe that building and maintaining a well-managed and disciplined infrastructure have helped minimize impacts of the ~~COVID-19 pandemic-related~~current supply chain constraints, including product and component availability issues, logistics challenges, including extended shipping periods and delays, and inflationary pressures that are currently occurring worldwide. Our proactive approach to managing ~~front-line~~our operational processes, including forward planning with a focus on working closely with our suppliers and logistics partners, has enabled us to maintain continued high levels of product and service availability and customer service. ~~Although we expect the current~~We continue to monitor these supply chain and logistics challenges, including potential fuel rationing and shortages, and have implemented mitigation strategies to adjust for, among other things, delayed shipments of products and components. Although we expect these challenges to continue induring 2022, we believe we are well positioned to enable sustained high growth in our businesses going forward and to effectively manage the impacts of potentially relatively higher costs in certain areas to support these growth plans. However, there can be no assurance as to the duration or severity of the supply chain and logistics challenges or the effectiveness of our mitigating activities.

War in Ukraine / Russia Operations. Our operations in the Russia, Belarus and Ukraine region are limited. Our 2021 revenue from the region represented less than 1% of our 2021 consolidated revenue, and we have no manufacturing or significant supply arrangement in the region. After significantly scaling back our operations in Russia in the first quarter, including suspending sales of veterinary diagnostic equipment; promotional, marketing, and hiring activities; and new business development and related investments, we decided in June 2022, after careful consideration, to wind down and liquidate our sole Russian subsidiary, as well as our direct Russian operations, which consisted of marketing and selling diagnostic products for veterinary clinics in Russia. After we conclude the wind-down of our direct Russian operations, we anticipate that only a limited number of our products, which are important for human or animal healthcare, will continue to be sold in Russia pursuant to ongoing third-party distribution agreements. Some of our products are also sold in Belarus pursuant to ongoing third-party distribution agreements.

Currency and Other Items

Currency ~~Impact.~~Impact ~~See~~. Refer to “Part I.I, Item 3. Quantitative and Qualitative Disclosures about Market Risk” included in this Quarterly Report on Form 10-Q for additional information regarding the impact of foreign currency exchange rates.

Other ~~Items.~~Items ~~See~~. Refer to “Part I.I, Item 1. Business - Patents and Licenses” and “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2020~~2021 Annual Report for additional information regarding distributor purchasing and inventories, economic conditions, and patent expiration.

Critical Accounting Estimates and Assumptions

The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The critical accounting policies and the significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, are consistent with those discussed in our ~~2020~~2021 Annual Report in the section under the heading “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates and Assumptions.”

Recent Accounting Pronouncements

For more information regarding the impact that recent accounting standards and amendments will have on our consolidated financial statements, ~~as described in~~refer to Note 2 to the unaudited condensed consolidated financial statements in ~~Part~~“Part I. Item 1. Financial ~~Statements~~Statements” of this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

The following revenue analysis and discussion focuses on organic revenue growth, and references in this analysis and discussion to “revenue,” “revenues” or “revenue growth” are references to “organic revenue growth.” Organic revenue growth is a non-GAAP financial measure and represents the percentage change in revenue during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to the same periods for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions, and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for, or as a superior measure to, revenue growth reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers.

We exclude from organic revenue growth the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under management’s control, are subject to volatility, and can obscure underlying business trends. We calculate the impact on revenue resulting from changes in foreign currency exchange rates by applying the difference between the weighted average exchange rates during the current year period and the comparable prior-year period to foreign currency denominated revenues for the prior-year period.

We also exclude from organic revenue growth the effect of certain business acquisitions and divestitures because the nature, size and number of these transactions can vary dramatically from period to period, and because they either require or generate cash as an inherent consequence of the transaction, and therefore can also obscure underlying business and operating trends. We exclude only acquisitions that are considered to be a business from organic revenue growth. In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single asset or group of similar assets, we do not consider these assets to be a business and include these acquisitions in organic revenue growth. A typical acquisition that we do not consider a business is a customer list asset acquisition, which does not have all elements necessary to operate a business, such as employees or infrastructure. We believe the efforts required to convert and retain these acquired customers are similar in nature to our existing customer base and therefore are included in organic revenue growth. The percentage change in revenue resulting from acquisitions represents revenues during the current year period, limited to the initial 12 months from the date of the acquisition, that are directly attributable to business acquisitions.

We also use Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio and net debt to Adjusted EBITDA ratio, in this Quarterly Report on Form 10-Q, all of which are non-GAAP financial measures that should be considered in addition to, and not as a replacement for, financial measures presented according to U.S. GAAP. Management believes that reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility.

Results of Operations

Three Months Ended ~~September~~June 30, ~~2021,~~2022, Compared to Three Months Ended ~~September~~June 30, ~~2020~~2021

Total Company. The following table presents total Company revenue by operating segment:


		For the Three Months Ended September 30,															For the Three Months Ended June 30,
Net Revenue (dollars in thousands)	Net Revenue (dollars in thousands)	2021		2020		Dollar Change		Reported Revenue Growth (1)		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth (1)		Net Revenue (dollars in thousands)	2022		2021		Dollar Change		Reported Revenue Growth (1)		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth (1)

CAG	CAG	$	732,495	$	638,017	$	94,478	14.8	%	0.9	%	1.2	%	12.7	%	CAG	$	784,087	$	745,595	$	38,492	5.2	%	(3.3	%)	1.1	%	7.3	%
United States	United States	484,903		428,105		56,798		13.3	%	—		1.7	%	11.5	%	United States	532,626		486,252		46,374		9.5	%	—		1.5	%	8.1	%
International	International	247,592		209,912		37,680		18.0	%	2.8	%	0.2	%	14.9	%	International	251,461		259,343		(7,882)		(3.0	%)	(9.2	%)	0.4	%	5.7	%

Water	Water	38,143		33,272		4,871		14.6	%	1.9	%	—		12.7	%	Water	39,195		37,191		2,004		5.4	%	(3.5	%)	—		8.9	%
United States	United States	19,216		16,634		2,582		15.5	%	—		—		15.5	%	United States	19,533		17,747		1,786		10.1	%	—		—		10.1	%
International	International	18,927		16,638		2,289		13.8	%	3.8	%	—		10.0	%	International	19,662		19,444		218		1.1	%	(6.7	%)	—		7.8	%

LPD	LPD	29,126		36,971		(7,845)		(21.2	%)	1.3	%	—		(22.5	%)	LPD	29,889		33,524		(3,635)		(10.8	%)	(5.8	%)	—		(5.0	%)
United States	United States	4,177		3,784		393		10.4	%	—		—		10.4	%	United States	3,742		3,516		226		6.5	%	—		—		6.5	%
International	International	24,949		33,187		(8,238)		(24.8	%)	1.4	%	—		(26.2	%)	International	26,147		30,008		(3,861)		(12.9	%)	(6.4	%)	—		(6.4	%)

Other	Other	10,657		13,529		(2,872)		(21.2	%)	(0.1	%)	—		(21.1	%)	Other	7,375		9,832		(2,457)		(25.0	%)	1.9	%	—		(26.9	%)

Total Company	Total Company	$	810,421	$	721,789	$	88,632	12.3	%	1.0	%	1.1	%	10.2	%	Total Company	$	860,546	$	826,142	$	34,404	4.2	%	(3.3	%)	1.0	%	6.5	%
United States	United States	514,343		454,836		59,507		13.1	%	—		1.6	%	11.4	%	United States	559,825		515,238		44,587		8.7	%	—		1.4	%	7.3	%
International	International	296,078		266,953		29,125		10.9	%	2.6	%	0.1	%	8.2	%	International	300,721		310,904		(10,183)		(3.3	%)	(8.6	%)	0.3	%	5.0	%

(1)Reported revenue growth and organic revenue growth may not recalculate due to rounding.

Total Company Revenue. The increase in ~~both U.S. and international~~ organic ~~revenues~~revenue was driven by ~~strong~~ volume gains in CAG Diagnostics recurring revenue, ~~reflecting continued high~~primarily in the U.S. Overall growth reflects higher realized prices and expanding demand for companion animal diagnostics globally. Our CAG Diagnostics instrument revenue reflects high placement volume this ~~quarter, reflecting higher premium instrument placements globally, including higher placements of our new instrument, ProCyte One~~®~~, compared to lower placements in the third quarter of 2020 which was impacted by pandemic constraints.~~quarter. The higher revenue in our Water business was primarily due to the ~~result~~benefit of ~~a recovery~~price increases and higher testing volumes. The decline in demand for testing volumes, including non-compliance testing that has been constrained since the beginning of the pandemic, as well as from comparisons to disruptions in certain compliance testing during the third quarter of the prior year. In our LPD business ~~revenues decreased~~was primarily ~~as a result of~~due to lower demand for swine testing in China. Other revenues ~~reflect~~ reflects lower ~~demand for human~~ OPTI COVID-19 PCR testing products and services ~~which has occurred as vaccination rates increased.~~in the U.S. The impact of foreign currency movements ~~increased~~decreased total revenue growth by ~~1.0%~~3.3%, while acquisitions increased revenue growth by ~~1.1%~~1.0%.

3436

The following table presents total Company results of operations:


		For the Three Months Ended September 30,								Change					For the Three Months Ended June 30,								Change
Total Company - Results of Operations (dollars in thousands)	Total Company - Results of Operations (dollars in thousands)	2021		Percent of Revenue		2020		Percent of Revenue		Amount		Percentage		Total Company - Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	810,421			$	721,789			$	88,632	12.3	%	Revenues	$	860,546			$	826,142			$	34,404	4.2	%
Cost of revenue	Cost of revenue	337,500				299,183				38,317		12.8	%	Cost of revenue	346,514				336,834				9,680		2.9	%
Gross profit	Gross profit	472,921		58.4	%	422,606		58.5	%	50,315		11.9	%	Gross profit	514,032		59.7	%	489,308		59.2	%	24,724		5.1	%

Operating Expenses:
Operating expenses:														Operating expenses:
Sales and marketing	Sales and marketing	124,434		15.4	%	108,202		15.0	%	16,232		15.0	%	Sales and marketing	130,257		15.1	%	119,032		14.4	%	11,225		9.4	%
General and administrative	General and administrative	82,098		10.1	%	105,031		14.6	%	(22,933)		(21.8	%)	General and administrative	81,488		9.5	%	73,326		8.9	%	8,162		11.1	%
Research and development	Research and development	40,427		5.0	%	37,517		5.2	%	2,910		7.8	%	Research and development	123,221		14.3	%	37,697		4.6	%	85,524		226.9	%
Total operating expenses	Total operating expenses	246,959		30.5	%	250,750		34.7	%	(3,791)		(1.5	%)	Total operating expenses	334,966		38.9	%	230,055		27.8	%	104,911		45.6	%
Income from operations	Income from operations	$	225,962	27.9	%	$	171,856	23.8	%	$	54,106	31.5	%	Income from operations	$	179,066	20.8	%	$	259,253	31.4	%	$	(80,187)	(30.9	%)

Gross Profit. Gross profit increased due to higher sales volumes ~~despite~~and a ~~slight 10~~50 basis point ~~decrease~~increase in the gross profit margin. The ~~net decrease~~ increase in the gross profit margin was ~~driven by several factors including~~primarily due to net price gains, the ~~mix impact from higher CAG Diagnostics instrument revenue and lower LPD swine and~~ ~~OPTI COVID-19 PCR~~ ~~test revenues. Laboratory gross margins were also impacted by investments in~~benefit of our reference laboratory ~~business~~productivity initiatives, and improved software services gross margins. The margin also increased due to ~~support high growth and customer service levels, as compared~~comparisons to ~~tightly controlled~~a prior year ~~cost levels~~impairment charge related to rental assets in ~~response to the onset of the COVID-19 pandemic.~~certain regions. These ~~impacts~~increases were ~~partially~~ offset by ~~high CAG diagnostic recurring revenue growth~~higher product, freight and ~~moderate net price increases, as well as strong growth in veterinary software~~distribution, and se~~rvices.~~labor costs, including the impacts of inflation. The impact from foreign currency movements increased the gross profit margin by ~~less than 10~~approximately 50 basis points, ~~including~~primarily from the impact of higher hedge ~~losses~~gains in the current year as compared to hedge losses in the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability. General and administrative expense increased primarily due to higher personnel-related expense and increases in amortization and depreciation expense related to business acquisitions and capital investments. Research and development expense increased primarily due to expenses totaling $80 million for acquiring rights to use certain licensed technology under two separate intellectual property licensing arrangements. These licenses are being used for future product development. The overall change in foreign currency exchange rates decreased operating expenses growth by approximately 2%.


Companion Animal Group

The following table presents revenue by product and service category for CAG:


	For the Three Months Ended June 30,
Net Revenue (dollars in thousands)	2022		2021		Dollar Change		Reported Revenue Growth(1)		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth(1)

CAG Diagnostics recurring revenue:	$	685,413	$	661,300	$	24,113	3.6	%	(3.3	%)	0.2	%	6.8	%
IDEXX VetLab consumables	266,079		256,352		9,727		3.8	%	(4.1	%)	—		7.9	%
Rapid assay products	87,481		83,887		3,594		4.3	%	(1.6	%)	—		5.8	%
Reference laboratory diagnostic and consulting services	304,130		293,675		10,455		3.6	%	(3.0	%)	0.4	%	6.1	%
CAG diagnostics services and accessories	27,723		27,386		337		1.2	%	(4.4	%)	—		5.7	%
CAG Diagnostics capital - instruments	36,227		35,054		1,173		3.3	%	(4.9	%)	—		8.3	%
Veterinary software, services and diagnostic imaging systems	62,447		49,241		13,206		26.8	%	(1.1	%)	13.8	%	14.0	%
Net CAG revenue	$	784,087	$	745,595	$	38,492	5.2	%	(3.3	%)	1.1	%	7.3	%

(1) Reported revenue growth and organic revenue growth may not recalculate due to rounding.

CAG Diagnostics Recurring Revenue. The increase was driven by higher demand for companion animal diagnostics globally across modalities. The increase in CAG Diagnostics recurring revenue was primarily due to increased volumes in IDEXX VetLab consumables and reference laboratory diagnostic services, and higher realized prices. The impact of foreign currency movements decreased revenue growth by 3.3%. The impact of acquisitions increased revenue growth by 1.1%.

The increase in IDEXX VetLab consumables revenue was primarily due to higher sales volumes, primarily of our Catalyst consumables and, to a lesser extent, ProCyte consumables, and higher price realization. These volume increases were supported by the expansion of our installed base of instruments, our expanded menu of available tests in certain regions, and high customer retention levels.

The increase in rapid assay revenue resulted from higher testing volume levels in the U.S., primarily from SNAP® 4Dx Plus, and higher price realization.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes and price realization in our U.S. labs. Growth in other regions was moderately lower, with volume growth pressured by comparison to strong prior period demand levels, offset by higher realized prices.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of the expansion of our active installed base of instruments.

CAG Diagnostics Capital – Instrument Revenue. The increase in instrument revenue was primarily due to strong premium instrument placements globally, including the successful global launch of the ProCyte One analyzer, to support increased diagnostic testing.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue 13.8% as compared to the second quarter of 2021, with the purchase of ezyVet in June 2021. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to higher veterinary software system placements to continue the expansion in our active installed base, and higher realized prices on service offerings. The increase in our diagnostic imaging systems revenues was primarily due to increases in our active installed base resulting in higher service revenue, as well as higher realized prices.

The following table presents the CAG segment results of operations:


	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	$	784,087			$	745,595			$	38,492	5.2	%
Cost of revenues	317,833				304,809				13,024		4.3	%
Gross profit	466,254		59.5	%	440,786		59.1	%	25,468		5.8	%

Operating expenses:
Sales and marketing	118,899		15.2	%	109,151		14.6	%	9,748		8.9	%
General and administrative	72,079		9.2	%	64,134		8.6	%	7,945		12.4	%
Research and development	118,750		15.1	%	32,766		4.4	%	85,984		262.4	%
Total operating expenses	309,728		39.5	%	206,051		27.6	%	103,677		50.3	%
Income from operations	$	156,526	20.0	%	$	234,735	31.5	%	$	(78,209)	(33.3	%)

Gross Profit. Gross profit increased primarily due to higher sales volume and a 40 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to net price gains, the benefit of our reference laboratory productivity initiatives, and improved software services gross margins. The margin also increased due to comparisons to a prior year impairment charge related to rental assets in certain regions. These increases were offset by increases in product, freight and distribution, and labor costs, including the impacts of inflation. The impact from foreign currency movements increased the gross profit margin by approximately 30 basis points, primarily from the impact of hedge gains in the current year as compared to hedge losses in the prior year.


Water

The following table presents the Water segment results of operations:


	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	$	39,195			$	37,191			$	2,004	5.4	%
Cost of revenue	11,836				11,444				392		3.4	%
Gross profit	27,359		69.8	%	25,747		69.2	%	1,612		6.3	%

Operating expenses:
Sales and marketing	4,711		12.0	%	4,099		11.0	%	612		14.9	%
General and administrative	3,623		9.2	%	3,384		9.1	%	239		7.1	%
Research and development	1,105		2.8	%	1,036		2.8	%	69		6.7	%
Total operating expenses	9,439		24.1	%	8,519		22.9	%	920		10.8	%
Income from operations	$	17,920	45.7	%	$	17,228	46.3	%	$	692	4.0	%

Revenue. The increase in revenue was due to higher realized prices andtesting volumes, primarily in our Colilert test products and related accessories used in coliform and E. coli testing. Testing volumes were lower in the Asia-Pacific region largely due to COVID restrictions. The impact of foreign currency movements decreased revenue by approximately 3.5%.

Gross Profit.Gross profit increased due to higher sales volumes and a 60 basis point increase in the gross profit margin, which reflected a 230 basis point increase due to foreign currency movements, primarily from the impact of hedge gains in the current year compared to hedge losses in the prior year. The gross profit margin was decreased by higher freight and distribution costs and, to a lesser extent, higher product costs, partially offset by the net benefit of price gains.

Operating Expenses. Sales and marketing and research and development expenses increased primarily due to higher personnel-related costs. General and administrative expense increased primarily due to personnel-related cost and third-party services. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses of approximately 2%.


Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:


	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	$	29,889			$	33,524			$	(3,635)	(10.8	%)
Cost of revenue	12,893				13,998				(1,105)		(7.9	%)
Gross profit	16,996		56.9	%	19,526		58.2	%	(2,530)		(13.0	%)

Operating expenses:
Sales and marketing	6,216		20.8	%	5,142		15.3	%	1,074		20.9	%
General and administrative	4,532		15.2	%	4,271		12.7	%	261		6.1	%
Research and development	3,018		10.1	%	3,245		9.7	%	(227)		(7.0	%)
Total operating expenses	13,766		46.1	%	12,658		37.8	%	1,108		8.8	%
Income from operations	$	3,230	10.8	%	$	6,868	20.5	%	$	(3,638)	(53.0	%)

Revenue. The decrease in LPD revenues was primarily due to lower demand for diagnostic testing in China. Beginning during the second quarter of 2021, and continuing through the second quarter of 2022, we experienced lower livestock testing volumes in China, as changes in disease management approaches, low pork prices, and changes in government requirements related to live animal imports and livestock infectious disease programs unfavorably impacted testing volumes, in comparison to high prior-year demand for African Swine Fever testing. The decrease in revenue was partially offset by moderate growth, including benefits from higher price gains in other regions. The unfavorable impact of foreign currency movements decreased revenues by 5.8%.

Gross Profit. Gross profit decreased due to lower sales volumes and a 130 basis point decrease in the gross profit margin. The gross profit margin decreased as a result of higher distribution and freight charges, higher product costs, and investments in our bovine laboratory services. The decrease in the gross profit margin was partially offset by the impact from foreign currency movements, which increased the gross profit margin by approximately 400 basis points, primarily from the impact of hedge gains in the current year compared to hedge losses in the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to increases in personnel-related costs and product marketing costs. General and administrative expenses increased primarily due to higher bad debt expense and higher personnel-related costs. Research and development expense decreased primarily due to lower personnel-related costs. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses of approximately 4%.

Other

The following table presents the Other results of operations:


	For the Three Months Ended June 30,								Change
Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	$	7,375			$	9,832			$	(2,457)	(25.0	%)
Cost of revenue	3,952				6,583				(2,631)		(40.0	%)
Gross profit	3,423		46.4	%	3,249		33.0	%	174		5.4	%

Operating expenses:
Sales and marketing	431		5.8	%	640		6.5	%	(209)		(32.7	%)
General and administrative	1,254		17.0	%	1,537		15.6	%	(283)		(18.4	%)
Research and development	348		4.7	%	650		6.6	%	(302)		(46.5	%)
Total operating expenses	2,033		27.6	%	2,827		28.8	%	(794)		(28.1	%)
Income from operations	$	1,390	18.8	%	$	422	4.3	%	$	968	229.4	%

Revenue.The decrease in revenue was primarily due to lower OPTI COVID-19 PCR testing products and services in the U.S., and lower OPTI Medical consumables revenue due to COVID-19 restrictions in Asia and Latin America. The impact of foreign currency movements increased revenue by 1.9%.

Gross Profit. The increase in gross profit and the 1,340 basis point increase in the gross profit margin were primarily due to lower costs of our testing products and services, including the benefit from the comparison to write-downs of excess COVID-19 testing inventory in the prior period. This increase was partially offset by higher freight and distribution costs. The overall change in foreign currency exchange rates had an immaterial impact on gross profit.

Operating Expenses. Sales and marketing expense decreased primarily due to lower personnel-related costs. General and administrative expense decreased primarily due to lower bad debt expense. Research and development expense decreased primarily due to lower project costs compared to investments in the development of the OPTI COVID-19 PCR test during the prior year.

Non-Operating Items

Interest Expense. Interest expense was $8.3 million for the three months ended June 30, 2022, as compared to $7.6 million for the same period in the prior year. The increase in interest expense was primarily the result of higher average debt levels.

Provision for Income Taxes.Our effective income tax rate was 22.9% for the three months ended June 30, 2022, as compared to 19.5% for the three months ended June 30, 2021. The increase in our effective tax rate was primarily driven by higher taxes on international income and decreases in tax benefits related to share-based compensation.

Results of Operations

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Total Company. The following table presents total Company revenue by operating segment:


	For the Six Months Ended June 30,
Net Revenue (dollars in thousands)	2022		2021		Dollar Change		Reported Revenue Growth (1)		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth (1)

CAG	$	1,545,271	$	1,438,362	$	106,909	7.4	%	(2.6	%)	1.3	%	8.7	%
United States	1,032,392		930,662		101,730		10.9	%	—		1.8	%	9.1	%
International	512,879		507,700		5,179		1.0	%	(7.3	%)	0.4	%	7.9	%

Water	75,566		71,231		4,335		6.1	%	(2.6	%)	—		8.7	%
United States	37,364		34,315		3,049		8.9	%	—		—		8.9	%
International	38,202		36,916		1,286		3.5	%	(5.0	%)	—		8.5	%

LPD	60,759		72,794		(12,035)		(16.5	%)	(3.8	%)	—		(12.7	%)
United States	7,602		7,264		338		4.7	%	—		—		4.7	%
International	53,157		65,530		(12,373)		(18.9	%)	(4.1	%)	—		(14.8	%)

Other	15,499		21,462		(5,963)		(27.8	%)	0.7	%	—		(28.5	%)

Total Company	$	1,697,095	$	1,603,849	$	93,246	5.8	%	(2.6	%)	1.2	%	7.2	%
United States	1,085,731		987,876		97,855		9.9	%	—		1.7	%	8.2	%
International	611,364		615,973		(4,609)		(0.7	%)	(6.7	%)	0.3	%	5.6	%

(1)Reported revenue growth and organic revenue growth may not recalculate due to rounding.

Total Company Revenue. The increase in organic revenues was driven by solid volume gains in CAG Diagnostics recurring revenue, primarily in the U.S. Overall growth reflects continued demand for companion animal diagnostics globally, as well as higher realized prices. Our CAG Diagnostics instrument revenue reflects strong placement volume for the first half of the year. The higher revenue in our Water business was primarily due to the benefit of price increases and higher testing volumes. The decline in our LPD business was primarily due to lower demand for swine testing in China. Other revenues reflect lower OPTI COVID-19 PCR testing products. The impact of acquisitions increased total revenue growth by 1.2% while the impact of currency movements decreased total revenue growth by 2.6%.

The following table presents total Company results of operations:


	For the Six Months Ended June 30,								Change
Total Company - Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	$	1,697,095			$	1,603,849			$	93,246	5.8	%
Cost of revenue	684,310				643,759				40,551		6.3	%
Gross profit	1,012,785		59.7	%	960,090		59.9	%	52,695		5.5	%

Operating expenses:
Sales and marketing	262,549		15.5	%	233,843		14.6	%	28,706		12.3	%
General and administrative	159,437		9.4	%	144,096		9.0	%	15,341		10.6	%
Research and development	163,389		9.6	%	75,276		4.7	%	88,113		117.1	%
Total operating expenses	585,375		34.5	%	453,215		28.3	%	132,160		29.2	%
Income from operations	$	427,410	25.2	%	$	506,875	31.6	%	$	(79,465)	(15.7	%)

Gross Profit. Gross profit increased due to higher sales volumes, moderated by a 20 basis point decrease in the gross profit margin. The decrease in the gross profit margin reflects higher product, freight and distribution, and labor costs across our segments. These decreases were partially offset by net price gains and the improved software services gross margins, as well as the benefit of our reference laboratory productivity initiatives, which helped to offset the effects of inflation on our gross margins. The margin also benefited due to comparisons to a prior year impairment charge related to rental assets in certain regions. The impact from foreign currency movements increased the gross profit margin by approximately 40 basis points, primarily from the impact of hedge gains in the current year as compared to hedge losses in the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, as well as travel costs. General and administrative expense ~~decreased as compared to the third quarter of 2020~~increased primarily due to ~~an accrual~~higher personnel-related expense, increases in amortization and depreciation expense related to ~~an ongoing litigation matter~~business acquisitions and ~~a charitable donation in the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs associated with acquisitions.~~capital investments. Research and development expense increased primarily due to ~~higher project and personnel-related costs.~~expenses totaling $80 million for acquiring rights to use certain licensed technology under two separate intellectual property licensing arrangements. The overall change in foreign currency exchange rates ~~resulted in an increase in~~decreased operating expenses ~~by approximately 1%.~~


~~Companion Animal Group~~

~~The following table presents revenue by product and service category for CAG:~~

For the Three Months Ended September 30,
Net Revenue
(dollars in thousands)
2021 2020 Dollar Change
Reported Revenue Growth (1)
Percentage Change from Currency Percentage Change from Acquisitions
Organic Revenue Growth (1)

CAG Diagnostics recurring revenue: $ 638,358 $ 567,416 $ 70,942 12.5 % 0.9 % 0.1 % 11.5 %
IDEXX VetLab consumables 252,714 218,605 34,109 15.6 % 1.2 % — 14.4 %
Rapid assay products 76,974 70,593 6,381 9.0 % 0.4 % — 8.6 %
Reference laboratory diagnostic and consulting services 282,301 254,223 28,078 11.0 % 0.8 % 0.2 % 10.0 %
CAG diagnostics services and accessories 26,369 23,995 2,374 9.9 % 0.8 % — 9.1 %
CAG Diagnostics capital - instruments 39,401 29,336 10,065 34.3 % 1.3 % — 33.0 %
Veterinary software, services and diagnostic imaging systems 54,736 41,265 13,471 32.6 % 0.5 % 17.4 % 14.7 %
Net CAG revenue $ 732,495 $ 638,017 $ 94,478 14.8 % 0.9 % 1.2 % 12.7 %

~~(1)~~ ~~Reported revenue~~ growth ~~and organic revenue growth may not recalculate due to rounding~~

~~CAG Diagnostics Recurring Revenue~~. The increase was driven by strong market demand for companion animal diagnostics globally across modalities. To a lesser extent, the increase in CAG Diagnostics recurring revenue was due to higher realized prices. The same period in the prior year had significant revenue growth as we experienced an increase in market demand for companion animal diagnostic, supported in part by the pent-up demand as social distancing procedures and guidelines were eased, as well as higher clinical visits related to new patients. The impact of currency movements increased revenues by 0.9%.

~~The increase in IDEXX VetLab~~® ~~consumables revenue was primarily due to higher sales volumes for our Catalyst~~® consumables and, to a lesser extent, ProCyte consumables. These increases were supported by expansion of our global premium instrument installed base, high customer retention levels and an increase in testing utilization across regions.

~~The increase in rapid assay revenue resulted primarily from higher clinic testing levels, primarily from SNAP~~® ~~4Dx Plus and Fecal SNAPs, as well as high customer retention levels and higher realized prices. Results reflected strong growth in all major regions.~~

~~The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes, as well as higher average unit sales prices.~~

~~The increase in CAG Diagnostics services and accessories revenue was primarily a result of the increase in our active installed base of instruments.~~

~~CAG Diagnostics Capital – Instrument Revenue. The increase in instrument revenue was due to higher premium instrument placements globally, including placements of our new instrument, ProCyte One~~®, compared to lower overall placements in the third quarter of 2020, as a result of the global pandemic, due to restrictions on our sales professionals’ access to clinics and certain customers’ deferral of new instrument purchases.

~~Veterinary Software, Services and Diagnostic Imaging Systems Revenue~~. Acquisitions increased revenue 17.4% as compared to the third quarter in 2020. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to increases in our active installed base, higher veterinary software system placements, and higher

realized prices on these service offerings. The increase in our diagnostic imaging systems revenues was primarily due to higher imaging system placements, specifically our ImageVue DR 30 platform, as compared to the third quarter of 2020 during which diagnostic imaging placements were lower due to restrictions on our sales professionals’ access to clinics and certain customers deferring purchase decisions as a result of the COVID-19 pandemic.

~~The following table presents the CAG segment results of operations:~~

For the Three Months Ended September 30, Change
Results of Operations
(dollars in thousands)
2021 Percent of Revenue 2020 Percent of Revenue Amount Percentage
Revenues $ 732,495 $ 638,017 $ 94,478 14.8 %
Cost of revenues 308,624 269,720 38,904 14.4 %
Gross profit 423,871 57.9 % 368,297 57.7 % 55,574 15.1 %
Operating Expenses:
Sales and marketing 113,855 15.5 % 98,995 15.5 % 14,860 15.0 %
General and administrative 72,597 9.9 % 97,258 15.2 % (24,661) (25.4 %)
Research and development 35,472 4.8 % 32,610 5.1 % 2,862 8.8 %
Total operating expenses 221,924 30.3 % 228,863 35.9 % (6,939) (3.0 %)
Income from operations $ 201,947 27.6 % $ 139,434 21.9 % $ 62,513 44.8 %

~~Gross Profit~~. Gross profit increased primarily due to higher sales volume. The modest 20 basis point increase in the gross profit margin was primarily due to the high CAG diagnostic recurring revenue growth and the benefits of net price gains. These favorable factors were partially offset by the ~~impact from product mix with higher CAG Diagnostics instrument revenue, as well as higher freight and distribution costs. Overall costs were higher in comparison to the tightly controlled prior year costs, including~~ ~~investments in our reference laboratory business to support high growth and customer service levels. The impact from foreign currency movements increased the gross profit margin by less than 10 basis points, including the impact of higher hedge losses as compared to the prior year.~~

~~Operating Expenses~~. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, as well as travel costs. General and administrative expense decreased when compared to the third quarter of 2020 due to an accrual related to an ongoing litigation matter and a charitable donation in the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs associated with acquisitions. Research and development expense increased primarily due to increased project and personnel-related costs. The overall change in currency exchange rates increased operating expenses by less than 1%.


~~Water~~

~~The following table presents the Water segment results of operations:~~

For the Three Months Ended September 30, Change
Results of Operations
(dollars in thousands)
2021 Percent of Revenue 2020 Percent of Revenue Amount Percentage
Revenues $ 38,143 $ 33,272 $ 4,871 14.6 %
Cost of revenue 11,449 10,208 1,241 12.2 %
Gross profit 26,694 70.0 % 23,064 69.3 % 3,630 15.7 %
Operating Expenses:
Sales and marketing 4,560 12.0 % 3,470 10.4 % 1,090 31.4 %
General and administrative 3,491 9.2 % 3,329 10.0 % 162 4.9 %
Research and development 1,044 2.7 % 1,022 3.1 % 22 2.2 %
Total operating expenses 9,095 23.8 % 7,821 23.5 % 1,274 16.3 %
Income from operations $ 17,599 46.1 % $ 15,243 45.8 % $ 2,356 15.5 %

~~Revenue~~. ~~The increase in revenue~~ ~~was primarily a result of the continued improvement in overall testing volumes, including non-compliance testing volume that has b~~een constrained during the COVID-19 pandemic, and to disruptions in the prior year in certain compliance testing areas due to social distancing policies. The increase in revenue is also due to the benefit of price increases in our Colilert test products and related accessories used in coliform and E. coli testing. The impact of currency movements increased revenue by approximately 1.9%.

~~Gross Profit~~.~~Gross profit increased due to higher sales volumes and a 70 basis point increase in the gross profit margin, which reflected a 20 basis point reduction due to foreign currency movements, incl~~uding the impact of higher hedge losses in the current year compared to the prior year. The gross profit margin was increased by the net benefit of price increases and volume leverage, partially offset by higher freight and distribution costs.

~~Operating~~ ~~Expenses~~. ~~Overall operating expenses were higher compared to the third quarter of 2020, during which travel restrictions and prudent expense management was implemented in response to the COVID-19 pandemic.~~ ~~Sales and marketing expense~~ ~~increased primarily due to higher personnel-related costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 1%.~~


~~Livestock, Poultry and Dairy~~

~~The following table presents the LPD segment results of operations:~~

For the Three Months Ended September 30, Change
Results of Operations
(dollars in thousands)
2021 Percent of Revenue 2020 Percent of Revenue Amount Percentage

Revenues $ 29,126 $ 36,971 $ (7,845) (21.2 %)
Cost of revenue 12,278 14,203 (1,925) (13.6 %)
Gross profit 16,848 57.8 % 22,768 61.6 % (5,920) (26.0 %)
Operating Expenses:
Sales and marketing 5,324 18.3 % 5,245 14.2 % 79 1.5 %
General and administrative 4,596 15.8 % 4,299 11.6 % 297 6.9 %
Research and development 3,328 11.4 % 2,719 7.4 % 609 22.4 %
Total operating expenses 13,248 45.5 % 12,263 33.2 % 985 8.0 %
Income from operations $ 3,600 12.4 % $ 10,505 28.4 % $ (6,905) (65.7 %)

~~Revenue~~. The decrease in LPD revenues was primarily due to lower swine testing volumes in China as a result of changes in disease management approaches, low pork prices, and changes in government requirements related to live animal imports and livestock infectious disease programs, as compared to high prior~~-year demand for African Swine Fever testing. We anticipate these trends will continue to impact our revenues in China in upcoming quarters.~~ T~~he favorable impact of foreign currency movements increased revenues 1.3%.~~

~~Gross Profit~~. ~~Gross profit decreased due to lower sales volumes and~~ a 380 basis point decrease in the gross profit margin. The gross profit margin decreased as a result of higher distribution and freight charges and product mix, partially offset by favorable product costs. The impact of currency movements, including the impact of hedge losses in both the current and prior year, increased the gross margin by approximately 40 basis points.

~~Operating Expenses~~. Overall operating expenses were higher compared to the third quarter of 2020, during which travel restrictions and prudent expense management was implemented in response to the COVID-19 pandemic. Sales and marketing expense increased primarily due to higher marketing and promotional materials partially offset by lower personnel-related costs, including commissions. General and administrative expenses increased primarily due to higher bad debt expense. Research and development expense increased primarily due to higher personnel-related costs as we leveraged LPD personnel to support our human COVID-19 testing initiatives in the prior year, and higher project costs. ~~The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 2%.~~

~~Other~~

~~The following table presents the Other results of operations:~~

For the Three Months Ended September 30, Change
Results of Operations
(dollars in thousands)
2021 Percent of Revenue 2020 Percent of Revenue Amount Percentage

Revenues $ 10,657 $ 13,529 $ (2,872) (21.2 %)
Cost of revenue 5,149 5,052 97 1.9 %
Gross profit 5,508 51.7 % 8,477 62.7 % (2,969) (35.0 %)
Operating Expenses:
Sales and marketing 695 6.5 % 492 3.6 % 203 41.3 %
General and administrative 1,414 13.3 % 145 1.1 % 1,269 875.2 %
Research and development 583 5.5 % 1,166 8.6 % (583) (50.0 %)
Total operating expenses 2,692 25.3 % 1,803 13.3 % 889 49.3 %
Income from operations $ 2,816 26.4 % $ 6,674 49.3 % $ (3,858) (57.8 %)

~~Revenue~~.The decrease in revenue was primarily due to lower demand for our OPTI COVID-19 PCR testing products and services and lower royalty revenue associated with intellectual property related to our former pharmaceutical product line, partially offset by higher OPTI Medical consumables revenue. We currently estimate that the future demand for our OPTI COVID-19 PCR testing products and services will continue to be lower than prior periods, a~~lthough it is difficult to project given the uncertain nature of the COVID-19 pandemic. The impact of currency movements decreased revenue by 0.1%.~~

~~Gross Profit~~. The decrease in gross profit was primarily due to lower sales volumes of our OPTI COVID-19 PCR testing products and services, and an 1,100 basis point decrease in the gross profit margin, primarily due to unfavorable product mix from lower OPTI COVID-19 PCR testing and lower royalty revenue associated with our former pharmaceutical product line, as well as higher product costs, including costs associated with write-downs of excess COVID-19 testing inventory. These decreases were partially offset by product mix benefits from higher OPTI Medical consumables. The overall change in currency exchange rates had an immaterial impact on gross profit.

~~Operating Expenses~~. Sales and marketing expense increased primarily due to higher personnel-related costs. General and administrative expense increased primarily due to foreign exchange losses on settlements of foreign currency denominated transactions, as compared to gains in the prior year, for all operating segments, which are reported within our Other segment. Research and development expense decreased primarily due to lower project costs associated with the development of the OPTI COVID-19 PCR test.

~~Non-Operating Items~~

~~Interest Expense~~. Interest expense was $7.1 million for the three months ended September 30, 2021, as compared to $8.1 million for the same period in the prior year. The decrease in interest expense was primarily the result of lower average debt levels.

~~Provision for Income Taxes~~.Our effective income tax rate was 20.0% for the three months ended September 30, 2021, as compared to 10.8% for the three months ended September 30, 2020. The increase in our effective tax rate was primarily due to lower tax benefits from share-based compensation than the prior year and the resolution of uncertain tax positions.

~~Results of Operations~~

~~Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020~~

~~Total Company. The following table presents total Company revenue by operating segment:~~

For the Nine Months Ended September 30,
Net Revenue
(dollars in thousands)
2021 2020 Dollar Change Reported Revenue Growth (1) Percentage Change from Currency Percentage Change from Acquisitions Organic Revenue Growth (1)
CAG $ 2,170,857 $ 1,756,113 $ 414,744 23.6 % 2.4 % 0.7 % 20.6 %
United States 1,415,565 1,188,493 227,072 19.1 % — 0.9 % 18.3 %
International 755,292 567,620 187,672 33.1 % 7.6 % 0.3 % 25.1 %
Water 109,374 95,537 13,837 14.5 % 3.1 % — 11.4 %
United States 53,531 47,510 6,021 12.7 % — — 12.7 %
International 55,843 48,027 7,816 16.3 % 6.1 % — 10.2 %
LPD 101,920 103,369 (1,449) (1.4 %) 4.0 % — (5.4 %)
United States 11,441 10,803 638 5.9 % — — 5.9 %
International 90,479 92,566 (2,087) (2.3 %) 4.4 % — (6.6 %)
Other 32,119 30,698 1,421 4.6 % 2.0 % — 2.7 %
Total Company $ 2,414,270 $ 1,985,717 $ 428,553 21.6 % 2.5 % 0.6 % 18.5 %
United States 1,502,219 1,257,617 244,602 19.4 % — 0.8 % 18.6 %
International 912,051 728,100 183,951 25.3 % 6.9 % 0.2 % 18.2 %

~~(1)Reported revenue growth and organic revenue growth may not recalculate due to rounding.~~

~~Total Company Revenu~~e. The increase in both U.S. and international organic revenues was driven by strong volume gains in CAG Diagnostics recurring revenue, reflecting continued high demand for companion animal diagnostics globally, supported by an ~~increase in clinical visits~~ ~~and diagnostic utilization per clinical visit, as compared to 2020, which included the initial pandemic impacts. Our CAG Diagnostics instru~~ment revenue reflects high placement volumes compared to the prior year, which was impacted by the global pandemic. The higher revenue in our Water business was primarily a result of the continued improvement in non-compliance testing that has been constrained since the beginning of the pandemic and disruptions in certain compliance testing during the prior year. The decline in our LPD busi~~ness was primarily due to the lower demand for swine testing in China. The impact of currency movements increased total revenue by 2.5%.~~

~~The following table presents total Company results of operations:~~

For the Nine Months Ended September 30, Change
Total Company - Results of Operations
(dollars in thousands)
2021 Percent of Revenue 2020 Percent of Revenue Amount Percentage
Revenues $ 2,414,270 $ 1,985,717 $ 428,553 21.6 %
Cost of revenue 981,259 824,179 157,080 19.1 %
Gross profit 1,433,011 59.4 % 1,161,538 58.5 % 271,473 23.4 %
Operating Expenses:
Sales and marketing 358,277 14.8 % 318,526 16.0 % 39,751 12.5 %
General and administrative 226,194 9.4 % 231,111 11.6 % (4,917) (2.1 %)
Research and development 115,703 4.8 % 102,472 5.2 % 13,231 12.9 %
Total operating expenses 700,174 29.0 % 652,109 32.8 % 48,065 7.4 %
Income from operations $ 732,837 30.4 % $ 509,429 25.7 % $ 223,408 43.9 %

~~Gross Profit~~. Gross profit increased due to higher sales volumes, as well as a 90 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to volume leverage in our CAG Diagnostics recurring revenue portfolio following the initial pandemic impacts in the first half of the prior year, price increases, ~~and strong growth in veterinary soft~~ware, services and diagnostic imaging recurring revenues. These increases were partially offset by product mix with higher CAG Diagnostics instrument revenue and higher freight and distribution costs. The impact from foreign currency movements did not have a material impact on gross profit.

~~Operating Expenses~~. Overall operating expenses were higher compared to 2020, during which cost containment efforts were implemented in response to the COVID-19 pandemic, including temporary reductions to compensation and benefits and travel costs. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, partially offset by lower travel costs. General and administrative expense decreased when compared to 2020, due to an accrual related to an ongoing litigation matter and a charitable donation in the third quarter of the prior year, as well as higher bad debt expense related to a reserve adjustment in the first quarter of the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs related to our acquisitions. Research and development expense increased primarily due to higher project and personnel-related costs. The overall change in currency exchange rates increased operating expenses by approximately 2%.

4244

Companion Animal Group

The following table presents revenue by product and service category for CAG:


		For the Nine Months Ended September 30,															For the Six Months Ended June 30,
Net Revenue (dollars in thousands)	Net Revenue (dollars in thousands)	2021		2020		Dollar Change		Reported Revenue Growth (1)		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth (1)		Net Revenue (dollars in thousands)	2022		2021		Dollar Change		Reported Revenue Growth(1)		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth(1)

CAG Diagnostics recurring revenue:	CAG Diagnostics recurring revenue:	$	1,916,938	$	1,565,595	$	351,343	22.4	%	2.4	%	0.2	%	19.8	%	CAG Diagnostics recurring revenue:	$	1,350,223	$	1,278,580	$	71,643	5.6	%	(2.6	%)	0.2	%	8.0	%
IDEXX VetLab consumables	IDEXX VetLab consumables	755,158		603,379		151,779		25.2	%	3.2	%	—		22.0	%	IDEXX VetLab consumables	533,252		502,444		30,808		6.1	%	(3.3	%)	—		9.5	%
Rapid assay products	Rapid assay products	230,472		192,681		37,791		19.6	%	1.1	%	—		18.5	%	Rapid assay products	162,000		153,498		8,502		5.5	%	(1.3	%)	—		6.9	%
Reference laboratory diagnostic and consulting services	Reference laboratory diagnostic and consulting services	851,757		703,300		148,457		21.1	%	2.2	%	0.4	%	18.6	%	Reference laboratory diagnostic and consulting services	599,205		569,456		29,749		5.2	%	(2.3	%)	0.5	%	7.0	%
CAG diagnostics services and accessories	CAG diagnostics services and accessories	79,551		66,235		13,316		20.1	%	2.9	%	—		17.2	%	CAG diagnostics services and accessories	55,766		53,182		2,584		4.9	%	(3.6	%)	—		8.4	%
CAG Diagnostics capital - instruments	CAG Diagnostics capital - instruments	105,645		72,040		33,605		46.6	%	3.6	%	—		43.1	%	CAG Diagnostics capital - instruments	73,224		66,244		6,980		10.5	%	(4.3	%)	—		14.8	%
Veterinary software, services and diagnostic imaging systems	Veterinary software, services and diagnostic imaging systems	148,274		118,478		29,796		25.1	%	0.9	%	7.9	%	16.4	%	Veterinary software, services and diagnostic imaging systems	121,824		93,538		28,286		30.2	%	(0.8	%)	17.3	%	13.7	%
Net CAG revenue	Net CAG revenue	$	2,170,857	$	1,756,113	$	414,744	23.6	%	2.4	%	0.7	%	20.6	%	Net CAG revenue	$	1,545,271	$	1,438,362	$	106,909	7.4	%	(2.6	%)	1.3	%	8.7	%

(1) Reported revenue growth and organic revenue growth may not recalculate due to rounding

CAG Diagnostics Recurring Revenue. The increase was driven by ~~strong market~~expanding demand for companion animal diagnostics globally across modalities, including high levels of growth in testing volumes following the initial pandemic impacts, which constrained volumes beginning in mid-March 2020 through May 2020. This volume growth includes an ~~increase in clinical visits and~~ ~~diagnostic utilization per clinical visit.~~modalities. The increase in CAG Diagnostics recurring revenue was primarily due to increased volumes in IDEXX VetLab consumables and reference laboratory diagnostic services, and ~~rapid assay products and, to a lesser extent,~~ higher realized prices. The impact of currency movements ~~increased~~decreased revenue ~~2.4%~~growth by 2.6%.

The increase in IDEXX VetLab consumables revenue was primarily due to higher sales volumes, ~~for~~primarily of our Catalyst consumables and, to a lesser extent, ProCyte ~~consumables.~~consumables, and higher price realization. These volume increases were supported by ~~an increase~~the expansion of our installed base of instruments, our expanded menu of available tests in ~~testing utilization across~~certain regions, and high customer retention ~~levels, and expansion of our global premium instrument installed base.~~levels.

The increase in rapid assay revenue resulted primarily from higher price realization and higher clinic testing levels, primarily from SNAP® 4Dx ~~Plus, as well as higher realized prices. Results reflected strong growth in all major regions.~~Plus.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes ~~globally,~~and price realization in our U.S. labs. Growth in other regions was primarily ~~in the U.S.,~~due to higher price realization, partially offset by moderately lower international volumes as ~~well as higher average unit sales prices.~~compared to strong prior period growth levels. Acquisitions increased revenue growth by ~~0.4%~~0.5%.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of the increase in our active installed base of instruments.

CAG Diagnostics Capital – Instrument Revenue. The increase in instrument revenue was primarily due to strong premium instrument placements globally, including ~~our new~~the successful global launch of the ProCyte One analyzer, ~~as compared~~ to ~~constrained placements in 2020, as a result of the global pandemic, due to restrictions on our sales professionals’ access to clinics and certain customers’ deferral of new instrument placements.~~support increased diagnostic testing.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue ~~7.9%~~growth by 17.3%. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to ~~increases in our active installed base,~~ higher veterinary software system placements to continue the expansion of our active installed base, and higher realized prices on ~~these~~ service offerings. The increase in our diagnostic imaging systems revenues was primarily due to increases in our active installed base resulting in higher ~~imaging systems placements, specifically our ImageVue DR 30 platform,~~service revenue, as ~~compared to 2020 when diagnostic imaging placements were lower due to restriction on our~~well as higher realized prices.

4345

sales professionals’ access to clinics and certain customers deferring purchase decisions as a result of the COVID-19 pandemic, partially offset by a decrease in diagnostic imaging instrument revenue impacted by a reduction in earlier generation instrument platform sales.

The following table presents the CAG segment results of operations:


		For the Nine Months Ended September 30,								Change					For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2021		Percent of Revenue		2020		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	2,170,857			$	1,756,113			$	414,744	23.6	%	Revenues	$	1,545,271			$	1,438,362			$	106,909	7.4	%
Cost of revenue	Cost of revenue	893,326				744,006				149,320		20.1	%	Cost of revenue	629,918				584,702				45,216		7.7	%
Gross profit	Gross profit	1,277,531		58.8	%	1,012,107		57.6	%	265,424		26.2	%	Gross profit	915,353		59.2	%	853,660		59.3	%	61,693		7.2	%

Operating Expenses:
Operating expenses:														Operating expenses:
Sales and marketing	Sales and marketing	327,297		15.1	%	291,093		16.6	%	36,204		12.4	%	Sales and marketing	240,559		15.6	%	213,442		14.8	%	27,117		12.7	%
General and administrative	General and administrative	199,635		9.2	%	206,394		11.8	%	(6,759)		(3.3)	%	General and administrative	140,960		9.1	%	127,038		8.8	%	13,922		11.0	%
Research and development	Research and development	100,707		4.6	%	88,558		5.0	%	12,149		13.7	%	Research and development	154,183		10.0	%	65,235		4.5	%	88,948		136.4	%
Total operating expenses	Total operating expenses	627,639		28.9	%	586,045		33.4	%	41,594		7.1	%	Total operating expenses	535,702		34.7	%	405,715		28.2	%	129,987		32.0	%
Income from operations	Income from operations	$	649,892	29.9	%	$	426,062	24.3	%	$	223,830	52.5	%	Income from operations	$	379,651	24.6	%	$	447,945	31.1	%	$	(68,294)	(15.2	%)

Gross Profit. Gross profit increased primarily due to higher sales volume, ~~as well as~~moderated by a ~~120~~10 basis point ~~increase~~decrease in the gross profit margin. The ~~increase~~decrease in the gross profit margin ~~was primarily due to the benefit of volume leverage~~reflects higher product and ~~price increases in our CAG Diagnostics recurring revenue portfolio,~~ service costs and ~~strong growth in veterinary software, services~~higher freight and ~~diagnostic imaging systems~~.distribution costs. These ~~favorable factors~~decreases were partially offset by ~~product mix with higher CAG Diagnostics instrument~~recurring revenue ~~higher freight~~net price gains and ~~distribution costs,~~improved software services gross margins, as well as anthe benefit of our reference laboratory productivity initiatives, which helped to offset the effects of inflation on our gross margins. The margin also benefited from comparisons to a prior year impairment ofcharge related to rental assets in certain ~~regions in 2021.~~regions. The impact from foreign currency movements ~~had an immaterial~~increased the gross profit margin by approximately 20 basis points, primarily from the impact ~~on our gross profit.~~of hedge gains in the current year as compared to hedge losses in the prior year.

Operating Expenses. Overall operating expenses were higher compared to 2020, during which cost containment efforts were implemented in response to the COVID-19 pandemic, including temporary reductions to compensation and benefits and travel costs. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, ~~partially offset by lower~~as well as travel costs. General and administrative expense ~~decreased when compared to the third quarter of 2020~~increased primarily due to ~~an accrual~~higher personnel-related expense and increases in amortization and depreciation expense related to ~~an ongoing litigation matter~~business acquisitions and ~~a charitable donation in the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs associated with acquisitions.~~capital investments. Research and development expense increased primarily due to ~~increased project and personnel-related costs.~~expenses totaling $80 million for acquiring rights to use certain licensed technology under two separate intellectual property licensing arrangements. The overall change in foreign currency exchange rates resulted in ~~an increase~~a decrease in operating expenses growth by approximately 1%2%.

4446


Water

The following table presents the Water segment results of operations:


		For the Nine Months Ended September 30,								Change					For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2021		Percent of Revenue		2020		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	109,374			$	95,537			$	13,837	14.5	%	Revenues	$	75,566			$	71,231			$	4,335	6.1	%
Cost of revenue	Cost of revenue	33,468				28,046				5,422		19.3	%	Cost of revenue	22,470				22,019				451		2.0	%
Gross profit	Gross profit	75,906		69.4	%	67,491		70.6	%	8,415		12.5	%	Gross profit	53,096		70.3	%	49,212		69.1	%	3,884		7.9	%

Operating Expenses:
Operating expenses:														Operating expenses:
Sales and marketing	Sales and marketing	13,017		11.9	%	11,243		11.8	%	1,774		15.8	%	Sales and marketing	9,309		12.3	%	8,457		11.9	%	852		10.1	%
General and administrative	General and administrative	10,111		9.2	%	10,018		10.5	%	93		0.9	%	General and administrative	6,905		9.1	%	6,620		9.3	%	285		4.3	%
Research and development	Research and development	3,179		2.9	%	2,847		3.0	%	332		11.7	%	Research and development	2,308		3.1	%	2,135		3.0	%	173		8.1	%
Total operating expenses	Total operating expenses	26,307		24.1	%	24,108		25.2	%	2,199		9.1	%	Total operating expenses	18,522		24.5	%	17,212		24.2	%	1,310		7.6	%
Income from operations	Income from operations	$	49,599	45.3	%	$	43,383	45.4	%	$	6,216	14.3	%	Income from operations	$	34,574	45.8	%	$	32,000	44.9	%	$	2,574	8.0	%

Revenue. The increase in our Water business ~~was primarily a result of recovery in overall~~ reflects higher realized prices andtesting volumes, including continued improvement in non-compliance testing volume that has been constrained since the beginning of the COVID-19 pandemic and disruptions in certain compliance testing areas due to social distancing policies. The increase in revenue, to a lesser extent, was also due to the benefit ofprimarily ~~price increases~~ in our Colilert test products and related accessories used in coliform and E. coli testing. Testing volumes were lower in the Asia-Pacific region primarily due to COVID restrictions. The impact of currency movements ~~also increased~~decreased revenue growth by ~~3.1%~~2.6%.

Gross Profit. Gross profit increased due to higher sales volumes ~~despite~~and a 120 basis point ~~decrease~~increase in the gross profit margin, which reflected ~~a 90~~an approximately 190 basis point ~~reduction~~increase due to foreign currency movements, ~~incl~~primarily from ~~uding~~ the impact of hedge ~~losses~~gains in the current year compared to hedge ~~gains~~losses in the prior year. The gross profit margin ~~was further reduced by~~decreased primarily due to higher ~~product,~~ distribution and freight costs, partially offset by ~~the net benefit of price increases.~~higher realized prices.

4547


Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:


		For the Nine Months Ended September 30,								Change					For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2021		Percent of Revenue		2020		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	101,920			$	103,369			$	(1,449)	(1.4	%)	Revenues	$	60,759			$	72,794			$	(12,035)	(16.5	%)
Cost of revenue	Cost of revenue	38,665				39,450				(785)		(2.0	%)	Cost of revenue	24,216				26,387				(2,171)		(8.2	%)
Gross profit	Gross profit	63,255		62.1	%	63,919		61.8	%	(664)		(1.0)	%	Gross profit	36,543		60.1	%	46,407		63.8	%	(9,864)		(21.3	%)

Operating Expenses:
Operating expenses:														Operating expenses:
Sales and marketing	Sales and marketing	16,004		15.7	%	14,925		14.4	%	1,079		7.2	%	Sales and marketing	11,784		19.4	%	10,680		14.7	%	1,104		10.3	%
General and administrative	General and administrative	13,175		12.9	%	12,466		12.1	%	709		5.7	%	General and administrative	8,693		14.3	%	8,579		11.8	%	114		1.3	%
Research and development	Research and development	9,800		9.6	%	8,111		7.8	%	1,689		20.8	%	Research and development	6,099		10.0	%	6,472		8.9	%	(373)		(5.8	%)
Total operating expenses	Total operating expenses	38,979		38.2	%	35,502		34.3	%	3,477		9.8	%	Total operating expenses	26,576		43.7	%	25,731		35.3	%	845		3.3	%
Income from operations	Income from operations	$	24,276	23.8	%	$	28,417	27.5	%	$	(4,141)	(14.6)	%	Income from operations	$	9,967	16.4	%	$	20,676	28.4	%	$	(10,709)	(51.8	%)

Revenue. ~~The favorable impact of foreign currency movements increased revenue by 4.0%. Excluding the impact of currency, overall revenues~~Revenues decreased primarily due to lower demand for diagnostic testing in ~~China, partially offset by higher testing volumes in Europe and the Americas, as compared to pandemic impacts in the prior year.~~China. Beginning induring the second quarter of 2021, and continuing through the ~~third quarter,~~first half of 2022, we experienced lower livestock testing volumes in China, as changes in disease management approaches, low pork prices, and changes in government requirements related to the live animal imports and livestock infectious disease programs ~~impact~~impacted testing volumes, in comparison to high prior-year demand for African Swine Fever testing. ~~We anticipate these trends will continue to~~The decrease in revenue was partially offset by moderately higher price gains in other regions. The unfavorable impact ~~our revenues in China in upcoming quarters.~~of foreign currency movements decreased revenue growth by 3.8%.

Gross Profit. The decrease in gross profit was primarily due to lower sales volumes ~~despite~~and a 30370 basis point ~~increase~~decrease in the gross profit margin. The ~~increase~~decrease in the gross profit margin is primarily due to ~~favorable product costs offset by lower realized prices,~~ higher freight and distribution charges, ~~as well as~~higher product costs, investments in our bovine laboratory services, and the unfavorable overall mix impacts largely from lower African Swine Fever testing. The decrease in the gross profit margin was partially offset by the impact from foreign currency movements, which ~~decreased~~increased gross profit margin by approximately 60310 basis points, ~~including~~primarily from the impact of hedge ~~losses~~gains in the current year compared to hedge ~~gains~~losses in the prior year.

Operating Expenses. Overall operating expenses were higher compared to 2020, during which cost containment efforts were implemented in response to the COVID-19 pandemic, including temporary reductions to compensation and benefits, and travel costs.Sales and marketing expense increased primarily due to ~~higher travel and~~increases in product marketing costs, personnel-related costs, ~~as well as~~ ~~higher marketing~~ and ~~promotional materials~~, partially offset by lower commissions. General and administrative expenses increased primarily due to higher personnel-related costs, partially offset by an increase in the bad debt reserve during the ~~first half of 2020.~~travel costs. Research and development expense ~~increased~~decreased primarily due to hlower ~~igher~~ personnel-related ~~costs as we leveraged LPD personnel to support our human COVID-19 testing initiatives in the prior year,~~costs. ~~and third party development costs.~~ The overall change in foreign currency exchange rates resulted in ~~an increase~~a decrease in operating expenses growth of approximately 3%.

4648

Other

The following table presents the Other results of operations:


		For the Nine Months Ended September 30,								Change					For the Six Months Ended June 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2021		Percent of Revenue		2020		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	32,119			$	30,698			$	1,421	4.6	%	Revenues	$	15,499			$	21,462			$	(5,963)	(27.8	%)
Cost of revenue	Cost of revenue	15,800				12,677				3,123		24.6	%	Cost of revenue	7,706				10,651				(2,945)		(27.6	%)
Gross profit	Gross profit	16,319		50.8	%	18,021		58.7	%	(1,702)		(9.4	%)	Gross profit	7,793		50.3	%	10,811		50.4	%	(3,018)		(27.9	%)

Operating Expenses:
Operating expenses:														Operating expenses:
Sales and marketing	Sales and marketing	1,959		6.1	%	1,265		4.1	%	694		54.9	%	Sales and marketing	897		5.8	%	1,264		5.9	%	(367)		(29.0	%)
General and administrative	General and administrative	3,273		10.2	%	2,233		7.3	%	1,040		46.6	%	General and administrative	2,879		18.6	%	1,859		8.7	%	1,020		54.9	%
Research and development	Research and development	2,017		6.3	%	2,956		9.6	%	(939)		(31.8	%)	Research and development	799		5.2	%	1,434		6.7	%	(635)		(44.3	%)
Total operating expenses	Total operating expenses	7,249		22.6	%	6,454		21.0	%	795		12.3	%	Total operating expenses	4,575		29.5	%	4,557		21.2	%	18		0.4	%
Income from operations	Income from operations	$	9,070	28.2	%	$	11,567	37.7	%	$	(2,497)	(21.6	%)	Income from operations	$	3,218	20.8	%	$	6,254	29.1	%	$	(3,036)	(48.5	%)

Revenue. The ~~increase~~decrease in revenue was primarily due to ~~higher OPTI Medical consumables and our~~lower OPTI COVID-19 PCR testing products and services ~~partially offset by~~in the U.S. and lower ~~royalty~~OPTI Medical consumables revenue ~~associated with intellectual property~~ related to ~~our former pharmaceutical product line. We currently estimate that the future demand for our OPTI~~ COVID-19 ~~PCR testing products~~restrictions in Asia and services will be lower than prior periods, although it is difficult to project given the uncertain nature of the COVID-19 pandemic, including the spread of variants, rates of vaccinations, governmental and private institution testing requirements, and alternative suppliers.Latin America. The impact of foreign currency movements increased revenue by ~~2.0%~~0.7%.

Gross Profit. The decrease in gross profit was primarily due to lower sales volume and a gross profit margin decrease of ~~790~~10 basis points, ~~despite higher sales volumes. The decrease in the gross profit margin is~~ primarily due to higher ~~product~~freight and distribution costs, ~~associated with~~partially offset by lower costs for our testing products and services, including the benefit from the comparison to write-downs of excess COVID-19 testing inventory in the ~~current year and lower royalty revenue associated with our former pharmaceutical product line.~~prior period. The overall change in foreign currency exchange rates had an immaterial impact on gross profit.

Operating Expenses. Sales and marketing expense ~~increased~~decreased primarily due to ~~higher~~lower personnel-related ~~costs associated with our OPTI COVID-19 PCR product and services.~~costs. General and administrative expense increased primarily due to higher foreign exchange losses on settlements of foreign currency denominated transactions, as compared to the prior year, as well as higher estimated bad debt expense. Foreign exchange losses on settlements for all operating segments ~~which~~ are reported within our Other segment. Research and development expense decreased primarily due to lower COVID-19 related project costs ~~associated with the development of the OPTI COVID-19 PCR test in~~compared to the prior year.

Non-Operating Items

Interest Expense. Interest expense was ~~$22.3~~$15.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$25.3~~$15.2 million for the same period in the prior year.~~The decrease in interest expense was primarily the result of lower average debt levels.~~

Provision for Income Taxes. Our effective income tax rate was ~~18.1%~~21.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~16.0%~~17.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in our effective tax rate, as compared to the same period in the prior year, was primarily driven by ~~lower~~decreases in tax benefits ~~from~~related to share-based compensation ~~than the prior year~~ and ~~the resolution of uncertain tax positions.~~higher taxes on international income.

4749

Liquidity and Capital Resources

We fund the capital needs of our business through cash on hand, funds generated from operations, proceeds from long-term senior note financings, and amounts available under our Credit Facility. ~~At September~~As of June 30, ~~2021,~~2022, we had ~~$145.2~~$114.4 million of cash and cash equivalents, as compared to ~~$383.9~~$144.5 million onas of December 31, ~~2020.~~2021. Working capital totaled ~~$304.2~~negative $123.7 million ~~at September~~as of June 30, ~~2021,~~2022, as compared to ~~$480.0~~$192.1 million atas of December 31, ~~2020. Additionally, at September~~2021. The change in working capital is primarily due to the borrowings under our Credit Facility. As of June 30, ~~2021,~~2022, we had borrowing availability of ~~$998.6~~$387.6 million under our $1 billion Credit Facility, with no$611.0 million outstanding borrowings on the Credit Facility. The general availability of funds under our Credit Facility is reduced by $1.4 million for outstanding letters of credit. We believe that, if necessary, we could obtain additional borrowings to fund our growth objectives. We further believe that current cash and cash equivalents, funds generated from operations, and committed borrowing availability will be sufficient to fund our operations, capital purchase requirements, and anticipated growth needs for at least the next twelve months. We believe that these resources, coupled with our ability, as needed, to obtain additional financing, will also be sufficient to fund our business as currently conducted for the foreseeable future. We may enter into new financing arrangements or refinance or retire existing debt in the future depending on market conditions. Should we require more capital in the U.S. than is generated by our operations, for example to fund significant discretionary activities, we could elect to raise capital in the U.S. through the incurrence of debt or equity issuances, which we may not be able to complete on favorable terms or at all. In addition, these alternatives could result in increased interest expense or other dilution of our earnings.

We manage our worldwide cash requirements considering available funds among all of our subsidiaries. Our foreign cash and marketable securities are generally available without restrictions to fund ordinary business operations outside the U.S.

The following table presents cash, cash equivalents, and marketable securities held domestically and by our foreign subsidiaries:

Cash, cash equivalents and marketable securities
(dollars in millions)
September 30, 2021 December 31, 2020

U.S. $ 6.1 $ 248.4
Foreign 139.1 135.5
Total $ 145.2 $ 383.9

Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries $ 5.3 $ 18.0


Cash, cash equivalents and marketable securities (in thousands)	June 30, 2022		December 31, 2021

U.S.	$	3,260	$	2,632
Foreign	111,101		141,822
Total	$	114,361	$	144,454

Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries	$	8,558	$	6,245

Of the ~~$145.2~~$114.4 million of cash and cash equivalents held as of ~~September~~June 30, ~~2021,~~2022, greater than 99% was held as bank deposits. Cash and cash equivalents at June 30, 2022, included approximately USD $4.8 million of cash held in countries with currency control restrictions, which limit our ability to transfer funds outside of the country in which they are held. The currency control restricted cash is generally available for use within the country where it is held.

During the second quarter of 2022, we decided to wind down and liquidate our sole Russian subsidiary, as well as its direct Russian operations, which consisted of marketing and selling diagnostic products for veterinary clinics in Russia. As a result of this decision, we adopted the liquidation basis of accounting for this subsidiary. Substantially all assets other than cash were fully impaired because we believe the carrying amounts are not recoverable. We also accrued estimated costs that we expect to incur through the end of liquidation. These adjustments are not material to our balance sheet and are recorded as operating activities in our unaudited condensed consolidated statements of cash flow. Our direct Russian operations were not material to our financial statements and are not considered discontinued operations.

The following table presents additional key information concerning working capital:


		For the Three Months Ended						For the Three Months Ended
		September 30, 2021	June 30, 2021	March 31, 2021	December 31, 2020	September 30, 2020		June 30, 2022	March 31, 2022	December 31, 2021	September 30, 2021	June 30, 2021

Days sales outstanding (1)	Days sales outstanding (1)	42.7	42.2	41.8	42.2	41.5	Days sales outstanding (1)	43.2	42.0	42.4	42.7	42.2
Inventory turns (2)	Inventory turns (2)	1.9	2.1	2.0	2.1	1.9	Inventory turns (2)	1.5	1.6	2.0	1.9	2.1

(1) Days sales outstanding represents the average of the accounts receivable balances at the beginning and end of each quarter divided by revenue for that quarter, the result of which is then multiplied by 91.25 days.

(2) Inventory turns represent inventory-related cost of product revenue for the 12 months preceding each quarter-end divided by the average inventory balances at the beginning and end of each quarter.

48The decrease in inventory turns over the current year is a result of larger inventory on-hand, as we have increased inventory to sustain levels of product availability, as well as higher inventory related to our new ProCyte One analyzer.

Sources and Uses of Cash

The following table presents cash provided (used):


		For the Nine Months Ended September 30,							For the Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		Dollar Change		(in thousands)	2022		2021		Dollar Change

Net cash provided by operating activities	Net cash provided by operating activities	$	545,582	$	429,129	$	116,453	Net cash provided by operating activities	$	180,556	$	358,377	$	(177,821)
Net cash used by investing activities	Net cash used by investing activities	(248,927)		(93,686)		(155,241)		Net cash used by investing activities	(96,924)		(199,250)		102,326
Net cash used by financing activities	Net cash used by financing activities	(531,594)		(248,814)		(282,780)		Net cash used by financing activities	(105,387)		(309,868)		204,481
Net effect of changes in exchange rates on cash	Net effect of changes in exchange rates on cash	(3,786)		(1,368)		(2,418)		Net effect of changes in exchange rates on cash	(8,337)		(1,053)		(7,284)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	(238,725)	$	85,261	$	(323,986)	Net change in cash and cash equivalents	$	(30,092)	$	(151,794)	$	121,702

Operating Activities. The ~~increase~~decrease in cash provided by operating activities of ~~$116.5~~$177.8 million was driven primarily by ~~an increase~~a decrease in net income ~~partially offset by~~as a result of research and development investments, and changes in other assets and ~~liabilities.~~liabilities, as well as inventory. The following table presents cash flow impacts from changes in operating assets and liabilities:


		For the Nine Months Ended September 30,							For the Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		Dollar Change		(in thousands)	2022		2021		Dollar Change

Accounts receivable	Accounts receivable	$	(49,050)	$	(72,409)	$	23,359	Accounts receivable	$	(53,794)	$	(50,721)	$	(3,073)
Inventories	Inventories	(46,891)		(25,091)		(21,800)		Inventories	(49,349)		(20,412)		(28,937)
Accounts payable	Accounts payable	637		512		125		Accounts payable	(6,735)		3,812		(10,547)
Deferred revenue	Deferred revenue	(7,487)		(10,433)		2,946		Deferred revenue	(2,344)		(5,037)		2,693
Other assets and liabilities	Other assets and liabilities	(51,961)		30,579		(82,540)		Other assets and liabilities	(94,729)		(55,162)		(39,567)
Total change in cash due to changes in operating assets and liabilities	Total change in cash due to changes in operating assets and liabilities	$	(154,752)	$	(76,842)	$	(77,910)	Total change in cash due to changes in operating assets and liabilities	$	(206,951)	$	(127,520)	$	(79,431)

Cash used increased due to changes in operating assets and liabilities during the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to the same period in the prior year, ~~increased~~ by approximately ~~$77.9~~$79.4 million. The increase in use of cash for other assets and liabilities in the current year was primarily due to higher payroll and income tax payments, as well as higher incentive payments in 2021, as compared to 2020, and higher investments in customer volume commitment programs to support instrument placements. Additionally, the prior year included a non-cash operating expense related to an ongoing litigation matter. The decrease in cash used by accounts receivable over the same prior-year period was due to the timing of revenue within the prior year, as sales volumes rebounded due to pent-up demand from the beginning of the COVID-19 pandemic. Cash used ~~to purchase~~for inventory in the current period, as compared to the prior period, was higher primarily ~~due to higher inventory levels~~ to support increasing demand, and to mitigate potential supply-chain ~~shortages.~~impacts. The increase of cash used for other asset and liabilities was primarily due to payroll timing and lower non-cash operating expenses recorded as accrued liabilities, as compared to the same period in the prior year.

We have historically experienced proportionally lower net cash flows from operating activities during the first quarter and proportionally higher cash flows from operating activities for the remainder of the year driven primarily by payments related to annual employee incentive programs in the first quarter following the year for which the bonuses were earned.

During the second quarter of 2022, we entered into two arrangements to license intellectual property. Under one arrangement we paid $45.0 million and expect to issue subsequent milestone payments during 2022 of $10.0 million. Under the second arrangement, we paid $25.0 million for an equity investment and $5.0 million for license rights, with expected

subsequent milestone payments of $20.0 million. The $25 million paid for the equity investment is reflected in investing activities, while the $50 million paid during the quarter to license intellectual property is reflected in operating activities.

Investing Activities. Cash used by investing activities was ~~$248.9~~$96.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$93.7~~$199.3 million for the same period in the prior year. The ~~increase~~decrease in cash used by investing activities was primarily due to ~~business acquisitions~~the acquisition of ezyVet in the ~~current~~prior year, partially offset by ~~higher purchases~~an equity investment and the acquisition of ~~property and equipment in~~an intangible asset during the ~~prior year.~~second quarter of 2022.

Our outlook for full year capital spending is approximately ~~$150.0~~$180.0 million for ~~2021.~~2022.

Financing Activities. Cash used by financing activities was ~~$531.6~~$105.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$248.8~~$309.9 million of cash used for the same period in the prior year. The ~~increase~~decrease in cash used by financing activities was due to ana $537.5 million increase in borrowings under our Credit Facility, partially offset by $252.3 million in additional repurchases of our common stock in the current period as compared to the same period in the prior ~~year when we suspended repurchases due to the COVID-19 pandemic.~~year. Cash was also used to pay off our ~~$50.0~~$75.0 million ~~2021~~2022 Series A Notes when due and payable on ~~July 21, 2021. During the first nine months of 2020, the repayments on our Credit Facility, partly offset by issuance of Senior Notes, used approximately $89.6 million in cash.~~February 14, 2022.

Cash used to repurchase shares of our common stock increased ~~$319.2~~$252.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. We believe that the repurchase of our common stock is a favorable means of returning value to our

stockholders, and we also repurchase our stock to offset the dilutive effect of our share-based compensation programs. Repurchases of our common stock may vary depending upon the level of other investing activities and the share price. ~~See~~Refer to Note 12 to the unaudited condensed consolidated financial statements in Part I. Item 1. of this Quarterly Report on Form 10-Q for additional information about our share repurchases.

~~There was no net activity under~~Under our Credit Facility, the net borrowing activity during the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$289.6 million of net repayments in~~ the same period ofin the prior ~~year. At September~~year, increased $537.5 million. As of June 30, ~~2021,~~2022, we had no$611.0 million outstanding borrowings under the Credit Facility. The obligations under our Credit Facility may be accelerated upon the occurrence of an event of default under the Credit Facility, which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency-related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under the Employee Retirement Income Security Act of 1974 (“ERISA”), the failure to pay specified indebtedness, cross-acceleration to specified indebtedness, and a change of control default.

The Credit Agreement contains affirmative, negative, and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates, certain restrictive agreements, and ~~sanctions~~violations of laws and regulations. The financial covenant is a consolidated leverage ratio test.

On ~~July 21, 2021,~~February 2022, we paid off our ~~$50.0~~$75.0 million ~~2021~~2022 Series A Notes with cash provided by ~~operations. The aggregate principal amounts of our 2022 Series A Notes for $75.0 million will become due~~operations and ~~payable on February 12, 2022. We anticipate paying off our 2022 Series A Notes when due and payable with cash provided by operations.~~financing activity. Should we elect to prepay any of our senior notes, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Senior Note Agreements. Additionally, in the event of a change in control of the Company or upon the disposition of certain assets of the Company the proceeds of which are not reinvested (as defined in the Senior Note Agreements), we may be required to prepay all or a portion of the senior notes. The obligations under the senior notes may be accelerated upon the occurrence of an event of default under the applicable Senior Note Agreements, each of which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency-related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under ERISA, the failure to pay specified indebtedness, and cross-acceleration to specified indebtedness.

Effect of Currency Translation on Cash. The net effect of changes in foreign currency exchange rates is related to changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries. These changes will fluctuate for each period presented as the value of the U.S. dollar relative to the value of foreign currencies changes. A currency’s value depends on many factors, including interest rates and the country’s debt levels and strength of economy.

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements or variable interest entities, except for letters of credit and third party guarantees.

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Financial Covenant. The sole financial covenant of our Credit Facility and Senior Note Agreements is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation and amortization, non-recurring transaction expenses incurred in connection with acquisitions, share-based compensation expense, and certain other non-cash losses and charges (“Adjusted EBITDA”) not to exceed 3.5-to-1. ~~At September~~As of June 30, ~~2021,~~2022, we were in compliance with such covenant. The following details our consolidated leverage ratio calculation:


(in thousands)	Twelve ~~months~~Months ended
Trailing 12 Months Adjusted EBITDA:	~~September~~June 30, ~~2021~~2022

Net income attributable to stockholders (as reported)	$	~~756,864~~663,950
Interest expense	~~30,159~~29,924
Provision for income taxes	~~131,176~~159,514
Depreciation and amortization	~~101,462~~108,795
Acquisition-related expense	~~2,324~~3,008
Share-based compensation expense	~~35,985~~42,786
Extraordinary and other non-recurring non-cash charges	~~5,656~~1,353
Adjusted EBITDA	$	~~1,063,626~~1,009,330

(dollars in thousands)
Debt to Adjusted EBITDA Ratio:	~~September~~June 30, ~~2021~~2022

Line of credit	$	—611,000
Current and long-term portions of long-term debt	~~853,015~~767,995
Total debt	~~853,015~~1,378,995
Acquisition-related contingent consideration payable	~~7,348~~7,144
Financing leases	178
Deferred financing costs	~~541~~456
Gross debt	$	~~860,921~~1,386,603
Gross debt to Adjusted EBITDA ratio	~~0.81~~1.37

Less: Cash and cash equivalents	$	~~145,203~~114,362
Net debt	$	~~715,718~~1,272,241
Net debt to Adjusted EBITDA ratio	~~0.67~~1.26

Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio, and net debt to Adjusted EBITDA ratio are non-GAAP financial measures which should be considered in addition to, and not as a replacement for, financial measures presented according to U.S. GAAP. Management believes that reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility.

Other Commitments, Contingencies and Guarantees

Significant commitments, contingencies, and guarantees ~~at September~~as of June 30, ~~2021,~~2022, are described in Note 16 to the unaudited condensed consolidated financial statements in Part I. Item 1. of this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting us, ~~see~~refer to the section under the heading “Part II. Item 7A. Quantitative and Qualitative Disclosure About Market Risk” of our ~~2020~~2021 Annual Report. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the market risks described in our ~~2020~~2021 Annual Report, except for the impact of foreign exchange rates, as discussed below.

Foreign Currency Exchange Impacts. Approximately 21% and 22% of our consolidated revenue was derived from products manufactured in the U.S. and sold internationally in local currencies for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, as compared to ~~21%~~22% and 23% for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021, respectively. Strengthening of the U.S. dollar exchange rate relative to other currencies has a negative impact on our revenues derived in currencies other than the U.S. dollar and on profits of products manufactured in the U.S. and sold internationally, and a weakening of the U.S. dollar has the opposite effect. Similarly, to the extent that the U.S. dollar is stronger in current or future periods relative to the exchange rates in effect in the corresponding prior periods, our growth rate will be negatively affected. The impact of foreign currency denominated costs and expenses and foreign currency denominated supply contracts partly offsets this exposure. Additionally, our designated hedges of intercompany inventory purchases and sales help delay the impact of certain exchange rate fluctuations on non-U.S. dollar denominated revenues.

Our foreign currency exchange impacts are comprised of three components: 1) local currency revenues and expenses; 2) the impact of hedge contracts; and 3) intercompany and monetary balances for our subsidiaries that are denominated in a currency that is different from the functional currency used by each subsidiary. Based on projected revenues and expenses for the remainder of ~~2021,~~2022, excluding the impact of intercompany and trade balances denominated in currencies other than the functional subsidiary currencies, we project a 1% strengthening of the U.S. dollar would reduce revenue by approximately $3$5 million and operating income by approximately ~~$1.5~~$3 million. Additionally, we project our foreign currency hedge contracts in place as of ~~September~~June 30, ~~2021,~~2022, would result in incremental offsetting gains of approximately ~~$0.5 million.~~$1 million in operating income. The impact of the intercompany and trade balances, and monetary balances referred to in the third component above have been excluded, as they are transacted at multiple times during the year and we are not able to reliably forecast the impact that changes in exchange rates would have on such balances.

At our current foreign currency exchange rate assumptions, we anticipate the effect of a stronger U.S. dollar for the remainder of the year, as compared to the respective prior-year period, will have a unfavorable impact on our operating results by decreasing our revenues, operating profit, and diluted earnings per share for the remainder of the year ending December 31, ~~2021,~~2022, by approximately $6$69 million, $2$13 million, and ~~$0.02~~$0.12 per share, respectively. This unfavorable year-over-year currency impact includes foreign currency hedging activity, which is expected to increase our total ~~Company~~ operating profit by approximately ~~$1.5~~$20 million and ~~$0.01~~$0.18 per share for the remainder of the year ended December 31, ~~2021.~~2022. The actual impact of changes in the value of the U.S. dollar against foreign currencies in which we transact may materially differ from our expectations described above. The above estimates assume that the value of the U.S. dollar will reflect the euro at ~~1.14,~~$1.00, the British pound at ~~1.34,~~$1.18, the Canadian dollar at ~~0.79,~~$0.76, and the Australian dollar at ~~0.73;~~$0.67; and the Japanese yen at ~~¥115,~~¥139, the Chinese renminbi at RMB ~~6.52~~6.79, and the Brazilian real at R$~~5.59~~5.40 relative to the U.S. dollar for the remainder of ~~2021.~~

2022.

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The following table presents the estimated foreign currency exchange impact on our revenues, operating profit, and diluted earnings per share for the current period and as compared to the respective prior-year period:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2021		2020		2021		2020		(in thousands, except per share amounts)	2022		2021		2022		2021

Revenue impact	Revenue impact	$	6,760	$	4,867	$	51,474	$	(9,183)	Revenue impact	$	(27,597)	$	25,280	$	(42,661)	$	44,714

Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions	Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions	$	4,560	$	2,119	$	30,490	$	(4,490)	Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions	$	(14,769)	$	14,169	$	(22,708)	$	25,930
Hedge (losses) gains - current period		(1,583)		(591)		(6,728)		2,562
Exchange (losses) gains on settlements of foreign currency denominated transactions - current period		(838)		616		(1,762)		(492)
Hedge gains (losses) - current period										Hedge gains (losses) - current period	5,781		(2,715)		8,017		(5,145)
Exchange (losses) on settlements of foreign currency denominated transactions - current period										Exchange (losses) on settlements of foreign currency denominated transactions - current period	(832)		(854)		(1,607)		(924)
Operating profit impact - current period	Operating profit impact - current period	$	2,139	$	2,144	$	22,000	$	(2,420)	Operating profit impact - current period	$	(9,820)	$	10,600	$	(16,298)	$	19,861

Hedge losses (gains) - prior period	Hedge losses (gains) - prior period	591		(3,171)		(2,562)		(7,091)		Hedge losses (gains) - prior period	2,715		(1,812)		5,145		(3,153)
Exchange (gains) losses on settlement of foreign currency denominated transactions - prior period		(616)		1,007		492		1,548
Exchange losses (gains) on settlement of foreign currency denominated transactions - prior period										Exchange losses (gains) on settlement of foreign currency denominated transactions - prior period	854		(799)		924		1,108
Operating profit impact - as compared to prior period	Operating profit impact - as compared to prior period	$	2,114	$	(20)	$	19,930	$	(7,963)	Operating profit impact - as compared to prior period	$	(6,251)	$	7,989	$	(10,229)	$	17,816

Diluted earnings per share impact - as compared to prior period	Diluted earnings per share impact - as compared to prior period	$	0.02	$	—	$	0.18	$	(0.07)	Diluted earnings per share impact - as compared to prior period	$	(0.06)	$	0.07	$	(0.10)	$	0.16

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures, as defined by the SEC in its Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures ~~at September~~as of June 30, ~~2021,~~2022, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended ~~September~~June 30, ~~2021,~~2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Due to the nature of our activities, we are at times subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, based in part upon advice of legal counsel, the disposition of any such currently pending matters is not expected to have a material effect on our results of operations, financial condition, or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that our results of operations, financial condition, or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I. Item 1A. Risk Factors” in ~~this Quarterly Report on Form 10-Q and~~ our ~~2020~~2021 Annual Report, ~~as well as~~and the risk factor below, which supplements and should be read in conjunction with the risk factors disclosed in our ~~2020~~2021 Annual Report, any and all of which could materially affect our business, financial condition, or future results. Except as described below in this Item 1A., there have been no material changes from the risk factors previously disclosed in the ~~2020~~2021 Annual Report. The risks described below and in our ~~2020~~2021 Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

~~Future operating~~The current war in Ukraine may adversely affect our business, financial condition, and results ~~could be negatively affected by changes in tax rates, the adoption~~ of ~~new U.S. or international tax legislation or exposure to additional tax liabilities~~operations

~~The~~Since our business is global in nature, ~~of our global operations subjects us to local, state, regional~~political, economic, and ~~federal tax laws~~other conditions in ~~jurisdictions around the world. Our future tax expense could be affected by changes in the mix of earnings in~~foreign countries ~~with differing statutory tax rates, changes in the valuation of deferred tax assets~~ and liabilities or changes in tax laws or their interpretation. Additionally, tax rules governing cross-border activities are continually subject to modification as a result of coordinated actions by governments and organizationsregions, including geopolitical risks, such as the ~~Organization for Economic Cooperation~~current war between Russia and Development (“OECD”) and unilateral measures designed by individual countries, both intended to tackle concerns over base erosion and profit shifting and perceived international tax avoidance techniques.

In April 2021, the current U.S. administration proposed comprehensive corporate tax reforms, including (among other things) an increased tax rate and the promotion of a global minimum tax rate. In addition, in June 2021, finance leaders of the Group of Seven countries agreed to back a new global minimum tax rate that would apply regardless of headquarters location or physical presence, and in October 2021, 136 countries (including all Group of Twenty countries) agreed to the OECD’s global corporate tax reform plan, which would aim to modify the determination of taxable presence for digital activities and provide for a global minimum tax rate. Although it is uncertain whether some or all of these proposals will be enacted, a significant change in U.S. tax law, or that of other countries where we operate or have a presence,Ukraine, may ~~materially and~~ adversely ~~impact~~affect our ~~income tax liability, provision for income taxes, effective tax rate~~business, financial condition, and results of operations.

~~In addition, we have received a tax ruling~~Our operations in the Russia, Belarus and Ukraine region are limited. Our 2021 revenue from the ~~Netherlands that documents~~region represented less than 1% of our ~~mutual understanding of how existing tax laws apply to our circumstances. This ruling expires as of December 31, 2022,~~2021 consolidated revenue, and we have ~~been informed that it will not be renewed due to changes to the advance ruling policy~~no manufacturing or significant supply arrangement in the ~~Netherlands. While~~region. After significantly scaling back our operations in Russia in the ~~absence~~first quarter, including suspending sales of ~~an advance agreement does~~veterinary diagnostic equipment; promotional, marketing, and hiring activities; and new business development and related investments, we decided in June 2022, after careful consideration, to wind down and liquidate our sole Russian subsidiary, as well as our direct Russian operations, which consisted of marketing and selling diagnostic products for veterinary clinics in Russia.

After we conclude the wind-down of our direct Russian operations, we anticipate that only a limited number of our products, which are important for human or animal healthcare, will continue to be sold in Russia pursuant to ongoing third-party distribution agreements. Some of our products are also sold in Belarus pursuant to ongoing third-party distribution agreements. These limited operations in the region have been affected by sanctions and other economic, financial and export restrictions imposed by various governments. The broader consequences of this war, which may include further sanctions, embargoes, regional instability, potential retaliatory action by sanctioned governments against companies (including us), increased tensions between the United States and countries in which we operate, and the extent of the war’s effect on our business and results of operations, as well as the global economy, cannot be predicted.

In addition, this war may also heighten other risks disclosed in our 2021 Annual Report, any of which could materially and adversely affect our business, financial condition, and results of operations. Such risks include, but are not ~~preclude~~limited to, adverse effects on macroeconomic conditions, supply chain disruptions, fuel supply shortages and/or rationing, increased cyberattack and cybersecurity risks, adverse changes in international trade policies and relations, regulatory enforcement, our ability to ~~continue~~implement and execute our business strategy, our exposure to ~~apply existing tax laws~~foreign currency fluctuations, reputational risk, and volatility or disruption in the same manner as allowed by the existing ruling, the lack of such agreement creates uncertainty as to our future tax rate. Further, in September 2021, the Dutch Government published proposed legislation that would modify existing rules that, if enacted, could eliminate the benefits to which this ruling applies for fiscal years starting on or after January 1, 2022.

We continue to consider all of these developments within our overall tax strategy, including in connection with evaluating our corporate structure and intercompany relationships, and have taken, and may take further, actions intended to align our corporate structure and intercompany relationships with supporting our growth in international markets and maintaining operational and tax efficiency. These actions may increase our operating costs, and if ineffectual, could increase our income tax liabilities and our global effective tax rate.

Our income tax filings are regularly under audit by various tax authorities, and the final determination of tax audits could be materially different from that which is reflected in historical income tax provisions and accruals. Significant judgment is required in determining our worldwide provision for income taxes. We regularly assess our exposures related to our worldwide provision for income taxes to determine the adequacy of our provision for taxes. Any reduction in these contingent liabilities or additional assessments would increase or decrease income, respectively, in the period such determination is made.capital markets.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended ~~September~~June 30, ~~2021,~~2022, we repurchased shares of common stock as described below:

Period Total Number of Shares Purchased
(a) Average Price Paid per Share
(b)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
(c)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
(d)

July 1 to July 31, 2021 19,967 $ 648.57 19,967 5,637,143
August 1 to August 31, 2021 112,900 $ 676.08 112,625 5,524,518
September 1 to September 30, 2021 142,168 $ 665.06 141,695 5,382,823
Total 275,035 (2) 274,287 5,382,823

The total shares repurchased include shares surrendered for employee statutory tax withholding. See Note 12 to the unaudited condensed consolidated financial statements in Part I. Item 1. of this Quarterly Report on Form 10-Q for additional information about our share repurchases.


Period	Total Number of Shares Purchased (a)		Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (c)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) (d)

April 1 to April 30, 2022	159,346		$	498.22	159,346	4,330,474
May 1 to May 31, 2022	321,860		$	369.86	321,860	4,008,614
June 1 to June 30, 2022	327,272		$	351.62	327,131	3,681,483
Total	808,478	(2)			808,337	3,681,483

(1)On August 13, 1999, our Board of Directors approved and announced the repurchase of our common stock in the open market or in negotiated transactions pursuant to the Company’s share repurchase program. The authorization has been increased by the Board of Directors on numerous occasions; most recently, on February 12, 2020, the maximum level of shares that may be repurchased under the program was increased from 68 million to 73 million shares. There is no specified expiration date for this share repurchase program. There were no other repurchase programs outstanding during the three months ended ~~September~~June 30, ~~2021,~~2022, and no share repurchase programs expired during the period. There were ~~274,287~~808,337 share repurchases made during the three months ended ~~September~~June 30, ~~2021,~~2022, in transactions made pursuant to our share repurchase program.

(2)During the three months ended ~~September~~June 30, ~~2021,~~2022, we received ~~748~~141 shares of our common stock that were surrendered by employees in payment for the minimum required withholding taxes due on the vesting of restricted stock units and settlement of deferred stock units. In the above table, these shares are included in columns (a) and (b), but excluded from columns (c) and (d). These shares do not reduce the number of shares that may yet be purchased under the share repurchase program.

The total shares repurchased include shares surrendered for employee statutory tax withholding. Refer to Note 12 to the unaudited condensed consolidated financial statements in Part I. Item 1. of this Quarterly Report on Form 10-Q for additional information about our share repurchases.

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Item 6. Exhibits


Exhibit No.			Description


~~10.1~~3.2			~~Amendment No. 7 to U.S. Supply Agreement effective as~~Amended and Restated By-Laws of ~~July 9, 2019, among IDEXX Operations, Inc.,~~ the Company (filed as Exhibit No. 3.2 to Current Report on Form 8-K filed July 15. 2022, File No. 0-19271, and ~~Ortho-Clinical Diagnostics, Inc. (“Ortho”) (filed herewith).~~

~~10.2~~			~~Amendment No. 5 to European Supply Agreement effective as of July 9, 2019, among IDEXX Europe B.V., the Company and Ortho (filed herewith)~~incorporated herein by reference).

31.1			Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002..

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			The following financial and related information from IDEXX Laboratories, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2021,~~2022, formatted in Inline eXtensible Business Reportable Language (iXBRL) includes: (i) the Condensed Consolidated Balance Sheet; (ii) the Condensed Consolidated Statement of Income; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statement of Changes in Stockholders' Equity; (v) the Condensed Consolidated Statement of Cash Flows; and, (vi) Notes to Consolidated Financial Statements.

104			The cover page from the ~~Company's~~Company’s Quarterly Report ofon Form 10-Q for the quarter ended ~~September~~June 30, ~~2021,~~2022, formatted in Inline XBRL and contained in Exhibit 101.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			IDEXX LABORATORIES, INC.


			/s/ Brian P. McKeon
Date: ~~November~~August 2, ~~2021~~2022			Brian P. McKeon
			Executive Vice President, Chief Financial Officer and Treasurer
			(Principal Financial Officer)

5860


(in thousands)	For the Nine Months Ended September 30, 2021		For the Nine Months Ended September 30, 2020

Cash paid for amounts included in the measurement of operating leases liabilities	$	17,232	$	14,619
Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations (a)	$	33,052	$	17,064


	For the Nine Months Ended September 30, 2021
			Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax		Unrealized (Loss) Gain on Net Investment Hedges, Net of Tax
(in thousands)	Unrealized Gain (Loss) on Investments, Net of Tax		Foreign Currency Exchange Contracts		Euro-Denominated Notes		Cross Currency Swaps		Cumulative Translation Adjustment		Total

Balance as of December 31, 2020	$	(272)	$	(9,934)	$	(5,982)	$	(2,159)	$	(35,268)	$	(53,615)
Other comprehensive income (loss) before reclassifications	153		7,300		4,235		4,561		(20,213)		(3,964)
Loss reclassified from accumulated other comprehensive income	—		5,522		—		—		—		5,522
Balance as of September 30, 2021	$	(119)	$	2,888	$	(1,747)	$	2,402	$	(55,481)	$	(52,057)


(in thousands)	Affected Line Item in the Statements of Income	Amounts Reclassified from AOCI For the Nine Months Ended September 30,
		2021		2020
Gain (loss) on derivative instruments classified as cash flow hedges included in net income:
Foreign currency exchange contracts	Cost of revenue	$	(6,728)	$	2,562
	Tax expense (benefit)	(1,206)		526
	Gain (loss), net of tax	$	(5,522)	$	2,036


(in thousands)
As of September 30, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2021

Assets
Money market funds (1)	$	76	$	—	$	—	$	76
Equity mutual funds (2)	$	913	$	—	$	—	$	913
Cross currency swaps (3)	$	—	$	3,158	$	—	$	3,158
Foreign currency exchange contracts (3)	$	—	$	5,075	$	—	$	5,075
Liabilities

Foreign currency exchange contracts (3)	$	—	$	1,698	$	—	$	1,698
Deferred compensation (4)	$	913	$	—	$	—	$	913
Contingent payments - acquisitions	$	—	$	—	$	5,230	$	5,230


(in thousands)
As of December 31, 2020	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2020

Assets
Money market funds (1)	$	76	$	—	$	—	$	76
Equity mutual funds (2)	$	1,145	$	—	$	—	$	1,145
Foreign currency exchange contracts (3)	$	—	$	125	$	—	$	125
Liabilities
Cross currency swaps (3)	$	—	$	2,841	$	—	$	2,841
Foreign currency exchange contracts (3)	$	—	$	12,373	$	—	$	12,373
Deferred compensation (4)	$	1,145	$	—	$	—	$	1,145



(in thousands)		Three Months Ended September 30,
		2021		2020

Financial statement line items in which effects of cash flow hedges are recorded	Cost of revenue	$	337,500	$	299,183
Foreign exchange contracts
Amount of (loss) gain reclassified from accumulated other comprehensive income into income		$	(1,583)	$	(591)