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 March 31, ~~2022~~2023

☐ 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 ~~84,007,233,~~83,004,936 on April ~~29, 2022.~~25, 2023.

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 / 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 $1.25 billion five-year unsecured credit facility under an amended and restated credit agreement; consisting of i) $1 billion ~~unsecured~~ revolving credit facility, also referred to as line of ~~credit.~~credit, and ii) $250 million three-year term loan.
Clinical visits			The reason for the visit involves an interaction between a clinician and a ~~pet.~~pet
FASB			U.S. Financial Accounting Standards Board
LIBOR			London Interbank Offered-Rate
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 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 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~~
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
SOFR			The secured overnight financing rate as administered by the Federal Reserve Board of New York (or a successor administrator of the secured overnight financing rate)
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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2830
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4244
Item 4.	Controls and Procedures	4445
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	4546
Item 1A.	Risk Factors	4546
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4647
Item 6.	Exhibits	4748
Signatures		4849

PART I— FINANCIAL INFORMATION

Item 1. Financial ~~Statements.~~Statements

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022

ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	204,618	$	144,454	Cash and cash equivalents	$	111,367	$	112,546
Accounts receivable, net	Accounts receivable, net	402,235		368,348		Accounts receivable, net	446,025		400,619
Inventories	Inventories	301,638		269,030		Inventories	391,011		367,823
Other current assets	Other current assets	181,281		173,823		Other current assets	201,043		220,489
Total current assets	Total current assets	1,089,772		955,655		Total current assets	1,149,446		1,101,477
Long-Term Assets:	Long-Term Assets:					Long-Term Assets:
Property and equipment, net	Property and equipment, net	593,457		587,667		Property and equipment, net	665,439		649,474
Operating lease right-of-use assets	Operating lease right-of-use assets	107,736		105,101		Operating lease right-of-use assets	115,060		118,618
Goodwill	Goodwill	360,968		359,345		Goodwill	362,942		361,795
Intangible assets, net	Intangible assets, net	105,188		99,035		Intangible assets, net	94,361		97,672
Other long-term assets	Other long-term assets	335,568		330,400		Other long-term assets	421,150		417,729
Total long-term assets	Total long-term assets	1,502,917		1,481,548		Total long-term assets	1,658,952		1,645,288
TOTAL ASSETS	TOTAL ASSETS	$	2,592,689	$	2,437,203	TOTAL ASSETS	$	2,808,398	$	2,746,765

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	120,881	$	116,140	Accounts payable	$	117,709	$	110,221
Accrued liabilities	Accrued liabilities	409,555		458,909		Accrued liabilities	403,595		433,662
Line of credit		400,000		73,500
Credit facility						Credit facility	431,500		579,000
Current portion of long-term debt	Current portion of long-term debt	—		74,996		Current portion of long-term debt	74,986		74,982
Current portion of deferred revenue	Current portion of deferred revenue	40,905		40,034		Current portion of deferred revenue	37,839		37,938
Total current liabilities	Total current liabilities	971,341		763,579		Total current liabilities	1,065,629		1,235,803
Long-Term Liabilities:	Long-Term Liabilities:					Long-Term Liabilities:
Deferred income tax liabilities	Deferred income tax liabilities	7,461		8,935		Deferred income tax liabilities	5,826		8,150
Long-term debt, net of current portion	Long-term debt, net of current portion	773,381		775,205		Long-term debt, net of current portion	696,362		694,387
Long-term deferred revenue, net of current portion	Long-term deferred revenue, net of current portion	39,229		41,174		Long-term deferred revenue, net of current portion	30,439		30,862
Long-term operating lease liabilities	Long-term operating lease liabilities	89,631		87,377		Long-term operating lease liabilities	98,177		101,239
Other long-term liabilities	Other long-term liabilities	71,848		70,941		Other long-term liabilities	70,864		67,587
Total long-term liabilities	Total long-term liabilities	981,550		983,632		Total long-term liabilities	901,668		902,225
Total liabilities	Total liabilities	1,952,891		1,747,211		Total liabilities	1,967,297		2,138,028

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

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,003 shares in 2022 and 106,878 shares in 2021; Outstanding: 84,164 shares in 2022 and 84,562 shares in 2021		10,700		10,688
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,321 shares in 2023 and 107,193 shares in 2022; Outstanding: 83,004 shares in 2023 and 82,894 shares in 2022						Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,321 shares in 2023 and 107,193 shares in 2022; Outstanding: 83,004 shares in 2023 and 82,894 shares in 2022	10,732		10,719
Additional paid-in capital	Additional paid-in capital	1,400,025		1,377,320		Additional paid-in capital	1,489,903		1,463,215
Deferred stock units: Outstanding: 90 units in 2022 and 90 units in 2021		5,765		5,719
Deferred stock units: Outstanding: 58 units in 2023 and 58 units in 2022						Deferred stock units: Outstanding: 58 units in 2023 and 58 units in 2022	5,164		5,182
Retained earnings	Retained earnings	3,114,405		2,920,440		Retained earnings	3,813,583		3,599,529
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(47,348)		(53,484)		Accumulated other comprehensive loss	(76,615)		(77,796)
Treasury stock, at cost: 22,839 shares in 2022 and 22,317 shares in 2021		(3,843,749)		(3,570,691)
Treasury stock, at cost: 24,318 shares in 2023 and 24,299 shares in 2022						Treasury stock, at cost: 24,318 shares in 2023 and 24,299 shares in 2022	(4,401,666)		(4,392,112)
Total stockholders’ equity	Total stockholders’ equity	639,798		689,992		Total stockholders’ equity	841,101		608,737
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,592,689	$	2,437,203	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,808,398	$	2,746,765

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 March 31,					For the Three Months Ended March 31,
		2022		2021			2023		2022

Revenue:	Revenue:					Revenue:
Product revenue	Product revenue	$	478,377	$	454,348	Product revenue	$	505,942	$	478,377
Service revenue	Service revenue	358,172		323,359		Service revenue	394,253		358,172
Total revenue	Total revenue	836,549		777,707		Total revenue	900,195		836,549
Cost of Revenue:	Cost of Revenue:					Cost of Revenue:
Cost of product revenue	Cost of product revenue	162,071		147,270		Cost of product revenue	173,610		162,071
Cost of service revenue	Cost of service revenue	175,725		159,655		Cost of service revenue	183,614		175,725
Total cost of revenue	Total cost of revenue	337,796		306,925		Total cost of revenue	357,224		337,796
Gross profit	Gross profit	498,753		470,782		Gross profit	542,971		498,753
Expenses:	Expenses:					Expenses:
Sales and marketing	Sales and marketing	132,292		114,811		Sales and marketing	147,804		132,292
General and administrative	General and administrative	77,949		70,770		General and administrative	70,101		77,949
Research and development	Research and development	40,168		37,579		Research and development	44,667		40,168
Income from operations	Income from operations	248,344		247,622		Income from operations	280,399		248,344
Interest expense	Interest expense	(6,996)		(7,584)		Interest expense	(13,127)		(6,996)
Interest income	Interest income	143		52		Interest income	416		143
Income before provision for income taxes	Income before provision for income taxes	241,491		240,090		Income before provision for income taxes	267,688		241,491
Provision for income taxes	Provision for income taxes	47,526		35,801		Provision for income taxes	53,634		47,526
Net income		193,965		204,289
Less: Net income attributable to noncontrolling interest		—		32
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders	$	193,965	$	204,257	Net income attributable to IDEXX Laboratories, Inc. stockholders	$	214,054	$	193,965

Earnings per Share:	Earnings per Share:					Earnings per Share:
Basic	Basic	$	2.30	$	2.39	Basic	$	2.58	$	2.30
Diluted	Diluted	$	2.27	$	2.35	Diluted	$	2.55	$	2.27
Weighted Average Shares Outstanding:	Weighted Average Shares Outstanding:					Weighted Average Shares Outstanding:
Basic	Basic	84,410		85,530		Basic	82,992		84,410
Diluted	Diluted	85,564		86,917		Diluted	83,959		85,564

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 March 31,
2022 2021
Net income $ 193,965 $ 204,289
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 3,277 (19,333)
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $439 in 2022 and $1,150 in 2021 1,409 3,648
Unrealized gain (loss) on investments, net of tax expense (benefit) of $(5) in 2022 and $46 in 2021 (17) 147
Unrealized gain (loss) on derivative instruments:
Unrealized gain on foreign currency exchange contracts, net of tax expense (benefit) of $1,436 in 2022 and $1,249 in 2021 2,097 4,415
Unrealized gain on cross currency swaps, net of tax expense (benefit) of $311 in 2022 and $1,043 in 2021 996 3,308
Reclassification adjustment for loss (gain) included in net income, net of tax benefit (expense) of $(610) in 2022 and $536 in 2021 (1,626) 1,894
Unrealized gain on derivative instruments 1,467 9,617
Other comprehensive gain (loss), net of tax 6,136 (5,921)
Comprehensive income 200,101 198,368
Less: Comprehensive income attributable to noncontrolling interest — 32
Comprehensive income attributable to IDEXX Laboratories, Inc. $ 200,101 $ 198,336
The accompanying notes are an integral part of these condensed consolidated financial statements.


	For the Three Months Ended March 31,
	2023		2022

Net income	$	214,054	$	193,965
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	4,258		3,277
Reclassification adjustment for benefit plans included in net income, net of tax of $20 in 2023 and $– in 2022	119		—
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $(465) in 2023 and $439 in 2022	(1,490)		1,409
Unrealized gain (loss) on investments, net of tax expense (benefit) of $2 in 2023 and $(5) in 2022	6		(17)
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on foreign currency exchange contracts, net of tax expense (benefit) of $(26) in 2023 and $1,436 in 2022	(209)		2,097
Unrealized gain (loss) on cross currency swaps, net of tax expense (benefit) of $(387) in 2023 and $311 in 2022	(1,240)		996
Unrealized (loss) on interest rate swap, net of tax (benefit) of $(14) in 2023 and $– in 2022	(45)		—
Reclassification adjustments for (gain) included in net income, net of tax benefit (expense) of $(117) in 2023 and $(610) in 2022	(218)		(1,626)
Unrealized gain (loss) on derivative instruments	(1,712)		1,467
Other comprehensive income, net of tax	1,181		6,136
Comprehensive income attributable to IDEXX Laboratories, Inc.	$	215,235	$	200,101

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		Total Stockholders’ Equity
Balance December 31, 2022	107,193	$	10,719	$	1,463,215	$	5,182	$	3,599,529	$	(77,796)	$	(4,392,112)	$	608,737
Net income		—		—		—		214,054		—		—		214,054
Other comprehensive income, net	—	—		—		—		—		1,181		—		1,181
Repurchases of common stock, net	—	—		—		—		—		—		(9,554)		(9,554)
Common stock issued under stock plans, including excess tax benefit	128	13		12,765		(25)		—		—		—		12,753
Share-based compensation cost	—	—		13,923		7		—		—		—		13,930
Balance March 31, 2023	107,321	$	10,732	$	1,489,903	$	5,164	$	3,813,583	$	(76,615)	$	(4,401,666)	$	841,101

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


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

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 Three Months Ended March 31,					For the Three Months Ended March 31,
		2022		2021			2023		2022

Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net income	Net income	$	193,965	$	204,289	Net income	$	214,054	$	193,965
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	26,511		25,057		Depreciation and amortization	28,331		26,511
Provision for credit losses	Provision for credit losses	2,092		186		Provision for credit losses	2,325		2,092
Deferred income taxes	Deferred income taxes	(5,028)		5,244		Deferred income taxes	(3,757)		(5,028)
Share-based compensation expense	Share-based compensation expense	11,173		8,875		Share-based compensation expense	13,930		11,173
Other	Other	235		333		Other	(362)		235
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(37,531)		(54,735)		Accounts receivable	(44,133)		(37,531)
Inventories	Inventories	(18,854)		(7,919)		Inventories	(23,887)		(18,854)
Other assets and liabilities	Other assets and liabilities	(52,904)		(57,081)		Other assets and liabilities	(5,307)		(52,904)
Accounts payable	Accounts payable	(4,016)		2,460		Accounts payable	3,327		(4,016)
Deferred revenue	Deferred revenue	(937)		(2,287)		Deferred revenue	(609)		(937)
Net cash provided by operating activities	Net cash provided by operating activities	114,706		124,422		Net cash provided by operating activities	183,912		114,706
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	(31,838)		(20,163)		Purchases of property and equipment	(39,511)		(31,838)
Acquisition of intangible assets	Acquisition of intangible assets	(10,000)		—		Acquisition of intangible assets	—		(10,000)
Acquisitions of a business, net of cash acquired		—		(4,424)
Net cash used by investing activities	Net cash used by investing activities	(41,838)		(24,587)		Net cash used by investing activities	(39,511)		(41,838)
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
Borrowings under revolving credit facility, net		326,500		—
(Repayments) borrowings under credit facility, net						(Repayments) borrowings under credit facility, net	(147,500)		326,500
Payment of senior debt	Payment of senior debt	(75,000)		—		Payment of senior debt	—		(75,000)
Payments of acquisition-related holdbacks						Payments of acquisition-related holdbacks	(1,780)		—
Repurchases of common stock, net	Repurchases of common stock, net	(266,295)		(132,262)		Repurchases of common stock, net	—		(266,295)
Proceeds from exercises of stock options and employee stock purchase plans	Proceeds from exercises of stock options and employee stock purchase plans	11,653		17,594		Proceeds from exercises of stock options and employee stock purchase plans	12,796		11,653
Shares withheld for statutory tax withholding payments on restricted stock	Shares withheld for statutory tax withholding payments on restricted stock	(10,338)		(14,983)		Shares withheld for statutory tax withholding payments on restricted stock	(9,597)		(10,338)
Net cash used by financing activities	Net cash used by financing activities	(13,480)		(129,651)		Net cash used by financing activities	(146,081)		(13,480)
Net effect of changes in exchange rates on cash	Net effect of changes in exchange rates on cash	776		(2,949)		Net effect of changes in exchange rates on cash	501		776
Net increase (decrease) in cash and cash equivalents		60,164		(32,765)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(1,179)		60,164
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	144,454		383,928		Cash and cash equivalents at beginning of period	112,546		144,454
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	204,618	$	351,163	Cash and cash equivalents at end of period	$	111,367	$	204,618

Supplemental Cash Flow Information:	Supplemental Cash Flow Information:					Supplemental Cash Flow Information:
Cash paid for income taxes	Cash paid for income taxes	$	11,400	$	12,171	Cash paid for income taxes	$	7,200	$	11,400
Unpaid property and equipment, reflected in accounts payable and accrued liabilities	Unpaid property and equipment, reflected in accounts payable and accrued liabilities	$	11,016	$	6,592	Unpaid property and equipment, reflected in accounts payable and accrued liabilities	$	12,453	$	11,016

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 as of December 31, ~~2021,~~2022, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, ~~2022,~~2023, 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 March 31, ~~2022,~~2023, and our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, (the ~~“2021~~“2022 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 months ended March 31, ~~2022,~~2023, are consistent with those discussed in ~~Note~~“Note 2. Summary of Significant Accounting ~~Policies~~Policies” to the consolidated financial statements in our ~~2021~~2022 Annual Report, ~~except~~and as ~~noted~~updated below.

Accounts Payable - Supplier Financing Program

We have an agreement with a third party to provide a supplier finance program, which facilitates participating suppliers’ ability to finance payment obligations from us with a designated third-party financial institution. Participating suppliers may, at their sole discretion, make offers to finance one or more of our payment obligations prior to their scheduled due dates at a discounted price. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under these arrangements. The terms of payments are in-line with the terms of our trade payables. The amount of payment obligations outstanding at the end of December 31, 2022, was $10.2 million. The roll-forward of our outstanding payment obligations under this arrangement, which are included in accounts payable on the unaudited condensed consolidated balance sheets, are as follows:


(in thousands)	For the Three Months Ended March 31,
	2023		2022

Payment obligations outstanding at the beginning of the period	$	10,171	$	4,775
Payment obligations during the period	13,031		13,341
Payment obligation paid during the period	(15,666)		(12,752)
Payment obligations outstanding at the end of the period	$	7,536	$	5,364

New Accounting Pronouncements Adopted

~~None~~We adopted ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” as of January 1, 2023, which adds certain disclosure requirements for a buyer in a supplier finance program. The amendments in this update require that a buyer in a supplier finance program discloses sufficient information about the program to allow a user of financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude.

~~New Accounting Pronouncements Not Yet Adopted~~

~~In October 2021, the FASB issued~~We adopted ASU 2021-08, “Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract ~~Liabilities.~~Liabilities,” as of January 1, 2023. 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 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. Our 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 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~~where customers purchase 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 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 general payment terms ~~generally~~ range from 30 to 60 days, with exceptions in certain geographies.

Contracts may be amended to account for ~~certain individual customers~~changes in contract specifications and ~~geographies.~~ requirements. Contract modifications exist when the amendment either creates new, or changes existing, enforceable rights and obligations. A modification is considered to be a separate contract, and revenue is recognized prospectively, when the modification creates new performance obligations to deliver additional goods or services and the related increase in consideration approximates the standalone selling price for the additional goods or services. If a contract modification does not create a new performance obligation to deliver new goods and/or services but the goods and/or services to be delivered after the contract modification date are distinct from the goods and/or services delivered on or before the contract modification date, then this contract modification is not accounted for as a separate contract, and we account for the goods and/or services to be delivered after the contract modification date prospectively. We account for a contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. The effect that these contract modifications have on the transaction price, and on our measure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment to revenue at the date of the contract modification, with the adjustment to revenue made on a cumulative catch-up basis.

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.

Laboratory Diagnostic and Consulting Services. Laboratory diagnostic and consulting services revenues are recognized and invoiced when the laboratory diagnostic service is 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 multi-year agreements to purchase ~~specified~~annual minimum amounts of ~~consumables, which are considered~~consumables. These types of agreements include an embedded ~~leases.~~lease for the right to use our instruments. 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 $4.5 million for the three months ended March 31, 2023, as compared to $5.0 million for the three months ended March 31, 2022, ~~as compared to $4.8 million for the three months ended March 31, 2021,~~ 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. 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~~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~~time-elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

On December 31, ~~2021,~~2022, our deferred revenue related to extended warranties and post-contract support was ~~$30.0~~$26.4 million, of which approximately ~~$14.7~~$15.1 million ~~was~~were recognized during the three months ended March 31, ~~2022.~~2023. Furthermore, as a result of new agreements, our deferred revenue related to extended warranties and post-contract support w~~as $28.9~~was $26.3 million as of March 31, ~~2022.~~2023. 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~~Deferred revenue related to extended warranties and post-contract support with an original duration of more than one year was ~~$14.4~~$10.2 million as of March 31, ~~2022,~~2023, of which approximately ~~38%~~36%, 34%, 17%, 6%8%, and 5% are expected to be recognized during the remainder of ~~2022,~~2023, the full years ~~2023,~~ 2024, 2025, 2026, 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 ezyVet®, Animana®, Neo®, Cornerstone® Cloud, Pet Health Network® Pro, Petly® Plans, Web PACS, rVetLink®, and Smart Flow™. 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~~promised product or service 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~~that 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 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 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 timing and amount of revenue recognition.

On December 31, ~~2021,~~2022, our capitalized customer acquisition costs were ~~$158.3~~$158.0 million, of which approximately ~~$12.7~~$13.4 million ~~was~~were recognized as a reduction of revenue during the three months ended March 31, ~~2022.~~2023. Furthermore, as a result of new up-front customer loyalty payments, net of subsequent recognition, our capitalized customer acquisition costs were ~~$157.0~~$158.9 million as of March 31, ~~2022.~~2023. 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 and revenue adjustments that relate to performance obligations satisfied in prior periods, ~~and~~including cumulative catch-up adjustments to revenue arising from contract modifications during the three months ended March 31, ~~2022,~~2023, were not material.

Volume Commitment Programs. Our volume commitment programs, such as our IDEXX 360 program, provide customers with a free or discounted ~~instrument~~instruments or ~~system~~systems 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 timing and amount of revenue recognition.

On December 31, ~~2021,~~2022, our volume commitment contract assets were ~~$159.9~~$190.8 million, of which approximately $~~9.2~~11.1 million ~~was~~were reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, ~~2022.~~2023. 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 volume commitment contract assets were ~~$172.6~~$198.9 million as of March 31, ~~2022.~~2023. 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 and revenue adjustments that relate to performance obligations satisfied in prior periods, ~~and~~including cumulative catch-up adjustments to revenue arising from contract modifications during the three months ended March 31, ~~2022,~~2023, 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 $3.0 billion, of which approximately ~~20%~~22%, ~~25%~~26%, 21%, ~~16%~~17%, and ~~18%~~14% are expected to be recognized during the remainder of ~~2022,~~2023, the full years ~~2023,~~ 2024, 2025, 2026, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied, for which customers have committed to

~~purchase goods and services,~~ future purchases, 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 subsequently recognized upon the purchase of ~~future~~ products and services, ~~partially~~partly offsetting ~~future~~ rebates as they are earned.

On December 31, ~~2021,~~2022, our deferred revenue related to instrument rebate programs was ~~$33.0~~$25.6 million, of which approximately $~~3.4~~2.6 million ~~was~~were recognized when customers purchased eligible products and services and earned rebates during the three months ended March 31, ~~2022.~~2023. Furthermore, as a result of new instrument purchases under rebate programs, net of subsequent recognition, our deferred revenue was ~~$31.1~~$24.9 million as of March 31, ~~2022,~~2023, of which approximately 28%, ~~28%~~27%, ~~19%~~20%, ~~13%~~14%, and ~~12%~~11% are expected to be recognized during the remainder of ~~2022,~~2023, the full years ~~2023,~~ 2024, 2025, 2026, 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, ~~2021,~~2022, our lease receivable assets were ~~$15.3~~$18.4 million, of which approximately ~~$0.8~~$1.1 million ~~was~~were reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, ~~2022.~~2023. 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 ~~$16.1~~$20.3 million as of March 31, ~~2022.~~2023. The impacts of discounting and unearned income as of March 31, ~~2022~~2023 were not material. Profit and loss recognized at the commencement date and interest income during the three months ended March 31, ~~2022,~~2023, 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 months ended March 31, ~~2022~~2023 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 months ended March 31, ~~2022,~~2023, we transferred instruments of ~~$3.0~~$3.8 million, as compared to ~~$2.5~~$3.0 million for the three months ended March 31, ~~2021,~~2022, from inventory to property and equipment.

We estimate future revenue to be recognized related to our reagent rental programs of approximately ~~$37.2~~$43.5 million, of which approximately 21%, 25%, ~~28%, 22%~~21%, 15%, and ~~10%~~18% are expected to be recognized during the remainder of ~~2022,~~2023, the full years ~~2023,~~ 2024, 2025, 2026, 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, including cumulative catch-up adjustment to revenue arising from contract modifications, during the three months ended March 31, ~~2022,~~2023, 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. WeConcentrations of credit risk with respect to accounts receivable are limited due to the large number of customers that purchase our products and services and 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~~during the three months ended March 31, ~~2022.~~2023.

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 requirements to be reported as a separate segment, we believe it is important to disaggregate these revenues as a major product and service category 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 March 31,				(in thousands)	For the Three Months Ended March 31,
		2022		2021			2023		2022
CAG segment revenue:	CAG segment revenue:					CAG segment revenue:
CAG Diagnostics recurring revenue:	CAG Diagnostics recurring revenue:	$	664,810	$	617,280	CAG Diagnostics recurring revenue:	$	726,902	$	664,810
IDEXX VetLab consumables	IDEXX VetLab consumables	267,173		246,092		IDEXX VetLab consumables	291,114		267,173
Rapid assay products	Rapid assay products	74,519		69,611		Rapid assay products	82,032		74,519
Reference laboratory diagnostic and consulting services	Reference laboratory diagnostic and consulting services	295,075		275,781		Reference laboratory diagnostic and consulting services	323,180		295,075
CAG Diagnostics services and accessories	CAG Diagnostics services and accessories	28,043		25,796		CAG Diagnostics services and accessories	30,576		28,043
CAG Diagnostics capital - instruments	CAG Diagnostics capital - instruments	36,997		31,190		CAG Diagnostics capital - instruments	33,144		36,997
Veterinary software, services and diagnostic imaging systems	Veterinary software, services and diagnostic imaging systems	59,377		44,297		Veterinary software, services and diagnostic imaging systems	67,233		59,377
CAG segment revenue	CAG segment revenue	761,184		692,767		CAG segment revenue	827,279		761,184

Water segment revenue	Water segment revenue	36,371		34,040		Water segment revenue	38,883		36,371
LPD segment revenue	LPD segment revenue	30,870		39,270		LPD segment revenue	29,208		30,870
Other segment revenue	Other segment revenue	8,124		11,630		Other segment revenue	4,825		8,124
Total revenue	Total revenue	$	836,549	$	777,707	Total revenue	$	900,195	$	836,549

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


(in thousands)	(in thousands)	For the Three Months Ended March 31,				(in thousands)	For the Three Months Ended March 31,
		2022		2021			2023		2022
United States	United States	$	525,906	$	472,638	United States	$	590,413	$	525,906
Europe, the Middle East and Africa	Europe, the Middle East and Africa	173,808		171,250		Europe, the Middle East and Africa	176,008		173,808
Asia Pacific Region	Asia Pacific Region	83,861		84,782		Asia Pacific Region	78,360		83,861
Canada	Canada	35,232		33,458		Canada	35,962		35,232
Latin America & Caribbean	Latin America & Caribbean	17,742		15,579		Latin America & Caribbean	19,452		17,742
Total revenue	Total revenue	$	836,549	$	777,707	Total revenue	$	900,195	$	836,549

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 ranges from 3 to 7 years, by taking into consideration our customer contract terms, history of renewals, and expected length of

customer relationship, ~~and~~, as well as 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, ~~2021,~~2022, our deferred commission costs, included within other assets, were ~~$19.5~~$19.2 million, of which approximately $1.7 million of commission expense was recognized during the three months ended March 31, ~~2022.~~2023. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, net of subsequent recognition, our deferred commission costs were ~~$19.4~~$19.3 million as of March 31, ~~2022.~~2023. Impairments of deferred commission costs during the three months ended March 31, ~~2022,~~2023, 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 and service lines. From time to time we may acquire small reference ~~laboratory~~laboratories or radiology practices that we account for as either asset purchases or business combinations.

Asset Purchases and Investments

During the first quarter of 2022 we made a ~~$10~~$10.0 million payment for a ~~fully paid-up,~~ perpetual intellectual property license, which will be amortized over 10 years. ~~This~~The related amortization ~~will be included~~expense is recorded in our CAG segment.

During the ~~fourth~~second quarter of ~~2021,~~2022, we entered into two discrete arrangements to license intellectual property for which we paid $65.0 million over the course of the 2022, and accrued $15.0 million in subsequent payments, all of which was charged to research and development expense. The $15.0 million milestone payment was made in the first quarter of 2023. These two 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.

During the second quarter of 2022 we purchased $25.0 million of preferred shares for a noncontrolling minority interest in one of the entities with which we have a license agreement. We elected to measure the investment as an equity security investment, under ASC 321, “Investment - Equity Securities,” and recorded the investment at cost.

Business Combinations

During the third quarter of 2022, we acquired the ~~shares~~assets of ~~a reference laboratory~~an international water testing company located in ~~Finland~~Canada for approximately ~~$13.4~~$12.8 million in cash, including a holdback of approximately ~~$1.4~~$1.3 million. This acquisition expands our ~~international reference laboratory presence and was accounted for as a business combination.~~product offering in the Water segment. The fair values of the assets and liabilities acquired ~~consist~~consists of ~~customer relationship~~technology intangibles of approximately ~~$7.4~~$3.4 million, with a life of 10 years; ~~a non-compete agreement~~customer relationship intangibles of approximately ~~$0.8~~$1.2 million, with a life of 310 years; approximately $6.9 million of goodwill, representing synergies ~~within~~with our ~~broader CAG~~Water testing portfolio; and approximately ~~$1.7~~$1.3 million ~~in net~~of tangible ~~liabilities,~~assets, including ~~deferred taxes associated with the acquired intangible assets.~~inventory and accounts receivable. Goodwill related to this acquisition is ~~not~~ 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~~Water segment since the acquisition date. The acquisition expenses were 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, approximately $1.8 million for goodwill, representing synergies within our broader CAG 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 months ended March 31, ~~2022,~~2023, totaled ~~$51.0~~$57.3 million, as compared to ~~$44.3~~$51.0 million for the three months ended March 31, ~~2021.~~2022. The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding as of March 31, ~~2022,~~2023, was ~~$98.7~~$106.6 million, which will be recognized over a weighted average period of approximately 1.9 years. During the three months ended March 31, ~~2022,~~2023, we recognized expenses of ~~$11.2~~$13.9 million, as compared to ~~$8.9~~$11.2 million for the three months ended March 31, ~~2021,~~2022, 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 Three Months Ended
March 31,
2022 2021

Share price at grant $ 505.53 $ 544.08
Share price at exercise $ 509.95 $ 548.15
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 $ 170.22 $ 168.35


	For the Three Months Ended March 31,
	2023			2022

Expected stock price volatility	32		%	30		%
Expected term, in years	6.7			6.4
Risk-free interest rate	3.7		%	2.0		%
Weighted average fair value of options granted	$	201.71		$	170.22

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 ~~$7.3~~$9.1 million and ~~$5.7~~$8.3 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. ~~Accounts~~The amount of accounts receivable reflected on the balance sheet is net of this reserve. Based on an aging analysis, as of March 31, ~~2022,~~2023, approximately ~~94%~~92% of our accounts receivable had not yet reached the invoice due date and approximately 6%8% was considered past due, of which ~~approximately 0.4%~~less than 1% was greater than 60 days past due. As of December 31, ~~2021,~~2022, approximately ~~90%~~86% of our accounts receivable had not yet reached the invoice due date and approximately ~~10%~~14% was considered past due, of which approximately ~~1.8%~~2% 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 ~~$4.8~~$5.8 million and ~~$4.4~~$5.5 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.

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)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Raw materials	Raw materials	$	73,599	$	60,427	Raw materials	$	101,952	$	92,796
Work-in-process	Work-in-process	27,297		26,397		Work-in-process	31,791		28,041
Finished goods	Finished goods	200,742		182,206		Finished goods	257,268		246,986
Inventories	Inventories	$	301,638	$	269,030	Inventories	$	391,011	$	367,823

NOTE 8. LEASES

Maturities of operating lease liabilities were as follows:


(in thousands, except lease term and discount rate)		March 31, 2022
(in thousands)				(in thousands)	March 31, 2023

2022 (remainder of year)		$	17,074
2023		22,510
2023 (remainder of year)				2023 (remainder of year)	$	17,093
2024	2024	18,028		2024	22,735
2025	2025	14,136		2025	18,495
2026	2026	6,140		2026	15,733
2027				2027	12,409
Thereafter	Thereafter	45,978		Thereafter	52,204
Total lease payments	Total lease payments	123,866		Total lease payments	138,669
Less imputed interest	Less imputed interest	(13,671)		Less imputed interest	(21,288)
Total	Total	$	110,195	Total	$	117,381

Total minimum future lease payments for leases that have not commenced as of March 31, ~~2022,~~2023, are approximately ~~$8.1~~$0.6 million, and those leases will commence between ~~2022~~2023 and 2024.

Supplemental cash flow information for leases was as follows:

(in thousands) For the Three Months Ended
March 31, 2022 For the Three Months Ended
March 31, 2021

Cash paid for amounts included in the measurement of operating leases liabilities $ 6,186 $ 5,434
Right-of-use assets obtained in exchange for operating lease obligations, net of early
lease terminations $ 7,169 $ 8,180


(in thousands)	For the Three Months Ended March 31, 2023		For the Three Months Ended March 31, 2022

Cash paid for amounts included in the measurement of operating leases liabilities	$	7,775	$	6,186
Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations	$	2,282	$	7,169

1617

NOTE 9. OTHER CURRENT AND LONG-TERM ASSETS

Other current assets consisted of the following:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Customer acquisition costs	Customer acquisition costs	$	48,631	$	48,942	Customer acquisition costs	$	50,882	$	50,776
Contract assets, net (1)	Contract assets, net (1)	41,632		37,772		Contract assets, net (1)	46,644		41,854
Prepaid expenses	Prepaid expenses	40,935		41,997		Prepaid expenses	40,084		41,742
Taxes receivable	Taxes receivable	21,751		19,464		Taxes receivable	27,192		48,430
Foreign currency exchange contracts						Foreign currency exchange contracts	4,314		5,185
Cross currency swap contracts						Cross currency swap contracts	6,877		8,135
Deferred sales commissions	Deferred sales commissions	6,515		6,475		Deferred sales commissions	6,495		6,472
Other assets	Other assets	21,817		19,173		Other assets	18,555		17,895
Other current assets	Other current assets	$	181,281	$	173,823	Other current assets	$	201,043	$	220,489

(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)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Contract assets, net (1)	Contract assets, net (1)	$	131,006	$	122,160	Contract assets, net (1)	$	152,209	$	148,971
Customer acquisition costs	Customer acquisition costs	108,367		109,392		Customer acquisition costs	107,971		107,205
Deferred income taxes	Deferred income taxes	23,091		24,784		Deferred income taxes	57,136		55,215
Equity investments						Equity investments	30,250		30,250
Investment in long-term product supply arrangements						Investment in long-term product supply arrangements	24,021		25,250
Deferred sales commissions	Deferred sales commissions	12,884		13,019		Deferred sales commissions	12,765		12,718
Investment in long-term product supply arrangements		12,014		13,348
Taxes receivable	Taxes receivable	2,359		1,806		Taxes receivable	1,548		717
Other assets	Other assets	45,847		45,891		Other assets	35,250		37,403
Other long-term assets	Other long-term assets	$	335,568	$	330,400	Other long-term assets	$	421,150	$	417,729

(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) March 31, 2022 December 31, 2021

Accrued expenses $ 124,630 $ 133,978
Accrued employee compensation and related expenses 105,917 182,926
Accrued taxes 84,152 42,605
Accrued customer incentives and refund obligations 74,292 79,469
Current lease liabilities 20,564 19,931
Accrued liabilities $ 409,555 $ 458,909


(in thousands)	March 31, 2023		December 31, 2022

Accrued expenses	$	123,608	$	149,446
Accrued employee compensation and related expenses	110,845		142,994
Accrued customer incentives and refund obligations	77,106		72,250
Accrued taxes	72,832		48,547
Current lease liabilities	19,204		20,425
Accrued liabilities	$	403,595	$	433,662

Other long-term liabilities consisted of the following:

(in thousands) March 31, 2022 December 31, 2021
Accrued taxes $ 57,262 $ 56,466
Other accrued long-term expenses 14,586 14,475
Other long-term liabilities $ 71,848 $ 70,941


(in thousands)	March 31, 2023		December 31, 2022

Accrued taxes	$	51,559	$	49,142
Other accrued long-term expenses	19,305		18,445
Other long-term liabilities	$	70,864	$	67,587

1718

NOTE 11. DEBT

Credit Facility

As of March 31, ~~2022,~~2023, we had ~~$400.0~~$431.5 million in outstanding borrowings under our Credit Facility, which consisted of $181.5 million drawn under our line of credit and a $250.0 million Term Loan, with a weighted average effective interest rate of ~~1.2%~~5.8%. As of December 31, ~~2021,~~2022, we had ~~$73.5~~$579.0 million in outstanding borrowings under our Credit Facility, which consisted of $329.0 million draw under our line of credit and a $250.0 million Term Loan, with a weighted average effective interest rate of ~~1.1%~~5.1%. As of March 31, ~~2022,~~2023, we had a remaining borrowing availability of ~~$598.6~~$817.0 million under our $1$1.25 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~~$1.5 million.

The applicable interest rate for the Credit Facility is calculated at a per annum rate equal to either (at our option) (1) a prime rate plus a margin ranging from 0.0% to 0.375% based on our consolidated leverage ratio, (2) an adjusted term SOFR rate, plus 0.10%, plus a margin ranging from 0.875% to 1.375% based on our consolidated leverage ratio, or (3) an adjusted daily simple SOFR rate, plus 0.10%, plus a margin ranging from 0.875% to 1.375% based on our consolidated leverage ratio. In March 2023 we entered into an interest rate swap agreement to manage the economic effect of $250 million of variable interest borrowings under our Credit Facility. Refer to Note 19 for a discussion of our derivative instruments and hedging activity.

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, and certain restrictive agreements. 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~~At March 31, ~~2022,~~2023 and December 31, ~~2021,~~2022, 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”) as of March 31, ~~2022:~~2023:
(Principal Amount in thousands)
Issue Date Due Date Series Principal Amount Coupon Rate Senior Note Agreement
12/11/2013 12/11/2023 2023 Series A Notes $ 75,000 3.94 % NY Life 2013 Note Agreement
12/11/2013 12/11/2025 2025 Series B Notes $ 75,000 4.04 % NY Life 2013 Note Agreement
9/4/2014 9/4/2026 2026 Senior Notes $ 75,000 3.72 % NY Life 2014 Note Agreement
7/21/2014 7/21/2024 2024 Series B Notes $ 75,000 3.76 % 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 2/12/2027 2027 Series B Notes $ 75,000 3.72 % 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 04/02/2030 MetLife 2030 Series D Notes $ 125,000 2.50 % MetLife 2014 Note Agreement
4/14/2020 04/14/2030 Prudential 2030 Series D Notes $ 75,000 2.50 % Prudential 2015 Amended Agreement

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



(Principal Amount in thousands)
Issue Date	Due Date	Series	Principal Amount		Coupon Rate		Senior Note Agreement

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

The 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, and certain restrictive ~~agreements, and violations of laws and regulations.~~agreements. 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~~At March 31, 2023 and December 31, 2022, 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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 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) For the Three Months Ended
March 31,
2022 2021

Shares repurchased in the open market 502 277
Shares acquired through employee surrender for statutory tax withholding 21 28
Total shares repurchased 523 305
Cost of shares repurchased in the open market $ 262,783 $ 139,213
Cost of shares for employee surrenders 10,338 14,983
Total cost of shares $ 273,121 $ 154,196
Average cost per share - open market repurchases $ 523.04 $ 501.62
Average cost per share - employee surrenders $ 505.53 $ 544.08
Average cost per share - total $ 522.36 $ 505.45


(in thousands, except per share amounts)	For the Three Months Ended March 31,
	2023		2022

Shares repurchased in the open market	—		502
Shares acquired through employee surrender for statutory tax withholding	19		21
Total shares repurchased	19		523

Cost of shares repurchased in the open market	$	—	$	262,783
Cost of shares for employee surrenders	9,597		10,338
Total cost of shares	$	9,597	$	273,121

Average cost per share - open market repurchases	$	—	$	523.04
Average cost per share - employee surrenders	$	503.65	$	505.53
Average cost per share - total	$	503.65	$	522.36

NOTE 13. INCOME TAXES

Our effective income tax rate was 20.0% for the three months ended March 31, 2023, as compared to 19.7% for the three months ended March 31, ~~2022, as compared to 14.9% for the three months ended March 31, 2021.~~2022. The increase in our effective tax rate for the three months ended March 31, ~~2022,~~2023, as compared to the same ~~period~~periods in the prior year, was primarily driven by a decrease in ~~the~~ tax benefits ~~from~~related to share-based compensation.

The effective tax rate for the three months ended March 31, 2023 and 2022, differed from the U.S. federal 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 Three Months Ended March 31, 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 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 (17) 2,097 1,409 996 3,277 7,762
Loss reclassified from accumulated other comprehensive income — (1,626) — — — (1,626)
Balance as of March 31, 2022 $ (143) $ 5,450 $ 1,831 $ 4,236 $ (58,722) $ (47,348)


	For the Three Months Ended March 31, 2023
			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		Interest Rate Swap		Euro-Denominated Notes		Cross Currency Swaps		Defined Benefit Plans, Net of Tax		Cumulative Translation Adjustment		Total

Balance as of December 31, 2022	$	(172)	$	839	$	—	$	4,947	$	7,057	$	(2,776)	$	(87,691)	$	(77,796)
Other comprehensive income (loss) before reclassifications	6		(209)		(45)		(1,490)		(1,240)		—		4,258		1,280
Reclassified from accumulated other comprehensive income	—		(218)		—		—		—		119		—		(99)
Balance as of March 31, 2023	$	(166)	$	412	$	(45)	$	3,457	$	5,817	$	(2,657)	$	(83,433)	$	(76,615)


	For the Three Months Ended March 31, 2022
			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, 2021	$	(126)	$	4,979	$	422	$	3,240	$	(61,999)	$	(53,484)
Other comprehensive income (loss) before reclassifications	(17)		2,097		1,409		996		3,277		7,762
Reclassified from accumulated other comprehensive income	—		(1,626)		—		—		—		(1,626)
Balance as of March 31, 2022	$	(143)	$	5,450	$	1,831	$	4,236	$	(58,722)	$	(47,348)

For the Three Months Ended March 31, 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 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 147 4,415 3,648 3,308 (19,333) (7,815)
Gain reclassified from accumulated other comprehensive income — 1,894 — — — 1,894
Balance as of March 31, 2021 $ (125) $ (3,625) $ (2,334) $ 1,149 $ (54,601) $ (59,536)

The following ~~tables present~~table presents components and amounts 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 March 31,				(in thousands)	Affected Line Item in the Statements of Income	Amounts Reclassified from AOCI For the Three Months Ended March 31,
			2022		2021				2023		2022
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	$	2,236	$	(2,430)	Foreign currency exchange contracts	Cost of revenue	$	335	$	2,236
		Tax expense (benefit)	610		(536)			Tax expense	117		610
		Gain (loss), net of tax	$	1,626	$	(1,894)		Gain, net of tax	$	218	$	1,626

Defined benefit plans							Defined benefit plans	Cost of revenue and operating expenses	$	(139)	$	—
								Tax benefit	(20)		—
								Loss, net of tax	$	(119)	$	—

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. Refer to Note 5 to the consolidated financial statements in our ~~2021~~2022 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 March 31,		(in thousands)	For the Three Months Ended March 31,
		2022	2021		2023	2022

Shares outstanding for basic earnings per share	Shares outstanding for basic earnings per share	84,410	85,530	Shares outstanding for basic earnings per share	82,992	84,410

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	84,410	85,530	Shares outstanding for basic earnings per share	82,992	84,410
Dilutive effect of share-based payment awards	Dilutive effect of share-based payment awards	1,154	1,387	Dilutive effect of share-based payment awards	967	1,154
		85,564	86,917		83,959	85,564

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 March 31,		(in thousands)	For the Three Months Ended March 31,
		2022	2021		2023	2022

Weighted average number of shares underlying anti-dilutive awards	Weighted average number of shares underlying anti-dilutive awards	2	20	Weighted average number of shares underlying anti-dilutive awards	35	2
Weighted average number of shares underlying anti-dilutive options	Weighted average number of shares underlying anti-dilutive options	212	72	Weighted average number of shares underlying anti-dilutive options	345	212

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

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

Contingencies

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 or lower than~~exceed our accruals. Except for the litigation matter described below, as of March 31, ~~2022,~~2023, 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~~matter. The appellate court reversed the trial court’s decision, and the plaintiff has petitioned the state supreme court for review. While we ~~are appealing~~believe the ~~judgment~~claim is without merit and continue to vigorously defend ourselves against the plaintiff’s ~~allegations. While we believe the claim is without merit,~~allegations, 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 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~~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.

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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

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NOTE 17. SEGMENT REPORTING

We operate primarily through three business segments: Companion Animal Group (“CAG”), Water quality products (“Water”), and Livestock, Poultry and Dairy (“LPD”). CAG provides products and services for veterinarians and the biomedical research community, primarily related to diagnostics and information management. Water provides innovative testing solutions for the detection and quantification of various microbiological parameters in water. LPD provides diagnostic tests, services, and related instrumentation that are used to manage the health status of livestock and poultry, to improve producer efficiency, and to ensure the quality and safety of milk. Our Other operating segment combines and presents our human medical diagnostic business (“OPTI Medical”) with our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments. OPTI Medical develops, manufactures, and distributes human medical diagnostic products and provides human medical diagnostic services.

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~~include: CAG, Water, LPD, and information technology-based products and services for the veterinary 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 sector with our out-licensing arrangements.Other. Assets are not allocated to segments for internal reporting purposes.

The following is a summary of segment performance:

(in thousands) For the Three Months Ended March 31,
CAG Water LPD Other Consolidated Total
2022
Revenue $ 761,184 $ 36,371 $ 30,870 $ 8,124 $ 836,549
Income from operations $ 223,125 $ 16,654 $ 6,737 $ 1,828 $ 248,344
Interest expense, net (6,853)
Income before provision for income taxes 241,491
Provision for income taxes 47,526
Net income 193,965
Less: Net income attributable to noncontrolling interest —
Net income attributable to IDEXX Laboratories, Inc. stockholders $ 193,965
2021
Revenue $ 692,767 $ 34,040 $ 39,270 $ 11,630 $ 777,707
Income from operations $ 213,210 $ 14,772 $ 13,808 $ 5,832 $ 247,622
Interest expense, net (7,532)
Income before provision for income taxes 240,090
Provision for income taxes 35,801
Net income 204,289
Less: Net income attributable to noncontrolling interest 32
Net income attributable to IDEXX Laboratories, Inc. stockholders $ 204,257



(in thousands)	For the Three Months Ended March 31,
	CAG		Water		LPD		Other		Consolidated Total
2023
Revenue	$	827,279	$	38,883	$	29,208	$	4,825	$	900,195

Income from operations	$	261,750	$	16,971	$	1,308	$	370	$	280,399
Interest expense, net									(12,711)
Income before provision for income taxes									267,688
Provision for income taxes									53,634
Net income attributable to IDEXX Laboratories, Inc. stockholders									$	214,054

2022
Revenue	$	761,184	$	36,371	$	30,870	$	8,124	$	836,549

Income from operations	$	223,125	$	16,654	$	6,737	$	1,828	$	248,344
Interest expense, net									(6,853)
Income before provision for income taxes									241,491
Provision for income taxes									47,526
Net income attributable to IDEXX Laboratories, Inc. stockholders									$	193,965

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 months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

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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 between Level 1 and Level 2, or transfers in or out of Level 3, of the fair value hierarchy during the three months ended March 31, ~~2022.~~2023.

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.

Our interest rate 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 interest rate swap contracts classified as derivative instruments using current market interest rates for debt issues with similar remaining years to maturity, adjusted for applicable credit 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 ~~$791.8~~$740.5 million and ~~$773.9~~$771.7 million, respectively, as of March 31, ~~2022,~~2023, and ~~$916.3~~$725.6 million and ~~$850.7~~$769.8 million, respectively, as of December 31, ~~2021.~~2022.

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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 March 31, 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 March 31, 2022

Assets
Money market funds (1)
$ 76 $ — $ — $ 76
Equity mutual funds (2)
$ 712 $ — $ — $ 712
Cross currency swaps (3)
$ — $ 5,563 $ — $ 5,563
Foreign currency exchange contracts (3)
$ — $ 8,396 $ — $ 8,396
Liabilities
Foreign currency exchange contracts (3)
$ — $ 702 $ — $ 702
Deferred compensation (4)
$ 712 $ — $ — $ 712
Contingent payments - acquisitions $ — $ — $ 7,230 $ 7,230
(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


(in thousands)
As of March 31, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2023

Assets
Equity mutual funds (1)	$	292	$	—	$	—	$	292
Cross currency swaps (2)	$	—	$	7,906	$	—	$	7,906
Foreign currency exchange contracts (2)	$	—	$	4,355	$	—	$	4,355
Liabilities
Cross currency swaps (2)	$	—	$	271	$	—	$	271
Foreign currency exchange contracts (2)	$	—	$	3,770	$	—	$	3,770
Interest rate swap (3)	$	—	$	59	$	—	$	59
Deferred compensation (4)	$	292	$	—	$	—	$	292
Contingent payments - acquisitions	$	—	$	—	$	120	$	120


(in thousands)
As of December 31, 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 December 31, 2022

Assets
Equity mutual funds (1)	$	385	$	—	$	—	$	385
Cross currency swaps (2)	$	—	$	9,262	$	—	$	9,262
Foreign currency exchange contracts (2)	$	—	$	5,185	$	—	$	5,185
Liabilities
Foreign currency exchange contracts (2)	$	—	$	4,572	$	—	$	4,572
Deferred compensation (4)	$	385	$	—	$	—	$	385
Contingent payments - acquisitions	$	—	$	—	$	120	$	120

(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 March 31, 2022 and December 31, 2021 consisted of demand deposits.

~~(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. Refer to footnote (4) below for a discussion of the related deferred compensation liability.

~~(3)~~(2)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.

(3)Interest rate swap is included within other long-term liabilities.

(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)~~(1) above.

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

Contingent Consideration

We have classified our ~~liability~~liabilities 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.

2426

We record changes in the estimated fair value of contingent consideration in the unaudited 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 three months ended March 31, ~~2022,~~2023, are as follows:


(in thousands)	Fair Value

Contingent consideration as of December 31, ~~2021~~2022	$	~~7,230~~120
~~Change in estimated fair value~~Payment of contingent consideration	—
Contingent consideration as of March 31, ~~2022~~2023	$	~~7,230~~120

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~~During the first quarter of 2023, we entered into an interest rate ~~swaps~~swap to ~~minimize~~manage the impact of interest rate fluctuations associated with $250.0 million of borrowings under our variable-rate Credit Facility. We have designated the interest rate swap as a cash flow hedge.

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~~our 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. 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 months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

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.

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Cash Flow Hedges

We have designated our foreign currency exchange contracts and our interest rate swap as cash flow hedges as these derivative instruments ~~mitigate~~manage the exposure to variability in the cash flows of forecasted transactions attributable to foreign currency ~~exchange.~~exchange and interest rates on variable interest obligations under the terms of our Credit Facility. 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 months ended March 31, ~~2022~~2023 or ~~2021.~~2022. As of March 31, ~~2022,~~2023, the estimated amount of net gains, net of tax, from our foreign currency exchange contracts which are expected to be reclassified out of AOCI and into earnings within the next 12 months, is ~~$5.6~~$0.6 million if exchange rates do not fluctuate from the levels as of March 31, ~~2022.~~2023.

Foreign Currency Exchange Contracts: 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 ~~$274.6~~$248.7 million and ~~$286.7~~$258.2 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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

(in thousands) Three Months Ended March 31,
2022 2021
Financial statement line items in which effects of cash flow hedges are recorded Cost of revenue $ 337,796 $ 306,925
Foreign exchange contracts
Amount of gain (loss) reclassified from accumulated other comprehensive income into income $ 2,236 $ (2,430)



(in thousands)		Three Months Ended March 31,
		2023		2022
Financial statement line items in which effects of cash flow hedges are recorded	Cost of revenue	$	357,224	$	337,796
Foreign exchange contracts
Amount of gain (loss) reclassified from accumulated other comprehensive income into income		$	335	$	2,236

Interest Rate Swap: We entered into an interest rate swap agreement to manage the economic effect of variable interest obligations on amounts borrowed under the terms of the Credit Facility. Beginning on March 31, 2023, the variable interest rate associated with $250.0 million of borrowings outstanding under the Credit Facility became effectively fixed at 3.9% plus the applicable credit spread, through October 20, 2025. Due to the effective date of the interest rate swap being March 31, 2023, no amount was reclassified out of other comprehensive income to interest expense for the first quarter of 2023.

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~~losses of $1.5 million~~$1.4 million,~~, net of tax, within AOCI as a result of this net investment hedge for the three months ended March 31, ~~2022,~~2023, and gains of ~~$3.6~~$1.4 million for the three months ended March 31, ~~2021.~~2022. The related cumulative unrealized ~~loss~~gain recorded as of March 31, ~~2022,~~2023, will not be reclassified in earnings until the complete or substantially complete liquidation of the net investment in the hedged foreign operations or all or a portion of the hedge no longer qualifies for hedge accounting treatment. Refer to Note 13 to the consolidated financial statements included in our ~~2021~~2022 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.~~March 31, 2028. 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~~2023; we will deliver the notional amount of €15 million and will receive approximately $17.5 million from the counterparties on June 18, ~~2025.~~2025; and we will deliver the notional amount of €35 million and will receive $37.8 million from the counterparties on March 31, 2028. The 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 months ended March 31, ~~2022,~~2023, we

recorded ~~gains~~losses of ~~$1.0~~$1.2 million, net of tax,within AOCI as a result of these net investment hedges, and gains of ~~$3.3~~$1.0 million during the three months ended March 31, ~~2021.~~2022. 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 is recognized as a reduction to interest expense over the life of the hedge instrument. We recognized approximately $0.7 million related to the excluded component as a reduction of interest expense for the three months ended March 31, ~~2022,~~2023, and $0.7 million for the three months ended March 31, ~~2021.~~2022.

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
			March 31, 2022		December 31, 2021
									March 31, 2023		December 31, 2022
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	$	8,396	$	6,512	Foreign currency exchange contracts	Other current assets	$	4,314	$	5,185
Cross currency swaps	Cross currency swaps	Other long-term assets	5,563		4,256		Cross currency swaps	Other current assets	6,877		8,135
Total derivative instruments presented as hedge instruments on the balance sheet			13,959		10,768
Foreign currency exchange contracts							Foreign currency exchange contracts	Other long-term assets	41		—
Cross currency swaps							Cross currency swaps	Other long-term assets	1,029		1,127
Total derivative instruments presented as hedging instruments on the balance sheet							Total derivative instruments presented as hedging instruments on the balance sheet		12,261		14,447
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		(702)		(601)		Gross amounts subject to master netting arrangements not offset on the balance sheet		(1,890)		(3,210)
Net amount	Net amount		$	13,257	$	10,167	Net amount		$	10,371	$	11,237


(in thousands)	(in thousands)		Hedging Liabilities				(in thousands)		Hedging Liabilities
			March 31, 2022		December 31, 2021				March 31, 2023		December 31, 2022

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	$	702	$	601	Foreign currency exchange contracts	Accrued liabilities	$	3,525	$	4,572
Total derivative instruments presented as cash flow hedges on the balance sheet			702		601
Cross currency swaps							Cross currency swaps	Other long-term liabilities	271		—
Interest rate swap							Interest rate swap	Other long-term liabilities	59		—
Foreign currency exchange contracts							Foreign currency exchange contracts	Other long-term liabilities	245		—
Total derivative instruments presented as hedging instruments on the balance sheet							Total derivative instruments presented as hedging instruments on the balance sheet		4,100		4,572
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	98,862		100,711		Non-derivative foreign currency denominated debt designated as net investment hedge on the balance sheet (1)	Long-term debt	96,730		94,775
Total hedging instruments presented on the balance sheet	Total hedging instruments presented on the balance sheet		99,564		101,312		Total hedging instruments presented on the balance sheet		100,830		99,347
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		(702)		(601)		Gross amounts subject to master netting arrangements not offset on the balance sheet		(1,890)		(3,210)
Net amount	Net amount		$	98,862	$	100,711	Net amount		$	98,940	$	96,137

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

~~NOTE 20. SUBSEQUENT EVENT~~

~~During the second quarter of 2022, we entered into 2 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~~ ~~$30.0 million~~ ~~for an equity investment and license rights, with expected subsequent milestone payments of~~ ~~$20.0 million. We estimate approximately~~ ~~$80.0 million~~ ~~in the aggregate will be charged to research and development expense for these license rights during the second quarter.~~

2729

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~ 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 ~~supply chain and logistics disruptions;~~ 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 our products;~~rates and hedging activities; realizability of assets; future cash flow and uses of cash; future repurchases of common stock; future levels of indebtedness and capital ~~spending,~~spending; the working capital and liquidity outlook; interest expense; share-based compensation expense; 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. 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~~macroeconomic events, conditions and uncertainties (such as geopolitical instability (including the current war in ~~Ukraine~~Ukraine), general economic uncertainty, inflationary pressures, and ~~the ongoing COVID-19 pandemic~~supply chain challenges) 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 ~~2021~~2022 Annual Report and in the corresponding sections of this Quarterly Report on Form 10-Q, 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.~~public, and they are subject to the risk and uncertainties described or cross-referenced in this section. 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 ~~2021~~2022 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 I. Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

Our fiscal quarter ended on March 31. 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 sectors. We also design, manufacture, and distribute point of care and laboratory diagnostics for the human medical diagnostics 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 and blood gas ~~analyzers, and SARS-CoV-2 RT-PCR (COVID-19 test) used in the human diagnostics sector.~~analyzers.

~~Operating~~

Description of Business Segments. We operate primarily through three business segments: diagnostic and information ~~technology-based~~management-based products and services for the companion animal veterinary ~~sector,~~industry, 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~~our human medical diagnostics ~~sector~~products and services business (“OPTI Medical”) 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 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 sector.

~~Effects of Certain Factorsand Trendson Results of Operations~~

~~CAG Trends~~. Continued growth in demand for companion animal healthcare supported solid gains for CAG diagnostic products and services across regions, compared to very strong prior year growth levels. U.S. same-store clinical visits at veterinary practices declined 2% in the first quarter compared to prior year period clinical visit growth of 13%, which included benefits from increases in new pet ownership during the COVID-19 pandemic. Average same-store revenue growth at U.S. veterinary practices was 6% in the first quarter, compared to 16% growth levels in During the first quarter of ~~2021, driven by high growth in healthcare services, including increased utilization of diagnostics.~~

~~LPD Trends~~2023, we discontinued actively marketing our . Our LPD revenues, on a year-over-year comparison, declined due to 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, 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~~OPTI COVID-19 pandemic-related 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 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. We continue to monitor government lockdowns and other restrictions due to COVID-19, and have implemented mitigation strategies to adjust for delayed shipments ofPCR testing products and components. Although we expect the current supply chain and logistics challenges to continue during 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~~. We have significantly scaled back operations in Russia including suspending sales of veterinary diagnostic equipment in the country. Our 2021 annual revenue was approximately $10 million in the Russia, Belarus and Ukraine region. We have no manufacturing or significant supply arrangement in the region. We anticipate revenues related to these geographies will be significantly limited for the remainder of 2022.services.

Currency and Other Items

Currency Impact. Refer to “Part 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. Refer to “Part 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 ~~2021~~2022 Annual Report for additional information regarding trends in companion animal healthcare, 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 months ended March 31, ~~2022,~~2023, are consistent with those discussed in our ~~2021~~2022 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, refer to Note 2 to the unaudited condensed consolidated financial statements in “Part I. Item 1. Financial 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”~~“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 months ended March 31, ~~2022,~~2023, as compared to the same ~~periods~~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. 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~~consider acquisitions ~~that are considered~~ to be a business ~~from organic revenue growth.~~when all three elements of inputs, process, and outputs are present, consistent with ASU 2017-01, “Business Combinations: (Topic 805) Clarifying the Definition of a Business.” In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, we do not consider these assets to be a ~~business and include these acquisitions in organic revenue growth.~~business. 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 March 31, ~~2022,~~2023, Compared to Three Months Ended March 31, ~~2021~~2022

Total Company. The following table presents total Company revenue by operating ~~segment by U.S. and non-U.S., or international geographies:~~segment:


		For the Three Months Ended March 31,															For the Three Months Ended March 31,
Net Revenue (dollars in thousands)	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)		Net Revenue (dollars in thousands)	2023		2022		Dollar Change		Reported Revenue Growth (1)		Percentage Change from Currency		Percentage Change from Acquisitions		Organic Revenue Growth (1)

CAG	CAG	$	761,184	$	692,767	$	68,417	9.9	%	(1.9	%)	1.6	%	10.2	%	CAG	$	827,279	$	761,184	$	66,095	8.7	%	(2.2	%)	—		10.9	%
United States	United States	499,766		444,410		55,356		12.5	%	—		2.2	%	10.3	%	United States	564,527		499,766		64,761		13.0	%	—		—		13.0	%
International	International	261,418		248,357		13,061		5.3	%	(5.2	%)	0.5	%	10.0	%	International	262,752		261,418		1,334		0.5	%	(6.2	%)	—		6.8	%

Water	Water	36,371		34,040		2,331		6.8	%	(1.6	%)	—		8.4	%	Water	38,883		36,371		2,512		6.9	%	(2.9	%)	1.6	%	8.2	%
United States	United States	17,831		16,568		1,263		7.6	%	—		—		7.6	%	United States	19,920		17,831		2,089		11.7	%	—		—		11.7	%
International	International	18,540		17,472		1,068		6.1	%	(3.1	%)	—		9.2	%	International	18,963		18,540		423		2.3	%	(5.5	%)	3.2	%	4.6	%

LPD	LPD	30,870		39,270		(8,400)		(21.4	%)	(2.3	%)	—		(19.1	%)	LPD	29,208		30,870		(1,662)		(5.4	%)	(3.8	%)	—		(1.6	%)
United States	United States	3,860		3,748		112		3.0	%	—		—		3.0	%	United States	4,543		3,860		683		17.7	%	—		—		17.7	%
International	International	27,010		35,522		(8,512)		(24.0	%)	(2.4	%)	—		(21.5	%)	International	24,665		27,010		(2,345)		(8.7	%)	(4.2	%)	—		(4.5	%)

Other	Other	8,124		11,630		(3,506)		(30.1	%)	(0.2	%)	—		(29.9	%)	Other	4,825		8,124		(3,299)		(40.6	%)	(0.1	%)	—		(40.5	%)

Total Company	Total Company	$	836,549	$	777,707	$	58,842	7.6	%	(1.9	%)	1.4	%	8.0	%	Total Company	$	900,195	$	836,549	$	63,646	7.6	%	(2.3	%)	0.1	%	9.8	%
United States	United States	525,906		472,638		53,268		11.3	%	—		2.1	%	9.2	%	United States	590,413		525,906		64,507		12.3	%	—		—		12.3	%
International	International	310,643		305,069		5,574		1.8	%	(4.7	%)	0.4	%	6.1	%	International	309,782		310,643		(861)		(0.3	%)	(5.9	%)	0.2	%	5.5	%

(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 was driven by volume gains~~revenue reflects growth in CAG Diagnostics recurring revenue, ~~reflecting continued high demand for companion animal diagnostics, as well as~~including benefits from higher realized prices~~. Our CAG Diagnostics instrument revenue reflects high placement volumes compared~~ globally and increased volume in the U.S. Increases in our subscription-based veterinary software and diagnostic imaging services also contributed to ~~the prior year.~~higher revenue. The higher revenue in our Water business was primarily due to the benefit of price increases and ~~higher testing volumes.~~our acquisition in the third quarter of 2022. The decline in our LPD ~~business~~business was primarily due to ~~the~~ lower ~~demand for swine~~herd health screening volume. The decrease in Other revenue reflects lower sales of OPTI COVID-19 PCR testing ~~in China.~~products and services. The ~~impact of acquisitions increased total revenue growth by 1.4% while the~~ impact of currency movements decreased total revenue growth by ~~1.9%~~2.3%.

3133

The following table presents total Company results of operations:


		For the Three Months Ended March 31,								Change					For the Three Months Ended March 31,								Change
Total Company - Results of Operations (dollars in thousands)	Total Company - Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage		Total Company - Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	836,549			$	777,707			$	58,842	7.6	%	Revenues	$	900,195			$	836,549			$	63,646	7.6	%
Cost of revenue	Cost of revenue	337,796				306,925				30,871		10.1	%	Cost of revenue	357,224				337,796				19,428		5.8	%
Gross profit	Gross profit	498,753		59.6	%	470,782		60.5	%	27,971		5.9	%	Gross profit	542,971		60.3	%	498,753		59.6	%	44,218		8.9	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	132,292		15.8	%	114,811		14.8	%	17,481		15.2	%	Sales and marketing	147,804		16.4	%	132,292		15.8	%	15,512		11.7	%
General and administrative	General and administrative	77,949		9.3	%	70,770		9.1	%	7,179		10.1	%	General and administrative	70,101		7.8	%	77,949		9.3	%	(7,848)		(10.1	%)
Research and development	Research and development	40,168		4.8	%	37,579		4.8	%	2,589		6.9	%	Research and development	44,667		5.0	%	40,168		4.8	%	4,499		11.2	%
Total operating expenses	Total operating expenses	250,409		29.9	%	223,160		28.7	%	27,249		12.2	%	Total operating expenses	262,572		29.2	%	250,409		29.9	%	12,163		4.9	%
Income from operations	Income from operations	$	248,344	29.7	%	$	247,622	31.8	%	$	722	0.3	%	Income from operations	$	280,399	31.1	%	$	248,344	29.7	%	$	32,055	12.9	%

Gross Profit. Gross profit increased due to higher ~~sales volumes moderated by~~revenue and a 9070 basis point ~~decrease~~increase in the gross profit margin. The ~~decrease~~increase in the gross profit margin was primarily due to the impact of product mix from lower LPD and higher CAG Diagnostic instrument revenue, as well as higher product and service costs and higher freight and distribution costs. These decreases were partially offset by recurring revenue net price gains, ~~and~~improved software services gross margins, the benefit of our reference laboratory productivity initiatives, and product mix associated with lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product, labor, and distribution costs, which ~~helped to offset~~reflect the effects of inflation, ~~on our gross profit margin.~~as well investments in productivity initiatives and to support future growth. The impact from foreign currency movements ~~increased~~decreased the gross profit margin by approximately 3050 basis points, including the impact of lower 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 and travel costs, including investments in our global commercial ~~capability and higher travel costs.~~capability. General and administrative expense ~~increased~~decreased primarily due to a $16 million customer contract resolution payment received during the first quarter, partially offset by higher personnel-related ~~expense, as well as higher estimated bad debt expense and an increase in amortization and depreciation expense related to business acquisitions and capital investments.~~costs. Research and development expense increased primarily due to project costs and higher ~~project and third-party~~personnel-related costs. The overall change in foreign currency exchange rates ~~decreased~~resulted in a decrease in operating expenses growth by approximately 1%2%.

~~During the second quarter of 2022, we entered into two arrangements to license intellectual property. In connection with these arrangements, we estimate approximately~~ ~~$80.0 million~~ ~~in the aggregate will be charged to research and development expense during the second quarter. Refer to “Part I, Item 1. Note 20 - Subsequent Event” for more information.~~

3234

Companion Animal Group

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


		For the Three Months Ended March 31,															For the Three Months Ended March 31,
Net Revenue (dollars in thousands)	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)		Net Revenue (dollars in thousands)	2023		2022		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:	$	664,810	$	617,280	$	47,530	7.7	%	(1.9	%)	0.2	%	9.4	%	CAG Diagnostics recurring revenue:	$	726,902	$	664,810	$	62,092	9.3	%	(2.3	%)	—	11.6	%
IDEXX VetLab consumables	IDEXX VetLab consumables	267,173		246,092		21,081		8.6	%	(2.5	%)	—		11.1	%	IDEXX VetLab consumables	291,114		267,173		23,941		9.0	%	(3.0	%)	—	11.9	%
Rapid assay products	Rapid assay products	74,519		69,611		4,908		7.1	%	(1.1	%)	—		8.1	%	Rapid assay products	82,032		74,519		7,513		10.1	%	(1.4	%)	—	11.5	%
Reference laboratory diagnostic and consulting services	Reference laboratory diagnostic and consulting services	295,075		275,781		19,294		7.0	%	(1.5	%)	0.5	%	8.0	%	Reference laboratory diagnostic and consulting services	323,180		295,075		28,105		9.5	%	(1.9	%)	—	11.4	%
CAG diagnostics services and accessories	CAG diagnostics services and accessories	28,043		25,796		2,247		8.7	%	(2.6	%)	—		11.3	%	CAG diagnostics services and accessories	30,576		28,043		2,533		9.0	%	(3.1	%)	—	12.1	%
CAG Diagnostics capital - instruments	CAG Diagnostics capital - instruments	36,997		31,190		5,807		18.6	%	(3.5	%)	—		22.1	%	CAG Diagnostics capital - instruments	33,144		36,997		(3,853)		(10.4	%)	(2.9	%)	—	(7.5	%)
Veterinary software, services and diagnostic imaging systems	Veterinary software, services and diagnostic imaging systems	59,377		44,297		15,080		34.0	%	(0.4	%)	21.2	%	13.2	%	Veterinary software, services and diagnostic imaging systems	67,233		59,377		7,856		13.2	%	(0.8	%)	—	14.0	%
Net CAG revenue	Net CAG revenue	$	761,184	$	692,767	$	68,417	9.9	%	(1.9	%)	1.6	%	10.2	%	Net CAG revenue	$	827,279	$	761,184	$	66,095	8.7	%	(2.2	%)	—	10.9	%

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

CAG Diagnostics Recurring Revenue.~~The increase was driven by~~ ~~strong 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.~~prices and strong demand in the U.S. for companion animal diagnostics across modalities. International volume growth was constrained by macroeconomic conditions. The impact of foreign currency movements decreased CAG Diagnostics recurring revenue growth by ~~1.9%~~2.3%.

The increase in IDEXX VetLab consumables revenue was primarily due to higher ~~sales volumes for our Catalyst consumables~~price realization and, to a lesser extent, ~~ProCyte consumables, as well as higher price realization. These~~volume increases ~~were~~ supported by anthe expansion of our ~~instrument~~ installed base of instruments and our expanded menu of available tests in certain ~~regions, and high customer retention levels.~~regions. The impact of currency movements decreased revenue growth by 3.0%.

The increase in rapid assay revenue resulted primarily from higher price realization and, to a lesser extent, higher clinic testing levels, primarily from SNAP® 4Dx Plus.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher price realization and to higher testing volumes in our U.S. labs. Growth in other regions was primarily due to higher price realization, partially offset by lower volumes in ~~the U.S., as well as higher realized prices. Acquisitions increased~~international regions, reflecting challenging regional macroeconomic conditions. The impact of currency movements decreased revenue growth by ~~0.5%~~1.9%.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of the ~~increase~~11% growth in our active installed base of instruments.

CAG Diagnostics Capital – Instrument Revenue. The ~~increase~~decrease in instrument revenue was primarily due to ~~strong premium~~regional mix of instrument placements ~~globally, including~~and program pricing effects. Overall instrument placements were higher than the ~~successful global launch~~prior year. The impact of ~~the ProCyte One analyzer, to support increased diagnostic testing.~~currency movements decreased revenue growth by 2.9%

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. ~~Acquisitions increased revenue growth by 21.2%. Excluding the impact of acquisitions, the~~The increase in veterinary software and services revenue was primarily due to ~~increases~~higher subscription and services revenue, supported by the expansion in our active installed base, and higher realized prices on service ~~offerings, and higher veterinary software system placements.~~offerings. The increase in our diagnostic imaging systems ~~revenues~~revenue was primarily due to ~~increases~~higher services revenue, supported by the expansion in our ~~active~~ installed ~~base resulting in higher service revenue, as well as higher realized prices.~~base.

3335

The following table presents the CAG segment results of operations:


		For the Three Months Ended March 31,								Change					For the Three Months Ended March 31,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	761,184			$	692,767			$	68,417	9.9	%	Revenues	$	827,279			$	761,184			$	66,095	8.7	%
Cost of revenue	Cost of revenue	312,085				279,893				32,192		11.5	%	Cost of revenue	328,522				312,085				16,437		5.3	%
Gross profit	Gross profit	449,099		59.0	%	412,874		59.6	%	36,225		8.8	%	Gross profit	498,757		60.3	%	449,099		59.0	%	49,658		11.1	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	121,660		16.0	%	104,291		15.1	%	17,369		16.7	%	Sales and marketing	135,596		16.4	%	121,660		16.0	%	13,936		11.5	%
General and administrative	General and administrative	68,881		9.0	%	62,904		9.1	%	5,977		9.5	%	General and administrative	61,251		7.4	%	68,881		9.0	%	(7,630)		(11.1	%)
Research and development	Research and development	35,433		4.7	%	32,469		4.7	%	2,964		9.1	%	Research and development	40,160		4.9	%	35,433		4.7	%	4,727		13.3	%
Total operating expenses	Total operating expenses	225,974		29.7	%	199,664		28.8	%	26,310		13.2	%	Total operating expenses	237,007		28.6	%	225,974		29.7	%	11,033		4.9	%
Income from operations	Income from operations	$	223,125	29.3	%	$	213,210	30.8	%	$	9,915	4.7	%	Income from operations	$	261,750	31.6	%	$	223,125	29.3	%	$	38,625	17.3	%

Gross Profit. Gross profit increased primarily due to higher ~~sales volume, moderated by~~revenue, as well as a 60130 basis point ~~decrease~~increase in the gross profit margin. The ~~decrease~~increase in the gross profit margin was primarily due to the impact of product mix with higher CAG Diagnostic instrument revenue, as well as higher product and service costs and higher freight and distributions costs. These decreases were partially offset by recurring revenue net price gains, ~~and~~improved software services gross margins, the benefit of our reference laboratory productivity initiatives and supply savings, and product mix associated with lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product, labor, and distribution costs, which ~~helped to offset~~reflect the effects of inflation, ~~on our gross margins,~~ as well as ~~the benefits of growth from our recurring software revenues.~~investments in productivity initiatives and to support future growth. The impact from foreign currency movements ~~increased~~decreased the gross profit margin by approximately 1040 basis points ~~including~~and included the impact of lower 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 and travel costs, including investments in our global commercial ~~capability and higher travel costs.~~capability. General and administrative expense ~~increased~~decreased primarily due to a $16 million customer contract resolution payment received during the first quarter, partially offset by higher personnel-related ~~expense, as well as an increase in amortization and depreciation expense related to business acquisitions and capital investments and higher estimated bad debt expense.~~costs. Research and development expense increased primarily due to ~~increased~~higher project costs and ~~third-party~~personnel-related costs. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth by approximately 1%.

3436


Water

The following table presents the Water segment results of operations:


		For the Three Months Ended March 31,								Change					For the Three Months Ended March 31,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	36,371			$	34,040			$	2,331	6.8	%	Revenues	$	38,883			$	36,371			$	2,512	6.9	%
Cost of revenue	Cost of revenue	10,634				10,575				59		0.6	%	Cost of revenue	11,615				10,634				981		9.2	%
Gross profit	Gross profit	25,737		70.8	%	23,465		68.9	%	2,272		9.7	%	Gross profit	27,268		70.1	%	25,737		70.8	%	1,531		5.9	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	4,598		12.6	%	4,358		12.8	%	240		5.5	%	Sales and marketing	5,241		13.5	%	4,598		12.6	%	643		14.0	%
General and administrative	General and administrative	3,282		9.0	%	3,236		9.5	%	46		1.4	%	General and administrative	3,901		10.0	%	3,282		9.0	%	619		18.9	%
Research and development	Research and development	1,203		3.3	%	1,099		3.2	%	104		9.5	%	Research and development	1,155		3.0	%	1,203		3.3	%	(48)		(4.0	%)
Total operating expenses	Total operating expenses	9,083		25.0	%	8,693		25.5	%	390		4.5	%	Total operating expenses	10,297		26.5	%	9,083		25.0	%	1,214		13.4	%
Income from operations	Income from operations	$	16,654	45.8	%	$	14,772	43.4	%	$	1,882	12.7	%	Income from operations	$	16,971	43.6	%	$	16,654	45.8	%	$	317	1.9	%

Revenue. The increase in ~~our~~revenue ~~Water business~~ was ~~primarily~~ due to ~~higher~~ ~~testing volume and~~ higher realized pricesand, to a lesser extent, higher testing primarily in ~~our Colilert test products~~North America and ~~related accessories used in coliform and E. coli testing.~~Brazil. The impact of currency movements decreased revenue growth by 2.9%. The impact of the acquisition completed during the third quarter of 2022 increased revenue growth by 1.6%.

Gross Profit. Gross profit increased due to higher ~~sales volumes and a 190 basis point~~revenue. Excluding the impact of foreign currency movements, the increase in the gross profit margin ~~which reflected an approximately 160 basis point increase~~was primarily due to higher realized prices, partially offset by higher product and freight costs. The impact from foreign currency movements, ~~including~~ including the impact of lower hedge gains in the current year compared to ~~hedge losses in~~ the prior ~~year. The~~year, decreased the gross profit margin ~~also increased due to higher realized prices and lower product costs, offset~~ by ~~higher distribution and freight costs.~~approximately 100 basis points.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related ~~costs~~ and ~~higher~~ travel ~~expense. Research~~costs. General and ~~development~~administrative expense increased primarily due to higher personnel-related and incremental costs associated with the acquisition that occurred in the third quarter of 2022. Research and development expense decreased primarily due to lower third-party ~~services.~~costs. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth ~~of less than 1%~~by approximately 2%.

3537


Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:


		For the Three Months Ended March 31,								Change					For the Three Months Ended March 31,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	30,870			$	39,270			$	(8,400)	(21.4	%)	Revenues	$	29,208			$	30,870			$	(1,662)	(5.4	%)
Cost of revenue	Cost of revenue	11,323				12,389				(1,066)		(8.6	%)	Cost of revenue	14,155				11,323				2,832		25.0	%
Gross profit	Gross profit	19,547		63.3	%	26,881		68.5	%	(7,334)		(27.3)	%	Gross profit	15,053		51.5	%	19,547		63.3	%	(4,494)		(23.0	%)

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	5,568		18.0	%	5,538		14.1	%	30		0.5	%	Sales and marketing	6,460		22.1	%	5,568		18.0	%	892		16.0	%
General and administrative	General and administrative	4,161		13.5	%	4,308		11.0	%	(147)		(3.4	%)	General and administrative	4,201		14.4	%	4,161		13.5	%	40		1.0	%
Research and development	Research and development	3,081		10.0	%	3,227		8.2	%	(146)		(4.5)	%	Research and development	3,084		10.6	%	3,081		10.0	%	3		0.1	%
Total operating expenses	Total operating expenses	12,810		41.5	%	13,073		33.3	%	(263)		(2.0	%)	Total operating expenses	13,745		47.1	%	12,810		41.5	%	935		7.3	%
Income from operations	Income from operations	$	6,737	21.8	%	$	13,808	35.2	%	$	(7,071)	(51.2)	%	Income from operations	$	1,308	4.5	%	$	6,737	21.8	%	$	(5,429)	(80.6	%)

Revenue. ~~Revenues~~Revenue decreased primarily due to lower ~~demand for diagnostic testing in China. Beginning during the second quarter of 2021, and continuing through the first quarter of 2022, we experienced lower livestock testing volumes~~herd health screening volume related to pandemic closures 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 impacted testing~~well as lower volumes in ~~comparison to high prior-year demand for African Swine Fever testing. The decrease~~our food safety product distribution business in ~~revenue was~~Brazil. These decreases were partially offset by ~~moderate~~higher realized price gains and higher volumes in ~~other regions.~~our ruminant and poultry testing. The unfavorable impact of foreign currency movements decreased revenue growth by ~~2.3%~~3.8%.

Gross Profit. The decrease in gross profit was primarily due to lower sales volumes and a ~~520~~1,180 basis point decrease in the gross profit margin. The decrease in the gross profit margin is primarily due to higher product costs, sales mix, and, to a lesser extent, higher freight and distribution charges, investments in our bovine laboratory services, and the unfavorable overall mix impacts largely from lower ASF testing following changes in government requirements. The decrease in the gross profit margin wascosts, partially offset by ~~the impac~~higher realized prices. tThe impact from foreign currency movements ~~which increased~~decreased the gross profit margin by approximately ~~200~~290 basis points, including the impact of hedge ~~gains~~losses in the current year compared to hedge ~~losses~~gains in the prior ~~year.~~year.

Operating Expenses. Sales and marketing expense ~~were essentially flat, with higher marketing costs offset by lower~~increased primarily due to increases in personnel-related and travel costs. General and administrative ~~expenses decreased primarily due to lower personnel-related costs~~ and ~~lower bad debt expense. Research~~research and development ~~expense decreased primarily due~~costs were relatively constant compared to ~~lower~~ ~~personnel-related costs, partially offset by lower costs in~~ the prior ~~year as we leveraged LPD personnel to support our human COVID-19 testing products.~~year. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth ofby approximately 2%.

3638

Other

The following table presents the Other results of operations:


		For the Three Months Ended March 31,								Change					For the Three Months Ended March 31,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2022		Percent of Revenue		2021		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	8,124			$	11,630			$	(3,506)	(30.1	%)	Revenues	$	4,825			$	8,124			$	(3,299)	(40.6	%)
Cost of revenue	Cost of revenue	3,754				4,068				(314)		(7.7	%)	Cost of revenue	2,932				3,754				(822)		(21.9	%)
Gross profit	Gross profit	4,370		53.8	%	7,562		65.0	%	(3,192)		(42.2	%)	Gross profit	1,893		39.2	%	4,370		53.8	%	(2,477)		(56.7	%)

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	466		5.7	%	624		5.4	%	(158)		(25.3	%)	Sales and marketing	507		10.5	%	466		5.7	%	41		8.8	%
General and administrative	General and administrative	1,625		20.0	%	322		2.8	%	1,303		404.7	%	General and administrative	748		15.5	%	1,625		20.0	%	(877)		(54.0	%)
Research and development	Research and development	451		5.6	%	784		6.7	%	(333)		(42.5	%)	Research and development	268		5.6	%	451		5.6	%	(183)		(40.6	%)
Total operating expenses	Total operating expenses	2,542		31.3	%	1,730		14.9	%	812		46.9	%	Total operating expenses	1,523		31.6	%	2,542		31.3	%	(1,019)		(40.1	%)
Income from operations	Income from operations	$	1,828	22.5	%	$	5,832	50.1	%	$	(4,004)	(68.7	%)	Income from operations	$	370	7.7	%	$	1,828	22.5	%	$	(1,458)	(79.8	%)

Revenue. The decrease in revenue was primarily due to lower sales of OPTI COVID-19 PCR testing products and services in the U.S., ~~as well as lower~~partially offset by higher volumes of our OPTI Medical consumables ~~revenue related to COVID-19 lockdowns in Asia.~~internationally.

Gross Profit. ~~The decrease in gross~~Gross profit ~~was primarily~~decreased due to lower sales volume and a 1,460 basis point decrease in the gross profit ~~margin decrease of 1,120 basis points.~~margin. The decrease in the gross profit margin iswas primarily due to sales mix with lower OPTI ~~Medical~~COVID-19 PCR testing volumes and higher ~~distribution expense, partially offset by higher realized prices.~~product and freight costs. The overall change in foreign currency exchange rates had an immaterial impact on gross profit.

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

Non-Operating Items

Interest Expense. Interest expense was ~~$7.0~~$13.1 million for the three months ended March 31, ~~2022,~~2023, as compared to ~~$7.6~~$7.0 million for the same period in the prior year. The ~~decrease~~increase in interest expense was primarily ~~due~~the result of higher interest rates and, to ~~the timing of Credit Facility borrowings during the first quarter of 2022, as well as~~ a ~~lower variable rate than the comparative fixed long-term debt.~~lesser extent, higher average debt levels.

Provision for Income Taxes. Our effective income tax rate was 20.0% for the three months ended March 31, 2023, compared to 19.7% for the three months ended March 31, ~~2022, as compared to 14.9% for the three months ended March 31, 2021.~~2022. The increase in our effective tax rate ~~as compared to the same period in the prior year,~~ was primarily driven by a decrease in ~~the~~ tax benefits from share-based compensation.

3739

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. We generate cash primarily through the payments made by customers for our companion animal veterinary, livestock, poultry, dairy, and water products and services, consulting services, and other various systems and services. Our cash disbursements are primarily related to compensation and benefits for our employees, inventory and supplies, taxes, research and development, capital expenditures, rents, occupancy-related charges, interest expense, and business acquisitions. As of March 31, ~~2022,~~2023, we had ~~$204.6~~$111.4 million of cash and cash equivalents, as compared to ~~$144.5~~$112.5 million as of December 31, ~~2021.~~2022. Working capital totaled ~~$118.4~~$83.8 million as of March 31, ~~2022,~~2023, as compared to ~~$192.1~~negative $134.3 million as of December 31, ~~2021. Additionally, as~~2022. The change in working capital is primarily due to lower borrowings under our Credit Facility. As of March 31, ~~2022,~~2023, we had borrowing availability of ~~$598.6~~$817.0 million under our $1$1.25 billion Credit Facility, with ~~$400.0~~$431.5 million in outstanding borrowings onunder the Credit Facility. The general availability of funds under our Credit Facility is reduced by ~~$1.4~~$1.5 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, cash equivalents, 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 thousands)
March 31, 2022 December 31, 2021

U.S. $ 30,538 $ 2,632
Foreign 174,080 141,822
Total $ 204,618 $ 144,454

Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries $ 38,791 $ 6,245


Cash, cash equivalents and marketable securities (in thousands)	March 31, 2023		December 31, 2022

U.S.	$	2,725	$	16,112
Foreign	108,642		96,434
Total	$	111,367	$	112,546

Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries	$	6,860	$	6,647

Of the ~~$204.6~~$111.4 million of cash and cash equivalents held as of March 31, ~~2022,~~2023, greater than 99% was held as bank ~~deposits.~~deposits at a diversified group of institutions, primarily systemically important banks. Cash and cash equivalents as of March 31, 2023, included approximately USD $2.6 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.

The following table presents additional key information concerning working capital:


		For the Three Months Ended						For the Three Months Ended
		March 31, 2022	December 31, 2021	September 30, 2021	June 30, 2021	March 31, 2021		March 31, 2023	December 31, 2022	September 30, 2022	June 30, 2022	March 31, 2022

Days sales outstanding (1)	Days sales outstanding (1)	42.0	42.4	42.7	42.2	41.8	Days sales outstanding (1)	42.9	43.4	43.4	43.2	42.0
Inventory turns (2)	Inventory turns (2)	1.6	2.0	1.9	2.1	2.0	Inventory turns (2)	1.3	1.3	1.3	1.5	1.6

(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.

3840

Sources and Uses of Cash

The following table presents cash provided (used):


		For the Three Months Ended March 31,							For the Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		Dollar Change		(in thousands)	2023		2022		Dollar Change

Net cash provided by operating activities	Net cash provided by operating activities	$	114,706	$	124,422	$	(9,716)	Net cash provided by operating activities	$	183,912	$	114,706	$	69,206
Net cash used by investing activities	Net cash used by investing activities	(41,838)		(24,587)		(17,251)		Net cash used by investing activities	(39,511)		(41,838)		2,327
Net cash used by financing activities	Net cash used by financing activities	(13,480)		(129,651)		116,171		Net cash used by financing activities	(146,081)		(13,480)		(132,601)
Net effect of changes in exchange rates on cash	Net effect of changes in exchange rates on cash	776		(2,949)		3,725		Net effect of changes in exchange rates on cash	501		776		(275)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	60,164	$	(32,765)	$	92,929	Net change in cash and cash equivalents	$	(1,179)	$	60,164	$	(61,343)

Operating Activities. The ~~decrease~~increase in cash provided by operating activities of ~~$9.7~~$69.2 million was driven primarily by ~~a decrease~~an increase in net income and changes in ~~inventory, partially offset by changes in accounts receivable.~~other assets and liabilities. The following table presents cash flow impacts from changes in operating assets and liabilities:


		For the Three Months Ended March 31,							For the Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		Dollar Change		(in thousands)	2023		2022		Dollar Change

Accounts receivable	Accounts receivable	$	(37,531)	$	(54,735)	$	17,204	Accounts receivable	$	(44,133)	$	(37,531)	$	(6,602)
Inventories	Inventories	(18,854)		(7,919)		(10,935)		Inventories	(23,887)		(18,854)		(5,033)
Accounts payable	Accounts payable	(4,016)		2,460		(6,476)		Accounts payable	3,327		(4,016)		7,343
Deferred revenue	Deferred revenue	(937)		(2,287)		1,350		Deferred revenue	(609)		(937)		328
Other assets and liabilities	Other assets and liabilities	(52,904)		(57,081)		4,177		Other assets and liabilities	(5,307)		(52,904)		47,597
Total change in cash due to changes in operating assets and liabilities	Total change in cash due to changes in operating assets and liabilities	$	(114,242)	$	(119,562)	$	5,320	Total change in cash due to changes in operating assets and liabilities	$	(70,609)	$	(114,242)	$	43,633

Cash used decreased due to changes in operating assets and liabilities during the three months ended March 31, ~~2022,~~2023, as compared to the same period in the prior year, ~~increased~~ by approximately ~~$5.3~~$43.6 million. The decrease of cash used for other assets and liabilities was primarily due to higher non-cash operating expenses recorded as accrued liabilities for personnel-related costs including lower annual employee incentive program payments in the current year, as compared to the same period in the prior year, partially offset by the $15 million milestone payment to license intellectual property made in the current year. The increase in cash used by accounts receivable ~~over the same prior-year period~~ was primarily due to ~~the~~year over year growth in revenues. The increase in cash provided by accounts payable was primarily due to timing of ~~revenue within the prior year, as sales volumes rebounded from the beginning of the COVID-19 pandemic. Cash used for inventory in the current period,~~payments, as compared to the same period in the prior ~~period, was higher primarily to support increasing demand and to mitigate potential supply-chain impacts.~~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 $30.0 million for an equity investment and license rights, with expected subsequent milestone payments of $20.0 million. The cash paid for these arrangements will be presented in operating and investing activities in the unaudited condensed consolidated statement of cash flows for the period in which cash is used. Refer to “Part I, Item 1. Note 20 - Subsequent Event” for more information.

Investing Activities. Cash used by investing activities was ~~$41.8~~$39.5 million for the three months ended March 31, ~~2022,~~2023, as compared to ~~$24.6~~$41.8 million for the same period in the prior year. The ~~increase~~decrease in cash used by investing activities was primarily due to the acquisition of intangible assets in the prior year, partially offset by higher purchases of property ~~and~~ equipment ~~and an acquisition~~in the current year as we continue construction of ~~an intangible asset.~~our facility in Scarborough, Maine.

Our ~~outlook~~total capital expenditure plan for ~~full year capital spending~~2023 is estimated to be approximately $180.0 million, ~~for 2022.~~which includes capital investments to support growth in manufacturing and operations facilities, and in customer-facing software.

Financing Activities. Cash used by financing activities was ~~$13.5~~$146.1 million for the three months ended March 31, ~~2022,~~2023, as compared to ~~$129.7~~$13.5 million of cash used for the same period in the prior year. The ~~decrease~~increase in cash used by financing activities was due to ~~a $326.5~~$147.5 million ~~increase in borrowings~~cash used for repayments under our Credit Facility ~~partially offset by $134.0 million in additional repurchases of our common stock~~ in the current ~~period as~~year, compared to ~~the same period in the prior year. Cash was also~~borrowings of $326.5 million under our Credit Facility, partly offset by cash used to pay off our $75.0 million 2022 Series A Notes ~~when due and payable on February 14, 2022.~~in the prior year. The increase in cash used by financing activities was partly offset by $266.3 million cash used to repurchase our common stock in the prior year.

During the three months ended March 31, 2023, we did not purchase any shares of our common stock in the open market. During the three months ended March 31, 2022, we purchased $266.3 million of shares of our common stock. We

~~Cash used to repurchase shares of our common stock increased $134.0 million during the three months ended March 31, 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 and deployment activities, as well as share price and ~~the share price.~~prevailing interest rates. Refer to Note 12 to the unaudited condensed consolidated financial statements in ~~Part~~“Part I. Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for additional information about our share repurchases.

Under our Credit Facility, the net borrowing activity during the three months ended March 31, ~~2022,~~2023, as compared to the same period in the prior year, ~~increased $326.5~~decreased $147.5 million. As of March 31, ~~2022,~~2023, we had ~~$400.0~~$431.5 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~~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, and certain restrictive ~~agreements, and sanctions laws and regulations.~~agreements. The financial covenant is a consolidated leverage ratio test.

OnIn February 2022, we paid off our $75.0 million 2022 Series A Notes with cash provided by operations and 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~~issuing governments’ 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~~third-party guarantees.

4042

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”), as defined in the Senior Note Agreement and Credit Facility, not to exceed 3.5-to-1. As of March 31, ~~2022,~~2023, we were in compliance with such covenant. The following details our consolidated leverage ratio calculation:


(in thousands)	Twelve Months ~~ended~~Ended
Trailing 12 Months Adjusted EBITDA:	March 31, ~~2022~~2023

Net income attributable to stockholders (as reported)	$	~~734,553~~699,178
Interest expense	~~29,220~~45,989
Provision for income taxes	~~169,535~~186,991
Depreciation and amortization	~~106,050~~113,720
Acquisition-related expense	~~3,284~~585
Share-based compensation expense	~~40,053~~52,527
Extraordinary and other non-recurring non-cash charges	~~5,148~~—
Adjusted EBITDA	$	~~1,087,843~~1,098,990

(dollars in thousands)
Debt to Adjusted EBITDA Ratio:	March 31, ~~2022~~2023

~~Line of credit~~Credit facility	$	~~400,000~~431,500
Current and long-term portions of long-term debt	~~773,381~~771,348
Total debt	~~1,173,381~~1,202,848
Acquisition-related contingent consideration payable	~~10,683~~1,663
Financing leases	11—
Deferred financing costs	~~481~~382
Gross debt	$	~~1,184,556~~1,204,893
Gross debt to Adjusted EBITDA ratio	~~1.09~~1.10

Less: Cash and cash equivalents	$	~~204,618~~111,367
Net debt	$	~~979,938~~1,093,526
Net debt to Adjusted EBITDA ratio	~~0.90~~1.00

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 as of March 31, ~~2022,~~2023, are described in Note 16 to the unaudited condensed consolidated financial statements in ~~Part~~“Part I. Item 1. Financial Statements” 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, refer to the section under the heading “Part II. Item 7A. Quantitative and Qualitative Disclosure About Market Risk” of our ~~2021~~2022 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 ~~2021~~2022 Annual Report, except for the impact of foreign exchange rates, as discussed below.

Foreign Currency Exchange Impacts. Approximately ~~23%~~21% of our consolidated revenue was derived from products manufactured in the U.S. and sold internationally in local currencies for ~~both~~ the three months ended March 31, ~~2022 and 2021~~2023, as compared to 23% for the three months ended March 31, 2022.. 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~~

The following table presents the estimated foreign currency exchange impact on ~~projected~~our revenues, operating profit, and ~~expenses~~diluted earnings per share for the ~~remainder of 2022, excluding~~current period and as compared to 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 $9 million and operating income by approximately $5 million. Additionally, we project our foreign currency hedge contracts in place as of March 31, 2022, would result in incremental offsetting gains of approximately $2 million. 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.respective prior-year period:


	For the Three Months Ended March 31,
(in thousands, except per share amounts)	2023		2022

Revenue impact	$	(18,350)	$	(15,064)

Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions	$	(10,436)	$	(7,939)
Hedge gains - current period	335		2,236
Exchange (losses) on settlements of foreign currency denominated transactions - current period	(82)		(775)
Operating profit impact - current period	$	(10,183)	$	(6,478)

Hedge (gains) losses - prior period	(2,236)		2,430
Exchange losses on settlement of foreign currency denominated transactions - prior period	775		70
Operating profit impact - as compared to prior period	$	(11,644)	$	(3,978)

Diluted earnings per share impact - as compared to prior period	$	(0.11)	$	(0.04)

At our current foreign currency exchange rate assumptions, we anticipate the effect of a ~~stronger~~weaker U.S. dollar for the remainder of the year, as compared to the respective prior-year period, will have a net 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, ~~2022,~~2023 by increasing our revenues by approximately ~~$77 million, $16~~$12 million, and ~~$0.14~~decreasing our operating profit and diluted earnings per share by approximately $14 million and $0.13 per share, respectively. This unfavorable year-over-year currency impact includes foreign currency hedging activity, which is expected to ~~increase~~decrease our total operating profit by approximately ~~$22~~$20 million and ~~$0.20~~$0.18 per share for the remainder of the year ended December 31, ~~2022.~~2023. 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 ~~1.05,~~$1.08, the British pound at ~~1.26,~~$1.23, the Canadian dollar at ~~0.78,~~$0.73, and the Australian dollar at ~~0.71;~~$0.66; and the Japanese yen at ~~¥130,~~¥135, the Chinese renminbi at RMB ~~6.61,~~6.99, and the Brazilian real at R$~~4.97~~5.14 relative to the U.S. dollar for the remainder of ~~2022.~~2023.

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~~The following table presents the estimated foreign currency exchange impact~~

Based on ~~our~~projected revenues ~~operating profit,~~ and ~~diluted earnings per share~~expenses for the ~~current period~~remainder of 2023, excluding the impact of intercompany and ~~as compared to~~trade balances denominated in currencies other than the ~~respective prior-year period:~~functional subsidiary currencies, we project a 1% strengthening of the U.S. dollar would reduce revenue by approximately $9.0 million and operating income by approximately $2.5 million, net of hedge positions.

For the Three Months Ended
March 31,
(in thousands, except per share amounts) 2022 2021

Revenue impact $ (15,064) $ 19,434
Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions $ (7,939) $ 11,761
Hedge gains (losses) - current period 2,236 (2,430)
Exchange (losses) on settlements of foreign currency denominated transactions - current period (775) (70)
Operating profit impact - current period $ (6,478) $ 9,261
Hedge losses (gains) - prior period 2,430 (1,341)
Exchange losses on settlement of foreign currency denominated transactions - prior period 70 1,907
Operating profit impact - as compared to prior period $ (3,978) $ 9,827
Diluted earnings per share impact - as compared to prior period $ (0.04) $ 0.09

Interest Rate Impacts: We entered into an interest rate swap to manage the effect of variable interest obligations on amounts borrowed under the terms of the Credit Facility. Beginning on March 31, 2023, the variable interest rate associated with $250.0 million of borrowings outstanding under the Credit Facility became effectively fixed at 3.9% plus the applicable credit spread, through October 20, 2025. Borrowings outstanding under the Credit Facility at March 31, 2023 were $431.5 million. We have designated the interest rate swap as a cash flow hedge. For more information regarding our interest rate swap, refer to “Part I, Item 1. Financial Statements, Note 19. Hedge Instruments.”

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 as of March 31, ~~2022,~~2023, 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 March 31, ~~2022,~~2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4445

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 ~~2021~~2022 Annual Report, ~~as well as the risk factor below, which supplements and should be read in conjunction with the risk factors disclosed in our 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~~There have been no material changes from the risk factors previously disclosed in the ~~2021~~2022 Annual Report. The risks described in our ~~2021~~2022 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.

~~The current war in Ukraine may adversely affect our business, financial condition and results of operations~~

Since our business is global in nature, political, economic, and other conditions in foreign countries and regions, including geopolitical risks, such as the current war between Russia and Ukraine, may adversely affect our business, financial condition and results of operations. While we have limited operations in Russia, and regional revenues represent a ~~de minimis~~ percentage of our total revenues, our regional operations have been affected by sanctions by a number of governments on the Russian financial sector, including the United States, the European Union, and the United Kingdom, as well as Russian counter-sanctions and other economic, financial and export restrictions. These sanctions and restrictions may disrupt our ability to collect outstanding accounts receivable and support our existing customers and employees in Russia.

We are actively monitoring the situation in Ukraine and Russia and assessing its impact on our business, including our employees, business partners and customers. The length of this war cannot be predicted, and it may escalate and/or expand in scope. 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 limited to, adverse effects on macroeconomic conditions, supply chain disruptions, increased cyberattack and cybersecurity risks, adverse changes in international trade policies and relations, regulatory enforcement, our ability to implement and execute our business strategy, our exposure to foreign currency fluctuations, reputational risk, and volatility or disruption in the capital markets.

4546

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

During the three months ended March 31, ~~2022,~~2023, 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)

January 1 to January 31, 2022 226,705 $ 523.94 226,705 4,765,526
February 1 to February 28, 2022 181,951 $ 515.77 161,502 4,604,024
March 1 to March 31, 2022 114,204 $ 529.73 114,204 4,489,820
Total 522,860 (2) 502,411 4,489,820


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)

January 1 to January 31, 2023	—		$	—	—	3,029,242
February 1 to February 28, 2023	19,055		$	503.65	—	3,029,242
March 1 to March 31, 2023	—		$	—	—	3,029,242
Total	19,055	(2)			—	3,029,242

(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 March 31, ~~2022,~~2023, and no share repurchase programs expired during the period. There were ~~502,411~~no share repurchases made during the three months ended March 31, ~~2022,~~2023, in transactions made pursuant to our share repurchase program.

(2)During the three months ended March 31, ~~2022,~~2023, we received ~~20,449~~19,055 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~~“Part I. Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for additional information about our share repurchases.

4647

Item 6. Exhibits


Exhibit No.			Description


10.1*			~~Form of Confidential Information, Work Product, and Restrictive Covenant Agreement with each of the Company’s Executive Officers (filed herewith).~~

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~~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.

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 March 31, ~~2022,~~2023, 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 Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2022,~~2023, formatted in Inline XBRL and contained in Exhibit 101.

*			~~Indicates management contract or compensatory plan or arrangement.~~

4748

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: May ~~4, 2022~~2, 2023			Brian P. McKeon
			Executive Vice President, Chief Financial Officer and Treasurer
			(Principal Financial Officer)

4849



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

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


(in thousands)
As of March 31, 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 March 31, 2022

Assets
Money market funds (1)	$	76	$	—	$	—	$	76
Equity mutual funds (2)	$	712	$	—	$	—	$	712
Cross currency swaps (3)	$	—	$	5,563	$	—	$	5,563
Foreign currency exchange contracts (3)	$	—	$	8,396	$	—	$	8,396
Liabilities

Foreign currency exchange contracts (3)	$	—	$	702	$	—	$	702
Deferred compensation (4)	$	712	$	—	$	—	$	712
Contingent payments - acquisitions	$	—	$	—	$	7,230	$	7,230


(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



(in thousands)		Three Months Ended March 31,
		2022		2021

Financial statement line items in which effects of cash flow hedges are recorded	Cost of revenue	$	337,796	$	306,925
Foreign exchange contracts
Amount of gain (loss) reclassified from accumulated other comprehensive income into income		$	2,236	$	(2,430)