UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 

FORM 10-Q 

 

(Mark One) 

OR 

For the transition period from _______________ to _______________. 

  

COMMISSION FILE NUMBER: 000-19271 

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

    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. 

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 83,004,93682,587,328 on April 25, 2023.26, 2024.

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

Quarterly Report on Form 10-Q 

Table of Contents 

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-ownedwholly 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, 2022,2023, 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, 2023,2024, 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, 2023,audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022,2023, (the “2022“2023 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.

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, 2023,2024, are consistent with those discussed in “Note 2. Summary of Significant Accounting Policies” to the consolidated financial statements in our 20222023 Annual Report, and as updated below.

We adoptedIn November 2023, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50)2023-07, “Segment Reporting (Topic 280): Disclosure of Supplier Finance Program Obligations,Improvements to Reportable Segment Disclosures,” 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.

Our revenue is recognized when,In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of income tax rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted, and may be applied either prospectively or as, performance obligations under the terms of a contractretrospectively. We are satisfied, which occurs when control of the promised products or services is transferredcurrently evaluating ASU 2023-09 to a customer. We exclude sales, use, value-added, and other taxes we collectdetermine its impact 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:

We enter into contracts where customers purchase combinationspresent disaggregated revenue for our CAG segment based on major product and service categories. Our Water and LPD segments are comprised of productsa single major product category.

The following table presents revenue by major product and services, which are generally capable of being distinct and accounted for as separate performance obligations. service categories:

The timing offollowing table presents 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, 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 range from 30 to 60 days, with exceptions in certain geographies.by principal geographic area, based on customers’ domiciles:

Contracts may be amended to account for changes in contract specifications and 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.Multiple Performance Obligations

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 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 contractsarrangements with an original expected duration of one year or less.

The following customer programsarrangements represent our most significant customer contracts that contain multiple performance obligations:

On December 31, 2023, our deferred revenue related to extended warranties and post-contract support was $26.0 million, 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,which approximately $15.8 million was recognized during the three months ended March 31, 2023, were not material. Refund obligations2024. Furthermore, as a result of new arrangements, our deferred revenue related to customer incentive programsextended warranties and post-contract support was $26.0 million at March 31, 2024. We do not disclose information about remaining performance obligations that are recorded in accrued liabilitiespart of contracts with an original expected duration of one year or less, and do not adjust for the actual issuanceeffect of incentives, incentives earned but not yet issued,the financing components when the period between customer payment and estimatesrevenue recognition is one year or less. Deferred revenue related to extended warranties and post-contract support with an original duration of incentivesmore than one year was $9.5 million at March 31, 2024, of which approximately 32%, 33%, 20%, 8%, and 7% are expected to be earned inrecognized during the future.remainder of 2024, and the full years 2025, 2026, 2027, and thereafter, respectively. We have determined these arrangements do not include a significant financing component.

On December 31, 2022,2023, our deferred commission costs, included within other current and long-term assets, were $19.2$19.7 million, of which approximately $1.7$1.8 million of commission expense was recognized during the three months ended March 31, 2023.2024. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, net of subsequent recognition, our deferred commission costs were $19.3$19.7 million as ofat March 31, 2023.2024. Impairments of deferred commission costs during the three months ended March 31, 2023,2024, 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, customer base, or existing product and service lines. From time to time, we may acquire small reference laboratories or radiology practices that we account for as either asset purchases or business combinations.

During the third quarter of 2022,On February 1, 2024, we acquired the assets of an international water testing company locateda privately-owned software and data platform business based in Canadathe U.S. that extends our practice management system cloud-native workflow and delivers strategic data solutions to our customers and their clients, for approximately $12.8$81.4 million, in cash, including a holdbackan estimated contingent payment of approximately $1.3$4.4 million. This acquisition expands our product offering inWe estimate the Water segment. Thepreliminary fair values and the lives of the assets and liabilities acquired consistsare as follows: completed technology of technologyapproximately $17.1 million, with a life of 6 years; customer relationship intangibles of approximately $3.4$12.5 million, with a life of 10 years; customer relationship intangiblesa non-compete agreement of approximately $1.2$4.7 million, with a life of 5 years; a trademark of approximately $0.7 million, with a life of 10 years; approximately $6.9$45.8 million of goodwill, representing synergies with our Water testing portfolio;software business; and approximately $1.3$0.6 million of net tangible assets, including inventory and accounts receivable. Goodwill related to this acquisition is expected to be deductible for tax purposes. Pro forma information has not been presented for this acquisition because such information is not material to the financial statements. The results of operations have been included in our WaterCAG segment since the acquisition date. The purchase price allocation is subject to revision as additional information becomes available regarding working capital adjustments, tax-related matters, contingencies, and certain assets and liabilities. The acquisition expenses were not material.significant.

NOTE 5. 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

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. HistoricalAdditionally, our estimates are developed based on historical credit loss experience, provides the basis for the estimationestimates of expected credit losses. Adjustments to historical loss information are made for differences inrecoveries, current economic conditions.conditions, and future expectations.

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

Contract assetsAssets and lease receivablesLease Receivables

The allowance for credit losses associated with the contract assets and lease receivables was $5.8$6.6 million and $5.5$6.4 million as of March 31, 20232024, and December 31, 2022,2023, 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:

NOTE 8. LEASES

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

NOTE 9. OTHER CURRENT AND LONG-TERM ASSETS

Other long-term assets consisted of the following:

NOTE 10. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

NOTE 11. DEBT

Credit Facility

As ofAt March 31, 2023,2024, we had $431.5$250.0 million in outstanding borrowings under our Credit Facility, all of which consisted of $181.5 million drawn under our line of credit and ais the $250.0 million Term Loan, with a weighted average effective interest rate of 5.8%. As6.3%, excluding any impact of our interest rate swap. At December 31, 2022,2023, we had $579.0$250.0 million in outstanding borrowings under our Credit Facility, all of which consisted of $329.0 million draw under our line of credit and awas the $250.0 million Term Loan, with a weighted average effective interest rate of 5.1%6.0%. As ofAt March 31, 2023,2024, we had a remaining borrowing availability of $817.0$998.5 million under our $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 primarily issued in connection with our workers’ compensation policy, for $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)(i) a prime rate plus a margin ranging from 0.0% to 0.375% based on our consolidated leverage ratio, (2)(ii) 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)(iii) 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 agreementcontract to manage the economic effect of $250$250.0 million of variable interest borrowings under our Credit Facility. Refer to Note 19“Note 19. Hedging Instruments” 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, which is defined as the consolidated leverage ratio under the terms of the Credit Facility, not to exceed 3.5-to-1. AtAs of March 31, 2023 and December 31, 2022,2024, we were in compliance with the covenants of the Credit Facility.

Senior Notes

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.agreements, and violations of laws and regulations. The sole financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation, amortization, and share-based compensation, as defined in the Senior Note Agreements, not to exceed 3.5-to-1. AtAs of March 31, 2023 and December 31, 2022,2024, 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, weWe 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, 20232024, and 20222023, 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:surrenders:

NOTE 13. INCOME TAXES 

Our effective income tax rate was 20.3% for the three months ended March 31, 2024, as compared to 20.0% for the three months ended March 31, 2023, as compared to 19.7% for the three months ended March 31, 2022.2023. The increase in our effective tax rate for the three months ended March 31, 2023, as2024, compared to the same periodsperiod in the prior year, was primarily driven by a decreasegeographical income mix partially offset by an increase in the tax rate benefits related to share-based compensation.

The effective tax rate for the three months ended March 31, 2023 and 2022,2024, 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,Accumulated Other Comprehensive Income (“AOCI”), net of tax, consisted of the following: