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 ~~June~~September 30, 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

☒

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 ~~83,012,408~~83,051,702 on ~~July~~October 27, 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
Credit Facility			Our $1.25 billion five-year unsecured credit facility under an amended and restated credit agreement; consisting of i) $1 billion revolving credit facility, also referred to as line of credit, and ii) $250 million three-year term loan.
FASB			U.S. Financial Accounting Standards Board
LPD			Livestock, Poultry and Dairy, a reporting segment that provides diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer efficiency
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. 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
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
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
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

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 ~~June~~September 30,, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Income for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~June~~ Sept ember 30, 2023 and 2022	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three and ~~Six~~Nine Months Ended ~~June~~S eptember 30, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	78
	Notes to Condensed Consolidated Financial Statements (Unaudited)	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3233
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5354
Item 4.	Controls and Procedures	5455
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	5556
Item 1A.	Risk Factors	5556
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5657
Item 5.	Other Information	5657
Item 6.	Exhibits	5758
Signatures		5859

PART I— FINANCIAL INFORMATION

Item 1. Financial Statements

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022

ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	132,838	$	112,546	Cash and cash equivalents	$	331,696	$	112,546
Accounts receivable, net	Accounts receivable, net	461,858		400,619		Accounts receivable, net	452,699		400,619
Inventories	Inventories	395,141		367,823		Inventories	393,974		367,823
Other current assets	Other current assets	189,188		220,489		Other current assets	205,861		220,489
Total current assets	Total current assets	1,179,025		1,101,477		Total current assets	1,384,230		1,101,477
Long-Term Assets:	Long-Term Assets:					Long-Term Assets:
Property and equipment, net	Property and equipment, net	683,270		649,474		Property and equipment, net	687,101		649,474
Operating lease right-of-use assets	Operating lease right-of-use assets	114,148		118,618		Operating lease right-of-use assets	117,782		118,618
Goodwill	Goodwill	364,206		361,795		Goodwill	361,766		361,795
Intangible assets, net	Intangible assets, net	90,932		97,672		Intangible assets, net	87,129		97,672
Other long-term assets	Other long-term assets	439,225		417,729		Other long-term assets	448,396		417,729
Total long-term assets	Total long-term assets	1,691,781		1,645,288		Total long-term assets	1,702,174		1,645,288
TOTAL ASSETS	TOTAL ASSETS	$	2,870,806	$	2,746,765	TOTAL ASSETS	$	3,086,404	$	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	$	107,664	$	110,221	Accounts payable	$	112,609	$	110,221
Accrued liabilities	Accrued liabilities	399,425		433,662		Accrued liabilities	420,312		433,662
Credit facility	Credit facility	264,000		579,000		Credit facility	250,000		579,000
Current portion of long-term debt	Current portion of long-term debt	74,991		74,982		Current portion of long-term debt	149,990		74,982
Current portion of deferred revenue	Current portion of deferred revenue	37,779		37,938		Current portion of deferred revenue	37,282		37,938
Total current liabilities	Total current liabilities	883,859		1,235,803		Total current liabilities	970,193		1,235,803
Long-Term Liabilities:	Long-Term Liabilities:					Long-Term Liabilities:
Deferred income tax liabilities	Deferred income tax liabilities	5,568		8,150		Deferred income tax liabilities	10,594		8,150
Long-term debt, net of current portion	Long-term debt, net of current portion	696,844		694,387		Long-term debt, net of current portion	618,813		694,387
Long-term deferred revenue, net of current portion	Long-term deferred revenue, net of current portion	29,054		30,862		Long-term deferred revenue, net of current portion	27,716		30,862
Long-term operating lease liabilities		97,337		101,239
Long-term operating lease liabilities, net of current portion						Long-term operating lease liabilities, net of current portion	101,470		101,239
Other long-term liabilities	Other long-term liabilities	64,283		67,587		Other long-term liabilities	60,211		67,587
Total long-term liabilities	Total long-term liabilities	893,086		902,225		Total long-term liabilities	818,804		902,225
Total liabilities	Total liabilities	1,776,945		2,138,028		Total liabilities	1,788,997		2,138,028

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

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,378 shares in 2023 and 107,193 shares in 2022; Outstanding: 83,060 shares in 2023 and 82,894 shares in 2022		10,738		10,719
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,452 shares in 2023 and 107,193 shares in 2022; Outstanding: 83,068 shares in 2023 and 82,894 shares in 2022						Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,452 shares in 2023 and 107,193 shares in 2022; Outstanding: 83,068 shares in 2023 and 82,894 shares in 2022	10,745		10,719
Additional paid-in capital	Additional paid-in capital	1,515,197		1,463,215		Additional paid-in capital	1,543,024		1,463,215
Deferred stock units: Outstanding: 59 units in 2023 and 58 units in 2022	Deferred stock units: Outstanding: 59 units in 2023 and 58 units in 2022	5,515		5,182		Deferred stock units: Outstanding: 59 units in 2023 and 58 units in 2022	5,523		5,182
Retained earnings	Retained earnings	4,037,819		3,599,529		Retained earnings	4,250,050		3,599,529
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(73,665)		(77,796)		Accumulated other comprehensive loss	(74,891)		(77,796)
Treasury stock, at cost: 24,318 shares in 2023 and 24,299 shares in 2022		(4,401,743)		(4,392,112)
Treasury stock, at cost: 24,384 shares in 2023 and 24,299 shares in 2022						Treasury stock, at cost: 24,384 shares in 2023 and 24,299 shares in 2022	(4,437,044)		(4,392,112)
Total stockholders’ equity	Total stockholders’ equity	1,093,861		608,737		Total stockholders’ equity	1,297,407		608,737
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,870,806	$	2,746,765	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,086,404	$	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. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022

Revenue:	Revenue:									Revenue:
Product revenue	Product revenue	$	540,680	$	492,518	$	1,046,622	$	970,895	Product revenue	$	521,489	$	481,004	$	1,568,111	$	1,451,899
Service revenue	Service revenue	402,950		368,028		797,203		726,200		Service revenue	394,038		360,657		1,191,241		1,086,857
Total revenue	Total revenue	943,630		860,546		1,843,825		1,697,095		Total revenue	915,527		841,661		2,759,352		2,538,756
Cost of Revenue:	Cost of Revenue:									Cost of Revenue:
Cost of product revenue	Cost of product revenue	179,999		167,323		353,609		329,394		Cost of product revenue	178,527		158,554		532,136		487,948
Cost of service revenue	Cost of service revenue	190,781		179,191		374,395		354,916		Cost of service revenue	189,018		176,481		563,413		531,397
Total cost of revenue	Total cost of revenue	370,780		346,514		728,004		684,310		Total cost of revenue	367,545		335,035		1,095,549		1,019,345
Gross profit	Gross profit	572,850		514,032		1,115,821		1,012,785		Gross profit	547,982		506,626		1,663,803		1,519,411
Expenses:	Expenses:									Expenses:
Sales and marketing	Sales and marketing	140,532		130,257		288,336		262,549		Sales and marketing	135,698		130,021		424,034		392,570
General and administrative	General and administrative	89,669		81,488		159,770		159,437		General and administrative	89,034		83,764		248,804		243,201
Research and development	Research and development	46,505		123,221		91,172		163,389		Research and development	47,967		48,013		139,139		211,402
Income from operations	Income from operations	296,144		179,066		576,543		427,410		Income from operations	275,283		244,828		851,826		672,238
Interest expense	Interest expense	(10,542)		(8,317)		(23,669)		(15,313)		Interest expense	(8,647)		(10,998)		(32,316)		(26,311)
Interest income	Interest income	327		334		743		477		Interest income	1,255		353		1,998		830
Income before provision for income taxes	Income before provision for income taxes	285,929		171,083		553,617		412,574		Income before provision for income taxes	267,891		234,183		821,508		646,757
Provision for income taxes	Provision for income taxes	61,693		39,104		115,327		86,630		Provision for income taxes	55,660		53,245		170,987		139,875
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders	$	224,236	$	131,979	$	438,290	$	325,944	Net income attributable to IDEXX Laboratories, Inc. stockholders	$	212,231	$	180,938	$	650,521	$	506,882

Earnings per Share:	Earnings per Share:									Earnings per Share:
Basic	Basic	$	2.70	$	1.57	$	5.28	$	3.87	Basic	$	2.55	$	2.17	$	7.83	$	6.04
Diluted	Diluted	$	2.67	$	1.56	$	5.22	$	3.82	Diluted	$	2.53	$	2.15	$	7.75	$	5.97
Weighted Average Shares Outstanding:	Weighted Average Shares Outstanding:									Weighted Average Shares Outstanding:
Basic	Basic	83,086		83,922		83,039		84,164		Basic	83,097		83,247		83,058		83,855
Diluted	Diluted	83,983		84,858		83,980		85,222		Diluted	83,993		84,113		83,990		84,858

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. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

For the Three Months Ended
June 30, For the Six Months Ended
June 30,
2023 2022 2023 2022
Net income $ 224,236 $ 131,979 $ 438,290 $ 325,944
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 1,752 (31,081) 6,010 (27,804)
Benefit plans, net of tax expense of $0 and $0 in 2023 and $(991) and $(991) in 2022 — (5,056) — (5,056)
Reclassification adjustment for benefit plans included in net income, net of tax of $34 and $54 in 2023 and $51 and $51 in 2022 178 260 297 260
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $(110) and $(575) in 2023 and $1,286 and $1,725 in 2022 (353) 4,124 (1,843) 5,533
Unrealized gain (loss) on investments, net of tax expense (benefit) of $0 and $2 in 2023 and $(7) and $(12) in 2022 1 (25) 7 (42)
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on foreign currency exchange contracts, net of tax expense (benefit) of $46 and $20 in 2023 and $4,298 and 5,735 in 2022 (131) 11,343 (340) 13,440
Unrealized gain (loss) on cross currency swaps, net of tax expense (benefit) of $(553) and $(940) in 2023 and $1,335 and $1,646 in 2022 (1,776) 4,282 (3,016) 5,278
Unrealized gain (loss) on interest rate swap, net of tax expense (benefit) of $1,107 and $1,093 in 2023 and $0 and $0 in 2022 3,550 — 3,505 —
Reclassification adjustments for (gain) loss included in net income, net of tax (expense) benefit of $(127) and $(244) in 2023 and $(1,577) and $(2,187) in 2022 (271) (4,204) (489) (5,830)
Unrealized gain (loss) on derivative instruments 1,372 11,421 (340) 12,888
Other comprehensive income, net of tax 2,950 (20,357) 4,131 (14,221)
Comprehensive income attributable to IDEXX Laboratories, Inc. $ 227,186 $ 111,622 $ 442,421 $ 311,723
The accompanying notes are an integral part of these condensed consolidated financial statements.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022

Net income	$	212,231	$	180,938	$	650,521	$	506,882
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(12,949)		(31,220)		(6,939)		(59,024)
Benefit plans, net of tax expense of $0 and $0 in 2023 and $0 and $(991) in 2022	—		—		—		(5,056)
Reclassification adjustment for benefit plans included in net income, net of tax of $21 and $75 in 2023 and $23 and $74 in 2022	98		118		395		378
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $727 and $152 in 2023 and $1,713 and $3,438 in 2022	2,331		5,495		488		11,028
Unrealized gain (loss) on investments, net of tax expense (benefit) of $0 and $2 in 2023 and $(3) and $(15) in 2022	(1)		(10)		6		(52)
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on foreign currency exchange contracts, net of tax expense (benefit) of $2,765 and $2,785 in 2023 and $4,634 and $10,368 in 2022	7,645		13,490		7,305		26,930
Unrealized gain (loss) on cross currency swaps, net of tax expense (benefit) of $579 and $(361) in 2023 and $1,657 and $3,303 in 2022	1,858		5,319		(1,158)		10,597
Unrealized gain (loss) on interest rate swap, net of tax expense (benefit) of $545 and $1,638 in 2023 and $0 and $0 in 2022	1,749		—		5,254		—
Reclassification adjustments for (gain) loss included in net income, net of tax (expense) benefit of $(701) and $(945) in 2023 and $(2,254) and $(4,441) in 2022	(1,957)		(6,381)		(2,446)		(12,211)
Unrealized gain (loss) on derivative instruments	9,295		12,428		8,955		25,316
Other comprehensive (loss) income, net of tax	(1,226)		(13,189)		2,905		(27,410)
Comprehensive income attributable to IDEXX Laboratories, Inc.	$	211,005	$	167,749	$	653,426	$	479,472

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

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

(Unaudited)


		Common Stock																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			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	Balance December 31, 2022	107,193	$	10,719	$	1,463,215	$	5,182	$	3,599,529	$	(77,796)	$	(4,392,112)	$	608,737	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	Net income	—	—		—		—		214,054		—		—		214,054		Net income	—	—		—		—		214,054		—		—		214,054
Other comprehensive income, net	Other comprehensive income, net	—	—		—		—		—		1,181		—		1,181		Other comprehensive income, net	—	—		—		—		—		1,181		—		1,181
Repurchases of common stock, net	Repurchases of common stock, net	—	—		—		—		—		—		(9,554)		(9,554)		Repurchases of common stock, net	—	—		—		—		—		—		(9,554)		(9,554)
Common stock issued under stock plans, including excess tax benefit	Common stock issued under stock plans, including excess tax benefit	128	13		12,765		(25)		—		—		—		12,753		Common stock issued under stock plans, including excess tax benefit	128	13		12,765		(25)		—		—		—		12,753
Share-based compensation cost	Share-based compensation cost	—	—		13,923		7		—		—		—		13,930		Share-based compensation cost	—	—		13,923		7		—		—		—		13,930
Balance March 31, 2023	Balance March 31, 2023	107,321	$	10,732	$	1,489,903	$	5,164	$	3,813,583	$	(76,615)	$	(4,401,666)	$	841,101	Balance March 31, 2023	107,321	$	10,732	$	1,489,903	$	5,164	$	3,813,583	$	(76,615)	$	(4,401,666)	$	841,101
Net income	Net income	—	—		—		—		224,236		—		—		224,236		Net income	—	—		—		—		224,236		—		—		224,236
Other comprehensive income, net	Other comprehensive income, net	—	—		—		—		—		2,950		—		2,950		Other comprehensive income, net	—	—		—		—		—		2,950		—		2,950
Repurchases of common stock, net	Repurchases of common stock, net	—	—		—		—		—		—		(77)		(77)		Repurchases of common stock, net	—	—		—		—		—		—		(77)		(77)
Common stock issued under stock plans, including excess tax benefit	Common stock issued under stock plans, including excess tax benefit	57	6		10,283		—		—		—		—		10,289		Common stock issued under stock plans, including excess tax benefit	57	6		10,283		—		—		—		—		10,289
Deferred stock units activity	Deferred stock units activity	—	—		(345)		345		—		—		—		—		Deferred stock units activity	—	—		(345)		345		—		—		—		—
Share-based compensation cost	Share-based compensation cost	—	—		15,356		6		—		—		—		15,362		Share-based compensation cost	—	—		15,356		6		—		—		—		15,362
Balance June 30, 2023	Balance June 30, 2023	107,378	$	10,738	$	1,515,197	$	5,515	$	4,037,819	$	(73,665)	$	(4,401,743)	$	1,093,861	Balance June 30, 2023	107,378	$	10,738	$	1,515,197	$	5,515	$	4,037,819	$	(73,665)	$	(4,401,743)	$	1,093,861
Net income																	Net income	—	—		—		—		212,231		—		—		212,231
Other comprehensive loss, net																	Other comprehensive loss, net	—	—		—		—		—		(1,226)		—		(1,226)
Repurchases of common stock, net																	Repurchases of common stock, net	—	—		—		—		—		—		(35,301)		(35,301)
Common stock issued under stock plans, including excess tax benefit																	Common stock issued under stock plans, including excess tax benefit	74	7		12,611		—		—		—		—		12,618
Share-based compensation cost																	Share-based compensation cost	—	—		15,216		8		—		—		—		15,224
Balance September 30, 2023																	Balance September 30, 2023	107,452	$	10,745	$	1,543,024	$	5,523	$	4,250,050	$	(74,891)	$	(4,437,044)	$	1,297,407

Balance December 31, 2021 106,878 $ 10,688 $ 1,377,320 $ 5,719 $ 2,920,440 $ (53,484) $ (3,570,691) $ 689,992
Net income — — — — 193,965 — — 193,965
Other comprehensive income, net — — — — — 6,136 — 6,136
Repurchases of common stock, net — — — — — — (273,058) (273,058)
Common stock issued under stock plans, including excess tax benefit 125 12 11,583 (5) — — — 11,590
Share-based compensation cost — — 11,122 51 — — — 11,173
Balance March 31, 2022 107,003 $ 10,700 $ 1,400,025 $ 5,765 $ 3,114,405 $ (47,348) $ (3,843,749) $ 639,798
Net income — — — — 131,979 — — 131,979
Other comprehensive income, net — — — — — (20,357) — (20,357)
Repurchases of common stock, net — — — — — — (313,508) (313,508)
Common stock issued under stock plans, including excess tax benefit 72 7 7,779 (1,060) — — — 6,726
Deferred stock units activity — — (459) 459 — — — —
Share-based compensation cost — — 12,364 6 — — — 12,370
Balance June 30, 2022 107,075 $ 10,707 $ 1,419,709 $ 5,170 $ 3,246,384 $ (67,705) $ (4,157,257) $ 457,008
The accompanying notes are an integral part of these condensed consolidated financial statements.


	Common Stock
	Number of Shares	$0.10 Par Value		Additional Paid-in Capital		Deferred Stock Units		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total Stockholders’ Equity
Balance December 31, 2021	106,878	$	10,688	$	1,377,320	$	5,719	$	2,920,440	$	(53,484)	$	(3,570,691)	$	689,992
Net income	—	—		—		—		193,965		—		—		193,965
Other comprehensive income, net	—	—		—		—		—		6,136		—		6,136
Repurchases of common stock, net	—	—		—		—		—		—		(273,058)		(273,058)
Common stock issued under stock plans, including excess tax benefit	125	12		11,583		(5)		—		—		—		11,590
Share-based compensation cost	—	—		11,122		51		—		—		—		11,173
Balance March 31, 2022	107,003	$	10,700	$	1,400,025	$	5,765	$	3,114,405	$	(47,348)	$	(3,843,749)	$	639,798
Net income	—	—		—		—		131,979		—		—		131,979
Other comprehensive loss, net	—	—		—		—		—		(20,357)		—		(20,357)
Repurchases of common stock, net	—	—		—		—		—		—		(313,508)		(313,508)
Common stock issued under stock plans, including excess tax benefit	72	7		7,779		(1,060)		—		—		—		6,726
Deferred stock units activity	—	—		(459)		459		—		—		—		—
Share-based compensation cost	—	—		12,364		6		—		—		—		12,370
Balance June 30, 2022	107,075	$	10,707	$	1,419,709	$	5,170	$	3,246,384	$	(67,705)	$	(4,157,257)	$	457,008
Net income	—	—		—		—		180,938		—		—		180,938
Other comprehensive loss, net	—	—		—		—		—		(13,189)		—		(13,189)
Repurchases of common stock, net	—	—		—		—		—		—		(166,585)		(166,585)
Common stock issued under stock plans, including excess tax benefit	20	2		4,877		—		—		—		—		4,879
Share-based compensation cost	—	—		12,942		6		—		—		—		12,948
Balance September 30, 2022	107,095	$	10,709	$	1,437,528	$	5,176	$	3,427,322	$	(80,894)	$	(4,323,842)	$	475,999

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

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
		2023		2022			2023		2022

Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net income	Net income	$	438,290	$	325,944	Net income	$	650,521	$	506,882
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	56,186		54,633		Depreciation and amortization	85,171		83,180
Impairment charges	Impairment charges	—		2,346		Impairment charges	—		2,346
Provision for credit losses	Provision for credit losses	3,857		3,358		Provision for credit losses	5,464		5,112
Deferred income taxes	Deferred income taxes	(12,932)		(23,517)		Deferred income taxes	(14,749)		(36,890)
Share-based compensation expense	Share-based compensation expense	29,292		23,543		Share-based compensation expense	44,516		36,491
Other	Other	(157)		1,200		Other	(12)		2,032
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(61,158)		(53,794)		Accounts receivable	(54,557)		(35,061)
Inventories	Inventories	(38,906)		(49,349)		Inventories	(31,647)		(99,621)
Other assets and liabilities	Other assets and liabilities	(24,236)		(94,729)		Other assets and liabilities	(17,902)		(87,566)
Accounts payable	Accounts payable	(4,155)		(6,735)		Accounts payable	(6,799)		(3,930)
Deferred revenue	Deferred revenue	(1,855)		(2,344)		Deferred revenue	(3,347)		(3,419)
Net cash provided by operating activities	Net cash provided by operating activities	384,226		180,556		Net cash provided by operating activities	656,659		369,556
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	(66,981)		(61,924)		Purchases of property and equipment	(101,075)		(99,609)
Acquisition of intangible assets	Acquisition of intangible assets	—		(10,000)		Acquisition of intangible assets	—		(10,000)
Equity investment	Equity investment	—		(25,000)		Equity investment	—		(25,000)
Acquisitions of a business, net of cash acquired						Acquisitions of a business, net of cash acquired	—		(11,512)
Proceeds from net investment hedges						Proceeds from net investment hedges	6,256		—
Net cash used by investing activities	Net cash used by investing activities	(66,981)		(96,924)		Net cash used by investing activities	(94,819)		(146,121)
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
(Repayments) borrowings under credit facility, net	(Repayments) borrowings under credit facility, net	(315,000)		537,500		(Repayments) borrowings under credit facility, net	(329,000)		559,500
Payment of senior debt	Payment of senior debt	—		(75,000)		Payment of senior debt	—		(75,000)
Proceeds from maturity of net investment hedges		6,256		—
Payments of acquisition-related contingent consideration and holdbacks	Payments of acquisition-related contingent consideration and holdbacks	(1,780)		(2,816)		Payments of acquisition-related contingent consideration and holdbacks	(1,879)		(5,730)
Repurchases of common stock, net	Repurchases of common stock, net	—		(573,060)		Repurchases of common stock, net	(35,070)		(745,691)
Proceeds from exercises of stock options and employee stock purchase plans	Proceeds from exercises of stock options and employee stock purchase plans	23,086		18,379		Proceeds from exercises of stock options and employee stock purchase plans	35,704		23,257
Shares withheld for statutory tax withholding payments on restricted stock	Shares withheld for statutory tax withholding payments on restricted stock	(9,676)		(10,390)		Shares withheld for statutory tax withholding payments on restricted stock	(9,907)		(10,552)
Net cash used by financing activities	Net cash used by financing activities	(297,114)		(105,387)		Net cash used by financing activities	(340,152)		(254,216)
Net effect of changes in exchange rates on cash	Net effect of changes in exchange rates on cash	161		(8,337)		Net effect of changes in exchange rates on cash	(2,538)		(14,497)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	20,292		(30,092)		Net increase (decrease) in cash and cash equivalents	219,150		(45,278)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	112,546		144,454		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	$	132,838	$	114,362	Cash and cash equivalents at end of period	$	331,696	$	99,176

Supplemental Cash Flow Information:	Supplemental Cash Flow Information:					Supplemental Cash Flow Information:
Cash paid for income taxes	Cash paid for income taxes	$	97,127	$	128,325	Cash paid for income taxes	$	160,860	$	179,720
Unpaid property and equipment, reflected in accounts payable and accrued liabilities	Unpaid property and equipment, reflected in accounts payable and accrued liabilities	$	15,448	$	10,340	Unpaid property and equipment, reflected in accounts payable and accrued liabilities	$	11,328	$	19,661

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. AND SUBSIDIARIES

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, 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 and ~~six~~nine months ended ~~June~~September 30, 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 ~~June~~September 30, 2023, and our Annual Report on Form 10-K for the year ended December 31, 2022, (the “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 and ~~six~~nine months ended ~~June~~September 30, 2023 are consistent with those discussed in “Note 2. Summary of Significant Accounting Policies” to the consolidated financial statements in our 2022 Annual Report, and as 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~~consistent with the terms of our trade payables. Activity related to the obligations is presented within operating activities on the unaudited consolidated statements of cash flows. The changes in 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)	(in thousands)	For the Three Months Ended June 30,				For the Six Months Ended June 30,				(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022

Payment obligations outstanding at the beginning of the period	Payment obligations outstanding at the beginning of the period	$	7,536	$	5,364	$	10,171	$	4,775	Payment obligations outstanding at the beginning of the period	$	5,395	$	8,010	$	10,171	$	4,775
Payment obligation additions during the period	Payment obligation additions during the period	12,343		18,264		25,374		31,605		Payment obligation additions during the period	9,332		15,170		34,706		46,775
Payment obligations settled during the period	Payment obligations settled during the period	(14,484)		(15,618)		(30,150)		(28,370)		Payment obligations settled during the period	(6,876)		(15,773)		(37,026)		(44,143)
Payment obligations outstanding at the end of the period	Payment obligations outstanding at the end of the period	$	5,395	$	8,010	$	5,395	$	8,010	Payment obligations outstanding at the end of the period	$	7,851	$	7,407	$	7,851	$	7,407

New Accounting Pronouncements Adopted

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.

We adopted ASU 2021-08, “Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract 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. The adoption of ASU 2021-08 did not have a material impact on our unaudited condensed 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

910

We enter into contracts 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~~arising when revenue is 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~~Customer payment terms ~~range from~~are typically 30 to 60 ~~days, with exceptions in certain geographies.~~days; these terms vary by location based on local business practices and by customer.

~~Contracts may be amended~~Customer contracts are modified from time to ~~account for changes in contract specifications and requirements. Contract modifications exist when the amendment either creates~~time to create new, or ~~changes~~change 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~~generally do not modify customer contracts to change existing ~~contract if the remaining~~rights and obligations related to goods or services ~~are not distinct and, therefore,~~that 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 annual minimum amounts of consumables. These types of agreements include an embedded 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 ~~$5.5~~$5.3 million and ~~$10.0~~$15.3 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, as compared to ~~$4.9~~$5.6 million and ~~$9.9~~$15.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, including both operating leases and sales-type leases under ASC 842, “Leases”~~Leases,~~, for leases entered into after January 1, 2019, and ASC 840, “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 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 12twelve months and customers are billed for post-contract support in equal quarterly amounts over the term. We recognize revenue for post-contract support services over time on a ratable basis using a time-elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

On December 31, 2022, our deferred revenue related to extended warranties and post-contract support was $26.4 million, of which approximately ~~$1.8~~$1.6 million and ~~$16.9~~$18.5 million were recognized during the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Furthermore, as a result of new agreements, our deferred revenue related to extended warranties and post-contract support was ~~$25.9~~$25.5 million as of ~~June~~September 30, 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 revenue related to extended warranties and post-contract support with an original duration of more than one year was ~~$10.0~~$9.6 million as of ~~June~~September 30, 2023, of which approximately ~~24%~~12%, ~~37%~~40%, ~~21%~~25%, 9%12%, and 9%11% are expected to be recognized during the remainder of 2023, the full years 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™, and Vet Radar®. 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 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 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, 2022, our capitalized customer acquisition costs were $158.0 million, of which approximately ~~$13.0~~$12.5 million and ~~$26.4~~$38.9 million were recognized as a reduction of revenue during the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Furthermore, as a result of new up-front customer loyalty payments, net of subsequent recognition, our capitalized customer acquisition costs were ~~$162.6~~$163.9 million as of ~~June~~September 30, 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, including cumulative catch-up adjustments to revenue arising from contract modifications during the three and ~~six~~nine months ended ~~June~~September 30, 2023, were not material.

Volume Commitment Programs. Our volume commitment programs, such as our IDEXX 360 program, provide customers with free or discounted instruments or 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, 2022, our volume commitment contract assets were $190.8 million, of which approximately $~~10.9~~10.6 million and $~~22.0~~32.6 million were reclassified to accounts receivable when customers were billed for related products and services during the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Furthermore, as a result of new placements under volume commitment programs, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our volume commitment contract assets were ~~$207.9~~$210.1 million as of ~~June~~September 30, 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, including cumulative catch-up adjustments to revenue arising from contract modifications during the three and ~~six~~nine months ended ~~June~~September 30, 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~~$2.9 billion, of which approximately ~~15%~~8%, ~~27%~~29%, ~~22%~~24%, ~~18%~~19%, and ~~18%~~20% are expected to be recognized during the remainder of 2023, the full years 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 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 products and services, partly offsetting rebates as they are earned.

On December 31, 2022, our deferred revenue related to instrument rebate programs was $25.6 million, of which approximately $~~2.4~~2.2 million and ~~$5.0~~$7.2 million were recognized when customers purchased eligible products and

services and earned rebates during the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Furthermore, as a result of new instrument purchases under rebate programs, net of subsequent recognition, our deferred revenue was ~~$23.7~~$22.5 million as of ~~June~~September 30, 2023, of which approximately ~~19%~~10%, ~~29%~~32%, ~~22%~~24%, ~~15%~~17%, and ~~15%~~17% are expected to be recognized during the remainder of 2023, the full years 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.~~consumables and services. 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, 2022, our lease receivable assets were $18.4 million, of which approximately ~~$1.1~~$1.0 million and ~~$2.2~~$3.2 million were reclassified to accounts receivable when customers were billed for related products and services during the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively. Furthermore, as a result of new placements under sales-type reagent rental programs, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our lease receivable assets were ~~$19.7~~$20.7 million as of ~~June~~September 30, 2023. The impacts of discounting and unearned income as of ~~June~~September 30, 2023 were not material. Profit and loss recognized at the commencement date and interest income during the three and ~~six~~nine months ended ~~June~~September 30, 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 and ~~six~~nine months ended ~~June~~September 30, 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 and ~~six~~nine months ended ~~June~~September 30, 2023, we transferred instruments of ~~$4.8~~$3.6 million and ~~$8.6~~$12.2 million, respectively, as compared to ~~$4.6~~$5.0 million and ~~$7.6~~$12.6 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, from inventory to property and equipment.

We estimate future revenue to be recognized related to our reagent rental programs of approximately ~~$47.8~~$51.0 million, of which approximately ~~13%~~7%, ~~25%~~26%, ~~21%~~22%, ~~16%~~17%, and ~~25%~~28% are expected to be recognized during the remainder of 2023, the full years 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~~are 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~~adjustments to revenue arising from contract modifications, during the three and ~~six~~nine months ended ~~June~~September 30, 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. Concentrations 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 during the three and ~~six~~nine months ended ~~June~~September 30, 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 June 30,				For the Six Months Ended June 30,				(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
CAG segment revenue:	CAG segment revenue:									CAG segment revenue:
CAG Diagnostics recurring revenue:	CAG Diagnostics recurring revenue:	$	762,476	$	685,413	$	1,489,378	$	1,350,223	CAG Diagnostics recurring revenue:	$	733,958	$	667,309	$	2,223,336	$	2,017,532
IDEXX VetLab consumables	IDEXX VetLab consumables	303,735		266,079		594,849		533,252		IDEXX VetLab consumables	296,042		262,820		890,891		796,072
Rapid assay products	Rapid assay products	97,340		87,481		179,372		162,000		Rapid assay products	87,562		80,542		266,934		242,542
Reference laboratory diagnostic and consulting services	Reference laboratory diagnostic and consulting services	330,106		304,130		653,286		599,205		Reference laboratory diagnostic and consulting services	320,294		295,590		973,580		894,795
CAG Diagnostics services and accessories	CAG Diagnostics services and accessories	31,295		27,723		61,871		55,766		CAG Diagnostics services and accessories	30,060		28,357		91,931		84,123
CAG Diagnostics capital - instruments	CAG Diagnostics capital - instruments	34,054		36,227		67,198		73,224		CAG Diagnostics capital - instruments	32,254		35,176		99,452		108,400
Veterinary software, services and diagnostic imaging systems	Veterinary software, services and diagnostic imaging systems	70,122		62,447		137,355		121,824		Veterinary software, services and diagnostic imaging systems	70,948		62,505		208,303		184,329
CAG segment revenue	CAG segment revenue	866,652		784,087		1,693,931		1,545,271		CAG segment revenue	837,160		764,990		2,531,091		2,310,261

Water segment revenue	Water segment revenue	43,029		39,195		81,912		75,566		Water segment revenue	44,450		40,840		126,362		116,406
LPD segment revenue	LPD segment revenue	29,911		29,889		59,119		60,759		LPD segment revenue	29,747		28,452		88,866		89,211
Other segment revenue	Other segment revenue	4,038		7,375		8,863		15,499		Other segment revenue	4,170		7,379		13,033		22,878
Total revenue	Total revenue	$	943,630	$	860,546	$	1,843,825	$	1,697,095	Total revenue	$	915,527	$	841,661	$	2,759,352	$	2,538,756

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


(in thousands)	(in thousands)	For the Three Months Ended June 30,				For the Six Months Ended June 30,				(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
United States	United States	$	621,607	$	559,825	$	1,212,020	$	1,085,731	United States	$	603,046	$	560,292	$	1,815,066	$	1,646,023
Europe, the Middle East and Africa	Europe, the Middle East and Africa	178,666		161,993		354,674		335,801		Europe, the Middle East and Africa	177,852		152,235		532,526		488,036
Asia Pacific Region	Asia Pacific Region	80,906		80,100		159,266		163,961		Asia Pacific Region	77,666		76,799		236,932		240,760
Canada	Canada	41,635		39,533		77,597		74,765		Canada	35,612		33,642		113,209		108,407
Latin America & Caribbean	Latin America & Caribbean	20,816		19,095		40,268		36,837		Latin America & Caribbean	21,351		18,693		61,619		55,530
Total revenue	Total revenue	$	943,630	$	860,546	$	1,843,825	$	1,697,095	Total revenue	$	915,527	$	841,661	$	2,759,352	$	2,538,756

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, 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, 2022, our deferred commission costs, included within other assets, were $19.2 million, of which approximately ~~$1.7~~$1.6 million and ~~$3.4~~$5.0 million of commission expense was recognized during the three and ~~six~~nine months ended ~~respectively. June~~September 30, ~~2023.~~2023, respectively. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, net of subsequent recognition, our deferred commission costs were ~~$19.5~~$19.2 million as of ~~June~~September 30, 2023. Impairments of deferred commission costs during the three and ~~six~~nine months ended ~~June~~September 30, 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, 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.

Asset Purchases and Investments

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

During the second quarter of 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~~paid 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.~~development.

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 assets of an international water testing company located in Canada for approximately $12.8 million in cash, including a holdback of approximately $1.3 million. This acquisition expands our product offering in the Water segment. The fair values of the assets and liabilities acquired ~~consists~~consist of technology intangibles of approximately $3.4 million, with a life of 10 years; customer relationship intangibles of approximately $1.2 million, with a life of 10 years; approximately $6.9 million of goodwill, representing synergies with our Water testing portfolio; and approximately $1.3 million of 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 Water segment since the acquisition date. The acquisition expenses were not material.

NOTE 5. SHARE-BASED COMPENSATION

The fair value of options, restricted stock units, deferred stock units, and employee stock purchase rights awarded during the three and ~~six~~nine months ended ~~June~~September 30, 2023, totaled ~~$3.3~~$1.5 million and ~~$60.6~~$62.1 million, respectively, as compared to ~~$4.4~~$1.7 million and ~~$55.4~~$57.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding as of ~~June~~September 30, 2023, was ~~$94.3~~$76.0 million, which will be recognized over a weighted average period of approximately ~~1.7~~1.5 years. During the three and ~~six~~nine months ended ~~June~~September 30, 2023, we recognized expenses of ~~$15.4~~$15.2 million and ~~$29.3~~$44.5 million, respectively, as compared to ~~$12.3~~$12.9 million and ~~$23.5~~$36.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, related to share-based compensation.

We determine the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term, or risk-free interest rate may necessitate distinct valuation assumptions at each

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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 Six Months Ended June 30,							For the Nine Months Ended September 30,
		2023			2022				2023			2022

Expected stock price volatility	Expected stock price volatility	32		%	30		%	Expected stock price volatility	32		%	30		%
Expected term, in years	Expected term, in years	6.7			6.4			Expected term, in years	6.7			6.4
Risk-free interest rate	Risk-free interest rate	3.7		%	2.0		%	Risk-free interest rate	3.7		%	2.1		%
Weighted average fair value of options granted	Weighted average fair value of options granted	$	201.37		$	167.25		Weighted average fair value of options granted	$	201.48		$	166.30

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~~Additionally, our estimates are developed based on historical credit loss experience, ~~provides the basis for the estimation~~estimates of ~~expected credit losses. Adjustments to historical loss information are made for differences in~~recoveries, 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

The allowance for credit losses associated with accounts receivable was ~~$9.8~~$10.1 million and $8.3 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively. The amount of accounts receivable reflected on the balance sheet is net of this reserve. Based on an aging analysis, as of ~~June~~September 30, 2023, approximately ~~89%~~85% of our accounts receivable had not yet reached the invoice due date, and approximately ~~11%~~15% was considered past due, of which less than 1% was greater than 60 days past due. As of December 31, 2022, approximately 86% of our accounts receivable had not yet reached the invoice due date, and approximately 14% was considered past due, of which approximately 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 $6.0 million and $5.5 million as of ~~June~~September 30, 2023 and December 31, 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.

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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)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022

Raw materials	Raw materials	$	107,311	$	92,796	Raw materials	$	110,089	$	92,796
Work-in-process	Work-in-process	29,528		28,041		Work-in-process	29,339		28,041
Finished goods	Finished goods	258,302		246,986		Finished goods	254,546		246,986
Inventories	Inventories	$	395,141	$	367,823	Inventories	$	393,974	$	367,823

NOTE 8. LEASES

Maturities of operating lease liabilities were as follows:


(in thousands)	(in thousands)	June 30, 2023		(in thousands)	September 30, 2023

2023 (remainder of year)	2023 (remainder of year)	$	11,160	2023 (remainder of year)	$	4,930
2024	2024	24,102		2024	25,749
2025	2025	20,170		2025	22,840
2026	2026	17,321		2026	20,112
2027	2027	13,134		2027	15,183
Thereafter	Thereafter	52,713		Thereafter	54,302
Total lease payments	Total lease payments	138,600		Total lease payments	143,116
Less imputed interest	Less imputed interest	(21,570)		Less imputed interest	(21,754)
Total	Total	$	117,030	Total	$	121,362

Total minimum future lease payments for ~~a lease~~leases that ~~has~~have not commenced as of ~~June~~September 30, 2023, is ~~approximately $0.2 million, and this lease will commence in 2024.~~immaterial.

Supplemental cash flow information for leases was as follows:


(in thousands)	(in thousands)	For the Six Months Ended June 30, 2023		For the Six Months Ended June 30, 2022		(in thousands)	For the Nine Months Ended September 30, 2023		For the Nine Months Ended September 30, 2022

Cash paid for amounts included in the measurement of operating leases liabilities	Cash paid for amounts included in the measurement of operating leases liabilities	$	14,136	$	12,110	Cash paid for amounts included in the measurement of operating leases liabilities	$	20,304	$	17,715
Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations	Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations	$	7,717	$	23,019	Right-of-use assets obtained in exchange for operating lease obligations, net of early lease terminations	$	18,219	$	26,040

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NOTE 9. OTHER CURRENT AND LONG-TERM ASSETS

Other current assets consisted of the following:


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022

Customer acquisition costs	Customer acquisition costs	$	52,457	$	50,776	Customer acquisition costs	$	52,912	$	50,776
Contract assets, net (1)	Contract assets, net (1)	50,124		41,854		Contract assets, net (1)	50,954		41,854
Prepaid expenses	Prepaid expenses	38,918		41,742		Prepaid expenses	49,875		41,742
Taxes receivable	Taxes receivable	20,305		48,430		Taxes receivable	18,212		48,430
Deferred sales commissions	Deferred sales commissions	6,583		6,472		Deferred sales commissions	6,453		6,472
Foreign currency exchange contracts	Foreign currency exchange contracts	3,918		5,185		Foreign currency exchange contracts	7,993		5,185
Cross currency swap contracts	Cross currency swap contracts	—		8,135		Cross currency swap contracts	—		8,135
Other assets	Other assets	16,883		17,895		Other assets	19,462		17,895
Other current assets	Other current assets	$	189,188	$	220,489	Other current assets	$	205,861	$	220,489

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

Other long-term assets consisted of the following:


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022

Contract assets, net (1)	Contract assets, net (1)	$	157,821	$	148,971	Contract assets, net (1)	$	159,196	$	148,971
Customer acquisition costs	Customer acquisition costs	110,131		107,205		Customer acquisition costs	110,996		107,205
Deferred income taxes	Deferred income taxes	65,337		55,215		Deferred income taxes	68,969		55,215
Equity investments	Equity investments	30,250		30,250		Equity investments	30,250		30,250
Investment in long-term product supply arrangements	Investment in long-term product supply arrangements	25,141		25,250		Investment in long-term product supply arrangements	24,083		25,250
Deferred sales commissions	Deferred sales commissions	12,901		12,718		Deferred sales commissions	12,795		12,718
Taxes receivable		1,548		717
Other assets	Other assets	36,096		37,403		Other assets	42,107		38,120
Other long-term assets	Other long-term assets	$	439,225	$	417,729	Other long-term assets	$	448,396	$	417,729

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

NOTE 10. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022

Accrued employee compensation and related expenses	Accrued employee compensation and related expenses	$	125,600	$	142,994	Accrued employee compensation and related expenses	$	158,156	$	142,994
Accrued expenses	Accrued expenses	115,682		149,446		Accrued expenses	107,590		149,446
Accrued customer incentives and refund obligations	Accrued customer incentives and refund obligations	82,041		72,250		Accrued customer incentives and refund obligations	84,415		72,250
Accrued taxes	Accrued taxes	56,409		48,547		Accrued taxes	50,259		48,547
Current lease liabilities	Current lease liabilities	19,693		20,425		Current lease liabilities	19,892		20,425
Accrued liabilities	Accrued liabilities	$	399,425	$	433,662	Accrued liabilities	$	420,312	$	433,662

Other long-term liabilities consisted of the following:


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022

Accrued taxes	Accrued taxes	$	42,702	$	49,142	Accrued taxes	$	40,905	$	49,142
Other accrued long-term expenses	Other accrued long-term expenses	21,581		18,445		Other accrued long-term expenses	19,306		18,445
Other long-term liabilities	Other long-term liabilities	$	64,283	$	67,587	Other long-term liabilities	$	60,211	$	67,587

1819

NOTE 11. DEBT

Credit Facility

As of ~~June~~September 30, 2023, we had ~~$264.0~~$250.0 million in outstanding borrowings under our Credit Facility, all of which ~~consisted of $14.0 million drawn~~was under our ~~line of credit and a~~ $250.0 million Term Loan, with ~~a weighted average~~an effective interest rate of 6.3%, excluding any impact of our interest rate swap. As of December 31, 2022, we had $579.0 million in outstanding borrowings under our Credit Facility, which consisted of $329.0 million drawn under our line of credit and a $250.0 million Term Loan, with a weighted average effective interest rate of 5.1%. As of ~~June~~September 30, 2023, we had a remaining borrowing availability of ~~$984.5~~$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 issued primarily 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) 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 contract to manage the economic effect of ~~$250~~$250.0 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, which is defined as the consolidated leverage ratio under the terms of the Credit Facility, not to exceed 3.5-to-1. At ~~June~~September 30, 2023 and December 31, 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 ~~June~~September 30, 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	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. 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. At ~~June~~September 30, 2023 and December 31, 2022, we were in compliance with the covenants of the Senior Note Agreements.

1920

NOTE 12. REPURCHASES OF COMMON STOCK

We primarily acquire shares by repurchases in the open market. However, we also acquire shares that are surrendered by employees in payment for the minimum required statutory withholding taxes due on the vesting of restricted stock units and the settlement of deferred stock units, otherwise referred to herein as employee surrenders. We issue shares of treasury stock upon the vesting of certain restricted stock units and upon the exercise of certain stock options. The number of shares of treasury stock issued during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was not material.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. The excise tax is included in the cost of treasury stock acquired in repurchases in the open market for the current year.

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


(in thousands, except per share amounts)	(in thousands, except per share amounts)	For the Three Months Ended June 30,				For the Six Months Ended June 30,				(in thousands, except per share amounts)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022

Shares repurchased in the open market	Shares repurchased in the open market	—		809		—		1,311		Shares repurchased in the open market	65		453		65		1,764
Shares acquired through employee surrender for statutory tax withholding	Shares acquired through employee surrender for statutory tax withholding	—		—		19		21		Shares acquired through employee surrender for statutory tax withholding	1		—		20		21
Total shares repurchased	Total shares repurchased	—		809		19		1,332		Total shares repurchased	66		453		85		1,785

Cost of shares repurchased in the open market	Cost of shares repurchased in the open market	$	—	$	313,455	$	—	$	576,238	Cost of shares repurchased in the open market	$	35,070	$	166,423	$	35,070	$	742,661
Cost of shares for employee surrenders	Cost of shares for employee surrenders	79		52		9,676		10,390		Cost of shares for employee surrenders	231		162		9,907		10,552
Total cost of shares	Total cost of shares	$	79	$	313,507	$	9,676	$	586,628	Total cost of shares	$	35,301	$	166,585	$	44,977	$	753,213

Average cost per share - open market repurchases	Average cost per share - open market repurchases	$	—	$	387.78	$	—	$	439.63	Average cost per share - open market repurchases	$	536.03	$	367.55	$	536.03	$	421.12
Average cost per share - employee surrenders	Average cost per share - employee surrenders	$	469.84	$	369.63	$	503.35	$	504.60	Average cost per share - employee surrenders	$	506.74	$	387.07	$	503.43	$	502.26
Average cost per share - total	Average cost per share - total	$	469.84	$	387.78	$	503.35	$	440.63	Average cost per share - total	$	535.83	$	367.56	$	528.49	$	422.07

NOTE 13. INCOME TAXES

Our effective income tax rate was ~~21.6%~~20.8% for the three months ended ~~June~~September 30, 2023, as compared to ~~22.9%~~22.7% for the three months ended ~~June~~September 30, 2022, and 20.8% for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~21.0%~~21.6% for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in our effective tax rate for the three ~~and six~~ months ended ~~June~~September 30, 2023, as compared to the same period in the prior year, was primarily driven by an increase in the tax rate benefits related to share-based compensation and, to a lesser extent, research and development tax credits and geographical income mix. The decrease in our effective tax rate for the nine months ended September 30, 2023, as compared to the same period in the prior year, was primarily driven by geographical income mix ~~partially offset by~~and, to a ~~decrease in the~~lesser extent, tax rate benefits related to share-based compensation.

The effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2023 differed from the U.S. federal statutory tax rate of 21% primarily due to U.S. state income taxes, net of federal benefit, partially offset by ~~taxes~~tax benefits from share-based compensation.

2021

NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME

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


		For the Six Months Ended June 30, 2023																	For the Nine Months Ended September 30, 2023
				Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax				Unrealized Gain (Loss) on Net Investment Hedges, Net of Tax													Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax				Unrealized Gain (Loss) on Net Investment Hedges, Net of Tax
(in thousands)	(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		(in thousands)	Unrealized (Loss) Gain 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	Balance as of December 31, 2022	$	(172)	$	839	$	—	$	4,947	$	7,057	$	(2,776)	$	(87,691)	$	(77,796)	Balance as of December 31, 2022	$	(172)	$	839	$	—	$	4,947	$	7,057	$	(2,776)	$	(87,691)	$	(77,796)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	7		(340)		3,505		(1,843)		(3,016)		—		6,010		4,323		Other comprehensive income (loss) before reclassifications	6		7,305		5,254		488		(1,158)		—		(6,939)		4,956
Reclassified from accumulated other comprehensive income	Reclassified from accumulated other comprehensive income	—		(273)		(216)		—		—		297		—		(192)		Reclassified from accumulated other comprehensive income	—		(1,174)		(1,272)		—		—		395		—		(2,051)
Balance as of June 30, 2023		$	(165)	$	226	$	3,289	$	3,104	$	4,041	$	(2,479)	$	(81,681)	$	(73,665)
Balance as of September 30, 2023																		Balance as of September 30, 2023	$	(166)	$	6,970	$	3,982	$	5,435	$	5,899	$	(2,381)	$	(94,630)	$	(74,891)


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

Balance as of December 31, 2021	Balance as of December 31, 2021	$	(126)	$	4,979	$	422	$	3,240	$	—	$	(61,999)	$	(53,484)	Balance as of December 31, 2021	$	(126)	$	4,979	$	422	$	3,240	$	—	$	(61,999)	$	(53,484)
Other comprehensive income (loss) before reclassifications		(42)		13,440		5,533		5,278		(5,056)		(27,804)		(8,651)
Other comprehensive (loss) income before reclassifications																Other comprehensive (loss) income before reclassifications	(52)		26,930		11,028		10,597		(5,056)		(59,024)		(15,577)
Reclassified from accumulated other comprehensive income	Reclassified from accumulated other comprehensive income	—		(5,830)		—		—		260		—		(5,570)		Reclassified from accumulated other comprehensive income	—		(12,211)		—		—		378		—		(11,833)
Balance as of June 30, 2022		$	(168)	$	12,589	$	5,955	$	8,518	$	(4,796)	$	(89,803)	$	(67,705)
Balance as of September 30, 2022																Balance as of September 30, 2022	$	(178)	$	19,698	$	11,450	$	13,837	$	(4,678)	$	(121,023)	$	(80,894)

2122

The following 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 June 30,				Amounts Reclassified from AOCI For the Six Months Ended June 30,				(in thousands)	Affected Line Item in the Statements of Income	Amounts Reclassified from AOCI For the Three Months Ended September 30,				Amounts Reclassified from AOCI For the Nine Months Ended September 30,
			2023		2022		2023		2022				2023		2022		2023		2022

Foreign currency exchange contracts	Foreign currency exchange contracts	Cost of revenue	$	115	$	5,781	$	450	$	8,017	Foreign currency exchange contracts	Cost of revenue	$	1,273	$	8,635	$	1,723	$	16,652
		Tax expense	60		1,577		177		2,187			Tax expense	372		2,254		549		4,441
		Gain, net of tax	$	55	$	4,204	$	273	$	5,830		Gain, net of tax	$	901	$	6,381	$	1,174	$	12,211

Interest rate swap contracts	Interest rate swap contracts	Interest expense	$	283	$	—	$	283	$	—	Interest rate swap contracts	Interest expense	$	1,385	$	—	$	1,668	$	—
		Tax expense	67		—		67		—			Tax expense	329		—		396		—
		Gain, net of tax	$	216	$	—	$	216	$	—		Gain, net of tax	$	1,056	$	—	$	1,272	$	—

Defined benefit plans	Defined benefit plans	Cost of revenue and operating expenses	$	(212)	$	(311)	$	(351)	$	(311)	Defined benefit plans	Cost of revenue and operating expenses	$	(119)	$	(141)	$	(470)	$	(452)
		Tax benefit	(34)		(51)		(54)		(51)			Tax benefit	(21)		(23)		(75)		(74)
		Loss, net of tax	$	(178)	$	(260)	$	(297)	$	(260)		Loss, net of tax	$	(98)	$	(118)	$	(395)	$	(378)

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 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 June 30,		For the Six Months Ended June 30,		(in thousands)	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
		2023	2022	2023	2022		2023	2022	2023	2022

Shares outstanding for basic earnings per share	Shares outstanding for basic earnings per share	83,086	83,922	83,039	84,164	Shares outstanding for basic earnings per share	83,097	83,247	83,058	83,855

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	83,086	83,922	83,039	84,164	Shares outstanding for basic earnings per share	83,097	83,247	83,058	83,855
Dilutive effect of share-based payment awards	Dilutive effect of share-based payment awards	897	936	941	1,058	Dilutive effect of share-based payment awards	896	866	932	1,003
		83,983	84,858	83,980	85,222		83,993	84,113	83,990	84,858

2223

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 June 30,		For the Six Months Ended June 30,		(in thousands)	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
		2023	2022	2023	2022		2023	2022	2023	2022

Weighted average number of shares underlying anti-dilutive awards	Weighted average number of shares underlying anti-dilutive awards	1	79	1	40	Weighted average number of shares underlying anti-dilutive awards	—	78	1	44
Weighted average number of shares underlying anti-dilutive options	Weighted average number of shares underlying anti-dilutive options	397	284	371	248	Weighted average number of shares underlying anti-dilutive options	393	287	379	258

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

Refer to “Note 8. 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 exceed our accruals. Except for the litigation matter described below, as of ~~June~~September 30, 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. The appellate court reversed the trial court’s decision, and the plaintiff ~~has~~ petitioned the state supreme court for review. During the third quarter of 2023, the state supreme court granted plaintiff’s petition for review of the appellate court decision and scheduled a hearing for January of 2024. While we believe the claim is without merit and continue to vigorously defend ourselves against the plaintiff’s 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 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 ~~June~~September 30, 2023 and December 31, 2022.

2324

NOTE 17. SEGMENT REPORTING

We operate primarily through three business segments: Companion Animal Group (“CAG”), ~~Water~~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: CAG, Water, LPD, and Other. Assets are not allocated to segments for internal reporting purposes.

The following is a summary of segment performance:


(in thousands)	(in thousands)	For the Three Months Ended June 30,										(in thousands)	For the Three Months Ended September 30,
		CAG		Water		LPD		Other		Consolidated Total			CAG		Water		LPD		Other		Consolidated Total
2023	2023											2023
Revenue	Revenue	$	866,652	$	43,029	$	29,911	$	4,038	$	943,630	Revenue	$	837,160	$	44,450	$	29,747	$	4,170	$	915,527

Income from operations	Income from operations	$	275,509	$	19,820	$	1,951	$	(1,136)	$	296,144	Income from operations	$	253,358	$	20,328	$	2,405	$	(808)	$	275,283
Interest expense, net	Interest expense, net									(10,215)		Interest expense, net									(7,392)
Income before provision for income taxes	Income before provision for income taxes									285,929		Income before provision for income taxes									267,891
Provision for income taxes	Provision for income taxes									61,693		Provision for income taxes									55,660
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	224,236	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	212,231

2022	2022											2022
Revenue	Revenue	$	784,087	$	39,195	$	29,889	$	7,375	$	860,546	Revenue	$	764,990	$	40,840	$	28,452	$	7,379	$	841,661

Income from operations	Income from operations	$	156,526	$	17,920	$	3,230	$	1,390	$	179,066	Income from operations	$	221,454	$	19,924	$	4,480	$	(1,030)	$	244,828
Interest expense, net	Interest expense, net									(7,983)		Interest expense, net									(10,645)
Income before provision for income taxes	Income before provision for income taxes									171,083		Income before provision for income taxes									234,183
Provision for income taxes	Provision for income taxes									39,104		Provision for income taxes									53,245
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	131,979	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	180,938

2425


(in thousands)	(in thousands)	For the Six Months Ended June 30,										(in thousands)	For the Nine Months Ended September 30,
		CAG		Water		LPD		Other		Consolidated Total			CAG		Water		LPD		Other		Consolidated Total
2023	2023											2023
Revenue	Revenue	$	1,693,931	$	81,912	$	59,119	$	8,863	$	1,843,825	Revenue	$	2,531,091	$	126,362	$	88,866	$	13,033	$	2,759,352

Income from operations	Income from operations	$	537,259	$	36,791	$	3,259	$	(766)	$	576,543	Income from operations	$	790,617	$	57,119	$	5,664	$	(1,574)	$	851,826
Interest expense, net	Interest expense, net									(22,926)		Interest expense, net									(30,318)
Income before provision for income taxes	Income before provision for income taxes									553,617		Income before provision for income taxes									821,508
Provision for income taxes	Provision for income taxes									115,327		Provision for income taxes									170,987
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	438,290	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	650,521

2022	2022											2022
Revenue	Revenue	$	1,545,271	$	75,566	$	60,759	$	15,499	$	1,697,095	Revenue	$	2,310,261	$	116,406	$	89,211	$	22,878	$	2,538,756

Income from operations	Income from operations	$	379,651	$	34,574	$	9,967	$	3,218	$	427,410	Income from operations	$	601,105	$	54,498	$	14,447	$	2,188	$	672,238
Interest expense, net	Interest expense, net									(14,836)		Interest expense, net									(25,481)
Income before provision for income taxes	Income before provision for income taxes									412,574		Income before provision for income taxes									646,757
Provision for income taxes	Provision for income taxes									86,630		Provision for income taxes									139,875
Net income attributable to IDEXX Laboratories, Inc. stockholders	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	325,944	Net income attributable to IDEXX Laboratories, Inc. stockholders									$	506,882

Refer to “Note 3. Revenue Recognition” for a summary of disaggregated revenue by reportable segment and by major product and service category for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022.

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 and ~~six~~nine months ended ~~June~~September 30, 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 exchange 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 ~~credit facility (“~~Credit ~~Facility”)~~Facility 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 ~~$730.1~~$719.7 million and ~~$772.2~~$769.1 million, respectively, as of ~~June~~September 30, 2023, and $725.6 million and $769.8 million, respectively, as of December 31, 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 June 30, 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 June 30, 2023

Assets
Equity mutual funds (1)
$ 233 $ — $ — $ 233
Cross currency swaps (2)
$ — $ 851 $ — $ 851
Foreign currency exchange contracts (2)
$ — $ 4,316 $ — $ 4,316
Interest rate swap (3)
$ — $ 4,315 $ — $ 4,315
Liabilities
Cross currency swaps (2)
$ — $ 1,802 $ — $ 1,802
Foreign currency exchange contracts (2)
$ — $ 4,164 $ — $ 4,164
Deferred compensation (4)
$ 233 $ — $ — $ 233
Contingent payments - acquisitions $ — $ — $ 120 $ 120


(in thousands)
As of September 30, 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 September 30, 2023

Assets
Money market funds (1)	$	165,824	$	—	$	—	$	165,824
Equity mutual funds (2)	$	164	$	—	$	—	$	164
Cross currency swaps (3)	$	—	$	1,880	$	—	$	1,880
Foreign currency exchange contracts (3)	$	—	$	9,597	$	—	$	9,597
Interest rate swap (4)	$	—	$	5,223	$	—	$	5,223
Liabilities
Cross currency swaps (3)	$	—	$	393	$	—	$	393
Foreign currency exchange contracts (3)	$	—	$	598	$	—	$	598
Deferred compensation (5)	$	164	$	—	$	—	$	164


(in thousands)	(in thousands)									(in thousands)
As of December 31, 2022	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		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	Assets									Assets
Equity mutual funds ~~(1)~~(2)	Equity mutual funds ~~(1)~~(2)	$	385	$	—	$	—	$	385	Equity mutual funds ~~(1)~~(2)	$	385	$	—	$	—	$	385
Cross currency swaps ~~(2)~~(3)	Cross currency swaps ~~(2)~~(3)	$	—	$	9,262	$	—	$	9,262	Cross currency swaps ~~(2)~~(3)	$	—	$	9,262	$	—	$	9,262
Foreign currency exchange contracts (2)		$	—	$	5,185	$	—	$	5,185
Foreign currency exchange contracts (3)										Foreign currency exchange contracts (3)	$	—	$	5,185	$	—	$	5,185
Liabilities	Liabilities									Liabilities
Foreign currency exchange contracts (2)		$	—	$	4,572	$	—	$	4,572
Foreign currency exchange contracts (3)										Foreign currency exchange contracts (3)	$	—	$	4,572	$	—	$	4,572
Deferred compensation ~~(4)~~(5)	Deferred compensation ~~(4)~~(5)	$	385	$	—	$	—	$	385	Deferred compensation ~~(4)~~(5)	$	385	$	—	$	—	$	385
Contingent payments - acquisitions	Contingent payments - acquisitions	$	—	$	—	$	120	$	120	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 September 30, 2023, consists 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 current assets and other long-term assets. Refer to footnote (4) below for a discussion of the related deferred compensation liability.

~~(2)~~(3)Cross currency swaps and foreign currency exchange contracts are included within other current assets, other long-term assets, accrued liabilities, or other long-term liabilities depending on the gain (loss) position and anticipated settlement date.

~~(3)~~(4)Interest rate swap is included within other long-term ~~liabilities.~~assets.

~~(4)~~(5)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 (1) above.

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

Contingent Consideration

We have classified our 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.

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We record changes in the estimated fair value of contingent consideration in the unaudited condensed consolidated statements of income. ~~Changes~~The changes in contingent consideration liabilities, which are measured at fair value on a recurring basis using unobservable inputs (Level 3) ~~and during~~, for the ~~three and six~~nine months ended ~~June~~September 30, 2023, are as follows:


(in thousands)	Fair Value

Contingent consideration as of December 31, 2022	$	120
Payment of contingent consideration	— (99)
Realized gain	(21)
Contingent consideration as of ~~June~~September 30, 2023	$	~~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. We utilize hedging ~~instrument~~instruments to manage a portion of our foreign currency exchange risk and interest rate risk. During the first quarter of 2023, we entered into an interest rate swap to 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 our designation of such instruments as hedging transactions.

We recognize all hedging instrument assets and liabilities at fair value at the balance sheet date. Instruments that do not qualify for hedge accounting treatment are 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 and ~~six~~nine months ended ~~June~~September 30, 2023 and 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 manage our exposure to variability in the cash flows of forecasted transactions attributable to foreign currency exchange and to 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 and ~~six~~nine months ended ~~June~~September 30, 2023 or 2022. As of ~~June~~September 30, 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 ~~$0.6~~$5.6 million if exchange rates do not fluctuate from the levels as of ~~June~~September 30, 2023. As of September 30, 2023, the estimated amount of gains, net of tax, from our interest rate swap contract which are expected to be reclassified out of AOCI and into earnings within the next twelve months is $2.9 million if interest rates do not fluctuate from the levels as of September 30, 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 intercompany foreign ~~services~~transactions 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 ~~$247.9~~$256.8 million and $258.2 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

Interest Rate Swap: We entered into an interest rate swap contract 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.

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


(in thousands)	(in thousands)		Three Months Ended June 30,				Six Months Ended June 30,				(in thousands)		Three Months Ended September 30,				Nine Months Ended September 30,
			2023		2022		2023		2022				2023		2022		2023		2022
Financial statement line items in which effects of cash flow hedges are recorded	Financial statement line items in which effects of cash flow hedges are recorded	Cost of revenue	$	370,780	$	346,514	$	728,004	$	684,310	Financial statement line items in which effects of cash flow hedges are recorded	Cost of revenue	$	367,545	$	335,035	$	1,095,549	$	1,019,345
Foreign exchange contracts	Foreign exchange contracts										Foreign exchange contracts
Amount of gain reclassified from accumulated other comprehensive income into net income	Amount of gain reclassified from accumulated other comprehensive income into net income		$	115	$	5,781	$	450	$	8,017	Amount of gain reclassified from accumulated other comprehensive income into net income		$	1,273	$	8,635	$	1,723	$	16,652

Financial statement line items in which effects of cash flow hedges are recorded	Financial statement line items in which effects of cash flow hedges are recorded	Interest expense	$	(10,542)	$	(8,317)	$	(23,669)	$	(15,313)	Financial statement line items in which effects of cash flow hedges are recorded	Interest expense	$	(8,647)	$	(10,998)	$	(32,316)	$	(26,311)
Interest rate swap contract	Interest rate swap contract										Interest rate swap contract
Amount of gain reclassified from accumulated other comprehensive income into net income	Amount of gain reclassified from accumulated other comprehensive income into net income		$	283	$	—	$	283	$	—	Amount of gain reclassified from accumulated other comprehensive income into net income		$	1,385	$	—	$	1,668	$	—

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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 ~~losses~~gains of ~~$0.4~~$2.3 million and ~~$1.8~~$0.5 million, net of tax, within AOCI as a result of this net investment hedge for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, and gains of ~~$4.1~~$5.5 million and ~~$5.5~~$11.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. The related cumulative unrealized gain recorded as of ~~June~~September 30, 2023, will be reclassified to earnings when the foreign subsidiaries are sold or substantially liquidated 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 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, 2025, through June 30, 2028. At maturity of the cross currency swap contracts we will deliver the notional amount of €15 million and will receive approximately $17.5 million from the counterparties on June 18, 2025; we will deliver the notional amount of €35 million and will receive $37.8 million from the counterparties on March 31, 2028; and we will deliver the notional amount of €90 million and will receive $98.2 million from the counterparties on June 30, 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 and ~~six~~nine months ended ~~June~~September 30, 2023, we recorded gains of $1.9 million and losses of ~~$1.8 million and $3.0~~$1.2 million, net of tax, respectively, within AOCI as a result of these net investment hedges, and gains of ~~$4.3~~$5.3 million and ~~gains of $5.3~~$10.6 million during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. We will receive quarterly interest payments from the counterparties based on a fixed interest rate until maturity of the cross currency swaps. This interest rate component is excluded from the assessment of hedge effectiveness and is recognized as a reduction to interest expense over the life of the hedge instrument. We recognized approximately ~~$0.8~~$0.3 million and ~~$1.5~~$1.8 million related to the excluded component as a reduction of interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, and $0.7 million and ~~$1.4~~$2.1 million ~~and~~ for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively.

During the second quarter of 2023, the notional amount of €90.0 million in cross currency swaps matured, resulting in a net cash receipt of $6.3 million. The receipt of cash is reflected within ~~financing~~investing activities on the Condensed Consolidated Statements of Cash Flows.

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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
			June 30, 2023		December 31, 2022				September 30, 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	$	3,918	$	5,185	Foreign currency exchange contracts	Other current assets	$	7,993	$	5,185
Cross currency swaps	Cross currency swaps	Other current assets	—		8,135		Cross currency swaps	Other current assets	—		8,135
Interest rate swap contract	Interest rate swap contract	Other long-term assets	4,315		—		Interest rate swap contract	Other long-term assets	5,223		—
Foreign currency exchange contracts	Foreign currency exchange contracts	Other long-term assets	398		—		Foreign currency exchange contracts	Other long-term assets	1,604		—
Cross currency swaps	Cross currency swaps	Other long-term assets	851		1,127		Cross currency swaps	Other long-term assets	1,880		1,127
Total derivative instruments presented as hedging instruments on the balance sheet	Total derivative instruments presented as hedging instruments on the balance sheet		9,482		14,447		Total derivative instruments presented as hedging instruments on the balance sheet		16,700		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		(1,804)		(3,210)		Gross amounts subject to master netting arrangements not offset on the balance sheet		(598)		(3,210)
Net amount	Net amount		$	7,678	$	11,237	Net amount		$	16,102	$	11,237


(in thousands)	(in thousands)		Hedging Liabilities				(in thousands)		Hedging Liabilities
			June 30, 2023		December 31, 2022				September 30, 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	$	3,292	$	4,572	Foreign currency exchange contracts	Accrued liabilities	$	583	$	4,572
Cross currency swaps	Cross currency swaps	Other long-term liabilities	1,802		—		Cross currency swaps	Other long-term liabilities	393		—
Foreign currency exchange contracts	Foreign currency exchange contracts	Other long-term liabilities	872		—		Foreign currency exchange contracts	Other long-term liabilities	15		—
Total derivative instruments presented as hedging instruments on the balance sheet	Total derivative instruments presented as hedging instruments on the balance sheet		5,966		4,572		Total derivative instruments presented as hedging instruments on the balance sheet		991		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	97,193		94,775		Non-derivative foreign currency denominated debt designated as net investment hedge on the balance sheet (1)	Long-term debt	94,135		94,775
Total hedging instruments presented on the balance sheet	Total hedging instruments presented on the balance sheet		103,159		99,347		Total hedging instruments presented on the balance sheet		95,126		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		(1,804)		(3,210)		Gross amounts subject to master netting arrangements not offset on the balance sheet		(598)		(3,210)
Net amount	Net amount		$	101,355	$	96,137	Net amount		$	94,528	$	96,137

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

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

This Quarterly Report on Form 10-Q contains statements which, to the extent they are not statements of historical fact, constitute “forward-looking statements.” Such forward-looking statements about our business and expectations within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), include statements relating to, among other things, our expectations regarding revenue recognition timing and amounts; business trends, earnings and other measures of financial performance; projected impact of foreign currency exchange 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; the working capital and liquidity outlook; critical accounting estimates; deductibility of goodwill; 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 macroeconomic events, conditions, and uncertainties, ~~(such~~such as geopolitical instability (including ~~the current war in Ukraine)~~wars, terrorist attacks, and armed conflicts), general economic uncertainty, inflationary pressures, and supply chain ~~challenges)~~challenges on our business, results of operations, liquidity, financial condition, and stock price, 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 2022 Annual Report and in the corresponding sections of this Quarterly Report on Form 10-Q, and the Quarterly ~~Report~~Reports on Form 10-Q for the ~~quarter~~quarters ended March 31, 2023, and June 30, 2023, 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, 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 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 ~~June~~September 30. Unless otherwise stated, the analysis and discussion of our financial condition and results of operations below, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior-year periods.

Business Overview

We develop, manufacture, and distribute products and provide services primarily for the companion animal veterinary, livestock, poultry and dairy, and water testing 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.

Description of Business Segments. We operate primarily through three business segments: diagnostic and information management-based products and services for the companion animal veterinary industry, which we refer to as the Companion Animal Group (“CAG”), water quality products (“Water”), and diagnostic products and services for livestock and poultry

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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 our human medical diagnostics 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 and related consumable products) for the human medical diagnostics sector. During the first quarter of 2023, we discontinued actively marketing our OPTI COVID-19 PCR testing products and 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 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 and ~~six~~nine months ended ~~June~~September 30, 2023, are consistent with those discussed in our 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,” or “revenue growth” are references to “organic revenue growth.” Organic revenue growth is a non-GAAP financial measure and represents the percentage change in revenue during the three and ~~six~~nine months ended ~~June~~September 30, 2023, as compared to the same periods for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions, and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for, or as a superior measure to, revenue growth reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers.

We exclude from organic revenue growth the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under management’s control, are subject to volatility, and can obscure underlying business trends. We calculate the impact on revenue resulting from changes in foreign currency exchange rates by applying the

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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 consider acquisitions to be a business 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. 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.

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Results of Operations

Three Months Ended ~~June~~September 30, 2023, Compared to Three Months Ended ~~June~~September 30, 2022

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


		For the Three Months Ended June 30,															For the Three Months Ended September 30,
Net Revenue (dollars in thousands)	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)		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	$	866,652	$	784,087	$	82,565	10.5	%	(0.5	%)	—		11.0	%	CAG	$	837,160	$	764,990	$	72,170	9.4	%	1.0	%	—		8.4	%
United States	United States	594,395		532,626		61,769		11.6	%	—		—		11.6	%	United States	573,830		530,758		43,072		8.1	%	—		—		8.1	%
International	International	272,257		251,461		20,796		8.3	%	(1.5	%)	—		9.7	%	International	263,330		234,232		29,098		12.4	%	3.4	%	—		9.0	%

Water	Water	43,029		39,195		3,834		9.8	%	(1.2	%)	1.7	%	9.2	%	Water	44,450		40,840		3,610		8.8	%	1.2	%	1.1	%	6.6	%
United States	United States	21,208		19,533		1,675		8.6	%	—		1.4	%	7.2	%	United States	22,804		20,940		1,864		8.9	%	—		0.7	%	8.2	%
International	International	21,821		19,662		2,159		11.0	%	(2.4	%)	2.1	%	11.3	%	International	21,646		19,900		1,746		8.8	%	2.4	%	1.5	%	4.9	%

LPD	LPD	29,911		29,889		22		0.1	%	(0.5	%)	—		0.6	%	LPD	29,747		28,452		1,295		4.6	%	2.5	%	—		2.0	%
United States	United States	4,422		3,742		680		18.2	%	—		—		18.2	%	United States	5,040		4,452		588		13.2	%	—		—		13.2	%
International	International	25,489		26,147		(658)		(2.5	%)	(0.6	%)	—		(1.9	%)	International	24,707		24,000		707		2.9	%	2.9	%	—		—

Other	Other	4,038		7,375		(3,337)		(45.2	%)	—		—		(45.3	%)	Other	4,170		7,379		(3,209)		(43.5	%)	0.1	%	—		(43.5	%)

Total Company	Total Company	$	943,630	$	860,546	$	83,084	9.7	%	(0.5	%)	0.1	%	10.1	%	Total Company	$	915,527	$	841,661	$	73,866	8.8	%	1.1	%	0.1	%	7.6	%
United States	United States	621,607		559,825		61,782		11.0	%	—		—		11.0	%	United States	603,046		560,292		42,754		7.6	%	—		—		7.6	%
International	International	322,023		300,721		21,302		7.1	%	(1.4	%)	0.1	%	8.4	%	International	312,481		281,369		31,112		11.1	%	3.3	%	0.1	%	7.7	%

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

Total Company Revenue. The increase in organic revenue reflects ~~growth in~~higher realized prices and demand for

companion animal diagnostics globally, supported by higher CAG Diagnostics recurring ~~revenue, including benefits from higher realized prices globally and increased volume in the U.S. and International regions.~~revenue. Increases in our subscription-based veterinary software and diagnostic imaging services also contributed to higher revenue. Higher revenue in our Water business was primarily due to higher realized prices, ~~and higher testing volumes in certain international regions,~~ as well as the benefit of an acquisition in the third quarter of 2022. The increase in LPD revenue was ~~relatively flat compared~~primarily due to ~~the same period~~higher realized prices and to volume growth in ~~the prior year as~~ ~~price gains~~North and ~~higher volumes in our poultry and swine testing were~~South America, partially offset by lower herd health screening ~~volumes.~~revenues. The decrease in Other revenue reflects lower sales of OPTI COVID-19 PCR testing products and services, and lower volumes of our OPTI Medical instruments and consumables internationally. The impact of foreign currency movements ~~decreased~~increased total revenue growth by ~~0.5%~~1.1%.

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The following table presents total Company results of operations:


		For the Three Months Ended June 30,								Change					For the Three Months Ended September 30,								Change
Total Company - Results of Operations (dollars in thousands)	Total Company - Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		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	$	943,630			$	860,546			$	83,084	9.7	%	Revenues	$	915,527			$	841,661			$	73,866	8.8	%
Cost of revenue	Cost of revenue	370,780				346,514				24,266		7.0	%	Cost of revenue	367,545				335,035				32,510		9.7	%
Gross profit	Gross profit	572,850		60.7	%	514,032		59.7	%	58,818		11.4	%	Gross profit	547,982		59.9	%	506,626		60.2	%	41,356		8.2	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	140,532		14.9	%	130,257		15.1	%	10,275		7.9	%	Sales and marketing	135,698		14.8	%	130,021		15.4	%	5,677		4.4	%
General and administrative	General and administrative	89,669		9.5	%	81,488		9.5	%	8,181		10.0	%	General and administrative	89,034		9.7	%	83,764		10.0	%	5,270		6.3	%
Research and development	Research and development	46,505		4.9	%	123,221		14.3	%	(76,716)		(62.3	%)	Research and development	47,967		5.2	%	48,013		5.7	%	(46)		(0.1	%)
Total operating expenses	Total operating expenses	276,706		29.3	%	334,966		38.9	%	(58,260)		(17.4	%)	Total operating expenses	272,699		29.8	%	261,798		31.1	%	10,901		4.2	%
Income from operations	Income from operations	$	296,144	31.4	%	$	179,066	20.8	%	$	117,078	65.4	%	Income from operations	$	275,283	30.1	%	$	244,828	29.1	%	$	30,455	12.4	%

Gross Profit. Gross profit increased due to higher revenue, ~~and~~partially offset by a ~~100~~30 basis point ~~increase~~decrease in the gross profit margin. The impact from foreign currency movements decreased the gross profit margin by approximately 60 basis points, including the impact of lower hedge gains in the current year, as compared to the prior year. Excluding the impact of foreign currency movements, the increase in the gross profit margin was primarily due to recurring revenue net price gains, ~~the benefit of reference laboratory and operational productivity initiatives,~~ improved software services gross margins, and product mix ~~associated with~~including effects from lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product and labor costs, which reflect the effects of inflation, as well as investments in productivity initiatives and to support future growth. The impact from foreign currency movements decreased the gross profit margin by approximately 60 basis points, including the impact of lower hedge gains in the current year, as compared to the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, partially offset by lower meeting and ~~travel costs, including investments in our global commercial capability.~~conference costs. General and administrative expense increased primarily due to higher personnel-related and outside services costs. Research and development expense ~~decreased primarily due to the comparison~~was relatively constant compared to the prior year as increases in personnel-related costs were offset by the favorable comparison to higher project costs in the prior year including the acquisition of ~~rights to use~~ certain ~~licensed technology for $80 million, partially offset by higher personnel-related and project costs.~~intellectual property licenses. The overall change in foreign currency exchange rates was ~~immaterial on~~not significant to operating ~~expenses~~expense growth.

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Companion Animal Group

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


		For the Three Months Ended June 30,														For the Three Months Ended September 30,
Net Revenue (dollars in thousands)	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)		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:	$	762,476	$	685,413	$	77,063	11.2	%	(0.5	%)	—	11.7	%	CAG Diagnostics recurring revenue:	$	733,958	$	667,309	$	66,649	10.0	%	1.1	%	—	8.9	%
IDEXX VetLab consumables	IDEXX VetLab consumables	303,735		266,079		37,656		14.2	%	(0.7	%)	—	14.9	%	IDEXX VetLab consumables	296,042		262,820		33,222		12.6	%	1.2	%	—	11.4	%
Rapid assay products	Rapid assay products	97,340		87,481		9,859		11.3	%	(0.3	%)	—	11.6	%	Rapid assay products	87,562		80,542		7,020		8.7	%	0.5	%	—	8.2	%
Reference laboratory diagnostic and consulting services	Reference laboratory diagnostic and consulting services	330,106		304,130		25,976		8.5	%	(0.3	%)	—	8.9	%	Reference laboratory diagnostic and consulting services	320,294		295,590		24,704		8.4	%	1.0	%	—	7.3	%
CAG diagnostics services and accessories	CAG diagnostics services and accessories	31,295		27,723		3,572		12.9	%	(0.7	%)	—	13.6	%	CAG diagnostics services and accessories	30,060		28,357		1,703		6.0	%	1.3	%	—	4.7	%
CAG Diagnostics capital - instruments	CAG Diagnostics capital - instruments	34,054		36,227		(2,173)		(6.0	%)	(0.3	%)	—	(5.7	%)	CAG Diagnostics capital - instruments	32,254		35,176		(2,922)		(8.3	%)	1.9	%	—	(10.2	%)
Veterinary software, services and diagnostic imaging systems	Veterinary software, services and diagnostic imaging systems	70,122		62,447		7,675		12.3	%	(0.4	%)	—	12.6	%	Veterinary software, services and diagnostic imaging systems	70,948		62,505		8,443		13.5	%	0.2	%	—	13.3	%
Net CAG revenue	Net CAG revenue	$	866,652	$	784,087	$	82,565	10.5	%	(0.5	%)	—	11.0	%	Net CAG revenue	$	837,160	$	764,990	$	72,170	9.4	%	1.0	%	—	8.4	%

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

CAG Diagnostics Recurring Revenue. The increase in CAG Diagnostics recurring revenue was primarily due to higher realized prices and ~~strong~~continued demand ~~in the U.S. for companion animal diagnostics across modalities. International volume growth was constrained by macroeconomic conditions.~~globally. The impact of foreign currency movements ~~decreased~~increased CAG Diagnostics recurring revenue growth by ~~0.5%~~1.1%.

The increase in IDEXX VetLab consumables revenue was primarily due to higher price realization and volume increases supported by the expansion of our installed base of instruments and our expanded menu of available tests. The impact of foreign currency movements ~~decreased~~increased revenue growth by ~~0.7%~~1.2%.

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

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 international regions, reflecting challenging regional macroeconomic conditions. The impact of foreign currency movements ~~decreased~~increased revenue growth by ~~0.3%~~1.0%.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of the 11% growth in our active installed base of instruments. The impact of foreign currency movements ~~decreased~~increased revenue growth by ~~0.7%~~1.3%.

CAG Diagnostics Capital – Instrument Revenue. The decrease in instrument revenue was primarily due to program pricing effects, comparisons to higher prior year instrument placements, and regional mix of instrument placements. ~~Overall instrument placements were higher than the prior year.~~ The impact of foreign currency movements ~~decreased~~increased revenue growth by ~~0.3%~~1.9%.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The increase in veterinary software, services and diagnostic imaging systems revenue was primarily due to higher subscription and services revenue, supported by the expansion in our active installed base, and higher realized prices on service offerings.

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The following table presents the CAG segment results of operations:


		For the Three Months Ended June 30,								Change					For the Three Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	866,652			$	784,087			$	82,565	10.5	%	Revenues	$	837,160			$	764,990			$	72,170	9.4	%
Cost of revenues		340,943				317,833				23,110		7.3	%
Cost of revenue														Cost of revenue	337,869				308,656				29,213		9.5	%
Gross profit	Gross profit	525,709		60.7	%	466,254		59.5	%	59,455		12.8	%	Gross profit	499,291		59.6	%	456,334		59.7	%	42,957		9.4	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	128,442		14.8	%	118,899		15.2	%	9,543		8.0	%	Sales and marketing	123,657		14.8	%	119,173		15.6	%	4,484		3.8	%
General and administrative	General and administrative	79,737		9.2	%	72,079		9.2	%	7,658		10.6	%	General and administrative	78,770		9.4	%	72,123		9.4	%	6,647		9.2	%
Research and development	Research and development	42,021		4.8	%	118,750		15.1	%	(76,729)		(64.6	%)	Research and development	43,506		5.2	%	43,584		5.7	%	(78)		(0.2	%)
Total operating expenses	Total operating expenses	250,200		28.9	%	309,728		39.5	%	(59,528)		(19.2	%)	Total operating expenses	245,933		29.4	%	234,880		30.7	%	11,053		4.7	%
Income from operations	Income from operations	$	275,509	31.8	%	$	156,526	20.0	%	$	118,983	76.0	%	Income from operations	$	253,358	30.3	%	$	221,454	28.9	%	$	31,904	14.4	%

Gross Profit. Gross profit increased due to higher revenue, ~~as well as~~partially offset by a ~~120~~10 basis point ~~increase~~decrease in the gross profit margin. The impact from foreign currency movements decreased the gross profit margin by approximately 40 basis points, including the impact of lower hedge gains in the current year as compared to the prior year. Excluding the impact of foreign currency movements, the increase in the gross profit margin was primarily due to recurring revenue net price gains, the benefit of reference laboratory and operational productivity initiatives, improved software services gross margins, and ~~product~~sales mix ~~associated with~~including effects from lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product and labor costs, which reflect the effects of inflation, as well as investments in productivity initiatives and to support future growth. The impact from foreign currency movements decreased the gross profit margin by approximately 40 basis points, including the impact of lower hedge gains in the current year as compared to the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, partially offset by lower meeting and ~~travel costs, including investments in our global commercial capability.~~conference costs. General and administrative expense increased primarily due to higher personnel-related costs. Research and development expense ~~decreased primarily due to the comparison~~was relatively constant compared to the prior year as increases in personnel-related costs were offset by the favorable comparison to higher project costs in the prior year including the acquisition of ~~rights to use~~ certain ~~licensed technology for $80 million, partially offset by higher personnel-related and project costs.~~intellectual property licenses. The overall change in foreign currency exchange rates was ~~immaterial on~~not significant to operating ~~expenses~~expense growth.

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Water

The following table presents the Water segment results of operations:


		For the Three Months Ended June 30,								Change					For the Three Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	43,029			$	39,195			$	3,834	9.8	%	Revenues	$	44,450			$	40,840			$	3,610	8.8	%
Cost of revenue	Cost of revenue	12,710				11,836				874		7.4	%	Cost of revenue	13,416				11,434				1,982		17.3	%
Gross profit	Gross profit	30,319		70.5	%	27,359		69.8	%	2,960		10.8	%	Gross profit	31,034		69.8	%	29,406		72.0	%	1,628		5.5	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	5,228		12.1	%	4,711		12.0	%	517		11.0	%	Sales and marketing	5,345		12.0	%	4,645		11.4	%	700		15.1	%
General and administrative	General and administrative	4,028		9.4	%	3,623		9.2	%	405		11.2	%	General and administrative	4,125		9.3	%	3,747		9.2	%	378		10.1	%
Research and development	Research and development	1,243		2.9	%	1,105		2.8	%	138		12.5	%	Research and development	1,236		2.8	%	1,090		2.7	%	146		13.4	%
Total operating expenses	Total operating expenses	10,499		24.4	%	9,439		24.1	%	1,060		11.2	%	Total operating expenses	10,706		24.1	%	9,482		23.2	%	1,224		12.9	%
Income from operations	Income from operations	$	19,820	46.1	%	$	17,920	45.7	%	$	1,900	10.6	%	Income from operations	$	20,328	45.7	%	$	19,924	48.8	%	$	404	2.0	%

Revenue. The increase in revenue was primarily due to higher realized ~~prices and higher testing volumes, primarily in Europe, from~~ prices.~~our Colilert test products and related accessories used in coliform and~~ ~~E. coli~~ ~~testing.~~ The impact of foreign currency movements ~~decreased~~increased revenue by approximately 1.2%. The impact of the acquisition completed during the third quarter of 2022 increased revenue growth by ~~1.7%~~1.1%.

Gross Profit. Gross profit increased due to higher revenue, ~~and~~partially offset by a 70220 basis point ~~increase~~decrease in the gross profit margin. The impact from foreign currency movements decreased the gross profit margin by approximately 170 basis points, including the impact of lower hedge gains in the current year compared to the prior ~~year, decreased the gross profit margin by approximately 170~~ ~~basis points~~.year. Excluding the impact of foreign currency movements, the ~~increase~~decrease in the gross profit margin was primarily due to higher product costs, partially offset by higher realized prices.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs. General and administrative expense increased primarily due to higher personnel-related costs ~~and incremental costs associated with the~~related to our acquisition ~~that occurred~~ in the ~~third quarter of 2022.~~prior year. Research and development expense increased primarily due to higher personnel-related and project ~~costs and higher personnel-related expenses.~~costs. The overall change in foreign currency exchange rates resulted in ~~a decrease~~an increase in operating ~~expenses~~expense growth by approximately 1%.

3940


Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:


		For the Three Months Ended June 30,								Change					For the Three Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	29,911			$	29,889			$	22	0.1	%	Revenues	$	29,747			$	28,452			$	1,295	4.6	%
Cost of revenue	Cost of revenue	13,825				12,893				932		7.2	%	Cost of revenue	13,911				10,990				2,921		26.6	%
Gross profit	Gross profit	16,086		53.8	%	16,996		56.9	%	(910)		(5.4	%)	Gross profit	15,836		53.2	%	17,462		61.4	%	(1,626)		(9.3	%)

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	6,440		21.5	%	6,216		20.8	%	224		3.6	%	Sales and marketing	6,253		21.0	%	5,783		20.3	%	470		8.1	%
General and administrative	General and administrative	4,675		15.6	%	4,532		15.2	%	143		3.2	%	General and administrative	4,199		14.1	%	4,231		14.9	%	(32)		(0.8	%)
Research and development	Research and development	3,020		10.1	%	3,018		10.1	%	2		0.1	%	Research and development	2,979		10.0	%	2,968		10.4	%	11		0.4	%
Total operating expenses	Total operating expenses	14,135		47.3	%	13,766		46.1	%	369		2.7	%	Total operating expenses	13,431		45.2	%	12,982		45.6	%	449		3.5	%
Income from operations	Income from operations	$	1,951	6.5	%	$	3,230	10.8	%	$	(1,279)	(39.6	%)	Income from operations	$	2,405	8.1	%	$	4,480	15.7	%	$	(2,075)	(46.3	%)

Revenue. The increase in r~~Revenue~~evenue was ~~relatively flat compared~~primarily due to ~~the same period~~higher realized prices, as well as higher volumes in ~~the prior year. Price gains and higher~~swine, poultry, and ~~swine~~ruminant testing ~~volumes~~ in ~~the U.S. were~~North and South America, partially offset by lower herd health screening revenues ~~primarily~~ related to reduced ~~China import levels.~~live animal imports by China. The ~~unfavorable~~favorable impact of foreign currency movements ~~decreased~~increased revenue growth by ~~0.5%~~2.5%.

Gross Profit. The decrease in gross profit was primarily due to aan ~~310~~820 basis point decrease in the gross profit ~~margin.~~margin, partially offset by higher revenue. The impact from foreign currency movements ~~including~~ ~~the impact of hedge losses in the current year compared to hedge gains in the prior year~~, decreased the gross profit margin by approximately ~~510~~580 basis points., including the impact of lower hedge gains in the current year as compared to the prior year. Excluding the impact of foreign currency movements, the ~~increase~~decrease in the gross profit margin was primarily due to higher ~~realized prices, partially offset by~~product costs and unfavorable sales mix impacts related to lower herd health screening ~~volumes.~~volumes, partially offset by higher realized prices.

Operating Expenses. Sales and marketing expense increased primarily due to increases in personnel-related costs. General and administrative expense and r~~increased primarily due to increases in personnel-related costs. Research~~esearch and development costs were relatively constant compared to the prior year. The overall change in foreign currency exchange rates ~~was immaterial.~~resulted in an increase in operating expense growth by approximately 1%.

4041

Other

The following table presents the Other results of operations:


		For the Three Months Ended June 30,								Change					For the Three Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	4,038			$	7,375			$	(3,337)	(45.2	%)	Revenues	$	4,170			$	7,379			$	(3,209)	(43.5	%)
Cost of revenue	Cost of revenue	3,302				3,952				(650)		(16.4	%)	Cost of revenue	2,349				3,955				(1,606)		(40.6	%)
Gross profit	Gross profit	736		18.2	%	3,423		46.4	%	(2,687)		(78.5	%)	Gross profit	1,821		43.7	%	3,424		46.4	%	(1,603)		(46.8	%)

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	422		10.5	%	431		5.8	%	(9)		(2.1	%)	Sales and marketing	443		10.6	%	420		5.7	%	23		5.5	%
General and administrative	General and administrative	1,229		30.4	%	1,254		17.0	%	(25)		(2.0	%)	General and administrative	1,940		46.5	%	3,663		49.6	%	(1,723)		(47.0	%)
Research and development	Research and development	221		5.5	%	348		4.7	%	(127)		(36.5	%)	Research and development	246		5.9	%	371		5.0	%	(125)		(33.7	%)
Total operating expenses	Total operating expenses	1,872		46.4	%	2,033		27.6	%	(161)		(7.9	%)	Total operating expenses	2,629		63.0	%	4,454		60.4	%	(1,825)		(41.0	%)
Income from operations	Income from operations	$	(1,136)	(28.1	%)	$	1,390	18.8	%	$	(2,526)	(181.7	%)	Income from operations	$	(808)	(19.4	%)	$	(1,030)	(14.0	%)	$	222	(21.6	%)

Revenue. The decrease in revenue was primarily due to lower sales of OPTI COVID-19 PCR testing products and services in the U.S., following our discontinuation of active marketing of such products and services in the first quarter of 2023, ~~as well as~~and lower volumes of our OPTI Medical instruments and consumables internationally, partially offset by higher realized prices.

Gross Profit. Gross profit decreased due to lower sales volume and a ~~2,820~~270 basis point decrease in the gross profit margin. The decrease in the gross profit margin was primarily due to higher product costs and unfavorable sales mix ~~with~~impacts from lower OPTI COVID-19 PCR testing volumes, ~~and higher product and distribution costs,~~ partially offset by higher realized prices. The overall change in foreign currency exchange rates ~~had an immaterial~~did not have a significant impact on gross profit.

Operating Expenses. General and administrative expense decreased primarily due to lower foreign exchange losses on settlements of foreign currency denominated transactions, as compared to the prior ~~year, partially offset by higher bad debt expense.~~year. Foreign exchange losses on settlements for all operating segments are reported within ~~our Other segment.~~Other. Research and development expense decreased primarily due to lower product development costs ~~compared~~related to ~~investments in the development of infectious disease tests during the prior year.~~human medical diagnostic products.

Non-Operating Items

Interest Expense. Interest expense was ~~$10.5~~$8.6 million for the three months ended ~~June~~September 30, 2023, as compared to ~~$8.3~~$11.0 million for the same period in the prior year. The ~~increase~~decrease in interest expense was primarily ~~the result of higher interest rates,~~due to lower average debt levels, partially offset by ~~lower average debt levels.~~higher interest rates.

Provision for Income Taxes. Our effective income tax rate was ~~21.6%~~20.8% for the three months ended ~~June~~September 30, 2023, as compared to ~~22.9%~~22.7% for the three months ended ~~June~~September 30, 2022. The decrease in our effective tax rate was primarily ~~driven by geographical income mix, partially offset by~~due to a ~~decrease~~comparative increase in the tax rate benefits related to share-based ~~compensation.~~compensation and, to a lesser extent, research and development tax credits and geographical income mix.

4142

Results of Operations

~~Six~~Nine Months Ended ~~June~~September 30, 2023, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2022

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


		For the Six Months Ended June 30,															For the Nine Months Ended September 30,
Net Revenue (dollars in thousands)	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)		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	$	1,693,931	$	1,545,271	$	148,660	9.6	%	(1.3	%)	—		11.0	%	CAG	$	2,531,091	$	2,310,261	$	220,830	9.6	%	(0.5	%)	—		10.1	%
United States	United States	1,158,922		1,032,392		126,530		12.3	%	—		—		12.3	%	United States	1,732,752		1,563,150		169,602		10.8	%	—		—		10.8	%
International	International	535,009		512,879		22,130		4.3	%	(3.9	%)	—		8.2	%	International	798,339		747,111		51,228		6.9	%	(1.6	%)	—		8.5	%

Water	Water	81,912		75,566		6,346		8.4	%	(2.0	%)	1.7	%	8.7	%	Water	126,362		116,406		9,956		8.6	%	(0.9	%)	1.5	%	8.0	%
United States	United States	41,128		37,364		3,764		10.1	%	—		0.7	%	9.3	%	United States	63,932		58,304		5,628		9.7	%	—		0.7	%	8.9	%
International	International	40,784		38,202		2,582		6.8	%	(4.0	%)	2.6	%	8.1	%	International	62,430		58,102		4,328		7.4	%	(1.8	%)	2.2	%	7.0	%

LPD	LPD	59,119		60,759		(1,640)		(2.7	%)	(2.2	%)	—		(0.5	%)	LPD	88,866		89,211		(345)		(0.4	%)	(0.7	%)	—		0.3	%
United States	United States	8,965		7,602		1,363		17.9	%	—		—		17.9	%	United States	14,005		12,054		1,951		16.2	%	—		—		16.2	%
International	International	50,154		53,157		(3,003)		(5.6	%)	(2.5	%)	—		(3.2	%)	International	74,861		77,157		(2,296)		(3.0	%)	(0.8	%)	—		(2.2	%)

Other	Other	8,863		15,499		(6,636)		(42.8	%)	(0.1	%)	—		(42.8	%)	Other	13,033		22,878		(9,845)		(43.0	%)	—		—		(43.0	%)

Total Company	Total Company	$	1,843,825	$	1,697,095	$	146,730	8.6	%	(1.4	%)	0.1	%	10.0	%	Total Company	$	2,759,352	$	2,538,756	$	220,596	8.7	%	(0.6	%)	0.1	%	9.2	%
United States	United States	1,212,020		1,085,731		126,289		11.6	%	—		—		11.6	%	United States	1,815,066		1,646,023		169,043		10.3	%	—		—		10.2	%
International	International	631,805		611,364		20,441		3.3	%	(3.7	%)	0.2	%	6.9	%	International	944,286		892,733		51,553		5.8	%	(1.5	%)	0.1	%	7.2	%

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

Total Company Revenue. The increase in organic revenue reflects growth in CAG Diagnostics recurring revenue, including benefits from higher realized prices globally and ~~increased volume~~higher demand in the U.S. for companion animal diagnostics across modalities. Increases in our subscription-based veterinary software and diagnostic imaging services also contributed to higher revenue. Higher revenue in our Water business was primarily due to higher realized prices and higher testing volumes in certain international regions, as well as the benefit of ~~our~~an acquisition in the third quarter of 2022. The decline in our LPD business was primarily due to lower herd health screening volume, partially offset by higher realized ~~prices.~~prices and volume growth in North and South America. The decrease in Other revenue reflects lower sales of OPTI COVID-19 PCR testing products and services, and lower volumes of our OPTI Medical instruments and consumables ~~internationally~~. The impact of foreign currency movements decreased total revenue growth by ~~1.4%~~0.6%.

4243

The following table presents total Company results of operations:


		For the Six Months Ended June 30,								Change					For the Nine Months Ended September 30,								Change
Total Company - Results of Operations (dollars in thousands)	Total Company - Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		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	$	1,843,825			$	1,697,095			$	146,730	8.6	%	Revenues	$	2,759,352			$	2,538,756			$	220,596	8.7	%
Cost of revenue	Cost of revenue	728,004				684,310				43,694		6.4	%	Cost of revenue	1,095,549				1,019,345				76,204		7.5	%
Gross profit	Gross profit	1,115,821		60.5	%	1,012,785		59.7	%	103,036		10.2	%	Gross profit	1,663,803		60.3	%	1,519,411		59.8	%	144,392		9.5	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	288,336		15.6	%	262,549		15.5	%	25,787		9.8	%	Sales and marketing	424,034		15.4	%	392,570		15.5	%	31,464		8.0	%
General and administrative	General and administrative	159,770		8.7	%	159,437		9.4	%	333		0.2	%	General and administrative	248,804		9.0	%	243,201		9.6	%	5,603		2.3	%
Research and development	Research and development	91,172		4.9	%	163,389		9.6	%	(72,217)		(44.2	%)	Research and development	139,139		5.0	%	211,402		8.3	%	(72,263)		(34.2	%)
Total operating expenses	Total operating expenses	539,278		29.2	%	585,375		34.5	%	(46,097)		(7.9	%)	Total operating expenses	811,977		29.4	%	847,173		33.4	%	(35,196)		(4.2	%)
Income from operations	Income from operations	$	576,543	31.3	%	$	427,410	25.2	%	$	149,133	34.9	%	Income from operations	$	851,826	30.9	%	$	672,238	26.5	%	$	179,588	26.7	%

Gross Profit. Gross profit increased due to higher revenue and ~~an 80~~a 50 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to recurring revenue net price gains, the benefit of reference laboratory and operational productivity initiatives, improved software services gross margins, and product mix ~~associated with~~including effects from lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product and labor costs, which reflect the effects of inflation, as well as investments in productivity initiatives and to support future growth. The impact from foreign currency movements decreased the gross profit margin by approximately 60 basis points, including the impact of lower hedge gains in the current year as compared to 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. General and administrative expense increased primarily due to higher personnel-related costs, partially offset by a $16 million customer contract resolution payment recognized during the first quarter of 2023. Research and development expense decreased primarily due to the comparison to the prior year acquisition of rights to use certain ~~licensed~~ technology for ~~$80~~$84 million, partially offset by higher personnel-related ~~and project~~ costs. The overall change in foreign currency exchange rates ~~resulted in a decrease in~~was not significant to operating ~~expenses growth by approximately 1%.~~expense growth.

4344

Companion Animal Group

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

For the Six Months Ended June 30,
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: $ 1,489,378 $ 1,350,223 $ 139,155 10.3 % (1.4 %) — 11.7 %
IDEXX VetLab consumables 594,849 533,252 61,597 11.6 % (1.9 %) — 13.4 %
Rapid assay products 179,372 162,000 17,372 10.7 % (0.8 %) — 11.6 %
Reference laboratory diagnostic and consulting services 653,286 599,205 54,081 9.0 % (1.1 %) — 10.1 %
CAG diagnostics services and accessories 61,871 55,766 6,105 10.9 % (1.9 %) — 12.9 %
CAG Diagnostics capital - instruments 67,198 73,224 (6,026) (8.2 %) (1.6 %) — (6.6 %)
Veterinary software, services and diagnostic imaging systems 137,355 121,824 15,531 12.7 % (0.6 %) — 13.3 %
Net CAG revenue $ 1,693,931 $ 1,545,271 $ 148,660 9.6 % (1.3 %) — 11.0 %


	For the Nine Months Ended September 30,
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:	$	2,223,336	$	2,017,532	$	205,804	10.2	%	(0.6	%)	—	10.8	%
IDEXX VetLab consumables	890,891		796,072		94,819		11.9	%	(0.8	%)	—	12.7	%
Rapid assay products	266,934		242,542		24,392		10.1	%	(0.4	%)	—	10.4	%
Reference laboratory diagnostic and consulting services	973,580		894,795		78,785		8.8	%	(0.4	%)	—	9.2	%
CAG diagnostics services and accessories	91,931		84,123		7,808		9.3	%	(0.8	%)	—	10.1	%
CAG Diagnostics capital - instruments	99,452		108,400		(8,948)		(8.3	%)	(0.4	%)	—	(7.8	%)
Veterinary software, services and diagnostic imaging systems	208,303		184,329		23,974		13.0	%	(0.3	%)	—	13.3	%
Net CAG revenue	$	2,531,091	$	2,310,261	$	220,830	9.6	%	(0.5	%)	—	10.1	%

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

CAG Diagnostics Recurring Revenue. The increase in CAG Diagnostics recurring revenue was primarily due to higher realized prices and ~~strong~~higher 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 ~~1.4%~~0.6%.

The increase in rapid assay revenue resulted primarily from higher price realization and, to a lesser extent, growth in SNAP 4Dx Plus volumes.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of the 11% growth in our active installed base of instruments.The impact of foreign currency movements decreased revenue growth by 0.8%.

CAG Diagnostics Capital – Instrument Revenue. The decrease in instrument revenue was primarily due to program pricing effects and regional mix of instrument ~~placements. Overall~~placements, partially offset by higher premium instrument ~~placements were higher than the prior year.~~placements. The impact of foreign currency movements decreased revenue growth by ~~1.6%~~0.4%

4445

The following table presents the CAG segment results of operations:


		For the Six Months Ended June 30,								Change					For the Nine Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	1,693,931			$	1,545,271			$	148,660	9.6	%	Revenues	$	2,531,091			$	2,310,261			$	220,830	9.6	%
Cost of revenue	Cost of revenue	669,465				629,918				39,547		6.3	%	Cost of revenue	1,007,334				938,574				68,760		7.3	%
Gross profit	Gross profit	1,024,466		60.5	%	915,353		59.2	%	109,113		11.9	%	Gross profit	1,523,757		60.2	%	1,371,687		59.4	%	152,070		11.1	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	264,038		15.6	%	240,559		15.6	%	23,479		9.8	%	Sales and marketing	387,695		15.3	%	359,732		15.6	%	27,963		7.8	%
General and administrative	General and administrative	140,988		8.3	%	140,960		9.1	%	28		—		General and administrative	219,758		8.7	%	213,083		9.2	%	6,675		3.1	%
Research and development	Research and development	82,181		4.9	%	154,183		10.0	%	(72,002)		(46.7	%)	Research and development	125,687		5.0	%	197,767		8.6	%	(72,080)		(36.4	%)
Total operating expenses	Total operating expenses	487,207		28.8	%	535,702		34.7	%	(48,495)		(9.1	%)	Total operating expenses	733,140		29.0	%	770,582		33.4	%	(37,442)		(4.9	%)
Income from operations	Income from operations	$	537,259	31.7	%	$	379,651	24.6	%	$	157,608	41.5	%	Income from operations	$	790,617	31.2	%	$	601,105	26.0	%	$	189,512	31.5	%

Gross Profit. Gross profit increased primarily due to higher revenue, as well as ~~a 130~~an 80 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to recurring revenue net price gains, the benefit of reference laboratory and operational productivity initiatives, improved software services gross margins, and product mix ~~associated with~~including effects from lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product and labor costs, which reflect the effects of inflation, as well as investments in productivity initiatives and to support future growth. The impact from foreign currency movements decreased the gross profit margin by approximately 40 basis points, ~~and included~~including the impact of lower hedge gains in the current year as compared to 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. General and administrative expense increased bydue to higher personnel-related costs, partially offset by a $16 million customer contract resolution payment recognized during the first quarter of 2023. Research and development expense decreased primarily due to the comparison to the prior year acquisition of rights to use certain ~~licensed~~ technology for ~~$80~~$84 million, partially offset by higher personnel-related ~~and project~~ costs. The overall change in foreign currency exchange rates was ~~immaterial on~~not significant to operating ~~expenses~~expense growth.

4546


Water

The following table presents the Water segment results of operations:


		For the Six Months Ended June 30,								Change					For the Nine Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	81,912			$	75,566			$	6,346	8.4	%	Revenues	$	126,362			$	116,406			$	9,956	8.6	%
Cost of revenue	Cost of revenue	24,325				22,470				1,855		8.3	%	Cost of revenue	37,741				33,904				3,837		11.3	%
Gross profit	Gross profit	57,587		70.3	%	53,096		70.3	%	4,491		8.5	%	Gross profit	88,621		70.1	%	82,502		70.9	%	6,119		7.4	%

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	10,469		12.8	%	9,309		12.3	%	1,160		12.5	%	Sales and marketing	15,814		12.5	%	13,954		12.0	%	1,860		13.3	%
General and administrative	General and administrative	7,929		9.7	%	6,905		9.1	%	1,024		14.8	%	General and administrative	12,054		9.5	%	10,652		9.2	%	1,402		13.2	%
Research and development	Research and development	2,398		2.9	%	2,308		3.1	%	90		3.9	%	Research and development	3,634		2.9	%	3,398		2.9	%	236		6.9	%
Total operating expenses	Total operating expenses	20,796		25.4	%	18,522		24.5	%	2,274		12.3	%	Total operating expenses	31,502		24.9	%	28,004		24.1	%	3,498		12.5	%
Income from operations	Income from operations	$	36,791	44.9	%	$	34,574	45.8	%	$	2,217	6.4	%	Income from operations	$	57,119	45.2	%	$	54,498	46.8	%	$	2,621	4.8	%

Revenue. The increase in revenue was due to higher realized prices and, to a lesser extent, higher ~~testing primarily in Europe.~~volumes. The impact of foreign currency movements decreased revenue growth by ~~2.0%~~0.9%. The impact of the acquisition completed during the third quarter of 2022 increased revenue growth by ~~1.7%~~1.5%.

Gross Profit. Gross profit increased due to higher ~~revenue.~~revenue, partially offset by an 80 basis point decrease in the gross profit margin. The impact from foreign currency movements decreased the gross profit margin by approximately 150 basis points, including the impact of lower hedge gains in the current year compared to the prior ~~year, decreased the gross profit margin by approximately 140~~ ~~basis points~~.year. Excluding the impact of foreign currency movements, the increase in the gross profit margin was primarily due to higher realized ~~prices.~~prices, partially offset by higher product costs.

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

4647


Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:


		For the Six Months Ended June 30,								Change					For the Nine Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	59,119			$	60,759			$	(1,640)	(2.7	%)	Revenues	$	88,866			$	89,211			$	(345)	(0.4	%)
Cost of revenue	Cost of revenue	27,980				24,216				3,764		15.5	%	Cost of revenue	41,891				35,206				6,685		19.0	%
Gross profit	Gross profit	31,139		52.7	%	36,543		60.1	%	(5,404)		(14.8	%)	Gross profit	46,975		52.9	%	54,005		60.5	%	(7,030)		(13.0	%)

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	12,900		21.8	%	11,784		19.4	%	1,116		9.5	%	Sales and marketing	19,153		21.6	%	17,567		19.7	%	1,586		9.0	%
General and administrative	General and administrative	8,876		15.0	%	8,693		14.3	%	183		2.1	%	General and administrative	13,075		14.7	%	12,924		14.5	%	151		1.2	%
Research and development	Research and development	6,104		10.3	%	6,099		10.0	%	5		0.1	%	Research and development	9,083		10.2	%	9,067		10.2	%	16		0.2	%
Total operating expenses	Total operating expenses	27,880		47.2	%	26,576		43.7	%	1,304		4.9	%	Total operating expenses	41,311		46.5	%	39,558		44.3	%	1,753		4.4	%
Income from operations	Income from operations	$	3,259	5.5	%	$	9,967	16.4	%	$	(6,708)	(67.3	%)	Income from operations	$	5,664	6.4	%	$	14,447	16.2	%	$	(8,783)	(60.8	%)

Revenue. Revenue decreased primarily due to lower herd health screening revenues related to reduced live animal imports by China, ~~imports,~~ partially offset by ~~price gains~~higher realized prices and higher volumes in ~~our~~ swine, poultry, and ruminant testing in certain regions. The unfavorable impact of foreign currency movements decreased revenue growth by ~~2.2%~~0.7%.

Gross Profit. The decrease in gross profit was primarily due to ~~lower sales volumes and~~ a ~~740~~760 basis point decrease in the gross profit ~~margin. The decrease in the gross profit~~ margin ~~is primarily due to higher product costs~~ and ~~to a lesser extent,~~lower sales ~~mix, partially offset by higher realized prices.~~volumes. The impact from foreign currency movements decreased the gross profit margin by approximately ~~390~~450 basis points, including the impact of hedge losses in the current year compared to hedge gains in the prior ~~year~~year. Excluding the impact of foreign currency movements, t.he decrease in the gross profit margin was primarily due to higher product costs and, to a lesser extent, unfavorable sales mix, partially offset by higher realized prices.

Operating Expenses. Sales and marketing expense increased primarily due to increases in personnel-related ~~and travel~~ costs. General and administrative ~~costs~~ and research and development ~~costs~~expenses were relatively constant compared to the prior year. The overall change in foreign currency exchange rates ~~resulted in a decrease in~~was not significant to operating ~~expenses growth by approximately 1%.~~expense growth.

4748

Other

The following table presents the Other results of operations:


		For the Six Months Ended June 30,								Change					For the Nine Months Ended September 30,								Change
Results of Operations (dollars in thousands)	Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage		Results of Operations (dollars in thousands)	2023		Percent of Revenue		2022		Percent of Revenue		Amount		Percentage

Revenues	Revenues	$	8,863			$	15,499			$	(6,636)	(42.8	%)	Revenues	$	13,033			$	22,878			$	(9,845)	(43.0	%)
Cost of revenue	Cost of revenue	6,234				7,706				(1,472)		(19.1	%)	Cost of revenue	8,583				11,661				(3,078)		(26.4	%)
Gross profit	Gross profit	2,629		29.7	%	7,793		50.3	%	(5,164)		(66.3	%)	Gross profit	4,450		34.1	%	11,217		49.0	%	(6,767)		(60.3	%)

Operating expenses:	Operating expenses:													Operating expenses:
Sales and marketing	Sales and marketing	929		10.5	%	897		5.8	%	32		3.6	%	Sales and marketing	1,372		10.5	%	1,317		5.8	%	55		4.2	%
General and administrative	General and administrative	1,977		22.3	%	2,879		18.6	%	(902)		(31.3	%)	General and administrative	3,917		30.1	%	6,542		28.6	%	(2,625)		(40.1	%)
Research and development	Research and development	489		5.5	%	799		5.2	%	(310)		(38.8	%)	Research and development	735		5.6	%	1,170		5.1	%	(435)		(37.2	%)
Total operating expenses	Total operating expenses	3,395		38.3	%	4,575		29.5	%	(1,180)		(25.8	%)	Total operating expenses	6,024		46.2	%	9,029		39.5	%	(3,005)		(33.3	%)
Income from operations	Income from operations	$	(766)	(8.6	%)	$	3,218	20.8	%	$	(3,984)	(123.8	%)	Income from operations	$	(1,574)	(12.1	%)	$	2,188	9.6	%	$	(3,762)	(171.9	%)

Revenue. The decrease in revenue was primarily due to lower sales of OPTI COVID-19 PCR testing products and services in the U.S., following our discontinuation of active marketing of such products and services in the first quarter of 2023, and lower volumes of our OPTI Medical instruments and consumables, ~~internationally,~~ partially offset by higher realized prices.

Gross Profit. Gross profit decreased due to lower sales volume and a ~~2,060~~1,490 basis point decrease in the gross profit margin. The decrease in the gross profit margin was primarily due to higher product costs and unfavorable sales mix ~~with~~impacts from lower OPTI COVID-19 PCR testing volumes, ~~and higher product, freight, and distribution costs,~~ partially offset by higher realized prices. The overall change in foreign currency exchange rates ~~had an immaterial~~did not have a significant impact on gross profit.

Non-Operating Items

Interest Expense. Interest expense was ~~$23.7~~$32.3 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$15.3~~$26.3 million for the same period in the prior year. The increase in interest expense was primarily ~~the result of~~due to higher interest rates, partially offset by lower average debt levels.

Provision for Income Taxes. Our effective income tax rate was 20.8% for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~21.0%~~21.6% for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in our effective tax rate was primarily ~~driven by~~due to geographical income mix ~~partially offset by~~and, to a ~~decrease~~lesser extent, a comparative increase in the tax rate benefits related to share-based compensation.

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 ~~June~~September 30, 2023, we had ~~$132.8~~$331.7 million of cash and cash equivalents, as compared to $112.5 million as of December 31, 2022. Working capital totaled ~~$295.2~~$414.0 million as of ~~June~~September 30, 2023, as compared to negative $134.3 million as of December 31, 2022. The change in working capital is primarily due to lower outstanding borrowings under our Credit ~~Facility.~~Facility and higher cash balances. As of ~~June~~September 30, 2023, we had borrowing availability of ~~$984.5~~$998.5 million under our $1.25 billion Credit Facility, with ~~$264.0~~$250.0 million in outstanding borrowings under the Credit Facility. ~~The general availability of funds under our Credit Facility is reduced by $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 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 than is generated by our operations, for example, to fund significant discretionary activities, we could elect to raise capital through the incurrence of debt or equity issuances, which we may not be able to complete on favorable terms or at all. In addition, these alternatives could result in increased interest expense or other dilution of our earnings.

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

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


Cash, cash equivalents and marketable securities (dollars in thousands)		June 30, 2023		December 31, 2022
Cash and cash equivalents (dollars in thousands)						Cash and cash equivalents (dollars in thousands)	September 30, 2023		December 31, 2022

U.S.	U.S.	$	7,559	$	16,112	U.S.	$	212,401	$	16,112
Foreign	Foreign	125,279		96,434		Foreign	119,295		96,434
Total	Total	$	132,838	$	112,546	Total	$	331,696	$	112,546

Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries		$	7,153	$	6,647
Total cash and cash equivalents held in U.S. dollars by our foreign subsidiaries						Total cash and cash equivalents held in U.S. dollars by our foreign subsidiaries	$	10,343	$	6,647

Of the ~~$132.8~~$331.7 million of cash and cash equivalents held as of ~~June~~September 30, 2023, ~~greater than~~approximately ~~99%~~$165.9 million was held as bank deposits at a diversified group of institutions, primarily systemically important banks, and $165.8 million was held in a U.S. government money market fund. As of December 31, 2022, more than 99% of our cash was held as bank deposits at a diversified group of institutions, primarily systemically important banks. Cash and cash equivalents as of ~~June~~September 30, 2023, included approximately ~~$2.4~~$2.0 million in cash denominated in non-U.S. currencies held in countries with currency control restrictions, which limit our ability to transfer funds outside of the countries 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
		June 30, 2023	March 31, 2023	December 31, 2022	September 30, 2022	June 30, 2022		September 30, 2023	June 30, 2023	March 31, 2023	December 31, 2022	September 30, 2022

Days sales outstanding (1)	Days sales outstanding (1)	43.9	42.9	43.4	43.4	43.2	Days sales outstanding (1)	45.6	43.9	42.9	43.4	43.4
Inventory turns (2)	Inventory turns (2)	1.3	1.3	1.3	1.3	1.5	Inventory turns (2)	1.3	1.3	1.3	1.3	1.3

(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.

Sources and Uses of Cash

The following table presents cash provided (used):


		For the Six Months Ended June 30,							For the Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2023		2022		Change		(dollars in thousands)	2023		2022		Change

Net cash provided by operating activities	Net cash provided by operating activities	$	384,226	$	180,556	$	203,670	Net cash provided by operating activities	$	656,659	$	369,556	$	287,103
Net cash used by investing activities	Net cash used by investing activities	(66,981)		(96,924)		29,943		Net cash used by investing activities	(94,819)		(146,121)		51,302
Net cash used by financing activities	Net cash used by financing activities	(297,114)		(105,387)		(191,727)		Net cash used by financing activities	(340,152)		(254,216)		(85,936)
Net effect of changes in exchange rates on cash	Net effect of changes in exchange rates on cash	161		(8,337)		8,498		Net effect of changes in exchange rates on cash	(2,538)		(14,497)		11,959
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	20,292	$	(30,092)	$	50,384	Net change in cash and cash equivalents	$	219,150	$	(45,278)	$	264,428

Operating Activities. The increase in cash provided by operating activities of ~~$203.7~~$287.1 million was driven primarily by an increase in net income, ~~including~~in part due to the ~~comparative increase in~~ comparison to ~~net income as a result~~the prior year acquisition of rights to use certain licensed technology that resulted in higher research and development ~~investments in the prior year,~~expenses, and to changes in other assets and liabilities. The following table presents cash flow impacts from changes in operating assets and liabilities:


		For the Six Months Ended June 30,							For the Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2023		2022		Change		(dollars in thousands)	2023		2022		Change

Accounts receivable	Accounts receivable	$	(61,158)	$	(53,794)	$	(7,364)	Accounts receivable	$	(54,557)	$	(35,061)	$	(19,496)
Inventories	Inventories	(38,906)		(49,349)		10,443		Inventories	(31,647)		(99,621)		67,974
Accounts payable	Accounts payable	(4,155)		(6,735)		2,580		Accounts payable	(6,799)		(3,930)		(2,869)
Deferred revenue	Deferred revenue	(1,855)		(2,344)		489		Deferred revenue	(3,347)		(3,419)		72
Other assets and liabilities	Other assets and liabilities	(24,236)		(94,729)		70,493		Other assets and liabilities	(17,902)		(87,566)		69,664
Total change in cash due to changes in operating assets and liabilities	Total change in cash due to changes in operating assets and liabilities	$	(130,310)	$	(206,951)	$	76,641	Total change in cash due to changes in operating assets and liabilities	$	(114,252)	$	(229,597)	$	115,345

Cash used decreased due to changes in operating assets and liabilities during the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to the same period in the prior year, by approximately ~~$76.6~~$115.3 million. The increase in cash used by accounts receivable was primarily due to higher revenue growth during the current period. The decrease in cash used by inventories was primarily due to inventory increases induring the prior year to mitigate supply chain ~~risks.~~risks and support demand. 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 and lower annual employee incentive program payments in the current year, and lower tax payments in the current year, as compared to the same period in the prior year, partially offset by milestone payments to license intellectual property made induring the current 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.

Investing Activities. Cash used by investing activities was ~~$67.0~~$94.8 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$96.9~~$146.1 million for the same period in the prior year. The decrease in cash used by investing activities was primarily due to the comparison to the prior year equity investment and acquisition of intangible ~~assets, partially offset by higher investments in property and equipment in the current year primarily related to the construction of our facility in Scarborough, Maine.~~assets.

Our total capital expenditure ~~plan~~outlook for 2023 is estimated to be ~~approximately $180.0~~between $160 million and $180 million, 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 ~~$297.1~~$340.2 million for the ~~six~~nine months ended ~~June~~September 30, 2023, as compared to ~~$105.4~~$254.2 million of cash used for the same period in the prior year. The increase in cash used by financing activities was primarily due to ~~$315.0~~$329.0 million cash used for repayments under our Credit Facility in the current year, compared to borrowings of ~~$537.5~~$559.5 million under our Credit Facility ~~partly offset by cash used to pay off our $75.0 million 2022 Series A Notes~~ in the prior year. The increase in cash used by financing activities was ~~also partly~~partially offset by ~~$573.1~~$745.7 million cash used to repurchase our common stock in the prior year, as compared to $35.1 million of repurchases in the current year, and by cash used to pay our $75.0 million 2022 Series A Notes in the prior year.

Under our Credit Facility, the net borrowing activity during the nine months ended September 30, 2023, as compared to the same period in the prior year, decreased $888.5 million. As of September 30, 2023, we had $250.0 million in 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 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 financial covenant is a consolidated leverage ratio test.

During the ~~six~~nine months ended ~~June~~September 30, 2023, we ~~did not purchase any~~purchased $35.1 million of shares of our common ~~stock in the open market.~~stock. During the ~~six~~nine months ended ~~June~~September 30, 2022, we purchased ~~$573.1~~$745.7 million of shares of our common stock. 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 prevailing interest rates. Refer to Note 12 to the unaudited condensed consolidated financial statements in “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 six months ended June 30, 2023, as compared to the same period in the prior year, decreased $315.0 million. As of June 30, 2023, we had $264.0 million in 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.

In February 2022, we paid off our $75.0 million 2022 Series A Notes with cash provided by operations and financing ~~activity.~~activities. The aggregate principal amounts of our 2023 Series A Notes ~~for $75.0 million~~ will become due and payable on December 11, ~~2023. We~~2023 and we anticipate paying off our 2023 Series A Notes for $75.0 million when due in December 2023 with cash provided by operations. The aggregate principal amounts of our 2024 Series B Notes will become due and payable on July 21, 2024 and we anticipate paying off our 2024 Series B Notes for $75.0 million when due in July 2024 with cash provided by operations.

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, cross-acceleration to specified indebtedness, and a change of control default.

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 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 guarantees.

5152

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 ~~June~~September 30, 2023, we were in compliance with such covenant. The following details our consolidated leverage ratio calculation:


(dollars in thousands)	Twelve Months Ended
Trailing 12 Months Adjusted EBITDA:	~~June~~September 30, 2023

Net income attributable to stockholders (as reported)	$	~~791,435~~822,728
Interest expense	~~48,214~~45,863
Provision for income taxes	~~209,580~~211,995
Depreciation and amortization	~~113,453~~113,891
Acquisition-related expense	~~322~~80
Share-based compensation expense	~~55,519~~57,795
Extraordinary and other non-recurring non-cash charges	—
Adjusted EBITDA	$	~~1,218,523~~1,252,352

Debt to Adjusted EBITDA Ratio:	~~June~~September 30, 2023

Credit facility	$	~~264,000~~250,000
Current and long-term portions of long-term debt	~~771,835~~768,803
Total debt	~~1,035,835~~1,018,803
Acquisition-related contingent consideration payable	~~1,663~~1,543
Financing leases	—
Deferred financing costs	~~357~~332
Gross debt	$	~~1,037,855~~1,020,678
Gross debt to Adjusted EBITDA ratio	~~0.85~~0.82

Less: Cash and cash equivalents	$	~~132,838~~331,696
Net debt	$	~~905,017~~688,982
Net debt to Adjusted EBITDA ratio	~~0.74~~0.55

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 ~~June~~September 30, 2023, are described in Note 16 to the unaudited condensed consolidated financial statements in “Part I. Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

5253

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 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 2022 Annual Report, except for the impact of foreign exchange rates, as discussed below.

Foreign Currency Exchange Impacts. Approximately 21% of our consolidated revenue was derived from products manufactured in the U.S. and sold internationally in local currencies for both the three and ~~six~~nine months ended ~~June~~September 30, 2023, as compared to approximately ~~21%~~20% and ~~22%~~21% for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. Strengthening of the U.S. dollar exchange rate relative to other currencies has a negative impact on our revenues derived in currencies other than the U.S. dollar and on profits of products manufactured in the U.S. and sold internationally, and a weakening of the U.S. dollar has the opposite effect. Similarly, to the extent that the U.S. dollar is stronger in current or future periods relative to the exchange rates in effect in the corresponding prior periods, our growth rate will be negatively affected. The impact of foreign currency denominated costs and expenses and foreign currency denominated supply contracts ~~partly~~partially 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 on operating results 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.

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


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2023		2022		2023		2022		(in thousands, except per share amounts)	2023		2022		2023		2022

Revenue impact	Revenue impact	$	(4,175)	$	(27,597)	$	(22,525)	$	(42,661)	Revenue impact	$	9,044	$	(34,901)	$	(13,481)	$	(77,562)

Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions	Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions	$	(2,627)	$	(14,769)	$	(13,063)	$	(22,708)	Operating profit impact, excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions	$	4,541	$	(16,180)	$	(8,522)	$	(38,888)
Hedge gains - current period	Hedge gains - current period	115		5,781		450		8,017		Hedge gains - current period	1,273		8,635		1,723		16,652
Exchange (losses) on settlements of foreign currency denominated transactions - current period	Exchange (losses) on settlements of foreign currency denominated transactions - current period	(593)		(832)		(675)		(1,607)		Exchange (losses) on settlements of foreign currency denominated transactions - current period	(1,396)		(3,036)		(2,071)		(4,643)
Operating profit impact - current period	Operating profit impact - current period	$	(3,105)	$	(9,820)	$	(13,288)	$	(16,298)	Operating profit impact - current period	$	4,418	$	(10,581)	$	(8,870)	$	(26,879)

Hedge (gains) losses - prior period	Hedge (gains) losses - prior period	(5,781)		2,715		(8,017)		5,145		Hedge (gains) losses - prior period	(8,635)		1,583		(16,652)		6,728
Exchange losses on settlement of foreign currency denominated transactions - prior period	Exchange losses on settlement of foreign currency denominated transactions - prior period	832		854		1,607		924		Exchange losses on settlement of foreign currency denominated transactions - prior period	3,036		838		4,643		1,762
Operating profit impact - as compared to prior period	Operating profit impact - as compared to prior period	$	(8,054)	$	(6,251)	$	(19,698)	$	(10,229)	Operating profit impact - as compared to prior period	$	(1,181)	$	(8,160)	$	(20,879)	$	(18,389)

Diluted earnings per share impact - as compared to prior period	Diluted earnings per share impact - as compared to prior period	$	(0.07)	$	(0.06)	$	(0.18)	$	(0.10)	Diluted earnings per share impact - as compared to prior period	$	(0.01)	$	(0.07)	$	(0.19)	$	(0.17)

5354

At our current foreign currency exchange rate assumptions, we anticipate that the effect of a 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 for the remainder of the year ending December 31, 2023, by increasing our revenues by approximately ~~$30~~$2 million, and decreasing our operating profit and diluted earnings per share by approximately $3$6 million and ~~$0.02~~$0.06 per share, respectively. This unfavorable year-over-year currency impact to our operating profit includes foreign currency hedging activity, which is expected to decrease our total operating profit by approximately ~~$17~~$6 million and ~~$0.16~~$0.05 per share for the remainder of the year ~~ended~~ending December 31, 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 ~~$1.10,~~$1.05, the British pound at ~~$1.27,~~$1.21, the Canadian dollar at ~~$0.75,~~$0.73, and the Australian dollar at ~~$0.67;~~$0.63; and the Japanese yen at ~~¥142,~~¥151, the Chinese renminbi at RMB ~~7.27,~~7.40, and the Brazilian real at R$~~4.86~~5.14 relative to the U.S. dollar for the remainder of 2023.

Based on projected revenues and expenses for the remainder of 2023, excluding the impact of intercompany and trade balances denominated in currencies other than the functional subsidiary currencies, we project a 1% strengthening of the U.S. dollar would reduce revenue by approximately ~~$6.0~~$3 million and operating income by approximately ~~$1.6~~$1 million, net of hedge positions.

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 ~~June~~September 30, 2023, were ~~$264.0~~$250.0 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~~Hedging 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 ~~June~~September 30, 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 ~~June~~September 30, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5455

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 our 2022 Annual Report, which could materially affect our business, financial condition, or future results. There have been no material changes from the risk factors previously disclosed in the 2022 Annual Report. The risks described in our 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.

5556

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

During the three months ended ~~June~~September 30, 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)

April 1 to April 30, 2023 — $ — — 3,029,242
May 1 to May 31, 2023 — $ — — 3,029,242
June 1 to June 30, 2023 168 $ 469.84 — 3,029,242
Total 168 (2) — 3,029,242


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

July 1 to July 31, 2023	59,425		$	536.64	59,425	2,969,817
August 1 to August 31, 2023	6,287		$	528.79	6,000	2,963,817
September 1 to September 30, 2023	168		$	511.29	—	2,963,817
Total	65,880	(2)			65,425	2,963,817

(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 ~~June~~September 30, 2023, and no share repurchase programs expired during the period. There were no65,425 share repurchases made during the three months ended ~~June~~September 30, 2023, in transactions made pursuant to our share repurchase program.

(2)During the three months ended ~~June~~September 30, 2023, we received ~~168~~455 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. In the above table, these shares are included in columns (a) and (b), but excluded from columns (c) and (d). These shares do not reduce the number of shares that may yet be purchased under the share repurchase program.

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

Item 5. Other Information

Rule 10b5-1 Trading Plan Elections

During the three months ended ~~June~~September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified, or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408(a) of Regulation S-K of the Securities Act of 1933).

5657

Item 6. Exhibits


Exhibit No.			Description


10.1*			Letter agreement between Ortho-Clinical Diagnostics, Inc., IDEXX B.V. and IDEXX Operations, Inc. dated July 28, 2023.

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

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

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

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 ~~June~~September 30, 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 ~~June~~September 30, 2023, formatted in Inline XBRL and contained in Exhibit 101.

* Certain provisions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

5758

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: ~~August~~November 1, 2023			Brian P. McKeon
			Executive Vice President, Chief Financial Officer and Treasurer
			(Principal Financial Officer)

5859


(in thousands)
As of June 30, 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 June 30, 2023

Assets
Equity mutual funds (1)	$	233	$	—	$	—	$	233
Cross currency swaps (2)	$	—	$	851	$	—	$	851
Foreign currency exchange contracts (2)	$	—	$	4,316	$	—	$	4,316
Interest rate swap (3)	$	—	$	4,315	$	—	$	4,315
Liabilities
Cross currency swaps (2)	$	—	$	1,802	$	—	$	1,802
Foreign currency exchange contracts (2)	$	—	$	4,164	$	—	$	4,164
Deferred compensation (4)	$	233	$	—	$	—	$	233
Contingent payments - acquisitions	$	—	$	—	$	120	$	120