IDEXX Laboratories : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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; and inflation. 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 as geopolitical instability (including wars, terrorist attacks, and armed conflicts), general economic uncertainty, changes in U.S. and other countries' tariff and trade policies, inflationary pressures, severe weather and other natural conditions, and supply chain 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 2025 Annual Report and in the corresponding sections of this Quarterly Report on Form 10-Q, as well as those described from time to time in our other filings 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 risks 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 2025 Annual Report that includes additional information about us, our results of operations, our financial position, and our cash flows, and with our unaudited condensed consolidated financial statements and related notes included in "Part I. Item 1. Financial Statements" of this Quarterly Report on Form 10-Q.

Our fiscal quarter ended on March 31. Unless otherwise stated, the analysis and discussion of our financial condition and results of operations below, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior-year periods.

Business Overview

We develop, manufacture, and distribute products and provide services primarily for the companion animal veterinary, livestock, poultry and dairy, and water testing sectors. We also manufacture and sell human medical point-of-care diagnostic products. Our primary products and services are:

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

•Veterinary reference laboratory diagnostic and consulting services;

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

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

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

•Products that test water for certain microbiological contaminants.

Description of Operating Segments. We operate primarily through three reportable segments: Companion Animal Group ("CAG"), Water quality products ("Water"), and Livestock, Poultry and Dairy ("LPD"). CAG provides diagnostics and information management products and services for the companion animal veterinary industry and the biomedical research community. Water provides testing solutions and related instrumentation 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 measure the quality and safety of milk. Our Other operating segment combines and presents our human medical diagnostic business with our out-licensing arrangement because they do not meet the quantitative or qualitative thresholds for reportable segments.

Global Conflicts. The current macroeconomic environment and current global conflicts, including the escalation of hostilities in the Middle East, could cause further disruption to global energy markets, fuel prices, transportation networks, and supply chains particularly in the Asia Pacific and European regions, which may indirectly impact our operating costs and consumer availability and demand for our products and services.

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. Intellectual Property, Including Patents and License" and "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2025 Annual Report for additional information regarding trends in companion animal healthcare, supply chain and logistics challenges, economic conditions, changes in tariff and trade policies, distributor purchasing and inventories, 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 disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The critical accounting policies and the significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements for the three months ended March 31, 2026, are consistent with those discussed in our 2025 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. Accounting Policies" 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 includes organic revenue growth, and references in this analysis and discussion to "revenue," "revenues," or "revenue growth" apply equally to revenue growth reported in accordance with U.S. GAAP and to "organic revenue growth." Organic revenue growth is a non-GAAP financial measure and represents the percentage change in revenue during the three months ended March 31, 2026, 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. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers.

We exclude from organic revenue growth the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under management's control, are subject to volatility, and can obscure underlying business trends. We calculate the impact on revenue resulting from changes in foreign currency exchange rates by applying the difference between the weighted average exchange rates during the current 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, processes, and outputs are present, consistent with ASU 2017-01, "Business Combinations: (Topic 805) Clarifying the Definition of a Business." We do not consider acquired assets to be a business if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. A typical acquisition that we do not consider a business is a customer relationship asset acquisition, which does not have all elements necessary to operate a business, such as employees or infrastructure. Revenue from these customers acquired is included in organic revenue growth because we believe the efforts required to convert and retain these acquired customers are similar in nature to our efforts to obtain and retain our existing customer base.

We also use Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio, and net debt to Adjusted EBITDA ratio, 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.

Segment Income from Operations. We report segment income from operations in our discussion of the results of the operations of our segments below. Segment income from operations is a non-GAAP financial measure that adjusts for the impact of foreign currency transaction gains and losses and should be considered in addition to, and not as a replacement for, or superior measure to, income from operations. We exclude foreign currency transaction gains and losses for each reportable segment (CAG, Water, and LPD) from segment income from operations and report the full amount of foreign currency transaction gains and losses in Other. We believe that reporting segment income from operations provides supplemental analysis to help investors further evaluate each reportable segment's business performance by excluding foreign currency transaction gains and losses, which are centrally managed by our corporate treasury function and which we do not consider relevant for assessing the results of each reportable segment's operations.

The reconciliation of these non-GAAP financial measures is as follows:

(in thousands)						For the Three Months Ended March 31,
						2026																		2025
						Income from Operations						Impact from Foreign Currency						Segment and Other Income from Operations						Income from Operations						Impact from Foreign Currency						Segment and Other Income from Operations
CAG						$	337,165					$	390					$	337,555					$	294,572					$	583					$	295,155
Water						23,643						26						23,669						20,774						43						20,817
LPD						1,262						28						1,290						80						45						125
Other						516						(444)						72						1,108						(671)						437
Total						$	362,586					$	-					$	362,586					$	316,534					$	-					$	316,534

Results of Operations

Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025

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

						For the Three Months Ended March 31,
Net Revenue (dollars in thousands)						2026						2025						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG						$	1,054,052					$	919,836					$	134,216					14.6		%				3.0		%				-						11.6		%
United States						690,900						623,889						67,011						10.7		%				-						-						10.7		%
International						363,152						295,947						67,205						22.7		%				9.3		%				-						13.4		%
Water						$	50,265					$	45,321					$	4,944					10.9		%				3.8		%				-						7.1		%
United States						26,393						23,503						2,890						12.3		%				-						-						12.3		%
International						23,872						21,818						2,054						9.4		%				7.5		%				-						1.9		%
LPD						$	32,483					$	28,596					$	3,887					13.6		%				6.4		%				-						7.2		%
United States						6,384						5,788						596						10.3		%				-						-						10.3		%
International						26,099						22,808						3,291						14.4		%				7.9		%				-						6.5		%
Other						$	4,020					$	4,674					$	(654)					(14.0		%)				-						-						(14.0		%)
Total Company						$	1,140,820					$	998,427					$	142,393					14.3		%				3.1		%				-						11.2		%
United States						725,232						654,861						70,371						10.7		%				-						-						10.7		%
International						415,588						343,566						72,022						21.0		%				9.0		%				-						11.9		%

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

Total Company Revenue. The increase in revenue primarily reflected growth in CAG Diagnostics recurring revenue, including higher volumes and the benefit from higher realized prices. Volume growth was supported by new business gains, our expanded menu of available tests, and high customer retention rates. Instrument revenue gains were primarily due to placements of our IDEXX inVue DxTM Analyzer, compared to the first quarter of 2025 when we continued a controlled launch. Higher volumes and realized prices in recurring veterinary software subscriptions, services, and diagnostic imaging also contributed to revenue growth. Revenue growth in Water was primarily due to the benefit of higher realized prices and volumes. The increase in LPD revenue was primarily due to higher volumes and realized prices. The impact from changes in foreign currency exchange rates increased revenue growth by 3.1%.

The following table presents total Company results of operations:

						For the Three Months Ended March 31,																								Change
Total Company - Results of Operations (dollars in thousands)						2026						Percent of Revenue						2025						Percent of Revenue						Amount						Percentage
Revenues						$	1,140,820											$	998,427											$	142,393					14.3		%
Cost of revenue						418,081												375,048												43,033						11.5		%
Gross profit						722,739						63.4		%				623,379						62.4		%				99,360						15.9		%
Operating expenses:
Sales and marketing						175,250						15.4		%				156,223						15.6		%				19,027						12.2		%
General and administrative						119,115						10.4		%				91,561						9.2		%				27,554						30.1		%
Research and development						65,788						5.8		%				59,061						5.9		%				6,727						11.4		%
Total operating expenses						360,153						31.6		%				306,845						30.7		%				53,308						17.4		%
Income from operations						$	362,586					31.8		%				$	316,534					31.7		%				$	46,052					14.5		%

Gross Profit. Gross profit increased due to higher revenue and a 100 basis point increase in the gross profit margin. The increase in the gross profit margin reflected benefits from high recurring revenue growth in IDEXX VetLab consumable and reference laboratory volumes, operational productivity improvements, and net price realization, which was offset by inflationary costs and investments. The increase in gross margin also reflects favorability in our Water and Livestock, Poultry and Dairy operating segments. These increases in the gross profit margin were reduced by the business mix impact from higher premium instrument revenue. The change in foreign currency exchange rates increased the gross profit margin by approximately 10 basis points, including the impact of lower hedge gains during the current period compared to the prior period.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs. General and administrative expense increased primarily due to a prior period reduction in accrued expense of approximately $9 million related to a litigation matter concluded in April 2025, higher personnel-related and facility costs, and a $5 million expense for the full impairment of an equity investment in the current period. Research and development expense increased primarily due to higher personnel-related and project costs. The impact from changes in foreign currency exchange rates increased operating expense growth by approximately 2%.

Companion Animal Group

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

						For the Three Months Ended March 31,
Net Revenue (dollars in thousands)						2026						2025						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG Diagnostics recurring revenue:						$	920,313					$	806,267					$	114,046					14.1		%				3.1		%				-						11.0		%
IDEXX VetLab consumables						412,582						344,779						67,803						19.7		%				4.2		%				-						15.4		%
Rapid assay products						84,938						84,034						904						1.1		%				1.2		%				-						(0.1		%)
Reference laboratory diagnostic and consulting services						386,179						344,406						41,773						12.1		%				2.5		%				-						9.7		%
CAG diagnostics services and accessories						36,614						33,048						3,566						10.8		%				3.6		%				-						7.2		%
CAG Diagnostics capital - instruments						42,449						31,994						10,455						32.7		%				4.7		%				-						28.0		%
Veterinary software, services and diagnostic imaging systems						91,290						81,575						9,715						11.9		%				1.0		%				-						10.9		%
Recurring revenue						73,536						65,793						7,743						11.8		%				1.1		%				-						10.7		%
Systems and hardware						17,754						15,782						1,972						12.5		%				0.5		%				-						12.0		%
Net CAG revenue						$	1,054,052					$	919,836					$	134,216					14.6		%				3.0		%				-						11.6		%

(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 volumes in IDEXX VetLab consumables and reference laboratory testing, as well as benefits from higher realized prices. The impact of changes in foreign currency exchange rates increased revenue growth by 3.1%.

The increase in IDEXX VetLab consumables revenue was primarily due to higher volumes and higher realized prices. Volume gains were supported by increases in testing across major regions, reflecting the benefits from 12% growth in our installed base of premium instruments and growth in testing by existing customers, including sales of our expanded menu of available tests, as well as continued high customer retention rates. The impact of changes in foreign currency exchange rates increased revenue growth by 4.2%.

Rapid assay revenue increased from higher realized prices, moderated by a decrease in volumes partially due to a shift of customers' pancreatic lipase testing to our Catalyst instrument platform, as well as sector headwinds. The impact of changes in foreign currency exchange rates increased revenue growth by 1.2%.

The increase in reference laboratory diagnostic and consulting services revenue was due to higher testing volumes across regions and higher realized prices. The impact of changes in foreign currency exchange rates increased revenue growth by 2.5%.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of a 12% growth in our installed base of premium instruments. The impact of changes in foreign currency exchange rates increased revenue growth by 3.6%.

CAG Diagnostics Capital - Instrument Revenue. The increase in instrument revenue was primarily due to placements of our IDEXX inVue Dx Analyzer, compared to the first quarter of 2025 when we continued a controlled launch, partially offset by lower placements of other premium instruments. The impact of changes in foreign currency exchange rates increased revenue growth by 4.7%.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The increase in recurring revenue was primarily due to higher subscription services volume and higher realized prices. The increase in our systems and hardware revenue was primarily due to higher diagnostic imaging system sales. The impact of changes in foreign currency exchange rates increased revenue growth by 1.0%

The following table presents the CAG segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2026						Percent of Revenue						2025						Percent of Revenue						Amount						Percentage
Revenues						$	1,054,052											$	919,836											$	134,216					14.6		%
Cost of revenue						386,543												345,013												41,530						12.0		%
Gross profit						667,509						63.3		%				574,823						62.5		%				92,686						16.1		%
Segment operating expenses:
Sales and marketing						160,411						15.2		%				142,912						15.5		%				17,499						12.2		%
General and administrative						108,581						10.3		%				82,134						8.9		%				26,447						32.2		%
Research and development						60,962						5.8		%				54,622						5.9		%				6,340						11.6		%
Total segment operating expenses						329,954						31.3		%				279,668						30.4		%				50,286						18.0		%
Segment income from operations						$	337,555					32.0		%				$	295,155					32.1		%				$	42,400					14.4		%

Gross Profit. Gross profit increased due to higher revenue and an 80 basis point increase in the gross profit margin. The increase in the gross profit margin reflected benefits from recurring revenue growth in IDEXX VetLab consumable and reference laboratory volumes, operational productivity improvements, and net price realization, which was offset by inflationary costs and investments. These increases in the gross profit margin were reduced by the business mix impact from higher premium instrument revenue. The impact of changes in foreign currency exchange rates increased the gross profit margin by approximately 10 basis points, including the impact of lower hedge gains during the current period compared to the prior period.

Segment Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs. General and administrative expense increased primarily due to a prior period reduction in accrued expense of approximately $9 million related to a litigation matter concluded in April 2025, higher personnel-related and facility costs, and a $5 million expense for the full impairment of an equity investment in the current period. Research and development expense increased primarily due to higher personnel-related and project costs. The impact of changes in foreign currency exchange rates increased operating expense growth by approximately 2%.

Water

The following table presents the Water segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2026						Percent of Revenue						2025						Percent of Revenue						Amount						Percentage
Revenues						$	50,265											$	45,321											$	4,944					10.9		%
Cost of revenue						13,728												13,248												480						3.6		%
Gross profit						36,537						72.7		%				32,073						70.8		%				4,464						13.9		%
Segment operating expenses:
Sales and marketing						6,833						13.6		%				6,042						13.3		%				791						13.1		%
General and administrative						4,367						8.7		%				3,778						8.3		%				589						15.6		%
Research and development						1,668						3.3		%				1,436						3.2		%				232						16.2		%
Total segment operating expenses						12,868						25.6		%				11,256						24.8		%				1,612						14.3		%
Segment income from operations						$	23,669					47.1		%				$	20,817					45.9		%				$	2,852					13.7		%

Revenue. The increase in revenue was primarily due to higher global realized prices and higher volumes, primarily in North America. The increase in volumes was primarily due to higher Colilert test products and related accessories used in coliform and E. coli testing. International volumes were unfavorably impacted by shipping constraints as a result of the conflict in the Middle East. The impact of changes in foreign currency exchange rates increased revenue by 3.8%.

Gross Profit. Gross profit increased due to higher revenue, as well as a 190 basis point increase in the gross profit margin. The net increase in the gross profit margin was primarily due to higher realized prices, partially reduced by higher distribution costs. The impact of changes in foreign currency exchange rates decreased the gross profit margin by approximately 50 basis points, including the impact of hedge losses during the current period compared to hedge gains in the prior period.

Segment Operating Expenses. Sales and marketing expense increased primarily due to commercial investments and higher personnel-related costs. General and administrative and research and development expenses increased primarily due to higher personnel-related costs. The impact of changes in foreign currency exchange rates increased operating expense growth by approximately 3%.

Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2026						Percent of Revenue						2025						Percent of Revenue						Amount						Percentage
Revenues						$	32,483											$	28,596											$	3,887					13.6		%
Cost of revenue						15,573												14,231												1,342						9.4		%
Gross profit						16,910						52.1		%				14,365						50.2		%				2,545						17.7		%
Segment operating expenses:
Sales and marketing						7,789						24.0		%				7,011						24.5		%				778						11.1		%
General and administrative						4,726						14.5		%				4,374						15.3		%				352						8.0		%
Research and development						3,105						9.6		%				2,855						10.0		%				250						8.8		%
Total segment operating expenses						15,620						48.1		%				14,240						49.8		%				1,380						9.7		%
Segment income from operations						$	1,290					4.0		%				$	125					0.4		%				$	1,165					932.0		%

Revenue. The increase in revenue was primarily due to increases in test volumes, predominantly in Europe and, to a lesser extent, higher realized prices. The impact of changes in foreign currency exchange rates increased revenue growth by 6.4%.

Gross Profit. The increase in gross profit was primarily due to higher revenue as well as a 190 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to lower product costs and higher realized prices. The impact of changes in foreign currency exchange rates decreased the gross profit margin by approximately 170 basis points, including the impact of lower hedge gains during the current period compared to the prior period.

Segment Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs and higher commercial activities. General and administrative and research and development expenses increased primarily due to higher personnel-related and technology costs. The impact of changes in foreign currency exchange rates increased operating expense growth by approximately 3%.

Non-Operating Items

Interest Expense and Income. Interest expense was relatively constant at $7.7 million for the three months ended March 31, 2026 and 2025. Interest income was $0.6 million for the three months ended March 31, 2026, compared to $1.2 million for the three months ended March 31, 2025, primarily due to a decrease in money market investments.

Provision for Income Taxes. Our effective income tax rates were 21.7% for the three months ended March 31, 2026 and 2025. Compared to the prior period, favorable impacts on the effective tax rate comprised primarily of an increase in tax benefits related to share-based compensation, while offsetting unfavorable impacts included higher non-deductible expenses.

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, 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, repurchase of our common stock, taxes, research and development, capital expenditures, rents, occupancy-related charges, interest expense, and business acquisitions. Working capital totaled $154.2 million as of March 31, 2026, compared to $265.0 million as of December 31, 2025. The change in working capital is primarily due to higher borrowings outstanding on our Credit Facility. As of March 31, 2026, we had $200.5 million of cash and cash equivalents, compared to $180.1 million as of December 31, 2025. As of March 31, 2026, we had a remaining borrowing availability of $718.2 million under our $1.25 billion Credit Facility, with $530.0 million in outstanding borrowings under our Credit Facility, and an option for the Company to incur incremental revolving credit commitments and/or term loans in the aggregate principal amount of up to $250.0 million. As of December 31, 2025, we had $398.0 million in outstanding borrowings under our Credit Facility. The general availability of funds under our Credit Facility is reduced by $1.8 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 incur incremental revolving credit commitments and/or term loans under our Credit Facility and otherwise obtain additional financing, will also be sufficient to fund our business as currently conducted for the foreseeable future. We may enter into new financing arrangements or refinance or retire existing debt in the future depending on market conditions. Should we require more capital in the U.S. than is generated by our operations, for example to fund significant discretionary activities, we could elect to raise capital in the U.S. through the incurrence of debt or equity issuances, which we may not be able to complete on favorable terms or at all. In addition, these alternatives could result in increased interest expense or other dilution of our earnings.

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

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

(in thousands)						March 31, 2026						December 31, 2025
U.S.						$	7,650					$	1,606
Foreign						192,878						178,464
Total cash and cash equivalents						$	200,528					$	180,070
Total cash and cash equivalents held in U.S. dollars by our foreign subsidiaries						$	55,235					$	24,571

As of March 31, 2026, of the $200.5 million of cash and cash equivalents held, $197.0 million was held as bank deposits and $3.5 million was held in a U.S. government money market fund. As of December 31, 2025, more than 99% of the cash and cash equivalents held were held as bank deposits at a diversified group of institutions, primarily systemically important banks. Cash and cash equivalents as of March 31, 2026, included approximately $0.9 million in cash denominated in non-U.S. currencies held in a country with currency control restrictions, which limit our ability to transfer funds outside of the country in which they are held without incurring costs. 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
			March 31, 2026						December 31, 2025						September 30, 2025						June 30, 2025						March 31, 2025
Days sales outstanding (1)			46.2						46.8						46.5						44.7						45.7
Inventory turns (2)			1.4						1.6						1.5						1.5						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 are calculated as the ratio of our inventory-related cost of revenue for the quarter multiplied by four, 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 Three Months Ended March 31,
(in thousands)						2026						2025						Change
Net cash provided by operating activities						$	266,248					$	237,962					$	28,286
Net cash used by investing activities						(33,544)						(29,610)						(3,934)
Net cash used by financing activities						(211,430)						(330,321)						118,891
Net effect of changes in exchange rates on cash						(816)						(2,327)						1,511
Net change in cash and cash equivalents						$	20,458					$	(124,296)					$	144,754

Operating Activities. Cash provided by operating activities during the three months ended March 31, 2026, was $266.2 million, which was a net increase in operating cash flows of $28.3 million, compared to the same period during the prior year. Cash was provided from net income of $278.4 million, adjusted for net non-cash items of $77.6 million, partially offset by a net decrease from changes in operating assets and liabilities of $89.7 million.

The following table presents cash flow impacts from changes in operating assets and liabilities, excluding the effects of foreign exchange rate fluctuations:

						For the Three Months Ended March 31,
(in thousands)						2026						2025						Change
Accounts receivable						$	(56,808)					$	(45,240)					$	(11,568)
Inventories						2,239						2,163						76
Other assets and liabilities						(46,396)						(9,487)						(36,909)
Accounts payable						11,217						(8,123)						19,340
Total change in cash due to changes in operating assets and liabilities						$	(89,748)					$	(60,687)					$	(29,061)

Cash used by changes in operating assets and liabilities during the three months ended March 31, 2026, increased $29.1 million, compared to the same period during the prior year. The increase in cash used for other assets and liabilities was primarily due to higher annual employee incentive program payments and higher income tax payments.

We have historically experienced proportionately lower net cash flows from operating activities during the first quarter and proportionately 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 $33.5 million during the three months ended March 31, 2026, compared to $29.6 million for the same period during the prior year. The increase in cash used by investing activities was primarily due to higher capital expenditures, the acquisition of an intangible asset, and an equity investment.

Our total capital expenditure plan for 2026 is estimated to be approximately $180.0 million, which includes capital investments in manufacturing and operations facilities to support growth, as well as investments in customer-facing software development.

Financing Activities. Cash used by financing activities was $211.4 million during the three months ended March 31, 2026, compared to $330.3 million used for the same period during the prior year. The decrease in cash used was primarily due to $351.0 million of repurchases of our common stock during the current period, compared to $400.9 million of repurchases during the prior period. The decrease in cash used by financing activities was also a result of $132.0 million in net borrowings under our Credit Facility during the current period, compared to $69.5 million of net borrowings in the prior period.

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, and are subject to market conditions. Refer to "Note 12. Repurchases of Common Stock" 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.

As of March 31, 2026, we had $530.0 million in outstanding borrowings under our Credit Facility, of which $250.0 million was on our Term Loan under our Credit Facility. Our Credit Facility contains affirmative, negative, and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates, certain restrictive agreements, and violations of sanctions laws and regulations. The sole financial covenant is a consolidated leverage ratio test as described below.

The aggregate principal amount of our 2026 Senior Notes will become due and payable on September 4, 2026. The aggregate principal amount of our 2027 Series B Notes will become due and payable on February 12, 2027. We anticipate funding the full repayment of our 2026 Senior Notes for $75.0 million when due on September 4, 2026, and our 2027 Series B Notes for $75.0 million when due on February 12, 2027, with available cash on hand, borrowings under our Credit Facility, or proceeds from the issuance of new notes, or a combination thereof. The Senior Note Agreements contain affirmative, negative, and financial covenants customary for agreements of this type. The sole financial covenant is a consolidated leverage ratio test as described below.

Refer to "Note 11. Debt" 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 Credit Facility and Senior Notes.

Effect of Currency Translation on Cash. The net effects of changes in foreign currency exchange rates are related to changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries with non-U.S. dollar functional currencies. These changes will fluctuate each year as the value of the U.S. dollar relative to the value of foreign currencies changes. The value of a currency 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.

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, 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 Agreements and Credit Facility, not to exceed 3.5-to-1. As of March 31, 2026, we were in compliance with such covenant.

The following details our consolidated leverage ratio calculation:

(in thousands)			Twelve Months Ended
Trailing 12 Months Adjusted EBITDA:			March 31, 2026
Consolidated Net Income			$	1,095,233
Consolidated Interest Charge			38,927
Provision for income taxes			274,314
Depreciation and amortization			148,803
Non-recurring transaction expense incurred in connection with Acquisitions *			90
Non-cash charges associated with Share Based Payments			61,738
Extraordinary and other non-recurring non-cash losses and charges *			6,170
Adjusted EBITDA			$	1,625,275
* Descriptions are contractually defined and may differ from U.S. GAAP definitions.
(dollars in thousands)
Debt to Adjusted EBITDA Ratio:			March 31, 2026
Credit Facility			$	530,000
Current and long-term portion of long-term debt			449,851
Total debt			979,851
Acquisition-related consideration payable			1,892
Deferred financing costs			149
Gross debt			$	981,892
Gross debt to Adjusted EBITDA ratio			0.60
Cash and cash equivalents			$	200,528
Net debt			$	781,364
Net debt to Adjusted EBITDA ratio			0.48

Other Commitments, Contingencies and Guarantees

Significant commitments, contingencies, and guarantees as of March 31, 2026, 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.