IDEXX LABORATORIES, INC.

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IDEXX LABORATORIES : DE Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

07/30/2021 | 02:50pm EDT
This Quarterly Report on Form 10-Q contains statements which, to the extent they
are not statements of historical fact, constitute "forward-looking statements."
Such forward-looking statements about our business and expectations within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), include statements
relating to, among other things, the impact of the COVID-19 pandemic; future
revenue growth rates; revenue recognition timing and amounts; business trends,
earnings and other measures of financial performance; the effect of economic
downturns on our business performance; projected impact of foreign currency
exchange rates; demand for our products; realizability of assets; future cash
flow and uses of cash; future repurchases of common stock; future levels of
indebtedness and capital spending, the working capital and liquidity outlook;
the adoption and projected impact of new accounting standards; critical
accounting estimates; deductibility of goodwill; future commercial efforts; and
competition. Forward-looking statements can be identified by the use of words
such as "expects," "may," "anticipates," "intends," "would," "will," "plans,"
"believes," "estimates," "should," "project," and similar words and expressions.
These forward-looking statements are intended to provide our current
expectations or forecasts of future events; are based on current estimates,
projections, beliefs, and assumptions; and are not guarantees of future
performance. Actual events or results may differ materially from those described
in the forward-looking statements. These forward-looking statements involve a
number of risks and uncertainties, including, among other things, the adverse
impact, and the duration, of the effects of the ongoing COVID-19 pandemic 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 2020 Annual Report and in the
corresponding sections of this Quarterly Report on Form 10-Q for the quarters
ended March 31, 2021, and June 30, 2021, as well as those described from time to
time in our other periodic reports filed with the SEC.

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

You should read the following discussion and analysis in conjunction with our
2020 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 30. Unless otherwise stated, the analysis and
discussion of our financial condition and results of operations below, including
references to growth and organic growth and increases and decreases, are being
compared to the equivalent prior-year periods.

Business Overview


We develop, manufacture, and distribute products and provide services primarily
for the companion animal veterinary, livestock, poultry and dairy, and water
testing markets. We also design, manufacture, and distribute point of care and
laboratory diagnostics for the human medical diagnostics market. 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, laboratory diagnostic
instruments and services used by the biomedical research community;
•Diagnostic, health-monitoring products for livestock, poultry, and dairy;
•Products that test water for certain microbiological contaminants; and
•Point-of-care electrolytes, blood gas analyzers, and SARS-CoV-2 RT-PCR
(COVID-19 test) used in the human medical diagnostics market.

Operating Segments. We operate primarily through three business segments:
diagnostic and information technology-based products and services for the
veterinary market, which we refer to as the Companion Animal Group ("CAG"),
water quality products ("Water") and diagnostic products and services for
livestock and poultry health and to ensure the quality and safety of milk and
improve dairy reproductive efficiency, which we refer to as Livestock, Poultry
and Dairy ("LPD"). Our
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Other operating segment combines and presents products for the human medical
diagnostics market ("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 performs
services for veterinarians and the biomedical analytics market, primarily
related to diagnostics and information management. Water develops, designs,
manufactures, and distributes a range of products used in the detection of
various microbiological parameters in water. LPD develops, designs,
manufactures, and distributes diagnostic tests and related software and performs
services that are used to manage the health status of livestock and poultry, to
improve bovine reproductive efficiency, and to ensure the quality and safety of
milk. OPTI Medical develops, designs, manufactures, and distributes
point-of-care and laboratory diagnostics (including electrolyte and blood gas
analyzers, COVID-19 PCR test, and related consumable products) for the human
medical diagnostics market.

Effects of Certain Factors and Trends on Results of Operations


CAG Market Trends. Favorable global trends in companion animal healthcare
continue to support high growth for CAG diagnostic products and services across
regions. U.S. same-store clinical visit growth at veterinary practices was
approximately 13% in the second quarter, reflecting year-over-year growth of
approximately 11% in non-wellness visits and approximately 14% in wellness
visits. These gains include benefits from comparisons to prior year impacts on
demand related to the COVID-19 pandemic. Average same-store revenue growth at
U.S. veterinary practices was approximately 16% in the second quarter, driven by
high growth in healthcare services, including increased utilization of
diagnostics. For the remainder of the current year, we expect to see lower
levels of growth in U.S. clinical visits and CAG Diagnostic revenue, as compared
to the second half of the prior year, which included initial pandemic impacts,
including benefits in the third quarter of 2020 due to delayed demand from the
prior quarter. Furthermore, the potential effects related to ongoing COVID-19
case management efforts are challenging to predict and may pressure future
revenues in CAG and our other segments should enhanced or renewed social
distancing policies and higher infection rates impact our customers in certain
regions.

Other Market Trends. We anticipate reduced LPD revenues on a year-over-year
comparison in the second half of 2021, as we compare to high prior-year demand
for our African Swine Fever testing in China. We also expect that revenues from
our China LPD business may decline in the second half of 2021 from the
rebuilding of swine herds, lower pork prices, and changing government
requirements related to live animal imports and livestock infectious disease
programs.

Currency and Other Items

Currency Impact. See "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. See "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 2020 Annual Report for additional information
regarding distributor purchasing and inventories, economic conditions, and
patent expiration.

Critical Accounting Estimates and Assumptions


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

Recent Accounting Pronouncements


For more information regarding the impact that recent accounting standards and
amendments will have on our consolidated financial statements as described in
Note 2 to the unaudited condensed consolidated financial statements in Part I.
Item 1. Financial Statements of this Quarterly Report on Form 10-Q.
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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 months ended June 30, 2021, as compared to the
same periods for the prior year, net of the effect of changes in foreign
currency exchange rates, certain business acquisitions, and divestitures.
Organic revenue growth should be considered in addition to, and not as a
replacement for, or as a superior measure to, revenue growth reported in
accordance with U.S. GAAP, and may not be comparable to similarly titled
measures reported by other companies. Management believes that reporting organic
revenue growth provides useful information to investors by facilitating easier
comparisons of our revenue performance with prior and future periods and to the
performance of our peers.

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

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

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 30, 2021, Compared to Three Months Ended June 30, 2020


Total Company. The following table presents total Company revenue by operating
segment:
                                     For the Three Months Ended June
                                                   30,
Net Revenue                                                                                         Reported Revenue        Percentage Change         Percentage Change          Organic Revenue
(dollars in thousands)                   2021                2020             Dollar Change             Growth(1)             from Currency           from Acquisitions             Growth(1)

CAG                                  $  745,595          $ 566,100          $      179,495                   31.7  %                    3.7  %                     0.6  %                27.4  %
United States                           486,252            387,113                  99,139                   25.6  %                      -                        0.6  %                25.0  %
International                           259,343            178,987                  80,356                   44.9  %                   12.0  %                     0.6  %                32.3  %

Water                                    37,191             28,116                   9,075                   32.3  %                    5.7  %                       -                   26.6  %
United States                            17,747             13,935                   3,812                   27.4  %                      -                          -                   27.4  %
International                            19,444             14,181                   5,263                   37.1  %                   11.2  %                       -                   25.9  %

LPD                                      33,524             32,244                   1,280                    4.0  %                    5.9  %                       -                   (2.0  %)
United States                             3,516              3,242                     274                    8.4  %                      -                          -                    8.4  %
International                            30,008             29,002                   1,006                    3.5  %                    6.5  %                       -                   (3.1  %)

Other                                     9,832             11,132                  (1,300)                 (11.7  %)                   4.5  %                       -                  (16.2  %)

Total Company                        $  826,142          $ 637,592          $      188,550                   29.6  %                    3.9  %                     0.5  %                25.1  %
United States                           515,238            405,998                 109,240                   26.9  %                      -                        0.6  %                26.3  %
International                           310,904            231,594                  79,310                   34.2  %                   10.7  %                     0.5  %                23.1  %

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


Total Company Revenue. The increase in both U.S. and international organic
revenues was driven by strong volume gains in CAG Diagnostics recurring revenue,
reflecting continued high demand for companion animal diagnostics globally,
supported by an increase in clinical visits and diagnostic utilization per
clinical visit, as compared to the second quarter of the prior year, which
included initial pandemic impacts. Our CAG Diagnostics instrument revenue
reflects high placement volume this quarter, as compared to the second quarter
in the prior year, which was impacted by the global pandemic. In our LPD
business, excluding the impact for currency movements, revenues decreased
primarily as a result of lower swine and poultry testing in China, as well as
lower heard health screening. The higher revenue in our Water business was the
result of recovery of overall testing volumes including continued improvement in
non-compliance testing volume that has been constrained during the pandemic and
disruption in certain compliance testing during the second quarter of the prior
year. Other revenues reflect lower demand, which has occurred as vaccination
rates increase for human OPTI COVID-19 PCR test and services, which were
introduced in the second quarter of 2020. The impact of currency movements
increased total revenue by 3.9%, while acquisitions increased revenue by 0.5%.


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The following table presents total Company results of operations:

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

Revenues                                  $  826,142                               $ 637,592                               $ 188,550                    29.6  %
Cost of revenue                              336,834                                 258,250                                  78,584                    30.4  %
Gross profit                                 489,308                 59.2  %         379,342                 59.5  %         109,966                    29.0  %

Operating Expenses:
Sales and marketing                          119,032                 14.4  %          94,181                 14.8  %          24,851                    26.4  %
General and administrative                    73,326                  8.9  %          60,268                  9.5  %          13,058                    21.7  %
Research and development                      37,697                  4.6  %          31,645                  5.0  %           6,052                    19.1  %
Total operating expenses                     230,055                 27.8  %         186,094                 29.2  %          43,961                    23.6  %
Income from operations                    $  259,253                 31.4  %       $ 193,248                 30.3  %       $  66,005                    34.2  %



Gross Profit. Gross profit increased due to higher sales volumes despite a
modest 30 basis point decrease in the gross profit margin. The net decrease in
the gross profit margin was driven by several factors including the mix impact
from higher CAG Diagnostics instrument revenue and moderated laboratory
productivity gains reflecting comparisons to tightly controlled prior year cost
levels, as a response to the onset of the COVID-19 pandemic. These impacts were
partially offset by the benefits of volume leverage in our CAG Diagnostics
recurring revenue portfolio following the initial pandemic impacts in the second
quarter of the prior year and moderate net price increases, as well as strong
growth in veterinary software, services and diagnostics recurring revenues. The
impact from foreign currency movements decreased the gross profit margin by less
than 10 basis points, including the impact of hedge losses in the current year
compared to hedge gains in the prior year.

Operating Expenses. Overall operating expenses were higher compared to the
second quarter of 2020, during which cost containment efforts were implemented
in response to the COVID-19 pandemic, including temporary reductions to
compensation and benefits, and travel costs. Sales and marketing expense
increased primarily due to higher personnel-related costs, including investments
in our global commercial capability, as well as travel costs. General and
administrative expense increased primarily due to higher personnel-related
costs. Research and development expense increased primarily due to higher
project and personnel-related costs. The overall change in currency exchange
rates resulted in an increase in operating expenses of approximately 3%.


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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,
Net Revenue                                                                                 Reported Revenue       Percentage Change         Percentage Change         Organic Revenue
(dollars in thousands)           2021                2020             Dollar Change            Growth (1)            from Currency           from Acquisitions           Growth (1)

CAG Diagnostics
recurring revenue:           $  661,300          $ 510,254          $      151,046                   29.6  %                   3.7  %                     0.3  %               25.6  %
IDEXX VetLab
consumables                     256,352            196,061                  60,291                   30.8  %                   4.8  %                       -                  26.0  %
Rapid assay products             83,887             64,658                  19,229                   29.7  %                   1.8  %                       -                  28.0  %
Reference laboratory
diagnostic and
consulting services             293,675            228,816                  64,859                   28.3  %                   3.2  %                     0.6  %               24.5  %
CAG diagnostics
services and
accessories                      27,386             20,719                   6,667                   32.2  %                   4.7  %                       -                  27.5  %
CAG Diagnostics
capital - instruments            35,054             18,871                  16,183                   85.8  %                   7.5  %                       -                  78.3  %
Veterinary software,
services and
diagnostic imaging
systems                          49,241             36,975                  12,266                   33.2  %                   1.5  %                     5.8  %               25.9  %
Net CAG revenue              $  745,595          $ 566,100          $      179,495                   31.7  %                   3.7  %                     0.6  %               27.4  %

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


CAG Diagnostics Recurring Revenue. We continue to see strong market demand for
companion animal diagnostics globally across modalities, including an increase
in clinical visits and high levels of growth in testing volumes following the
initial pandemic impact, which constrained volumes beginning in mid-March
through May 2020. This volume growth includes an increase in diagnostic
utilization per clinical visit. The increase in CAG Diagnostics recurring
revenue was primarily due to increased reference laboratory diagnostic services,
volumes in IDEXX VetLab consumables, and rapid assay products, and to a lesser
extent, higher realized prices. The impact of currency movements increased
revenues by 3.7%.

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

The increase in rapid assay revenue resulted primarily from higher SNAP® 4Dx
Plus sales volumes and higher realized prices. Results reflected strong growth
in all major regions.
The increase in reference laboratory diagnostic and consulting services revenue
was primarily due to higher testing volumes in all major regions, as well as
higher average unit sales prices. Acquisitions increased revenue by 0.6%.

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


CAG Diagnostics Capital - Instrument Revenue. The increase in instrument revenue
was primarily due to strong premium instrument placements globally, as compared
to constrained placements in the second quarter of 2020, as a result of the
global pandemic, due to restrictions on our sales professionals' access to
clinics and certain customers' deferral of new instrument purchases, which
resulted in lower sales volumes.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The
increase in revenue was primarily due to higher imaging system placements,
specifically our ImageVue DR 30 platform, as compared to the second quarter of
2020 during which diagnostic imaging placements were lower due to restrictions
on our sales professionals' access to clinics and certain customers deferring
purchase decisions as a result of the COVID-19 pandemic. We also had increased
veterinary
                                       35
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software and diagnostic imaging subscription-based service revenue, due to increases in our active installed base, new diagnostic imaging instrument and veterinary software system placements, and higher realized prices on these service offerings. Acquisitions increased revenue 5.8%.

The following table presents the CAG segment results of operations:

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

Revenues                                          $  745,595                               $ 566,100                               $ 179,495                    31.7  %
Cost of revenues                                     304,809                                 231,633                                  73,176                    31.6  %
Gross profit                                         440,786                 59.1  %         334,467                 59.1  %         106,319                    31.8  %

Operating Expenses:
Sales and marketing                                  109,151                 14.6  %          86,096                 15.2  %          23,055                    26.8  %
General and administrative                            64,134                  8.6  %          53,533                  9.5  %          10,601                    19.8  %
Research and development                              32,766                  4.4  %          26,869                  4.7  %           5,897                    21.9  %
Total operating expenses                             206,051                 27.6  %         166,498                 29.4  %          39,553                    23.8  %
Income from operations                            $  234,735                 31.5  %       $ 167,969                 29.7  %       $  66,766                    39.7  %



Gross Profit. Gross profit increased primarily due to higher sales volume.
Increases in the gross profit margin were primarily due to the benefits of
volume leverage and price increases in our CAG Diagnostics recurring revenue
portfolio, including significant volume leverage within our reference
laboratories, which was moderated in comparisons to the tightly controlled prior
year cost levels within laboratory operations. Furthermore, we saw strong growth
in veterinary software, services and diagnostic imaging recurring revenues,
including the positive impact of acquisitions. These favorable factors were
offset by the impact from product mix with higher CAG Diagnostics instrument
revenue, as well as an impairment of rental assets in certain regions. The
impact from foreign currency movements increased the gross profit margin by less
than 10 basis points, including the impact of hedge losses in the current year
compared to hedge gains in the prior year.

Operating Expenses. Overall operating expenses were higher compared to the
second quarter of 2020, during which cost containment efforts were implemented
in response to the COVID-19 pandemic, including temporary reductions to
compensation and benefits and travel costs. Sales and marketing expense
increased primarily due to higher personnel-related costs, including investments
in our global commercial capability, as well as travel costs. General and
administrative expense increased primarily due to personnel-related costs.
Research and development expense increased primarily due to increased project
and personnel-related costs. The overall change in currency exchange rates
increased operating expenses by approximately 2%.

                                       36
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Water

The following table presents the Water segment results of operations:

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

Revenues                                          $  37,191                               $ 28,116                               $ 9,075                    32.3  %
Cost of revenue                                      11,444                                  8,438                                 3,006                    35.6  %
Gross profit                                         25,747                 69.2  %         19,678                 70.0  %         6,069                    30.8  %

Operating Expenses:
Sales and marketing                                   4,099                 11.0  %          3,399                 12.1  %           700                    20.6  %
General and administrative                            3,384                  9.1  %          3,193                 11.4  %           191                     6.0  %
Research and development                              1,036                  2.8  %            828                  2.9  %           208                    25.1  %
Total operating expenses                              8,519                 22.9  %          7,420                 26.4  %         1,099                    14.8  %
Income from operations                            $  17,228                 46.3  %       $ 12,258                 43.6  %       $ 4,970                    40.5  %



Revenue. The increase in revenue was primarily a result of the continued
improvement in overall testing volumes, including non-compliance testing volume
that has been constrained during the COVID-19 pandemic. The increase in revenues
was also due to disruption in certain compliance testing areas during the second
quarter of the prior year due to social distancing policies, including beach and
pool closures, as well as the impact of customer stocking orders in the first
quarter of 2020 ahead of the pandemic, that impacted second quarter 2020
volumes. The impact of currency movements increased revenue by approximately
5.7%.

Gross Profit. Gross profit increased due to higher sales volumes despite an 80
basis point decrease in the gross profit margin, which reflected a 110 basis
point reduction due to foreign currency movements, including the impact of hedge
losses in the current year compared to hedge gains in the prior year. Excluding
currency impacts, the increase in gross profit margin reflected the net benefit
of price increases and volume leverage.

Operating Expenses.  Overall operating expenses were higher compared to the
second quarter of 2020, during which cost containment efforts were implemented
in response to the COVID-19 pandemic, including temporary reductions to
compensation and benefits and travel costs. Sales and marketing and general and
administrative expenses increased primarily due to higher personnel-related
costs. Research and development expense increased primarily due to third-party
costs. The overall change in currency exchange rates resulted in an increase in
operating expenses of approximately 3%.



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Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

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

Revenues                                          $  33,524                               $ 32,244                               $  1,280                    4.0  %
Cost of revenue                                      13,998                                 13,405                                    593                    4.4  %
Gross profit                                         19,526                 58.2  %         18,839                 58.4  %            687                    3.6  %

Operating Expenses:
Sales and marketing                                   5,142                 15.3  %          4,298                 13.3  %            844                   19.6  %
General and administrative                            4,271                 12.7  %          3,678                 11.4  %            593                   16.1  %
Research and development                              3,245                  9.7  %          2,614                  8.1  %            631                   24.1  %
Total operating expenses                             12,658                 37.8  %         10,590                 32.8  %          2,068                   19.5  %
Income from operations                            $   6,868                 20.5  %       $  8,249                 25.6  %       $ (1,381)                 (16.7  %)



Revenue. The favorable impact of foreign currency movements increased revenues
5.9%. Excluding the impact of currency, overall revenues decreased primarily due
to lower swine testing volumes in China, as swine herds are rebuilt, pork prices
are low, and government requirements change related to live animal imports and
livestock infectious disease programs, in comparison to high prior-year demand
for African Swine Fever testing. We anticipate these trends will continue to
impact our revenues in China during the second half of 2021. These decreases
were partially offset by higher bovine testing volumes in Europe and the
Americas, as compared to pandemic impacts in the second quarter of the prior
year.

Gross Profit. Gross profit increased due to higher sales volumes despite a 20
basis point decrease in the gross profit margin. Excluding currency impacts, the
gross profit margin increased as a result of lower product costs due to product
mix. The impact of currency movements, including the impact of hedge losses in
the current year compared to hedge gains in the prior year, reduced the gross
margin by approximately 90 basis points.

Operating Expenses. Overall operating expenses were higher compared to the
second quarter of 2020, during which cost containment efforts were implemented
in response to the COVID-19 pandemic, including temporary reductions to
compensation and benefits and travel costs. Sales and marketing expense
increased primarily due to higher travel and personnel-related costs. General
and administrative expenses increased primarily due to higher personnel-related
costs. Research and development expense increased primarily due to higher
personnel-related costs and third-party development costs. The overall change in
currency exchange rates resulted in an increase in operating expenses of
approximately 4%.

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Other

The following table presents the Other results of operations:

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

Revenues                                          $  9,832                               $ 11,132                               $ (1,300)                  (11.7  %)
Cost of revenue                                      6,583                                  4,774                                  1,809                    37.9  %
Gross profit                                         3,249                 33.0  %          6,358                57.1  %          (3,109)                  (48.9  %)

Operating Expenses:
Sales and marketing                                    640                  6.5  %            388                 3.5  %             252                    64.9  %
General and administrative                           1,537                 15.6  %           (136)               (1.2  %)          1,673                (1,230.1  %)
Research and development                               650                  6.6  %          1,334                12.0  %            (684)                  (51.3  %)
Total operating expenses                             2,827                 28.8  %          1,586                14.2  %           1,241                    78.2  %
Income from operations                            $    422                  4.3  %       $  4,772                42.9  %        $ (4,350)                  (91.2  %)




Revenue. The decrease in revenue was primarily due to lower OPTI COVID-19 PCR
testing products and services, as compared to the second quarter of 2020 when
the COVID-19 product and services were introduced, partially offset by higher
royalty revenue associated with intellectual property related to our former
pharmaceutical product line and higher OPTI Medical consumables. We currently
estimate that the future demand for our OPTI COVID-19 PCR testing products and
services will be lower than prior periods, although it is difficult to project
given the uncertain nature of the COVID-19 pandemic, including the spread of
variants, rates of vaccinations, governmental and private institution testing
requirements, and alternative suppliers. The impact of currency movements on
revenue was 4.5%.

Gross Profit. The decrease in gross profit was primarily due to lower sales
volumes of our OPTI COVID-19 PCR testing products and services and a 2,410 basis
point decrease in the gross profit margin, primarily due to higher product costs
associated with write-downs of excess COVID-19 testing inventory, partially
offset by the benefits of mix due to higher royalty revenue associated with our
former pharmaceutical product line. The overall change in currency exchange
rates had an immaterial impact on gross profit.

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

Non-Operating Items


Interest Expense. Interest expense was $7.6 million for the three months ended
June 30, 2021, as compared to $9.5 million for the same period in the prior
year. The decrease in interest expense was primarily the result of lower average
debt levels.

Provision for Income Taxes. Our effective income tax rate was 19.5% for the three months ended June 30, 2021, as compared to 18.9% for the three months ended June 30, 2020. The increase in our effective tax rate was primarily due to changes in the regional earnings mix.

                                       39
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Results of Operations

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020


Total Company. The following table presents total Company revenue by operating
segment:
                                         For the Six Months Ended June 30,
Net Revenue                                                                                                  Reported Revenue       Percentage Change         Percentage Change         Organic Revenue
(dollars in thousands)                       2021                    2020              Dollar Change            Growth (1)            from Currency           from Acquisitions           Growth (1)

CAG                                  $       1,438,362          $ 1,118,096          $      320,266                   28.6  %                   3.3  %                     0.4  %               25.0  %
United States                                  930,662              760,388                 170,274                   22.4  %                     -                        0.4  %               22.0  %
International                                  507,700              357,708                 149,992                   41.9  %                  10.8  %                     0.4  %               30.7  %

Water                                           71,231               62,265                   8,966                   14.4  %                   3.7  %                       -                  10.7  %
United States                                   34,315               30,876                   3,439                   11.1  %                     -                          -                  11.1  %
International                                   36,916               31,389                   5,527                   17.6  %                   7.3  %                       -                  10.3  %

LPD                                             72,794               66,398                   6,396                    9.6  %                   5.8  %                       -                   3.8  %
United States                                    7,264                7,019                     245                    3.5  %                     -                          -                   3.5  %
International                                   65,530               59,379                   6,151                   10.4  %                   6.5  %                       -                   3.8  %

Other                                           21,462               17,169                   4,293                   25.0  %                   4.2  %                       -                  20.8  %

Total Company                        $       1,603,849          $ 1,263,928          $      339,921                   26.9  %                   3.5  %                     0.3  %               23.1  %
United States                                  987,876              802,781                 185,095                   23.1  %                     -                        0.3  %               22.7  %
International                                  615,973              461,147                 154,826                   33.6  %                   9.6  %                     0.3  %               23.6  %

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


Total Company Revenue. The increase in both U.S. and international organic
revenues was driven by strong volume gains in CAG Diagnostics recurring revenue,
reflecting continued high demand for companion animal diagnostics globally,
supported by an increase in clinical visits and diagnostic utilization per
clinical visit, as compared to the first half of 2020, which included the
initial pandemic impacts. Our CAG Diagnostics instrument revenue reflects high
placement volumes compared to the first half of the prior year, which was
impacted by the global pandemic. The growth in our LPD business was primarily
due to the demand for swine testing in China and occurred predominantly in the
first quarter. The higher revenue in our Water business was primarily a result
of the continued improvement in non-compliance testing that has been constrained
during the pandemic and disruption in certain compliance testing during the
second quarter of the prior year. The impact of currency movements increased
total revenue by 3.5%.
                                       40
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The following table presents total Company results of operations:

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

Revenues                                  $      1,603,849                               $ 1,263,928                               $ 339,921                    26.9  %
Cost of revenue                                    643,759                                   524,996                                 118,763                    22.6  %
Gross profit                                       960,090                 59.9  %           738,932                 58.5  %         221,158                    29.9  %

Operating Expenses:
Sales and marketing                                233,843                 14.6  %           210,324                 16.6  %          23,519                    11.2  %
General and administrative                         144,096                  9.0  %           126,080                 10.0  %          18,016                    14.3  %
Research and development                            75,276                  4.7  %            64,955                  5.1  %          10,321                    15.9  %
Total operating expenses                           453,215                 28.3  %           401,359                 31.8  %          51,856                    12.9  %
Income from operations                    $        506,875                 31.6  %       $   337,573                 26.7  %       $ 169,302                    50.2  %



Gross Profit. Gross profit increased due to higher sales volumes, as well as a
140 basis point increase in the gross profit margin. The increase in the gross
profit margin was primarily due to volume leverage in our CAG Diagnostics
recurring portfolio following the initial pandemic impacts in the first half of
the prior year, price increases, and strong growth in veterinary software,
services and diagnostic imaging recurring revenues. These increases were
partially offset by product mix with higher CAG Diagnostics instrument revenue.
The impact from foreign currency movements decreased the gross profit margin by
less than 10 basis points, including the impact of hedge losses in the current
year compared to hedge gains in the prior year.

Operating Expenses. Overall operating expenses were higher compared to the first
half of 2020, during which cost containment efforts were implemented in response
to the COVID-19 pandemic, including temporary reductions to compensation and
benefits and travel costs. Sales and marketing expense increased primarily due
to higher personnel-related costs, including investments in our global
commercial capability, partially offset by lower travel costs. General and
administrative expense increased primarily due to higher personnel-related
costs, partially offset by an increase in the bad debt reserve during the first
quarter of 2020. Research and development expense increased primarily due to
higher project and personnel-related costs. The overall change in currency
exchange rates increased operating expenses by approximately 2%.

                                       41
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Companion Animal Group


The following table presents revenue by product and service category for CAG:
                                 For the Six Months Ended June 30,
Net Revenue                                                                                          Reported Revenue       Percentage Change         Percentage Change         Organic Revenue
(dollars in thousands)               2021                    2020              Dollar Change            Growth (1)            from Currency           from Acquisitions           Growth (1)

CAG Diagnostics
recurring revenue:           $       1,278,580          $   998,179          $      280,401                   28.1  %                   3.4  %                     0.2  %               24.5  %
IDEXX VetLab
consumables                            502,444              384,774                 117,670                   30.6  %                   4.4  %                       -                  26.2  %
Rapid assay products                   153,498              122,088                  31,410                   25.7  %                   1.5  %                       -                  24.2  %
Reference laboratory
diagnostic and
consulting services                    569,456              449,077                 120,379                   26.8  %                   3.0  %                     0.4  %               23.4  %
CAG diagnostics
services and
accessories                             53,182               42,240                  10,942                   25.9  %                   4.2  %                       -                  21.7  %
CAG Diagnostics
capital - instruments                   66,244               42,704                  23,540                   55.1  %                   5.4  %                       -                  49.8  %
Veterinary software,
services and
diagnostic imaging
systems                                 93,538               77,213                  16,325                   21.1  %                   1.1  %                     2.8  %               17.2  %
Net CAG revenue              $       1,438,362          $ 1,118,096          $      320,266                   28.6  %                   3.3  %                     0.4  %               25.0  %


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


CAG Diagnostics Recurring Revenue. We continue to see strong market demand for
companion animal diagnostics globally across modalities, including high levels
of growth in testing volumes following the initial pandemic impacts, which
constrained volumes beginning in mid-March 2020 through May 2020. This volume
growth includes an increase in clinical visits and diagnostic utilization per
clinical visit. The increase in CAG Diagnostics recurring revenue was primarily
due to increased volumes in IDEXX VetLab consumables, reference laboratory
diagnostic services, and rapid assay products and, to a lesser extent, higher
realized prices. The impact of currency movements increased revenue 3.4%.

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

The increase in rapid assay revenue resulted primarily from higher SNAP® 4Dx Plus sales volumes, as well as higher realized prices.


The increase in reference laboratory diagnostic and consulting services revenue
was primarily due to higher testing volumes globally, as well as higher average
unit sales prices. Acquisitions increased revenue by 0.4%.

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


CAG Diagnostics Capital - Instrument Revenue. The increase in instrument revenue
was primarily due to strong premium instrument placements globally, as compared
to constrained placements in the first half of 2020, as a result of the global
pandemic, due to restrictions on our sales professionals' access to clinics and
certain customers' deferral of new instrument placements, which resulted in
lower sales volumes.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The
increase in revenue was primarily due to increased veterinary software and
diagnostic imaging subscription-based services due to the increases in our
active installed base, new veterinary software system placements, and to a
lesser extent, higher realized prices on these service offerings. Revenue also
increased with higher imaging systems placements in the second quarter,
specifically our ImageVue DR 30 platform, as compared to the second quarter of
2020 when diagnostic imaging placements were lower due to restriction on our
                                       42
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sales professionals' access to clinic and certain customers deferring purchase
decisions as a result of the COVID-19 pandemic. These favorable impacts were
partially offset by a decrease in diagnostic imaging instrument revenue impacted
by a reduction in earlier generation instrument platform sales. Acquisitions
increased revenue 2.8%.


The following table presents the CAG segment results of operations:

                                                                          For the Six Months Ended June 30,                                           

Change

Results of Operations                                                         Percent of                                Percent of
(dollars in thousands)                                   2021                  Revenue                2020               Revenue              Amount    

Percentage


Revenues                                          $      1,438,362                               $ 1,118,096                               $ 320,266                    28.6  %
Cost of revenue                                            584,702                                   474,286                                 110,416                    23.3  %
Gross profit                                               853,660                 59.3  %           643,810                 57.6  %         209,850                    32.6  %

Operating Expenses:
Sales and marketing                                        213,442                 14.8  %           192,098                 17.2  %          21,344                    11.1  %
General and administrative                                 127,038                  8.8  %           109,136                  9.8  %          17,902                    16.4  %
Research and development                                    65,235                  4.5  %            55,948                  5.0  %           9,287                    16.6  %
Total operating expenses                                   405,715                 28.2  %           357,182                 31.9  %          48,533                    13.6  %
Income from operations                            $        447,945                 31.1  %       $   286,628                 25.6  %       $ 161,317                    56.3  %



Gross Profit. Gross profit increased primarily due to higher sales volume, as
well as a 170 basis point increase in the gross profit margin. The increase in
the gross profit margin was primarily due to the benefit of volume leverage and
price increases in our CAG Diagnostics recurring revenue portfolio, and strong
growth in veterinary software, services and diagnostic imaging systems. These
favorable factors were partially offset by product mix with higher CAG
Diagnostics instrument revenue, as well as an impairment of rental assets in
certain regions. The impact from foreign currency movements increased the gross
profit margin by less than 10 basis points, including the impact of hedge losses
in the current year compared to hedge gains in the prior year.

Operating Expenses. Overall operating expenses were higher compared to the first
half of 2020, during which cost containment efforts were implemented in response
to the COVID-19 pandemic, including temporary reductions to compensation and
benefits and travel costs. Sales and marketing expense increased primarily due
to higher personnel-related costs, including investments in our global
commercial capability, partially offset by lower travel costs. General and
administrative expense increased primarily due to higher personnel-related
costs, partially offset by an increase in the bad debt reserve during the first
quarter of 2020. Research and development expense increased primarily due to
increased project and personnel-related costs. The overall change in currency
exchange rates resulted in an increase in operating expenses by approximately
2%.

                                       43
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Water

The following table presents the Water segment results of operations:

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

Revenues                                          $  71,231                               $ 62,265                               $ 8,966                    14.4  %
Cost of revenue                                      22,019                                 17,838                                 4,181                    23.4  %
Gross profit                                         49,212                 69.1  %         44,427                 71.4  %         4,785                    10.8  %

Operating Expenses:
Sales and marketing                                   8,457                 11.9  %          7,773                 12.5  %           684                     8.8  %
General and administrative                            6,620                  9.3  %          6,689                 10.7  %           (69)                   (1.0) %
Research and development                              2,135                  3.0  %          1,825                  2.9  %           310                    17.0  %
Total operating expenses                             17,212                 24.2  %         16,287                 26.2  %           925                     5.7  %
Income from operations                            $  32,000                 44.9  %       $ 28,140                 45.2  %       $ 3,860                    13.7  %



Revenue. The increase in our Water business was primarily a result of recovery
in overall testing volumes, including continued improvement in non-compliance
testing volume that has been constrained during the COVID-19 pandemic and
disruptions in certain compliance testing areas, specifically during the second
quarter of the prior year due to social distancing policies, including beach and
pool closures, as well as price increases in our Colilert test products and
related accessories used in coliform and E. coli testing. The impact of currency
movements also increased revenue by 3.7%.

Gross Profit. Gross profit increased due to higher sales volumes despite a 230
basis point decrease in the gross profit margin, which reflected a 120 basis
point reduction due to foreign currency movements, including the impact of hedge
losses in the current year compared to hedge gains in the prior year. The gross
profit margin was further reduced by higher product and distribution costs.
These reductions in the gross profit margin were partially offset by the net
benefit of price increases.

Operating Expenses. Overall operating expenses were higher compared to the first
half of 2020, during which cost containment efforts were implemented in response
to the COVID-19 pandemic, including temporary reductions to compensation and
benefits and travel costs. Sales and marketing expense increased primarily due
to higher personnel-related costs. Research and development expense increased
primarily due to higher third-party costs. The overall change in currency
exchange rates resulted in an increase in operating expenses of approximately
2%.

                                       44
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Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

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

Revenues                                          $  72,794                               $ 66,398                               $ 6,396                     9.6  %
Cost of revenue                                      26,387                                 25,247                                 1,140                     4.5  %
Gross profit                                         46,407                 63.8  %         41,151                 62.0  %         5,256                    12.8  %

Operating Expenses:
Sales and marketing                                  10,680                 14.7  %          9,680                 14.6  %         1,000                    10.3  %
General and administrative                            8,579                 11.8  %          8,167                 12.3  %           412                     5.0  %
Research and development                              6,472                  8.9  %          5,392                  8.1  %         1,080                    20.0  %
Total operating expenses                             25,731                 35.3  %         23,239                 35.0  %         2,492                    10.7  %
Income from operations                            $  20,676                 28.4  %       $ 17,912                 27.0  %       $ 2,764                    15.4  %



Revenue. The favorable impact of foreign currency movements increased revenue by
5.8%. Excluding the impact of currency, overall revenues increased primarily due
to higher demand for diagnostic testing in China, during the first quarter of
2021, and higher bovine testing volumes in Europe and the Americas, as compared
to pandemic impacts in the second quarter of the prior year. Beginning in the
second quarter of 2021 we saw lower livestock testing volumes in China, as swine
herds are rebuilt, pork prices are low, and government requirements change
related to live animal imports and livestock infectious disease programs, in
comparison to high prior-year demand for African Swine Fever testing. We
anticipate these trends will continue to impact our revenues in China during the
second half of 2021.

Gross Profit. The increase in gross profit was primarily due to higher sales
volumes and a 180 basis point increase in the gross profit margin. The increase
in the gross profit margin is primarily due to volume leverage and favorable
product mix, partially offset by lower realized prices and the impact from
foreign currency movements, which decreased gross profit margin by approximately
100 basis points, including the impact of hedge losses in the current year
compared to hedge gains in the prior year.

Operating Expenses. Overall operating expenses were higher compared to the first
half of 2020, during which cost containment efforts were implemented in response
to the COVID-19 pandemic, including temporary reductions to compensation and
benefits, and travel costs. Sales and marketing expense increased primarily due
to higher travel and personnel-related costs. General and administrative
expenses increased primarily due to higher personnel-related costs, partially
offset an increase in the bad debt reserve during the first half of 2020.
Research and development expense increased primarily due to higher
personnel-related costs and third-party development costs, partially offset by
leveraging LPD personnel to support our human COVID testing products. The
overall change in currency exchange rates resulted in an increase in operating
expenses of approximately 3%.

                                       45
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Other

The following table presents the Other results of operations:

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

Revenues                                          $  21,462                               $ 17,169                               $ 4,293                   25.0  %
Cost of revenue                                      10,651                                  7,625                                 3,026                   39.7  %
Gross profit                                         10,811                 50.4  %          9,544                 55.6  %         1,267                   13.3  %

Operating Expenses:
Sales and marketing                                   1,264                  5.9  %            773                  4.5  %           491                   63.5  %
General and administrative                            1,859                  8.7  %          2,088                 12.2  %          (229)                 (11.0  %)
Research and development                              1,434                  6.7  %          1,790                 10.4  %          (356)                 (19.9  %)
Total operating expenses                              4,557                 21.2  %          4,651                 27.1  %           (94)                  (2.0  %)
Income from operations                            $   6,254                 29.1  %       $  4,893                 28.5  %       $ 1,361                   27.8  %



Revenue. The increase in revenue was primarily due to our OPTI COVID-19 PCR
testing products and services, which were introduced in the second quarter of
2020, as well as higher OPTI Medical consumables. We currently estimate that the
future demand for our OPTI COVID-19 PCR testing products and services will be
lower than prior periods, although it is difficult to project given the
uncertain nature of the COVID-19 pandemic, including the spread of variants,
rates of vaccinations, governmental and private institution testing
requirements, and alternative suppliers. The impact of currency movements
increased revenue by 4.2%.

Gross Profit. The increase in gross profit was primarily due to higher sales
volumes of our OPTI COVID-19 PCR testing products and services, primarily in the
first quarter of 2021. The gross profit margin decreased 520 basis points
primarily due to higher product costs associated with write-downs of excess
COVID-19 testing inventory in the second quarter of 2021. The overall change in
currency exchange rates had an immaterial impact on gross profit.

Operating Expenses. Sales and marketing expense increased primarily due to
higher personnel-related costs associated with our OPTI COVID-19 PCR product and
services. 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, for all operating segments, which
are reported within our Other segment. Research and development expense
decreased primarily due to lower project costs associated with the development
of the OPTI COVID-19 PCR test.

Non-Operating Items


Interest Expense. Interest expense was $15.2 million for the six months ended
June 30, 2021, as compared to $17.2 million for the same period in the prior
year. The decrease in interest expense was primarily the result of lower average
debt levels.
Provision for Income Taxes. Our effective income tax rate was 17.3% for the six
months ended June 30, 2021, as compared to 18.6% for the six months ended June
30, 2020. The decrease in our effective tax rate as compared to the same period
in the prior year, was primarily driven by an overall increase in tax benefits
from share-based compensation.


                                       46
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Liquidity and Capital Resources


We fund the capital needs of our business through cash on hand, funds generated
from operations, proceeds from long-term senior note financings, and amounts
available under our Credit Facility. At June 30, 2021, we had $232.1 million
of cash and cash equivalents, as compared to $383.9 million on December 31,
2020. Working capital totaled $349.4 million at June 30, 2021, as compared to
$480.0 million at December 31, 2020. Additionally, at June 30, 2021, we had
remaining borrowing availability of $998.6 million under our $1 billion Credit
Facility, with no outstanding borrowings on the Credit Facility. The general
availability of funds under our Credit Facility is reduced by $1.4 million for
outstanding letters of credit. We believe that, if necessary, we could obtain
additional borrowings to fund our growth objectives. We further believe that
current cash and cash equivalents, funds generated from operations, and
committed borrowing availability will be sufficient to fund our operations,
capital purchase requirements, and anticipated growth needs for the next twelve
months. We believe that these resources, coupled with our ability, as needed, to
obtain additional financing, will also be sufficient to fund our business as
currently conducted for the foreseeable future. We may enter into new financing
arrangements or refinance or retire existing debt in the future depending on
market conditions. Should we require more capital in the U.S. than is generated
by our operations, for example to fund significant discretionary activities, we
could elect to raise capital in the U.S. through the incurrence of debt or
equity issuances, which we may not be able to complete on favorable terms or at
all. In addition, these alternatives could result in increased interest expense
or other dilution of our earnings.

We manage our worldwide cash requirements considering available funds among all
of our subsidiaries. Our foreign cash and marketable securities are generally
available without restrictions to fund ordinary business operations outside the
U.S.
The following table presents cash, cash equivalents, and marketable securities
held domestically and by our foreign subsidiaries:
Cash, cash equivalents and marketable securities                                                     December 31,
(dollars in millions)                                                          June 30, 2021             2020

U.S.                                                                         $         94.2          $    248.4
Foreign                                                                               137.9               135.5
Total                                                                        $        232.1          $    383.9

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

$ 4.9 $ 18.0

Of the $232.1 million of cash and cash equivalents held as of June 30, 2021, greater than 99% was held as bank deposits.


The following table presents additional key information concerning working
capital:
                                                                                              For the Three Months Ended
                                                                                                                                                             June 30,
                                                 June 30, 2021            March 31, 2021            December 31, 2020          September 30, 2020              2020

Days sales outstanding(1)                             42.2                      41.8                       42.2                        41.5                      44.4
Inventory turns(2)                                     2.1                       2.0                        2.1                         1.9                       1.6


(1)   Days sales outstanding represents the average of the accounts receivable
balances at the beginning and end of each quarter divided by revenue for that
quarter, the result of which is then multiplied by 91.25 days.
(2)   Inventory turns represent inventory-related cost of product revenue for
the 12 months preceding each quarter-end divided by the average inventory
balances at the beginning and end of each quarter.

                                       47
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Sources and Uses of Cash

The following table presents cash provided (used):

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

Net cash provided by operating activities                 $     358,377             $ 236,013          $      122,364
Net cash used by investing activities                          (199,250)              (74,226)               (125,024)
Net cash used by financing activities                          (309,868)             (144,630)               (165,238)
Net effect of changes in exchange rates on cash                  (1,053)               (2,190)                  1,137
Net change in cash and cash equivalents                   $    (151,794)    

$ 14,967 $ (166,761)




Operating Activities. The increase in cash provided by operating activities of
$122.4 million was driven primarily by an increase in net income. The following
table presents cash flow impacts from changes in operating assets and
liabilities:
                                                                         For the Six Months Ended June 30,
(in thousands)                                                    2021                   2020             Dollar Change

Accounts receivable                                       $     (50,721)             $ (57,277)         $        6,556
Inventories                                                     (20,412)               (29,254)                  8,842
Accounts payable                                                  3,812                 (6,729)                 10,541
Deferred revenue                                                 (5,037)                (6,695)                  1,658
Other assets and liabilities                                    (55,162)                 4,540                 (59,702)
Total change in cash due to changes in operating
assets and liabilities                                    $    (127,520)             $ (95,415)         $      (32,105)



Cash used due to changes in operating assets and liabilities during the six
months ended June 30, 2021, as compared to the same period in the prior year,
increased by approximately $32.1 million. The increase in use of cash in other
assets and liabilities was due to higher income taxes paid in the current year,
as compared to the same period in 2020, as the U.S. federal and state payments
in the prior year were delayed until the third quarter of 2020 under the
COVID-19 stimulus guidance. The use of cash in other assets and liabilities was
further increased by higher incentive payments in 2021, as compared to 2020, and
higher investments in customer volume commitment programs to support instrument
placements, partially offset by higher non-cash operating expenses recorded as
accrued liabilities, including employee incentive programs. The increase in cash
provided by accounts payable over the same period in the prior-year was due to
higher investment activity to support growth in the current period. The increase
in cash provided by accounts receivable over the same prior-year period was due
to higher growth at the end of the second quarter of 2020, as sales volumes
began to rebound at the end of the quarter due to pent-up demand from the
beginning of the COVID-19 pandemic, as well as improved aging of accounts
receivable in the current period. Cash used to purchase inventory in the current
period, as compared to the prior period, was lower primarily due to the timing
of inventory payments.

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 $199.3 million for
the six months ended June 30, 2021, as compared to $74.2 million for the same
period in the prior year. The increase in cash used by investing activities was
primarily due to the acquisition of ezyVet, partially offset by lower capital
expenditures due to the completion of certain major facilities projects during
2020.

We are increasing our outlook for full year capital spending to a range of $150
million to $160 million for 2021. The projected increase in capital spend will
support manufacturing and distribution growth capacity and is expected to
include approximately $20 million in real estate purchases.

Financing Activities. Cash used by financing activities was $309.9 million for
the six months ended June 30, 2021, as compared to $144.6 million of cash used
for the same period in the prior year. The increase in cash used by financing
activities was due to an increase in repurchases of our common stock in the
current period as compared to the same period in the prior
                                       48
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year when we suspended repurchases due to the COVID-19 pandemic. During the first six months of 2020, the issuance of senior notes, partly offset by repayments on our Credit Facility provided $32.3 million in cash.


Cash used to repurchase shares of our common stock increased $138.0 million
during the six months ended June 30, 2021. We believe that the repurchase of our
common stock is a favorable means of returning value to our stockholders, and we
also repurchase our stock to offset the dilutive effect of our share-based
compensation programs. Repurchases of our common stock may vary depending upon
the level of other investing activities and the share price. See Note 11 to the
unaudited condensed consolidated financial statements in Part I. Item 1. of this
Quarterly Report on Form 10-Q for additional information about our share
repurchases.

There was no net activity under our Credit Facility during the six months ended
June 30, 2021, as compared to $167.7 million of net repayments in the same
period of the prior year. At June 30, 2021, we had no outstanding borrowings
under the Credit Facility. The obligations under our Credit Facility may be
accelerated upon the occurrence of an event of default under the Credit
Facility, which includes customary events of default including payment defaults,
defaults in the performance of the affirmative, negative and financial
covenants, the inaccuracy of representations or warranties, bankruptcy and
insolvency-related defaults, defaults relating to judgments, certain events
related to employee pension benefit plans under the Employee Retirement Income
Security Act of 1974 ("ERISA"), the failure to pay specified indebtedness,
cross-acceleration to specified indebtedness, and a change of control default.

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

As of June 30, 2021, the aggregate principal amounts of two series of our
outstanding senior notes will become due and payable over the next twelve
months: our 2021 Series A Notes for $50 million, which became due on July 21,
2021, and our 2022 Series A Notes for $75 million, which will be due on February
12, 2022. On July 21, 2021, we paid off our 2021 Series A Notes with cash
provided by operations, and we anticipate paying off our 2022 Series A Notes
when due and payable 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, and cross-acceleration to specified
indebtedness.

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

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

                                       49
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Financial Covenant. The sole financial covenant of our Credit Facility and
Senior Note Agreements is a consolidated leverage ratio test that requires our
ratio of debt to earnings before interest, taxes, depreciation and amortization,
non-recurring transaction expenses incurred in connection with acquisitions,
share-based compensation expense, and certain other non-cash losses and charges
("Adjusted EBITDA") not to exceed 3.5-to-1. At June 30, 2021, 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:                          June 30, 2021

Net income attributable to stockholders (as reported)    $            727,848
Interest expense                                                       31,135
Provision for income taxes                                            105,037
Depreciation and amortization                                          99,646
Acquisition-related expense                                             2,054
Share-based compensation expense                                       

34,382

Extraordinary and other non-recurring non-cash charges                  5,911
Adjusted EBITDA                                          $          1,006,013

(in thousands)
Debt to Adjusted EBITDA Ratio:                               June 30, 2021

Line of credit                                           $                  -
Current and long-term portions of long-term debt                      

905,061

Total debt                                                            

905,061

Acquisition-related contingent consideration payable                    6,608
Financing leases                                                           19
Deferred financing costs                                                  573
Gross debt                                               $            912,261
Gross debt to Adjusted EBITDA ratio                                      

0.91


Less: Cash and cash equivalents                          $            

232,134

Net debt                                                 $            

680,127

Net debt to Adjusted EBITDA ratio                                          

0.68




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

Other Commitments, Contingencies and Guarantees

Significant commitments, contingencies and guarantees at June 30, 2021, are described in Note 15 to the unaudited condensed consolidated financial statements in Part I. Item 1. of this Quarterly Report on Form 10-Q.

                                       50

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