IDEXX LABORATORIES, INC. This Quarterly Report on Form 10-Q contains statements which, to the extent they are not statements of historical fact, constitute "forward-looking statements." Such forward-looking statements about our business and expectations within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), include statements relating to, among other things, the impact of the COVID-19 pandemic; our expectations regarding LPD financial performance and supply chain and logistics challenges; our operations inRussia ; 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 companion animal healthcare and 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 projected impact of new accounting standards; critical accounting estimates; deductibility of goodwill; research and development expense estimate; and future commercial and operational efforts. Forward-looking statements can be identified by the use of words such as "expects," "may," "anticipates," "intends," "would," "will," "plans," "believes," "estimates," "should," "project," and similar words and expressions. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, including, among other things, the adverse impact, and the duration, of the effects of the current war inUkraine and the ongoing COVID-19 pandemic on our business, results of operations, liquidity, financial condition, and stock price, supply chain and logistics delays and disruptions, as well as the other matters described under the headings "Business," "Risk Factors," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosure About Market Risk" in our 2021 Annual Report and in the corresponding sections of this Quarterly Report on Form 10-Q, and for the quarter endedMarch 31, 2022 , as well as those described from time to time in our other periodic reports filed with theSEC . Any forward-looking statements represent our estimates only as of the day this Quarterly Report on Form 10-Q was filed with theSEC 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 2021 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 onJune 30 . Unless otherwise stated, the analysis and discussion of our financial condition and results of operations below, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior-year periods.
Business Overview
We develop, manufacture, and distribute products and provide services primarily
for the companion animal veterinary, livestock, poultry and dairy, and water
testing sectors. We also design, manufacture, and distribute point of care and
laboratory diagnostics for the human medical diagnostics sector. Our primary
products and services are:
•Point-of-care veterinary diagnostic products, comprising instruments,
consumables, and rapid assay test kits;
•Veterinary reference laboratory diagnostic and consulting services;
•Practice management and diagnostic imaging systems and services used by
veterinarians;
•Health monitoring, biological materials testing, and laboratory diagnostic
instruments and services used by the biomedical research community;
•Diagnostic, health-monitoring products for livestock, poultry, and dairy;
•Products that test water for certain microbiological contaminants; and
•Point-of-care electrolytes, blood gas analyzers, and SARS-CoV-2 RT-PCR
(COVID-19 test) used in the human diagnostics sector.
32
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Operating Segments. We operate primarily through three business segments:
diagnostic and information technology-based products and services for the
veterinary sector, which we refer to as the Companion Animal Group ("CAG"),
water quality products ("Water"), and diagnostic products and services for
livestock and poultry health and to ensure the quality and safety of milk and
improve producer efficiency, which we refer to as Livestock, Poultry and Dairy
("LPD"). Our Other operating segment combines and presents products for the
human medical diagnostics sector with our out-licensing arrangements because
they do not meet the quantitative or qualitative thresholds for reportable
segments.
CAG develops, designs, manufactures, and distributes products and software, and
performs services for veterinarians and the biomedical analytics sector,
primarily related to diagnostics and information management. Water develops,
designs, manufactures, and distributes a range of products used in the detection
of various microbiological parameters in water. LPD develops, designs,
manufactures, and distributes diagnostic tests and related software and performs
services that are used to manage the health status of livestock and poultry, to
improve bovine reproductive efficiency, and to ensure the quality and safety of
milk. OPTI Medical develops, designs, manufactures, and distributes
point-of-care and laboratory diagnostics (including electrolyte and blood gas
analyzers, COVID-19 PCR test, and related consumable products) for the human
medical diagnostics sector.
Effects of Certain Factors and Trends on Results of Operations
CAG Trends. The continued growth in demand for companion animal healthcare supported solid gains for CAG diagnostic products and services across regions, compared to very strong prior year demand levels. Average diagnostics revenues grew 6% atU.S. veterinary practices on a same-store basis in the second quarter, ahead of 3% growth in overall clinic revenues, reflecting continued expansion of demand for pet healthcare services.U.S. same-store clinical visits at veterinary practices declined 3% in the second quarter compared to prior year period clinical visit growth of 13%, which included benefits from increases in new pet ownership during the COVID-19 pandemic. LPD Trends. Our LPD revenues, on a year-over-year comparison, declined due to the relaxation of local African Swine Fever disease management programs, as well as additional impacts inChina from lower pork prices and changing government requirements related to live animal imports and livestock infectious disease programs, which began in the second quarter of 2021. The comparisons to prior year are expected to improve in the second half of 2022. Supply Chain and Logistics Challenges. We believe that building and maintaining a well-managed and disciplined infrastructure have helped minimize impacts of the current supply chain constraints, including product and component availability issues, logistics challenges, including extended shipping periods and delays, and inflationary pressures that are currently occurring worldwide. Our proactive approach to managing our operational processes, including forward planning with a focus on working closely with our suppliers and logistics partners, has enabled us to maintain continued high levels of product and service availability and customer service. We continue to monitor these supply chain and logistics challenges, including potential fuel rationing and shortages, and have implemented mitigation strategies to adjust for, among other things, delayed shipments of products and components. Although we expect these challenges to continue during 2022, we believe we are well positioned to enable sustained high growth in our businesses going forward and to effectively manage the impacts of potentially relatively higher costs in certain areas to support these growth plans. However, there can be no assurance as to the duration or severity of the supply chain and logistics challenges or the effectiveness of our mitigating activities. War inUkraine / Russia Operations. Our operations in theRussia ,Belarus andUkraine region are limited. Our 2021 revenue from the region represented less than 1% of our 2021 consolidated revenue, and we have no manufacturing or significant supply arrangement in the region. After significantly scaling back our operations inRussia in the first quarter, including suspending sales of veterinary diagnostic equipment; promotional, marketing, and hiring activities; and new business development and related investments, we decided inJune 2022 , after careful consideration, to wind down and liquidate our sole Russian subsidiary, as well as our direct Russian operations, which consisted of marketing and selling diagnostic products for veterinary clinics inRussia . After we conclude the wind-down of our direct Russian operations, we anticipate that only a limited number of our products, which are important for human or animal healthcare, will continue to be sold inRussia pursuant to ongoing third-party distribution agreements. Some of our products are also sold inBelarus pursuant to ongoing third-party distribution agreements. 33 --------------------------------------------------------------------------------
Currency and Other Items
Currency Impact. Refer to "Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk" included in this Quarterly Report on Form 10-Q for additional information regarding the impact of foreign currency exchange rates. Other Items. Refer to "Part I, Item 1. Business - Patents and Licenses" and "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2021 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 withU.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 endedJune 30, 2022 , are consistent with those discussed in our 2021 Annual Report in the section under the heading "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates and Assumptions."
Recent Accounting Pronouncements
For more information regarding the impact that recent accounting standards and amendments will have on our consolidated financial statements, refer to Note 2 to the unaudited condensed consolidated financial statements in "Part I. Item 1. Financial Statements" of this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measures
The following revenue analysis and discussion focuses on organic revenue growth, and references in this analysis and discussion to "revenue," "revenues" or "revenue growth" are references to "organic revenue growth." Organic revenue growth is a non-GAAP financial measure and represents the percentage change in revenue during the three and six months endedJune 30, 2022 , 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 withU.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. The percentage change in revenue resulting from acquisitions represents revenues during the current year period, limited to the initial 12 months from the date of the acquisition, that are directly attributable to business acquisitions. 34 -------------------------------------------------------------------------------- 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 toU.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. 35 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended
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) 2022 2021 Dollar Change Growth (1) from Currency from Acquisitions Growth (1) CAG$ 784,087 $ 745,595 $ 38,492 5.2 % (3.3 %) 1.1 % 7.3 % United States 532,626 486,252 46,374 9.5 % - 1.5 % 8.1 % International 251,461 259,343 (7,882) (3.0 %) (9.2 %) 0.4 % 5.7 % Water 39,195 37,191 2,004 5.4 % (3.5 %) - 8.9 % United States 19,533 17,747 1,786 10.1 % - - 10.1 % International 19,662 19,444 218 1.1 % (6.7 %) - 7.8 % LPD 29,889 33,524 (3,635) (10.8 %) (5.8 %) - (5.0 %) United States 3,742 3,516 226 6.5 % - - 6.5 % International 26,147 30,008 (3,861) (12.9 %) (6.4 %) - (6.4 %) Other 7,375 9,832 (2,457) (25.0 %) 1.9 % - (26.9 %)Total Company $ 860,546 $ 826,142 $ 34,404 4.2 % (3.3 %) 1.0 % 6.5 % United States 559,825 515,238 44,587 8.7 % - 1.4 % 7.3 % International 300,721 310,904 (10,183) (3.3 %) (8.6 %) 0.3 % 5.0 %
(1)Reported revenue growth and organic revenue growth may not recalculate due to rounding.
Total Company Revenue. The increase in organic revenue was driven by volume gains inCAG Diagnostics recurring revenue, primarily in theU.S. Overall growth reflects higher realized prices and expanding demand for companion animal diagnostics globally. OurCAG Diagnostics instrument revenue reflects high placement volume this quarter. The higher revenue in our Water business was primarily due to the benefit of price increases and higher testing volumes. The decline in our LPD business was primarily due to lower demand for swine testing inChina . Other revenues reflects lower OPTI COVID-19 PCR testing products and services in theU.S. The impact of foreign currency movements decreased total revenue growth by 3.3%, while acquisitions increased revenue growth by 1.0%. 36 --------------------------------------------------------------------------------
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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 860,546 $ 826,142 $ 34,404 4.2 %
Cost of revenue 346,514 336,834 9,680 2.9 %
Gross profit 514,032 59.7 % 489,308 59.2 % 24,724 5.1 %
Operating expenses:
Sales and marketing 130,257 15.1 % 119,032 14.4 % 11,225 9.4 %
General and administrative 81,488 9.5 % 73,326 8.9 % 8,162 11.1 %
Research and development 123,221 14.3 % 37,697 4.6 % 85,524 226.9 %
Total operating expenses 334,966 38.9 % 230,055 27.8 % 104,911 45.6 %
Income from operations $ 179,066 20.8 % $ 259,253 31.4 % $ (80,187) (30.9 %)
Gross Profit. Gross profit increased due to higher sales volumes and a 50 basis
point increase in the gross profit margin. The increase in the gross profit
margin was primarily due to net price gains, the benefit of our reference
laboratory productivity initiatives, and improved software services gross
margins. The margin also increased due to comparisons to a prior year impairment
charge related to rental assets in certain regions. These increases were offset
by higher product, freight and distribution, and labor costs, including the
impacts of inflation. The impact from foreign currency movements increased the
gross profit margin by approximately 50 basis points, primarily from the impact
of higher hedge gains in the current year as compared to hedge losses in the
prior year.
Operating Expenses. Sales and marketing expense increased primarily due to
higher personnel-related costs, including investments in our global commercial
capability. General and administrative expense increased primarily due to higher
personnel-related expense and increases in amortization and depreciation expense
related to business acquisitions and capital investments. Research and
development expense increased primarily due to expenses totaling $80 million for
acquiring rights to use certain licensed technology under two separate
intellectual property licensing arrangements. These licenses are being used for
future product development. The overall change in foreign currency exchange
rates decreased operating expenses growth by approximately 2%.
37
--------------------------------------------------------------------------------Companion Animal Group The following table presents revenue by product and service category for CAG: For the Three Months Ended June 30, Net Revenue Reported Revenue Percentage Change
Percentage Change Organic Revenue (dollars in thousands) 2022 2021 Dollar Change Growth(1) from Currency from Acquisitions Growth(1) CAG Diagnostics recurring revenue:$ 685,413 $ 661,300 $ 24,113 3.6 % (3.3 %) 0.2 % 6.8 % IDEXX VetLab consumables 266,079 256,352 9,727 3.8 % (4.1 %) - 7.9 % Rapid assay products 87,481 83,887 3,594 4.3 % (1.6 %) - 5.8 % Reference laboratory diagnostic and consulting services 304,130 293,675 10,455 3.6 % (3.0 %) 0.4 % 6.1 % CAG diagnostics services and accessories 27,723 27,386 337 1.2 % (4.4 %) - 5.7 % CAG Diagnostics capital - instruments 36,227 35,054 1,173 3.3 % (4.9 %) - 8.3 % Veterinary software, services and diagnostic imaging systems 62,447 49,241 13,206 26.8 % (1.1 %) 13.8 % 14.0 % Net CAG revenue$ 784,087 $ 745,595 $ 38,492 5.2 % (3.3 %) 1.1 % 7.3 %
(1) Reported revenue growth and organic revenue growth may not recalculate due to rounding.
CAG Diagnostics Recurring Revenue. The increase was driven by higher demand for companion animal diagnostics globally across modalities. The increase inCAG Diagnostics recurring revenue was primarily due to increased volumes inIDEXX VetLab consumables and reference laboratory diagnostic services, and higher realized prices. The impact of foreign currency movements decreased revenue growth by 3.3%. The impact of acquisitions increased revenue growth by 1.1%. The increase in IDEXX VetLab consumables revenue was primarily due to higher sales volumes, primarily of our Catalyst consumables and, to a lesser extent,ProCyte consumables, and higher price realization. These volume increases were supported by the expansion of our installed base of instruments, our expanded menu of available tests in certain regions, and high customer retention levels. The increase in rapid assay revenue resulted from higher testing volume levels in theU.S. , primarily from SNAP® 4Dx Plus, and higher price realization. The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes and price realization in ourU.S. labs. Growth in other regions was moderately lower, with volume growth pressured by comparison to strong prior period demand levels, offset by higher realized prices.
The increase in
CAG Diagnostics Capital - Instrument Revenue. The increase in instrument revenue was primarily due to strong premium instrument placements globally, including the successful global launch of the ProCyte One analyzer, to support increased diagnostic testing. 38
--------------------------------------------------------------------------------Veterinary Software , Services and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue 13.8% as compared to the second quarter of 2021, with the purchase of ezyVet inJune 2021 . Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to higher veterinary software system placements to continue the expansion in our active installed base, and higher realized prices on service offerings. The increase in our diagnostic imaging systems revenues was primarily due to increases in our active installed base resulting in higher service revenue, as well as higher realized prices.
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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 784,087 $ 745,595 $ 38,492 5.2 %
Cost of revenues 317,833 304,809 13,024 4.3 %
Gross profit 466,254 59.5 % 440,786 59.1 % 25,468 5.8 %
Operating expenses:
Sales and marketing 118,899 15.2 % 109,151 14.6 % 9,748 8.9 %
General and administrative 72,079 9.2 % 64,134 8.6 % 7,945 12.4 %
Research and development 118,750 15.1 % 32,766 4.4 % 85,984 262.4 %
Total operating expenses 309,728 39.5 % 206,051 27.6 % 103,677 50.3 %
Income from operations $ 156,526 20.0 % $ 234,735 31.5 % $ (78,209) (33.3 %)
Gross Profit. Gross profit increased primarily due to higher sales volume and a
40 basis point increase in the gross profit margin. The increase in the gross
profit margin was primarily due to net price gains, the benefit of our reference
laboratory productivity initiatives, and improved software services gross
margins. The margin also increased due to comparisons to a prior year impairment
charge related to rental assets in certain regions. These increases were offset
by increases in product, freight and distribution, and labor costs, including
the impacts of inflation. The impact from foreign currency movements increased
the gross profit margin by approximately 30 basis points, primarily from the
impact of hedge gains in the current year as compared to hedge losses in the
prior year.
Operating Expenses. Sales and marketing expense increased primarily due to
higher personnel-related costs, including investments in our global commercial
capability. General and administrative expense increased primarily due to higher
personnel-related expense and increases in amortization and depreciation expense
related to business acquisitions and capital investments. Research and
development expense increased primarily due to expenses totaling $80 million for
acquiring rights to use certain licensed technology under two separate
intellectual property licensing arrangements. These licenses are being used for
future product development. The overall change in foreign currency exchange
rates decreased operating expenses by 2%.
39
--------------------------------------------------------------------------------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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 39,195 $ 37,191 $ 2,004 5.4 %
Cost of revenue 11,836 11,444 392 3.4 %
Gross profit 27,359 69.8 % 25,747 69.2 % 1,612 6.3 %
Operating expenses:
Sales and marketing 4,711 12.0 % 4,099 11.0 % 612 14.9 %
General and administrative 3,623 9.2 % 3,384 9.1 % 239 7.1 %
Research and development 1,105 2.8 % 1,036 2.8 % 69 6.7 %
Total operating expenses 9,439 24.1 % 8,519 22.9 % 920 10.8 %
Income from operations $ 17,920 45.7 % $ 17,228 46.3 % $ 692 4.0 %
Revenue. The increase in revenue was due to higher realized prices and testing
volumes, primarily in our Colilert test products and related accessories used in
coliform and E. coli testing. Testing volumes were lower in the Asia-Pacific
region largely due to COVID restrictions. The impact of foreign currency
movements decreased revenue by approximately 3.5%.
Gross Profit. Gross profit increased due to higher sales volumes and a 60 basis
point increase in the gross profit margin, which reflected a 230 basis point
increase due to foreign currency movements, primarily from the impact of hedge
gains in the current year compared to hedge losses in the prior year. The gross
profit margin was decreased by higher freight and distribution costs and, to a
lesser extent, higher product costs, partially offset by the net benefit of
price gains.
Operating Expenses. Sales and marketing and research and development expenses
increased primarily due to higher personnel-related costs. General and
administrative expense increased primarily due to personnel-related cost and
third-party services. The overall change in foreign currency exchange rates
resulted in a decrease in operating expenses of approximately 2%.
40
--------------------------------------------------------------------------------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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 29,889 $ 33,524 $ (3,635) (10.8 %)
Cost of revenue 12,893 13,998 (1,105) (7.9 %)
Gross profit 16,996 56.9 % 19,526 58.2 % (2,530) (13.0 %)
Operating expenses:
Sales and marketing 6,216 20.8 % 5,142 15.3 % 1,074 20.9 %
General and administrative 4,532 15.2 % 4,271 12.7 % 261 6.1 %
Research and development 3,018 10.1 % 3,245 9.7 % (227) (7.0 %)
Total operating expenses 13,766 46.1 % 12,658 37.8 % 1,108 8.8 %
Income from operations $ 3,230 10.8 % $ 6,868 20.5 % $ (3,638) (53.0 %)
Revenue. The decrease in LPD revenues was primarily due to lower demand for
diagnostic testing in China . Beginning during the second quarter of 2021, and
continuing through the second quarter of 2022, we experienced lower livestock
testing volumes in China , as changes in disease management approaches, low pork
prices, and changes in government requirements related to live animal imports
and livestock infectious disease programs unfavorably impacted testing volumes,
in comparison to high prior-year demand for African Swine Fever testing. The
decrease in revenue was partially offset by moderate growth, including benefits
from higher price gains in other regions. The unfavorable impact of foreign
currency movements decreased revenues by 5.8%.
Gross Profit. Gross profit decreased due to lower sales volumes and a 130 basis
point decrease in the gross profit margin. The gross profit margin decreased as
a result of higher distribution and freight charges, higher product costs, and
investments in our bovine laboratory services. The decrease in the gross profit
margin was partially offset by the impact from foreign currency movements, which
increased the gross profit margin by approximately 400 basis points, primarily
from the impact of hedge gains in the current year compared to hedge losses in
the prior year.
Operating Expenses. Sales and marketing expense increased primarily due to
increases in personnel-related costs and product marketing costs. General and
administrative expenses increased primarily due to higher bad debt expense and
higher personnel-related costs. Research and development expense decreased
primarily due to lower personnel-related costs. The overall change in foreign
currency exchange rates resulted in a decrease in operating expenses of
approximately 4%.
41
--------------------------------------------------------------------------------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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 7,375 $ 9,832 $ (2,457) (25.0 %)
Cost of revenue 3,952 6,583 (2,631) (40.0 %)
Gross profit 3,423 46.4 % 3,249 33.0 % 174 5.4 %
Operating expenses:
Sales and marketing 431 5.8 % 640 6.5 % (209) (32.7 %)
General and administrative 1,254 17.0 % 1,537 15.6 % (283) (18.4 %)
Research and development 348 4.7 % 650 6.6 % (302) (46.5 %)
Total operating expenses 2,033 27.6 % 2,827 28.8 % (794) (28.1 %)
Income from operations $ 1,390 18.8 % $ 422 4.3 % $ 968 229.4 %
Revenue. The decrease in revenue was primarily due to lower OPTI COVID-19 PCR
testing products and services in the U.S. , and lower OPTI Medical consumables
revenue due to COVID-19 restrictions in Asia and Latin America . The impact of
foreign currency movements increased revenue by 1.9%.
Gross Profit. The increase in gross profit and the 1,340 basis point increase in
the gross profit margin were primarily due to lower costs of our testing
products and services, including the benefit from the comparison to write-downs
of excess COVID-19 testing inventory in the prior period. This increase was
partially offset by higher freight and distribution costs. The overall change in
foreign currency exchange rates had an immaterial impact on gross profit.
Operating Expenses. Sales and marketing expense decreased primarily due to lower
personnel-related costs. General and administrative expense decreased primarily
due to lower bad debt expense. Research and development expense decreased
primarily due to lower project costs compared to investments in the development
of the OPTI COVID-19 PCR test during the prior year.
Non-Operating Items
Interest Expense. Interest expense was
Provision for Income Taxes. Our effective income tax rate was 22.9% for the three months endedJune 30, 2022 , as compared to 19.5% for the three months endedJune 30, 2021 . The increase in our effective tax rate was primarily driven by higher taxes on international income and decreases in tax benefits related to share-based compensation. 42 --------------------------------------------------------------------------------
Results of Operations
Six Months Ended
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) 2022 2021 Dollar Change Growth (1) from Currency from Acquisitions Growth (1) CAG$ 1,545,271 $ 1,438,362 $ 106,909 7.4 % (2.6 %) 1.3 % 8.7 %United States 1,032,392 930,662 101,730 10.9 % - 1.8 % 9.1 % International 512,879 507,700 5,179 1.0 % (7.3 %) 0.4 % 7.9 % Water 75,566 71,231 4,335 6.1 % (2.6 %) - 8.7 %United States 37,364 34,315 3,049 8.9 % - - 8.9 % International 38,202 36,916 1,286 3.5 % (5.0 %) - 8.5 % LPD 60,759 72,794 (12,035) (16.5 %) (3.8 %) - (12.7 %)United States 7,602 7,264 338 4.7 % - - 4.7 % International 53,157 65,530 (12,373) (18.9 %) (4.1 %) - (14.8 %) Other 15,499 21,462 (5,963) (27.8 %) 0.7 % - (28.5 %)Total Company $ 1,697,095 $ 1,603,849 $ 93,246 5.8 % (2.6 %) 1.2 % 7.2 %United States 1,085,731 987,876 97,855 9.9 % - 1.7 % 8.2 % International 611,364 615,973 (4,609) (0.7 %) (6.7 %) 0.3 % 5.6 %
(1)Reported revenue growth and organic revenue growth may not recalculate due to rounding.
Total Company Revenue. The increase in organic revenues was driven by solid volume gains inCAG Diagnostics recurring revenue, primarily in theU.S. Overall growth reflects continued demand for companion animal diagnostics globally, as well as higher realized prices. OurCAG Diagnostics instrument revenue reflects strong placement volume for the first half of the year. The higher revenue in our Water business was primarily due to the benefit of price increases and higher testing volumes. The decline in our LPD business was primarily due to lower demand for swine testing inChina . Other revenues reflect lower OPTI COVID-19 PCR testing products. The impact of acquisitions increased total revenue growth by 1.2% while the impact of currency movements decreased total revenue growth by 2.6%. 43 --------------------------------------------------------------------------------
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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 1,697,095 $ 1,603,849 $ 93,246 5.8 %
Cost of revenue 684,310 643,759 40,551 6.3 %
Gross profit 1,012,785 59.7 % 960,090 59.9 % 52,695 5.5 %
Operating expenses:
Sales and marketing 262,549 15.5 % 233,843 14.6 % 28,706 12.3 %
General and administrative 159,437 9.4 % 144,096 9.0 % 15,341 10.6 %
Research and development 163,389 9.6 % 75,276 4.7 % 88,113 117.1 %
Total operating expenses 585,375 34.5 % 453,215 28.3 % 132,160 29.2 %
Income from operations $ 427,410 25.2 % $ 506,875 31.6 % $ (79,465) (15.7 %)
Gross Profit. Gross profit increased due to higher sales volumes, moderated by a
20 basis point decrease in the gross profit margin. The decrease in the gross
profit margin reflects higher product, freight and distribution, and labor costs
across our segments. These decreases were partially offset by net price gains
and the improved software services gross margins, as well as the benefit of our
reference laboratory productivity initiatives, which helped to offset the
effects of inflation on our gross margins. The margin also benefited due to
comparisons to a prior year impairment charge related to rental assets in
certain regions. The impact from foreign currency movements increased the gross
profit margin by approximately 40 basis points, primarily from the impact of
hedge gains in the current year as compared to hedge losses in the prior year.
Operating Expenses. Sales and marketing expense increased primarily due to
higher personnel-related costs, including investments in our global commercial
capability, as well as travel costs. General and administrative expense
increased primarily due to higher personnel-related expense, increases in
amortization and depreciation expense related to business acquisitions and
capital investments. Research and development expense increased primarily due to
expenses totaling $80 million for acquiring rights to use certain licensed
technology under two separate intellectual property licensing arrangements. The
overall change in foreign currency exchange rates decreased operating expenses
growth by approximately 2%.
44
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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) 2022 2021 Dollar Change Growth(1) from Currency from Acquisitions Growth(1)
CAG Diagnostics
recurring revenue: $ 1,350,223 $ 1,278,580 $ 71,643 5.6 % (2.6 %) 0.2 % 8.0 %
IDEXX VetLab
consumables 533,252 502,444 30,808 6.1 % (3.3 %) - 9.5 %
Rapid assay products 162,000 153,498 8,502 5.5 % (1.3 %) - 6.9 %
Reference laboratory
diagnostic and
consulting services 599,205 569,456 29,749 5.2 % (2.3 %) 0.5 % 7.0 %
CAG diagnostics
services and
accessories 55,766 53,182 2,584 4.9 % (3.6 %) - 8.4 %
CAG Diagnostics capital
- instruments 73,224 66,244 6,980 10.5 % (4.3 %) - 14.8 %
Veterinary software,
services and diagnostic
imaging systems 121,824 93,538 28,286 30.2 % (0.8 %) 17.3 % 13.7 %
Net CAG revenue $ 1,545,271 $ 1,438,362 $ 106,909 7.4 % (2.6 %) 1.3 % 8.7 %
(1) Reported revenue growth and organic revenue growth may not recalculate due to rounding
CAG Diagnostics Recurring Revenue. The increase was driven by expanding demand for companion animal diagnostics globally across modalities. The increase inCAG Diagnostics recurring revenue was primarily due to increased volumes inIDEXX VetLab consumables and reference laboratory diagnostic services, and higher realized prices. The impact of currency movements decreased revenue growth by 2.6%. The increase in IDEXX VetLab consumables revenue was primarily due to higher sales volumes, primarily of our Catalyst consumables and, to a lesser extent,ProCyte consumables, and higher price realization. These volume increases were supported by the expansion of our installed base of instruments, our expanded menu of available tests in certain regions, and high customer retention levels.
The increase in rapid assay revenue resulted primarily from higher price realization and higher clinic testing levels, primarily from SNAP® 4Dx Plus.
The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes and price realization in ourU.S. labs. Growth in other regions was primarily due to higher price realization, partially offset by moderately lower international volumes as compared to strong prior period growth levels. Acquisitions increased revenue growth by 0.5%.
The increase in
CAG Diagnostics Capital - Instrument Revenue. The increase in instrument revenue was primarily due to strong premium instrument placements globally, including the successful global launch of the ProCyte One analyzer, to support increased diagnostic testing.Veterinary Software , Services and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue growth by 17.3%. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to higher veterinary software system placements to continue the expansion of our active installed base, and higher realized prices on service offerings. The increase in our diagnostic imaging systems revenues was primarily due to increases in our active installed base resulting in higher service revenue, as well as higher realized prices. 45 --------------------------------------------------------------------------------
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) 2022 Revenue 2021 Revenue Amount Percentage Revenues$ 1,545,271 $ 1,438,362 $ 106,909 7.4 % Cost of revenue 629,918 584,702 45,216 7.7 % Gross profit 915,353 59.2 % 853,660 59.3 % 61,693 7.2 % Operating expenses: Sales and marketing 240,559 15.6 % 213,442 14.8 % 27,117 12.7 % General and administrative 140,960 9.1 % 127,038 8.8 % 13,922 11.0 % Research and development 154,183 10.0 % 65,235 4.5 % 88,948 136.4 % Total operating expenses 535,702 34.7 % 405,715 28.2 % 129,987 32.0 % Income from operations$ 379,651 24.6 %$ 447,945 31.1 %$ (68,294) (15.2 %) Gross Profit. Gross profit increased primarily due to higher sales volume, moderated by a 10 basis point decrease in the gross profit margin. The decrease in the gross profit margin reflects higher product and service costs and higher freight and distribution costs. These decreases were partially offset by recurring revenue net price gains and improved software services gross margins, as well as the benefit of our reference laboratory productivity initiatives, which helped to offset the effects of inflation on our gross margins. The margin also benefited from comparisons to a prior year impairment charge related to rental assets in certain regions. The impact from foreign currency movements increased the gross profit margin by approximately 20 basis points, primarily from the impact of hedge gains in the current year as compared to hedge losses in the prior year. Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, as well as travel costs. General and administrative expense increased primarily due to higher personnel-related expense and increases in amortization and depreciation expense related to business acquisitions and capital investments. Research and development expense increased primarily due to expenses totaling$80 million for acquiring rights to use certain licensed technology under two separate intellectual property licensing arrangements. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth by approximately 2%. 46 --------------------------------------------------------------------------------
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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 75,566 $ 71,231 $ 4,335 6.1 %
Cost of revenue 22,470 22,019 451 2.0 %
Gross profit 53,096 70.3 % 49,212 69.1 % 3,884 7.9 %
Operating expenses:
Sales and marketing 9,309 12.3 % 8,457 11.9 % 852 10.1 %
General and administrative 6,905 9.1 % 6,620 9.3 % 285 4.3 %
Research and development 2,308 3.1 % 2,135 3.0 % 173 8.1 %
Total operating expenses 18,522 24.5 % 17,212 24.2 % 1,310 7.6 %
Income from operations $ 34,574 45.8 % $ 32,000 44.9 % $ 2,574 8.0 %
Revenue. The increase in our Water business reflects higher realized prices and
testing volumes, primarily in our Colilert test products and related accessories
used in coliform and E. coli testing. Testing volumes were lower in the
Asia-Pacific region primarily due to COVID restrictions. The impact of currency
movements decreased revenue growth by 2.6%.
Gross Profit. Gross profit increased due to higher sales volumes and a 120 basis
point increase in the gross profit margin, which reflected an approximately 190
basis point increase due to foreign currency movements, primarily from the
impact of hedge gains in the current year compared to hedge losses in the prior
year. The gross profit margin decreased primarily due to higher distribution and
freight costs, partially offset by higher realized prices.
Operating Expenses. Sales and marketing expense increased primarily due to
higher personnel-related costs and higher travel expense. General and
administrative expense increased primarily due to higher personnel-related costs
and third-party services. Research and development expense increased primarily
due to third-party services. The overall change in foreign currency exchange
rates resulted in a decrease in operating expenses growth of less than 2%.
47
--------------------------------------------------------------------------------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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 60,759 $ 72,794 $ (12,035) (16.5 %)
Cost of revenue 24,216 26,387 (2,171) (8.2 %)
Gross profit 36,543 60.1 % 46,407 63.8 % (9,864) (21.3 %)
Operating expenses:
Sales and marketing 11,784 19.4 % 10,680 14.7 % 1,104 10.3 %
General and administrative 8,693 14.3 % 8,579 11.8 % 114 1.3 %
Research and development 6,099 10.0 % 6,472 8.9 % (373) (5.8 %)
Total operating expenses 26,576 43.7 % 25,731 35.3 % 845 3.3 %
Income from operations $ 9,967 16.4 % $ 20,676 28.4 % $ (10,709) (51.8 %)
Revenue. Revenues decreased primarily due to lower demand for diagnostic testing
in China . Beginning during the second quarter of 2021, and continuing through
the first half of 2022, we experienced lower livestock testing volumes in China ,
as changes in disease management approaches, low pork prices, and changes in
government requirements related to the live animal imports and livestock
infectious disease programs impacted testing volumes, in comparison to high
prior-year demand for African Swine Fever testing. The decrease in revenue was
partially offset by moderately higher price gains in other regions. The
unfavorable impact of foreign currency movements decreased revenue growth by
3.8%.
Gross Profit. The decrease in gross profit was primarily due to lower sales
volumes and a 370 basis point decrease in the gross profit margin. The decrease
in the gross profit margin is primarily due to higher freight and distribution
charges, higher product costs, investments in our bovine laboratory services,
and the unfavorable overall mix impacts largely from lower African Swine Fever
testing. The decrease in the gross profit margin was partially offset by the
impact from foreign currency movements, which increased gross profit margin by
approximately 310 basis points, primarily from the impact of hedge gains in the
current year compared to hedge losses in the prior year.
Operating Expenses. Sales and marketing expense increased primarily due to
increases in product marketing costs, personnel-related costs, and travel costs.
Research and development expense decreased primarily due to lower
personnel-related costs. The overall change in foreign currency exchange rates
resulted in a decrease in operating expenses growth of approximately 3%.
48
--------------------------------------------------------------------------------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) 2022 Revenue 2021 Revenue Amount Percentage
Revenues $ 15,499 $ 21,462 $ (5,963) (27.8 %)
Cost of revenue 7,706 10,651 (2,945) (27.6 %)
Gross profit 7,793 50.3 % 10,811 50.4 % (3,018) (27.9 %)
Operating expenses:
Sales and marketing 897 5.8 % 1,264 5.9 % (367) (29.0 %)
General and administrative 2,879 18.6 % 1,859 8.7 % 1,020 54.9 %
Research and development 799 5.2 % 1,434 6.7 % (635) (44.3 %)
Total operating expenses 4,575 29.5 % 4,557 21.2 % 18 0.4 %
Income from operations $ 3,218 20.8 % $ 6,254 29.1 % $ (3,036) (48.5 %)
Revenue. The decrease in revenue was primarily due to lower OPTI COVID-19 PCR
testing products and services in the U.S. and lower OPTI Medical consumables
revenue related to COVID-19 restrictions in Asia and Latin America . The impact
of foreign currency movements increased revenue by 0.7%.
Gross Profit. The decrease in gross profit was primarily due to lower sales
volume and a gross profit margin decrease of 10 basis points, primarily due to
higher freight and distribution costs, partially offset by lower costs for our
testing products and services, including the benefit from the comparison to
write-downs of excess COVID-19 testing inventory in the prior period. The
overall change in foreign currency exchange rates had an immaterial impact on
gross profit.
Operating Expenses. Sales and marketing expense decreased primarily due to lower
personnel-related costs. General and administrative expense increased primarily
due to higher foreign exchange losses on settlements of foreign currency
denominated transactions, as compared to the prior year, as well as higher
estimated bad debt expense. Foreign exchange losses on settlements for all
operating segments are reported within our Other segment. Research and
development expense decreased primarily due to lower COVID-19 related project
costs compared to the prior year.
Non-Operating Items
Interest Expense. Interest expense was$15.3 million for the six months endedJune 30, 2022 , as compared to$15.2 million for the same period in the prior year. Provision for Income Taxes. Our effective income tax rate was 21.0% for the six months endedJune 30, 2022 , as compared to 17.3% for the six months endedJune 30, 2021 . The increase in our effective tax rate, as compared to the same period in the prior year, was primarily driven by decreases in tax benefits related to share-based compensation and higher taxes on international income. 49 --------------------------------------------------------------------------------
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. As ofJune 30, 2022 , we had$114.4 million of cash and cash equivalents, as compared to$144.5 million as ofDecember 31, 2021 . Working capital totaled negative$123.7 million as ofJune 30, 2022 , as compared to$192.1 million as ofDecember 31, 2021 . The change in working capital is primarily due to the borrowings under our Credit Facility. As ofJune 30, 2022 , we had borrowing availability of$387.6 million under our$1 billion Credit Facility, with$611.0 million outstanding borrowings on the Credit Facility. The general availability of funds under our Credit Facility is reduced by$1.4 million for outstanding letters of credit. We believe that, if necessary, we could obtain additional borrowings to fund our growth objectives. We further believe that current cash and cash equivalents, funds generated from operations, and committed borrowing availability will be sufficient to fund our operations, capital purchase requirements, and anticipated growth needs for at least the next twelve months. We believe that these resources, coupled with our ability, as needed, to obtain additional financing, will also be sufficient to fund our business as currently conducted for the foreseeable future. We may enter into new financing arrangements or refinance or retire existing debt in the future depending on market conditions. Should we require more capital in theU.S. than is generated by our operations, for example to fund significant discretionary activities, we could elect to raise capital in theU.S. through the incurrence of debt or equity issuances, which we may not be able to complete on favorable terms or at all. In addition, these alternatives could result in increased interest expense or other dilution of our earnings. We manage our worldwide cash requirements considering available funds among all of our subsidiaries. Our foreign cash and marketable securities are generally available without restrictions to fund ordinary business operations outside theU.S.
The following table presents cash, cash equivalents, and marketable securities held domestically and by our foreign subsidiaries:
Cash, cash equivalents and marketable securities December 31, (in thousands) June 30, 2022 2021 U.S.$ 3,260 $ 2,632 Foreign 111,101 141,822 Total$ 114,361 $ 144,454
Total cash, cash equivalents, and marketable securities held in
Of the$114.4 million of cash and cash equivalents held as ofJune 30, 2022 , greater than 99% was held as bank deposits. Cash and cash equivalents atJune 30, 2022 , included approximately USD$4.8 million of cash held in countries with currency control restrictions, which limit our ability to transfer funds outside of the country in which they are held. The currency control restricted cash is generally available for use within the country where it is held. During the second quarter of 2022, we decided to wind down and liquidate our sole Russian subsidiary, as well as its direct Russian operations, which consisted of marketing and selling diagnostic products for veterinary clinics inRussia . As a result of this decision, we adopted the liquidation basis of accounting for this subsidiary. Substantially all assets other than cash were fully impaired because we believe the carrying amounts are not recoverable. We also accrued estimated costs that we expect to incur through the end of liquidation. These adjustments are not material to our balance sheet and are recorded as operating activities in our unaudited condensed consolidated statements of cash flow. Our direct Russian operations were not material to our financial statements and are not considered discontinued operations. 50 -------------------------------------------------------------------------------- The following table presents additional key information concerning working capital: For the Three Months Ended June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021
June 30, 2021 Days sales outstanding (1) 43.2 42.0 42.4 42.7 42.2 Inventory turns (2) 1.5 1.6 2.0 1.9 2.1 (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.
The decrease in inventory turns over the current year is a result of larger inventory on-hand, as we have increased inventory to sustain levels of product availability, as well as higher inventory related to our new ProCyte One analyzer.
Sources and Uses of Cash
The following table presents cash provided (used):
For the Six Months Ended June 30,
(in thousands) 2022 2021 Dollar Change
Net cash provided by operating activities $ 180,556 $ 358,377 $ (177,821)
Net cash used by investing activities (96,924) (199,250) 102,326
Net cash used by financing activities (105,387) (309,868) 204,481
Net effect of changes in exchange rates on cash (8,337) (1,053) (7,284)
Net change in cash and cash equivalents $ (30,092) Operating Activities. The decrease in cash provided by operating activities of$177.8 million was driven primarily by a decrease in net income as a result of research and development investments, and changes in other assets and liabilities, as well as inventory. The following table presents cash flow impacts from changes in operating assets and liabilities: For the Six Months Ended June 30, (in thousands) 2022 2021 Dollar Change Accounts receivable$ (53,794) $ (50,721) $ (3,073) Inventories (49,349) (20,412) (28,937) Accounts payable (6,735) 3,812 (10,547) Deferred revenue (2,344) (5,037) 2,693 Other assets and liabilities (94,729) (55,162) (39,567) Total change in cash due to changes in operating assets and liabilities$ (206,951) $ (127,520) $ (79,431) Cash used increased due to changes in operating assets and liabilities during the six months endedJune 30, 2022 , as compared to the same period in the prior year, by approximately$79.4 million . Cash used for inventory in the current period, as compared to the prior period, was higher primarily to support increasing demand, and to mitigate potential supply-chain impacts. The increase of cash used for other asset and liabilities was primarily due to payroll timing and lower non-cash operating expenses recorded as accrued liabilities, as compared to the same period in the prior year. We have historically experienced proportionally lower net cash flows from operating activities during the first quarter and proportionally higher cash flows from operating activities for the remainder of the year driven primarily by payments related to annual employee incentive programs in the first quarter following the year for which the bonuses were earned. During the second quarter of 2022, we entered into two arrangements to license intellectual property. Under one arrangement we paid$45.0 million and expect to issue subsequent milestone payments during 2022 of$10.0 million . Under the second arrangement, we paid$25.0 million for an equity investment and$5.0 million for license rights, with expected 51 -------------------------------------------------------------------------------- subsequent milestone payments of$20.0 million . The$25 million paid for the equity investment is reflected in investing activities, while the$50 million paid during the quarter to license intellectual property is reflected in operating activities. Investing Activities. Cash used by investing activities was$96.9 million for the six months endedJune 30, 2022 , as compared to$199.3 million for the same period in the prior year. The decrease in cash used by investing activities was primarily due to the acquisition of ezyVet in the prior year, partially offset by an equity investment and the acquisition of an intangible asset during the second quarter of 2022.
Our outlook for full year capital spending is approximately
Financing Activities. Cash used by financing activities was$105.4 million for the six months endedJune 30, 2022 , as compared to$309.9 million of cash used for the same period in the prior year. The decrease in cash used by financing activities was due to a$537.5 million increase in borrowings under our Credit Facility, partially offset by$252.3 million in additional repurchases of our common stock in the current period as compared to the same period in the prior year. Cash was also used to pay off our$75.0 million 2022 Series A Notes when due and payable onFebruary 14, 2022 . Cash used to repurchase shares of our common stock increased$252.3 million during the six months endedJune 30, 2022 . We believe that the repurchase of our common stock is a favorable means of returning value to our stockholders, and we also repurchase our stock to offset the dilutive effect of our share-based compensation programs. Repurchases of our common stock may vary depending upon the level of other investing activities and the share price. Refer to Note 12 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. Under our Credit Facility, the net borrowing activity during the six months endedJune 30, 2022 , as compared to the same period in the prior year, increased$537.5 million . As ofJune 30, 2022 , we had$611.0 million outstanding borrowings under the Credit Facility. The obligations under our Credit Facility may be accelerated upon the occurrence of an event of default under the Credit Facility, which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency-related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under the Employee Retirement Income Security Act of 1974 ("ERISA"), the failure to pay specified indebtedness, cross-acceleration to specified indebtedness, and a change of control default. The Credit Agreement 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 laws and regulations. The financial covenant is a consolidated leverage ratio test. OnFebruary 2022 , we paid off our$75.0 million 2022 Series A Notes with cash provided by operations and financing activity. Should we elect to prepay any of our senior notes, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Senior Note Agreements. Additionally, in the event of a change in control of the Company or upon the disposition of certain assets of the Company the proceeds of which are not reinvested (as defined in the Senior Note Agreements), we may be required to prepay all or a portion of the senior notes. The obligations under the senior notes may be accelerated upon the occurrence of an event of default under the applicable Senior Note Agreements, each of which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency-related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under ERISA, the failure to pay specified indebtedness, and cross-acceleration to specified indebtedness. Effect of Currency Translation on Cash. The net effect of changes in foreign currency exchange rates is related to changes in exchange rates between theU.S. dollar and the functional currencies of our foreign subsidiaries. These changes will fluctuate for each period presented as the value of theU.S. dollar relative to the value of foreign currencies changes. A currency's value depends on many factors, including interest rates and the country's 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.
52
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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. As of June 30, 2022 , 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, 2022
Net income attributable to stockholders (as reported) $ 663,950
Interest expense 29,924
Provision for income taxes 159,514
Depreciation and amortization 108,795
Acquisition-related expense 3,008
Share-based compensation expense 42,786
Extraordinary and other non-recurring non-cash charges 1,353 Adjusted EBITDA $ 1,009,330 (dollars in thousands) Debt to Adjusted EBITDA Ratio: June 30, 2022 Line of credit $
611,000
Current and long-term portions of long-term debt
767,995
Total debt
1,378,995
Acquisition-related contingent consideration payable 7,144 Financing leases 8 Deferred financing costs 456 Gross debt $ 1,386,603 Gross debt to Adjusted EBITDA ratio
1.37
Less: Cash and cash equivalents $
114,362
Net debt $
1,272,241
Net debt to Adjusted EBITDA ratio
1.26
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 toU.S. GAAP. Management believes that reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility.
Other Commitments, Contingencies and Guarantees
Significant commitments, contingencies, and guarantees as of
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