# IDEXX LABORATORIES INC /DE (IDXX) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from IDEXX LABORATORIES INC /DE's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/874716/000087471622000007/idxx-20211231.htm
Accession: 0000874716-22-000007
Filing date: 2022-02-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/IDXX/
All MD&A years: /company/IDXX/mda/
Next year: /company/IDXX/mda/fy2022/ (FY 2022)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10‑K. The discussion of our financial condition and results of operations and liquidity and capital resources for the year ended December 31, 2019, and year-over-year comparisons between 2020 and 2019, is included in our Annual Report on Form 10-K for the year ended December 31, 2020, within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and is incorporated by reference herein.

We have included certain terms and abbreviations used throughout this Annual Report on Form 10-K in the "Glossary of Terms and Selected Abbreviations.”

Description of Business Segments. We operate primarily through three business segments: diagnostic and information management-based products and services for the companion animal veterinary industry, which we refer to as the Companion Animal Group (“CAG”); water quality products (“Water”); and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other operating segment combines and presents our human medical diagnostic products and services business (“OPTI Medical”) with our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments. Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 3. Revenue Recognition and Note 17. Segment Reporting" to the consolidated financial statements for the year ended December 31, 2021, included in this Annual Report on Form 10-K for financial information about our segments, including our product and service categories, and our geographic areas.

The following is a discussion of the strategic and operating factors that we believe have the most significant effect on the performance of our business.

Companion Animal Group

Our strategy is to provide veterinarians with the highest quality diagnostic information, software products and services, and medical evidence to support more advanced medical care and information management solutions that help demonstrate the value of diagnostics to pet owners and enable efficient and effective practice management. By doing so, we are able to build a mutually successful relationship with our veterinarian customers based on healthy pets, loyal customers, staff efficiency, and expanding practice revenues.

CAG Diagnostics. We provide diagnostic capabilities that meet veterinarians’ diverse needs through a variety of modalities including in-clinic diagnostic solutions and outside reference laboratory services. Veterinarians that utilize our full line of diagnostic modalities obtain a single view of a patient’s diagnostic results, which allows them to track and evaluate trends and achieve greater medical insight.

Our diagnostic capabilities generate both recurring and non-recurring revenues. Revenues related to capital placements of our in-clinic IDEXX VetLab suite of instruments and our SNAP Pro Analyzer are non-recurring in nature in that they are sold to a particular customer only once. Revenues from the associated IDEXX VetLab consumables, SNAP rapid assay test kits, reference laboratory and consulting services, and extended maintenance agreements and accessories related to our IDEXX VetLab instruments and our SNAP Pro Analyzer are recurring in nature, in that they are regularly purchased by our customers, typically as they perform diagnostic testing as part of ongoing veterinary care services. Our recurring revenues, most prominently IDEXX VetLab consumables and rapid assay test kits, have significantly higher gross margins than those provided by our instrument sales. Therefore, the mix of recurring and non-recurring revenues in a particular period will impact our gross margins.

Diagnostic Capital Revenue. Revenues related to the placement of the IDEXX VetLab suite of instruments are non-recurring in nature, in that the customer will buy an instrument once over its respective product life cycle, but will purchase consumables for that instrument on a recurring basis as they use that instrument for testing purposes. During the early stage of an instrument’s life cycle, we derive relatively greater revenues from instrument placements, while consumable sales become relatively more significant in later stages as the installed base of instruments increases and instrument placement revenues begin to decline. In the early stage of an instrument’s life cycle, placements are made primarily through sales transactions. As the demand for the product matures, an increasing percentage of placements are made in transactions, sometimes referred to as

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volume commitments, such as our IDEXX 360 program, or reagent rentals, in which instruments are placed at customer sites at little or no cost in exchange for a multi-year customer commitment to purchase recurring products and services.

Below is a table showing active installed base units of our diagnostic instruments as of the years ended December 31, 2021, 2020, and 2019:

[[GREPCENT_TABLE]]
[["(units in thousands)","","Installed Base"],["Instrument","","December 31, 2021","","December 31, 2020","","December 31, 2019"],["Catalyst","","56.5","","49.6","","","43.9"],["Premium Hematology","","38.2","","34.6","","","31.5"],["SediVue","","13.2","","10.7","","","8.9"]]
[[/GREPCENT_TABLE]]

We place our Catalyst chemistry analyzers through sales, leases, rental, and other programs. A majority of our Catalyst chemistry analyzer placements were to customers that are new to IDEXX, including customers who had been using instruments from one of our competitors, sometimes referred to as competitive accounts. Generally, placement of an instrument with a new or competitive account has the highest economic value as the entire consumable stream associated with that placement represents incremental recurring revenue. We also place additional chemistry analyzers at existing large customers where utilization supports multiple analyzers.

We place our premium hematology analyzers through multiple sales programs as well. A majority of our ProCyte analyzer placements were made to new or competitive accounts. During the second half of 2020, we began selling our new ProCyte One analyzer. As we continue to experience growth in placements of ProCyte analyzers and in sales of related consumables, we expect this growth to be partly offset by a decline in placements of LaserCyte Dx and VetAutoread analyzers and a decrease in the associated recurring revenue stream. With our ProCyte One analyzer, we provide customers with consumables that are charged upon utilization, which we refer to as pay-per-run, as compared to the ProCyte Dx analyzer, where we charge upon shipment of consumables.

Our premium SediVue Dx analyzer and single-use consumable system provides a highly accurate way to automate the process of examining urine under a microscope. We provide customers with SediVue Dx consumables that are charged upon utilization, similar to the ProCyte One analyzer. Other than our ProCyte One and SediVue analyzers, we charge upon shipment of consumables for all our other analyzers.

We seek to enhance the attractiveness and customer loyalty of our SNAP rapid assay tests, including by providing the SNAP Pro Analyzer, which activates SNAP tests, properly times the run, captures, and saves images of the results and, in conjunction with IVLS, records invoice charges in the patient record. Our ProRead software interprets results of the SNAP Pro Analyzer. These features promote practice efficiency by eliminating manual entry of test results in patient records and also helps ensure that the services are recorded and accurately invoiced. In addition, SNAP Pro Analyzer results can be shared with pet owners on the SNAP Pro screen or, in conjunction with IVLS, via VetConnect PLUS. We also sell the SNAPshot Dx, which automatically reads certain SNAP test results and, in conjunction with IVLS, records those results in the electronic medical record. We continue to work on enhancing the functionality of our analyzers to read the results of additional tests from our canine and feline family of rapid assay products.

Our long-term success in the continuing growth of our CAG recurring diagnostic product and services is dependent upon: growing volumes at existing customers by increasing their utilization of existing and new test offerings, acquiring new customers, maintaining high customer loyalty and retention, and realizing modest annual price increases based on our differentiated products and the growing value of our diagnostic offering. We continuously seek opportunities to enhance the care that veterinary professionals give to their patients and clients through supporting the implementation of real-time care testing workflows, which is performing tests and sharing test results with the client at the time of the patient visit. Our latest generation of chemistry, hematology, and urinalysis instruments demonstrates this commitment by offering enhanced ease of use, faster time to results, broader test menu and connectivity to various information technology platforms that enhance the value of the diagnostic information generated by the instruments. In addition, we provide marketing tools and customer support that help drive efficiencies in veterinary practice processes and allow practices to increase the number of clients they see on a daily basis.

With all of our instrument product lines, we seek to differentiate our products from our competitors’ products based on time-to-result, ease-of-use, throughput, breadth of diagnostic menu, flexibility of menu selection, accuracy, reliability, ability to

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handle compromised samples, analytical capability of diagnostics software, integration with the IVLS and VetConnect PLUS, client communications capabilities, education and training, and superior sales and customer service. Our success depends, in part, on our ability to differentiate our products in a way that justifies a premium price.

Recurring Diagnostic Revenue. Revenues from our IDEXX VetLab consumable products, our SNAP rapid assay test kits, outside reference laboratory and consulting services, and extended maintenance agreements and accessories related to our CAG Diagnostics instruments are considered recurring in nature. For the year ended December 31, 2021, recurring diagnostic revenue, which is both highly durable and profitable, accounted for approximately 79% of our consolidated revenue.

Our in-clinic diagnostic solutions, consisting of our IDEXX VetLab consumable products and SNAP rapid assay test kits, provide real-time reference lab quality diagnostic results for a variety of companion animal diseases and health conditions. Our outside reference laboratories provide veterinarians with the benefits of a more comprehensive list of diagnostic tests and access to consultations with board-certified veterinary specialists and pathologists, combined with the benefit of same-day or next-day turnaround times.

We derive substantial revenues and margins from the sale of consumables that are used in IDEXX VetLab instruments, and the multi-year consumable revenue stream is significantly more valuable than the placement of the instrument. Our strategy is to increase diagnostic testing within veterinary practices by placing IDEXX VetLab instruments and increasing instrument utilization of consumables. Utilization can increase due to a greater number of patient samples being run or to an increase in the number of tests being run per patient sample. Our strategy is to increase both drivers. To increase utilization, we seek to educate veterinarians about best medical practices that emphasize the importance of chemistry, hematology, and urinalysis testing for a variety of diagnostic purposes, as well as by introducing new testing capabilities that were previously not available to veterinarians.

Our in-clinic diagnostic solutions also include SNAP rapid assay tests that address important medical needs for particular diseases prevalent in the companion animal population. We seek to differentiate these tests from those of other in-clinic test providers and reference laboratory diagnostic service providers based on critically important sensitivity and specificity, as demonstrated by peer-reviewed third-party research, as well as overall superior performance and ease of use by providing our customers with combination tests that test a single sample for up to six diseases at once, including the ability to utilize our SNAP Pro Analyzer. We further augment our product development and customer service efforts with sales and marketing programs that enhance medical awareness and understanding regarding certain diseases and the importance of diagnostic testing.

The prevalence of in-clinic testing, as opposed to outside reference laboratories such as IDEXX Reference Laboratories, may vary by region. We attempt to differentiate our reference laboratory testing services from those of competitive reference laboratories and competitive in-clinic offerings primarily on the basis of a differentiated test menu, technology employed, quality, turnaround time, customer service and tools such as VetConnect PLUS that demonstrate the complementary manner in which our laboratory services work with our in-clinic offerings.

Profitability in our lab business is supported, in part, by our expanding business scale globally. Profit improvements also reflect benefits from price increases and our ability to achieve operational efficiencies. When possible, we utilize core reference laboratories to service samples from other states or countries, expanding our customer reach without an associated expansion in our reference laboratory footprint. New laboratories may operate at a loss until testing volumes achieve sufficient scale. Acquired laboratories frequently operate less profitably than our existing laboratories and acquired laboratories may not achieve the profitability of our existing laboratory network for several years until we complete the implementation of operating improvements and efficiencies. Therefore, in the short term, new and acquired reference laboratories generally may have a negative effect on our operating margin.

Recurring reference lab revenue growth is achieved both through increased testing volumes with existing customers and through the acquisition of new customers, net of customer losses. We believe the increased number of customer visits by our sales professionals as a result of the growth in our field sales organization has led to increased reference laboratory opportunities with customers who already use one of our in-clinic diagnostic modalities. In recent years, recurring reference laboratory diagnostic and consulting revenues have also been increased through reference laboratory acquisitions, customer list acquisitions, the opening of new reference laboratories, including laboratories that are co-located with large practice customers, and as a result of our up-front customer loyalty programs and our volume commitment programs. Our up-front customer loyalty programs are associated with customer acquisitions and retention and provide incentives to customers in the form of cash payments or IDEXX Points upon entering multi-year contractual agreements to purchase annual minimum amounts of products or services, including reference laboratory services. Our volume commitment programs, such as IDEXX 360, provide

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customers with a free or discounted instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of products and services.

Veterinary Software, Services and Diagnostic Imaging Systems. Our portfolio of practice management offerings is designed to serve the full range of customers primarily within the North American, Australian, and European regions. Cornerstone, ezyVet, Animana, IDEXX Neo, and DVMAX practice management systems provide superior integrated information solutions, backed by exceptional customer support and education. These practice management systems allow the veterinarian to practice better medicine and achieve the practice’s business objectives, including a quality client experience, staff efficiency and practice effectiveness and profitability. We market Cornerstone, ezyVet, IDEXX Neo, and DVMAX practice management systems to customers primarily in North America and Australia. We market our Animana offering to customers primarily throughout Europe.

Animana, ezyVet, and IDEXX Neo practice management systems are subscription-based SaaS offerings designed to provide flexible pricing and a durable, recurring revenue stream, while utilizing cloud technology instead of a client server platform. While we continue to develop, sell, and support our licensed-based Cornerstone and DVMAX software, we are growing our installed base of subscription-based practice management offerings for new customers of IDEXX practice management systems. We believe that once established, this subscription-based model will provide higher profitability as compared to the historical license-based placements. Our Cornerstone and DVMAX customer base continues to be an important driver of growth through enhanced diagnostic integrations and high value add-on subscription services, such as Pet Health Network Pro, Petly Plans, and credit card processing, and we continue to make investments to enhance the customer experience of all of our license-based software offerings. We also offer rVetLink, a comprehensive referral management solution for specialty care hospitals that streamlines the referral process between primary care and specialty care veterinarians. rVetLink’s cloud technology integrates with major specialty hospital management systems, including Cornerstone Software and DVMAX Software.

We differentiate our practice management systems through enhanced functionality, ease of use, and embedded integration with in-clinic IDEXX VetLab instruments and outside reference laboratory test results. Our client communication services create more meaningful pet owner experiences through personalized communication. With our SmartFlow and Vet Radar cloud technology, we are able to improve overall patient management through coordination and tracking of every step in a patient workflow. Pet Health Network Pro online client communication and education service complements the entire IDEXX product offering by educating pet owners and building loyalty through engaging the pet owner before, during and after the visit, thereby building client loyalty and driving more patient visits.

Our diagnostic imaging systems offer a convenient radiographic solution that provides superior image quality and the ability to share images with clients virtually anywhere. IDEXX imaging software enables enhanced diagnostic features and streamlined integration with our other products and services. Our digital radiography systems, enables low-dose radiation image capture without sacrificing clear, high-quality diagnostic images, reducing the risk posed by excess radiation exposure for veterinary professionals. Placements of imaging systems are important to the growth of revenue streams that are recurring in nature, including extended maintenance agreements and IDEXX Web PACS, which is our cloud-based SaaS offering for viewing, accessing, storing, and sharing multi-modality diagnostic images. We derive relatively higher margins from our subscription-based products. IDEXX Web PACS is integrated with Cornerstone, ezyVet, IDEXX Neo, DVMAX, and IDEXX VetConnect PLUS to provide centralized access to diagnostic imaging results alongside patient diagnostic results from any internet connected device. 

Water

Our strategy in the water testing business is to develop, manufacture, market and sell products that test primarily for the presence of microbial contamination in water matrices, including drinking water supplies, with superior performance, supported by exceptional customer service. Our customers primarily consist of water utilities, government laboratories and private certified laboratories that highly value strong relationships and customer support. We expect that future growth in this business will be partially dependent on our ability to increase international sales. Growth also will be dependent on our ability to enhance and broaden our product line. Most water microbiological testing is driven by regulation, and, in many countries, a test may not be used for compliance testing unless it has been approved by the applicable regulatory body and integrated into customers’ testing protocols. As a result, we maintain an active regulatory program that involves applying for a growing number of regulatory approvals in a number of countries, primarily in Europe. Further, we seek to receive regulatory approvals from governing agencies as a means to differentiate our products from the competition.

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Livestock, Poultry and Dairy

We develop, manufacture, market, and sell a broad range of tests and perform services for various livestock diseases and conditions, and have active research and development and in-licensing programs in this area. Our strategy is to offer differentiated tests with superior performance characteristics for use in government programs to control or eradicate disease and disease outbreaks and in livestock and poultry producers’ disease, reproductive, and herd health and production management programs. Our Rapid Visual Pregnancy Test and Alertys On-Farm Pregnancy Test for cattle can detect pregnancy 28 days after breeding. These tests provide a quick and accurate identifier using whole blood samples.

Disease outbreaks are episodic and unpredictable, and certain diseases that are prevalent at one time may be substantially contained or eradicated at a later time. In response to outbreaks, testing initiatives may lead to exceptional demand for certain products in certain periods. Conversely, successful eradication programs may result in significantly decreased demand for certain products. In addition, increases in government funding may lead to increased demand for certain products and budgetary constraints may lead to decreased demand for certain products. As result, the performance in certain sectors of this business can fluctuate.

Our strategy in the dairy testing business is to develop, manufacture and sell antibiotic residue and contaminant testing products that satisfy applicable regulatory requirements or dairy processor standards for testing of milk and provide reliable field performance. The manufacture of these testing products leverages the SNAP platform and production assets that also support our rapid assay business, which also leverages the SNAP platform. The dairy SNAP products incorporate customized reagents for antibiotic and contaminant detection. To successfully increase sales of dairy testing products, we believe that we need to increase penetration in dairy processors. 

Other

OPTI Medical. Our strategy in the OPTI Medical business for the human market is to develop, manufacture, and sell electrolyte and blood gas analyzers, and related consumable products for the medical point-of-care diagnostics sector worldwide, with a focus on small to mid-sized hospitals. We seek to differentiate our products based on ease of use, convenience, international distribution and service and instrument reliability. Similar to our veterinary instruments and consumables strategy, a substantial portion of the revenues from this product line is derived from the sale of consumables for use on the installed base of electrolyte and blood gas analyzers. During the early stage of an instrument’s life cycle, relatively greater revenues are derived from instrument placements, while consumable sales become relatively more significant in later stages as the installed base of instruments increases and instrument placement revenues begin to decline. Our long-term success in this area of our business is dependent upon new customer acquisition, customer retention and increased customer utilization of existing and new assays introduced on these instruments.

During 2020, we introduced the OPTI SARS-CoV-2 RT-PCR test kit for human COVID-19 testing. A significant portion of the growth in our OPTI Medical business was from revenue generated from the test kits and related laboratory services. The future demand for this product is difficult to project given the uncertain nature of the COVID-19 pandemic, including short-term project commitments, available PCR testing capacity, alternative suppliers, and the potential impact of vaccinations and other treatments.

Our facility in Roswell, Georgia develops and manufactures the OPTI product lines using the same or similar technology to support the electrolyte requirements of certain CAG products. We leverage this facility’s know-how, intellectual property, and manufacturing capability to continue to expand the menu and instrument capability of the VetStat and Catalyst platforms for veterinary applications, while reducing our cost of consumables by leveraging experience and economies of scale.

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CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The discussion and analysis of our financial condition and results of operations is based upon the 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. Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 2. Summary of Significant Accounting Policies" to the consolidated financial statements included in this Annual Report on Form 10-K for a description of the significant accounting policies used in preparation of these consolidated financial statements.

We believe the following critical accounting estimates and assumptions may have a material impact on reported financial condition and operating performance and involve significant levels of judgment to account for highly uncertain matters or are susceptible to significant change.

Revenue Recognition

Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 3. Revenue Recognition" to the consolidated financial statements for the year ended December 31, 2021, included in this Annual Report on Form 10-K for additional information about our revenue recognition policy and criteria for recognizing revenue.

We enter into contracts with multiple performance obligations where customers purchase a combination of IDEXX products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires judgment. We determine the transaction price for a contract based on the total consideration we expect to receive in exchange for the transferred goods or services. To the extent the transaction price includes variable consideration, such as volume rebates or expected price adjustments, we apply judgment in constraining the estimated variable consideration due to factors that may cause reversal of revenue recognized. We evaluate constraints based on our historical and projected experience with similar customer contracts.

We allocate revenue to each performance obligation in proportion to the relative standalone selling prices and recognize revenue when control of the related goods or services is transferred for each obligation. We utilize the observable standalone selling price when available, which represents the price charged for the performance obligation when sold separately. When standalone selling prices for our products or services are not directly observable, we determine the standalone selling prices using relevant information available and apply suitable estimation methods including, but not limited to, the cost plus a margin approach.

Our up-front loyalty programs provide customers with incentives in the form of cash payments or IDEXX Points upon entering into multi-year agreements to purchase annual minimum amounts of future products or services. If a customer breaches its agreement, they are required to refund all or a portion of the up-front cash or IDEXX Points, or make other repayments, remedial actions, or both. Up-front incentives to customers in the form of cash or IDEXX Points are not made in exchange for distinct goods or services and are capitalized as customer acquisition costs within other current and long-term assets, which are subsequently recognized as a reduction to revenue over the term of the customer agreement. If these up-front incentives are subsequently utilized to purchase instruments, we allocate total consideration, including future committed purchases less up-front incentives and estimates of expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance. We estimate, based on historical experience, and apply judgment to predict the amounts of future customer purchases and expected price adjustments related to these multi-year agreements. Differences between estimated and actual customer purchases may impact the timing and amount of revenue recognition during the term of the customer contract, and a 10% change in these estimates would have increased or reduced deferred revenue and cumulative revenue related to these programs by approximately $1.3 million at December 31, 2021.

Our volume commitment programs, such as our IDEXX 360 program, provide customers with free or discounted instruments or systems upon entering into multi-year agreements to purchase annual minimum amounts of products and services. We allocate total consideration, including future committed purchases and expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance in advance of billing the customer, which is also when the customer obtains control of the

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instrument based on legal title transfer. Our right to future consideration related to instrument revenue is recorded as a contract asset within other current and long-term assets. The contract asset is transferred to accounts receivable when customers are billed for future products and services over the term of the contract. We estimate, based on historical experience, and apply judgment to predict the amounts of future customer purchases and expected price adjustments related to these multi-year agreements. Differences between estimated and actual customer purchases may impact the timing and amount of revenue recognition during the term of the customer contract, and a 10% change in these estimates would have increased or reduced contract assets and cumulative revenue related to these programs by approximately $4.0 million at December 31, 2021.

Our instrument rebate programs require an instrument purchase and provide customers the opportunity to earn future rebates based on the volume of products and services they purchase over the term of the program. We account for the customer’s right to earn rebates on future purchases as a separate performance obligation and determine the standalone selling price based on an estimate of rebates the customer will earn over the term of the program. Total consideration allocated to identified performance obligations is limited to goods and services that the customer is presently obligated to purchase and does not include estimates of future purchases that are optional. We allocate total consideration to identified performance obligations, including a customer’s right to earn rebates on future purchases, which is deferred and recognized upon the purchase of future products and services, partly offsetting future rebates as they are earned. We estimate, based on historical experience, and apply judgment to predict the amounts of future customer rebates related to these multi-year agreements. Differences between estimated and actual customer rebates may impact the timing and amount of revenue recognition during the term of the customer contract, and a 10% change in these estimates would have increased or reduced deferred revenue and cumulative revenue related to these programs by approximately $2.0 million at December 31, 2021.

Future market conditions and changes in product offerings may cause us to change marketing strategies to increase or decrease customer incentive offerings, possibly resulting in incremental reductions of revenue in future periods as compared to reductions in the current or prior periods. Additionally, certain customer programs require us to estimate, based on historical experience, and apply judgment to predict the amounts of future customer purchases, customer rebates and other incentive payments, and price adjustments related to multi-year agreements. Differences between estimated and actual customer purchases may impact the timing and amount of revenue recognition as described above.

Valuation of Goodwill and Other Intangible Assets

A significant portion of the purchase price for acquired businesses is generally assigned to intangible assets. Intangible assets other than goodwill are initially valued at fair value. If a quoted price in an active market for the identical asset is not readily available at the measurement date, the fair value of the intangible asset is estimated based on discounted cash flows using market participant assumptions, which are assumptions that are not specific to IDEXX. The selection of appropriate valuation methodologies and the estimation of discounted cash flows require significant assumptions about the timing and amounts of future cash flows, risks, appropriate discount rates, and the useful lives of intangible assets. When significant, we typically utilize independent valuation experts to advise and assist us in determining the fair values of the identified intangible assets acquired in connection with a business acquisition and in determining appropriate amortization methods and periods for those intangible assets. Goodwill is initially valued based on the excess of the purchase price of a business combination over the fair value of acquired net assets recognized and represents the future economic benefits arising from other assets acquired that could not be separately identified and recognized.

We assess goodwill for impairment annually, at the reporting unit level, in the fourth quarter and whenever events or circumstances indicate impairment may exist. An impairment charge is recorded for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. Our reporting units are the individual product and service categories that comprise our CAG operating segment, our Water and LPD operating segments and goodwill remaining from the restructuring of our pharmaceutical business in the fourth quarter of 2008. A substantial portion of the goodwill remaining from the pharmaceutical business, included in our “Other Segment”, is associated with intellectual property that has been, or may be, licensed to third parties. Realization of this goodwill is dependent upon the success of those third parties in developing and commercializing products, which will result in our receipt of royalties and other payments.

As part of our goodwill testing process, we evaluate factors specific to a reporting unit as well as industry and macroeconomic factors that are reasonably likely to have a material impact on the fair value of a reporting unit. Examples of the factors considered in assessing the fair value of a reporting unit include: the results of the most recent impairment test; the competitive environment; the regulatory environment; the effects of the ongoing COVID-19 pandemic; anticipated changes in product, supply chain, or labor costs; revenue growth trends; the consistency of operating margins and cash flows; and current and long-range financial forecasts. The long-range financial forecasts of the reporting units, which are based upon

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management’s long-term view of our markets, are used by senior management and the Board of Directors to evaluate operating performance.    

In the fourth quarters of 2021 and 2020, we elected to bypass the qualitative approach that allows the assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and instead proceeded directly to assessing the fair value of all of our reporting units and comparing the fair value of each reporting unit to the carrying value to determine if any impairment exists.

We estimate the fair values of applicable reporting units using an income approach based on discounted forecasted cash flows. We make significant assumptions about the extent and timing of future cash flows, growth rates and discount rates. Model assumptions are based on our projections and best estimates, using appropriate and customary market participant assumptions. In addition, we make certain assumptions in allocating shared assets and liabilities to individual reporting units in determining the carrying value of each reporting unit. To validate the reasonableness of the estimated fair values of our reporting units, we reconcile the aggregate fair values of our reporting units to our total market capitalization. Valuation assumptions reflect our projections and best estimates, based on significant assumptions about the extent and timing of future cash flows, growth rates and discount rates.

The results of our most recent goodwill impairment test in the fourth quarter of 2021 indicated an excess of estimated fair value over the carrying amount for each of our reporting units with a minimum of approximately 65% and a weighted average of approximately 1,375% in total. The majority of our goodwill is related to our CAG Diagnostics reporting units with a weighted average of approximately 1,550% excess of estimated fair value over the carrying amount, including our Reference Laboratory Diagnostic and Consulting Services, Rapid Assay Products, and IDEXX VetLab Consumables, Instruments, Services and Accessories.

We also maintain approximately $94 million of goodwill associated with our Veterinary Software and Services reporting unit, which is primarily comprised of recent acquisitions of early-stage software companies that expand our suite of technology applications for the veterinary profession, including SaaS-based practice management systems, applications that extend workflow capabilities, client marketing, wellness plan management and other connectivity and communication needs. These software applications are in various stages of commercial development, and therefore our Veterinary Software and Services reporting unit has a relatively lower excess of estimated fair value over the carrying amount, as indicated by the results of our most recent goodwill impairment test, which indicated approximately $385 million and 210% of the reporting unit’s carrying value. Realization of this goodwill is dependent on our successful commercialization of these software applications.

Additionally, we maintain approximately $6.5 million of goodwill associated with our remaining pharmaceutical intellectual property, out-licensing arrangements, and certain retained drug delivery technologies (collectively “Pharmaceutical Activities”) that we seek to commercialize through arrangements with third parties. Currently, our primary support for the carrying value of this goodwill is royalty revenue associated with the commercialization of certain intellectual property. There is no guarantee that we will be able to maintain or increase revenues from our remaining Pharmaceutical Activities. The results of our goodwill impairment test for these Pharmaceutical Activities indicate an excess of estimated fair value over the carrying amount of this reporting unit by approximately $4.2 million and approximately 65% of the reporting unit’s carrying value.

While we believe that the assumptions used to determine the estimated fair values of each of our reporting units are reasonable, a change in assumptions underlying these estimates could result in a material negative effect on the estimated fair value of the reporting units. Our fair value estimate assumes the achievement of future financial results contemplated in our forecasted cash flows, and there can be no assurance that we will realize that value. We use forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlooks for our reporting units. Actual results may differ from those assumed in our forecasts. The discount rate is based on a weighted average cost of capital derived from industry peers. Changes in market conditions, interest rates, growth rates, tax rates, costs, pricing, or the discount rate would affect the estimated fair values of our reporting units and could result in a goodwill impairment charge in a future period. No goodwill impairments were identified during the years ended December 31, 2021, 2020, and 2019.

A prolonged economic downturn in the U.S. or internationally resulting in lower long-term growth rates and reduced long-term profitability may reduce the fair value of our reporting units. Industry specific events or circumstances could have a negative impact on our reporting units and may also reduce the fair value of our reporting units. Should such events occur, and it becomes more likely than not that a reporting unit’s fair value has fallen below its carrying value, we will perform an interim goodwill impairment test, in addition to the annual impairment test. Future impairment tests may result in an impairment of goodwill, depending on the outcome of future impairment tests. An impairment of goodwill would be reported as a non-cash charge to earnings.

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We assess the realizability of intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If an impairment review is triggered, we evaluate the carrying value of intangible assets, other than goodwill, based on estimated undiscounted future cash flows over the remaining useful life of the primary asset of the asset group and compare that value to the carrying value of the asset group. The asset group is the lowest level for which identifiable cash flows associated with the intangible asset are largely independent. The cash flows that are used contain our best estimates, using appropriate and customary assumptions and projections at the time. If the net carrying value of the asset group exceeds the related estimated undiscounted future cash flows, an impairment to adjust the intangible asset to its fair value would be reported as a non-cash charge to earnings. If necessary, we would calculate the fair value of an intangible asset using the present value of the estimated future cash flows to be generated by the intangible asset and applying a risk-adjusted discount rate. We had no impairments of our intangible assets during the years ended December 31, 2021, and December 31, 2019. The amount of impairment for the year ended December 31, 2020, was immaterial.

Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the estimated future tax effects of temporary differences between book and tax treatment of assets and liabilities and carryforwards to the extent they are realizable.

On a quarterly basis, we assess our current and projected earnings by jurisdiction to determine whether or not our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future tax benefits. Should we determine that we would not be able to realize all or part of our net deferred tax asset in a particular jurisdiction in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

For those jurisdictions where tax carryforwards are likely to expire unused or the projected operating results indicate that realization is not more likely than not, a valuation allowance is recorded to offset the deferred tax asset within that jurisdiction. In assessing the need for a valuation allowance, we consider future taxable income and ongoing prudent and feasible tax planning strategies. In the event that we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, a reduction to the deferred tax asset would be charged against income in the period such determination was made. 

Our net taxable temporary differences and tax carryforwards are recorded using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized. Should the expected applicable tax rates change in the future, an adjustment to our deferred taxes would be credited or charged, as appropriate, to income in the period such determination was made.

We periodically assess our exposures related to our worldwide provision for income taxes and believe that we have appropriately accrued taxes for contingencies. Any reduction of these contingent liabilities or additional assessment would increase or decrease income, respectively, in the period such determination was made.

We record a liability for uncertain tax positions that do not meet the more likely than not standard as prescribed by the authoritative guidance for income tax accounting. We record tax benefits for only those positions that we believe will more likely than not be sustained. For positions that we believe that it is more likely than not that we will prevail, we record a benefit considering the amounts and probabilities that could be realized upon ultimate settlement. If our judgment as to the likely resolution of the uncertainty changes, if the uncertainty is ultimately settled or if the statute of limitation related to the uncertainty expires, the effects of the change would be recognized in the period in which the change, resolution or expiration occurs. Our net liability for uncertain tax positions was $25.5 million as of December 31, 2021, and $26.0 million as of December 31, 2020, which includes estimated interest expense and penalties. Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 14. Income Taxes" in the accompanying Notes to consolidated financial statements for more information.

42

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 2. Summary of Significant Accounting Policies (v) and (w)" to the consolidated financial statements for the year ended December 31, 2021, included in this Annual Report on Form 10-K for a complete discussion of recent accounting pronouncements adopted and not adopted.

RESULTS OF OPERATIONS AND TRENDS

Effects of Certain Factors on Results of Operations

Sector Trends and COVID-19 Pandemic Impact. The primary impacts of the COVID-19 pandemic have been seen in our CAG business. While veterinary care is widely recognized as an “essential” service, stay-at-home policies deployed to combat the spread of COVID-19 constrained visits to veterinary practices significantly in late March 2020 through early April 2020, pressuring diagnostic testing volumes. Restrictions on sales professionals’ access to veterinary clinics also contributed to deferrals on new CAG instrument placements.

As stay-at-home policies were relaxed, there was a sharp rebound in clinical visit activity which accelerated through the second quarter of 2020 and continued through the second half of 2020. Weekly U.S. companion animal practice data showed improvement in same-store clinical visits trends since mid-April 2020 and solid CAG market momentum continued in early 2021.

Companion animal sector improvement trends globally have supported a strong recovery in demand for CAG diagnostic products and services. Global CAG Diagnostics recurring revenues declined approximately 16% in April 2020, followed by increases of approximately 8% in May 2020, 30% in June 2020, 24% in July 2020, and approximately 20% for the remainder of the third and fourth quarters of 2020.

During 2021, positive trends in companion animal healthcare continued to support strong growth for CAG diagnostic products and services across regions. U.S. same-store clinical visit growth at veterinary practices was 12% in the first quarter of 2021, 13% in the second quarter, and 2% in both the third and fourth quarters of 2021. These clinical visit gains in the second half of 2021 are compared to strong prior year period clinical visit growth, which included benefits from pent-up demand from delayed veterinary visits during the COVID-19 pandemic as policies and restrictions were relaxed.

While these trends are encouraging, potential effects related to ongoing COVID-19 case management efforts are challenging to predict and may pressure future revenues should enhanced social distancing policies and higher infection rates impact veterinary clinic operations in certain regions. At the beginning of 2022, we are monitoring the increase in Omicron cases globally, including impacts on factors like veterinary practice staffing levels, which may impact clinic level growth.

We have also seen impacts from the COVID-19 pandemic on Water testing volumes. There was some disruption to compliance Water testing early in the second quarter of 2020 related to business lockdown effects, as well as beach and pool closures, which has since had a solid recovery. Approximately 20% of our Water revenues are related to non-compliance testing, which declined due to reduced overall business activity and prioritization of laboratory spending. During 2021, our Water testing volumes continued to recover for both compliance and non-compliance testing.

LPD revenues, which expanded 10% in 2020 and contracted by 7% in 2021, were impacted by reduced demand for African Swine fever testing in China, reflecting the relaxation of local African Swine Fever disease management programs, as well as additional impacts in China from lower pork prices and changing government requirements related to live animal imports and livestock infectious disease programs, beginning in the second quarter of 2021. We anticipate continued pressure on LPD revenues in the first half of 2022 related to these factors.

Human COVID-19 Testing. On May 7, 2020, we announced that OPTI Medical was granted by the United States Food and Drug Administration ("FDA") an Emergency Use Authorization ("EUA") for the OPTI SARS-CoV-2 RT-PCR laboratory test kit for the detection of SARS-CoV-2, the virus that causes COVID-19. On June 5, 2020 OPTI Medical announced that it has received the CE mark certification in the European Union for its OPTI SARS-CoV-2 RT-PCR laboratory test kit. Additionally, the FDA has granted EUA for the new OPTI DNA/RNA Magnetic Bead Kit for nucleic acid extraction from respiratory samples to be used with the OPTI SARS-CoV-2 RT-PCR test kit, which enables OPTI Medical Systems to provide laboratories with a complete OPTI Medical Systems-manufactured workflow solution for COVID-19 testing. We also provide human COVID-19 testing laboratories services to the Maine Center for Disease Control and Prevention in support of their COVID-19 testing program. These products and services are included within our OPTI Medical business in our Other segment

43

and are the primary driver of growth in that segment. We anticipate that revenues from these products will decline in 2022, as we focus our growth efforts on IDEXX core businesses.

In managing our businesses, we continue to provide high levels of service delivery and product support for customers during this time and maintain high health and safety standards to protect the health and safety of our employees and their families and our communities and ensure business continuity. Many of our employees continue to work remotely. For our laboratory and warehouse employees that are required to work on-site, we have enhanced safety procedures and protocols to help protect the health of our employees.

Supply Chain and Logistics Challenges. We believe that building and maintaining a well-managed and disciplined infrastructure have helped minimize impacts of the COVID-19 pandemic-related 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. Although we expect the current supply chain and logistics challenges to continue in 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.

Distributor Purchasing and Inventories. When selling our products through distributors, changes in distributors’ inventory levels can impact our reported sales, and these changes may be affected by many factors, which may not be directly related to underlying demand for our products by veterinary practices, which are the end users. If during the current year, distributors’ inventories grew by less than those inventories grew in the comparable period of the prior year, then changes in distributors’ inventories would have an unfavorable impact on our reported sales growth in the current period. Conversely, if during the current year, distributors’ inventories grew by more than those inventories grew in the comparable period of the prior year, then changes in distributors’ inventories would have a favorable impact on our reported sales growth in the current period. 

In certain countries, we sell our products through third-party distributors and may be unable to obtain data for sales to end users. We do not believe the impact of changes in these distributors’ inventories had or would have a material impact on our growth rates. Refer to “Part I, Item 1. Business, Marketing and Distribution” included in this Annual Report on Form 10-K for additional information regarding distribution channels.

Currency Impact. For the year ended December 31, 2021, approximately 23% of our consolidated revenue was derived from products manufactured or sourced in U.S. dollars and sold internationally in local currencies, as compared to 21% for the year ended December 31, 2020 and 22% for the year ended December 31, 2019. Strengthening of the rate of exchange for the U.S. dollar relative to other currencies has a negative impact on our revenues derived in currencies other than the U.S. dollar and on profits of products manufactured or purchased in U.S. dollars and sold internationally, and a weakening of the U.S. dollar has the opposite effect. Similarly, to the extent that the U.S. dollar is stronger in current or future periods relative to the exchange rates in effect in the corresponding prior periods, our growth rate will be negatively affected. The impact of foreign currency denominated operating expenses and foreign currency denominated supply contracts partly offsets this exposure. Additionally, our designated hedges of intercompany inventory purchases and sales help delay the impact of certain exchange rate fluctuations on non-U.S. denominated revenues. Refer to “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” included in this Annual Report on Form 10-K for additional information regarding currency impact. Our future income tax expense could also be affected by changes in the mix of earnings, including as a result of changes in the rate of exchange for the U.S. dollar relative to currencies in countries with differing statutory tax rates. Refer to “Part I, Item 1A. Risk Factors” included in this Annual Report on Form 10-K for additional information regarding tax impacts. 

Effects of Economic Conditions. Demand for our products and services is vulnerable to changes in the economic environment, including slow economic growth, high unemployment, and credit availability. Negative or cautious consumer sentiment can lead to reduced or delayed consumer spending, resulting in a decreased number of patient visits to veterinary clinics. Unfavorable economic conditions can impact sales of instruments, diagnostic imaging and practice management systems, which are larger capital purchases for veterinarians. Additionally, economic turmoil and inflationary pressure can cause our customers to remain sensitive to the pricing of our products and services. In the U.S., we monitor patient visits and clinic revenue data provided by a subset of our CAG customers. Although this data is a limited sample and susceptible to short-term impacts such as weather, which may affect the number of patient visits in a given period, we believe that this data provides

44

a fair and meaningful long-term representation of the trend in patient visit activity in the U.S., providing us insight regarding demand for our products and services.

Economic conditions can also affect the purchasing decisions of our Water and LPD business customers. Water testing volumes may be susceptible to declines in discretionary testing for existing home and commercial sales and in mandated testing as a result of decreases in home and commercial construction. Testing volumes may also be impacted by severe weather conditions such as drought. In addition, fiscal difficulties can also reduce government funding for water and herd health screening services.

We believe that the diversity of our products and services and the geographic diversity of our customers partially mitigate the potential effects of the economic environment and negative consumer sentiment on our revenue growth rates.

Effects of Patent Expiration. Although we have several patents and licenses of patents and technologies from third parties that expired during 2021, and several that are expected to expire in 2022 and beyond, the expiration of these patents or licenses, individually or in the aggregate, is not expected to have a material effect on our financial position or future operations due to a range of factors as described in "Part I, Item 1. Business, Patents and Licenses”. 

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 current year, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions, and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for, or as a superior measure to, revenues 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 consider acquisitions to be a business when all three elements of inputs, processes and outputs are present, consistent with ASU 2017-01, “Business Combinations: (Topic 805) Clarifying the Definition of a Business.” In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, we do not consider these assets to be a business. A typical acquisition that we do not consider a business is a customer list asset acquisition, which does not have all elements necessary to operate a business, such as employees or infrastructure. We believe the efforts required to convert and retain these acquired customers are similar in nature to our existing customer base and therefore are included in organic revenue growth.

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

Comparisons to Prior Periods. Our fiscal years end on December 31. Unless otherwise stated, the analysis and discussion of our financial condition, results of operations and liquidity, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior year period. 

45

Twelve Months Ended December 31, 2021, Compared to Twelve Months Ended December 31, 2020

Total Company

The following table presents revenue by operating segment by U.S. and non-U.S., or international geographies: 

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["Net Revenue (dollars in thousands)","","2021","","2020","","Dollar Change","","Reported Revenue Growth (1)","","Percentage Change from Currency","","Percentage Change from Acquisitions","","Organic Revenue Growth (1)"],["CAG","","$","2,889,960","","","$","2,385,765","","","$","504,195","","","21.1","%","","1.5","%","","0.9","%","","18.7","%"],["United States","","1,881,887","","","1,593,855","","","288,032","","","18.1","%","","\u2014","","","1.2","%","","16.9","%"],["International","","1,008,073","","","791,910","","","216,163","","","27.3","%","","4.8","%","","0.4","%","","22.1","%"],["Water","","$","146,505","","","$","128,625","","","$","17,880","","","13.9","%","","2.2","%","","\u2014","","","11.7","%"],["United States","","70,654","","","62,083","","","8,571","","","13.8","%","","\u2014","","","\u2014","","","13.8","%"],["International","","75,851","","","66,542","","","9,309","","","14.0","%","","4.2","%","","\u2014","","","9.8","%"],["LPD","","$","135,887","","","$","145,845","","","$","(9,958)","","","(6.8","%)","","2.3","%","","\u2014","","","(9.2","%)"],["United States","","15,626","","","14,533","","","1,093","","","7.5","%","","\u2014","","","\u2014","","","7.5","%"],["International","","120,261","","","131,312","","","(11,051)","","","(8.4","%)","","2.5","%","","\u2014","","","(11.0","%)"],["Other","","$","43,008","","","$","46,420","","","$","(3,412)","","","(7.4","%)","","0.9","%","","\u2014","","","(8.2","%)"],["Total Company","","$","3,215,360","","","$","2,706,655","","","$","508,705","","","18.8","%","","1.6","%","","0.8","%","","16.4","%"],["United States","","1,995,683","","","1,691,224","","","304,459","","","18.0","%","","\u2014","","","1.1","%","","16.9","%"],["International","","1,219,677","","","1,015,431","","","204,246","","","20.1","%","","4.3","%","","0.3","%","","15.5","%"]]
[[/GREPCENT_TABLE]]

(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 2020. Our CAG Diagnostics instrument revenue reflects high placement volumes compared to the prior year, which was impacted by the global pandemic. The higher revenue in our Water business was primarily a result of the continued improvement in non-compliance testing that has been constrained since the beginning of the pandemic and disruptions in certain compliance testing during the prior year. The decline in our LPD business was primarily due to the lower demand for African Swine Fever testing in China. The impact of currency movements on revenue was immaterial.

46

The following table presents our total Company results of operations:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Change"],["Total Company - Results of Operations(dollars in thousands)","","2021","","Percent of Revenue","","2020","","Percent of Revenue","","Amount","","Percentage"],["Revenues","","$","3,215,360","","","","","$","2,706,655","","","","","$","508,705","","","18.8","%"],["Cost of revenue","","1,325,928","","","","","1,135,615","","","","","190,313","","","16.8","%"],["Gross profit","","1,889,432","","","58.8","%","","1,571,040","","","58.0","%","","318,392","","","20.3","%"],["Operating Expenses:"],["Sales and marketing","","486,735","","","15.1","%","","434,435","","","16.1","%","","52,300","","","12.0","%"],["General and administrative","","309,660","","","9.6","%","","300,832","","","11.1","%","","8,828","","","2.9","%"],["Research and development","","161,009","","","5.0","%","","141,249","","","5.2","%","","19,760","","","14.0","%"],["Total operating expenses","","957,404","","","29.8","%","","876,516","","","32.4","%","","80,888","","","9.2","%"],["Income from operations","","$","932,028","","","29.0","%","","$","694,524","","","25.7","%","","$","237,504","","","34.2","%"]]
[[/GREPCENT_TABLE]]

Gross Profit. Gross profit increased due to higher sales volumes and an 80 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 revenue 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, and higher freight and distribution costs. The impact from foreign currency movements did not have a material impact on gross profit.

Operating Expenses. Overall operating expenses were higher compared to 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. General and administrative expense increased primarily due to higher personnel-related costs and costs associated with acquisitions. These increases were partially offset by an accrual related to an ongoing litigation matter and higher charitable donations in the prior year. 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 1%.

47

Companion Animal Group 

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["Net Revenue(dollars in thousands)","","2021","","2020","","Dollar Change","","Reported Revenue Growth (1)","","Percentage Change from Currency","","Percentage Change from Acquisitions","","Organic Revenue Growth (1)"],["CAG Diagnostics recurring revenue:","","$","2,534,562","","","$","2,113,839","","","$","420,723","","","19.9","%","","1.6","%","","0.2","%","","18.1","%"],["IDEXX VetLab consumables","","1,006,781","","","824,376","","","182,405","","","22.1","%","","2.1","%","","\u2014","","","20.0","%"],["Rapid assay products","","296,852","","","253,018","","","43,834","","","17.3","%","","0.7","%","","\u2014","","","16.6","%"],["Reference laboratory diagnostic and consulting services","","1,123,656","","","946,268","","","177,388","","","18.7","%","","1.4","%","","0.5","%","","16.8","%"],["CAG Diagnostics services and accessories","","107,273","","","90,177","","","17,096","","","19.0","%","","1.8","%","","\u2014","","","17.1","%"],["CAG Diagnostics capital - instruments","","149,140","","","108,950","","","40,190","","","36.9","%","","1.2","%","","\u2014","","","35.7","%"],["Veterinary software, services and diagnostic imaging systems","","206,258","","","162,976","","","43,282","","","26.6","%","","0.7","%","","10.5","%","","15.4","%"],["Net CAG revenue","","$","2,889,960","","","$","2,385,765","","","$","504,195","","","21.1","%","","1.5","%","","0.9","%","","18.7","%"]]
[[/GREPCENT_TABLE]]

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

CAG Diagnostics Recurring Revenue. Strong demand for companion animal diagnostics globally across modalities, including higher levels of growth in testing volumes following the initial pandemic impacts, which constrained volumes beginning in mid-March 2020 through May 2020 resulted in higher volume growth. 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 volume growth in IDEXX VetLab consumables, reference laboratory diagnostic services, and rapid assay products and, to a lesser extent, higher realized prices.

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 clinic testing levels, primarily from SNAP® 4Dx Plus, as well as 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 globally, particularly in the U.S., as well as higher average unit sales prices. Acquisitions increased revenue by 0.5%.

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

CAG Diagnostics Capital – Instruments Revenue. The increase in instrument revenue was primarily due to strong premium instrument placements globally, including our new ProCyte One analyzer, as compared to constrained placements in 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.

Veterinary Software, Services, and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue 10.5%. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to increases in our active installed base, higher veterinary software system placements, and higher realized prices on these service offerings. The increase in our diagnostic imaging systems revenues was primarily due to higher imaging systems placements, specifically our ImageVue DR 30 platform, as compared to 2020 when diagnostic imaging placements were lower due to restrictions on our

48

sales professionals’ access to clinics and certain customers deferring purchase decisions as a result of the COVID-19 pandemic, partially offset by a decrease in diagnostic imaging instrument revenue impacted by a reduction in earlier generation instrument platform sales.

The following table presents the CAG segment results of operations:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Change"],["Results of Operations (dollars in thousands)","","2021","","Percent of Revenue","","2020","","Percent of Revenue","","Amount","","Percentage"],["Revenues","","$","2,889,960","","","","","$","2,385,765","","","","","$","504,195","","","21.1","%"],["Cost of revenue","","1,206,156","","","","","1,022,579","","","","","183,577","","","18.0","%"],["Gross profit","","1,683,804","","","58.3","%","","1,363,186","","","57.1","%","","320,618","","","23.5","%"],["Operating Expenses:"],["Sales and marketing","","444,694","","","15.4","%","","396,792","","","16.6","%","","47,902","","","12.1","%"],["General and administrative","","274,470","","","9.5","%","","269,464","","","11.3","%","","5,006","","","1.9","%"],["Research and development","","140,618","","","4.9","%","","122,043","","","5.1","%","","18,575","","","15.2","%"],["Total operating expenses","","859,782","","","29.8","%","","788,299","","","33.0","%","","71,483","","","9.1","%"],["Income from operations","","$","824,022","","","28.5","%","","$","574,887","","","24.1","%","","$","249,135","","","43.3","%"]]
[[/GREPCENT_TABLE]]

Gross Profit. Gross profit increased primarily due to higher sales volumes, as well as a 120 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 higher veterinary software, services, and diagnostic imaging systems revenues. These favorable factors were partially offset by product mix, with higher CAG Diagnostics instrument revenue, and higher product, freight and distribution costs. The impact from foreign currency movements had an immaterial impact on our gross profit.

Operating Expenses. Overall operating expenses were higher compared to 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 and costs associated with acquisitions. These increases were partially offset by an accrual related to an ongoing litigation matter and a charitable donation in the prior year. 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 1%.

49

Water

The following table presents the Water segment results of operations:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Change"],["Results of Operations (dollars in thousands)","","2021","","Percent of Revenue","","2020","","Percent of Revenue","","Amount","","Percentage"],["Revenues","","$","146,505","","","","","$","128,625","","","","","$","17,880","","","13.9","%"],["Cost of revenue","","45,561","","","","","38,245","","","","","7,316","","","19.1","%"],["Gross profit","","100,944","","","68.9","%","","90,380","","","70.3","%","","10,564","","","11.7","%"],["Operating Expenses:"],["Sales and marketing","","17,814","","","12.2","%","","15,046","","","11.7","%","","2,768","","","18.4","%"],["General and administrative","","13,442","","","9.2","%","","12,595","","","9.8","%","","847","","","6.7","%"],["Research and development","","4,244","","","2.9","%","","3,872","","","3.0","%","","372","","","9.6","%"],["Total operating expenses","","35,500","","","24.2","%","","31,513","","","24.5","%","","3,987","","","12.7","%"],["Income from operations","","$","65,444","","","44.7","%","","$","58,867","","","45.8","%","","$","6,577","","","11.2","%"]]
[[/GREPCENT_TABLE]]

Revenue. The increase in our Water business was primarily a result of the recovery in overall testing volumes, including continued improvement in non-compliance testing volume that has been constrained since the beginning of the COVID-19 pandemic and disruptions in certain compliance testing areas due to social distancing policies. The increase in revenue, to a lesser extent, was also due to the benefit of price increases in our Colilert test products and related accessories used in coliform and E. coli testing. The impact of currency movements increased revenue by approximately 2.2%.

Gross Profit. Gross profit for Water increased due to higher sales volumes despite a 140 basis point decrease in the gross profit margin, which reflected a 50 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, distribution, and freight costs, partially offset by the net benefit of price increases.

Operating Expenses. Overall operating expenses were higher compared to 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 increased primarily due to higher personnel-related costs, including sales incentive compensation. General and administration and research and development expenses increased primarily due to higher personnel-related costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 1%.

50

Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Change"],["Results of Operations (dollars in thousands)","","2021","","Percent of Revenue","","2020","","Percent of Revenue","","Amount","","Percentage"],["Revenues","","$","135,887","","","","","$","145,845","","","","","$","(9,958)","","","(6.8","%)"],["Cost of revenue","","54,323","","","","","56,643","","","","","(2,320)","","","(4.1","%)"],["Gross profit","","81,564","","","60.0","%","","89,202","","","61.2","%","","(7,638)","","","(8.6","%)"],["Operating Expenses:"],["Sales and marketing","","21,681","","","16.0","%","","20,655","","","14.2","%","","1,026","","","5.0","%"],["General and administrative","","17,606","","","13.0","%","","17,061","","","11.7","%","","545","","","3.2","%"],["Research and development","","13,641","","","10.0","%","","11,478","","","7.9","%","","2,163","","","18.8","%"],["Total operating expenses","","52,928","","","39.0","%","","49,194","","","33.7","%","","3,734","","","7.6","%"],["Income from operations","","$","28,636","","","21.1","%","","$","40,008","","","27.4","%","","$","(11,372)","","","(28.4","%)"]]
[[/GREPCENT_TABLE]]

Revenue. The favorable impact of foreign currency movements increased revenue by 2.3%. Excluding the impact of currency, overall revenues decreased primarily due to lower demand for diagnostic testing in China, partially offset by higher testing volumes and realized prices in Europe and the Americas, as compared to pandemic impacts in the prior year. Beginning in the second quarter of 2021, and continuing through the fourth quarter, we experienced lower livestock test volumes in China, as changes in disease management approaches, lower pork prices, and changes in government requirements related to live animal imports and livestock infectious disease programs unfavorably impacted test volumes, in comparison to high prior-year demand for African Swine Fever testing.

Gross Profit. The decrease in LPD gross profit was primarily due to lower sales volumes and a 120 basis point decrease in the gross profit margin. The decrease in the gross profit margin is primarily due to higher distribution and freight costs, and lower realized prices, partially offset by lower product costs. The impact from foreign currency movements was immaterial for the year.

Operating Expenses. Overall operating expenses were higher compared to 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, as well as higher marketing and promotional materials costs, partially offset by lower sales incentive compensation. General and administrative expenses increased primarily due to higher personnel-related costs, partially offset by an impairment of an intangible asset associated with our food safety and dairy business in the fourth quarter of 2020 and 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 as we leveraged LPD personnel to support our human COVID-19 testing initiatives in the prior year, and software development costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 1.5%.

51

Other

The following table presents the Other results of operations:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Change"],["Results of Operations (dollars in thousands)","","2021","","Percent of Revenue","","2020","","Percent of Revenue","","Amount","","Percentage"],["Revenues","","$","43,008","","","","","$","46,420","","","","","$","(3,412)","","","(7.4","%)"],["Cost of revenue","","19,888","","","","","18,148","","","","","1,740","","","9.6","%"],["Gross profit","","23,120","","","53.8","%","","28,272","","","60.9","%","","(5,152)","","","(18.2","%)"],["Operating Expenses:"],["Sales and marketing","","2,546","","","5.9","%","","1,942","","","4.2","%","","604","","","31.1","%"],["General and administrative","","4,142","","","9.6","%","","1,712","","","3.7","%","","2,430","","","141.9","%"],["Research and development","","2,506","","","5.8","%","","3,856","","","8.3","%","","(1,350)","","","(35.0","%)"],["Total operating expenses","","9,194","","","21.4","%","","7,510","","","16.2","%","","1,684","","","22.4","%"],["Income from operations","","$","13,926","","","32.4","%","","$","20,762","","","44.7","%","","$","(6,836)","","","(32.9","%)"]]
[[/GREPCENT_TABLE]]

Revenue. The decrease in Other revenue was primarily due to lower OPTI COVID-19 PCR testing products and services, primarily due to lower international volume, as well as lower royalty revenue associated with intellectual property related to our former pharmaceutical product line. These decreases were partially offset by higher OPTI Medical consumables sales. We currently estimate that future demand for our OPTI COVID-19 PCR testing products and services will continue to be lower than prior periods, although it is difficult to project given the uncertain nature of the COVID-19 pandemic. The impact of currency movements increased revenues by 0.9%.

Gross Profit. The decrease in gross profit was primarily due to lower sales volumes and a gross profit margin decrease of 780 basis points. The decrease in the gross profit margin was primarily due to higher product costs associated with write-downs of excess COVID-19 testing inventory in the current year and lower mix benefits, primarily from lower 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 associated with our OPTI COVID-19 PCR product and services. 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, 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 in the prior year.

Non-Operating Items

Interest Expense. Interest expense was $29.8 million for the year ended December 31, 2021, as compared to $33.1 million for the prior year. The decrease in interest expense was primarily the result of lower average debt levels.

Our effective income tax rate was 17.5% for the year ended December 31, 2021, and 12.1% for the year ended December 31, 2020. The increase in our effective tax rate during 2021 was primarily due to the prior year one-time positive impact related to the enactment of tax reform in Switzerland related to the transitional benefits, as well as higher tax benefits in the prior year related to share-based compensation. Our projected effective tax rate for 2022 is approximately 22%. This projected increase in the effective tax rate is primarily due to lower estimated tax benefits from share-based compensation as well as the estimated impacts of international tax changes.

52

LIQUIDITY AND CAPITAL RESOURCES

We fund the capital needs of our business through cash on hand, funds generated from operations, proceeds from long-term senior note financings, and amounts available under our Credit Facility. We generate cash primarily through the payments made by customers for our companion animal veterinary, livestock, poultry, dairy, and water products and services, consulting services, and other various systems and services. Our cash disbursements are primarily related to compensation and benefits for our employees, inventory and supplies, taxes, research and development, capital expenditures, rents, occupancy-related charges, interest expense, and business acquisitions. At December 31, 2021, we had $144.5 million of cash and cash equivalents, as compared to $383.9 million on December 31, 2020. Working capital, including our Credit Facility, totaled $192.1 million at December 31, 2021, as compared to $480.0 million at December 31, 2020. Additionally, at December 31, 2021, we had a remaining borrowing availability of $925.1 million under our $1 billion Credit Facility, which in December 2021 was amended and extended to December 2026. 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 cash equivalents are generally available without restrictions to fund ordinary business operations outside the U.S.     

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

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["Cash and cash equivalents(in thousands)","","2021","","2020"],["U.S.","","$","2,632","","","$","248,374"],["Foreign","","141,822","","","135,554"],["Total","","$","144,454","","","$","383,928"],["Total cash, cash equivalents and marketable securities held in U.S. dollars by our foreign subsidiaries","","$","6,245","","","$","18,042"]]
[[/GREPCENT_TABLE]]

As of December 31, 2021 and 2020, more than 99% of the cash and cash equivalents held was as bank deposits.

The following table presents additional key information concerning working capital:

[[GREPCENT_TABLE]]
[["","","For the Three Months Ended"],["","","December 31, 2021","","September 30, 2021","","June 30, 2021","","March 31, 2021","","December 31, 2020"],["Days sales outstanding (1)","","42.4","","","42.7","","","42.2","","","41.8","","","42.2"],["Inventory turns (2)","","2.0","","","1.9","","","2.1","","","2.0","","","2.1"]]
[[/GREPCENT_TABLE]]

(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.

53

Sources and Uses of Cash

The following table presents cash provided (used): 

[[GREPCENT_TABLE]]
[["(in thousands)","","For the Years Ended December 31,"],["","","2021","","2020","","Dollar Change"],["Net cash provided by operating activities","","$","755,546","","","$","648,063","","","$","107,483"],["Net cash used by investing activities","","(292,967)","","","(109,376)","","","(183,591)"],["Net cash used by financing activities","","(697,414)","","","(248,416)","","","(448,998)"],["Net effect of changes in exchange rates on cash","","(4,639)","","","3,331","","","(7,970)"],["Net change in cash and cash equivalents","","$","(239,474)","","","$","293,602","","","$","(533,076)"]]
[[/GREPCENT_TABLE]]

Operating Activities. The increase in cash provided by operating activities of $107.5 million during 2021 as compared to 2020, was primarily due to the increase in net income partially offset by changes in other assets and liabilities. The increase in adjustments to reconcile net income to net cash provided by operating activities was primarily due to lower deferred tax benefits in the current year, as related to the enactment of tax reform in Switzerland in the prior year, as well as higher depreciation and amortization expense in the current year, primarily related to the completion of our major facilities projects early in 2020 and amortization of intangible assets from current year acquisitions, as well as higher share-based compensation expense.

The following table presents cash flows (used) provided from changes in operating assets and liabilities: 

[[GREPCENT_TABLE]]
[["(in thousands)","","For the Years Ended December 31,"],["","","2021","","2020","","Dollar Change"],["Accounts receivable","","$","(33,141)","","","$","(60,722)","","","$","27,581"],["Inventories","","(52,919)","","","(18,885)","","","(34,034)"],["Accounts payable","","11,233","","","981","","","10,252"],["Deferred revenue","","(7,551)","","","(13,373)","","","5,822"],["Other assets and liabilities","","(55,145)","","","60,238","","","(115,383)"],["Total change in cash due to changes in operating assets and liabilities","","$","(137,523)","","","$","(31,761)","","","$","(105,762)"]]
[[/GREPCENT_TABLE]]

Cash used due to changes in operating assets and liabilities during the year ended December 31, 2021, as compared to the same period in the prior year, decreased approximately $105.8 million. The change in other assets and liabilities was due to higher payroll and income tax payments, as compared to the prior year when the timing of these payments was deferred under COVID-19 stimulus guidance, as well as higher incentive payments, and higher investments in customer commitment programs to support instrument placements. Additionally, the prior year included a non-cash operating expense related to an ongoing litigation matter. The increase in cash used for inventory, as compared to the prior year, was primarily due to higher inventory levels to support increasing demand and to mitigate potential supply-chain disruptions. The change in accounts receivable was primarily due to an acceleration of sales in the later part of 2020 related to pent-up demand resulting from the COVID-19 pandemic, resulting in high levels of growth in our accounts receivable during the prior year. The change in accounts payable was primarily due to timing of payments at the end of the year, as well as increases in activity to support infrastructure and capacity growth.

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 and for the annual period 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 $293.0 million during 2021 as compared to $109.4 million used during 2020. The increase in cash used by investing activities during 2021 as compared to 2020 was primarily due to business acquisitions completed during 2021, including a cloud-based veterinary software business.

Our total capital expenditure plan for 2022 is estimated to be approximately $180 million, which includes capital investments in a new warehouse and manufacturing site expansion to support growth.

54

Financing Activities. Cash used by financing activities was $697.4 million during 2021, as compared to $248.4 million used during 2020. The increase in cash used by financing activities was primarily due to the increase in repurchases of our common stock, as compared to the prior year during which we suspended repurchases due to the COVID-19 pandemic. Cash was also used to pay off our $50 million 2021 Series A Notes when due and payable on July 21, 2021. We also generated cash from outstanding borrowings on our revolving credit facility of $73.5 million on December 31, 2021. During 2020, we repaid borrowings under our Credit Facility in the amount of $289.6 million, and borrowed $200.0 million through the issuance and sale of 10-year, 2.50% fixed-rate senior notes. As of December 31, 2020, we had no outstanding borrowings on our Credit Facility.

Cash used to repurchase shares of our common stock increased by $564.0 million during 2021, as compared to 2020. Due to the uncertainty of the duration and magnitude of the COVID-19 pandemic and its impacts during 2020, we suspended our open market share repurchase activity beginning in the first quarter of 2020. We resumed share repurchases during the first quarter of 2021. From the inception of our share repurchase program in August 1999 to December 31, 2021, we have repurchased 68.0 million shares for $5.0 billion. During 2021, we purchased 1.3 million shares for an aggregate cost of $755.5 million, as compared to purchases of 0.7 million shares for an aggregate cost of $179.6 million during 2020. 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. We primarily fund our share repurchases with cash generated from operations, as well as from various capital market activities, including the committed available financing through our Credit Facility. Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 20. Repurchases of Common Stock" to the consolidated financial statements included in this Annual Report on Form 10-K for additional information about our share repurchases.

The $1.0 billion unsecured revolving Credit Facility matures on December 9, 2026 and requires no scheduled prepayments before that date. Amounts borrowed under the terms of the Credit Facility are reflected in the current liabilities section in the accompanying consolidated balance sheets. Currently, the applicable interest rates on borrowings under the Credit Facility are based on the prevailing LIBOR, plus a credit spread of 0.875%, depending upon our gross leverage ratio. Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 13, Debt" for additional information about our applicable interest rates on our Credit Facility. Under the Credit Facility, we also pay quarterly commitment fees ranging from 0.075% to 0.25%, based on our leverage ratio, on any unused commitment. Our Credit Facility includes a provision for the determination of a benchmark replacement rate as a successor to the LIBOR rate.

Under the Credit Facility, the net repayment and borrowing activity resulted in increased cash used of $363.1 million during 2021, as compared to 2020. At December 31, 2021, we had $73.5 million outstanding under the Credit Facility. At December 31, 2020, we had no borrowings outstanding under the Credit Facility. The general availability of funds under the Credit Facility was further reduced by $1.4 million for letters of credit that were issued in connection with our workers' compensation policy at December 31, 2021 and 2020, respectively. The Credit Facility contains affirmative, negative, and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates, and certain restrictive agreements and violations of laws and regulations. The financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation, amortization, and share-based compensation not to exceed 3.5-to-1. At December 31, 2021, we were in compliance with the covenants of the Credit Facility. The obligations under the 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.

On July 21, 2021, we repaid our $50.0 million 2021 Series A Notes in full with cash provided by operations. The aggregate principal amounts of our 2022 Series A Notes for $75.0 million will become due and payable on February 14, 2022. We anticipate paying off our 2022 Series A Notes when due with cash provided by borrowings under our Credit Facility and 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

55

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.

Refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 13, Debt" for additional information about our Credit Facility, Senior Notes, and Senior Note Agreements.     

Effect of currency translation on cash. The net effect of changes in foreign currency exchange rates are related to changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries. These changes will fluctuate each year as the value of the U.S. dollar relative to the value of the foreign currencies change. The value of a currency depends on many factors, including interest rates, and the issuing governments' debt levels and strength of economy.

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements or variable interest entities except for letters of credit and third-party guarantees, as reflected in "Part II, Item 8. Financial Statements and Supplementary Data, Note 13 Debt" and "Part II, Item 8. Financial Statements and Supplementary Data. Note 16. Commitments, Contingencies and Guarantees" to the consolidated financial statements for the year ended December 31, 2021, included in this Annual Report on Form 10-K, respectively.

Financial Covenant. The financial covenant is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation, amortization, and share-based compensation, as defined in the Senior Note Agreements and Credit Facility, not to exceed 3.5-to-1. At December 31, 2021, we were in compliance with the covenants of the Senior Note Agreements. The following details our consolidated leverage ratio calculation:

[[GREPCENT_TABLE]]
[["(in thousands)","Twelve months ended"],["Trailing 12 Months Adjusted EBITDA:","December 31, 2021"],["Net income attributable to stockholders","$","744,845"],["Interest expense","29,808"],["Provision for income taxes","157,810"],["Depreciation and amortization","104,596"],["Acquisition-related expense","4,127"],["Share-based compensation expense","37,755"],["Extraordinary and other non-recurring non-cash charges","5,148"],["Adjusted EBITDA","$","1,084,089"],["(dollars in thousands)","Twelve months ended"],["Debt to Adjusted EBITDA Ratio:","December 31, 2021"],["Line of credit","$","73,500"],["Current and long-term portion of long-term debt","850,201"],["Total debt","923,701"],["Acquisition-related consideration payable","10,708"],["Financing leases","14"],["Deferred financing costs","510"],["Gross debt","$","934,933"],["Gross debt to Adjusted EBITDA ratio","0.86"],["Cash and cash equivalents","$","(144,454)"],["Net debt","$","790,479"],["Net debt to Adjusted EBITDA ratio","0.73"]]
[[/GREPCENT_TABLE]]

56

Commitments, Contingencies and Guarantees

For more information regarding our commitments, contingencies and guarantees, refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 16. Commitments, Contingencies and Guarantees".

For more information on our future lease payments, refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 8. Leases" for our minimum lease payment schedule. The expected timing of payments of our leases may be different in future years, depending on decisions to extend lease terms and/or enter into additional leases in the preceding years.

For more information on our repayment of our Senior Notes, refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 13. Debt".

We also have purchase obligations that including agreements and purchase orders to purchase goods or services that are contractually enforceable and that specify all significant terms, including fixed or minimum quantities, pricing and approximate timing of purchases. As of December 31, 2021, we have approximately $377.1 million in purchase obligations due in 2022. Our purchase obligations beyond 2022 are approximately $44.3 million. Expected timing of payments of our purchase obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.

Additionally, we have agreements with third parties that we have entered into in the ordinary course of business under which we are obligated to indemnify such third parties for and against various risks and losses. The precise terms of such indemnities vary with the nature of the agreement. In many cases, we limit the maximum amount of our indemnification obligations, but in some cases those obligations may be theoretically unlimited. We have not incurred material expenses in discharging any of these indemnification obligations and, based on our analysis of the nature of the risks involved, we believe that the fair value of these agreements is minimal. Accordingly, we did not record any liabilities for these obligations at December 31, 2021 and 2020, and do not anticipate any future payments for these guarantees.

As of December 31, 2021, our remaining obligation associated with the deemed repatriation tax resulting from the Tax Cut and Jobs Act of 2017 is $27.0 million. Our prior overpayments continue to satisfy our installment obligations through 2022. In 2023, our installment obligation will exceed our remaining overpayment and we will be required to remit the balance due on the installment. Our final installment will be paid in 2025. For information on our unrecognized tax benefits, refer to "Part II, Item 8. Financial Statements and Supplementary Data, Note 14. Income Taxes".

57