IDEXX LABORATORIES INC /DE [IDXX] Filings

10-Q 1 idxx-20220930.htm 10-Q idxx-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

COMMISSION FILE NUMBER: 000-19271

IDEXX LABORATORIES, INC.

(Exact name of registrant as specified in its charter)


Delaware			01-0393723
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

One IDEXX Drive	Westbrook	Maine	04092
(Address of principal executive offices)			(ZIP Code)

207-556-0300

(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 par value per share

IDXX

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant’s Common Stock, $0.10 par value per share, was 82,816,957 on October 28, 2022.

GLOSSARY OF TERMS AND SELECTED ABBREVIATIONS

In order to aid the reader, we have included certain terms and abbreviations used throughout this Quarterly Report on Form 10-Q below:


Term / Abbreviation			Definition

AOCI			Accumulated other comprehensive income or loss
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
CAG			Companion Animal Group, a reporting segment that provides veterinarians diagnostic products and services and information management solutions that enhance the health and well-being of pets
Credit Facility			Our senior unsecured credit facility, as in effect on the relevant date, including (i) our $1 billion revolving credit facility, also referred to as line of credit, and (ii) on or after October 20, 2022, our $250 million three-year term loan
Clinical visits			The reason for the visit involves an interaction between a clinician and a pet
FASB			U.S. Financial Accounting Standards Board
LIBOR			London Interbank Offered-Rate
LPD			Livestock, Poultry and Dairy, a reporting segment that provides diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve producer efficiency
OPTI Medical			OPTI Medical Systems, Inc., a wholly-owned subsidiary of IDEXX Laboratories Inc., located in Roswell, Georgia. This business provides point-of-care and laboratory diagnostics (including electrolyte and blood gas analyzers and related consumable products) for the human medical diagnostics sector, as well as COVID-19 testing products and services. The Roswell facility also manufactures electrolytes slides (instrument consumables) to run Catalyst One®, Catalyst Dx®, and blood gas analyzers and consumables for the veterinary sector; also referred to as OPTI. OPTI Medical is reported in our Other operating segment.
Organic revenue growth			A non-GAAP financial measure and represents the percentage change in revenue, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for or as a superior measure to, revenue growth reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies.
PCR			Polymerase chain reaction, a technique used to amplify small segments of DNA
Reported revenue growth			Represents the percentage change in revenue reported in accordance with U.S. GAAP, as compared to the same period in the prior year
SaaS			Software-as-a-service
SEC			U.S. Securities and Exchange Commission
Senior Note Agreements			Note purchase agreements for the private placement of senior notes, referred to as senior notes or long-term debt
SOFR			The secured overnight financing rate as administered by the Federal Reserve Board of New York (or a successor administrator of the secured overnight financing rate)
U.S. GAAP			Accounting principles generally accepted in the United States of America
Water			Water, a reporting segment that provides water microbiology testing products

IDEXX LABORATORIES, INC.

Quarterly Report on Form 10-Q

Table of Contents



Item No.		Page

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended Septemb er 30, 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	56
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 6.	Exhibits	59
Signatures		60

PART I— FINANCIAL INFORMATION

Item 1. Financial Statements

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


	September 30, 2022		December 31, 2021

ASSETS
Current Assets:
Cash and cash equivalents	$	99,176	$	144,454
Accounts receivable, net	388,072		368,348
Inventories	354,975		269,030
Other current assets	216,636		173,823
Total current assets	1,058,859		955,655
Long-Term Assets:
Property and equipment, net	612,405		587,667
Operating lease right-of-use assets	110,103		105,101
Goodwill	355,292		359,345
Intangible assets, net	99,968		99,035
Other long-term assets	403,440		330,400
Total long-term assets	1,581,208		1,481,548
TOTAL ASSETS	$	2,640,067	$	2,437,203

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	110,144	$	116,140
Accrued liabilities	405,992		458,909
Line of credit	633,000		73,500
Current portion of long-term debt	—		74,996
Current portion of deferred revenue	40,809		40,034
Total current liabilities	1,189,945		763,579
Long-Term Liabilities:
Deferred income tax liabilities	14,486		8,935
Long-term debt, net of current portion	760,814		775,205
Long-term deferred revenue, net of current portion	34,742		41,174
Long-term operating lease liabilities	93,128		87,377
Other long-term liabilities	70,953		70,941
Total long-term liabilities	974,123		983,632
Total liabilities	2,164,068		1,747,211

Commitments and Contingencies (Note 16)

Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,095 shares in 2022 and 106,878 shares in 2021; Outstanding: 82,995 shares in 2022 and 84,562 shares in 2021	10,709		10,688
Additional paid-in capital	1,437,528		1,377,320
Deferred stock units: Outstanding: 58 units in 2022 and 90 units in 2021	5,176		5,719
Retained earnings	3,427,322		2,920,440
Accumulated other comprehensive loss	(80,894)		(53,484)
Treasury stock, at cost: 24,101 shares in 2022 and 22,317 shares in 2021	(4,323,842)		(3,570,691)
Total stockholders’ equity	475,999		689,992
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,640,067	$	2,437,203

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

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021

Revenue:
Product revenue	$	481,004	$	471,787	$	1,451,899	$	1,406,850
Service revenue	360,657		338,634		1,086,857		1,007,420
Total revenue	841,661		810,421		2,538,756		2,414,270
Cost of Revenue:
Cost of product revenue	158,554		166,748		487,948		483,850
Cost of service revenue	176,481		170,752		531,397		497,409
Total cost of revenue	335,035		337,500		1,019,345		981,259
Gross profit	506,626		472,921		1,519,411		1,433,011
Expenses:
Sales and marketing	130,021		124,434		392,570		358,277
General and administrative	83,764		82,098		243,201		226,194
Research and development	48,013		40,427		211,402		115,703
Income from operations	244,828		225,962		672,238		732,837
Interest expense	(10,998)		(7,134)		(26,311)		(22,331)
Interest income	353		122		830		265
Income before provision for income taxes	234,183		218,950		646,757		710,771
Provision for income taxes	53,245		43,772		139,875		128,698
Net income	180,938		175,178		506,882		582,073
Less: Net loss attributable to noncontrolling interest	—		(57)		—		(1)
Net income attributable to IDEXX Laboratories, Inc. stockholders	$	180,938	$	175,235	$	506,882	$	582,074

Earnings per Share:
Basic	$	2.17	$	2.06	$	6.04	$	6.82
Diluted	$	2.15	$	2.03	$	5.97	$	6.71
Weighted Average Shares Outstanding:
Basic	83,247		85,123		83,855		85,325
Diluted	84,113		86,511		84,858		86,712

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

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021

Net income	$	180,938	$	175,178	$	506,882	$	582,073
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(31,220)		(12,967)		(59,024)		(20,213)
Benefit plans, net of tax expense of $0 and $(991) in 2022 and $0 and $0 in 2021	—		—		(5,056)		—
Reclassification adjustment for benefit plans included in net income, net of tax of $23 and $74 in 2022 and $0 and $0 in 2021	118		—		378		—
Unrealized gain on Euro-denominated notes, net of tax expense (benefit) of $1,713 and $3,438 in 2022 and $498 and $1,335 in 2021	5,495		1,581		11,028		4,235
Unrealized (loss) on investments, net of tax expense (benefit) of $(3) and $(15) in 2022 and $0 and $48 in 2021	(10)		(1)		(52)		153
Unrealized gain (loss) on derivative instruments:
Unrealized gain on foreign currency exchange contracts, net of tax expense (benefit) of $4,634 and $10,368 in 2022 and $940 and $1,595 in 2021	13,490		4,109		26,930		7,300
Unrealized gain on cross currency swaps, net of tax expense (benefit) of $1,657 and $3,303 in 2022 and $744 and $1,438 in 2021	5,319		2,359		10,597		4,561
Reclassification adjustment for (gain) included in net income, net of tax benefit (expense) of $(2,254) and $(4,441) in 2022 and $330 and $1,206 in 2021	(6,381)		1,253		(12,211)		5,522
Unrealized gain on derivative instruments	12,428		7,721		25,316		17,383
Other comprehensive (gain) loss, net of tax	(13,189)		(3,666)		(27,410)		1,558
Comprehensive income	167,749		171,512		479,472		583,631
Less: Comprehensive loss attributable to noncontrolling interest	—		(57)		—		(1)
Comprehensive income attributable to IDEXX Laboratories, Inc.	$	167,749	$	171,569	$	479,472	$	583,632

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

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

(Unaudited)


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


	Common Stock
	Number of Shares	$0.10 Par Value		Additional Paid-in Capital		Deferred Stock Units		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity
Balance December 31, 2020	106,457	$	10,646	$	1,294,849	$	4,503	$	2,175,595	$	(53,615)	$	(2,799,890)	$	707	$	632,795
Net income	—	—		—		—		204,257		—		—		32		204,289
Other comprehensive loss, net	—	—		—		—		—		(5,921)		—		—		(5,921)
Repurchases of common stock, net	—	—		—		—		—		—		(154,033)		—		(154,033)
Common stock issued under stock plans, including excess tax benefit	219	22		17,408		—		—		—		—		—		17,430

Share-based compensation cost	—	—		8,829		46		—		—		—		—		8,875
Balance March 31, 2021	106,676	$	10,668	$	1,321,086	$	4,549	$	2,379,852	$	(59,536)	$	(2,953,923)	$	739	$	703,435
Net income	—	—		—		—		202,582		—		—		24		202,606
Other comprehensive loss, net	—	—		—		—		—		11,145		—		—		11,145
Repurchases of common stock, net	—	—		—		—		—		—		(188,378)		—		(188,378)
Common stock issued under stock plans, including excess tax benefit	72	7		9,771		—		—		—		—		—		9,778
Deferred stock units activity	—	—		(1,035)		1,035		—		—		—		—		—
Share-based compensation cost	—	—		9,591		46		—		—		—		—		9,637
Balance June 30, 2021	106,748	$	10,675	$	1,339,413	$	5,630	$	2,582,434	$	(48,391)	$	(3,142,301)	$	763	$	748,223
Net income (loss)	—	—		—		—		175,235		—		—		(57)		175,178
Other comprehensive loss, net	—	—		—		—		—		(3,666)		—		—		(3,666)
Repurchases of common stock, net	—	—		—		—		—		—		(183,720)		—		(183,720)
Common stock issued under stock plans, including excess tax benefit	58	6		9,921		(12)		—		—		—		—		9,915
Share-based compensation cost	—	—		9,479		51		—		—		—		—		9,530
Balance September 30, 2021	106,806	$	10,681	$	1,358,813	$	5,669	$	2,757,669	$	(52,057)	$	(3,326,021)	$	706	$	755,460
The accompanying notes are an integral part of these condensed consolidated financial statements.

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	For the Nine Months Ended September 30,
	2022		2021

Cash Flows from Operating Activities:
Net income	$	506,882	$	582,073
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	83,180		76,901
Impairment charges	2,346		5,148
Provision for credit losses	5,112		1,719
Deferred income taxes	(36,890)		4,049
Share-based compensation expense	36,491		28,042
Other	2,032		2,402
Changes in assets and liabilities:
Accounts receivable	(35,061)		(49,050)
Inventories	(99,621)		(46,891)
Other assets and liabilities	(87,566)		(51,961)
Accounts payable	(3,930)		637
Deferred revenue	(3,419)		(7,487)
Net cash provided by operating activities	369,556		545,582
Cash Flows from Investing Activities:
Purchases of property and equipment	(99,609)		(87,761)
Acquisition of intangible assets	(10,000)		—
Equity investment	(25,000)		—
Acquisitions of a business, net of cash acquired	(11,512)		(161,166)
Net cash used by investing activities	(146,121)		(248,927)
Cash Flows from Financing Activities:
Borrowings under revolving credit facility, net	559,500		—
Payment of senior debt	(75,000)		(50,000)
Payments of acquisition-related contingent consideration and holdbacks	(5,730)		(1,500)
Repurchases of common stock, net	(745,691)		(502,021)
Proceeds from exercises of stock options and employee stock purchase plans	23,257		37,428
Shares withheld for statutory tax withholding payments on restricted stock	(10,552)		(15,501)
Net cash used by financing activities	(254,216)		(531,594)
Net effect of changes in exchange rates on cash	(14,497)		(3,786)
Net decrease in cash and cash equivalents	(45,278)		(238,725)
Cash and cash equivalents at beginning of period	144,454		383,928
Cash and cash equivalents at end of period	$	99,176	$	145,203

Supplemental Cash Flow Information:
Cash paid for income taxes	$	179,720	$	96,103
Unpaid property and equipment, reflected in accounts payable and accrued liabilities	$	19,661	$	14,734

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

IDEXX LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements of IDEXX Laboratories, Inc. and its subsidiaries have been prepared in accordance with U.S. GAAP for interim financial information and with the requirements of Regulation S-X, Rule 10-01 for financial statements required to be filed as a part of this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “IDEXX,” the “Company,” “we,” “our,” or “us” refer to IDEXX Laboratories, Inc. and its subsidiaries.

The accompanying unaudited condensed consolidated financial statements include the accounts of IDEXX Laboratories, Inc. and our wholly-owned and majority-owned subsidiaries. We do not have any variable interest entities for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of our management, all adjustments necessary for a fair statement of our financial position and results of operations. All such adjustments are of a recurring nature. The condensed consolidated balance sheet data as of December 31, 2021, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the full year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, and our Annual Report on Form 10-K for the year ended December 31, 2021, (the “2021 Annual Report”) filed with the SEC.

The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments, and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenues and expenses.

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

NOTE 2. ACCOUNTING POLICIES

Significant Accounting Policies

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2022, are consistent with those discussed in “Note 2. Summary of Significant Accounting Policies” to the consolidated financial statements in our 2021 Annual Report, and as updated below.

Investments in Companies Accounted for Using the Equity or Cost Method of Accounting

Investments where we have the ability to exercise significant influence, but do not control the entity, are accounted for under the equity method of accounting. Significant influence generally exists if we have a 20% to 50% ownership interest in the investee. Equity investments in entities for which we do not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost less impairment, if any, adjusted for changes resulting from qualifying observable price changes for the identical investment of the same issuer should they occur.

We evaluate our investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

As of September 30, 2022 and December 31, 2021, our equity investments of $30.3 million and $5.3 million, respectively, are recorded at cost in other long-term assets.

New Accounting Pronouncements Adopted

None.

New Accounting Pronouncements Not Yet Adopted

In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which adds certain disclosure requirements for a buyer in a supplier finance program. The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated roll-forward information. In interim reporting periods, the amount outstanding at the end of the period is required to be disclosed. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of the new pronouncement, but do not expect this guidance will have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities.” ASU 2021-08 is intended to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination by providing consistent recognition guidance. This standard is effective for fiscal years beginning after December 15, 2022. Adoption of the ASU 2021-08 should be applied prospectively. Early adoption is permitted, including in an interim period, for any period for which financial statements have not yet been issued. We are currently evaluating the impact, if any, of ASU 2021-08 on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the discontinuation of the LIBOR or by another reference rate expected to be discontinued. The FASB also issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope," in January 2021. It clarifies that certain optional expedients and exceptions apply to derivatives that are affected by the discounting transition. The amendments in this ASU affect the guidance in ASU No. 2020-04 and are effective in the same timeframe as ASU 2020-04. The relief offered by this guidance, if adopted, is available to companies for the period March 12, 2020 through December 31, 2022. In October 2022 the Credit Facility was amended to include SOFR as the replacement to LIBOR, therefore, the discontinuation of LIBOR is not expected to have an impact on our consolidated financial statements. For more information regarding the amendment to our Credit Facility, refer to “Note 11. Debt”

NOTE 3. REVENUE RECOGNITION

Our revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. We exclude sales, use, value-added, and other taxes we collect on behalf of third parties from revenue. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer. To accurately present the consideration received in exchange for promised products or services, we apply the five-step model outlined below:

1.Identification of a contract or agreement with a customer

2.Identification of our performance obligations in the contract or agreement

3.Determination of the transaction price

4.Allocation of the transaction price to the performance obligations

5.Recognition of revenue when, or as, we satisfy a performance obligation

We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The timing of revenue recognition, billings, and cash collections results in accounts receivable, lease receivables, and contract assets as a result of revenue recognized in advance of billings (included within other assets), and contract liabilities or deferred revenue as a result of receiving consideration in advance of revenue recognition within our unaudited condensed consolidated balance sheet. Our payment terms generally range

from 30 to 60 days, with exceptions for certain individual customers and geographies. Below is a listing of our major categories of revenue for our products and services:

Diagnostic Products and Accessories. Diagnostic products and accessories revenues, including IDEXX VetLab® consumables and accessories, rapid assay, LPD, Water, and OPTI testing products, are predominantly recognized and invoiced at the time of shipment, which is when the customer obtains control of the product based on legal title transfer and we have the right to payment. We also provide customers with certain consumables that are recognized upon utilization by the customer, which is when we have the right to payment and the risks and rewards of ownership transfer. Shipping costs reimbursed by the customer are included in revenue and cost of sales. As a practical expedient, we do not account for shipping activities as a separate performance obligation.

Laboratory Diagnostic and Consulting Services. Laboratory diagnostic and consulting services revenues are recognized and invoiced when performed.

Instruments, Software and Systems. CAG Diagnostics capital instruments, veterinary software, and diagnostic imaging systems revenues are recognized and invoiced when the customer obtains control of the products based on legal title transfer and we have the right to payment, which generally occurs at the time of installation and customer acceptance. Our instruments, software, and systems are often included in one of our significant customer programs, as further described below. For veterinary software systems that include multiple performance obligations, such as perpetual software licenses and computer hardware, we allocate revenue to each performance obligation based on estimates of the price that we would charge the customer for each promised product or service if it were sold on a standalone basis.

Lease Revenue. Revenues from instrument rental agreements and reagent rental programs are recognized either as operating leases on a ratable basis over the term of the agreement or as sales-type leases at the time of installation and customer acceptance. Customers typically pay for the right to use instruments under rental agreements in equal monthly amounts over the term of the rental agreement. Our reagent rental programs provide our customers the right to use our instruments upon entering into agreements to purchase specified amounts of consumables, which are considered embedded leases. For some agreements, the customers are provided with the right to purchase the instrument at the end of the lease term. Lease revenues from these agreements are presented in product revenue on our unaudited condensed consolidated income statement. Lease revenues were approximately $5.6 million and $15.5 million for the three and nine months ended September 30, 2022, as compared to $6.3 million and $15.8 million for the three and nine months ended September 30, 2021, respectively, including both operating leases and sales-type leases under ASC 842, Leases, for leases entered into after January 1, 2019, and ASC 840, “Leases,” for leases entered into prior to 2019. Refer to below for revenue recognition under our reagent rental programs.

Extended Warranties and Post-Contract Support. CAG Diagnostics capital instruments and diagnostic imaging systems extended warranties typically provide customers with continued coverage for a period of one to five years beyond the first-year standard warranty. Customers can either pay in full for the extended warranty at the time of instrument or system purchase or can be billed on a quarterly basis over the term of the contract. We recognize revenue associated with extended warranties over time on a ratable basis using a time elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

Veterinary software post-contract support provides customers with access to technical support when and as needed through access to call centers and online customer assistance. Post-contract support contracts typically have a term of 12 months and customers are billed for post-contract support in equal quarterly amounts over the term. We recognize revenue for post-contract support services over time on a ratable basis using a time elapsed measure of performance over the contract term, which approximates the expected timing in which applicable services are performed.

On December 31, 2021, our deferred revenue related to extended warranties and post-contract support was $30.0 million, of which approximately