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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 March 31, 2024
OR 
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 Logo.gif
  IDEXX LABORATORIES, INC. 
(Exact name of registrant as specified in its charter) 
Delaware01-0393723
(State or other jurisdiction of incorporation 
or organization)
(IRS Employer Identification No.)
One IDEXX Drive WestbrookMaine04092
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.10 par value per shareIDXXNASDAQ 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 filerAccelerated filer
Non-accelerated filerSmaller 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 82,587,328 on April 26, 2024.



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
 
AOCIAccumulated other comprehensive income or loss
ASUAccounting Standards Update
CAGCompanion 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 FacilityOur $1.25 billion five-year unsecured credit facility under an amended and restated credit agreement; consisting of i) $1 billion revolving credit facility, also referred to as line of credit, and ii) $250 million three-year term loan.
FASBU.S. Financial Accounting Standards Board
LPDLivestock, 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. 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 growthA 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.
Reported revenue growthRepresents the percentage change in revenue reported in accordance with U.S. GAAP, as compared to the same period in the prior year.
SaaSSoftware-as-a-service
SECU.S. Securities and Exchange Commission
Senior Note AgreementsNote purchase agreements for the private placement of senior notes, referred to as senior notes or long-term debt.
SOFRThe 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. GAAPAccounting principles generally accepted in the United States of America
WaterWater, 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 
 
PART II—OTHER INFORMATION
 






PART I— FINANCIAL INFORMATION 
Item 1.  Financial Statements  
IDEXX LABORATORIES, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands, except per share amounts) 
(Unaudited)

March 31, 2024December 31, 2023
ASSETS  
Current Assets:  
Cash and cash equivalents$397,433 $453,932 
Accounts receivable, net507,208 457,445 
Inventories390,599 380,282 
Other current assets206,733 203,595 
Total current assets1,501,973 1,495,254 
Long-Term Assets:
Property and equipment, net708,725 702,177 
Operating lease right-of-use assets119,886 115,499 
Goodwill408,672 365,961 
Intangible assets, net115,352 84,500 
Other long-term assets498,907 496,534 
Total long-term assets1,851,542 1,764,671 
TOTAL ASSETS$3,353,515 $3,259,925 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable$117,462 $110,643 
Accrued liabilities476,249 478,712 
Credit facility250,000 250,000 
Current portion of long-term debt74,998 74,997 
Current portion of deferred revenue38,193 37,195 
Total current liabilities956,902 951,547 
Long-Term Liabilities:
Deferred income tax liabilities8,746 7,235 
Long-term debt, net of current portion620,778 622,883 
Long-term deferred revenue, net of current portion28,043 28,533 
Long-term operating lease liabilities, net of current portion 103,879 99,671 
Other long-term liabilities66,261 65,526 
Total long-term liabilities827,707 823,848 
Total liabilities1,784,609 1,775,395 
Commitments, Contingencies and Guarantees (Note 16)
Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 107,667 shares in 2024 and 107,506 shares in 2023; Outstanding: 82,873 shares in 2024 and 83,032 shares in 2023
10,767 10,751 
Additional paid-in capital1,604,749 1,569,565 
Deferred stock units: Outstanding: 59 units in 2024 and 59 units in 2023
5,510 5,530 
Retained earnings4,680,150 4,444,571 
Accumulated other comprehensive loss(80,397)(71,206)
Treasury stock, at cost: 24,794 shares in 2024 and 24,474 shares in 2023
(4,651,873)(4,474,681)
Total stockholders’ equity1,568,906 1,484,530 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,353,515 $3,259,925 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


IDEXX LABORATORIES, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME 
(in thousands, except per share amounts) 
(Unaudited)  

For the Three Months Ended
March 31,
20242023
Revenue:
Product revenue$543,049 $505,942 
Service revenue421,046 394,253 
Total revenue964,095 900,195 
Cost of Revenue:
Cost of product revenue176,770 173,610 
Cost of service revenue194,255 183,614 
Total cost of revenue371,025 357,224 
Gross profit593,070 542,971 
Expenses:
Sales and marketing149,453 147,804 
General and administrative92,024 70,101 
Research and development52,635 44,667 
Income from operations298,958 280,399 
Interest expense(7,911)(13,127)
Interest income4,432 416 
Income before provision for income taxes295,479 267,688 
Provision for income taxes59,900 53,634 
Net income$235,579 $214,054 
Earnings per Share:
Basic$2.84 $2.58 
Diluted$2.81 $2.55 
Weighted Average Shares Outstanding:
Basic83,096 82,992 
Diluted83,957 83,959 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


IDEXX LABORATORIES, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(in thousands) 
(Unaudited) 
For the Three Months Ended
March 31,
20242023
Net income$235,579 $214,054 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(19,773)4,258 
Reclassification adjustment for defined benefit plans included in net income, net of tax of $19 in 2024 and $20 in 2023
94 119 
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $505 in 2024 and $(465) in 2023
1,618 (1,490)
Unrealized gain (loss) on investments, net of tax expense (benefit) of $0 in 2024 and $2 in 2023
1 6 
Reclassification adjustment on investments included in net income, net of tax of $51 in 2024 and $0 in 2023
163  
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on foreign currency exchange contracts, net of tax expense (benefit) of $2,252 in 2024 and $(26) in 2023
5,848 (209)
Unrealized gain (loss) on cross currency swaps, net of tax expense (benefit) of $638 in 2024 and $(387) in 2023
2,049 (1,240)
Unrealized gain (loss) on interest rate swap, net of tax expense (benefit) of $656 in 2024 and $(14) in 2023
2,106 (45)
Reclassification adjustments for (gain) loss included in net income, net of tax (expense) benefit of $(470) in 2024 and $(117) in 2023
(1,297)(218)
Unrealized gain (loss) on derivative instruments8,706 (1,712)
Other comprehensive (loss) income, net of tax(9,191)1,181 
Comprehensive income$226,388 $215,235 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


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 CapitalDeferred StockRetained EarningsAccumulated Other Comprehensive
(Loss) Income
Treasury StockTotal Stockholders’ Equity
Balance December 31, 2023107,506 $10,751 $1,569,565 $5,530 $4,444,571 $(71,206)$(4,474,681)$1,484,530 
Net income— — — — 235,579 — — 235,579 
Other comprehensive loss, net— — — — — (9,191)— (9,191)
Repurchases of common stock, net— — — — — — (177,192)(177,192)
Common stock issued under stock plans, including excess tax benefit161 16 20,792 (28)— — — 20,780 
Share-based compensation cost— — 14,392 8 — — — 14,400 
Balance March 31, 2024107,667 $10,767 $1,604,749 $5,510 $4,680,150 $(80,397)$(4,651,873)$1,568,906 

Common Stock
Number of Shares
$0.10 Par Value
Additional Paid-in CapitalDeferred StockRetained EarningsAccumulated Other Comprehensive
(Loss) Income
Treasury StockTotal Stockholders’ Equity
Balance December 31, 2022107,193 $10,719 $1,463,215 $5,182 $3,599,529 $(77,796)$(4,392,112)$608,737 
Net income— — — 214,054 — — 214,054 
Other comprehensive income, net— — — — — 1,181 — 1,181 
Repurchases of common stock, net— — — — — — (9,554)(9,554)
Common stock issued under stock plans, including excess tax benefit128 13 12,765 (25)— — — 12,753 
Share-based compensation cost— — 13,923 7 — — — 13,930 
Balance March 31, 2023107,321 $10,732 $1,489,903 $5,164 $3,813,583 $(76,615)$(4,401,666)$841,101 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


IDEXX LABORATORIES, INC.  AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
(Unaudited) 

For the Three Months Ended
March 31,
20242023
  
Cash Flows from Operating Activities:  
Net income$235,579 $214,054 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization29,904 28,331 
Impairment charge250  
Provision for credit losses1,530 2,325 
Deferred income taxes(2,571)(3,757)
Share-based compensation expense14,400 13,930 
Other909 (362)
Changes in assets and liabilities:
Accounts receivable(53,841)(44,133)
Inventories(2,412)(23,887)
Other assets and liabilities(21,416)(5,307)
Accounts payable(4,450)3,327 
Deferred revenue703 (609)
Net cash provided by operating activities198,585 183,912 
Cash Flows from Investing Activities:
Purchases of property and equipment(30,273)(39,511)
Acquisitions of a business(77,000) 
Proceeds from net investment hedges329  
Net cash used by investing activities(106,944)(39,511)
Cash Flows from Financing Activities:
Repayments under credit facility, net (147,500)
Payments of acquisition-related holdbacks (1,780)
Repurchases of common stock, net(154,764) 
Proceeds from exercises of stock options and employee stock purchase plans20,879 12,796 
Shares withheld for statutory tax withholding payments on restricted stock(10,189)(9,597)
Net cash used by financing activities(144,074)(146,081)
Net effect of changes in exchange rates on cash(4,066)501 
Net decrease in cash and cash equivalents(56,499)(1,179)
Cash and cash equivalents at beginning of period453,932 112,546 
Cash and cash equivalents at end of period$397,433 $111,367 
  
Supplemental Cash Flow Information:
Cash paid for income taxes$13,233 $7,200 
Unpaid property and equipment, reflected in accounts payable and accrued liabilities$15,182 $12,453 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


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, 2023, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2024, 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 audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, (the “2023 Annual Report”).

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.

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 months ended March 31, 2024, are consistent with those discussed in “Note 2. Summary of Significant Accounting Policies” to the consolidated financial statements in our 2023 Annual Report, and as updated below.

New Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within segment profit and loss. The amendments are effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. The implementation of ASU 2023-07 is not expected to have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of income tax rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted, and may be applied either prospectively or retrospectively. We are currently evaluating ASU 2023-09 to determine its impact on our consolidated financial statements.

8


NOTE 3.      REVENUE

Revenues by Product and Service Categories and by Principal Geographic Areas

We present disaggregated revenue for our CAG segment based on major product and service categories. Our Water and LPD segments are comprised of a single major product category.

The following table presents revenue by major product and service categories:
(in thousands)For the Three Months Ended
March 31,
20242023
CAG segment revenue:  
CAG Diagnostics recurring revenue:$780,144 $726,902 
IDEXX VetLab consumables316,929 291,114 
Rapid assay products86,315 82,032 
Reference laboratory diagnostic and consulting services344,338 323,180 
CAG Diagnostics services and accessories32,562 30,576 
CAG Diagnostics capital - instruments34,092 33,144 
Veterinary software, services and diagnostic imaging systems:
75,049 67,233 
Recurring revenue
59,700 51,707 
Systems and hardware
15,349 15,526 
CAG segment revenue889,285 827,279 
Water segment revenue43,071 38,883 
LPD segment revenue28,205 29,208 
Other segment revenue3,534 4,825 
Total revenue$964,095 $900,195 

The following table presents revenue by principal geographic area, based on customers’ domiciles:
(in thousands)For the Three Months Ended
March 31,
20242023
United States$631,009 $590,413 
Europe, the Middle East and Africa199,831 176,008 
Asia Pacific Region76,304 78,360 
Canada36,711 35,962 
Latin America & Caribbean20,240 19,452 
Total revenue$964,095 $900,195 

Contracts with Multiple Performance Obligations

We enter into arrangements 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 significant 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 arrangements.

We allocate revenue to each performance obligation in proportion to the relative standalone selling prices, and recognize revenue when transfer of the related goods or services has occurred for each obligation. We utilize the observable standalone selling price when available, which represents the price charged for the promised product or service 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
9


plus a margin approach. We recognize revenue as each performance obligation is satisfied, either at a point in time or over time, as described in the revenue categories above. We do not disclose information about remaining performance obligations that are part of arrangements with an original expected duration of one year or less.

The following customer arrangements represent our most significant customer contracts that contain multiple performance obligations:

    Customer Commitment Arrangements. We offer customers incentives upon entering into multi-year arrangements to purchase annual minimum amounts of products and services.

Free or Discounted Instruments and Systems. Many of our customer commitment arrangements, such as our IDEXX 360 program, provide customers with free or discounted instruments or systems upon entering into multi-year arrangements 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 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 products and services over the term of the arrangement. We have determined that these arrangements do not include a significant financing component.

On December 31, 2023, our contract assets were $223.1 million, of which approximately $14.5 million was reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, 2024. Furthermore, as a result of new placements under commitment arrangements, net of subsequent amounts reclassified to accounts receivable and allowances established for credit losses, our contract assets were $230.0 million as of March 31, 2024. We monitor customer purchases over the term of their arrangement to assess the realizability of our contract assets and review estimates of variable consideration. Impairments and revenue adjustments that relate to performance obligations satisfied in prior periods, including cumulative catch-up adjustments to revenue arising from contract modifications, during the three months ended March 31, 2024, were not material.

Up-Front Consideration Paid to Customers. We provide customers with incentives in the form of IDEXX Points upon entering into multi-year arrangements to purchase annual minimum amounts of future products and/or services. If a customer breaches their agreement, they are required to refund all or a portion of the up-front consideration, or make other repayments, remedial actions, or both. Up-front incentives to customers (previously referred to as “customer acquisition costs”) in the form of IDEXX Points or, from time to time, cash, are not made in exchange for distinct goods or services and are capitalized as consideration paid to customers within other current and long-term assets, which are subsequently recognized as a reduction to revenue over the term of the customer arrangement. 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. To the extent invoiced instrument revenue exceeds recognized instrument revenue, we record deferred revenue as a contract liability, which is subsequently recognized upon the purchase of products and services over the term of the contract. We have determined these arrangements do not include a significant financing component.

On December 31, 2023, our capitalized consideration paid to customers was $168.9 million, of which approximately $14.4 million was recognized as a reduction of revenue during the three months ended March 31, 2024. Furthermore, as a result of new payments to customers, net of subsequent recognition, our capitalized consideration paid to customers was $168.2 million as of March 31, 2024. We monitor customer purchases over the term of their arrangement to assess the realizability of our capitalized consideration paid to customers and review estimates of variable consideration. Impairments and revenue adjustments that relate to performance obligations satisfied in prior periods, including cumulative catch-up adjustments to revenue arising from contract modifications, during the three months ended March 31, 2024, were not material.

10


Rebate Arrangements. Our rebate arrangements provide customers the opportunity to earn future rebates based on the volume of products and/or services they purchase over the term of the arrangement. Rebate incentives are typically offered in multi-year arrangements that include customer commitments to purchase annual minimum amounts of products and services, or, to a lesser extent, are sometimes offered without future purchase commitments. 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 arrangement. 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 the customer’s right to earn rebates on future purchases, which is deferred and subsequently recognized upon the purchase of products and/or services, partly offsetting rebates as they are earned.

On December 31, 2023, our deferred revenue related to rebate and up-front consideration arrangements was $32.9 million, of which approximately $3.0 million was recognized when customers purchased eligible products and services during the three months ended March 31, 2024. Furthermore, as a result of new customer purchases under rebate and up-front consideration arrangements, net of subsequent recognition, our deferred revenue was $31.9 million as of March 31, 2024, of which approximately 26%, 28%, 21%, 14%, and 11% are expected to be recognized during the remainder of 2024, the full years 2025, 2026, 2027, and thereafter, respectively.

For our customer commitment arrangements, we estimate future revenues related to multi-year arrangements to be approximately $3.9 billion, of which approximately 22%, 25%, 22%, 17%, and 14% are expected to be recognized during the remainder of 2024, the full years 2025, 2026, 2027, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied, for which customers have committed to future purchases, net of the expected revenue reductions from consideration paid to customers and expected price adjustments, and as a result, are lower than stated contractual commitments by our customers.

Instrument Rental Arrangements. Revenues from instrument rental and reagent rental arrangements are recognized either as operating leases on a ratable basis over the term of the arrangement or as sales-type leases at the time of installation and customer acceptance. Customers typically pay for the right to use instruments under rental arrangements in equal monthly amounts over the term of the rental arrangement. For some arrangements, customers are provided with the right to purchase the instrument at the end of the lease term. Our reagent rental arrangements provide customers the right to use our instruments upon entering into multi-year arrangements to purchase annual minimum amounts of consumables. These types of arrangements include an embedded lease for the right to use our instrument, and we determine the amount of lease revenue allocated to the instrument based on relative standalone selling prices. Lease revenues are presented in product revenue on our consolidated income statement. Lease revenue was approximately $3.8 million for the three months ended March 31, 2024, compared to $4.5 million for the three months ended March 31, 2023, including both operating leases and sales-type leases.

Sales-type Reagent Rental Arrangements. Our reagent rental arrangements that effectively transfer control of instruments to our customers are classified as sales-type leases, and we recognize instrument revenue and cost in advance of billing the customer, at the time of installation and customer acceptance. Our right to future consideration related to instrument revenue is recorded as a lease receivable within other current and long-term assets, and is transferred to accounts receivable when customers are billed for products and services over the term of the arrangement. On December 31, 2023, our lease receivable assets were $23.1 million, of which approximately $1.5 million was reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, 2024. Furthermore, as a result of new placements under sales-type reagent rental arrangements, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our lease receivable assets were $21.8 million as of March 31, 2024. The impacts of discounting and unearned income as of March 31, 2024, were not material. Profit and loss recognized at the commencement date and interest income during the three months ended March 31, 2024, were not material. We monitor customer purchases over the term of their arrangement to assess the realizability of our lease receivable assets. Impairments during the three months ended March 31, 2024, were not material.

Operating-type Reagent Rental Arrangements. Our reagent rental arrangements that do not effectively transfer control of instruments to our customers are classified as operating leases and we recognize instrument revenue and costs ratably over the term of the arrangement. The cost of the instrument is
11


capitalized within property and equipment. During the three months ended March 31, 2024, we transferred instruments of $3.4 million, compared to $3.8 million during the three months ended March 31, 2023, from inventory to property and equipment.

We estimate future revenue to be recognized related to our reagent rental arrangements of approximately $59.9 million, of which approximately 20%, 23%, 20%, 16%, and 21% are expected to be recognized during the remainder of 2024, and the full years 2025, 2026, 2027, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied for which customers have committed to future purchases, net of expected price adjustments, and as a result, may be lower than stated contractual commitments by our customers.

Deferred Extended Warranties and Post-Contract Support Revenue

On December 31, 2023, our deferred revenue related to extended warranties and post-contract support was $26.0 million, of which approximately $15.8 million was recognized during the three months ended March 31, 2024. Furthermore, as a result of new arrangements, our deferred revenue related to extended warranties and post-contract support was $26.0 million at March 31, 2024. We do not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less, and do not adjust for the effect of the financing components when the period between customer payment and revenue recognition is one year or less. Deferred revenue related to extended warranties and post-contract support with an original duration of more than one year was $9.5 million at March 31, 2024, of which approximately 32%, 33%, 20%, 8%, and 7% are expected to be recognized during the remainder of 2024, and the full years 2025, 2026, 2027, and thereafter, respectively. We have determined these arrangements do not include a significant financing component.

Costs to Obtain a Contract

On December 31, 2023, our deferred commission costs, included within other current and long-term assets, were $19.7 million, of which approximately $1.8 million of commission expense was recognized during the three months ended March 31, 2024. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, net of subsequent recognition, our deferred commission costs were $19.7 million at March 31, 2024. Impairments of deferred commission costs during the three months ended March 31, 2024, were not material.


NOTE 4. ACQUISITIONS, ASSET PURCHASES AND INVESTMENTS

We believe that our acquisitions of businesses and other assets enhance our existing businesses by either expanding our geographic range, customer base, or existing product and service lines. From time to time, we may acquire small reference laboratories or radiology practices that we account for as either asset purchases or business combinations.

Business Combinations

On February 1, 2024, we acquired the assets of a privately-owned software and data platform business based in the U.S. that extends our practice management system cloud-native workflow and delivers strategic data solutions to our customers and their clients, for approximately $81.4 million, including an estimated contingent payment of $4.4 million. We estimate the preliminary fair values and the lives of the assets and liabilities acquired are as follows: completed technology of approximately $17.1 million, with a life of 6 years; customer relationship intangibles of approximately $12.5 million, with a life of 10 years; a non-compete agreement of approximately $4.7 million, with a life of 5 years; a trademark of approximately $0.7 million, with a life of 10 years; approximately $45.8 million of goodwill, representing synergies with our software business; and approximately $0.6 million of net tangible assets, including accounts receivable. Goodwill related to this acquisition is expected to be deductible for tax purposes. Pro forma information has not been presented for this acquisition because such information is not material to the financial statements. The results of operations have been included in our CAG segment since the acquisition date. The purchase price allocation is subject to revision as additional information becomes available regarding working capital adjustments, tax-related matters, contingencies, and certain assets and liabilities. The acquisition expenses were not significant.
12


NOTE 5. SHARE-BASED COMPENSATION 

The fair value of options, restricted stock units, deferred stock units, performance-based restricted stock units, and employee stock purchase rights awarded during the three months ended March 31, 2024, totaled $65.6 million, compared to $57.3 million for the three months ended March 31, 2023. The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding as of March 31, 2024, was $107.2 million, which will be recognized over a weighted average period of approximately 1.9 years. During the three months ended March 31, 2024, we recognized share-based compensation expenses of $14.4 million, compared to $13.9 million for the three months ended March 31, 2023.

During the first quarter of 2024, we granted approximately $11.5 million of performance-based restricted stock units that are contingent upon our performance against pre-established financial performance metrics over a period beginning on January 1, 2024, and ending on December 31, 2026. Earned shares will vest on the later of the third anniversary of the grant date or the date of certification of our performance under the terms of the performance-based restricted stock units grant.

We determine the assumptions used in the valuation of option awards as of the date of grant. Differences in the expected stock price volatility, expected term, or risk-free interest rate may necessitate distinct valuation assumptions at each grant date. As such, we may use different assumptions for options granted throughout the year. Option awards are granted with an exercise price equal to or greater than the closing market price of our common stock at the date of grant. We have never paid any cash dividends on our common stock, and we have no intention to pay such a dividend at this time; therefore, we assume that no dividends will be paid over the expected terms of option awards.

The weighted averages of the valuation assumptions used to determine the fair value of each option award on the date of grant and the weighted average estimated fair values were as follows:
For the Three Months Ended
March 31,
20242023
Expected stock price volatility32 %32 %
Expected term, in years7.06.7
Risk-free interest rate4.3 %3.7 %
Weighted average fair value of options granted$241.72 $201.71 
NOTE 6. CREDIT LOSSES  

We are exposed to credit losses primarily through our sales of products and services to our customers. We maintain allowances for credit losses for potentially uncollectible receivables. We base our estimates on a detailed analysis of specific customer situations and a percentage of our accounts receivable by aging category. Additionally, our estimates are developed based on historical credit loss experience, estimates of recoveries, current economic conditions, and future expectations.

Additional allowances may be required if either the financial condition of our customers were to deteriorate, or a strengthening U.S. dollar impacts the ability of foreign customers to make payments to us on their U.S. dollar-denominated purchases. We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliations, dispute resolution, and payment confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We may require collateralized asset support or a prepayment to mitigate credit risk. We do not have any off-balance sheet credit exposure related to our customers.

Accounts Receivable

The allowance for credit losses associated with accounts receivable was $10.6 million and $9.5 million as of March 31, 2024, and December 31, 2023, respectively. The amount of accounts receivable reflected on the balance sheet is net of this reserve. Based on an aging analysis, as of March 31, 2024, approximately 84% of our accounts receivable had not yet reached the invoice due date, and approximately 16% was considered past due, of which approximately 1.8% was greater than 60 days past due. As of December 31, 2023, approximately 83% of our accounts receivable had not yet reached the invoice due date, and approximately 17% was considered past due, of which approximately 1.7% was greater than 60 days past due.
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Contract Assets and Lease Receivables

The allowance for credit losses associated with the contract assets and lease receivables was $6.6 million and $6.4 million as of March 31, 2024, and December 31, 2023, respectively. The assets reflected on the balance sheet are net of these reserves. Historically, we have experienced low credit loss rates on our customer commitment programs and lease receivables. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
NOTE 7. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The components of inventories were as follows:
(in thousands)March 31, 2024December 31, 2023
  
Raw materials$103,049 $106,392 
Work-in-process28,229 28,989 
Finished goods259,321 244,901 
Inventories$390,599 $380,282 

NOTE 8. LEASES

Maturities of operating lease liabilities were as follows:
(in thousands)March 31, 2024
 
2024 (remainder of year)$17,626 
202525,203 
202623,061 
202718,201 
202813,146 
Thereafter48,114 
Total lease payments145,351 
Less imputed interest(22,185)
Total$123,166 

Total minimum future lease payments for leases that have not commenced as of March 31, 2024, are not material.

Supplemental cash flow information for leases was as follows:
(in thousands)For the Three Months Ended
March 31,
20242023
 
Cash paid for amounts included in the measurement of operating lease liabilities$7,155 $7,775 
Right-of-use assets obtained in exchange for operating lease obligations, net of early
lease terminations (1)
$11,525 $2,282 

(1) Additions for the three months ended March 31, 2024, include $1.0 million of right-of-use assets obtained with the business acquisition in the first quarter of 2024.
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NOTE 9. OTHER CURRENT AND LONG-TERM ASSETS

Other Current Assets

Other current assets consisted of the following:
(in thousands)March 31, 2024December 31, 2023
  
Contract assets, net (1)
$56,575 $55,111 
Consideration paid to customers (2)
54,486 54,081 
Prepaid expenses47,648 48,370 
Taxes receivable14,459 16,972 
Other assets33,565 29,061 
Other current assets$206,733 $203,595 

(1) Contract assets, net, are net of allowances for credit losses. Refer to "Note 6. Credit Losses."
(2) Refer to “Note 3. Revenue. Up-Front Consideration Paid to Customers” for more information regarding consideration paid to customers.

Other Long-Term Assets

Other long-term assets consisted of the following:
(in thousands)March 31, 2024December 31, 2023
Contract assets, net (1)
$173,434 $167,963 
Consideration paid to customers (2)
113,735 114,850 
Deferred income taxes106,517 107,364 
Equity investments30,000 30,250 
Investment in long-term product supply arrangements24,395 25,943 
Other assets50,826 50,164 
Other long-term assets$498,907 $496,534 

(1) Contract assets, net, are net of allowances for credit losses. Refer to "Note 6. Credit Losses."
(2) Refer to “Note 3. Revenue. Up-Front Consideration Paid to Customers” for more information regarding consideration paid to customers.

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NOTE 10. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES

Accounts Payable - Supplier Financing Program

We have an agreement with a third party to provide a supplier finance program, which facilitates participating suppliers’ ability to finance payment obligations from us with a designated third-party financial institution. Participating suppliers may, at their sole discretion, make offers to finance one or more of our payment obligations prior to their scheduled due dates at a discounted price. Our obligations to our suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under these arrangements. The terms of payments are consistent with the terms of our trade payables. Activity related to the obligations is presented within operating activities on the unaudited consolidated statements of cash flows. The changes in our outstanding payment obligations under this arrangement, which are included in accounts payable on the unaudited condensed consolidated balance sheets, are as follows:

(in thousands)For the Three Months Ended
March 31,
20242023
Payment obligations outstanding at the beginning of the period$9,057 $10,171 
  Payment obligation additions during the period13,068 13,031 
  Payment obligations settled during the period(11,725)(15,666)
Payment obligations outstanding at the end of the period$10,400 $7,536 

Accrued Liabilities

Accrued liabilities consisted of the following:
(in thousands)March 31, 2024December 31, 2023
  
Accrued taxes$134,195 $86,553 
Accrued expenses125,583 113,596 
Accrued employee compensation and related expenses116,339 174,375 
Accrued customer incentives and refund obligations80,845 84,386 
Current lease liabilities19,287 19,802 
Accrued liabilities$476,249 $478,712 

Other Long-Term Liabilities

Other long-term liabilities consisted of the following:
(in thousands)March 31, 2024December 31, 2023
Accrued taxes$40,026 $39,642 
Other accrued long-term expenses26,235 25,884 
Other long-term liabilities$66,261 $65,526 

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NOTE 11. DEBT

Credit Facility

At March 31, 2024, we had $250.0 million in outstanding borrowings under our Credit Facility, all of which is the $250.0 million Term Loan, with a weighted average effective interest rate of 6.3%, excluding any impact of our interest rate swap. At December 31, 2023, we had $250.0 million outstanding under our Credit Facility, all of which was the $250.0 million Term Loan, with a weighted average effective interest rate of 6.0%. At March 31, 2024, we had remaining borrowing availability of $998.5 million under our $1.25 billion Credit Facility. The funds available under the Credit Facility reflect a further reduction due to the issuance of letters of credit, which were primarily issued in connection with our workers’ compensation policy, for $1.5 million.

The applicable interest rate for the Credit Facility is calculated at a per annum rate equal to either (at our option) (i) a prime rate plus a margin ranging from 0.0% to 0.375% based on our consolidated leverage ratio, (ii) an adjusted term SOFR rate, plus 0.10%, plus a margin ranging from 0.875% to 1.375% based on our consolidated leverage ratio, or (iii) an adjusted daily simple SOFR rate, plus 0.10%, plus a margin ranging from 0.875% to 1.375% based on our consolidated leverage ratio. In March 2023, we entered into an interest rate swap contract to manage the economic effect of $250.0 million of variable interest borrowings under our Credit Facility. Refer to “Note 19. Hedging Instruments” for a discussion of our derivative instruments and hedging activity.

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. The sole 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, which is defined as the consolidated leverage ratio under the terms of the Credit Facility, not to exceed 3.5-to-1. As of March 31, 2024, we were in compliance with the covenants of the Credit Facility.

Senior Notes

The following describes all of our currently outstanding unsecured senior notes issued and sold in private placements (collectively, the “Senior Notes”) as of March 31, 2024:
(Principal Amount in thousands)
Issue DateDue DateSeriesPrincipal AmountCoupon RateSenior Note Agreement
12/11/201312/11/20252025 Series B Notes$75,000 4.04 %NY Life 2013 Note Agreement
9/4/20149/4/20262026 Senior Notes$75,000 3.72 %NY Life 2014 Note Agreement
7/21/20147/21/20242024 Series B Notes$75,000 3.76 %Prudential 2015 Amended Agreement
6/18/20156/18/20252025 Series C Notes88,857 1.785 %Prudential 2015 Amended Agreement
2/12/20152/12/20272027 Series B Notes$75,000 3.72 %MetLife 2014 Note Agreement
3/14/20193/14/20292029 Series C Notes$100,000 4.19 %MetLife 2014 Note Agreement
4/2/20204/2/2030MetLife 2030 Series D Notes$125,000 2.50 %MetLife 2014 Note Agreement
4/14/20204/14/2030Prudential 2030 Series D Notes$75,000 2.50 %Prudential 2015 Amended Agreement

The Senior Note Agreements contain affirmative, negative, and financial covenants customary for agreements of this type. The negative covenants include restrictions on liens, indebtedness of our subsidiaries, priority indebtedness, fundamental changes, investments, transactions with affiliates, certain restrictive agreements, and violations of laws and regulations. The sole 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, not to exceed 3.5-to-1. As of March 31, 2024, we were in compliance with the covenants of the Senior Note Agreements.
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NOTE 12. REPURCHASES OF COMMON STOCK

We primarily acquire shares by repurchases in the open market. We also acquire shares that are surrendered by employees in payment for the minimum required statutory withholding taxes due on the vesting of restricted stock units and the settlement of deferred stock units, otherwise referred to herein as employee surrenders. We issue shares of treasury stock upon the vesting of certain restricted stock units and upon the exercise of certain stock options. The number of shares of treasury stock issued during the three months ended March 31, 2024, and 2023, was not material.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022, and is included in the cost of treasury stock acquired in open market repurchases.

The following is a summary of our open market common stock repurchases, reported on a trade date basis, and shares acquired through employee surrenders:
(in thousands, except per share amounts)
For the Three Months Ended
March 31,
20242023
  
Shares repurchased in the open market303  
Shares acquired through employee surrenders for statutory tax withholding18 19 
Total shares repurchased321 19 
Cost of shares repurchased in the open market$167,102 $ 
Cost of shares for employee surrenders10,189 9,597 
Total cost of shares$177,291 $9,597 
Average cost per share - open market repurchases$550.90 $ 
Average cost per share - employee surrenders$560.56 $503.65 
Average cost per share - total$551.45 $503.65 
NOTE 13. INCOME TAXES 

Our effective income tax rate was 20.3% for the three months ended March 31, 2024, as compared to 20.0% for the three months ended March 31, 2023. The increase in our effective tax rate for the three months ended March 31, 2024, compared to the same period in the prior year, was primarily driven by geographical income mix partially offset by an increase in the tax rate benefits related to share-based compensation.

The effective tax rate for the three months ended March 31, 2024, differed from the U.S. federal statutory tax rate of 21% primarily due to tax benefits from share-based compensation.
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NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME

The changes in Accumulated Other Comprehensive Income (“AOCI”), net of tax, consisted of the following:
For the Three Months Ended March 31, 2024
Unrealized Gain (Loss) on Cash Flow Hedges, Net of TaxUnrealized Gain (Loss) on
Net Investment Hedges, Net of Tax
(in thousands)Unrealized (Loss) Gain on Investments,
Net of Tax
Foreign Currency Exchange ContractsInterest Rate SwapEuro-Denominated NotesCross Currency SwapsDefined Benefit Plans, Net of TaxCumulative Translation
Adjustment
Total
     
Balance as of December 31, 2023$(164)$(2,397)$1,106 $2,346 $1,428 $(3,559)$(69,966)$(71,206)
Other comprehensive income (loss) before reclassifications1 5,848 2,106 1,618 2,049  (19,773)(8,151)
Reclassified from accumulated other comprehensive income163 (567)(730)  94  (1,040)
Balance as of March 31, 2024$ $2,884 $2,482 $3,964 $3,477 $(3,465)$(89,739)$(80,397)

For the Three Months Ended March 31, 2023
Unrealized Gain (Loss) on Cash Flow Hedges, Net of TaxUnrealized Gain (Loss) on
Net Investment Hedges, Net of Tax
(in thousands)Unrealized (Loss) on Investments,
Net of Tax
Foreign Currency Exchange ContractsInterest Rate SwapEuro-Denominated NotesCross Currency SwapsDefined Benefit Plans, Net of TaxCumulative Translation
Adjustment
Total
     
Balance as of December 31, 2022$(172)$839 $ $4,947 $7,057 $(2,776)$(87,691)$(77,796)
Other comprehensive income (loss) before reclassifications6 (209)(45)(1,490)(1,240) 4,258 1,280 
Reclassified from accumulated other comprehensive income (218)   119  (99)
Balance as of March 31, 2023$(166)$412 $(45)$3,457 $5,817 $(2,657)$(83,433)$(76,615)

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The following table presents components and amounts reclassified out of AOCI to net income:
(in thousands)Affected Line Item in the Statements of IncomeAmounts Reclassified from AOCI For the Three Months Ended March 31,
 20242023
 
Foreign currency exchange contractsCost of revenue$810 $335 
Tax expense(243)(117)
Gain, net of tax$567 $218 
Interest rate swap contractsInterest expense$957 $ 
Tax expense(227) 
Gain, net of tax$730 $ 
InvestmentsOther operating expense$(214)$ 
Tax benefit51  
Loss, net of tax$(163)$ 
Defined benefit plansCost of revenue and operating expenses$(113)$(139)
Tax benefit19 20 
Loss, net of tax$(94)$(119)

NOTE 15. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to our stockholders by the weighted average number of shares of common stock and vested deferred stock units outstanding during the year. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and assumed issuance of unvested restricted stock units and unvested deferred stock units using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes that proceeds, including cash received from the exercise of employee stock options and the total unrecognized compensation expense for unvested share-based compensation awards, would be used to purchase our common stock at the average market price during the period. Vested deferred stock units outstanding are included in shares outstanding for basic and diluted earnings per share because the associated shares of our common stock are issuable for no cash consideration, the number of shares of our common stock to be issued is fixed, and issuance is not contingent. Refer to “Note 5. Share Based Compensation” to the consolidated financial statements in our 2023 Annual Report for additional information regarding deferred stock units.

The following is a reconciliation of weighted average shares outstanding for basic and diluted earnings per share:
(in thousands)For the Three Months Ended
March 31,
20242023
  
Shares outstanding for basic earnings per share83,096 82,992 
Shares outstanding for diluted earnings per share:
Shares outstanding for basic earnings per share83,096 82,992 
Dilutive effect of share-based payment awards861 967 
83,957 83,959 
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Certain awards and options to acquire shares have been excluded from the calculation of shares outstanding for diluted earnings per share because they were anti-dilutive. The following table presents information concerning those anti-dilutive awards and options:
(in thousands)For the Three Months Ended
March 31,
20242023
  
Weighted average number of shares underlying anti-dilutive awards36 35 
Weighted average number of shares underlying anti-dilutive options414 345

NOTE 16. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

Refer to “Note 8. Leases” for more information regarding our lease commitments.

Contingencies

We are subject to claims that may arise in the ordinary course of business, including with respect to actual and threatened litigation and other matters. We accrue for loss contingencies when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. However, the results of legal actions cannot be predicted with certainty, and therefore our actual losses with respect to these contingencies could exceed our accruals. Except for the litigation matter described below, as of March 31, 2024, our accruals with respect to actual and threatened litigation were not material.

We are a defendant in an ongoing litigation matter involving an alleged breach of contract for underpayment of royalty payments made from 2004 through 2017 under an expired patent license agreement. The plaintiff has asserted a claim of approximately $50 million, inclusive of interest through June 30, 2020, alleging that the incorrect royalty provision was applied to certain licensed products and services throughout the agreement term and that royalties were also due on non-licensed diagnostic services that were provided concurrently with licensed services. The trial court previously ruled in favor of the plaintiff in this matter. The appellate court reversed the trial court’s decision, and the state supreme court granted the plaintiff’s petition for review. The state supreme court held a hearing to review the appellate court decision in January 2024, and a ruling is pending. While we believe the claim is without merit and will continue to vigorously defend ourselves against the plaintiff’s allegations, litigation is inherently unpredictable, and there can be no assurance that we will prevail in this matter. During the third quarter of 2020, we established an accrual of $27.5 million related to this ongoing matter, which represents the amount of the contingent loss that we have determined to be probable and estimable. We have not made any adjustments to this accrual since it was established. The actual cost of resolving this matter may be higher or lower than the amount we have accrued.

From time to time, we have received notices alleging that our products infringe third-party proprietary rights, although we are not aware of any pending litigation with respect to such claims. Patent litigation frequently is complex and expensive, and the outcome of patent litigation can be difficult to predict. There can be no assurance that we will prevail in any infringement proceedings that may be commenced against us. If we lose any such litigation, we may be stopped from selling certain products and/or we may be required to pay damages as a result of the litigation.

Guarantees

We enter into agreements with third parties 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 potential indemnification under these agreements is minimal. Accordingly, we have recorded no liabilities for these obligations as of March 31, 2024, and December 31, 2023.
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NOTE 17. SEGMENT REPORTING

We operate primarily through three business segments: Companion Animal Group (“CAG”), water quality products (“Water”), and Livestock, Poultry and Dairy (“LPD”). CAG provides products and services for veterinarians and the biomedical research community, primarily related to diagnostics and information management. Water provides innovative testing solutions for the detection and quantification of various microbiological parameters in water. LPD provides diagnostic tests, services, and related instrumentation that are used to manage the health status of livestock and poultry, to improve producer efficiency, and to ensure the quality and safety of milk. Our Other operating segment combines and presents our human medical diagnostic business (“OPTI Medical”) with our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments. OPTI Medical develops, manufactures, and distributes human medical diagnostic products and services. 

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. Our reportable segments are CAG, Water, LPD, and Other. Assets are not allocated to segments for internal reporting purposes. Intersegment revenues, which are not included in the table below, were not material for the periods ended March 31, 2024 and 2023.

The following is a summary of segment performance:
(in thousands)For the Three Months Ended March 31,
CAGWaterLPDOtherConsolidated Total
2024
Revenue$889,285 $43,071 $28,205 $3,534 $964,095 
Income from operations$279,696 $19,430 $866 $(1,034)$298,958 
Interest expense, net(3,479)
Income before provision for income taxes295,479 
Provision for income taxes59,900 
Net income attributable to IDEXX Laboratories, Inc. stockholders$235,579 
2023
Revenue$827,279 $38,883 $29,208 $4,825 $900,195 
Income from operations$261,750 $16,971 $1,308 $370 $280,399 
Interest expense, net(12,711)
Income before provision for income taxes267,688 
Provision for income taxes53,634 
Net income attributable to IDEXX Laboratories, Inc. stockholders$214,054 

Refer to “Note 3. Revenue” for a summary of disaggregated revenue by reportable segment and by major product and service category for the three months ended March 31, 2024, and 2023. 
NOTE 18. FAIR VALUE MEASUREMENTS 

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

We have certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets and liabilities that may be measured at fair value on a non-recurring basis, and certain financial assets and liabilities that are not measured at fair value in our unaudited condensed consolidated balance sheets but for which we disclose the fair value.
22



The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows: 
Level 1Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We did not have any transfers between Level 1 and Level 2, or transfers in or out of Level 3, of the fair value hierarchy during the three months ended March 31, 2024.

Our cross currency swap contracts are measured at fair value on a recurring basis in our accompanying unaudited condensed consolidated balance sheets and are classified as derivative instruments. We measure the fair value of our cross currency swap contracts prevailing market conditions as of the close of business on each balance sheet date. The product of this calculation is then adjusted for counterparty risk.

Our foreign currency exchange contracts are measured at fair value on a recurring basis in our accompanying unaudited condensed consolidated balance sheets and are classified as derivative instruments. We measure the fair value of our foreign currency exchange contracts using an income approach, based on prevailing market forward exchange rates less the contract rate multiplied by the notional amount. The product of this calculation is then adjusted for counterparty risk.

Our interest rate swap contracts are measured at fair value on a recurring basis in our accompanying unaudited condensed consolidated balance sheets and are classified as derivative instruments. We measure the fair value of our interest rate swap contracts using current market interest rates for debt issues with similar remaining years to maturity, adjusted for applicable credit risk.

The amounts outstanding under our unsecured Credit Facility and Senior Notes (“long-term debt”) are measured at carrying value in our unaudited condensed consolidated balance sheets though we disclose the fair value of these financial instruments. We determine the fair value of the amount outstanding under our Credit Facility and long-term debt using an income approach, utilizing a discounted cash flow analysis based on current market interest rates for debt issues with similar remaining years to maturity, adjusted for applicable credit risk. Our Credit Facility and long-term debt are valued using Level 2 inputs. The estimated fair value of our Credit Facility approximates its carrying value. The estimated fair value and carrying value of our long-term debt were $660.6 million and $696.1 million, respectively, as of March 31, 2024, and $670.0 million and $698.2 million, respectively, as of December 31, 2023.


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The following tables set forth our assets and liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy:
(in thousands)
As of March 31, 2024Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of March 31, 2024
    
Assets    
Money market funds (1)
$251,669 $ $ $251,669 
Equity mutual funds (2)
$26 $ $ $26 
Cross currency swaps (3)
$ $1,046 $ $1,046 
Foreign currency exchange contracts (3)
$ $4,774 $ $4,774 
Interest rate swap (4)
$ $3,256 $ $3,256 
Liabilities
Cross currency swaps (3)
$ $2,736 $ $2,736 
Foreign currency exchange contracts (3)
$ $1,080 $ $1,080 
Deferred compensation (5)
$26 $ $ $26 
Contingent Consideration$ $ $4,400 $4,400 
(in thousands)
As of December 31, 2023Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of December 31, 2023
    
Assets    
Money market funds (1)
$290,807 $ $ $290,807 
Equity mutual funds (2)
$99 $ $ $99 
Cross currency swaps (3)
$ $664 $ $664 
Foreign currency exchange contracts (3)
$ $1,783 $ $1,783 
Interest rate swap (4)
$ $1,451 $ $1,451 
Liabilities
Cross currency swaps (3)
$ $5,041 $ $5,041 
Foreign currency exchange contracts (3)
$ $5,532 $ $5,532 
Deferred compensation (5)
$99 $ $ $99 

(1)Money market funds with an original maturity of less than ninety days are included within cash and cash equivalents. The remaining balance of cash and cash equivalents as of March 31, 2024, consists of demand deposits.
(2)Equity mutual funds relate to a deferred compensation plan that was assumed as part of a previous business combination. This amount is included within other current assets. Refer to footnote (5) below for a discussion of the related deferred compensation liability.
(3)Cross currency swaps and foreign currency exchange contracts are included within other current assets, other long-term assets, accrued liabilities, or other long-term liabilities depending on the gain (loss) position and anticipated settlement date.
(4)Interest rate swap is included within other long-term assets.
(5)A deferred compensation plan assumed as part of a previous business combination is included within accrued liabilities. The fair value of our deferred compensation plan is indexed to the performance of the underlying equity mutual funds discussed in footnote (2) above.

The estimated fair values of certain financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, approximate their respective carrying values due to their short maturity.
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Contingent Consideration

We have classified our liabilities for contingent consideration related to acquisitions within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which include the achievements of future revenues. The contingent consideration is included within other short-term and long-term liabilities. Changes in the estimated fair value of contingent consideration are recorded in the unaudited condensed consolidated statements of income.

The fair values of liabilities for contingent consideration for the three months ended March 31, 2024 and 2023, are as follows:

Three Months Ended
March 31,
(in thousands)20242023
 
Contingent consideration at the beginning of the period$ $120 
Contingent consideration recorded from acquisition4,400  
Contingent consideration at the end of the period$4,400 $120 

Contingent consideration associated with a software business acquired during the first quarter of 2024 is based on the achievement of certain future revenue milestones during each annual period following the acquisition date, over a three-year period, and a cumulative revenue target for the three-year period, up to a maximum of $30.0 million (undiscounted) payable in cash. The fair value of the contingent consideration liability for the 2024 acquisition was determined using a probability-weighted model. The balance at March 31, 2024, includes $1.7 million recorded as a current liability for amounts expected to be paid within the next 12 months. Future revenue results are uncertain by nature and actual results may differ from estimates.
NOTE 19. HEDGING INSTRUMENTS
 
Disclosure within this note is presented to provide transparency about how and why we use derivative and non-derivative instruments (collectively “hedging instruments”), how the instruments and related hedged items are accounted for, and how the instruments and related hedged items affect our financial position, results of operations, and cash flows.

We are exposed to certain risks related to our ongoing business operations. We utilize hedging instruments to manage a portion of our foreign currency exchange risk and interest rate risk. To manage the impact of interest rate fluctuations associated with $250.0 million of borrowings under our variable-rate Credit Facility, we entered into an interest rate swap in 2023. We have designated the interest rate swap as a cash flow hedge.

Our subsidiaries enter into foreign currency exchange contracts to manage the exchange risk associated with their forecasted intercompany inventory purchases and sales for the next year. From time to time, we may also enter into other foreign currency exchange contracts, cross currency swaps, or foreign-denominated debt issuances to minimize the impact of foreign currency fluctuations associated with specific balance sheet exposures, including net investments in certain foreign subsidiaries.

The primary purpose of our foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions, including transactions denominated in the euro, British pound, Japanese yen, Canadian dollar, and Australian dollar. We also utilize natural hedges to mitigate our transaction and commitment exposures. Our corporate policy prescribes the range of allowable hedging activity. We enter into foreign currency exchange contracts with large well-capitalized multinational financial institutions, and we do not hold or engage in transactions involving derivative instruments for purposes other than risk management. Our accounting policies for these contracts are based on our designation of such instruments as hedging transactions.

We recognize all hedging instrument assets and liabilities at fair value at the balance sheet date. Instruments that do not qualify for hedge accounting treatment are recorded at fair value through earnings. To qualify for hedge accounting treatment, cash flow and net investment hedges must be highly effective in offsetting changes to expected future cash flows or fair value on hedged transactions. If the instrument qualifies for hedge accounting, changes in the fair value of the hedging instrument from the effective portion of the hedge are deferred in AOCI, net of tax, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We immediately record in earnings the extent to which a hedging instrument is not effective in achieving offsetting changes in fair value. We de-designate hedging instruments from
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hedge accounting when the likelihood of the hedged transaction occurring becomes less than probable. For de-designated instruments, the gain or loss from the time of de-designation through maturity of the instrument is recognized in earnings. Any gain or loss in AOCI at the time of de-designation is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Refer to “Note 14. Accumulated Other Comprehensive Income” for further information regarding the effect of hedging instruments on our unaudited condensed consolidated statements of income for the three months ended March 31, 2024, and 2023.

We enter into master netting arrangements with the counterparties to our derivative transactions, which permit certain outstanding receivables and payables to be offset in the event of default. Our derivative contracts do not require either party to post cash collateral. We elect to present our derivative assets and liabilities in the unaudited condensed consolidated balance sheets on a gross basis. All cash flows related to our foreign currency exchange contracts are classified as operating cash flows, which is consistent with the cash flow treatment of the underlying items being hedged. 

Cash Flow Hedges 

We have designated our foreign currency exchange contracts and our interest rate swap as cash flow hedges as these derivative instruments manage our exposure to variability in the cash flows of forecasted transactions attributable to foreign currency exchange and to interest rates on variable interest obligations under the terms of our Credit Facility. Unless noted otherwise, we have also designated our derivative instruments as qualifying for hedge accounting treatment.

We did not de-designate any instruments from hedge accounting treatment during the three months ended March 31, 2024, or 2023. As of March 31, 2024, the estimated amount of gains, net of tax, from our foreign exchange contracts which are expected to be reclassified out of AOCI and into earnings within the next 12 months is $2.9 million if exchange rates do not fluctuate from the levels as of March 31, 2024. As of March 31, 2024, the estimated amount of gains, net of tax, from our interest rate swap contract which are expected to be reclassified out of AOCI and into earnings within the next twelve months is $2.2 million if interest rates do not fluctuate from the levels as of March 31, 2024.

Foreign Currency Exchange Contracts: We target to hedge approximately 75% to 85% of the estimated exposure from intercompany product purchases and sales denominated in the euro, British pound, Canadian dollar, Japanese yen, and Australian dollar. We have additional unhedged foreign currency exposures related to intercompany foreign transactions and emerging markets where it is not practical to hedge. We primarily utilize foreign currency exchange contracts with durations of less than 24 months. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year. As a result, our risk with respect to foreign currency exchange rate fluctuations and the notional value of foreign currency exchange contracts may vary throughout the year. The U.S. dollar is the currency purchased or sold in all of our foreign currency exchange contracts. The notional amount of foreign currency exchange contracts to hedge forecasted intercompany inventory purchases and sales totaled $285.9 million and $294.0 million as of March 31, 2024, and December 31, 2023, respectively.

Interest Rate Swap: We entered into an interest rate swap contract to manage the economic effect of variable interest obligations on amounts borrowed under the terms of the Credit Facility. Beginning on March 31, 2023, the variable interest rate associated with $250.0 million of borrowings outstanding under the Credit Facility became effectively fixed at 3.9% plus the applicable credit spread, through October 20, 2025.

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The following table presents the effect of cash flow hedge accounting on our unaudited condensed consolidated statements of income and comprehensive income, and provides information regarding the location and amounts of pretax gains or losses of derivatives:
(in thousands) Three Months Ended
March 31,
 20242023
Financial statement line items in which effects of cash flow hedges are recordedCost of revenue$371,025