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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 September 30, 2021
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 

idxx-20210930_g1.jpg
  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 84,793,608, on October 27, 2021.



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
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 billion unsecured revolving credit facility, also referred to as line of credit.
Clinical visitsThe reason for the visit involves an interaction between a clinician and a pet.
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 market, 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 market; also referred to as OPTI.
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.
PCRPolymerase chain reaction, a technique used to amplify small segments of DNA
R&DResearch and Development
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.
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)

September 30, 2021December 31, 2020
ASSETS  
Current Assets:  
Cash and cash equivalents$145,203 $383,928 
Accounts receivable, net376,760 331,429 
Inventories258,484 209,873 
Other current assets157,590 137,508 
Total current assets938,037 1,062,738 
Long-Term Assets:
Property and equipment, net573,385 555,167 
Operating lease right-of-use assets106,962 91,171 
Goodwill355,240 243,347 
Intangible assets, net94,976 52,543 
Other long-term assets317,144 289,595 
Total long-term assets1,447,707 1,231,823 
TOTAL ASSETS$2,385,744 $2,294,561 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable$86,684 $74,558 
Accrued liabilities431,047 415,648 
Current portion of long-term debt74,990 49,988 
Current portion of deferred revenue41,128 42,567 
Total current liabilities633,849 582,761 
Long-Term Liabilities:
Deferred income tax liabilities15,306 11,707 
Long-term debt, net of current portion778,025 858,492 
Long-term deferred revenue, net of current portion40,391 46,163 
Long-term operating lease liabilities 89,720 77,039 
Other long-term liabilities72,993 85,604 
Total long-term liabilities996,435 1,079,005 
Total liabilities1,630,284 1,661,766 
Commitments and Contingencies (Note 16)
Stockholders’ Equity:
Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 106,806 shares in 2021 and 106,457 shares in 2020; Outstanding: 84,880 shares in 2021 and 85,449 shares in 2020
10,681 10,646 
Additional paid-in capital1,358,813 1,294,849 
Deferred stock units: Outstanding: 90 units in 2021 and 87 units in 2020
5,669 4,503 
Retained earnings2,757,669 2,175,595 
Accumulated other comprehensive loss(52,057)(53,615)
Treasury stock, at cost: 21,926 shares in 2021 and 21,008 shares in 2020
(3,326,021)(2,799,890)
Total IDEXX Laboratories, Inc. stockholders’ equity754,754 632,088 
Noncontrolling interest706 707 
Total stockholders’ equity755,460 632,795 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,385,744 $2,294,561 
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 September 30,For the Nine Months Ended September 30,
2021202020212020
Revenue:
Product revenue$471,787 $422,283 $1,406,850 $1,153,114 
Service revenue338,634 299,506 1,007,420 832,603 
Total revenue810,421 721,789 2,414,270 1,985,717 
Cost of Revenue:
Cost of product revenue166,748 146,804 483,850 396,282 
Cost of service revenue170,752 152,379 497,409 427,897 
Total cost of revenue337,500 299,183 981,259 824,179 
Gross profit472,921 422,606 1,433,011 1,161,538 
Expenses:
Sales and marketing124,434 108,202 358,277 318,526 
General and administrative82,098 105,031 226,194 231,111 
Research and development40,427 37,517 115,703 102,472 
Income from operations225,962 171,856 732,837 509,429 
Interest expense(7,134)(8,110)(22,331)(25,297)
Interest income122 208 265 417 
Income before provision for income taxes218,950 163,954 710,771 484,549 
Provision for income taxes43,772 17,633 128,698 77,376 
Net income175,178 146,321 582,073 407,173 
Less: Net (loss) income attributable to noncontrolling interest(57)102 (1)187 
Net income attributable to IDEXX Laboratories, Inc. stockholders$175,235 $146,219 $582,074 $406,986 
Earnings per Share:
Basic$2.06 $1.71 $6.82 $4.77 
Diluted$2.03 $1.69 $6.71 $4.70 
Weighted Average Shares Outstanding:
Basic85,123 85,314 85,325 85,293 
Diluted86,511 86,690 86,712 86,635 
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 September 30,For the Nine Months Ended September 30,
2021202020212020
Net income$175,178 $146,321 $582,073 $407,173 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(12,967)7,329 (20,213)(7,871)
Unrealized gain (loss) on Euro-denominated notes, net of tax expense (benefit) of $498 and $1,335 in 2021 and $(890) and $(1,092) in 2020
1,581 (2,824)4,235 (3,466)
Unrealized gain (loss) on investments, net of tax expense (benefit) of $0 and $48 in 2021 and $52 and $(129) in 2020
(1)166 153 (408)
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on foreign currency exchange contracts, net of tax expense (benefit) of $940 and $1,595 in 2021 and $(1,408) and $(161) in 2020
4,109 (6,161)7,300 (623)
Unrealized gain (loss) on cross currency swaps, net of tax expense (benefit) of $744 and $1,438 in 2021 and $(933) and $(347) in 2020
2,359 (3,941)4,561 (1,339)
Reclassification adjustment for loss (gain) included in net income, net of tax benefit (expense) of $330 and $1,206 in 2021 and $53 and $(526) in 2020
1,253 538 5,522 (2,036)
Unrealized gain (loss) on derivative instruments7,721 (9,564)17,383 (3,998)
Other comprehensive gain (loss), net of tax(3,666)(4,893)1,558 (15,743)
Comprehensive income171,512 141,428 583,631 391,430 
Less: Comprehensive income (loss) attributable to noncontrolling interest(57)102 (1)187 
Comprehensive income attributable to IDEXX Laboratories, Inc.$171,569 $141,326 $583,632 $391,243 
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 Stock UnitsRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTreasury StockNoncontrolling InterestTotal Stockholders’ Equity
Balance December 31, 2020106,457 $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 benefit219 22 17,408 — — — — — 17,430 
Share-based compensation cost— — 8,829 46 — — — — 8,875 
Balance March 31, 2021106,676 $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 income (loss), net— — — — — 11,145 — — 11,145 
Repurchases of common stock— — — — — — (188,378)— (188,378)
Common stock issued under stock plans, including excess tax benefit72 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, 2021106,748 $10,675 $1,339,413 $5,630 $2,582,434 $(48,391)$(3,142,301)$763 $748,223 
Net income— — — — 175,235 — — (57)175,178 
Other comprehensive income (loss), net— — — — — (3,666)— — (3,666)
Repurchases of common stock— — — — — — (183,720)— (183,720)
Common stock issued under stock plans, including excess tax benefit58 6 9,921 (12)— — — — 9,915 
Share-based compensation cost— — 9,479 51 — — — — 9,530 
Balance September 30, 2021106,806 $10,681 $1,358,813 $5,669 $2,757,669 $(52,057)$(3,326,021)$706 $755,460 
6


Common Stock
Number of Shares
$0.10 Par Value
Additional Paid-in CapitalDeferred Stock UnitsRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTreasury StockNoncontrolling InterestTotal Stockholders’ Equity
Balance December 31, 2019105,711 $10,571 $1,213,517 $4,462 $1,595,648 $(46,182)$(2,600,543)$352 $177,825 
Cumulative effect of accounting changes— — — — (1,829)— — — (1,829)
Net income— — — — 111,827 — — 29 111,856 
Other comprehensive loss, net— — — — — (9,064)— — (9,064)
Repurchases of common stock— — — — — — (187,767)— (187,767)
Common stock issued under stock plans, including excess tax benefit203 20 9,730 — — — — — 9,750 
Share-based compensation cost— — 7,238 46 — — — — 7,284 
Balance March 31, 2020105,914 $10,591 $1,230,485 $4,508 $1,705,646 $(55,246)$(2,788,310)$381 $108,055 
Net income— — — — 148,940 — — 56 148,996 
Other comprehensive loss, net— — — — — (1,786)— — (1,786)
Issuance of common stock— — — — — — 258 — 258 
Common stock issued under stock plans, including excess tax benefit117 12 10,068  — — — — 10,080 
Deferred stock units activity— — (894)894 — — — —  
Share-based compensation cost— — 7,797  — — — — 7,797 
Balance June 30, 2020106,031 $10,603 $1,247,456 $5,402 $1,854,586 $(57,032)$(2,788,052)$437 $273,400 
Net income (loss)— — — — 146,219 — — 102 146,321 
Other comprehensive loss, net— — — — — (4,893)— — (4,893)
Repurchases of common stock, net— — — — — — (360)— (360)
Common stock issued under stock plans, including excess tax benefit251 25 18,706 (12)— — — — 18,719 
Share-based compensation cost— — 7,907 21 — — — — 7,928 
Balance September 30, 2020106,282 $10,628 $1,274,069 $5,411 $2,000,805 $(61,925)$(2,788,412)$539 $441,115 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


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

For the Nine Months Ended
September 30,
20212020
  
Cash Flows from Operating Activities:  
Net income$582,073 $407,173 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization76,901 71,437 
Impairment charge5,148 1,993 
Provision for credit losses1,719 5,235 
Deferred income taxes4,049 (3,363)
Share-based compensation expense28,042 23,008 
Other2,402 488 
Changes in assets and liabilities:
Accounts receivable(49,050)(72,409)
Inventories(46,891)(25,091)
Other assets and liabilities(51,961)30,579 
Accounts payable637 512 
Deferred revenue(7,487)(10,433)
Net cash provided by operating activities545,582 429,129 
Cash Flows from Investing Activities:
Purchases of property and equipment(87,761)(92,768)
Acquisition of intangible assets and equity investments (918)
Acquisitions of a business, net of cash acquired(161,166) 
Net cash used by investing activities(248,927)(93,686)
Cash Flows from Financing Activities:
Repayments on revolving credit facilities, net (289,625)
Issuance of senior debt 200,000 
Payment of senior debt(50,000) 
Debt issuance costs (4,995)
Payments of acquisition-related contingent considerations and holdbacks(1,500)(1,580)
Repurchases of common stock, net(502,021)(182,815)
Proceeds from exercises of stock options and employee stock purchase plans37,428 39,230 
Shares withheld for statutory tax withholding payments on restricted stock(15,501)(9,029)
Net cash used by financing activities(531,594)(248,814)
Net effect of changes in exchange rates on cash(3,786)(1,368)
Net (decrease) increase in cash and cash equivalents(238,725)85,261 
Cash and cash equivalents at beginning of period383,928 90,326 
Cash and cash equivalents at end of period$145,203 $175,587 
  
Supplemental Cash Flow Information:
Cash paid for income taxes$96,103 $79,909 
Unpaid property and equipment, reflected in accounts payable and accrued liabilities$14,734 $7,708 
The accompanying notes are an integral part of these condensed consolidated financial statements.

8


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 consolidated balance sheet data at December 31, 2020, 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, 2021, 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, 2021, and our Annual Report on Form 10-K for the year ended December 31, 2020, (the “2020 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, 2021, are consistent with those discussed in Note 2. Summary of Significant Accounting Policies to the consolidated financial statements in our 2020 Annual Report, except as noted below.

New Accounting Pronouncements Adopted

Effective January 1, 2021, we adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The new guidance is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around goodwill recognized for tax purposes and the allocation of current and deferred tax expense among legal entities, among other minor changes. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842); Lessors - Certain Leases with Variable Lease Payments.” ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if another lease classification (i.e., sales-type or direct financing) would result in recognition of a day-one loss. We have elected to adopt this standard as of the third quarter of 2021, on a prospective basis. The adoption of ASU 2021-05 did not have an impact on our consolidated financial statements.


9


New Accounting Pronouncements Not Yet Adopted

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 London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The relief offered by this guidance, if adopted, is available to companies for the period March 12, 2020 through December 31, 2022. We do not expect the discontinuation of LIBOR to have a material impact on our consolidated financial statements.
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, contract assets and lease receivables 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.

Reference Laboratory Diagnostic and Consulting Services. Reference laboratory and consulting services revenues are recognized and invoiced when the services are 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 revenue was approximately $6.3 million and $15.8 million for the three and nine months ended September 30, 2021, respectively, as
10


compared to $4.5 million and $12.2 million for the three and nine months ended September 30, 2020, 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. See 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, 2020, our deferred revenue related to extended warranties and post-contract support was $35.1 million, of which approximately $2.8 million and $20.8 million was recognized during the three and nine months ended September 30, 2021, respectively. Furthermore, as a result of new agreements, our deferred revenue related to extended warranties and post-contract support was $31.0 million at September 30, 2021. 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 $17.1 million at September 30, 2021, of which approximately 14%, 43%, 25%, 11%, and 7% are expected to be recognized during the remainder of 2021, the full years 2022, 2023, 2024, and thereafter, respectively. Additionally, we have determined these agreements do not include a significant financing component.

SaaS Subscriptions. We offer a variety of veterinary software and diagnostic imaging SaaS subscriptions including IDEXX Neo®, Animana®, Pet Health Network® Pro, Petly® Plans, Web PACS, rVetLink®, Smart Flow, Cornerstone®, ezyVet®, and VetRadar®. We recognize revenue for our SaaS subscriptions over time on a ratable basis over the contract term, beginning on the date our service is made available to the customer. Our subscription contracts vary in term from monthly to two years. Customers typically pay for our subscription contracts in equal monthly amounts over the term of the agreement. Deferred revenue related to our SaaS subscriptions is not material.

Contracts with Multiple Performance Obligations. We enter into contracts 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 consideration we expect to receive in exchange for the transferred goods or services. To the extent the transaction price includes variable consideration, such as volume rebates or expected price adjustments, we apply judgment in constraining the estimated variable consideration due to factors that may cause reversal of revenue recognized. We evaluate constraints based on our historical and projected experience with similar customer contracts.

We allocate revenue to each performance obligation in proportion to the relative standalone selling prices and recognize revenue when 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 performance obligation when sold separately. When standalone selling prices for our products or services are not directly observable, we determine the standalone selling prices using relevant information available and apply suitable estimation methods including, but not limited to, the cost plus a margin approach. 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 contracts with an original expected duration of one year or less.


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The following customer programs represent our most significant customer contracts which contain multiple performance obligations:

Customer Commitment Programs. We offer customer incentives upon entering into multi-year agreements to purchase annual minimum amounts of products and services.

Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide customers with incentives in the form of cash payments or IDEXX Points upon entering into multi-year agreements to purchase annual minimum amounts of future products or services. If a customer breaches its agreement, they are required to refund all or a portion of the up-front cash or IDEXX Points, or make other repayments, remedial actions, or both. Up-front incentives to customers in the form of cash or IDEXX Points are not made in exchange for distinct goods or services and are capitalized as customer acquisition costs within other current and long-term assets, which are subsequently recognized as a reduction to revenue over the term of the customer agreement. If these up-front incentives are subsequently utilized to purchase instruments, we allocate total consideration, including future committed purchases less up-front incentives and estimates of expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance. 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 future products and services. We have determined these agreements do not include a significant financing component. Differences between estimated and actual customer purchases may impact the amount and timing of revenue recognition.

On December 31, 2020, our capitalized customer acquisition costs were $148.1 million, of which approximately $10.7 million and $33.3 million was recognized as a reduction of revenue during the three and nine months ended September 30, 2021, respectively. Furthermore, as a result of new up-front customer loyalty payments, net of subsequent recognition, our capitalized customer acquisition costs were $157.1 million at September 30, 2021. We monitor customer purchases over the term of their agreement to assess the realizability of our capitalized customer acquisition costs and review estimates of variable consideration. Impairments, revenue adjustments that relate to performance obligations satisfied in prior periods, and contract modifications during the three and nine months ended September 30, 2021, were not material.

Volume Commitment Programs. Our volume commitment programs, such as our IDEXX 360 program, provide customers with a free or discounted instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of products and services. We allocate total consideration, including future committed purchases and expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance in advance of billing the customer, which is also when the customer obtains control of the instrument based on legal title transfer. Our right to future consideration related to instrument revenue is recorded as a contract asset within other current and long-term assets. The contract asset is transferred to accounts receivable when customers are billed for future products and services over the term of the contract. We have determined these agreements do not include a significant financing component. Differences between estimated and actual customer purchases may impact the amount and timing of revenue recognition.

On December 31, 2020, our volume commitment contract assets were $115.5 million, of which approximately $6.5 million and $20.1 million was reclassified to accounts receivable when customers were billed for related products and services during the three and nine months ended September 30, 2021, respectively. Furthermore, as a result of new placements under volume commitment programs, net of subsequent amounts reclassified to accounts receivable, and allowances established for credit losses, our contract assets were $146.1 million at September 30, 2021. We monitor customer purchases over the term of their agreement to assess the realizability of our contract assets and review estimates of variable consideration. Impairments, revenue adjustments that relate to performance obligations satisfied in prior periods, and contract modifications during the three and nine months ended September 30, 2021, were not material.

For our up-front customer loyalty and volume commitment programs, we estimate future revenues related to multi-year agreements to be approximately $2.7 billion, of which approximately 6%, 25%, 23%, 19%, and 27% are expected to be recognized during the remainder of 2021, the full years 2022, 2023, 2024, and thereafter, respectively. These future revenues relate to performance obligations not yet satisfied, for which customers have committed to
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purchase goods and services, net of the expected revenue reductions from customer acquisition costs and expected price adjustments, and as a result, are lower than stated contractual commitments by our customers.

Instrument Rebate Programs. Our instrument rebate programs require an instrument purchase and provide customers the opportunity to earn future rebates based on the volume of products and services they purchase over the term of the program. We account for the customer’s right to earn rebates on future purchases as a separate performance obligation and determine the standalone selling price based on an estimate of rebates the customer will earn over the term of the program. Total consideration allocated to identified performance obligations is limited to goods and services that the customer is presently obligated to purchase and does not include estimates of future purchases that are optional. We allocate total consideration to identified performance obligations, including the customer’s right to earn rebates on future purchases, which is deferred and recognized upon the purchase of future products and services, offsetting future rebates as they are earned.

On December 31, 2020, our deferred revenue related to instrument rebate programs was $39.3 million, of which approximately $3.5 million and $11.0 million was recognized when customers purchased eligible products and services and earned rebates during the three and nine months ended September 30, 2021, respectively. Furthermore, as a result of new instrument purchases under rebate programs, net of subsequent recognition, our deferred revenue was $33.9 million at September 30, 2021, of which approximately 10%, 34%, 23%, 15%, and 18%