IDEXX Laboratories Announces Third Quarter Results

Rhea-AI Summary

IDEXX Laboratories reported a 12% revenue growth for Q3 2021, reaching $810 million. The Companion Animal Group (CAG) Diagnostics saw significant contributions with a 13% increase in recurring revenue. Earnings per share (EPS) stood at $2.03, marking a 20% growth. IDEXX updated its 2021 guidance, projecting revenue growth between 17.5% - 18% and EPS growth of 24% - 25%. CAG capital instrument revenues surged 34%. However, Livestock, Poultry, and Dairy (LPD) revenues declined 21% as compared to last year.

Positive

• 12% revenue growth to $810 million.
• CAG Diagnostics recurring revenue growth of 13%.
• EPS of $2.03 representing 20% growth.
• Updated 2021 guidance for revenue growth of 17.5% - 18%.
• CAG capital instrument revenue growth of 34%.

Negative

• 21% decline in LPD revenues compared to last year.

WESTBROOK, Maine, Nov. 2, 2021 /PRNewswire/ -- 

• Achieves third quarter revenue growth of 12% as reported and 10% on an organic basis compared to high prior year growth levels
• Results driven by continued strong CAG business momentum, reflected in CAG Diagnostics recurring revenue growth of 13% reported and 11.5% organic and record Q3 global premium instrument placements
• Delivers EPS of $2.03, representing 20% growth as reported and 12% on a comparable basis
• Updates 2021 guidance to higher end of previous guidance ranges, reflecting revenue growth outlook of 17.5% - 18% as reported and 15.5% - 16% organic, and EPS growth of 24% - 25% as reported and 26% - 27% on a comparable basis

IDEXX Laboratories, Inc. (NASDAQ: IDXX), a global leader in veterinary diagnostics, veterinary practice software and water microbiology testing, today announced third quarter results, as well as an update on U.S. companion animal diagnostics trends.

Third Quarter Results

The Company reports revenues of $810 million for the third quarter of 2021, an increase of 12% as reported and 10% organically. Third quarter results were driven by Companion Animal Group ("CAG") Diagnostics recurring revenue growth of 13% reported and 11% organic, with continued solid gains in the U.S. and internationally supporting two-year average annual reported revenue growth of 18% and organic growth of 16%. Overall revenue growth was also driven by 34% reported and 33% organic growth in CAG Diagnostics capital instrument revenue, and Water revenue growth of 15% reported and 13% organic.

Earnings per diluted share ("EPS") of $2.03 for the third quarter was supported by operating margin gains of 410 basis points on a reported basis, which benefited from lapping of a prior year $27.5 million accrual related to an ongoing litigation matter, and 20 basis points on a comparable basis, compared to high prior year levels which included benefits from pandemic-related cost controls. EPS results also benefited from $0.05 per share in tax benefits from share-based compensation.

"The IDEXX team delivered another quarter of excellent performance, reflected in high CAG Diagnostics recurring revenue growth and record Q3 levels of premium instrument placements, with strong gains across our major in-clinic platforms," said Jay Mazelsky, the Company's President and Chief Executive Officer. "This performance reflects the benefits of our ongoing investments in innovation and global commercial capability, aligned with the significant untapped growth potential we see for our business. We also continued to expand our cloud-based software capability through the integration of ezyVet and strong growth in recurring software and diagnostic imaging services. As we support high CAG growth levels, our operating teams are doing an outstanding job in ensuring continued high levels of product availability and customer service. We're well positioned to build on this success as we move forward and drive accelerated advancement of the global standard of healthcare for companion animals."

Companion Animal Diagnostics Trends Update

Positive global trends in companion animal healthcare continue to support strong growth for CAG diagnostic products and services across regions. U.S. same-store clinical visit growth at veterinary practices was 2% in the third quarter, reflecting year-over-year growth of 2% for non-wellness visits and 1% for wellness visits. These clinical visit gains lap strong prior year period clinical visit growth of 7%, which included benefits from pent-up demand from delayed veterinary visits during the COVID-19 pandemic. On a two-year average annual basis, U.S. clinical visit growth remained above pre-pandemic levels. Average same-store revenue growth at U.S. veterinary practices was 7% in the third quarter (compared to 12% growth levels in the third quarter of 2020), driven by high growth in healthcare services, including increased utilization of diagnostics. Additional U.S. companion animal practice key metrics are available in the Q3 2021 Earnings Snapshot accessible on the IDEXX website, www.idexx.com/investors.

Third Quarter Performance Highlights

Companion Animal Group 

The Companion Animal Group generated 15% reported and 13% organic revenue growth for the quarter, supported by CAG Diagnostics recurring revenue growth of 13% on a reported basis and 11% on an organic basis. Strong growth was achieved across IDEXX's major modalities in the third quarter compared to high gains in the prior year period. Overall CAG revenue growth included 34% reported growth and 33% organic growth in CAG Diagnostics capital instrument revenues, compared to constrained prior year levels that reflected pandemic impacts from restricted access for sales professionals to veterinary clinics.

• IDEXX VetLab® consumables generated 16% reported and 14% organic revenue growth, supported by expansion of our global premium instrument installed base, high customer retention levels, increased testing utilization across regions, and moderate net price gains. 
• Reference laboratory diagnostic and consulting services generated 11% reported and 10% organic revenue growth with consistent organic growth across regions, reflecting high same-store volume growth, strong gains across testing categories, and moderate net price gains.
• Rapid assay products revenues grew 9% on both a reported and organic basis, with continued worldwide growth in vector-borne disease testing benefiting from strong overall sector conditions, high customer retention levels, and moderate net price gains.

Veterinary software, services and diagnostic imaging systems revenues grew 33% reported and 15% on an organic basis, driven by continued strong growth in recurring software services revenue and supported by high growth in diagnostic imaging system placements. Reported growth includes benefits from the recent acquisition of ezyVet, which closed in June.

Water

Water revenues grew 15% on a reported basis and 13% on an organic basis for the quarter, compared to declines in the prior year period of 5% reported and 4% organic driven by pandemic-related impacts. Strong revenue growth reflects increased demand for water testing, including non-compliance testing, as economies reopen.

Livestock, Poultry and Dairy ("LPD")

LPD revenues declined 21% as reported and 23% on an organic basis for the quarter, compared to 18% growth on a reported and organic basis in the prior year period, which benefited from the ramping of African Swine Fever (ASF) testing programs in China. Revenue growth was constrained by comparisons to high prior year levels and additional impacts in China related to changes in local ASF disease management approaches, lower pork prices and changes in government requirements related to livestock infectious disease testing programs. These impacts offset LPD revenue growth in other regions and are anticipated to pressure LPD revenues in future quarters.

Gross Profit and Operating Profit

Gross profits increased 12% as reported and 11% on a comparable basis. Gross margin of 58.4% decreased 10 basis points compared to prior year period results as reported and 20 basis points on a comparable basis. Gross margin benefited from continued high CAG Diagnostics recurring revenue growth and moderate net pricing gains offset by business mix impacts from high CAG Diagnostics capital instrument revenue growth, lower LPD and human OPTI COVID-19 PCR testing revenue levels, and investments to support high growth in the Labs business.

Operating margin was 27.9% in the quarter, 410 basis points higher than the prior year period which included the ongoing litigation matter. On a comparable basis, operating margins expanded 20 basis points compared to high prior year levels, which included benefits from pandemic-related cost controls. Operating expenses decreased 2% as reported and increased 10% on a comparable basis, reflecting comparisons to lower prior year levels impacted by early pandemic-related cost controls, as well as the advancement of investments in our global commercial and innovation capabilities. The Company is planning for moderately lower operating margins in the fourth quarter, compared to high prior year levels, reflecting projected business mix impacts and higher expected levels of operating expense growth, including advancement of commercial, innovation and project investments.

2021 Growth and Financial Performance Outlook

The following table provides the Company's outlook for annual key financial metrics in 2021:

Amounts in millions except per share data and percentages    Growth and Financial Performance Outlook		2021
Revenue		$3,185		-	$3,200
Reported growth		17.5%		-	18%
Organic growth		15.5%		-	16%
CAG Diagnostics Recurring Revenue Growth
Reported growth		18.5%		-	19.5%
Organic growth		17%		-	17.5%
Operating Margin		28.8%		-	29.0%
Operating margin expansion		310		-	330 bps
Comparable margin expansion		200		-	225 bps
EPS		$8.30		-	$8.38
Reported growth		24%		-	25%
Comparable growth		26%		-	27%
Other Key Metrics
Net interest expense		~  $31.5
Share-based compensation tax benefit		~ $25.5
Share-based compensation tax rate benefit		~ 3%
Effective tax rate		~ 19%
Share-based compensation EPS impact		~ $0.29
Reduction in average shares outstanding		0%		-	0.2%
Operating Cash Flow		100% - 110% of net income
Free Cash Flow		80% - 85% of net income
Capital Expenditures		~ 150

The following table outlines estimates of foreign currency exchange rate impacts, net of foreign currency hedging transactions, and foreign currency exchange rate assumptions reflected in the above financial performance outlook for 2021. Compared to our prior financial guidance, updated foreign exchange rate assumptions result in approximate reductions of $5 million in revenue, $1.5 million in operating profits and $0.01 in EPS for the full year 2021.

Estimated Foreign Currency Exchange Rates and Impacts		2021
Revenue growth rate impact		~ 1.5%
CAG Diagnostics recurring revenue growth rate impact		~ 1.5%
Operating margin growth impact		~ 10 bps
EPS impact		~ $0.16
EPS growth impact		~ 2.0%
Foreign Currency Exchange Rate Assumptions
In U.S. dollars
euro		$1.14
British pound		$1.34
Canadian dollar		$0.79
Australian dollar		$0.73
Relative to the U.S. dollar
Japanese yen		¥115.00
Chinese renminbi		¥6.52
Brazilian real		R$5.59

Conference Call and Webcast Information

IDEXX Laboratories, Inc. will be hosting a conference call today at 8:30 a.m. (EDT) to discuss its third quarter 2021 results and management's outlook. To participate in the conference call, dial 1-888-771-4371 or 1-847-585-4405 and reference confirmation number 50241471. Individuals can access a live webcast of the conference call through a link on the IDEXX website, www.idexx.com/investors. An archived edition of the webcast will be available after 1:00 p.m. (EDT) on that day via the same link and will remain available for one year.

About IDEXX Laboratories, Inc.

IDEXX Laboratories, Inc. is a member of the S&P 500® Index and is a leader in pet healthcare innovation, offering diagnostic and software products and services that deliver solutions and insights to practicing veterinarians around the world. IDEXX products enhance the ability of veterinarians to provide advanced medical care, improve staff efficiency and build more economically successful practices. IDEXX is also a worldwide leader in providing diagnostic tests and information for livestock and poultry and tests for the quality and safety of water and milk and point-of-care and laboratory diagnostics for human medicine. Headquartered in Maine, IDEXX employs approximately 9,800 people and offers products to customers in over 175 countries. For more information about IDEXX, visit: www.idexx.com.

Note Regarding Forward-Looking Statements 

This earnings release contains statements about the Company's business prospects and estimates of the Company's financial results for future periods that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are included above under "Third Quarter Results", "Livestock, Poultry and Dairy ("LPD")", "Gross Profit and Operating Profit", "2021 Growth and Financial Performance Outlook", and elsewhere and can be identified by the use of words such as "expects", "may", "anticipates", "intends", "would", "will", "plans", "believes", "estimates", "projected", "should", and similar words and expressions. Our forward-looking statements include statements relating to the impact of the COVID-19 pandemic; our expectations regarding supply chain disruptions; revenue growth and EPS outlooks; operating and free cash flow forecast; projected impact of foreign currency exchange rates; projected operating margins and expenses and capital expenditures; projected tax, tax rate and EPS benefits from share-based compensation arrangements; and projected effective tax rates, reduction of average shares outstanding and net interest expense. These statements are intended to provide management's expectation of future events as of the date of this earnings release; are based on management's estimates, projections, beliefs and assumptions as of the date of this earnings release; and are not guarantees of future performance. These forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, among other things, the matters described under the headings "Business," "Risk Factors," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 and in the corresponding sections of the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021, as well as those described from time to time in the Company's other filings with the U.S. Securities and Exchange Commission available at www.sec.gov. The Company specifically disclaims any obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Statement Regarding Non-GAAP Financial Measures

The following defines terms and conventions and provides reconciliations regarding certain measures used in this earnings release and/or the accompanying earnings conference call that are not required by, or presented in accordance with, generally accepted accounting principles in the United States of America ("GAAP"), otherwise referred to as non-GAAP financial measures. To supplement the Company's consolidated results presented in accordance with GAAP, the Company has disclosed non-GAAP financial measures that exclude or adjust certain items. Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of the Company's business performance and liquidity and are useful for period-over-period comparisons of the performance of the Company's business and its liquidity and to the performance and liquidity of our peers. While management believes that these non-GAAP financial measures are useful in evaluating the Company's business, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly titled measures reported by other companies.

Constant currency - Constant currency references are non-GAAP financial measures which exclude the impact of changes in foreign currency exchange rates and are consistent with how management evaluates our performance and comparisons with prior and future periods. We estimated the net impacts of currency on our revenue, gross profit, operating profit, and EPS results by restating results to the average exchange rates or exchange rate assumptions for the comparative period, which includes adjusting for the estimated impacts of foreign currency hedging transactions and certain impacts on our effective tax rates. These estimated currency changes impacted third quarter 2021 results as follows: increased gross profit growth by 1.0%, increased gross margin growth by 10 basis points, increased operating expense growth by 0.9%, increased operating profit growth by 1.2%, had an immaterial impact on operating profit margin growth, and increased EPS growth by 1.2%. Constant currency revenue growth represents the percentage change in revenue during the applicable period, as compared to the prior year period, excluding the impact of changes in foreign currency exchange rates. See the supplementary analysis of results below for revenue percentage change from currency for the three months ended September 30, 2021 and refer to the 2021 Growth and Financial Performance Outlook section of this earnings release for estimated foreign currency exchange rate impacts on 2021 projections and estimates. See the supplementary analysis of results in the Company's earnings release dated October 29, 2020 for LPD and Water revenue percentage changes from currency for the three months ended September 30, 2020.

Growth and organic revenue growth - All references to growth and organic growth refer to growth compared to the equivalent prior year period unless specifically noted. Organic revenue growth is a non-GAAP financial measure that excludes the impact of changes in foreign currency exchange rates, certain business acquisitions, and divestitures. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers. Two-year average organic growth rates are provided to facilitate easier comparisons between periods impacted by the COVID-19 pandemic with prior and future periods, calculated as the average of the growth rates over the two referenced periods. Organic revenue growth should be considered in addition to, and not as a replacement of or a superior measure to, revenue growth reported in accordance with GAAP. See the supplementary analysis of results below for a reconciliation of reported revenue growth to organic revenue growth for the three months ended September 30, 2021. Please refer to the 2021 Growth and Financial Performance Outlook section of this earnings release for estimated full year 2021 organic revenue growth for the Company and CAG Diagnostics recurring revenue. The percentage change in revenue resulting from acquisitions represents revenues during the current year period, limited to the initial 12 months from the date of the acquisition, that are directly attributable to business acquisitions. Revenue from acquisitions is expected to increase projected full year 2021 revenue growth by 50 basis points and increase CAG Diagnostics recurring revenue growth by 20 basis points. For a reconciliation of third quarter 2020 LPD organic revenue growth and Water organic revenue decline to revenue growth or decline (as applicable) reported in accordance with GAAP, see the supplementary analysis of results in the Company's earnings release dated October 29, 2020.

The reconciliation of the two-year average annual organic growth of CAG Diagnostics recurring revenue is as follows:

		Reported Revenue Growth1			Percentage Change from Currency			Percentage Change from Acquisitions			Organic Revenue Growth1
CAG Diagnostics recurring revenue growth rates for the quarter ended Sept. 30, 2021		12.5%			0.9%			0.1%			11.5%
CAG Diagnostics recurring revenue growth rates for the quarter ended Sept. 30, 2020		23.1%			1.0%			0.8%			21.3%
2-year average annual growth rates		17.8%			1.0%			0.5%			16.4%
1See Statement Regarding Non-GAAP Financial Measures, above. Amounts presented may not recalculate due to rounding.

Comparable growth metrics - Comparable gross profit growth, comparable gross margin gain (or growth), comparable operating expense growth, comparable operating profit growth and comparable operating margin gain (or growth) are non-GAAP financial measures and exclude the impact of changes in foreign currency exchange rates and non-recurring or unusual items (if any). Please refer to the constant currency note above for a summary of foreign currency exchange rate impacts. Management believes that reporting comparable gross profit growth, comparable gross margin gain (or growth), comparable operating expense growth, comparable operating profit growth and comparable operating margin gain (or growth) provides useful information to investors because it enables better period-over-period comparisons of the fundamental financial results by excluding items that vary independent of performance and provides greater transparency to investors regarding key metrics used by management. Comparable gross profit growth, comparable gross margin gain (or growth), comparable operating expense growth, comparable operating profit growth and comparable operating margin gain (or growth) should be considered in addition to, and not as replacements of or superior measures to, gross profit growth, gross margin gain, operating expense growth, operating profit growth and operating margin gain reported in accordance with GAAP. Comparable operating expense growth, comparable operating profit growth, and comparable operating margin gain (or growth) exclude a $27.5 million operating expense impact from an ongoing litigation matter recorded in the third quarter of 2020. This impact and those described in the constant currency note above reconcile reported operating expense growth, operating profit growth, and operating margin gain for the third quarter of 2021 to comparable operating expense growth, comparable operating profit growth, and comparable operating margin gain (or growth) for the same period.

The reconciliation of these non-GAAP financial measures is as follows:

		Three Months Ended							Year-over-Year			Nine Months Ended							Year-over-Year
		September 30				September 30			Change			September 30				September 30			Change
Dollar amounts in thousands		2021				2020						2021				2020
Gross Profit (as reported)		$	472,921			$	422,606		12	%		$	1,433,011			$	1,161,538		23	%
Gross margin		58.4		%		58.5		%	(10)	bps		59.4		%		58.5		%	90	bps
Less: comparability adjustments
Ongoing litigation matter		—				—						—				—
Change from currency		4,429				—						30,446				—
Comparable gross profit growth		$	468,492			$	422,606		11	%		$	1,402,565			$	1,161,538		21	%
Comparable gross margin and gross margin gain (or growth)		58.3		%		58.5		%	(20)	bps		59.4		%		58.5		%	90	bps
Operating expenses (as reported)		$	246,959			$	250,750		(2)	%		$	700,174			$	652,109		7	%
Less: comparability adjustments
Ongoing litigation matter		—				27,500						—				27,500
Change from currency		2,315				—						10,516				—
Comparable operating expense growth		$	244,644			$	223,250		10	%		$	689,658			$	624,609		10	%
Income from operations (as reported)		$	225,962			$	171,856		32	%		$	732,837			$	509,429		44	%
Operating margin		27.9		%		23.8		%	410	bps		30.4		%		25.7		%	470	bps
Less: comparability adjustments
Ongoing litigation matter		—				(27,500)						—				(27,500)
Change from currency		2,114				—						19,930				—
Comparable operating profit growth		$	223,848			$	199,356		12	%		$	712,907			$	536,929		33	%
Comparable operating margin and operating margin gain (or growth)		27.9		%		27.6		%	20	bps		30.2		%		27.0		%	310	bps
Amounts presented may not recalculate due to rounding.

Projected 2021 comparable operating margin expansion outlined in the 2021 Growth and Financial Performance Outlook section of this earnings release reflects the following adjustments: (i) full year 2020 reported operating margin adjusted for impacts of the ongoing litigation matter charge in the third quarter of 2020, which reduced full year 2020 operating margin growth by approximately 100 basis points; and (ii) projected full year 2021 reported operating margin adjusted for estimated positive year-over-year foreign currency exchange rate change impact of approximately 10 basis points.

These impacts and those described in the constant currency note above reconcile reported gross profit growth, gross margin gain, operating expense growth, operating profit growth and operating margin gain (including projected 2021 operating margin expansion) to comparable gross profit growth, comparable gross margin gain, comparable operating expense growth, comparable operating profit growth and comparable operating margin gain for the Company.

Comparable EPS growth -  Comparable EPS growth is a non-GAAP financial measure that represents the percentage change in earnings per share (diluted) ("EPS") for a measurement period, as compared to the prior base period, net of the impact of changes in foreign currency exchange rates from the prior base period and excluding the tax benefits of share-based compensation activity under ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, and non-recurring or unusual items (if any). Management believes comparable EPS growth is a more useful way to measure the Company's business performance than EPS growth because it enables better period-over-period comparisons of the fundamental financial results by excluding items that vary independent of performance and provides greater transparency to investors regarding a key metric used by management. Comparable EPS growth should be considered in addition to, and not as a replacement of or a superior measure to, EPS growth reported in accordance with GAAP. Please refer to the constant currency note above for a summary of foreign currency exchange rate impacts.

The reconciliation of this non-GAAP financial measure is as follows:

		Three Months Ended								Year-over-Year			Nine Months Ended								Year-over-Year
		September 30,				September 30,				Growth			September 30,				September 30,				Growth
		2021				2020							2021				2020
Earnings per share (diluted)		$	2.03			$	1.69			20	%		$	6.71			$	4.70			43	%
Less: comparability adjustments
Ongoing litigation matter						(0.24)											(0.24)
Share-based compensation activity		0.05				0.18							0.29				0.31
Change from currency		0.02				—							0.18				—
Comparable EPS growth		$	1.96			$	1.75			12	%		$	6.24			$	4.63			35	%
Amounts presented may not recalculate due to rounding.

Projected 2021 comparable EPS growth outlined in the 2021 Growth and Financial Performance Outlook section of this earnings release reflects the following adjustments: (i) full year 2020 reported EPS adjusted for positive share-based compensation activity of $0.45 for full year 2020, negative ongoing litigation matter impact of $0.24 in the third quarter of 2020, and positive Swiss tax reform impact of $0.25 in the fourth quarter of 2020; and (ii) projected full year 2021 reported EPS adjusted for estimated positive share-based compensation activity of $0.29 and estimated positive year-over-year foreign currency exchange rate change impact of $0.16.

These impacts and those described in the constant currency note above reconcile reported EPS growth (including projected 2021 reported EPS growth) to comparable EPS growth for the Company.

Free cash flow - Free cash flow is a non-GAAP financial measure and means, with respect to a measurement period, the cash generated from operations during that period, reduced by the Company's investments in property and equipment. Management believes free cash flow is a useful measure because it indicates the cash the operations of the business are generating after appropriate reinvestment for recurring investments in property and equipment that are required to operate the business. Free cash flow should be considered in addition to, and not as a replacement of or a superior measure to, net cash provided by operating activities. See the supplementary analysis of results below for our calculation of free cash flow for the three months and nine months ended September 30, 2021 and 2020. To estimate projected 2021 free cash flow, we have deducted projected purchases of property and equipment (also referred to as capital expenditures) of approximately $150 million. To calculate trailing twelve-month net income to free cash flow ratio for the twelve months ended September 30, 2021, we have deducted purchases of property and equipment of approximately $102 million from net cash provided from operating activities of approximately $765 million, divided by net income of approximately $757 million.

Debt to Adjusted EBITDA (Leverage Ratios) - Adjusted EBITDA, gross debt, and net debt are non-GAAP financial measures. Adjusted EBITDA is a non-GAAP financial measure of earnings before interest, taxes, depreciation, amortization, non-recurring transaction expenses incurred in connection with acquisitions, share-based compensation expense, and certain other non-cash losses and charges.  Management believes that reporting Adjusted EBITDA, gross debt and net debt in the Debt to Adjusted EBITDA ratios provides supplemental analysis to help investors further evaluate the Company's business performance and available borrowing capacity under the Company's credit facility. Adjusted EBITDA, gross debt, and net debt should be considered in addition to, and not as replacements of or superior measures to, net income or total debt reported in accordance with GAAP. For further information on how Adjusted EBITDA and the Debt to Adjusted EBITDA Ratios are calculated, see the Company's Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.

Notes and Definitions

Swiss tax reform impact - A one-time positive income tax impact related to the enactment of tax reform in Switzerland reflected in the fourth quarter of 2020, when the Company recorded an approximately $22 million deferred tax asset related to transitional benefits.

Ongoing litigation matter - The Company established an accrual of $27.5 million in the third quarter of 2020 related to an ongoing matter involving an alleged breach of contract for underpayment of royalty payments made from 2004 through 2017 under an expired patent license agreement. The accrual amount represents the amount of a possible loss that we have determined to be probable and estimable, and the actual cost of resolving this matter may be higher or lower than the amount accrued.

IDEXX Laboratories, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
Amounts in thousands except per share data (Unaudited)
				Three Months Ended						Nine Months Ended
				September 30,			September 30,			September 30,			September 30,
				2021			2020			2021			2020
Revenue:		Revenue		$810,421			$721,789			$2,414,270			$1,985,717
Expenses and Income:		Cost of revenue		337,500			299,183			981,259			824,179
		Gross profit		472,921			422,606			1,433,011			1,161,538
		Sales and marketing		124,434			108,202			358,277			318,526
		General and administrative		82,098			105,031			226,194			231,111
		Research and development		40,427			37,517			115,703			102,472
		Income from operations		225,962			171,856			732,837			509,429
		Interest expense, net		(7,012)			(7,902)			(22,066)			(24,880)
		Income before provision for income taxes		218,950			163,954			710,771			484,549
		Provision for income taxes		43,772			17,633			128,698			77,376
Net Income:		Net income		175,178			146,321			582,073			407,173
		Less: Noncontrolling interest in subsidiary's earnings		(57)			102			(1)			187
		Net income attributable to stockholders		$175,235			$146,219			$582,074			$406,986
		Earnings per share: Basic		$2.06			$1.71			$6.82			$4.77
		Earnings per share: Diluted		$2.03			$1.69			$6.71			$4.70
		Shares outstanding: Basic		85,123			85,314			85,325			85,293
		Shares outstanding: Diluted		86,511			86,690			86,712			86,635

 

IDEXX Laboratories, Inc. and Subsidiaries
Selected Operating Information (Unaudited)
				Three Months Ended						Nine Months Ended
				September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Operating Ratios		Gross profit		58.4	%		58.5	%		59.4	%		58.5	%
(as a percentage of revenue):		Sales, marketing, general and administrative expense		25.5	%		29.5	%		24.2	%		27.7	%
		Research and development expense		5.0	%		5.2	%		4.8	%		5.2	%
		Income from operations1		27.9	%		23.8	%		30.4	%		25.7	%
1Amounts presented may not recalculate due to rounding.

 

IDEXX Laboratories, Inc. and Subsidiaries
Segment Information
Amounts in thousands (Unaudited)
				Three Months Ended
				September 30, 2021			Percent of Revenue			September 30, 2020			Percent of Revenue
Revenue:		CAG		$732,495						$638,017
		Water		38,143						33,272
		LPD		29,126						36,971
		Other		10,657						13,529
		Total		$810,421						$721,789
Gross Profit:		CAG		$423,871			57.9	%		$368,297			57.7	%
		Water		26,694			70.0	%		23,064			69.3	%
		LPD		16,848			57.8	%		22,768			61.6	%
		Other		5,508			51.7	%		8,477			62.7	%
		Total		$472,921			58.4	%		$422,606			58.5	%
Income from Operations:		CAG		$201,947			27.6	%		$139,434			21.9	%
		Water		17,599			46.1	%		15,243			45.8	%
		LPD		3,600			12.4	%		10,505			28.4	%
		Other		2,816			26.4	%		6,674			49.3	%
		Total		$225,962			27.9	%		$171,856			23.8	%

 

IDEXX Laboratories, Inc. and Subsidiaries
Segment Information
Amounts in thousands (Unaudited)
				Nine Months Ended
				September 30, 2021			Percent of Revenue			September 30, 2020			Percent of Revenue
Revenue:		CAG		$2,170,857						$1,756,113
		Water		109,374						95,537
		LPD		101,920						103,369
		Other		32,119						30,698
		Total		$2,414,270						$1,985,717
Gross Profit:		CAG		$1,277,531			58.8	%		$1,012,107			57.6	%
		Water		75,906			69.4	%		67,491			70.6	%
		LPD		63,255			62.1	%		63,919			61.8	%
		Other		16,319			50.8	%		18,021			58.7	%
		Total		$1,433,011			59.4	%		$1,161,538			58.5	%
Income from Operations:		CAG		$649,892			29.9	%		$426,062			24.3	%
		Water		49,599			45.3	%		43,383			45.4	%
		LPD		24,276			23.8	%		28,417			27.5	%
		Other		9,070			28.2	%		11,567			37.7	%
		Total		$732,837			30.4	%		$509,429			25.7	%

 

IDEXX Laboratories, Inc. and Subsidiaries
Revenues and Revenue Growth Analysis by Product and Service Categories and by Domestic and International Markets
Amounts in thousands (Unaudited)
		Three Months Ended
		September 30, 2021			September 30, 2020			Dollar Change			Reported Revenue Growth1			Percentage Change from Currency			Percentage Change from Acquisitions			Organic Revenue Growth1
Net Revenue
CAG		$732,495			$638,017			$94,478			14.8	%		0.9	%		1.2	%		12.7	%
United States		484,903			428,105			56,798			13.3	%		—			1.7	%		11.5	%
International		247,592			209,912			37,680			18.0	%		2.8	%		0.2	%		14.9	%
Water		38,143			33,272			4,871			14.6	%		1.9	%		—			12.7	%
United States		19,216			16,634			2,582			15.5	%		—			—			15.5	%
International		18,927			16,638			2,289			13.8	%		3.8	%		—			10.0	%
LPD		29,126			36,971			(7,845)			(21.2)	%		1.3	%		—			(22.5)	%
United States		4,177			3,784			393			10.4	%		—			—			10.4	%
International		24,949			33,187			(8,238)			(24.8)	%		1.4	%		—			(26.2)	%
Other		10,657			13,529			(2,872)			(21.2)	%		(0.1)	%		—			(21.1)	%
Total Company		$810,421			$721,789			$88,632			12.3	%		1.0	%		1.1	%		10.2	%
United States		514,343			454,836			59,507			13.1	%		—			1.6	%		11.4	%
International		296,078			266,953			29,125			10.9	%		2.6	%		0.1	%		8.2	%

 

		Three Months Ended
		September 30, 2021			September 30, 2020			Dollar Change			Reported Revenue Growth1			Percentage Change from Currency			Percentage Change from Acquisitions			Organic Revenue Growth1
Net CAG Revenue
CAG Diagnostics recurring revenue:		$638,358			$567,416			$70,942			12.5	%		0.9	%		0.1	%		11.5	%
IDEXX VetLab consumables		252,714			218,605			34,109			15.6	%		1.2	%		—			14.4	%
Rapid assay products		76,974			70,593			6,381			9.0	%		0.4	%		—			8.6	%
Reference laboratory diagnostic and consulting services		282,301			254,223			28,078			11.0	%		0.8	%		0.2	%		10.0	%
CAG Diagnostics services and accessories		26,369			23,995			2,374			9.9	%		0.8	%		—			9.1	%
CAG Diagnostics capital – instruments		39,401			29,336			10,065			34.3	%		1.3	%		—			33.0	%
Veterinary software, services and diagnostic imaging systems		54,736			41,265			13,471			32.6	%		0.5	%		17.4	%		14.7	%
Net CAG revenue		$732,495			$638,017			$94,478			14.8	%		0.9	%		1.2	%		12.7	%
1See Statements Regarding Non-GAAP Financial Measures, above. Amounts presented may not recalculate due to rounding.

 

IDEXX Laboratories, Inc. and Subsidiaries
Revenues and Revenue Growth Analysis by Product and Service Categories and by Domestic and International Markets
Amounts in thousands (Unaudited)
		Nine Months Ended
		September 30, 2021			September 30, 2020			Dollar Change			Reported Revenue Growth1			Percentage Change from Currency			Percentage Change from Acquisitions			Organic Revenue Growth1
Net Revenue
CAG		$2,170,857			$1,756,113			$414,744			23.6	%		2.4	%		0.7	%		20.6	%
United States		1,415,565			1,188,493			227,072			19.1	%		—			0.9	%		18.3	%
International		755,292			567,620			187,672			33.1	%		7.6	%		0.3	%		25.1	%
Water		109,374			95,537			13,837			14.5	%		3.1	%		—			11.4	%
United States		53,531			47,510			6,021			12.7	%		—			—			12.7	%
International		55,843			48,027			7,816			16.3	%		6.1	%		—			10.2	%
LPD		101,920			103,369			(1,449)			(1.4)	%		4.0	%		—			(5.4)	%
United States		11,441			10,803			638			5.9	%		—			—			5.9	%
International		90,479			92,566			(2,087)			(2.3)	%		4.4	%		—			(6.6)	%
Other		32,119			30,698			1,421			4.6	%		2.0	%		—			2.7	%
Total Company		$2,414,270			$1,985,717			$428,553			21.6	%		2.5	%		0.6	%		18.5	%
United States		1,502,219			1,257,617			244,602			19.4	%		—			0.8	%		18.6	%
International		912,051			728,100			183,951			25.3	%		6.9	%		0.2	%		18.2	%

 

		Nine Months Ended
		September 30, 2021			September 30, 2020			Dollar Change			Reported Revenue Growth1			Percentage Change from Currency			Percentage Change from Acquisitions			Organic Revenue Growth1
Net CAG Revenue
CAG Diagnostics recurring revenue:		$1,916,938			$1,565,595			$351,343			22.4	%		2.4	%		0.2	%		19.8	%
IDEXX VetLab consumables		755,158			603,379			151,779			25.2	%		3.2	%		—			22.0	%
Rapid assay products		230,472			192,681			37,791			19.6	%		1.1	%		—			18.5	%
Reference laboratory diagnostic and consulting services		851,757			703,300			148,457			21.1	%		2.2	%		0.4	%		18.6	%
CAG Diagnostics services and accessories		79,551			66,235			13,316			20.1	%		2.9	%		—			17.2	%
CAG Diagnostics capital – instruments		105,645			72,040			33,605			46.6	%		3.6	%		—			43.1	%
Veterinary software, services and diagnostic imaging systems		148,274			118,478			29,796			25.1	%		0.9	%		7.9	%		16.4	%
Net CAG revenue		$2,170,857			$1,756,113			$414,744			23.6	%		2.4	%		0.7	%		20.6	%
1See Statements Regarding Non-GAAP Financial Measures, above. Amounts presented may not recalculate due to rounding.

 

IDEXX Laboratories, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
Amounts in thousands (Unaudited)
				September 30, 2021			December 31, 2020
Assets:		Current Assets:
		Cash and cash equivalents		$145,203			$383,928
		Accounts receivable, net		376,760			331,429
		Inventories		258,484			209,873
		Other current assets		157,590			137,508
		Total current assets		938,037			1,062,738
		Property and equipment, net		573,385			555,167
		Other long-term assets, net		874,322			676,656
		Total assets		$2,385,744			$2,294,561
Liabilities and Stockholders'
Equity:		Current Liabilities:
		Accounts payable		$86,684			$74,558
		Accrued liabilities		431,047			415,648
		Current portion of long-term debt		74,990			49,988
		Deferred revenue		41,128			42,567
		Total current liabilities		633,849			582,761
		Long-term debt, net of current portion		778,025			858,492
		Other long-term liabilities, net		218,410			220,513
		Total long-term liabilities		996,435			1,079,005
		Total stockholders' equity		754,754			632,088
		Noncontrolling interest		706			707
		Total stockholders' equity		755,460			632,795
		Total liabilities and stockholders' equity		$2,385,744			$2,294,561

 

IDEXX Laboratories, Inc. and Subsidiaries
Select Balance Sheet Information (Unaudited)
				September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Selected Balance Sheet Information:		Days sales outstanding1		42.7			42.2			41.8			42.2			41.5
		Inventory turns2		1.9			2.1			2.0			2.1			1.9
1Days sales outstanding represents the average of the accounts receivable balances at the beginning and end of each quarter divided by revenue for that quarter, the result of which is then multiplied by 91.25 days.
2Inventory turns represent inventory-related cost of product revenue for the twelve months preceding each quarter-end divided by the average inventory balances at the beginning and end of each quarter.

 

IDEXX Laboratories, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
Amounts in thousands (Unaudited)
				Nine Months Ended
				September 30, 2021			September 30, 2020
Operating:		Cash Flows from Operating Activities:
		Net income		$582,073			$407,173
		Non-cash adjustments to net income		118,261			98,798
		Changes in assets and liabilities		(154,752)			(76,842)
		Net cash provided by operating activities		545,582			429,129
Investing:		Cash Flows from Investing Activities:
		Purchases of property and equipment		(87,761)			(92,768)
		Acquisition of intangible assets, businesses and equity investments		(161,166)			(918)
		Net cash used by investing activities		(248,927)			(93,686)
Financing:		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		(1,500)			(1,580)
		Repurchases of common stock		(502,021)			(182,815)
		Proceeds from exercises of stock options and employee stock purchase plans		37,428			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, beginning of period		383,928			90,326
		Cash and cash equivalents, end of period		$145,203			$175,587

 

IDEXX Laboratories, Inc. and Subsidiaries
Free Cash Flow
Amounts in thousands except per share data (Unaudited)
			Three Months Ended							Nine Months Ended
			September 30, 2021			September 30, 2020				September 30, 2021			September 30, 2020
Free Cash Flow:		Net cash provided by operating activities	$187,205			$193,116				$545,582			$429,129
		Investing cash flows attributable to purchases of property and equipment	(45,017)			(19,210)				(87,761)			(92,768)
		Free cash flow1	$142,188			$173,906				$457,821			$336,361
1See Statements Regarding Non-GAAP Financial Measures, above.

 

IDEXX Laboratories, Inc. and Subsidiaries
Common Stock Repurchases
Amounts in thousands except per share data (Unaudited)
		Three Months Ended						Nine Months Ended
		September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Shares repurchased in the open market		274			—			892			721
Shares acquired through employee surrender for statutory tax withholding		1			1			29			31
Total shares repurchased		275			1			921			752
Cost of shares repurchased in the open market		$183,315			$—			$510,937			$179,623
Cost of shares for employee surrenders		515			360			15,501			9,029
Total cost of shares		$183,830			$360			$526,438			$188,652
Average cost per share – open market repurchases		$668.33			$—			$572.10			$249.20
Average cost per share – employee surrenders		$688.35			$393.12			$547.90			$292.03
Average cost per share – total		$668.38			$393.12			$571.36			$250.96

 

Contact: John Ravis, Investor Relations, 1-207-556-8155

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SOURCE IDEXX Laboratories, Inc.