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EX-31.2 - EX-31.2 - IDEXX LABORATORIES INC /DEidxx-20180331xex31_2.htm
EX-31.1 - EX-31.1 - IDEXX LABORATORIES INC /DEidxx-20180331xex31_1.htm

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 

FORM 10-Q 

 

(Mark One) 

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

For the quarterly period ended March 31, 2018

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 



Picture 1  

IDEXX LABORATORIES, INC. 

(Exact name of registrant as specified in its charter) 





 

 

DELAWARE

01-0393723

(State or other jurisdiction of incorporation 

or organization)

(IRS Employer Identification No.)



 

ONE IDEXX DRIVE, WESTBROOK, MAINE

04092

(Address of principal executive offices)

(ZIP Code)



207-556-0300

(Registrant’s telephone number, including area code)

 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 No   



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). Yes No   

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



 

 

 

 



 

 

 

 

Large accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

 

   

 

 

Accelerated filer

Emerging growth company

 

Smaller reporting 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 86,863,215 on April 27, 2018.

  


 

GLOSSARY OF TERMS AND SELECTED ABBREVIATIONS



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





 



 

Term/ Abbreviation

 

Definition



 

AOCI

Accumulated other comprehensive income or loss

ASU 2014-09

Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606); also referred to as the “New Revenue Standard”

ASU 2016-16

ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory 

ASU 2018-05

ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118

CAG

Companion Animal Group, a reporting segment that provides veterinarians diagnostic products and services and information management solutions that enhance the health and well-being of pets

Credit Facility

Our $850 million five-year unsecured revolving credit facility under an amended and restated credit agreement that was executed in December 2015, also referred to as line of credit

FASB

U.S. Financial Accounting Standards Board

LPD

Livestock, Poultry and Dairy, a reporting segment that provides diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve dairy efficiency

OPTI Medical

OPTI Medical Systems, Inc., a wholly-owned subsidiary of IDEXX Laboratories Inc., located in Roswell, Georgia. This business manufactures and supplies blood gas analyzers and consumables worldwide for the human point-of-care medical diagnostics market. The Roswell facility also manufactures electrolytes slides (instrument consumables) to run Catalyst One® and Catalyst Dx®, and blood gas analyzers and consumables for the veterinary market;  also referred to as OPTI.

Organic revenue growth

A non-GAAP financial measure and represents the percentage change in revenue, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, business acquisitions and divestitures

R&D

Research and Development

SaaS

Software-as-a-service

SEC

U.S. Securities and Exchange Commission

Senior Note Agreements

Private placement senior notes having an aggregate principal amount of approximately $600 million, referred to as senior notes and long-term debt

2017 Tax Act

The Tax Cuts and Jobs Act enacted on December 22, 2017, which includes significant changes to the U.S. corporate tax system

U.S. GAAP

Accounting principles generally accepted in the United States of America

Water

Water, a reporting segment that provides water microbiology testing products around the world



 

 


 

IDEXX LABORATORIES, INC. 

Quarterly Report on Form 10-Q 

Table of Contents 





 

 

Item No.

 

Page



 

 



PART IFINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

 



Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

3



Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017

4



Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017

5



Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017

6



Notes to Condensed Consolidated Financial Statements 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk 

41

Item 4.

Controls and Procedures

42



PART II—OTHER INFORMATION

 

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 6.

Exhibits

44

Signatures

 

45



 

 



 

 



  

 

 

 

 

 

 

 

 


 

 

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,

 

December 31,

 



2018 

 

2017 

 



 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

$

159,229 

 

$

187,675 

 

Marketable securities

 

 -

 

 

284,255 

 

Accounts receivable, net of reserves of $4,808 in 2018 and $4,576 in 2017

 

259,865 

 

 

234,597 

 

Inventories

 

179,039 

 

 

164,318 

 

Other current assets

 

103,574 

 

 

101,140 

 

Total current assets

 

701,707 

 

 

971,985 

 

Long-Term Assets:

 

 

 

 

 

 

Property and equipment, net

 

384,246 

 

 

379,096 

 

Goodwill

 

201,022 

 

 

199,873 

 

Intangible assets, net

 

41,893 

 

 

43,846 

 

Other long-term assets

 

140,624 

 

 

118,616 

 

Total long-term assets

 

767,785 

 

 

741,431 

 

TOTAL ASSETS

$

1,469,492 

 

$

1,713,416 

 



 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

$

70,409 

 

$

66,968 

 

Accrued liabilities

 

210,384 

 

 

253,418 

 

Line of credit

 

407,500 

 

 

655,000 

 

Current portion of deferred revenue

 

40,545 

 

 

29,181 

 

Total current liabilities

 

728,838 

 

 

1,004,567 

 

Long-Term Liabilities:

 

 

 

 

 

 

Deferred income tax liabilities

 

27,529 

 

 

25,353 

 

Long-term debt

 

609,005 

 

 

606,075 

 

Long-term deferred revenue, net of current portion

 

68,529 

 

 

35,545 

 

Other long-term liabilities

 

84,573 

 

 

95,718 

 

Total long-term liabilities

 

789,636 

 

 

762,691 

 

Total liabilities

 

1,518,474 

 

 

1,767,258 

 



 

 

 

 

 

 

Commitments and Contingencies (Note 14)

 

 

 

 

 

 



 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

Common stock, $0.10 par value: Authorized: 120,000 shares; Issued: 104,676 shares in 2018 and 104,275 shares in 2017; Outstanding: 86,997 shares in 2018 and 87,104 shares in 2017

 

10,468 

 

 

10,428 

 

Additional paid-in capital

 

1,094,159 

 

 

1,073,931 

 

Deferred stock units: Outstanding: 217 units in 2018 and 229 units in 2017

 

5,772 

 

 

5,988 

 

Retained earnings

 

880,348 

 

 

803,545 

 

Accumulated other comprehensive loss

 

(34,206)

 

 

(36,470)

 

Treasury stock, at cost: 17,679 shares in 2018 and 17,171 shares in 2017

 

(2,005,813)

 

 

(1,911,528)

 

Total IDEXX Laboratories, Inc. stockholders’ deficit

 

(49,272)

 

 

(54,106)

 

Noncontrolling interest

 

290 

 

 

264 

 

Total stockholders’ deficit

 

(48,982)

 

 

(53,842)

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

1,469,492 

 

$

1,713,416 

 



 

 

 

 

 

 

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





  

 

 

3 

 


 

IDEXX LABORATORIES, INC. AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(in thousands, except per share amounts) 

(Unaudited) 

 





 

 

 

 

 

 



 

 

 

 

 

 



 

For the Three Months Ended



 

March 31,



 

 

2018 

 

 

2017 



 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

Product revenue

 

$

317,440 

 

$

271,965 

Service revenue

 

 

220,216 

 

 

190,056 

Total revenue

 

 

537,656 

 

 

462,021 

Cost of Revenue:

 

 

 

 

 

 

Cost of product revenue

 

 

118,246 

 

 

103,027 

Cost of service revenue

 

 

116,311 

 

 

100,803 

Total cost of revenue

 

 

234,557 

 

 

203,830 

Gross profit

 

 

303,099 

 

 

258,191 



 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

Sales and marketing

 

 

100,101 

 

 

87,244 

General and administrative

 

 

60,931 

 

 

52,914 

Research and development

 

 

29,023 

 

 

25,790 

Income from operations

 

 

113,044 

 

 

92,243 

Interest expense

 

 

(9,274)

 

 

(8,589)

Interest income

 

 

579 

 

 

1,083 

Income before provision for income taxes

 

 

104,349 

 

 

84,737 

Provision for income taxes

 

 

14,873 

 

 

15,679 

Net income

 

 

89,476 

 

 

69,058 

Less: Net income attributable to noncontrolling interest

 

 

25 

 

 

39 

Net income attributable to IDEXX Laboratories, Inc. stockholders

 

$

89,451 

 

$

69,019 



 

 

 

 

 

 

Earnings per Share:

 

 

 

 

 

 

Basic

 

$

1.02 

 

$

0.78 

Diluted

 

$

1.01 

 

$

0.77 

Weighted Average Shares Outstanding:

 

 

 

 

 

 

Basic

 

 

87,331 

 

 

88,117 

Diluted

 

 

88,944 

 

 

89,994 



 

 

 

 

 

 

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,



 

 

2018 

 

 

 

2017 



 

 

 

 

 

 

 

Net income

 

$

89,476 

 

 

$

69,058 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

5,165 

 

 

 

8,014 

Unrealized loss on net investment hedge

 

 

(2,216)

 

 

 

(1,093)

Unrealized gain (loss) on investments, net of tax expense (benefit) of $40 in 2018 and $(26) in 2017

 

 

118 

 

 

 

(39)

Unrealized loss on derivative instruments:

 

 

 

 

 

 

 

Unrealized loss, net of tax (benefit) of $(377) in 2018 and $(912) in 2017

 

 

(2,388)

 

 

 

(1,534)

Reclassification adjustment for losses (gains) included in net income, net of tax (benefit) expense of $(250) in 2018 and $401 in 2017

 

 

1,585 

 

 

 

(674)

Unrealized loss on derivative instruments

 

 

(803)

 

 

 

(2,208)

Other comprehensive gain, net of tax

 

 

2,264 

 

 

 

4,674 

Comprehensive income

 

 

91,740 

 

 

 

73,732 

Less: comprehensive income attributable to noncontrolling interest

 

 

25 

 

 

 

39 

Comprehensive income attributable to IDEXX Laboratories, Inc.

 

$

91,715 

 

 

$

73,693 



 

 

 

 

 

 

 

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



  

 

 

 

 

5 

 


 

IDEXX LABORATORIES, INC.  AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) 

(Unaudited) 



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the Three Months Ended

 



 

March 31,

 



 

 

2018 

 

 

 

2017 

 



 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

89,476 

 

 

$

69,058 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

20,804 

 

 

 

20,307 

 

Benefit of deferred income taxes

 

 

3,005 

 

 

 

1,941 

 

Share-based compensation expense

 

 

5,960 

 

 

 

5,655 

 

Other

 

 

1,091 

 

 

 

860 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(21,800)

 

 

 

(19,429)

 

Inventories

 

 

(8,070)

 

 

 

(5,369)

 

Other assets and liabilities

 

 

(52,302)

 

 

 

(38,531)

 

Accounts payable

 

 

(1,939)

 

 

 

(3,687)

 

Deferred revenue

 

 

(1,327)

 

 

 

469 

 

Net cash provided by operating activities

 

 

34,898 

 

 

 

31,274 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(23,726)

 

 

 

(23,647)

 

Purchase of marketable securities

 

 

(87)

 

 

 

(90,492)

 

Proceeds from the sale and maturities of marketable securities

 

 

284,125 

 

 

 

87,476 

 

Acquisitions of a business, net of cash acquired

 

 

 -

 

 

 

(2,349)

 

Net cash provided (used) by investing activities

 

 

260,312 

 

 

 

(29,012)

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

(Repayments) borrowings on revolving credit facilities, net

 

 

(247,500)

 

 

 

60,000 

 

Repurchases of common stock

 

 

(83,487)

 

 

 

(63,910)

 

Proceeds from exercises of stock options and employee stock purchase plans

 

 

14,551 

 

 

 

12,526 

 

Shares withheld for statutory tax withholding on restricted stock

 

 

(8,555)

 

 

 

(7,303)

 

Net cash (used) provided by financing activities

 

 

(324,991)

 

 

 

1,313 

 

Net effect of changes in exchange rates on cash

 

 

1,335 

 

 

 

1,932 

 

Net (decrease) increase in cash and cash equivalents

 

 

(28,446)

 

 

 

5,507 

 

Cash and cash equivalents at beginning of period

 

 

187,675 

 

 

 

154,901 

 

Cash and cash equivalents at end of period

 

$

159,229 

 

 

$

160,408 

 



 

 

 

 

 

 

 

 

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

 

2

  

 

 

6 

 


 



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, 2017, 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, 2018, 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 March 31, 2018, and our Annual Report on Form 10-K for the year ended December 31, 2017, (the “2017 Annual Report”) filed with the SEC.



For the three months ended March 31, 2018, changes in stockholders’ equity included (i) changes in other comprehensive income reflected in the unaudited condensed consolidated statements of comprehensive income; (ii) changes in common stock and additional paid-in capital reflected in the unaudited condensed consolidated statements of cash flows (including share-based compensation expense, proceeds from exercise of stock options and employee stock purchase plans and repurchases of common stock); (iii) changes in noncontrolling interest; (iv) changes in net income and (v) adjustments to retained earnings in connection with the adoption of ASU 2014-09 and ASU 2016-16. The cumulative effect of applying these standards was an adjustment of $12.6 million to the opening balance of retained earnings. See “Note 2. Accounting Policies” for the impact of new accounting pronouncements adopted.



NOTE 2.      ACCOUNTING POLICIES  



Significant Accounting Policies



The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three months ended March 31, 2018 are consistent with those discussed in Note 2 to the consolidated financial statements in our 2017 Annual Report, except as noted below.



New Accounting Pronouncements Adopted



Effective January 1, 2018, we adopted the New Revenue Standard using the modified retrospective method for all contracts not completed as of the date of adoption. 



We recognized the cumulative effect of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods presented. As a result of the adoption of ASU 2014-09, we have changed our accounting policy for revenue recognition and the details of the significant changes and quantitative impact of the changes are set out below.



 

7 

 


 

Up-Front Customer Loyalty Programs. Our up-front loyalty programs provide customers with incentives in the form of cash or IDEXX Points upon entering into multi-year agreements to purchase annual minimum amounts of future products or services. Under previous U.S. GAAP, if up-front incentives were subsequently utilized to purchase instruments, we limited instrument revenue to the amount of consideration received from the customer at the time of placement that was not contingent on future purchases and consequently deferred instrument revenue and costs at the time of placement. The New Revenue Standard permits revenue recognition at the time of instrument placement when the consideration is committed, but contingent on the purchase of future goods and services. As a result, we have accelerated our recognition of instrument revenues and costs when up-front incentives are used to purchase instruments. The New Revenue Standard did not change our accounting for up-front payments to customers, which continue to be capitalized as customer acquisition costs, within other assets, and subsequently recognized as a reduction to revenue over the term of the agreement. We previously reported deferred instrument revenues and costs within net customer acquisition cost, and upon transition to the New Revenue Standard the decrease in deferred revenue and costs resulted in an increase in our reported customer acquisition costs.



Volume Commitment Programs. Our volume commitment programs provide customers with a free instrument or system upon entering into multi-year agreements to purchase annual minimum amounts of future products or services and includes our new IDEXX 360 program introduced in the first quarter of 2018. Under previous U.S. GAAP, we limited instrument revenue to the amount of consideration received from the customer at the time of placement that was not contingent on future purchases and consequently instrument revenue and cost were recognized over the term of the customer agreement. The New Revenue Standard permits revenue recognition at the time of instrument placement when the consideration is committed, but contingent on the purchase of future goods and services. As a result, we have accelerated recognition on instruments revenues and costs placed through our volume commitment programs. This change resulted in a net increase in current and long-term other assets upon transition to the New Revenue Standard as we recognized contract assets related to instrument revenue recognized in advance of billings, offset by a reduction in previously deferred instrument cost.



Instrument Rebate Programs. Our instrument rebate programs, previously referred to as IDEXX Instrument Marketing 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. Under previous U.S. GAAP, the total consideration in the contract, including an estimate of future optional purchases, was allocated to all products and services based on their standalone selling prices. This resulted in deferring a portion of instrument revenue related to our obligation to provide future rebate incentives, which was included in accrued liabilities. Under the New Revenue Standard, the total consideration in the contract is limited to only goods and services that the customer is presently obligated to purchase and does not include future purchases that are optional. The customer’s right to earn rebates on future purchases is accounted for as a separate performance obligation. The exclusion of optional future purchases resulted in the instrument absorbing a higher relative allocation of future rebates. Therefore, we defer an increased portion of instrument revenue upon placement, which is realized as higher recurring revenue when customers buy future products and services, offsetting future rebates as they are earned. This change resulted in an increase in current and long-term deferred revenue upon transition to the New Revenue Standard and a reduction to accrued and other long-term liabilities for rebate obligations that are now reported as deferred revenues.



Reagent Rental Programs. Our reagent rental programs provide customers the right to use our instruments upon entering into multi-year agreements to purchase annual minimum amounts of consumables. These types of agreements include an embedded operating lease for the right to use our instrument and no instrument revenue is recognized at the time of instrument installation. Under the New Revenue Standard, we continue to recognize a portion of the revenue allocated to the embedded lease concurrent with the future sale of consumables over the term of the agreement. We determine the amount of revenue allocated from the consumable to the embedded lease based on standalone selling prices and determine the rate of lease revenue recognition in proportion to the customer’s minimum volume commitment. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of our reagent rental programs.



Other Customer Incentive Programs. Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified threshold of goods and services. Under the New Revenue Standard, we continue to record revenue reductions related to these customer incentive programs and record the related refund obligations in accrued liabilities based on the actual issuance of incentives, incentives earned but not yet issued and estimates of incentives to be earned in the future. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of our other customer incentive programs.



IDEXX Points. IDEXX Points may be applied to trade receivables due to us, converted to cash, or applied against the purchase price of IDEXX products and services. Under the New Revenue Standard, we continue to consider IDEXX Points equivalent to cash and IDEXX Points that have not yet been used by customers are included in accrued liabilities until utilized or

 

8 

 


 

expired. There was no impact to our consolidated financial statements upon transition to the New Revenue Standard, as a result of IDEXX Points.



Shipping and Delivery. Under previous U.S. GAAP, we recognized revenue and cost from the sales of diagnostic products and accessories upon delivery to the customer because our typical business practice is to cover losses incurred while in transit. Under the New Revenue Standard, revenue and costs are recognized when a customer obtains control of the product based on legal title transfer and our right to payment, which generally occurs at the time of shipment. This resulted in an acceleration of revenue and cost recognition and an increase in accounts receivable and a reduction in inventories upon transition to the New Revenue Standard.



Costs to Obtain a Contract. Under previous U.S. GAAP, we recognized sales commissions incurred to obtain long term product and service contracts as sales and marketing expenses as incurred. Under the New Revenue Standard, we defer commissions incurred to obtain long term contracts, when considered incremental and recoverable. Sales commissions are amortized as sales and marketing expenses consistently with the pattern of transfer for the product or service to which the asset relates. If the expected amortization period is one year or less, the sales commission is expensed when incurred. This change resulted in an increase to other current and long-term assets upon transition to the New Revenue Standard.



Income Taxes. The adoption of the New Revenue Standard primarily resulted in an acceleration of revenues under up-front customer loyalty programs and an increase in deferred revenue under instrument rebate programs, which in turn generated additional deferred tax assets within other long-term assets.



The cumulative effects of the changes made to our consolidated balance sheet as of January 1, 2018, in connection with the adoption of the New Revenue Standard were as follows (in thousands):









 

 

 

 

 

 

 

 



Condensed Consolidated Balance Sheet



 

 

 

 

 

 

 

 



Previous U.S. GAAP

 

 

 

 



December 31, 2017

 

New U.S. GAAP

 

Attributed to the



(Reported)

 

January 1, 2018

 

New Revenue Standard



 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities

$

471,930 

 

$

471,930 

 

$

 -

Accounts receivable

 

234,597 

 

 

237,281 

 

 

2,684 

Inventories

 

164,318 

 

 

163,184 

 

 

(1,134)

Property and equipment, net

 

379,096 

 

 

379,096 

 

 

 -

Goodwill and intangible assets, net

 

243,719 

 

 

243,719 

 

 

 -

Other assets

 

219,756 

 

 

246,481 

 

 

26,725 

TOTAL ASSETS

$

1,713,416 

 

$

1,741,691 

 

$

28,275 



 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Accounts payable

$

66,968 

 

$

66,968 

 

$

 -

Accrued liabilities

 

253,418 

 

 

254,381 

 

 

963 

Deferred income tax liabilities

 

25,353 

 

 

25,087 

 

 

(266)

Line of credit and long-term debt

 

1,261,075 

 

 

1,261,075 

 

 

 -

Deferred revenue

 

64,726 

 

 

110,158 

 

 

45,432 

Other long-term liabilities

 

95,718 

 

 

82,840 

 

 

(12,878)

Total liabilities

 

1,767,258 

 

 

1,800,509 

 

 

33,251 



 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

 

Retained earnings

 

803,545 

 

 

798,569 

 

 

(4,976)

All other stockholders' deficit and noncontrolling interest

 

(857,387)

 

 

(857,387)

 

 

 -

Total stockholders’ deficit

 

(53,842)

 

 

(58,818)

 

 

(4,976)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

1,713,416 

 

$

1,741,691 

 

$

28,275 



 

9 

 


 

The following tables compare the reported unaudited condensed consolidated balance sheet, statement of operations and cash flows, as of and for the three months ended March 31, 2018, to the pro forma amounts had the previous U.S. GAAP guidance been in effect (in thousands):







 

 

 

 

 

 

 

 



Condensed Consolidated Balance Sheet



As of March 31, 2018



 

 

 

 

 

 

 

 



 

 

New U.S. GAAP

 

Attributed to the



Previous U.S. GAAP

 

(As Reported)

 

New Revenue Standard



 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

159,229 

 

$

159,229 

 

$

 -

Accounts receivable

 

257,214 

 

 

259,865 

 

 

2,651 

Inventories

 

180,328 

 

 

179,039 

 

 

(1,289)

Property and equipment, net

 

384,246 

 

 

384,246 

 

 

 -

Goodwill and intangible assets, net

 

242,915 

 

 

242,915 

 

 

 -

Other assets

 

212,896 

 

 

244,198 

 

 

31,302 

TOTAL ASSETS

$

1,436,828 

 

$

1,469,492 

 

$

32,664 



 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Accounts payable

$

70,409 

 

$

70,409 

 

$

 -

Accrued liabilities

 

209,437 

 

 

210,384 

 

 

947 

Deferred income tax liabilities

 

29,786 

 

 

27,529 

 

 

(2,257)

Line of credit and long-term debt

 

1,016,505 

 

 

1,016,505 

 

 

 -

Deferred revenue

 

64,813 

 

 

109,074 

 

 

44,261 

Other long-term liabilities

 

94,296 

 

 

84,573 

 

 

(9,723)

Total liabilities

 

1,485,246 

 

 

1,518,474 

 

 

33,228 



 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

 

Retained earnings

 

880,785 

 

 

880,348 

 

 

(437)

Accumulated other comprehensive loss

 

(34,079)

 

 

(34,206)

 

 

(127)

All other stockholders' deficit and noncontrolling interest

 

(895,124)

 

 

(895,124)

 

 

 -

Total stockholders’ deficit

 

(48,418)

 

 

(48,982)

 

 

(564)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

1,436,828 

 

$

1,469,492 

 

$

32,664 







 

 

 

 

 

 

 

 



Condensed Consolidated Statement of Operations



For the Three Months Ended March 31, 2018



 

 

 

 

 

 

 

 



 

 

New U.S. GAAP

 

Attributed to the



Previous U.S. GAAP

 

(As Reported)

 

New Revenue Standard



 

 

 

 

 

 

 

 

Total revenue

$

525,369 

 

$

537,656 

 

$

12,287 

Total cost of revenue

 

227,965 

 

 

234,557 

 

 

6,592 

Gross profit

 

297,404 

 

 

303,099 

 

 

5,695 



 

 

 

 

 

 

 

 

Total operating expense

 

190,626 

 

 

190,055 

 

 

(571)

Income from operations

 

106,778 

 

 

113,044 

 

 

6,266 

Interest expense

 

(9,274)

 

 

(9,274)

 

 

 -

Interest income

 

862 

 

 

579 

 

 

(283)

Income before provision for income taxes

 

98,366 

 

 

104,349 

 

 

5,983 

Provision for income taxes

 

13,429 

 

 

14,873 

 

 

1,444 

Net income

$

84,937 

 

$

89,476 

 

$

4,539 



 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 



Condensed Consolidated Statement of Cash Flows



For the Three Months Ended March 31, 2018



 

 

 

 

 

 

 

 



 

 

 

New U.S. GAAP

 

Attributed to the



Previous U.S. GAAP

 

(As Reported)

 

New Revenue Standard

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

$

84,937 

 

$

89,476 

 

$

4,539 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Benefit of deferred income taxes

 

1,088 

 

 

3,005 

 

 

1,917 

All other adjustments to reconcile net income to net cash provided by operating activities

 

27,855 

 

 

27,855 

 

 

 -

Changes in assets and liabilities, net

 

(78,982)

 

 

(85,438)

 

 

(6,456)

Net cash provided by operating activities

$

34,898 

 

$

34,898 

 

$

 -





There were no changes to cash flows from investing and financing activities as a result of the adoption of the New Revenue Standard.

 

10 

 


 

Effective January 1, 2018, we adopted FASB ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. We recognized the cumulative effect of applying this standard as an adjustment to the opening balance of retained earnings and a reduction to other long-term assets of $7.7 million.



Effective January 1, 2018, we adopted FASB ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists on the classification of certain cash receipts and payments. We adopted this amendment on a retrospective basis. This amendment did not have an impact on our financial statements.



Effective January 1, 2018, we adopted FASB ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, to add guidance on the classification and presentation of restricted cash. These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this standard did not have an impact on our financial statements.



Effective January 1, 2018, we adopted FASB ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), to simplify the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill. The adoption of this standard did not have an impact on our financial statements.



Effective January 1, 2018, we adopted FASB ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarification on accounting for modifications in share-based payment awards. The adoption of this guidance did not have an impact on our consolidated financial statements or related disclosures as there were no modifications to our share-based payment awards during the three months ended March 31, 2018.



In March 2018, we adopted FASB ASU 2018-05, Income Taxes  (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which updates the income tax accounting to reflect the SEC’s interpretive guidance released on December 22, 2017, when the 2017 Tax Act was signed into law. See “Note 11. Income Taxes.”



Effective April 1, 2018, we early adopted FASB ASU 2017-12, Derivatives and Hedging (Topic 815), which amends the hedge accounting recognition and presentation requirements. The adoption of this guidance is not expected to have an impact on our consolidated financial statements or related disclosures, however it allows us to simplify our procedures to assess critical terms.



New Accounting Pronouncements Not Yet Adopted



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations’ leasing arrangements. Since then, the FASB has issued updates to ASU 2016-02. The principal difference from previous guidance is that effective upon adoption, the lease assets and lease liabilities arising from operating leases will be recognized in the balance sheet. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. In transition, we are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, including the option to utilize a number of practical expedients. We are in the process of evaluating our lessee and lessor arrangements to determine the impact of this amendment on our consolidated financial statements. This evaluation includes an extensive review of revenue through leasing arrangements as well as lease expenses, which are primarily through operating lease arrangements for most of our facilities. We currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption.



In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), to allow a reclassification from accumulated other comprehensive income to retained earnings related to the stranded effects of the 2017 Tax Act. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted. In transition, we are required to apply the

 

11 

 


 

amendments either in the period of adoption or retrospectively. We are currently evaluating the impact these amendments will have on our consolidated financial statements.



For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the New Accounting Pronouncements Not Yet Adopted section in our 2017 Annual Report.



NOTE 3.     REVENUE RECOGNITION



Under the New Revenue Standard, 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. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer. To meet the requirements of the New Revenue Standard and accurately present the consideration received in exchange for promised products or services, we applied the prescribed 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 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 general payment terms range from 30 to 60 days, with exceptions in certain 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 VetLab consumables and accessories, rapid assay, LPD, Water, and OPTI testing products, are 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. 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 revenues are recognized and invoiced when the laboratory diagnostic service is 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. Lease revenue on instrument systems under rental agreements and reagent rental programs is recognized on a ratable basis over the term of the agreement. Customers typically pay for rental agreements in equal monthly amounts over the term of the rental agreement. See below for revenue recognition under 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 1 to 5 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

 

12 

 


 

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.



Upon adoption of the New Revenue Standard on January 1, 2018, our deferred revenue related to extended warranties and post-contract support was $40.3 million, of which approximately $11.8 million was recognized during the three months ended March 31, 2018. Furthermore, as a result of new agreements, our deferred revenues related to extended warranties and post-contract support were $41.3 million at March 31, 2018. 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, which are practical expedients provided within the New Revenue Standard. Deferred revenue related to extended warranties and post-contract support with an original duration of more than one year was $28.8 million at March 31, 2018, of which approximately 20%,  28%, and 22% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, 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 Neo, Animana, Pet Health Network Pro, Petly Plans, Web PACS, and rVetLink. 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 2 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 apply a practical expedient provided by the New Revenue Standard and do not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less.



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 assets, which are subsequently recognized as a reduction to revenue over the term of the customer agreement. If these up-front incentives are subsequently utilized to purchase instruments, we allocate total consideration, including future committed purchases less up-front incentives and estimates of expected price adjustments, based on relative standalone selling prices to identified performance obligations and recognize instrument revenue and cost at the time of installation and customer acceptance. We have determined these agreements do not include a significant financing component.



 

13 

 


 

Upon adoption of the New Revenue Standard on January 1, 2018, our capitalized customer acquisition costs were $107.5 million, of which approximately $7.2 million was recognized as a reduction of revenue during the three months ended March 31, 2018. Furthermore, as a result of new up-front customer loyalty payments, our capitalized customer acquisition costs were $113.8 million at March 31, 2018. 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 months ended March 31, 2018, were not material.



Volume Commitment Programs. Our volume commitment programs provide customers with a free 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 in advance of billing the customer at the time of installation and customer acceptance, 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 receivables 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.



Upon adoption of the New Revenue Standard on January 1, 2018, our volume commitment contract assets were $5.6 million, of which approximately $1.3 million was reclassified to accounts receivable when customers were billed for related products and services during the three months ended March 31, 2018. Furthermore, as a result of new placements under volume commitment programs, our contract assets were $12.3 million at March 31, 2018. 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 months ended March 31, 2018, 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 $878.5 million, of which approximately 23%,  24%, and 19% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, respectively. These future revenues relate to performance obligations not yet satisfied, for which customers have committed to 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, previously referred to as IDEXX Instrument Marketing 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 a portion of instrument revenue to our 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.



Upon adoption of the New Revenue Standard on January 1, 2018, our deferred revenue related to instrument rebate programs was $65.9 million, of which approximately $4.6 million was recognized when customers purchased eligible products and services, and earned rebates during the three months ended March 31, 2018. Furthermore, as a result of new instrument purchases under rebate programs, our deferred revenues were $63.7 million at March 31, 2018, of which approximately 22%,  26% and 21% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, respectively.



Reagent Rental Programs. Our reagent rental programs provide our customers the right to use our instruments upon entering into multi-year agreements to purchase annual minimum amounts of consumables. These types of agreements include an embedded operating lease for the right to use our instrument and no instrument revenue is recognized at the time of instrument installation. We determine the amount of lease revenue allocated to the instrument based on relative standalone selling prices and determine the pattern of instrument revenue recognition in proportion to

 

14 

 


 

the customer’s minimum purchase commitment. The cost of the instrument is capitalized within property and equipment, and is charged to cost of product revenue ratably over the term of the agreement.



We estimate future revenue to be recognized related to these multi-year agreements with customers of approximately $115.9 million, of which approximately 24%,  28%, and 22% are expected to be recognized during the remainder of 2018, the full year 2019, and the full year 2020, respectively. These represent future performance obligations not yet satisfied for which customers have committed to future purchases, net of any expected price adjustments, and as a result, may be lower than stated contractual commitments by our customers.



Other Customer Incentive Programs. Certain agreements with customers include discounts or rebates on the sale of products and services applied retrospectively, such as volume rebates achieved by purchasing a specified purchase threshold of goods and services. We account for these discounts as variable consideration and estimate the likelihood of a customer meeting the threshold in order to determine the transaction price using both the most-likely-amount and expected-value approach, as applicable. Revenue adjustments that relate to performance obligations satisfied in prior periods during the three months ended March 31, 2018, were not material. Refund obligations related to customer incentive programs are recorded in accrued liabilities for the actual issuance of incentives, incentives earned but not yet issued and estimates of incentives to be earned in the future.



IDEXX Points. IDEXX Points may be applied to trade receivables due to us, converted to cash, or applied against the purchase price of IDEXX products and services. We consider IDEXX Points equivalent to cash and IDEXX Points that have not yet been used by customers are included in accrued liabilities until utilized or expired. Breakage is not material because customers can apply IDEXX Points to trade receivables at any time.



Accounts Receivable. We recognize revenue when it is probable that we will collect substantially all of the consideration to which we will be entitled, based on the customer’s intent and ability to pay the promised consideration. 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. We maintain allowances for doubtful accounts 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. 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. Account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance sheet credit exposure related to our customers. We have no significant customers that accounted for greater than 10% of our consolidated revenues and we have no concentration of credit risk as of March 31, 2018.



Disaggregated Revenues. We present disaggregated revenue for our CAG segment based on major product and service categories. Although Water and LPD do not meet the quantitative thresholds to be reported as separate segments, we believe it is important to disaggregate these revenues as major product and service categories within our Other reportable segment given their distinct markets, and therefore we have elected to report Water and LPD as reportable segments. The following table presents disaggregated revenue by major product and service categories for the period ending March 31, 2018 (in thousands):







 

 

 

 

 

 



 

For the Three Months Ended



 

March 31,



 

 

2018 

 

 

2017 

CAG segment revenue:

 

 

 

 

 

 

CAG Diagnostics recurring revenue:

 

$

406,048 

 

$

346,680 

IDEXX VetLab consumables

 

 

149,513 

 

 

123,553 

Rapid assay products

 

 

52,017 

 

 

47,895 

Reference laboratory diagnostic and consulting services

 

 

186,937 

 

 

159,069 

CAG Diagnostics service and accessories

 

 

17,581 

 

 

16,163 

CAG Diagnostics capital - instruments

 

 

30,895 

 

 

26,183 

Veterinary software, services and diagnostic imaging systems

 

 

33,890 

 

 

30,364 

CAG segment revenue

 

 

470,833 

 

 

403,227 



 

 

 

 

 

 

Water segment revenue

 

 

29,143 

 

 

25,077 

LPD segment revenue

 

 

32,240 

 

 

29,317 

Other segment revenue

 

 

5,440 

 

 

4,400 

Total revenue

 

$

537,656 

 

$

462,021 



 

15 

 


 

Revenue by principal geographic area, based on customers’ domiciles, was as follows (in thousands):







 

 

 

 

 



 

For the Three Months Ended March 31,



 

2018

 

 

2017

United States

$

327,461 

 

$

288,613 

Europe, the Middle East and Africa

 

120,574 

 

 

96,428 

Asia Pacific Region

 

56,039 

 

 

48,952 

Canada

 

22,544 

 

 

18,748 

Latin America

 

11,038 

 

 

9,280 

Total

$

537,656 

 

$

462,021 



Costs to Obtain a Contract. We capitalize sales commissions and the related fringe benefits earned by our sales force when considered incremental and recoverable costs of obtaining a contract. Our contracts include performance obligations related to various goods and services, some of which are satisfied at a point in time and others over time. Commission costs related to performance obligations satisfied at a point in time are expensed at the time of sale, which is when revenue is recognized. Commission costs related to long-term service contracts and performance obligations satisfied over time, including extended warranties and SaaS subscriptions are deferred and recognized on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. We apply judgment in estimating the amortization period, which ranges from 3 to 7 years, by taking into consideration our customer contract terms, history of renewals, expected length of customer relationship, as well as the useful life of the underlying technology and products. Amortization expense is included in sales and marketing expenses in the accompanying unaudited condensed consolidated statements of operations. Deferred commission costs are periodically reviewed for impairment.



Upon adoption of the New Revenue Standard on January 1, 2018, our deferred commissions costs, included within other assets, were $11.8 million, and approximately $1.0 million of commissions expense was recognized during the three months ended March 31, 2018. Furthermore, as a result of commissions related to new extended warranties and SaaS subscriptions, our deferred commission costs were $12.4 million at March 31, 2018. Impairments of deferred commission costs during the three months ended March 31, 2018, were not material.



NOTE 4.    ACQUISITIONS



We believe that our acquisitions of businesses and other assets enhance our existing businesses by either expanding our geographic range and customer base or expanding our existing product lines. We had no acquisitions during the first quarter of 2018.

During the first quarter of 2017, we acquired a reference laboratory in Austria for approximately €1.3 million, with the majority of the acquisition price valued as an intangible asset. This acquisition was accounted for as an acquisition of a business and the results of operations of this reference laboratory have been included in our CAG segment since the acquisition date. Pro forma information has not been presented for this business acquisition because such information is not material to our financial statements.



NOTE 5.    SHARE-BASED COMPENSATION 

 

The fair value of options, restricted stock units, deferred stock units and employee stock purchase rights awarded during the three months ended March 31, 2018,  totaled $31.1 million as compared to $27.9 million for the three months ended March  31, 2017.  The total unrecognized compensation expense, net of estimated forfeitures, for unvested share-based compensation awards outstanding at March 31, 2018, was $67.2 million, which will be recognized over a weighted average period of approximately 2.3 years. During the three months ended March 31, 2018, we recognized expense of $5.9 million related to share-based compensation.

 

           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 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.



 

16 

 


 

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,



 

 

2018 

 

 

 

2017 

 



 

 

 

 

 

 

 

 

Share price at grant

 

$

178.26 

 

 

$

141.60 

 

Expected stock price volatility

 

 

24 

%

 

 

26 

%

Expected term, in years

 

 

5.8 

 

 

 

5.8 

 

Risk-free interest rate

 

 

2.7 

%

 

 

2.0 

%

Weighted average fair value of options granted

 

$

52.49 

 

 

$

40.51 

 







Note 6.    marketable securities



As a result of the passage of the 2017 Tax Act during the fourth quarter of 2017, we liquidated our marketable securities held outside the U.S. during the first quarter of 2018 and recognized a loss of approximately $0.3 million. We repatriated these funds and reduced our revolving debt balance during the first quarter of 2018.



The amortized cost and fair value of marketable securities as of December 31, 2017, were as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

140,969 

 

$

96 

 

$

(179)

 

$

140,886 

 

Certificates of deposit

 

 

58,510 

 

 

 -

 

 

 -

 

 

58,510 

 

Commercial paper

 

 

29,171 

 

 

 -

 

 

 -

 

 

29,171 

 

Asset backed securities

 

 

22,206 

 

 

 

 

(43)

 

 

22,167 

 

U.S. government bonds

 

 

15,619 

 

 

11 

 

 

(19)

 

 

15,611 

 

Agency bonds

 

 

10,990 

 

 

 

 

(52)

 

 

10,947 

 

Treasury bills

 

 

6,964 

 

 

 -

 

 

(1)

 

 

6,963 

 

Total marketable securities

 

$

284,429 

 

$

120 

 

$

(294)

 

$

284,255 

 



We held marketable securities with effective maturities of two years or less that had an average AA- credit rating as of December 31, 2017.



Note 7.    Inventories  

 

Inventories, which are stated at the lower of cost (first-in, first-out) or net realizable value. Net realizable value is the estimated selling prices 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,

 

December 31,

 



 

 

2018 

 

 

2017 

 



 

 

 

 

 

 

 

Raw materials

 

$

34,958 

 

$

32,994 

 

Work-in-process

 

 

18,252 

 

 

17,786 

 

Finished goods

 

 

125,829 

 

 

113,538 

 

Inventories (Note 2)

 

$

179,039 

 

$

164,318 

 



  





 

17 

 


 

NOTE 8.    Other current and long-term ASSETS 



Other current assets consisted of the following (in thousands):

 





 

 

 

 

 

 

 



 

March 31,

 

December 31,

 



 

 

2018 

 

 

2017 

 



 

 

 

 

 

 

 

Prepaid expenses

 

$

28,720 

 

$

28,967 

 

Taxes receivable

 

 

26,207 

 

 

35,475 

 

Customer acquisition costs (Notes 2 and 3)

 

 

30,354 

 

 

23,520 

 

Contract assets (Notes 2 and 3)

 

 

5,085 

 

 

 -

 

Deferred sales commissions (Notes 2 and 3)

 

 

4,369 

 

 

 -

 

Other assets (Notes 2 and 3)

 

 

8,839 

 

 

13,178 

 

Other current assets

 

$

103,574 

 

$

101,140 

 



Other long-term assets consisted of the following (in thousands):  



 

 

 

 

 

 

 



 

March 31,

 

December 31,

 



 

 

2018 

 

 

2017 

 



 

 

 

 

 

 

 

Investment in long-term product supply arrangements

 

$

10,324 

 

$

9,949 

 

Customer acquisition costs (Notes 2 and 3)

 

 

83,417 

 

 

64,670 

 

Contract assets (Notes 2 and 3)

 

 

7,202 

 

 

 -

 

Deferred sales commissions (Notes 2 and 3)

 

 

8,013 

 

 

 -

 

Deferred income taxes (Note 2)

 

 

9,823 

 

 

7,698 

 

Other assets (Notes 2 and 3)

 

 

21,845 

 

 

36,299 

 

Other long-term assets

 

$

140,624 

 

$

118,616 

 





Note 9.    Accrued liabilities 

 

Accrued liabilities consisted of the following (in thousands):





 

 

 

 

 

 

 



 

March 31,

 

December 31,

 



 

2018 

 

2017 

 



 

 

 

 

 

 

 

Accrued expenses

 

$

65,835 

 

$

64,430 

 

Accrued employee compensation and related expenses

 

 

59,080 

 

 

102,944 

 

Accrued taxes

 

 

26,452 

 

 

29,389 

 

Accrued customer incentives and refund obligations (Notes 2 and 3)

 

 

59,017 

 

 

56,655 

 

Total accrued liabilities

 

$

210,384 

 

$

253,418 

 





Other long-term liabilities consisted of the following (in thousands):







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

March 31,

 

December 31,

 



 

2018 

 

2017 

 

Accrued taxes

 

$

67,551 

 

$

66,506 

 

Accrued customer incentives (Note 2)

 

 

 -

 

 

12,956 

 

Other accrued long-term expenses

 

 

17,022 

 

 

16,256 

 

Total other long-term liabilities

 

$

84,573 

 

$

95,718 

 





 

  

Note 10.    Repurchases of common STOCK 





We primarily acquire shares by repurchases in the open market. However, 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, 2018 and 2017 was not material.



 

18 

 


 

The following is a summary of our open market common stock repurchases, reported on a trade date basis, and shares acquired through employee surrender for the three months ended March 31, 2018 and 2017 (in thousands, except per share amounts)





 

 

 

 

 

 



 

For the Three Months Ended



 

March 31,



 

2018 

 

2017 



 

 

 

 

 

 

Shares repurchased in the open market

 

 

465 

 

 

390 

Shares acquired through employee surrender for statutory tax withholding

 

 

48 

 

 

52 

Total shares repurchased

 

 

513 

 

 

442 



 

 

 

 

 

 

Cost of shares repurchased in the open market

 

$

86,188 

 

$

50,744 

Cost of shares for employee surrenders

 

 

8,555 

 

 

7,303 

Total cost of shares

 

$

94,743 

 

$

58,047 



 

 

 

 

 

 

Average cost per share - open market repurchase

 

$

185.23 

 

$

130.12 

Average cost per share - employee surrenders

 

$

178.83 

 

$

141.09 

Average cost per share - total

 

$

184.63 

 

$

131.41 





 



NOTE 11.     INCOME TAXES 

 

Our effective income tax rate was 14.3% for the three months ended March 31, 2018, as compared to 18.5% for the three months ended March 31, 2017. The decrease in our effective tax rate was primarily related to the reduction in our U.S. statutory rate as a result of the 2017 Tax Act, partially offset by lower tax benefits related to share-based compensation, as compared to the same period in the prior year.  



As of December 31, 2017, we have accounted for the impacts of the 2017 Tax Act to the extent a reasonable estimate could be made and we recognized provisional amounts related to the deemed repatriation tax, offset by the remeasurement of our deferred tax assets and liabilities to record the effects of the tax law change in the period of enactment. This treatment is provided for in ASU 2018-05, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law during the measurement period. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. During the first quarter of 2018, the Internal Revenue Service issued additional guidance providing clarification on certain aspects of the deemed repatriation tax calculation. The additional guidance did not result in an adjustment to the provisional amounts recorded as of December 31, 2017. We will continue to monitor for new guidance related to provisional amounts recorded.





Note 12.  ACCUMULATED OTHER Comprehensive Income  

 

The changes in AOCI, net of tax, for the three months ended March  31, 2018 consisted of the following (in thousands):

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

Unrealized (Loss) Gain on Investments, Net of Tax

 

 

Unrealized (Loss) Gain on Derivative Instruments, Net of Tax

 

 

Unrealized (Loss) on Net Investment Hedge, Net of Tax

 

 

Cumulative Translation Adjustment

 

 

Total

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

 

$

(22)

 

$

(5,219)

 

$

(4,311)

 

$

(26,918)

 

$

(36,470)

 

Other comprehensive income (loss) before reclassifications

 

 

118 

 

 

(2,388)

 

 

(2,216)

 

 

5,165 

 

 

679 

 

Gains reclassified from accumulated other comprehensive income

 

 

 -

 

 

1,585 

 

 

 -

 

 

 -

 

 

1,585 

 

Balance as of March 31, 2018

 

$

96 

 

$

(6,022)

 

$

(6,527)

 

$

(21,753)

 

$

(34,206)

 

















 

19 

 


 

The following is a summary of reclassifications out of AOCI for the three months ended March 31, 2018 and 2017 (in thousands):





 

 

 

 

 

 

 

 

 

Details about AOCI Components

 

Affected Line Item in the Statement of Operations

 

 

Amounts Reclassified from AOCI For the Three Months Ended March 31,

 



 

 

 

 

2018 

 

 

2017 

 

(Losses) gains on derivative instruments classified as cash flow hedges included in net income:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

Cost of revenue

 

$

(1,835)

 

$

1,075 

 



 

Tax (benefits) expense

 

 

(250)

 

 

401 

 



 

(Losses) gains, net of tax

 

$

(1,585)

 

$

674 

 







Note 13.  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. See Note 4 to the consolidated financial statements in our 2017 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 for the three months ended March  31, 2018 and 2017 (in thousands):   

 



 

 

 

 



 

For the Three Months Ended



 

March 31,



 

2018 

 

2017 



 

 

 

 

Shares outstanding for basic earnings per share

 

87,331 

 

88,117 



 

 

 

 

Shares outstanding for diluted earnings per share:

 

 

 

 

Shares outstanding for basic earnings per share

 

87,331 

 

88,117 

Dilutive effect of share-based payment awards

 

1,613 

 

1,877 



 

88,944 

 

89,994 

 







Certain options to acquire shares and restricted stock units 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 options and restricted stock units for the three months ended March 31, 2018 and 2017 (in thousands): 

 



 

 

 

 



 

For the Three Months Ended



 

March 31,



 

2018 

 

2017 



 

 

 

 

Weighted average number of shares underlying anti-dilutive options

 

167 

 

182 



 

 

 

 

Weighted average number of shares underlying anti-dilutive restricted stock units

 

-

 

47 



  

Note 14.  Commitments, Contingencies and Guarantees 

 

Significant commitments, contingencies and guarantees at March 31, 2018, are consistent with those discussed in Note 14 to the consolidated financial statements in our 2017 Annual Report.

 



 

20 

 


 

Note 15.   Segment Reporting 

  

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 include diagnostic and information technology-based products and services for the veterinary market, which we refer to as the Companion Animal Group (“CAG”), water quality products (“Water”) and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve dairy efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other operating segment combines and presents products for the human point-of-care medical diagnostics market with our pharmaceutical product line and our out-licensing arrangements.



Certain costs are not allocated to our operating segments and are instead reported under the caption “Unallocated Amounts.” These costs include costs that do not align with one of our existing operating segments or are cost prohibitive to allocate, which primarily consist of our R&D function, regional or country expenses, certain foreign currency revaluation gains and losses on monetary balances in currencies other than our subsidiaries’ functional currency and unusual items. Corporate support function costs (such as information technology, facilities, human resources, finance and legal), health benefits and incentive compensation are charged to our business segments at pre-determined budgeted amounts or rates. Differences from these pre-determined budgeted amounts or rates are captured within Unallocated Amounts.



The following is a summary of segment performance for the three months ended March 31, 2018 and 2017 (in thousands):



 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

 



 

 

CAG

 

Water

 

LPD

 

Other

 

Unallocated Amounts

 

Consolidated Total

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

470,833 

 

$

29,143 

 

$

32,240 

 

$

5,440 

 

$

 -

 

$

537,656 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

100,398 

 

$

12,462 

 

$

2,961 

 

$

498 

 

$

(3,275)

 

$

113,044 

 

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,695)

 

Income before provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104,349 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,873 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89,476 

 

Less: Net income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25 

 

Net income attributable to IDEXX Laboratories, Inc. stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

89,451 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

403,227 

 

$

25,077 

 

$

29,317 

 

$

4,400 

 

$

 -

 

$

462,021 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

$

79,855 

 

$

10,263 

 

$

3,802 

 

$

393 

 

$

(2,070)

 

$

92,243 

 

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,506)

 

Income before provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84,737 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,679 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,058 

 

Less: Net income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39 

 

Net income attributable to IDEXX Laboratories, Inc. stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

69,019 

 





See “Note 3. Revenue Recognition” for a summary of disaggregated revenue by reportable segment and by major product and service category for the three months ended March 31, 2018 and 2017. 







 

21 

 


 

Note 16.   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 nonrecurring 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. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows

 

Level 1

Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2

Observable 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 3

Unobservable 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, 2018



Our marketable debt securities are initially valued at the transaction price and are subsequently remeasured to fair value as of the balance sheet date utilizing third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. Observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events. We validate the prices provided by our third-party pricing services by obtaining independent market values from other pricing sources and analyzing pricing data in certain instances.             



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



The amounts outstanding under our unsecured revolving credit facility (“Credit Facility” or “line of credit”) 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 $619.8 million and $609.5 million, respectively, as of March  31, 2018, and $632.0 million and $606.6 million, respectively, as of December 31, 2017. 



 

22 

 


 

The following tables set forth our assets and liabilities that were measured at fair value on a recurring basis at March 31, 2018, and at December 31, 2017, by level within the fair value hierarchy (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 



 

 

in Active

 

 

Other

 

 

Significant

 

 

 

 



 

 

Markets for

 

 

Observable

 

 

Unobservable

 

 

 

 



 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

Balance at

 

As of March 31, 2018

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

March 31, 2018

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

13,246 

 

$

-

 

$

-

 

$

13,246 

 

Equity mutual funds(2)

 

$

2,069 

 

$

-

 

$

-

 

$

2,069 

 

Foreign currency exchange contracts(3)

 

$

-

 

$

892 

 

$

-

 

$

892 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts(3)

 

$

-

 

$

7,741 

 

$

-

 

$

7,741 

 

Deferred compensation(4)

 

$

2,069 

 

$

-

 

$

-

 

$

2,069 

 

















 





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 



 

 

in Active

 

 

Other

 

 

Significant

 

 

 

 



 

 

Markets for

 

 

Observable

 

 

Unobservable

 

 

 

 



 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

Balance at

 

As of December 31, 2017

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

December 31, 2017

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

32,962 

 

$

-

 

$

-

 

$

32,962 

 

Certificates of deposit(1)

 

$

-

 

$

1,250 

 

$

-

 

$

1,250 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

-

 

$

140,886 

 

$

-

 

$

140,886 

 

Certificates of deposit

 

 

-

 

 

58,510 

 

 

-

 

 

58,510 

 

Commercial paper

 

 

-

 

 

29,171 

 

 

-

 

 

29,171 

 

Asset backed securities

 

 

-

 

 

22,167 

 

 

-

 

 

22,167 

 

U.S. government bonds

 

 

-

 

 

15,611 

 

 

-

 

 

15,611 

 

Agency bonds

 

 

-

 

 

10,947 

 

 

-

 

 

10,947 

 

Treasury bills

 

 

-

 

 

6,963 

 

 

-

 

 

6,963 

 

Total marketable securities

 

$

-

 

$

284,255 

 

$

-

 

$

284,255 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Equity mutual funds(2)

 

$

2,162 

 

$

-

 

$

-

 

$

2,162 

 

Foreign currency exchange contracts(3)

 

$

-

 

$

477 

 

$

-

 

$

477 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts(3)

 

$

-

 

$

6,468 

 

$

-

 

$

6,468 

 

Deferred compensation(4)

 

$

2,162 

 

$

-

 

$

-

 

$

2,162 

 

_____________

(1)

Money market funds and certificates of deposit 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, 2018 and December 31, 2017, consisted of demand deposits. Certificates of deposit with an original maturity of over ninety days are included within marketable securities.

(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 long-term assets. See footnote (4) below for a discussion of the related deferred compensation liability. 

(3)

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)

A deferred compensation plan assumed as part of a previous business combination is included within accrued liabilities and other long-term 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 value of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate carrying value due to their short maturity.







 

23 

 


 

Note 17.  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. The primary risks that we manage by using hedging instruments are foreign currency exchange risk and interest rate risk. 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 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. We may also enter into interest rate swaps to minimize the impact of interest rate fluctuations associated with borrowings under our variable-rate Credit Facility. 

 

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, Australian dollar and Swiss franc. 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 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 the designation of such instruments as hedging transactions.   



We recognize all hedging instruments on the balance sheet at fair value at the balance sheet date. Instruments that do not qualify for hedge accounting treatment must be 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 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. See “Note 12. Accumulated Other Comprehensive Income” for further information regarding the effect of hedging instruments on our unaudited condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017.



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 as cash flow hedges as these derivative instruments mitigate the exposure to variability in the cash flows of forecasted transactions attributable to foreign currency exchange. 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, 2018 or 2017. Gains or losses related to hedge ineffectiveness during the three months ended March 31, 2018 and 2017 were not material.  At March 31, 2018, the estimated amount of net losses, net of income tax benefit, which are expected to be reclassified out of AOCI and into earnings within the next 12 months, is $5.8 million if exchange rates do not fluctuate from the levels at March 31, 2018. 

 

We hedge approximately 85% of the estimated exposure from intercompany product purchases and sales denominated in the euro, British pound, Canadian dollar, Japanese yen, Australian dollar and Swiss franc. We have additional unhedged foreign currency exposures related to foreign services 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

 

24 

 


 

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 $210.4 million and $176.5 million at March  31, 2018 and December 31, 2017, respectively.



Net Investment Hedge



In June 2015, we issued and sold through a private placement an aggregate principal amount of €88.9 million in euro-denominated 1.785% Series C Senior Notes due June 18, 2025. We have designated these euro-denominated notes as a hedge of our euro net investment in certain foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the euro relative to the U.S. dollar. As a result of this designation, gains and losses from the change in translated U.S. dollar value of these euro-denominated notes are recorded in AOCI rather than to earnings. We recorded losses of $2.2 million, net of income tax, within AOCI as a result of this net investment hedge for the three months ended March  31, 2018. The related cumulative unrealized loss recorded at March 31, 2018 will not be reclassified in earnings until the complete or substantially complete liquidation of the net investment in the hedged foreign operations or a portion of the hedge no longer qualifies for hedge accounting treatment. See Note 11 to the consolidated financial statements included in our 2017 Annual Report for further information regarding the issuance of these euro-denominated notes.



Fair Values of Hedging Instruments Designated as Hedges in Consolidated Balance Sheets



 

The fair values of hedging instruments and their respective classification on our unaudited condensed consolidated balance sheets and amounts subject to offset under master netting arrangements consisted of the following (in thousands):

 



 

 

 

 

 

 

 

 

 



 

 

 

Hedging Assets

 



 

 

 

 

March 31,

 

 

December 31,

 



 

 

 

 

2018 

 

 

2017 

 



 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

Balance Sheet Classification

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

Other current assets

 

$

452 

 

$

477 

 

Foreign currency exchange contracts

 

Other long-term assets

 

 

440 

 

 

 -

 

Total derivative instruments presented as cash flow hedges on the balance sheet

 

 

892 

 

 

477 

 

Gross amounts subject to master netting arrangements not offset on the balance sheet

 

 

815 

 

 

477 

 

Net amount

 

 

 

$

77 

 

$

-

 







 

 

 

 

 

 

 

 

 



 

 

 

Hedging Liabilities

 



 

 

 

 

March 31,

 

 

December 31,

 



 

 

 

 

2018 

 

 

2017 

 



 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

Balance Sheet Classification

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

Accrued liabilities

 

$

7,249 

 

$

6,468 

 

Foreign currency exchange contracts

 

Other long-term liabilities

 

 

492 

 

 

 -

 

Total derivative instruments presented as cash flow hedges on the balance sheet

 

 

7,741 

 

 

6,468 

 

Foreign currency borrowings designated as net investment hedge on the balance sheet

 

Long-term debt

 

 

109,481 

 

 

106,567 

 

Total hedging instruments presented on the balance sheet

 

 

117,222 

 

 

113,035 

 

Gross amounts subject to master netting arrangements not offset on the balance sheet

 

 

815 

 

 

477 

 

Net amount

 

 

 

$

116,407 

 

$

112,558 

 



See “Note 12. Accumulated Other Comprehensive Income” for gains and losses recognized in AOCI on derivative instruments for the three months ended March 31, 2018.





 

25 

 


 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

 

This Quarterly Report on Form 10-Q contains statements which, to the extent they are not statements of historical fact, constitute “forward-looking statements.” Such forward-looking statements about our business and expectations within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), include statements relating to future revenue growth rates, future tax benefits; business trends, earnings and other measures of financial performance;  the effect of economic downturns on our business performance; projected impact of foreign currency exchange rates; demand for our products; realizability of assets; future cash flow and uses of cash; future repurchases of common stock; future levels of indebtedness and capital spending; interest expense; warranty expense; share-based compensation expense; the adoption and projected impact of new accounting standards; future commercial efforts; and competition. Forward-looking statements can be identified by the use of words such as “expects,” “may,” “anticipates,” “intends,” “would,” “will,” “plans,” “believes,” “estimates,” “should,” “project,” and similar words and expressions. These forward-looking statements are intended to provide our current expectations or forecasts of future events; are based on current estimates, projections, beliefs, and assumptions; and are not guarantees of future performance. Actual events or results may differ materially from those described in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, including the matters discussed in Item 1A, “Risk Factors” described in our 2017 Annual Report and this Quarterly Report on Form 10-Q, as well as those described from time to time in our other periodic reports filed with the SEC.



Any forward-looking statements represent our estimates only as of the day this Quarterly Report on Form 10-Q was filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates or expectations change.  



You should read the following discussion and analysis in conjunction with our 2017 Annual Report that includes additional information about us, our results of operations, our financial position, and our cash flows, and with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

       Business Overview 

 

We develop, manufacture, and distribute products and provide services primarily for the companion animal veterinary, livestock, poultry and dairy and water testing markets. We also sell a line of portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market. Our primary products and services are:



·

Point-of-care veterinary diagnostic products, comprising instruments, consumables, and rapid assay test kits;

·

Veterinary reference laboratory diagnostic and consulting services;

·

Veterinary management and diagnostic imaging systems and services;

·

Biomedical research, reference laboratory diagnostic services and instruments;

·

Diagnostic, health-monitoring products for livestock, poultry and antibiotic residue testing in dairy;

·

Products that test water for certain microbiological contaminants;

·

Point-of-care electrolytes and blood gas analyzers used in the human point-of-care medical diagnostics market.

 

Operating Segments. We operate primarily through three business segments: diagnostic and information technology-based products and services for the veterinary market, which we refer to as the Companion Animal Group (“CAG”), water quality products (“Water”) and diagnostic products and services for livestock and poultry health and to ensure the quality and safety of milk and improve dairy reproductive efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other operating segment combines and presents products for the human point-of-care medical diagnostics market (“OPTI Medical”) with our pharmaceutical product line and our out-licensing arrangements because they do not meet the quantitative or qualitative thresholds for reportable segments. 



CAG develops, designs, manufactures and distributes products and performs services for veterinarians and the bioresearch market, primarily related to diagnostics and information management. Water develops, designs, manufactures and distributes a range of products used in the detection of various microbiological parameters in water. LPD develops, designs, manufactures and distributes diagnostic tests and related software and performs services that are used to manage the health status of livestock and poultry, to improve bovine reproductive efficiency, and to ensure the quality and safety of milk and food. OPTI

 

26 

 


 

Medical manufactures and distributes point-of-care electrolyte and blood gas analyzers and related consumable products for the human medical diagnostics market.



Certain costs are not allocated to our operating segments and are instead reported under the caption “Unallocated Amounts.” These costs include costs that do not align with one of our existing operating segments or are cost prohibitive to allocate, which primarily consist of our R&D function, regional or country expenses, certain foreign currency revaluation gains and losses on monetary balances in currencies other than our subsidiaries’ functional currency and unusual items. Corporate support function costs (such as information technology, facilities, human resources, finance and legal), health benefits and incentive compensation are charged to our business segments at pre-determined budgeted amounts or rates. Differences from these pre-determined budgeted amounts or rates are captured within Unallocated Amounts.



Effects of Certain Factors and Trends on Results of Operations 

  

Currency Impact. See “Part I. Item 3. Quantitative and Qualitative Disclosures about Market Risk” included in this Quarterly Report on Form 10-Q for additional information regarding the impact of foreign currency exchange rates.



Other Items. See “Part I. Item 1. Business - Patents and Licenses” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 Annual Report for additional information regarding distributor purchasing and inventories, economic conditions and patent expiration.



Critical Accounting Policies and Estimates 

 

The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.  Excluding the adoption of the New Revenue Standard, the critical accounting policies and the significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements for the three months ended March 31, 2018, are consistent with those discussed in our 2017 Annual Report in the section under the heading “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.”  

 

Revenue Recognition. We adopted the New Revenue Standard in the first quarter of 2018 on a modified-retrospective basis. While the New Revenue Standard will not impact the overall economics of our products and services sold under customer marketing and incentive programs, it has changed the timing of revenue recognition. For more information regarding the adoption of the New Revenue Standard and new revenue recognition accounting policies, see Note 2 and Note 3, respectively, to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.



Future market conditions and changes in product offerings may cause us to change marketing strategies to increase or decrease customer incentive offerings, possibly resulting in incremental reductions of revenue in future periods as compared to reductions in the current or prior periods. Additionally, certain customer programs require us to estimate, based on historical experience, and apply judgment to predict the number of customers who will participate and earn the incentives. In determining estimated revenue reductions, we utilize data collected directly from end-users. Differences between estimated and actual customer participation in programs may impact the amount and timing of revenue recognition. At March 31, 2018, a 5% change in total transaction price resulting from variable consideration would have increased or reduced revenue by approximately $0.5 million.



Recent Accounting Pronouncements 



We are evaluating the impact that other recent accounting standards and amendments will have on our consolidated financial statements as described in Note 2 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.



 

27 

 


 

Non-GAAP Financial Measures



The following revenue analysis and discussion focuses on organic revenue growth, and references in this analysis and discussion to “revenue,” “revenues” or “revenue growth” are references to “organic revenue growth.” Organic revenue growth is a non-GAAP financial measure and represents the percentage change in revenue during the three months ended March 31, 2018, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, business acquisitions, and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for, or as a superior measure to, revenues reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting organic revenue growth provides useful information to investors by facilitating easier comparisons of our revenue performance with prior and future periods and to the performance of our peers.



We exclude from organic revenue growth the effect of changes in foreign currency exchange rates because changes in foreign currency exchange rates are not under management’s control, are subject to volatility and can obscure underlying business trends. We calculate the impact on revenue resulting from changes in foreign currency exchange rates by applying the difference between the weighted average exchange rates during the current year period and the comparable prior year period to foreign currency denominated revenues for the prior year period. 



We also exclude from organic revenue growth the effect of certain business acquisitions and divestitures because the nature, size and number of these transactions can vary dramatically from period to period, and because they either require or generate cash as an inherent consequence of the transaction, and therefore can also obscure underlying business and operating trends. Effective January 1, 2018, we exclude only acquisitions that are considered to be a business from organic revenue growth. We consider acquisitions to be a business when all three elements of inputs, processes and outputs are present, consistent with ASU 2017-01, “Business Combinations: (Topic 805) Clarifying the Definition of a Business”. In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, we do not consider these assets to be a business and effective January 1, 2018, we include these acquisitions in organic revenue growth. A typical acquisition that we do not consider a business is a customer list asset acquisition, which does not have all elements necessary to operate a business, such as employees or infrastructure. We believe the efforts required to convert and retain these acquired customers are similar in nature to our existing customer base and therefore are included in organic revenue growth. This change did not have a material impact on organic revenue growth during the three months ended March 31, 2018. Prior to January 1, 2018, we excluded all acquisitions from organic revenue growth. This change would not have impacted previously reported organic revenue growth for the three months ended March 31, 2018, as all acquisitions were business acquisitions. 



We also use Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio and net debt to Adjusted EBITDA ratio, in this Quarterly Report on Form 10-Q, all of which are non-GAAP financial measures that should be considered in addition to, and not as a  replacement for, financial measures presented according to U.S. GAAP.  Management believes that reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility. 



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

 

28 

 


 

Results of Operations

Three Months Ended March  31, 2018, Compared to Three Months Ended March  31, 2017



Total Company. The following table presents total Company revenue by operating segment: 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three

 

For the Three

 

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

Months Ended

 

Months Ended

 

 

 

 

 

Percentage

 

Percentage

 

Organic

 



 

March 31,

 

March 31,

 

Dollar

 

Percentage

 

Change from

 

Change from

 

Revenue

 

(dollars in thousands)

 

2018 

 

2017 

 

Change

 

Change

 

Currency

 

Acquisitions

 

Growth (1)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAG

 

$

470,833 

 

$

403,227 

 

$

67,606 

 

16.8% 

 

3.6% 

 

 

0.1% 

 

 

13.1% 

 

United States

 

 

308,286 

 

 

270,488 

 

 

37,798 

 

14.0% 

 

 -

 

 

0.1% 

 

 

13.9% 

 

International

 

 

162,547 

 

 

132,739 

 

 

29,808 

 

22.5% 

 

10.9% 

 

 

 -

 

 

11.5% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Water

 

 

29,143 

 

 

25,077 

 

 

4,066 

 

16.2% 

 

4.4% 

 

 

 -

 

 

11.8% 

 

United States

 

 

13,921 

 

 

13,019 

 

 

902 

 

6.9% 

 

 -

 

 

 -

 

 

6.9% 

 

International

 

 

15,222 

 

 

12,058 

 

 

3,164 

 

26.2% 

 

9.5% 

 

 

 -

 

 

16.8% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LPD

 

 

32,240 

 

 

29,317 

 

 

2,923 

 

10.0% 

 

8.0% 

 

 

 -

 

 

2.0% 

 

United States

 

 

3,313 

 

 

3,484 

 

 

(171)

 

(4.9%)

 

 -

 

 

 -

 

 

(4.9%)

 

International

 

 

28,927 

 

 

25,833 

 

 

3,094 

 

12.0% 

 

9.2% 

 

 

 -

 

 

2.8% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

5,440 

 

 

4,400 

 

 

1,040 

 

23.6% 

 

1.3% 

 

 

 -

 

 

22.3% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Company

 

$

537,656 

 

$

462,021 

 

$

75,635 

 

16.4% 

 

4.0% 

 

 

0.1% 

 

 

12.3% 

 

United States

 

 

327,461 

 

 

288,613 

 

 

38,848 

 

13.5% 

 

 -

 

 

0.1% 

 

 

13.4% 

 

International

 

 

210,195 

 

 

173,408 

 

 

36,787 

 

21.2% 

 

10.4% 

 

 

 -

 

 

10.8% 

 

(1)

Amounts presented may not recalculate to organic revenue growth rates due to rounding.



Total Company Revenue. The increase in both U.S. and international organic revenues was driven by strong volume gains in CAG Diagnostics recurring revenue, supported by our differentiated diagnostic technologies that are driving increased volumes from new and existing customers in our reference laboratory business and the continued expansion of our CAG Diagnostics instrument installed base. International organic growth was strong in Europe and Asia Pacific, reflecting the aforementioned CAG Diagnostics recurring volume driven growth. Our Water business also contributed to our international growth,  primarily from higher sales volumes of our Colilert test products and related accessories.  Total company revenue included approximately $12 million in the first quarter that was attributed to the New Revenue Standard.

 

29 

 


 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

For the Three Months Ended March 31,

 

Change

Total Company - Results of Operations

 

 

 

 

Percent of

 

 

 

 

Percent of

 

 

 

 

 

(dollars in thousands)

 

2018 

 

Revenue

 

 

2017 

 

Revenue

 

Amount

 

Percentage

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

537,656 

 

 

 

$

462,021 

 

 

 

$

75,635 

 

16.4% 

 

Cost of revenue

 

 

234,557 

 

 

 

 

203,830 

 

 

 

 

30,727 

 

15.1% 

 

Gross profit

 

 

303,099 

 

56.4% 

 

 

258,191 

 

55.9% 

 

 

44,908 

 

17.4% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

100,101 

 

18.6% 

 

 

87,244 

 

18.9% 

 

 

12,857 

 

14.7% 

 

General and administrative

 

 

60,931 

 

11.3% 

 

 

52,914 

 

11.5% 

 

 

8,017 

 

15.2% 

 

Research and development

 

 

29,023 

 

5.4% 

 

 

25,790 

 

5.6% 

 

 

3,233 

 

12.5% 

 

Total operating expenses

 

 

190,055 

 

35.3% 

 

 

165,948 

 

35.9% 

 

 

24,107 

 

14.5% 

 

Income from operations

 

$

113,044 

 

21.0% 

 

$

92,243 

 

20.0% 

 

$

20,801 

 

22.6% 

 



Gross Profit. Gross profit increased due to higher sales volumes and a 50 basis point increase in the gross profit percentage. The increase in the gross profit percentage was supported by the net benefit of price increases in our CAG Diagnostics recurring revenue portfolio, the favorable impact of lower product and manufacturing costs, and favorable mix benefits from high growth in CAG Diagnostic recurring revenues. The impact from foreign currency movements including the impact of hedge gains in the prior period compared to hedge losses in the current period, did not have a material impact. Gross profit included approximately $5.7 million in the first quarter attributable to the New Revenue Standard.



Operating Expense. The increase in total Company sales and marketing expense was due primarily to increased personnel-related costs as we continue to invest in and grow our global commercial infrastructure. The increase in general and administrative expense resulted primarily from information technology investments, including ongoing depreciation and maintenance associated with prior year projects, and higher personnel-related costs, partially offset by certain information technology costs that are now captured within cost of revenue. Research and development expense increased primarily due to higher personnel-related costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 4%.

 

30 

 


 

 Picture 4Companion Animal Group





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







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Percentage

 

Percentage

 

 

 

Net Revenue

 

For the Three

 

For the Three

 

 

 

 

 

Change

 

Change

 

Organic

 



 

Months Ended

 

Months Ended

 

Dollar

 

Percentage

 

from

 

from

 

Revenue

 

(dollars in thousands)

 

March 31, 2018

 

March 31, 2017

 

Change

 

Change

 

Currency

 

Acquisitions

 

Growth (1)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAG Diagnostics recurring revenue:

 

$

406,048 

 

$

346,680 

 

$

59,368 

 

17.1% 

 

3.7% 

 

 -

 

 

13.4% 

 

IDEXX VetLab consumables

 

 

149,513 

 

 

123,553 

 

 

25,960 

 

21.0% 

 

4.3% 

 

 -

 

 

16.7% 

 

Rapid assay products

 

 

52,017 

 

 

47,895 

 

 

4,122 

 

8.6% 

 

1.9% 

 

 -

 

 

6.7% 

 

Reference laboratory diagnostic and consulting services

 

 

186,937 

 

 

159,069 

 

 

27,868 

 

17.5% 

 

3.8% 

 

 -

 

 

13.7% 

 

CAG diagnostics services and accessories

 

 

17,581 

 

 

16,163 

 

 

1,418 

 

8.8% 

 

4.1% 

 

 -

 

 

4.6% 

 

CAG Diagnostics capital - instruments

 

 

30,895 

 

 

26,183 

 

 

4,712 

 

18.0% 

 

6.1% 

 

 -

 

 

11.9% 

 

Veterinary software, services and diagnostic imaging systems

 

 

33,890 

 

 

30,364 

 

 

3,526 

 

11.6% 

 

0.7% 

 

1.0% 

 

 

9.9% 

 

    Net CAG revenue

 

$

470,833 

 

$

403,227 

 

$

67,606 

 

16.8% 

 

3.6% 

 

0.1% 

 

 

13.1% 

 

(1)

 Amounts presented may not recalculate to organic revenue growth rates due to rounding



CAG Diagnostics Recurring Revenue. The increase in CAG Diagnostics recurring revenue was due primarily to increased volumes in reference laboratory diagnostic services and IDEXX VetLab consumables and, to a lesser extent, higher realized prices. CAG Diagnostic recurring revenue included approximately $4.3 million in the first quarter that was attributed to the New Revenue Standard.



IDEXX VetLab consumables revenue growth was primarily due to higher sales volumes in the U.S., Europe, and the Asia-Pacific region for our Catalyst consumables, and to a lesser extent Procyte Dx consumables and Sedivue Dx®  analyzer pay-per-run sales, supported by growth in testing by new and existing customers and our expanded menu of available tests, as well as benefits from higher average unit sales prices. VetLab consumables revenue included approximately $2.7 million in the first quarter that was attributed to the New Revenue Standard.



The increase in rapid assay revenue resulted from higher sales volumes and average unit prices of canine SNAP®  4Dx Plus tests and higher sales volumes of single analyte SNAP products and SNAP feline combination products. Rapid assay revenue included approximately $0.2 million in the first quarter that was attributed to the New Revenue Standard.

   

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to the impact of higher testing volumes throughout our worldwide network of laboratories, most prominently in the U.S., resulting from increased testing from new and existing customers, supported by our differentiated diagnostic technologies, such as IDEXX SDMA and fecal antigen testing. The increase in revenue was also the result of higher average unit sales prices. Reference laboratory diagnostic and consulting revenue included approximately $1.5 million in the first quarter that was attributed to the New Revenue Standard.



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



CAG Diagnostics Capital – Instruments Revenue. The increase in instrument revenue reflects increased SediVue Dx and Catalyst analyzer placements, supported by the introduction of a new volume commitment program we refer to as IDEXX 360. The success of our new IDEXX 360 program caused a shift away from both our instrument rebate and reagent rental programs during the first quarter, which resulted in increased upfront instrument revenue recognition attributed to the New Revenue Standard. CAG Diagnostic capital instrument revenue included approximately $6.9 million in the first quarter that was attributed to the New Revenue Standard.



Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The increase in revenue was primarily due to increased diagnostic imaging system placements and higher veterinary subscription service revenue, partially offset by lower relative diagnostic imaging system prices. Veterinary software, services and diagnostic imaging revenue included approximately $0.6 million in the first quarter attributed to the New Revenue Standard.



 

31 

 


 

The following table presents the CAG segment results of operations:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

 

Change

Results of Operations

 

 

 

Percent of

 

 

 

 

Percent of

 

 

 

 

 

(dollars in thousands)

 

2018 

 

Revenue

 

 

2017 

 

Revenue

 

Amount

 

Percentage

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

470,833 

 

 

 

$

403,227 

 

 

 

$

67,606 

 

16.8% 

 

Cost of revenue

 

 

208,900 

 

 

 

 

182,157 

 

 

 

 

26,743 

 

14.7% 

 

Gross profit

 

 

261,933 

 

55.6% 

 

 

221,070 

 

54.8% 

 

 

40,863 

 

18.5% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

89,106 

 

18.9% 

 

 

77,782 

 

19.3% 

 

 

11,324 

 

14.6% 

 

General and administrative

 

 

51,135 

 

10.9% 

 

 

44,067 

 

10.9% 

 

 

7,068 

 

16.0% 

 

Research and development

 

 

21,294 

 

4.5% 

 

 

19,366 

 

4.8% 

 

 

1,928 

 

10.0% 

 

Total operating expenses

 

 

161,535 

 

34.3% 

 

 

141,215 

 

35.0% 

 

 

20,320 

 

14.4% 

 

Income from operations

 

$

100,398 

 

21.3% 

 

$

79,855 

 

19.8% 

 

$

20,543 

 

25.7% 

 



Gross Profit. Gross profit increased primarily due to higher sales volume and an 80 basis point increase in the gross profit percentage. The gross profit percentage was supported by the net benefit of price increases in our CAG Diagnostics recurring revenue portfolio, partially offset by higher information technology costs that were previously captured within operating expenses. The impact from foreign currency movements increased gross profit margin by less than 10 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period. Gross profit included approximately $5.4 million in the first quarter attributable to the New Revenue Standard.



Operating Expense. The increase in sales and marketing expense was due primarily to increased personnel-related costs as we continue to invest in  our global commercial infrastructure, offset by approximately $0.6 million in deferred costs to obtain contracts under the New Revenue Standard. The increase in general and administrative expense resulted primarily from higher personnel-related costs and incremental information technology investments. The increase in research and development expense was due primarily to increased personnel-related costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 4%.

 

32 

 


 

Picture 3Water



The following table presents the Water segment results of operations:



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

 

Change

Results of Operations

 

 

 

Percent of

 

 

 

 

Percent of

 

 

 

 

 

(dollars in thousands)

 

2018 

 

Revenue

 

 

2017 

 

Revenue

 

Amount

 

Percentage

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

29,143 

 

 

 

$

25,077 

 

 

 

$

4,066 

 

16.2% 

 

Cost of revenue

 

 

8,781 

 

 

 

 

7,602 

 

 

 

 

1,179 

 

15.5% 

 

Gross profit

 

 

20,362 

 

69.9% 

 

 

17,475 

 

69.7% 

 

 

2,887 

 

16.5% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

4,065 

 

13.9% 

 

 

3,663 

 

14.6% 

 

 

402 

 

11.0% 

 

General and administrative

 

 

3,188 

 

10.9% 

 

 

2,931 

 

11.7% 

 

 

257 

 

8.8% 

 

Research and development

 

 

647 

 

2.2% 

 

 

618 

 

2.5% 

 

 

29 

 

4.7% 

 

Total operating expenses

 

 

7,900 

 

27.1% 

 

 

7,212 

 

28.8% 

 

 

688 

 

9.5% 

 

Income from operations

 

$

12,462 

 

42.8% 

 

$

10,263 

 

40.9% 

 

$

2,199 

 

21.4% 

 



Revenue. The increase in revenue was attributable to higher sales volumes of our Colilert test products and related accessories, used in coliform and E. coli testing in North America and Europe, and the benefit of price increases in Latin America. Revenue growth in Latin America was driven by our go-direct initiative in Brazil, which contributed approximately 3% to revenue growth, including the impact of reductions in distributor inventories in the prior year and the benefit of price increases in the current year. Water revenue of approximately $0.4 million in the first quarter was attributed to the New Revenue Standard, as a result of accelerated revenue recognition upon shipping to customer instead of delivery to the customer. The favorable impact of currency movements increased revenue by approximately 4 percent.



Gross Profit. Gross profit increased due to higher sales volumes as well as a 20 basis point increase in the gross profit percentage. The increase in the gross profit percentage was primarily due to the net benefit of price increases, as well as decreases in manufacturing costs. The impact from foreign currency movements decreased gross profit margin by approximately 80 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period. Gross profit included approximately $0.3 million in the first quarter attributable to the New Revenue Standard.



Operating Expenses. The increase in operating expense was primarily due to higher personnel-related costs in sales and marketing expenses and general and administrative expenses. Research and development expense was relatively unchanged. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 4%.

 

 

33 

 


 

Picture 5Livestock, Poultry and Dairy 



The following table presents the LPD segment results of operations:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

 

Change

Results of Operations

 

 

 

Percent of

 

 

 

 

Percent of

 

 

 

 

 

(dollars in thousands)

 

2018 

 

Revenue

 

 

2017 

 

Revenue

 

Amount

 

Percentage

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

32,240 

 

 

 

$

29,317 

 

 

 

$

2,923 

 

10.0% 

 

Cost of revenue

 

 

14,593 

 

 

 

 

12,472 

 

 

 

 

2,121 

 

17.0% 

 

Gross profit

 

 

17,647 

 

54.7% 

 

 

16,845 

 

57.5% 

 

 

802 

 

4.8% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

6,614 

 

20.5% 

 

 

5,535 

 

18.9% 

 

 

1,079 

 

19.5% 

 

General and administrative

 

 

4,910 

 

15.2% 

 

 

4,409 

 

15.0% 

 

 

501 

 

11.4% 

 

Research and development

 

 

3,162 

 

9.8% 

 

 

3,099 

 

10.6% 

 

 

63 

 

2.0% 

 

Total operating expenses

 

 

14,686 

 

45.6% 

 

 

13,043 

 

44.5% 

 

 

1,643 

 

12.6% 

 

Income from operations

 

$

2,961 

 

9.2% 

 

$

3,802 

 

13.0% 

 

$

(841)

 

(22.1%)

 



Revenue. The increase in revenue was primarily due to an increase in swine and poultry testing and expanded pregnancy testing across most regions, as well as higher herd health screening in the Asia-Pacific region. These increases were partially offset by continued pressure in our dairy business. The favorable impact of currency movements increased revenue by approximately 8%.



Gross Profit. The increase in gross profit was due to higher sales volume partially offset by a 280 basis point reduction in the gross profit percentage. The decrease in the gross profit percentage reflected higher product costs. The impact from foreign currency movements increased gross profit margin by approximately 10 basis points, including the impact of hedge gains in the prior period compared to hedge losses in the current period.



Operating Expenses. The increase in sales and marketing expense was due primarily to increased personnel-related costs as we invest in our global commercial infrastructure. The increase in general and administrative expense resulted primarily from higher personnel-related costs. The increase in research and development expense was due primarily to increased personnel-related costs, partially offset by lower third-party costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 6%.



 

34 

 


 

Other



The following table presents the Other results of operations:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

 

Change

Results of Operations

 

 

 

Percent of

 

 

 

 

Percent of

 

 

 

 

 

(dollars in thousands)

 

2018 

 

Revenue

 

 

2017 

 

Revenue

 

Amount

 

Percentage

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

5,440 

 

 

 

$

4,400 

 

 

 

$

1,040 

 

23.6% 

 

Cost of revenue

 

 

3,366 

 

 

 

 

2,289 

 

 

 

 

1,077 

 

47.1% 

 

Gross profit

 

 

2,074 

 

38.1% 

 

 

2,111 

 

48.0% 

 

 

(37)

 

(1.8%)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

520 

 

9.6% 

 

 

619 

 

14.1% 

 

 

(99)

 

(16.0%)

 

General and administrative

 

 

804 

 

14.8% 

 

 

791 

 

18.0% 

 

 

13 

 

1.6% 

 

Research and development

 

 

252 

 

4.6% 

 

 

308 

 

7.0% 

 

 

(56)

 

(18.2%)

 

Total operating expenses

 

 

1,576 

 

29.0% 

 

 

1,718 

 

39.0% 

 

 

(142)

 

(8.3%)

 

Income from operations

 

$

498 

 

9.2% 

 

$

393 

 

8.9% 

 

$

105 

 

26.7% 

 



Revenue. The increase in revenue was due to higher volumes and realized prices of our OPTI Medical products and services. The favorable impact of currency movements increased revenue by approximately 130 basis points.

 

Gross Profit. The decrease in gross profit was due to a 9.9% reduction in the gross profit percentage due primarily to higher OPTI Medical product costs and product mix, partially offset by higher realized prices. The overall change in currency exchange rates had no impact on the gross profit percentage.



Operating Expenses. The decrease in operating expense was due primarily to lower personnel costs in sales and marketing and research and development. General and administrative costs were consistent as compared to the prior period.

 

35 

 


 

Unallocated Amounts



We estimate certain personnel-related costs and allocate these budgeted expenses to the operating segments. This allocation differs from actual expense and consequently yields a difference that is reported under the caption “Unallocated Amounts.”

The following table presents the Unallocated Amounts results of operations:



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

 

Change

Results of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

2018 

 

 

 

 

2017 

 

 

 

Amount

 

Percentage

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 -

 

 

 

$

 -

 

 

 

$

 -

 

N/A

 

Cost of revenue

 

 

(1,083)

 

 

 

 

(690)

 

 

 

 

(393)

 

57.0% 

 

Gross profit

 

 

1,083 

 

 

 

 

690 

 

 

 

 

393 

 

57.0% 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

(204)

 

 

 

 

(355)

 

 

 

 

151 

 

(42.5%)

 

General and administrative

 

 

894 

 

 

 

 

716 

 

 

 

 

178 

 

24.9% 

 

Research and development

 

 

3,668 

 

 

 

 

2,399 

 

 

 

 

1,269 

 

52.9% 

 

Total operating expenses

 

 

4,358 

 

 

 

 

2,760 

 

 

 

 

1,598 

 

57.9% 

 

Loss from operations

 

$

(3,275)

 

 

 

$

(2,070)

 

 

 

$

(1,205)

 

58.2% 

 





Gross Profit. Costs of revenues impacts that were not allocated to segments were relatively consistent.



Operating Expenses. The overall increase in operating expenses was primarily due to corporate function spending in research and development and higher than budgeted employee health costs. The overall increase in operating expenses was partially offset by increased allocations to our segments for certain employee incentive costs, as well as foreign exchange gains on monetary assets, as compared to losses in the prior year period.



Non-Operating Items



Interest Income. Interest income was $0.6 million for the three months ended March 31, 2018, as compared to $1.1 million for the three months ended March 31, 2017. The decrease in interest income was due primarily to the liquidation of our portfolio of marketable securities during the first quarter of 2018. We do not anticipate any material interest income for the remaining of 2018. The adoption of the New Revenue Standard decreased interest income by approximately $0.3 million.



Interest Expense. Interest expense was $9.3 million for the three months ended March 31, 2018, as compared to $8.6 million for the same period in the prior year. The increase in interest expense was due to higher variable interest rates on our Credit Facility, partially offset by lower average balances on our Credit Facility.



Provision for Income Taxes. Our effective income tax rate was 14.3% for the three months ended March 31, 2018, as compared to 18.5% for the three months ended March 31, 2017. The decrease in our effective tax rate was primarily related to the reduction in our U.S. statutory rate as a result of the 2017 Tax Act, partially offset by lower tax benefits related to share-based compensation.



 

36 

 


 

Liquidity and Capital Resources  

 

Liquidity 

 

We fund the capital needs of our business through cash on hand, funds generated from operations, proceeds from long-term senior note financings, and amounts available under our Credit Facility. At March 31, 2018, we had $159.2 million of cash, cash equivalents and short-duration marketable securities, as compared to $471.9 million on December 31, 2017. Working capital, including our Credit Facility, totaled negative $27.1 million at March 31, 2018, as compared to negative $32.6 million at December 31, 2017. Additionally, at March 31, 2018, we had remaining borrowing availability of $441.5 million under our $850 million Credit Facility. We believe that, if necessary, we could obtain additional borrowings at similar rates to our existing borrowings to fund our growth objectives. We further believe that current cash and cash equivalents, our portfolio of short-duration marketable securities, funds generated from operations, and committed borrowing availability will be sufficient to fund our operations, capital purchase requirements, and anticipated growth needs for the next twelve months. We believe that these resources, coupled with our ability, as needed, to obtain additional financing on favorable terms will also be sufficient for the foreseeable future to fund our business as currently conducted. We may enter into new financing arrangements or refinance or retire existing debt in the future depending on market conditions. Should we require more capital in the U.S. than is generated by our operations, for example to fund significant discretionary activities, we could elect to raise capital in the U.S. through debt or equity issuances. These alternatives could result in increased interest expense or other dilution of our earnings.



We manage our worldwide cash requirements considering available funds among all of our subsidiaries. Our foreign cash and marketable securities are generally available without restrictions to fund ordinary business operations outside the U.S. 



The following table presents cash, cash equivalents and marketable securities held domestically and by our foreign subsidiaries at March 31, 2018, and December 31, 2017:





 

 

 

 

 

 

 



 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities

 

 

March 31,

 

 

December 31,

 

(dollars in thousands)

 

 

2018

 

 

2017

 



 

 

 

 

 

 

 

U.S.

 

$

3,143 

 

$

5,902 

 

Foreign

 

 

156,086 

 

 

466,028 

 

Total

 

$

159,229 

 

 

471,930 

 



 

 

 

 

 

 

 

Total cash, cash equivalents and marketable securities held in U.S. dollars

 

$

32,242 

 

$

334,339 

 



 

 

 

 

 

 

 

Percentage of total cash, cash equivalents and marketable securities held in U.S. dollars

 

 

20.2% 

 

 

70.8% 

 





As a result of the passage of the 2017 Tax Act during the fourth quarter of 2017, we liquidated our marketable securities held outside the U.S. during the first quarter of 2018 and recognized a loss of approximately $0.3 million. We repatriated these funds and reduced our revolving debt balance during the first quarter of 2018.

 



Of the $159.2 million of cash and cash equivalents held as of March 31, 2018, approximately 92% was held as bank deposits and approximately 8% was invested in money market funds restricted to U.S. government and agency securities.

 

The following table presents additional key information concerning working capital: 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended



 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,



 

 

2018 

 

 

2017 

 

 

2017 

 

 

2017 

 

 

2017 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days sales outstanding (1)

 

 

42.0 

 

 

41.7 

 

 

43.4 

 

 

41.7 

 

 

42.4 

Inventory turns (2)

 

 

2.0 

 

 

2.2 

 

 

1.9 

 

 

2.0 

 

 

1.9 



(1) Days sales outstanding represents the average of the accounts receivable balances at the beginning and end of each quarter divided by revenue for that quarter, the result of which is then multiplied by 91.25 days.

(2) Inventory turns represent inventory-related cost of product revenue for the 12 months preceding each quarter-end divided by the inventory balance at the end of the quarter.



 

37 

 


 

Sources and Uses of Cash 



The following table presents cash provided (used):





 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

(dollars in thousands)

 

2018 

 

2017 

 

Dollar Change

 



 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

34,898 

 

$

31,274 

 

$

3,624 

 

Net cash provided (used) by investing activities

 

 

260,312 

 

 

(29,012)

 

 

289,324 

 

Net cash (used) provided by financing activities

 

 

(324,991)

 

 

1,313 

 

 

(326,304)

 

Net effect of changes in exchange rates on cash

 

 

1,335 

 

 

1,932 

 

 

(597)

 

Net change in cash and cash equivalents

 

$

(28,446)

 

$

5,507 

 

$

(33,953)

 





Operating Activities. The increase in cash provided by operating activities of $3.6 million was driven primarily by the increase in net income, offset by the changes in operating assets and liabilities. The following table presents cash flows from changes in operating assets and liabilities: 





 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended March 31,

(dollars in thousands)

 

2018 

 

2017 

 

Dollar Change

 



 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

(21,800)

 

$

(19,429)

 

$

(2,371)

 

Inventories

 

 

(8,070)

 

 

(5,369)

 

 

(2,701)

 

Accounts payable

 

 

(1,939)

 

 

(3,687)

 

 

1,748 

 

Deferred revenue

 

 

(1,327)

 

 

469 

 

 

(1,796)

 

Other assets and liabilities

 

 

(52,302)

 

 

(38,531)

 

 

(13,771)

 

Total change in cash due to changes in operating assets and liabilities

 

$

(85,438)

 

$

(66,547)

 

$

(18,891)

 

 

Cash used by accounts receivable during the three months ended March 31, 2018, as compared to the same period in the prior year, increased approximately $2.4 million as a result of higher revenues. Cash used by inventory during the three months ended March 31, 2018, as compared to the same period in the prior year, increased by $2.7 million, driven by timing of inventory receipts. The change in cash used by other assets and liabilities during the three months ended March 31, 2018, as compared to the same period in the prior year is primarily due to instrument placements under a new volume commitment program. 



We have historically experienced proportionally lower net cash flows from operating activities during the first quarter and proportionally higher cash flows from operating activities for the remainder of the year driven primarily by payments related to annual employee incentive programs in the first quarter following the year for which the bonuses were earned and the seasonality of vector-borne disease testing, which has historically resulted in significant increases in accounts receivable balances during the first quarter of the year.



Investing Activities. Cash provided by investing activities was $260.3 million for the three months ended March 31, 2018, as compared to cash used by investing activities of $29.0 million for the same period in the prior year. The change from cash used by investing activities to cash provided by investing activities was primarily due to the sale of marketable securities as a result of our repatriation of cash and investments held by our foreign subsidiaries. 



Financing Activities. Cash used by financing activities was $325.0 million for the three months ended March 31, 2018, as compared to cash provided by financing activities of $1.3 million for the same period in the prior year. The change from cash provided by financing activities to cash used by financing activities was due to a partial repayment on our revolving Credit Facility from repatriated foreign cash, partially offset by an increase in repurchases of our common stock.

 

Cash used to repurchase shares of our common stock increased  $19.6 million during the three months ended March 31, 2018, as compared to the same period in the prior year. We believe that the repurchase of our common stock is a favorable means of returning value to our shareholders and we also repurchase our stock to offset the dilutive effect of our share-based compensation programs. Repurchases of our common stock may vary depending upon the level of other investing activities and the share price. See Note 10 to the unaudited condensed consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q for additional information about our share repurchases.



 

38 

 


 

Net borrowing and repayment activity under the Credit Facility resulted in cash used of $247.5 million during the three months ended March 31, 2018, as compared to cash provided by of $60.0 million in the same period of the prior year. At March 31, 2018, we had $407.5 million outstanding under the Credit Facility. The general availability of funds under the Credit Facility was further reduced by $1.0 million for a letter of credit that was issued in connection with claims under our workers’ compensation policy. 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, certain restrictive agreements and violations of laws and regulations. The obligations under the Credit Facility may be accelerated upon the occurrence of an event of default under the Credit Facility, which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under the Employee Retirement Income Security Act of 1974, the failure to pay specified indebtedness, cross-acceleration to specified indebtedness and a change of control default.



Since December 2013, we have issued and sold through private placements senior notes having an aggregate principal amount of approximately $600 million pursuant to certain note purchase agreements (collectively, the “Senior Note Agreements”). 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. See Note 11 to the consolidated financial statements in our 2017 Annual Report for additional information regarding our senior notes.



Should we elect to prepay the senior notes, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Senior Note Agreements. Additionally, in the event of a change in control of the Company or upon the disposition of certain assets of the Company the proceeds of which are not reinvested (as defined in the Senior Note Agreements), we may be required to prepay all or a portion of the senior notes. The obligations under the senior notes may be accelerated upon the occurrence of an event of default under the applicable Senior Note Agreements, each of which includes customary events of default including payment defaults, defaults in the performance of the affirmative, negative and financial covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to judgments, certain events related to employee pension benefit plans under the Employee Retirement Income Security Act of 1974, the failure to pay specified indebtedness and cross-acceleration to specified indebtedness.



Effect of currency translation on cash. The net effect of changes in foreign currency exchange rates are related to changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries. These changes will fluctuate for each period presented as the value of the U.S. dollar relative to the value of the foreign currencies changes. A currency’s value depends on many factors, including interest rates and the country’s debt levels and strength of economy.



Off Balance Sheet ArrangementsWe have no off-balance sheet arrangements or variable interest entities, except for letters of credit and third party guarantees.

 

39 

 


 

Financial Covenant. The sole financial covenant of our Credit Facility and Senior Note Agreements is a consolidated leverage ratio test that requires our ratio of debt to earnings before interest, taxes, depreciation and amortization and certain other non-cash charges (“Adjusted EBITDA”) not to exceed 3.5-to-1. At March 31, 2018, we were in compliance with the covenants of the Credit Facility and Senior Note Agreements. The following details our consolidated leverage ratio calculation as of March 31, 2018:







 

 

 



 

Twelve months ended



 

March 31,

Trailing 12 Months Adjusted EBITDA:

 

 

2018 



 

 

 

Net income attributable to stockholders (as reported)

 

$

283,576 

Interest expense

 

 

37,910 

Provision for income taxes

 

 

116,982 

Depreciation and amortization

 

 

83,637 

Share-based compensation expense

 

 

23,822 

Adjusted EBITDA

 

$

545,927 



 

 

 



 

March 31,

Debt to Adjusted EBITDA Ratio:

 

 

2018 



 

 

 

Line of credit

 

$

407,500 

Long-term debt

 

 

609,005 

Total debt

 

 

1,016,505 

Acquisition-related contingent consideration payable

 

 

3,537 

Capitalized leases

 

 

392 

U.S. GAAP change - deferred financing costs

 

 

476 

Gross debt

 

 

1,020,910 

Gross debt to Adjusted EBITDA ratio

 

 

1.87 



 

 

 

Less: Cash and cash equivalents

 

 

(159,229)

Net debt

 

$

861,681 

Net debt to Adjusted EBITDA ratio

 

 

1.58 



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



Other Commitments, Contingencies and Guarantees 

 

Significant commitments, contingencies and guarantees at March 31, 2018, are consistent with those discussed in the section under the heading “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources,” and in Note 14 to the consolidated financial statements contained in our 2017 Annual Report.  

 

 

40 

 


 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

 

For quantitative and qualitative disclosures about market risk affecting us, see the section under the heading “Part II, Item 7A. Quantitative and Qualitative Disclosure About Market Risk” of our 2017 Annual Report. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the market risks described in our 2017 Annual Report, except for the impact of foreign exchange rates, as discussed below. 



Foreign Currency Exchange Impacts. For the three months ended March 31, 2018, approximately 22% of our consolidated revenue was derived from products manufactured in the U.S. and sold internationally in local currencies, as compared to 21% for the three months ended March 31, 2017. Strengthening of the U.S. dollar exchange rate relative to other currencies has a negative impact on our revenues derived in currencies other than the U.S. dollar and on profits of products manufactured in the U.S. and sold internationally, and a weakening of the U.S. dollar has the opposite effect. Similarly, to the extent that the U.S. dollar is stronger in current or future periods relative to the exchange rates in effect in the corresponding prior periods, our growth rate will be negatively affected. The impact of foreign currency denominated operating expenses and foreign currency denominated supply contracts partly offsets this exposure. Additionally, our designated hedges of intercompany inventory purchases and sales help delay the impact of certain exchange rate fluctuations on non-U.S. dollar denominated revenues.



Our foreign currency exchange impacts are comprised of three components: 1) local currency revenues and expenses; 2) the impact of hedge contracts; and 3) intercompany and monetary balances for our subsidiaries that are denominated in a currency that is different from the functional currency used by each subsidiary. Based on projected revenues and expenses for the remainder of 2018, excluding the impact of intercompany and trade balances denominated in currencies other than the functional subsidiary currencies, we project a 1strengthening of the U.S. dollar would reduce revenue by approximately $6 million and operating income by approximately $3 million. Additionally, we project our foreign currency hedge contracts in place as of March 31, 2018, would result in incremental offsetting gains of approximately $1.3 million. The impact of the intercompany and trade balances, and monetary balances referred to in the third component above have been excluded, as they are transacted at multiple times during the year and we are not able to reliably forecast the impact that changes in exchange rates would have on such balances.



At our current foreign currency exchange rate assumptions, we anticipate the effect of a weaker U.S. dollar for the remainder of the year will have a favorable impact on our operating results by increasing our revenues, operating profit, and diluted earnings per share for the year ending December 31, 2018, by approximately $31 million, $8 million, and $0.07 per share, respectively. This favorable impact includes foreign currency hedging activity, which is expected to decrease total company operating profit by approximately $5 million and diluted earnings per share by approximately $0.04 for the year ending December 31, 2018. The actual impact of changes in the value of the U.S. dollar against foreign currencies in which we transact may materially differ from our expectations described above. The above estimates assume that the value of the U.S. dollar relative to other currencies will reflect the euro at $1.20, the British pound at $1.37, the Canadian dollar at $0.77, the Australian dollar at $0.74; the Japanese yen at ¥111,  the Chinese renminbi at RMB 6.40 and the Brazilian real at R$3.55 to the U.S. dollar for the remainder of 2018.



The following table presents the foreign currency exchange impact on our revenues, operating profit, and diluted earnings per share for the three months ended March 31, 2018 and 2017, as compared to the respective prior periods:







 

 

 

 

 

 



 

For the Three Months Ended

(dollars in thousands)

 

March 31, 2018

 

March 31, 2017



 

 

 

 

 

 

Revenue impact

 

$

17,816 

 

$

(2,955)



 

 

 

 

 

 

Operating profit impact, excluding hedge activity

 

$

7,142 

 

$

(2,452)



 

 

 

 

 

 

Hedge gains - prior year

 

 

(1,075)

 

 

(809)

Hedge (losses) gains - current year

 

 

(1,835)

 

 

1,075 

Hedging activity impact

 

 

(2,910)

 

 

266 



 

 

 

 

 

 

Operating profit impact, including hedge activity

 

$

4,232 

 

$

(2,186)

Diluted earnings per share impact, including hedge activity

 

$

0.04 

 

$

(0.02)



 

41 

 


 

Item 4.  Controls and Procedures 

 

Disclosure Controls and Procedures 

 

Our management is responsible for establishing and maintaining disclosure controls and procedures, as defined by the SEC in its Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures at March 31, 2018, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.  

 

Changes in Internal Control Over Financial Reporting 

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2018, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

PART II — OTHER INFORMATION 

 

Item 1. Legal Proceedings



Due to the nature of our activities, we are at times subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, based in part upon advice of legal counsel, the disposition of any such currently pending matters is not expected to have a material effect on our results of operations, financial condition, or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that our results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.



Item 1A. Risk Factors 

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors" in our 2017 Annual Report, which could materially affect our business, financial condition, or future results. There have been no material changes from the risk factors previously disclosed in the 2017 Annual Report. The risks described in our 2017 Annual Report are not the only risks facing our Company and additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.



 

42 

 


 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 

 

During the three months ended March 31, 2018, we repurchased shares of common stock as described below:  



 

 

 

 

 

 

 

 

 

 

Period

 

Total Number of Shares Purchased 

 

 

Average Price Paid per Share

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)

 

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)

 



 

(a)

 

 

(b)

 

(c)

 

(d)

 



 

 

 

 

 

 

 

 

 

 

January 1 to January 31, 2018

 

88,822 

 

$

173.72 

 

87,727 

 

4,898,365 

 

February 1 to February 28, 2018

 

239,331 

 

$

180.88 

 

192,587 

 

4,705,778 

 

March 1 to March 31, 2018

 

184,990 

 

$

194.73 

 

184,990 

 

4,520,788 

 

Total

 

513,143 

(2)

$

184.63 

 

465,304 

 

4,520,788 

 



The total shares repurchased include shares purchased in the open market and shares surrendered for employee statutory tax withholding. See Note 10 to the unaudited condensed consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q for additional information about our share repurchases.



(1)

On August 13, 1999, our Board of Directors approved and announced the repurchase of our common stock in the open market or in negotiated transactions pursuant to the Company’s share repurchase program. The authorization has been increased by the Board of Directors on numerous occasions; most recently the maximum level of shares that may be repurchased under the program was increased from 65 million to 68 million shares on May 2, 2017. There is no specified expiration date for this share repurchase program. There were no other repurchase programs outstanding during the three months ended March 31, 2018, and no share repurchase programs expired during the period. Repurchases of 465,304 shares were made during the three months ended March 31, 2018, in transactions made pursuant to our share repurchase program.

 

(2)

During the three months ended March 31, 2018, we received 47,839 shares of our common stock that were surrendered by employees in payment for the minimum required withholding taxes due on the vesting of restricted stock units and settlement of deferred stock units. In the above table, these shares are included in columns (a) and (b), but excluded from columns (c) and (d). These shares do not reduce the number of shares that may yet be purchased under the share repurchase program.



 

43 

 


 

Item 6.Exhibits 





 

Exhibit No.

Description

31.1

Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 

Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.



 

44 

 


 

 

SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 





 

 



 

 



IDEXX LABORATORIES, INC.

 







/s/ Brian P. McKeon 

 

Date: May 4, 2018

Brian P. McKeon

 



Executive Vice President, Chief Financial Officer  

and Treasurer

 



(Principal Financial Officer)

 



 

 

 



 

45