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, among other things, the impact of the COVID-19 pandemic; our expectations regarding supply chain and logistics disruptions; future revenue growth rates; revenue recognition timing and amounts; 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, the working capital and liquidity outlook; the adoption and projected impact of new accounting standards; critical accounting estimates; deductibility of goodwill; future commercial and operational efforts; competition; and intercompany and corporate structure-related activities. 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, among other things, the adverse impact, and the duration, of the effects of the ongoing COVID-19 pandemic on our business, results of operations, liquidity, financial condition, and stock price, supply chain and logistics delays and disruptions, as well as the other matters described under the headings “Business,” “Risk Factors,” “Legal Proceedings,” “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosure About Market Risk” in our 2020 Annual Report and in the corresponding sections of this Quarterly Report on Form 10-Q and our Quarterly Reports of Form 10-Q for the quarters ended March 31, 2021, and June 30, 2021, 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 2020 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. Financial Statements of this Quarterly Report on Form 10-Q.

Our fiscal quarter ended on September 30. Unless otherwise stated, the analysis and discussion of our financial condition and results of operations below, including references to growth and organic growth and increases and decreases, are being compared to the equivalent prior-year periods.

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 design, manufacture, and distribute point of care and laboratory diagnostics for the human 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;

• Practice management and diagnostic imaging systems and services used by veterinarians;

• Health monitoring, biological materials testing, laboratory diagnostic instruments and services used by the biomedical research community;

• Diagnostic, health-monitoring products for livestock, poultry, and dairy;

• Products that test water for certain microbiological contaminants; and

• Point-of-care electrolytes, blood gas analyzers, and SARS-CoV-2 RT-PCR (COVID-19 test) used in the human 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 producer efficiency, which we refer to as Livestock, Poultry and Dairy (“LPD”). Our Other operating segment combines and presents products for the human medical diagnostics market (“OPTI Medical”) with 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 software, and performs services for veterinarians and the biomedical analytics 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. OPTI Medical develops, designs, manufactures, and distributes point-of-care and laboratory diagnostics (including electrolyte and blood gas analyzers, COVID-19 PCR test, and related consumable products) for the human medical diagnostics market.

Effects of Certain Factors and Trends on Results of Operations

CAG Market Trends. Positive global trends in companion animal healthcare continue to support strong growth for CAG diagnostic products and services across regions. U.S. same-store clinical visit growth at veterinary practices was 2% in the third quarter. These clinical visit gains are compared to strong prior year period clinical visit growth of 7%, which included benefits from pent-up demand from delayed veterinary visits during the COVID-19 pandemic.

Other Market Trends. We anticipate reduced LPD revenues on a year-over-year comparison to continue during future quarters, as we compare to high prior-year demand for our African Swine Fever testing in China. We also expect that revenues from our China LPD business may decline for the remainder of the year from lower pork prices, the relaxation of local African Swine Fever disease management programs, and changing government requirements related to live animal imports and livestock infectious disease programs.

Supply Chain and Logistics Challenges. We believe that building and maintaining a well-managed and disciplined infrastructure have helped minimize impacts of the COVID-19 pandemic-related supply chain constraints, including product and component availability issues, logistics challenges, including extended shipping periods and delays, and inflationary pressures that are currently occurring worldwide. Our proactive approach to managing front-line operational processes, including forward planning with a focus on working closely with our suppliers and logistics partners, has enabled us to maintain continued high levels of product and service availability, and customer service. Although we expect the current supply chain and logistics challenges to continue in 2022, we believe we are well positioned to enable sustained high growth in our businesses going forward, and to effectively manage the impacts of potentially relatively higher costs in certain areas to support these growth plans. However, there can be no assurance as to the duration or severity of the supply chain and logistics challenges or the effectiveness of our mitigating activities.

Currency and Other Items

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 2020 Annual Report for additional information regarding distributor purchasing and inventories, economic conditions, and patent expiration.

Critical Accounting Estimates and Assumptions

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. The critical accounting policies and the significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021, are consistent with those discussed in our 2020 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 Estimates and Assumptions.”

Recent Accounting Pronouncements

For more information regarding the impact that 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. Financial Statements of this Quarterly Report on Form 10-Q.

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 and nine months ended September 30, 2021, as compared to the same periods for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions, and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for, or as a superior measure to, revenue growth reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies. 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. We exclude only acquisitions that are considered to be a business from organic revenue growth. In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single asset or group of similar assets, we do not consider these assets to be a business and 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. The percentage change in revenue resulting from acquisitions represents revenues during the current year period, limited to the initial 12 months from the date of the acquisition, that are directly attributable to business acquisitions.

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.

Results of Operations

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

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

						For the Three Months Ended September 30,
Net Revenue (dollars in thousands)						2021						2020						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG						$	732,495					$	638,017					$	94,478					14.8		%				0.9		%				1.2		%				12.7		%
United States						484,903						428,105						56,798						13.3		%				—						1.7		%				11.5		%
International						247,592						209,912						37,680						18.0		%				2.8		%				0.2		%				14.9		%
Water						38,143						33,272						4,871						14.6		%				1.9		%				—						12.7		%
United States						19,216						16,634						2,582						15.5		%				—						—						15.5		%
International						18,927						16,638						2,289						13.8		%				3.8		%				—						10.0		%
LPD						29,126						36,971						(7,845)						(21.2		%)				1.3		%				—						(22.5		%)
United States						4,177						3,784						393						10.4		%				—						—						10.4		%
International						24,949						33,187						(8,238)						(24.8		%)				1.4		%				—						(26.2		%)
Other						10,657						13,529						(2,872)						(21.2		%)				(0.1		%)				—						(21.1		%)
Total Company						$	810,421					$	721,789					$	88,632					12.3		%				1.0		%				1.1		%				10.2		%
United States						514,343						454,836						59,507						13.1		%				—						1.6		%				11.4		%
International						296,078						266,953						29,125						10.9		%				2.6		%				0.1		%				8.2		%

(1)Reported revenue growth and organic revenue growth may not recalculate 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, reflecting continued high demand for companion animal diagnostics globally. Our CAG Diagnostics instrument revenue reflects high placement volume this quarter, reflecting higher premium instrument placements globally, including higher placements of our new instrument, ProCyte One®, compared to lower placements in the third quarter of 2020 which was impacted by pandemic constraints. The higher revenue in our Water business was the result of a recovery in demand for testing volumes, including non-compliance testing that has been constrained since the beginning of the pandemic, as well as from comparisons to disruptions in certain compliance testing during the third quarter of the prior year. In our LPD business, revenues decreased primarily as a result of lower swine testing in China. Other revenues reflect lower demand for human OPTI COVID-19 PCR testing products and services, which has occurred as vaccination rates increased. The impact of currency movements increased total revenue by 1.0%, while acquisitions increased revenue by 1.1%.

The following table presents total Company results of operations:

						For the Three Months Ended September 30,																								Change
Total Company - Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	810,421											$	721,789											$	88,632					12.3		%
Cost of revenue						337,500												299,183												38,317						12.8		%
Gross profit						472,921						58.4		%				422,606						58.5		%				50,315						11.9		%
Operating Expenses:
Sales and marketing						124,434						15.4		%				108,202						15.0		%				16,232						15.0		%
General and administrative						82,098						10.1		%				105,031						14.6		%				(22,933)						(21.8		%)
Research and development						40,427						5.0		%				37,517						5.2		%				2,910						7.8		%
Total operating expenses						246,959						30.5		%				250,750						34.7		%				(3,791)						(1.5		%)
Income from operations						$	225,962					27.9		%				$	171,856					23.8		%				$	54,106					31.5		%

Gross Profit. Gross profit increased due to higher sales volumes despite a slight 10 basis point decrease in the gross profit margin. The net decrease in the gross profit margin was driven by several factors including the mix impact from higher CAG Diagnostics instrument revenue and lower LPD swine and OPTI COVID-19 PCR test revenues. Laboratory gross margins were also impacted by investments in our reference laboratory business to support high growth and customer service levels, as compared to tightly controlled prior year cost levels in response to the onset of the COVID-19 pandemic. These impacts were partially offset by high CAG diagnostic recurring revenue growth and moderate net price increases, as well as strong growth in veterinary software and services. The impact from foreign currency movements increased the gross profit margin by less than 10 basis points, including the impact of higher hedge losses as compared to the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, as well as travel costs. General and administrative expense decreased as compared to the third quarter of 2020 due to an accrual related to an ongoing litigation matter and a charitable donation in the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs associated with acquisitions. Research and development expense increased primarily due to higher project and personnel-related costs. The overall change in currency exchange rates resulted in an increase in operating expenses by approximately 1%.

Companion Animal Group

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

						For the Three Months Ended September 30,
Net Revenue (dollars in thousands)						2021						2020						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG Diagnostics recurring revenue:						$	638,358					$	567,416					$	70,942					12.5		%				0.9		%				0.1		%				11.5		%
IDEXX VetLab consumables						252,714						218,605						34,109						15.6		%				1.2		%				—						14.4		%
Rapid assay products						76,974						70,593						6,381						9.0		%				0.4		%				—						8.6		%
Reference laboratory diagnostic and consulting services						282,301						254,223						28,078						11.0		%				0.8		%				0.2		%				10.0		%
CAG diagnostics services and accessories						26,369						23,995						2,374						9.9		%				0.8		%				—						9.1		%
CAG Diagnostics capital - instruments						39,401						29,336						10,065						34.3		%				1.3		%				—						33.0		%
Veterinary software, services and diagnostic imaging systems						54,736						41,265						13,471						32.6		%				0.5		%				17.4		%				14.7		%
Net CAG revenue						$	732,495					$	638,017					$	94,478					14.8		%				0.9		%				1.2		%				12.7		%

(1) Reported revenue growth and organic revenue growth may not recalculate due to rounding

CAG Diagnostics Recurring Revenue. The increase was driven by strong market demand for companion animal diagnostics globally across modalities. To a lesser extent, the increase in CAG Diagnostics recurring revenue was due to higher realized prices. The same period in the prior year had significant revenue growth as we experienced an increase in market demand for companion animal diagnostic, supported in part by the pent-up demand as social distancing procedures and guidelines were eased, as well as higher clinical visits related to new patients. The impact of currency movements increased revenues by 0.9%.

The increase in IDEXX VetLab® consumables revenue was primarily due to higher sales volumes for our Catalyst® consumables and, to a lesser extent, ProCyte consumables. These increases were supported by expansion of our global premium instrument installed base, high customer retention levels and an increase in testing utilization across regions.

The increase in rapid assay revenue resulted primarily from higher clinic testing levels, primarily from SNAP® 4Dx Plus and Fecal SNAPs, as well as high customer retention levels and higher realized prices. Results reflected strong growth in all major regions.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes, as well as higher average unit sales prices.

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

CAG Diagnostics Capital – Instrument Revenue. The increase in instrument revenue was due to higher premium instrument placements globally, including placements of our new instrument, ProCyte One®, compared to lower overall placements in the third quarter of 2020, as a result of the global pandemic, due to restrictions on our sales professionals’ access to clinics and certain customers’ deferral of new instrument purchases.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue 17.4% as compared to the third quarter in 2020. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to increases in our active installed base, higher veterinary software system placements, and higher

realized prices on these service offerings. The increase in our diagnostic imaging systems revenues was primarily due to higher imaging system placements, specifically our ImageVue DR 30 platform, as compared to the third quarter of 2020 during which diagnostic imaging placements were lower due to restrictions on our sales professionals’ access to clinics and certain customers deferring purchase decisions as a result of the COVID-19 pandemic.

The following table presents the CAG segment results of operations:

						For the Three Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	732,495											$	638,017											$	94,478					14.8		%
Cost of revenues						308,624												269,720												38,904						14.4		%
Gross profit						423,871						57.9		%				368,297						57.7		%				55,574						15.1		%
Operating Expenses:
Sales and marketing						113,855						15.5		%				98,995						15.5		%				14,860						15.0		%
General and administrative						72,597						9.9		%				97,258						15.2		%				(24,661)						(25.4		%)
Research and development						35,472						4.8		%				32,610						5.1		%				2,862						8.8		%
Total operating expenses						221,924						30.3		%				228,863						35.9		%				(6,939)						(3.0		%)
Income from operations						$	201,947					27.6		%				$	139,434					21.9		%				$	62,513					44.8		%

Gross Profit. Gross profit increased primarily due to higher sales volume. The modest 20 basis point increase in the gross profit margin was primarily due to the high CAG diagnostic recurring revenue growth and the benefits of net price gains. These favorable factors were partially offset by the impact from product mix with higher CAG Diagnostics instrument revenue, as well as higher freight and distribution costs. Overall costs were higher in comparison to the tightly controlled prior year costs, including investments in our reference laboratory business to support high growth and customer service levels. The impact from foreign currency movements increased the gross profit margin by less than 10 basis points, including the impact of higher hedge losses as compared to the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, as well as travel costs. General and administrative expense decreased when compared to the third quarter of 2020 due to an accrual related to an ongoing litigation matter and a charitable donation in the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs associated with acquisitions. Research and development expense increased primarily due to increased project and personnel-related costs. The overall change in currency exchange rates increased operating expenses by less than 1%.

Water

The following table presents the Water segment results of operations:

						For the Three Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	38,143											$	33,272											$	4,871					14.6		%
Cost of revenue						11,449												10,208												1,241						12.2		%
Gross profit						26,694						70.0		%				23,064						69.3		%				3,630						15.7		%
Operating Expenses:
Sales and marketing						4,560						12.0		%				3,470						10.4		%				1,090						31.4		%
General and administrative						3,491						9.2		%				3,329						10.0		%				162						4.9		%
Research and development						1,044						2.7		%				1,022						3.1		%				22						2.2		%
Total operating expenses						9,095						23.8		%				7,821						23.5		%				1,274						16.3		%
Income from operations						$	17,599					46.1		%				$	15,243					45.8		%				$	2,356					15.5		%

Revenue. The increase in revenue was primarily a result of the continued improvement in overall testing volumes, including non-compliance testing volume that has been constrained during the COVID-19 pandemic, and to disruptions in the prior year in certain compliance testing areas due to social distancing policies. The increase in revenue is also due to the benefit of price increases in our Colilert test products and related accessories used in coliform and E. coli testing. The impact of currency movements increased revenue by approximately 1.9%.

Gross Profit. Gross profit increased due to higher sales volumes and a 70 basis point increase in the gross profit margin, which reflected a 20 basis point reduction due to foreign currency movements, including the impact of higher hedge losses in the current year compared to the prior year. The gross profit margin was increased by the net benefit of price increases and volume leverage, partially offset by higher freight and distribution costs.

Operating Expenses. Overall operating expenses were higher compared to the third quarter of 2020, during which travel restrictions and prudent expense management was implemented in response to the COVID-19 pandemic. Sales and marketing 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 1%.

Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

						For the Three Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	29,126											$	36,971											$	(7,845)					(21.2		%)
Cost of revenue						12,278												14,203												(1,925)						(13.6		%)
Gross profit						16,848						57.8		%				22,768						61.6		%				(5,920)						(26.0		%)
Operating Expenses:
Sales and marketing						5,324						18.3		%				5,245						14.2		%				79						1.5		%
General and administrative						4,596						15.8		%				4,299						11.6		%				297						6.9		%
Research and development						3,328						11.4		%				2,719						7.4		%				609						22.4		%
Total operating expenses						13,248						45.5		%				12,263						33.2		%				985						8.0		%
Income from operations						$	3,600					12.4		%				$	10,505					28.4		%				$	(6,905)					(65.7		%)

Revenue. The decrease in LPD revenues was primarily due to lower swine testing volumes in China as a result of changes in disease management approaches, low pork prices, and changes in government requirements related to live animal imports and livestock infectious disease programs, as compared to high prior-year demand for African Swine Fever testing. We anticipate these trends will continue to impact our revenues in China in upcoming quarters. The favorable impact of foreign currency movements increased revenues 1.3%.

Gross Profit. Gross profit decreased due to lower sales volumes and a 380 basis point decrease in the gross profit margin. The gross profit margin decreased as a result of higher distribution and freight charges and product mix, partially offset by favorable product costs. The impact of currency movements, including the impact of hedge losses in both the current and prior year, increased the gross margin by approximately 40 basis points.

Operating Expenses. Overall operating expenses were higher compared to the third quarter of 2020, during which travel restrictions and prudent expense management was implemented in response to the COVID-19 pandemic. Sales and marketing expense increased primarily due to higher marketing and promotional materials partially offset by lower personnel-related costs, including commissions. General and administrative expenses increased primarily due to higher bad debt expense. Research and development expense increased primarily due to higher personnel-related costs as we leveraged LPD personnel to support our human COVID-19 testing initiatives in the prior year, and higher project costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 2%.

Other

The following table presents the Other results of operations:

						For the Three Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	10,657											$	13,529											$	(2,872)					(21.2		%)
Cost of revenue						5,149												5,052												97						1.9		%
Gross profit						5,508						51.7		%				8,477						62.7		%				(2,969)						(35.0		%)
Operating Expenses:
Sales and marketing						695						6.5		%				492						3.6		%				203						41.3		%
General and administrative						1,414						13.3		%				145						1.1		%				1,269						875.2		%
Research and development						583						5.5		%				1,166						8.6		%				(583)						(50.0		%)
Total operating expenses						2,692						25.3		%				1,803						13.3		%				889						49.3		%
Income from operations						$	2,816					26.4		%				$	6,674					49.3		%				$	(3,858)					(57.8		%)

Revenue. The decrease in revenue was primarily due to lower demand for our OPTI COVID-19 PCR testing products and services and lower royalty revenue associated with intellectual property related to our former pharmaceutical product line, partially offset by higher OPTI Medical consumables revenue. We currently estimate that the future demand for our OPTI COVID-19 PCR testing products and services will continue to be lower than prior periods, although it is difficult to project given the uncertain nature of the COVID-19 pandemic. The impact of currency movements decreased revenue by 0.1%.

Gross Profit. The decrease in gross profit was primarily due to lower sales volumes of our OPTI COVID-19 PCR testing products and services, and an 1,100 basis point decrease in the gross profit margin, primarily due to unfavorable product mix from lower OPTI COVID-19 PCR testing and lower royalty revenue associated with our former pharmaceutical product line, as well as higher product costs, including costs associated with write-downs of excess COVID-19 testing inventory. These decreases were partially offset by product mix benefits from higher OPTI Medical consumables. The overall change in currency exchange rates had an immaterial impact on gross profit.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs. General and administrative expense increased primarily due to foreign exchange losses on settlements of foreign currency denominated transactions, as compared to gains in the prior year, for all operating segments, which are reported within our Other segment. Research and development expense decreased primarily due to lower project costs associated with the development of the OPTI COVID-19 PCR test.

Non-Operating Items

Interest Expense. Interest expense was $7.1 million for the three months ended September 30, 2021, as compared to $8.1 million for the same period in the prior year. The decrease in interest expense was primarily the result of lower average debt levels.

Provision for Income Taxes. Our effective income tax rate was 20.0% for the three months ended September 30, 2021, as compared to 10.8% for the three months ended September 30, 2020. The increase in our effective tax rate was primarily due to lower tax benefits from share-based compensation than the prior year and the resolution of uncertain tax positions.

Results of Operations

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

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

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

(1)Reported revenue growth and organic revenue growth may not recalculate 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, reflecting continued high demand for companion animal diagnostics globally, supported by an increase in clinical visits and diagnostic utilization per clinical visit, as compared to 2020, which included the initial pandemic impacts. Our CAG Diagnostics instrument revenue reflects high placement volumes compared to the prior year, which was impacted by the global pandemic. The higher revenue in our Water business was primarily a result of the continued improvement in non-compliance testing that has been constrained since the beginning of the pandemic and disruptions in certain compliance testing during the prior year. The decline in our LPD business was primarily due to the lower demand for swine testing in China. The impact of currency movements increased total revenue by 2.5%.

The following table presents total Company results of operations:

						For the Nine Months Ended September 30,																								Change
Total Company - Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	2,414,270											$	1,985,717											$	428,553					21.6		%
Cost of revenue						981,259												824,179												157,080						19.1		%
Gross profit						1,433,011						59.4		%				1,161,538						58.5		%				271,473						23.4		%
Operating Expenses:
Sales and marketing						358,277						14.8		%				318,526						16.0		%				39,751						12.5		%
General and administrative						226,194						9.4		%				231,111						11.6		%				(4,917)						(2.1		%)
Research and development						115,703						4.8		%				102,472						5.2		%				13,231						12.9		%
Total operating expenses						700,174						29.0		%				652,109						32.8		%				48,065						7.4		%
Income from operations						$	732,837					30.4		%				$	509,429					25.7		%				$	223,408					43.9		%

Gross Profit. Gross profit increased due to higher sales volumes, as well as a 90 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to volume leverage in our CAG Diagnostics recurring revenue portfolio following the initial pandemic impacts in the first half of the prior year, price increases, and strong growth in veterinary software, services and diagnostic imaging recurring revenues. These increases were partially offset by product mix with higher CAG Diagnostics instrument revenue and higher freight and distribution costs. The impact from foreign currency movements did not have a material impact on gross profit.

Operating Expenses. Overall operating expenses were higher compared to 2020, during which cost containment efforts were implemented in response to the COVID-19 pandemic, including temporary reductions to compensation and benefits and travel costs. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, partially offset by lower travel costs. General and administrative expense decreased when compared to 2020, due to an accrual related to an ongoing litigation matter and a charitable donation in the third quarter of the prior year, as well as higher bad debt expense related to a reserve adjustment in the first quarter of the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs related to our acquisitions. Research and development expense increased primarily due to higher project and personnel-related costs. The overall change in currency exchange rates increased operating expenses by approximately 2%.

Companion Animal Group

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

						For the Nine Months Ended September 30,
Net Revenue (dollars in thousands)						2021						2020						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG Diagnostics recurring revenue:						$	1,916,938					$	1,565,595					$	351,343					22.4		%				2.4		%				0.2		%				19.8		%
IDEXX VetLab consumables						755,158						603,379						151,779						25.2		%				3.2		%				—						22.0		%
Rapid assay products						230,472						192,681						37,791						19.6		%				1.1		%				—						18.5		%
Reference laboratory diagnostic and consulting services						851,757						703,300						148,457						21.1		%				2.2		%				0.4		%				18.6		%
CAG diagnostics services and accessories						79,551						66,235						13,316						20.1		%				2.9		%				—						17.2		%
CAG Diagnostics capital - instruments						105,645						72,040						33,605						46.6		%				3.6		%				—						43.1		%
Veterinary software, services and diagnostic imaging systems						148,274						118,478						29,796						25.1		%				0.9		%				7.9		%				16.4		%
Net CAG revenue						$	2,170,857					$	1,756,113					$	414,744					23.6		%				2.4		%				0.7		%				20.6		%

(1) Reported revenue growth and organic revenue growth may not recalculate due to rounding

CAG Diagnostics Recurring Revenue. The increase was driven by strong market demand for companion animal diagnostics globally across modalities, including high levels of growth in testing volumes following the initial pandemic impacts, which constrained volumes beginning in mid-March 2020 through May 2020. This volume growth includes an increase in clinical visits and diagnostic utilization per clinical visit. The increase in CAG Diagnostics recurring revenue was primarily due to increased volumes in IDEXX VetLab consumables, reference laboratory diagnostic services, and rapid assay products and, to a lesser extent, higher realized prices. The impact of currency movements increased revenue 2.4%.

The increase in IDEXX VetLab consumables revenue was primarily due to higher sales volumes for our Catalyst consumables and, to a lesser extent, ProCyte consumables. These increases were supported by an increase in testing utilization across regions, high customer retention levels, and expansion of our global premium instrument installed base.

The increase in rapid assay revenue resulted primarily from higher clinic testing levels, primarily from SNAP® 4Dx Plus, as well as higher realized prices. Results reflected strong growth in all major regions.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes globally, primarily in the U.S., as well as higher average unit sales prices. Acquisitions increased revenue by 0.4%.

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

CAG Diagnostics Capital – Instrument Revenue. The increase in instrument revenue was primarily due to strong premium instrument placements globally, including our new ProCyte One analyzer, as compared to constrained placements in 2020, as a result of the global pandemic, due to restrictions on our sales professionals’ access to clinics and certain customers’ deferral of new instrument placements.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue 7.9%. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to increases in our active installed base, higher veterinary software system placements, and higher realized prices on these service offerings. The increase in our diagnostic imaging systems revenues was primarily due to higher imaging systems placements, specifically our ImageVue DR 30 platform, as compared to 2020 when diagnostic imaging placements were lower due to restriction on our

sales professionals’ access to clinics and certain customers deferring purchase decisions as a result of the COVID-19 pandemic, partially offset by a decrease in diagnostic imaging instrument revenue impacted by a reduction in earlier generation instrument platform sales.

The following table presents the CAG segment results of operations:

						For the Nine Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	2,170,857											$	1,756,113											$	414,744					23.6		%
Cost of revenue						893,326												744,006												149,320						20.1		%
Gross profit						1,277,531						58.8		%				1,012,107						57.6		%				265,424						26.2		%
Operating Expenses:
Sales and marketing						327,297						15.1		%				291,093						16.6		%				36,204						12.4		%
General and administrative						199,635						9.2		%				206,394						11.8		%				(6,759)						(3.3)		%
Research and development						100,707						4.6		%				88,558						5.0		%				12,149						13.7		%
Total operating expenses						627,639						28.9		%				586,045						33.4		%				41,594						7.1		%
Income from operations						$	649,892					29.9		%				$	426,062					24.3		%				$	223,830					52.5		%

Gross Profit. Gross profit increased primarily due to higher sales volume, as well as a 120 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to the benefit of volume leverage and price increases in our CAG Diagnostics recurring revenue portfolio, and strong growth in veterinary software, services and diagnostic imaging systems. These favorable factors were partially offset by product mix with higher CAG Diagnostics instrument revenue, higher freight and distribution costs, as well as an impairment of rental assets in certain regions in 2021. The impact from foreign currency movements had an immaterial impact on our gross profit.

Operating Expenses. Overall operating expenses were higher compared to 2020, during which cost containment efforts were implemented in response to the COVID-19 pandemic, including temporary reductions to compensation and benefits and travel costs. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability, partially offset by lower travel costs. General and administrative expense decreased when compared to the third quarter of 2020 due to an accrual related to an ongoing litigation matter and a charitable donation in the prior year. These decreases to general and administrative expenses were partially offset by higher personnel-related costs and costs associated with acquisitions. Research and development expense increased primarily due to increased project and personnel-related costs. The overall change in currency exchange rates resulted in an increase in operating expenses by approximately 1%.

Water

The following table presents the Water segment results of operations:

						For the Nine Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	109,374											$	95,537											$	13,837					14.5		%
Cost of revenue						33,468												28,046												5,422						19.3		%
Gross profit						75,906						69.4		%				67,491						70.6		%				8,415						12.5		%
Operating Expenses:
Sales and marketing						13,017						11.9		%				11,243						11.8		%				1,774						15.8		%
General and administrative						10,111						9.2		%				10,018						10.5		%				93						0.9		%
Research and development						3,179						2.9		%				2,847						3.0		%				332						11.7		%
Total operating expenses						26,307						24.1		%				24,108						25.2		%				2,199						9.1		%
Income from operations						$	49,599					45.3		%				$	43,383					45.4		%				$	6,216					14.3		%

Revenue. The increase in our Water business was primarily a result of recovery in overall testing volumes, including continued improvement in non-compliance testing volume that has been constrained since the beginning of the COVID-19 pandemic and disruptions in certain compliance testing areas due to social distancing policies. The increase in revenue, to a lesser extent, was also due to the benefit of price increases in our Colilert test products and related accessories used in coliform and E. coli testing. The impact of currency movements also increased revenue by 3.1%.

Gross Profit. Gross profit increased due to higher sales volumes despite a 120 basis point decrease in the gross profit margin, which reflected a 90 basis point reduction due to foreign currency movements, including the impact of hedge losses in the current year compared to hedge gains in the prior year. The gross profit margin was further reduced by higher product, distribution, and freight costs, partially offset by the net benefit of price increases.

Operating Expenses. Overall operating expenses were higher compared to 2020, during which cost containment efforts were implemented in response to the COVID-19 pandemic, including temporary reductions to compensation and benefits and travel costs. Sales and marketing expense increased primarily due to higher personnel-related costs. 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 2%.

Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

						For the Nine Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	101,920											$	103,369											$	(1,449)					(1.4		%)
Cost of revenue						38,665												39,450												(785)						(2.0		%)
Gross profit						63,255						62.1		%				63,919						61.8		%				(664)						(1.0)		%
Operating Expenses:
Sales and marketing						16,004						15.7		%				14,925						14.4		%				1,079						7.2		%
General and administrative						13,175						12.9		%				12,466						12.1		%				709						5.7		%
Research and development						9,800						9.6		%				8,111						7.8		%				1,689						20.8		%
Total operating expenses						38,979						38.2		%				35,502						34.3		%				3,477						9.8		%
Income from operations						$	24,276					23.8		%				$	28,417					27.5		%				$	(4,141)					(14.6)		%

Revenue. The favorable impact of foreign currency movements increased revenue by 4.0%. Excluding the impact of currency, overall revenues decreased primarily due to lower demand for diagnostic testing in China, partially offset by higher testing volumes in Europe and the Americas, as compared to pandemic impacts in the prior year. Beginning in the second quarter of 2021, and continuing through the third quarter, we experienced lower livestock testing volumes in China, as changes in disease management approaches, low pork prices, and changes in government requirements related to the live animal imports and livestock infectious disease programs impact testing volumes, in comparison to high prior-year demand for African Swine Fever testing. We anticipate these trends will continue to impact our revenues in China in upcoming quarters.

Gross Profit. The decrease in gross profit was primarily due to lower sales volumes despite a 30 basis point increase in the gross profit margin. The increase in the gross profit margin is primarily due to favorable product costs offset by lower realized prices, higher freight and distribution charges, as well as the impact from foreign currency movements, which decreased gross profit margin by approximately 60 basis points, including the impact of hedge losses in the current year compared to hedge gains in the prior year.

Operating Expenses. Overall operating expenses were higher compared to 2020, during which cost containment efforts were implemented in response to the COVID-19 pandemic, including temporary reductions to compensation and benefits, and travel costs. Sales and marketing expense increased primarily due to higher travel and personnel-related costs, as well as higher marketing and promotional materials, partially offset by lower commissions. General and administrative expenses increased primarily due to higher personnel-related costs, partially offset by an increase in the bad debt reserve during the first half of 2020. Research and development expense increased primarily due to higher personnel-related costs as we leveraged LPD personnel to support our human COVID-19 testing initiatives in the prior year, and third party development costs. The overall change in currency exchange rates resulted in an increase in operating expenses of approximately 3%.

Other

The following table presents the Other results of operations:

						For the Nine Months Ended September 30,																								Change
Results of Operations (dollars in thousands)						2021						Percent of Revenue						2020						Percent of Revenue						Amount						Percentage
Revenues						$	32,119											$	30,698											$	1,421					4.6		%
Cost of revenue						15,800												12,677												3,123						24.6		%
Gross profit						16,319						50.8		%				18,021						58.7		%				(1,702)						(9.4		%)
Operating Expenses:
Sales and marketing						1,959						6.1		%				1,265						4.1		%				694						54.9		%
General and administrative						3,273						10.2		%				2,233						7.3		%				1,040						46.6		%
Research and development						2,017						6.3		%				2,956						9.6		%				(939)						(31.8		%)
Total operating expenses						7,249						22.6		%				6,454						21.0		%				795						12.3		%
Income from operations						$	9,070					28.2		%				$	11,567					37.7		%				$	(2,497)					(21.6		%)

Revenue. The increase in revenue was primarily due to higher OPTI Medical consumables and our OPTI COVID-19 PCR testing products and services, partially offset by lower royalty revenue associated with intellectual property related to our former pharmaceutical product line. We currently estimate that the future demand for our OPTI COVID-19 PCR testing products and services will be lower than prior periods, although it is difficult to project given the uncertain nature of the COVID-19 pandemic, including the spread of variants, rates of vaccinations, governmental and private institution testing requirements, and alternative suppliers. The impact of currency movements increased revenue by 2.0%.

Gross Profit. The decrease in gross profit was primarily due to a gross profit margin decrease of 790 basis points despite higher sales volumes. The decrease in the gross profit margin is primarily due to higher product costs associated with write-downs of excess COVID-19 testing inventory in the current year and lower royalty revenue associated with our former pharmaceutical product line. The overall change in currency exchange rates had an immaterial impact on gross profit.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs associated with our OPTI COVID-19 PCR product and services. General and administrative expense increased primarily due to higher foreign exchange losses on settlements of foreign currency denominated transactions, as compared to the prior year, for all operating segments, which are reported within our Other segment. Research and development expense decreased primarily due to lower project costs associated with the development of the OPTI COVID-19 PCR test in the prior year.

Non-Operating Items

Interest Expense. Interest expense was $22.3 million for the nine months ended September 30, 2021, as compared to $25.3 million for the same period in the prior year. The decrease in interest expense was primarily the result of lower average debt levels.

Provision for Income Taxes. Our effective income tax rate was 18.1% for the nine months ended September 30, 2021, as compared to 16.0% for the nine months ended September 30, 2020. The increase in our effective tax rate as compared to the same period in the prior year, was primarily driven by lower tax benefits from share-based compensation than the prior year and the resolution of uncertain tax positions.

Liquidity and Capital Resources

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 September 30, 2021, we had $145.2 million of cash and cash equivalents, as compared to $383.9 million on December 31, 2020. Working capital totaled $304.2 million at September 30, 2021, as compared to $480.0 million at December 31, 2020. Additionally, at September 30, 2021, we had borrowing availability of $998.6 million under our $1 billion Credit Facility, with no outstanding borrowings on the Credit Facility. The general availability of funds under our Credit Facility is reduced by $1.4 million for outstanding letters of credit. We believe that, if necessary, we could obtain additional borrowings to fund our growth objectives. We further believe that current cash and cash equivalents, funds generated from operations, and committed borrowing availability will be sufficient to fund our operations, capital purchase requirements, and anticipated growth needs for at least the next twelve months. We believe that these resources, coupled with our ability, as needed, to obtain additional financing, will also be sufficient to fund our business as currently conducted for the foreseeable future. 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 the incurrence of debt or equity issuances, which we may not be able to complete on favorable terms or at all. In addition, 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:

Cash, cash equivalents and marketable securities (dollars in millions)						September 30, 2021						December 31, 2020
U.S.						$	6.1					$	248.4
Foreign						139.1						135.5
Total						$	145.2					$	383.9
Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries						$	5.3					$	18.0

Of the $145.2 million of cash and cash equivalents held as of September 30, 2021, greater than 99% was held as bank deposits.

The following table presents additional key information concerning working capital:

			For the Three Months Ended
			September 30, 2021						June 30, 2021						March 31, 2021						December 31, 2020						September 30, 2020
Days sales outstanding (1)			42.7						42.2						41.8						42.2						41.5
Inventory turns (2)			1.9						2.1						2.0						2.1						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 average inventory balances at the beginning and end of each quarter.

Sources and Uses of Cash

The following table presents cash provided (used):

						For the Nine Months Ended September 30,
(in thousands)						2021						2020						Dollar Change
Net cash provided by operating activities						$	545,582					$	429,129					$	116,453
Net cash used by investing activities						(248,927)						(93,686)						(155,241)
Net cash used by financing activities						(531,594)						(248,814)						(282,780)
Net effect of changes in exchange rates on cash						(3,786)						(1,368)						(2,418)
Net change in cash and cash equivalents						$	(238,725)					$	85,261					$	(323,986)

Operating Activities. The increase in cash provided by operating activities of $116.5 million was driven primarily by an increase in net income partially offset by changes in other assets and liabilities. The following table presents cash flow impacts from changes in operating assets and liabilities:

						For the Nine Months Ended September 30,
(in thousands)						2021						2020						Dollar Change
Accounts receivable						$	(49,050)					$	(72,409)					$	23,359
Inventories						(46,891)						(25,091)						(21,800)
Accounts payable						637						512						125
Deferred revenue						(7,487)						(10,433)						2,946
Other assets and liabilities						(51,961)						30,579						(82,540)
Total change in cash due to changes in operating assets and liabilities						$	(154,752)					$	(76,842)					$	(77,910)

Cash used due to changes in operating assets and liabilities during the nine months ended September 30, 2021, as compared to the same period in the prior year, increased by approximately $77.9 million. The increase in use of cash for other assets and liabilities in the current year was primarily due to higher payroll and income tax payments, as well as higher incentive payments in 2021, as compared to 2020, and higher investments in customer volume commitment programs to support instrument placements. Additionally, the prior year included a non-cash operating expense related to an ongoing litigation matter. The decrease in cash used by accounts receivable over the same prior-year period was due to the timing of revenue within the prior year, as sales volumes rebounded due to pent-up demand from the beginning of the COVID-19 pandemic. Cash used to purchase inventory in the current period, as compared to the prior period, was higher primarily due to higher inventory levels to support increasing demand and mitigate potential supply-chain shortages.

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.

Investing Activities. Cash used by investing activities was $248.9 million for the nine months ended September 30, 2021, as compared to $93.7 million for the same period in the prior year. The increase in cash used by investing activities was primarily due to business acquisitions in the current year, partially offset by higher purchases of property and equipment in the prior year.

Our outlook for full year capital spending is approximately $150.0 million for 2021.

Financing Activities. Cash used by financing activities was $531.6 million for the nine months ended September 30, 2021, as compared to $248.8 million of cash used for the same period in the prior year. The increase in cash used by financing activities was due to an increase in repurchases of our common stock in the current period as compared to the same period in the prior year when we suspended repurchases due to the COVID-19 pandemic. Cash was also used to pay off our $50.0 million 2021 Series A Notes when due and payable on July 21, 2021. During the first nine months of 2020, the repayments on our Credit Facility, partly offset by issuance of Senior Notes, used approximately $89.6 million in cash.

Cash used to repurchase shares of our common stock increased $319.2 million during the nine months ended September 30, 2021. We believe that the repurchase of our common stock is a favorable means of returning value to our

stockholders, 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 12 to the unaudited condensed consolidated financial statements in Part I. Item 1. of this Quarterly Report on Form 10-Q for additional information about our share repurchases.

There was no net activity under our Credit Facility during the nine months ended September 30, 2021, as compared to $289.6 million of net repayments in the same period of the prior year. At September 30, 2021, we had no outstanding borrowings under the Credit Facility. The obligations under our 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 (“ERISA”), the failure to pay specified indebtedness, cross-acceleration to specified indebtedness, and a change of control default.

The Credit Agreement 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 sanctions laws and regulations. The financial covenant is a consolidated leverage ratio test.

On July 21, 2021, we paid off our $50.0 million 2021 Series A Notes with cash provided by operations. The aggregate principal amounts of our 2022 Series A Notes for $75.0 million will become due and payable on February 12, 2022. We anticipate paying off our 2022 Series A Notes when due and payable with cash provided by operations. Should we elect to prepay any of our 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 ERISA, 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 is 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 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 Arrangements. We have no off-balance sheet arrangements or variable interest entities, except for letters of credit and third party guarantees.

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, non-recurring transaction expenses incurred in connection with acquisitions, share-based compensation expense, and certain other non-cash losses and charges (“Adjusted EBITDA”) not to exceed 3.5-to-1. At September 30, 2021, we were in compliance with such covenant. The following details our consolidated leverage ratio calculation:

(in thousands)			Twelve months ended
Trailing 12 Months Adjusted EBITDA:			September 30, 2021
Net income attributable to stockholders (as reported)			$	756,864
Interest expense			30,159
Provision for income taxes			131,176
Depreciation and amortization			101,462
Acquisition-related expense			2,324
Share-based compensation expense			35,985
Extraordinary and other non-recurring non-cash charges			5,656
Adjusted EBITDA			$	1,063,626
(in thousands)
Debt to Adjusted EBITDA Ratio:			September 30, 2021
Line of credit			$	—
Current and long-term portions of long-term debt			853,015
Total debt			853,015
Acquisition-related contingent consideration payable			7,348
Financing leases			17
Deferred financing costs			541
Gross debt			$	860,921
Gross debt to Adjusted EBITDA ratio			0.81
Less: Cash and cash equivalents			$	145,203
Net debt			$	715,718
Net debt to Adjusted EBITDA ratio			0.67

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 September 30, 2021, are described in Note 16 to the unaudited condensed consolidated financial statements in Part I. Item 1. of this Quarterly Report on Form 10-Q.