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; research and development expense estimate; and future commercial and operational efforts. 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 current war in Ukraine and 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 2021 Annual Report and in the corresponding sections of 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 2021 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 March 31. 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 sectors. We also design, manufacture, and distribute point of care and laboratory diagnostics for the human medical diagnostics sector. 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, and 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 diagnostics sector.

Operating Segments. We operate primarily through three business segments: diagnostic and information technology-based products and services for the veterinary sector, 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 sector 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 sector, 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 sector.

Effects of Certain Factors and Trends on Results of Operations

CAG Trends. Continued growth in demand for companion animal healthcare supported solid gains for CAG diagnostic products and services across regions, compared to very strong prior year growth levels. U.S. same-store clinical visits at veterinary practices declined 2% in the first quarter compared to prior year period clinical visit growth of 13%, which included benefits from increases in new pet ownership during the COVID-19 pandemic. Average same-store revenue growth at U.S. veterinary practices was 6% in the first quarter, compared to 16% growth levels in the first quarter of 2021, driven by high growth in healthcare services, including increased utilization of diagnostics.

LPD Trends. Our LPD revenues, on a year-over-year comparison, declined due to the relaxation of local African Swine Fever disease management programs, as well as additional impacts in China from lower pork prices and changing government requirements related to live animal imports and livestock infectious disease programs, which began in the second quarter of 2021. The comparisons to prior year are expected to improve in the second half of 2022.

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 our 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. We continue to monitor government lockdowns and other restrictions due to COVID-19, and have implemented mitigation strategies to adjust for delayed shipments of products and components. Although we expect the current supply chain and logistics challenges to continue during 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.

War in Ukraine. We have significantly scaled back operations in Russia including suspending sales of veterinary diagnostic equipment in the country. Our 2021 annual revenue was approximately $10 million in the Russia, Belarus and Ukraine region. We have no manufacturing or significant supply arrangement in the region. We anticipate revenues related to these geographies will be significantly limited for the remainder of 2022.

Currency and Other Items

Currency Impact. Refer to “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. Refer to “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 2021 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 months ended March 31, 2022, are consistent with those discussed in our 2021 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, refer to 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 months ended March 31, 2022, 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 March 31, 2022, Compared to Three Months Ended March 31, 2021

Total Company. The following table presents total Company revenue by operating segment by U.S. and non-U.S., or international geographies:

						For the Three Months Ended March 31,
Net Revenue (dollars in thousands)						2022						2021						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG						$	761,184					$	692,767					$	68,417					9.9		%				(1.9		%)				1.6		%				10.2		%
United States						499,766						444,410						55,356						12.5		%				—						2.2		%				10.3		%
International						261,418						248,357						13,061						5.3		%				(5.2		%)				0.5		%				10.0		%
Water						36,371						34,040						2,331						6.8		%				(1.6		%)				—						8.4		%
United States						17,831						16,568						1,263						7.6		%				—						—						7.6		%
International						18,540						17,472						1,068						6.1		%				(3.1		%)				—						9.2		%
LPD						30,870						39,270						(8,400)						(21.4		%)				(2.3		%)				—						(19.1		%)
United States						3,860						3,748						112						3.0		%				—						—						3.0		%
International						27,010						35,522						(8,512)						(24.0		%)				(2.4		%)				—						(21.5		%)
Other						8,124						11,630						(3,506)						(30.1		%)				(0.2		%)				—						(29.9		%)
Total Company						$	836,549					$	777,707					$	58,842					7.6		%				(1.9		%)				1.4		%				8.0		%
United States						525,906						472,638						53,268						11.3		%				—						2.1		%				9.2		%
International						310,643						305,069						5,574						1.8		%				(4.7		%)				0.4		%				6.1		%

(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 volume gains in CAG Diagnostics recurring revenue, reflecting continued high demand for companion animal diagnostics, as well as higher realized prices. Our CAG Diagnostics instrument revenue reflects high placement volumes compared to the prior year. The higher revenue in our Water business was primarily due to the benefit of price increases and higher testing volumes. The decline in our LPD business was primarily due to the lower demand for swine testing in China. The impact of acquisitions increased total revenue growth by 1.4% while the impact of currency movements decreased total revenue growth by 1.9%.

The following table presents total Company results of operations:

						For the Three Months Ended March 31,																								Change
Total Company - Results of Operations (dollars in thousands)						2022						Percent of Revenue						2021						Percent of Revenue						Amount						Percentage
Revenues						$	836,549											$	777,707											$	58,842					7.6		%
Cost of revenue						337,796												306,925												30,871						10.1		%
Gross profit						498,753						59.6		%				470,782						60.5		%				27,971						5.9		%
Operating expenses:
Sales and marketing						132,292						15.8		%				114,811						14.8		%				17,481						15.2		%
General and administrative						77,949						9.3		%				70,770						9.1		%				7,179						10.1		%
Research and development						40,168						4.8		%				37,579						4.8		%				2,589						6.9		%
Total operating expenses						250,409						29.9		%				223,160						28.7		%				27,249						12.2		%
Income from operations						$	248,344					29.7		%				$	247,622					31.8		%				$	722					0.3		%

Gross Profit. Gross profit increased due to higher sales volumes moderated by a 90 basis point decrease in the gross profit margin. The decrease in the gross profit margin was primarily due to the impact of product mix from lower LPD and higher CAG Diagnostic instrument revenue, as well as higher product and service costs and higher freight and distribution costs. These decreases were partially offset by recurring revenue net price gains and reference laboratory productivity initiatives, which helped to offset the effects of inflation on our gross profit margin. The impact from foreign currency movements increased the gross profit margin by approximately 30 basis points, including the impact of hedge gains in the current year as compared to hedge losses in the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability and higher travel costs. General and administrative expense increased primarily due to higher personnel-related expense, as well as higher estimated bad debt expense and an increase in amortization and depreciation expense related to business acquisitions and capital investments. Research and development expense increased primarily due to higher project and third-party costs. The overall change in currency exchange rates decreased operating expenses growth by approximately 1%.

During the second quarter of 2022, we entered into two arrangements to license intellectual property. In connection with these arrangements, we estimate approximately $80.0 million in the aggregate will be charged to research and development expense during the second quarter. Refer to “Part I, Item 1. Note 20 - Subsequent Event” for more information.

Companion Animal Group

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

						For the Three Months Ended March 31,
Net Revenue (dollars in thousands)						2022						2021						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG Diagnostics recurring revenue:						$	664,810					$	617,280					$	47,530					7.7		%				(1.9		%)				0.2		%				9.4		%
IDEXX VetLab consumables						267,173						246,092						21,081						8.6		%				(2.5		%)				—						11.1		%
Rapid assay products						74,519						69,611						4,908						7.1		%				(1.1		%)				—						8.1		%
Reference laboratory diagnostic and consulting services						295,075						275,781						19,294						7.0		%				(1.5		%)				0.5		%				8.0		%
CAG diagnostics services and accessories						28,043						25,796						2,247						8.7		%				(2.6		%)				—						11.3		%
CAG Diagnostics capital - instruments						36,997						31,190						5,807						18.6		%				(3.5		%)				—						22.1		%
Veterinary software, services and diagnostic imaging systems						59,377						44,297						15,080						34.0		%				(0.4		%)				21.2		%				13.2		%
Net CAG revenue						$	761,184					$	692,767					$	68,417					9.9		%				(1.9		%)				1.6		%				10.2		%

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

CAG Diagnostics Recurring Revenue. The increase was driven by strong demand for companion animal diagnostics globally across modalities. The increase in CAG Diagnostics recurring revenue was primarily due to increased volumes in IDEXX VetLab consumables and reference laboratory diagnostic services, and higher realized prices. The impact of currency movements decreased revenue growth by 1.9%.

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, as well as higher price realization. These increases were supported by an expansion of our instrument installed base, expanded menu of available tests in certain regions, and high customer retention levels.

The increase in rapid assay revenue resulted primarily from higher price realization and higher clinic testing levels, primarily from SNAP® 4Dx Plus.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher testing volumes, primarily in the U.S., as well as higher realized prices. Acquisitions increased revenue growth by 0.5%.

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 the successful global launch of the ProCyte One analyzer, to support increased diagnostic testing.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. Acquisitions increased revenue growth by 21.2%. Excluding the impact of acquisitions, the increase in veterinary software and services revenue was primarily due to increases in our active installed base, higher realized prices on service offerings, and higher veterinary software system placements. The increase in our diagnostic imaging systems revenues was primarily due to increases in our active installed base resulting in higher service revenue, as well as higher realized prices.

The following table presents the CAG segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2022						Percent of Revenue						2021						Percent of Revenue						Amount						Percentage
Revenues						$	761,184											$	692,767											$	68,417					9.9		%
Cost of revenue						312,085												279,893												32,192						11.5		%
Gross profit						449,099						59.0		%				412,874						59.6		%				36,225						8.8		%
Operating expenses:
Sales and marketing						121,660						16.0		%				104,291						15.1		%				17,369						16.7		%
General and administrative						68,881						9.0		%				62,904						9.1		%				5,977						9.5		%
Research and development						35,433						4.7		%				32,469						4.7		%				2,964						9.1		%
Total operating expenses						225,974						29.7		%				199,664						28.8		%				26,310						13.2		%
Income from operations						$	223,125					29.3		%				$	213,210					30.8		%				$	9,915					4.7		%

Gross Profit. Gross profit increased primarily due to higher sales volume, moderated by a 60 basis point decrease in the gross profit margin. The decrease in the gross profit margin was primarily due to the impact of product mix with higher CAG Diagnostic instrument revenue, as well as higher product and service costs and higher freight and distributions costs. These decreases were partially offset by recurring revenue net price gains and reference laboratory productivity initiatives, which helped to offset the effects of inflation on our gross margins, as well as the benefits of growth from our recurring software revenues. The impact from foreign currency movements increased the gross profit margin by approximately 10 basis points, including the impact of hedge gains in the current year as compared to hedge losses in the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, including investments in our global commercial capability and higher travel costs. General and administrative expense increased primarily due to higher personnel-related expense, as well as an increase in amortization and depreciation expense related to business acquisitions and capital investments and higher estimated bad debt expense. Research and development expense increased primarily due to increased project and third-party costs. The overall change in currency exchange rates resulted in a decrease in operating expenses growth by approximately 1%.

During the second quarter of 2022, we entered into two arrangements to license intellectual property. In connection with these arrangements, we estimate approximately $80.0 million in the aggregate will be charged to research and development expense during the second quarter. Refer to “Part I, Item 1. Note 20 - Subsequent Event” for more information.

Water

The following table presents the Water segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2022						Percent of Revenue						2021						Percent of Revenue						Amount						Percentage
Revenues						$	36,371											$	34,040											$	2,331					6.8		%
Cost of revenue						10,634												10,575												59						0.6		%
Gross profit						25,737						70.8		%				23,465						68.9		%				2,272						9.7		%
Operating expenses:
Sales and marketing						4,598						12.6		%				4,358						12.8		%				240						5.5		%
General and administrative						3,282						9.0		%				3,236						9.5		%				46						1.4		%
Research and development						1,203						3.3		%				1,099						3.2		%				104						9.5		%
Total operating expenses						9,083						25.0		%				8,693						25.5		%				390						4.5		%
Income from operations						$	16,654					45.8		%				$	14,772					43.4		%				$	1,882					12.7		%

Revenue. The increase in our Water business was primarily due to higher testing volume and higher realized prices in our Colilert test products and related accessories used in coliform and E. coli testing. The impact of currency movements decreased revenue growth by 1.6%.

Gross Profit. Gross profit increased due to higher sales volumes and a 190 basis point increase in the gross profit margin, which reflected an approximately 160 basis point increase due to foreign currency movements, including the impact of hedge gains in the current year compared to hedge losses in the prior year. The gross profit margin also increased due to higher realized prices and lower product costs, offset by higher distribution and freight costs.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs and higher travel expense. Research and development expense increased primarily due to third-party services. The overall change in currency exchange rates resulted in a decrease in operating expenses growth of less than 1%.

Livestock, Poultry and Dairy

The following table presents the LPD segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2022						Percent of Revenue						2021						Percent of Revenue						Amount						Percentage
Revenues						$	30,870											$	39,270											$	(8,400)					(21.4		%)
Cost of revenue						11,323												12,389												(1,066)						(8.6		%)
Gross profit						19,547						63.3		%				26,881						68.5		%				(7,334)						(27.3)		%
Operating expenses:
Sales and marketing						5,568						18.0		%				5,538						14.1		%				30						0.5		%
General and administrative						4,161						13.5		%				4,308						11.0		%				(147)						(3.4		%)
Research and development						3,081						10.0		%				3,227						8.2		%				(146)						(4.5)		%
Total operating expenses						12,810						41.5		%				13,073						33.3		%				(263)						(2.0		%)
Income from operations						$	6,737					21.8		%				$	13,808					35.2		%				$	(7,071)					(51.2)		%

Revenue. Revenues decreased primarily due to lower demand for diagnostic testing in China. Beginning during the second quarter of 2021, and continuing through the first quarter of 2022, 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 impacted testing volumes, in comparison to high prior-year demand for African Swine Fever testing. The decrease in revenue was partially offset by moderate gains in other regions. The unfavorable impact of foreign currency movements decreased revenue growth by 2.3%.

Gross Profit. The decrease in gross profit was primarily due to lower sales volumes and a 520 basis point decrease in the gross profit margin. The decrease in the gross profit margin is primarily due to higher freight and distribution charges, investments in our bovine laboratory services, and the unfavorable overall mix impacts largely from lower ASF testing following changes in government requirements. The decrease in the gross profit margin was partially offset by the impact from foreign currency movements, which increased gross profit margin by approximately 200 basis points, including the impact of hedge gains in the current year compared to hedge losses in the prior year.

Operating Expenses. Sales and marketing expense were essentially flat, with higher marketing costs offset by lower personnel-related costs. General and administrative expenses decreased primarily due to lower personnel-related costs and lower bad debt expense. Research and development expense decreased primarily due to lower personnel-related costs, partially offset by lower costs in the prior year as we leveraged LPD personnel to support our human COVID-19 testing products. The overall change in currency exchange rates resulted in a decrease in operating expenses growth of approximately 2%.

Other

The following table presents the Other results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2022						Percent of Revenue						2021						Percent of Revenue						Amount						Percentage
Revenues						$	8,124											$	11,630											$	(3,506)					(30.1		%)
Cost of revenue						3,754												4,068												(314)						(7.7		%)
Gross profit						4,370						53.8		%				7,562						65.0		%				(3,192)						(42.2		%)
Operating expenses:
Sales and marketing						466						5.7		%				624						5.4		%				(158)						(25.3		%)
General and administrative						1,625						20.0		%				322						2.8		%				1,303						404.7		%
Research and development						451						5.6		%				784						6.7		%				(333)						(42.5		%)
Total operating expenses						2,542						31.3		%				1,730						14.9		%				812						46.9		%
Income from operations						$	1,828					22.5		%				$	5,832					50.1		%				$	(4,004)					(68.7		%)

Revenue. The decrease in revenue was primarily due to lower OPTI COVID-19 PCR testing products and services in the U.S., as well as lower OPTI Medical consumables revenue related to COVID-19 lockdowns in Asia.

Gross Profit. The decrease in gross profit was primarily due to lower sales volume and a gross profit margin decrease of 1,120 basis points. The decrease in the gross profit margin is primarily due to lower OPTI Medical volumes and higher distribution expense, partially offset by higher realized prices. The overall change in currency exchange rates had an immaterial impact on gross profit.

Operating Expenses. Sales and marketing expense decreased primarily due to lower personnel-related costs. 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, as well as higher estimated bad debt expense. Research and development expense decreased primarily due to lower project costs compared to the prior year, which included COVID-19 related costs.

Non-Operating Items

Interest Expense. Interest expense was $7.0 million for the three months ended March 31, 2022, as compared to $7.6 million for the same period in the prior year. The decrease in interest expense was primarily due to the timing of Credit Facility borrowings during the first quarter of 2022, as well as a lower variable rate than the comparative fixed long-term debt.

Provision for Income Taxes. Our effective income tax rate was 19.7% for the three months ended March 31, 2022, as compared to 14.9% for the three months ended March 31, 2021. The increase in our effective tax rate, as compared to the same period in the prior year, was primarily driven by a decrease in the tax benefits from share-based compensation.

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. As of March 31, 2022, we had $204.6 million of cash and cash equivalents, as compared to $144.5 million as of December 31, 2021. Working capital totaled $118.4 million as of March 31, 2022, as compared to $192.1 million as of December 31, 2021. Additionally, as of March 31, 2022, we had borrowing availability of $598.6 million under our $1 billion Credit Facility, with $400.0 million 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 thousands)						March 31, 2022						December 31, 2021
U.S.						$	30,538					$	2,632
Foreign						174,080						141,822
Total						$	204,618					$	144,454
Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries						$	38,791					$	6,245

Of the $204.6 million of cash and cash equivalents held as of March 31, 2022, greater than 99% was held as bank deposits.

The following table presents additional key information concerning working capital:

			For the Three Months Ended
			March 31, 2022						December 31, 2021						September 30, 2021						June 30, 2021						March 31, 2021
Days sales outstanding (1)			42.0						42.4						42.7						42.2						41.8
Inventory turns (2)			1.6						2.0						1.9						2.1						2.0

(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 Three Months Ended March 31,
(in thousands)						2022						2021						Dollar Change
Net cash provided by operating activities						$	114,706					$	124,422					$	(9,716)
Net cash used by investing activities						(41,838)						(24,587)						(17,251)
Net cash used by financing activities						(13,480)						(129,651)						116,171
Net effect of changes in exchange rates on cash						776						(2,949)						3,725
Net change in cash and cash equivalents						$	60,164					$	(32,765)					$	92,929

Operating Activities. The decrease in cash provided by operating activities of $9.7 million was driven primarily by a decrease in net income and changes in inventory, partially offset by changes in accounts receivable. The following table presents cash flow impacts from changes in operating assets and liabilities:

						For the Three Months Ended March 31,
(in thousands)						2022						2021						Dollar Change
Accounts receivable						$	(37,531)					$	(54,735)					$	17,204
Inventories						(18,854)						(7,919)						(10,935)
Accounts payable						(4,016)						2,460						(6,476)
Deferred revenue						(937)						(2,287)						1,350
Other assets and liabilities						(52,904)						(57,081)						4,177
Total change in cash due to changes in operating assets and liabilities						$	(114,242)					$	(119,562)					$	5,320

Cash used due to changes in operating assets and liabilities during the three months ended March 31, 2022, as compared to the same period in the prior year, increased by approximately $5.3 million. 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 from the beginning of the COVID-19 pandemic. Cash used for inventory in the current period, as compared to the prior period, was higher primarily to support increasing demand and to mitigate potential supply-chain impacts.

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.

During the second quarter of 2022, we entered into two arrangements to license intellectual property. Under one arrangement we paid $45.0 million and expect to issue subsequent milestone payments during 2022 of $10.0 million. Under the second arrangement, we paid $30.0 million for an equity investment and license rights, with expected subsequent milestone payments of $20.0 million. The cash paid for these arrangements will be presented in operating and investing activities in the unaudited condensed consolidated statement of cash flows for the period in which cash is used. Refer to “Part I, Item 1. Note 20 - Subsequent Event” for more information.

Investing Activities. Cash used by investing activities was $41.8 million for the three months ended March 31, 2022, as compared to $24.6 million for the same period in the prior year. The increase in cash used by investing activities was primarily due to higher purchases of property and equipment and an acquisition of an intangible asset.

Our outlook for full year capital spending is approximately $180.0 million for 2022.

Financing Activities. Cash used by financing activities was $13.5 million for the three months ended March 31, 2022, as compared to $129.7 million of cash used for the same period in the prior year. The decrease in cash used by financing activities was due to a $326.5 million increase in borrowings under our Credit Facility, partially offset by $134.0 million in additional repurchases of our common stock in the current period as compared to the same period in the prior year. Cash was also used to pay off our $75.0 million 2022 Series A Notes when due and payable on February 14, 2022.

Cash used to repurchase shares of our common stock increased $134.0 million during the three months ended March 31, 2022. 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. Refer to 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.

Under our Credit Facility, the net borrowing activity during the three months ended March 31, 2022, as compared to the same period in the prior year, increased $326.5 million. As of March 31, 2022, we had $400.0 million 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 February 2022, we paid off our $75.0 million 2022 Series A Notes with cash provided by operations and financing activity. 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. As of March 31, 2022, 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:			March 31, 2022
Net income attributable to stockholders (as reported)			$	734,553
Interest expense			29,220
Provision for income taxes			169,535
Depreciation and amortization			106,050
Acquisition-related expense			3,284
Share-based compensation expense			40,053
Extraordinary and other non-recurring non-cash charges			5,148
Adjusted EBITDA			$	1,087,843
(in thousands)
Debt to Adjusted EBITDA Ratio:			March 31, 2022
Line of credit			$	400,000
Current and long-term portions of long-term debt			773,381
Total debt			1,173,381
Acquisition-related contingent consideration payable			10,683
Financing leases			11
Deferred financing costs			481
Gross debt			$	1,184,556
Gross debt to Adjusted EBITDA ratio			1.09
Less: Cash and cash equivalents			$	204,618
Net debt			$	979,938
Net debt to Adjusted EBITDA ratio			0.90

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 as of March 31, 2022, 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.