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, our expectations regarding future revenue growth rates; revenue recognition timing and amounts; business trends, earnings and other measures of financial performance; projected impact of foreign currency exchange rates and hedging activities; 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; interest expense; share-based compensation expense; the projected impact of new accounting standards; critical accounting estimates; deductibility of goodwill; 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 macroeconomic events, conditions and uncertainties (such as geopolitical instability (including the current war in Ukraine), general economic uncertainty, inflationary pressures, and supply chain challenges) on our business, results of operations, liquidity, financial condition, and stock price, 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 2022 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, and they are subject to the risk and uncertainties described or cross-referenced in this section. 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 2022 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 and blood gas analyzers.

Description of Business Segments. We operate primarily through three business segments: diagnostic and information management-based products and services for the companion animal veterinary industry, 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 our human medical diagnostics products and services business (“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 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 and related consumable products) for the human medical diagnostics sector. During the first quarter of 2023, we discontinued actively marketing our OPTI COVID-19 PCR testing products and services.

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 2022 Annual Report for additional information regarding trends in companion animal healthcare, 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, 2023, are consistent with those discussed in our 2022 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, 2023, as compared to the same period for the prior year, net of the effect of changes in foreign currency exchange rates, certain business acquisitions, and divestitures. Organic revenue growth should be considered in addition to, and not as a replacement for, or as a superior measure to, revenue growth reported in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies. 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 consider acquisitions to be a business when all three elements of inputs, process, and outputs are present, consistent with ASU 2017-01, “Business Combinations: (Topic 805) Clarifying the Definition of a Business.” In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, we do not consider these assets to be a business. 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, 2023, Compared to Three Months Ended March 31, 2022

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

						For the Three Months Ended March 31,
Net Revenue (dollars in thousands)						2023						2022						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG						$	827,279					$	761,184					$	66,095					8.7		%				(2.2		%)				—						10.9		%
United States						564,527						499,766						64,761						13.0		%				—						—						13.0		%
International						262,752						261,418						1,334						0.5		%				(6.2		%)				—						6.8		%
Water						38,883						36,371						2,512						6.9		%				(2.9		%)				1.6		%				8.2		%
United States						19,920						17,831						2,089						11.7		%				—						—						11.7		%
International						18,963						18,540						423						2.3		%				(5.5		%)				3.2		%				4.6		%
LPD						29,208						30,870						(1,662)						(5.4		%)				(3.8		%)				—						(1.6		%)
United States						4,543						3,860						683						17.7		%				—						—						17.7		%
International						24,665						27,010						(2,345)						(8.7		%)				(4.2		%)				—						(4.5		%)
Other						4,825						8,124						(3,299)						(40.6		%)				(0.1		%)				—						(40.5		%)
Total Company						$	900,195					$	836,549					$	63,646					7.6		%				(2.3		%)				0.1		%				9.8		%
United States						590,413						525,906						64,507						12.3		%				—						—						12.3		%
International						309,782						310,643						(861)						(0.3		%)				(5.9		%)				0.2		%				5.5		%

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

Total Company Revenue. The increase in organic revenue reflects growth in CAG Diagnostics recurring revenue, including benefits from higher realized prices globally and increased volume in the U.S. Increases in our subscription-based veterinary software and diagnostic imaging services also contributed to higher revenue. The higher revenue in our Water business was primarily due to the benefit of price increases and our acquisition in the third quarter of 2022. The decline in our LPD business was primarily due to lower herd health screening volume. The decrease in Other revenue reflects lower sales of OPTI COVID-19 PCR testing products and services. The impact of currency movements decreased total revenue growth by 2.3%.

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)						2023						Percent of Revenue						2022						Percent of Revenue						Amount						Percentage
Revenues						$	900,195											$	836,549											$	63,646					7.6		%
Cost of revenue						357,224												337,796												19,428						5.8		%
Gross profit						542,971						60.3		%				498,753						59.6		%				44,218						8.9		%
Operating expenses:
Sales and marketing						147,804						16.4		%				132,292						15.8		%				15,512						11.7		%
General and administrative						70,101						7.8		%				77,949						9.3		%				(7,848)						(10.1		%)
Research and development						44,667						5.0		%				40,168						4.8		%				4,499						11.2		%
Total operating expenses						262,572						29.2		%				250,409						29.9		%				12,163						4.9		%
Income from operations						$	280,399					31.1		%				$	248,344					29.7		%				$	32,055					12.9		%

Gross Profit. Gross profit increased due to higher revenue and a 70 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to recurring revenue net price gains, improved software services gross margins, the benefit of our reference laboratory productivity initiatives, and product mix associated with lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product, labor, and distribution costs, which reflect the effects of inflation, as well investments in productivity initiatives and to support future growth. The impact from foreign currency movements decreased the gross profit margin by approximately 50 basis points, including the impact of lower hedge gains in the current year as compared to the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related and travel costs, including investments in our global commercial capability. General and administrative expense decreased primarily due to a $16 million customer contract resolution payment received during the first quarter, partially offset by higher personnel-related costs. Research and development expense increased primarily due to project costs and higher personnel-related costs. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth by approximately 2%.

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)						2023						2022						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG Diagnostics recurring revenue:						$	726,902					$	664,810					$	62,092					9.3		%				(2.3		%)				—						11.6		%
IDEXX VetLab consumables						291,114						267,173						23,941						9.0		%				(3.0		%)				—						11.9		%
Rapid assay products						82,032						74,519						7,513						10.1		%				(1.4		%)				—						11.5		%
Reference laboratory diagnostic and consulting services						323,180						295,075						28,105						9.5		%				(1.9		%)				—						11.4		%
CAG diagnostics services and accessories						30,576						28,043						2,533						9.0		%				(3.1		%)				—						12.1		%
CAG Diagnostics capital - instruments						33,144						36,997						(3,853)						(10.4		%)				(2.9		%)				—						(7.5		%)
Veterinary software, services and diagnostic imaging systems						67,233						59,377						7,856						13.2		%				(0.8		%)				—						14.0		%
Net CAG revenue						$	827,279					$	761,184					$	66,095					8.7		%				(2.2		%)				—						10.9		%

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

CAG Diagnostics Recurring Revenue. The increase in CAG Diagnostics recurring revenue was primarily due to higher realized prices and strong demand in the U.S. for companion animal diagnostics across modalities. International volume growth was constrained by macroeconomic conditions. The impact of foreign currency movements decreased CAG Diagnostics recurring revenue growth by 2.3%.

The increase in IDEXX VetLab consumables revenue was primarily due to higher price realization and, to a lesser extent, volume increases supported by the expansion of our installed base of instruments and our expanded menu of available tests in certain regions. The impact of currency movements decreased revenue growth by 3.0%.

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

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher price realization and to higher testing volumes in our U.S. labs. Growth in other regions was primarily due to higher price realization, partially offset by lower volumes in international regions, reflecting challenging regional macroeconomic conditions. The impact of currency movements decreased revenue growth by 1.9%.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of the 11% growth in our active installed base of instruments.

CAG Diagnostics Capital – Instrument Revenue. The decrease in instrument revenue was primarily due to regional mix of instrument placements and program pricing effects. Overall instrument placements were higher than the prior year. The impact of currency movements decreased revenue growth by 2.9%

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The increase in veterinary software and services revenue was primarily due to higher subscription and services revenue, supported by the expansion in our active installed base, and higher realized prices on service offerings. The increase in our diagnostic imaging systems revenue was primarily due to higher services revenue, supported by the expansion in our installed base.

The following table presents the CAG segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2023						Percent of Revenue						2022						Percent of Revenue						Amount						Percentage
Revenues						$	827,279											$	761,184											$	66,095					8.7		%
Cost of revenue						328,522												312,085												16,437						5.3		%
Gross profit						498,757						60.3		%				449,099						59.0		%				49,658						11.1		%
Operating expenses:
Sales and marketing						135,596						16.4		%				121,660						16.0		%				13,936						11.5		%
General and administrative						61,251						7.4		%				68,881						9.0		%				(7,630)						(11.1		%)
Research and development						40,160						4.9		%				35,433						4.7		%				4,727						13.3		%
Total operating expenses						237,007						28.6		%				225,974						29.7		%				11,033						4.9		%
Income from operations						$	261,750					31.6		%				$	223,125					29.3		%				$	38,625					17.3		%

Gross Profit. Gross profit increased primarily due to higher revenue, as well as a 130 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to recurring revenue net price gains, improved software services gross margins, the benefit of our reference laboratory productivity initiatives and supply savings, and product mix associated with lower CAG Diagnostics instrument revenue. These increases were partially offset by higher product, labor, and distribution costs, which reflect the effects of inflation, as well as investments in productivity initiatives and to support future growth. The impact from foreign currency movements decreased the gross profit margin by approximately 40 basis points and included the impact of lower hedge gains in the current year as compared to the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related and travel costs, including investments in our global commercial capability. General and administrative expense decreased primarily due to a $16 million customer contract resolution payment received during the first quarter, partially offset by higher personnel-related costs. Research and development expense increased primarily due to higher project costs and personnel-related costs. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth by approximately 1%.

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)						2023						Percent of Revenue						2022						Percent of Revenue						Amount						Percentage
Revenues						$	38,883											$	36,371											$	2,512					6.9		%
Cost of revenue						11,615												10,634												981						9.2		%
Gross profit						27,268						70.1		%				25,737						70.8		%				1,531						5.9		%
Operating expenses:
Sales and marketing						5,241						13.5		%				4,598						12.6		%				643						14.0		%
General and administrative						3,901						10.0		%				3,282						9.0		%				619						18.9		%
Research and development						1,155						3.0		%				1,203						3.3		%				(48)						(4.0		%)
Total operating expenses						10,297						26.5		%				9,083						25.0		%				1,214						13.4		%
Income from operations						$	16,971					43.6		%				$	16,654					45.8		%				$	317					1.9		%

Revenue. The increase in revenue was due to higher realized prices and, to a lesser extent, higher testing primarily in North America and Brazil. The impact of currency movements decreased revenue growth by 2.9%. The impact of the acquisition completed during the third quarter of 2022 increased revenue growth by 1.6%.

Gross Profit. Gross profit increased due to higher revenue. Excluding the impact of foreign currency movements, the increase in the gross profit margin was primarily due to higher realized prices, partially offset by higher product and freight costs. The impact from foreign currency movements, including the impact of lower hedge gains in the current year compared to the prior year, decreased the gross profit margin by approximately 100 basis points.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related and travel costs. General and administrative expense increased primarily due to higher personnel-related and incremental costs associated with the acquisition that occurred in the third quarter of 2022. Research and development expense decreased primarily due to lower third-party costs. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth by approximately 2%.

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)						2023						Percent of Revenue						2022						Percent of Revenue						Amount						Percentage
Revenues						$	29,208											$	30,870											$	(1,662)					(5.4		%)
Cost of revenue						14,155												11,323												2,832						25.0		%
Gross profit						15,053						51.5		%				19,547						63.3		%				(4,494)						(23.0		%)
Operating expenses:
Sales and marketing						6,460						22.1		%				5,568						18.0		%				892						16.0		%
General and administrative						4,201						14.4		%				4,161						13.5		%				40						1.0		%
Research and development						3,084						10.6		%				3,081						10.0		%				3						0.1		%
Total operating expenses						13,745						47.1		%				12,810						41.5		%				935						7.3		%
Income from operations						$	1,308					4.5		%				$	6,737					21.8		%				$	(5,429)					(80.6		%)

Revenue. Revenue decreased primarily due to lower herd health screening volume related to pandemic closures in China, as well as lower volumes in our food safety product distribution business in Brazil. These decreases were partially offset by higher realized price gains and higher volumes in our ruminant and poultry testing. The unfavorable impact of foreign currency movements decreased revenue growth by 3.8%.

Gross Profit. The decrease in gross profit was primarily due to lower sales volumes and a 1,180 basis point decrease in the gross profit margin. The decrease in the gross profit margin is primarily due to higher product costs, sales mix, and, to a lesser extent, higher freight and distribution costs, partially offset by higher realized prices. The impact from foreign currency movements decreased the gross profit margin by approximately 290 basis points, including the impact of hedge losses in the current year compared to hedge gains in the prior year.

Operating Expenses. Sales and marketing expense increased primarily due to increases in personnel-related and travel costs. General and administrative and research and development costs were relatively constant compared to the prior year. The overall change in foreign currency exchange rates resulted in a decrease in operating expenses growth by 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)						2023						Percent of Revenue						2022						Percent of Revenue						Amount						Percentage
Revenues						$	4,825											$	8,124											$	(3,299)					(40.6		%)
Cost of revenue						2,932												3,754												(822)						(21.9		%)
Gross profit						1,893						39.2		%				4,370						53.8		%				(2,477)						(56.7		%)
Operating expenses:
Sales and marketing						507						10.5		%				466						5.7		%				41						8.8		%
General and administrative						748						15.5		%				1,625						20.0		%				(877)						(54.0		%)
Research and development						268						5.6		%				451						5.6		%				(183)						(40.6		%)
Total operating expenses						1,523						31.6		%				2,542						31.3		%				(1,019)						(40.1		%)
Income from operations						$	370					7.7		%				$	1,828					22.5		%				$	(1,458)					(79.8		%)

Revenue. The decrease in revenue was primarily due to lower sales of OPTI COVID-19 PCR testing products and services in the U.S., partially offset by higher volumes of our OPTI Medical consumables internationally.

Gross Profit. Gross profit decreased due to lower sales volume and a 1,460 basis point decrease in the gross profit margin. The decrease in the gross profit margin was primarily due to sales mix with lower OPTI COVID-19 PCR testing volumes and higher product and freight costs. The overall change in foreign 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 decreased primarily due to lower foreign exchange losses on settlements of foreign currency denominated transactions, as compared to the prior year. Foreign exchange losses on settlements for all operating segments are reported within our Other segment. Research and development expense decreased primarily due to lower product development costs compared to investments in the development of infectious disease tests during the prior year.

Non-Operating Items

Interest Expense. Interest expense was $13.1 million for the three months ended March 31, 2023, as compared to $7.0 million for the same period in the prior year. The increase in interest expense was primarily the result of higher interest rates and, to a lesser extent, higher average debt levels.

Provision for Income Taxes. Our effective income tax rate was 20.0% for the three months ended March 31, 2023, compared to 19.7% for the three months ended March 31, 2022. The increase in our effective tax rate was primarily driven by a decrease in 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. We generate cash primarily through the payments made by customers for our companion animal veterinary, livestock, poultry, dairy, and water products and services, consulting services, and other various systems and services. Our cash disbursements are primarily related to compensation and benefits for our employees, inventory and supplies, taxes, research and development, capital expenditures, rents, occupancy-related charges, interest expense, and business acquisitions. As of March 31, 2023, we had $111.4 million of cash and cash equivalents, as compared to $112.5 million as of December 31, 2022. Working capital totaled $83.8 million as of March 31, 2023, as compared to negative $134.3 million as of December 31, 2022. The change in working capital is primarily due to lower borrowings under our Credit Facility. As of March 31, 2023, we had borrowing availability of $817.0 million under our $1.25 billion Credit Facility, with $431.5 million in outstanding borrowings under the Credit Facility. The general availability of funds under our Credit Facility is reduced by $1.5 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 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, cash equivalents, 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 (in thousands)						March 31, 2023						December 31, 2022
U.S.						$	2,725					$	16,112
Foreign						108,642						96,434
Total						$	111,367					$	112,546
Total cash, cash equivalents, and marketable securities held in U.S. dollars by our foreign subsidiaries						$	6,860					$	6,647

Of the $111.4 million of cash and cash equivalents held as of March 31, 2023, greater than 99% was held as bank deposits at a diversified group of institutions, primarily systemically important banks. Cash and cash equivalents as of March 31, 2023, included approximately USD $2.6 million of cash held in countries with currency control restrictions, which limit our ability to transfer funds outside of the country in which they are held. The currency control restricted cash is generally available for use within the country where it is held.

The following table presents additional key information concerning working capital:

			For the Three Months Ended
			March 31, 2023						December 31, 2022						September 30, 2022						June 30, 2022						March 31, 2022
Days sales outstanding (1)			42.9						43.4						43.4						43.2						42.0
Inventory turns (2)			1.3						1.3						1.3						1.5						1.6

(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)						2023						2022						Dollar Change
Net cash provided by operating activities						$	183,912					$	114,706					$	69,206
Net cash used by investing activities						(39,511)						(41,838)						2,327
Net cash used by financing activities						(146,081)						(13,480)						(132,601)
Net effect of changes in exchange rates on cash						501						776						(275)
Net change in cash and cash equivalents						$	(1,179)					$	60,164					$	(61,343)

Operating Activities. The increase in cash provided by operating activities of $69.2 million was driven primarily by an increase in net income and changes in other assets and liabilities. The following table presents cash flow impacts from changes in operating assets and liabilities:

						For the Three Months Ended March 31,
(in thousands)						2023						2022						Dollar Change
Accounts receivable						$	(44,133)					$	(37,531)					$	(6,602)
Inventories						(23,887)						(18,854)						(5,033)
Accounts payable						3,327						(4,016)						7,343
Deferred revenue						(609)						(937)						328
Other assets and liabilities						(5,307)						(52,904)						47,597
Total change in cash due to changes in operating assets and liabilities						$	(70,609)					$	(114,242)					$	43,633

Cash used decreased due to changes in operating assets and liabilities during the three months ended March 31, 2023, as compared to the same period in the prior year, by approximately $43.6 million. The decrease of cash used for other assets and liabilities was primarily due to higher non-cash operating expenses recorded as accrued liabilities for personnel-related costs including lower annual employee incentive program payments in the current year, as compared to the same period in the prior year, partially offset by the $15 million milestone payment to license intellectual property made in the current year. The increase in cash used by accounts receivable was primarily due to year over year growth in revenues. The increase in cash provided by accounts payable was primarily due to timing of payments, as compared to the same period in the prior year.

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 $39.5 million for the three months ended March 31, 2023, as compared to $41.8 million for the same period in the prior year. The decrease in cash used by investing activities was primarily due to the acquisition of intangible assets in the prior year, partially offset by higher purchases of property equipment in the current year as we continue construction of our facility in Scarborough, Maine.

Our total capital expenditure plan for 2023 is estimated to be approximately $180.0 million, which includes capital investments to support growth in manufacturing and operations facilities, and in customer-facing software.

Financing Activities. Cash used by financing activities was $146.1 million for the three months ended March 31, 2023, as compared to $13.5 million of cash used for the same period in the prior year. The increase in cash used by financing activities was due to $147.5 million cash used for repayments under our Credit Facility in the current year, compared to borrowings of $326.5 million under our Credit Facility, partly offset by cash used to pay off our $75.0 million 2022 Series A Notes in the prior year. The increase in cash used by financing activities was partly offset by $266.3 million cash used to repurchase our common stock in the prior year.

During the three months ended March 31, 2023, we did not purchase any shares of our common stock in the open market. During the three months ended March 31, 2022, we purchased $266.3 million of shares of our common stock. 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 and deployment activities, as well as share price and prevailing interest rates. Refer to Note 12 to the unaudited condensed consolidated financial statements in “Part I. Item 1. Financial Statements” 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, 2023, as compared to the same period in the prior year, decreased $147.5 million. As of March 31, 2023, we had $431.5 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 Facility contains affirmative, negative, and financial covenants customary for financings of this type. The negative covenants include restrictions on liens, indebtedness of subsidiaries of the Company, fundamental changes, investments, transactions with affiliates, and certain restrictive agreements. The financial covenant is a consolidated leverage ratio test.

In 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 issuing governments’ 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”), as defined in the Senior Note Agreement and Credit Facility, not to exceed 3.5-to-1. As of March 31, 2023, 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, 2023
Net income attributable to stockholders (as reported)			$	699,178
Interest expense			45,989
Provision for income taxes			186,991
Depreciation and amortization			113,720
Acquisition-related expense			585
Share-based compensation expense			52,527
Extraordinary and other non-recurring non-cash charges			—
Adjusted EBITDA			$	1,098,990
(dollars in thousands)
Debt to Adjusted EBITDA Ratio:			March 31, 2023
Credit facility			$	431,500
Current and long-term portions of long-term debt			771,348
Total debt			1,202,848
Acquisition-related contingent consideration payable			1,663
Financing leases			—
Deferred financing costs			382
Gross debt			$	1,204,893
Gross debt to Adjusted EBITDA ratio			1.10
Less: Cash and cash equivalents			$	111,367
Net debt			$	1,093,526
Net debt to Adjusted EBITDA ratio			1.00

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, 2023, are described in Note 16 to the unaudited condensed consolidated financial statements in “Part I. Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.