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 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; 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 wars, terrorist attacks, and armed conflicts), general economic uncertainty, inflationary pressures, severe weather and other natural conditions, 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 2023 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 2023 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 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 diagnostic products 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 human medical diagnostics products.

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 2023 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, 2024, are consistent with those discussed in our 2023 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, 2024, 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, processes, and outputs are present, consistent with ASU 2017-01, “Business Combinations: (Topic 805) Clarifying the Definition of a Business.” In a business combination, if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, we do not consider these assets to be a business. 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, 2024, Compared to Three Months Ended March 31, 2023

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

						For the Three Months Ended March 31,
Net Revenue (dollars in thousands)						2024						2023						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG						$	889,285					$	827,279					$	62,006					7.5		%				—						0.3		%				7.2		%
United States						602,195						564,527						37,668						6.7		%				—						0.4		%				6.3		%
International						287,090						262,752						24,338						9.3		%				—						—						9.2		%
Water						43,071						38,883						4,188						10.8		%				0.2		%				—						10.6		%
United States						22,199						19,920						2,279						11.4		%				—						—						11.4		%
International						20,872						18,963						1,909						10.1		%				0.4		%				—						9.7		%
LPD						28,205						29,208						(1,003)						(3.4		%)				(0.1		%)				—						(3.3		%)
United States						5,164						4,543						621						13.7		%				—						—						13.7		%
International						23,041						24,665						(1,624)						(6.6		%)				(0.1		%)				—						(6.5		%)
Other						3,534						4,825						(1,291)						(26.7		%)				—						—						(26.7		%)
Total Company						$	964,095					$	900,195					$	63,900					7.1		%				—						0.2		%				6.8		%
United States						631,009						590,413						40,596						6.9		%				—						0.4		%				6.5		%
International						333,086						309,782						23,304						7.5		%				—						—						7.5		%

(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 and increased volumes globally. Higher volumes and price gains in veterinary software and diagnostic imaging systems recurring revenue also contributed to higher revenue, supported by demand for subscription-based software. Higher revenue in our Water business was primarily due to the benefit of price increases and increased volume in the U.S. and certain international regions. The decline in our LPD business was primarily due to lower herd health screening and other diagnostic test volumes impacted by lower demand in China, partially offset by higher realized prices and volume growth in the U.S. and Europe. The decrease in Other revenue was primarily due to lower volumes of our OPTI Medical instruments and consumables. The overall change in foreign currency exchange rates was not significant to revenue growth.

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)						2024						Percent of Revenue						2023						Percent of Revenue						Amount						Percentage
Revenues						$	964,095											$	900,195											$	63,900					7.1		%
Cost of revenue						371,025												357,224												13,801						3.9		%
Gross profit						593,070						61.5		%				542,971						60.3		%				50,099						9.2		%
Operating expenses:
Sales and marketing						149,453						15.5		%				147,804						16.4		%				1,649						1.1		%
General and administrative						92,024						9.5		%				70,101						7.8		%				21,923						31.3		%
Research and development						52,635						5.5		%				44,667						5.0		%				7,968						17.8		%
Total operating expenses						294,112						30.5		%				262,572						29.2		%				31,540						12.0		%
Income from operations						$	298,958					31.0		%				$	280,399					31.1		%				$	18,559					6.6		%

Gross Profit. Gross profit increased due to higher revenue and a 120 basis point increase in the gross profit margin. The increase in the gross profit margin was driven by sales mix, including the effects from higher CAG Diagnostic consumable growth, lower instrument costs, software services gross margin expansion, and to a lesser extent, gross margin expansion in our Livestock, Poultry and Dairy and Water lines of business. Higher realized prices related to CAG Diagnostic recurring revenues mitigated inflationary cost impacts. The overall change in foreign currency exchange rates on the gross profit margin was not significant.

Operating Expenses. Sales and marketing expense increased primarily due to higher travel and personnel-related costs. General and administrative expense increased primarily due to the comparison to the prior year benefit of a $16 million customer contract resolution gain and higher third-party costs. Research and development expense increased primarily due to project costs, including software development, and higher personnel-related costs. The overall change in foreign currency exchange rates was not significant to operating expense growth.

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)						2024						2023						Dollar Change						Reported Revenue Growth (1)						Percentage Change from Currency						Percentage Change from Acquisitions						Organic Revenue Growth (1)
CAG Diagnostics recurring revenue:						$	780,144					$	726,902					$	53,242					7.3		%				—						—						7.3		%
IDEXX VetLab consumables						316,929						291,114						25,815						8.9		%				—						—						8.9		%
Rapid assay products						86,315						82,032						4,283						5.2		%				(0.1		%)				—						5.3		%
Reference laboratory diagnostic and consulting services						344,338						323,180						21,158						6.5		%				0.1		%				—						6.4		%
CAG diagnostics services and accessories						32,562						30,576						1,986						6.5		%				(0.3		%)				—						6.8		%
CAG Diagnostics capital - instruments						34,092						33,144						948						2.9		%				(0.4		%)				—						3.2		%
Veterinary software, services and diagnostic imaging systems:						75,049						67,233						7,816						11.6		%				—						3.3		%				8.4		%
Recurring revenue						59,700						51,707						7,993						15.5		%				—						4.2		%				11.2		%
Systems and hardware						15,349						15,526						(177)						(1.1		%)				—						—						(1.1		%)
Net CAG revenue						$	889,285					$	827,279					$	62,006					7.5		%				—						0.3		%				7.2		%

(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, to a lesser extent, higher volumes. The overall change of foreign currency movements on CAG Diagnostics recurring revenue was not significant to revenue growth.

The increase in IDEXX VetLab consumables revenue was primarily due to higher price realization and volume increases supported by the expansion of our installed base of instruments and our expanded menu of available tests. The overall change in foreign currency exchange rates was not significant to revenue growth.

The increase in rapid assay revenue resulted primarily from higher price realization, partially offset by lower volumes. The overall change in foreign currency exchange rates decreased revenue growth by 0.1%.

The increase in reference laboratory diagnostic and consulting services revenue was primarily due to higher price realization and to a lesser extent, higher testing volumes. The overall change in foreign currency exchange rates increased revenue growth by 0.1%.

The increase in CAG Diagnostics services and accessories revenue was primarily a result of the 11% growth in our active installed base of instruments. The overall change in foreign currency exchange rates decreased revenue growth by 0.3%.

CAG Diagnostics Capital – Instrument Revenue. The increase in instrument revenue was primarily due to higher premium instrument placements and sales mix. The overall change in foreign currency exchange rates decreased revenue growth by 0.4%.

Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The increase in revenue was primarily due to higher recurring revenue from the expansion of our active installed base, resulting in higher subscription and support revenue, and higher realized prices. The decrease in our systems and hardware revenue was due to lower placements. The overall change in foreign currency exchange rates was not significant to revenue growth. The overall change of acquisitions increased revenue growth by 3.3%.

The following table presents the CAG segment results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2024						Percent of Revenue						2023						Percent of Revenue						Amount						Percentage
Revenues						$	889,285											$	827,279											$	62,006					7.5		%
Cost of revenue						343,049												328,522												14,527						4.4		%
Gross profit						546,236						61.4		%				498,757						60.3		%				47,479						9.5		%
Operating expenses:
Sales and marketing						136,903						15.4		%				135,596						16.4		%				1,307						1.0		%
General and administrative						81,803						9.2		%				61,251						7.4		%				20,552						33.6		%
Research and development						47,834						5.4		%				40,160						4.9		%				7,674						19.1		%
Total operating expenses						266,540						30.0		%				237,007						28.6		%				29,533						12.5		%
Income from operations						$	279,696					31.5		%				$	261,750					31.6		%				$	17,946					6.9		%

Gross Profit. Gross profit increased due to higher revenue and a 110 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to sales mix, including the effects from higher CAG Diagnostic consumable growth, lower instrument costs, and software services gross margin expansion. Recurring revenue net price gains offset inflationary cost impacts. The overall change in foreign currency exchange rates on the gross profit margin was not significant.

Operating Expenses. Sales and marketing expense increased primarily due to higher travel and personnel-related costs. General and administrative expense increased primarily due to the comparison to the prior year benefit of a $16 million customer contract resolution gain and higher third-party costs. Research and development expense increased primarily due to project costs, including software development, and higher personnel-related costs. The overall change in foreign currency exchange rates was not significant to operating expense growth.

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)						2024						Percent of Revenue						2023						Percent of Revenue						Amount						Percentage
Revenues						$	43,071											$	38,883											$	4,188					10.8		%
Cost of revenue						12,574												11,615												959						8.3		%
Gross profit						30,497						70.8		%				27,268						70.1		%				3,229						11.8		%
Operating expenses:
Sales and marketing						5,516						12.8		%				5,241						13.5		%				275						5.2		%
General and administrative						4,307						10.0		%				3,901						10.0		%				406						10.4		%
Research and development						1,244						2.9		%				1,155						3.0		%				89						7.7		%
Total operating expenses						11,067						25.7		%				10,297						26.5		%				770						7.5		%
Income from operations						$	19,430					45.1		%				$	16,971					43.6		%				$	2,459					14.5		%

Revenue. The increase in revenue was due to higher realized prices and higher volumes. The increase in volumes in U.S. and Europe was primarily from our Colilert test products and related accessories used in coliform and E. coli testing, which included a benefit in the current period from order timing delayed from the prior quarter, as well as higher Tecta instrument placements. The overall change in foreign currency exchange rates increased revenue growth by 0.2%.

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 higher realized prices, partially offset by higher product costs. The overall change in foreign currency exchange rates increased the gross profit margin by approximately 10 basis points.

Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs. General and administrative expense increased primarily due to higher personnel-related costs and an increase in bad debt expense. Research and development expense increased primarily due to higher third-party costs. The overall change in foreign currency exchange rates was not significant to operating expense growth.

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)						2024						Percent of Revenue						2023						Percent of Revenue						Amount						Percentage
Revenues						$	28,205											$	29,208											$	(1,003)					(3.4		%)
Cost of revenue						12,971												14,155												(1,184)						(8.4		%)
Gross profit						15,234						54.0		%				15,053						51.5		%				181						1.2		%
Operating expenses:
Sales and marketing						6,739						23.9		%				6,460						22.1		%				279						4.3		%
General and administrative						4,308						15.3		%				4,201						14.4		%				107						2.5		%
Research and development						3,321						11.8		%				3,084						10.6		%				237						7.7		%
Total operating expenses						14,368						50.9		%				13,745						47.1		%				623						4.5		%
Income from operations						$	866					3.1		%				$	1,308					4.5		%				$	(442)					(33.8		%)

Revenue. Revenue decreased primarily due to lower herd health screening levels in Asia Pacific, partially offset by higher realized prices and volume increases in the U.S. and Europe. The overall change in foreign currency exchange rates decreased revenue growth by 0.1%.

Gross Profit. The increase in gross profit was primarily due to a 250 basis point increase in the gross profit margin. The increase in the gross profit margin was primarily due to lower product costs and higher realized prices, partially offset by unfavorable sales mix. The overall change in foreign currency exchange rates increased the gross profit margin by approximately 50 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 increased primarily due to increases in personnel-related and travel costs. General and administrative expense increased primarily due to higher bad debt expense. Research and development expense increased primarily due to an increase in personnel-related costs. The overall change in foreign currency exchange rates was not significant to operating expense growth.

Other

The following table presents the Other results of operations:

						For the Three Months Ended March 31,																								Change
Results of Operations (dollars in thousands)						2024						Percent of Revenue						2023						Percent of Revenue						Amount						Percentage
Revenues						$	3,534											$	4,825											$	(1,291)					(26.8		%)
Cost of revenue						2,431												2,932												(501)						(17.1		%)
Gross profit						1,103						31.2		%				1,893						39.2		%				(790)						(41.7		%)
Operating expenses:
Sales and marketing						295						8.3		%				507						10.5		%				(212)						(41.8		%)
General and administrative						1,606						45.4		%				748						15.5		%				858						114.7		%
Research and development						236						6.7		%				268						5.6		%				(32)						(11.9		%)
Total operating expenses						2,137						60.5		%				1,523						31.6		%				614						40.3		%
Income from operations						$	(1,034)					(29.3		%)				$	370					7.7		%				$	(1,404)					(379.5		%)

Revenue. The decrease in revenue was primarily due to lower volumes of our OPTI Medical instruments and consumables, partially offset by higher realized prices.

Gross Profit. Gross profit decreased due to lower sales volume and an 800 basis point decrease in the gross profit margin. The decrease in the gross profit margin was primarily due to higher product and service costs, partially offset by higher realized prices. The overall change in foreign currency exchange rates did not have a significant impact on the gross profit margin.

Operating Expenses. Sales and marketing expense decreased primarily due to personnel-related costs. General and administrative expense increased primarily due to higher foreign exchange losses on settlements of foreign currency denominated transactions compared to the prior year. Foreign exchange gains and losses on settlements for all operating segments are reported within Other.

Non-Operating Items

Interest Expense and Income. Interest expense was $7.9 million for the three months ended March 31, 2024, compared to $13.1 million for the same period in the prior year. The decrease in interest expense was primarily due to lower average debt levels and, to a lesser extent, lower interest rates. Interest income was $4.4 million for the three months ended March 31, 2024, compared to $0.4 million. This increase in interest income is primarily due to the increase in money market investments, as compared to the same period in the prior year.

Provision for Income Taxes. Our effective income tax rate was 20.3% for the three months ended March 31, 2024, compared to 20.0% for the three months ended March 31, 2023. The increase in our effective tax rate was primarily driven by geographical income mix, partially offset by an increase in the tax rate benefit related to 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, 2024, we had $397.4 million of cash and cash equivalents, compared to $453.9 million as of December 31, 2023. Working capital totaled $545.1 million as of March 31, 2024, compared to $543.7 million as of December 31, 2023. As of March 31, 2024, we had a remaining borrowing availability of $998.5 million under our $1.25 billion Credit Facility, with $250.0 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 and cash equivalents are generally available without restrictions to fund ordinary business operations outside the U.S.

The following table presents cash and cash equivalents held domestically and by our foreign subsidiaries:

Cash and cash equivalents (dollars in thousands)						March 31, 2024						December 31, 2023
U.S.						$	266,761					$	324,434
Foreign						130,672						129,498
Total						$	397,433					$	453,932
Total cash and cash equivalents held in U.S. dollars by our foreign subsidiaries						$	27,258					$	13,170

Of the $397.4 million of cash and cash equivalents held as of March 31, 2024, approximately $145.7 million was held as bank deposits at a diversified group of institutions, primarily systemically important banks, and $251.7 million was held in a U.S. government money market fund. As of December 31, 2023, of the $453.9 million of cash and cash equivalents held, $163.1 million was held as bank deposits at a diversified group of institutions, primarily systemically important banks, and $290.8 million was held in a U.S. government money market fund. Cash and cash equivalents as of March 31, 2024, included approximately USD $1.0 million in cash denominated in non-U.S. currencies held in a country 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, 2024						December 31, 2023						September 30, 2023						June 30, 2023						March 31, 2023
Days sales outstanding (1)			45.7						46.1						45.6						43.9						42.9
Inventory turns (2)			1.3						1.3						1.3						1.3						1.3

(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,
(dollars in thousands)						2024						2023						Change
Net cash provided by operating activities						$	198,585					$	183,912					$	14,673
Net cash used by investing activities						(106,944)						(39,511)						(67,433)
Net cash used by financing activities						(144,074)						(146,081)						2,007
Net effect of changes in exchange rates on cash						(4,066)						501						(4,567)
Net change in cash and cash equivalents						$	(56,499)					$	(1,179)					$	(55,320)

Operating Activities. Cash provided by operating activities during the three months ended March 31, 2024, increased $14.7 million, compared to the same period in the prior year, primarily due to an increase in net income and less cash used for inventory, partially offset by an increase in cash used for other assets and liabilities and for accounts receivable. The following table presents cash flow impacts from changes in operating assets and liabilities:

						For the Three Months Ended March 31,
(dollars in thousands)						2024						2023						Change
Accounts receivable						$	(53,841)					$	(44,133)					$	(9,708)
Inventories						(2,412)						(23,887)						21,475
Accounts payable						(4,450)						3,327						(7,777)
Deferred revenue						703						(609)						1,312
Other assets and liabilities						(21,416)						(5,307)						(16,109)
Total change in cash due to changes in operating assets and liabilities						$	(81,416)					$	(70,609)					$	(10,807)

Cash used due to changes in operating assets and liabilities during the three months ended March 31, 2024, compared to the same period in the prior year, increased $10.8 million. The decrease in cash used by inventories was primarily due to planned inventory growth in the prior year to mitigate supply chain risks and support demand. The increase in cash used for other assets and liabilities was primarily due to higher annual employee incentive program payments in the current period, as compared to the same period in the prior year, and higher income taxes paid in the current year, compared to the same period in the prior year. These increases in cash used were partially offset by the $15.0 million milestone payment to license intellectual property made in the prior year. The increase in cash used by accounts receivable was primarily due to higher revenue growth during the current period and, to a lesser extent, to extended payment terms negotiated by certain large customers.

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 $106.9 million during the three months ended March 31, 2024, compared to $39.5 million for the same period in the prior year. The increase in cash used by investing activities was primarily due to the acquisition of a software business in the current year.

Our total capital expenditure outlook for 2024 is estimated to be approximately $180 million, which includes capital investments to support growth in manufacturing and operations facilities and in customer-facing software development.

Financing Activities. Cash used by financing activities was $144.1 million during the three months ended March 31, 2024, compared to $146.1 million of cash used for the same period in the prior year. The decrease in cash used by financing activities was primarily due to no net borrowings or repayments under our Credit Facility in the current year, compared to repayments of $147.5 million under our Credit Facility in the prior year, as well as higher proceeds from exercises of stock options in the current year. These comparative increases in cash were partially offset by $154.8 million of repurchases of our common stock in the current year, compared to no repurchases in the prior year.

Under our Credit Facility, the net activity during the three months ended March 31, 2024, as compared to the same period in the prior year, increased cash $147.5 million. As of March 31, 2024, we had $250.0 million in 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.

During the three months ended March 31, 2024, we purchased $154.8 million of shares of our common stock. During the three months ended March 31, 2023, we purchased no 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.

The aggregate principal amounts of our 2024 Series B Notes will become due and payable on July 21, 2024, and we anticipate paying off our 2024 Series B Notes for $75.0 million when due in July 2024 with available cash on hand.

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, cross-acceleration to specified indebtedness, and a change of control default.

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, 2024, we were in compliance with such covenant. The following details our consolidated leverage ratio calculation:

(dollars in thousands)			Twelve Months Ended
Trailing 12 Months Adjusted EBITDA:			March 31, 2024
Net income attributable to stockholders			$	866,567
Interest expense			36,365
Provision for income taxes			222,400
Depreciation and amortization			116,481
Acquisition-related expense			288
Share-based compensation expense			60,209
Extraordinary and other non-recurring non-cash charges			1,734
Adjusted EBITDA			$	1,304,044
Debt to Adjusted EBITDA Ratio:			March 31, 2024
Line of Credit			$	250,000
Current and long-term portions of long-term debt			695,776
Total debt			945,776
Acquisition-related contingent consideration payable			4,687
Deferred financing costs			287
Gross debt			$	950,750
Gross debt to Adjusted EBITDA ratio			0.73
Less: Cash and cash equivalents			$	397,433
Net debt			$	553,317
Net debt to Adjusted EBITDA ratio			0.42

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, 2024, 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.