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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; inflation; and projected impacts of tariff and trade policy changes and uncertainty. 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, changes in U.S. and other countries’ tariff and trade policies, 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 2024 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 2024 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 provide human medical point-of-care diagnostics. Our primary products and services are:
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Point-of-care veterinary diagnostic products, comprised of instruments, consumables, and rapid assay test kits;
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Veterinary reference laboratory diagnostic and consulting services;
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Practice management and diagnostic imaging systems and services used by veterinarians;
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Health monitoring, biological materials testing, laboratory diagnostic instruments, and services used by the biomedical research community;
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Diagnostic and health-monitoring products for livestock, poultry, and dairy;
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Products that test water for certain microbiological contaminants; and
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Point-of-care electrolytes and blood gas analyzers for the human medical diagnostics sector.
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 tests, services, and related instrumentation that are
used to manage the health status of livestock and poultry, to improve producer efficiency, and to ensure the quality and safety of milk, 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.
Currency, Tariff and Trade Policies, 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.
Changes in Tariff and Trade Policies. Although we manufacture many of our companion animal and Water testing products, as well as certain of our LPD testing products, in the United States, we rely on third-party suppliers located in the United States and other regions (such as Europe and Asia-Pacific) for certain components, raw materials, and consumables used in or with our products. In addition, as a global business, our products and services are sold in more than 175 countries. For the year ended December 31, 2024, approximately 35% of our overall revenues were attributable to sales of products and services to customers outside the United States, with less than 1% of our overall revenues attributable to sales of products and services to customers domiciled in China. Accordingly, changes in tariff and trade policies may adversely affect our business, financial condition, and operating results.
Recently, the U.S. government announced changes to its trade policy, including increasing tariffs on imports, in some cases significantly, and potentially renegotiating or terminating its existing trade agreements. For example, on April 2, 2025, the U.S. government announced a new universal baseline tariff of 10%, plus an additional country-specific tariff for select trading partners, on all U.S. imports. Although imposition of the country-specific tariffs was temporarily paused for most countries (not including China) on April 9, 2025, these actions, retaliatory tariffs imposed by other countries on U.S. exports and continuing uncertainty regarding tariff and trade policies have led to volatility and uncertainty in global markets. Continuing tariff and trade policy uncertainty may lead to sustained volatility and uncertainty in U.S. and global financial and economic conditions, increased inflation, diminished expectations for economic growth, and actual or perceived economic weakness, which could result in reduced demand for our products and services.
While we are working to optimize operations and inventory management to the extent feasible, to help mitigate and reduce the potential impact from changes in tariff and trade policies, any imposed tariffs (including retaliatory tariffs) and our mitigation activities may cause our cost of goods to increase, our profit margins to decrease, or our products to become less competitive or less available in the applicable region. We are continuing to monitor the dynamic trade environment and evaluate these developments and our ability to offset some portion of these costs and otherwise mitigate the impact on our business, financial condition, and operating results.
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 2024 Annual Report for additional information regarding trends in companion animal healthcare, distributor purchasing and inventories, economic conditions, geopolitical conflict effects 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, 2025, are consistent with those discussed in our 2024 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
Organic Revenue Growth. 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, 2025, 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 business acquisitions represents revenues during the current-year period, limited to the initial twelve months from the date of the acquisition, that are directly attributable to business acquisitions.
Segment Income from Operations. We report segment income from operations in our discussion of the results of the operations of our segments below. Segment income from operations is a non-GAAP financial measure that adjusts for the impact of foreign currency transaction gains and losses and should be considered in addition to, and not as a replacement for, income from operations. We exclude foreign currency transaction gains and losses for each reportable segment (CAG, Water, and LPD) from segment income from operations and report the full amount of foreign currency transaction gains and losses in our Other operating segment. We believe that reporting segment income from operations provides supplemental analysis to help investors further evaluate each reportable segment’s business performance by excluding foreign currency transaction gains and losses, which are centrally managed by our corporate treasury function and which we do not consider relevant for assessing the results of each reportable segment’s operations. In addition, we believe that reporting segment income from operations provides information to investors regarding key metrics that are used by management, including our CODM, in evaluating the performance of each reportable segment.
| (dollars in thousands) | For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| Income from Operations | Impact from Foreign Currency | Segment Income from Operations | Income from Operations | Impact from Foreign Currency | Segment Income from Operations | |||||||||||||||||||||||||||||||||
| CAG | $ | 294,572 | $ | 583 | $ | 295,155 | $ | 278,886 | $ | 810 | $ | 279,696 | ||||||||||||||||||||||||||
| Water | 20,774 | 43 | 20,817 | 19,372 | 58 | 19,430 | ||||||||||||||||||||||||||||||||
| LPD | 80 | 45 | 125 | 801 | 65 | 866 | ||||||||||||||||||||||||||||||||
| Other | 1,108 | (671) | 437 | (101) | (933) | (1,034) | ||||||||||||||||||||||||||||||||
| Total | $ | 316,534 | $ | — | $ | 316,534 | $ | 298,958 | $ | — | $ | 298,958 |
Other Non-GAAP Financial Measures. We also use Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio, and net debt to Adjusted EBITDA ratio, 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, 2025, Compared to Three Months Ended March 31, 2024
Total Company. The following table presents total Company revenue by operating segment:
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue (dollars in thousands) | 2025 | 2024 | Dollar Change | Reported Revenue Growth (1) | Percentage Change from Currency | Percentage Change from Acquisitions | Organic Revenue Growth (1) | |||||||||||||||||||||||||||||||||||||
| CAG | $ | 919,836 | $ | 889,285 | $ | 30,551 | 3.4 | % | (1.1 | %) | 0.2 | % | 4.4 | % | ||||||||||||||||||||||||||||||
| United States | 623,889 | 602,195 | 21,694 | 3.6 | % | — | 0.2 | % | 3.4 | % | ||||||||||||||||||||||||||||||||||
| International | 295,947 | 287,090 | 8,857 | 3.1 | % | (3.6 | %) | — | 6.7 | % | ||||||||||||||||||||||||||||||||||
| Water | $ | 45,321 | $ | 43,071 | $ | 2,250 | 5.2 | % | (2.1 | %) | — | 7.3 | % | |||||||||||||||||||||||||||||||
| United States | 23,503 | 22,199 | 1,304 | 5.9 | % | — | — | 5.9 | % | |||||||||||||||||||||||||||||||||||
| International | 21,818 | 20,872 | 946 | 4.5 | % | (4.4 | %) | — | 8.9 | % | ||||||||||||||||||||||||||||||||||
| LPD | $ | 28,596 | $ | 28,205 | $ | 391 | 1.4 | % | (2.8 | %) | — | 4.2 | % | |||||||||||||||||||||||||||||||
| United States | 5,788 | 5,164 | 624 | 12.1 | % | — | — | 12.1 | % | |||||||||||||||||||||||||||||||||||
| International | 22,808 | 23,041 | (233) | (1.0 | %) | (3.4 | %) | — | 2.4 | % | ||||||||||||||||||||||||||||||||||
| Other | $ | 4,674 | $ | 3,534 | $ | 1,140 | 32.2 | % | — | — | 32.2 | % | ||||||||||||||||||||||||||||||||
| Total Company | $ | 998,427 | $ | 964,095 | $ | 34,332 | 3.6 | % | (1.2 | %) | 0.1 | % | 4.7 | % | ||||||||||||||||||||||||||||||
| United States | 654,861 | 631,009 | 23,852 | 3.8 | % | — | 0.2 | % | 3.6 | % | ||||||||||||||||||||||||||||||||||
| International | 343,566 | 333,086 | 10,480 | 3.1 | % | (3.6 | %) | — | 6.8 | % | ||||||||||||||||||||||||||||||||||
(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, to a lesser extent, higher volumes. Increased testing volumes were supported by new business gains, high customer retention rates, and our expanded menu of available tests, partially offset by constraints from macroeconomic and sector headwinds. The comparative impact on CAG Diagnostics recurring revenue from fewer equivalent business days in the quarter decreased overall revenue growth. Higher volumes and price gains in recurring veterinary software, services, and diagnostic imaging, also contributed to revenue growth. Higher revenue in our Water business was primarily due to the benefit of realized price increases and increased volumes. The increase in LPD revenue was primarily due to higher realized prices and higher volume. The increase in Other revenue was primarily due to higher volumes of our OPTI Medical consumables and instruments. The change in foreign currency exchange rates decreased revenue growth by 1.2%. Acquisitions increased revenue growth by 0.1%.
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) | 2025 | Percent of Revenue | 2024 | Percent of Revenue | Amount | Percentage | ||||||||||||||||||||||||||||||||
| Revenues | $ | 998,427 | $ | 964,095 | $ | 34,332 | 3.6 | % | ||||||||||||||||||||||||||||||
| Cost of revenue | 375,048 | 371,025 | 4,023 | 1.1 | % | |||||||||||||||||||||||||||||||||
| Gross profit | 623,379 | 62.4 | % | 593,070 | 61.5 | % | 30,309 | 5.1 | % | |||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 156,223 | 15.6 | % | 149,453 | 15.5 | % | 6,770 | 4.5 | % | |||||||||||||||||||||||||||||
| General and administrative | 91,561 | 9.2 | % | 92,024 | 9.5 | % | (463) | (0.5 | %) | |||||||||||||||||||||||||||||
| Research and development | 59,061 | 5.9 | % | 52,635 | 5.5 | % | 6,426 | 12.2 | % | |||||||||||||||||||||||||||||
| Total operating expenses | 306,845 | 30.7 | % | 294,112 | 30.5 | % | 12,733 | 4.3 | % | |||||||||||||||||||||||||||||
| Income from operations | $ | 316,534 | 31.7 | % | $ | 298,958 | 31.0 | % | $ | 17,576 | 5.9 | % |
Gross Profit. Gross profit increased due to higher revenue and a 90 basis point increase in the gross profit margin. The increase in the gross profit margin increased primarily due to favorable business mix, benefiting from IDEXX VetLab consumable growth and instrument placement mix, as well as net price realization, offsetting inflationary cost impacts. The change in foreign currency exchange rates increased the gross profit margin by less than 10 basis points, including the impact of higher hedge gains during the current period compared to the prior period.
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 information technology costs, offset by a reduction in accrued expense of approximately $9 million related to a litigation matter. Research and development expense increased primarily due to higher project costs, as well as higher personnel-related costs. The change in foreign currency exchange rates decreased operating expense growth by approximately 1%.
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) | 2025 | 2024 | Dollar Change | Reported Revenue Growth (1) | Percentage Change from Currency | Percentage Change from Acquisitions | Organic Revenue Growth (1) | |||||||||||||||||||||||||||||||||||||
| CAG Diagnostics recurring revenue: | $ | 806,267 | $ | 780,144 | $ | 26,123 | 3.3 | % | (1.2 | %) | — | 4.5 | % | |||||||||||||||||||||||||||||||
| IDEXX VetLab consumables | 344,779 | 316,929 | 27,850 | 8.8 | % | (1.7 | %) | — | 10.5 | % | ||||||||||||||||||||||||||||||||||
| Rapid assay products | 84,034 | 86,315 | (2,281) | (2.6 | %) | (0.7 | %) | — | (1.9 | %) | ||||||||||||||||||||||||||||||||||
| Reference laboratory diagnostic and consulting services | 344,406 | 344,338 | 68 | — | (0.8 | %) | — | 0.9 | % | |||||||||||||||||||||||||||||||||||
| CAG diagnostics services and accessories | 33,048 | 32,562 | 486 | 1.5 | % | (1.5 | %) | — | 3.0 | % | ||||||||||||||||||||||||||||||||||
| CAG Diagnostics capital - instruments | $ | 31,994 | $ | 34,092 | $ | (2,098) | (6.2 | %) | (1.5 | %) | — | (4.6 | %) | |||||||||||||||||||||||||||||||
| Veterinary software, services and diagnostic imaging systems: | $ | 81,575 | $ | 75,049 | $ | 6,526 | 8.7 | % | (0.5 | %) | 1.8 | % | 7.5 | % | ||||||||||||||||||||||||||||||
| Recurring revenue | 65,793 | 59,700 | 6,093 | 10.2 | % | (0.6 | %) | 1.8 | % | 9.0 | % | |||||||||||||||||||||||||||||||||
| Systems and hardware | 15,782 | 15,349 | 433 | 2.8 | % | (0.5 | %) | 1.6 | % | 1.6 | % | |||||||||||||||||||||||||||||||||
| Net CAG revenue | $ | 919,836 | $ | 889,285 | $ | 30,551 | 3.4 | % | (1.1 | %) | 0.2 | % | 4.4 | % | ||||||||||||||||||||||||||||||
(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 also due to higher volumes in IDEXX VetLab consumables, offsetting lower volumes in Rapid Assay and constraints from macroeconomic and sector headwinds. The comparative impact of equivalent business days in the quarter decreased overall revenue growth. The change in foreign currency exchange rates decreased CAG Diagnostics recurring revenue growth by 1.2%.
The increase in IDEXX VetLab consumables revenue was primarily due to higher price realization and volume increases, supported by 9% growth in our active installed base of instruments, compared to March 31, 2024, growth in testing by new and existing customers, our expanded menu of available tests, as well as high customer retention rates. The change in foreign currency exchange rates decreased revenue growth by 1.7%.
The decrease in rapid assay revenue resulted primarily from lower volumes as a result of customers shifting pancreatic lipase testing to our Catalyst instrument platform, as well as lower clinical visits in the U.S., partially offset by higher price realization. The change in foreign currency exchange rates decreased revenue growth by 0.7%.
The increase in reference laboratory diagnostic and consulting services revenue was due to higher global price realization and, to a lesser extent, higher testing volumes. The change in foreign currency exchange rates decreased revenue growth by 0.8%.
The increase in CAG Diagnostics services and accessories revenue was primarily a result of growth in our active installed base of premium instruments. The change in foreign currency exchange rates decreased revenue growth by 1.5%.
CAG Diagnostics Capital – Instrument Revenue. The decrease in instrument revenue was primarily due to lower ProCyte One and Catalyst placements, partially offset by higher placements of SediVue Dx and our recently-launched IDEXX inVue Dx Analyzer. The change in foreign currency exchange rates decreased revenue growth by 1.5%.
Veterinary Software, Services and Diagnostic Imaging Systems Revenue. The increase in revenue was primarily due to higher subscription and support services volume from our expanded installed base and higher realized prices. The increase in our systems and hardware revenue was primarily due to higher diagnostic imaging system sales. The change in foreign currency exchange rates was not significant to revenue growth. Acquisitions increased revenue growth by 1.8%.
The following table presents the CAG segment results of operations:
| For the Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||
| Results of Operations (dollars in thousands) | 2025 | Percent of Revenue | 2024 | Percent of Revenue | Amount | Percentage | ||||||||||||||||||||||||||||||||
| Revenues | $ | 919,836 | $ | 889,285 | $ | 30,551 | 3.4 | % | ||||||||||||||||||||||||||||||
| Cost of revenue | 345,013 | 343,049 | 1,964 | 0.6 | % | |||||||||||||||||||||||||||||||||
| Gross profit | 574,823 | 62.5 | % | 546,236 | 61.4 | % | 28,587 | 5.2 | % | |||||||||||||||||||||||||||||
| Segment operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 142,912 | 15.5 | % | 136,903 | 15.4 | % | 6,009 | 4.4 | % | |||||||||||||||||||||||||||||
| General and administrative | 82,134 | 8.9 | % | 81,803 | 9.2 | % | 331 | 0.4 | % | |||||||||||||||||||||||||||||
| Research and development | 54,622 | 5.9 | % | 47,834 | 5.4 | % | 6,788 | 14.2 | % | |||||||||||||||||||||||||||||
| Total segment operating expenses | 279,668 | 30.4 | % | 266,540 | 30.0 | % | 13,128 | 4.9 | % | |||||||||||||||||||||||||||||
| Segment income from operations | $ | 295,155 | 32.1 | % | $ | 279,696 | 31.5 | % | $ | 15,459 | 5.5 | % |
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 increased primarily due to favorable business mix, benefiting from IDEXX VetLab consumable growth and instrument placement mix, as well as net price realization, offsetting inflationary cost impacts. The change in foreign currency exchange rates on the gross profit margin was not significant.
Segment Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related, meeting and travel costs. General and administrative expense increased primarily due to higher personnel-related and information technology costs, offset by a reduction in accrued expense of approximately $9 million related to a litigation matter. Research and development expense increased primarily due to higher project costs, as well as higher personnel-related costs. The change in foreign currency exchange rates decreased operating expense growth by less than 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) | 2025 | Percent of Revenue | 2024 | Percent of Revenue | Amount | Percentage | ||||||||||||||||||||||||||||||||
| Revenues | $ | 45,321 | $ | 43,071 | $ | 2,250 | 5.2 | % | ||||||||||||||||||||||||||||||
| Cost of revenue | 13,248 | 12,574 | 674 | 5.4 | % | |||||||||||||||||||||||||||||||||
| Gross profit | 32,073 | 70.8 | % | 30,497 | 70.8 | % | 1,576 | 5.2 | % | |||||||||||||||||||||||||||||
| Segment operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 6,042 | 13.3 | % | 5,516 | 12.8 | % | 526 | 9.5 | % | |||||||||||||||||||||||||||||
| General and administrative | 3,778 | 8.3 | % | 4,307 | 10.0 | % | (529) | (12.3 | %) | |||||||||||||||||||||||||||||
| Research and development | 1,436 | 3.2 | % | 1,244 | 2.9 | % | 192 | 15.4 | % | |||||||||||||||||||||||||||||
| Total segment operating expenses | 11,256 | 24.8 | % | 11,067 | 25.7 | % | 189 | 1.7 | % | |||||||||||||||||||||||||||||
| Segment income from operations | $ | 20,817 | 45.9 | % | $ | 19,430 | 45.1 | % | $ | 1,387 | 7.1 | % |
Revenue. The increase in revenue was due to higher realized prices and higher volumes. The increase in volumes was primarily from our Colilert test products and related accessories used in coliform and E. coli testing. The change in foreign currency exchange rates decreased revenue growth by 2.1%.
Gross Profit. Gross profit increased due to higher revenue. The overall change in foreign currency exchange rates increased the gross profit margin by approximately 40 basis points, including the impact of higher hedge gains during the current period compared to the prior period. Excluding the impact of foreign currency exchange rates, the decrease in the gross profit margin was due to higher product costs, partially offset by higher realized prices.
Segment Operating Expenses. Sales and marketing expense increased primarily due to higher personnel-related costs, as well as higher travel and meeting costs. General and administrative expense decreased primarily due to lower personnel-related costs and lower bad debt expense. Research and development expense increased primarily due to higher personnel-related costs. The change in foreign currency exchange rates decreased in operating expense 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) | 2025 | Percent of Revenue | 2024 | Percent of Revenue | Amount | Percentage | ||||||||||||||||||||||||||||||||
| Revenues | $ | 28,596 | $ | 28,205 | $ | 391 | 1.4 | % | ||||||||||||||||||||||||||||||
| Cost of revenue | 14,231 | 12,971 | 1,260 | 9.7 | % | |||||||||||||||||||||||||||||||||
| Gross profit | 14,365 | 50.2 | % | 15,234 | 54.0 | % | (869) | (5.7 | %) | |||||||||||||||||||||||||||||
| Segment operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 7,011 | 24.5 | % | 6,739 | 23.9 | % | 272 | 4.0 | % | |||||||||||||||||||||||||||||
| General and administrative | 4,374 | 15.3 | % | 4,308 | 15.3 | % | 66 | 1.5 | % | |||||||||||||||||||||||||||||
| Research and development | 2,855 | 10.0 | % | 3,321 | 11.8 | % | (466) | (14.0 | %) | |||||||||||||||||||||||||||||
| Total segment operating expenses | 14,240 | 49.8 | % | 14,368 | 50.9 | % | (128) | (0.9 | %) | |||||||||||||||||||||||||||||
| Segment income from operations | $ | 125 | 0.4 | % | $ | 866 | 3.1 | % | $ | (741) | (85.6 | %) |
Revenue. The increase in revenue was primarily due to higher realized prices and higher volumes in the Americas, partially offset by lower volumes in Europe, in part due to the timing of distributor orders. The change in foreign currency exchange rates decreased revenue growth by 2.8%.
Gross Profit. The decrease in gross profit was primarily due to a 380 basis point decrease in the gross profit margin, partially offset by higher revenue. The decrease in the gross profit margin was primarily due to higher product costs, partially offset by higher realized prices. The change in foreign currency exchange rates increased the gross profit margin by approximately 100 basis points, including the impact of higher hedge gains during the current period compared to the prior period.
Segment 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 information technology costs. Research and development expense decreased primarily due to lower personnel-related costs. The change in foreign currency exchange rates decreased operating expense 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) | 2025 | Percent of Revenue | 2024 | Percent of Revenue | Amount | Percentage | ||||||||||||||||||||||||||||||||
| Revenues | $ | 4,674 | $ | 3,534 | $ | 1,140 | 32.3 | % | ||||||||||||||||||||||||||||||
| Cost of revenue | 2,556 | 2,431 | 125 | 5.1 | % | |||||||||||||||||||||||||||||||||
| Gross profit | 2,118 | 45.3 | % | 1,103 | 31.2 | % | 1,015 | 92.0 | % | |||||||||||||||||||||||||||||
| Segment operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 258 | 5.5 | % | 295 | 8.3 | % | (37) | (12.5 | %) | |||||||||||||||||||||||||||||
| General and administrative | 1,275 | 27.3 | % | 1,606 | 45.4 | % | (331) | (20.6 | %) | |||||||||||||||||||||||||||||
| Research and development | 148 | 3.2 | % | 236 | 6.7 | % | (88) | (37.3 | %) | |||||||||||||||||||||||||||||
| Total segment operating expenses | 1,681 | 36.0 | % | 2,137 | 60.5 | % | (456) | (21.3 | %) | |||||||||||||||||||||||||||||
| Segment income from operations | $ | 437 | 9.3 | % | $ | (1,034) | (29.3 | %) | $ | 1,471 | (142.3 | %) |
Revenue. The increase in revenue was primarily due to higher volumes of our OPTI Medical consumables and instruments and, to a lesser extent, higher realized prices.
Gross Profit. Gross profit increased due to higher revenues and a 1,410 basis point increase in the gross profit margin. The increase in the gross profit margin was largely due to lower product costs and higher consumable volumes. The change in foreign currency exchange rates did not have a significant impact on the gross profit margin.
Segment Operating Expenses. Sales and marketing expense decreased due to lower travel costs. General and administrative expense decreased primarily due to lower foreign currency transaction losses compared to the prior year. Foreign exchange gains and losses on settlements for all operating segments are reported within our Other segment. Research and development expense decreased due to lower personnel-related costs.
Non-Operating Items
Interest Expense and Income. Interest expense was $7.7 million for the three months ended March 31, 2025, compared to $7.9 million for the same period during the prior year. Interest income was $1.2 million for the three months ended March 31, 2025, compared to $4.4 million for the same period during the prior year. The decrease in interest income is primarily due to a decrease in money market investments, compared to the same period during the prior year.
Provision for Income Taxes. Our effective income tax rate was 21.7% for the three months ended March 31, 2025, compared to 20.3% for the three months ended March 31, 2024. The increase in our effective tax rate was primarily due to lower tax benefits 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, repurchases of our common stock, taxes, research and development, capital expenditures, rents, occupancy-related charges, interest expense, and business acquisitions. Working capital totaled $181.4 million as of March 31, 2025, compared to $332.0 million as of December 31, 2024. The change in working capital is primarily due to higher cash balances and lower borrowings outstanding on the Credit Facility in the prior year. As of March 31, 2025, we had $164.0 million of cash and cash equivalents, compared to $288.3 million as of December 31, 2024. As of March 31, 2025, we had a remaining borrowing availability of $928.6 million under our $1.25 billion Credit Facility, with $319.5 million in outstanding borrowings under the Credit Facility. As of December 31, 2024, we had $250.0 million in outstanding borrowings under the Credit Facility. The general availability of funds under our Credit Facility is reduced by $1.9 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, 2025 | December 31, 2024 | ||||||||||||
| U.S. | $ | 5,755 | $ | 145,118 | ||||||||||
| Foreign | 158,215 | 143,148 | ||||||||||||
| Total | $ | 163,970 | $ | 288,266 | ||||||||||
| Total cash and cash equivalents held in U.S. dollars by our foreign subsidiaries | $ | 13,719 | $ | 10,623 |
The cash and cash equivalents of $164.0 million held as of March 31, 2025, were held as bank deposits. As of December 31, 2024, of the $288.3 million of cash and cash equivalents held, $148.7 million was held as bank deposits and $139.6 million was held in a U.S. government money market fund. Our bank deposits are held at a diversified group of institutions, primarily systemically important banks. Cash and cash equivalents as of March 31, 2025, included approximately $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 without incurring costs.
The following table presents additional key information concerning working capital:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||
| Days sales outstanding (1) | 45.7 | 47.1 | 48.9 | 47.3 | 45.7 | 46.1 | |||||||||||||||||||||||||||||
| Inventory turns (2) | 1.3 | 1.3 | 1.3 | 1.4 | 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 are calculated as the ratio of our inventory-related cost of revenue for the quarter multiplied by four, 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) | 2025 | 2024 | Change | |||||||||||||||||
| Net cash provided by operating activities | $ | 237,962 | $ | 198,585 | $ | 39,377 | ||||||||||||||
| Net cash used by investing activities | (29,610) | (106,944) | 77,334 | |||||||||||||||||
| Net cash used by financing activities | (330,321) | (144,074) | (186,247) | |||||||||||||||||
| Net effect of changes in exchange rates on cash | (2,327) | (4,066) | 1,739 | |||||||||||||||||
| Net change in cash and cash equivalents | $ | (124,296) | $ | (56,499) | $ | (67,797) |
Operating Activities. Cash provided by operating activities during the three months ended March 31, 2025, was $238.0 million, which was a net increase in operating cash flow of $39.4 million, compared to the same period during the prior year. Cash was provided from net income of $242.7 million, adjusted for net non-cash items of $56.0 million, partially offset by a net decrease by changes in operating assets and liabilities of $60.7 million. The following table presents cash flow impacts from changes in operating assets and liabilities, excluding the effects of foreign exchange rate fluctuations:
| For the Three Months Ended March 31, | ||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | Change | |||||||||||||||||
| Accounts receivable | $ | (45,240) | $ | (53,841) | $ | 8,601 | ||||||||||||||
| Inventories | 2,163 | (2,412) | 4,575 | |||||||||||||||||
| Other assets and liabilities | (10,325) | (21,416) | 11,091 | |||||||||||||||||
| Accounts payable | (8,123) | (4,450) | (3,673) | |||||||||||||||||
| Deferred revenue | 838 | 703 | 135 | |||||||||||||||||
| Total change in cash due to changes in operating assets and liabilities | $ | (60,687) | $ | (81,416) | $ | 20,729 |
Cash used by changes in operating assets and liabilities during the three months ended March 31, 2025, decreased $20.7 million, compared to the same period during the prior year. The $11.1 million decrease in cash used for other assets and liabilities was primarily due to lower annual employee incentive program payments in the current period, compared to the same period in the prior year, and higher current period operating expenses that were prepaid in previous periods. The decrease in cash used by accounts receivable was primarily due to a decrease in the comparative growth in outstanding accounts receivable balances largely due to improved collection efficiency compared to the prior-year period, and to lower comparative changes in revenue between sequential quarterly periods. Cash provided by inventories increased due to higher increases in accrued payables during the current period compared to the same period in the prior year.
We have historically experienced proportionately lower net cash flows from operating activities during the first quarter and proportionately 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.
On April 17, 2025, we paid approximately $80 million, which was fully accrued as of March 31, 2025, to satisfy the judgment in a litigation matter related to an expired patent license agreement, concluding this matter. Refer to Note 16 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.
Investing Activities. Cash used by investing activities was $29.6 million during the three months ended March 31, 2025, compared to $106.9 million for the same period during the prior year. The decrease in cash used by investing activities was primarily due to the acquisition of a software business during the prior-year period.
Our total capital expenditure plan for 2025 is estimated to be approximately $160.0 million, which includes capital investments in manufacturing and operations facilities to support growth and efficiencies, as well as investments in customer-facing software development.
Financing Activities. Cash used by financing activities was $330.3 million during the three months ended March 31, 2025, compared to $144.1 million used for the same period during the prior year. The increase in cash used was primarily due to $400.9 million of repurchases of our common stock during the current year, compared to $154.8 million of repurchases during the prior year. This increase in cash used by financing was partially offset by $69.5 million net borrowings under our Credit Facility during the current year, compared to no activity under our Credit Facility during the prior-year period.
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, and are subject to market conditions. 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.
As of March 31, 2025, we had $319.5 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, certain restrictive agreements, and violations of laws and regulations. The sole financial covenant is a consolidated leverage ratio test.
The aggregate principal amounts of our 2025 Series C Notes will become due and payable on June 18, 2025, and the aggregate principal amounts of our 2025 Series B Notes will become due and payable on December 11, 2025. We anticipate paying off our 2025 Series C Notes for €88.9 million when due in June 2025, and our 2025 Series B Notes for $75.0 million when due in December 2025, with available cash on hand, borrowings under our Credit Facility, or proceeds from the issuance of new notes, or a combination thereof.
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. The Senior Note Agreements contain affirmative, negative, and financial covenants customary for agreements of this type. The negative covenants include restrictions on liens, indebtedness of our subsidiaries, priority indebtedness, fundamental changes, investments, transactions with affiliates, certain restrictive agreements, and violations of laws and regulations. The sole financial covenant is a consolidated leverage ratio test.
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, 2025, 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, 2025 | ||||
| Net income attributable to stockholders | $ | 894,965 | |||
| Interest expense | 30,960 | ||||
| Provision for income taxes | 229,471 | ||||
| Depreciation and amortization | 134,095 | ||||
| Acquisition-related expense | — | ||||
| Share-based compensation expense | 60,510 | ||||
| Extraordinary and other non-recurring non-cash charges | — | ||||
| Adjusted EBITDA | $ | 1,350,001 | |||
| Debt to Adjusted EBITDA Ratio: | March 31, 2025 | ||||
| Line of Credit | $ | 319,500 | |||
| Current and long-term portions of long-term debt | 620,728 | ||||
| Total debt | 940,228 | ||||
| Acquisition-related contingent consideration payable | 2,587 | ||||
| Deferred financing costs | 212 | ||||
| Gross debt | $ | 943,027 | |||
| Gross debt to Adjusted EBITDA ratio | 0.70 | ||||
| Less: Cash and cash equivalents | $ | 163,970 | |||
| Net debt | $ | 779,057 | |||
| Net debt to Adjusted EBITDA ratio | 0.58 |
Adjusted EBITDA, gross debt, net debt, gross debt to Adjusted EBITDA ratio, and net debt to Adjusted EBITDA ratio are non-GAAP financial measures which should be considered in addition to, and not as a replacement for, financial measures presented according to U.S. GAAP. Management believes that reporting these non-GAAP financial measures provides supplemental analysis to help investors further evaluate our business performance and available borrowing capacity under our Credit Facility.
Other Commitments, Contingencies and Guarantees
Significant commitments, contingencies, and guarantees as of March 31, 2025, 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.
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