IDEXX(IDXX) - 2021 Q4 - Annual Report

Glossary of Terms and Selected Abbreviations PART I ITEM 1. Business IDEXX is a global leader in diagnostics and software for veterinary, livestock, poultry, dairy, and water testing industries Company Overview - IDEXX was incorporated in Delaware in 1983 and develops, manufactures, and distributes products and services primarily for the companion animal veterinary, livestock and poultry, dairy, and water testing industries, also providing human medical point-of-care and laboratory diagnostics[17] Description of Business by Segment Companion Animal Group ("CAG") CAG Diagnostics - CAG Diagnostics provides in-clinic diagnostic solutions (IDEXX VetLab suite of analyzers, consumables, SNAP rapid assay test kits) and outside reference laboratory services, integrated via VetConnect PLUS cloud-based technology for comprehensive patient data access and analysis[20][21][22] - Key in-clinic diagnostic offerings include Catalyst One Chemistry analyzer, ProCyte One and ProCyte Dx hematology analyzers, Coag Dx analyzer, SNAP rapid assay tests (e g, 4Dx Plus for vector-borne diseases, Heartworm RT, Feline Triple), and SediVue Dx and IDEXX VetLab UA for urinalysis[23][24][25][26] Outside Reference Laboratory Diagnostic and Consulting Services - IDEXX offers commercial reference laboratory diagnostic and consulting services to veterinarians globally through a network of approximately 80 laboratories, providing a large selection of specialized tests and advisory services (radiology, cardiology, internal medicine, ultrasound)[28][29][30] Veterinary Software and Services & Diagnostic Imaging Systems - The company provides a portfolio of veterinary software and services, including practice management systems (ezyVet, Animana, IDEXX Neo, Cornerstone, DVMAX), workflow optimization (SmartFlow, VetRadar), client communication (Pet Health Network Pro), and diagnostic imaging systems (IDEXX ImageVue DR50/DR30) with PACS software (IDEXX-PACS, IDEXX Web PACS)[31][32][33][34][35] Water quality products ("Water") - Water segment offers innovative testing solutions for rapid and accurate detection of microbiological parameters in water, including Colilert, Colilert-18, Colisure (total coliforms and E coli), Enterolert (enterococci), Pseudalert (Pseudomonas aeruginosa), Filta-Max/Filta-Maxxpress (Cryptosporidium and Giardia), and Legiolert (Legionella pneumophila)[38][39][40][41][42][43] Livestock, Poultry and Dairy ("LPD") - LPD provides diagnostic tests, services, and instrumentation for livestock and poultry health management (e g, BVDV, PRRS, ASFV tests, Rapid Visual Pregnancy Test for cattle) and dairy product quality/safety (e g, SNAP Beta-Lactam ST, SNAPduo Beta-Tetra ST for antibiotic residues in milk)[45][46][47] Other - The 'Other' segment includes OPTI Medical, which sells human medical point-of-care analyzers (electrolytes, blood gases) and related consumables, as well as human COVID-19 testing products (OPTI SARS-CoV-2 RT-PCR test kit) and laboratory services[48][49][50] Marketing and Distribution - IDEXX markets, sells, and services its products worldwide through direct sales forces and independent distributors, with sales offices in Africa, Asia Pacific, Canada, Europe, Middle East, and Latin America[53][54] Research and Development Research and Development Expenses | Year | R&D Expenses (Millions) | % of Consolidated Revenue | | :--- | :---------------------- | :------------------------ | | 2021 | $161.0 | 5.0% | | 2020 | $141.2 | 5.2% | | 2019 | $133.2 | 5.5% | Patents and Licenses - IDEXX actively seeks patent protection and licenses third-party technologies, considering these rights important for invention protection, competitive advantage, and reputation The expiration of certain patents and licenses (e g, BVDV, Anaplasma, Ehrlichia, Catalyst consumables/instruments, canine pancreatic lipase, SDMA) is not expected to materially affect financial position or future operations due to other mitigating factors like brand strength, product breadth, and continuous innovation[56][57] Production and Supply - The company relies on third-party manufacturers and sole/single-source suppliers for many instruments (e g, Catalyst Dx/One consumables, VetTest slides, ProCyte Dx/One analyzers, SediVue Dx) and components, actively seeking alternative suppliers to mitigate risks[59][60][61][62] Competition - IDEXX faces intense competition across its segments from large human and animal health companies, as well as smaller specialized businesses Key competitive factors include ease of use, diagnostic accuracy, product quality, breadth of offerings, integrated technology, customer service, and pricing[64][65] - Major competitors in companion animal diagnostics include Antech Diagnostics (Mars), Zoetis Inc (Abaxis), Heska Corporation, and Samsung Electronics Co, Ltd In water, livestock, poultry, and dairy testing, competitors range from focused smaller companies to multibillion-dollar firms[65] Government Regulation - Many IDEXX products are subject to comprehensive U S and foreign regulations, including those from USDA (veterinary biologics), FDA (veterinary medical devices, human medical devices, COVID-19 tests), and EPA (water testing methods)[66][67][68][69][70][71][72] - Compliance with regulations like the EU's RoHS, REACH, and Biocidal Products Regulation, as well as similar state-level rules (e g, California's Proposition 65, Maine's PFAS restrictions), creates risks and may require product redesign or reformulation[73][74][75] Human Capital - IDEXX focuses on attracting, motivating, developing, and retaining talented employees by fostering an inclusive culture, offering competitive compensation and benefits, and providing growth opportunities[77][81] Employee Demographics (as of Dec 31, 2021) | Category | Percentage | | :-------------------------------- | :--------- | | Total Employees | ~10,350 | | U.S. Underrepresented Minorities | 22.5% | | Black/African American | 8.6% | | Asian | 6.4% | | Hispanic/Latinx | 5.4% | | Other | 2.1% | | Global Women | 58% | | Global Senior Leadership Team (Women) | 34.5% | | Global Senior Executive Team (Women) | 23.8% | - Voluntary employee turnover rate was approximately 12% in 2021, with managerial and professional staff turnover at 6% The company's most recent global employee survey indicated an 82% engagement level[85][86] Available Information - IDEXX makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments available free of charge on its website (www idexx com) and through the SEC's website (www sec gov)[88][89] ITEM 1A. Risk Factors The company faces risks from the COVID-19 pandemic, competition, supplier dependency, regulations, and general operational challenges Risk Related to the COVID-19 Pandemic - The COVID-19 pandemic's duration and impact remain uncertain, potentially disrupting supply chains, operations, and labor, and decreasing companion animal clinical visits, which could materially affect business, results of operations, liquidity, financial condition, and stock price CAG products and services represented 90% of 2021 consolidated revenues, making this segment particularly vulnerable[92][93][94] Risks Related to Our Business and Industry - The highly competitive companion animal healthcare industry requires successful execution of strategies like developing innovative products, maintaining premium pricing, expanding sales/marketing, and attracting talent to sustain growth and profitability[95][96] - Dependence on sole or single-source third-party suppliers for critical components and raw materials (e g, Catalyst Dx/One consumables, ProCyte analyzers) poses a risk of supply chain disruptions, increased costs, and potential loss of customers if suppliers fail to meet demands[97][100][101] - The company's success relies heavily on continuous product and service innovation, requiring substantial R&D investment and effective protection of proprietary rights through patents, trade secrets, and trademarks Failure to innovate or protect IP could adversely affect business[110][111][112][113] - Consolidation in the veterinary customer base, including increased corporate hospital ownership and buying consortiums, could negatively impact profitability by leveraging buying power for favorable pricing or shifting purchases to competitors' reference laboratories[117] General Risks - Dependence on key leadership and talent, especially in competitive labor markets, is crucial for success Failure to attract, develop, or retain skilled employees, or ineffective succession planning, could disrupt operations and delay strategic objectives[122][123] - Increasing reliance on information technology systems makes the company vulnerable to disruptions or significant security breaches (e g, cyberattacks, ransomware), which could lead to operational delays, data loss, financial losses, and reputational damage[124][125][126] - Factors beyond control, such as natural disasters, public health issues (including COVID-19 variants), civil unrest, geopolitical conditions, and workforce disruptions, could severely impact operations, supply chain, and logistics, potentially causing facility damage or temporary closures[128][129][130] - International operations (38% of 2021 revenue) expose the company to risks like foreign currency fluctuations, differing regulatory requirements, intellectual property protection challenges, and geopolitical instability, which could negatively affect operating results[131][132][133] - Evolving global data privacy laws (e g, CCPA, CPRA, GDPR, PIPL, LGPD, POPIA) create compliance challenges, potentially requiring changes to business practices, incurring substantial costs, and risking reputational damage or legal actions for non-compliance[134][135][136][137] - Changes in tax rates, new U S or international tax legislation (e g, global minimum tax rate proposals), or adverse audit outcomes could materially impact income tax liability, effective tax rate, and results of operations[138][139][140][141][142] - A weak worldwide economy could reduce demand for products and services, particularly in the companion animal veterinary industry (due to reduced pet owner spending or vet recommendations), and increase customer credit risk[143][144][145] - Strengthening of the U S dollar negatively impacts revenues and profits from international sales, as approximately 23% of 2021 consolidated revenue was derived from U S dollar-sourced products sold in local currencies Hedging activities aim to mitigate, but not eliminate, this volatility[146][147][148][149] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments applicable to this report ITEM 2. Properties IDEXX operates global facilities, with its headquarters in Maine and key sites for manufacturing, distribution, and R&D worldwide - Worldwide headquarters and principal executive offices are located in Westbrook, Maine, encompassing manufacturing, R&D, marketing, sales, and general/administrative functions[157] Primary Facility Locations | Location | Functions | Own/Lease | | :------------------------ | :-------------------------------------------- | :-------- | | Westbrook, Maine | Worldwide Headquarters, principal executive offices | Own | | Hoofddorp, Netherlands | Distribution center, warehousing, International administrative offices | Lease | | Memphis, Tennessee | Distribution Center and Reference Lab | Lease | | Kornwestheim, Germany | Reference Lab | Own | | Wetherby, United Kingdom | Reference Lab | Lease | | Newmarket, United Kingdom | Water manufacturing | Lease | | Bern, Switzerland | LPD manufacturing | Lease | | Montpellier, France | LPD manufacturing | Lease | | Roswell, Georgia | OPTI Medical manufacturing | Lease | - IDEXX has over 50 reference laboratories in the U S and over 25 internationally, with the majority being leased[158] ITEM 3. Legal Proceedings The company is involved in ordinary course legal actions not expected to materially affect its financial condition - The company is involved in legal actions in the ordinary course of business, but management, based on legal counsel, does not expect these matters to have a material effect on results of operations, financial condition, or cash flows[159] ITEM 4. Mine Safety Disclosures This item is not applicable to IDEXX Laboratories, Inc PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities IDEXX common stock trades on NASDAQ, with active share repurchases but no history of paying cash dividends Market Information - IDEXX's common stock is quoted on the NASDAQ Global Select Market under the symbol IDXX[163] Holders of Common Stock - As of February 11, 2022, there were 390 holders of record of the company's common stock[164] Purchases of Equity Securities by the Issuer Common Stock Repurchases (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :--------------------- | :--------------------------- | | October 1, 2021 to October 31, 2021 | 101,855 | $632.26 | | November 1, 2021 to November 30, 2021 | 129,176 | $629.38 | | December 1, 2021 to December 31, 2021 | 159,662 | $619.88 | | Total (Q4 2021) | 390,693 | | - For the year ended December 31, 2021, IDEXX repurchased approximately 1.3 million shares of common stock through its repurchase program and received 0.03 million shares from employees for tax withholding[167] - As of December 31, 2021, 4,992,231 shares remained available for repurchase under the Board-approved program, which has no specified expiration date[165] Dividends - IDEXX has never declared or paid any cash dividends on its common stock and has no intention to do so at this time[169] Stock Performance Total Stockholder Returns (Indexed to $100 on 12/31/2016) | Index | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | | :-------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | IDEXX Laboratories, Inc. | $100.00 | $133.35 | $158.63 | $222.67 | $426.26 | $561.49 | | NASDAQ Index | $100.00 | $129.64 | $125.96 | $172.18 | $249.51 | $304.85 | | S&P 500 Index | $100.00 | $121.83 | $116.49 | $153.17 | $181.35 | $233.41 | | S&P 500 Health Care Index | $100.00 | $122.08 | $129.97 | $157.04 | $178.15 | $224.71 | ITEM 6. [Reserved] This item is reserved and contains no information ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial results, highlighting strong 2021 performance driven by CAG recovery amid ongoing operational challenges Description of Business Segments Companion Animal Group CAG Diagnostics - CAG's strategy is to provide veterinarians with high-quality diagnostic information, software, and services to support advanced medical care and efficient practice management, building mutually successful relationships[176] - Diagnostic capabilities generate both recurring (consumables, rapid assay kits, reference lab services, maintenance agreements) and non-recurring (instrument placements) revenues Recurring revenues have significantly higher gross margins[178] Active Installed Base Units of Diagnostic Instruments (in thousands) | Instrument | December 31, 2021 | December 31, 2020 | December 31, 2019 | | :---------------- | :---------------- | :---------------- | :---------------- | | Catalyst | 56.5 | 49.6 | 43.9 | | Premium Hematology| 38.2 | 34.6 | 31.5 | | SediVue | 13.2 | 10.7 | 8.9 | - Long-term success in CAG recurring diagnostics depends on increasing utilization at existing customers, acquiring new customers, maintaining high loyalty, and realizing modest annual price increases[184] - Recurring diagnostic revenue, which is highly durable and profitable, accounted for approximately 79% of consolidated revenue for the year ended December 31, 2021[187] Veterinary Software, Services and Diagnostic Imaging Systems - The software portfolio includes practice management systems (Cornerstone, ezyVet, Animana, IDEXX Neo, DVMAX), with a growing focus on subscription-based SaaS offerings (Animana, ezyVet, IDEXX Neo) for higher profitability[195][196] - Diagnostic imaging systems (IDEXX ImageVue DR50/DR30) provide high-quality digital radiography, integrated with IDEXX imaging software and cloud-based Web PACS for enhanced diagnostic features and streamlined integration[198] Water - The Water business strategy focuses on developing, manufacturing, marketing, and selling innovative products for microbial contamination testing in water, with future growth dependent on increasing international sales and broadening the product line, often driven by regulatory approvals[199] Livestock, Poultry and Dairy - LPD's strategy is to offer differentiated tests and services for livestock and poultry disease management, herd health, and milk/food safety, noting that performance can fluctuate due to episodic disease outbreaks and changes in government funding[200][201] - Dairy testing business aims to increase penetration in dairy processors with antibiotic residue and contaminant testing products, leveraging the SNAP test platform[202] Other - OPTI Medical's strategy is to develop, manufacture, and sell human point-of-care electrolyte and blood gas analyzers and related consumables, with a focus on small to mid-sized hospitals Growth is dependent on new customer acquisition, retention, and increased utilization[203] - The OPTI Medical business also includes human COVID-19 testing products (OPTI SARS-CoV-2 RT-PCR test kit) and laboratory services, which were a primary driver of growth in 2020 but are anticipated to decline in 2022[204] Critical Accounting Estimates and Assumptions Financial statements rely on key management estimates for revenue recognition, goodwill valuation, and income tax provisions Revenue Recognition - Revenue recognition involves significant judgment in identifying distinct performance obligations, estimating variable consideration (e g, volume rebates, price adjustments), and allocating transaction prices based on standalone selling prices, especially for multi-year customer agreements[210][211] - For up-front loyalty programs, incentives are capitalized as customer acquisition costs and recognized as a reduction to revenue over the agreement term For volume commitment programs, instrument revenue is recognized at installation, and future consideration is recorded as a contract asset[212][213] - Instrument rebate programs treat the customer's right to earn rebates as a separate performance obligation, deferred and recognized upon future product/service purchases[215] - A 10% change in estimates for future customer purchases in up-front loyalty programs would impact deferred revenue and cumulative revenue by approximately $1.3 million at December 31, 2021 For volume commitment programs, it would impact contract assets and cumulative revenue by approximately $4.0 million[212][214] Valuation of Goodwill and Other Intangible Assets - Goodwill and other intangible assets are initially valued at fair value, requiring significant assumptions about future cash flows, growth rates, discount rates, and useful lives Goodwill is assessed for impairment annually using a discounted forecasted cash flow approach[217][218][222] - In Q4 2021, all reporting units showed an excess of estimated fair value over carrying amount, with a minimum of approximately 65% and a weighted average of 1,375% in total The Veterinary Software and Services reporting unit had a relatively lower excess of 210% ($385 million)[223][224] - No goodwill impairments were identified in 2021, 2020, or 2019 Impairment tests for other intangible assets are performed when circumstances indicate carrying value may not be recoverable[226][228] Income Taxes - The provision for income taxes uses the asset and liability approach, requiring assessment of current and projected earnings to determine the realizability of deferred tax assets and the need for valuation allowances[229][230][231] - A liability for uncertain tax positions is recorded for positions not meeting the 'more likely than not' standard The net liability for uncertain tax positions was $25.5 million at December 31, 2021, and $26.0 million at December 31, 2020[234] Recent Accounting Pronouncements IDEXX adopted several new accounting standards with minimal material impact and is evaluating others for future implementation - Adopted ASU 2016-02 (Leases) in 2019, ASU 2018-13 (Fair Value Measurement) and ASU 2016-13 (Credit Losses) in 2020, and ASU 2019-12 (Income Taxes) and ASU 2021-05 (Leases) in 2021 Most adoptions did not have a material impact, except for ASU 2016-13 which resulted in a $1.8 million non-cash cumulative effect adjustment to retained earnings[395][396][397][398][399] - The company is evaluating ASU 2021-08 (Business Combinations) for future impact and does not expect ASU 2020-04 (Reference Rate Reform) to impact consolidated financial statements due to Credit Facility provisions for benchmark replacement rates[400][401] Results of Operations and Trends Strong 2021 results were driven by CAG recovery, while LPD revenues declined and supply chain challenges persisted Effects of Certain Factors on Results of Operations - Companion animal sector showed strong recovery in 2021, with U S same-store clinical visit growth of 12% (Q1), 13% (Q2), and 2% (Q3, Q4), supporting demand for CAG diagnostic products and services[237][238][239] - Water testing volumes continued to recover in 2021 for both compliance and non-compliance testing, following disruptions in 2020 due to business lockdowns and closures[241] - LPD revenues contracted by 7% in 2021, primarily due to lower demand for African Swine Fever testing in China, influenced by relaxed disease management programs, lower pork prices, and changing government requirements[242] - Human COVID-19 testing products and services, a primary growth driver for the 'Other' segment in 2020, are anticipated to decline in 2022[243][244] - The company proactively manages supply chain and logistics challenges, including product/component availability, shipping delays, and inflationary pressures, to maintain high product and service availability[246] - Strengthening of the U S dollar negatively impacts revenues and profits from international sales, with approximately 23% of 2021 consolidated revenue derived from U S dollar-sourced products sold internationally in local currencies[249][310] Twelve Months Ended December 31, 2021, Compared to Twelve Months Ended December 31, 2020 Total Company Total Company Revenue by Segment (2021 vs 2020) | Segment | 2021 Net Revenue ($K) | 2020 Net Revenue ($K) | Dollar Change ($K) | Reported Growth (%) | Organic Growth (%) | | :------------ | :-------------------- | :-------------------- | :----------------- | :------------------ | :----------------- | | CAG | 2,889,960 | 2,385,765 | 504,195 | 21.1% | 18.7% | | Water | 146,505 | 128,625 | 17,880 | 13.9% | 11.7% | | LPD | 135,887 | 145,845 | (9,958) | (6.8%) | (9.2%) | | Other | 43,008 | 46,420 | (3,412) | (7.4%) | (8.2%) | | Total Company | 3,215,360 | 2,706,655 | 508,705 | 18.8% | 16.4% | Total Company Results of Operations (2021 vs 2020) | Metric | 2021 ($K) | % of Revenue | 2020 ($K) | % of Revenue | Change ($K) | Change (%) | | :---------------------- | :---------- | :----------- | :---------- | :----------- | :---------- | :--------- | | Revenues | 3,215,360 | | 2,706,655 | | 508,705 | 18.8% | | Cost of revenue | 1,325,928 | | 1,135,615 | | 190,313 | 16.8% | | Gross profit | 1,889,432 | 58.8% | 1,571,040 | 58.0% | 318,392 | 20.3% | | Sales and marketing | 486,735 | 15.1% | 434,435 | 16.1% | 52,300 | 12.0% | | General and administrative | 309,660 | 9.6% | 300,832 | 11.1% | 8,828 | 2.9% | | Research and development | 161,009 | 5.0% | 141,249 | 5.2% | 19,760 | 14.0% | | Total operating expenses | 957,404 | 29.8% | 876,516 | 32.4% | 80,888 | 9.2% | | Income from operations | 932,028 | 29.0% | 694,524 | 25.7% | 237,504 | 34.2% | - Gross profit increased due to higher sales volumes and an 80 basis point increase in gross profit margin, driven by volume leverage in CAG Diagnostics recurring revenue, price increases, and strong growth in veterinary software/services This was partially offset by product mix (higher CAG instrument revenue) and increased freight/distribution costs[262] - Operating expenses increased due to higher personnel-related costs and investments in global commercial capability, following cost containment efforts in 2020[263] Companion Animal Group CAG Revenue by Product/Service Category (2021 vs 2020) | Category | 2021 Net Revenue ($K) | 2020 Net Revenue ($K) | Dollar Change ($K) | Reported Growth (%) | Organic Growth (%) | | :---------------------------------------- | :-------------------- | :-------------------- | :----------------- | :------------------ | :----------------- | | CAG Diagnostics recurring revenue | 2,534,562 | 2,113,839 | 420,723 | 19.9% | 18.1% | | IDEXX VetLab consumables | 1,006,781 | 824,376 | 182,405 | 22.1% | 20.0% | | Rapid assay products | 296,852 | 253,018 | 43,834 | 17.3% | 16.6% | | Reference laboratory diagnostic and consulting services | 1,123,656 | 946,268 | 177,388 | 18.7% | 16.8% | | CAG Diagnostics services and accessories | 107,273 | 90,177 | 17,096 | 19.0% | 17.1% | | CAG Diagnostics capital - instruments | 149,140 | 108,950 | 40,190 | 36.9% | 35.7% | | Veterinary software, services and diagnostic imaging systems | 206,258 | 162,976 | 43,282 | 26.6% | 15.4% | | Net CAG revenue | 2,889,960 | 2,385,765 | 504,195 | 21.1% | 18.7% | - CAG Diagnostics recurring revenue increased by 19.9% (18.1% organic) due to strong demand, higher testing volumes (clinical visits and utilization per visit), and higher realized prices IDEXX VetLab consumables grew 22.1% (20.0% organic), rapid assay products grew 17.3% (16.6% organic), and reference laboratory services grew 18.7% (16.8% organic)[265][266][267] - CAG Diagnostics capital (instruments) revenue increased 36.9% (35.7% organic) due to strong premium instrument placements globally, recovering from constrained placements in 2020[269] - Veterinary software, services, and diagnostic imaging systems revenue increased 26.6% (15.4% organic, with acquisitions contributing 10.5%), driven by growth in active installed base, software system placements, and diagnostic imaging system placements[270] - CAG gross profit margin increased by 120 basis points to 58.3%, primarily due to volume leverage and price increases in recurring revenue, and higher software/imaging system revenues, partially offset by product mix and increased costs[272] Water Water Segment Results of Operations (2021 vs 2020) | Metric | 2021 ($K) | % of Revenue | 2020 ($K) | % of Revenue | Change ($K) | Change (%) | | :---------------------- | :-------- | :----------- | :-------- | :----------- | :---------- | :--------- | | Revenues | 146,505 | | 128,625 | | 17,880 | 13.9% | | Cost of revenue | 45,561 | | 38,245 | | 7,316 | 19.1% | | Gross profit | 100,944 | 68.9% | 90,380 | 70.3% | 10,564 | 11.7% | | Sales and marketing | 17,814 | 12.2% | 15,046 | 11.7% | 2,768 | 18.4% | | General and administrative | 13,442 | 9.2% | 12,595 | 9.8% | 847 | 6.7% | | Research and development | 4,244 | 2.9% | 3,872 | 3.0% | 372 | 9.6% | | Total operating expenses | 35,500 | 24.2% | 31,513 | 24.5% | 3,987 | 12.7% | | Income from operations | 65,444 | 44.7% | 58,867 | 45.8% | 6,577 | 11.2% | - Water revenue increased 13.9% (11.7% organic) due to recovery in overall testing volumes, including non-compliance testing, and price increases in Colilert test products Foreign currency movements contributed 2.2% to revenue growth[274] - Gross profit margin for Water decreased by 140 basis points to 68.9%, reflecting a 50 basis point reduction from foreign currency movements (hedge losses vs prior year gains) and higher product, distribution, and freight costs[275] Livestock, Poultry and Dairy LPD Segment Results of Operations (2021 vs 2020) | Metric | 2021 ($K) | % of Revenue | 2020 ($K) | % of Revenue | Change ($K) | Change (%) | | :---------------------- | :-------- | :----------- | :-------- | :----------- | :---------- | :--------- | | Revenues | 135,887 | | 145,845 | | (9,958) | (6.8%) | | Cost of revenue | 54,323 | | 56,643 | | (2,320) | (4.1%) | | Gross profit | 81,564 | 60.0% | 89,202 | 61.2% | (7,638) | (8.6%) | | Sales and marketing | 21,681 | 16.0% | 20,655 | 14.2% | 1,026 | 5.0% | | General and administrative | 17,606 | 13.0% | 17,061 | 11.7% | 545 | 3.2% | | Research and development | 13,641 | 10.0% | 11,478 | 7.9% | 2,163 | 18.8% | | Total operating expenses | 52,928 | 39.0% | 49,194 | 33.7% | 3,734 | 7.6% | | Income from operations | 28,636 | 21.1% | 40,008 | 27.4% | (11,372) | (28.4%) | - LPD revenues decreased 6.8% (9.2% organic) primarily due to lower demand for diagnostic testing in China, specifically African Swine Fever testing, offset by higher volumes and prices in Europe and the Americas Foreign currency movements increased revenue by 2.3%[277] - LPD gross profit decreased due to lower sales volumes and a 120 basis point decrease in gross profit margin, driven by higher distribution/freight costs and lower realized prices[278] Other Other Segment Results of Operations (2021 vs 2020) | Metric | 2021 ($K) | % of Revenue | 2020 ($K) | % of Revenue | Change ($K) | Change (%) | | :---------------------- | :-------- | :----------- | :-------- | :----------- | :---------- | :--------- | | Revenues | 43,008 | | 46,420 | | (3,412) | (7.4%) | | Cost of revenue | 19,888 | | 18,148 | | 1,740 | 9.6% | | Gross profit | 23,120 | 53.8% | 28,272 | 60.9% | (5,152) | (18.2%) | | Sales and marketing | 2,546 | 5.9% | 1,942 | 4.2% | 604 | 31.1% | | General and administrative | 4,142 | 9.6% | 1,712 | 3.7% | 2,430 | 141.9% | | Research and development | 2,506 | 5.8% | 3,856 | 8.3% | (1,350) | (35.0%) | | Total operating expenses | 9,194 | 21.4% | 7,510 | 16.2% | 1,684 | 22.4% | | Income from operations | 13,926 | 32.4% | 20,762 | 44.7% | (6,836) | (32.9%) | - Other revenue decreased 7.4% (8.2% organic) due to lower OPTI COVID-19 PCR testing products/services and reduced royalty revenue from former pharmaceutical products, partially offset by higher OPTI Medical consumables sales[281] - Gross profit margin for Other decreased by 780 basis points to 53.8%, primarily due to higher product costs from write-downs of excess COVID-19 testing inventory and lower mix benefits from royalty revenue[282] Non-Operating Items Interest Expense and Effective Income Tax Rate | Metric | 2021 ($K) | 2020 ($K) | Change ($K) | Change (%) | | :---------------------- | :-------- | :-------- | :---------- | :--------- | | Interest expense | 29,808 | 33,125 | (3,317) | (10.0%) | | Effective income tax rate | 17.5% | 12.1% | 5.4 pp | | - The increase in the effective tax rate in 2021 was primarily due to the prior year's one-time positive impact from Swiss tax reform transitional benefits and higher tax benefits related to share-based compensation in 2020 The projected effective tax rate for 2022 is approximately 22%[285] Liquidity and Capital Resources The company maintains strong liquidity through cash flow and debt, funding operations, acquisitions, and significant share repurchases Sources and Uses of Cash Cash and Cash Equivalents (Year-End) | Category | December 31, 2021 ($K) | December 31, 2020 ($K) | | :------- | :--------------------- | :--------------------- | | U.S. | 2,632 | 248,374 | | Foreign | 141,822 | 135,554 | | Total| 144,454 | 383,928 | Net Cash Provided (Used) by Activities (2021 vs 2020) | Activity | 2021 ($K) | 2020 ($K) | Dollar Change ($K) | | :-------------------------------- | :---------- | :---------- | :----------------- | | Net cash provided by operating activities | 755,546 | 648,063 | 107,483 | | Net cash used by investing activities | (292,967) | (109,376) | (183,591) | | Net cash used by financing activities | (697,414) | (248,416) | (448,998) | | Net effect of changes in exchange rates on cash | (4,639) | 3,331 | (7,970) | | Net change in cash and cash equivalents | (239,474) | 293,602 | (533,076) | - The increase in operating cash flow was primarily due to higher net income, partially offset by changes in other assets and liabilities (e g, higher payroll/income tax payments, incentive payments, and investments in customer commitment programs)[290][291] - Cash used in investing activities increased significantly due to business acquisitions completed in 2021, including a cloud-based veterinary software business[293] - Cash used in financing activities increased primarily due to higher common stock repurchases (resumed in Q1 2021 after suspension in 2020) and the repayment of $50 million 2021 Series A Notes[295][296] - The $1.0 billion unsecured revolving Credit Facility was amended and extended to December 2026, with $925.1 million remaining borrowing availability at December 31, 2021[286][297] Off-Balance Sheet Arrangements - IDEXX has no off-balance sheet arrangements or variable interest entities, except for letters of credit and third-party guarantees[302] Financial Covenant - The consolidated leverage ratio (debt to Adjusted EBITDA) covenant requires the ratio not to exceed 3.5-to-1 At December 31, 2021, the ratio was 0.86, indicating compliance[303] Consolidated Leverage Ratio Calculation (Dec 31, 2021) | Metric | Amount ($K) | | :---------------------------------------- | :---------- | | Net income attributable to stockholders | 744,845 | | Interest expense | 29,808 | | Provision for income taxes | 157,810 | | Depreciation and amortization | 104,596 | | Acquisition-related expense | 4,127 | | Share-based compensation expense | 37,755 | | Extraordinary and other non-recurring non-cash charges | 5,148 | | Adjusted EBITDA | 1,084,089 | | Line of credit | 73,500 | | Current and long-term portion of long-term debt | 850,201 | | Total debt | 923,701 | | Acquisition-related consideration payable | 10,708 | | Financing leases | 14 | | Deferred financing costs | 510 | | Gross debt | 934,933 | | Gross debt to Adjusted EBITDA ratio | 0.86 | | Cash and cash equivalents | (144,454) | | Net debt | 790,479 | | Net debt to Adjusted EBITDA ratio | 0.73 | Commitments, Contingencies and Guarantees - IDEXX has minimum purchase obligations of approximately $377.1 million due in 2022 and $44.3 million beyond 2022[306] - An accrual of $27.5 million was established in Q3 2020 for an ongoing litigation matter involving an alleged breach of contract for underpayment of royalty payments[539] - The remaining obligation for the deemed repatriation tax from the Tax Cut and Jobs Act of 2017 is $27.0 million, with final installment due in 2025[308] ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk IDEXX manages market risks from foreign currency, interest rates, and inflation through hedging and operational strategies Interest Rate Risk and Effects of Inflation Estimated Foreign Currency Exchange Impact on Financials (2021 vs Prior Years) | Metric | 2021 ($K) | 2020 ($K) | 2019 ($K) | | :------------------------------------------------------------------ | :-------- | :-------- | :-------- | | Revenue increase (decrease) | 46,001 | 1,301 | (38,624) | | Operating profit increase (decrease), excluding hedge activity and exchange impacts on settlement of foreign currency denominated transactions | 28,557 | 887 | (18,989) | | Hedge gains (losses) - current period | (7,121) | 829 | 10,628 | | Exchange gains (losses) on settlements of foreign currency denominated transactions - current period | (2,111) | 699 | (1,116) | | Operating profit increase (decrease) - current period | 19,325 | 2,415 | (9,477) | | Operating profit increase (decrease) - as compared to prior period | 17,797 | (7,097) | (5,343) | | Diluted earnings per share increase (decrease) - as compared to prior period | 0.16 | (0.06) | (0.05) | - A 1% strengthening of the U S dollar is projected to reduce 2022 revenue by approximately $12 million and operating income by approximately $7 million, with hedge contracts providing incremental offsetting gains of about $3 million[312] - The company's Credit Facility bears interest at variable rates (e g, LIBOR-based), exposing it to interest rate risk Inflationary cost increases have been offset by net realized annual price increases and productivity gains in recent years[319][320] ITEM 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements and related notes, which are presented as a separate section of the report starting on page F-1 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable, indicating no changes in or disagreements with accountants on accounting and financial disclosure ITEM 9A. Controls and Procedures Management concluded that IDEXX's disclosure controls and internal control over financial reporting were effective as of year-end 2021 Disclosure Controls and Procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021[323] Report of Management on Internal Control Over Financial Reporting - Management concluded that IDEXX's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[328] - The effectiveness of internal control over financial reporting was audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm[329] Changes in Internal Control Over Financial Reporting - There were no changes in internal control over financial reporting during the three months ended December 31, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[330] Certifications - Certifications from the Principal Executive Officer and Principal Financial Officer regarding disclosure controls and procedures and internal control over financial reporting are attached as Exhibits 31 1 and 31 2[331] ITEM 9B. Other Information This item is not applicable and contains no other information ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable, indicating no foreign jurisdictions prevent inspections PART III ITEM 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement ITEM 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership and equity compensation plans is incorporated by reference from the 2022 Proxy Statement ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the 2022 Proxy Statement ITEM 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement PART IV ITEM 15. Exhibits, Financial Statement Schedules This item lists the financial statements, schedules, and exhibits filed as part of this Form 10-K - The financial statements and consolidated financial statement schedule are filed as a separate section commencing on page F-1[342] - The exhibits listed in the accompanying Exhibit Index are filed as part of this Annual Report on Form 10-K[344] ITEM 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided Financial Statements and Supplemental Data Report of Independent Registered Public Accounting Firm PwC issued unqualified opinions on the financial statements and internal controls, identifying revenue recognition as a critical audit matter Opinions on the Financial Statements and Internal Control over Financial Reporting - PricewaterhouseCoopers LLP issued unqualified opinions on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[350][351] Basis for Opinions - The audits were conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and estimates[353][354] Definition and Limitations of Internal Control over Financial Reporting - Internal control over financial reporting is defined as a process providing reasonable assurance regarding financial reporting reliability, acknowledging its inherent limitations in preventing or detecting misstatements[355][356] Critical Audit Matters - Revenue recognition relating to customer commitment programs was identified as a critical audit matter due to significant management judgment in estimating variable consideration and the complexity in assessing audit evidence[358][359] Consolidated Balance Sheets as of December 31, 2021 and 2020 Total assets grew to $2.44 billion in 2021, driven by increases in goodwill and intangible assets Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :-------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $144,454 | $383,928 | | Accounts receivable, net | $368,348 | $331,429 | | Inventories | $269,030 | $209,873 | | Total current assets | $955,655 | $1,062,738 | | Property and equipment, net | $587,667 | $555,167 | | Goodwill | $359,345 | $243,347 | | Intangible assets, net | $99,035 | $52,543 | | Total assets | $2,437,203 | $2,294,561 | | Accounts payable | $116,140 | $74,558 | | Accrued liabilities | $458,909 | $415,648 | | Line of credit | $73,500 | — | | Current portion of long-term debt | $74,996 | $49,988 | | Total current liabilities | $763,579 | $582,761 | | Long-term debt, net | $775,205 | $858,492 | | Total liabilities | $1,747,211 | $1,661,766 | | Total stockholders' equity | $689,992 | $632,795 | Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 2019 Revenue grew to $3.22 billion in 2021, driving net income to $744.8 million and diluted EPS to $8.60 Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | 2021 | 2020 | 2019 | | :---------------------------------------- | :---------- | :---------- | :---------- | | Product revenue | $1,875,308 | $1,586,809 | $1,423,144 | | Service revenue | $1,340,052 | $1,119,846 | $983,764 | | Total revenue | $3,215,360| $2,706,655| $2,406,908| | Cost of product revenue | $656,823 | $557,795 | $506,202 | | Cost of service revenue | $669,105 | $577,820 | $535,157 | | Total cost of revenue | $1,325,928| $1,135,615| $1,041,359| | Gross profit | $1,889,432| $1,571,040| $1,365,549| | Sales and marketing | $486,735 | $434,435 | $418,193 | | General and administrative | $309,660 | $300,832 | $261,317 | | Research and development | $161,009 | $141,249 | $133,193 | | Income from operations | $932,028 | $694,524 | $552,846 | | Interest expense | $(29,808) | $(33,125) | $(31,055) | | Income before provision for income taxes | $902,654 | $661,985 | $522,218 | | Provision for income taxes | $157,810 | $79,854 | $94,426 | | Net income | $744,844 | $582,131 | $427,792 | | Net income attributable to IDEXX Laboratories, Inc. stockholders | $744,845 | $581,776 | $427,720 | | Basic EPS | $8.74 | $6.82 | $4.97 | | Diluted EPS | $8.60 | $6.71 | $4.89 | Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019 Total comprehensive income reached $745.0 million in 2021, reflecting net income and other comprehensive income adjustments Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 2021 | 2020 | 2019 | | :---------------------------------------- | :-------- | :-------- | :-------- | | Net income | $744,844 | $582,131 | $427,792 | | Other comprehensive income (loss), net of tax: | | | | | Foreign currency translation adjustments | (26,731) | 15,151 | (1,590) | | Unrealized gain (loss) on Euro-denominated notes, net of tax | 6,404 | (7,378) | 1,790 | | Unrealized gain (loss) on investments, net of tax | 146 | (382) | 267 | | Unrealized gain (loss) on derivative instruments | 20,312 | (14,824) | (4,858) | | Other comprehensive gain (loss), net of tax | 131 | (7,433) | (4,391) | | Comprehensive income | 744,975 | 574,698 | 423,401 | Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2021, 2020 and 2019 Total stockholders' equity increased to $690.0 million in 2021, driven by net income despite significant share repurchases Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2021 | December 31, 2020 | December 31, 2019 | | :---------------------------------------- | :---------------- | :---------------- | :---------------- | | Common Stock ($0.10 Par Value) | $10,688 | $10,646 | $10,571 | | Additional Paid-in Capital | $1,377,320 | $1,294,849 | $1,213,517 | | Retained Earnings | $2,920,440 | $2,175,595 | $1,595,648 | | Accumulated Other Comprehensive Loss | $(53,484) | $(53,615) | $(46,182) | | Treasury Stock, at cost | $(3,570,691) | $(2,799,890) | $(2,600,543) | | Total Stockholders' Equity | $689,992 | $632,795 | $177,825 | - Net income attributable to IDEXX Laboratories, Inc stockholders was $744.8 million in 2021, $581.8 million in 2020, and $427.7 million in 2019[372] - Repurchases of common stock, net, amounted to $(770.8) million in 2021, $(199.3) million in 2020, and $(311.6) million in 2019[372] Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 Operating cash flow increased to $755.5 million in 2021, while investing and financing activities resulted in significant cash outflows Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $755,546 | $648,063 | $459,158 | | Net cash used by investing activities | $(292,967) | $(109,376) | $(205,528) | | Net cash used by financing activities | $(697,414) | $(248,416) | $(286,409) | | Net effect of changes in exchange rates on cash | $(4,639) | $3,331 | $(689) | | Net (decrease) increase in cash and cash equivalents | $(239,474) | $293,602 | $(33,468) | | Cash and cash equivalents at end of period | $144,454 | $383,928 | $90,326 | - The increase in cash provided by operating activities in 2021 was primarily due to higher net income, partially offset by changes in other assets and liabilities[290] - Cash used by investing activities increased significantly i