# How IDEXX makes money

CXProWealth Business Lens · IDEXX (IDXX) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-04 with the SEC (accession 0000874716-26-000123): https://www.sec.gov/Archives/edgar/data/874716/000087471626000123/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $1.2B (+21.9% on the year)
- Operating income: $425.6M (operating margin 35.0%)
- Net income: $338.4M (net margin 27.8%)
- Gross margin: 64.0%
- Free cash flow: $322.5M (26.5% of revenue)
- Cash conversion (operating cash flow / net income): 1.03x
- Capital expenditure: 2.0% of revenue

## Where the money goes (Q2 FY2026)

- Product revenue → Total revenue: $718.6M
- Service revenue → Total revenue: $498.0M
- Total revenue → Cost of revenue from reportable segments: $437.5M
- Total revenue → Gross profit: $779.1M
- Gross profit → Total operating expenses: $353.5M
- Total operating expenses → Research and development: $65.4M
- Total operating expenses → Sales and marketing: $171.3M
- Total operating expenses → General and administrative: $116.8M
- Gross profit → Income from operations: $425.6M
- Income from operations → Interest expense: $10.2M
- Income from operations → Income before provision for income taxes: $415.4M
- Gain (loss) on equity investment → Income before provision for income taxes: $1.2M
- Interest income → Income before provision for income taxes: $606.0K
- Income before provision for income taxes → Provision for income taxes: $78.8M
- Income before provision for income taxes → Net income: $338.4M

## Where the revenue comes from

### Products and services (CONDENSED CONSOLIDATED STATEMENTS OF INCOME)

| Member | Value | Share |
|---|---:|---:|
| Product revenue | $718.6M | 59.1% |
| Service revenue | $498.0M | 40.9% |

The members sum to total revenue.

### Segments (REVENUE (Disaggregation of Revenue by Major Product and Service Categories) (Details))

| Member | Value | Share |
|---|---:|---:|
| CAG segment revenue | $1.1B | 91.9% |
| Water segment revenue | $58.6M | 4.8% |
| LPD segment revenue | $35.2M | 2.9% |

The members sum to total revenue.

### Regions (REVENUE (Disaggregation of Revenue by Principal Geographic Area, Based on Customers' Domiciles) (Details))

| Member | Value | Share |
|---|---:|---:|
| Europe, the Middle East and Africa | $265.5M | 21.8% |
| Asia Pacific | $101.5M | 8.3% |
| Latin America & Caribbean | $25.8M | 2.1% |

The members do not sum to total revenue.

### ConsolidationItems (REVENUE (Disaggregation of Revenue by Major Product and Service Categories) (Details))

| Member | Value | Share |
|---|---:|---:|
| Segment revenue | $1.2B | 99.6% |
| Other revenue | $4.6M | 0.4% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Total revenue | $1.2B | 100% |
|   Product revenue | $718.6M | 59.1% |
|   Service revenue | $498.0M | 40.9% |
| Cost of revenue from reportable segments | $437.5M | 36.0% |
|   Product revenue | $204.2M | 16.8% |
|   Service revenue | $233.3M | 19.2% |
| **Gross profit** | $779.1M | 64.0% |
| Sales and marketing | $171.3M | 14.1% |
| General and administrative | $116.8M | 9.6% |
| Research and development | $65.4M | 5.4% |
| **Total operating expenses** | $353.5M | 29.1% |
| **Income from operations** | $425.6M | 35.0% |
| Interest expense | ($10.2M) | 0.8% |
| Interest income | $606.0K | 0.0% |
| Gain (loss) on equity investment | $1.2M | 0.1% |
| **Income before provision for income taxes** | $417.2M | 34.3% |
| Provision for income taxes | $78.8M | 6.5% |
| **Net income** | $338.4M | 27.8% |
| Basic (in USD per share) | $4 | 0.0% |
| Diluted (in USD per share) | $4 | 0.0% |
| Basic (in shares) | 78,954,000 |  |
| Diluted (in shares) | 79,312,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | $1.0B | $172.5M | $116.2M | $143.3M | $90.0M | $53.3M |
| FY2009 | $1.0B | $176.0M | $122.2M | $175.0M | $50.7M | $124.3M |
| FY2010 | $1.1B | $203.9M | $141.3M | $178.8M | $38.9M | $139.9M |
| FY2011 | $1.2B | $236.2M | $161.8M | $217.9M | $49.7M | $168.2M |
| FY2012 | $1.3B | $262.6M | $178.3M | $222.4M | $57.6M | $164.8M |
| FY2013 | $1.4B | $266.8M | $187.8M | $246.0M | $77.6M | $168.4M |
| FY2014 | $1.5B | $260.3M | $181.9M | $235.8M | $60.5M | $175.3M |
| FY2015 | $1.6B | $299.9M | $192.1M | $221.8M | $82.9M | $138.9M |
| FY2016 | $1.8B | $350.2M | $222.0M | $338.9M | $64.8M | $274.2M |
| FY2017 | $2.0B | $413.0M | $263.1M | $373.3M | $74.4M | $298.9M |
| FY2018 | $2.2B | $491.3M | $377.0M | $400.1M | $115.8M | $284.3M |
| FY2019 | $2.4B | $552.8M | $427.7M | $459.2M | $155.0M | $304.2M |
| FY2020 | $2.7B | $694.5M | $581.8M | $648.1M | $107.0M | $541.1M |
| FY2021 | $3.2B | $932.0M | $744.8M | $755.5M | $119.5M | $636.0M |
| FY2022 | $3.4B | $898.8M | $679.1M | $543.0M | $148.8M | $394.1M |
| FY2023 | $3.7B | $1.1B | $845.0M | $906.5M | $133.6M | $772.9M |
| FY2024 | $3.9B | $1.1B | $887.9M | $929.0M | $120.9M | $808.1M |
| FY2025 | $4.3B | $1.4B | $1.1B | $1.2B | $124.7M | $1.1B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +10.4% (year before +6.5%): accelerating
- Operating income: +20.5% (year before +2.8%): accelerating
- Net income: +19.3% (year before +5.1%): accelerating
- Free cash flow: +30.8% (year before +4.6%): accelerating

## Operating figures stated in the filing

- Premium instrument installed base growth: 11.0% (as of 2026-06-30). "Volume gains were supported by increases in testing across major regions, reflecting growth in testing by existing customers, including sales of our expanded menu of available tests, and the benefits from 11% growth in our installed base of premium instruments." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Days sales outstanding: 46.2 days (as of 2026-06-30). "Days sales outstanding (1) 46.2 46.2 46.8 46.5 44.7" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Days sales outstanding: 44.7 days (as of 2025-06-30). "Days sales outstanding (1) 46.2 46.2 46.8 46.5 44.7" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Inventory turns: 1.4 ratio (as of 2026-06-30). "Inventory turns (2) 1.4 1.4 1.6 1.5 1.5" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Inventory turns: 1.5 ratio (as of 2025-06-30). "Inventory turns (2) 1.4 1.4 1.6 1.5 1.5" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Fewer instrument sales lifted the gross margin

Cost of revenue grew 5.5% against revenue growth of 9.7%, so gross margin rose to 64.0% from 62.6% as tests outgrew hardware.

Revenue rose 9.7% to $1.22B while cost of revenue rose 5.5% to $437.5M, leaving gross profit up 12.1% at $779.1M. Gross margin moved up 1.42 points to 64.0%. The filing attributes the gain to proportionally higher IDEXX VetLab consumable and reference laboratory volume growth, 'the business mix impact associated with lower premium instrument revenue', operational productivity and net price realization that offset inflationary costs. _(from the filing)_
Instrument revenue fell because placements of the IDEXX inVue Dx Analyzer were lower than in the second quarter of 2025, when the analyzer reached broad commercial availability. The filing says currency movements added only a small part of the margin gain, and that the Water and Livestock, Poultry and Dairy segments also improved. _(from the filing)_
An analyzer is sold once, often at a discount under a multi-year contract, while the tests it runs are bought every working day. A quarter with fewer placements therefore shows a richer mix. The same effect runs in reverse: a strong launch year can hold the margin down while it builds the base that later test orders draw on. _(analysis)_

### The operating margin gain came from gross margin alone

Gross margin added 1.42 points and operating expenses took 0.06 back, so operating margin rose 1.36 points to 35.0% despite administrative costs outpacing revenue.

Total operating expenses rose 9.9% to $353.5M, close to revenue growth of 9.7%, so their share of revenue edged up 0.06 points to 29.1%. Within them, sales and marketing grew 6.3% and research and development 5.7%, both slower than revenue, while general and administrative expense grew 18.4% to $116.8M. _(from the filing)_
Income from operations rose 14.1% to $425.6M from $373.0M a year earlier, and operating margin reached 35.0% from 33.6%. The filing attributes the general and administrative increase to higher personnel-related costs and 'higher depreciation and amortization related to technology and infrastructure investments'. _(from the filing)_
The quarter's leverage came from the product mix, not from the cost base. Selling and research costs scaled well; administrative cost did not. Further operating margin expansion would rest on tests continuing to outgrow instruments, or on overhead growth slowing toward revenue growth. _(analysis)_

### Revenue nearly doubled since 2018 with similar capital spending

From FY2018 to FY2025 revenue rose to $4.30B from $2.21B while capital spending moved only from $115.8M to $124.7M, and free cash flow reached $1.06B from $284.3M.

Revenue rose from $2.21B in FY2018 to $4.30B in FY2025, while capital spending fell from 5.2% of revenue to 2.9%. Operating income rose from $491.3M to $1.36B, lifting operating margin from 22.2% to 31.6%. Free cash flow rose from $284.3M to $1.06B, from 12.8% of revenue to 24.6%. _(from the filing)_
The path was not smooth. Operating income dipped in FY2022, to $898.8M from $932.0M, and free cash flow fell to $394.1M from $636.0M, before both recovered in FY2023. This quarter capital spending was 2.0% of revenue, free cash flow was $322.5M, 26.5% of revenue, and operating cash flow was 1.03 times net income. _(from the filing)_
Most growth comes from more tests run on analyzers and in laboratories that already exist, plus software and price, which need little new plant. The filing plans higher capital spending for 2026, for manufacturing and operations facilities and customer-facing software, so the low ratio describes the past rather than a fixed property of the business. _(analysis)_

### Per-share earnings grew faster than net income

Net income rose 15.1%, but diluted earnings per share rose to $4.27 from $3.63 because the diluted share count fell to 79.3 million from 81.0 million.

Net income was $338.4M against $294.0M a year earlier. Diluted shares averaged 79.3 million against 81.0 million, and basic shares 79.0 million against 80.4 million. The filing describes repurchases as a means of returning value to stockholders and of offsetting dilution from share-based compensation. _(from the filing)_
Repurchases lean partly on debt: in the first half, cash spent on repurchases exceeded cash from operations, and borrowings under the credit facility rose. Interest expense was $10.2M against $11.3M a year earlier, and the effective tax rate was 18.9% in both years. The filing expects smaller tax benefits from share-based compensation to raise future effective tax rates. _(from the filing)_
Part of the per-share growth reflects financing choices rather than the business itself. If repurchases slowed, or the tax rate rose as the filing expects, per-share growth would sit closer to net income growth. _(analysis)_

### Competitive edge

- **Placed analyzers anchor years of test orders** IDEXX often discounts or gives analyzers away for multi-year purchase commitments, and an 11% larger premium installed base fed consumables volume this quarter.
- **Clinics absorb price rises and still test more** The filing names higher realized prices alongside higher volumes in most lines, and net price realization helped gross margin reach 64.0%.
- **The same test menu reaches clinics three ways** In-clinic analyzers, reference laboratories and practice software all sit inside the Companion Animal Group, which brought in $1.12B, 91.9% of revenue.

### What to watch

- **Administrative cost grew nearly twice as fast as revenue** General and administrative expense rose 18.4% to $116.8M against revenue growth of 9.7%, taking 9.6% of revenue, up 0.71 points.
- **Fewer new analyzers could slow the recurring engine** Instrument revenue fell as inVue Dx placements lapped their launch quarter, while future consumables growth depends on the installed base that placements build.
- **Customers took longer to pay than a year ago** Days sales outstanding rose to 46.2 from 44.7 and inventory turns slowed to 1.4 from 1.5, tying more cash into each sale.

## Investor view

**Consumables and lab testing lifted IDEXX's gross margin to 64.0% in a quarter when instrument revenue fell**

### How it makes money

IDEXX sells diagnostics to veterinarians. The Companion Animal Group brought in $1.12B this quarter, 91.9% of total revenue of $1.22B. It covers in-clinic analyzers and the consumables they run, rapid assay test kits, reference laboratory testing and consulting, and practice management software and imaging. Most of it is recurring: tests that clinics order every working day. _(from the filing)_
Product revenue was $718.6M, 59.1% of the total: instruments, in-clinic consumables and test kits. Service revenue was $498.0M, 40.9%: reference laboratory testing and consulting, software subscriptions, support and imaging services. Cost of revenue was $437.5M against revenue of $1.22B. _(from the filing)_
Many clinics buy through multi-year deals. The filing says many arrangements provide customers with 'free or discounted instruments or systems upon entering into multi-year arrangements to purchase minimum annual amounts of products and services'. IDEXX also pays up-front incentives as IDEXX Points. The instrument is booked at installation and recovered as the clinic buys tests over the contract. _(from the filing)_
Two smaller segments sell outside the clinic. Water, $58.6M or 4.8% of revenue, sells tests that detect microbiological contaminants in water, led by Colilert for coliform and E. coli. Livestock, Poultry and Dairy, $35.2M or 2.9%, sells tests to manage herd and flock health and measure milk quality. By customer location, Europe, the Middle East and Africa contributed $265.5M (21.8%), Asia Pacific $101.5M (8.3%) and Latin America & Caribbean $25.8M (2.1%). _(from the filing)_
The model needs little capital. Capital spending was 2.0% of revenue this quarter, free cash flow was $322.5M, 26.5% of revenue, and operating cash flow ran at 1.03 times net income of $338.4M. _(from the filing)_

### What shifted

Revenue rose 9.7% to $1.22B from $1.11B a year earlier. The filing credits CAG Diagnostics recurring revenue, from higher volumes and higher realized prices, with volume supported by 'high customer retention rates', more testing by existing customers on an expanded menu, and new customers. Service revenue grew 10.2% and product revenue 9.3%, moving service's share up 0.2 points to 40.9%. _(from the filing)_
Instrument revenue fell while tests grew. The filing attributes the drop to lower placements of the IDEXX inVue Dx Analyzer against its broad commercial availability a year earlier. That mix helped margin: cost of revenue grew 5.5% against revenue growth of 9.7%, and gross margin reached 64.0% from 62.6%, which the filing ties to consumable and reference lab volume, 'the business mix impact associated with lower premium instrument revenue', productivity and net price realization. _(from the filing)_
General and administrative expense grew 18.4% to $116.8M, rising 0.71 points to 9.6% of revenue, on personnel costs and 'higher depreciation and amortization related to technology and infrastructure investments'. Sales and marketing grew 6.3% and research and development 5.7%, both slower than revenue. Total operating expenses rose 9.9%, below gross profit growth of 12.1%, so income from operations rose 14.1% to $425.6M and operating margin reached 35.0% from 33.6%. _(from the filing)_
Net income rose 15.1% to $338.4M. Diluted earnings per share rose to $4.27 from $3.63, faster than net income, because diluted shares fell to 79.3 million from 81.0 million as the company kept repurchasing stock. The effective tax rate was 18.9% in both years, and interest expense eased to $10.2M from $11.3M. _(from the filing)_
The small segments improved. Water revenue of $58.6M came from higher demand for Colilert products and higher prices, helped by international shipments that conflict in the Middle East had pushed out of the prior quarter. Livestock, Poultry and Dairy, at $35.2M, moved from a small segment operating loss a year earlier to a small profit, on test volume, lower per-unit costs and higher realized prices. _(from the filing)_

### Risks in the filing

The quarterly report says there have been no material changes to the risk factors in the annual report. Its forward-looking statement names the pressures it has in mind: geopolitical instability including wars and armed conflicts, general economic uncertainty, changes in U.S. and other countries' tariff and trade policies, inflation, severe weather and supply chain challenges. _(from the filing)_
Conflict in the Middle East is named directly. The filing says it could further disrupt energy markets, fuel prices, transportation networks and supply chains, particularly in Asia Pacific and Europe, which may raise operating costs and affect demand for its products and services. It had already delayed Water shipments from one quarter into the next. _(from the filing)_
Customer credit and currency. The filing says additional allowances for credit losses may be needed if customers' finances deteriorate or if a stronger U.S. dollar makes it harder for foreign customers to pay for dollar-denominated purchases. It hedges most of its currency exposure from intercompany product flows, and says some emerging market exposure is not practical to hedge. _(from the filing)_
Patents and taxes. The company receives notices alleging that its products infringe others' proprietary rights, and says that losing such a case could stop it selling certain products or require it to pay damages. It also expects reduced tax benefits from share-based compensation, which it says will increase its future effective tax rates. _(from the filing)_
Two of these risks already show, in small ways. Collection times lengthened against a year ago, and Water's administrative costs rose partly on bad debt, an early trace of the customer credit risk. The Middle East risk showed as timing, shifting Water shipments between quarters rather than losing them. Neither changed the direction of the quarter. _(analysis)_

## Founder view: mechanisms

### Placed analyzers pull recurring tests

IDEXX puts analyzers in clinics, often free or discounted in exchange for a multi-year commitment to buy a minimum amount of tests and services. The analyzer is a customer acquisition cost, recovered through the consumables run on it. Every placement adds a stream of daily purchases, and margin rises when that stream grows faster than new hardware sales, as it did this quarter. _(analysis)_

### A wider test menu sells more to the same clinic

Most of the growth comes from customers IDEXX already has. Clinics stay, run more tests, and adopt new tests added to the menu, on the analyzer and at the reference lab. Each new assay adds revenue to a relationship that is already paid for, so the cost of growth falls as the menu widens. Tests also move between channels, as pancreatic lipase testing moved from rapid kits to the Catalyst analyzer. _(analysis)_

### Price holds when the test is part of the workflow

IDEXX raises prices and keeps volume. The filing cites higher realized prices in nearly every line alongside higher volumes. A diagnostic test is a small part of what a pet owner pays for a visit, the clinic passes it on, and switching suppliers would mean retraining staff and changing analyzers and software. The limit shows in rapid assays, where price rose and volume fell. _(analysis)_

### Low capital needs turn margin into cash

Once the analyzers are placed and the labs built, each extra test costs little to deliver and little capital to support. Operating costs then grow more slowly than gross profit, and most profit arrives as cash. IDEXX uses that cash, and some borrowing, to repurchase its own shares, which reduces the share count, so earnings per share grow faster than profit. _(analysis)_

## Member research

Signed-in members read, on the page: what IDEXX's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- IDEXX 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/874716/000087471626000123/ (2026-08-04)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02