10-Q 1 mlab20220930_10q.htm FORM 10-Q mlab20220930_10q.htm
0000724004 MESA LABORATORIES INC /CO false --03-31 Q2 2023 1,013 630 18,826 17,726 0 0 25,000,000 25,000,000 5,336,271 5,336,271 5,265,627 5,265,627 0.16 380,431 0.16 374,236 0.16 399,003 0.16 5,223,232 399,417 300,793 167,056 126 10 Includes $7,462 of inventory step-up, which was amortized entirely within fiscal year 2022. Our evaluation of the valuation of inventory was complete as of March 31, 2022. Customer relationships, intellectual property, and tradenames are currently expected to be amortized on a straight line basis over a weighted average 8.3 year period. The identified intangible assets will be amortized on a straight line basis over their useful lives, which approximates the pattern over which the assets' economic benefits are expected to be consumed over time. Amortization expense for customer relationships and tradenames will be amortized to general and administrative expenses; amortization expense for intellectual property will be recorded to cost of revenues. During the period from October 20, 2021 until March 31, 2022, $6,728 of amortization expense was recorded to general and administrative costs and $2,538 of amortization expense was recorded to cost of revenues in the Clinical Genomics Division, including the cumulative effect catch up. Our valuation of intangible assets is considered to be complete as of March 31, 2022. Going forward, we expect to record amortization expense of $3,668 and $1,419 to general and administrative costs and costs of revenues, respectively, each quarter. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other. Acquired goodwill of $140,022, all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from the value of expanded market opportunities, expected synergies, and assembled workforce, none of which qualify as amortizable intangible assets. The goodwill acquired is not deductible for income tax purposes. During the three months ended June 30, 2022, the fiscal year 2020 PSUs vested and were paid at 126% of target, based on actual performance results and completion of service conditions. Balances for performance-based restricted stock units ("PSUs") are reflected at target. Trade receivables, net, which is expected to be collected. Accumulated Other Comprehensive Income (Loss). Revenues in the Clinical Genomics division represent transactions subsequent to the Agena Acquisition on October 20, 2021. 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Table of Contents

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 


 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___ to ___

 

Commission File No: 0-11740

 


 

MESA LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

 

 

Colorado

 

84-0872291

 
 

(State or other jurisdiction of

 

(I.R.S. Employer

 
 

incorporation or organization)

 

Identification number)

 
     
 

12100 West Sixth Avenue

   
 

Lakewood, Colorado

 

80228

 
 

(Address of principal executive offices)

 

(Zip Code)

 

 

Registrant’s telephone number, including area code: (303) 987-8000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading SymbolName on each exchange on which registered
Common Stock, no par valueMLABThe Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No ☒

 

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date:

 

There were 5,336,807 shares of the Issuer’s common stock, no par value, outstanding as of October 27, 2022.

 



 

 



 

Table of Contents

 

 

 

Part I. Financial Information

1
   
 

Item 1. Financial Statements

1
 

Condensed Consolidated Balance Sheets

1
 

Condensed Consolidated Statements of Operations

2
 

Condensed Consolidated Statements of Comprehensive (Loss) Income

3
 

Condensed Consolidated Statements of Cash Flows

4
 

Condensed Consolidated Statements of Stockholders’ Equity

5
 

Notes to Condensed Consolidated Financial Statements

6
 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

15
 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

20
 

Item 4.  Controls and Procedures

21
     

Part II. Other Information

22
   
 

Item 1.  Legal Proceedings

22
 

Item 1A.  Risk factors

22
 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

22
 

Item 6.  Exhibits

23
 

Signatures

24
 

Exhibit 31.1 Certifications Pursuant to Rule 13a-14(a)

 
 

Exhibit 31.2 Certifications Pursuant to Rule 13a-14(a)

 
 

Exhibit 32.1 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350

 
 

Exhibit 32.2 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350

 

 

 

 

Part I. Financial Information

 

Item 1. Financial Statements

 

Mesa Laboratories, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(dollars in thousands, except share amounts)

 

  

September 30,

  

March 31,

 
  

2022

  

2022

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $32,377  $49,346 

Accounts receivable, less allowance for doubtful accounts of $1,013 and $630, respectively

  41,809   41,224 

Inventories

  28,039   24,606 

Prepaid expenses and other

  14,035   9,142 

Total current assets

  116,260   124,318 

Property, plant and equipment, net of accumulated depreciation of $18,826 and $17,726, respectively

  28,222   28,620 

Deferred tax asset

  647   1,318 

Other assets

  10,825   11,830 

Intangibles, net

  222,271   250,117 

Goodwill

  278,006   291,166 

Total assets

 $656,231  $707,369 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $7,738  $7,897 

Accrued payroll and benefits

  7,481   14,717 

Unearned revenues

  13,831   13,830 

Other accrued expenses

  12,456   11,611 

Total current liabilities

  41,506   48,055 

Deferred tax liability

  36,847   39,224 

Other long-term liabilities

  6,826   7,924 

Credit Facility

  27,000   49,000 

Convertible senior notes, net of discounts and debt issuance costs

  169,816   169,365 

Total liabilities

  281,995   313,568 

Stockholders’ equity:

        

Common stock, no par value; authorized 25,000,000 shares; issued and outstanding, 5,336,271 and 5,265,627 shares, respectively

  324,905   313,460 

Retained earnings

  74,848   76,675 

Accumulated other comprehensive (loss) income

  (25,517)  3,666 

Total stockholders’ equity

  374,236   393,801 

Total liabilities and stockholders’ equity

 $656,231  $707,369 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Revenues

 $58,749  $35,840  $109,202  $70,760 

Cost of revenues

  22,363   12,700   41,475   25,409 

Gross profit

  36,386   23,140   67,727   45,351 

Operating expenses:

                

Selling

  9,200   4,643   19,223   9,501 

General and administrative

  18,202   11,683   38,414   23,102 

Research and development

  4,989   2,613   10,689   5,424 

Total operating expenses

  32,391   18,939   68,326   38,027 

Operating income (loss)

  3,995   4,201   (599)  7,324 

Nonoperating expense (income):

                

Interest expense and amortization of debt discount

  1,214   815   2,228   1,629 

Other (income), net

  (603)  (1,157)  (799)  (266)

Total nonoperating expense (income)

  611   (342)  1,429   1,363 

Earnings (loss) before income taxes

  3,384   4,543   (2,028)  5,961 

Income tax provision (benefit)

  2,078   823   (1,896)  246 

Net income (loss)

 $1,306  $3,720  $(132) $5,715 
                 

Earnings (loss) per share:

                

Basic

 $0.25  $0.71  $(0.02) $1.10 

Diluted

 $0.24  $0.70  $(0.02) $1.07 
                 

Weighted-average common shares outstanding:

                

Basic

  5,323   5,211   5,298   5,182 

Diluted

  5,364   5,344   5,298   5,324 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(unaudited)

(in thousands) 

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net income (loss)

 $1,306  $3,720  $(132) $5,715 

Other comprehensive (loss) income:

                

Foreign currency translation adjustments

  (13,226)  (6,503)  (29,183)  (1,132)

Comprehensive (loss) income

 $(11,920) $(2,783) $(29,315) $4,583 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

  

Six Months Ended September 30,

 
  

2022

  

2021

 

Cash flows from operating activities:

        

Net (loss) income

 $(132) $5,715 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

        

Depreciation and amortization

  16,189   8,849 

Stock-based compensation expense

  7,803   4,236 

Non-cash interest and debt amortization

  452   443 

Deferred taxes

  (908)  - 

Other

  (636)  (224)

Cash (used in) provided by changes in operating assets and liabilities:

        

Accounts receivable, net

  (2,657)  1,065 

Inventories

  (4,065)  (808)

Prepaid expenses and other assets

  (3,052)  (1,473)

Accounts payable

  243   (167)

Accrued liabilities and taxes payable

  (5,869)  (4,596)

Unearned revenues

  378   983 

Net cash provided by operating activities

  7,746   14,023 

Cash flows from investing activities:

        

Purchases of property, plant and equipment

  (1,864)  (1,591)

Net cash (used in) investing activities

  (1,864)  (1,591)

Cash flows from financing activities:

        

Payments of debt

  (22,000)  - 

Dividends

  (1,695)  (1,658)

Proceeds from the exercise of stock options

  3,642   3,081 

Net cash (used in) provided by financing activities

  (20,053)  1,423 

Effect of exchange rate changes on cash and cash equivalents

  (2,798)  574 

Net (decrease) increase in cash and cash equivalents

  (16,969)  14,429 

Cash and cash equivalents at beginning of period

  49,346   263,865 

Cash and cash equivalents at end of period

 $32,377  $278,294 

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(dollars in thousands, except per share data)

 

 

 

  

Common Stock

             
  

Number of Shares

  

Amount

  

Retained Earnings

  

AOCI*

  

Total

 

March 31, 2022

  5,265,627  $313,460  $76,675  $3,666  $393,801 

Exercise of stock options and vesting of restricted stock units

  31,681   1,436   -   -   1,436 

Dividends paid, $0.16 per share

  -   -   (843)  -   (843)

Stock-based compensation expense

  -   3,432   -   -   3,432 

Foreign currency translation

  -   -   -   (15,957)  (15,957)

Net (loss)

  -   -   (1,438)  -   (1,438)

June 30, 2022

  5,297,308  $318,328  $74,394  $(12,291) $380,431 

Exercise of stock options and vesting of restricted stock units

  38,963   2,206   -   -   2,206 

Dividends paid, $0.16 per share

  -   -   (852)  -   (852)

Stock-based compensation expense

  -   4,371   -   -   4,371 

Foreign currency translation

  -   -   -   (13,226)  (13,226)

Net income

  -   -   1,306   -   1,306 

September 30, 2022

  5,336,271  $324,905  $74,848  $(25,517) $374,236 

 

 

  

Common Stock

             
  

Number of Shares

  

Amount

  

Retained Earnings

  

AOCI*

  

Total

 

March 31, 2021

  5,140,568  $317,652  $72,459  $16,116  $406,227 

Exercise of stock options and vesting of restricted stock units

  58,324   1,089   -   -   1,089 

Dividends paid, $0.16 per share

  -   -   (824)  -   (824)

Stock-based compensation expense

  -   2,197   -   -   2,197 

Foreign currency translation

  -   -   -   5,371   5,371 

Cumulative adjustment due to adoption of ASU No. 2020-06

  -   (22,735)  5,683   -   (17,052)

Net income

  -   -   1,995   -   1,995 

June 30, 2021

  5,198,892  $298,203  $79,313  $21,487  $399,003 

Exercise of stock options and vesting of restricted stock units

  24,340   1,992   -   -   1,992 

Dividends paid, $0.16 per share

  -   -   (834)  -   (834)

Stock-based compensation expense

  -   2,039   -   -   2,039 

Foreign currency translation

  -   -   -   (6,503)  (6,503)

Net income

  -   -   3,720   -   3,720 

September 30, 2021

  5,223,232  $302,234  $82,199  $14,984  $399,417 

 

*Accumulated Other Comprehensive (Loss) Income.

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

Mesa Laboratories, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(dollar and share amounts in thousands, unless otherwise specified)

 

 

 

Note 1. Description of Business and Summary of Significant Accounting Policies

 

Description of Business

 

In this quarterly report on Form 10-Q, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries is collectively referred to as “we,” “us,” “our,” the “Company” or “Mesa.”

 

We are a multinational manufacturer, developer, and seller of life science tools and critical quality control products and services, many of which are sold into niche markets that are driven by regulatory requirements. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.

 

As of September 30, 2022, we managed our operations in four reportable segments, or divisions:

 

 Clinical Genomics - develops, manufactures, and sells highly sensitive, low-cost, high-throughput genetic analysis tools used by clinical labs to perform genomic clinical testing in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics and oncology related applications.
 

Sterilization and Disinfection Control - manufactures and sells biological, cleaning, and chemical indicators which are used to assess the effectiveness of sterilization and disinfection processes in the hospital, medical device, and pharmaceutical industries. The division also provides testing and laboratory services, mainly to the dental industry. 

 

Biopharmaceutical Development - develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic drugs. 

 

Calibration Solutions - develops, manufactures, and sells quality control and calibration products used to measure or calibrate temperature, pressure, pH, humidity, and other chemical or physical parameters for health and safety purposes, primarily in hospital, medical device manufacturing, pharmaceutical manufacturing, and various laboratory environments. 

 

Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.

 

Basis of Presentation

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. In the opinion of management, such unaudited information includes all adjustments, consisting of normal recurring adjustments necessary for the fair statement of our financial position and results of operations. The results of operations for the interim periods are not necessarily indicative of results that may be achieved for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. We made no material changes to the application of our significant accounting policies that were disclosed in our Form 10-K. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended  March 31, 2022.

 

Our fiscal year ends on March 31. References in this Quarterly Report to a particular “year” or “year-end” mean our fiscal year, references to the first quarter of fiscal year 2023 refer to the period from April 1, 2022 through June 30, 2022, and references to the second quarter of fiscal year 2023 refer to the period from July 1, 2022 through September 30, 2022. References to “fiscal year 2022” refer to the fiscal year ended March 31, 2022, and to “fiscal year 2023” refer to the fiscal year ending March 31, 2023.

 

Prior Period Reclassification

 

Certain amounts presented for prior periods related to the Biopharmaceutical Development division in Note 3. "Revenue Recognition" have been reclassified out of revenues from consumables and into revenues from hardware and services. These reclassifications have not resulted in any change to the Condensed Consolidated Financial Statements for and periods presented in this Form 10-Q.

 

Risks and Uncertainties

 

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management's judgement about the outcome of future events. The business and economic uncertainty resulting from the novel coronavirus pandemic ("COVID-19"), supply chain challenges, cost pressure and the overall effects of the current high inflation environment on customers' purchasing patterns has made such estimates more difficult to calculate. Accordingly, actual results could differ from those estimates.

 

Page 6

 

Recently Issued Accounting Pronouncements

 

We have reviewed all recently issued accounting pronouncements and have concluded that they are either not applicable to us or are not expected to have a significant impact on our consolidated financial statements.

 

 

Note 2. Significant Transactions

 

On October 20, 2021, we completed the acquisition of Agena Bioscience, Inc. (“Agena”) for $300,793, net of cash acquired but inclusive of working capital adjustments (the “Agena Acquisition”). The Agena Acquisition aligned with our overall acquisition strategy, moved our business towards the life sciences tools sector, and expanded our market opportunities, particularly in Asia. Agena is a leading clinical genomics tools company that develops, manufactures, markets, and supports proprietary instruments and related consumables and services that enable genetic analysis for a broad range of diagnostic and research applications. Using Agena's MassARRAY® instruments and chemical reagent solutions, customers can analyze DNA samples for a variety of high volume clinical testing applications, such as inherited genetic disease testing, pharmacogenetics, various oncology tests, infectious disease testing, and other highly differentiated applications.

 

We funded the acquisition and transactions relating thereto with cash on hand and borrowings under the Credit Facility (as defined below). Of the cash consideration we paid, approximately $267,000 represented cash consideration to holders of Agena’s preferred and common stock, approximately $2,000 represented cash consideration paid for the settlement of Agena’s warrants, and approximately $31,800 represented cash consideration for the settlement of Agena's vested stock options as of the closing date.

 

Agena Preliminary Purchase Price Allocation

 

During the three months ended September 30, 2022, we continued analyses of the valuation of net assets acquired in the Agena Acquisition. This preliminary purchase price allocation is subject to revision as more detailed analyses are completed with respect to prepaid taxes, tax accruals, and deferred tax positions.

 

The following table summarizes the allocation of the purchase price as of October 20, 2021:

 

  

Life (in years)

 

Amount

 

Cash and cash equivalents

    $7,544 

Accounts receivable

     11,100 

Other current assets

     25,480 

Total current assets

     44,124 

Property, plant and equipment/noncurrent assets

     15,832 

Deferred tax asset

     811 

Intangible assets:

       

Goodwill

  N/A  136,260 

Customer relationships

  12  103,800 

Intellectual property

  8  45,400 

Tradenames

  12  15,700 

Total Assets acquired

    $361,927 
        

Accounts payable

     2,174 

Unearned revenues

     2,713 

Other current liabilities

     12,217 

Total current liabilities

     17,104 

Deferred tax liability

     28,223 

Other noncurrent liabilities

     8,263 

Total liabilities assumed

    $53,590 

Total purchase price, net of cash acquired

    $300,793 

 

Acquired Goodwill

 

Acquired goodwill of $136,260, all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from expanded market opportunities, expected synergies, and assembled workforce, none of which qualify as amortizable intangible assets. The goodwill acquired is not deductible for income tax purposes.

 

Page 7

 

Unaudited Pro Forma Information

 

The following unaudited pro forma financial information presents the combined results of operations of Mesa and Agena as if the acquisition had occurred on April 1, 2021 after giving effect to certain pro forma adjustments. 

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Pro forma total revenues

 $58,749  $53,521  $109,202  $107,074 

Pro forma net income

  1,504   1,916   329   4,437 

 

The pro forma financial information includes adjustments that are directly attributable to the business combinations and are factually supportable. The pro forma adjustments include incremental amortization of intangible assets, additional stock-based compensation expense for key Agena employees, the removal of interest expense attributable to Agena’s external debt that was paid off as part of the acquisition, and the pro forma tax impact for such adjustments. Cost savings or operating synergies expected to result from the acquisition are not included in the pro forma results. For the three and six months ended September 30, 2022, the pro forma financial information excludes $267 and $623 of non-recurring acquisition-related expenses, respectively. These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.

  

 

Note 3. Revenue Recognition

 

We develop, manufacture, market, sell and maintain life sciences tools and quality control instruments and related software, consumables, and services.

 

Sales of hardware, such as instruments used for molecular and genetic analysis, protein synthesizers, medical meters, wireless sensor systems, and data loggers are generally driven by our acquisition of new customers, growth of existing customers, or customers replacing existing equipment. Hardware sales  may be offered with accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function. We also offer discrete and ongoing service and maintenance contracts on our instruments.

 

Consumables are typically used on a one-time basis and require frequent replacement in our customers' operating cycles. Consumables such as reagents used for molecular and genetic analysis or solutions used for protein synthesis are critical to the ongoing use of our instruments. Consumables such as biological indicator test strips are used on a standalone basis.

 

We evaluate our revenues internally based on operating segment, the timing of revenue generation, and the nature of goods and services provided. Typically, discrete revenue is recognized upon shipment of a product or upon completion of a service, while contracted revenue is recognized over a period of time reflective of the performance obligation period in the applicable contract. The significant majority of our revenues and related receivables are generated from contracts with customers that are 12 months or less in duration.

 

The following tables present disaggregated revenues for the three and six months ended September 30, 2022 and 2021, respectively:

 

  

Three Months Ended September 30, 2022

 
  

Clinical Genomics

  

Sterilization and Disinfection Control

  

Biopharmaceutical Development

  

Calibration Solutions

  

Total

 

Discrete Revenues

                    

Consumables

 $11,366  $14,704  $4,000  $865  $30,935 

Hardware and Software

  5,527   218   5,988   5,980   17,713 

Services

  374   543   995   3,587   5,499 

Contracted Revenues

                    

Services and Software

  1,168   1,499   1,161   774   4,602 

Total Revenues

 $18,435  $16,964  $12,144  $11,206  $58,749 

 

  

Three Months Ended September 30, 2021

 
  

Clinical Genomics*

  

Sterilization and Disinfection Control

  

Biopharmaceutical Development

  

Calibration Solutions

  

Total

 

Discrete Revenues

                    

Consumables

 $-  $11,985  $3,717  $860  $16,562 

Hardware and Software

  -   85   4,942   6,548   11,575 

Services

  -   493   864   2,981   4,338 

Contracted Revenues

                    

Services and Software

  -   1,470   1,032   863   3,365 

Total Revenues

 $-  $14,033  $10,555  $11,252  $35,840 

 

  

Six Months Ended September 30, 2022

 
  

Clinical Genomics

  

Sterilization and Disinfection Control

  

Biopharmaceutical Development

  

Calibration Solutions

  

Total

 

Discrete Revenues

                    

Consumables

 $22,276  $26,932  $7,664  $1,719  $58,591 

Hardware and Software

  7,632   524   10,812   11,673   30,641 

Services

  902   1,308   2,180   6,248   10,638 

Contracted Revenues

                    

Services and Software

  2,130   2,974   2,455   1,773   9,332 

Total Revenues

 $32,940  $31,738  $23,111  $21,413  $109,202 

 

  

Six Months Ended September 30, 2021

 
  

Clinical Genomics*

  

Sterilization and Disinfection Control

  

Biopharmaceutical Development

  

Calibration Solutions

  

Total

 

Discrete Revenues

                    

Consumables

 $-  $24,861  $7,489  $1,812  $34,162 

Hardware and Software

  -   245   8,335   13,630   22,210 

Services

  -   1,194   1,446   5,216   7,856 

Contracted Revenues

                    

Services and Software

  -   2,883   2,162   1,487   6,532 

Total Revenues

 $-  $29,183  $19,432  $22,145  $70,760 

 

*Revenues in the Clinical Genomics division represent transactions subsequent to the Agena Acquisition on October 20, 2021. 

 

Page 8

 

Revenues from external customers are attributed to individual countries based upon the locations to which the products are shipped or exported, or the locations where services are performed, as follows:

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

United States

 $30,989  $19,384  $60,111  $37,839 

China

  7,480   1,552   11,177   3,717 

Other

  20,280   14,904   37,914   29,204 

Total revenues

 $58,749  $35,840  $109,202  $70,760 

 

Other than China, no foreign country exceeds 10% of total revenues.

 

Contract Balances

Our contracts have varying payment terms and conditions. Some customers prepay for products and services, resulting in unearned revenues or customer deposits, called contract liabilities. Short-term contract liabilities are included within other accrued expenses and unearned revenues in the accompanying Condensed Consolidated Balance Sheets, and long-term contract liabilities are included within other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.

 

A summary of contract liabilities is as follows:

 

Contract liabilities as of March 31, 2022

 $15,069 

Prior year liabilities recognized in revenues during the six months ended September 30, 2022

  (3,087)

Contract liabilities added during the six months ended September 30, 2022, net of revenues recognized

  4,284 

Contract liabilities balance as of September 30, 2022

 $16,266 

 

Contract liabilities primarily relate to service contracts with original expected service durations of 12 months or less and will be recognized to revenue as time passes.

 

 

Note 4. Fair Value Measurements

 

Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable, and debt. Due to their short-term nature, the carrying values for cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate fair value. We measure our cash equivalents at fair value using quoted market prices in an active market, and we classify them within Level 1 of the fair value hierarchy. 

 

Historically, the financial instruments that subject us to the highest concentration of credit risk are cash and cash equivalents and accounts receivable. It is our policy to invest in highly liquid cash equivalent financial instruments with high credit ratings and to maintain low single issuer exposure (except U.S. treasuries). Concentration of credit risk with respect to accounts receivable is limited to customers to which we make significant sales. We reserve an allowance for potential write-offs of accounts receivable using historical collection experience and current and expected future economic and market conditions, but we have not written off any significant accounts to date. To manage credit risk, we consider the creditworthiness of new and existing customers, and we regularly review outstanding balances and payment histories. We  may require pre-payments from customers under certain circumstances and  may limit future purchases until payments are made on past due amounts.

 

We have outstanding $172,500 aggregate principal of 1.375% convertible senior notes due  August 15, 2025 (the "Notes"). We estimate the fair value of the Notes based on the last actively traded price or observable market input preceding the end of the reporting period and the fair value is approximately correlated to our stock price. The estimated fair value and carrying value of the Notes were as follows:

 

   

September 30, 2022

   

March 31, 2022

 
   

Carrying Value

   

Fair Value (Level 2)

   

Carrying Value

   

Fair Value (Level 2)

 

Notes

  $ 169,816     $ 143,930     $ 169,365     $ 185,438  

 

Assets recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a nonrecurring basis include items such as property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired. Fair values assigned to assets acquired and liabilities assumed in the Agena Acquisition, except deferred revenues, were measured using Level 3 inputs. There were no transfers between the levels of the fair value hierarchy during the three and six months ended September 30, 2022 or 2021, respectively.

 

Page 9

 
 

Note 5. Supplemental Balance Sheets Information

 

Inventories consist of the following:

 

   

September 30, 2022

   

March 31, 2022

 

Raw materials

  $ 16,433     $ 14,172  

Work in process

    1,833       4,419  

Finished goods

    9,773       6,015  

Total inventories

  $ 28,039     $ 24,606  

 

Prepaid expenses and other consist of the following:

 

   

September 30, 2022

   

March 31, 2022

 

Prepaid expenses

  $ 3,364     $ 2,871  

Deposits

    2,787       1,410  

Prepaid income taxes

    4,343       2,536  

Other current assets

    3,541       2,325  

Total prepaid expenses and other

  $ 14,035     $ 9,142  

 

Accrued payroll and benefits consist of the following:

 

   

September 30, 2022

   

March 31, 2022

 

Bonus payable

  $ 3,348     $ 7,468  

Wages and paid-time-off payable

    2,081       3,677  

Payroll related taxes

    1,349       2,069  

Other benefits payable

    703       1,503  

Total accrued payroll and benefits

  $ 7,481     $ 14,717  

 

 

Note 6. Goodwill and Intangible Assets, Net

 

Finite-lived intangible assets consist of the following:

 

   

September 30, 2022

   

March 31, 2022

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

 

Customer relationships

  $ 228,914     $ (73,566 )   $ 155,348     $ 244,157     $ (67,469 )   $ 176,688  

Intellectual property

    64,230       (15,762 )     48,468       65,893       (12,620 )     53,273  

Other intangibles

    24,323       (5,868 )     18,455       25,350       (5,194 )     20,156  

Total

  $ 317,467     $ (95,196 )   $ 222,271     $ 335,400     $ (85,283 )   $ 250,117  

 

Amortization expense for finite-lived intangible assets acquired in a business combination was as follows:

 

   

Three Months Ended September 30,

   

Six Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Amortization in cost of revenues

  $ 1,691     $ 322     $ 3,399     $ 650  

Amortization in general and administrative expense

    5,415       3,435       11,027       6,923  

Total

  $ 7,106     $ 3,757     $ 14,426     $ 7,573  

 

For the following fiscal years ending March 31, amortization expense is estimated as follows:

 

Remainder of 2023

 

14,030

 

2024

 

27,550

 

2025

 

25,986

 

2026

 

25,247

 

2027

 

24,764

 

 

The change in the carrying amount of goodwill was as follows:

 

  

Clinical Genomics

  

Sterilization and Disinfection Control

  

Biopharmaceutical Development

  

Calibration Solutions

  

Total

 

March 31, 2022

 $135,914  $29,750  $88,265  $37,237  $291,166 

Effect of foreign currency translation

  (395)  (894)  (12,145)  (106)  (13,540)

Goodwill related to Agena acquisition

  380   -   -   -   380 

September 30, 2022

 $135,899  $28,856  $76,120  $37,131  $278,006 

 

 

Note 7. Indebtedness

 

Credit Facility

We maintain a senior credit facility (the “Credit Facility”) that includes 1) a revolving credit facility in an aggregate principal amount of up to $75,0002) a swingline loan in an aggregate principal amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500.  The Credit Facility matures in March 2025. The Credit Facility also provides for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender considerations. As of September 30, 2022, we had $27,000 outstanding under the Credit Facility. 

 

Amounts borrowed under the Credit Facility bear interest at either a base rate or a Eurodollar rate, plus an applicable spread. The weighted average interest rate on borrowing under our line of credit was 4.9% and 1.5% as of September 30, 2022 and March 31, 2022, respectively. We are obligated to pay quarterly unused commitment fees of between 0.15% and 0.35% of the Credit Facility’s aggregate principal amount, based on our leverage ratio. 

 

Page 10

 

The financial covenants in the Credit Facility include a maximum leverage ratio of 5.0 to 1.0 for the period ended September 30, 2022, except that we  may have a leverage ratio of 5.75 to 1.0 for a period of four consecutive quarters following a permitted acquisition. The Credit Facility also stipulates a minimum fixed charge coverage ratio of 1.25 to 1.0. Other covenants include restrictions on our ability to incur debt, grant liens, make fundamental changes, engage in certain transactions with affiliates, or conduct asset sales. As of  September 30, 2022, we were in compliance with all covenants.

 

In October 2022, we repaid $2,000 of the outstanding balance on our Credit Facility.

 

Convertible Notes 

On August 12, 2019, we issued an aggregate principal amount of $172,500 of Notes. The net proceeds from the Notes, after deducting underwriting discounts and commissions and other related offering expenses payable by us, were approximately $167,056. The Notes mature on August 15, 2025, unless earlier repurchased or converted, and bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 each year beginning on February 15, 2020. 

 

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. Our current intent is to settle conversions entirely in shares of common stock. We will reevaluate this policy from time to time as we receive conversion notices from note holders. The circumstances necessary for conversion were not met during the three months ended September 30, 2022. As of September 30, 2022, the Notes are classified as a long-term liability on our Condensed Consolidated Balance Sheets as the circumstances necessary for conversion were not satisfied as of the end of the period. The if-converted value of the Notes did not exceed the principal balance as of  September 30, 2022.

 

The net carrying amount of the Notes was as follows:

 

   

September 30, 2022

   

March 31, 2022

 

Principal outstanding

  $ 172,500     $ 172,500  

Unamortized debt issuance costs

    (2,684 )     (3,135 )

Net carrying value

  $ 169,816     $ 169,365  

 

We recognized interest expense on the Notes as follows:

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Coupon interest expense at 1.375%

 $593  $593  $1,186  $1,186 

Amortization of debt discounts and issuance costs

  227   222   452   443 

Total interest and amortization of debt issuance costs

 $820  $815  $1,638  $1,629 

 

The effective interest rate on the notes is approximately 1.9%.

 

 

Note 8. Stockholders' Equity

 

Stock-Based Compensation

During the six months ended September 30, 2022, we issued stock options, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") pursuant to the Mesa Laboratories, Inc. 2021 Equity Incentive Plan (the "2021 Equity Plan"), which authorizes the issuance of 330 shares of common stock to eligible participants.

 

Expense recognized related to stock-based compensation is as follows: 

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Stock-based compensation expense

 $4,371  $2,039  $7,803  $4,236 

Amount of income tax (benefit) recognized in earnings

  (89)  (719)  (2,081)  (3,504)

Stock-based compensation expense, net of tax

 $4,282  $1,320  $5,722  $732 

 

Stock-based compensation expense is included in cost of revenues, selling, general and administrative, and research and development expense in the accompanying unaudited Condensed Consolidated Statements of Operations.

 

Page 11

 

The following is a summary of stock option award activity for the six months ended September 30, 2022:

 

  

Stock Options

 
  

Shares Subject to Options

  

Weighted- Average Exercise Price per Share

  

Weighted-Average Remaining Contractual Life (Years)

  

Aggregate Intrinsic Value

 

Outstanding as of March 31, 2022

  202  $167.14   2.9  $18,261 

Awards granted

  42   185.57         

Awards forfeited or expired

  (6)  227.42         

Awards exercised

  (42)  101.34         

Outstanding as of September 30, 2022

  196  $183.13   3.2  $1,978 

 

The stock options granted during the six months ended September 30, 2022 vest in equal installments on the first, second, and third anniversary of the grant date.

 

The following is a summary of RSU award activity for the six months ended September 30, 2022:

 

  

Time-Based Restricted Stock Units

  

Performance-Based Restricted Stock Units

 
  

Number of Shares

  

Weighted- Average Grant Date Fair Value per Share

  

Number of Shares

  

Weighted- Average Grant Date Fair Value per Share

 

Outstanding as of March 31, 2022(1)

  51  $252.86   55  $288.45 

Awards granted(1)

  39   187.44   19   172.15 

Performance adjustment(2)

  -   -   2   202.00 

Awards forfeited

  (5)  241.94   -   - 

Awards distributed(2)

  (24)  247.29   (10)  202.00 

Outstanding as of September 30, 2022(1)

  61  $214.47   66  $265.39 

 

(1)

Balances for performance-based restricted stock units ("PSUs") are reflected at target.

(2)

During the six months ended September 30, 2022, the fiscal year 2020 PSUs vested and were distributed at 126% of target, based on actual performance results and completion of service conditions. 

 

The outstanding time-based RSUs vest and settle in shares of our common stock on a one-for-one basis. Substantially all of the RSUs granted during the six months ended September 30, 2022 vest in equal installments on the first, second, and third anniversary of the grant date. We recognize the expense relating to RSUs, net of estimated forfeitures, on a straight-line basis over the vesting period.

 

PSUs vest upon completion of the service period described in the award agreement and based on achievement of the performance targets described in the award agreements. We recognize the expense relating to the performance-based RSUs based on the probable outcome of achievement of the performance targets on a straight-line basis over the service period. 

 

During the six months ended September 30, 2022, the Compensation Committee of the Board of Directors created a plan to award 19 PSUs at target (the "FY 23 PSUs") that are subject to both service and performance conditions to eligible employees. The performance period for the FY 23 PSUs is from April 1, 2022 until March 31, 2023 and the service period is from April 1, 2022 until March 31, 2025. Of the total FY 23 PSUs granted, 13 vest based on our achievement of specific performance criteria during fiscal year 2023 and they have a grant date fair value of $185.57. The remaining 6 awards will be settled in shares of our common stock, but they are subject to performance criteria that are subjective and as such do not have a grant date. The awards will be marked-to-market each reporting period during the performance period. The quantity of shares that will be issued upon vesting will range from 0% to 200% of the targeted number of shares; if the defined minimum targets are not met, then no shares will vest.

 

During fiscal year 2020, we awarded 8 PSUs (the "FY 20 PSUs") subject to both service and performance conditions to eligible employees. The FY 20 PSUs had a grant date fair value of $202.00 per share and vested during the six months ended September 30, 2022.  Based on actual performance targets achieved, the awards vested at 126% of target, resulting in a total of 10 awards distributed. 

 

 

Note 9. Earnings (Loss) Per Share

 

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share (“diluted EPS”) is computed similarly to basic earnings (loss) per share, except that it includes the potential dilution that could occur if dilutive securities were exercised. Potentially dilutive securities include stock options and both time and performance based RSUs (collectively “stock awards”), as well as common shares underlying the Notes. Stock awards are excluded from the calculation of diluted EPS if they are subject to performance conditions that have not yet been achieved or are antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would then have an antidilutive effect. There was no dilution in our diluted EPS calculation for the six months ended September 30, 2022 as we incurred a net loss and the effect would have been antidilutive.

 

The impact of the assumed conversion of the Notes calculated under the if-converted method was antidilutive, and as such, shares underlying the Notes were excluded from the diluted EPS calculation for the three and six months ended September 30, 2022 and September 30, 2021. 

 

Page 12

 

The following table presents a reconciliation of the denominators used in the computation of basic and diluted earnings (loss) per share:

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Net income (loss) available for shareholders

 $1,306  $3,720  $(132) $5,715 

Weighted average outstanding shares of common stock

  5,323   5,211   5,298   5,182 

Dilutive effect of stock options

  27   109   -   109 

Dilutive effect of RSUs

  14   24   -   33 

Fully diluted shares

  5,364   5,344   5,298   5,324 
                 

Basic earnings (loss) per share

 $0.25  $0.71  $(0.02) $1.10 

Diluted earnings (loss) per share

 $0.24  $0.70  $(0.02) $1.07 

 

The following stock awards were excluded from the calculation of diluted EPS:

 

  

Three Months Ended September 30,

  

Six Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Assumed conversion of the Notes

  608   608   608   608 

Stock awards that were anti-dilutive

  154   43   328   40 

Stock awards subject to performance conditions

  60   8   52   8 

Total stock awards excluded from diluted EPS

  822   659   988   656 

 

 

Note 10. Income Taxes

 

For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax income. Each quarter, our estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. Additionally, the tax effects of significant unusual or infrequently occurring items are recognized as discrete items in the interim period in which the events occur. There is a potential for volatility in the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, settlement with taxing authorities, and foreign currency fluctuations.

 

Our effective income tax rate was (93.5%) for the six months ended September 30, 2022, and 4.1% for the six months ended September 30, 2021. The effective tax rate for the six months ended September 30, 2022 differed from the statutory federal rate of 21% primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictions.  The effective tax rate for the first six months of 2023 was lower than the same period in 2022 primarily due to the share based compensation and the effect of income in foreign jurisdictions.

 

 

Note 11. Commitments and Contingencies

 

We review the adequacy of our legal reserves on a quarterly basis and establish reserves for loss contingencies that are both probable and reasonably estimable. As of September 30, 2022, there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets. 

 

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Note 12. Segment Information

 

During fiscal year 2022, we realigned our financial reporting segments to reflect how management evaluates the business and allocates resources. The acquisition of Agena expanded our presence further into the life sciences tools market and provided an impetus for the creation of our new Clinical Genomics reportable segment. The strategic shift in our business also resulted in a change to the way we manage other business units, and as a result, our historical Instruments and Continuous Monitoring reportable segments have been combined to create Calibration Solutions. Prior year amounts presented have been reclassified to conform to current year presentation. Our change in financial reporting segments has not resulted in any change to previously reported consolidated amounts.

 

   

Three Months Ended September 30,

   

Six Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Revenues:

                               

Clinical Genomics

  $ 18,435     $ -     $ 32,940     $ -  

Sterilization and Disinfection Control

    16,964       14,033       31,738       29,183  

Biopharmaceutical Development

    12,144       10,555       23,111       19,432  

Calibration Solutions

    11,206       11,252       21,413       22,145  

Total revenues (a)

  $ 58,749     $ 35,840     $ 109,202     $ 70,760