What changed in this filing

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Item 1. Financial Statements

2021-02-03 compared with 2020-11-05 · 385 added, 348 removed, 1020 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except share amounts)

September 30,

Current assets:

33 unchanged sentences

Unearned revenues

Contingent consideration

Other accrued expenses

22 unchanged sentences

Accumulated other comprehensive income (loss)

28,895  

Total stockholders’

6 unchanged sentences

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Income

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

$ 34,172  

10 unchanged sentences

62,278  

46,593  

Operating expenses:

12,614  

General and administrative

2 unchanged sentences

33,887  

26,806  

Research and development

Impairment of goodwill and long-lived assets  

Total operating expenses

3 unchanged sentences

39,697  

Operating income

Operating income (loss)

( 3,255 )  

4 unchanged sentences

Total nonoperating expense  

Earnings before income taxes

10,651  

(Loss) earnings before income taxes

( 5,727 )  

( 5,077 )  

( 2,589 )  

Income tax (benefit) expense

2 unchanged sentences

( 1,943 )  

Net (loss) income

$ ( 4,542 )  

1 unchanged sentence

$ ( 646 )  

Earnings per share:

$ 3,330  

(Loss) earnings per share:

$ ( 0.89 )  

1 unchanged sentence

$ ( 0.13 )  

$ 0.80  

( 0.89 )  

( 1.03 )  

( 0.13 )  

Weighted-average common shares outstanding:

3 unchanged sentences

(in thousands)  

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Net (loss) income

$ ( 4,542 )  

15 unchanged sentences

(in thousands)

Six Months Ended September 30,

Nine Months Ended December 31,

Cash flows from operating activities:

Net income  

Net (loss) income  

$ ( 646 )  

$ 3,330  

Adjustments to reconcile net income to net cash provided by operating activities:

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

Depreciation and amortization  

12,933  

Stock-based compensation  

3 unchanged sentences

Change in inventory reserve  

Foreign currency adjustments  

( 1,285 )  

Cash provided by changes in operating assets and liabilities

5 unchanged sentences

Accounts payable  

( 1,604 )  

Accrued liabilities and taxes payable  

1 unchanged sentence

Unearned revenues  

( 140 )  

Net cash provided by operating activities  

23,553  

18,156  

Cash flows from investing activities:

Acquisitions  

$ ( 184,102 )

Purchases of property, plant and equipment  

70 unchanged sentences

$ 392,412  

Exercise of stock options and vesting of restricted stock units  

13,590  

Dividends paid, $ 0.16 per share  

( 819 )  

Stock-based compensation  

Foreign currency translation  

21,142  

Net (loss) income  

( 4,542 )  

December 31, 2020  

5,131,031  

$ 314,537  

$ 69,363  

$ 28,895  

$ 412,795  

Number of Shares  

24 unchanged sentences

84,995  

Proceeds from conversion feature of convertible senior notes, due 2025, net of allocated costs and taxes of $ 8,338

22,735  

11 unchanged sentences

$ 230,246  

Exercise of stock options and vesting of restricted stock units  

Dividends paid, $ 0.64 per share  

( 698 )  

Stock-based compensation  

Foreign currency translation  

Net (loss) income  

( 4,504 )  

December 31, 2019  

4,370,468  

$ 156,711  

$ 74,614  

$ 3,935  

$ 235,260  

*Accumulated Other Comprehensive Income (Loss).

13 unchanged sentences

We prefer markets in which we can establish a strong presence and achieve high gross margins.

As of September 30, 2020 , we managed our operations in four  reportable segments, or divisions.

As of December 31, 2020 , we managed our operations in four  reportable segments, or divisions.

Our Sterilization and Disinfection Control division manufactures and sells biological, cleaning, and chemical indicators which are used to assess the effectiveness of sterilization and disinfection processes in the hospital, dental, medical device, and pharmaceutical industries.

14 unchanged sentences

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.

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.

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, 2020 .

8 unchanged sentences

Estimates regarding recoverability for customer receivables;

Estimates of the net realizable value for inventory.

Estimates of the net realizable value of inventory.

Immaterial Error Correction

5 unchanged sentences

108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements , we evaluated the error quantitatively and qualitatively and determined that the related impact was not material to our financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be significant to our results of operations for the three months ended September 30, 2020.

In considering the materiality, we concluded that the impact of the error correction is not material in absolute dollar amount especially since our most recent fiscal year results included various new non cash charges that reduced net income below historical levels, [nor is it qualitatively material]. Accordingly, we have revised previously reported financial information for the immaterial error.

We performed manual intercompany elimination calculations and determined that cost of revenues and accumulated other comprehensive income were overstated by $ 429  for the year ended March 31, 2020, which would increase operating income and net income by approximately $ 429  and diluted earnings per share by $0.10;

In considering the quantitative and qualitative materiality, we concluded that the impact of the error correction is not material in absolute dollar amount especially since our most recent fiscal year results included various new non-cash charges that reduced net income below historical levels. Accordingly, we have revised previously reported financial information for the immaterial error.

$429  and diluted earnings per share by $0.10;

there was no income tax impact on the full year adjustment since the inventory balance was not misstated.  To correct the immaterial error, we have restated retained earnings as of March 31, 2020.

2 unchanged sentences

$ 110  during the three months ended September 30, 2019, $ 126 during the three months ended December 31, 2019, and $ 128  during the three months ended March 31, 2020.

Additionally, during the three months ended June 30, 2020, cost of revenues were overstated by $ 372 , which after the impact of taxes would increase net income by approximately $ 192  and diluted earnings per share by $0.04.

We have restated retained earnings as of June 30, 2020 in the amount of $ 192 . The immaterial error has no impact on total cash flows from operating activities or total comprehensive income for any of the periods that were revised. 

Additionally, during the three months ended June 30, 2020, cost of revenues was overstated by $ 372 , which after the impact of taxes would increase net income by $ 192  and diluted earnings per share by $0.04.

We have restated retained earnings as of June 30, 2020 in the amount of $ 192 . The immaterial error has no impact on total cash flows or total comprehensive income for any of the periods that were revised. 

Recently Issued Accounting Pronouncements

6 unchanged sentences

The update permits the use of either the modified retrospective or fully retrospective method of transition.

We are currently evaluating the timing, method of adoption, and financial impact of the adoption of ASU 2020 - 06 on our financial statements but anticipate that subsequent to adoption, the equity conversion feature will be categorized as a liability and there will be a reduction in non-cash interest expense related to the 1.375 % convertible senior notes due August 15, 2025.

We intend to adopt the ASU effective April 1, 2021 but are still evaluating the method of adoption we will utilize.

We are continuing to evaluate the financial impact of the adoption of ASU 2020 - 06 on our financial statements but anticipate that subsequent to adoption, the equity conversion feature will be categorized as a liability and there will be a reduction in non-cash interest expense related to the 1.375 % convertible senior notes due August 15, 2025 ( the "Notes").

Non-cash interest on the equity conversion feature has contributed $ 3,510  to expense during the nine months ended December 31, 2020, which would not have been incurred under ASU 2020 - 06, which we will adopt as of April 1, 2021.

Recently Adopted Accounting Pronouncements

8 unchanged sentences

We recorded a net decrease to beginning retained earnings of $ 9  as of April 1, 2020 due to the cumulative effect of adopting Topic 326's requirement to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on our trade receivables.

As a result of the adoption of the ASU, our allowance for doubtful accounts as of September 30, 2020 reflects our best estimate of the expected future losses for our accounts receivable based on the current economic conditions. We have accounted for the macroeconomic impact of the COVID- 19 pandemic in our estimates, but due to the unprecedented nature of the impact of the pandemic, our estimates may change and future actual losses may differ from our current estimates.

We will continue to monitor economic conditions and will revise our estimate of the expected future losses for accounts receivable as necessary.  

As a result of the adoption of the ASU, our allowance for doubtful accounts as of December 31, 2020 reflects our best estimate of the expected future losses for our accounts receivable based on current economic conditions. We have accounted for the macroeconomic impact of the COVID- 19 pandemic in our estimates, but due to the unprecedented nature of the impact of the pandemic, our estimates may change and future actual losses may differ from current estimates.

We will continue to monitor economic conditions and will revise our estimate of expected future losses for accounts receivable as necessary.  

We are exposed to credit losses primarily through sales of products and services.

1 unchanged sentence

trade accounts receivables.

Customers are pooled based on sharing specific risk factors.

Due to the short-term nature of trade receivables, the estimated accounts receivable that may not be collected is based on aging of the accounts receivable balances.

Customers are pooled based on shared specific risk factors.

Due to the short-term nature of trade receivables, the estimated accounts receivable that may not be collected is based on the aging of accounts receivable balances.

Customers are assessed for credit worthiness upfront through a credit review.

We evaluate contract terms and conditions, and may require prepayment to mitigate risk of loss.

Specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.

Specific allowance amounts are established to record the appropriate provision for customers with a higher probability of default.

We monitor changes to the receivables balance on timely basis, and balances are written off as they are determined to be uncollectable after all collection efforts have been exhausted.

Estimates of potential credit losses are used to determine the allowance.

It is based on assessment of anticipated payment and all other historical, current and future information that is reasonably available.

Estimates of potential credit losses are used to determine the allowance based on assessment of anticipated payment and all other historical, current and future information reasonably available.

Revenue Recognition

1 unchanged sentence

Our consumables, such as biological indicator test strips are typically used on a standalone basis;

however, some that are used in protein synthesis and calibration solutions are also critical to the ongoing use of our instruments.

however, some such consumables used in protein synthesis and calibration solutions are also critical to the ongoing use of our instruments.

Hardware and software sales, such as medical meters, protein synthesizers, wireless sensor systems, and data loggers are generally driven by our acquisition of new customers, growth of existing customers, or customers' replacement of existing equipment.

5 unchanged sentences

Typically, discrete revenue is recognized at the shipping point or upon completion of the service, while contracted revenue is recognized over a period of time reflective of the performance obligation period in the applicable contract.

Consumables are typically used on a one -time basis requiring frequent replacement in our customer's operating cycle. Substantially all 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, 2020 and 

three and six months ended September 30, 2019 , respectively:

Three Months Ended September 30, 2020

Consumables are typically single use items requiring frequent replacement in our customers' operating cycles. Substantially all 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 nine months ended December 31, 2020 and 

three and nine months ended December 31, 2019 , respectively:

Three Months Ended December 31, 2020

Sterilization and Disinfection Control

16 unchanged sentences

$ 34,172  

Three Months Ended September 30, 2019

Three Months Ended December 31, 2019

Sterilization and Disinfection Control

6 unchanged sentences

$ 1,941  

$ 12,912  

Hardware and Software

12,109  

Contracted Revenues

4 unchanged sentences

$ 4,156  

Six Months Ended September 30, 2020

$ 31,655  

Nine Months Ended December 31, 2020

Sterilization and Disinfection Control

10 unchanged sentences

16,045  

10,518  

33,033  

11,548  

Contracted Revenues

5 unchanged sentences

$ 95,973  

Six Months Ended September 30, 2019

Nine Months Ended December 31, 2019

Sterilization and Disinfection Control

8 unchanged sentences

$ 2,415  

$ 37,241  

Hardware and Software

1 unchanged sentence

28,656  

10,815  

Contracted Revenues

5 unchanged sentences

$ 2,442  

Revenues from external customers are attributed to individual countries based upon locations to which the product is shipped or exported, as follows:

Three Months Ended September 30,

Six Months Ended September 30,

$ 83,479  

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

Three Months Ended December 31,

Nine Months Ended December 31,

United States

23 unchanged sentences

$ 7,217  

Prior year liabilities recognized in revenues during the six months ended September 30, 2020

Contract liabilities added during the six months ended September 30, 2020, net of revenues recognized

Contract liabilities balance as of September 30, 2020

Prior year liabilities recognized in revenues during the nine months ended December 31, 2020

Contract liabilities added during the nine months ended December 31, 2020, net of revenues recognized

Contract liabilities balance as of December 31, 2020

$ 8,070  

2 unchanged sentences

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, and classify them within Level 1 of the fair value hierarchy and we value them using quoted market prices in an active market. 

As of September 30, 2020  and 

We measure our cash equivalents at fair value and classify them within Level 1 of the fair value hierarchy, and we value them using quoted market prices in an active market. 

As of December 31, 2020  and 

March 31, 2020 , cash and cash equivalents on our Condensed Consolidated Balance Sheets included $ 222,819  and $ 66,735 , respectively, in a money market account.

1 unchanged sentence

"Stockholders' Equity". 

During our year ended March 31, 2020, we issued $ 172,500 aggregate principal amount of 1.375 % convertible senior notes due August 15, 2025.

During the year ended March 31, 2020 , we issued $ 172,500 aggregate principal of 1.375 % convertible senior notes due August 15, 2025.

We estimate the fair value of the Notes based on the last actively traded price or market observable input before the end of the reporting period.

The estimated fair value and carrying value of the Notes were as follows:

September 30, 2020

The estimated fair value and carrying value of the Notes are as follows:

December 31, 2020

March 31, 2020

9 unchanged sentences

 "Indebtedness." 

Assets recognized or disclosed at fair value on 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, including those that were a part of the GPT Acquisition.

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, including those that were part of the GPT Acquisition.

These assets are measured at fair value if determined to be impaired.

Preliminary fair values assigned to the assets and liabilities acquired in the GPT Acquisition were measured using Level 3 inputs, as discussed further in Note 12.

The fair values assigned to the assets and liabilities acquired in the GPT Acquisition were measured using Level 3 inputs, as discussed further in Note 12.

"Significant Transactions." There were no transfers between the levels of the fair value hierarchy during the 

six months ended September 30, 2020  or 

six months ended September 30, 2019 .

nine months ended December 31, 2020  or 

nine months ended December 31, 2019 .

Cash and cash equivalents and accounts receivables are the financial instruments that subject us to the highest concentration of credit risk.

It is our policy to invest cash equivalents in highly liquid financial instruments with high credit ratings, and low exposure to a single issuer (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, but we have not written off any significant accounts to date.

It is our policy to invest cash equivalents in highly liquid financial instruments with high credit ratings and low exposure to any single issuer (except U.S.

treasuries). Concentration of credit risk with respect to accounts receivable is limited to customers to whom we make significant sales.

We reserve an allowance for potential write-offs of accounts receivable using historical collection experience, but we have not written off any significant accounts to date.

To control credit risk, we perform regular credit evaluations of our customers’

financial condition.

Inventories, Net

Inventories consist of the following:

September 30, 2020

December 31, 2020

March 31, 2020

8 unchanged sentences

$ 14,230  

September 30, 2020 and March 31, 2020, finished goods inventory included $ 0 and $ 2,901 , respectively, which was the remaining balance of the adjustment to step-up inventory acquired as part of the GPT Acquisition to fair value; see Note 

The remaining balance of the adjustment to step up inventory to fair value as part of the GPT Acquisition, which was included in finished goods, was $ 0 and $ 2,901 , respectively, as of 

December 31, 2020 and March 31, 2020 ; see Note 

"Significant Transactions." 

1 unchanged sentence

Finite-lived intangible assets consist of the following:

September 30, 2020

December 31, 2020

March 31, 2020

6 unchanged sentences

Intellectual property

$ 20,852  

$ ( 7,671 )  

$ 13,181  

$ 15,731  

$ ( 6,454 )  

$ 9,277  

( 2,992 )  

( 2,855 )  

Customer relationships

143,378  

( 45,464 )  

97,914  

146,106  

( 38,777 )  

107,329  

Non-compete agreements

( 1,176 )  

( 1,166 )  

$ 174,006  

$ ( 57,303 )  

$ 116,703  

$ 169,123  

$ ( 49,252 )  

$ 119,871  

Amortization expense for finite-lived intangible assets acquired in a business combination was $ 3,512  and $ 6,866  for the three and six  months ended September 30, 2020  and $ 1,658  and $ 3,330 for the three and six months ended 

September 30, 2019 , respectively.

The increase in the amortization expense was attributable to intangible assets acquired as part of the GPT acquisition, including a cumulative effect true up that we recorded during the three months ended June 30, 2020 as we made adjustments to purchase accounting, see Note 12.

The increase in the carrying amount of intangible assets was attributable to changes in foreign currency and adjustments to the preliminary purchase price of GPT that are discussed further in Note 12.

"Significant Transactions". Amortization expense for finite-lived intangible assets acquired in a business combination was $ 3,828  and $ 10,694  for the three and nine months ended December 31, 2020 and $ 2,565  and $ 5,895  for the three and nine months ended December 31, 2019 , respectively.

The increase in amortization expense was attributable to intangible assets acquired as part of the GPT acquisition, including a cumulative effect true up recorded during the three months ended June 30, 2020 as we made adjustments to purchase accounting, see Note 12.

"Significant Transactions." 

The following is estimated amortization expense for the years ending March 31:

$ 14,635  

14,599  

14,581  

14,056  

12,471  

Remainder of year ending March 31, 2021

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

4 unchanged sentences

March 31, 2020

$ 29,594  

$ 19,123  

$ 74,716  

$ 18,103  

$ 141,536  

Effect of foreign currency translation

Goodwill adjustment related to GPT acquisition  

September 30, 2020

$ 30,094  

$ 19,183  

$ 88,985  

$ 18,103  

$ 156,365  

Goodwill adjustment related to GPT acquisition

December 31, 2020

Supplemental Balance Sheets Information

Accrued payroll and benefits consist of the following:

September 30, 2020

December 31, 2020

March 31, 2020

9 unchanged sentences

Other accrued expenses consist of the following:

September 30, 2020

December 31, 2020

March 31, 2020

5 unchanged sentences

Professional services fees

Contingent consideration  

Total other accrued expenses

3 unchanged sentences

On August 12, 2019, we issued an aggregate principal amount of $ 172,500 of convertible senior notes (the "Notes").

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 of each year beginning on February 15, 2020. 

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. 

The Notes are initially convertible at a conversion rate of 

2 unchanged sentences

Noteholders may convert their Notes at their option only in the following circumstances:

(i) during any calendar quarter commencing after the calendar quarter ending on December 

(i) during any calendar quarter commencing after the calendar quarter ended on December 

31, 2019 (and only during such calendar quarter), if the last reported sale price per share of 

7 unchanged sentences

We will reevaluate this policy from time to time as conversion notices are received from holders of the Notes.

The circumstances required to allow the holders to convert their Notes were not met during the three  months ended September 30, 2020 . 

As of September 30, 2020 , the if-converted value of the Notes did not exceed the principal balance.

We accounted for the transaction by bifurcating the Notes into liability and equity components. The carrying amount of the liability component was $ 141,427 upon issuance and was calculated by using the income approach and measuring the fair value of a similar debt instrument that does not have an associated convertible feature. 

The implied interest rate (a Level 3 unobservable input) assuming no conversion option was estimated using the Tsiveriotis-Frenandes model;

all other assumptions used in measuring the fair value represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs before allocated issuance costs and deferred taxes. 

The circumstances required to allow the holders to convert their Notes were not met during the three  months ended December 31, 2020 . 

As of December 31, 2020 , the if-converted value of the Notes exceeded the principal balance.

We accounted for the transaction by bifurcating the Notes into liability and equity components. The carrying amount of the liability component was $ 141,427 upon issuance as calculated using the income approach and measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The implied interest rate (a Level 3 unobservable input) assuming no conversion option was estimated using the Tsiveriotis-Fernandes model;

all other assumptions used in measuring the fair value represent inputs market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs before allocated issuance costs and deferred taxes. 

The carrying amount of the equity component representing the conversion option was $ 31,073 and was determined by deducting the fair value of the liability component from the par value of the Notes.

5 unchanged sentences

The net carrying amount of the Notes were as follows:

September 30, 2020

December 31, 2020

March 31, 2020

Principal outstanding  

$ 172,500  

Unamortized debt discount  

( 24,696 )  

Unamortized debt issuance costs  

( 3,502 )  

Net carrying value  

$ 144,302  

1 unchanged sentence

The net carrying amount of the equity component of the Notes were as follows:

September 30, 2020

December 31, 2020

March 31, 2020

8 unchanged sentences

We recognized interest expense on the Notes as follows:

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Coupon interest expense at 1.375%

12 unchanged sentences

Stock-Based Compensation

Amounts recognized related to stock-based compensation are as follows:

Three Months Ended September 30,  

Six Months Ended September 30,  

Amounts recognized related to stock-based compensation are as follows: 

Three Months Ended December 31,

Nine Months Ended December 31,

Stock-based compensation expense

3 unchanged sentences

$ 5,310  

Amount of income tax (benefit) recognized in earnings

( 522 )  

Amount of income tax expense (benefit) recognized in earnings

( 78 )  

4 unchanged sentences

$ 5,760  

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 Income.

The following is a summary of stock option award activity for the six months ended September 30, 2020 (shares in thousands):

$ 4,324  

The following is a summary of stock option award activity for the nine months ended December 31, 2020 (shares in thousands):

Stock Options

10 unchanged sentences

( 47 )  

Outstanding as of September 30, 2020

Outstanding as of December 31, 2020

$ 127.63  

The stock options granted during the 

six months ended September 30, 2020 vest in equal installments on each of the first three anniversaries of the grant date. 

nine months ended December 31, 2020 vest in equal installments on each of the first three anniversaries of the grant date. 

The following is a summary of restricted stock unit ("RSU") award activity for the 

six months ended September 30, 2020  (shares in thousands): 

nine months ended December 31, 2020  (shares in thousands): 

Time-Based Restricted Stock Units

14 unchanged sentences

196.38  

Nonvested as of September 30, 2020

Nonvested as of December 31, 2020

$ 203.29  

1 unchanged sentence

The majority of the time-based RSUs granted during the 

six months ended September 30, 2020 vest and settle in shares of our common stock, on a 

nine months ended December 31, 2020 vest and settle in shares of our common stock, on a 

one -for- one basis, in equal installments on each of the first three anniversaries of the grant date.

1 unchanged sentence

one -year period from the grant date.

We recognize the expense relating to these units, net of estimated forfeitures, on a straight-line basis over the vesting period.

We recognize the expense relating to RSUs, net of estimated forfeitures, on a straight-line basis over the vesting period.

Performance-based RSUs vest upon completion of the service period described in the award agreement and based on achievements of the financial 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 financial targets, on a straight-line basis over the service period.

During the three months ended December 31, 2020, we adjusted our estimate of performance share units expected to vest, based on actual results achieved.

As a result, we recorded a cumulative effect catch up of $ 1,629  during the period ($ 1,209  net of tax as well as $ 0.25 per basic and diluted share for the nine months ended December 31, 2020, respectively), which is recorded in general and administrative costs on our condensed consolidated statements of operations.

During the quarter ending March 31, 2021, we expect non-cash stock based compensation expense will increase approximately $ 194  compared to the quarters ended June 30, 2020 and September 30, 2020 as a result of our new estimate of performance share units expected to vest. 

 (Loss) 

Earnings  Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period.

Diluted earnings per share (“diluted EPS”) is computed similarly to basic earnings per share, except that it includes the potential dilution that could occur if dilutive securities were exercised.

Potentially dilutive securities include common shares related to stock options and RSUs (collectively “stock awards”).

Stock awards are excluded from the calculation of diluted EPS in the event that 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 have an antidilutive effect. 

The impact of the assumed conversion of the Notes calculated under the if-converted method was anti-dilutive, and as such, shares underlying the Notes were excluded from the diluted EPS calculation for the three and  

six months ended September 30, 2020 . 

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

Three Months Ended September 30,

Six Months Ended September 30,

Net income available for shareholders

Basic (loss) earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the reporting period.

Diluted (loss) earnings per share (“diluted EPS”) is computed similarly to basic (loss) earnings per share, except that it includes the potential dilution that could occur if dilutive securities were exercised.

Potentially dilutive securities include common shares related to stock options and RSUs, including RSUs that contain performance conditions which have been achieved as of the reporting period (collectively “stock awards”).

There was no dilution in our diluted EPS calculation for the 

three  and nine  months ended 

December 31, 2020 and the three months ended December 31, 2019 

because we incurred net losses in those periods and the effect would have been antidilutive.

nine months ended December 31, 2020 . 

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

Three Months Ended December 31,

Nine Months Ended December 31,

Net (loss) income available for shareholders

$ ( 4,542 )  

4 unchanged sentences

Dilutive effect of stock options

Dilutive effect of non-vested shares

Dilutive effect of time-based non-vested shares

Dilutive effect of performance-based non-vested shares

Fully diluted shares

Basic (loss) earnings per share

$ ( 0.89 )  

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$ 0.80  

Diluted (loss) earnings per share

$ ( 0.89 )  

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

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Assumed conversion of convertible debt

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There is a potential for volatility of 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 ( 12.4 )% and ( 24.2 )% for the three and six  months ended September 30, 2020 and was 16.0 % and 14.8 % for the three and six months ended 

September 30, 2019 , respectively. 

Our effective income tax rate was 20.7 % and 75.0 % for the 

three and nine months ended December 31, 2020 and 11.3 % and 19.2 % for the three and nine months ended December 31, 2019 , respectively. 

The effective tax rate for the 

three and six months ended September 30, 2020 differed from the statutory federal rate of 21 % primarily due to the release of an uncertain tax position during the three months ended September 

30, 2020 as discussed further below, the benefit of share-based payment awards for employees and research and development tax credits, partially offset by expenses for state income taxes, the limitations imposed by Section 162 (m), and the foreign rate differential.

three and nine months ended December 31, 2020 differed from the statutory federal rate of 21 % primarily due to the release of an uncertain tax position during the nine months ended December 31, 2020 as discussed further below, the benefit of share-based payment awards for employees and research and development tax credits, partially offset by expenses for state income taxes, the limitations imposed by Section 162 (m), and the foreign rate differential.

As part of our adoption of the Tax Cuts and Jobs Act, we recorded an uncertain tax position in the amount of $ 630 .

During the three months ended September 30, 2020, the Internal Revenue Service issued final regulations clarifying the law and providing greater flexibility to companies regarding substantiation requirements.

As a result of the clarifications, we have determined that the uncertain tax position is no longer required and we have released it, which resulted in a $ 630  tax benefit during the three months ended September 30, 2020.

During the nine months ended December 31, 2020 , the Internal Revenue Service ("IRS") issued final regulations clarifying the law and providing greater flexibility to companies regarding substantiation requirements.

As a result of the clarifications, we have determined that the uncertain tax position is no longer required and we have released it, which resulted in a $ 630  tax benefit during the nine months ended December 31, 2020 .

The tax year ended December 31, 2018 for Gyros US, Inc., and its subsidiary, which we acquired as part of the GPT Acquisition, is under examination by the IRS.

We expect the examination for this tax year to be completed within the next 12 months. 

Since we are subject to audit by various taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months.

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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, 2020 , there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets. 

As of December 31, 2020 , there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets. 

Under the terms of the revised IBP agreement, we are required to pay contingent consideration if the company is able to achieve certain operational and regulatory milestones.

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We currently believe that it is more likely than not that all aspects of the contingency will be achieved, and we expect to pay $ 555 , depending on foreign exchange rates, during the year ending March 31, 2021.

Companies are required to collect and remit sales tax from certain customers if the company is determined to have nexus in a particular state.

The determination of nexus varies by state and often requires technical knowledge of each jurisdiction's tax case law.

During the nine  months ended December 31, 2020, we determined that certain subsidiaries of GPT had established nexus in various jurisdictions during prior periods without properly collecting and remitting sales tax, and in certain cases had collected sales tax and not remitted it.

We estimate the total net exposure including interest and penalties is $ 2,501 , which is included in other accrued expenses on the condensed consolidated balance sheet.

Approximately $ 1,899  of the liability is considered a preacquisition contingency and is included in purchase accounting, which is described in further detail in Note 12.

"Significant Transactions".

The remainder of the liability represents $ 405 of sales tax payable for sales made in states where we have established nexus and $ 196 of interest incurred on the liabilities subsequent to the date of acquisition. 

Significant Transactions

GPT Acquisition

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The acquisition was considered a stock purchase for tax purposes. 

Preliminary Allocation of Purchase Price

We accounted for the GPT Acquisition as the purchase of a business under U.S.

Under the acquisition method of accounting, the assets of GPT were recorded as of the acquisition date, at their respective estimated fair values, and consolidated with those of Mesa Labs.

During the three months ended September 30, 2020, we finalized the valuation of net assets acquired. We obtained the information used to prepare the preliminary valuation during due diligence and from other sources.

In the months after closing, we obtained additional information about these assets and liabilities as we learned more about GPT.

We refined the estimates of fair value to more accurately allocate the purchase price.

Only items identified as of the acquisition date were considered for subsequent adjustment.

Fair Value of Net Assets Acquired

We accounted for the GPT Acquisition as the purchase of a business and GPT's results of operations have been included in our consolidated statements of operations and cash flows from the date of acquisition. Under the acquisition method of accounting, the net assets of GPT were initially recorded as of the acquisition date at their respective estimated fair values, using information obtained during due diligence and from other sources, and consolidated with those of Mesa Labs. 

We refined our valuation models, assumptions, and inputs based on additional information obtained subsequent to the closing of the transaction related to facts and circumstances that existed at the acquisition date in order to estimate fair value more accurately for the purchase price allocation.

The preparation of the valuation required the use of Level 3 inputs, which are subject to significant assumptions and estimates.

Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates.

These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. 

During the six  months ended 

September 30, 2020,  

we finalized the valuation of the inventory step-up, intangible assets acquired, and property, plant, and equipment;

however we have not finalized the valuation of certain tax related items, including deferred taxes. The final purchase price allocation will be completed within one year of the closing of the transaction, and may be refined further in the coming months as we learn more about GPT and therefore we can more accurately allocate the purchase price. 

The measurement period adjustments to the acquisition fair values of the assets were due to the refinement of our valuation models, assumptions and inputs. The updated assumptions and inputs incorporated additional information obtained subsequent to the closing of the transaction related to facts and circumstances that existed as of the acquisition date. 

The significant purchase price allocation changes during the 

six months ended September 

30, 2020  included a net decrease of $ 6,002  in the value of intangible assets, a decrease of $ 3,752  in the value of the inventory step-up, and an increase of $ 878  in the value of property, plant and equipment, net. 

Long-term deferred tax liabilities also decreased by a net amount of $ 2,010 , primarily due to the tax effect of these changes to the purchase price allocation.

During the six months ended September 

30, 2020, the cumulative net decrease to amortization expense recorded as a result of the decrease to intangible assets was $ 344 , of which $ 178 of expense was recorded to cost of revenues and a benefit of $ 522 was recorded in general and administrative costs.

Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. 

During the three months ended 

December 31, 2020 , we finalized the valuation of net assets acquired. The significant purchase price allocation changes during the 

nine months ended December 31, 2020  included:

a net decrease of $ 6,002  in the value of intangible assets; a decrease of $ 3,752  in the value of the inventory step-up; an increase of $ 878  in the value of property, plant and equipment, net;

and an increase of $ 1,899 to other accrued expenses and $ 500 to accounts receivable, net related to sales tax obligations of GPT that were partially indemnified in our sale and purchase agreement.

"Commitments and Contingencies" for more information on the sales tax liability.

We also made adjustments to deferred tax assets and deferred tax liabilities primarily due to the tax effect of these changes to the purchase price allocation.

During the nine months ended December 31, 2020 , the cumulative net decrease to amortization expense recorded as a result of the decrease to intangible assets was $ 344 , of which $ 178 of expense was recorded to cost of revenues and a benefit of $ 522 was recorded in general and administrative costs.

Additionally, a $ 207  cumulative increase to depreciation expense was recorded to general and administrative costs during the three months ended September 30, 2020 as a result of the increase in the fair value of property, plant and equipment. 

The cumulative impacts of all adjustments to date have been reflected in the Unaudited Condensed Consolidated Financial Statements as of and for the six  months ended September 

The cumulative impacts of all adjustments have been reflected in the unaudited condensed consolidated financial statements as of and for the nine months ended December 31, 2020 .

The components and allocation of the purchase price consist of the following amounts:

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$ 4,654  

Accounts receivable, net

Inventories, net

Accounts receivable

12,522  

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14,149  

Property, plant and equipment, net

Property, plant and equipment

Other assets  

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The inventory step-up was amortized to cost of revenues over approximately eight  months following the acquisition date, which resulted in a temporary reduction in gross profit for the business.

During the period from November 1, 2019 until March 31, 2020, we recorded $ 8,502  of amortization of inventory step-up costs in cost of revenues on the Condensed Consolidated Statement of Income.

The final inventory valuation was completed during the six months ended September 30, 2020 and was lower than our preliminary valuation, resulting in a cumulative effect decrease of $ 436 in amortization of inventory step up costs.

We do not expect further adjustments to the inventory step-up valuation, nor do we expect changes in the amortization to be recorded.

During the period from November 1, 2019 until March 31, 2020, we recorded $ 8,502  of amortization of inventory step-up costs in cost of revenues on the Condensed Consolidated Statements of Operations.

The final inventory valuation was completed during the nine months ended December 31, 2020 and was lower than our preliminary valuation, resulting in a cumulative effect decrease of $ 436 in amortization of inventory step up costs. 

Customer relationships and acquired technology are being amortized on a straight-line basis over a 10 year period.

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amortization expense for acquired technology is recorded to cost of revenues.

During the six  months ended September 

30, 2020, $ 1,409  of amortization expense related to the GPT intangible assets was recorded to general and administrative costs and $ 473  of amortization expense was recorded to cost of goods sold and allocated to the Biopharmaceutical Development division, including the cumulative-effect benefit to amortization expense discussed above.

During the nine months ended December 31, 2020 , $ 5,328  of amortization expense related to the GPT intangible assets was recorded to general and administrative costs and $ 1,101  of amortization expense was recorded to cost of goods sold and allocated to the Biopharmaceutical Development division, including the cumulative-effect benefit to amortization expense discussed above.

Trademarks associated with this acquisition are considered indefinite-lived intangibles. The estimated fair value of identifiable intangible assets was determined primarily using the income approach, which requires a forecast of all the expected future cash flows associated with the identified intangible assets. 

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GPT's operations contributed $ 23,863  to revenues and ($ 7,370 ) of net loss to our consolidated results during the 

six months ended September 30, 2020  including cumulative-effect adjustments.

We included the operating results of GPT in our Condensed Consolidated Statements of Income beginning on November 1, 2019, subsequent to the acquisition date.

nine months ended December 31, 2020 including cumulative-effect adjustments.

The loss includes over $ 6,000 in amortization of intangibles acquired in a business combination and over $ 4,000 of realized and unrealized losses on foreign currency.

We included the operating results of GPT in our Condensed Consolidated Statements of Operations beginning on November 1, 2019, subsequent to the acquisition date.

The following pro forma financial information presents the combined results of operations of Mesa Labs and GPT as if the acquisition had occurred on April 1, 2019 

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they do not reflect any adjustments for anticipated expense savings resulting from the acquisition and are not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on April 1, 2019 

or of future results.

Prior to the GPT Acquisition, GPT did not generate monthly or quarterly financial statements that were prepared in accordance with GAAP. 

Six Months Ended September 30,

or of future results. 

Three Months Ended December 31,

Nine Months Ended December 31,

Pro forma total revenues (1)

$ 35,190  

$ 103,097  

Pro forma net income (2)

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Excludes interest expense attributable to GPT's external debt that was paid off as part of the acquisition.

Additional depreciation expense of $ 66 based on the increased fair value of property, plant and equipment.

Additional amortization expense of $ 4,801  for the 

six months ended September 30, 2019  based on the increased fair value of amortizable intangible assets acquired.

For the six  months ended September 

30, 2019, $ 351  additional stock based compensation expense representing expense for performance share units awarded to certain key GPT employees.

nine months ended December 31, 2019  based on the increased fair value of amortizable intangible assets acquired, net of adjustments.

For the nine months ended December 31, 2019 , $ 358  additional stock based compensation expense representing expense for performance share units awarded to certain key GPT employees net of actual forfeitures.

Income tax effect of the adjustments made at a blended federal and state statutory rate (approximately 25 %).

S egment Information

As of September 30, 2020 , we had four  reportable segments, Sterilization and Disinfection Control, Instruments, Biopharmaceutical Development, and Continuous Monitoring. Results for the Cold Chain Packaging division, which we exited during the year ended March 31, 2020, are now presented within Corporate and Other.

As of December 31, 2020 , we had four  reportable segments, Sterilization and Disinfection Control, Instruments, Biopharmaceutical Development, and Continuous Monitoring. Results for the Cold Chain Packaging division, which we exited during the year ended March 31, 2020 , are now presented within Corporate and Other.

The following tables set forth our segment information: 

Three Months Ended September 30, 2020

Three Months Ended December 31, 2020

Sterilization and Disinfection Control

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$ 34,172  

Gross profit (loss)

$ 9,308  

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$ ( 140 )  

Reconciling items (2)

Earnings before income taxes

$ 20,653  

Three Months Ended September 30, 2019

Reconciling items (2)

(Loss) before income taxes

Three Months Ended December 31, 2019

Sterilization and Disinfection Control

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$ 31,655  

Gross profit (loss)

$ 8,101  

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$ ( 1,294 )  

Reconciling items (2)

Earnings before income taxes

$ 1,488  

Six Months Ended September 30, 2020

$ ( 18 )  

$ 14,803  

Reconciling items (2)

(Loss) before income taxes

Nine Months Ended December 31, 2020

Sterilization and Disinfection Control

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$ 95,973  

Gross profit (loss)

$ 28,098  

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$ ( 76 )  

Reconciling items (2)

Earnings before income taxes

$ 62,278  

Six Months Ended September 30, 2019

Reconciling items (2)

(Loss) before income taxes

Nine Months Ended December 31, 2019

Sterilization and Disinfection Control

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$ 2,442  

Gross profit  

$ 83,479  

Gross profit (loss)  

$ 25,334  

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$ ( 1,294 )  

$ 3,994  

$ 46,593  

Reconciling items (2)

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The following table sets forth assets by reportable segment: 

September 30, 2020

December 31, 2020

March 31, 2020

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$ 420,206  

Subsequent Event

In October 2020, we announced that our Board of Directors declared a quarterly cash dividend of $ 0.16 per share of common stock, payable on December 15, 2020 , to shareholders of record at the close of business on November 30, 2020 .

The increase in total assets was primarily attributable to $ 145,935 of cash proceeds resulting from the sale and issuance of 600,000 shares of our common stock during the nine months ended December 31, 2020, discussed in Note 8.

"Stockholders' Equity", as well the effect of foreign currency translation on assets. 

Subsequent Events

In January 2021, we announced that our Board of Directors declared a quarterly cash dividend of $ 0.16 per share of common stock, payable on March 15, 2021 , to shareholders of record at the close of business on February 26, 2021 .

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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the market acceptance of our products;

technological or market viability of our products;

reduced demand for our products that adversely impacts our future revenues, cash flows, results of operations and financial condition;

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trade policies and medical device regulations;

the timely development and commercialization, and customer acceptance, of enhanced and new products and services based on technological innovation;

the timely development and commercialization, and customer acceptance, of enhanced and new products and services;

laws regulating fraud and abuse in the health care industry and the privacy and security of health and personal information;

outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; 

and foreign currency exchange rates and fluctuations in those rates. 

outstanding claims, legal proceedings, international business challenges and regulations including anti-corruption and sanctions laws;

tax audits and assessments and other contingent liabilities; and foreign currency exchange rates and fluctuations in those rates. 

Further information on potential risk factors that could affect our financial results are included in the filings made by us from time to time with the Securities and Exchange Commission including under the section entitled “Risk Factors”

in our Annual Report on Form 10-K, for the year ended March 31, 2020 and our subsequent Quarterly Reports on Form 10-Qs. 

We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

in our Annual Report on Form 10-K, for the year ended March 31, 2020 and our subsequent Quarterly Reports on Form 10-Qs. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Business Overview

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We prefer markets in which we can establish a strong presence and achieve high gross margins.

As of September 30, 2020, we managed our operations in four reportable segments, or divisions: Sterilization and Disinfection Control, Instruments, Biopharmaceutical Development, and Continuous Monitoring, each of which are described further in 

As of December 31, 2020, we managed our operations in four reportable segments, or divisions: Sterilization and Disinfection Control, Instruments, Biopharmaceutical Development, and Continuous Monitoring, each of which are described further in 

Results of Operations  below. 

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 every day by taking a customer-focused approach to developing, building, and delivering our products.

We serve a broad set of industries that require dependable quality control and calibration solutions to ensure the safety and efficacy of the products they use, and by delivering the highest quality products possible, we are committed to protecting the environment, products, and people. 

Our revenues come from product sales, which includes hardware and software, and consumables;

Our revenues come from product sales, which includes hardware, software, and consumables;

as well as services, which include installation, discrete maintenance services, and ongoing maintenance contracts.

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COVID-19 and Business Update

During March 2020, the impact from the spreading of COVID-19 was declared a global pandemic by the World Health Organization and a national public health emergency in the United States. The consequences of the outbreak and impact to the economy have continued to evolve throughout the six months ended September 30, 2020 and we are unable to ascertain the full extent of the impact on our business as of the date of this filing.

Throughout our fiscal year, the pandemic has continued to present a substantial public health and economic challenge around the world and is affecting our employees, business operations, and operating segments in various ways.

As COVID-19 has continued to spread and significantly affect markets around the world, we continued to enforce company policies that are focused on ensuring the safety of our employees, while continuing to deliver our goods to customers across the world.

During March 2020, the impact from the spreading of COVID-19 was declared a global pandemic by the World Health Organization and a national public health emergency in the United States. The consequences of the outbreak and impact to the economy have continued to evolve throughout the nine months ended December 31, 2020 and we are unable to ascertain the full extent of the impact on our business as of the date of this filing.

Throughout our fiscal year, the pandemic has continued to present substantial public health and economic challenges around the world and is affecting our employees, business operations, and operating segments in various ways.

As COVID-19 has continued to spread and significantly affect markets around the world, we have continued to enforce company policies that are focused on ensuring the safety of our employees while also delivering our goods to customers across the world.

Due to the critical nature of our products and services, we are generally exempt from governmental orders in the U.S.

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Sterilization and Disinfection Control:

This division benefited in the three months ended June 30, 2020 from fulfilling temporary advanced buying orders placed by certain customers during the three months ended March 31, 2020;

however, overall orders slowed significantly during the latter part of the three months ended June 30, 2020 and continued throughout the three months ended September 30, 2020 as advanced ordering began to reverse.

Additionally, sales to distributors that service high growth economies that were severely impacted by COVID-19 have declined. Nevertheless, we believe that the consumable, critical, and disposable nature of Sterilization and Disinfection Control products makes them less sensitive to general economic conditions, and the demand for Sterilization and Disinfection Control products has remained relatively strong. Prior to the COVID-19 pandemic, the worldwide market for sterilization and disinfection control products had been growing as more countries increase their focus on verifying the effectiveness of sterilization and disinfection processes.

Biopharmaceutical Development, and Continuous Monitoring:

Demand for hardware, consumables, and services sold by our Biopharmaceutical Development and hardware and software sold by our Continuous Monitoring divisions declined during the three months ended June 30, 2020, which we believe was mainly a result of COVID-19.

As several of the restrictions limiting vendors from going on-site at customer facilities were lifted during the three months ended September 30, 2020, demand for both Biopharmaceutical Development and Continuous Monitoring products and services increased significantly compared to the three months ended June 30, 2020. 

Although orders increased during the three months ended September 30, 2020, the global pandemic continues to inhibit our ability to use proven strategies to market and sell these products. 

Further, increases in COVID-19 cases throughout the world could lead to customers closing their facilities again and decreased demand for our products.

In the future, when travel and gathering restrictions are lifted more broadly and we are able to go on-site at more customer facilities, we expect to continue to grow revenues organically in the Biopharmaceutical Development and Continuous Monitoring divisions.

Demand for hardware and certain services sold by our Instruments division declined during the six months ended September 30, 2020, which we believe was mainly a result of COVID-19.

We expect that demand for hardware sold by our Instruments division will return to more normal levels slowly, given the discretionary nature of the products.

This division's revenues have been inconsistent during the nine months ended December 31, 2020, which we believe is attributable to customers' reactions to COVID-19.

The division benefited in the three months ended June 30, 2020 from fulfilling temporary advanced buying orders placed by certain customers during the three months ended March 31, 2020;

however, overall orders slowed significantly during the latter part of the three months ended June 30, 2020 and continued to slow throughout the three months ended September 30, 2020 as advanced ordering began to reverse and customers used stock that they had purchased previously.

During the three months ended December 31, 2020, revenues began to increase again as many customers depleted their stock and resumed ordering at more normal levels.

We believe that the consumable, critical, and disposable nature of Sterilization and Disinfection Control products renders them less sensitive to general economic conditions, and the demand for Sterilization and Disinfection Control products has remained relatively strong. Prior to the COVID-19 pandemic, the worldwide market for sterilization and disinfection control products had been growing as countries increase focus on verifying the effectiveness of sterilization and disinfection processes.

Biopharmaceutical Development:

Demand for hardware, consumables, and services sold by our Biopharmaceutical Development division declined during the start of the pandemic (the three months ended June 30, 2020), which we believe was mainly a result of COVID-19.

Subsequently, as several of the restrictions limiting vendors from being on-site at customer facilities were eased during the summer and fall of 2020, demand for Biopharmaceutical Development products and services increased significantly compared to the three months ended June 30, 2020, but the global pandemic continues to inhibit our ability to use proven strategies to market and sell these products. 

Further, increases in COVID-19 cases throughout the world have caused customers, including laboratories to reduce capacity or close completely, resulting in decreased demand for our products. In the future, when travel and gathering restrictions are lifted and we are permitted on-site at more customer facilities, and when laboratories globally are open for normal operations, we expect an opportunity for greater organic revenue growth in the Biopharmaceutical Development division.

Continuous Monitoring:

Demand for hardware and software sold by our Continuous Monitoring division declined during the start of the pandemic (the three months ended June 30, 2020), which we believe was mainly a result of COVID-19.

As restrictions limiting vendors from being on-site at customer facilities were eased during our second fiscal quarter, demand for Continuous Monitoring products and services increased somewhat compared to the three months ended June 30, 2020, some of which was a result of fulfilling backlog we were restricted from completing during the three months ended June 30, 2020. 

Although orders have increased steadily as our fiscal year has progressed, the global pandemic continues to inhibit our ability to install these products.

Further, increases in COVID-19 cases throughout the U.S.

and Canada could lead to customers further tightening facility access, resulting in decreased demand for our products.

Demand for hardware and certain services sold by our Instruments division declined during the nine months ended December 31, 2020 as compared to the nine months ended December 31, 2019, which we believe was mainly a result of COVID-19 due to the discretionary nature of many instruments purchases.

However, beginning late in September, 2020, and continuing through the three months ended December 31, 2020, we began to see demand for these products increase somewhat, and revenues increased as we fulfilled orders.

Although demand for hardware sold by our Instruments division appears to be beginning to improve as customers resume making discretionary capital purchases, we continue to expect that it will be several quarters before demand and revenues recover.  

Sales of our hardware products have historically been more sensitive to general economic conditions than sales of our consumables. The COVID-19 induced economic downturn appears to be having a similar impact, as businesses are postponing certain capital spending in response to economic uncertainty, declines in income and asset values, tighter credit, unemployment, and negative financial news.

Even as the broad healthcare industry has begun to return to more normal operations resulting in increased sales levels in some of our divisions, outbreaks and increasing numbers of COVID-19 cases in many areas, especially the U.S.

and Europe, may result in the reinstatement of strict regulations, which we expect would result in lower sales levels.

We believe that COVID-19 related uncertainties, restrictions, and suppressed demand will continue to negatively impact our business during the remainder of the year ending March 31, 2021, and potentially continuing into our year ending March 31, 2022. Even after the COVID-19 pandemic has subsided as a public health matter, we may experience material adverse impacts to our business as a result of its adverse impact on the global economy, in-person collaboration and sales efforts, and our customers’

purchasing behavior and confidence.

and Europe, have and may continue to result in the reinstatement of strict regulations, which we expect would result in lower sales levels.

We believe that COVID-19 related uncertainties, restrictions, and suppressed demand will continue to negatively impact our business during the remainder of the year ending March 31, 2021, and continuing into our year ending March 31, 2022. Even after the COVID-19 pandemic has subsided as a public health matter, we may experience material adverse impacts to our business as a result of its adverse impact on the global economy, in-person collaboration and sales efforts, and our customers’

changed purchasing behavior and confidence.

Gross profit is affected by our product mix, manufacturing efficiencies, and price competition.

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Financial Statements (in thousands, except percent data).

Revenues from our reportable segments increased 29% and 25%, organic revenues growth declined 8% and 6%, and gross profit as a percentage of revenues increased four percentage points for both the three and six months ended September 30, 2020, as compared to the three and six months ended September 30, 2019, respectively.

Revenues from our reportable segments increased 9% and 18%, organic revenues growth was 1% and declined 3%, and gross profit as a percentage of revenues increased 14 percentage points and eight percentage points for the three and nine months ended December 31, 2020, as compared to the three and nine months ended December 31, 2019, respectively.

Results by reportable segment are as follows:

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Gross Profit as a % of Revenues

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Sterilization and Disinfection Control

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Gross Profit as a % of Revenues

Six Months Ended September 30, 2020

Six Months Ended September 30, 2019

Six Months Ended September 30, 2020

Six Months Ended September 30, 2019

Six Months Ended September 30, 2020

Six Months Ended September 30, 2019

Nine Months Ended December 31, 2020

Nine Months Ended December 31, 2019

Nine Months Ended December 31, 2020

Nine Months Ended December 31, 2019

Nine Months Ended December 31, 2020

Nine Months Ended December 31, 2019

Sterilization and Disinfection Control

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Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Three Months Ended December 31,

Nine Months Ended December 31,

Operating expenses

Operating Income

Operating income (loss)

Net (loss) income

Reportable Segments

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The division also provides testing and laboratory services, mainly to the dental industry. Sterilization and disinfection control products are disposable and are used on a routine basis.

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

Sterilization and Disinfection Control revenues decreased 4% for the three months ended September 30, 2020 as a result of reduced sales to distributors that service high growth economies that were severely impacted by COVID-19, the loss of certain OEM hospital oriented customers that began to diversify their supply chains, as well as decreased demand due primarily to timing as certain customers had ordered larger than normal quantities earlier in the calendar year to mitigate supply chain risk.

As these orders were filled during the quarter ended June 30, 2020, our backlog decreased, and ordering remains slower as customers continue to use the inventory they purchased from us in the previous two quarters. We expect the impacts from the loss of customers and to a lesser extent, the temporary advanced ordering that occurred during the three months ended June 30, 2020 will negatively impact organic revenues growth in this division for the remainder of the fiscal year.

Sterilization and Disinfection Control revenues increased 2% for the six months ended September 30, 2020 as result of organic revenues growth, which was achieved primarily through volume increases resulting from advanced ordering with existing customers during the quarter ended June 30, 2020, and to a lesser extent, modest price increases.

Increases were partially offset by reduced sales to distributors that service high growth economies that were severely impacted by COVID-19, the loss of a portion of our business with certain OEM hospital-oriented customers, and lower demand during the three months ended September 30, 2020 as advanced ordering reversed. 

Sterilization and Disinfection Control gross profit margin percentage increased four percentage points and five percentage points for the three and six months ended September 30, 2020, respectively, primarily as a result of labor efficiencies and favorable customer mix. 

Sterilization and Disinfection Control revenues increased 13% for the three months ended December 31, 2020 as many of our customers resumed ordering at more normal levels.

Revenues during the three months ended December 31, 2019 were lower than usual as a result of a supply disruption, creating a favorable comparison during the current year.  

Sterilization and Disinfection Control revenues increased 5% for the nine months ended December 31, 2020 as a result of organic revenues growth resulting from the timing of several large orders and modest price increases. 

Sterilization and Disinfection Control gross profit percentage increased one percentage point and four percentage points for the three and nine months ended December 31, 2020, respectively, primarily as a result of operating efficiencies from increased volume and favorable product mix.

Our Instruments division designs, manufactures, and markets quality control instruments and consumable products utilized in the healthcare, pharmaceutical, food and beverage, medical device, industrial hygiene, and environmental air sampling industries.

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quality control and regulatory environments, which require periodic repair and recalibration or certification of our instrument products.

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

Instruments revenues decreased 16% and 18% for the three and six months ended September 30, 2020, respectively, as customers across all served markets continued to limit spending that is more discretionary in nature in response to economic uncertainty. 

Instruments gross profit margin percentage increased two percentage points during the three months ended September 30, 2020, primarily due to favorable product mix.

Gross margin percentage was flat for the six months ended September 30, 2020.  

Instruments revenues decreased 10% and 15% for the three and nine months ended December 31, 2020, respectively, as customers across all served markets continued to limit spending that is more discretionary in nature in response to economic uncertainty.

However, we expect that the higher demand we experienced for our products during the three months ended December 31, 2020 does indicate that demand is beginning a slow return to more normal levels. 

Instruments gross profit percentage decreased five and two percentage points during the three and nine months ended December 31, 2020, respectively.

The decrease resulted from a $212 charge for severance related to employees who work in our Butler, New Jersey facility which we intend to close during the three months ending June 30, 2021, lower revenues on a partially fixed cost base, and to a lesser extent, unfavorable product mix. 

Biopharmaceutical Development

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Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacturing of biotherapeutic drugs. 

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Gross profit as a % of revenues

Biopharmaceutical Development's revenues during the three and six months ended September 30, 2020 were negatively impacted by the economic uncertainty and social restrictions related to the COVID-19 pandemic. 

Particularly during the three months ended June 30, 2020, and to a lesser extent during the three months ended September 30, 2020, global efforts to stop the spread of COVID-19 and the resulting shut down and slowing of many facets of our society and commerce resulted in reduced demand as we became unable to market our products at industry conferences or visit customers at their facilities.

Restrictions limiting vendors from going on-site at customers facilities were partially lifted during the three months ended September 30, 2020.

Additionally, we pursued digital marketing avenues to continue to create leads and demonstrate our products to potential customers.

Primarily as a result of these factors, demand for Biopharmaceutical Development products and services increased significantly as compared to the three months ended June 30, 2020. 

Biopharmaceutical Development's gross profit for the six months ended September 30, 2020 includes a $436 reduction in amortization expense as a result of an adjustment booked to the value of an inventory step-up recorded in purchase accounting related to the GPT Acquisition.

Gross profit for the six months ended September 30, 2020 also includes $178 of incremental amortization expense related to the adjustment of the value of technology intangibles that are amortized to cost of revenues.

Excluding the amortization catch ups, gross profit for the six months ended September 30, 2020 would have been $10,242 and gross profit margin percentage would have been 69% for the six months ended September 30, 2020. 

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit (loss)

Gross profit (loss) as a % of revenues

The results of the Biopharmaceutical development division were consolidated into our results beginning on November 1, 2019.

Although we did experience positive organic growth during the three and nine months ended December 31, 2020, Biopharmaceutical Development's revenues were negatively impacted during the three and nine months ended December 31, 2020 by economic uncertainty and social restrictions related to the COVID-19 pandemic. 

Particularly during the three months ended June 30, 2020, and to a lesser extent during the period from July 1, 2020 until December 31, 2020, global efforts to stop the spread of COVID-19 and the resulting shut down and slowing of many facets of our society and commerce resulted in reduced demand as we became unable to market our products at industry conferences or visit customers at their facilities.

Additionally, many global laboratories that use this division's products continue to be closed or have limited hours.

Restrictions limiting vendors from going on-site at customers facilities eased during the summer and fall of 2020. Additionally, during this time we increased efforts to pursue digital marketing avenues to continue to create leads and demonstrate our products to potential customers.

As a result of loosening restrictions and our digital marketing efforts, revenues during the second and third quarters of our fiscal year were significantly improved compared to our first quarter of our fiscal year.  

Biopharmaceutical Development's gross profit percentage was 53% for the three months ended December 31, 2020.

Substantially all of this division's sales are invoiced in either euros or U.S.

dollars ("USD");

however, the majority of the costs in this division are recorded in Swedish Krona and translated to USD for reporting purposes.

Since the USD has weakened significantly against the Swedish Krona during the three months ended December 31, 2020, our reported costs in USD have increased substantially, while revenues have not benefited significantly from the change in currency valuation.

Additionally, during the three months ended December 31, 2020, we revised our estimate of inventory overhead rates for this division, which resulted in higher period costs as less of our overhead costs were capitalized into inventory, and we wrote off inventory that we determined was obsolete.

We expect to sell the remainder of the inventory produced at the previously estimated rates over the next two to three quarters. Without the impact of the USD weakening and the inventory adjustments during the three months ended December 31, 2020, we estimate that gross profit would have been 61%.

Finally, unfavorable product mix negatively impacted gross profit margin percentage for this division during the three months ended December 31, 2020. 

Biopharmaceutical Development's gross profit for the nine months ended December 31, 2020 includes a $436 reduction in amortization expense as a result of an adjustment booked to the value of an inventory step-up recorded in purchase accounting related to the GPT Acquisition.

Gross profit for the nine months ended December 31, 2020 also includes $178 of incremental amortization expense related to the adjustment of the value of technology intangibles that are amortized to cost of revenues.

Excluding the net impact of the amortization catch ups and the weakening of the USD, gross profit percentage would have been 65% for the nine months ended December 31, 2020. 

Biopharmaceutical Development gross profit (loss) margin was ($1,294) for the period from November 1, 2019 until December 31, 2019.

The gross profit (loss) included $5,134 of amortization on an inventory step-up recorded in purchase accounting related to the GPT Acquisition.

Excluding the step-up amortization, gross profit for the period ended December 31, 2019 would have been $3,840, and gross profit percentage would have been approximately 68%. 

Continuous Monitoring

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quality control and regulatory environments, which require periodic repair and recalibration or certification of our continuous monitoring systems.

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

Continuous Monitoring's revenues increased 1% for the three months ended September 30, 2020 primarily because of eased restrictions at many of our customer sites, which allowed our technicians to go on-site to perform work that was previously backlogged as a result of COVID-19 related restrictions.

Continuous Monitoring's revenue decreased 1% for the six months ended September 30, 2020 as a result of 

the shut down and slowing of many facets of the U.S.

The Continuous Monitoring division's revenues decreased 18% for the three months ended December 31, 2020, as we completed several large orders during the three months ended December 31, 2019, resulting in a higher than usual revenues in the comparable period. Continuous Monitoring's revenues decreased 7% for the nine months ended December 31, 2020 as a result of the shut down and slowing of many facets of the U.S.

society and economy in response to the COVID-19 outbreak.

Specifically, during April and May, 2020, our ability to go on-site to many of our customers' facilities to install and service systems was severely restricted.

These restrictions began to ease late in our first fiscal quarter and our sales volumes began to increase as a result. 

Continuous Monitoring gross profit margin percentage increased four percentage points and one percentage point for the three and six months ended September 30, 2020, respectively, primarily due to the reorganization of the business unit during the three months ended June 30, 2020, which has resulted in steady improvements to its operating efficiency.

This reorganization was one step in our road map to improve the division’s operations and resulting gross profit percentage. 

Specifically, our ability to go on-site to many of our customers facilities to install and service systems was severely restricted during April and May, 2020. 

Overall, restrictions began to ease late in our first fiscal quarter, which allowed our technicians to go on-site to perform work that was previously backlogged as a result of COVID-19 related restrictions, and our sales volumes began to increase during our second and third fiscal quarters;

however, customer reaction to the acceleration of COVID-19 infections during our third fiscal quarter did negatively impact our ability to service customers and complete certain system installations.

Overall, we continue to see strong demand, including market expansion as hospitals increase monitoring systems in response to the COVID-19 vaccine roll out.

Continuous Monitoring gross profit percentage increased eight percentage points and three percentage points for the three and nine months ended December 31, 2020, respectively, primarily due to the reorganization of the business unit during the three months ended June 30, 2020, which has resulted in steady improvements to its operating efficiency as well as modifications made to our product offerings and pricing models which are intended to provide more predictable gross profit margins. 

Corporate and Other

Corporate and Other primarily consists of results from our Cold Chain Packaging division which was dissolved during the year ended March 31, 2020 and is no longer considered a reportable segment, as well as unallocated corporate expenses.  

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Gross profit as a % of revenues

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit (loss)

Gross profit (loss) as a % of revenues

Operating Expenses

Operating expenses for the three and six months ended September 30, 2020 increased 54% and 55%, respectively, as compared to the prior year.

Operating expenses for the three and nine months ended December 31, 2020 increased 14% and 37%, respectively, as compared to the prior year.

Selling expense is driven primarily by labor costs, including salaries and commissions;

accordingly, it may vary with sales levels.

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Three Months Ended December 31,

Nine Months Ended December 31,

Selling expense

As a percentage of revenues

Selling expense for the three and six months ended September 30, 2020 increased 66% and 75%, respectively, primarily as a result of selling costs incurred by the Biopharmaceutical Development division, partially offset by lower professional services costs, lower commission costs, and lower travel-related costs as we implemented strict travel restrictions for our employees beginning in March, 2020.

As a percentage of revenues, selling expense was 12% for the three months ended September 30, 2020 and was 13% for the six months ended September 30, 2020 as compared to 9% for both the three and six months ended September 30, 2019.

We plan to continue making modest, strategic investments in sales and marketing resources in order to further increase organic revenues growth.

Selling expense for the three and nine months ended December 31, 2020 increased 17% and 48%, respectively, primarily as a result of selling costs incurred by the Biopharmaceutical Development division which we acquired and began consolidating into our results as of November 1, 2019 and unfavorable foreign exchange rates for selling expenses incurred in Swedish Krona, partially offset by lower professional services costs, lower commission costs, and lower travel-related costs as we implemented strict travel restrictions for our employees beginning in March, 2020.

As a percentage of revenues, selling expense was 14% for the three months ended December 31, 2020 and was 13% for the nine months ended December 31, 2020 as compared to 13% and 10% for the three and nine months ended December 31, 2019, respectively.

 We plan to continue making modest, strategic investments in sales and marketing resources in order to further increase organic revenues growth.

In addition, costs associated with the Biopharmaceutical Development division's sales force are expected to continue to result in higher selling expense as a percentage of revenues than we incurred historically;

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Labor costs, including non-cash stock-based compensation and amortization of intangible assets drive the substantial majority of general and administrative expense.

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Three Months Ended December 31,

Nine Months Ended December 31,

General and administrative expense

As a percentage of revenues

General and administrative expenses increased 38% and 36% for the three and six months ended September 30, 2020, respectively. 

The increase was primarily attributable to increased amortization expense associated with intangible assets acquired from the GPT acquisition;

costs associated with the Biopharmaceutical Development division including professional services fees related to the implementation of our enterprise resource planning tool for the division, and higher non-cash stock-based compensation expense, which was almost fully offset by lower bonus and salaries expense as certain executives of the Company converted portions of cash incentives to non-cash stock-based compensation for the year ending March 31, 2021. 

General and administrative expenses increased 14% for the three months ended December 31, 2020, primarily as a result of:

increased amortization expense associated with intangible assets acquired from the GPT acquisition; three months of general and administrative costs incurred by the Biopharmaceutical Development division during the three months ended December 31, 2020, versus only two months of expenses during the three months ended December 31, 2019; higher non-cash stock-based compensation expense, including the cumulative-effect true up for performance stock units recorded during the three months ended December 31, 2020; and higher professional services fees incurred for the implementation of our enterprise resource planning tool for GPT, partially offset by lower acquisition related costs.

General and administrative expenses increased 26% for the nine months ended December 31, 2020 as a result of nine months of general and administrative costs incurred by the Biopharmaceutical Development division included in the results for the nine month period ended December 31, 2020 versus two months of results for the year to date period ended December 31, 2020 as the acquisition was completed on November 1, 2019. 

Additionally, general and administrative costs increased as a result of higher amortization expense associated with intangible assets acquired from the GPT acquisition, professional services fees related to the implementation of our enterprise resource planning tool for the division, and higher non-cash stock-based compensation expense, including the cumulative-effect true up for performance stock units recorded during the three months ended December 31, 2020, partially offset by lower acquisition related costs.

Research and Development

Research and development expense is predominantly comprised of labor costs and costs of third-party consultants.

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Percentage Change

Three Months Ended December 31,

Nine Months Ended December 31,

Research and development expense

As a percentage of revenues

Research and development expenses increased 164% and 159% for the three and six months ended September 30, 2020, respectively, primarily as a result of expenses attributable to the Biopharmaceutical Development division.

Research and development expenses increased 28% and 91% for the three and nine months ended December 31, 2020, respectively, primarily as a result of expenses attributable to the Biopharmaceutical Development division, which we acquired and began consolidating into our results as of November 1, 2019, and to a lesser extent because of unfavorable foreign exchange rates on research and development expenses incurred in Swedish Krona.

Including the Biopharmaceutical Development division, we expect research and development expenses will be approximately 7%-10% of revenues in the near term in part depending on the pace of the economic recovery.

Nonoperating Expense (Income) 

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Nonoperating Expense 

Three Months Ended December 31,

Percentage Change

Nine Months Ended December 31,

Nonoperating expense

Nonoperating expense for the three and six months ended September 30, 2020 is composed primarily of interest expense and amortization of the debt discount associated with our 1.375% convertible senior notes issued in August 2019 (the "Notes"), interest income earned on cash and cash equivalents, and gains and losses on foreign currency transactions.

Interest expense and amortization of debt discount increased for both the three and six months ended September 30, 2020, compared to the three and six months ended September 30, 2019 due to interest expense related to the Notes which were outstanding for all of the three and six months ended September 30, 2020, but only part of the three and six months ended September 30, 2019.

Nonoperating expense for the three and nine months ended December 31, 2020 is composed primarily of interest expense and amortization of the debt discount associated with our 1.375% convertible senior notes issued in August 2019 (the "Notes"), interest income earned on cash and cash equivalents, and gains and losses on foreign currency transactions.

During the three and nine months ended December 31, 2020, we incurred significant realized and unrealized foreign currency losses as a result of the USD weakening significantly, particularly against the Swedish Krona. 

Interest expense and amortization of debt discount was consistent for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 and increased for nine months ended December 31, 2020 because the Note was outstanding for only part of the nine months ended December 31, 2019.

Interest expense was offset primarily by interest income earned on our money market account.

Higher interest was earned on the money market during the three and six months ended September 30, 2019 compared to the three and six months ended September 30, 2020 as interest rates were higher in the prior year. 

Higher interest was earned on the money market during the three and nine months ended December 31, 2019 compared to the three and nine months ended December 31, 2020 as interest rates were higher in the prior year. 

As discussed in Note 1.

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Financial Statements , subsequent to the adoption of Accounting Standards Update 2020-06, there will be a reduction in non-cash interest expense related to the 1.375% convertible senior notes due August 15, 2025.

Three Months Ended September 30,

Percentage Change

Six Months Ended September 30,

Three Months Ended December 31,

Percentage Change

Nine Months Ended December 31,

Income tax (benefit) expense

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The excess tax benefits and deficiencies associated with share-based payment awards to our employees have caused and, in the future, may cause large fluctuations in our realized effective tax rate based on timing, volume, and nature of stock options exercised under our share-based payment program.

Net Income 

Net income for the six months ended September 30, 2020 varied with the changes in revenues, gross profit, and operating expenses (which includes $3,276, $6,866, and $2,667 of non-cash:

Net (Loss) Income 

Net (loss) for the nine months ended December 31, 2020 varied with the changes in revenues, gross profit, and operating expenses (which includes $6,887, $10,694, and $4,024 of non-cash:

stock-based compensation, amortization of intangible assets acquired in a business combination, and interest expense and discount amortization on the Notes, respectively, partially offset by a $436 benefit associated with a cumulative effect true up of inventory step up amortization). 

Our Biopharmaceutical Development division is subject to modest seasonal fluctuations that align with the budget cycles of our customers.

Sales of capital equipment and consumables for that segment are typically the lowest in the first calendar quarter of the year, and highest during the fourth calendar quarter of the year (which is the third quarter of our fiscal year).

The other reportable segments are typically not subject to seasonality.

Liquidity and Capital Resources

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Although the COVID-19 pandemic has resulted in lower revenues overall, we continue to believe that we have the liquidity required to continue operations during this volatile period.

During the six months ended September 30, 2020, we continued taking steps to reduce cash outlays and expenses, including limiting travel, reducing hiring new employees, and converting a portion of our executives' remuneration from cash to non-cash stock-based compensation incentives. 

During the nine months ended December 31, 2020, we took steps to reduce cash outlays and expenses, including limiting travel, reducing hiring new employees, and converting a portion of our executives' remuneration from cash to non-cash stock-based compensation incentives. 

Even given current macroeconomic conditions, we believe that cash and cash equivalents on hand and cash generated from operations will be sufficient to meet our short-term and long-term needs.

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Working capital is the amount by which current assets exceed current liabilities.

We had working capital of $260,592 and $96,784 at September 30, 2020, and March 31, 2020, respectively.

As of September 30, 2020, and March 31, 2020, we had $241,924 and $81,380, respectively, of cash and cash equivalents, which were held primarily in money market funds.

We had working capital of $267,525 and $96,784 at December 31, 2020, and March 31, 2020, respectively.

As of December 31, 2020, and March 31, 2020, we had $253,731 and $81,380, respectively, of cash and cash equivalents, which were held primarily in money market funds.

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. 

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The total proceeds we received from the offering, net of underwriting discounts and commissions and other offering expenses that we initially paid was $145,935. 

Under the terms of the amended IBP agreement, we are required to pay contingent consideration if the company is able to achieve certain operational and regulatory milestones.

The potential undiscounted consideration payable ranges from €0 to €450, depending on whether units being developed are certified for sale by U.S.

and foreign regulatory bodies.

We currently believe that it is more likely than not that all aspects of the contingency will be achieved and we expect to pay $530 during the year ending March 31, 2021.

As of September 30, 2020, $172,500 in aggregate principal amount Notes was outstanding.

As of December 31, 2020, $172,500 in aggregate principal amount Notes was outstanding.

The Notes bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 of each year, beginning with our first payment made on February 15, 2020.

These Notes can be converted prior to maturity if certain conditions are met.

We currently expect to settle future conversions of the Notes entirely in shares of our common stock and will reevaluate this policy from time to time in the event that conversion conditions are met and conversion notices are received from holders of the Notes.   We were in compliance with all debt agreements at September 30, 2020 and for all prior years presented and have met all debt payment obligations.

We currently expect to settle future conversions of the Notes entirely in shares of our common stock and will reevaluate this policy from time to time in the event that conversion conditions are met and conversion notices are received from holders of the Notes.   We were in compliance with all debt agreements at December 31, 2020 and for all prior years presented and have met all debt payment obligations.

Refer to Note 7. "Indebtedness" within Item 1.

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We have paid regular quarterly dividends since 2003.

We declared and paid dividends of $0.16 per share during the six months ended September 30, 2020 as well as each quarter for the year ended March 31, 2020.

In October 2020, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on December 15, 2020, to shareholders of record at the close of business on November 30, 2020.

We declared and paid dividends of $0.16 per share during the nine months ended December 31, 2020 as well as each quarter for the year ended March 31, 2020.

In January 2021, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on March 15, 2021, to shareholders of record at the close of business on February 26, 2021.

Our cash flows from operating, investing, and financing activities were as follows (in thousands):

Six Months Ended September 30,

Nine Months Ended December 31,

Net cash provided by operating activities

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Net cash provided by financing activities

Cash flows from operating activities for the six months ended September 30, 2020 provided $12,610, which primarily resulted from cash provided by GPT's operations and favorable changes in our working capital accounts.

Cash used in investing was lower during the six months ended September 30, 2020 compared to the six months ended September 30, 2019, which included a cash outlay for the IBP acquisition.

Cash provided by financing activities included our equity raise, which provided $145,935 during the six months ended September 30, 2020 and our convertible debt offering and equity raise which provided $252,065 during the six months ended September 30, 2019. 

Cash flows from operating activities for the nine months ended December 31, 2020 provided $23,553, which primarily resulted from cash provided by GPT's operations and favorable changes in our working capital accounts.

Cash used in investing was lower during the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019, which included a cash outlay for the IBP and GPT acquisitions.

Cash provided by financing activities included our equity raise, which provided $145,935 during the nine months ended December 31, 2020 and our convertible debt offering and equity raise which provided $252,065 during the nine months ended December 31, 2019. 

Contractual Obligations and Other Commercial Commitments

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For a description of our contractual obligations and other commercial commitments as of March 31, 2020, see our Form 10-K for the fiscal year ended March 31, 2020, filed with the Securities and Exchange Commission on June 1, 2020.

During the six months ended September 30, 2020, there were no material changes with respect to the nature of our contractual obligations and other commercial commitments outside the ordinary course of business.

At September 30, 2020, we had contractual obligations for open purchase orders of approximately $4,902 for routine purchases of supplies and inventory, which are payable in less than one year.  

During the nine months ended December 31, 2020, there were no material changes with respect to the nature of our contractual obligations and other commercial commitments outside the ordinary course of business.

At December 31, 2020, we had contractual obligations for open purchase orders of approximately $6,610 for routine purchases of supplies and inventory, which are payable in less than one year.  

Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet arrangements or obligations.

As of December 31, 2020, we had no off-balance sheet arrangements or obligations.

Critical Accounting Policies and Estimates

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We face currency exposures in our global operations as a result of various factors including intercompany currency denominated loans, selling our products in various currencies, purchasing raw materials and equipment in various currencies and tax exposures not denominated in the functional currency.

These exposures have increased as a result of the GPT Acquisition, which conducts a substantial portion of its business in Swedish Krona.

Fluctuations in exchange rates may adversely affect our results of operations, financial position, and cash flows. 

These exposures have increased as a result of the GPT Acquisition, which conducts a substantial portion of its business expenses in Swedish Krona.

Fluctuations in exchange rates have, and may continue to adversely affect our results of operations, financial position, and cash flows. 

We hold investments in money market funds.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements