MESA LABORATORIES INC /CO/ 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   Our common stock is traded on the Nasdaq Global Market (“Nasdaq”) under the symbol “MLAB.”   While we have paid dividends to holders of our common stock on a quarterly basis since 2003, the declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, business development needs and regulatory considerations, and is at the sole discretion of our Board of Directors.   As of March 31, 2021, there were 71 holders of record of our common stock. This amount does not include “street name” holders or beneficial holders of our common stock, whose holders of record are banks, brokers and other financial institutions.   During the year ended March 31, 2021, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.   On November 7, 2005, our Board of Directors adopted a share repurchase plan which allows for the repurchase of up to 300,000 of our common shares. This plan will continue until the maximum is reached or the plan is terminated by further action of the Board of Directors. We made no repurchases of our common stock, during the years ended March 31, 2021, March 31, 2020, or March 31, 2019. As of March 31, 2021, 137,514 shares remained available to repurchase pursuant to the repurchase plan.   Set forth below is a line graph comparing, for the period March 31, 2016 through March 31, 2021, the cumulative total shareholder return on our common stock against the cumulative total return of (a) the S&P Composite Stock Index (b) the S&P Small Cap 600, and (c) a self-selected peer group, comprised of the following companies: Danaher Corp., Inc., Steris Corp., Utah Medical Products, Inc., Fortive Corporation, Mettler Toledo International, Inc., Merit Medical Systems, Inc., Transcat Inc., Electro-Sensors Inc., Onto Innovation, Inc., and Repligen Corporation. The graph shows the value on March 31 of each year, assuming an original investment of $100 in each and reinvestment of cash dividends.          Page 19 Table of Contents     Item 6. Reserved   Removing and reserving Item 6. Selected Financial Data  of Part II.     Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, unless specified)   Overview    We are a multinational manufacturer, developer, and seller of quality control products and services, many of which are sold into niche markets that are driven by regulatory requirements. We have manufacturing operations in North America and Europe and our products are marketed by our sales personnel in North America, Europe, Asia, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross margins. As of March 31, 2021, 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.  Non-reportable operating segments (including our Cold Chain Packaging Division which ceased operations during the year ended March 31, 2020) and unallocated corporate expenses are reported within Corporate and Other.   Strategy We strive to create shareholder value and further our purpose of Protecting the Vulnerable® by growing our business both organically and through further acquisitions, by improving our operating efficiency, and by continuing to hire, develop and retain top talent. As a business, we commit to our purpose of Protecting the Vulnerable® 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 people, the environment, and end products.     Organic Revenues Growth Organic revenues growth is primarily driven by the expansion of our customer base, increases in sales volumes, and price increases. Our ability to increase organic revenues is affected by general economic conditions, both domestic and international, customer capital spending trends, competition, and the introduction of new products. We typically evaluate costs and pricing annually. Our policy is to price our products competitively and, where possible, we pass along cost increases to our customers in order to maintain our margins.   Inorganic Revenues Growth - Acquisitions Over the past decade, we have consummated a number of transactions accounted for as business combinations as part of our growth strategy. The acquisitions of these businesses, which are in addition to organic revenues growth, have allowed us to expand our product offerings, globalize our company, and increase the scale at which we operate, which in turn affords us the ability to improve our operating efficiency, extend our customer base, and further the pursuit of our purpose to Protect the Vulnerable®.   Improving Our Operating Efficiency We maximize value in both our existing businesses and those we acquire by implementing efficiencies in our manufacturing, commercial, engineering, and administrative operations. We achieve efficiencies using the four pillars that make up The Mesa Way , which is our customer-centric, lean-based system for continuously improving and operating a set of high-margin, niche businesses. The Mesa Way is focused on: Measuring what matters using our customers' perspective and setting high standards for performance; Empowering teams to improve operationally and exceed customer expectations; Steadily improving using lean-based tools designed to help us identify the root cause of opportunities and prioritize the biggest opportunities; and Always learn so that performance continuously improves.    Hire, Develop, and Retain Top Talent At the center of our organization are talented people who are capable of taking on new challenges using a team approach. It is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously improve our products, our services, and ourselves, resulting in long-term value creation for our shareholders.         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 year ended March 31, 2021, and we are unable to ascertain the full extent of the impact on our business as of the date of this filing. Throughout the year ended March 31, 2021, 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.   Page 20 Table of Contents   As COVID-19 continued to spread and significantly affect markets around the world throughout and subsequent to our fiscal year, 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. and other countries requiring businesses to suspend operations. Nevertheless, the pandemic brought a material disruption to our operations. To protect employees and comply with regulations and recommendations to limit gatherings and increase social distancing, we require office-based employees to work remotely in most cases, and we implemented enhanced safety protocols at our manufacturing facilities, including performing health checks at the start of shifts, utilizing contact tracing technology to support case investigation when needed, requiring the use of facial coverings, and maximizing the amount of space between workspaces. We have taken aggressive steps to limit the exposure and enhance the safety of our facilities for employees working so that we can continue to supply products and services to our customers, although there is no guarantee our measures will continue to be successful. Additionally, we continue to evaluate and monitor the condition of our supply chain and work with our suppliers to develop contingency plans for potential supply interruptions.    Our business has encountered challenges resulting from COVID-19, as the global downturn resulted in a slow-down in demand for many of the products and services we offer. The impact on our businesses is outlined below:     ● Sterilization and Disinfection Control: This division's revenues were inconsistent during the year ended March 31, 2021, which we believe was 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 last half of the year ended March 31, 2021, revenues increased as many customers had depleted their stock and resumed ordering at more normal levels. We believe the consumable, critical, and disposable nature of Sterilization and Disinfection Control products renders them less sensitive to general economic conditions, and 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 increased focus on verifying the effectiveness of sterilization and disinfection processes and we believe that the market expansion will resume beginning in the first half of our year ending March 31, 2022.     ● Instruments: Demand for hardware and certain services sold by our Instruments division declined during the year ended March 31, 2021 compared to the year ended March 31, 2020, which we believe was mainly a result of COVID-19 causing customers to limit discretionary purchases such as products sold by our Instruments division. However, beginning late in September, 2020 and continuing through the rest of our year ended March 31, 2021, 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.     ● Biopharmaceutical Development: Demand for hardware, consumables, and services sold by our Biopharmaceutical Development division declined during the three months ended June 30, 2020, which we believe was mainly a result of COVID-19 and related restrictions. Subsequently, as several of the restrictions limiting vendors from being on-site at customer facilities were eased during mid-2020, demand for Biopharmaceutical Development products and services increased significantly compared to the three months ended June 30, 2020, though the global pandemic continues to inhibit our ability to use proven strategies to market and sell these products. During the fiscal year, customers, including laboratories, reduced capacity or closed 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 revenues growth in the Biopharmaceutical Development division.        ● Continuous Monitoring: Demand for hardware and software sold by our Continuous Monitoring division declined during the three months ended June 30, 2020, which we believe was mainly a result of COVID-19 and related restrictions. As restrictions limiting vendors from being on-site at customer facilities were eased during the three months ended September 30, 2020, demand for Continuous Monitoring products and services increased somewhat compared to the three months ended June 30, 2020, partially as a result of fulfilling backlog we were restricted from completing during the three months ended June 30, 2020. Orders increased steadily as the year progressed, and during the three months ended March 31, 2021, we were able to go on-site to many customer locations, continuing to fulfill our backlog which resulted in significant revenues increases compared to the first three quarters of our year ended March 31, 2021. Increases in COVID-19 cases throughout the U.S. and Canada could lead to customers tightening facility access once again, which may decrease demand for our products. As 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 Continuous Monitoring division.     Our revenues are generated from product sales, including hardware and perpetual license software and consumable products, as well as services, including product installations, discrete and ongoing maintenance services, and software subscriptions. Revenues increase as a result of organic or inorganic revenues growth. Inorganic revenues growth is driven by acquisitions. 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 have had a similar impact, as businesses postponed certain capital spending in response to economic uncertainty, declines in income and asset values, tighter credit, higher 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, have and may continue to result in the reinstatement of strict regulations, which we expect would result in lower sales levels. However, as vaccine distribution progresses, we expect any reinstatement of strict regulations will be less frequent and shorter in duration, which will result in less disruption to our business during the year ending March 31, 2022.    Gross profit is affected by our product mix, manufacturing efficiencies, foreign currency fluctuations, and price competition. Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross profit percentages for products have improved. There are, however, differences in gross profit percentages between product lines, and ultimately the mix of sales will continue to impact our overall gross profit.   Particularly in the Biopharmaceutical Development division, we are working on several research and development projects that, if completed, may result in enhanced or new products for both existing customers and new markets.  We are hopeful that we will have enhanced or new products and services available for sale in the coming fiscal year.   As discussed in Note 11. "Stock Transactions and Stock-Based Compensation" within Item 8. Financial Statements and Supplementary Data , we completed an equity offering of our common stock, which provided $145,935, net of issuance costs during the year ended March 31, 2021. During the year ended March 31, 2021, we also closed on a credit facility providing the ability to borrow up to $75,000 with a post-closing feature allowing for an incremental $75,000, subject to the satisfaction of certain conditions and lender participation, as discussed in Note 10. "Indebtedness" within Item 8. Financial Statements and Supplementary Data . We intend to use the funds to further our acquisition strategy and for general corporate purposes.    Page 21 Table of Contents   Revenues for our reportable segments increased 16%, organic revenues growth was 1%, and gross profit as a percentage of revenues increased 9 percentage points for the year ended March 31, 2021. Results by reportable segment are as follows:       Revenues     Organic Revenues Growth     Gross Profit as a % of Revenues       Year Ended March 31, 2021     Year Ended March 31, 2020     Year Ended March 31, 2021     Year Ended March 31, 2020     Year Ended March 31, 2021     Year Ended March 31, 2020   Sterilization and Disinfection Control   $ 53,119     $ 49,660       7 %     7 %     75 %     72 % Instruments     32,465       37,984       (15 %)     (1 %)     62 %     64 % Biopharmaceutical Development     33,892       13,851       19 %     N/A       62 %     3 % Continuous Monitoring     14,461       13,729       5 %     (7 %)     41 %     33 % Mesa Labs' reportable segments   $ 133,937     $ 115,224       1 %     2 %     65 %     56 % Corporate and Other     -       2,463       - %     (56 %)     - %     17 % Total Company   $ 133,937     $ 117,687                       65 %     56 %   Results of Operations   Our results of operations and year-over-year changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto appearing in Item 8. Financial Statements and Supplementary Data  (in thousands, except percent data).   Refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended March 31, 2020, filed on June 1, 2020, for a comparison of results of operations for the years ended March 31, 2020 and March 31, 2019.    Our condensed consolidated results of operations are as follows:       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Revenues   $ 133,937     $ 117,687     $ 103,135       14 %     14 % Gross profit     87,014       65,362       60,916       33 %     7 % Operating expenses     74,656       57,439       51,135       30 %     12 % Operating income     12,358       7,923       9,781       56 %     (19 %) Net income   $ 3,274     $ 1,778     $ 7,484       84 %     (76 %)   Reportable Segments   Sterilization and Disinfection Control Our Sterilization and Disinfection Control division manufactures and sells biological, cleaning, and chemical indicators. Biological, cleaning, and chemical indicators are used to assess the effectiveness of sterilization and disinfection processes in the hospital, dental, medical device, and pharmaceutical industries. 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.       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Revenues   $ 53,119     $ 49,660     $ 46,297       7 %     7 % Gross profit     39,870       35,797       31,861       11 %     12 % Gross profit as a % of revenues     75 %     72 %     69 %     3 %     3 %   Sterilization and Disinfection Control revenues increased 7% as a result of organic revenues growth, which was achieved through the strengthening of the euro against the U.S. dollar, volume increases with existing customers, and modest price increases.    Sterilization and Disinfection Control gross profit percentage increased three percentage points during the year ended March 31, 2021 primarily due to efficiencies gained both operationally and from higher sales volumes, as well as favorable product mix.    Page 22 Table of Contents   Instruments 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. Instrument products have a longer life, and their purchase by our customers is discretionary, so sales are more sensitive to general economic conditions. Service demand is driven by our customers’ quality control and regulatory environments, which require periodic repair and recalibration or certification of our instrument products.       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Revenues   $ 32,465     $ 37,984     $ 36,125       (15 %)     5 % Gross profit     20,158       24,247       22,866       (17 %)     6 % Gross profit as a % of revenues     62 %     64 %     63 %     (2 %)     1 %   Instruments revenues decreased 15% for the year ended March 31, 2021, as customers across all served markets continued to limit spending that is more discretionary in nature in response to economic uncertainty. Late in the year ended March 31, 2021, demand for instruments products began to increase. We believe demand in this division is beginning a slow return to more normal levels. During the year ended March 31, 2021, we experienced modest affects to revenues as a result of the executive order encouraging dialysis patients to receive treatments through in-home care rather than at a dialysis clinic or newer model dialysis machines that contain calibration function, but we continue to monitor the situation and anticipate some organic revenues declines in our Dialyguard product line over the long term.   During the year ended March 31, 2021, Instruments gross profit percentage decreased two percentage points as a result of $309 of business consolidation costs incurred in conjunction with the closure of our Butler, New Jersey facility, lower revenues on a partially fixed cost base, and to a lesser extent, unfavorable product mix.    Biopharmaceutical Developmen t Our Biopharmaceutical Development division develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic drugs.        Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Revenues   $ 33,892     $ 13,851     $ -       145 %     N/A   Gross profit     21,035       382       -       5407 %     N/A   Gross profit as a % of revenues     62 %     3 %     - %     59 %     N/A       The results of the Biopharmaceutical Development division were consolidated into our results beginning on November 1, 2019, the first day following our acquisition of Gyros Protein Technologies Holding AB ("GPT" or the "GPT acquisition"). Although we did experience positive organic growth during the year ended March 31, 2021, Biopharmaceutical Development's revenues were negatively impacted by economic uncertainty and social restrictions related to the COVID-19 pandemic. During the year, we increased efforts to pursue digital marketing avenues to continue to create leads and demonstrate our products to potential customers as we could not visit them in person. As the year progressed and restrictions were partially lifted, revenues began to increase as a result of the loosening restrictions and our digital marketing efforts. Revenues for the nine months ended March 31, 2021 improved significantly compared to the three months ended June 30, 2020.    Biopharmaceutical Development's gross profit percentage was 62% for the year ended March 31, 2021. The U.S. dollar ("USD") weakened significantly against the Swedish Krona at times during the year ended March 31, 2021, which reduced our gross profit because substantially all of this division's sales are invoiced in either euros or USD; however, the majority of the costs in this division are recorded in Swedish Krona and translated to USD for reporting purposes. As a result, our reported costs in USD have increased substantially, while revenues have not benefited significantly from the change in currency valuation. Gross profit for the year ended March 31, 2020 included $8,502 of amortization of the inventory step-up recorded in purchase accounting related to the GPT acquisition. Excluding the step-up amortization, gross margin for the period ended March 31, 2020 would have been $8,884, and gross profit percentage would have been 64%.    Continuous   Monitoring Our Continuous Monitoring Division designs, develops, and markets systems used to monitor various environmental parameters such as temperature, humidity, and differential pressure to ensure that critical storage and processing conditions are maintained in hospitals, pharmaceutical and medical device manufacturing facilities, blood banks, pharmacies, and laboratory environments. Continuous monitoring products and systems have a longer life, and their purchase by our customers is discretionary, so sales are sensitive to general economic conditions. Continuous monitoring products may be sold in conjunction with a perpetual or subscription-based software license, which may be required for the related hardware to function. Service demand is driven by our customers’ quality control and regulatory environments, which require periodic repair and recalibration or certification of our continuous monitoring systems.       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Revenues   $ 14,461     $ 13,729     $ 13,806       5 %     (1 %) Gross profit     5,954       4,518       5,582       32 %     (19 %) Gross profit as a % of revenues     41 %     33 %     40 %     8 %     (7 %)   Continuous Monitoring revenues increased 5% during the year ended March 31, 2021 as a result of organic revenues growth primarily during the fourth quarter of our year. Revenues increased 57% during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, as COVID-19 related impacts resulted in low revenues during the three months ended March 31, 2020, but during the three months ended March 31, 2021, COVID-19 related restrictions eased across many areas of the United States and Canada, allowing our technicians to go on-site to perform work that was previously backlogged. Additionally, revenues increased during the year ended March 31, 2021 as a result of price increases.  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 for the year ended March 31, 2021, primarily due to the reorganization of the business unit during the three months ended June 30, 2020, which has resulted in steady improvements to operating efficiency, as well as modifications made to our product offerings and pricing models that were intended to provide more predictable gross profit percentages.    Page 23 Table of Contents   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.         Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Revenues   $ -     $ 2,463     $ 6,907       (100 %)     (64 %) Gross profit (loss)     (3 )     418       607       (101 %)     (31 %) Gross profit as a % of revenues     N/A       17 %     9 %     N/A       8 %   Operating Expenses   Operating expenses for the year ended March 31, 2021 increased 30% in total compared to the year ended March 31, 2020. Operating expenses increased 12% in total during the year ended March 31, 2020 compared to the year ended March 31, 2019.   Selling   Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels.       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Selling expense   $ 18,480     $ 12,910       8,260       43 %     56 % As a percentage of revenues     14 %     11 %     8 %     3 %     3 %   Selling expense increased 43% for the year ended March 31, 2021 primarily as a result of selling costs incurred by GPT, which we acquired and began consolidating into our results as of November 1, 2019 and as a result of unfavorable foreign exchange rates for selling expenses incurred in Swedish Krona. Excluding the impact of GPT, selling expenses would have decreased slightly as a result of lower travel related costs, as we implemented strict travel restrictions for our employees beginning in March 2020, and lower professional services expenses. As a percentage of revenues, selling expense was 14% for the year ended March 31, 2021 compared to 11% for the year ended March 31, 2020.  Costs associated with GPT's sales force are expected to continue to result in higher selling expense as a percentage of revenues than we incurred historically; however, increases are expected to begin to normalize once the Biopharmaceutical Development division returns to normal sales levels. Our strategy for the year ending March 31, 2022 will result in continued investments in sales and marketing resources in order to further increase organic revenues growth. As a result, we expect total selling expense to approximate 14%-16% of revenues.    General and Administrative Labor costs, non-cash stock-based compensation, and amortization of intangible assets drive the substantial majority of general and administrative expense.        Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   General and administrative expense   $ 45,697     $ 37,826       31,295       21 %     21 % As a percentage of revenues     34 %     32 %     30 %     2 %     2 %   General and administrative expenses increased $7,871 during the year ended March 31, 2021, primarily as a result of the timing of the GPT acquisition part-way through the year ended March 31, 2020. Additionally, general and administrative costs increased as a result of higher amortization expense associated with intangible assets acquired from the GPT acquisition, higher non-cash stock-based compensation expense, and higher professional services fees related to the implementation of our enterprise resource planning tool for GPT, partially offset by lower bonus 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.   Research and Development Research and development expense is predominantly comprised of labor costs and third-party consultants.        Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Research and development expense   $ 10,388     $ 6,355       3,506       63 %     81 % As a percentage of revenues     8 %     5 %     3 %     3 %     2 %   Research and development expenses for the year ended March 31, 2021 increased 63% primarily as a result of expenses attributable to the GPT, which we acquired and began consolidating into our results as of November 1, 2019, and to a lesser extent, unfavorable exchange rates on research and development expenses incurred in Swedish Krona.    Page 24 Table of Contents   Impairment Loss on Goodwill and Long-Lived Assets       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Impairment of goodwill and long-lived assets expense     -       298       4,774       (100 %)     (94 %) As a percentage of revenues     - %     - %     5 %     0 %     (5 %)   During the year ended March 31, 2020, we exited the Packaging business and as a result, we impaired the full balance of goodwill and intangible assets associated with the division. Impairment loss on goodwill and long-lived assets of $4,774 recorded during the year ended March 31, 2019 was also primarily associated with our Packaging division.   Nonoperating Expense       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Nonoperating expense   $ 10,055       4,061       1,158       148 %     251 %   Nonoperating expense for the year ended March 31, 2021 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 year ended March 31, 2021, 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 higher for the year ended March 31, 2021 compared to the year ended March 31, 2020 because the Notes were outstanding for only part of the year ended March 31, 2020. Interest expense was partially offset by interest income earned on our money market account. Higher interest was earned on the money market during the year ended March 31, 2020 compared to the year ended March 31, 2021 as interest rates were higher in the prior year.    As discussed in Note 1. "Description of Business and Summary of Significant Accounting Policies" within Item 8.  Financial Statements and Supplementary Data , 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.   Income Taxes       Year Ended March 31,     Percentage Change       2021     2020     2019     2021 vs. 2020     2020 vs. 2019   Income tax (benefit) expense   $ (971 )   $ 2,084       1,139       (147 %)     83 % Effective tax rate     (42 %)     54 %     13 %     (96 %)     41 %   Our income tax rate varies based upon many factors but in general, we anticipate that on a go-forward basis, our effective tax rate will be approximately 26%, plus or minus the impact of excess tax benefits and deficiencies associated with share-based payment awards to employees; (please see Note 14. “Income Taxes” within Item 8. Financial Statements and Supplementary Data ). Our effective tax rate decreased during the year ended March 31, 2021 because of tax benefits associated with share-based payment awards to employees, a decrease in our uncertain tax position, and the benefit of the foreign-derived intangible income deduction. The decrease was partially offset by limitations on the deductibility of executive compensation under section 162(m) and higher effective tax rates in certain foreign jurisdictions that we operate in. 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 year ended March 31, 2021 varied with the changes in revenues, gross profit, and operating expenses (which includes $14,513, $9,268, and $5,397 of non-cash amortization of intangible assets acquired in a business combination, stock-based compensation expense, and interest expense and discount amortization on the Notes, respectively).   Non-GAAP reconciliation   Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets acquired in a business combination, stock-based compensation and impairment of goodwill and long-lived assets) is used by management as a supplemental performance and liquidity measure, in order to compare current financial performance to historical performance, assess the ability of our assets to generate cash and the evaluation of potential acquisitions.   Adjusted operating income should not be considered an alternative to, or more meaningful than, net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance or liquidity.   The following table sets forth our reconciliation of adjusted operating income, a non-GAAP measure:       Year Ended March 31,       2021     2020     2019   Operating income   $ 12,358     $ 7,923     $ 9,781   Amortization of intangible assets acquired in a business combination     14,513       10,637       7,090   Stock-based compensation     9,268       5,525       4,212   Impairment loss on goodwill and long-lived assets     -       276       4,774   Adjusted Operating Income   $ 36,139     $ 24,361     $ 25,857     Page 25 Table of Contents   Liquidity and Capital Resources   Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, working capital and potential additional equity and debt offerings. Although the COVID-19 pandemic has negatively impacted our financial results, we continue to believe that we have the liquidity required to continue operations during this volatile period. During the year ended March 31, 2021, 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, as well as $75,000 of unused capacity under our Credit Facility will be sufficient to meet our short-term and long-term needs or could provide funds for one or more acquisitions. Additionally, we believe that we have access to equity and credit markets if necessary. However, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all. We routinely evaluate opportunities for strategic acquisitions, and future material acquisitions may require that we obtain additional capital, assume additional third-party debt or incur other long-term obligations.   Our more significant uses of resources have historically included acquisitions, long-term capital expenditures, payment of debt and interest obligations, and quarterly dividends to shareholders. Working capital is the amount by which current assets exceed current liabilities. We had working capital of $271,166 and $96,784 on March 31, 2021 and 2020, respectively. We also had $263,865 and $81,380 of cash and cash equivalents as of March 31, 2021 and 2020, respectively.  We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.    On June 9, 2020, we completed the sale and issuance of 600,000 shares of our common stock, and on June 16, 2020, our underwriters exercised in full their option to purchase an additional 90,000 shares of our common stock. The offering price to the public was $225.00 per share. The total proceeds we received from the offering, net of underwriting discounts and commissions and other offering expenses totaled $145,935.    On March 5, 2021, we entered into a four-year senior secured credit agreement that includes 1) a revolving credit facility in an aggregate principal amount of up to $75,000, 2) a swingline loan in an aggregate principal amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500 at any time. The Credit Facility also provides for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender considerations.   As of March 31, 2021, we have $172,500 aggregate principal of senior convertible notes ("the Notes") 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. The Notes can be converted prior to maturity if certain conditions are met; while such conditions were met briefly during the year ended March 31, 2021, no noteholders requested to convert. 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 on March 31, 2021 and for all prior years presented and have met all debt payment obligations. Refer to Note 10. "Indebtedness" within Item 8.  Financial Statements and Supplementary Data  for more details on these transactions.  We used a significant portion of the money raised from the Notes to fund the GPT Acquisition, and we intend to use the remaining funds in the future to continue our acquisition strategy and for general corporate purposes.   We have paid regular quarterly dividends since 2003. We declared and paid dividends of $0.16 per share each quarter of the years ended March 31, 2021, 2020, and 2019. In April 2021, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on June 15, 2021, to shareholders of record at the close of business on May 31, 2021.   We may from time to time repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include retirements or refinancing of outstanding debt, privately negotiated transactions, or otherwise. The amount of debt that may be retired, if any, could be material and would be decided at the sole discretion of our Board of Directors and will depend on market conditions, our cash position and other considerations.   Cash Flows   Our cash flows from operating, investing, and financing activities were as follows:       Year Ended March 31,       2021     2020     2019   Net cash provided by operating activities   $ 37,073     $ 26,988     $ 30,554   Net cash (used in) investing activities     (1,992 )     (185,585 )     (3,880 ) Net cash provided by (used in) financing activities     146,228       231,277       (21,672 )   Page 26 Table of Contents   Cash flows from operating activities for the year ended March 31, 2021 provided $37,073, primarily attributable to cash provided by GPT's operations and favorable changes in our working capital accounts. Cash used in investing activities during the year ended March 31, 2021 was attributable to purchases of property, plant, and equipment and for the year ended March 31, 2020 was primarily attributable to cash payments for our acquisitions of GPT and IBP. Cash provided by financing activities during the year ended March 31, 2021 included $145,935 raised through our equity offering completed in June 2020. Cash provided by financing activities during the year ended March 31, 2020 included $84,995 and $172,500 from an equity raise and a convertible debt offering, respectively.     Critical Accounting Policies and Estimates   Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates, judgments, and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. We believe that the following are the more critical judgment areas in the application of accounting policies that currently affect our financial condition and results of operations. Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit Committee of our Board of Directors. While our estimates and assumptions are based on our knowledge of current events and circumstances and actions we may take in the future, actual results may ultimately differ from these estimates and assumptions. For a discussion of our significant accounting policies, see Note 1. “Description of Business and Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data .   Revenue Recognition Our revenues are generated from product sales, including hardware and perpetual license software and consumable products, as well as services, including product installations, discrete and ongoing maintenance services, and software subscriptions. Revenues are recognized when we satisfy our performance obligations under the terms of a contract, which occurs when control of the promised products or services transfers to our customers. We recognize as revenue the amount of consideration we expect to receive in exchange for transferring products or services to our customers (the transaction price). For all revenue arrangements, prices are fixed at the time of purchase and no price protections or variables are offered. Substantially all of our revenues and related receivables are generated from contracts with customers that are 12 months or less in duration. We generally recognize revenues as follows:   Product sales:  Our performance obligations related to product sales generally consist of the promise to sell tangible goods to distributors or end users. Control of these goods is typically transferred upon shipment, at which time our performance obligation is satisfied and revenue is recognized. For products requiring installation, control transfers to the customer and revenue is recognized when our technicians have completed the installation at the customer’s location. Purchase orders typically provide evidence of an arrangement for product sales.    Services:  We generate service revenues from three categories: 1) discrete installation of hardware and software products, 2) discrete calibration, testing, and maintenance services, and 3) contracted and recurring calibration, testing, and maintenance services and software license subscriptions. Performance obligations arise when discrete services are contracted in advance and performed at a future time, often at the time of the customer’s choosing. In such cases, our performance obligation is satisfied and revenue is recognized upon the customer’s acceptance of completion of the specified work. Alternately, performance obligations arising from annual service contracts are satisfied by completing any service that is contractually required during the contract period, if requested by the customer, or simply by the passage of time if no services are requested. Performance obligations arising from software subscriptions are satisfied by the passage of time. For both annual service contracts and software subscriptions, revenue is recognized on a straight-line basis over the life of the contract in a faithful depiction of our obligation to provide services over the contract period. Evidence of a service arrangement may be in the form of a formal contract or a purchase order.    Collectability is reasonably assured through our customer review process, and payment is typically due within 60 days or less. Upon adoption of Accounting Standards Codification ("ASC") 606, we elected the practical expedient to expense commission costs as incurred. For the substantial majority of our contracts, which have original durations of one year or less, we have elected not to disclose the expected timing or allocated transaction prices of future performance obligations. Additionally, we have elected the practical expedient to not assess whether a significant financing component exists when the period between when we perform our performance obligation and when the customer remits payment is one year or less. None of our contracts contained a financing component as of March 31, 2021.    Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. Standalone selling prices are based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price considering available information such as market conditions and internally approved pricing guidelines.   Inventories Inventories are stated at the lower of cost (weighted average) or net realizable value. Our work in process and finished goods inventories include the costs of raw materials, labor and overhead, which are estimated based on trailing twelve months of expense and standard labor hours for each product. We evaluate labor and overhead costs annually unless specific circumstances necessitate a mid-year evaluation for specific items.   We monitor inventory costs relative to selling prices and perform physical cycle count procedures on inventories throughout the year to determine if a lower of cost or net realizable value reserve is necessary. We estimate and maintain an inventory reserve as needed for such matters as obsolete inventory, shrinkage, and scrap. This reserve may fluctuate as our assumptions change due to new information, discrete events, or changes in our business, such as entering new markets or discontinuing a specific product.   Purchase Accounting for Acquisitions We account for all business combinations in which we obtain control over another entity using the acquisition method of accounting, which requires most assets (both tangible and intangible) and liabilities (including contingent consideration) to be recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets less liabilities is recognized as goodwill. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses. These types of analyses require us to make and monitor assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow. Certain adjustments to the assessed fair values of acquired assets or liabilities made subsequent to the acquisition date but within the measurement period are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded within earnings. We expense all costs as incurred related to an acquisition in selling, general, and administrative expenses.   Results of operations of the acquired company are included in our Consolidated Financial Statements from the date of the acquisition forward. If actual results are not consistent with our assumptions and estimates, or if our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.   Page 27 Table of Contents   Acquired Intangible Assets Our business acquisitions typically result in the recognition of goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges we may incur.   Intangible assets with a definite life are amortized over their useful lives using the straight-line method and the amortization expense is recorded within cost of products or selling, general and administrative expense in the Consolidated Statements of Income. Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. If impairment indicators are present, we determine whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows. The fair value measurement for asset impairment is based on Level 3 inputs. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. We continue to believe that our definite lived intangible assets are recoverable as of March 31, 2021, even given the economic uncertainty caused by COVID-19.    We test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. Goodwill is tested for impairment during the fourth quarter of each year, or more frequently as warranted by events or changes in circumstances mentioned above. Our impairment tests for other indefinite lived intangible assets are similar to the tests performed for goodwill but are conducted at the individual asset level. We accounted for the economic uncertainty caused by the COVID-19 pandemic when conducting our impairment analyses of goodwill and other indefinite lived intangible assets during the fourth quarter of our year ended March 31, 2021.     Our impairment tests begin with the optional qualitative assessment to determine whether it is more likely than not that the carrying value of a goodwill reporting unit or other intangible asset exceeds its fair value, as permitted by the accounting guidance. If, after this qualitative assessment, we determine it is more likely than not that the fair value is greater than the carrying amount, then no further quantitative testing is necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit or indefinite lived intangible asset exceeds its fair value, in which case an impairment charge is recorded to the extent carrying value exceeds fair value. Fair value is determined using an income approach, which relies heavily on Level 3 inputs. Our qualitative assessments over each of our reportable segments and our other indefinite lived intangible assets during the year ended March 31, 2021 concluded that no impairment exists as of March 31, 2021.    Debt Accounting As of March 31, 2021, our long-term debt balance is related to our 1.375% convertible senior notes due 2025, which were issued in August 2019 and are carried at their principal amount less unamortized debt discount. We account for our convertible notes as separate liability and equity components. We established the initial carrying amount of the liability component by estimating the fair value of a similar liability that does not have an associated conversion feature. The initial carrying value of the equity component was calculated by deducting the initial carrying value of the liability component from the principal amount of the Notes as a whole. We then allocated transaction costs related to the issuance of the Notes to the liability and equity components in proportion to their initial carrying values. Debt discount is amortized to interest expense in our Consolidated Statements of Income over the term of the convertible notes using the effective interest rate method. We assess the equity classification of the cash conversion feature and the long-term debt classification of the liability component quarterly.   Stock- b ased Compensation We recognize compensation expense for equity awards over the vesting period based on the award’s fair value. We use the Black-Scholes valuation model to determine the fair value of our stock options. The Black-Scholes model requires assumptions to be made regarding our stock price volatility, the expected life of the award, and expected dividend rates. The volatility assumption and the expected life assumptions are based on our historical data. The compensation expense of performance share awards is based in part on the estimated probability of achieving levels of performance associated with particular levels of payout for performance shares. We determine the probability of achievement of future levels of performance by comparing the relevant performance level with our internal estimates of future performance. Those estimates are based on a number of assumptions, and different assumptions may have resulted in different conclusions regarding the probability of achieving future levels of performance relevant to the payout levels for the awards. Had we arrived at different assumptions of stock price volatility or expected lives of our options, or different assumptions regarding the probability of our achieving future levels of performance with respect to performance share awards, our stock-based compensation expense and results of operations could have been different.     Income Taxes Our provision for income taxes requires the use of estimates in determining the timing and amounts of deductible and taxable items including impacts on effective tax rates, deferred tax items and valuation allowances based on management’s interpretation and application of complex tax laws and accounting guidance. We establish reserves for uncertain tax positions for material, known tax exposures relating to deductions, transactions and other matters involving some uncertainty as to the measurement and recognition of the item. While we believe that our reserves are adequate, issues raised by a tax authority may be finally resolved at an amount different than the related reserve and could materially increase or decrease our income tax provision in the current and/or future periods.   Page 28 Table of Contents   Recent Accounting Standards and Pronouncements   For a discussion of the new accounting standards impacting the Company, refer to Note 1. “Description of Business and Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data .   Contractual Obligations, Commitments and Off-Balance Sheet Arrangements   Off-Balance Sheet Arrangements As of March 31, 2021, we have no obligations or interests which qualify as off-balance sheet arrangements.   Contractual Obligations As of March 31, 2021, our contractual obligations, including payments due by period, are as follows:               Payments Due During Years Ended March 31, (a)               (in thousands)       Total     2022       2023-2024       2025-2026     Thereafter   Purchase Commitments   $ 7,672     $ 7,656     $ 16     $ -     $ -   Convertible senior notes   $ 172,500     $ -     $ -     $ 172,500     $ -   Interest payments on convertible senior notes   $ 10,377     $ 2,372     $ 4,744     $ 3,261     $ -   Lease liabilities   $ 1,742     $ 1,055     $ 676     $ 11     $ -   Total   $ 192,291     $ 11,083     $ 5,436     $ 175,772     $ -   (a) Amounts reported in local currencies have been translated at the March 31, 2021 exchange rates.  (b) Our purchase commitments consist primarily of open purchase orders, which we have established to take advantage of volume discounts for materials and to ensure a reliable supply of critical parts.