What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-02-03 · 463 added, 867 removed, 538 unchanged (71% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(dollars in thousands, except share amounts)

Current assets:

8 unchanged sentences

11,178  

Prepaid income taxes

Prepaid expenses and other

2 unchanged sentences

303,749  

Property, plant and equipment, net of accumulated depreciation of $ 14,623 and $ 12,741 , respectively

Property, plant and equipment, net

21,951  

1 unchanged sentence

Deferred tax asset

15,673  

11,461  

Intangibles, net

11 unchanged sentences

Accrued payroll and benefits

10,540  

Unearned revenues

6 unchanged sentences

16,275  

Convertible senior notes, net of discounts and debt issuance costs  

Other long-term liabilities

Convertible senior notes, net of discounts and debt issuance costs

168,695  

145,675  

Other long-term liabilities

Total liabilities

10 unchanged sentences

72,459  

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

21,487  

16,116  

Total stockholders’

6 unchanged sentences

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Income

(in thousands, except per share data)

Three Months Ended December 31,

Nine Months Ended December 31,

$ 34,172  

$ 31,655  

Three Months Ended June 30,

$ 34,920  

4 unchanged sentences

20,340  

36,886  

20,653  

14,803  

62,278  

46,593  

Operating expenses:

12,614  

General and administrative

1 unchanged sentence

10,099  

33,887  

26,806  

Research and development

Impairment of goodwill and long-lived assets  

Total operating expenses

1 unchanged sentence

16,770  

54,216  

39,697  

Operating income (loss)

( 3,255 )  

Nonoperating expense:

Operating income

Nonoperating expenses

Interest expense and amortization of debt discount

Other expense (income), net

( 107 )  

Total nonoperating expense  

10,651  

(Loss) earnings before income taxes

( 5,727 )  

( 5,077 )  

( 2,589 )  

Income tax (benefit) expense

( 1,185 )  

( 573 )  

( 1,943 )  

Net (loss) income

$ ( 4,542 )  

$ ( 4,504 )  

$ ( 646 )  

$ 3,330  

(Loss) earnings per share:

Other expense, net

Total nonoperating expense

Earnings before income taxes

Income tax (benefit)

( 577 )  

1 unchanged sentence

$ 1,217  

Earnings per share:

$ 0.39  

7 unchanged sentences

(in thousands)  

Three Months Ended December 31,

Nine Months Ended December 31,

Net (loss) income

$ ( 4,542 )  

$ ( 4,504 )  

Three Months Ended June 30,

$ 1,995  

3 unchanged sentences

12,860  

39,264  

Comprehensive income

1 unchanged sentence

$ 14,077  

$ 38,618  

$ 9,080  

See accompanying notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Nine Months Ended December 31,

Three Months Ended June 30,

Cash flows from operating activities:

Net (loss) income  

$ 1,995  

$ 1,217  

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

Depreciation and amortization  

12,933  

Stock-based compensation  

Non-cash interest and debt amortization  

Amortization of step-up in inventory basis  

( 436 )  

Change in inventory reserve  

Foreign currency adjustments  

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

Depreciation and amortization

Stock-based compensation

Non-cash interest and debt amortization

( 826 )  

Cash provided by changes in operating assets and liabilities:

Accounts receivable, net  

Inventories, net  

( 485 )  

Prepaid expenses and other assets  

( 2,691 )  

Accounts payable  

Accrued liabilities and taxes payable  

Accounts receivable, net

Inventories, net

( 753 )  

Unearned revenues  

Net cash provided by operating activities  

Prepaid expenses and other assets

( 1,631 )  

Accounts payable

( 476 )  

Accrued liabilities and taxes payable

Unearned revenues

Net cash provided by operating activities

Cash flows from investing activities:

Acquisitions  

$ ( 184,102 )

Purchases of property, plant and equipment  

( 653 )  

Net cash (used in) investing activities  

( 653 )  

Cash flows from financing activities:

Proceeds from the issuance of convertible senior notes, net  

167,070  

Proceeds from the issuance of common stock, net  

145,935  

84,995  

Payments of debt  

Dividends  

( 2,341 )  

Payments of Contingent Consideration  

Proceeds from the issuance of common stock, net

145,935  

Proceeds from the exercise of stock options  

Net cash provided by financing activities  

( 824 )  

Proceeds from the exercise of stock options

Net cash provided by financing activities

146,885  

Effect of exchange rate changes on cash and cash equivalents  

Net increase in cash and cash equivalents  

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

11,845  

9 unchanged sentences

Condensed Consolidated Statements of Stockholders’

(in thousands, except per share data)

(dollars in thousands, except per share data)

Number of Shares

6 unchanged sentences

$ 406,227  

Proceeds from the issuance of common stock, net of issuance costs of $ 9,315

690,000  

145,935  

Exercise of stock options and vesting of restricted stock units

4 unchanged sentences

Foreign currency translation

12,860  

Cumulative adjustment due to adoption of ASU No.

( 22,735 )  

Adoption of accounting standards, net

June 30, 2021

4 unchanged sentences

$ 399,003  

Exercise of stock options and vesting of restricted stock units  

14,502  

Dividends paid, $ 0.16 per share

( 818 )  

Stock-based compensation expense

Foreign currency translation

September 30, 2020

5,117,441  

$ 309,935  

$ 74,724  

$ 7,753  

$ 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  

Retained Earnings

5 unchanged sentences

$ 220,013  

Exercise of stock options and vesting of restricted stock units

31,441  

Dividends paid, $ 0.16 per share

( 624 )  

Stock-based compensation expense

Foreign currency translation

June 30, 2019

3,921,579  

43,400  

Proceeds from the issuance of common stock, net of issuance costs of $9,315

690,000  

3 unchanged sentences

25,799  

Proceeds from issuance of common stock, net of issuance costs of $ 5,568  

431,250  

84,995  

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

22,735  

Dividends paid, $0.16 per share

3 unchanged sentences

12,860  

September 30, 2019  

12,860  

$ 153,110  

$ 79,816  

$ ( 2,680 )  

$ 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  

Adoption of accounting standards, net

June 30, 2020

5,102,939  

15 unchanged sentences

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, China, Japan, and by distributors in these areas as well as throughout the rest of the world.

We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia, 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 December 31, 2020 , we managed our operations in four  reportable segments, or divisions.

As of June 30, 2021 , 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.

The division also provides testing and laboratory services, mainly to the dental industry.

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

During the year ended March 31, 2020 , we added a new reportable segment:

Biopharmaceutical Development as a result of our acquisition of Gyros Protein Technologies Holding AB ("GPT" or the "GPT acquisition"), which is discussed further in Note 12.

"Significant Transactions".

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 manufacturing of biotherapeutic drugs.

Our Continuous Monitoring division designs, develops, and markets systems which are 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 manufacturers, blood banks, pharmacies, and laboratory environments. 

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.

Our Continuous Monitoring division designs, develops, and markets systems which are 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. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.

Basis of Presentation

2 unchanged sentences

In the opinion of management, such unaudited information includes all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations.

The results of operations for the interim periods are not necessarily indicative of results that may be achieved for the entire year. 

The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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 .

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.

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, 2021 .

Our fiscal year ends on March 

References in this Quarterly Report to a particular “year”

or “year-end”

mean our fiscal year, and references to the 

first quarter of fiscal year 2022 refers to the period from April 1, 2021 through June 30, 2021. 

Risks and Uncertainties

4 unchanged sentences

Estimates regarding the future financial performance of the business used in the impairment tests for goodwill and long-lived assets acquired in a business combination;

however, we identified no triggering events since our impairment analysis was completed during the three months ended March 31, 2020; 

however, we identified no triggering events since our impairment analysis was completed during the quarter ended March 31, 2021; 

Estimates regarding the recoverability of deferred tax assets and estimates regarding cash needs and associated indefinite reinvestment assertions;

1 unchanged sentence

Estimates of the net realizable value of inventory.

Immaterial Error Correction

During the three months ended September 30, 2020, we identified an immaterial error in the design of our Enterprise Resource Planning tool that resulted in a system failure to eliminate intercompany cost of revenues for certain types of transactions.

The error resulted in an overstatement of cost of goods sold and an understatement in gross profit for the Continuous Monitoring, Instruments, and Sterilization and Disinfection Control divisions. The issue began during the three months ended June 30, 2019;

we have determined that no financial statement prior to April 1, 2019 was misstated as a result of the previously uneliminated balances in cost of revenues. 

In accordance with Staff Accounting Bulletin ("SAB") No.

99 Materiality , and SAB No.

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 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.

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 

$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.

The error resulted in overstated cost of goods sold and a corresponding understatement of net income of:

$ 65 during the three months ended June 30, 2019;

$ 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 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

In August, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

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

Recently Adopted Accounting Pronouncements

In August 

2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2020 - 06, Debt with Conversion and Other Options and Derivatives and Hedging  

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, such as our convertible senior notes, due 2025.

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity 

("ASU 2020 - 06" ), which simplifies the accounting for certain financial instruments with characteristics of both liabilities and equity, such as our convertible senior notes, due 2025 (the "Notes").

ASU 2020 - 06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance.

It is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

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

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

In June 2016, the FASB issued ASU 

2016 - 13,  

Financial Instruments -Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments,  as modified by ASU No.

2018 - 19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, 

which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables.

The ASU was effective for public business entities for fiscal years beginning after December 15, 2019, with early adoption permitted.

On April 1, 2020, we adopted the ASU using the modified retrospective transition method.

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 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.

Our expected loss allowance methodology for accounts receivable was developed using historical collection experience, current and expected future economic and market conditions and a review of the current status of customers’

trade accounts receivables.

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

Early adoption is permitted at the beginning of any fiscal year after December 15, 2020.

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

We early adopted ASU 2020 - 06 effective April 1, 2021 on a modified retrospective basis, and our adoption of this standard had a material effect on our consolidated financial statements.

Upon adoption, we derecognized the $ 22,735 equity conversion feature, net of taxes, that was recorded to common stock, and we derecognized the deferred tax liability of $ 5,747 .

We recorded an increase to the Note balance of an aggregate $ 22,799  as a result of the reversal of the separation of the debt and equity components of the convertible debt.

The net effect of these adjustments, which represents historical non-cash interest expense, net of taxes of $ 5,683 , was recorded as an increase in the balance of beginning retained earnings as of April 1, 2021 .

 The adoption of this standard will significantly decrease the amount of non-cash interest expense recognized in future periods as a result of eliminating the discount associated with the equity component.

Our statements of cash flows reflect the lower non-cash interest expense in effect after the adoption of ASU No.

We have always intended to settle the Notes in shares of common stock rather than in cash, in each period in which the Notes have been outstanding, and therefore, we have applied the if-converted method to calculate the potentially dilutive impact of the Notes on earnings per share.

In each reporting period, we have determined that the Notes were antidilutive.

Due to decreases in non-cash interest expense that will result from the adoption of ASU 2020 - 06, it is likely the Notes will have a dilutive effect in future periods, which would decrease our diluted earnings per share. 

Revenue Recognition

1 unchanged sentence

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

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.

Hardware sales may be offered with perpetual or annual software licenses, which in some cases are required for the hardware to function.

Our Biopharmaceutical Development Division designs, manufactures, markets, and sells instruments, such as protein synthesizers that are used to process immunoassay samples, and related software designed to enhance productivity;

consumable chemical solutions designed for use in testing;

and on-demand and long-term service contracts to support customers' use of the equipment.

The division generates revenue from the same general categories as those we have identified for the rest of our business and recognizes revenue consistently with our policies. We evaluate our revenues internally by product line, timing of revenue generation, and the nature of goods and services provided.

however, some of our chemical solutions, such as protein synthesis and calibration solutions are critical to the ongoing use of our instruments.

Hardware sales 

be offered with accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function.

We also offer on-demand and annual service contracts to support customers' use of our equipment.

We evaluate our revenues internally based on product line, the timing of revenue generation, and the nature of goods and services provided.

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 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

Biopharmaceutical Development

Continuous Monitoring

Corporate and Other

Discrete Revenues

Consumables  

$ 11,250  

$ 3,406  

$ 15,382  

Hardware and Software

12,052  

Contracted Revenues

Total Revenues

$ 13,077  

$ 8,971  

$ 8,711  

$ 3,413  

$ 34,172  

Three Months Ended December 31, 2019

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Corporate and Other

Discrete Revenues

Consumables  

$ 9,948  

$ 1,941  

$ 12,912  

Hardware and Software

12,109  

Contracted Revenues

Total Revenues

$ 11,619  

$ 10,014  

$ 5,637  

$ 4,156  

$ 31,655  

Nine Months Ended December 31, 2020

Consumables are typically used on a 

one -time basis 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 quarters ended June 30, 2021 and 2020 , respectively:

Three Months Ended June 30, 2021

Sterilization and Disinfection Control

1 unchanged sentence

Continuous Monitoring

Corporate and Other

Discrete Revenues

Consumables  

$ 12,876  

1 unchanged sentence

$ 17,436  

$ 43,129  

Hardware and Software

10,799  

10,518  

33,033  

11,548  

Contracted Revenues

5 unchanged sentences

$ 34,920  

Nine Months Ended December 31, 2019

Three Months Ended June 30, 2020

Sterilization and Disinfection Control

1 unchanged sentence

Continuous Monitoring

Corporate and Other

Discrete Revenues

Consumables  

$ 11,484  

1 unchanged sentence

$ 14,261  

$ 2,415  

$ 37,241  

Hardware and Software

19,282  

28,656  

10,815  

Contracted Revenues

5 unchanged sentences

$ 29,941  

$ 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,

Three Months Ended June 30,

United States

3 unchanged sentences

13,569  

15,692  

13,845  

43,727  

35,472  

Total revenues

1 unchanged sentence

$ 29,941  

$ 95,973  

$ 83,479  

No foreign country exceeds 10% of total revenues.

2 unchanged sentences

Some customers prepay for services, resulting in unearned revenues or customer deposits, called contract liabilities, which are included within other accrued expenses and unearned revenues in the accompanying Condensed Consolidated Balance Sheets.

Contract assets would exist when sales are recorded (i.e.

the control of the goods or services has been transferred to the customer), but customer payment is contingent on a future event besides the passage of time (such as satisfaction of additional performance obligations).

We do not have any contract assets.

We did not have any contract assets as of June 30, 2021 or March 31, 2021.

Unbilled receivables, which are not classified as contract assets, represent arrangements in which sales have been recorded prior to billing and right to payment is unconditional.

A summary of contract liabilities is as follows:

Contract liabilities balance as of March 31, 2020

Contract liabilities as of March 31, 2021

$ 8,994  

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

Prior year liabilities recognized in revenues during the quarter ended June 30, 2021

Contract liabilities added during the quarter ended June 30, 2021, net of revenues recognized

Contract liabilities balance as of June 30, 2021

$ 9,690  

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 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.

The increase in the balance in our money market account is primarily a result of our public offering of common stock described in further detail in Note 8.

"Stockholders' Equity". 

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.

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.

Cash and cash equivalents on our Condensed Consolidated Balance Sheets included $ 230,822 in a money market account at both June 20, 2021 and March 31, 2021.

During fiscal year 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 level 2 inputs of 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 are as follows:

December 31, 2020

June 30, 2021

March 31, 2021

7 unchanged sentences

$ 188,780  

The Notes are discussed in more detail in Note 7.

The carrying value of the Notes increased as a result of the adoption of ASU 2020 - 06, discussed further in Note 1.

"Description of Business and Summary of Significant Accounting Policies" and Note 6.

 "Indebtedness." 

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.

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 

nine months ended December 31, 2020  or 

nine months ended December 31, 2019 .

These assets are measured at fair value if determined to be impaired. There were no transfers between the levels of the fair value hierarchy during the quarter ended June 30, 2021  or the quarter ended June 30, 2020 .

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 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.

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

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. 

To manage credit risk, we consider the creditworthiness of new and existing customers, and we regularly review outstanding balances and payment histories.

require pre-payments from customers under certain circumstances and 

limit future purchases until payments are made on past due amounts.

Inventories, Net

Inventories consist of the following:

December 31, 2020

June 30, 2021

March 31, 2021

4 unchanged sentences

Finished goods

( 2,992 )  

Inventories, net

1 unchanged sentence

$ 11,178  

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." 

Goodwill and Intangible Assets, Net

Finite-lived intangible assets consist of the following:

December 31, 2020

June 30, 2021

March 31, 2021

6 unchanged sentences

Intellectual property

$ 21,440  

$ ( 9,053 )  

$ 12,387  

$ 21,201  

$ ( 8,595 )  

$ 12,606  

( 3,197 )  

( 3,129 )  

Customer relationships

147,504  

( 55,810 )  

91,694  

145,754  

( 52,206 )  

93,548  

Non-compete agreements

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:

Remainder of year ending March 31, 2021

( 1,205 )  

( 1,195 )  

$ 178,945  

$ ( 69,265 )  

$ 109,680  

$ 176,866  

$ ( 65,125 )  

$ 111,741  

Amortization expense for finite-lived intangible assets acquired in a business combination was $ 3,816  and $ 3,354  for the quarters ended June 30, 2021 and 2020 , respectively.

During the quarter ended June 30, 2020, we reduced the value of our intangible assets due to a purchase price adjustment that resulted in a cumulative effect net decrease to amortization expense of $ 334 . 

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

Remainder of 2022

11,338  

14,920  

14,405  

12,808  

12,017  

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

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Continuous Monitoring

Corporate and Other

March 31, 2021

Effect of foreign currency translation

Goodwill adjustment related to GPT acquisition

December 31, 2020

Supplemental Balance Sheets Information

Accrued payroll and benefits consist of the following:

December 31, 2020

March 31, 2020

Bonus payable

30,153  

$ 93,399  

Wages payable

Payroll related taxes

Other benefits payable

Total accrued payroll and benefits

19,186  

$ 18,103  

Other accrued expenses consist of the following:

December 31, 2020

March 31, 2020

Accrued business taxes

$ 160,841  

Effect of foreign currency translation

June 30, 2021

$ 30,252  

Current operating lease liabilities

Interest payable

Professional services fees

Contingent consideration  

Total other accrued expenses

$ 95,173  

$ 19,197  

$ 18,103  

$ 162,725  

 Indebtedness

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 each year beginning on February 15, 2020. 

The Notes are initially convertible at a conversion rate of 

3.5273  shares of the common stock per 

Credit Facility

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 (together, the available facilities are referred to as the "Credit Facility").

The Credit Facility bears interest at either a base rate or a Eurodollar rate, plus an applicable spread.

The balance of u nam ortized customary lender fees of $ 609 and $ 650 as of June 30, 2021 

March 31, 2021, respectively, are recorded within prepaid expenses and other assets on our Condensed Consolidated Balance Sheets.

The fees are being expensed on a straight line basis over the life of the agreement. 

The most restrictive financial covenants include a maximum leverage ratio of 

5.50  to 

1.00  for the 

four  testing dates on which the line of credit is outstanding; 

5.0  to 

1.0  on each of the fifth, sixth, seventh, and 

eighth  testing dates;

4.5  to 

1.0  on each testing date following the 

eighth  testing date, except that we 

have a leverage ratio of 

5.75  to 

1.0  for a period of 

four  consecutive quarters following a permitted acquisition.

The Credit Facility also stipulates a minimum fixed charge coverage ratio of 

1.25  to 

 Other covenants include restrictions on our ability to incur debt, grant liens, make fundamental changes, engage in certain transactions with affiliates, or conduct asset sales.

June 30, 2021 , we were in compliance with all required covenants.

As of and throughout the quarter ended 

June 30, 2021 , we had 

no  outstanding balance under the Credit Facility. We are obligated to pay unused commitment fees of between 0.15 % and 0.35 % of the Credit Facility’s aggregate principal amount, based on our leverage ratio.

Since the Credit Facility's inception, the rate applied to our unused commitment fees has been 

0.15 %. 

We incurred $ 37 and $ 0  in unused commitment fees during the quarters ended June 30, 2021 and 2020 , respectively.

Convertible Notes 

We issued the Notes on August 12, 2019, and they mature on August 15, 2025, unless earlier repurchased or converted.

The Notes 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. 

They are initially convertible at a conversion rate of 

3.5273  shares of common stock per 

$1,000  principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 283.50  per share of common stock.

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

(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 

our common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(ii) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

(iii) upon the occurrence of certain corporate events or distributions on our common stock, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the Notes) or a transaction resulting in the Company’s common stock converting into other securities or property or assets;

and (iv) at any time from, and including, April 

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 our common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

upon the occurrence of certain corporate events or distributions on our common stock, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the Notes) or a transaction resulting in the Company’s common stock converting into other securities or property or assets;

at any time from, and including, April 

15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date. 

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Our current intent is to settle conversions entirely in shares of common stock.

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 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.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount (the "Debt Discount") is being amortized to interest expense using the effective interest method over the six -year contractual term of the Notes.

Debt issuance costs related to the Notes comprised of discounts and commissions payable to the initial purchasers of $ 5,175  and third party offering costs of $ 255 .

We allocated the total amount incurred to the liability and equity components of the Notes based on their relative values.

Issuance costs attributable to the liability component were $ 4,452  and are being amortized to interest expense using the effective interest method over the contractual term.  Issuance costs attributable to the equity component were netted with the equity component in stockholders’

We will reevaluate this policy from time to time as we receive conversion notices from note holders.

The circumstances necessary for conversion were not met during the quarter ended June 30, 2021 .

As of June 30, 2021, the Notes are classified as a long-term liability on our Condensed Consolidated Balance Sheets as the circumstances necessary for conversion were not satisfied as of the end of the quarter. The if-converted value of the Notes did not exceed the principal balance as of 

June 30, 2021 .

Debt issuance costs related to the Notes are comprised of discounts and commissions payable to the initial purchasers of $ 5,175  and third party offering costs of $ 255 .

The debt issuance costs are being amortized to interest expense using the effective interest method over the six -year contractual term of the Notes.

Due to our adoption of ASU 

2020 - 06  on April 1, 2021, we no longer bifurcate the Notes into a liability and an equity component in our Condensed Consolidated Balance Sheets (see Note 1.

"Description of Business and Summary of Significant Accounting Policies").

The Notes are accounted for entirely as a liability, and the issuance costs of the Notes are accounted for wholly as debt issuance costs.

The equity conversion feature that was recorded to common stock, as well as the unamortized debt discount and amortization expense attributable to equity, have been derecognized.

The net carrying amount of the Notes were as follows:

December 31, 2020

June 30, 2021

March 31, 2021

2 unchanged sentences

$ 172,500  

Unamortized debt discount

( 24,696 )  

Unamortized debt discount attributable to equity

Unamortized debt issuance costs

3 unchanged sentences

$ 145,675  

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

December 31, 2020

March 31, 2020

Amount allocated to conversion option

$ 31,073  

allocated issuance costs and deferred taxes

( 8,338 )  

Equity component, net

$ 22,735  

We recognized interest expense on the Notes as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Coupon interest expense at 1.375%

$ 1,779  

Amortization of debt discounts and issuance costs

$ 1,919  

$ 1,888  

$ 5,803  

$ 2,911  

The effective interest rate of the liability component of the note is approximately 5.5 %.

The effective interest rate on the notes is approximately 1.9 %. Prior to the adoption of ASU 2020 - 06, the effective interest rate was approximately 5.5 %. 

Stockholders' Equity

Public Offerings of Common Stock

On June 12, 2020, we completed the sale and issuance of 600,000 shares of our common stock and on June 19, 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 was $ 145,935 . 

Stock-Based Compensation

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

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Stock-based compensation expense

1 unchanged sentence

$ 1,268  

$ 6,887  

$ 5,310  

Amount of income tax expense (benefit) recognized in earnings

( 78 )  

Amount of income tax (benefit) recognized in earnings

( 2,785 )  

1 unchanged sentence

$ ( 588 )  

$ 3,182  

$ 5,760  

$ 4,324  

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

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

The following is a summary of stock option award activity for the quarter ended June 30, 2021 :

Stock Options

1 unchanged sentence

Weighted- Average Exercise Price per Share

Outstanding at March 31, 2020

Weighted-Average Remaining Contractual Life (Years)

Aggregate Intrinsic Value

Outstanding as of March 31, 2021

$ 129.55  

Awards granted

$ 28,856  

Awards granted

Awards forfeited or expired

170.93  

Awards exercised or distributed

( 19 )  

Awards exercised

Outstanding as of June 30, 2021

$ 131.90  

Outstanding as of December 31, 2020

$ 32,299  

The stock options granted during the 

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 

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

The following is a summary of restricted stock unit ("RSU") award activity for the quarter ended June 30, 2021 : 

Time-Based Restricted Stock Units

4 unchanged sentences

Weighted- Average Grant Date Fair Value per Share

Nonvested at March 31, 2020

Outstanding as of March 31, 2021 (1)

$ 206.56  

1 unchanged sentence

Awards granted

230.36  

Awards forfeited or expired

Performance adjustment (2)

190.07  

Awards forfeited

205.19  

1 unchanged sentence

( 14 )  

Nonvested as of December 31, 2020

214.91  

( 28 )  

The majority of the time-based RSUs granted during the 

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.

Time-based RSUs issued to non-employee directors and a portion of the awards granted to executives of the company vest after a 

one -year period from the grant date.

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 (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”).

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.

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.

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 

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

197.81  

Outstanding as of June 30, 2021 (1)

$ 201.50  

$ 202.00  

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

During the quarter ended June 30, 2021, the fiscal year 2019  PSUs vested and were paid at 280 % of target, based on actual performance results and completion of service conditions.

In addition, the PSUs granted to employees of Gyros Protein Technologies Holding AB vested at 60 % of target, following a modification of the performance targets by the Compensation Committee of the Board of Directors during fiscal year 2021.

The outstanding time-based RSUs vest and settle in shares of our common stock on a 

one -for- one basis.

Time-based RSUs issued to non-employee directors vest one year from the grant date.

Outstanding time-based RSUs issued to employees have historically been granted with vesting periods of three , four , or five years.

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 achievement 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 fiscal year 2020,  we awarded 

8  PSUs (the "FY 

20  PSUs") that are subject to both service and performance conditions to eligible employees.

20  PSUs had a grant date fair value of $ 202.00  per share and vest based on our achievement of specific performance criteria for the 

three -year period from 

April 1, 2019 

through 

March 31, 2022 

and on a pro-rata basis after 

12  months of continued service through 

June 15, 2022. 

The quantity of shares that will be issued upon vesting will range from 

200 % of the targeted number of shares;

if the defined minimum targets are 

not  met, then 

no  shares will vest.

Based on actual and projected performance through the quarter ended June 30, 2021, we estimate that 6 FY 20 PSUs will vest. 

During the quarter ended June 30, 2021, the Compensation Committee of the Board of Directors modified a time-based restricted stock award granted to our Chief Executive Officer during fiscal year 2017, distributing 

3  remaining outstanding shares effective June 8, 2021.

The original award required vesting of 1  awards on each:

March 20, 2022, 2023, and 2024.

 As a result of the modification, we recognized the previously unrecognized compensation cost of $ 351 during the quarter ended June 30, 2021. 

Public Offering of Common Stock

On June 12, 2020, we completed the sale and issuance of 600  shares of our common stock and on June 19, 2020, our underwriters exercised in full their option to purchase an additional 90  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 was $ 145,935 . 

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 stock options and RSUs, including RSUs that contain performance conditions which have been achieved as of the reporting period (collectively “stock awards”), as well as common shares underlying our convertible senior notes.

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

Three Months Ended June 30,

Net income available for shareholders

$ 1,995  

$ 1,217  

Weighted average outstanding shares of common stock

Dilutive effect of stock options

Dilutive effect of time-based non-vested shares

Dilutive effect of performance-based non-vested shares

Dilutive effect of RSUs

Fully diluted shares

Basic (loss) earnings per share

$ ( 0.89 )  

$ ( 1.03 )  

$ ( 0.13 )  

$ 0.80  

Diluted (loss) earnings per share

Basic earnings per share

$ 0.39  

$ 0.27  

Diluted earnings per share

$ 0.38  

1 unchanged sentence

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

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Assumed conversion of convertible debt

7 unchanged sentences

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 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 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 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. 

Our effective income tax rate was ( 40.7 )% and ( 61.4 )% for the quarters ended June 30, 2021 and 2020 , respectively. The effective tax rate for the quarter ended June 30, 2021 differed from the statutory federal rate of 21 % primarily due to the benefit of share-based payment awards for employees and foreign derived intangible income, partially offset by the limitations imposed by Section 162 (m), and expenses for state income taxes.

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

We expect the examination to be completed during fiscal year 2022.

Additionally, the tax year ended 

March 31, 2019  

for Mesa Laboratories, Inc.

is under review by the IRS.

We do not currently have a timeline for the completion of the Mesa Laboratories, Inc.

examination. 

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.

2 unchanged sentences

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 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.

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 $ 555 , depending on foreign exchange rates, during the year ending March 31, 2021.

As of June 30, 2021 , there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets. 

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

On October 31, 2019, we completed the acquisition of 100 % of the outstanding shares of GPT, which comprises our new reportable segment - Biopharmaceutical Development.

The acquisition of GPT expanded our presence into a new market--immunoassays and peptide synthesis solutions--that accelerate the discovery, development, and manufacturing of biotherapeutic drugs. GPT systems include laboratory instruments, consumables, kits, and software that maximize laboratory productivity by miniaturizing and automating immunoassays at nanoliter scale.

GPT's protein detection is used most frequently by pharmaceutical and biotech companies that are developing protein-based drugs.

This division also provides instruments, consumables, and software for the chemical synthesis of peptides from amino acids which are used in the discovery of new peptide-based drug therapies. 

After adjustments, we paid cash consideration of $ 181,547 to the sellers in the transaction. 

The acquisition was considered a stock purchase for tax purposes. 

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. 

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 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:

Cash and cash equivalents

$ 4,654  

Accounts receivable

12,522  

Prepaid income taxes

Prepaid expenses and other

14,149  

Property, plant and equipment

Other assets  

Deferred taxes  

10,576  

Intangible assets:

Customer relationships

77,500  

Non-compete agreements

Acquired technology

11,800  

85,130  

Total Assets acquired

$ 231,063  

Accounts payable

Accrued salaries and payroll taxes

10,735  

Other short-term liabilities

Unearned revenues

Other accrued expenses

Deferred taxes

23,350  

Other long-term liabilities  

Total liabilities assumed

$ 44,862  

Total closing amount, net of cash acquired

$ 181,547  

(a) Accounts receivable is composed of trade accounts receivable, net which is expected to be collected. 

Finished goods inventory of GPT includes $ 8,066 of inventory-step up, which is required to report inventory at fair value at the time of acquisition.

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 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.

Amortization expense for customer relationships is recorded to general and administrative expenses;

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

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. 

Acquired goodwill of $ 85,130 , all of which is allocated to the Biopharmaceutical Development reportable segment, represents the value expected to arise from organic revenues growth projections that are expected to exceed that of our legacy divisions, and the opportunity to expand into a new market with well-established market share.

The goodwill acquired is not deductible for income tax purposes.

Unaudited Pro Forma Information

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

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 

after giving effect to certain pro forma adjustments.

The pro forma adjustments reflected only include those adjustments that are directly attributable to the GPT Acquisition, factually supportable and have a recurring impact;

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. 

Three Months Ended December 31,

Nine Months Ended December 31,

Pro forma total revenues (1)

$ 35,190  

$ 103,097  

Pro forma net income (2)

( 1 ) Net revenues were adjusted to include net revenues of GPT. 

( 2 ) Pro forma adjustments to net earnings attributable to Mesa Labs include the following:

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 

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 %).

During fiscal year 2021, 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. The estimated accrued liability for this matter is included in other accrued expenses on the Condensed Consolidated Balance Sheets.

The balance was $ 2,517  and $ 2,714  as of June 30, 2021 and March 31, 2021, respectively.

The balance decreased because we settled our obligations with certain states during the quarter, partially offset by additional taxes, interest, and penalties incurred. Approximately $ 1,899  of the liability is considered a preacquisition contingency and was included in purchase accounting. 

Significant Transaction

We completed the previously-announced closure of our Butler, New Jersey facility during the quarter ended 

June 30, 2021. 

The facility was primarily used in the production of our gas flow calibration and air sampling equipment, which is part of our Instruments division.

Our manufacturing facility in Lakewood, Colorado is currently undergoing renovations that will allow it to accommodate the production of the gas flow calibration and air sampling equipment.

Consolidating the production of these products is expected to reduce facilities costs and streamline our use of lean manufacturing tools under central management to further encourage production efficiencies.

As a result of the facility consolidation, we incurred $ 53 of severance costs during the quarter ended June 30, 2021 

which were recorded to cost of revenues, selling, and general and administrative expense on the Consolidated Statement of Income.

June 30, 2021, 

a total of $ 156  remained outstanding and accrued, which primarily relates to severance costs.

not  expect to incur any material expenses related to the Butler, New Jersey consolidation in future periods.

S egment Information

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 December 31, 2020

As of June 30, 2021 , we had four  reportable segments: Sterilization and Disinfection Control, Biopharmaceutical Development, Instruments, and Continuous Monitoring. 

Three Months Ended June 30,

Total revenues (a)

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Corporate and Other

$ 15,150  

$ 13,067  

$ 8,711  

$ 3,413  

$ 34,172  

Gross profit (loss)

$ 9,308  

$ 5,368  

$ 4,616  

$ 1,501  

$ ( 140 )  

$ 20,653  

Reconciling items (2)

(Loss) before income taxes

Three Months Ended December 31, 2019

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Corporate and Other

$ 11,619  

$ 10,014  

$ 5,637  

Total revenues (a)

$ 34,920  

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Gross profit (loss)

$ 8,101  

$ 6,526  

$ ( 1,294 )  

$ 1,488  

$ ( 18 )  

$ 14,803  

Reconciling items (2)

(Loss) before income taxes

Nine Months Ended December 31, 2020

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Corporate and Other

$ 11,428  

$ 10,021  

$ 23,791  

$ 10,277  

$ 95,973  

Gross profit (loss)

$ 28,098  

$ 14,909  

$ 15,294  

$ 4,053  

$ ( 76 )  

$ 62,278  

Reconciling items (2)

(Loss) before income taxes

Nine Months Ended December 31, 2019

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Corporate and Other

$ 35,823  

$ 28,518  

$ 5,637  

$ 11,059  

Reportable segment gross profit

22,232  

20,360  

Gross profit (loss)  

Corporate and Other (b)

( 21 )  

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$ 20,340  

Reconciling Items:

Operating expenses

19,088  

16,770  

Reconciling items (2)

Operating income

Nonoperating expense, net

Earnings before income taxes

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Intersegment revenues are not significant and are eliminated to arrive at consolidated totals.

Reconciling items include selling, general and administrative, research and development, interest expense and amortization of debt discount, and other (income) expenses.

The following table sets forth assets by reportable segment: 

December 31, 2020

March 31, 2020

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

The following table sets forth inventories by reportable segment. Our chief operating decision maker is 

not  provided with any other segment asset information. 

Sterilization and Disinfection Control

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$ 2,333  

29,967  

31,025  

Biopharmaceutical Development

205,769  

182,758  

Continuous Monitoring

28,834  

29,732  

Corporate and administrative

285,360  

103,588  

Total inventories

$ 12,122  

$ 11,178  

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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Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance.

Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position, potential impairment of future earnings, anticipated effects of, and future actions to be taken in response to, the COVID-19 pandemic, management’s strategy, plans and objectives for future operations or acquisitions, product development and sales, product candidate research, development and regulatory approval, selling, general and administrative expenditures, intellectual property, development and manufacturing plans, availability of materials and product and adequacy of capital resources and financing plans constitute forward-looking statements.

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance.

Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position, potential impairment of future earnings, anticipated effects of, and future actions to be taken in response to, the COVID-19 pandemic, management’s strategy, plans and objectives for future operations or acquisitions, product development and sales, product research and development, regulatory approval, selling, general and administrative expenditures, intellectual property, development and manufacturing plans, availability of materials and product and adequacy of capital resources and financing plans constitute forward-looking statements.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management’s beliefs and assumptions.

The Company undertakes no obligation to publicly update or revise the statements in light of future developments.

In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company’s behalf.

Words such as “expect,”

“seek,”

“anticipate,”

“intend,”

“intend,” “seek,”

“plan,”

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Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including risks associated with:

the duration and impact of the COVID-19 pandemic and the myriad of its effects on our business including related decreases in customer demand and spending;

the duration and impact of the COVID-19 pandemic and the myriad of its adverse effects on our business;

our ability to successfully grow our business, including as a result of acquisitions;

1 unchanged sentence

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;

inability to consummate acquisitions at our historical rate and at appropriate prices, and to effectively integrate acquired businesses;

reduced demand for our products;, inability to consummate acquisitions at our historical rate and at appropriate prices, and to effectively integrate acquired businesses;

conditions in the global economy and the particular markets we serve;

significant developments or uncertainties stemming from the U.S.

government, including changes in U.S.

trade policies and medical device regulations;

significant developments or uncertainties stemming from governments, including changes in  trade policies and medical device regulations;

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

retirement of old products and customer migration to new products;

projections of revenues, growth, operating results, profit margins, expenses, earnings, margins, tax rates, tax provisions, cash flows, liquidity, demand, and competition;

the effects of additional actions taken to become more efficient or lower costs;

restructuring activities;

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

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.

product liability;

information security;

outstanding claims, legal and regulatory proceedings;

international business challenges including anti-corruption and sanctions laws;

tax audits and assessments and other contingent liabilities; 

foreign currency exchange rates and fluctuations in those rates;

general economic, industry, and capital markets conditions;

the timing of any of the foregoing;

assumptions underlying any of the foregoing;

and any other statements that address events or developments that we intend or believe will or may occur in the future. Such risks and uncertainties also include those listed in Item 1A.

“Risk Factors,”

and elsewhere in this report. The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. 

We disclaim any obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

Business 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, China, Japan, and by 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 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. 

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.

As discussed in Note 8.

"Stockholders' Equity" within Item 1.

"Financial Statements," we completed an equity offering of our common stock, which provided $145,935, net of discounts and issuance costs.

We intend to use the money raised for general corporate purposes, which may include furthering our acquisition strategy.

As of June 30, 2021, we managed our operations in four reportable segments, or divisions: Sterilization and Disinfection Control, Biopharmaceutical Development, Instruments, and Continuous Monitoring, each of which are described further in 

Results of Operations  below. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.

Corporate 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 ®

 by growing our business both organically and through 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. 

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.

Revenues increase as a result of organic or inorganic revenues growth. Inorganic revenues growth is driven by acquisitions. 

We continue to focus on improving our operating efficiency 

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 based on four pillars:

M easure what matters:

We use “True North,”

our customer’s perspective, to measure what matters most to customers and to set high standards for performance.

We manage to leading indicators, whenever possible, which drives us to proactively avoid problems before they are apparent to our customers.

E mpower Teams:

We move decision making as close to the customer as possible and provide the structure and real-time communication forum to align the whole organization towards surpassing customer expectations.

S teadily Improve:

We leverage a common and proven set of lean-based tools to identify the root cause of opportunities, prioritize our biggest opportunities, and enable change to be embraced and implemented quickly.

A lways Learn: 

We ensure that improvements are sustained, enabling us to raise performance expectations and repeat the cycle of improvement.

Equally, this cycle strengthens the Mesa team by providing endless learning opportunities for our employees and helps us to become an employer of choice in our communities.

Finally, we hire, develop, and retain top talent, capable of taking on new challenges using a team approach 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 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.

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, 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 that our measures will 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 that we offer.

The impact on our businesses is outlined below:

Sterilization and Disinfection Control:

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.

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 Continuous Monitoring division.

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, 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’

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 learning 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. 

Business Update and COVID-19

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 COVID-19 pandemic began to impact our business late in fiscal year 2020, and its impacts affected our business in various ways throughout fiscal year 2021 and to some extent, into the first quarter of fiscal year 2022.

The pandemic and related public health recommendations and mandated precautions to mitigate the spread of COVID-19, including regulations to close or limit the operating hours of our laboratory and other customers, and to prevent non-essential personnel from going on-site to customer locations to service or market our products, have negatively affected our operations.

Specifically, during fiscal year 2021 the Biopharmaceutical Development division, the Instruments division, and the Continuous Monitoring division were materially negatively impacted.

While many recommendations and precautions that affected us in fiscal year 2021 have been rescinded in the United States, some regulations impacting our operations, particularly in Europe, affected our operations in the first quarter of fiscal year 2022 and continue to do so.

Additionally, we believe that macroeconomic uncertainties that caused some of our customers to defer the purchase of our products persisted into the first quarter of fiscal year 2022, primarily affecting our Instruments division.

During fiscal year 2021, in response to the pandemic, we implemented several measures that we believe helped us protect the health and safety of our employees, and we continue to enforce some of these policies in the first quarter of fiscal year 2022.

We continue to require most office-based employees to work remotely when possible and we enforce safety measures to comply with applicable regulations to allow personnel to continue to work in our facilities.

In the first quarter of fiscal year 2022, we allowed our employees to travel for non-essential business.

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

and other countries requiring businesses to suspend operations.

Sales of our hardware products have historically been more sensitive to general economic conditions than sales of our consumables. 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 of the world 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 may continue to negatively impact our business during fiscal year 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.

We are also susceptible to broad market phenomena emerging in the wake of COVID-19, such as inflation and corresponding wage pressure.

Gross profit is affected by many factors including our product mix, manufacturing efficiencies, foreign currency rates, and price competition.

Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross profit percentages for some 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.

We completed the previously-announced closure of our Butler, New Jersey facility during the quarter ended June 30, 2021. The facility was primarily used in the production of our gas flow calibration and air sampling equipment, which is part of our Instruments division.

Our manufacturing facility in Lakewood, Colorado is currently undergoing renovations that will allow it to accommodate the production of the gas flow calibration and air sampling equipment.

Results of Operations

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Financial Statements (in thousands, except percent data).

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.

Revenues from our reportable segments increased 17%, which was entirely a result of organic revenues growth, and gross profit as a percentage of revenues decreased four percentage points for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020.

Results by reportable segment are as follows:

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Gross Profit as a % of Revenues

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

Biopharmaceutical Development

Continuous Monitoring

Mesa Labs' reportable segments

Corporate and Other

Total Company

Organic Revenues Growth

Gross Profit as a % of Revenues

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

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

Sterilization and Disinfection Control

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Mesa Labs' reportable segments

Corporate and Other

Total Company

Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Operating expenses

Operating income (loss)

Net (loss) income

Operating 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 December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

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.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Gross profit as a % of revenues

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. 

Sterilization and Disinfection Control revenues increased 16% for the quarter ended June 30, 2021, which was achieved through volume increases with existing customers, recovery of the healthcare services markets, effective efforts by our sales team to market and sell certain products to a larger customer base, and to a lesser extent, the strengthening of the euro against the U.S.

dollar, and modest price increases.

Sterilization and Disinfection Control gross profit percentage decreased two percentage points for the quarter ended June 30, 2021, primarily as a result of slightly higher production costs.

Biopharmaceutical Development

Our Biopharmaceutical Development division was created as a result of the GPT acquisition on October 31, 2019.

The division develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions.

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 manufacturing of biotherapeutic drugs. 

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.

Three Months Ended June 30,

Gross profit as a % of revenues

Biopharmaceutical Development's revenues increased 49% for the quarter ended June 30, 2021 due primarily to loosening COVID-19 restrictions versus the quarter ended June 30, 2020, and to a lesser extent, increased digital marketing efforts.

Whereas many laboratories that use this division's products were closed or operating at reduced hours during the first quarter of fiscal year 2021, the majority of laboratories in North America and Asia-Pacific were open for more normal operating hours throughout the first quarter of fiscal year 2022. As a result, the division's laboratory customers used more consumables, driving an 86% increase in consumables revenues.

Biopharmaceutical Development's gross profit percentage was 53% for the quarter ended June 30, 2021.

Gross profit decreased as a result of an unfavorable change in foreign exchange rates, higher labor-related costs, and the benefit of a positive $258 purchase accounting adjustment in the quarter ended June 30, 2020.

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

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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%. 

Since the USD has weakened against the Swedish Krona from the first quarter of fiscal year 2021 to the first quarter of fiscal year 2022, our reported costs in USD have increased substantially, while revenues have not benefited significantly from the change in currency valuation. 

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.

Three Months Ended June 30,

Gross profit as a % of revenues

Instruments revenues decreased 2% for the quarter ended June 30, 2021 primarily as a result of lower order fulfillment of gas flow calibration and air sampling equipment as we work to relocate the manufacturing of those items from our Butler, New Jersey facility, to our Lakewood, Colorado facility.

In addition, we are somewhat understaffed in this division as we have had difficulty hiring manufacturing employees, which has affected our ability to fulfill orders. To a lesser extent, we believe that continued economic uncertainty stemming from the COVID-19 pandemic has resulted in certain of our customers limiting or delaying spend on Instruments division products. We are hopeful that the relocation and integration of those Instruments products that were moved from the Butler facility will be completed in our fiscal second quarter.

Instruments gross profit percentage increased one percentage point during the quarter ended June 30, 2021.

The increase in gross profit percentage resulted from favorable product mix, and operating efficiencies for products manufactured in the Lakewood, Colorado facility, partially offset by increased labor costs as a result of a higher competition for employees in the labor market. 

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 December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Gross profit as a % of revenues

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, 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 December 31,

Nine Months Ended December 31,

Gross profit (loss)

Gross profit (loss) as a % of revenues

The Continuous Monitoring division's revenues increased 3% for the quarter ended June 30, 2021 due primarily to an increase in discrete service revenues as our service technicians were able to go to client sites to complete service requests.

Our ability to go on-site to many of our customers facilities to install and service systems was severely restricted during parts of the first quarter of fiscal year 2021.

As this division's sales are exclusively in North America, the majority of COVID-19 related restrictions that affected our ability to generate revenue in fiscal year 2021 were relaxed during the first quarter of fiscal year 2022. 

Continuous Monitoring gross profit percentage increased seven percentage points for the quarter ended June 30, 2021 primarily due to modifications made to our product offerings and pricing models partway through the first quarter of fiscal year 2021, and to a lesser extent, the reorganization of the business during the first quarter of fiscal year 2021. 

Operating Expenses

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

Operating expenses for the quarter ended June 30, 2021 increased 14% compared to the prior year as our overall business grew.

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

accordingly, it may vary with sales levels.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Selling expense

As a percentage of revenues

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;

however, increases are expected to begin to normalize once the Biopharmaceutical Development division returns to normal sales levels. 

In the near-term, we expect total selling expense to approximate 10%-15% of revenues.

Selling expense for the quarter ended June 30, 2021 increased 19%, as we executed on our previously-announced plan to invest in sales and marketing resources in order to increase organic revenues growth.

Specifically, we hired several sales employees, resulting in higher labor-related costs, including accruing commissions on higher sales.

Further, we invested in new marketing materials to support our sales staff, incurred increased employee travel-related expenses as COVID-19 restrictions lifted, and to a lesser extent, we experienced unfavorable foreign exchange rates for selling expenses incurred in Swedish Krona.

As a percentage of revenues, selling expense was 14% for both the quarter ended June 30, 2021 and June 30, 2020.

We expect total selling expense will approximate 14%-16% of revenues for fiscal year 2022.

General and Administrative

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 December 31,

Nine Months Ended December 31,

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

Three Months Ended June 30,

General and administrative expense

As a percentage of revenues

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.

General and administrative expenses increased 13% for the quarter ended June 30, 2021, primarily as a result of higher non-cash stock-based compensation expense and amortization expense, partially offset by lower professional services expenses.

The increase in non-cash stock-based compensation expense is attributable to the modification of a restricted stock award that resulted in recognition of compensation costs totaling $351 during the quarter ended June 30, 2021 and to the issuance of restricted stock units in place of a portion of our executive team's cash bonuses and salaries, which were outstanding for a larger portion of the first quarter of fiscal year 2022 than the first quarter of fiscal year 2021. The increase in amortization expense is due to a $344 cumulative effect decrease to amortization expense recorded during the quarter ended June 30, 2020, resulting from a purchase price adjustment to reduce the value of our intangible assets acquired in a business combination.

Professional services expenses have returned to more normal levels after they were higher than usual during the quarter ended June 30, 2020 as we worked to implement our enterprise resource planning tool at Gyros Protein Technologies AB ("GPT") during that time.

Research and Development

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

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Research and development expense

As a percentage of revenues

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.

Research and development expenses are predominantly comprised of labor costs and costs of third-party consultants.

Research and development expenses increased 8% for the quarter ended June 30, 2021, primarily as a result of third-party contractor expenditures supporting our continued incremental investments in enhancing existing products as well as the development of new products and features.

We expect research and development expenses will continue to approximate 7%-10% of revenues in the near term. 

Nonoperating Expense 

Three Months Ended December 31,

Percentage Change

Nine Months Ended December 31,

Three Months Ended June 30,

Nonoperating expense

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 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.

within Item 1.

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 December 31,

Percentage Change

Nine Months Ended December 31,

Nonoperating expense for the quarter ended June 30, 2021 is composed primarily of interest expense and amortization of the debt discount associated with our 1.375% convertible senior notes due August 15, 2026 (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 for the quarter ended June 30, 2021 decreased compared to the quarter ended June 30, 2020 due to our adoption of Accounting Standards Update 2020-06, which resulted in a reduction in non-cash interest expense related to the Notes. 

Three Months Ended June 30,

Income tax (benefit) expense

Effective tax rate

Our effective tax rate benefited notably from the release of an uncertain tax position of $630, the exercise of stock options and to a lesser extent, lower pre-tax income.

Our income tax rate varies based upon many factors, but in general, we anticipate that on a go-forward basis our effective tax rate as adjusted for the GPT Acquisition will be approximately 25%, plus or minus the impact of excess tax benefits and deficiencies associated with share-based payment awards to employees;

Our effective tax rate benefited notably from the the exercise of stock options and to a lesser extent, the benefit of federal derived intangible income, partially offset by the limitations imposed by Section 162(m) and higher state income taxes.

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;

“Income Taxes”

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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 (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). 

Net Income 

Net income for the quarter ended June 30, 2021 varied with the changes in revenues, gross profit, and operating expenses (and includes $2,197 and $3,816 of non-cash: stock-based compensation and amortization of intangible assets acquired in a business combination, respectively).

Prior to the adoption of ASU 2020-06 on April 1, 2021, we were required to recognize non-cash interest expense related to the amortization of debt discounts and issuance costs.

Subsequent to the adoption, we recognize non-cash interest expense related to amortization of debt issuance costs only, resulting in higher net income subsequent to the adoption of ASU 2020-06. 

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.

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.

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 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.

Despite lingering uncertainties surrounding the economic impacts of the COVID-19 pandemic, we continue to believe that we have the liquidity required to continue operations even if volatility in the economic environment reoccurs.

We believe that cash and cash equivalents on hand and cash generated from operations, as well as the 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.  

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 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 $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. 

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 that we initially paid was $145,935. 

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

We had working capital of $281,863 and $271,166 as of June 30, 2021, and March 31, 2021, respectively.

As of June 30, 2021, and March 31, 2021, we had $275,710 and $263,865, 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.

We expect to make tax payments of about $2,100 during the second quarter of fiscal year 2022. 

During fiscal year 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.

We have not drawn from the Credit Facility. 

As of June 30, 2021, $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 December 31, 2020 and for all prior years presented and have met all debt payment obligations.

These Notes can be converted by holders 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 June 30, 2021 and for all prior years presented and have met all debt payment obligations.

Refer to Note 6. "Indebtedness" within Item 1.

Financial Statements for more details on these transactions. 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.

Financial Statements for more details on these transactions. 

We routinely evaluate opportunities for strategic acquisitions.

We currently have cash and cash equivalents on hand, but future material acquisitions may require that we obtain additional capital, assume additional third-party debt or incur other long-term obligations.

We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities, although the terms of any such possible future financing are unknown.

We may from time to time repurchase or otherwise retire our debt and take other steps to reduce our debt.

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.

We routinely evaluate opportunities for strategic acquisitions.

We currently have significant cash and cash equivalents on hand, but future material acquisitions may require that we obtain additional capital, assume additional third-party debt or incur other long-term obligations.

We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities.

We have paid regular quarterly dividends since 2003.

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.

We declared and paid dividends of $0.16 per share during the quarter ended June 30, 2021 as well as each quarter of fiscal year 2021.

In July 2021, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on September 15, 2021, to shareholders of record at the close of business on August 31, 2021.

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

Nine Months Ended December 31,

Three Months Ended June 30,

Net cash provided by operating activities

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Net cash provided by financing activities

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. 

Cash flows from operating activities for the quarter ended June 30, 2021 provided $9,589, which primarily resulted from favorable changes in our working capital accounts.

Cash used in investing was higher during the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, due to purchases of property, plant, and equipment, primarily to support the renovations of our Lakewood, Colorado facility.

Our equity raise completed during the quarter ended June 30, 2020 provided $145,935.

Contractual Obligations and Other Commercial Commitments

We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business.

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 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.  

For a description of our contractual obligations and other commercial commitments as of March 31, 2021, see our Form 10-K for the fiscal year ended March 31, 2021, filed with the Securities and Exchange Commission on June 1, 2021.

During the quarter ended June 30, 2021, 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 June 30, 2021, we had contractual obligations for open purchase orders of approximately $8,959 for routine purchases of supplies and inventory, which are payable in less than one year. 

Off-Balance Sheet Arrangements

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

As of June 30, 2021, 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 expenses in Swedish Krona.

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

These exposures have increased as we have continued to expand internationally, including the acquisition of GPT, 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;

however we do not believe a 10% adverse change in currency would materially affect our consolidated results. 

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