What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 432 added, 256 removed, 745 unchanged (48% of the section changed)

3 unchanged sentences

(dollars in thousands, except share amounts)

September 30,

Current assets:

29 unchanged sentences

Accrued payroll and benefits

10,540  

Unearned revenues

35 unchanged sentences

(in thousands, except per share data)

Three Months Ended June 30,

$ 34,920  

$ 29,941  

Three Months Ended September 30,

Six Months Ended September 30,

Cost of revenues

12,709  

22,211  

20,340  

Operating expenses:

General and administrative

11,419  

10,099  

Research and development

Total operating expenses

19,088  

16,770  

Operating income

1 unchanged sentence

Interest expense and amortization of debt discount

Other expense, net

Total nonoperating expense

Other (income) expense, net

Total nonoperating (income) expense

Earnings before income taxes

Income tax (benefit)

( 577 )  

$ 1,995  

$ 1,217  

Income tax provision (benefit)

Earnings per share:

$ 0.39  

$ 0.27  

$ 0.38  

$ 0.26  

Weighted-average common shares outstanding:

1 unchanged sentence

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)  

Three Months Ended June 30,

$ 1,995  

$ 1,217  

Other comprehensive income:

Three Months Ended September 30,

Six Months Ended September 30,

Other comprehensive (loss) income:

Foreign currency translation adjustments

12,860  

Comprehensive income

$ 7,366  

$ 14,077  

Comprehensive (loss) income

See accompanying notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Three Months Ended June 30,

Six Months Ended September 30,

Cash flows from operating activities:

$ 1,995  

$ 1,217  

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

Depreciation and amortization

Stock-based compensation

Stock-based compensation expense

Non-cash interest and debt amortization

( 826 )  

Cash provided by changes in operating assets and liabilities:

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

Accounts receivable, net

Inventories, net

( 753 )  

Prepaid expenses and other assets

( 1,631 )  

Accounts payable

( 476 )  

Accrued liabilities and taxes payable

3 unchanged sentences

Purchases of property, plant and equipment

( 653 )  

Net cash (used in) investing activities

( 653 )  

Cash flows from financing activities:

Proceeds from the issuance of common stock, net

145,935  

( 824 )  

Proceeds from the exercise of stock options

Payments of contingent consideration

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

11,845  

149,571  

Cash and cash equivalents at beginning of period

263,865  

81,380  

Cash and cash equivalents at end of period

$ 275,710  

$ 230,951  

See accompanying notes to Condensed C onsolidated Fin ancial Statements.

16 unchanged sentences

Foreign currency translation

Cumulative adjustment due to adoption of ASU No.

Cumulative adjustment due to adoption of ASU 2020-06

( 22,735 )  

5 unchanged sentences

$ 399,003  

Exercise of stock options and vesting of restricted stock units

24,340  

Dividends paid, $0.16 per share

( 834 )  

Stock-based compensation expense

Foreign currency translation

( 6,503 )  

September 30, 2021

5,223,232  

$ 302,234  

$ 82,199  

$ 14,984  

$ 399,417  

Number of Shares

24 unchanged sentences

$ 2,491  

$ 382,234  

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  

*Accumulated Other Comprehensive Income (Loss).

9 unchanged sentences

the “Company”

or “Mesa Labs.”

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.

or “Mesa.”

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 June 30, 2021 , we managed our operations in four  reportable segments, or divisions.

September 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.

11 unchanged sentences

March 31, 2021 .

Certain prior year amounts have been reclassified in order to conform to the current year presentation.

Our fiscal year ends on March 

1 unchanged sentence

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. 

mean our fiscal year, references to the first quarter of fiscal year 2022 refer to the period from April 1, 2021 through June 30, 2021, and references to the 

second quarter of fiscal year 2022 refer to the period from July 1, 2021 through September 30, 2021. 

References to “fiscal year 2021”

refer to the fiscal year ended March 31, 2021, and to “fiscal year 2022”

refer to the fiscal year ending March 31, 2022.

Risks and Uncertainties

1 unchanged sentence

These estimates represent management's judgement about the outcome of future events.

The current global business environment continues to be impacted directly and indirectly by the effects of the novel coronavirus ("COVID- 19" ), and it is not possible to accurately predict the future impact of COVID- 19.

The current global business environment continues to be impacted directly and indirectly by the effects of the novel coronavirus ("COVID- 19" ) and its variations, and it is not possible to accurately predict the future impact of COVID- 19.

However, we have reviewed the estimates used in preparing the financial statements and have identified the following factors that have a reasonable possibility of being materially affected by the impacts of COVID- 19 during the near term: 

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 quarter ended March 31, 2021; 

however, we have 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;

Estimates regarding recoverability for customer receivables;

Estimates regarding recoverability of customer receivables;

Estimates of the net realizable value of inventory.

Recently Issued Accounting Pronouncements

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.

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

Recently Adopted Accounting Pronouncements

In August 

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

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

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

7 unchanged sentences

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 .

We recorded an increase of $ 22,799  in aggregate to the Note balance 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 $ 5,683 of historical non-cash interest expense, net of taxes, 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.

Our statements of cash flows reflect the lower non-cash interest expense in effect after the adoption of ASU 

In each period in which the Notes have been outstanding, we have always intended to settle the Notes in shares of common stock rather than in cash, 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.

2 unchanged sentences

We design, manufacture, market, sell, and maintain quality control instruments and software, consumables, and services driven primarily by the regulatory requirements of niche markets.

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

however, some of our chemical solutions, such as protein synthesis and calibration solutions are 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 customer replacement of existing equipment.

Sales of hardware and software, 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 replacing existing equipment.

Hardware sales 

1 unchanged sentence

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.

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

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

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 

one -time basis and require frequent replacement in our customers' operating cycles. We evaluate our revenues internally based on operating segment, the timing of revenue generation, and the nature of goods and services provided.

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

The following tables present disaggregated revenues for the 

three and six months ended September 30, 2021  and 2020 , respectively:

Three Months Ended September 30, 2021

Sterilization and Disinfection Control

8 unchanged sentences

Contracted Revenues

Services and Software

Total Revenues

4 unchanged sentences

$ 35,840  

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Sterilization and Disinfection Control

6 unchanged sentences

Hardware and Software

11,321  

Contracted Revenues

Services and Software

Total Revenues

4 unchanged sentences

$ 31,860  

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 June 30,

Six Months Ended September 30, 2021

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Discrete Revenues

$ 24,861  

$ 8,826  

$ 1,795  

$ 35,499  

Hardware and Software

20,904  

Contracted Revenues

Services and Software

Total Revenues

$ 29,183  

$ 19,432  

$ 14,532  

$ 7,613  

$ 70,760  

Six Months Ended September 30, 2020

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Discrete Revenues

$ 21,002  

$ 5,177  

$ 1,523  

$ 27,747  

Hardware and Software

20,981  

Contracted Revenues

Services and Software

Total Revenues

$ 24,619  

$ 15,080  

$ 15,238  

$ 6,864  

$ 61,801  

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

Three Months Ended September

Six Months Ended September 30,

United States

3 unchanged sentences

$ 27,594  

16,456  

20,638  

32,921  

34,207  

Total revenues

1 unchanged sentence

$ 31,860  

$ 70,760  

$ 61,801  

No foreign country exceeds 10% of total revenues.

1 unchanged sentence

Our contracts have varying payment terms and conditions.

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.

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

Some customers prepay for products and 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.

We did not have any contract assets as of September 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.

2 unchanged sentences

$ 8,994  

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

Prior year liabilities recognized in revenues during the six months ended September 30, 2021

Contract liabilities added during the six months ended September 30, 2021, net of revenues recognized

Contract liabilities balance as of September 30, 2021

$ 10,676  

Fair Value Measurements

Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable and debt.

Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable, and debt.

Due to their short-term nature, the carrying values for cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate fair value.

We measure our cash equivalents at fair value 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.

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

Cash and cash equivalents on our Condensed Consolidated Balance Sheets included $ 240,822 and $ 230,822 in a money market account as of September 30, 2021 and March 31, 2021, respectively.

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

1 unchanged sentence

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

June 30, 2021

September 30, 2021

March 31, 2021

11 unchanged sentences

Assets recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a nonrecurring basis include items such as property and equipment, operating lease assets, goodwill, and other intangible assets.

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

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 

three and six months ended September 30, 2021  or the 

three and six months ended September 30, 2020 .

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

1 unchanged sentence

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.

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

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

3 unchanged sentences

Inventories consist of the following:

June 30, 2021

September 30, 2021

March 31, 2021

7 unchanged sentences

$ 11,178  

Raw materials inventory was higher as of September 30, 2021 compared to March 31, 2021, primarily because we ordered higher than usual quantities of some components during the second quarter of fiscal year 2022 to mitigate supply chain risks. 

Goodwill and Intangible Assets, Net

Finite-lived intangible assets consist of the following:

June 30, 2021

September 30, 2021

March 31, 2021

30 unchanged sentences

$ 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.

Amortization expense for finite-lived intangible assets acquired in a business combination was $ 3,757  and $ 7,573  for the 

three and six months ended September 30, 2021 , respectively, and $ 3,512 and $ 6,866 for the three and six months ended September 30, 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,:

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

Remainder of 2022

3 unchanged sentences

11,731  

12,017  

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

9 unchanged sentences

Effect of foreign currency translation

June 30, 2021

( 100 )  

1 unchanged sentence

( 12 )  

September 30, 2021

$ 30,053  

$ 92,647  

$ 19,174  

$ 18,103  

$ 159,977  

 Indebtedness

9 unchanged sentences

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 balance of unamortized customary lender fees was $ 567 and $ 650 as of September 30, 2021 and 

March 31, 2021 , respectively.

On our Consolidated Balance Sheets, the short term portion is recorded within prepaid expenses and other, and the long term portion is recorded in other assets.

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

16 unchanged sentences

 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.

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

As of and throughout the three and six months ended September 30, 2021 , we had 

no  outstanding balance under the Credit Facility.

On October 18, 2021, we drew $ 70,000 under our line of credit to provide a portion of the cash needed to complete the acquisition of Agena Biosciences, Inc.

("Agena") as further discussed in Note 11.

"Significant Transactions." We are obligated to pay quarterly unused commitment fees of between 0.15 % and 0.35 % of the Credit Facility’s aggregate principal amount, based on our leverage ratio.

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.

We incurred unused commitment fees of $ 28 and $ 57 during the three and six months ended September 30, 2021 , respectively, and $ 0 and $ 0 during the three and six months ended September 30, 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 

On August 12, 2019, we issued an aggregate principal amount of $ 172,500 of convertible senior 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 common stock per 

10 unchanged sentences

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 .

The circumstances necessary for conversion were not met during the three or six months ended September 30, 2021 .

As of September 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 period. The if-converted value of the Notes did not exceed the principal balance as of 

September 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 .

5 unchanged sentences

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:

June 30, 2021

The net carrying amount of the Notes was as follows:

September 30, 2021

March 31, 2021

9 unchanged sentences

We recognized interest expense on the Notes as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Coupon interest expense at 1.375%

$ 1,186  

Amortization of debt discounts and issuance costs

$ 1,934  

$ 1,629  

$ 3,853  

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 %. 

1 unchanged sentence

Stock-Based Compensation

During the three months ended September 30, 2021, our shareholders approved the Mesa Laboratories, Inc.

2021 Equity Incentive Plan (the "2021 Equity Plan"), which authorizes the issuance of 330 shares of common stock to eligible participants.

For the purpose of counting the shares remaining under the 2021 Equity Plan, each share underlying a stock option or a full value award (such as restricted stock units and performance shares) counts as one share used.

The 2021 Equity Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to grant equity awards, or to delegate its authority under the plan to make grants (subject to certain legal and regulatory restrictions), including the authority to determine the individuals to whom awards will be granted, the type of awards and when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule, and all other terms and conditions of the awards.

Our 2021 Equity Plan includes retiree provisions, which result in the acceleration of stock-based compensation expense for retiree-eligible participants. 

The exercise price for stock awards granted under the 2021 Equity Plan cannot be less than fair market value at the date of grant.

Shares issued during the six months ended September 30, 2021 were issued in connection with the 2021 Equity Plan.

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Stock-based compensation expense

1 unchanged sentence

$ 2,008  

$ 4,236  

$ 3,276  

Amount of income tax (benefit) recognized in earnings

( 719 )  

( 522 )  

( 3,504 )  

Stock-based compensation expense, net of tax

$ 1,320  

$ 1,486  

$ 1,829  

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

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

The following is a summary of stock option award activity for the six months ended September 30, 2021:

Stock Options

7 unchanged sentences

Awards granted

268.85  

Awards forfeited or expired

173.29  

Awards exercised or distributed

Awards exercised

( 37 )  

Outstanding as of June 30, 2021

Outstanding as of September 30, 2021

$ 154.16  

$ 37,092  

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

The stock options granted during the six months ended September 30, 2021 vest in equal installments on September 1, 2022, June 15, 2023 and June 15, 2024.

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

Time-Based Restricted Stock Units

8 unchanged sentences

Awards granted

267.09  

Performance adjustment (2)

7 unchanged sentences

197.81  

Outstanding as of June 30, 2021 (1)

Outstanding as of September 30, 2021 (1)

$ 244.45  

1 unchanged sentence

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.

During the three months 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.

1 unchanged sentence

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.

The substantial majority of the RSUs granted during the six months ended September 30, 2021 vest in equal installments on September 1, 2022, June 15, 2023 and June 15, 2024, except time-based RSUs issued to non-employee directors, which vest one year from the grant date.

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

16 unchanged sentences

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 

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

During the three months 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.

1 unchanged sentence

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. 

 As a result of the modification, we recognized the previously unrecognized compensation cost of $ 351 during the three months ended June 

Public Offering of Common Stock

6 unchanged sentences

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.

Stock awards are excluded from the calculation of diluted EPS in the event that they are subject to performance conditions that have not yet been achieved or are antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an antidilutive effect. 

The impact of the assumed conversion of the Notes calculated under the if-converted method was anti-dilutive, and as such, shares underlying the Notes were excluded from the diluted EPS calculation for quarter ended June 30, 2021 . 

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,

Three Months Ended September 30,

Six Months Ended September 30,

Net income available for shareholders

1 unchanged sentence

$ 2,679  

$ 5,715  

$ 3,896  

Weighted average outstanding shares of common stock

5 unchanged sentences

$ 0.52  

$ 1.10  

$ 0.81  

Diluted earnings per share

1 unchanged sentence

$ 0.51  

$ 1.07  

$ 0.79  

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Assumed conversion of convertible debt

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There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, settlement with taxing authorities, and foreign currency fluctuations.

Our effective income tax rate was ( 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.

Our effective income tax rate was 4.1 % for the six months ended September 30, 2021 and ( 24.2 )% for the six months ended September 30, 2020. 

The effective tax rate for the six months ended September 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 

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is under review by the IRS.

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

examination. 

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

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

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We review the adequacy of our legal reserves on a quarterly basis and establish reserves for loss contingencies that are both probable and reasonably estimable.

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

As of September 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.

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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 

The balance was $ 2,700 and $ 2,714  as of September 30, 2021  and March 31, 2021 , respectively.

The balance decreased because we settled our obligations with certain states during the six months ended September 30, 2021, 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 Transactions

Agena Bioscience, Inc.

On October 20, 2021, we completed the acquisition of Agena.

Agena is a leading clinical genomics tools company that develops, manufactures, and supplies highly sensitive, low-cost, high-throughput, genetic analysis solutions to clinical labs and development partners globally. 

On the acquisition date, Agena shareholders were entitled to an aggregate cash purchase price of $ 300,000 , subject to customary purchase price adjustments, and that amount was remitted to the paying agent or other third parties.

We funded the transaction using cash on hand, combined with the proceeds from a $ 70,000  draw under our Credit Facility.

Refer to Note 6.

"Indebtedness" for additional details on our Credit Facility.

The initial accounting for Agena is not complete due to the limited amount of time since the acquisition date.

In an acquisition, U.S.

GAAP requires the company to record all assets acquired and all liabilities assumed at the acquisition date fair value.

We are in the process of preparing our preliminary purchase price allocation, including initial estimates for inventory, goodwill, and intangible assets. 

Butler, New Jersey Closure

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

June 30, 2021. 

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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.

As a result of the facility consolidation, we incurred $ 77  of severance costs during the six months ended September 

30, 2021  which were recorded to cost of revenues, selling, and general and administrative expense on the Consolidated Statement of Income.

September 30, 2021, 

a total of $ 70  remained outstanding and accrued, which 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 June 30, 2021 , we had four  reportable segments: Sterilization and Disinfection Control, Biopharmaceutical Development, Instruments, and Continuous Monitoring. 

Three Months Ended June 30,

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

Three Months Ended September 30,

Six Months Ended September 30,

Total revenues (a)

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$ 11,552  

$ 29,183  

$ 24,619  

Biopharmaceutical Development

10,555  

19,432  

15,080  

14,532  

15,238  

Continuous Monitoring

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$ 31,860  

$ 70,760  

$ 61,801  

Gross profit (loss)

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$ 8,770  

$ 21,914  

$ 18,790  

Biopharmaceutical Development

11,293  

10,678  

Continuous Monitoring

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21,202  

45,447  

41,561  

Corporate and Other (b)

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$ 23,140  

$ 21,285  

$ 45,351  

$ 41,625  

Reconciling Items:

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16,815  

38,027  

33,585  

Operating income

Nonoperating expense, net

Nonoperating (income) expense, net

( 342 )  

Earnings before income taxes

$ 4,543  

$ 2,384  

$ 5,961  

$ 3,138  

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

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not  provided with any other segment asset information. 

September 30,

Sterilization and Disinfection Control

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$ 11,178  

Subsequent Event

As disclosed in our Form 8 -K filed on October 29, 2021, the Compensation Committee of Mesa's Board of Directors granted a special long-term equity award (the “Special Award”) to Gary Owens, Chief Executive Officer and Member of the Board of Directors on October 28, 2021.

The Special Award consists of an award of performance stock units covering a target of 40,000 shares (“PSUs”) that is subject to both performance and service conditions.

The performance period of the award is the three -year period from April 1, 2021 through March 31, 2024 and the service period is the period commencing October 28, 2021 and ending on October 27, 2024, October 27, 2025, and October 27, 2026 on which dates eligible PSUs will vest and be distributed to Mr.

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 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.

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,”

“anticipate,”

“intend,” “seek,”

“plan,”

“believe,”

“could,”

“estimate,”

“may,”

“target,”

“project,”

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;

results of acquisitions;

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 components;

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.

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

Words such as “

expect, ”

intend, ” “

seek, ”

plan, ” “

anticipate, ”

believe, ”

could, ”

estimate, ”

may, ”

target, ”

project, ”

or variations of such words and similar expressions are intended to identify forward-looking statements.

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 adverse effects on our business;

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

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

the results on operations of acquisitions;

our ability to consummate acquisitions at our historical rate and at appropriate prices, and our ability to effectively integrate acquired businesses and achieve desired results;

the market acceptance of our products;

technological or market viability of our products;

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

reduced demand for our products;

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

significant developments or uncertainties stemming from governments, including changes in  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;

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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;

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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. 

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 are a multinational manufacturer, developer, and seller of life science tools and critical quality control products and services, many of which are sold into niche markets that are driven by regulatory requirements. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia, 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 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.

As of September 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

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

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

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

Organic Revenues Growth

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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®.

Over the past decade, we have consummated a number of acquisitions as part of our growth strategy.

On October 20, 2021, we announced the completion of the acquisition of Agena for an aggregate purchase price of $300 million, subject to customary purchase price adjustments. Agena is a leading clinical genomics tools company that develops, manufactures, and supplies highly sensitive, low-cost, high-throughput, genetic analysis solutions to clinical labs and development partners globally. The acquisition of Agena accelerates Mesa's strategic trajectory towards higher growth applications within the regulated segments of the life sciences tools market.

Going forward, we expect the substantial majority of our revenues to be generated from sales to pharmaceutical, healthcare service, and medical device verticals. 

Improving Our Operating Efficiency

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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.

During March 2020, the impact from the spread of COVID-19 was declared a global pandemic by the World Health Organization and a national public health emergency in the United States.

We continue to monitor the pandemic, including the current spread of certain variants of the virus, and we have taken and will continue to take steps to identify and mitigate the adverse impact on, and risks to, our business (including but not limited to our employees, customers, vendors, manufacturing capabilities and capacity, and supply and distribution channels) posed by the spread of COVID-19 and the government responses thereto.

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.

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 during the six months ended September 30, 2021, and continue to do so.

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.

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.

changed purchasing behavior and confidence. 

COVID-19 has also caused broad market phenomena such as supply chain disruptions, inflation, and wage pressure to which we are susceptible.

Currently, supply chain constraints are affecting the ability of suppliers to provide components used to manufacture certain of our products. 

We experienced increased supply constraints for certain components used in our operations, particularly components used by the Instruments division.

We continue to work with our suppliers to understand the existing and potential future impacts to our supply chain and are taking actions in an effort to mitigate such impacts, including pre-ordering components in higher quantities than usual, which has resulted in increased raw materials balances on our balance sheet as of September 30, 2021.

However, during the quarter ended September 30, 2021, we were more impacted by our inability to acquire various components on a timely basis, which is discussed in more detail in our "Results of Operations" and "Risk Factors" below.

We expect disruptions to our supply chain to persist for at least the next four to six fiscal quarters. 

Apart from COVID-19, 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.

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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.

We are continuing the integration process into our Lakewood, Colorado manufacturing facility.

In addition, our Lakewood facility is currently undergoing renovations that will allow it to better accommodate the production of the gas flow calibration and air sampling equipment.

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Financial Statements (in thousands, except percent data).

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:

Revenues from our reportable segments increased 12% and 14% for the three and six months ended September 30, 2021, respectively.

The revenues growth was entirely a result of organic revenues growth. Gross profit as a percentage of revenues decreased two percentage and three percentage points for the three and six months ended September 30, 2021, respectively, compared to the three and six months ended September 30, 2020, respectively. Results by reportable segment are as follows:

Organic Revenues Growth

Gross Profit as a % of Revenues

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

Three Months Ended September 30, 2021

Three Months Ended September 30, 2020

Three Months Ended September 30, 2021

Three Months Ended September 30, 2020

Three Months Ended September 30, 2021

Three Months Ended September 30, 2020

Sterilization and Disinfection Control

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Mesa Labs' reportable segments

Organic Revenues Growth

Gross Profit as a % of Revenues

Six Months Ended September 30, 2021

Six Months Ended September 30, 2020

Six Months Ended September 30, 2021

Six Months Ended September 30, 2020

Six Months Ended September 30, 2021

Six Months Ended September 30, 2020

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Mesa Labs' reportable segments

Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Operating expenses

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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 June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Gross profit as a % of revenues

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.

Sterilization and Disinfection Control revenues increased 21% and 19% for the three and six months ended September 30, 2021, respectively, which was achieved through effective efforts by our sales team to market and sell certain products to a larger customer base, particularly in Europe, volume increases with existing customers, and recovery of the healthcare services markets, partially offset by a modest strengthening of the U.S.

dollar against the euro.

Sterilization and Disinfection Control gross profit percentage decreased one percentage point for both the three and six months ended September 30, 2021, primarily as a result of product mix and slightly higher production costs. 

Biopharmaceutical Development

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 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.

Biopharmaceutical Development's revenues increased 16% and 29% for the three and six months ended September 30, 2021, respectively, due primarily increased sales of consumables as our laboratory customers were open for more normal operating hours in the first two quarters of fiscal year 2022 compared to the first two quarters of fiscal year 2021.

The division's laboratory customers used significantly more consumables, driving 61% and 70% increases in consumables revenues for the three and six months ended September 30, 2021, respectively. To a lesser extent, increased digital marketing and sales efforts increased revenues in the Biopharmaceutical Development division. 

Biopharmaceutical Development's gross profit percentage was 63% for the quarter ended September 30, 2021.

The gross profit percentage decreased as compared to the quarter ended September 30, 2020 as a result of a slightly unfavorable change in foreign exchange rates and higher labor costs, as well as unfavorable product mix.

Biopharmaceutical Development's gross profit percentage was 58% for the six months ended September 30, 2021 as a result of a significantly unfavorable change in foreign exchange rates, the benefit of a positive $258 purchase accounting adjustment in the six months ended September 30, 2020, higher labor-related costs, and unfavorable product mix.

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 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. 

The USD was significantly weaker against the SEK during the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, and although the USD strengthened to some extent during the quarter ended September 30, 2021, our reported costs in USD have increased substantially, while revenues have not benefited significantly from the change in currency valuation.

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

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 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. 

Instruments division revenues decreased 8% and 5% for the three and six months ended September 30, 2021, respectively, primarily as a result of supply and labor constraints, despite increased orders within the division.

Particularly during the quarter ended September 30, 2021, we experienced constraints in the supply chain for components used in Instruments division products.

Although fulfillment of some orders is delayed, to-date we have been able to retain the significant majority of our customers and orders. Separately, during the quarter ended June 30, 2021, order fulfillment of gas flow calibration and air sampling equipment was lower than the quarter ended June 30, 2020 as we worked to relocate the manufacturing of those items from our Butler, New Jersey facility to our Lakewood, Colorado facility, including hiring manufacturing employees to fulfill orders. 

Instruments gross profit percentage decreased five percentage points and three percentage points during the three and six months ended September 30, 2021, respectively. The decrease in gross profit percentage resulted from lower revenues on a partially fixed cost base, higher labor costs as a result of a strong competition for employees in the labor market, increased costs for components and supplies, and to a lesser extent, increased freight on purchased components.

Supply chain disruptions are expected to continue for at least the next four to six quarters, although these increased costs will negatively impact gross profit percentage only until we implement price increases to our customers during the fourth quarter of fiscal year 2022.

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 June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Gross profit 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. 

The Continuous Monitoring division's revenues increased 18% and 11% for the three and six months ended September 30, 2021, due primarily to an increase in customers allowing access to their facilities as our service technicians were able to go to client sites to complete service requests and hardware installations.

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 six months of fiscal year 2021.

Continuous Monitoring gross profit percentage increased nine percentage points for both the three and six months ended September 30, 2021, primarily due to modifications made to our product offerings and pricing models which were implemented during 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 quarter ended June 30, 2021 increased 14% compared to the prior year as our overall business grew.

Operating expenses increased 13% for both the three and six months ended September 30, 2021 compared to the three and six months ended September 30, 2020 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 June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Selling expense

As a percentage 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.

Selling expense for the three and six months ended September 30, 2021 increased 23% and 21%, respectively, 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 during the first quarter of fiscal year 2022, resulting in higher labor-related costs, including accruing commissions on higher sales.

Further, we continued to invest in new marketing materials to support our sales staff.

As a percentage of revenues, selling expense was 13% for both the three and six months ended September 30, 2021, compared to 12% and 13% for the three and six months ended September 30, 2020, respectively.

We expect total selling expense will approximate 13% to 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 our general and administrative expense.

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

General and administrative expense

As a percentage of revenues

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.

General and administrative expenses increased 10% for the quarter ended September 30, 2021, as a result of increased software costs as we implemented a new human resources information and payroll system during the quarter ended September 30, 2021, and unfavorable changes in foreign exchange rates, as general and administrative costs incurred in Uppsala, Sweden are recorded in Swedish Krona and translated to USD for reporting purposes.

Since the USD has weakened against the Swedish Krona during the quarter ended September 30, 2021 as compared to the quarter ended September 30, 2020, our reported costs in USD have increased.

General and administrative expenses increased 12% for the six months ended September 30, 2021, primarily as a result of higher stock-based compensation expense, increased amortization costs resulting from a $344 cumulative effect decrease to amortization expense recorded during the first quarter of fiscal year 2021 as part of a purchase price adjustment, increased software costs as we implemented a new human resources information and payroll system during the three months ended September 30, 2021, and unfavorable change in foreign exchange rates.

Our stock-based compensation expense increased in the six months ended September 30, 2021 primarily because we modified an RSU that resulted in recognition of compensation costs totaling $351 during the quarter ended June 30, 2021 and we issued 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 six months ended September 30, 2021 compared to the six months ended September 30, 2020. 

Research and Development

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Research and development expense

As a percentage of revenues

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. 

Research and development expenses increased 8% for the three and six months ended September 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, as well as unfavorable changes in foreign exchange rates for costs incurred in Uppsala, Sweden.

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

Nonoperating Expense 

Three Months Ended June 30,

Nonoperating expense

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

Three Months Ended September 30,

Six Months Ended September 30,

Nonoperating (income) expense

Nonoperating expense for the three and six months ended September 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") and gains and losses on foreign currency transactions.

Interest expense and amortization of debt discount decreased for the three and six months ended September 30, 2021 compared to the three and six months ended September 30, 2020 due to our adoption of ASU 2020-06, which resulted in a reduction in non-cash interest expense related to the Notes.

Nonoperating expenses also decreased as we recorded net unrealized gains on foreign currency related to certain of our intercompany notes resulting from the movement of the Swedish Krona against the USD.

Three Months Ended September 30,

Six Months Ended September 30,

Income tax provision (benefit)

Effective tax rate

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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).

Net income for the six months September 30, 2021 varied with the changes in revenues, gross profit, and operating expenses (and includes $7,573 and $4,236 of non-cash amortization of intangible assets acquired in a business combination, and stock-based compensation, 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.

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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. 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.

We believe that cash and cash equivalents on hand and cash generated from operations, as well as the reminder of the unused capacity under our Credit Facility will be sufficient to meet our short-term and long-term needs.

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 $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 had working capital of $290,714 and $271,166 as of September 30, 2021, and March 31, 2021, respectively.

As of September 30, 2021, and March 31, 2021, we had $278,294 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.

As of September 30, 2021, we had not drawn from the Credit Facility. 

On October 20, 2021, we completed the acquisition of Agena for $300,000, subject to customary purchase price adjustments, pursuant to the terms of the previously announced Agreement and Plan of Merger dated September 13, 2021.

We funded the acquisition and transactions relating thereto with cash on hand, and on October 18, 2021, we drew $70,000 on our existing line of credit for cash funds necessary to complete the acquisition.

Following the draw, we had $5,000 remaining available to draw on the line of credit.  

As of September 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 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.

We currently expect to settle future conversions of the Notes entirely in shares of our common stock and will reevaluate this policy from time to time in the event that conversion conditions are met and conversion notices are received from holders of the Notes. We were in compliance with all debt agreements at September 30, 2021 and for all prior years presented and have met all debt payment obligations.

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

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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.

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, however, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all.

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

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We have paid regular quarterly dividends since 2003.

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.

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

In October 2021, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on December 15, 2021, to shareholders of record at the close of business on November 30, 2021.

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

Three Months Ended June 30,

Six Months Ended September 30,

Net cash provided by operating activities

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Net cash provided by financing activities

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.

Cash flows from operating activities for the six months ended September 30, 2021 provided $14,023. 

The $1,413 increase in cash flows from operations primarily resulted from increased net income and and increased non-cash stock-based compensation expense, partially offset by lower depreciation and amortization and lower non cash interest expense as a result of the adoption of ASU 2020-06.  Further, cash used by operating assets and liabilities decreased by $887 for the six months ended September 30, 2021 compared to the six months ended September 30, 2020.

Cash used in investing was higher during the six months ended September 30, 2021 compared to the six months ended September 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.

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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. 

During the three and six months ended September 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 September 30, 2021, we had contractual obligations for open purchase orders of approximately $11,099 for routine purchases of supplies and inventory, which are payable in less than one year.

Open purchase orders increased during the three months ended September 30, 2021 as we took proactive steps to mitigate risks in our supply by increasing our orders of certain critical raw materials.

Off-Balance Sheet Arrangements

As of June 30, 2021, we had no off-balance sheet arrangements or obligations.

As of September 30, 2021, we had no off-balance sheet arrangements or obligations.

Critical Accounting Policies and Estimates

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Actual amounts and results could differ from these estimates made by management.

Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended March 31, 2021, in the Critical Accounting Policies and Estimates section of “Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Management's Discussion and Analysis of Financial Condition and Results of Operations .

Quantitative and Qualitative Disclosures a bout Market Risk

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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