What changed in this filing

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Item 1. Financial Statements

2022-02-03 compared with 2021-11-04 · 643 added, 329 removed, 848 unchanged (53% of the section changed)

3 unchanged sentences

(dollars in thousands, except share amounts)

September 30,

Current assets:

12 unchanged sentences

303,749  

Property, plant and equipment, net

Property, plant and equipment, net of accumulated depreciation of $ 17,998 and $ 16,330 , respectively

30,152  

1 unchanged sentence

Deferred tax asset

11,763  

Intangibles, net

11 unchanged sentences

Accrued payroll and benefits

13,978  

Unearned revenues

12,483  

Other accrued expenses

12,487  

Total current liabilities

5 unchanged sentences

Other long-term liabilities

Credit Facility

60,000  

Convertible senior notes, net of discounts and debt issuance costs

15 unchanged sentences

16,116  

Total stockholders’

6 unchanged sentences

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Income

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

$ 54,696  

$ 34,172  

$ 125,456  

$ 95,973  

Cost of revenues

26,069  

13,519  

51,478  

33,695  

28,627  

20,653  

73,978  

62,278  

Operating expenses:

18,459  

12,614  

General and administrative

17,017  

13,173  

40,119  

33,887  

Research and development

10,588  

Total operating expenses

Operating income

Nonoperating expenses:

31,139  

20,631  

69,166  

54,216  

Operating (loss) income

( 2,512 )  

Nonoperating (income) expense:

Interest expense and amortization of debt discount

Other (income) expense, net

( 1,189 )  

( 1,455 )  

Total nonoperating (income) expense

Earnings before income taxes

Income tax provision (benefit)

Earnings per share:

( 171 )  

10,651  

(Loss) earnings before income taxes

( 2,341 )  

( 5,727 )  

Income tax (benefit)

( 281 )  

( 1,185 )  

( 35 )  

Net (loss) income

$ ( 2,060 )  

$ ( 4,542 )  

$ 3,655  

(Loss) earnings per share:

$ ( 0.39 )  

$ ( 0.89 )  

$ 0.70  

$ ( 0.39 )  

$ ( 0.89 )  

$ 0.69  

Weighted-average common shares outstanding:

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(in thousands)  

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Net (loss) income

$ ( 2,060 )  

$ ( 4,542 )  

$ 3,655  

Other comprehensive (loss) income:

Foreign currency translation adjustments

( 6,165 )  

21,142  

( 7,297 )  

39,264  

Comprehensive (loss) income

$ ( 8,225 )  

$ 16,600  

$ ( 3,642 )  

$ 38,618  

See accompanying notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Six Months Ended September 30,

Nine Months Ended December 31,

Cash flows from operating activities:

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

Net income (loss)

$ 3,655  

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

Depreciation and amortization

15,686  

12,933  

Stock-based compensation expense

Non-cash interest and debt amortization

Amortization of step-up in inventory basis

Foreign currency adjustments

( 1,375 )  

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

Accounts receivable, net

( 2,258 )  

Inventories, net

Prepaid expenses and other assets

( 1,933 )  

Accounts payable

Accrued liabilities and taxes payable

( 1,403 )  

Unearned revenues

Net cash provided by operating activities

29,921  

23,553  

Cash flows from investing activities:

Acquisitions, net of cash acquired

( 300,793 )  

Purchases of property, plant and equipment

( 3,650 )  

Net cash (used in) investing activities

( 304,443 )  

Cash flows from financing activities:

Proceeds from the issuance of common stock, net

Proceeds from the issuance of debt

70,000  

Payments of debt

( 10,000 )  

( 2,495 )  

Proceeds from the exercise of stock options

Payments of contingent consideration

( 234 )  

Proceeds from the issuance of common stock, net

145,935  

Net cash provided by financing activities

62,623  

147,275  

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

( 260 )  

Net (decrease) increase in cash and cash equivalents

( 212,159 )  

172,351  

Cash and cash equivalents at beginning of period

263,865  

81,380  

Cash and cash equivalents at end of period

$ 51,706  

$ 253,731  

See accompanying notes to Condensed C onsolidated Fin ancial Statements.

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$ 399,417  

Exercise of stock options and vesting of restricted stock units

21,396  

Dividends paid, $ 0.16 per share

( 837 )  

Stock-based compensation expense

Foreign currency translation

( 6,165 )  

( 2,060 )  

December 31, 2021

5,244,628  

$ 308,208  

$ 79,302  

$ 8,819  

$ 396,329  

Number of Shares

37 unchanged sentences

$ 392,412  

Exercise of stock options and vesting of restricted stock units

13,590  

Dividends paid, $ 0.16 per share

( 819 )  

Stock-based compensation expense

Foreign currency translation

21,142  

( 4,542 )  

December 31, 2020

5,131,031  

$ 314,537  

$ 69,363  

$ 28,895  

$ 412,795  

*Accumulated Other Comprehensive Income (Loss).

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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.

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.

We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world.

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

As described in Note 12.

"Segment Information," following the acquisition (the "Agena Acquisition") of Agena Bioscience, Inc.

("Agena") on October 20, 2021, 

we changed our financial reporting segments to align with strategic changes in the way we manage our business units.

These changes impacted our reportable segments but did not impact our consolidated financial statements. Segment information presented herein reflects the impact of these changes for all periods presented.

As of December 31, 2021, we managed our operations in four reportable segments, or divisions:

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

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

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

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

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

Our Continuous Monitoring division designs, develops, and markets systems which are used to monitor various environmental parameters such as temperature, humidity, and differential pressure to ensure that critical storage and processing conditions are maintained in hospitals, pharmaceutical and medical device manufacturing facilities, blood banks, pharmacies, and laboratory environments. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.

Biopharmaceutical Development 

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

Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic drugs. Customers include biopharmaceutical research, development, and manufacturing teams at biopharmaceutical companies and academic research and development laboratories. 

Calibration Solutions 

- develops, manufactures, and sells quality control and calibration products used to measure or calibrate temperature, pressure, pH, humidity, and other such parameters for health and safety purposes, primarily in hospital, medical device manufacturing, pharmaceutical manufacturing, and various laboratory environments. This division represents a combination of the historical Instruments and Continuous Monitoring reportable segments.

Clinical Genomics - develops, manufactures, and sells highly sensitive, low-cost, high-throughput, genetic analysis tools used by labs to perform clinical genomic testing in several therapeutic areas, such as newborn screenings, pharmacogenetics, and oncology. This division is a new reportable segment comprised entirely of Agena's operations.

For more information on Mesa's acquisition of Agena, see Note 11.

 "Significant Transactions." 

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

Basis of Presentation

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GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission.

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

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

The results of operations for the interim periods are not necessarily indicative of results that may be achieved for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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or “year-end”

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. 

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, references to the 

second quarter of fiscal year 2022 refer to the period from July 1, 2021 through September 30, 2021, and references to the third quarter of fiscal year 2022 refer to the period from October 1, 2021 through December 31, 2021. 

References to “fiscal year 2021”

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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 its variations, 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 variants, 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 have identified no triggering events since our impairment analysis was completed during the quarter ended March 31, 2021; 

however, we have identified no COVID- 19 -related 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;

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

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

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

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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.

 The adoption of this standard has significantly decreased the amount of non-cash interest expense recognized in our Condensed Statement of Operations 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 

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

On October 28, 2021, the FASB issued Accounting Standard Update No.

2021 - 08 ("ASU 2021 - 08" ), 

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, 

which amends Accounting Standards Codification ("ASC") 805 to require acquiring entities to apply ASC 

606 to recognize and measure contract assets and contract liabilities in a business combination.

Prior to adoption, an acquirer generally recognized such items at fair value on acquisition date. 

We early adopted ASU 2021 - 08 upon its issuance effective October 28, 2021 

and applied the amendments retrospectively to the Agena Acquisition, which occurred during fiscal year 2022, the year in which we adopted the amendment.

As a result of adopting ASU 2021 - 08, we recognized Agena's deferred revenue at its recorded book value of $ 3,168 rather than at fair value, after determining that Agena's application of ASC 606 was appropriate and the underlying accounting for deferred revenue included no material errors. 

Revenue Recognition

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

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.

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

Sales of hardware and software, such as instruments used for molecular and genetic analysis, protein synthesizers, medical meters, wireless sensor systems, and data loggers, are generally driven by our acquisition of new customers, growth of existing customers, or customers replacing existing equipment.

Hardware sales 

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

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

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.

We also offer on-demand and time-based service and maintenance contracts on our instruments.

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

however, some of our consumables, such as reagents used for molecular and genetic analysis, protein synthesis, and calibration solutions, are critical to the ongoing use of our instruments.

Consumables are typically used on a 

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.

one -time basis and require frequent replacement in our customers' operating cycles. Revenues from our new Clinical Genomics segment are derived from our recently acquired Agena business (See Note 11.

"Significant Transactions").

These revenues consist of sales of consumables and instruments used in molecular and genetic analysis, as well as sales of discrete and contracted instrument maintenance agreements.

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

Typically, discrete revenue is recognized 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.

Substantially all of our revenues and related receivables are generated from contracts with customers that are 

The significant majority of our revenues and related receivables are generated from contracts with customers that are 

12  months or less in duration.

The following tables present disaggregated revenues for the 

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

Three Months Ended September 30, 2021

three and nine months ended December 31, 2021  and 2020 , respectively:

Three Months Ended December 31, 2021

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics*

Discrete Revenues

2 unchanged sentences

$ 10,221  

$ 28,331  

Hardware and Software

8 unchanged sentences

$ 54,696  

Three Months Ended September 30, 2020

Three Months Ended December 31, 2020

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics*

Discrete Revenues

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$ 34,172  

$ 31,860  

Six Months Ended September 30, 2021

Nine Months Ended December 31, 2021

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics*

Discrete Revenues

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$ 10,221  

$ 63,830  

Hardware and Software

11,936  

20,608  

37,446  

13,288  

Contracted Revenues

Services and Software

10,892  

Total Revenues

4 unchanged sentences

$ 125,456  

Six Months Ended September 30, 2020

Nine Months Ended December 31, 2020

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics*

Discrete Revenues

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10,518  

22,127  

33,033  

11,548  

Contracted Revenues

5 unchanged sentences

$ 95,973  

$ 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,

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

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

Three Months Ended December 31,

Nine Months Ended December 31,

United States

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Our contracts have varying payment terms and conditions.

Some customers prepay for products and services, resulting in unearned revenues or customer deposits, called contract liabilities, 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.

Some customers prepay for products and services, resulting in unearned revenues or customer deposits, called contract liabilities.

Short-term contract liabilities are included within other accrued expenses and unearned revenues in the accompanying Condensed Consolidated Balance Sheets, and long-term contract liabilities are included within other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.

We did not have any contract assets as of 

December 31, 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.

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$ 8,994  

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

Prior year liabilities recognized in revenues during the nine months ended December 31, 2021

Contract liabilities added during the nine months ended December 31, 2021, net of revenues recognized

10,201  

Contract liabilities balance as of December 31, 2021

$ 13,808  

Contract liabilities of $ 3,538  added during the nine months ended December 31, 2021 are attributable to the Agena Acquisition (See Note 11.

"Significant Transactions").

Fair Value Measurements

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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.

Cash and cash equivalents on our Condensed Consolidated Balance Sheets included $ 0 held in a money market account as of December 31, 2021, compared to $ 230,822 held in a money market account as of March 31, 2021.

We used the money market funds for the Agena Acquisition, see Note 11.

"Significant Transactions."

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

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

September 30, 2021

December 31, 2021

March 31, 2021

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 "Indebtedness." 

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

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.

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

Preliminary fair values assigned to assets acquired and liabilities assumed in the Agena Acquisition, except deferred revenues, were measured using Level 3 inputs, as discussed further in Note 11.

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

three and nine months ended December 31, 2021  or the 

three and nine months ended December 31, 2020 .

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

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

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

Inventories, Net

Supplemental Balance Sheets Information

Inventories consist of the following:

September 30, 2021

December 31, 2021

March 31, 2021

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$ 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. 

As of December 31, 2021, $ 11,560 of the total inventory on hand was acquired as part of the Agena Acquisition and is attributable to the Clinical Genomics division.

Finished goods inventory of Agena included $ 6,062 of inventory step-up as of October 20, 2021, which was required to report inventory at fair value at the time of acquisition.

The inventory step-up was amortized to cost of revenues over approximately two months following the acquisition date, which resulted in a temporary reduction in gross profit for the Clinical Genomics division and the consolidated financial results.

We fully amortized the $ 6,062 inventory step-up to costs of revenues on the Consolidated Statement of Operations during the period from October 20, 2021 to December 31, 2021.

Other accrued expenses consist of the following:

December 31, 2021

March 31, 2021

Accrued business taxes

$ 6,289  

$ 6,397  

Current operating lease liabilities

Interest payable

Accrued professional services

Total other accrued expenses

$ 12,487  

$ 9,945  

As of December 

31, 2021 and March 31, 2021, operating lease right-of-use assets where we are the lessee were $ 10,785 and $ 1,930 , respectively, and are included within other assets in the accompanying Condensed Consolidated Balance Sheets. 

The associated operating lease liabilities were $ 10,604 and $ 1,700 as of December 

31, 2021 and March 31, 2021, respectively, and are included in other accrued expenses and other long-term liabilities.

The increased balances are due to the acquisition of Agena. 

Goodwill and Intangible Assets, Net

Finite-lived intangible assets consist of the following:

September 30, 2021

December 31, 2021

March 31, 2021

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( 3,333 )  

21,027  

( 3,129 )  

Customer relationships

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$ 111,741  

The increase in the intangible assets balance from March 31, 2021 to December 31, 2021 

is primarily related to the Agena Acquisition.

"Significant Transactions" for more information. 

Amortization expense for finite-lived intangible assets acquired in a business combination was $ 5,922  and $ 13,495 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 . 

three and nine months ended December 31, 2021 , respectively, and $ 3,828  and $ 10,694  for the three and nine months ended December 31, 2020 , respectively.

The increase in intangibles amortization was primarily attributable to amortizing intangible assets acquired in the Agena Acquisition.

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

Remainder of 2022

14,622  

14,107  

12,515  

11,731  

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

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Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics

March 31, 2021

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$ 160,841  

Effect of foreign currency translation

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( 35 )  

September 30, 2021

Goodwill acquired in Agena Acquisition

136,006  

December 31, 2021

$ 29,878  

1 unchanged sentence

$ 37,254  

$ 136,006  

$ 293,542  

The Agena Acquisition created an impetus for us to realign our financial reporting segments (See Note 12.

“Segment Information”) and reevaluate the underlying reporting units that form the basis of our goodwill impairment testing.

As a result of adjustments to our reporting units, we performed goodwill impairment assessments during the quarter ended December 31, 2021.

Based on those assessments, we determined that the fair value of each reporting unit exceeded its carrying value, and no impairment existed as of the date of the Agena Acquisition or as of December 31, 2021.

 Indebtedness

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not  exceeding $ 2,500  at any time. The Credit Facility also provides for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $ 25,000  and at a maximum $ 75,000 , subject to the satisfaction of certain conditions and lender considerations (together, the available facilities are referred to as the "Credit Facility").

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

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

Amounts borrowed under the Credit Facility bear interest at either a base rate or a Eurodollar rate, plus an applicable spread.

The weighted average interest rate on borrowing under our line of credit during the third quarter of fiscal year 2022 was 1.5 %.

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 

We incurred unused commitment fees of $ 13  and $ 70  during the three and nine months ended December 31, 2021 , respectively, and the balance of unamortized customary lender fees was $ 526  and $ 650 as of December 31, 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.

On our Consolidated Balance Sheets, the short term portion of unamortized fees 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. 

The most restrictive financial covenants include a maximum leverage ratio of 

The financial covenants in the Credit Facility include a maximum leverage ratio of 

5.50  to 

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 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.

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 

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.

December 31, 2021 , we were in compliance with all required covenants.

On October 18, 2021, we borrowed $ 70,000 under the Credit Facility to provide a portion of the cash needed to complete the Agena Acquisition as further discussed in Note 11.

"Significant Transactions." Subsequent to the Agena Acquisition, we repaid $ 10,000 against our outstanding balance during the third quarter of fiscal year 2022.

As of December 31, 2021, the outstanding balance under our Credit Facility was $ 60,000 .

In January 

2022, we repaid $ 4,000 of the outstanding balance on our Credit Facility. 

Convertible Notes 

On August 12, 2019, we issued an aggregate principal amount of $ 172,500 of 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 

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

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

$1,000  principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 283.50  per share of common stock. Noteholders may convert their Notes at their option only in the following circumstances:

during any calendar quarter commencing after the calendar quarter ended on December 

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

The circumstances necessary for conversion were not met during the three 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 .

The circumstances necessary for conversion were not met during the three or nine months ended December 31, 2021 .

As of December 31, 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 

December 31, 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 .

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The net carrying amount of the Notes was as follows:

September 30, 2021

December 31, 2021

March 31, 2021

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We recognized interest expense on the Notes as follows:

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Coupon interest expense at 1.375 %

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Stock-Based Compensation

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

During the second quarter of fiscal year 2022, 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.

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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.

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

Shares issued during the nine  months ended December 31, 2021 were issued in connection with the 2021 Equity Plan.

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

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Stock-based compensation expense

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$ 6,887  

Amount of income tax (benefit) recognized in earnings

( 719 )  

Amount of income tax (benefit) expense recognized in earnings

( 743 )  

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$ 3,692  

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

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

$ 5,760  

The following is a summary of stock option award activity for the nine months ended December 31, 2021:

Stock Options

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( 62 )  

Outstanding as of September 30, 2021

Outstanding as of December 31, 2021

$ 159.79  

$ 37,597  

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:

The stock options granted during the nine  months ended December 31, 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 nine months ended December 31, 2021:

Time-Based Restricted Stock Units

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274.83  

302.15  

Performance adjustment (2)

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197.81  

Outstanding as of September 30, 2021 (1)

Outstanding as of December 31, 2021 (1)

$ 253.59  

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one -for- one basis.

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.

Of the RSUs granted during the nine months ended December 31, 2021, approximately 28 vest in equal installments on September 1, 2022, June 15, 2023 and June 15, 2024; 

approximately 8 vest in equal installments on November 15, 2022, November 15, 2023, and November 15, 2024; 

and the remainder represent 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.

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no  shares will vest.

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

Based on actual and projected performance through the quarter ended December 31, 2021, we increased our estimate of FY 20 PSUs expected to vest from 6 to 9 shares, resulting in a cumulative effect true up of $ 584 recorded during the third quarter of fiscal year 2022.

We expect to record $ 151 of expense related to the FY 20 PSUs in the fourth quarter of fiscal year 2022.

During the third quarter of fiscal year 2022, we awarded 7  PSUs to key employees of Agena that are subject to both service and performance conditions ("Agena PSUs").

The Agena PSUs had a grant date fair value of $ 305.79 per share and vest based on continued service, completion of certain compliance requirements, and achievement of specific financial performance targets for the period from 

October 20, 2021 through March 31, 2023.

The quantity of shares that will be issued upon vesting will range from 50 % to 200%;

if financial performance is less than 50% of targets, then no shares will vest. 

On October 28, 2021, the Compensation Committee of the Board of Directors granted a special long-term equity award consisting of performance stock units covering a target of 40 shares (“PSUs”) that is subject to both performance and service conditions to our Chief Executive Officer.

The performance period of the award is the three -year period from April 1, 2021 through March 31, 2024 and the service is the period commencing on 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.

The performance metrics are cumulative GAAP revenues over the performance period and cumulative adjusted operating income over the performance period. The quantity of shares that will be issued upon vesting will range from 0  to 40;

if financial performance targets are not met, then no shares 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.

The original award required vesting of 1  awards on each:

The original award required vesting of 1  award on each of 

March 20, 2022, 2023, and 2024.

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

Earnings  Per Share

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

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

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

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 then 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 three and six months ended September 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 September 30,

Six Months Ended September 30,

Net income available for shareholders

$ 3,720  

Earnings  (Loss) Per Share

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

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

Stock awards are excluded from the calculation of diluted EPS if they are subject to performance conditions that have not yet been achieved or are antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would then have an antidilutive effect. There was no  dilution in our diluted EPS calculation for the 

three months ended 

December 31, 2021 

nor the 

three and nine months ended 

December 31, 2020 

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

The impact of the assumed conversion of the Notes calculated under the if-converted method was antidilutive, and as such, shares underlying the Notes were excluded from the diluted EPS calculation for three and nine months ended December 31, 2021 and December 31, 2020. 

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

Three Months Ended December 31,

Nine Months Ended December 31,

Net (loss) income available for shareholders

$ ( 2,060 )  

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Fully diluted shares

Basic earnings per share

$ 0.71  

$ 0.52  

Basic (loss) earnings per share

$ ( 0.39 )  

$ ( 0.89 )  

Diluted earnings per share

$ 0.70  

Diluted (loss) earnings per share

$ ( 0.39 )  

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

Three Months Ended September 30,

Six Months Ended September 30,

Assumed conversion of convertible debt

Three Months Ended December 31,

Nine Months Ended December 31,

Assumed conversion of the Notes

Stock awards that were anti-dilutive

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The impact of changes in tax laws or rates on deferred tax amounts, impairments of non-deductible goodwill, excess benefits from stock-based compensation, and changes in tax reserves resulting from the finalization of tax audits or reviews are examples of significant unusual or infrequently occurring items that are recognized as discrete items in the interim period in which the event occurs.

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 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.

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

Our effective income tax rate was ( 1.0 %) for the nine  months ended December 31, 2021 and 75 % for the nine  months ended December 

 The effective tax rate for the nine  months ended December 31, 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.

During the third quarter of fiscal year 2022, we recorded a $ 1,164  uncertain tax position related to research and development tax credits claimed by Agena prior to the Acquisition, which is included in the preliminary purchase price. 

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.

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

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

As of December 31, 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 $ 2,700 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. 

The balance was $ 2,317  and $ 2,714  as of December 31, 2021  and March 31, 2021 , respectively.

The balance decreased because we settled our obligations with certain states during the nine months ended December 31, 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. 

Acquisition of Agena Bioscience, Inc.

On October 20, 2021, we completed the acquisition of Agena Bioscience, Inc., which aligns with our overall acquisition strategy, moves our business towards the life sciences tools sector, and expands our market opportunities, particularly in Asia. Agena is a leading clinical genomics tools company that develops, manufactures, markets, and supports proprietary instruments and related consumables and services that enable genetic analysis for a broad range of diagnostic and research applications.

Using Agena's MassARRAY® instruments and chemical reagent solutions, customers can analyze DNA samples for a variety of high volume clinical testing applications, such as inherited genetic disease testing, pharmacogenetics, various oncology tests, infectious disease testing, and other highly-differentiated applications. Agena sells its products primarily to clinical labs, including large specialty, reference and pathology labs, as well as a variety of academic, hospital, and government facilities.

Agena’s products are marketed directly to laboratories as well as to in vitro diagnostic development partners globally.

Agena's products are differentiated in the market because they combine the throughput and analytical capabilities of mass spectrometry with the flexibility, ease-of-use and cost advantages of polymerase chain reaction ("PCR") methods.

We funded the acquisition and transactions relating thereto with cash on hand and borrowings under the Credit Facility.

"Indebtedness" for additional details regarding the Credit Facility.

At the completion of the Agena Acquisition on October 20, 2021, each Agena common share issued and outstanding was converted into the right to receive $ 5.96  per share in cash, subject to adjustment, without interest. We paid $ 300,793 , net of cash acquired, but inclusive of working capital adjustments, to complete the Agena Acquisition.

Of the cash consideration we paid, approximately $ 267,000 represented cash consideration to holders of Agena’s preferred and common stock, approximately $ 2,000 represented cash consideration paid for the settlement of Agena’s warrants, and approximately $ 31,800 represented cash consideration for the settlement of Agena's vested stock options as of the closing date.

Preliminary Allocation of Purchase Price

We accounted for the Agena Acquisition as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the acquiree's identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values and consolidated with those of Mesa.

Significant judgments and estimates are required when performing valuations.

For example, we use judgment when estimating the fair value of intangible assets using a discounted cash flow model because this method involves the use of significant estimates and assumptions with respect to revenue growth rates, customer attrition rate and discount rates, all of which are considered Level 3 inputs.

We obtained the information used to prepare the preliminary valuation during due diligence and from other sources.

These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. The following table summarizes the allocation of the preliminary purchase price as of October 20, 2021:

Life (in years)

Cash and cash equivalents

$ 7,544  

Accounts receivable (a)

11,100  

Other current assets (b)

24,324  

Total current assets

42,968  

Property, plant and equipment/ noncurrent assets

16,976  

Deferred tax asset

Intangible assets:

136,006  

Customer relationships (d)

107,100  

Intellectual property (d)

46,200  

Tradenames (d)

15,900  

Total assets acquired

$ 365,942  

Accounts payable

Unearned revenues

Other current liabilities

12,549  

Total current liabilities

17,436  

Deferred tax liability

31,907  

Other noncurrent liabilities

Total liabilities assumed

57,605  

Total purchase price, net of cash acquired

$ 300,793  

(a) Trade receivables, net, which is expected to be collected. 

(b) Includes $6,062 of inventory step-up, which was amortized entirely within the third quarter of fiscal year 2022.

(c) Acquired goodwill of $ 136,006 , all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from the value of expanded market opportunities, expected synergies, and assembled workforce, 

none of which qualify as amortizable intangible assets.

The goodwill acquired is not deductible for income tax purposes.

(d) Customer relationships and intellectual property are currently expected to be amortized on a straight line basis over a weighted average 14.2  year period.

The identified intangible assets will be amortized on a straight line basis over their useful lives, which approximates the pattern that the assets' economic benefits are expected to be consumed over time.

Tradenames are considered indefinite-lived intangibles. Amortization expense for customer relationships will be amortized to general and administrative expenses;

amortization expense for intellectual property will be recorded to cost of revenues.

During the period from October 20, 2021 

until December 31, 2021, $ 1,320  of amortization expense was recorded to general and administrative costs and $ 911  of amortization expense was recorded to cost of revenues and allocated to the Clinical Genomics Division.

Once our final valuation is complete, the amount of amortization expense will be trued up and amortization will be based on our final allocation.

This preliminary purchase price allocation is subject to revision as more detailed analyses are completed.

If additional information about the fair value of assets acquired and liabilities assumed becomes available, we may further revise the preliminary purchase price allocation as soon as is practical, but will not do so more than one year from the acquisition date.

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

Any such revisions or changes may be material.

The final allocation may include, but not be limited to:

( 1 ) changes in allocations to intangible assets such as trade names, intellectual property and customer relationships, as well as goodwill, ( 2 ) changes to inventory, ( 3 ) changes to deferred tax balances, and ( 4 ) other changes to assets and liabilities.

Acquisition-related costs, such as legal and advisory fees, of $ 605 and $ 723  for the three and nine  months ended December 31, 2021, respectively, are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred and are reflected on the Condensed Consolidated Statement of Operations in general and administrative expenses.

Unaudited Pro Forma Information

Agena's operations contributed $ 16,485  to revenues and ($ 4,532 ) of net loss to our consolidated results during the third quarter of fiscal year 2022, including the inventory-step up amounting to $ 6,062 that was fully amortized in the third quarter of fiscal year 2022.

 We included the operating results of Agena in our Condensed Consolidated Statements of Operations beginning on October 20, 2021, 

subsequent to the acquisition date.

The following pro forma financial information presents the combined results of operations of Mesa and Agena as if the acquisition had occurred on April 1, 2020 after giving effect to certain pro forma adjustments.

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

they do not reflect any adjustments for anticipated expense savings resulting from the acquisition and are not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on April 1, 2020 or of future results.

Three Months Ended December 31,

Nine Months Ended December 31,

Pro forma total revenues (1)

$ 56,659  

$ 62,424  

$ 163,734  

$ 154,172  

Pro forma net income (2)

( 1,712 )  

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

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

● Excludes acquisition-related transaction costs incurred in the three and nine months ended December 31, 2021.

● Excludes interest expense attributable to Agena external debt that was paid off as part of the acquisition.

● Additional amortization expense of $ 2,828 and $ 8,485 for the three and nine month periods presented, respectively, based on the increased fair value of amortizable intangible assets acquired.

● Additional charge to cost of revenues of $ 6,062 was included in the three and nine months ended December 31, 2020 based on the step up value of inventory.

$ 6,062 was excluded from the three and nine months ended December 31, 2021 based on the step up value of inventory which would have been fully amortized within the first three  months of the acquisition.

● Additional stock based compensation expense representing expense for performance share units awarded to certain key Agena employees.

● Income tax effect of applicable adjustments made at a blended federal and state statutory rate (approximately 26 %).

Butler, New Jersey Closure

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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.

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

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

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

As a result of the facility consolidation, we incurred $ 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.

As a result of the facility consolidation, we incurred $ 0 and $ 77  of severance costs during the three and nine months ended December 31, 2021, respectively, which were recorded to cost of revenues, selling, and general and administrative expense on the Condensed Consolidated Statement of Operations.

December 31, 2021, there were 

no outstanding and accrued costs, and we do 

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

S egment Information

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)

Following the Agena Acquisition discussed in Note 11.

"Significant Transactions," we realigned our financial reporting segments to reflect how management evaluates the business and allocates resources.

The acquisition of Agena expanded our presence further into the life sciences tools market and provided an impetus for the creation of our new Clinical Genomics reportable segment.

The strategic shift in our business also resulted in a change to the way we manage other business units, and as a result, our historical Instruments and Continuous Monitoring reportable segments have been combined to create Calibration Solutions.

Prior year amounts presented have been reclassified to conform to current year presentation.

Our change in financial reporting segments has not resulted in any change to previously reported consolidated amounts.

Three Months Ended December 31,

Nine Months Ended December 31,

Sterilization and Disinfection Control

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23,791  

Calibration Solutions

11,624  

12,384  

Continuous Monitoring

33,769  

34,486  

Clinical Genomics

16,485  

Total revenues (a)

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15,294  

Continuous Monitoring

Calibration Solutions

18,330  

18,962  

Clinical Genomics

Reportable segment gross profit

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$ 73,978  

$ 62,278  

Reconciling Items:

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54,216  

Operating income

Operating (loss) income

( 2,512 )  

Nonoperating (income) expense, net

( 171 )  

Earnings before income taxes

10,651  

(Loss) earnings before income taxes

$ ( 2,341 )  

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

not  provided with any other segment asset information. 

September 30,

not  provided with any other segment asset information.

Sterilization and Disinfection Control

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Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics

11,560  

Total inventories

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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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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;

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;

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seek, ”

plan, ” “

anticipate, ”

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estimate, ”

plan, ”

may, ”

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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;

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;

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

significant developments or uncertainties stemming from governments, including changes in  

significant developments or uncertainties stemming from governmental actions, including changes in  

trade policies and medical device regulations;

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Business Overview

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 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.

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

We prefer markets in which we can establish a strong presence and achieve high gross margins. As described in Item 1. 

Financial Statements 

"Segment Information," during the third quarter of fiscal year 2022, following the acquisition of Agena, Mesa changed its business segment reporting to align with strategic changes in the way we manage our business units.

As of December 31, 2021, we managed our operations in four reportable segments, or divisions: Sterilization and Disinfection Control, Biopharmaceutical Development, Calibration Solutions, and Clinical Genomics, which is comprised of the newly-acquired Agena. Each of our divisions 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, 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

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

Organic Growth

Organic revenues growth is primarily driven by the expansion of our customer base, increases in sales volumes, and price increases.

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Our policy is to price our products competitively and, where possible, we pass along cost increases to our customers in order to maintain our margins.

Inorganic Revenues Growth - Acquisitions

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

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

There are, however, differences in gross profit percentages between product lines, and ultimately the mix of sales and prices will continue to impact our overall gross profit.

Inorganic Growth - Acquisitions

During the third quarter of fiscal year 2022, we completed the acquisition of Agena for an aggregate purchase price of $300,793, net of cash acquired, subject to customary purchase price adjustments. Agena is a leading clinical genomics tools company that develops, manufactures, and sells highly sensitive, low-cost, high-throughput, genetic analysis tools used by clinical labs to perform genomic clinical testing in several therapeutic areas, such as newborn screenings, pharmacogenetics and oncology.

 The acquisition of Agena accelerates Mesa's strategic trajectory towards higher growth applications within the regulated segments of the life sciences tools market. 

Over the past decade, we have consummated a number of acquisitions 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: Protecting the Vulnerable®.

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. 

The acquisitions of these businesses 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: Protecting the Vulnerable®.

Improving Our Operating Efficiency

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Steadily Improving using lean-based tools designed to help us identify the root cause of opportunities and prioritize the biggest opportunities;

and Always Learning so that performance continuously improves. 

As we integrate Agena into our business, we will focus on applying The Mesa Way to its operations which we hope will improve efficiency in some areas of Agena's business.

Hire, Develop, and Retain Top Talent

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Business Update and COVID-19

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 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 two quarters of fiscal year 2022.

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

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

While many recommendations and precautions that affected us in fiscal year 2021 have been rescinded in the United States, some regulations impacting our operations, particularly in Europe, affected our operations during the six months ended September 30, 2021, 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 although, orders in the division have increased during fiscal year 2022 to date.

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’

The COVID-19 pandemic began to broadly impact our business late in fiscal year 2020, and its impacts continued to affect our business in various ways throughout fiscal year 2021 and to a lesser extent, into the first three quarters of fiscal year 2022.

We continue to monitor the impacts of COVID-19, 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.

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

Each quarter of fiscal year 2022, we have experienced increased supply constraints for certain components used in our operations, particularly components used by the Calibration Solutions division, and to a lesser extent, our Biopharmaceutical Development division;

Clinical Genomics has also experienced supply chain constraints although the division has only been part of Mesa since October 20, 2021.

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 December 31, 2021.

The impact of supply chain disruptions is discussed in more detail in our "Results of Operations" and "Risk Factors" below.

We expect disruptions to our supply chain to persist at least through fiscal year 2023.

The COVID-19 pandemic and related public health recommendations and mandated precautions to mitigate the spread of the virus, including regulations to close or limit the operating hours of our laboratory and facilities of our 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.

While many recommendations and precautions that affected us in fiscal year 2021 have been rescinded in the United States, some restrictions were reimposed for portions of the nine months ended December 31, 2021 as COVID-19 variants spread widely.

Our operations in Europe and Asia have been most impacted because regulations and restrictions have tended to be more widespread in those areas.

In contrast to the negative impacts experienced by our other divisions, our Clinical Genomics division produces a consumable reagent that can be used with its proprietary MassARRAY®

instruments to accurately identify the presence of the COVID-19 virus and identify the variant from a biological sample.

As a result, the Clinical Genomics division has benefited to some extent from outbreaks and resulting increased testing efforts.

However, like in our other divisions, regulatory restrictions, particularly in Asia have negatively impacted commercial execution, limiting sales of all types of Clinical Genomics instruments to new customers. 

Sales of our hardware products have historically been more sensitive to general economic conditions than sales of our consumables. 

This pattern was apparent during fiscal year 2021 and continued into the first quarter of fiscal year 2022.

In addition, 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. 

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.

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.

There are, however, differences in gross profit percentages between product lines, and ultimately the mix of sales will continue to impact our overall gross profit.

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

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.

Results of Operations

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Financial Statements (in thousands, except percent data).

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:

Revenues from our reportable segments increased 60% and 31% for the three and nine months ended December 31, 2021, respectively.

Revenues growth was primarily attributable to the acquisition of Agena;

however, organic revenues growth was 12% and 14% for the three and nine months ended December 31, 2021, respectively. Gross profit as a percentage of revenues decreased eight and six percentage points for the three and nine months ended December 31, 2021, respectively, compared to the three and nine months ended December 31, 2020, respectively, primarily as a result of amortization of the inventory step-up of $6,062 as required by purchase accounting. Results by reportable segment are as follows:

Organic Revenues Growth

Gross Profit as a % of Revenues

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

Three Months Ended December 31, 2021

Three Months Ended December 31, 2020

Three Months Ended December 31, 2021

Three Months Ended December 31, 2020

Three Months Ended December 31, 2021

Three Months Ended December 31, 2020

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics

Mesa Labs' reportable segments

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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

Nine Months Ended December 31, 2021

Nine Months Ended December 31, 2020

Nine Months Ended December 31, 2021

Nine Months Ended December 31, 2020

Nine Months Ended December 31, 2021

Nine Months Ended December 31, 2020

Sterilization and Disinfection Control

Biopharmaceutical Development

Continuous Monitoring

Calibration Solutions

Clinical Genomics

Mesa Labs' reportable segments

Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Operating expenses

Operating income

Operating (loss) income

Net (loss) income

Reportable Segments

Sterilization and Disinfection Control

Our Sterilization and Disinfection Control division manufactures and sells biological, cleaning, and chemical indicators.

Biological, cleaning, and chemical indicators are used to assess the effectiveness of sterilization and disinfection processes in the hospital, dental, medical device, and pharmaceutical industries.

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

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

Sterilization and Disinfection Control revenues increased 6% and 14% for the three and nine months ended December 31, 2021, respectively, which was achieved through effective efforts by our sales team to market and sell certain products to a larger customer base.

Additionally, revenues increases were attributable to volume increases with existing customers, particularly in the healthcare and biopharmaceutical markets, partially offset by a 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. 

Sterilization and Disinfection Control's gross profit percentage increased one percentage point for the three months ended December 31, 2021, primarily as a result of production efficiencies resulting from higher revenues and favorable product mix, partially offset by unfavorable exchange rates. Gross profit percentage decreased one percentage point for the nine months ended December 31, 2021 as a result of unfavorable product mix and slightly higher production costs, and to a lesser extent, unfavorable exchange rates. 

Biopharmaceutical Development

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

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

Biopharmaceutical Development revenues increased 46% and 35% for the three and nine months ended December 31, 2021, respectively, primarily due to increased sales of consumables as our laboratory customers were open for more normal operating hours in the first three quarters of fiscal year 2022 compared to the first three quarters of fiscal year 2021, growing adoption in the cell and gene therapy market, and resumed in-person marketing efforts which resulted in higher hardware sales.

Biopharmaceutical Development also benefited from more customers allowing in-person visits at certain times during the nine months ended December 31, 2021, which enabled us to complete more service visits and to more effectively market our products in person. 

Biopharmaceutical Development's gross profit percentage increased 16 percentage points for the third quarter of fiscal year 2022 compared to the third quarter of fiscal year 2021 as a result of a favorable change in foreign exchange rates as well as production efficiencies resulting from increased revenues, and a favorable mix shift towards immunoassay products, partially offset by higher labor costs.

Biopharmaceutical Development's gross profit percentage decreased two percentage points for the nine months ended December 31, 2021 as a result of the benefit of a positive $258 purchase accounting adjustment in the nine months ended December 31, 2020, higher labor-related costs, and to a lesser extent, net unfavorable changes in foreign exchange rates.

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

dollars ("USD");

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

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.

Instrument products have a longer life, and their purchase by our customers is discretionary, so sales are more sensitive to general economic conditions.

Service demand is driven by our customers’

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

Three Months Ended September 30,

Six Months Ended September 30,

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

During periods in which the USD is weaker against the SEK, such as in the first and second quarters of fiscal year 2022, our USD reported costs are inflated and gross profit is lower.

In periods in which the USD strengthens against the SEK, such as in the third quarter of fiscal year 2022, our USD reported costs are lower and gross profit is higher. 

Calibration Solutions

This new reportable segment is comprised of the historical Instruments and Continuous Monitoring reportable segments.

The Calibration Solutions division designs, manufactures, and markets quality control and calibration products used to measure or calibrate temperature, pressure, pH, humidity, and other such parameters for health and safety purposes, primarily in hospital, medical device manufacturing, pharmaceutical, and laboratory environments.

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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

Our Continuous Monitoring division designs, develops, and markets systems which are used to monitor various environmental parameters such as temperature, humidity, and differential pressure to ensure that critical storage and processing conditions are maintained in hospitals, pharmaceutical and medical device manufacturers, blood banks, pharmacies, and laboratory environments.

Continuous Monitoring products and systems have a longer life, and their purchase by our customers is discretionary, so sales are sensitive to general economic conditions.

Continuous monitoring products may be sold in conjunction with a perpetual or subscription-based software license, which may be required for the related hardware to function.

Service demand is driven by our customers’

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

Three Months Ended September 30,

Six Months Ended September 30,

Calibration Solutions division revenues decreased 6% and 2% for the three and nine months ended December 31, 2021, respectively, primarily as a result of supply and labor constraints limiting our ability to manufacture ordered quantities of certain products, partially offset by higher service revenues as our service technicians were able to go to client sites to complete service requests and hardware installations as COVID-19 related restrictions were partially lifted.

Despite fulfillment delays for many customer orders, demand for the division's products has continued to increase through fiscal year 2022 and to date, we have been able to retain the significant majority of our customers and orders. 

The Calibration Solutions division's gross profit percentage decreased three percentage points and one percentage point during the three and nine months ended December 31, 2021, respectively. The decrease in gross profit percentage resulted from lower revenues on a partially fixed cost base, increased freight on purchased components, and higher labor costs as a result of a strong competition for employees in the labor market.

Supply chain disruptions and higher labor costs are expected to continue through fiscal year 2023.

Clinical Genomics

This is a new reportable segment comprised of the recently acquired Agena.

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

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

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 six months of fiscal year 2022. 

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. 

Revenues in the Clinical Genomics division represent revenues from October 20, 2021 until December 31, 2021.

Of the revenues reported, $1,500 represents revenues from COVID-19-related sales of which the substantial majority are consumables.

Clinical Genomics gross profit was $3,924 for the period from October 20, 2021 until December 31, 2021.

Gross profit includes $6,062 of amortization on an inventory step-up recorded in purchase accounting related to the Agena Acquisition.

Excluding the step-up amortization, gross profit for the period ended December 31, 2021 would have been $9,986, and gross profit as a percentage of revenues would have been 61%.

Gross profit also includes $911 of amortization of intellectual property from the Agena Acquisition.

Going forward, we expect gross profit as a percentage of revenues to range from the high 50s to the low 60s, including a quarterly impact of $1,155 of non-cash amortization of intellectual property. 

Operating Expenses

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.

Operating expenses increased 51% and 28% for the three and nine months ended December 31, 2021 compared to the three and nine months ended December 31, 2020, respectively, as a result of the Agena Acquisition and 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 September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Selling expense

As a percentage of revenues

Selling expense for the three and six months ended September 30, 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.

Selling expense for the three and nine months ended December 31, 2021 increased 88% and 46%, respectively, primarily as a result of the acquisition of Agena.

Excluding the impact of Agena, selling expense increased 16% and 18% for the three and nine months ended December 31, 2021, as we executed on our previously-announced plan to invest in sales and marketing resources in order to increase organic revenues growth.

We have hired several sales employees throughout fiscal year 2022, resulting in higher labor-related costs, including accruing commissions on higher sales.

Further, travel-related costs increased because we resumed some in-person sales events as restrictions on gatherings lifted compared to fiscal year 2021.

 Including the acquisition of Agena and its sales force, we expect total selling expense will approximate 16% to 18% of revenues for fiscal year 2023.

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 September 30,

Six Months Ended September 30,

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 December 31,

Nine Months Ended December 31,

General and administrative expense

As a percentage of revenues

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. 

General and administrative expenses increased 29% and 18% for the three and nine months ended December 31, 2021, respectively, primarily as a result of the acquisition of Agena.

Excluding the impact of Agena, general and administrative expenses increased 9% and 10% for the three and nine months ended December 31, 2021.

Excluding Agena, the increase in general and administrative costs for the third quarter of fiscal year 2022 was a result of higher bonus accruals based on our financial results for the nine months ended December 31, 2021 and costs associated with the Agena Acquisition, partially offset by lower stock-based compensation expense due to a $1,629 cumulative effect true up related to certain performance stock units recorded during the third quarter of fiscal year 2021.

For the nine months ended December 31, 2021, the increase in general and administrative costs excluding Agena was a result of higher stock-based compensation expense as we expanded the number of participants in our stock based compensation programs, increased bonus expense, costs associated with the Agena Acquisition, and 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. 

Research and Development

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

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Research and development expense

As a percentage of revenues

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. 

Research and development expenses increased 91% and 37% for the three and nine months ended December 31, 2021, respectively, primarily as a result of the acquisition of Agena.

Excluding the impact of Agena, research and development costs for the three and nine months ended December 31, 2021 increased 21% and 13%, respectively, primarily as a result of higher personnel and 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 approximate 9% to 12% of revenues for fiscal year 2023. 

Nonoperating Expense 

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

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,

Nonoperating (income) expense for the three and nine months ended December 31, 2021 is composed primarily of interest expense and amortization of the debt discount associated with the Notes and gains and losses on foreign currency transactions.

We recorded net unrealized gains on foreign currency which were primarily related to the movement of the SEK against the USD on certain intercompany notes.

Foreign currency gains were partially offset by interest expense and amortization of debt discount on the Notes and the Credit Facility. Interest expense and amortization of debt discount decreased for the three and nine months ended December 31, 2021 compared to the three and nine months ended December 31, 2020 due to our adoption of ASU 2020-06, which resulted in a reduction in non-cash interest expense related to the Notes.

Three Months Ended December 31,

Nine Months Ended December 31,

Income tax provision (benefit)

Effective tax rate

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

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

Our income tax rate varies based upon many factors, but in general, we anticipate that on a go-forward basis our effective tax rate will be approximately 26%, plus or minus the impact of excess tax benefits and deficiencies associated with share-based payment awards to employees;

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Net Income 

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).

Net income for the nine months December 31, 2021 varied with the changes in revenues, gross profit, and operating expenses (and included $13,495, $7,939, and $6,062 of non-cash amortization of intangible assets acquired in a business combination, stock-based compensation expense, and amortization of inventory step-up, respectively).

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

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

Liquidity and Capital Resources

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, working capital and potential additional equity and debt offerings.

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our Credit Facility, working capital and potential additional equity and debt offerings.

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 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.

We believe that cash and cash equivalents on hand and cash generated from operations, as well as the remainder 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, payments 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 $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 had working capital of $74,220 and $271,166 as of December 31, 2021 and March 31, 2021, respectively.

As of December 31, 2021, and March 31, 2021, we had $51,706 and $263,865, respectively, of cash and cash equivalents;

at March 31, 2021, the cash was primarily held 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.

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.

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.

We completed the acquisition of Agena for an adjusted purchase price, net of cash acquired, of $300,793 during the third quarter of fiscal year 2022. 

During fiscal year 2021, we entered into the Credit Facility, 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.

During the third quarter of fiscal year 2022, we borrowed $70,000 under our line of credit to fund the acquisition of Agena, and we repaid $10,000 using cash on hand and cash generated from operations.

As of December 31, 2021, we had $15,000 remaining available to draw on the Credit Facility.

In January 2022, we repaid $4,000 of the amount outstanding under the Credit Facility.  

As of December 31, 2021, $172,500 in aggregate principal 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 September 30, 2021 and for all prior years presented and have met all debt payment obligations.

The Notes can be converted by holders prior to maturity if certain conditions are met, but none of those conditions were met during fiscal year 2022.

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 as of December 31, 2021 and for all prior years presented and have met all debt payment obligations.

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

Financial Statements for more details on these transactions. 

Financial Statements for more detail. 

We routinely evaluate opportunities for strategic acquisitions.

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.

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 take other steps to reduce our debt.

These actions may include retirements or refinancing of outstanding debt, privately negotiated transactions or otherwise.

The amount of debt that may be retired, if any, could be material and would be decided at the sole discretion of our Board of Directors and will depend on market conditions, our cash position and other considerations.

The amount of debt that may be retired, if any, could be material and would be decided at the sole discretion of our Board of Directors and would depend on market conditions, our cash position, and other considerations.

We have paid regular quarterly dividends since 2003.

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.

We declared and paid dividends of $0.16 per share during each of the quarters ended June 30, 2021, September 30, 2021, and December 31, 2021, as well as each quarter of fiscal year 2021.

In January 2022, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on March 15, 2022, to shareholders of record at the close of business on February 28, 2022.

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

Six Months Ended September 30,

Nine Months Ended December 31,

Net cash provided by operating activities

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Net cash provided by financing activities

Cash flows from operating activities for the six months ended September 30, 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.

Cash flows from operating activities for the nine months ended December 31, 2021 provided $29,921. The $6,368 increase in cash flows from operating activities primarily resulted from non-cash adjustments to net income, particularly amortization of the inventory step-up associated with the Agena Acquisition, and to a lesser extent, increased depreciation and amortization as a result of higher intangibles balances resulting from the Agena Acquisition, as well as increased net income.  Further, cash provided by operating assets and liabilities increased by $778 for the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020, primarily as a result of the impact of timing on our working capital accounts.

Cash used in investing activities was higher during the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020, due to cash expended on the Agena Acquisition, and to a lesser extent purchases of property, plant, and equipment, primarily to support the renovations of our Lakewood, Colorado facility.

Cash provided by financing activities primarily resulted from a $70,000 draw on our Credit Facility, net of $10,000 repaid during the quarter.

The draw on our Credit Facility was used to fund a portion of the purchase price of the Agena Acquisition.

Our equity raise completed during the nine months ended December 31, 2020 provided $145,935.

Contractual Obligations and Other Commercial Commitments

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

For a description of our contractual obligations and other commercial commitments as of March 31, 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 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.

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

As a result of the Agena Acquisition in the third quarter of fiscal year 2022, we have assumed certain contractual obligations, including an additional $9,884 of payments under existing lease agreements, and $4,564 of open purchase orders as of December 31, 2021. 

On a consolidated basis, at December 31, 2021, we had contractual obligations for open purchase orders of approximately $18,852 for routine purchases of supplies and inventory, which are payable in less than one year.

Open purchase orders continue to increase as we take proactive steps to mitigate risks in supply by increasing our orders of certain critical raw materials. 

Off-Balance Sheet Arrangements

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

As of December 31, 2021, we had no off-balance sheet arrangements or obligations.

Critical Accounting Policies and Estimates

Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters.

These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstance.

These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstances.

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

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Quantitative and Qualitative Disclosures a bout Market Risk

We have no derivative instruments and minimal exposure to commodity market risks.

Our reporting currency is U.S.

dollars, and the functional currency of each of our foreign subsidiaries is its respective local currency.

dollars, and the functional currency of each of our material foreign subsidiaries is its respective local currency.

Our operations include activities outside of the U.S.

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

These exposures have increased as we have continued to expand internationally, including the acquisition of GPT, which conducts a substantial portion of its business expenses in Swedish Krona.

These exposures have increased as we have continued to expand internationally, including the acquisition of GPT, which conducts a substantial portion of its business expenses in Swedish Krona and the acquisition of Agena, which conducts a portion of its business in Chinese Yuan.

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

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

We hold investments in money market funds.

As a result, we are exposed to potential loss from market risks that may occur as a result of changes in interest rates, credit quality of the issuer, or other factors. 

We do not hedge exposure to exchange rates. 

We have in the past held investments in money market funds.

As a result, we have been exposed to potential loss from market risks that may occur as a result of changes in interest rates, credit quality of the issuer, or other factors.

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

Based on the balance currently outstanding against our line of credit, if interest rates increased by 75 basis points, we would incur approximately $420 of additional interest expense per year. 

We have no derivative instruments.

We have minimal exposure to commodity market risks.

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