What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-05-30 compared with 2022-05-31 · 171 added, 218 removed, 139 unchanged (74% of the section changed)

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While we have paid dividends to holders of our common stock on a quarterly basis since 2003, the declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, business development needs and regulatory considerations, and is at the sole discretion of our Board of Directors.

At this time, we expect to continue paying dividends commensurate with our historical practice. 

As of March 31, 2023, there were 60 holders of record of our common stock.

This amount does not include “street name”

holders or beneficial holders of our common stock, whose holders of record are banks, brokers and other financial institutions.

holders or beneficial holders of our common stock, who holder their shares through banks, brokers or other financial institutions.

During the year ended March 31, 2023, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

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Set forth below is a line graph comparing, for the period March 31, 2018 through March 31, 2023, the cumulative total shareholder return on our common stock against the cumulative total return of (a) the S&P Composite Stock Index (b) the S&P Small Cap 600, and (c) a self-selected peer group, comprised of the following companies:

Danaher Corp., Inc., Steris Corp., Fortive Corporation, Mettler Toledo International, Inc., Transcat Inc., Electro-Sensors Inc., Sotera Health, Hologic, Inc., NeoGenomics Laboratories, Inc., and Natus Medical Inc.

Danaher Corp., Inc., Repligen Corp., Steris Corp., Utah Medical Products, Inc., Cantel Medical Corp., Fortive Corp., Merit Medical Systems, Inc., Mettler Toledo International, Inc., Transcat Inc., Elector-Sensors, Inc., Medtronic, P.L.C, and Illumina, Inc.

The graph shows the value on March 31 of each year, assuming an original investment of $100 in each and reinvestment of cash dividends. 

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Overview 

We are a multinational manufacturer, developer, and seller of life sciences tools and 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 profit margins. As described in Note 14 .

 "Segment Data" of the Notes to Consolidated Financial Statements contained within Item 8. 

Financial Statements and Supplementary Data  of this annual report, during the third quarter of fiscal year 2022, following the acquisition of Agena, we changed our segment reporting to align with strategic changes in the way we manage our business units.

As of March 31, 2022, 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 (including our Cold Chain Packaging Division which ceased operations during the year ended March 31, 2020) and unallocated corporate expenses are reported within Corporate and Other.

We are a multinational manufacturer, developer, and seller of life sciences tools and critical quality control products and services, many of which are sold into niche markets 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, as well as by independent distributors in these areas and throughout the rest of the world.

We prefer markets in which we can establish a strong presence and achieve high gross profit margins. As of March 31, 2023, we managed our operations in four reportable segments, or divisions:

Clinical Genomics, Sterilization and Disinfection Control, Biopharmaceutical Development, and Calibration Solutions.

Each of our divisions are described further in "Results of Operations" below. Unallocated corporate expenses and other business activities are reported within Corporate and Other.

Corporate Strategy

As a business, we commit to our purpose of Protecting the Vulnerable® every day by taking a customer-focused approach to developing, building, and delivering our products.

We serve a broad set of industries, 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. 

We strive to create shareholder value and further our purpose of Protecting the Vulnerable® by growing our business both organically and through acquisitions, by improving our operating efficiency, and by continuing to hire, develop and retain top talent. As a business, we commit to our purpose of Protecting the Vulnerable® every day by taking a customer-focused approach to developing, building, and delivering our products.

We serve a broad set of industries, in particular the pharmaceutical, healthcare services, and medical device verticals, in which the safety, quality, and efficacy of products is critical.

By delivering the highest quality products possible, we are committed to protecting the communities we serve.

Organic Revenues Growth

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

Our ability to increase organic revenues is affected by general economic conditions, both domestic and international, customer capital spending trends, competition, and the introduction of new products. We typically evaluate costs and pricing annually.

Organic revenues growth is driven by the expansion of our customer base, increases in sales volumes, new product offerings, and price increases, and may be affected positively or negatively by changes in foreign currency rates.

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.

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.

We typically evaluate costs and pricing annually with price increases effective January 1;

however, as a result of high inflation in recent quarters, we implemented an additional mid-year price increase late in the second quarter of fiscal year 2023.

Inorganic Revenues Growth - Acquisitions

During 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 a part of our growth strategy. 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®.

During the third quarter of fiscal year 2023, we completed the Belyntic acquisition. We paid $4,950 on the date of acquisition, and we expect to pay an additional $1,500 of contingent consideration based on the probable approval of pending patent applications expected within 36 months of the acquisition date.

The acquisition provided a natural complement to our peptide synthesis business by adding a consumables product line.

During the third quarter of fiscal year 2022, we completed the acquisition of Agena for an aggregate net purchase price of $300,793. 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 screenings for hereditary diseases, pharmacogenetics and oncology related applications.

The acquisition of Agena accelerated our 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. These acquisitions 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

We maximize value in both our existing businesses and those we acquire by implementing efficiencies in our manufacturing, commercial, engineering, and administrative operations.

We achieve efficiencies using the four pillars that make up The Mesa Way , which is our customer-centric, lean-based system for continuously improving and operating a set of high-margin, niche businesses.

The Mesa Way is focused on:

We achieve efficiencies using the four pillars that make up the Mesa Way , which is our customer-centric, lean-based system for continuously improving and operating a set of high-margin, niche businesses. The Mesa Way  is focused on:

Measuring What Matters using our customers' perspective and setting high standards for performance;

Empowering Teams to improve operationally and exceed customer expectations;

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

and Always learn so that performance continuously improves.

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. 

Sustainably 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. 

Gross profit is affected by many factors including our product mix, manufacturing efficiencies, costs of products and labor, 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.

Hire, Develop, and Retain Top Talent

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It is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously improve our products, our services, and ourselves, resulting in long-term value creation for our shareholders. 

COVID-19 and Business Update

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 fiscal years 2022 and 2023.

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.

Throughout fiscal year 2022, we experienced increased supply constraints for certain components used in our operations, particularly components used by the Calibration Solutions and Biopharmaceutical Development divisions, and to a lesser extent the Sterilization and Disinfection Control and Clinical Genomics divisions.

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 March 31, 2022.

The impact of supply chain disruptions is discussed in more detail in our "Results of Operations" and Item 1A.

Risk Factors .

Even after the COVID-19 pandemic has largely subsided as a public health matter, we may experience material adverse impacts to our business as a result of the pandemic's adverse impact on the global economy, in-person collaboration and sales efforts, and our customers’

changed purchasing behaviors and confidence.

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 year ended March 31, 2022 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, as in our other divisions, regulatory restrictions, particularly in Asia have negatively impacted commercial execution, limiting sales of Clinical Genomics products to new customers. We expect regulatory restrictions in Asia to continue into fiscal year 2023 which may negatively impact our Clinical Genomics division, and to a lesser extent, the rest of the company.

Our revenues are generated from product sales, which include consumables and hardware;

as well as services, which include discrete and ongoing calibration, testing, and maintenance services.

Revenues increase as a result of organic or inorganic revenues growth. Inorganic revenues growth is driven by acquisitions. Sales of our hardware products have historically been more sensitive to general economic conditions than sales of our consumables. Even as the broad healthcare industry has returned to more normal operations resulting in increased sales levels in most of our divisions, outbreaks and increasing numbers of COVID-19 cases in many areas, especially Asia, have and may continue to result in the reinstatement of strict regulations, which we expect will result in lower sales levels.

However, as vaccine distribution progresses, we are hopeful that any reinstatements of strict regulations will be less frequent and shorter in duration.

We are working on several research and development projects that, if completed, may result in enhanced or new products for both existing customers and new markets. We are hopeful that we will have enhanced or new products and services available for sale in the coming fiscal year.

As discussed in Note 15.

"Subsequent Events" within Item 8.

Financial Statements and Supplementary Data , we entered into an Open Market Sale Agreement SM with Jefferies LLC as sales agent subsequent to the year ended March 31, 2022.

Revenues for our reportable segments increased 38% for the year ended March 31, 2022.

Revenues growth was primarily attributable to the acquisition of Agena;

however, organic revenues growth was 13%. Gross profit as a percentage of revenues decreased 6 percentage points for the year ended March 31, 2022, primarily as a result of a $7,462 charge recorded as we amortized the fair value of inventory step up recorded as part of purchase accounting.

General Trends

We are a global company, with multinational operations.

During our fiscal year 2023, approximately 46% of our revenues were derived from revenues earned outside of the United States.

Since Mesa serves a number of industries across a variety of global markets, we may be affected by world-wide, regional, or industry-specific economic or political factors.

However, our diversity in industry, geography, and product and service offerings may limit the impact of changes in specific industry trends or local economic changes to a single geographic area on our consolidated operating results. We actively monitor trends affecting industries that we operate in, including monitoring key competitors and customers, as well as staying abreast of changes to local economies and how they may affect our divisions.  

Exchange rates were volatile throughout fiscal year 2023.

A weakening or strengthening of foreign currencies against the United States dollar ("USD") increases or decreases our reported revenues, gross profit margins, and operating expenses, and impacts the comparability of our results between periods.

Overall, currency exchange rates negatively impacted our reported revenues for fiscal year 2023 compared to fiscal year 2022.

Generally, the USD strengthening against major currencies adversely impacts our reported revenues, but to a lesser extent, positively impacts our reported expenses;

conversely, the weakening of the U.S.

dollar against major currencies positively impacts our reported revenues but negatively impacts our reported expenses. The ultimate impact to gross profit as a percentage of revenue depends on the magnitude of changes in foreign currencies. 

Inflation was significant in the regions that we operate in during fiscal year 2023.

Current and future inflationary effects may continue to be impacted by a variety of macroeconomic forces, including, but not limited to:

supply chain disruptions, government fiscal policies, changes in interest rates, and changing demand for goods and services. Inflationary pressures have affected our business in a number of ways, including increasing the cost of raw materials, labor, and freight, and the rate of interest we pay on borrowings under our Credit Facility. Our actions to mitigate the impact of supply chain disruptions and inflation, including pre-ordering components in higher than usual quantities, sourcing new vendors and increasing prices have been somewhat successful;

however, raw materials shortages impacted our Calibrations Solutions division throughout much of fiscal year 2023. 

COVID-19 negatively impacted commercial execution in different ways throughout fiscal year 2023, and in some cases, limited sales of Clinical Genomics consumables to existing customers and instruments to new customers.

Specifically, we experienced disruptions to our business in China resulting from government mandated shut-downs and restrictions during fiscal year 2023.

Although the COVID-19 pandemic has largely subsided as a public health matter, we may experience material adverse impacts to our business as a result of the pandemic's adverse impact on the global economy, in-person collaboration and sales efforts, and our customers’

changed purchasing behaviors and confidence. 

During fiscal year 2023, we were notified by Sema4 Holdings Corp.

("Sema4"), a customer of our Clinical Genomics division, that they are exiting the reproductive health screening business, and as a result, they intend to significantly reduce the quantity of orders they place with us in the future.

Revenues from sales to Sema4 were approximately $8,200 during the first twelve months of our ownership of Agena and were approximately $4,600 during fiscal year 2023. Following the notice, we evaluated our business operations and enacted several cost-cutting measures in the Clinical Genomics division, including a reduction-in-force, to preserve our financial model.

These actions are expected to generate more than $4,000 in future annualized savings.

Results of Operations

Our results of operations and year-over-year changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto appearing in Item 8.

Financial Statements and Supplementary Data  (in thousands, except percent data).

Refer to Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations  in our Annual Report on Form 10-K for the year ended March 31, 2022, filed on May 31, 2022, for a comparison of results of operations for the years ended March 31, 2022 and March 31, 2021. 

Revenues from our reportable segments increased 19% for fiscal year 2023 as compared to fiscal year 2022. Revenues growth for fiscal year 2023 was primarily attributable to the acquisition of Agena, and to a lesser extent, organic revenues growth of 0.6%. 

Gross profit as a percentage of revenues increased two percentage points for fiscal year 2023 as a result of the recognition of a $7,462 non-cash inventory step-up charge, part of purchase accounting for the Agena Acquisition, during fiscal year 2022, partially offset by unfavorable product mix, increased cost of labor, and adverse changes in foreign currency on our reported revenues.

Results by reportable segment are as follows:

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Year Ended March 31, 2022

Clinical Genomics

Sterilization and Disinfection Control

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Calibration Solutions

Clinical Genomics

Reportable segments

Results of Operations

Financial Statements and Supplementary Data  (in thousands, except percent data).

Refer to Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations  in our Annual Report on Form 10-K for the year ended March 31, 2021, filed on June 1, 2021, for a comparison of results of operations for the years ended March 31, 2021 and March 31, 2020. 

Our condensed consolidated results of operations are as follows:

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Reportable Segments

Clinical Genomics

The Clinical Genomics division develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools and related consumables and services that enable clinical labs to perform genomic testing for a broad range of diagnostic and research applications in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics, and oncology related applications. 

Year Ended March 31,

Percentage Change

Gross profit as a % of revenues

Revenues in the Clinical Genomics division represent revenues from October 20, 2021 until March 31, 2023.

Clinical Genomics revenues increased 90% for fiscal year 2023 compared to fiscal year 2022 due to a significantly shorter period of ownership of Agena in fiscal year 2022 compared to fiscal year 2023, partially offset by adverse foreign currency exchange rates.

We recognized approximately $4,600 in revenues from sales to Sema4 during fiscal year 2023, and we expect a significant reduction of revenues resulting from the loss of Sema4's business in future quarters.

However, two of our distribution partners, Guangzhou Darui Biotechnology Co., Ltd.

and Jiangsu Simcere Medical Device Co., Ltd., recently received approval from China's National Medical Products Administration for Class III in vitro diagnostics ("IVD") panels.

One of these panels addresses hereditary deafness and the other covers pharmacogenetics with the intended use of guiding personal drug therapy.

These are the first approved Class III IVD panels in China from our distribution partner program, and we expect some increase in revenues resulting from these programs beginning in fiscal year 2024. 

Gross profit percentage for the Clinical Genomics division increased 16 percentage points for fiscal year 2023 compared to fiscal year 2022 primarily due to the amortization of a $7,462 inventory step-up required under the purchasing accounting standards in the third quarter of fiscal year 2022.

Excluding the inventory step-up, gross profit as a percentage of revenue decreased seven percentage points as a result of lower revenues due to unfavorable foreign currency impacts and the loss of Sema4, on a partially fixed cost base. 

Sterilization and Disinfection Control

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 pharmaceutical, medical device, dental, and hospital 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.

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, including steam, gas, hydrogen peroxide, ethylene oxide, radiation, and other processes in the medical device, pharmaceutical, and hospital industries.

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

Year Ended March 31,

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Gross profit as a % of revenues

Sterilization and Disinfection Control revenues increased 11% as a result of organic revenues growth, which was achieved through modest price increases, effective efforts by our sales team to market and sell certain products to a larger customer base, and volume increases with existing customers particularly in the biopharmaceutical markets.

Sterilization and Disinfection Control's gross profit percentage decreased one percentage point during the year ended March 31, 2022 primarily due to higher labor costs as a result of strong competition for employees in the labor market, and higher freight costs as a result of the global supply chain disruptions.

Sterilization and Disinfection Control revenues increased 9% for fiscal year 2023 compared to fiscal year 2022, despite the USD strengthening against the euro which resulted in lower reported revenues derived from sales in Europe. During fiscal year 2023, we added temporary and permanent manufacturing headcount at our Bozeman Montana facility, which enabled us to fulfill approximately $1,800 of customer orders that were backlogged as of March 31, 2022. Fiscal year 2023 also benefited from favorable product mix and, to a lesser extent, price increases. 

Sterilization and Disinfection Control's gross profit percentage decreased two percentage points during the year ended March 31, 2023 primarily due to increased labor and benefit costs, including the cost of temporary headcount, inflation in freight expense, and the result of foreign currency negatively impacting our reported revenues.

Biopharmaceutical Developmen t

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

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

Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic therapies, among other applications.

Year Ended March 31,

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Gross profit as a % of revenues

The results of the Biopharmaceutical Development division were consolidated into our results beginning on November 1, 2019, the first day following our acquisition of Gyros Protein Technologies Holding AB. Biopharmaceutical Development's revenues increased 34% as a result of resumed in-person sales efforts and a marketing strategy focused on packaging our hardware and software products in a format that is more appealing to our customers.

These efforts resulted in increased hardware sales and to a lesser extent increased consumables sales, particularly in the cell and gene therapy market. 

Biopharmaceutical Development's gross profit percentage increased one percentage point during the year ended March 31, 2022 as a result of a favorable mix shift towards immunoassay products, as well as production efficiencies resulting from increased revenues, partially offset by higher labor costs.

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 ("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 percentage is lower.

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

Biopharmaceutical Development's revenues increased 4% for fiscal year 2023 compared to fiscal year 2022.

The division's increase in reported revenue was a result of increased product adoption and price increases, partially offset by unfavorable changes in foreign currency exchange rates on our reported revenues.

Biopharmaceutical Development's gross profit percentage increased one percentage point during the year ended March 31, 2023 as a result of higher revenues on a partially-fixed cost base, partially offset by unfavorable product mix and foreign currency fluctuations negatively impacting our reported revenues.

Calibration Solutions

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

Year Ended March 31,

Percentage Change

Gross profit as a % of revenues

Calibration Solutions' revenues were flat for the year ended March 31, 2022, primarily as a result of supply and labor constraints limiting our ability to manufacture ordered quantities of certain products, partially offset by slightly higher service revenues.

As COVID-19 related restrictions were gradually lifted, our service technicians were able to go to client sites to complete service requests and hardware installations.

Despite fulfillment delays for many customer orders, demand for the division's products increased during fiscal year 2022, and to date, we have been able to retain the substantial majority of our customers and orders. 

Calibration Solutions' gross profit percentage decreased three percentage points during the year ended March 31, 2022. The decrease in gross profit percentage resulted primarily from increased freight on purchased components, higher labor costs as a result of strong competition for employees in the labor market, and costs associated with outsourcing certain calibration functions while we completed the move and manufacturing set up of certain product sets from our Butler, New Jersey facility to Lakewood, Colorado.

While we no longer are outsourcing our calibration functions, 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.

The Calibration Solutions division develops, manufactures and sells quality control products using principles of advanced metrology to measure or calibrate critical chemical or physical parameters in various dialysis, process monitoring, instrument monitoring, environmental monitoring, gas flow, environmental air quality, and torque applications, primarily in hospital, medical device manufacturing, pharmaceutical manufacturing, and laboratory environments.

Year Ended March 31,

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Gross profit as a % of revenues

Revenues in the Clinical Genomics division represent revenues from October 20, 2021 until March 31, 2022.

Of the revenues reported, $2,871 represents revenues from COVID-19-related sales, of which the substantial majority are consumables.

We expect sales in fiscal year 2023 will be negatively impacted by continued restrictions and lockdowns imposed in China as a result of the COVID-19 pandemic, which have limited our sales efforts beginning in late fiscal year 2022.

Clinical Genomics' gross profit was $11,941 for the period from October 20, 2021 until March 31, 2022.

Gross profit includes a $7,462 charge related to amortization of an inventory step-up to fair value recorded in purchase accounting.

Excluding the step-up amortization, gross profit for the period ended March 31, 2022 would have been $19,403, and gross profit as a percentage of revenues would have been 59%.

Gross profit also includes $2,538 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 an annual impact of $5,675 of non-cash amortization of intellectual property.

Calibration Solutions' revenues decreased 4% for fiscal year 2023 compared to fiscal year 2022, primarily as a result of supply constraints limiting our ability to manufacture ordered quantities of certain products, partially offset by slightly higher service revenues as our service technicians had access to client facilities for substantially all of fiscal year 2023, and the benefit of modest price increases.

Production difficulties resulted in longer lead times for customer orders, which negatively impacted the timing of new orders;

however, beginning in the fourth quarter of fiscal year 2023, production difficulties abated somewhat and revenues increased modestly compared to each of the first three quarters of fiscal year 2023. 

Calibration Solutions' gross profit percentage increased one percentage point during the year ended March 31, 2023 primarily as a result of favorable product mix. 

Corporate and Other

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

Corporate and Other consists of unallocated corporate expenses and other business activities. 

Year Ended March 31,

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Operating Expenses  

Operating expenses for the year ended March 31, 2022 increased 40% in total compared to the year ended March 31, 2021.

Operating expenses for the year ended March 31, 2023 increased 25% in total compared to the year ended March 31, 2022 primarily as a result of the increased costs of operations resulting from the Agena Acquisition which was consummated about halfway through fiscal year 2022. 

Selling  

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As a percentage of revenues

Selling expense increased 53% for the year ended March 31, 2022 primarily as a result of the acquisition of Agena. Excluding the impact of Agena, selling expense increased 15% for the year ended March 31, 2022, as we executed on our previously-announced plan to invest in sales and marketing resources in order to increase organic revenues growth.

We hired several sales employees throughout fiscal year 2022, resulting in higher labor-related costs and higher commission expense resulting from increased revenues.

Further, travel-related costs increased as we resumed various 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.

Selling expense increased 32% for the year ended March 31, 2023. Excluding the impact of Agena, selling expense increased 13% for the year ended March 31, 2023, as we continued to execute on our previously-announced plan to invest in sales and marketing resources in order to increase organic revenues growth.

We hired several sales employees, resulting in higher labor-related costs.

Further, travel-related costs increased as we continued to resume in-person meetings, tradeshows, and sales events.

Increases were partially offset by lower commissions and bonus expense. 

General and Administrative

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As a percentage of revenues

General and administrative expenses increased 32% for the year ended March 31, 2022, primarily as a result of the acquisition of Agena.

Excluding the impact of Agena, general and administrative expenses increased 15% for the year ended March 31, 2022 as a result of acquisition and integration costs, higher annual bonus accruals based on our financial results for the year ended March 31, 2022, and increased stock-based compensation expense as we expanded the number of participants in our stock-based compensation programs.

General and administrative expenses increased 20% for the year ended March 31, 2023.

Excluding the impact of Agena, general and administrative expenses increased 1% for the year ended March 31, 2023.

The increase was a result of higher personnel costs, including increased stock-based compensation expense as we expanded the number of employee participants in the program.

Increases to general and administrative costs were partially offset by lower intangible amortization expense as a result of the strengthening of the USD, lower annual bonus accruals based on our financial results for the year ended March 31, 2023, and decreased acquisition and integration-related costs.

Research and Development

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As a percentage of revenues

Research and development expenses for the year ended March 31, 2022 increased 52% primarily as a result of expenses attributable to Agena.

Excluding the impact of Agena, research and development costs for the year ended March 31, 2022 increased 12% 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.

Research and development expenses for the year ended March 31, 2023 increased 30%.

Excluding the impact of Agena, research and development costs for the year ended March 31, 2023 increased 3% primarily as a result of our purchase of in process research and development technology that we are further developing in order to enhance a product offering in our Sterilization and Disinfection Control division, as well as higher personnel costs as we continue enhancing existing products and developing new products and features. 

Nonoperating Expense

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Nonoperating expense

Nonoperating expense for the year ended March 31, 2022 is composed primarily of interest expense and amortization of the debt discount associated with our 1.375% convertible senior notes issued in August 2019, gains and losses on foreign currency transactions, and interest income earned on cash and cash equivalents.

During the year ended March 31, 2022, we incurred significant realized and unrealized foreign currency gains as a result of the USD strengthening significantly, particularly against the Swedish Krona. 

Interest expense and amortization of debt discount was lower for the year ended March 31, 2022 compared to the year ended March 31, 2021 due to our adoption of ASU 2020-06, which resulted in a $4,090 reduction in non-cash interest expense related to the Notes.

See Note 1.

"Description of Business and Summary of Significant Accounting Policies" within Item 8. 

Financial Statements and Supplementary Data.

Nonoperating expense for fiscal year 2023 is composed primarily of interest expense and amortization of the debt discount associated with the 2025 Notes and the Credit Facility as well as gains and losses on foreign currency transactions.

Nonoperating expense was higher in fiscal year 2023 compared to fiscal year 2022 due to interest expense on the Credit Facility, which had an average interest rate of 4.5% during fiscal year 2023 compared with an average interest rate of 1.7% for the periods during which a balance was outstanding during fiscal year 2022, partially offset by net foreign currency gains. 

Interest expense and amortization of debt discount was lower for the year ended March 31, 2022 compared to the year ended March 31, 2021 due to our adoption of Accounting Standards Update No. 2020-06, 

Debt with Conversion and Other Options and Derivatives and Hedging  

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

2 020-06"), which resulted in a $4,090 reduction in non-cash interest expense related to the 2025 Notes.

Year Ended March 31,

Percentage Change

Income tax expense (benefit)

Income tax (benefit) expense

Effective tax rate

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

(please see Note 12.

“Income Taxes”

within Item 8.

Financial Statements and Supplementary Data ).

Our effective tax rate increased during the year ended March 31, 2022 due to the limitations imposed by Section 162(m), and higher federal and state income taxes, partially offset by tax benefits, notably the exercise of stock options. The excess tax benefits and deficiencies associated with share-based payment awards to our employees have caused and, in the future, may cause large fluctuations in our realized effective tax rate based on timing, volume, and nature of stock options exercised under our share-based payment program.

Net income for the year ended March 31, 2022 varied with the changes in revenues, gross profit, and operating expenses (including, respectively, $21,806, $11,391, and $7,462 of non-cash amortization of intangible assets acquired in a business combination, stock-based compensation expense, and amortization of inventory step up). 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.

within Item 8. 

Financial Statements and Supplementary Data ) and purchase price accounting for any future acquisitions.

The change in our effective tax rate during the year ended March 31, 2023 is primarily due to being in a net loss position before taxes, a decrease in the provision for limitations under Section 162(m) of the Internal Revenue Code, partially offset by lower tax benefits associated with stock option exercises in fiscal year 2023.

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

Net income for the year ended March 31, 2023 varied with the changes in revenues, gross profit, and operating expenses (including, respectively, $28,821 and $12,538 of non-cash amortization of intangible assets acquired in a business combination, and stock-based compensation expense). 

Non-GAAP reconciliation

Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets acquired in a business combination, stock-based compensation and impairment of goodwill and long-lived assets) is used by management as a supplemental performance measure, in order to compare current financial performance to historical performance, assess the ability of our assets to generate cash, and evaluate potential acquisitions.

Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets acquired in a business combination, stock-based compensation and impairment of goodwill and long-lived assets) is used by management as a supplemental performance measure in order to compare current financial performance to historical performance, assess the ability of our assets to generate cash, and evaluate potential acquisitions.

Adjusted operating income should not be considered an alternative to, or more meaningful than, net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance or liquidity.

The following table sets forth our reconciliation of adjusted operating income, a non-GAAP measure:

The following table sets forth our reconciliation of adjusted operating income, a non-GAAP measure, to operating income:

Year Ended March 31,

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Stock-based compensation

Impairment loss on goodwill and long-lived assets

Adjusted Operating Income

Liquidity and Capital Resources

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our revolving credit facility, swingline loan, and letters of credit (together referred to as the "Credit Facility"), working capital and potential additional equity and debt offerings.

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 remainder of the unused capacity under our Credit Facility, and potential funds from our Open Market Sale Agreement SM , 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.

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our Credit Facility and the Open Market Sale Agreement SM  described below, working capital, and potential additional equity and debt offerings. We believe that cash flows from operating activities and potential cash provided by borrowings from our Credit Facility or funds from our Open Market Sale Agreement SM , when necessary, will be sufficient to meet our ongoing short-term and long-term operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures.

At our option, we may settle the 2025 Notes in shares of our common stock or in cash, or we may re-finance the debt, depending on conditions in the market and the share price of our common stock. 

Our more significant uses of resources have historically included acquisitions, payments on debt and interest obligations, long-term capital expenditures, and quarterly dividends to shareholders.

Working capital is the amount by which current assets exceed current liabilities. We had working capital of $75,616 and $76,263 on March 31, 2023 and 2022, respectively.

We also had $49,346 and $263,865 of cash and cash equivalents as of March 31, 2022 and 2021, respectively. 

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

On October 20, 2021 we completed the acquisition of Agena for an adjusted purchase price, net of cash acquired, of $300,793.

On March 5, 2021, we entered into a four-year senior secured credit agreement that includes 1) a revolving credit facility in an aggregate principal amount of up to $75,000, 2) a swingline loan in an aggregate principal amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500 at any time. The Credit Facility also provides for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender considerations. During the third quarter of fiscal year 2022, we borrowed $70,000 under the line of credit to fund the acquisition of Agena and repaid $21,000 during the third and fourth quarters of fiscal year 2022 using cash on hand and cash generated from operations. As of March 31, 2022, we had $26,000 remaining to draw on the Credit Facility.

As of March 31, 2022, we have $172,500 aggregate principal of senior convertible notes outstanding.

The Notes bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 of each year. The Notes can be converted prior to maturity if certain conditions are met;

no such conditions were met during the year ended March 31, 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 on March 31, 2022 and for all prior years presented and have met all debt payment obligations.

Refer to Note 8. "Indebtedness" within Item 8. 

Financial Statements and Supplementary Data  for more details on these transactions. 

In April 2022 we entered into an Open Market Sale Agreement SM , pursuant to which we may issue and sell, from time to time, shares of our common stock with an aggregate value of up to $150 million.

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

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

We also had $32,910 and $49,346 of cash and cash equivalents as of March 31, 2023 and 2022, respectively. 

As of March 31, 2023, $172,500 was outstanding under the 2025 Notes and $13,000 was outstanding under the Credit Facility.

In April 2023, we paid an additional $3,000 on our Credit Facility. 

We have evaluated our risk from concentration of cash deposits and taken appropriate steps to mitigate such risk. We maintain relationships and cash deposits at multiple banking institutions across the world in an effort to diversify and reduce risk of loss.

In April 2022, we entered into an Open Market Sale Agreement SM  pursuant to which we may issue and sell, from time to time, shares of our common stock with an aggregate value of up to $150,000.

We did not sell any shares under this agreement during fiscal year 2023. 

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 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 would depend on market conditions, our cash position, and other considerations.

We have paid regular quarterly dividends since 2003.

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Net cash (used in) investing activities

Net cash provided by financing activities

Cash flows from operating activities for the year ended March 31, 2022 provided $39,223. The $2,150 increase in cash flows from operating activities primarily resulted from non-cash adjustments to net income, particularly increased depreciation and amortization as a result of higher intangibles balances resulting from the Agena Acquisition and amortization of the inventory step-up associated with the Agena Acquisition. Further, cash provided by operating assets and liabilities decreased by $12,444 for the year ended March 31, 2022 compared to the year ended March 31, 2021, primarily as a result of the impact of timing on our working capital accounts.

Cash used in investing activities was higher during the year ended March 31, 2022 compared to the year ended March 31, 2021, 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 $21,000 repaid during the year.

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 year ended March 31, 2021 provided $145,935.

Net cash (used in) provided by financing activities

Cash flows from operating activities for the year ended March 31, 2023 provided $27,983.

The $11,240 decrease in cash flows from operating activities primarily resulted from changes in our working capital accounts including higher purchases of inventories to mitigate potential supply chain issues as well as lower accrued liabilities, particularly bonus, partially offset by non-cash adjustments to net income including higher stock compensation expense and higher depreciation and amortization expense.

Net income and non-cash adjustments totaled $45,095 for the year ended March 31, 2023 compared to $46,415 for the year ended March 31, 2022, while cash provided by operating assets and liabilities decreased by $9,920.

Cash used in investing activities was lower during the year ended March 31, 2023 compared to the year ended March 31, 2022 due to cash expended on the Agena Acquisition fiscal year 2022, partially offset by the Belyntic Acquisition in fiscal year 2023.

Cash used in financing activities primarily resulted from our repayment of $36,000 on our Credit Facility.

The fiscal year 2022 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 year ended March 31, 2021 provided $145,935.

Critical Accounting Policies and Estimates

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Financial Statements and Supplementary Data .

Revenue Recognition

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

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

Revenues are recognized when we satisfy our performance obligations under the terms of a contract, which occurs when control of the promised products or services transfers to our customers. We recognize as revenue the amount of consideration we expect to receive in exchange for transferring products or services to our customers (the transaction price).

For all revenue arrangements, prices are fixed at the time of purchase and no price protections or variables are offered.

The significant majority of our revenues and related receivables are generated from contracts with customers that are 12 months or less in duration.

We generally recognize revenues as follows:

Product sales:

 Our performance obligations related to product sales generally consist of the promise to sell tangible goods to distributors or end users.

Control of these goods is typically transferred upon shipment, at which time our performance obligation is satisfied and revenue is recognized. For products requiring Mesa's personnel to complete installation, control transfers to the customer and revenue is recognized when our technicians have completed the installation at the customer’s location.

Purchase orders typically provide evidence of an arrangement for product sales.

Products sold include an assurance-type warranty which is accounted for as part of accrued warranty expense.

Services: 

We generate service revenues from discrete or contracted calibration, testing, and maintenance services performed on our hardware products.

Performance obligations arise when discrete services are contracted in advance and performed at a future time, often at the time of the customer’s choosing.

In such cases, our performance obligation is satisfied and revenue is recognized upon completion of the specified work.

Alternately, performance obligations arising from ongoing service contracts are satisfied by completing any service that is contractually required during the contract period, if requested by the customer, or simply by the passage of time if no services are requested. For ongoing service contracts, revenue is recognized on a straight-line basis over the life of the contract in a faithful depiction of our obligation to provide services over the contract period.

Evidence of a service arrangement may be in the form of a formal contract or a purchase order.

Collectability is reasonably assured through our customer review process, and payment is typically due within 60 days or less.

Upon adoption of Accounting Standards Codification ("ASC") 606, we elected the practical expedient to expense commission costs as incurred.

The substantial majority of our contracts have original durations of one year or less, and we have elected not to disclose the expected timing or allocated transaction prices of future performance obligations.

Additionally, we have elected the practical expedient to not assess whether a significant financing component exists when the period between when we perform our performance obligation and when the customer remits payment is one year or less.

None of our contracts contained a financing component as of March 31, 2022 or March 31, 2021. 

Contracts with customers may contain multiple performance obligations.

For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation.

Standalone selling prices are based on the price at which the performance obligation is sold separately.

If the standalone selling price is not observable through past transactions, we estimate the standalone selling price considering available information such as market conditions and internally approved pricing guidelines.

Discounts may be approved at the time of purchase and are included within a contract’s fixed transaction price.

Discounts are typically allocated to the performance obligations included in the contract based on the standalone values of such obligations.

Inventories are stated at the lower of cost or net realizable value using a weighted average costing methodology.

Work in progress and finished goods inventory acquired in an acquisition are recorded at fair market value.

Our work in process and finished goods inventories include the costs of raw materials, labor and overhead, which are estimated based on trailing twelve months of expense and standard labor hours for each product.

We evaluate labor and overhead costs annually unless specific circumstances necessitate a mid-year evaluation for specific items.

We monitor inventory costs relative to selling prices and perform physical cycle count procedures on inventories throughout the year to determine if a lower of cost or net realizable value reserve is necessary.

We estimate and maintain an inventory reserve as needed for such matters as excess or obsolete inventory, shrinkage, and scrap. This reserve may fluctuate as our assumptions change due to new information, discrete events, or changes in our business, such as entering new markets or discontinuing a specific product;

however, once inventory is written down, a new cost basis is established that is not subsequently written back up in future periods.

Purchase Accounting for Acquisitions

We account for all business combinations in which we obtain control over another entity using the acquisition method of accounting, which requires most assets (both tangible and intangible) and liabilities (including contingent consideration) to be recognized at fair value at the date of acquisition.

We account for all business combinations in which we obtain control over another entity using the acquisition method of accounting, which requires most assets (both tangible and intangible) and liabilities (including any applicable contingent consideration) to be recognized at fair value at the date of acquisition.

The excess of the purchase price over the fair value of assets less liabilities is recognized as goodwill.

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These types of analyses require us to make and monitor assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.

Certain adjustments to the assessed fair values of acquired assets or liabilities made subsequent to the acquisition date but within the measurement period are recorded as adjustments to goodwill.

Certain adjustments to the assessed fair values of acquired assets or liabilities made subsequent to the acquisition date but within a one-year measurement period are recorded as adjustments to goodwill.

Any adjustments subsequent to the measurement period are recorded within earnings. We expense all costs as incurred related to an acquisition in selling, general, and administrative expenses.

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Our business acquisitions typically result in the recognition of goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges we may incur.

Intangible assets with a definite life are amortized over their useful lives using the straight-line method and the amortization expense is recorded within cost of products or selling, general and administrative expense in the Consolidated Statements of Income.

Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable.

More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products.

If impairment indicators are present, we determine whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows.

The fair value measurement for asset impairment is based on Level 3 inputs.

If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future cash flows expected to result from the use and disposition of the asset.

Intangible assets with finite lives are amortized over their useful lives using the straight-line method and amortization expense is recorded within cost of products or selling, general and administrative expense in the Consolidated Statements of Income.

Impairment assessments are conducted if events or conditions indicate that asset carrying amounts may not be recoverable, including changes in the competitive landscape, any internal decisions to pursue new or different technology strategies, losses of significant customers, or significant changes in the marketplace, including adverse changes in the prices paid for our products or changes in the size of the market for our products.

If impairment indicators are present, we determine whether the carrying value of the underlying intangible asset is recoverable through undiscounted estimated future cash flows.

If the asset is not found to be recoverable, we estimate the asset's fair value using Level 3 inputs and record an impairment to write down the asset's carrying value to the estimated fair value.

If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life.

We continue to believe that our definite lived intangible assets are recoverable as of March 31, 2022. 

We test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to: current economic and market conditions, including a decline in market capitalization; a significant adverse change in legal factors; business climate or operational performance of the business; and an adverse action or assessment by a regulator.

Goodwill is tested for impairment during the fourth quarter of each year, or more frequently as warranted by events or changes in circumstances mentioned above.

Our impairment tests for other indefinite lived intangible assets are similar to the tests performed for goodwill but are conducted at the individual asset level. We accounted for the economic uncertainty caused by the COVID-19 pandemic when conducting our impairment analyses of goodwill and other indefinite lived intangible assets during the fourth quarter of our year ended March 31, 2022.

Our impairment tests begin with the optional qualitative assessment to determine whether it is more likely than not that the carrying value of a goodwill reporting unit or other intangible asset exceeds its fair value, as permitted by the accounting guidance.

If, after this qualitative assessment, we determine it is more likely than not that the fair value is greater than the carrying amount, then no further quantitative testing is necessary.

We continue to believe that our finite lived intangible assets are recoverable as of March 31, 2023. 

We test goodwill and indefinite lived intangible assets for impairment on an annual basis during the fourth quarter of each year, or more frequently if events and circumstances indicate it is more likely than not that the fair value of the respective asset is less than its carrying value.

Events that would indicate impairment and trigger interim impairment assessments include but are not limited to: current economic and market conditions, including a decline in market capitalization; a significant adverse change in legal factors; business climate or operational performance of the business; and an adverse action or assessment by a regulator.

Our impairment tests for indefinite lived intangible assets other than goodwill are generally conducted at the individual asset level. We accounted for the economic uncertainty caused by the macro-economic environment, including rising interest rates and high inflation, when conducting our impairment analyses of goodwill and other indefinite lived intangible assets during the fourth quarter of our year ended March 31, 2023. 

Our impairment tests typically begin with optional qualitative assessments to determine whether it is more likely than not that the carrying value of a goodwill reporting unit or other intangible asset exceeds its fair value, as permitted by the accounting guidance.

If, after this qualitative assessment, we determine it is more likely than not that the fair value is greater than the carrying amount, no further quantitative testing is necessary.

A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed.

The quantitative assessment considers whether the carrying amount of a reporting unit or indefinite lived intangible asset exceeds its fair value, in which case an impairment charge is recorded to the extent carrying value exceeds fair value.

The quantitative assessment measures whether the carrying amount of a reporting unit or indefinite lived intangible asset exceeds its fair value, in which case an impairment charge is recorded to the extent carrying value exceeds fair value.

Fair value is determined using an income approach, which relies heavily on Level 3 inputs.

Our qualitative assessments over each of our reportable segments and our other indefinite lived intangible assets during the year ended March 31, 2022 concluded that no impairment exists as of March 31, 2022. 

Debt Accounting

As of March 31, 2022, our long-term debt balance is related to our 1.375% convertible senior notes due 2025, which were issued in August 2019 and are carried at their principal amount less unamortized debt discount.

We account for our convertible notes as liabilities.

For a discussion on the change in accounting for convertible debt, refer to Note 1.

"Description of Business and Summary of Significant Accounting Policies" in Item 8.

Financial Statements and Supplementary Data . Debt discount is amortized to interest expense in our Consolidated Statements of Income over the term of the convertible notes using the effective interest rate method.

In fiscal year 2023, we performed initial qualitative assessments over reporting units associated with our Clinical Genomics, Biopharmaceutical Development, and Calibration Solutions reportable segments.

We supplemented our qualitative analysis over Clinical Genomics with a quantitative assessment as described further below.

We also performed a quantitative assessment over the Sterilization and Disinfection Control reportable segment due to the length of time elapsed since our last quantitative assessment.

Through our testing, we concluded that no impairment exists as of March 31, 2023. 

Due to the loss of a significant customer, in the third quarter of fiscal year 2023 we used Level 3 inputs to quantitatively test the recoverability of the Clinical Genomics division’s intangible asset group and to evaluate the division’s goodwill for impairment.

After considering all information available to us as of that testing date, we concluded that no impairment was indicated.

As of March 31, 2023, our annual qualitative impairment analyses continued to support the conclusion that Clinical Genomics’

goodwill and intangible assets are not impaired;

however, we chose to perform a quantitative impairment test in light of the division’s fourth quarter financial performance compared to original forecasts.

We will continue to carefully monitor Clinical Genomics’

goodwill and other intangible assets for impairment in future periods.

It is reasonably possible that the division’s goodwill, intangibles, or both, may be impaired in the near term.

Impairment would result in non-cash charges, which could have a material adverse effect on our financial condition and results of operations.

The total net carrying values of Clinical Genomics’

intangible assets and goodwill potentially subject to future impairment are $140,700 and $135,811, respectively, as of March 31, 2023.

The value of finite-lived intangible assets decreases about $15.5 million each year as we record amortization expense, and the value of goodwill and intangible assets may be affected by future events, including changes in our customer or product mix, market conditions, or our operating performance falling short of current forecasts.

Stock- b ased Compensation

We recognize compensation expense for equity awards over the vesting period based on the award’s fair value.

We use the Black-Scholes valuation model to determine the fair value of our stock options.

The Black-Scholes model requires assumptions to be made regarding our stock price volatility, the expected life of the award, and expected dividend rates.

We recognize compensation expense for equity awards over the vesting period based on the fair value of the awards.

We use the Black-Scholes valuation model to estimate the fair value of our stock options.

The Black-Scholes model requires assumptions to be made regarding our stock price volatility, the expected life of awards, and expected dividend rates.

The volatility assumption and the expected life assumptions are based on our historical data.

The compensation expense of performance share awards is based in part on the estimated probability of achieving levels of performance associated with particular levels of payout for performance shares.

The compensation expense related to performance share awards is based in part on the estimated probability of achieving performance goals associated with particular levels of payout for performance shares.

We determine the probability of achievement of future levels of performance by comparing the relevant performance level with our internal estimates of future performance.

Those estimates are based on a number of assumptions, and different assumptions may have resulted in different conclusions regarding the probability of achieving future levels of performance relevant to the payout levels for the awards.

Had we arrived at different assumptions of stock price volatility or expected lives of our options, or different assumptions regarding the probability of our achieving future levels of performance with respect to performance share awards, our stock-based compensation expense and results of operations could have been different.

Those estimates are based on a number of assumptions, and different assumptions may result in different conclusions regarding the probability of achieving future levels of performance relevant to the payout levels for the awards.

Our provision for income taxes requires the use of estimates in determining the timing and amounts of deductible and taxable items, including impacts on effective tax rates, deferred tax items and valuation allowances based on management’s interpretation and application of complex tax laws and accounting guidance.

We establish reserves for uncertain tax positions for material, known tax exposures relating to deductions, transactions and other matters involving some uncertainty as to the measurement and recognition of the item.

We establish reserves for uncertain tax positions for material, known tax exposures relating to deductions, transactions and other matters involving uncertainty as to the measurement and recognition of the item.

While we believe that our reserves are adequate, issues raised by a tax authority may be finally resolved at an amount different than the related reserve and could materially increase or decrease our income tax provision in the current and/or future periods.

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Financial Statements and Supplementary Data .

Contractual Obligations, Commitments and Off-Balance Sheet Arrangements

Off-Balance Sheet Arrangements

As of March 31, 2022, we have no obligations or interests which qualify as off-balance sheet arrangements.

Contractual Obligations

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 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 assumed certain contractual obligations, including an additional $9,884 of payments under existing lease agreements, and $4,373 of open purchase orders as of March 31, 2022. 

On a consolidated basis, at March 31, 2022, we had contractual obligations for open purchase orders of approximately $19,025 for routine purchases of supplies and inventory, of which the substantial majority 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.

For a description of our contractual obligations and other commercial commitments as of March 31, 2022, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the Securities and Exchange Commission on May 31, 2022. 

On a consolidated basis, at March 31, 2023, we had contractual obligations for open purchase orders of approximately $17,270 for routine purchases of supplies and inventory, of which the substantial majority are payable in less than one year. 

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-K

Item 5. Market for Registrant’s Common Equity