What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-02-06 · 308 added, 792 removed, 530 unchanged (67% of the section changed)

22 unchanged sentences

10,373  

Customer relationships, net

142,515  

Intangibles, net

152,189  

Intellectual property, net

45,287  

46,400  

Other intangibles, net

17,592  

1 unchanged sentence

283,756  

286,444  

$ 642,611  

$ 661,832  

LIABILITIES AND STOCKHOLDERS’

4 unchanged sentences

Accrued payroll and benefits

14,717  

Unearned revenues

13 unchanged sentences

13,000  

49,000  

Convertible senior notes, net of discounts and debt issuance costs

13 unchanged sentences

74,199  

Accumulated other comprehensive (loss) income

Accumulated other comprehensive (loss)

( 19,456 )  

9 unchanged sentences

(in thousands, except per share data)

Three Months Ended December 31,

Nine Months Ended December 31,

$ 54,287  

$ 54,696  

$ 163,489  

$ 125,456  

Three Months Ended June 30,

Cost of revenues

21,522  

26,069  

62,997  

51,478  

32,765  

28,627  

100,492  

73,978  

Operating expenses:

27,660  

18,459  

General and administrative

16,129  

17,017  

54,543  

40,119  

Research and development

15,486  

10,588  

Total operating expenses

29,363  

31,139  

97,689  

69,166  

Operating income (loss)

( 2,512 )  

Nonoperating expense (income):

Operating (loss)

Nonoperating expense:

Interest expense and amortization of debt discount

Other expense (income), net

( 1,189 )  

( 475 )  

Total nonoperating expense (income)

( 171 )  

Earnings (loss) before income taxes

( 2,341 )  

( 112 )  

Income tax provision (benefit)

( 281 )  

( 431 )  

Net income (loss)

$ ( 2,060 )  

$ 3,655  

Earnings (loss) per share:

$ 0.08  

$ ( 0.39 )  

$ 0.06  

$ 0.70  

$ 0.08  

$ ( 0.39 )  

$ 0.06  

$ 0.69  

Other (income), net

Total nonoperating expense, net

(Loss) before income taxes

Income tax (benefit)

Net (loss) per share:

Weighted-average common shares outstanding:

1 unchanged sentence

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive (Loss)

(in thousands)  

Three Months Ended December 31,

Nine Months Ended December 31,

Net income (loss)

Other comprehensive income (loss):

Three Months Ended June 30,

Other comprehensive (loss):

Foreign currency translation adjustments

Comprehensive income (loss)

Comprehensive (loss)

See accompanying notes to Condensed Consolidated Financial Statements.

M esa Laboratories, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended December 31,

Cash flows from operating activities:

$ 3,655  

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

Depreciation and amortization

24,769  

15,686  

Stock-based compensation expense

Amortization of step-up in inventory basis

( 359 )  

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

Accounts receivable, net

( 1,979 )  

( 9,191 )  

Prepaid expenses and other assets

( 2,312 )  

Accounts payable

( 1,339 )  

Accrued liabilities and taxes payable

( 5,221 )  

Unearned revenues

Net cash provided by operating activities

15,464  

29,921  

Cash flows from investing activities:

Acquisitions, net of cash acquired

( 4,950 )  

Purchases of property, plant and equipment

( 3,518 )  

Net cash (used in) investing activities

( 8,468 )  

Cash flows from financing activities:

Proceeds from the issuance of debt

70,000  

Payments of debt

( 30,000 )  

( 2,550 )  

Proceeds from the exercise of stock options

Payment of tax withholding obligation on vesting of restricted stock

( 909 )  

Payments of contingent consideration

Net cash (used in) provided by financing activities

( 28,936 )  

62,623  

Effect of exchange rate changes on cash and cash equivalents

( 1,305 )  

Net (decrease) in cash and cash equivalents

( 23,245 )  

Cash and cash equivalents at beginning of period

49,346  

263,865  

Cash and cash equivalents at end of period

$ 26,101  

$ 51,706  

Supplemental non-cash activity:

Contingent consideration as part of an acquisition

$ 1,500  

See accompanying notes to Condensed C onsolidated Fin ancial Statements.

Mesa Laboratories, Inc.

12 unchanged sentences

Tax withholding on vesting of restricted stock units

Dividends paid, $ 0.16 per share

( 5,260 )  

Stock-based compensation expense

Foreign currency translation

( 712 )  

( 1,438 )  

June 30, 2022

5,297,308  

$ 318,328  

$ 74,394  

$ ( 12,291 )  

$ 380,431  

Exercise of stock options and vesting of restricted stock units

42,014  

Tax withholding on vesting of restricted stock units

(3,051 )  

( 572 )  

Dividends paid, $ 0.16 per share

3 unchanged sentences

( 6,661 )  

September 30, 2022

( 549 )  

$ 324,905  

$ 74,848  

$ ( 25,517 )  

$ 374,236  

Exercise of stock options and vesting of restricted stock units

Tax withholding on vesting of restricted stock units

(1,757 )  

( 335 )  

Dividends paid, $ 0.16 per share

( 855 )  

Stock-based compensation expense

Foreign currency translation

11,345  

December 31, 2022

June 30, 2023

5,384,280  

14 unchanged sentences

Tax withholding on vesting of restricted stock units

( 747 )  

Dividends paid, $ 0.16 per share

2 unchanged sentences

Foreign currency translation

Cumulative adjustment due to adoption of ASU No.

( 15,957 )  

June 30, 2021

( 1,438 )  

$ 298,203  

$ 79,313  

$ 21,487  

$ 399,003  

Exercise of stock options and vesting of restricted stock units

24,340  

Tax withholding on vesting of restricted stock units

( 68 )  

Dividends paid, $ 0.16 per share

( 834 )  

Stock-based compensation expense

Foreign currency translation

( 6,503 )  

September 30, 2021

5,223,232  

$ 302,234  

$ 82,199  

$ 14,984  

$ 399,417  

Exercise of stock options and vesting of restricted stock units

21,396  

Tax withholding on vesting of restricted stock units

Dividends paid, $ 0.16 per share

( 837 )  

Stock-based compensation expense

Foreign currency translation

( 6,165 )  

( 2,060 )  

December 31, 2021

June 30, 2022

5,297,308  

5 unchanged sentences

See accompanying notes to Condensed Consolidated Financial Statements.

M esa Laboratories, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended June 30,

Cash flows from operating activities:

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

Depreciation and amortization

Stock-based compensation expense

Non-cash interest and debt amortization

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

Accounts receivable, net

Prepaid expenses and other assets

Accounts payable

Accrued liabilities and taxes payable

Unearned revenues

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Purchases of property, plant and equipment

Net cash (used in) investing activities

Cash flows from financing activities:

Payments of debt

Proceeds from the exercise of stock options

Payment of tax withholding obligation on vesting of restricted stock

Net cash (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

See accompanying notes to Condensed C onsolidated Fin ancial Statements.

Mesa Laboratories, Inc.

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or “Mesa.”

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 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 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 of December 31, 2022 , we managed our operations in four reportable segments, or divisions:

Clinical Genomics - 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.

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, medical device, and pharmaceutical industries.

As of June 30, 2023 , we managed our operations in four reportable segments, or divisions:

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

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

Clinical Genomics - 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.

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. 

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

Calibration Solutions 

- develops, manufactures, and sells quality control and calibration products used to measure or calibrate temperature, pressure, pH, humidity, and other chemical or physical parameters for health and safety purposes, primarily in hospital, medical device manufacturing, pharmaceutical manufacturing, and various laboratory environments. 

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

- 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 medical device manufacturing, pharmaceutical manufacturing, laboratory, and hospital environments.

Unallocated corporate expenses are reported within Corporate and Other.

Basis of Presentation

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References in this Quarterly Report to a particular “year”

or “year-end”

mean our fiscal year, references to the first quarter of fiscal year 2023  refer to the period from April 1, 2022 

through June 30, 2022, 

references to the second quarter of fiscal year 2023 refer to the period from July 1, 2022 through September 30, 2022, and references to the third  quarter of fiscal year 2023 refer to the period from October 

1, 2022 through December 31, 2022. 

References to “fiscal year 2022”

refer to the fiscal year ended March 31, 2022, and to “fiscal year 2023”

refer to the fiscal year ending March 31, 2023.

Prior Period Reclassification

Certain amounts presented for prior periods in Note 3.

"Revenue Recognition" have been reclassified.

Certain revenues related to the Biopharmaceutical Development division have been reclassified out of revenues from consumables and into revenues from hardware and services.

Certain revenues related to the Clinical Genomics division have been reclassified out of revenues from hardware and into revenues from consumables.

These reclassifications have not resulted in any change to the Condensed Consolidated Financial Statements for and periods presented in this Form 10 -Q.

or “quarter” refer to our fiscal year or fiscal quarters, respectively.

Prior Period Reclassifications

Certain prior year amounts presented have been reclassified to conform with current presentation.

The reclassifications have 

not  resulted in any changes to consolidated or segment amounts reported in the Consolidated Financial Statements for any periods presented in this Form 10 -Q.

Risks and Uncertainties

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

The business and economic uncertainty resulting from supply chain challenges, cost pressure, the overall effects of the current high inflation environment on customers' purchasing patterns, and the novel coronavirus pandemic ("COVID- 19" ) has made such estimates more difficult to calculate.

Accordingly, actual results could differ from those estimates.

The global business environment continues to be impacted by cost pressure, the overall effects of the current high inflation environment on customers' purchasing patterns, high interest rates, the conflict in Ukraine, and other factors.

It is not possible to accurately predict the future impact of such events and circumstances.

Actual results could differ from our estimates.

Recently Issued Accounting Pronouncements

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Belyntic GmbH

During the three months ended December 31, 2022, we acquired substantially all of the assets and certain liabilities of Belyntic GmbH’s peptide purification business (“the Belyntic acquisition”) for $ 6,450 , of which $ 4,950  was paid on the date of acquisition and the remainder will be paid upon approval of patent applications expected in the next 36 months.

The business complements our existing peptide synthesis business, part of the Biopharmaceutical Development segment, by adding a new consumables line.

During the third quarter of fiscal year 2023 ,  we prepared a preliminary analyses of the valuation of net assets acquired in the Belyntic acquisition.

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

Agena Bioscience, Inc

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

(“Agena”) for $ 300,793 , net of cash acquired but inclusive of working capital adjustments (the “Agena Acquisition”).

The Agena Acquisition aligned with our overall acquisition strategy, moved our business towards the life sciences tools sector, and expanded 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.

We funded the acquisition and transactions relating thereto with cash on hand and borrowings under the Credit Facility (as defined below). 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.

Fair Value of Net Assets Acquired

The allocation of purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date, based on the final valuation of Agena.

We have made appropriate adjustments to deferred taxes and tax-related balances during the three months ended December 31.

The following table summarizes the allocation of the purchase price as of October 20, 2021:

Life (in years)

Cash and cash equivalents

$ 7,544  

Accounts receivable

11,100  

Other current assets

25,480  

Total current assets

44,124  

Property, plant and equipment/noncurrent assets

15,832  

Deferred tax asset

Intangible assets:

135,728  

Customer relationships

103,800  

Intellectual property

45,400  

15,700  

Total Assets acquired

$ 361,395  

Accounts payable

Unearned revenues

Other current liabilities

11,052  

Total current liabilities

15,939  

Deferred tax liability

28,856  

Other noncurrent liabilities

Total liabilities assumed

$ 53,058  

Total purchase price, net of cash acquired

$ 300,793  

Acquired Goodwill

Acquired goodwill of $ 135,728 , all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from 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.

Unaudited Pro Forma Information

The following unaudited pro forma financial information presents the combined results of operations of Mesa and Agena as if the acquisition had occurred on April 1, 2021 

after giving effect to certain pro forma adjustments. 

Three Months Ended December 31,

Nine Months Ended December 31,

Pro forma total revenues

$ 54,287  

$ 56,659  

$ 163,489  

$ 163,733  

Pro forma net income (loss)

( 8,426 )  

The pro forma financial information includes adjustments that are directly attributable to the business combinations and are factually supportable. The pro forma adjustments include incremental amortization of intangible assets, additional stock-based compensation expense for key Agena employees, the removal of interest expense attributable to Agena’s external debt that was paid off as part of the acquisition, and the pro forma tax impact for such adjustments.

Cost savings or operating synergies expected to result from the acquisition are not included in the pro forma results.

For the three and nine  months ended December 31, 2022 , the pro forma financial information excludes $ 145  and $ 768  of non-recurring acquisition-related expenses, respectively.

These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.

Revenue Recognition

On November 17, 2022, we acquired substantially all of the assets and certain liabilities of Belyntic GmbH’s peptide purification business (“the Belyntic acquisition”) for $ 6,450 , of which $ 4,950  was paid on the date of acquisition.

The remaining $ 1,500  will be paid upon the approval of pending patent applications. The business complements our existing peptide synthesis business, part of the Biopharmaceutical Development segment, by adding a new consumables line.

The new PurePep®

EasyClean products are a green chemistry solution to purify peptides.

During fiscal year 2023 ,  we prepared a preliminary analysis of the valuation of net assets acquired in the Belyntic acquisition.

During the three months ended June 30, 2023, based on detailed financial analysis of the financial model, we recorded measurement period adjustments to reclassify amounts from intangible assets into goodwill.

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

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

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Consumables such as biological indicator test strips are used on a standalone basis.

We offer service and maintenance contracts for our instruments, which may contain performance obligations satisfied:

over time, such as an obligation to perform repairs or replace parts as needed over a contractually-specified period of time;

upon completion of a discrete service, such as stand-alone maintenance services or discrete services within annual contracts;

or, in many cases, both.

We also offer maintenance, calibration, and testing service contracts.

Under our service contracts we perform labor and replace parts on an as-needed basis over a contractually specified period of time or perform specific, discrete services. 

Typically, revenue is recognized upon shipment of a product, upon completion of a discrete service, or over a period of time reflective of the performance obligation period in the applicable contract, depending on when our obligation to the customer is satisfied.

1 unchanged sentence

12  months or less in duration.

The following tables present disaggregated revenues for the three and nine  months ended December 31, 2022  and 2021 , respectively:

Three Months Ended December 31, 2022

Clinical Genomics

The following tables present disaggregated revenues for the three  months ended June 30, 2023  and 2022 , respectively:

Three Months Ended June 30, 2023

Sterilization and Disinfection Control

Biopharmaceutical Development

Calibration Solutions

$ 10,885  

$ 14,307  

$ 3,584  

$ 29,329  

Hardware and Software

16,333  

Total Revenues

$ 15,585  

$ 16,283  

$ 11,646  

$ 10,773  

$ 54,287  

Three Months Ended December 31, 2021

Clinical Genomics

Sterilization and Disinfection Control

Biopharmaceutical Development

Calibration Solutions

$ 10,221  

$ 11,718  

$ 4,099  

$ 26,927  

Hardware and Software

17,735  

10,034  

Total Revenues

$ 16,485  

$ 13,831  

$ 12,756  

$ 11,624  

$ 54,696  

Nine Months Ended December 31, 2022

Clinical Genomics

Three Months Ended June 30, 2022

Sterilization and Disinfection Control

Biopharmaceutical Development

Calibration Solutions

$ 34,815  

$ 41,239  

$ 11,248  

$ 2,272  

$ 89,574  

Hardware and Software

16,656  

18,696  

45,320  

11,218  

28,595  

Total Revenues

$ 48,525  

$ 48,021  

$ 34,757  

$ 32,186  

$ 163,489  

Nine Months Ended December 31, 2021

Clinical Genomics

Sterilization and Disinfection Control

Biopharmaceutical Development

Calibration Solutions

$ 10,221  

$ 36,579  

$ 11,588  

$ 2,701  

$ 61,089  

Hardware and Software

14,435  

20,608  

39,945  

10,460  

24,422  

Total Revenues

$ 16,485  

$ 43,014  

$ 32,188  

$ 33,769  

$ 125,456  

*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 locations where services are performed, as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

United States

$ 28,645  

$ 30,414  

$ 88,756  

$ 68,253  

18,659  

18,160  

18,039  

56,074  

47,243  

Total revenues

$ 54,287  

$ 54,696  

$ 163,489  

$ 125,456  

Other than China, no  foreign country exceeds 10% of total revenues.

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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.

Short-term contract liabilities are included within 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.

A summary of contract liabilities is as follows:

Contract liabilities as of March 31, 2023

$ 15,069  

Prior year liabilities recognized in revenues during the nine months ended December 31, 2022

Contract liabilities added during the nine months ended December 31, 2022, net of revenues recognized

Contract liabilities balance as of December 31, 2022

$ 16,233  

Prior year liabilities recognized in revenues during the three months ended June 30, 2023

Contract liabilities added during the three months ended June 30, 2023, net of revenues recognized

Contract liabilities balance as of June 30, 2023

Contract liabilities primarily relate to service contracts with original expected service durations of 12 months or less and will be recognized to revenue over time as our performance obligations are satisfied.

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

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

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

treasuries). Concentration of credit risk with respect to accounts receivable is limited to customers to which we make significant sales.

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

they are classified within Level 1 of the fair value hierarchy. 

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

We maintain relationships and cash deposits at multiple banking institutions across the world in an effort to diversify and reduce risk of loss.

Concentration of credit risk with respect to accounts receivable is limited to customers to whom we make significant sales.

One distributor accounted for approximately 13 % of total trade receivables as of June 30, 2023, compared to 18 % as of our fiscal year ended March 31, 2023.

The distributor's outstanding balance was current as of June 30, 2023, 

and the substantial majority has since been collected.

We reserve an allowance for potential write-offs of accounts receivable using historical collection experience and current and expected future economic and market conditions.

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

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August 15, 2025 ( the "Notes"). We estimate the fair value of the Notes based on the last actively traded price or observable market input preceding the end of the reporting period, and the fair value is approximately correlated to our stock price.

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

December 31, 2022

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

June 30, 2023

March 31, 2023

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$ 161,072  

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.

During the three months ended December 31, 2022, in response to the loss of a significant customer, we used Level 3 inputs to test the recoverability of the Clinical Genomics division’s intangible asset group and evaluate the division’s goodwill for impairment in response to the loss of a significant customer.

After considering all information available to us as of the date of testing, we concluded that no impairment is indicated. Fair values preliminarily assigned to assets acquired and liabilities assumed in the Belyntic acquisition were measured using Level 3 inputs, and are subject to change.

There were no transfers between the levels of the fair value hierarchy during the three and nine  months ended December 31, 2022  or 2021, respectively.

Amounts recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a nonrecurring basis include the initial recognition and disclosure of most assets and liabilities purchased in a business acquisition and any related measurement period adjustments.

Additionally, assets such as property and equipment, operating lease assets, goodwill, and other intangible assets are adjusted to fair value if determined to be impaired.

We recorded no impairments during the three months ended June 30, 2023 or 2022.

 Fair values of such assets and liabilities require measurement using Level 3 inputs.

There were no transfers between the levels of the fair value hierarchy during the three months ended June 30, 2023  or 

2022 , respectively.

We are obligated to pay contingent consideration of $ 1,500 cash related to the Belyntic acquisition upon approval of pending patent applications.

The fair value of the contingent consideration was $ 1,137 as of June 30, 2023 and is recorded in other long-term liabilities on the accompanying Condensed Consolidated Balance Sheets.

We estimated the fair value of the contingent consideration at inception using a probability-weighted outcome analysis based on our expectations of patent approval, leveraging our historical experience and expert input, and we adjust the contingent consideration to estimated fair value at each reporting period through earnings. 

Supplemental Balance Sheets Information

Inventories consist of the following:

December 31, 2022

Inventories consisted of the following:

June 30, 2023

March 31, 2023

Raw materials

$ 20,122  

$ 14,172  

Work in process

Finished goods

11,645  

Total inventories

$ 33,739  

$ 24,606  

Prepaid expenses and other consist of the following:

December 31, 2022

Prepaid expenses and other current assets consisted of the following: 

June 30, 2023

March 31, 2023

Prepaid expenses

$ 3,450  

$ 2,871  

Prepaid income taxes

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Total prepaid expenses and other

$ 11,950  

$ 9,142  

Accrued payroll and benefits consist of the following:

December 31, 2022

Accrued payroll and benefits consisted of the following:

June 30, 2023

March 31, 2023

Bonus payable

$ 2,714  

$ 7,468  

Wages and paid-time-off payable

2 unchanged sentences

Total accrued payroll and benefits

$ 8,134  

$ 14,717  

Accrued other expenses consisted of the following: 

June 30, 2023

March 31, 2023

Accrued business taxes

Current operating lease liabilities

Income taxes payable

Total other accrued expenses

Goodwill and Intangible Assets, Net

Intangible assets, the significant majority of which are finite-lived, consist of the following:

December 31, 2022

Intangible assets, the significant majority of which are finite-lived, consisted of the following:

June 30, 2023

March 31, 2023

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Customer relationships

$ 237,412  

$ ( 80,627 )  

$ 156,785  

$ 244,157  

$ ( 67,469 )  

$ 176,688  

Intellectual property

65,871  

( 17,732 )  

48,139  

65,893  

( 12,620 )  

53,273  

Other intangibles

24,745  

( 6,222 )  

18,523  

25,350  

( 5,194 )  

20,156  

$ 328,028  

$ ( 104,581 )  

$ 223,447  

$ 335,400  

$ ( 85,283 )  

$ 250,117  

Amortization expense for finite-lived intangible assets acquired in a business combination was as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Amortization in cost of revenues

$ 1,695  

$ 1,227  

$ 5,094  

$ 1,877  

Amortization in general and administrative

16,479  

11,618  

$ 7,147  

$ 5,922  

$ 21,573  

$ 13,495  

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

For the following fiscal years ending

March 31, amortization expense is estimated as follows:

Remainder of 2024

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

Clinical Genomics

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

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March 31, 2023

$ 135,914  

$ 29,750  

$ 88,265  

$ 37,237  

$ 291,166  

Effect of foreign currency translation

( 244 )  

( 297 )  

( 7,871 )  

( 32 )  

Goodwill related to Belyntic acquisition

Measurement period adjustment - Agena acquisition

December 31, 2022

$ 135,784  

$ 29,453  

$ 83,367  

$ 37,205  

$ 285,809  

Goodwill acquired in the Biopharmaceutical Development division resulted from the Belyntic acquisition and is tax deductible.

Measurement period adjustment - Belyntic Acquisition

June 30, 2023

Goodwill in the Biopharmaceutical Development division related to the Belyntic acquisition and is tax deductible.

 Indebtedness

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3 ) letters of credit in an aggregate stated amount 

not  exceeding $ 2,500 . 

The Credit Facility matures in March 2025.

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 December 31, 2022 , we had $ 19,000 outstanding under the Credit Facility. 

On December 22, 2022, Mesa and the financial institutions amended the Credit Facility to replace references to the Eurodollar Rate with references to the Secured Overnight Financing Rate ("SOFR").

not  exceeding $ 2,500 . The Credit Facility matures in March 2025.

As of June 30, 2023 , we had $ 5,000 outstanding under the Credit Facility.

We paid an additional $ 3,500 on the outstanding Credit Facility balance in July 2023. 

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

The interest rate on borrowings under our line of credit as of June 30, 2023  was 7.0 %.

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. 

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5.0  to 

1.0  for the period ended December 31, 2022 , except that we 

1.0  for the period ended June 30, 2023 , except that we 

have a leverage ratio of 

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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.

December 31, 2022 , we were in compliance with all covenants.

Convertible Notes 

June 30, 2023 , we were in compliance with all covenants.

Convert ible Notes 

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

The net proceeds from the Notes, after deducting underwriting discounts and commissions and other related offering expenses payable by us, were approximately $167,056.

 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. 

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election.

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

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 months ended December 31, 2022 .

As of December 31, 2022 , 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, 2022 .

The net proceeds from the Notes, after deducting underwriting discounts and commissions and other related offering expenses payable by us, were approximately $ 167,056 . 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. 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. 

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. The circumstances necessary for voluntary conversion were not met during the three months ended June 30, 2023 .

As of June 30, 2023 , the Notes are classified as a long-term liability on our Condensed Consolidated Balance Sheets. The if-converted value of the Notes did not exceed the principal balance as of 

June 30, 2023 .

The net carrying amount of the Notes was as follows:

December 31, 2022

June 30, 2023

March 31, 2023

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We recognized interest expense on the Notes as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30

Coupon interest expense at 1.375%

$ 1,779  

Amortization of debt discounts and issuance costs

Total interest and amortization of debt issuance costs

$ 2,458  

$ 2,445  

The effective interest rate on the notes is approximately 1.9 %.

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Stock-Based Compensation

During the nine  months ended December 31, 2022 , we issued stock options, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") pursuant to the Mesa Laboratories, Inc.

During the three months ended June 30, 2023 , we issued stock options, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") pursuant to 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.

Expense recognized related to stock-based compensation is as follows: 

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Stock-based compensation expense

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$ 3,432  

$ 9,859  

$ 7,939  

Amount of income tax (benefit) recognized in earnings

( 872 )  

( 1,855 )  

Stock-based compensation expense, net of tax

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$ 1,440  

$ 8,004  

$ 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 Operations.

The following is a summary of stock option award activity for the nine months ended December 31, 2022 :

The following is a summary of stock option award activity for the three months ended June 30, 2023 :

Stock Options

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Awards exercised

( 45 )  

100.19  

Outstanding as of December 31, 2022

$ 184.70  

Outstanding as of June 30, 2023

$ 183.64  

The stock options granted during the nine  months ended December 31, 2022  vest in equal installments on the first, second, and third anniversary of the grant date.

The following is a summary of RSU award activity for the nine months ended December 31, 2022 :

The stock options granted during the three months ended June 30, 2023  vest in equal installments on the first, second, and third anniversary of the grant date.

The following is a summary of RSU award activity for the three months ended June 30, 2023 :

Time-Based Restricted Stock Units

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132.29  

Performance adjustment (2)

202.00  

Awards forfeited

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210.83  

( 10 )  

202.00  

Outstanding as of December 31, 2022 (1)

Outstanding as of June 30, 2023 (1)

$ 174.58  

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Balances for PSUs are reflected at target.

During the nine  months ended December 31, 2022, the fiscal year 2020  PSUs vested and were distributed at 126 % of target, based on actual performance results and completion of service conditions. 

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

one -for- one basis.

Substantially all of the RSUs granted during the nine  months ended December 31, 2022  vest in equal installments on the first, second, and third anniversary of the grant date.

All of the RSUs granted during the three months ended June 30, 2023  vest in equal installments on the first, second, and third anniversary of the grant date.

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

PSUs vest upon completion of the service period described in the award agreement and based on achievement of the performance targets described in the award agreements.

Mesa grants PSUs to certain key employees.

The number of shares earned is determined at the end of each performance period based on Mesa's achievement of certain pre-defined targets defined in the related award agreement.

PSUs vest upon completion of the service period described in the award agreement.

We recognize the expense relating to the performance-based RSUs based on the probable outcome of achievement of the performance targets on a straight-line basis over the service period. 

During the nine  months ended December 31, 2022 , the Compensation Committee of the Board of Directors created a plan to award 

19  PSUs at target (the "FY23 PSUs") that are subject to both service and performance conditions to eligible employees.

The performance period for the FY23 PSUs is from April 1, 2022 until March 31, 2023 and the service period is from April 1, 2022 until March 31, 2025.

Of the total FY23 PSUs granted, 13 vest based on our achievement of specific performance criteria during fiscal year 2023 and they have a grant date fair value of $ 185.57 .

Based on actual performance through the nine months ended December 31, 2022, we reduced the number of awards expected to vest. The remaining 6 awards will be settled in shares of our common stock, but they are subject to performance criteria that are subjective and as such do not have a grant date.

The awards will be marked-to-market each reporting period during the performance period and have a fair value of $ 166.21 per share as of December 31, 2022. 

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

During the three months ended June 30, 2023 , the Compensation Committee of the Board of Directors created a plan to award 

32  PSUs at target (the "FY24 PSUs") with a grant date fair value of $ 132.29 that are subject to service, performance, and market conditions to eligible employees.

The service period is from April 1, 2023 through June 21, 2026.

The company performance conditions will be measured for the period from April 1, 2023 through 

March 31, 2024.

The quantity of shares that will be earned based upon company performance will range from 

200 % of the targeted number of shares;

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not  met, then 

no  shares will vest.

During fiscal year 2022, we awarded 7  PSUs to key employees of Agena that are subject to both service and performance conditions.

Based on actual performance through the period ended December 31, 2022, the awards are not expected to vest. 

During fiscal year 2022, the Compensation Committee of the Board of Directors granted a special long-term equity award consisting of PSUs covering a target of 40 shares that is subject to both performance and service conditions to our Chief Executive Officer.

Based on actual performance through the period ended December 31, 2022, the award is estimated to vest at 93 %.

During the three months ended December 31, 2022, we adjusted our estimate of PSUs expected to vest under all outstanding plans based on actual results achieved through the performance period.

We recorded a cumulative effect release of ($ 1,427 ) during the period ($ 1,127  net of tax as well as $ 0.21  per basic and diluted share for both the three and nine months ended December 31, 2022), which is recorded in general and administrative and selling expense on our Condensed Consolidated Statements of Operations.

In the future, we expect non-cash stock based compensation expense to decrease approximately $ 392  per quarter as a result of our new estimate of performance share units expected to vest. 

Earnings  (Loss) Per Share

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

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

no  shares will vest for performance. In addition, the number of PSUs earned based on company performance will be adjusted up or down by a maximum of 

20 % pursuant to a market-based measure of performance comparing Mesa’s share price to a peer group over the period from April 1, 2023 until March 31, 2026. 

Net  (Loss) Per Share

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

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

Potentially dilutive securities include stock options and both time and performance based RSUs (collectively “stock awards”), as well as common shares underlying the Notes.

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.

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 the three and nine  months ended December 31, 2022  and December 31, 2021 . 

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

Three Months Ended December 31,

Nine Months Ended December 31,

Net income (loss) available for shareholders

$ ( 2,060 )  

$ 3,655  

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

Three Months Ended June 30,

Net (loss) available for shareholders

Weighted average outstanding shares of common stock

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Fully diluted shares

Basic earnings (loss) per share

$ 0.08  

$ ( 0.39 )  

$ 0.06  

$ 0.70  

Diluted earnings (loss) per share

$ 0.08  

$ ( 0.39 )  

$ 0.06  

$ 0.69  

Basic (loss) per share

Diluted (loss) per share

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

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Assumed conversion of the Notes

Stock awards that were anti-dilutive

Stock awards subject to performance conditions

Stock awards subject to performance and market conditions

Total stock awards excluded from diluted EPS

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Additionally, the tax effects of significant unusual or infrequently occurring items are recognized as discrete items in the interim period in which the events occur.

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 76.5 % and 384.8 % for the three and 

nine  months ended December 31, 2022 , respectively, compared to 12.0 % and ( 1.0 %) for the three and nine months ended December 31, 2021. 

The effective tax rate for both the three and nine  months ended December 31, 2022  differed from the statutory federal rate of 21 % primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictions. 

The effective tax rate for the three and nine months ended December 31, 2022 was higher than the comparable prior year periods primarily due to lower windfall benefits on stock option exercises and the vesting of restricted stock units and the effect of income in foreign jurisdictions.

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 they relate, changes in tax laws and foreign tax holidays, settlement with taxing authorities, and foreign currency fluctuations.

Our effective income tax rate was 41.4 % for the three  months ended June 30, 2023  and 73.4 % for the three months ended June 30, 2022. 

The effective tax rate for the three months ended June 30, 2023  differed from the statutory federal rate of 21 % primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictions. The change in our effective tax rate for the three months ended June 30, 2023 is primarily due to lower windfall benefits on stock option exercises and the effect of income in foreign jurisdictions.

Commitments and Contingencies

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

As of December 31, 2022 , there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets.

As part of the Belyntic acquisition, we have agreed to pay an additional $ 1,500  to the sellers if contractually specified patents related to the technology purchased are issued.

We believe that it is probable that the patents will be issued and we will pay the sellers in full within the next 36 months.

The liability is recorded in other long-term liabilities on the accompanying Condensed Consolidated Balance Sheets.

As of June 30, 2023 , there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets.

As part of the Belyntic acquisition, we have agreed to pay $ 1,500  to the sellers if contractually specified patents are issued.

We believe it is probable the patents will be issued and we will pay the sellers in full within the next 36 months. 

S egment Information

The following tables set forth our segment information:

Three Months Ended December 31,

Nine Months Ended December 31,

Clinical Genomics

$ 15,585  

$ 16,485  

$ 48,525  

$ 16,485  

Three Months Ended June 30,

Sterilization and Disinfection Control

16,283  

13,831  

48,021  

43,014  

Clinical Genomics

Biopharmaceutical Development

11,646  

12,756  

34,757  

32,188  

Calibration Solutions

10,773  

11,624  

32,186  

33,769  

Total revenues (a)

$ 54,287  

$ 54,696  

$ 163,489  

$ 125,456  

Clinical Genomics

$ 8,045  

$ 3,924  

$ 26,535  

$ 3,924  

Gross profit:

Sterilization and Disinfection Control

11,614  

34,581  

31,859  

Clinical Genomics

Biopharmaceutical Development

21,993  

20,061  

Calibration Solutions

17,411  

18,330  

Reportable segment gross profit

32,758  

28,727  

100,520  

74,174  

Corporate and Other (b)

( 100 )  

( 28 )  

$ 32,765  

$ 28,627  

$ 100,492  

$ 73,978  

Reconciling Items:

Operating expenses

29,363  

31,139  

97,689  

69,166  

Operating income (loss)

( 2,512 )  

Nonoperating expense (income), net

( 171 )  

Earnings (loss) before income taxes

$ 1,916  

$ ( 2,341 )  

$ ( 112 )  

$ 3,620  

Operating (loss)

Nonoperating expense, net

(Loss) before income taxes

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

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

Unallocated corporate expenses are reported within Corporate and Other. 

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

not  provided with any other segment asset information.

Clinical Genomics

$ 14,591  

$ 11,802  

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

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Total inventories

$ 33,739  

$ 24,606  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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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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product research and development;

regulatory approvals;

selling, general and administrative expenditures;

intellectual property;

development and manufacturing plans;

availability of materials and components;

and adequacy of capital resources and financing plans constitute forward-looking statements.

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

the results that acquisitions have on our operations;

the effect that acquisitions have on our operations;

our ability to consummate acquisitions at our historical rate and at appropriate prices, and our ability to  

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outstanding claims, legal and regulatory proceedings;

international business challenges including anti-corruption and sanctions laws;

international business challenges including anti-corruption and sanctions laws and political developments;

tax audits and assessments and other contingent liabilities;

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Risk Factors ”

in our Annual Report on Form 10-K for the year ended March 31, 2022 and in this report.

in our Annual Report on Form 10-K for the year ended March 31, 2023 and in this report.

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

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

We are a multinational manufacturer, developer, and seller of life science 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 are a multinational manufacturer, developer, and seller of life science tools and 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 December 31, 2022, 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. 

As of June 30, 2023, we managed our operations in four reportable segments, or divisions:

Sterilization and Disinfection Control, Clinical Genomics, Biopharmaceutical Development, and Calibration Solutions. Each of our divisions is described further in "Results of Operations" below.

Unallocated corporate expenses and other business activities 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 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 people, the environment, and end 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

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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 Growth - Acquisitions

During the third quarter of fiscal year 2023, we completed the Belyntic acquisition for an aggregate purchase price of $6,450.

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®.

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;

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. 

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At the center of our organization are talented people who are capable of taking on new challenges using a team approach.

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

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

General Trends

We are a global company, and a significant portion of our revenues and expenses are denominated in currencies other than the U.S.

dollar (“USD”).

Exchanges rates have been volatile throughout our fiscal year 2023 and a weakening or strengthening of foreign currencies against the USD increases or decreases our revenues and gross profit margins as well as impacting the comparability of our results between periods.

Currency exchange rates negatively impacted our reported revenues for the nine months ended December 31, 2022 as compared to the same period in the previous fiscal year.

Any further strengthening of the USD against major currencies would adversely impact our reported revenues, but would, to a lesser extent, positively impact our reported expenses for the remainder of the fiscal year;

conversely, any weakening of the U.S.

dollar against major currencies would positively impact our reported revenues but would negatively impact our expenses for the remainder of the fiscal year.

We have experienced, and expect to continue to experience, inflation impacting the cost of raw materials, labor, and freight, as a result of global macroeconomic trends, including government mandated actions in response to the Coronavirus pandemic (“COVID-19”) and the conflict between Russia and Ukraine.

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 have at times impacted our Calibrations Solutions division, in particular.

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

Additionally, the Chinese government recently revoked many COVID-19 related restrictions and while these policy changes did not significantly impact our results of operations for our third fiscal quarter, it is possible that future quarters may be impacted.

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

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.

During the third quarter of 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.

Revenue from sales to Sema4 were approximately $8,200 during the first twelve months of our ownership of Agena. 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.

We are a global company, with multinational operations.

During the three months ended June 30, 2023, approximately 48% 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 in our consolidated operating results. We actively monitor trends affecting industries 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.  

Several challenging macroeconomic factors persisted during the first quarter of fiscal 2024, including high interest rates, high inflation rates, and softening demand for discretionary capital asset purchases across the life sciences tools market. On the other hand, supply chain disruptions, labor shortages and resulting manufacturing difficulties that impacted business operations in fiscal year 2023 largely abated during the three months ended June 30, 2023.

Following the loss of Sema4, a significant customer in our Clinical Genomics division, in the third quarter of fiscal year 2023, we took strategic steps to contain costs and preserve our operating model.

Gross profit as a percentage of revenues in the Clinical Genomics division for the three months ended June 30, 2023 was modestly lower than the prior year period;

however, our operating expenses decreased, demonstrating that adjustments to the operating model allowed us to largely preserve our financial model despite the customer loss.

Our cost containment actions and the resulting significant reductions in our operating expenses during the three months ended June 30, 2023 ultimately allowed us to produce higher earnings before taxes for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. 

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.

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. Overall, the strengthening of the U.S.

dollar against the euro during the three months ended June 30, 2023 had less of an impact on our reported revenues than the weakening of the U.S.

dollar against the euro during the three months ended June 30, 2022.

Results of Operations

1 unchanged sentence

Financial Statements (in thousands, except percent data).

Revenues from our reportable segments decreased 1% and increased 30% for the three and nine months ended December 31, 2022, respectively, as compared to the same periods in the prior year. 

The decrease in revenues for the three months ended December 31, 2022 was attributable to a 2.1% decline in organic revenues which resulted from both unfavorable changes in foreign currency rates and $1,500 of COVID-19 related revenues for the three months ended December 31, 2021.

Revenues growth for the nine months ended December 31, 2022 was primarily attributable to the acquisition of Agena, and to a lesser extent, organic revenues growth of 3.5%. 

Gross profit as a percentage of revenues increased seven and two percentage points for the three and nine months ended December 31, 2022, respectively, primarily as a result of the recognition of a $6,062 non-cash inventory step-up charge, as part of purchase accounting for the Agena acquisition during the three months ended December 31, 2021.

Revenues from our reportable segments and gross profit as a percentage of revenues remained largely consistent for the three months ended June 30, 2023, compared to the same period in the prior year.  

Results by reportable segment are as follows:

1 unchanged sentence

Gross Profit as a % of Revenues

Three Months Ended December 31, 2022

Three Months Ended December 31, 2021

Three Months Ended December 31, 2022

Three Months Ended December 31, 2021

Three Months Ended December 31, 2022

Three Months Ended December 31, 2021

Clinical Genomics (*)

Three Months Ended June 30, 2023

Three Months Ended June 30, 2022

Three Months Ended June 30, 2023

Three Months Ended June 30, 2022

Three Months Ended June 30, 2023

Three Months Ended June 30, 2022

Sterilization and Disinfection Control

Biopharmaceutical Development

Calibration Solutions

Mesa's reportable segments

Organic Revenues Growth

Gross Profit as a % of Revenues

Nine Months Ended December 31, 2022

Nine Months Ended December 31, 2021

Nine Months Ended December 31, 2022

Nine Months Ended December 31, 2021

Nine Months Ended December 31, 2022

Nine Months Ended December 31, 2021

Clinical Genomics

Sterilization and Disinfection Control

Biopharmaceutical Development

1 unchanged sentence

Mesa's reportable segments

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

Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Operating expenses

Operating income (loss)

Net income (loss)

(¤) Not a meaningful comparison

Operating (loss)

Reportable Segments

Clinical Genomics

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 screenings for hereditary diseases, pharmacogenetics and oncology related applications.

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

Clinical Genomics revenues decreased 5% for the three months ended December 31, 2022 compared to the relevant prior year period, primarily as a result of a reduction in COVID-related revenues of $1,374 and adverse changes in foreign currency exchange rates, partially offset by a longer period of ownership of Agena in the third quarter of fiscal year 2023.

Clinical Genomics revenues increased 194% for the nine months ended December 31, 2022 compared to the relevant prior year period due to a significantly shorter period of ownership of Agena for the nine months ended December 31, 2021.

The loss of Sema4 is expected to result in a significant reduction of anticipated revenues for this division in future quarters.

However, our distribution partner Guangzhou Darui Biotechnology Co., Ltd.

recently received China's National Medical Products Administration approval for a Class III in vitro diagnostics ("IVD") panel covering hereditary deafness.

This is the first approved Class III IVD panel in China from our distribution partner program.

Gross profit percentage for the Clinical Genomics division increased 28% and 31% for the three and nine months ended December 31, 2022, respectively, compared to the relevant prior year periods due to the amortization of a $6,062 inventory step-up required by purchase accounting in the third quarter of fiscal year 2022.

We have taken actions to reduce our costs in this division which will help offset the loss of revenues from Sema4.  

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 hospital, 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 December 31,

Nine Months Ended December 31,

The Sterilization and Disinfection Control Division manufactures and sells biological, cleaning, and chemical indicators used to assess the effectiveness of sterilization and disinfection processes in the pharmaceutical, medical device, hospital, and dental 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 June 30,

Gross profit as a % of revenues

Sterilization and Disinfection Control revenues increased 18% and 12% for the three and nine months ended December 31, 2022, respectively, compared to the relevant prior year periods, despite the USD strengthening against the euro. 

During the second and third quarters of fiscal year 2023, we added temporary and permanent manufacturing headcount at our Bozeman Montana facility, which enabled us to fulfill a higher volume of customer orders compared to the first quarter of fiscal year 2023. The three and nine months ended December 31, 2022 also benefited from favorable product mix and to a lesser extent, price increases. 

Sterilization and Disinfection Control's gross profit percentage decreased one and two percentage points for the three and nine months ended December 31, 2022, respectively, compared to the relevant prior year periods as a result of foreign currency fluctuations negatively impacting our reported revenues, increased labor and benefit costs, including the cost of temporary headcount, and increased freight costs.

Sterilization and Disinfection Control revenues increased 8% for the three months ended June 30, 2023 compared to the prior year period, primarily due to unusually low revenues during the three months ended June 30, 2022 attributable to labor shortages that delayed production and order fulfillment, which abated in the second half of fiscal year 2023. The division also benefited from price increases during the three months ended June 30, 2023. 

Sterilization and Disinfection Control's gross profit percentage was flat for the quarters ended June 30, 2023 and 2022.

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.

Three Months Ended June 30,

Gross profit as a % of revenues

Clinical Genomics revenues decreased 8% for the three months ended June 30, 2023 compared to the prior year period, primarily as a result of the loss of revenues from Sema4 and unfavorable changes to foreign currency exchange rates, partially offset by higher revenues in China, particularly hardware revenues.

Gross profit percentage for the Clinical Genomics division decreased four percentage points for the three months ended June 30, 2023 compared to the prior year period, primarily due to lower revenues on a partially fixed cost base and to a lesser extent, unfavorable product mix. 

Biopharmaceutical Development

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. 

Three Months Ended December 31,

Nine Months Ended December 31,

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

Three Months Ended June 30,

Gross profit as a % of revenues

Biopharmaceutical Development revenues decreased 9% for the three months ended December 31, 2022 compared to the relevant prior year period, primarily due to unfavorable changes in foreign currency exchange rates.

Additionally, the division faced a difficult compare versus the prior year, which reported an anomalous 46% revenues growth, partially offset by price increases.

Biopharmaceutical Development revenues increased 8% for the nine months ended December 31, 2022 compared to the relevant prior year period primarily due to increased product adoption and price increases, partially offset by unfavorable changes in foreign currency exchange rates.

Biopharmaceutical Development's gross profit percentage decreased six percentage points for the three months ended December 31, 2022 compared to relevant prior year period as a result of foreign currency fluctuations negatively impacting our reported revenues and higher sales of peptide synthesis hardware at a lower gross profit percentage compared to the overall division margin percentages. Biopharmaceutical Development's gross profit percentage increased one percentage point for the nine months ended December 31, 2022 compared to the relevant prior year period 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.

Biopharmaceutical Development revenues decreased 10% for the three months ended June 30, 2023 compared to the prior year period, primarily due to softening demand for capital equipment and to a lesser extent, unfavorable changes in foreign currency, partially offset by an increase in revenues from consumables.

Given the current economic landscape related to softening demand for capital equipment, revenues for this segment are unlikely to grow at historical levels in fiscal year 2024. 

While Biopharmaceutical Development's revenues decreased 10% for the three months ended June 30, 2023 compared to the prior year period, gross profit percentage remained flat, primarily due to a significant increase in consumables revenues, which have a higher gross margin as a percentage of revenues, and to a lesser extent price increases. 

Calibration Solutions

The Calibration Solutions division designs, manufactures, and markets quality control and calibration products used to measure or calibrate temperature, pressure, pH, humidity, and other chemical or physical 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,

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 medical device manufacturing, pharmaceutical manufacturing, laboratory, and hospital environments.

Three Months Ended June 30,

Gross profit as a % of revenues

Calibration Solutions revenues decreased 7% and 5% for the three and nine months ended December 31, 2022, respectively, compared to the relevant prior year periods, primarily as a result of supply constraints limiting our ability to manufacture ordered quantities of certain products. Production difficulties continue to result in longer lead times for customer orders, which have negatively impacted the timing of new orders;

however, we anticipate that such difficulties will begin to abate in the fourth quarter of fiscal year 2023.

Calibration Solutions' gross profit percentage was essentially flat for the three and nine months ended December 31, 2022 compared to the three and nine months ended December 31, 2021.

Calibration Solutions revenues increased 12% for the three months ended June 30, 2023 compared to the prior year period, primarily due to the abatement of production difficulties and supply constraints that had limited our ability to manufacture ordered quantities of certain products during the three months ended June 30, 2022.

Calibration Solutions' gross profit percentage increased 1% for the three months ended June 30, 2023 compared to the prior year period, primarily due to increased revenues on a partially fixed cost base, partially offset by increased costs for third-party contractors.  

Operating Expenses

Operating expenses decreased 6% and increased 41% for the three and nine months ended December 31, 2022, respectively, compared to the relevant prior year periods, primarily as a result of lower personnel costs and the Agena acquisition.

Operating expenses were favorably impacted by the strengthening of the USD during the three and nine months ended December 31, 2022. 

Operating expenses decreased 11% for the three months ended June 30, 2023 compared to the prior year period, primarily as a result of lower personnel costs related to strategic cost containment activities undertaken following the loss of Sema4.

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

accordingly, it may vary with sales levels.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Selling expense

As a percentage of revenues

Selling expense for the three months ended December 31, 2022 decreased 6% compared to the relevant prior year period, primarily as a result of lower personnel costs.

Selling expense for the nine months ended December 31, 2022 increased 50% compared to the relevant prior year period, primarily as a result of the Agena acquisition.

Excluding Agena, selling expense increased 7% for the nine months ended December 31, 2022 primarily as a result of increased travel and tradeshow costs as we continued to resume in-person meetings and events, higher stock-based compensation expense, and higher professional services costs as we made improvements to our corporate website.

Selling expense for the three months ended June 30, 2023 decreased 10% compared to the prior year period, primarily as a result of lower personnel costs, in particular the realized benefits of the proactive cost savings efforts we initiated after the loss of Sema4.

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 December 31,

Nine Months Ended December 31,

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

Three Months Ended June 30,

General and administrative expense

As a percentage of revenues

General and administrative expenses decreased 5% for the three months ended December 31, 2022 compared to the relevant prior year period, primarily as a result of reduced stock-based compensation expense as we reduced the number of PSUs expected to vest. General and administrative expenses increased 36% for the nine months ended December 31, 2022 compared to the relevant prior year period, primarily as a result of the Agena acquisition, including intangible amortization expense of $7,321.

Excluding Agena, general and administrative expense increased 8% for the nine months ended December 31, 2022, primarily as a result of higher stock-based compensation expense, partially offset by lower intangible amortization expense as a result of the strengthening of the USD.

General and administrative expenses decreased 11% for the three months ended June 30, 2023 compared to the prior year period, primarily as a result of reduced personnel costs largely attributable to strategic cost savings activities following the loss of Sema4 and lower stock-based compensation expense as the performance-based restricted stock units associated with the fiscal 2022 acquisition of Agena Bioscience, Inc.

were no longer amortizing during the first quarter of fiscal year 2024.

Additionally, we incurred lower professional services costs during the three months ended June 30, 2023 compared to the prior year period. 

Research and Development

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

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Research and development expense

As a percentage of revenues

Research and development expenses decreased 7% for the three months ended December 31, 2022 compared to the relevant prior year period, primarily as a result of lower personnel costs and the benefit of a strong USD on research and development costs in Europe. Research and development expenses increased 46% for the nine months ended December 31, 2022 compared to the relevant prior year period, primarily due to the Agena acquisition.

Excluding the impact of Agena, research and development costs for the nine months ended December 31, 2022 increased relative to the prior year period primarily due 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.

Nonoperating Expense 

Three Months Ended December 31,

Nine Months Ended December 31,

Nonoperating expense (income)

(¤) Not a meaningful comparison

Nonoperating expense for the three and nine months ended December 31, 2022 is composed primarily of interest expense and amortization of the debt discount associated with the Notes and the Credit Facility as well as gains and losses on foreign currency transactions.

Nonoperating expense was higher for the three and nine months ended December 31, 2022 compared to the relevant prior year periods due to interest expense on the Credit Facility, which had a weighted average balance of $36,839 during the nine months ended December 31, 2022 compared with a weighted average balance of $17,993 for the nine months ended December 31, 2021, partially offset by net foreign currency gains in the three and nine months ended December 31, 2021. 

Three Months Ended December 31,

Nine Months Ended December 31,

Income tax provision (benefit)

Research and development expenses decreased 16% for the three months ended June 30, 2023 compared to the prior year period, primarily due the prior period purchase of in-process research and development technology used to enhance an existing Sterilization and Disinfection Control division product offering and cost containment actions.

Nonoperating Expense, Net

Three Months Ended June 30,

Nonoperating expense, net

Nonoperating expense, net for the three months ended June 30, 2023 is composed primarily of interest expense and amortization of the debt discount associated with the Notes and the Credit Facility as well as gains and losses on foreign currency transactions.

During the three months ended June 30, 2023, these expenses were partially offset by a payment received from a former customer outside the normal course of business reimbursing us for costs incurred in previous periods.

The reimbursement agreement was not included in the original sales contract with the customer. 

Three Months Ended June 30,

Income tax (benefit)

Effective tax rate

Our effective income tax rate was 76.5% and 384.8% for the three and nine months ended December 31, 2022, respectively, and 12.0% and (1.0%) for the three and nine months ended December 31, 2021, respectively. The effective tax rate for the nine months ended December 31, 2022 differed from the statutory federal rate of 21% primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictions. The effective tax rate for the nine months ended December 31, 2022 was higher than the same period in fiscal year 2022 primarily due to the share-based compensation and the effect of income in foreign jurisdictions.

Our effective income tax rate was 41.4% for the three months ended June 30, 2023 and 73.4% for the three months ended June 30, 2022. The effective tax rate for the three months ended June 30, 2023 differed from the statutory federal rate of 21% primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictions. The change in our effective tax rate for the three months ended June 30, 2023 is primarily due to lower windfall benefits on stock option exercises and the effect of income in foreign jurisdictions.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income.

We carefully monitor these factors and adjust our effective income tax rate accordingly. 

Net Income (Loss) 

Net income (loss) varies with changes in revenues, gross profit, and operating expenses (and included $21,573 and $9,859 of non-cash amortization of intangible assets acquired in business combinations and stock-based compensation expense, respectively, for the nine months ended December 31, 2022).

We carefully monitor these factors and adjust our effective income tax rate accordingly.

Net (Loss) 

Net (loss) varies with changes in revenues, gross profit, and operating expenses (and included $7,220 and $2,968 of non-cash amortization of intangible assets acquired in business combinations and stock-based compensation expense, respectively, for the three months ended June 30, 2023).

Market-Based Awards

The performance-based restricted stock awards granted during the three months ended June 30, 2023 included a market-based component. 

Liquidity and Capital Resources

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 operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures.

We currently expect to settle the Notes in shares of our common stock, but we may re-finance the debt, depending on conditions in the market and the share price of our common stock. 

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our Credit Facility and Open Market Sale Agreement SM , 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 operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures.

At our option, we may settle the Notes in shares of our common stock or in cash, or we may re-finance our 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 of 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 $72,568 and $76,263 as of December 31, 2022 and March 31, 2022, respectively.

As of December 31, 2022, and March 31, 2022, we had $26,101 and $49,346, respectively, of cash and cash equivalents. We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

As of December 31, 2022, $172,500 in aggregate principal Notes was outstanding and $19,000 was outstanding under the Credit Facility.

We had working capital of $75,682 and $75,616 as of June 30, 2023 and March 31, 2023, respectively.

As of June 30, 2023, and March 31, 2023, we had $32,376 and $32,910, respectively, of cash and cash equivalents.

As of June 30, 2023, $172,500 in aggregate principal Notes were outstanding and $5,000 was outstanding under the Credit Facility.

In July 2023, we paid an additional $3,500 on our Credit Facility. 

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 have not sold any shares under this agreement. 

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.

1 unchanged sentence

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.

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

The amount of debt that may be retired, if any, could be material.

Retirement 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, 2022, September 30, 2022, and December 31, 2022, as well as each quarter of fiscal year 2022.

In January 2023, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on March 15, 2023, to shareholders of record at the close of business on February 28, 2023.

We declared and paid dividends of $0.16 per share during the three months ended June 30, 2023, as well as each quarter of fiscal year 2023.

In July 2023, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on September 15, 2023, to shareholders of record at the close of business on August 31, 2023.

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

Nine Months Ended December 31,

Net cash provided by operating activities

Three Months Ended June 30,

Net cash provided by (used in) operating activities

Net cash (used in) investing activities

Net cash (used in) provided by financing activities

Cash flows from operating activities for the nine months ended December 31, 2022 provided $15,464.

Net income and non-cash adjustments totaled $34,588 for the nine months ended December 31, 2022 compared to $32,838 for the nine months ended December 31, 2021.

Adjustments to working capital accounts used $16,207 more cash in the nine months ended December 31, 2022 as compared to the nine months ended December 31, 2021, primarily due to lower collections on trade receivables and higher spend on inventory as we built supplies to mitigate supply chain risk. Cash used in investing activities was lower for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021, due to the Agena acquisition during fiscal year 2022, partially offset by the Belyntic acquisition in fiscal year 2023. Cash used by financing activities primarily resulted from $30,000 repaid on our Credit Facility during the nine months ended December 31, 2022.

Net cash (used in) financing activities

Cash flows from operating activities for the three months ended June 30, 2023 provided $9,939.

Net loss and non-cash adjustments totaled $11,066 for the three months ended June 30, 2023 compared to $7,682 for the three months ended June 30, 2022.

We generated $9,366 more cash from working capital in the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to higher collections on trade receivables and lower bonus payments to employees.

Cash used in investing activities for the three months ended June 30, 2023 approximated cash used in investing activities during the three months ended June 30, 2022, as we purchased similar values of capital equipment in both periods.

Cash used by financing activities primarily resulted from $8,000 repaid on our Credit Facility during the three months ended June 30, 2023 compared to $2,000 for the three months ended June 30, 2022. 

Contractual Obligations and Other Commercial Commitments

1 unchanged sentence

For a description of our contractual obligations and other commercial commitments as of March 31, 2023, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with the Securities and Exchange Commission on May 30, 2023.  

On a consolidated basis, as of December 31, 2022, we had contractual obligations for open purchase orders of approximately $19,441 for routine purchases of supplies and inventory, which are payable in less than one year.

Open purchase orders have decreased, in part, due to our previously taken steps to mitigate risks in supply by increasing our stock of certain critical raw materials. 

As part of the Belyntic acquisition, we have agreed to pay $1,500 to the sellers if contractually specified patents related to the 

technology purchased are issued.

We believe that it is probable that the patents will be issued and we will pay the sellers in full within the next 36 months.

The liability is recorded in other long-term liabilities on the accompanying Condensed Consolidated Balance Sheets.

On a consolidated basis, as of June 30, 2023, we had contractual obligations for open purchase orders of approximately $17,347 for routine purchases of supplies and inventory, which are payable in less than one year. 

As part of the Belyntic acquisition, we agreed to pay $1,500 to the sellers if contractually specified patents related to the technology purchased are issued.

We believe it is probable that the patents will be issued and that we will pay the sellers in full within 36 months following the acquisition date.

Critical Accounting Policies and Estimates

1 unchanged sentence

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.

Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended March 31, 2023, in the Critical Accounting Policies and Estimates section of Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations . Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available.

Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Acquired Intangible Assets

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

Fair values assigned to intangible assets acquired in the Belyntic acquisition were measured using Level 3 inputs.

Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Quantitative and Qualitative Disclosures a bout Market Risk

Our reporting currency is U.S.

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.

and we have currency risk on the transactions in other currencies and translation adjustments resulting from the conversion of our international financial results into the U.S.

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 Gyros Protein Technologies Holding AB, which incurs a substantial portion of its business expenses in Swedish Krona, and the acquisition of Agena, which conducts a portion of its business in euros and a portion in Chinese Yuan Renminbi.

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

We do not hedge exposure to exchange rates.

Foreign Currency Exchange Rates

We face exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates.

Transactional exchange rate risk arises from the purchase and sale of goods and services in currencies other than the functional currency of the applicable subsidiary.

We also face translational exchange rate risk related to the translation of financial statements of our foreign operations into U.S.

dollars, our functional currency.

Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S.

dollars using average exchange rates effective during the respective period.

As a result, we are exposed to movements in the exchange rates of various currencies against the U.S.

Our Biopharmaceutical Development division is particularly susceptible to currency exposures since it incurs a substantial portion of its expenses in Swedish Krona, while most of the division's revenue contracts are in U.S.

dollars and euros. Therefore, when the Swedish Krona strengthens or weakens against the U.S.

dollar, operating profits are increased or decreased, respectively.

The effect of a change in currency exchange rates on our international subsidiaries' assets and liabilities is reflected in the accumulated other comprehensive income component of stockholders’

Interest Rates

Our Credit Facility bears interest at either a base rate or a SOFR 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 $143 of additional interest expense per year. 

Based on our interest rate and the balance outstanding as of June 30, 2023, we estimate that if interest rates increased 1 percentage point, we would incur approximately $50 of additional interest expense per year.

Inflation Risk

Inflation generally impacts us by increasing our costs of labor, materials, and freight.

The rates of inflation experienced in recent years have not had a significant impact on our financial statements as inflationary cost increases have been offset by annual price increases.

However, any price increases imposed may lead to declines in sales volume if competitors do not similarly adjust prices.

We cannot reasonably estimate our ability to successfully recover any impact of inflation cost increases into the future.

We have no derivative instruments.

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What changed 10-Q

Item 1. Financial Statements