What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-06-28 compared with 2023-05-30 · 9 added, 304 removed, 6 unchanged (98% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq Global Market (“Nasdaq”) under the symbol “MLAB.”

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq Global Market (“Nasdaq”) under the symbol “MLAB.”

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

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

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

This amount does not include “street name”

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

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

As of March 31, 2024, there were 60 holders of record of our common stock.

This amount does not include “street name” holders or beneficial holders of our common stock, who hold their shares through banks, brokers or other financial institutions.

During the year ended March 31, 2024, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

1 unchanged sentence

This plan will continue until the maximum is reached or the plan is terminated by further action of the Board of Directors.

We made no repurchases of our common stock during the years ended March 31, 2023, March 31, 2022, or March 31, 2021.

We made no repurchases of our common stock during the years ended March 31, 2024, March 31, 2023, or March 31, 2022.

As of March 31, 2024, 137,514 shares remained available to repurchase pursuant to the repurchase plan.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for information regarding securities authorized for issuance.

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

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

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

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

(dollars in thousands, unless specified)

Overview 

We are a multinational manufacturer, developer, and seller of life sciences tools and critical quality control products and services, many of which are sold into niche markets driven by regulatory requirements.

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

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

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

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

Corporate Strategy

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

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

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

Organic Revenues Growth

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

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

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

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

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

Inorganic Revenues Growth - Acquisitions

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

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

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

The acquisition of Agena accelerated our strategic trajectory towards higher growth applications within the regulated segments of the life sciences tools market. 

Over the past decade, we have consummated a number of acquisitions as part of our growth strategy. These acquisitions have allowed us to expand our product offerings, globalize our company, and increase the scale at which we operate, which in turn affords us the ability to improve our operating efficiency, extend our customer base, and further the pursuit of our purpose: Protecting the Vulnerable®.

Improving Our Operating Efficiency

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

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

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

Empowering Teams to improve operationally and exceed customer expectations;

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

and Always Learning so that performance continuously improves. 

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

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

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

Hire, Develop, and Retain Top Talent

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. 

General Trends

We are a global company, with multinational operations.

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

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

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

Exchange rates were volatile throughout fiscal year 2023.

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

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

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

conversely, the weakening of the U.S.

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

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

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

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

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

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

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

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

changed purchasing behaviors and confidence. 

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

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

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

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

Results of Operations

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

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

Refer to Item 7.

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

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

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

Results by reportable segment are as follows:

Organic Revenues Growth

Gross Profit as a % of Revenues

Year Ended March 31, 2023

Year Ended March 31, 2022

Year Ended March 31, 2023

Year Ended March 31, 2022

Year Ended March 31, 2023

Year Ended March 31, 2022

Clinical Genomics

Sterilization and Disinfection Control

Biopharmaceutical Development

Calibration Solutions

Reportable segments

Our condensed consolidated results of operations are as follows:

Year Ended March 31,

Percentage Change

Operating expenses

Operating income

Reportable Segments

Clinical Genomics

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

Year Ended March 31,

Percentage Change

Gross profit as a % of revenues

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

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

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

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

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

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

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

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

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

Sterilization and Disinfection Control

Our Sterilization and Disinfection Control division manufactures and sells biological, cleaning, and chemical indicators which are used to assess the effectiveness of sterilization and disinfection processes, including steam, gas, hydrogen peroxide, ethylene oxide, radiation, and other processes in the medical device, pharmaceutical, and hospital industries.

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

Year Ended March 31,

Percentage Change

Gross profit as a % of revenues

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

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

Biopharmaceutical Developmen t

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

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

Year Ended March 31,

Percentage Change

Gross profit as a % of revenues

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

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

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

Calibration Solutions

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

Year Ended March 31,

Percentage Change

Gross profit as a % of revenues

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

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

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

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

Corporate and Other

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

Year Ended March 31,

Percentage Change

Gross (loss) profit

Gross profit as a % of revenues

Operating Expenses  

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

Selling  

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

accordingly, it may vary with sales levels.

Year Ended March 31,

Percentage Change

Selling expense

As a percentage of revenues

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

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

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

Increases were partially offset by lower commissions and bonus expense. 

General and Administrative

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

Year Ended March 31,

Percentage Change

General and administrative expense

As a percentage of revenues

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

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

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

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

Research and Development

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

Year Ended March 31,

Percentage Change

Research and development expense

As a percentage of revenues

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

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

Nonoperating Expense

Year Ended March 31,

Percentage Change

Nonoperating expense

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

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

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

Debt with Conversion and Other Options and Derivatives and Hedging  

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

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

Year Ended March 31,

Percentage Change

Income tax (benefit) expense

Effective tax rate

Our income tax rate varies based upon many factors, but in general we anticipate that on a go-forward basis, our effective tax rate will be approximately 26%, plus or minus the impact of excess tax benefits and deficiencies associated with share-based payment awards to employees (please see Note 12.

“Income Taxes”

within Item 8. 

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

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

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

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

Non-GAAP reconciliation

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

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

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

Year Ended March 31,

Operating income

Amortization of intangible assets acquired in a business combination

Stock-based compensation

Adjusted Operating Income

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

We routinely evaluate opportunities for strategic acquisitions. Future material acquisitions may require that we obtain additional capital, assume additional third-party debt or incur other long-term obligations.

We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities; however, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all.

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

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

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

We have paid regular quarterly dividends since 2003.

We declared and paid dividends of $0.16 per share each quarter of the years ended March 31, 2023, 2022, and 2021.

In April 2023, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on June 15, 2023, to shareholders of record at the close of business on May 31, 2023.

Our cash flows from operating, investing, and financing activities were as follows:

Year Ended March 31,

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash (used in) provided by financing activities

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

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

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

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

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

The fiscal year 2022 draw on our Credit Facility was used to fund a portion of the purchase price of the Agena Acquisition.

Our equity raise completed during the year ended March 31, 2021 provided $145,935.

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates, judgments, and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes.

We believe that the following are the more critical judgment areas in the application of accounting policies that currently affect our financial condition and results of operations.

Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit Committee of our Board of Directors.

While our estimates and assumptions are based on our knowledge of current events and circumstances and actions we may take in the future, actual results may ultimately differ from these estimates and assumptions.

For a discussion of our significant accounting policies, see Note 1.

“Description of Business and Summary of Significant Accounting Policies”

Financial Statements and Supplementary Data .

Purchase Accounting for Acquisitions

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

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

We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses.

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

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

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

Results of operations of the acquired company are included in our Consolidated Financial Statements from the date of the acquisition forward.

If actual results are not consistent with our assumptions and estimates, or if our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

Acquired Intangible Assets

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

goodwill and intangible assets are not impaired;

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

We will continue to carefully monitor Clinical Genomics’

goodwill and other intangible assets for impairment in future periods.

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

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

The total net carrying values of Clinical Genomics’

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

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

Stock- b ased Compensation

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

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

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

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

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

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

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

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

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

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

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

Recent Accounting Standards and Pronouncements

For a discussion of the new accounting standards impacting the Company, refer to Note 1.

“Description of Business and Summary of Significant Accounting Policies”

Financial Statements and Supplementary Data .

Contractual Obligations

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

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

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

Set forth below is a line graph comparing, for the period March 31, 2020 through March 31, 2024, the cumulative total shareholder return on our common stock against the cumulative total return of (a) the S&P Composite Stock Index (b) the S&P Small Cap 600, and (c) a self-selected peer group, comprised of the following companies:

Danaher Corp., Repligen Corp., Steris Corp., Utah Medical Products, Inc., Fortive Corp., Merit Medical Systems, Inc., Transcat Inc., Electro-Sensors, Inc., Onto Innovation Inc., Metler-Toledo International Inc., and Illumina, Inc.

The graph shows the value on March 31 of each year, assuming an original investment of $100 in each on March 31, 2020 and reinvestment of cash dividends.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity