MESA LABORATORIES INC /CO/ 10-Q

Item 1 . Financial Statements M esa Laboratories, Inc. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except share amounts) June 30, March 31, 2024 2024 ASSETS Current assets: Cash and cash equivalents $ 28,472 $ 28,214 Accounts receivable, less allowance for doubtful accounts of $ 1,057 and $ 1,321 , respectively 35,568 39,055 Inventories 31,767 32,675 Prepaid expenses and other current assets 10,883 9,408 Total current assets 106,690 109,352 Noncurrent assets: Property, plant and equipment, net of accumulated depreciation of $ 22,574 and $ 22,519 respectively 31,402 31,766 Deferred tax asset 1,281 1,292 Other assets 11,807 10,538 Customer relationships, net 82,238 85,383 Other intangibles, net 27,221 28,369 Goodwill 179,722 180,096 Total assets $ 440,361 $ 446,796 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 5,659 $ 6,041 Accrued payroll and benefits 8,338 9,935 Unearned revenues 14,634 15,478 Term loan, current portion 3,750 - Other accrued expenses 22,484 12,858 Total current liabilities 54,865 44,312 Noncurrent liabilities: Deferred tax liability $ 19,689 19,780 Other noncurrent liabilities 6,581 15,613 Revolving line of credit 42,000 50,500 Term loan, noncurrent portion, net of discounts and debt issuance costs 69,603 - Convertible senior notes, net of debt issuance costs 96,896 171,198 Total liabilities 289,634 301,403 Stockholders’ equity: Common stock, no par value; authorized 25,000,000 shares; issued and outstanding, 5,409,155 and 5,394,491 shares, respectively 345,999 343,642 (Accumulated deficit) ( 180,969 ) ( 183,494 ) Accumulated other comprehensive (loss) ( 14,303 ) ( 14,755 ) Total stockholders’ equity 150,727 145,393 Total liabilities and stockholders’ equity $ 440,361 $ 446,796 See accompanying notes to Condensed C onsolidated Fi nancial Statements. Page 1 Table of Contents Mesa Laboratories, Inc. Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share data) Three Months Ended June 30, 2024 2023 Revenues $ 58,170 $ 50,645 Cost of revenues 20,921 19,462 Gross profit 37,249 31,183 Operating expense: Selling 10,116 8,976 General and administrative 16,818 18,060 Research and development 4,735 4,811 Total operating expense 31,669 31,847 Operating income (loss) 5,580 ( 664 ) Nonoperating expense: Interest expense and amortization of debt issuance costs 2,842 1,048 (Gain) on extinguishment of convertible senior notes ( 3,197 ) - Other expense (income), net 2,030 ( 775 ) Total nonoperating expense, net 1,675 273 Earnings (loss) before income taxes 3,905 ( 937 ) Income tax expense (benefit) 517 ( 388 ) Net income (loss) $ 3,388 $ ( 549 ) Earnings (loss) per share: Basic $ 0.63 $ ( 0.10 ) Diluted $ 0.62 $ ( 0.10 ) Weighted-average common shares outstanding: Basic 5,397 5,372 Diluted 5,424 5,372 See accompanying notes to Condensed Consolidated Financial Statements. Page 2 Table of Contents Mesa Laboratories, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) (in thousands) Three Months Ended June 30, 2024 2023 Net income (loss) $ 3,388 $ ( 549 ) Other comprehensive income (loss): Foreign currency translation adjustments 452 ( 6,661 ) Comprehensive income (loss) $ 3,840 $ ( 7,210 ) See accompanying notes to Condensed Consolidated Financial Statements. Page 3 Table of Contents Mesa Laboratories, Inc. Condensed Consolidated Statements of Stockholders’ Equity (unaudited) (dollars in thousands, except per share data) Common Stock Number of Shares Amount (Accumulated Deficit) Retained Earnings AOCI* Total March 31, 2024 5,394,491 $ 343,642 $ ( 183,494 ) $ ( 14,755 ) $ 145,393 Exercise of stock options and vesting of restricted stock units 20,858 - - - - Tax withholding on vesting of restricted stock units ( 6,194 ) ( 571 ) - - ( 571 ) Dividends paid, $ 0.16 per share - - ( 863 ) - ( 863 ) Stock-based compensation expense - 2,928 - - 2,928 Foreign currency translation - - - 452 452 Net income - - 3,388 - 3,388 June 30, 2024 5,409,155 $ 345,999 $ ( 180,969 ) $ ( 14,303 ) $ 150,727 Common Stock Number of Shares Amount (Accumulated Deficit) Retained Earnings AOCI* Total March 31, 2023 5,369,466 $ 332,076 $ 74,199 $ ( 12,795 ) $ 393,480 Exercise of stock options and vesting of restricted stock units 20,074 52 - - 52 Tax withholding on vesting of restricted stock units ( 5,260 ) ( 712 ) - - ( 712 ) Dividends paid, $ 0.16 per share - - ( 859 ) - ( 859 ) Stock-based compensation expense - 2,968 - - 2,968 Foreign currency translation - - - ( 6,661 ) ( 6,661 ) Net (loss) - - ( 549 ) - ( 549 ) June 30, 2023 5,384,280 $ 334,384 $ 72,791 $ ( 19,456 ) $ 387,719 *Accumulated Other Comprehensive Income (Loss). See accompanying notes to Condensed Consolidated Financial Statements. Page 4 Table of Contents M esa Laboratories, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Three Months Ended June 30, 2024 2023 Cash flows from operating activities: Net income (loss) $ 3,388 $ ( 549 ) Adjustments to reconcile net income to net cash from operating activities: Depreciation of property, plant and equipment 1,404 914 Amortization of acquisition-related intangibles 4,061 7,220 Stock-based compensation expense 2,928 2,968 Gain on extinguishment of convertible notes ( 3,197 ) - Amortization of step-up in inventory basis 778 - Other 1,409 513 Cash from changes in operating assets and liabilities: Accounts receivable, net 3,482 6,456 Inventories ( 671 ) ( 1,244 ) Prepaid expenses and other assets 969 ( 2,448 ) Accounts payable ( 388 ) ( 539 ) Accrued liabilities and taxes payable ( 2,811 ) ( 3,217 ) Unearned revenues ( 919 ) ( 135 ) Net cash provided by operating activities 10,433 9,939 Cash flows from investing activities: Purchases of property, plant and equipment ( 891 ) ( 270 ) Net cash (used in) investing activities ( 891 ) ( 270 ) Cash flows from financing activities: Proceeds from the issuance of debt, net 73,465 - Repayment of debt ( 9,438 ) ( 8,000 ) Repurchase of convertible debt ( 71,250 ) - Dividends paid ( 863 ) ( 859 ) Other financing, net ( 1,023 ) ( 660 ) Net cash (used in) financing activities ( 9,109 ) ( 9,519 ) Effect of exchange rate changes on cash and cash equivalents ( 175 ) ( 684 ) Net increase (decrease) in cash and cash equivalents 258 ( 534 ) Cash and cash equivalents at beginning of period 28,214 32,910 Cash and cash equivalents at end of period $ 28,472 $ 32,376 See accompanying notes to Condensed C onsolidated Fin ancial Statements. Page 5 Table of Contents Mesa Laboratories, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) (dollar and share amounts in thousands, unless otherwise specified) Note 1 . Description of Business and Summary of Significant Accounting Policies Description of Business In this quarterly report on Form 10 -Q, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries, is collectively referred to as “we,” “us,” “our,” the “Company,” or “Mesa.” We are a global leader in the design and manufacture of life sciences tools and critical quality control solutions for regulated applications in the pharmaceutical, healthcare, and medical device industries. We offer products and services to help our customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world. 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 June 30, 2024 , we managed our operations in four reportable segments, or divisions: ● Sterilization and Disinfection Control - manufactures and sells biological, chemical and cleaning indicators which are used to assess the effectiveness of sterilization, decontamination, disinfection, and cleaning processes, including steam, hydrogen peroxide, ethylene oxide, radiation, and other processes in the medical device, pharmaceutical, and healthcare industries. The division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries. ● Clinical Genomics - develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools and related consumables and services that enable clinical research labs and contract research organizations to perform genomic testing for a broad range of research applications in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics, oncology related applications, and toxicology research. ● Biopharmaceutical Development - develops, manufactures, sells and services 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. ● Calibration Solutions - develops, manufactures, sells and services quality control products using principles of advanced metrology to enable customers to measure and calibrate critical parameters in applications such as environmental and process monitoring, dialysis, gas flow, air quality and torque testing. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. In the opinion of management, such unaudited information includes all adjustments, consisting of normal recurring adjustments necessary for the fair statement of our financial position and results of operations. The results of operations for interim periods are not necessarily indicative of results that may be achieved for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The Condensed Consolidated Financial Statements include the accounts of Mesa and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We made no material changes to the application of our significant accounting policies disclosed in our annual report on Form 10 -K. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10 -K for the year ended March 31, 2024 . Our fiscal year ends on March 31. References in this Quarterly Report to a particular “year” or “quarter” refer to our fiscal year or fiscal quarters, respectively. Risks and Uncertainties The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management's judgment about the outcome of future events. The global business environment continues to be impacted by cost pressures, the overall effects of economic uncertainty on customers' purchasing patterns, high interest rates, 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 In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023 - 07, "Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures." ASU No. 2023 - 07 requires all annual disclosures currently required by Topic 280 to be included in interim periods and requires disclosure of significant segment expenses regularly provided to the chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and applicable additional measures of segment profit or loss used by the CODM when allocating resources and assessing business performance. The ASU is effective for fiscal years beginning after December 15, 2023 ( our fiscal year 2025 for annual periods), and interim periods within fiscal years beginning after December 15, 2024 ( our fiscal year 2026 for interim periods) on a retrospective basis. We are currently assessing the effect the adoption of this standard will have on our consolidated financial statement disclosures. Page 6 Table of Contents In December 2023, the FASB issued ASU No. 2023 - 09, "Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures." ASU No. 2023 - 09, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for public business entities for fiscal years beginning after December 15, 2024 ( our fiscal year 2026 ), with early adoption permitted. We are currently assessing the effect the adoption of this standard will have on our consolidated financial statement disclosures. We have reviewed all recently issued accounting pronouncements and have concluded that, other than as described above, they are either not applicable to us or are not expected to have a significant impact on our consolidated financial statements. Note 2 . Significant Transactions GKE - Fiscal Year 2024 Acquisition We acquired 100 % of the outstanding shares of GKE GmbH and SAL GmbH effective October 16, 2023, and upon approval by applicable Chinese regulators, effective December 31, 2023, we acquired 100 % of the outstanding shares of Beijing GKE Science & Technology Co. Ltd. (“GKE China.” Together with GKE GmbH and SAL GmbH, “GKE” or the "GKE acquisition"). GKE develops, manufactures and sells a highly competitive portfolio of chemical sterilization indicators, biologics, and process challenge devices to protect patient safety across global healthcare markets. GKE is included in our Sterilization and Disinfection Control ("SDC") division, and GKE's strengths in chemical indictors are complementary to SDC's strengths in biologic indicators, as chemical and biologic indicators are used in the same sterility validation workflows. Additionally, GKE’s healthcare-focused commercial capabilities in Europe and Asia greatly expand our reach in the healthcare markets in those geographies. We are working to obtain regulatory 510 (k) clearance on certain GKE products for sale in the United States, which would further expand organic revenues growth opportunities from the GKE business. We finalized our purchase price accounting of GKE during fiscal year 2024. Total cash consideration for the GKE acquisition was $ 87,187 , net of cash and financial liabilities and inclusive of working capital adjustments. Of the total acquisition price, approximately $ 9,200 (at June 30, 2024 exchange rates) is being held back for a period of 18 months from the acquisition closing as security against potential indemnification losses. We funded the acquisition through a combination of cash on-hand and a total of $ 71,000 borrowed under our line of credit. During the three months ended June 30, 2024 , GKE's operations contributed $ 6,254 to our consolidated revenues and $ 3,820 to our gross profit, including $ 778 of inventory step-up amortization recorded to cost of revenues. Additionally, amortization expense of $ 532 was recorded to general and administrative expense and $ 110 was recorded to cost of revenues related to intangibles acquired as part of the GKE acquisition during the three months ended June 30, 2024 . Page 7 Table of Contents Note 3. Revenue We develop, manufacture, market, sell and maintain life sciences tools and quality control instruments and related consumables. Hardware sales include physical products such as instruments used for molecular and genetic analysis, protein synthesizers, medical meters, wireless sensor systems, data loggers, and process challenge devices. Hardware sales may be offered with accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function. Consumables are typically used on a one -time basis and require frequent replacement in our customers' operating cycles. Consumables sold by our Clinical Genomics and Biopharmaceutical Development divisions, such as reagents used for molecular and genetic analysis or solutions used for protein synthesis, are critical to the ongoing use of our instruments. Consumables such as biological indicator test strips sold by our Sterilization and Disinfection Control division are used on a standalone basis. Revenues from hardware and consumables are recognized upon transfer to the customer, typically at the point of shipment. We also offer maintenance, calibration, and testing service contracts. These contracts result in revenues recognized over time, for example, when we are obligated to perform labor and replace parts on an as-needed basis over a contractually specified period, or at a point in time, upon completion of a specific, discrete service. In many cases, our contracts contain both revenues recognized over time and revenues recognized at a point in time. We evaluate our revenues internally based on business division and the nature of goods and services provided. The following tables present disaggregated revenues for the three months ended June 30, 2024 and 2023 , respectively: Three Months Ended June 30, 2024 Sterilization and Disinfection Control (1) Clinical Genomics Biopharmaceutical Development Calibration Solutions Total Consumables $ 20,396 $ 8,112 $ 3,922 $ 580 $ 33,010 Hardware and software 169 2,183 4,837 6,886 14,075 Services 2,392 1,109 3,249 4,335 11,085 Total revenues $ 22,957 $ 11,404 $ 12,008 $ 11,801 $ 58,170 ( 1 ) Revenues of $ 6,254 from GKE are included in the Sterilization and Disinfection Control division during the three months ended June 30, 2024 . Page 8 Table of Contents Three Months Ended June 30, 2023 Sterilization and Disinfection Control Clinical Genomics Biopharmaceutical Development Calibration Solutions Total Consumables $ 13,707 $ 8,769 $ 4,486 $ 509 $ 27,471 Hardware and software 81 3,427 2,691 7,078 13,277 Services 2,139 1,173 2,712 3,873 9,897 Total revenues $ 15,927 $ 13,369 $ 9,889 $ 11,460 $ 50,645 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 June 30, 2024 2023 United States $ 26,861 $ 26,537 China 6,559 6,113 Other 24,750 17,995 Total revenues $ 58,170 $ 50,645 Other than China, no foreign country exceeded 10% of total revenues for the three months ended June 30, 2024 and 2023 . Contract Balances Our contracts have varying payment terms and conditions. Some customers prepay for products and services, resulting in unearned revenues or customer deposits, called contract liabilities. Short-term contract liabilities are included within unearned revenues in the accompanying unaudited Condensed Consolidated Balance Sheets, and long-term contract liabilities are included within other noncurrent liabilities in the accompanying unaudited Condensed Consolidated Balance Sheets. The significant majority of our revenues and related receivables and contract liabilities are generated from contracts with customers with original durations of 12 months or less. Contract liabilities will be recognized to revenue as we satisfy our obligations under the terms of the contracts. A summary of contract liabilities is as follows: Contract liabilities as of March 31, 2024 $ 15,686 Prior year liabilities recognized in revenues during the three months ended June 30, 2024 ( 3,805 ) Contract liabilities added during the three months ended June 30, 2024, net of revenues recognized 2,877 Contract liabilities as of June 30, 2024 $ 14,758 Page 9 Table of Contents Note 4. Fair Value Measurements Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable, and debt. Due to their short-term nature, the carrying values for cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate fair value; they are classified within Level 1 of the fair value hierarchy. The financial instruments that subject us to the highest concentration of credit risk are cash 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. No customers accounted for more than 10% of total trade receivables as of June 30, 2024 . On April 5, 2024, we entered into separate, privately negotiated purchase agreements with a limited number of holders of our 1.375 % convertible senior notes due August 15, 2025 ( the "Notes"), through which we repurchased $ 75,000 in aggregate principal amount of the Notes. See Note 7. "Indebtedness" for further information. As of June 30, 2024 , we had remaining outstanding $ 97,500 aggregate principal amount of the Notes. We estimate the fair value of the Notes using Level 2 inputs based on the last actively traded price or observable market input preceding the end of the reporting period. The fair value of the Notes is approximately correlated to our stock price. The estimated fair value and carrying value of the Notes were as follows: June 30, 2024 March 31, 2024 Carrying Value Fair Value (Level 2) Carrying Value Fair Value (Level 2) Notes $ 96,896 $ 92,016 $ 171,198 $ 163,013 The carrying amount of the term loan and revolving line of credit (together, the "Credit Facility") on the Condensed Consolidated Balance Sheets approximates fair value due to the variable interest rate pricing on the debt with the balance bearing an interest rate approximating current market rates. For the GKE acquisition, we held back approximately $ 9,200 (at June 30, 2024 exchange rates) for a period of 18 months from the acquisition closing as security against potential indemnification losses. We estimate the fair value of consideration held back to be $ 8,900 , using Level 3 inputs, and we adjust the estimated fair value at each reporting period through earnings. During fiscal year 2023, we acquired substantially all of the assets and certain liabilities of Belyntic GmbH’s peptide purification business (“the Belyntic acquisition”). The Belyntic acquisition obligates us to pay contingent consideration of up to $ 1,500 cash upon regulatory approval of certain patent applications (see Note 11. "Commitments and Contingencies"), of which $ 750 has not yet been paid. We estimate the fair value of the remaining contingent consideration is $ 650 , using Level 3 inputs and a probability-weighted outcome analysis based on our expectations of patent approval, leveraging our historical experience and expert input, and we adjust the estimated fair value at each reporting period through earnings. 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 business acquisitions 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, 2024 or June 30, 2023 . 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, 2024 or June 30, 2023 . Note 5. Supplemental Information Inventories consisted of the following: June 30, 2024 March 31, 2024 Raw materials $ 19,031 $ 18,335 Work in process 682 1,256 Finished goods 12,054 13,084 Total inventories $ 31,767 $ 32,675 Prepaid expenses and other current assets consisted of the following: June 30, 2024 March 31, 2024 Prepaid expenses $ 3,928 $ 2,932 Deposits 1,514 1,898 Prepaid income taxes 1,798 1,237 Other current assets 3,643 3,341 Total prepaid expenses and other current assets $ 10,883 $ 9,408 Accrued payroll and benefits consisted of the following: June 30, 2024 March 31, 2024 Bonus payable $ 2,175 $ 3,838 Wages and paid-time-off payable 3,402 3,072 Payroll related taxes 2,223 1,956 Other benefits payable 538 1,069 Total accrued payroll and benefits $ 8,338 $ 9,935 Page 10 Table of Contents Other accrued expenses consisted of the following: June 30, 2024 March 31, 2024 Accrued business taxes $ 5,268 $ 5,557 Current operating lease liabilities 2,940 2,986 Income taxes payable 1,569 1,615 Current acquisition-related holdbacks 9,384 436 Other 3,323 2,264 Total other accrued expenses $ 22,484 $ 12,858 The increase in other accrued expenses is primarily due to the reclassification of the GKE acquisition consideration held back to current from long term as of June 30, 2024. Other noncurrent liabilities consisted of the following: June 30, 2024 March 31, 2024 Noncurrent operating lease liabilities $ 6,299 $ 6,613 Noncurrent acquisition-related holdbacks 158 8,792 Other 124 208 Total other noncurrent liabilities $ 6,581 $ 15,613 The decrease in other noncurrent liabilities is primarily due to the reclassification of the GKE acquisition consideration held back to current from long term as of June 30, 2024. Three Months Ended June 30, 2024 2023 Depreciation expense in cost of revenues $ 862 $ 674 Depreciation expense in operating expense 542 240 Total depreciation expense $ 1,404 $ 914 $ 304 of the increase in depreciation expense is attributable to GKE. Note 6. Goodwill and Intangible Assets, Net Finite-lived intangible assets consisted of the following: June 30, 2024 March 31, 2024 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 189,708 $ ( 107,470 ) $ 82,238 $ 189,911 $ ( 104,528 ) $ 85,383 Other intangibles 61,140 ( 33,919 ) 27,221 61,161 ( 32,792 ) 28,369 Total finite-lived intangible assets $ 250,848 $ ( 141,389 ) $ 109,459 $ 251,072 $ ( 137,320 ) $ 113,752 Amortization expense for finite-lived intangible assets was as follows: Three Months Ended June 30, 2024 2023 Amortization in cost of revenues $ 647 $ 1,728 Amortization in general and administrative 3,414 5,492 Total amortization expense $ 4,061 $ 7,220 For the following fiscal years ending March 31, amortization expense is estimated as follows: Fiscal Year Amortization Expense Remainder of 2025 $ 13,289 2026 16,975 2027 16,319 2028 15,731 2029 15,182 Page 11 Table of Contents The change in the carrying amount of goodwill was as follows: Sterilization and Disinfection Control Clinical Genomics Biopharmaceutical Development Calibration Solutions Total March 31, 2024 $ 79,430 $ 16,940 $ 46,515 $ 37,211 180,096 Effect of foreign currency translation ( 494 ) ( 24 ) 150 ( 6 ) ( 374 ) June 30, 2024 $ 78,936 $ 16,916 $ 46,665 $ 37,205 $ 179,722 Note 7 . Indebtedness Credit Facility On March 5, 2021, we entered into a four -year senior secured credit agreement that included 1 ) a revolving credit facility with an aggregate principal amount of up to $ 75,000 (the "Revolver"), 2 ) a swingline loan with an aggregate principal amount not exceeding $ 5,000 , and 3 ) letters of credit with an aggregate stated amount not exceeding $ 2,500 at any time. The agreement also provided for an incremental term loan or an increase in revolving commitments with a minimum aggregate principal amount of $ 25,000 and a maximum amount of $ 75,000 , subject to the satisfaction of certain conditions and lender considerations. We refer to the agreement in whole as the “Credit Facility.” On October 5, 2023, we amended the terms of the Credit Facility to increase the maximum principal amount available to us under the Revolver from $ 75,000 to $ 125,000 . On April 5, 2024, we further amended and restated the terms of the Credit Facility to: (i) Extend the maturity of the Credit Facility to April 2029; (ii) Allow proceeds from the Credit Facility to be used to redeem some or all of the Company’s 2025 Notes; (iii) Include a $75,000 senior secured term loan facility (the “Term Loan”), which is subject to principal amortization payments; and (iv) Make certain changes to the financial covenants. In conjunction with the amendment and restatement of the Credit Facility during the three months ended June 30, 2024, we incurred $ 1,987 of customary lender fees and debt issuance costs paid to third parties, of which $ 1,242 is related to the Revolver and $ 745 is related to the Term Loan. The fees are being amortized to interest expense through maturity. Amounts borrowed under the Credit Facility bear interest at either a base rate or a SOFR rate plus an applicable spread ranging from 1.5 % to 3.5 %, depending on our total net leverage ratio. The interest rate on borrowings under our line of credit as of June 30, 2024 was 8.4 %. The financial covenants in the Credit Facility as amended include a maximum leverage ratio of 4.50 to 1.00 for the first five testing dates on which amounts under the Revolver are outstanding; 4.0 to 1.0 on each of the sixth, seventh, eighth, and ninth testing dates; and 3.5 to 1.0 on each testing date following the ninth testing date. The Credit Facility also stipulates a minimum fixed charge coverage ratio of 1.25 to 1.0 and a minimum senior net leverage ratio of 3.5 to 1. 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. As of June 30, 2024, we were in compliance with all covenants under the Credit Facility. Term Loan We borrowed $ 75,000 under the Term Loan on April 5, 2024, to fund the repurchase of a portion of the Notes (see “Convertible Notes” below). During the three months ended June 30, 2024, we made a required quarterly principal payment on the Term Loan of $ 937 . We are required to make quarterly principal payments on the Term Loan. For the following fiscal years ending March 31, debt payments on the Term Loan are required as follows: Fiscal Year Amount Remainder of 2025 $ 2,813 2026 3,750 2027 5,625 2028 5,625 2029 7,500 Thereafter 48,750 Total Principal Remaining $ 74,063 The net carrying amount of the Term Loan was as follows: June 30, 2024 March 31, 2024 Term Loan (8.4% as of June 30, 2024) $ 74,063 $ - Less: discount and debt issuance costs ( 710 ) - Less: current portion ( 3,750 ) - Noncurrent portion $ 69,603 $ - The effective interest rate on the Term Loan at the time of borrowing was 8.13 %. Page 12 Table of Contents Revolver As of June 30, 2024, the outstanding balance under the Revolver was $ 42,000 and $ 83,000 was available for borrowing. Subsequent to June 30, 2024, we repaid an additional $ 3,500 on the Revolver. We are obligated to pay quarterly unused commitment fees of between 0.20 % and 0.35 % of the Revolver’s aggregate principal amount, based on our leverage ratio. The balance of unamortized customary lender fees, including fees related to the April 5, 2024 amendment and restatement, was $ 1,428 and $ 321 as of June 30, 2024 and March 31, 2024, respectively. 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. The Notes are initially convertible, subject to certain conditions, 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. On April 5, 2024, we entered into separate, privately negotiated transactions with certain holders of the Notes to repurchase $ 75,000 aggregate principal amount of the Notes for an aggregate repurchase price of $ 71,250 in cash, plus accrued and unpaid interest of $ 160 . We accounted for the partial repurchase of the Notes as a debt extinguishment, which resulted in the recognition of a gain on extinguishment of $ 3,197 in other income on the statements of operations during the three months ended June 30, 2024. As of June 30, 2024, $ 97,500 in aggregate principal amount of the Notes remained outstanding. 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. The circumstances necessary for conversion were not met during the three months ended June 30, 2024 . As of June 30, 2024 , the Notes were classified as a noncurrent liability on our Condensed Consolidated Balance Sheets. The if-converted value of the Notes did not exceed the principal balance as of June 30, 2024 . The net carrying amount of the Notes was as follows: June 30, 2024 March 31, 2024 Principal outstanding $ 97,500 $ 172,500 Unamortized debt issuance costs ( 604 ) ( 1,302 ) Net carrying value $ 96,896 $ 171,198 We recognized interest expense on the Notes as follows: Three Months Ended June 30, 2024 2023 Coupon interest expense at 1.375% $ 367 $ 593 Amortization of debt issuance costs 145 230 Total interest and amortization of debt issuance costs $ 512 $ 823 The effective interest rate on the Notes is approximately 1.9 %. Note 8 . Stockholders' Equity Stock-Based Compensation During the three months ended June 30, 2024 , we issued time-based restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") pursuant to the Mesa Laboratories, Inc. Amended and Restated 2021 Equity Incentive Plan, which authorizes the issuance of 660 shares of common stock to eligible participants. Expense recognized related to stock-based compensation is as follows: Three Months Ended June 30, 2024 2023 Stock-based compensation expense $ 2,928 $ 2,968 Stock-based compensation expense, net of tax $ 2,928 $ 2,096 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. Page 13 Table of Contents The following is a summary of stock option award activity for the three months ended June 30, 2024 : Stock Options Shares Subject to Options Weighted- Average Exercise Price per Share Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding as of March 31, 2024 194 $ 181.89 3.2 $ 26 Awards granted - - Awards forfeited or expired ( 13 ) 147.07 Awards exercised - - Outstanding as of June 30, 2024 181 $ 184.42 3.1 $ - The following is a summary of RSU and PSU award activity for the three months ended June 30, 2024 : Time-Based Restricted Stock Units Performance-Based Restricted Stock Units Number of Shares Weighted- Average Grant Date Fair Value per Share Number of Shares Weighted- Average Grant Date Fair Value per Share Outstanding as of March 31, 2024 76 $ 157.83 56 $ 240.96 Awards granted (1) 101 89.82 41 102.57 Awards forfeited ( 2 ) 154.69 - - Awards distributed ( 21 ) 182.89 - - Outstanding as of June 30, 2024 154 $ 109.69 97 $ 181.85 ( 1 ) Balances for PSUs granted are reflected at target. Outstanding time-based RSUs vest and settle in shares of our common stock on a one -for- one basis. The RSUs granted to employees during the three months ended June 30, 2024 vest in equal installments on the first, second, and third anniversary of the grant date. We generally recognize the expense relating to RSUs, net of estimated forfeitures, on a straight-line basis over the vesting period. We grant 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 per the related award agreement. The outstanding 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 three months ended June 30, 2024, the Compensation Committee of the Board of Directors created a plan to award 41 PSUs at target (“the FY25 PSUs”) to eligible employees. Of the 41 PSUs granted, 23 PSUs have a grant date fair value of $ 89.82 and are subject to service and company financial performance conditions. The financial performance measurement period is from April 1, 2024 through March 31, 2027. The remaining 18 PSUs have a grant date fair value of $ 119.54 and are subject to service and market conditions, with the market performance period measured from June 18, 2024 through June 18, 2027. The service period for all of the FY25 PSUs is from June 18, 2024 through June 18, 2027. The quantity of shares that will be earned based upon either company financial performance or market performance will range from 0 % to 200 % of the targeted number of shares; if the defined minimum targets are not met, then no shares will vest. Note 9 . Earnings (Loss) Per Share The following table presents a reconciliation of the denominators used in the computation of basic and diluted earnings (loss) per share: Three Months Ended June 30, 2024 2023 Net income (loss) available for shareholders $ 3,388 $ ( 549 ) Weighted average outstanding shares of common stock 5,397 5,372 Dilutive effect of stock options - - Dilutive effect of RSUs 27 - Fully diluted shares 5,424 5,372 Basic earnings (loss) per share $ 0.63 $ ( 0.10 ) Diluted earnings (loss) per share $ 0.62 $ ( 0.10 ) Page 14 Table of Contents Potentially dilutive securities include stock options and both time and performance based RSUs (collectively "stock awards"), as well as common shares underlying our 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 if they are antidilutive. Diluted EPS does not consider the impact of potentially dilutive securities in periods in which there is a loss because the inclusion of the potential common shares would have an antidilutive effect in such cases. The following stock awards were excluded from the calculation of diluted EPS: Three Months Ended June 30, 2024 2023 Assumed conversion of the Notes 373 608 Stock awards that were anti-dilutive 209 227 Total stock awards excluded from diluted EPS 582 835 Shares underlying the Notes were excluded from the diluted EPS calculation for the three months ended June 30, 2024 and 2023 as the impact of the assumed conversion of the Notes calculated under the if-converted method was antidilutive. The decrease in assumed conversion of the Notes is related to the partial repayment of the Notes that occurred in the three months ended June 30, 2024 ( see Note 7. "Indebtedness"). Note 10 . Income Taxes We reported an income tax provision as follows: Three Months Ended June 30, 2024 2023 Income tax expense (benefit) $ 517 $ ( 388 ) For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax income. Each quarter, our estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. 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 they relate, changes in tax laws and foreign tax holidays, settlement with taxing authorities, and foreign currency fluctuations. Our effective income tax rate was 13 % for the three months ended June 30, 2024 compared to 41 % for the three months ended June 30, 2023. The effective tax rate for the three months ended June 30, 2024 differed from the statutory federal rate of 21 % primarily due to the valuation allowance established related to subsidiaries based in the United States during the fiscal year ended March 31, 2024. Note 11 . Commitments and Contingencies We are party to various legal proceedings arising in the ordinary course of business. As of June 30, 2024 , we are not party to any legal proceeding that management believes could have a material adverse effect on our unaudited consolidated financial position, results of operations, or cash flows. As part of the GKE acquisition , we agreed to pay the GKE sellers approximately $ 9,200 (at June 30, 2024 exchange rates) 18 months following the acquisition date, pending adjustments for potential indemnification losses that may arise. The liability is recorded at its fair value of $ 8,900 in other accrued expenses on our unaudited Condensed Consolidated Balance Sheets as of June 30, 2024. As part of the Belyntic acquisition, we agreed to pay the sellers a contingency based upon approval of contractually specified patents. The estimated fair value of the probable remaining contingent consideration was $ 650 as of June 30, 2024 . Page 15 Table of Contents Note 12 . S egment Information The following tables set forth our segment information: Three Months Ended June 30, 2024 2023 Revenues (a): Sterilization and Disinfection Control (b) $ 22,957 $ 15,927 Clinical Genomics 11,404 13,369 Biopharmaceutical Development 12,008 9,889 Calibration Solutions 11,801 11,460 Total revenues $ 58,170 $ 50,645 Gross profit: Sterilization and Disinfection Control (b) $ 15,558 $ 11,591 Clinical Genomics 6,490 6,728 Biopharmaceutical Development 7,959 6,433 Calibration Solutions 7,242 6,431 Gross profit $ 37,249 $ 31,183 Reconciling items: Operating expense 31,669 31,847 Operating income (loss) 5,580 ( 664 ) Nonoperating expense, net 1,675 273 Earnings (loss) before income taxes $ 3,905 $ ( 937 ) (a) Intersegment revenues are not significant and are eliminated to arrive at consolidated totals. (b) Includes post-acquisition GKE results during the three months ended June 30, 2024 . The following table sets forth inventories by reportable segment. Our chief operating decision maker is not provided with any other segment asset information. June 30, March 31, 2024 2024 Sterilization and Disinfection Control $ 6,465 $ 7,014 Clinical Genomics 12,156 11,813 Biopharmaceutical Development 6,255 6,304 Calibration Solutions 6,891 7,544 Total inventories $ 31,767 $ 32,675 Page 16 Table of Contents