美國
證券交易委員會
華盛頓特區 20549
FORM
| | 季度報告 根據 1934年證券交易所法案第13或15（d）條款 |
融資活動產生的淨現金流入額為 第2020年8月3日結束的季度期内的季度報告《報告》完全符合1934年修訂版證券交易法第13(a)條或第15(d)條的要求，且報告中所包含的資訊充分且公平地呈現了公司的財務狀況和經營成果。 公司的《報告》完全符合修訂後的1934年證券交易法第13(a)或15(d)條的要求，並且該報告中所包含的資訊在所有重要方面都公正地呈現了公司的財務狀況和經營成果。
或
| | 過渡報告 根據 1934年證券交易法第13或15條 |
過渡期從___到___
登記檔案編號：
MESA LABORATORIES, INC.
（依憑章程所載的完整登記名稱）
| | | |||
| (依據所在地或其他管轄區) | (國稅局雇主識別號碼) | |||
| 的註冊地或組織地點) | 身分證號碼) | |||
| | ||||
| | | |||
| (總部辦公地址) | （郵政編碼） |
註冊者的電話號碼，包括區域號碼: (
根據法案第12(b)條登記的證券：
| 每種類別的名稱 | 交易符號 | 註冊在每個交易所上的名稱 |
| 輝瑞公司面臨數起分開的訴訟，這些訴訟仍在進行中，需等待第三項索賠條款的裁決。2023年9月，我們與輝瑞公司同意合併2022和2023年的訴訟，並將審判日期從2024年11月推遲至2025年上半年，具體時間將由法院確定。 |
請打勾表示登記申報人（1）已按照1934年證券交易所法案第13或15(d)條的規定，於過去12個月內（或需為短於此期間但登記申報人需提交此等申報的期間）申報所有需要申報的報告，並且（2）已遵守過去90天的申報要求。
請打勾表示登記申報人是否根據Rule 405 of Regulation S-t（本章節第232.405條）的規定，在過去12個月內（或需為短於此期間但登記申報人需提交此等文件的期間），已以電子方式提交每份Interactive Data File。
以核選方式表示，登記者是否為大型迅速過檔人、迅速過檔人、非迅速過檔人、較小的報告公司或新興成長公司。 請參見《交易所法》第120億2條對“大型迅速過檔人”、“迅速過檔人”、“較小的報告公司”和“新興成長公司”的定義。
| 大型加速提交人 ☐ | | 非加速申報者 ☐ | 較小的報告公司 | 新興成長型公司 |
若為新興成長型公司，請打勾表示登記人選擇不選擇使用根據交易所法第13(a)條提供的任何新的或修訂的財務會計準則的延長過渡期。☐
勾選表示申報人是否為外殼公司（定義於交易所法規第1202條）。
是
指示每個發行人普通股類別在最近實際日期的流通股數：
在2023和2024年6月30日結束的三個和六個月中，有資產減損處理記錄。更新計算公司進行中的研究和開發資產（“IPR&D”）公平價值所使用的關鍵假設可能會改變公司未來短期內回收IPR&D資產的帶值估計。
| 1 | ||
| 1 | ||
| 1 | ||
| 2 | ||
| 3 | ||
| 4 | ||
| 簡明合併現金流量量表 | 5 | |
| 6 | ||
| 15 | ||
| 22 | ||
| 22 | ||
| 23 | ||
| 23 | ||
| 23 | ||
| 23 | ||
| 項目5。其他信息。 | 23 | |
| 24 | ||
| 25 | ||
| 基本報表31.1 根據規則13a-14(a)的認證 |
||
| 基本報表31.2 根據規則13a-14(a)的認證 |
||
| 基本報表32.1 根據規則13a-14(b)和18 U.S.C 第1350條的認證 |
||
| 基本報表32.2 根據規則13a-14(b)和18 U.S.C 第1350條的認證 |
||
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share amounts)
| September 30, | March 31, | |||||||
| 2024 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowance for credit losses of $ and $, respectively | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Noncurrent assets: | ||||||||
| Property, plant and equipment, net of accumulated depreciation of $ and $ respectively | ||||||||
| Deferred tax asset | ||||||||
| Other assets | ||||||||
| Customer relationships, net | ||||||||
| Other intangibles, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll and benefits | ||||||||
| Unearned revenues | ||||||||
| Other accrued expenses | ||||||||
| Term loan, current portion | ||||||||
| Convertible senior notes, current portion, net of debt issuance costs | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities: | ||||||||
| Deferred tax liability | $ | |||||||
| Other noncurrent liabilities | ||||||||
| Revolving line of credit | ||||||||
| Term loan, noncurrent portion, net of discounts and debt issuance costs | ||||||||
| Convertible senior notes, noncurrent portion, net of debt issuance costs | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, par value; authorized shares; issued and outstanding, and shares, respectively | ||||||||
| (Accumulated deficit) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Operating expense: |
||||||||||||||||
| Selling |
||||||||||||||||
| General and administrative |
||||||||||||||||
| Research and development |
||||||||||||||||
| Total operating expense |
||||||||||||||||
| Operating income (loss) |
( |
) | ( |
) | ||||||||||||
| Nonoperating expense: |
||||||||||||||||
| Interest expense and amortization of debt issuance costs |
||||||||||||||||
| (Gain) on extinguishment of convertible senior notes |
( |
) | ||||||||||||||
| Other (income) expense, net |
( |
) | ( |
) | ( |
) | ||||||||||
| Total nonoperating (income) expense, net |
( |
) | ||||||||||||||
| Earnings (loss) before income taxes |
( |
) | ( |
) | ||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | ||||||||||||
| Net income (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Earnings (loss) per share: |
||||||||||||||||
| Basic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Diluted |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted-average common shares outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(in thousands)
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
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 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Exercise of stock options and vesting of restricted stock units | - | - | ||||||||||||||||||
| Tax withholding on vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Dividends paid, $ per share | - | - | ( | ) | - | ( | ) | |||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||
| Net income | - | |||||||||||||||||||
| June 30, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Exercise of stock options and vesting of restricted stock units | - | - | ||||||||||||||||||
| Tax withholding on vesting of restricted stock units | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||
| Dividends paid, $ per share | - | - | ( | ) | - | ( | ) | |||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||
| Net income | - | |||||||||||||||||||
| September 30, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Common Stock |
||||||||||||||||||||
| Number of Shares |
Amount |
(Accumulated Deficit) Retained Earnings |
AOCI* |
Total |
||||||||||||||||
| March 31, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Exercise of stock options and vesting of restricted stock units |
- | - | ||||||||||||||||||
| Tax withholding on vesting of restricted stock units |
( |
) | ( |
) | ( |
) | ||||||||||||||
| Dividends paid, $0.16 per share |
- | - | ( |
) | - | ( |
) | |||||||||||||
| Stock-based compensation expense |
- | - | - | |||||||||||||||||
| Foreign currency translation |
- | - | - | ( |
) | ( |
) | |||||||||||||
| Net (loss) |
- | - | ( |
) | - | ( |
) | |||||||||||||
| June 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Exercise of stock options and vesting of restricted stock units |
- | - | ||||||||||||||||||
| Tax withholding on vesting of restricted stock units |
( |
) | ( |
) | - | - | ( |
) | ||||||||||||
| Dividends paid, $0.16 per share |
- | - | ( |
) | - | ( |
) | |||||||||||||
| Stock-based compensation expense |
- | - | - | |||||||||||||||||
| Foreign currency translation |
- | - | - | ( |
) | ( |
) | |||||||||||||
| Net (loss) |
- | - | ( |
) | - | ( |
) | |||||||||||||
| September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
*Accumulated Other Comprehensive Income (Loss).
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
| Six Months Ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash from operating activities: |
||||||||
| Depreciation of property, plant and equipment |
||||||||
| Amortization of acquisition-related intangibles |
||||||||
| Stock-based compensation expense |
||||||||
| Gain on extinguishment of convertible notes |
( |
) | ||||||
| Amortization of step-up in inventory basis |
||||||||
| Other |
( |
) | ||||||
| Cash from changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
( |
) | ||||||
| Inventories |
( |
) | ( |
) | ||||
| Prepaid expenses and other assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ( |
) | ||||
| Accrued liabilities and taxes payable |
( |
) | ( |
) | ||||
| Unearned revenues |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property, plant and equipment |
( |
) | ( |
) | ||||
| Net cash (used in) investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from the issuance of debt, net |
||||||||
| Repayment of debt |
( |
) | ( |
) | ||||
| Repurchase of convertible debt |
( |
) | ||||||
| Dividends paid |
( |
) | ( |
) | ||||
| Other financing, net |
( |
) | ( |
) | ||||
| Net cash (used in) financing activities |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
( |
) | ||||||
| Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental non-cash activity: |
||||||||
| Right of use assets obtained in exchange for lease liabilities |
$ | $ |
See accompanying notes to Condensed Consolidated Financial Statements.
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 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 September 30, 2024, we managed our operations in four reportable segments, or divisions:
| ● | Sterilization and Disinfection Control - manufactures and sells biological, chemical and cleaning indicators used to assess the effectiveness of sterilization, decontamination, disinfection, and cleaning 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 financial statements 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 do not expect the adoption of ASU 2023-07 to have a material impact on our consolidated financial statements.
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
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 $
During the three and six months ended September 30, 2024, GKE's operations contributed the following amounts to our consolidated results of operations:
| Three Months Ended | Six Months Ended | |||||||
| September 30, 2024 | ||||||||
| Revenues | $ | $ | ||||||
| Gross profit | ||||||||
| Amortization of inventory step-up recorded in cost of revenues | ||||||||
| Amortization of acquired intangibles recorded in cost of revenues | ||||||||
| Amortization of acquired intangibles recorded in general and administrative expense | ||||||||
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 and chemical 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 services. Such service 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 and six months ended September 30, 2024 and 2023, respectively:
| Three Months Ended September 30, 2024 | ||||||||||||||||||||
| Sterilization and Disinfection Control (1) | Clinical Genomics | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||||||||
| Consumables | $ | $ | $ | $ | $ | |||||||||||||||
| Hardware and software | ||||||||||||||||||||
| Services | ||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | |||||||||||||||
| (1) Revenues of $ |
| Three Months Ended September 30, 2023 | ||||||||||||||||||||
| Sterilization and Disinfection Control | Clinical Genomics | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||||||||
| Consumables | $ | $ | $ | $ | $ | |||||||||||||||
| Hardware and software | ||||||||||||||||||||
| Services | ||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Six Months Ended September 30, 2024 | ||||||||||||||||||||
| Sterilization and Disinfection Control (1) | Clinical Genomics | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||||||||
| Consumables | $ | $ | $ | $ | $ | |||||||||||||||
| Hardware and software | ||||||||||||||||||||
| Services | ||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | |||||||||||||||
(1) Revenues of $
| Six Months Ended September 30, 2023 | ||||||||||||||||||||
| Sterilization and Disinfection Control | Clinical Genomics | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||||||||
| Consumables | $ | $ | $ | $ | $ | |||||||||||||||
| Hardware and software | ||||||||||||||||||||
| Services | ||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | |||||||||||||||
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 September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| China | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Other than China, no foreign country exceeded 10% of total revenues for the three and six months ended September 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 | $ | |||
| Prior year liabilities recognized in revenues during the six months ended September 30, 2024 | ( | ) | ||
| Contract liabilities added during the six months ended September 30, 2024, net of revenues recognized | ||||
| Contract liabilities as of September 30, 2024 | $ |
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. customers accounted for more than 10% of total trade receivables as of September 30, 2024.
On April 5, 2024, we entered into separate, privately negotiated purchase agreements with a limited number of holders of our
The estimated fair value and carrying value of the Notes were as follows:
| September 30, 2024 | March 31, 2024 | |||||||||||||||
| Carrying Value | Fair Value (Level 2) | Carrying Value | Fair Value (Level 2) | |||||||||||||
| Notes | $ | $ | $ | $ | ||||||||||||
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.
We expect to pay approximately $
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 $
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. Fair values of such assets and liabilities require measurement using Level 3 inputs. We recorded no impairments during the three and six months ended September 30, 2024 or 2023.
There were no transfers between the levels of the fair value hierarchy during the three months ended three and six months ended September 30, 2024.
Note 5. Supplemental Information
Inventories consisted of the following:
| September 30, 2024 | March 31, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
Prepaid expenses and other current assets consisted of the following:
| September 30, 2024 | March 31, 2024 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Deposits | ||||||||
| Prepaid income taxes | ||||||||
| Other current assets | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
Accrued payroll and benefits consisted of the following:
| September 30, 2024 | March 31, 2024 | |||||||
| Bonus payable | $ | $ | ||||||
| Wages and paid-time-off payable | ||||||||
| Payroll related taxes | ||||||||
| Other benefits payable | ||||||||
| Total accrued payroll and benefits | $ | $ | ||||||
Other accrued expenses consisted of the following:
| September 30, 2024 | March 31, 2024 | |||||||
| Accrued business taxes | $ | $ | ||||||
| Current operating lease liabilities | ||||||||
| Income taxes payable | ||||||||
| Current acquisition-related holdbacks | ||||||||
| Other | ||||||||
| Total other accrued expenses | $ | $ | ||||||
The increase in other accrued expenses is primarily due to the reclassification of the held back GKE acquisition-related consideration from noncurrent liabilities.
Other noncurrent liabilities consisted of the following:
| September 30, 2024 | March 31, 2024 | |||||||
| Noncurrent operating lease liabilities | $ | $ | ||||||
| Noncurrent acquisition-related holdbacks | ||||||||
| Other | ||||||||
| Total other noncurrent liabilities | $ | $ | ||||||
The increase in operating lease liabilities is primarily attributable to new a new right-of-use leased facility associated with the manufacturing and administrative office facilities used by our Biopharmaceutical Development division in Uppsala, Sweden.
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Depreciation expense in cost of revenues | $ | $ | $ | $ | ||||||||||||
| Depreciation expense in operating expense | ||||||||||||||||
| Total depreciation expense | $ | $ | $ | $ | ||||||||||||
The increase in depreciation expense for the three and six months ended September 30, 2024 is primarily due to GKE's operations, which included $
Note 6. Goodwill and Intangible Assets, Net
Finite-lived intangible assets consisted of the following:
| September 30, 2024 | March 31, 2024 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Other intangibles | ( | ) | ( | ) | ||||||||||||||||||||
| Total finite-lived intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Amortization expense for finite-lived intangible assets was as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Amortization in cost of revenues | $ | $ | $ | $ | ||||||||||||
| Amortization in general and administrative | ||||||||||||||||
| Total amortization expense | $ | $ | $ | $ | ||||||||||||
For the following fiscal years ending March 31, amortization expense is estimated as follows, based on foreign currency exchange rates as of September 30, 2024:
| Fiscal Year | Amortization Expense | |||
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
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 | $ | $ | $ | $ | ||||||||||||||||
| Effect of foreign currency translation | ||||||||||||||||||||
| September 30, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
Note 7. Indebtedness
Credit Facility
On March 5, 2021, we entered into a -year senior secured credit agreement that included 1) a revolving credit facility with an aggregate principal amount of up to $
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 $
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 six months ended September 30, 2024, we incurred $
Amounts borrowed under the Credit Facility bear interest at either a base rate or a SOFR rate plus an applicable spread ranging from
The financial covenants in the Credit Facility as amended include a maximum leverage ratio of
Term Loan
We borrowed $
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 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total Principal Remaining | $ | |||
The net carrying amount of the Term Loan was as follows:
| September 30, 2024 | March 31, 2024 | |||||||
| Term Loan (% as of September 30, 2024) | $ | $ | ||||||
| Less: discount and debt issuance costs | ( | ) | ||||||
| Less: current portion | ( | ) | ||||||
| Noncurrent portion | $ | $ | ||||||
The effective interest rate on the Term Loan at the time of borrowing was
Revolver
As of September 30, 2024, the outstanding balance under the Revolver was $
We are obligated to pay quarterly unused commitment fees of between
The balance of unamortized customary lender fees related to the Revolver, including fees from the original debt issuance and all subsequent amendments and restatements, was $
Convertible Notes
On August 12, 2019, we issued an aggregate principal amount of $
On April 5, 2024, we entered into separate, privately negotiated transactions with certain holders of the Notes to repurchase $
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 or six months ended September 30, 2024. The Notes will become convertible at any time from, and including, April 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date. As of September 30, 2024, the Notes were classified as a current liability on our Condensed Consolidated Balance Sheets. The if-converted value of the Notes did not exceed the principal balance as of September 30, 2024.
The net carrying amount of the Notes was as follows:
| September 30, 2024 | March 31, 2024 | |||||||
| Principal outstanding | $ | $ | ||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Net carrying value | $ | $ | ||||||
We recognized interest expense on the Notes as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Coupon interest expense at 1.375% | $ | $ | $ | $ | ||||||||||||
| Amortization of debt issuance costs | ||||||||||||||||
| Total interest and amortization of debt issuance costs | $ | $ | $ | $ | ||||||||||||
The effective interest rate on the Notes is approximately
Note 8. Stockholders' Equity
Stock-Based Compensation
During the six months ended September 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
The following is a summary of RSU and PSU award activity for the six months ended September 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 | $ | $ | ||||||||||||||
| Awards granted(1) | ||||||||||||||||
| Awards forfeited | ( | ) | - | |||||||||||||
| Awards distributed | ( | ) | ||||||||||||||
| Outstanding as of September 30, 2024 | $ | $ | ||||||||||||||
| (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 majority of RSUs granted to employees during the six months ended September 30, 2024 vest in equal installments on the first, second, and third anniversaries of the grant date. RSUs granted to non-employee directors during the six months ended September 30, 2024 vest year from 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 six months ended September 30, 2024, the Compensation Committee of the Board of Directors created a plan to award
The following is a summary of stock option award activity for the six months ended September 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 | $ | $ | ||||||||||||||
| Awards granted | ||||||||||||||||
| Awards forfeited or expired | ( | ) | ||||||||||||||
| Awards exercised | ||||||||||||||||
| Outstanding as of September 30, 2024 | $ | $ | ||||||||||||||
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 September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) available for shareholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average outstanding shares of common stock | ||||||||||||||||
| Dilutive effect of RSUs | ||||||||||||||||
| Fully diluted shares | ||||||||||||||||
| Basic earnings (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted earnings (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
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 September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Assumed conversion of the Notes | ||||||||||||||||
| Stock awards that were anti-dilutive | ||||||||||||||||
| Total stock awards excluded from diluted EPS | ||||||||||||||||
Shares underlying the Notes were excluded from the diluted EPS calculation for the three and six months ended September 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 during the six months ended September 30, 2024 (see Note 7. "Indebtedness").
Note 10. Income Taxes
We reported an income tax provision as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Income tax expense (benefit) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Effective tax rate | % | % | % | % | ||||||||||||
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.
The change in the effective tax rate for both the three and six months ended September 30, 2024 compared to the prior year periods is primary due to the valuation allowance established on the US deferred taxes during fiscal year 2024. The effective tax rate for both the three and the six months ended September 30, 2024 differed from the statutory federal rate of
Note 11. Commitments and Contingencies
We are party to various legal proceedings arising in the ordinary course of business. As of September 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.
We expect to pay approximately $
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 $
Note 12. Segment Information
The following tables set forth our segment information:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues (a): | ||||||||||||||||
| Sterilization and Disinfection Control (b) | $ | $ | $ | $ | ||||||||||||
| Clinical Genomics | ||||||||||||||||
| Biopharmaceutical Development | ||||||||||||||||
| Calibration Solutions | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
| Gross profit: | ||||||||||||||||
| Sterilization and Disinfection Control (b) | $ | $ | $ | $ | ||||||||||||
| Clinical Genomics | ||||||||||||||||
| Biopharmaceutical Development | ||||||||||||||||
| Calibration Solutions | ||||||||||||||||
| Reportable segment gross profit | ||||||||||||||||
| Corporate and other (c) | ( | ) | ( | ) | ||||||||||||
| Gross profit | $ | $ | $ | $ | ||||||||||||
| Reconciling items: | ||||||||||||||||
| Operating expense | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Nonoperating expense, net | ( | ) | ||||||||||||||
| Earnings (loss) before income taxes | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| (a) | Intersegment revenues are not significant and are eliminated to arrive at consolidated totals. |
| (b) | Includes post-acquisition GKE results during the three and six months ended September 30, 2024. | |
| (c) | 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 and does not regularly review any other segment asset information.
| September 30, | March 31, | |||||||
| 2024 | 2024 | |||||||
| Sterilization and Disinfection Control | $ | $ | ||||||
| Clinical Genomics | ||||||||
| Biopharmaceutical Development | ||||||||
| Calibration Solutions | ||||||||
| Total inventories | $ | $ | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position; results of acquisitions; management’s strategy, plans and objectives for future operations or acquisitions, product development and sales; and adequacy of capital resources and financing plans constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management’s beliefs and assumptions. In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company’s behalf. Words such as “seek,” “believe,” “may,” “intend,” “could,” “target,” “expect,” “anticipate,” “plan,” “estimate,” “project,” or variations of such words and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including risks associated with: our ability to successfully grow our business, including as a result of acquisitions; 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 effectively integrate acquired businesses and achieve desired results; the market acceptance of our products; technological or market viability of our products; reduced demand for our products, including as a result of competitive factors; conditions in the global economy and the particular markets we serve; significant developments or uncertainties stemming from governmental actions, including changes in trade policies and medical device regulations; the timely development and commercialization, and customer acceptance, of enhanced and new products and services; retirement of old products and customer migration to new products; the potential inaccuracy of projections of revenues, growth, operating results, profit margins, earnings, expenses, margins, tax rates, tax provisions, liquidity, cash flows, demand, and competition; the effects of additional actions taken to become more efficient or lower costs; supply chain challenges; cost pressures; laws regulating fraud and abuse in the health care industry and the privacy and security of health and personal information; product liability; information security; outstanding claims, legal and regulatory proceedings; international business challenges including anti-corruption and sanctions laws and political developments; tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic, industry, and capital markets conditions; the timing of any of the foregoing; and assumptions underlying any of the foregoing. Such risks and uncertainties also include those listed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2024 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.
Overview
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 September 30, 2024, 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
We strive to create stakeholder 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.
Inorganic Growth - Acquisitions
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 and the industries we serve, globalize our company, and increase the scale at which we operate. In turn, this growth 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
Our ongoing goal is to maximize value in 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 the manufacturing and administrative aspects of our 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 and prioritize the biggest opportunities; and "Always Learning" so that performance continuously improves.
Gross profit is affected by many factors including our product mix, foreign currency rates, manufacturing efficiencies, costs of products and labor, 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 our mix of revenues 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. Indeed, 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 with multinational operations. During the six months ended September 30, 2024, approximately 53% of our revenues were earned outside of the United States. We face both opportunities and challenges resulting from our geographic and industry diversity, such as varied economic environments across served geographies, technology changes in served markets, opportunities in high-growth markets, the impact of foreign currency movements against the U.S. dollar ("USD"), changes in trends and costs of a global labor force, and increasing regulation. Continued growth of our revenue will depend on our ability to (i) continue commercial efforts to expand business with new and existing customers, (ii) identify, consummate, and integrate acquisitions successfully, and (iii) develop or purchase differentiated products and services. We maintain our profitability by improving the effectiveness of our sales forces, continuing to pursue cost reduction initiatives, and improving our operating efficiency.
During the first half of fiscal year 2025, our revenues increased 11.7%, versus the comparable prior year period, primarily driven by revenues of $12,117 from GKE, which we acquired in the third quarter of fiscal year 2024. Organic revenues increased 0.1% during the first half of fiscal year 2025 primarily as a result of 25.0% organic revenues growth from our Biopharmaceutical Development division, and to a lesser extent organic revenues increases of 5.6% from our Calibration Solutions division. Our Biopharmaceutical Development division, in particular, benefited from an improved environment for capital equipment purchases in the biopharmaceutical vertical. Organic revenues in our Clinical Genomics business declined 20.8% as we continue to experience challenges from the economic slowdown in China and regulatory challenges that are impacting sales of new Clinical Genomics instruments in the United States. However, the Clinical Genomics division's revenues have increased sequentially in both the first and second quarters of fiscal year 2025.
Gross profit as a percentage of revenues increased 1.7 percentage points in the first half of fiscal year 2025 compared to the first half of fiscal year 2024, primarily attributable to lower amortization of intangible expenses flowing through cost of revenues as a result of the Clinical Genomics intangible asset impairment charge recorded in the fourth quarter of fiscal year 2024 and margin contribution of 62.3% from the GKE acquisition, including $1,232 of non-cash inventory step up amortization.
Operating expenses declined slightly during the first half of fiscal year 2025 versus the comparable prior year period, despite an 11.7% increase in revenues. Operating expenses incurred by GKE during the six months ended September 30, 2024 were offset by lower amortization expense as we impaired a portion of the intangible assets held by the Clinical Genomics division in fiscal year 2024. The weakening of the USD increased reported expenses incurred in Europe, but despite foreign currency headwinds, operating income was $9,088, an increase of $9,812 versus the comparable prior year period. Additionally, we recorded about $900 more for bonuses in the first six months of fiscal year 2025 versus the comparable prior year period due to improved performance. GKE contributed $4,533 to our consolidated operating income during the first half of fiscal year 2025.
A weakening or strengthening of foreign currencies against the USD increases or decreases our reported revenues, gross profit margins, and operating expenses, and impacts the comparability of our results between periods.
Results of Operations
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto appearing in Item 1. Financial Statements (in thousands, except percent data).
Results by reportable segment are as follows:
| Revenues |
Organic Revenues Growth (non-GAAP) (a) |
Gross Profit as a % of Revenues |
||||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||
| Sterilization and Disinfection Control |
$ | 22,205 | $ | 17,080 | (4.3 | %) | 0.7 | % | 68.3 | % | 73.0 | % | ||||||||||||
| Clinical Genomics |
11,499 | 15,549 | (26.0 | %) | (15.7 | %) | 51.4 | % | 49.7 | % | ||||||||||||||
| Biopharmaceutical Development |
11,867 | 9,207 | 28.9 | % | (24.4 | %) | 60.4 | % | 59.8 | % | ||||||||||||||
| Calibration Solutions |
12,262 | 11,329 | 8.2 | % | 1.1 | % | 58.8 | % | 56.6 | % | ||||||||||||||
| Mesa's reportable segments |
$ | 57,833 | $ | 53,165 | (2.2 | %) | (9.6 | %) | 61.3 | % | 60.4 | % | ||||||||||||
| Revenues |
Organic Revenues Growth (non-GAAP) (a) |
Gross Profit as a % of Revenues |
||||||||||||||||||||||
| Six Months Ended September 30, | Six Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||
| Sterilization and Disinfection Control |
$ | 45,162 | $ | 33,007 | 0.1 | % | 4.0 | % | 68.0 | % | 72.9 | % | ||||||||||||
| Clinical Genomics |
22,903 | 28,918 | (20.8 | %) | (12.2 | %) | 54.1 | % | 50.0 | % | ||||||||||||||
| Biopharmaceutical Development |
23,875 | 19,096 | 25.0 | % | (17.8 | %) | 63.4 | % | 62.5 | % | ||||||||||||||
| Calibration Solutions |
24,063 | 22,789 | 5.6 | % | 6.4 | % | 60.1 | % | 56.3 | % | ||||||||||||||
| Mesa's reportable segments |
$ | 116,003 | $ | 103,810 | 0.1 | % | (5.0 | %) | 62.7 | % | 61.0 | % | ||||||||||||
| (a) | Organic revenues growth is a non-GAAP measure of financial performance. See "Non-GAAP Measures" below for further information and for a reconciliation of organic revenues growth to total revenues growth. |
Our unaudited condensed consolidated results of operations are as follows:
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Revenues |
$ | 57,833 | $ | 53,165 | 8.8 | % | $ | 116,003 | $ | 103,810 | 11.7 | % | ||||||||||||
| Gross profit |
35,455 | 32,109 | 10.4 | % | 72,704 | 63,292 | 14.9 | % | ||||||||||||||||
| Operating expense |
31,947 | 32,169 | (0.7 | %) | 63,616 | 64,016 | (0.6 | %) | ||||||||||||||||
| Operating income (loss) |
3,508 | (60 | ) | 5,946.7 | % | 9,088 | (724 | ) | 1,355.2 | % | ||||||||||||||
| Net income (loss) |
$ | 3,428 | $ | (1,230 | ) | 378.7 | % | $ | 6,816 | $ | (1,779 | ) | 483.1 | % | ||||||||||
Reportable Segments
Sterilization and Disinfection Control
Our Sterilization and Disinfection Control division manufactures and sells biological, chemical and cleaning indicators used to assess the effectiveness of sterilization, decontamination, disinfection and cleaning processes in the pharmaceutical, medical device, and healthcare industries. The division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries. Sterilization and Disinfection Control products are disposable and are used on a routine basis.
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Revenues |
$ | 22,205 | $ | 17,080 | 30.0 | % | $ | 45,162 | $ | 33,007 | 36.8 | % | ||||||||||||
| Gross profit |
15,172 | 12,476 | 21.6 | % | 30,730 | 24,067 | 27.7 | % | ||||||||||||||||
| Gross profit as a % of revenues |
68.3 | % | 73.0 | % | (4.7 pt) |
68.0 | % | 72.9 | % | (4.9 pt) |
||||||||||||||
The Sterilization and Disinfection Control division's revenues increased 30.0% and 36.8% for the three and six months ended September 30, 2024, respectively versus the comparable prior year periods. The GKE acquisition contributed inorganic revenues of $5,863 and $12,117 for the three and six months ended September 30, 2024, respectively. Organic revenues declined 4.3% for the three months ended September 30, 2024 and increased 0.1% for the six months ended September 30, 2024. Strong commercial execution that resulted in organic revenues growth in the first quarter of fiscal year 2025 and significant orders growth of 6% in the first half of the fiscal year excluding GKE was largely offset by lower than expected order fulfillments. However, the past due backlog for the division has increased and is expected to be fulfilled over the next two quarters. We anticipate positive organic revenues growth in the Sterilization and Disinfection Control division in fiscal year 2025.
The Sterilization and Disinfection Control division's gross profit percentage decreased 4.7 percentage points and 4.9 percentage points for the three and six months ended September 30, 2024, respectively, versus the comparable prior year periods. The three and six months ended September 30, 2024 includes $588 and $1,476, respectively, of both amortization of GKE’s intangible assets and amortization of non-cash inventory step-up, which affect the comparability of gross margins as a percentage of revenues. There will be no further charges for the inventory step up. Excluding these non-cash charges from purchase accounting, the Sterilization and Disinfection Control division’s margin decreased 2.1 percentage points and 1.6 percentage points for the three and six months ended September 30, 2024, respectively. Beginning in the third quarter of fiscal year 2025, when the inventory step up is no longer being amortized through cost of revenues, we expect GKE's gross profit percentage will be in the low 70s.
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 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.
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Revenues |
$ | 11,499 | $ | 15,549 | (26.0 | %) | $ | 22,903 | $ | 28,918 | (20.8 | %) | ||||||||||||
| Gross profit |
5,906 | 7,727 | (23.6 | %) | 12,396 | 14,455 | (14.2 | %) | ||||||||||||||||
| Gross profit as a % of revenues |
51.4 | % | 49.7 | % | 1.7 pt |
54.1 | % | 50.0 | % | 4.1 pt |
||||||||||||||
The Clinical Genomics division's revenues decreased 26.0% and 20.8% for the three and six months ended September 30, 2024 versus the comparable prior year periods. The decrease for the three and six months ended September 30, 2024 was primarily due to decreases in revenues from consumables, and to a lesser extent, new systems in China as a result of China's economic slowdown and anti-corruption initiatives, which began to significantly impact us during the third quarter of fiscal year 2024. Decreased instrument sales in the United States due to increased regulation of lab-developed tests further contributed to decreased revenues.
Gross profit percentage for the Clinical Genomics division increased 1.7 and 4.1 percentage points for the three and six months ended September 30, 2024 versus the comparable prior year periods, primarily due to lower intangibles amortization expense as a result of an impairment charge recorded in the fourth quarter of fiscal year 2024. Excluding the impact of amortization expense, gross profit as a percentage of revenues would have decreased 5.8 and 4.0 percentage points for the three and six months ended September 30, 2024, respectively, primarily as a result of lower revenues on a partially fixed cost base as well as realizing lower margins on certain strategic instrument sales into our APAC region that we expect will increase our consumables sales in the future.
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 therapies, among other applications.
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Revenues |
$ | 11,867 | $ | 9,207 | 28.9 | % | $ | 23,875 | $ | 19,096 | 25.0 | % | ||||||||||||
| Gross profit |
7,167 | 5,509 | 30.1 | % | 15,126 | 11,942 | 26.7 | % | ||||||||||||||||
| Gross profit as a % of revenues |
60.4 | % | 59.8 | % | 0.6 pt |
63.4 | % | 62.5 | % | 0.9 pt |
||||||||||||||
The Biopharmaceutical Development division's revenues increased 28.9% and 25.0% for the three and six months ended September 30, 2024 versus the comparable prior year periods, primarily due to increased capital spending in the biopharmaceutical markets. Revenues from hardware and software sales increased 108.8% and 93.7% for the three and six months ended September 30, 2024, respectively, versus the comparable prior year periods.
For the three and six months ended September 30, 2024, gross margin as a percentage of revenues for the Biopharmaceutical Development division increased slightly as a result of favorable product mix, as well as increased revenues on a partially fixed cost base.
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 medical device manufacturing, pharmaceutical manufacturing, laboratory, and hospital environments.
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Revenues |
$ | 12,262 | $ | 11,329 | 8.2 | % | $ | 24,063 | $ | 22,789 | 5.6 | % | ||||||||||||
| Gross profit |
7,210 | 6,407 | 12.5 | % | 14,452 | 12,838 | 12.6 | % | ||||||||||||||||
| Gross profit as a % of revenues |
58.8 | % | 56.6 | % | 2.2 pt |
60.1 | % | 56.3 | % | 3.8 pt |
||||||||||||||
The Calibration Solutions division's revenues increased 8.2% and 5.6%, respectively, for the three and six months ended September 30, 2024 versus the comparable prior year period, primarily due to commercial efforts and increases in prices, particularly in our Renal Care product lines.
The Calibration Solutions division's gross profit percentage increased 2.2 and 3.8 percentage points for the three and six months ended September 30, 2024, respectively, versus the comparable prior year period, primarily due to increased revenues on a partially-fixed cost base and favorable product mix.
Operating Expense
Operating expense decreased 0.7% and 0.6% for the three and six months ended September 30, 2024, respectively, versus the comparable prior year period. Increases in operating expenses from GKE's operations were offset by lower amortization of intangible assets as a result of the Clinical Genomics impairment charge recorded in the fourth quarter of fiscal year 2024.
Selling Expense
Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels.
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Selling expense |
$ | 9,849 | $ | 9,650 | 2.1 | % | $ | 19,965 | $ | 18,626 | 7.2 | % | ||||||||||||
| As a percentage of revenues |
17.0 | % | 18.2 | % | (1.2 pt) |
17.2 | % | 17.9 | % | (0.7 pt) |
||||||||||||||
Selling expense for the three and six months ended September 30, 2024 increased 2.1% and 7.2%, respectively, versus the comparable prior year periods. The increase is primarily attributable to sales and marketing costs from GKE and higher commissions as revenues increased.
General and Administrative Expense
Labor costs, non-cash stock-based compensation and non-cash amortization of intangible assets drive the substantial majority of our general and administrative expense.
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| General and administrative expense |
$ | 17,464 | $ | 17,526 | (0.4 | %) | $ | 34,282 | $ | 35,586 | (3.7 | %) | ||||||||||||
| As a percentage of revenues |
30.2 | % | 33.0 | % | (2.8 pt) |
29.6 | % | 34.3 | % | (4.7 pt) |
||||||||||||||
General and administrative expenses decreased 0.4% and 3.7% for the three and six months ended September 30, 2024, respectively, versus the comparable prior year period, largely due to the decrease of amortization of intangible assets due to an impairment charge recorded in the fourth quarter of fiscal year 2024. Excluding amortization expense, general and administrative expense would have increased 12.3% for the three months ended September 30, 2024, primarily as a result of GKE's general and administrative expenses as well as higher non-cash stock-based compensation expense. Excluding amortization expense, for the six months ended September 30, 2024, general administrative costs would have increased 9.4%, primarily as a result of general and administrative costs from GKE and costs associated with integrating GKE into our enterprise resource planning tool.
Research and Development Expense
Research and development expense is predominantly comprised of labor costs and costs of third-party consultants.
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Research and development expense |
$ | 4,634 | $ | 4,993 | (7.2 | %) | $ | 9,369 | $ | 9,804 | (4.4 | %) | ||||||||||||
| As a percentage of revenues |
8.0 | % | 9.4 | % | (1.4 pt) |
8.1 | % | 9.4 | % | (1.3 pt) |
||||||||||||||
Research and development expenses decreased 7.2% and 4.4% for the three and six months ended September 30, 2024, respectively, versus the comparable prior year periods. We undertook cost containment efforts during fiscal year 2024, which included recording severance. Lower costs in the three and six months ended September 30, 2024 were a result of lower headcount, no severance charges, and reduced research and development supplies purchases.
Nonoperating (Income) Expense, Net
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Interest expense and amortization of debt issuance costs |
$ | 3,018 | $ | 905 | 233.5 | % | $ | 5,860 | $ | 1,953 | 200.1 | % | ||||||||||||
| (Gain) on extinguishment of convertible senior notes |
- | - | N/A | (3,197 | ) | - | N/A | |||||||||||||||||
| Other (income) expense, net |
(3,322 | ) | 360 | (1,022.8 | %) | (1,292 | ) | (415 | ) | 211.3 | % | |||||||||||||
| Nonoperating (income) expense, net |
$ | (304 | ) | $ | 1,265 | (124.0 | %) | $ | 1,371 | $ | 1,538 | (10.9 | %) | |||||||||||
Nonoperating expense, net for the six months ended September 30, 2024 is composed primarily of a $3,197 gain recorded related to the partial extinguishment of the Notes during the first quarter of fiscal year 2025. The gain represents the difference between the fair value and the carrying value of the Notes and any unamortized debt issuance costs at the time of settlement. The gain on the extinguishment was offset by the combination of interest expense and debt issuance costs, and gains and losses on foreign currency transactions.
We incurred significantly more interest expense during the three and six months ended September 30, 2024 versus the comparable prior year period as we re-financed our Credit Facility during the first quarter of fiscal year 2025 in order to repurchase a portion of the Notes. We had $107,953 outstanding under our Credit Facility as of September 30, 2024, net of discounts on the Term Loan, and $0 outstanding under our Credit Facility as of September 30, 2023. The interest rate on our Credit Facility is variable, but was approximately 7.0 percentage points higher than the fixed-rate interest on the Notes during the first half of fiscal year 2025.
During the third quarter of fiscal year, Mesa issued an intercompany loan denominated in USD to our wholly owned subsidiary, Mesa Germany GmbH, to purchase GKE. Nonoperating income increased for the three and six months ended September 30, 2024 as we recorded net unrealized gains on foreign currency resulting from the weakening of the USD against the euro.
Income Taxes
| Three Months Ended September 30, |
Total |
Six Months Ended September 30, |
Total |
|||||||||||||||||||||
| 2024 |
2023 |
Change |
2024 |
2023 |
Change |
|||||||||||||||||||
| Income tax expense (benefit) |
$ | 384 | $ | (95 | ) | (505.3 | %) | $ | 901 | $ | (483 | ) | (286.7 | %) | ||||||||||
| Effective tax rate |
10.1 | % | 7.2 | % | 2.9 pt |
11.7 | % | 21.4 | % | (9.7 pt) |
||||||||||||||
Our effective income tax rate was 10.1% for the three months ended September 30, 2024 and 7.2% for the three months ended September 30, 2023. Our effective income tax rate was 11.7% for the six months ended September 30, 2024 and 21.4% for the six months ended September 30, 2023.
The change in the effective tax rate for both the three and six months ended September 30, 2024 compared to the prior year periods is primary due to the valuation allowance established on the US deferred taxes during fiscal year 2024. The effective tax rate for both the three and the six months ended September 30, 2024 differed from the statutory federal rate of 21% primarily due to the valuation allowance established on the US deferred taxes during fiscal year 2024.
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
Net income varies with changes in revenues, gross profit, and operating expense (and included $8,611, $6,765 and $2,922 of non-cash: amortization of intangible assets acquired in business combinations, stock-based compensation expense, and depreciation expense, respectively, for the six months ended September 30, 2024).
Market-Based Awards
The performance-based restricted stock awards granted during fiscal year 2025 and fiscal year 2024 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 Open Market Sale AgreementSM, 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 AgreementSM, when necessary, will be sufficient to meet our ongoing operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures.
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. During fiscal year 2024, we acquired GKE for $87,187, net of cash and financial liabilities acquired and inclusive of working capital adjustments. We expect to pay a holdback of approximately $9,700 (at September 30, 2024 exchange rates) from the acquisition in April 2025, pending adjustments for potential indemnification losses.
Working capital is the amount by which current assets exceed current liabilities. We had working capital of $(45,252) and $65,040 as of September 30, 2024 and March 31, 2024, respectively. As of September 30, 2024 and March 31, 2024, we had $24,337 and $28,214, respectively, of cash and cash equivalents. Our working capital balance is negative as of September 30, 2024 primarily because of the balance on the Notes is now current, due August 15, 2025, which is within 12 months of September 30, 2024. See further discussion below.
During the first quarter of fiscal year 2025, we amended and restated our Credit Facility to:
| ● |
Allow proceeds from the Credit Facility to be used to redeem some or all of the Notes. |
| ● |
Add the $75,000 senior secured Term Loan. |
| ● |
Extend the maturity of the Credit Facility to April 2029. |
| ● |
Make certain changes to the financial covenants. |
Under the revised Credit Facility, we maintain access to our Revolver, allowing access to up to $125,000 of borrowings. During the three months ended December 31, 2023, we borrowed a total of $71,000 under the Revolver to fund the majority of the acquisition of GKE. As of September 30, 2024, $35,500 remained outstanding under the Revolver. During October 2024, we repaid $4,500 on our Revolver.
We used the $75,000 proceeds from borrowings under the Term Loan to enter into a separate, privately negotiated purchase agreements with a limited number of holders of our Notes. Pursuant to the purchase agreements, we purchased $75,000 aggregate principal amount of the Notes for an aggregate cash purchase price of approximately $71,250. Following these transactions, $97,500 aggregate principal amount of the Notes remains outstanding and is now classified as current on our condensed consolidated balance sheets.
At the interest rate effective through October 30, 2024, within the next twelve months we expect to incur cash interest expense of approximately $7,300 (adjusted for required future principal payments) on undiscounted borrowings of $104,125 related to the Credit Facility as of the date of this filing.
We have $97,500 due on the Notes in August 2025. Together with the current portion of our Term Loan, the cash needed for principal debt payments is $101,250 within the next 12 months. We plan use cash on hand, draws against our Revolver, which has $94,000 available as of the date of this filing, and cash generated from operating activities over the next three quarters to fund the amount due.
In April 2022, we entered into an Open Market Sale AgreementSM 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. 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 through tender offers, 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.
Dividends
We have paid regular quarterly dividends since 2003. We paid dividends of $0.16 per share during the three months ended September 30, 2024, as well as each quarter of fiscal years 2025 and 2024.
In October 2024, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on December 16, 2024, to shareholders of record at the close of business on November 29, 2024.
Goodwill and Intangible Assets
We perform analyses at least quarterly to identify potential impairment indicators and to assess whether it is more likely than not that our goodwill reporting units are impaired. We have determined our goodwill reporting units are not impaired as of September 30, 2024; however, impairment losses recorded in the prior fiscal year resulted in a 0% cushion between the fair and carrying values of our Clinical Genomics division and the Immunoassays reporting unit within our Biopharmaceutical Development division as of our most recent annual impairment testing date on January 1, 2024. Revenues related to our Biopharmaceutical Development division were higher than our impairment model indicated; however, our Clinical Genomics reporting unit remains susceptible to future impairment losses if actual results differ significantly from the assumptions used in our most recent impairment tests. While revenues in our Clinical Genomics division have declined somewhat from fiscal year 2024 levels, we deployed cost saving measures late in fiscal year 2024, primarily a reduction in force, and as a result, we believe that our operating cash flows for fiscal year 2025 for Clinical Genomics will approximate the levels used in our recent impairment model. At our last testing date, the fair value of the applicable reporting units was assessed by weighting Gordon Growth and Exit Multiple discounted cash flow models and guideline public company models (one-year forward multiples), relying on unobservable Level 3 inputs, including but not limited to discount rates, expected useful lives, applicable competitors, and anticipated revenues growth and margins. Inputs were established through discussions between management and external valuation specialists, and were based on internal expectations for future performance, market indicators, and reputable valuation research resources. These assumptions required inputs and estimates that are subject to uncertainty such that there is a reasonable possibility that further impairment losses, which could be material to our consolidated financial statements, may occur in the future.
Cash Flows
Our cash flows from operating, investing, and financing activities were as follows (in thousands):
| Six Months Ended September 30, |
||||||||
| 2024 |
2023 |
|||||||
| Net cash provided by operating activities |
$ | 15,704 | $ | 19,715 | ||||
| Net cash (used in) investing activities |
(2,679 | ) | (904 | ) | ||||
| Net cash (used in) financing activities |
(17,719 | ) | (15,079 | ) | ||||
Cash flows from operating activities for the six months ended September 30, 2024 provided $15,704, a decrease of $4,011 versus the comparable prior year period. The decrease in cash flows from operating activities for the six months ended September 30, 2024 compared to September 30, 2023 was primarily a result of:
| ● |
lower cash collected on accounts receivable, |
| ● | higher payments made for income taxes, |
| ● |
approximately $3,900 more paid for interest as we had more debt outstanding at higher rates; partially offset by |
| ● | cash provided by improved operating performance, primarily due to an increase in revenues of $12,193. |
Cash used in financing activities resulted in a $17,719 use of cash for the six months ended September 30, 2024. Net proceeds from borrowings under the Term Loan in the first quarter of fiscal year 2025 were almost fully offset by payments made to repurchase the Notes. We used $15,000 of cash to repay the Revolver and $1,875 to pay down the Term Loan in the six months ended September 30, 2024, compared to $13,000 to pay down the Revolver in the comparable prior year period.
Contractual Obligations and Other Commercial Commitments
We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of our contractual obligations and other commercial commitments as of March 31, 2024, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission on June 28, 2024.
On a consolidated basis, as of September 30, 2024, we had contractual obligations for open purchase orders of approximately $18,030 for routine purchases of supplies and inventory, the majority of which are payable in less than one year.
As part of the GKE acquisition, we have agreed to pay the GKE sellers approximately $9,700 (at September 30, 2024 exchange rates) of the acquisition price in April 2025, pending adjustments for potential indemnification losses that may arise.
As part of the Belyntic acquisition, we agreed to pay $1,500 to the sellers if specified patents related to the technology purchased are issued. The estimated fair value of the probable remaining contingent consideration was $650 as of September 30, 2024.
See "Liquidity and Capital Resources" for information related to future required debt payments.
Critical Accounting Policies and Estimates
Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstances. 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, 2024, in the Critical Accounting Policies and Estimates section of Part II, 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.
Non-GAAP Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles, we present organic revenues growth (reported revenues growth excluding revenues from recent acquisitions), as a supplemental non-GAAP financial measure. We believe that presenting supplemental organic revenues growth facilitates comparability between current period and prior period information, and provides insight into Mesa’s short-term and long-term financial trends. We use organic revenue growth internally to forecast and evaluate Mesa’s operating performance and to compare revenues of current periods to prior periods, for financial and operating decision-making and for compensation purposes.
A reconciliation of organic revenues growth to total revenues growth is as follows:
| Total Revenues Growth |
Impact of Acquisitions |
Organic Revenues Growth (non-GAAP) |
||||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Sterilization and Disinfection Control |
30.0 | % | 0.7 | % | (34.3 | %) | - | % | (4.3 | %) | 0.7 | % | ||||||||||||
| Clinical Genomics |
(26.0 | %) | (15.7 | %) | - | % | - | % | (26.0 | %) | (15.7 | %) | ||||||||||||
| Biopharmaceutical Development |
28.9 | % | (24.2 | %) | - | % | (0.2 | %) | 28.9 | % | (24.4 | %) | ||||||||||||
| Calibration Solutions |
8.2 | % | 1.1 | % | - | % | - | % | 8.2 | % | 1.1 | % | ||||||||||||
| Total Company |
8.8 | % | (9.5 | %) | (11.0 | %) | (0.1 | %) | (2.2 | %) | (9.6 | %) | ||||||||||||
| Total Revenues Growth |
Impact of Acquisitions |
Organic Revenues Growth (non-GAAP) |
||||||||||||||||||||||
| Six Months Ended September 30, | Six Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||
| Sterilization and Disinfection Control |
36.8 | % | 4.0 | % | (36.7 | %) | - | % | 0.1 | % | 4.0 | % | ||||||||||||
| Clinical Genomics |
(20.8 | %) | (12.2 | %) | - | % | - | % | (20.8 | %) | (12.2 | %) | ||||||||||||
| Biopharmaceutical Development |
25.0 | % | (17.4 | %) | - | % | (0.4 | %) | 25.0 | % | (17.8 | %) | ||||||||||||
| Calibration Solutions |
5.6 | % | 6.4 | % | - | % | - | % | 5.6 | % | 6.4 | % | ||||||||||||
| Total Company |
11.7 | % | (4.9 | %) | (11.6 | %) | (0.1 | %) | 0.1 | % | (5.0 | %) | ||||||||||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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 USD, our functional currency. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into USD 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 USD. 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 USD and euros. Therefore, when the Swedish Krona strengthens or weakens against the USD, operating profits are increased or decreased, respectively. As we continue to consummate acquisitions of companies with foreign operations or with functional currencies other than the USD, our foreign currency exchange rate risk will increase. 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’ equity.
Interest Rates
Our Credit Facility bears interest at either a base rate or a SOFR rate plus an applicable spread. Based on the balance outstanding as of the date of this filing and required future principal payments, we estimate that if interest rates increased 1 percentage point, we would incur approximately $920 of additional cash 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.
Other
We have no derivative instruments. We have minimal exposure to commodity market risks.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report, due to a material weakness identified in the fourth quarter of fiscal year 2024 that has not yet been remediated. Two of the material weaknesses identified in the fourth quarter of fiscal year 2024 were remediated in the first quarter of fiscal year 2025. The material weaknesses are described further below.
Prior Year Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in Part II Item 9A. "Controls and Procedures" in our annual report on Form 10-K for the year ended March 31, 2024, during fiscal year 2024 we identified three material weaknesses in our internal controls:
| ● |
Controls over technical accounting for complex and non-routine transactions - We did not have adequate supervision and review controls over complex technical accounting related to non-routine goodwill impairment transactions and related analyses. |
| ● | Controls over determining the useful lives of our recently acquired intangibles - During the GKE acquisition's measurement period, we selected a useful life over which to amortize acquired customer relationships, but there was evidence that a longer useful life may be appropriate. |
| ● |
Certain controls related to change management and logical access controls related to our enterprise resource planning tool, part of our information technology general controls set, were not operating effectively for a portion of the year ended March 31, 2024. The failure of these information technology general controls extended to automated application controls across portions of financial reporting and business transaction cycles which rely upon the affected information technology application controls. |
Remediation Status for Material Weaknesses in Internal Control Over Financial Reporting
Beginning during the three months ended June 30, 2024, and continuing into the three months ended September 30, 2024, we implemented our previously-disclosed remediation plans:
| ● |
Technical accounting for complex and non-routine transactions - We executed two transactions during the first quarter of our fiscal year 2025, partial repurchases of the Notes and the amendment and modification of our Credit Facility, which met our definition of complex technical accounting matters for which we should obtain technical accounting support from an outside expert. We identified and selected qualified third-party advisors, including validation that that the advisors possessed adequate knowledge to address the complexities of the applicable technical accounting matters, and we ensured analyses were appropriately reviewed, ensuring consensus on accounting conclusions. Following the execution of our remediation plan for these transactions, management has concluded that the material weakness has been remediated. |
| ● | Assessment of useful lives of recently acquired intangibles - We modified the useful life of our customer relationship intangible and recorded an immaterial cumulative effect true-up to release amortization expense during the three months ended June 30, 2024. Following the execution of our remediation plan related to the useful lives of recently acquired intangible assets, management has concluded that the material weakness has been remediated. |
| ● |
Information technology general controls ("ITGCs") - We have not yet remediated the material weakness related to ITGCs. We believe that our existing user access review control over our ERP was not designed to operate at a precise enough level to appropriately identify the user groups tested in certain of our other logical access and change management controls. Therefore, we have designed a new user access control regarding users of our ERP that will operate at a higher degree of precision compared with our existing user access control and will enhance our review of roles, particularly roles with the ability to add, edit or delete transactions. Management has modified the reports used as source data to test change management and logical access controls in our enterprise resource planning tool, which we expect will allow us to conclude that the related controls are operating effectively by the end of fiscal year 2025. We have engaged a third party specialist to assist in the remediation of our ITGCs. |
Changes in Internal Control Over Financial Reporting
We acquired GKE during the third quarter of our fiscal year ended March 31, 2024. As such, the scope of our assessment of our internal control over financial reporting does not yet include GKE. This exclusion is in accordance with the Securities and Exchange Commission’s general guidance that an assessment of a recently acquired business may be omitted from our scope for one year from the date of acquisition. GKE GmbH and Sal GmbH will be included in the scope of our assessment of our internal controls over financial reporting, and GKE China will be included for cash, in the third quarter of our fiscal year 2025. The Company's total assets as of September 30, 2024 include $105,000 of assets held by GKE. The Company's consolidated revenues for the three months ended September 30, 2024 include $5,863 from GKE.
Other than as discussed above, during the three months ended September 30, 2024 there were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
See Note 11. “Commitments and Contingencies” within Item 1. Financial Statements for information regarding any legal proceedings in which we may be involved.
During the three months ended September 30, 2024, there were no material changes from the risk factors described in Part 1, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended March 31, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information about the Company's purchases of equity securities for the periods indicated:
| Total Number of Shares Purchased(1) |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) |
Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs |
|||||||||||||
| July 2024 |
- | - | - | 162,486 | ||||||||||||
| August 2024 |
2,306 | 133.32 | - | 162,486 | ||||||||||||
| September 2024 |
- | - | - | 162,486 | ||||||||||||
| Total |
2,306 | 133.32 | - | 162,486 | ||||||||||||
| (1) |
Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period. |
| (2) |
On November 7, 2005, our Board of Directors adopted a share repurchase plan which allows for the repurchase of up to 300,000 of our common shares; however, no shares have been purchased under the plan in any period presented. This plan will continue until the maximum is reached or the plan is terminated by further action of the Board of Directors. |
The of our directors or officers entered into written plans for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) (each, a "trading arrangement") on the dates indicated:
into a trading arrangement on . The trading arrangement is effective through June 10, 2025, and contemplates that Mr. Owens may exercise 30,939 non-qualified stock options and sell the resulting shares of Mesa Labs' common stock, subject to certain conditions.
+ Filed herewith
* Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MESA LABORATORIES, INC.
(Registrant)
| DATED: November 7, 2024 | BY: | /s/ Gary M. Owens. Gary M. Owens Chief Executive Officer |
| DATED: November 7, 2024 | BY: | /s/ John V. Sakys John V. Sakys Chief Financial Officer |