2024
Shares traded on the NASDAQ Global Market under the symbol MLAB
ANNUAL REPORT
Year Ended March 31
$216,187
$219,080
$184,335
$133,937
$117,687
$90,000
$110,000
$150,000
$190,000
$130,000
$170,000
$210,000
$230,000
2020
2021
2022
2023
2024
REVENUES
$26,595
$39,098
$41,161
$48,992
$45,968
2020
2021
2022
2023
2024
$0.00
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
ADJUSTED OPERATING INCOME (NON-GAAP)
ADJUSTED OPERATING INCOME PER SHARE (NON-GAAP)
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
2020
$6.08
2023
$9.14
2021
$7.63
2022
$7.72
2024
$8.53
Adjusted operating income*
Dear Shareholders,
Thank you for your continued support of Mesa. Together, we
are on an inspiring journey to Protect the Vulnerable® by
designing and manufacturing targeted solutions for some of
the more critical challenges in the life sciences tools space.
In doing so we support the health and safety of people across
the globe every day. I’m proud of our impact on the world to
date and am eager to bring new innovations to market to
make the world a heathier place.
Looking back at fiscal year 2024, we navigated a challenging
end market environment across the biopharmaceutical and
genomics verticals while maintaining our financial model.
Strategically we completed the acquisition of GKE-GmbH,
and through improved product quality and on time delivery
made the daily lives of our direct customers a little easier. I’m grateful every day for my over 700
colleagues and the passion they bring to support our purpose. Their efforts today will deliver a
bright future for Mesa.
With market conditions becoming increasingly challenging through the calendar year, our team’s
execution and focus enabled us to protect the bottom line. Despite a decline in revenues, our
management team worked to contain costs, resulting in an increase in both gross profit and
adjusted operating income (excluding unusual items)* as a percentage of revenues. In addition, we
reduced potential future dilution by repurchasing $74 million of our outstanding Convertible Notes
and expanding our credit facility to $200 million to ensure that our future cash needs will be met.
One of the most significant milestones of the year was the acquisition of GKE-GmbH, a leading
provider of chemical, biological, and cleaning process indicators. This acquisition, which was
completed in the third quarter of our fiscal year, strengthens our Sterilization and Disinfection
Control (SDC) division’s product capabilities, deepens our access to the healthcare market and
expands our global footprint. GKE brings to Mesa a portfolio of high-quality products, a loyal
customer base, and a talented team of professionals. We are excited to welcome GKE to the Mesa
family. GKE is an acquisition within our SDC division, and we expect the combined businesses to
rapidly create additional value for our collective customers.
We are committed to providing our customers with the best solutions for their most challenging
needs, while maintaining the highest standards of quality and compliance. Our success is driven by
our lean-based system for sustainably improving our operations, which we refer to as the Mesa
Way. Through this approach, we are committed to our process:
-
Drive a customer focused strategy
-
Measure at the point of impact
-
Stretch for improvement
-
Problem solve
-
Experiment
Using our process, we are committed to creating a culture of excellence and innovation, where our
employees are empowered and engaged. We are proud of our team and the work they do every day
to ensure the safety and efficacy of products and services that impact human health and well-
being.
On behalf of our global team, I would like to thank you once again for your continued support and
confidence in Mesa. We are optimistic about the future and what we will accomplish in fiscal year
2025.
Sincerely,
Gary Owens
President and Chief Executive Officer, Mesa Laboratories, Inc.
*Adjusted operating income is a non-GAAP measure. Refer to the inside back cover of this annual report for our non-GAAP reconciliation.
Page 1
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K 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 Report on Form 10-K do not constitute guarantees of future
performance. Investors are cautioned that statements in this Report on Form 10-K which are not strictly historical
statements, including, without limitation, express or implied statements or guidance regarding current or future financial
performance and position, management’s strategy, plans and objectives for future operations or acquisitions, product
development and sales, product research and development, regulatory approvals, selling, general and administrative
expenditures, intellectual property, development and manufacturing plans, availability of materials and products, adequacy
of capital resources and financing plans constitute forward-looking statements, competitive factors, tax rates and cost
savings. 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 “expect,” “anticipate,” “intend,” “plan,” “seek,” “believe,” “could,” “estimate,” “may,” “target,” “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 those discussed in Item 1A. “Risk Factors,” and elsewhere in this report. We disclaim any obligation to
publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Part I
ITEM 1. BUSINESS
In this Annual Report on Form 10-K, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries is
collectively referred to as “we,” “us,” “our,” the “Company,” or "Mesa." Mesa was organized in 1982 as a Colorado
corporation.
General
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. Mesa offers 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.
We are headquartered in Lakewood, Colorado and our common stock is listed for trading on the Nasdaq Global Market
(“Nasdaq”) under the symbol MLAB.
Our fiscal year ends on March 31. References in this Annual Report on Form 10-K (“annual report”) to a particular “fiscal
year,” “year” or “year-end” mean our fiscal year.
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 and services. By delivering the highest quality products and
services possible, we are committed to protecting the communities we serve.
Our revenues come from product sales, which include consumables and hardware; as well as services, which include discrete
and ongoing maintenance, calibration, and testing services. We grow our revenues organically by expanding our customer
base and our product offerings, increasing sales volumes, and implementing price increases, as well as inorganically through
acquisitions.
Our acquisition strategy is focused on businesses that complement our existing portfolio and those that expand our global
presence further into life sciences tools and critical quality control solutions markets for regulated applications.
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We focus on improving our operating efficiency through the Mesa Way, which is our customer-centric, lean based system for
sustainably improving and operating the manufacturing and administrative aspects of our high-margin, niche businesses. The
Mesa Way is based on four pillars:
–
Measure what matters: We use our customers’ perspectives to measure what matters most and to set high standards
for performance. We manage to leading indicators whenever possible, which drives us to proactively avoid
problems before they are apparent to our customers.
–
Empower Teams: We move decision making as close to the customer as possible and provide real-time
communication forums to align the whole organization toward surpassing customer expectations.
–
Sustainably Improve: We leverage a common and proven set of lean-based tools to identify and prioritize
opportunities and to enable change to be embraced and implemented.
–
Always Learn: We ensure that improvements are maintained, enabling us to raise performance expectations and
repeat the cycle of improvement. Equally, this cycle strengthens the Mesa team by providing endless learning
opportunities for our employees, and helps us become an employer of choice in our communities.
We hire, develop, and retain top talent capable of taking on new challenges using a team approach to continuously improve
our products, our services, and ourselves, resulting in long-term value creation for our stakeholders.
Our Segments
We report our financial performance in four segments, or divisions: (1) Sterilization and Disinfection Control, (2) Clinical
Genomics, (3) Biopharmaceutical Development, and (4) Calibration Solutions. Unallocated corporate expenses and other
business activities are reported within Corporate and Other.
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, including steam, hydrogen
peroxide, ethylene oxide, radiation, and other processes in the pharmaceutical, medical device, and healthcare industries. The
division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries.
Biological indicators contain spores of certain microorganisms that provide defined resistance to specified sterilization
processes. In use, biological indicators are exposed to a sterilization process and then tested to determine the presence of
surviving organisms. We grow the microbiological spores used in our biological indicator products from raw materials and
apply them to convenient carriers such as small pieces of filter paper or stainless steel discs for sale. To ensure our biological
indicators accurately assess the effectiveness of sterilization, we undertake extensive quality control steps during manufacture
to ensure the spores are well-characterized in terms of purity, the population of spores, and the spores’ resistance to
sterilization following placement on or in the target carrier.
We offer a variety of product formats which allow our biological indicators to be used in many types of processes and
environments. Our biological indicator products include inoculated carriers such as spore strips or discs which require post-
processing transfer to a growth media; self-contained indicators, which have the growth media already pre-packaged in
crushable ampoules; process challenge devices (“PCDs”), which increase the resistance of the biological indicators; and
growth media. Our simple spore strips are used most often in small table-top steam sterilizers in dental offices, while our
more complex self-contained biological indicators, which may be used with or without PCDs, are frequently used by medical
device manufacturers to assure sterility in complex ethylene oxide sterilization processes. We also offer testing services in
which customers return used dental sterilization spore strips to our microbiological laboratory for testing.
Chemical indicators use a chemical reaction, generally evaluated by a color change, to assess sterilization conditions. Type 1
process indicators measure whether direct exposure to a sterilization process has occurred. Type 2 specific-use indicators test
under a specific procedure, such as testing for air removal in a pre-vacuum steam sterilization cycle. Type 3 single-variable
indicators test a single critical variable in a sterilization process, for example, whether a given temperature has been
attained. Type 4 multivariable indicators measure two or more critical variables in a sterilization process and change color
only, for example, when exposed to a given temperature for a specified period of time in a steam sterilization process. Type 5
integrating indicators respond to all critical process parameters. Type 6 emulating indicators respond to all critical process
parameters for a specified sterilization cycle. Biological indicators and chemical indicators are often used together to monitor
processes.
Page 3
Cleaning indicators are used to assess the effectiveness of cleaning processes, including in washer-disinfectors and ultrasonic
cleaners in healthcare settings. Cleaning is the critical first step performed prior to disinfection and sterilization. Debris left
on an instrument may interfere with microbial inactivation and can compromise disinfection or sterilization processes. Our
cleaning indicator products are manufactured either by inoculating a test soil onto a stainless-steel coupon or printing an ink,
imitating a test soil, onto a plastic substrate. Test soils and inks are designed to mimic the challenge of removing blood and
tissue from surgical instruments and evaluates the effectiveness of our customers' cleaning processes.
Our Bozeman, Montana and Waldems and Munich, Germany locations manufacture our Sterilization and Disinfection
Control division products, which include, among others, our EZTest®, Apex®, GKE Clean-Record® Indicators, Simicon
cleaning and disinfecting indicators, PCDs and other products. Our Bozeman, Montana facility provides sterility assurance
testing services to dental offices in the United States and Canada. Sterilization and disinfection control products are
disposable and are used on a routine basis, thus product sales are less sensitive to general economic conditions. We generate
sales to end users through our direct sales personnel and independent distributors. Customers include industrial users
involved in pharmaceutical and medical device manufacturing, hospitals, dental offices, and contract sterilization
providers. Our sterilization and disinfection control products are used in highly regulated industries and compete on the basis
of quality, flexibility, cost effectiveness and suitability for intended use.
Clinical Genomics
Our 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.
Using Clinical Genomics’ MassARRAY® system and our proprietary consumables, including chips, panels, and chemical
reagent solutions, our customers can analyze DNA samples for inherited genetic disease testing, pharmacogenetics, oncology
testing, infectious disease testing, doping and toxicology testing, and other highly differentiated applications for use in
research. The MassARRAY® system couples mass spectrometry with end-point polymerase chain reaction ("PCR")
methods, enabling highly multiplexed reactions under universal cycling conditions to provide accurate, sensitive, rapid
genetic analysis.
The MassARRAY® system is differentiated in the market by its ability to target up to 50 specific DNA variants in a single
PCR reaction and run up to 384 samples on one SpectroCHIP® array, up to eight times in a full workday, with the flexibility
to process additional samples overnight. The system allows for the testing of hundreds of mutations, including SNPs,
insertions, deletions, translocations, copy number variation, and methylation makers, all in a single, efficient workflow.
Using time-of-flight mass spectrometry, genetic variants are distinguished by analysis of their individual mass, eliminating
the need for fluorescence. The system's integrated software provides a user-friendly interface to generate reports that identify
targets and review spectra.
In addition to the MassARRAY® system and related consumable products, Clinical Genomics also sells services, including
equipment maintenance contracts and custom laboratory services.
About 70% of our Clinical Genomics revenues are from consumables used on a routine basis; sales of these products are less
sensitive to general economic conditions. Approximately 20% of our Clinical Genomics revenues are from more
discretionary hardware products that are more sensitive to general economic conditions. The remainder of Clinical Genomics
revenues relate to services and support agreements.
Clinical Genomics sells its products and services predominantly to clinical research labs and contract research organizations,
including large specialty, reference, and pathology labs, as well as to a variety of academic, hospital, and government
facilities. The majority of revenues are derived from customers in the United States and China. Our Clinical Genomics
products are manufactured in San Diego, California, primarily by assembling purchased subcomponents designed to our
specifications into finished goods, and by processing and mixing reagents. Our Clinical Genomics products generate
revenues through direct sales, and also through independent distributors in certain regions.
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Biopharmaceutical Development
Our Biopharmaceutical Development division develops, manufactures, and sells automated systems for protein analysis
(immunoassays) and peptide synthesis solutions. Protein analysis and peptide synthesis solutions accelerate the discovery,
development, and manufacture of biological therapies, among other applications. Customers include biopharmaceutical
research, development, and manufacturing teams at biopharmaceutical companies and their contract research organization
partners, as well as academic research and development laboratories.
The Biopharmaceutical Development division sells two types of products: (1) protein analysis solutions, which are used to
test for the existence or concentration of specific proteins in a sample, and (2) peptide synthesis solutions, which automate
the synthesis of peptides from amino acids; both are primarily used in biopharmaceutical research, discovery and
development, and bioprocessing applications. The division also sells service agreements to maintain instruments sold by the
division.
Our Biopharmaceutical Development division develops and manufactures Gyrolab® xPand and Gyrolab xPlore™ hardware
and software, as well as Gyrolab Bioaffy® consumable microfluidic disks (“CDs”), and Gyrolab kits and Rexxip® buffers
for protein analysis in Uppsala, Sweden, while PurePep® Chorus and Symphony® instruments for peptide synthesis are
developed and manufactured in Tucson, Arizona. Our PurePep® EasyClean products, a green chemistry solution to purify
peptides, is a consumables product line within our peptide synthesis business.
Most of the products manufactured in Sweden are typically invoiced in U.S. dollars or euros, whereas the costs to produce
the products are incurred in Swedish krona. As a result, the Biopharmaceutical Development segment is susceptible to
changes in foreign currency. For a discussion of risks related to our non-U.S. operations and foreign currency exchange, refer
to Item 1A. Risk Factors, “Foreign currency exchange rates may adversely affect our financial statements.”
In our fiscal year 2024, about 42% of our Biopharmaceutical Development revenues were from consumables used on a
routine basis; sales of these products are less sensitive to general economic conditions. Approximately 32% of revenues were
from more discretionary hardware purchases that are more sensitive to general economic conditions. The remainder of the
division's sales relate to service and support agreements. Historically, hardware has comprised a greater portion of the
division's revenues; softening demand for capital equipment across the biopharmaceutical industry resulted in a mix weighted
more heavily toward our consumables during fiscal year 2024. We generate sales to end users through direct sales as well as
through independent foreign distributors. Marketing activities include industry conferences, user meetings, educational
webinars, and all forms of digital marketing, in addition to market sensing and capturing user requirements for new product
roadmaps.
The Biopharmaceutical Development division’s market success is primarily dependent upon creating innovative, high quality
products that customers choose based on available features, cost-effectiveness, and performance. We believe we are one of
the leading world-wide suppliers of protein analysis and peptide synthesis equipment to the biologics discovery and
development markets. We further believe that enhancements of our product offerings and new product development driven
by our research and development team, the recognized quality of our products and support, and the ability to continue to
bring novel, cutting edge products and solutions to the market will allow us to remain competitive in the growing markets we
serve.
Protein Analysis
We develop, manufacture, and market protein analysis equipment and consumable CDs, kits, and buffers that enable the
detection and quantification of a target protein in a biological or bioprocess sample. Gyrolab technology is widely used
across human and non-human applications, mainly for therapy development and bioprocess design. Customers, primarily
pharmaceutical and biotech companies and their contract research organization partners developing protein-based therapies,
use our consumable CDs to deposit their samples for mixing with application specific reagents. The CDs and reagents are
loaded into one of our instruments for processing and analysis. Our proprietary software then facilitates the design of
experiments, interprets results, provides useful data analysis for assay optimization and decision making, and supports end
user regulatory compliance. Our protein analysis products accelerate the development and processing of assays to obtain
accurate results for pre-clinical and clinical studies as well as for upstream and downstream bioprocessing of biological
therapies, thus meeting critical data and time requirements. Our analytical protein technologies provide superior data
consistency and accuracy while reducing labor and the attendant variability of more manual analysis methods.
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Peptide Synthesis
Our peptide synthesis solutions enable customers to automate the chemical synthesis of peptides used in the creation of
peptide therapies, biomaterials, cosmetics, and general research. Our peptide synthesizers and related consumables, including
our peptide purification consumables line, facilitate the ability to efficiently produce more complex and longer peptides with
higher purity. Our synthesizers are designed to support regulatory compliance for end users. Customers of our peptide
synthesizers include commercial and academic biopharmaceutical laboratories, as well as contract manufacturers of peptides.
Calibration Solutions
Our Calibration Solutions division 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, primarily in medical device manufacturing,
pharmaceutical manufacturing, laboratory, and hospital environments. Generally, our Calibration Solutions products are used
for quality control, safety validation, and regulatory compliance. Our Lakewood, Colorado and Hanover, Germany facilities
manufacture our Calibration Solutions products, which include continuous monitoring systems, dialysate meters and
consumables, data loggers, gas flow calibration and air sampling equipment, and torque testing systems represented largely
by the DialyGuard®, ViewPoint®, DataTrace®, DryCal®, and BGI brands.
Our Calibration Solutions products are manufactured by assembling the products from purchased components and calibrating
the final products. Service demand is driven by customers’ quality control and regulatory environments, which require
products to be recalibrated or recertified periodically. We generate sales through our direct sales personnel and independent
distributors.
Continuous Monitoring
Our continuous monitoring products are used to monitor various environmental parameters such as temperature, humidity,
and differential pressure to ensure that critical storage and processing conditions are maintained. Continuous monitoring
systems are used in controlled environments such as refrigerators, freezers, warehouses, laboratory incubators, clean rooms,
and a number of other settings. Continuous monitoring systems consist of wireless sensors that are placed in controlled
environments which communicate with cloud and local servers to transmit and store data continuously. A critical function of
our systems is the ability to provide local alarms and notifications via e-mail, text, or telephone if established environmental
conditions are exceeded. Among the important competitive differentiators of our continuous monitoring systems are (1) their
high degree of reliability and up-time; (2) a large variety of sensor types to meet the needs of most applications; (3) a skilled,
distributed installation and service team; and (4) a full-featured and 21 CFR Part 11 (Electronic records; Electronic
signatures) validated software program, providing extensive reporting and alarm capability. We also offer support agreements
and provide annual sensor recalibrations.
We have a strong competitive position in North America but do not yet have meaningful presence in international markets.
Key markets for our continuous monitoring systems are hospitals, pharmaceutical and medical device manufacturers, blood
banks, pharmacies, and laboratory environments.
Dialysate Meters and Consumables
Our dialysis medical meters are used to test various parameters of dialysis fluid (dialysate) and the proper calibration and
operation of dialysis machines. Each meter measures some combination of temperature, pressure, pH, conductivity and flow
to ensure that the dialysate has the proper composition to promote the transfer of waste products from the blood to the
dialysate. The meters provide a digital readout verifying whether a dialysis machine is working within prescribed limits and
delivering properly prepared dialysate. We manufacture two styles of medical meters; those designed for use by dialysis
machine manufacturers and biomedical technicians, and those used primarily by dialysis clinicians. The meters for
technicians are characterized by exceptional accuracy, stability and flexibility, and are used by the industry as the primary
standard for the calibration of dialysis machines. The meters designed for use by dialysis clinicians are known primarily for
their ease of use, and they incorporate a built-in syringe sampling system. These meters are used as the final quality control
check on the dialysate just prior to starting treatment.
In addition to dialysate meters, we market a line of standard consumable solutions for use in dialysis clinics for calibration of
our meters. These standard solutions are regularly consumed by dialysis clinics, and thus, along with the calibration services
that we also provide, are less impacted by general economic conditions than sales of meters.
Customers that utilize our dialysate products include dialysis facilities, medical device manufacturers, and biomedical service
companies. With technological advancements in dialysis machines that include built-in calibrators, our meters designed for
clinicians are subject to considerable competition in the market. Refer to Item 1A. Risk Factors, “Changes to dialysis
Page 6
methods and equipment capabilities may decrease demand for our dialysis products and negatively impact our financial
statements.”
Data Loggers
Our data loggers are self-contained, wireless, high precision instruments used in critical manufacturing and quality control
processes in the pharmaceutical, medical device, food, and tool industries. They are used to measure temperature, humidity
and pressure inside a process or a product during manufacture. In addition, data loggers can be used to validate the proper
operation of laboratory or manufacturing equipment, either during installation or for annual re-certifications. The products
consist of individual data loggers, a personal computer (“PC”) interface, software, and various accessories. Customers
typically purchase a large number of data loggers along with a single PC interface and software package. In practice, the user
programs the loggers to collect environmental data at pre-determined time intervals, places the data loggers into the product
or process to be tested, and then collects stored process data from the data logger either through the PC interface or wirelessly
via a radio link. The user can then prepare tabular and graphical reports using the software. Unique aspects of our data
loggers are their ability to operate at elevated temperatures and in explosive environments, which are important
differentiating factors in the marketplace. We face competition in data logger sales from several other companies, some of
which have well-established commercial organizations, particularly in Europe.
Gas Flow Calibration and Air Sampling Equipment
We manufacture a variety of instruments and equipment for gas flow calibration and environmental air sampling. Our gas
flow calibration instruments provide the precise standards required by laboratories and industry for the design, development,
manufacture, installation and calibration of various gas flow meters and air sampling devices. Our flow calibrators are used
by professionals in many industries, including (1) industrial hygienists and environmental technicians, (2) calibration and
research laboratories, (3) manufacturers who design, develop and manufacture gas flow metering devices, and (4) industrial
engineering and manufacturing companies that utilize gas flow metering devices. We see expanded opportunities in gas flow
calibration as markets that heavily use and measure process gas are growing. There is competition in gas flow calibration;
however, our products are distinguished by their unique dry piston technology, accuracy and industry certifications.
In the air sampling area, our technology is used primarily for the determination of particulate concentrations in air as a
measure of urban or industrial air pollution, and for industrial hygiene assessments. The primary products include air
samplers, particle separators and pumps. While both the public and private sector continue to focus on air quality and its
impact on the environment and the health of populations, technological advances in real-time monitoring have made the
traditional air sampling market more limited. In the environmental area, our particle samplers were some of the first on the
market and they were recognized early-on as “reference samplers” by the U.S. Environmental Protection Agency. This
product has a competitive advantage in the market because our particle separation cyclones utilize the “federal reference
method” for the measurement of PM2.5 in ambient air and are sold to many manufacturers of ambient particulate
measurement instrumentation.
Torque Testing Systems
Our automated torque testing systems are durable and reliable motorized cap torque analyzers that measure the amount of
force required to open a container. The primary advantages of our torque instruments are their high accuracy and long-term
consistency of measurement. Industries utilizing these instruments include pharmaceutical and beverage and food processing
companies. Given the niche nature of this product, there is a relatively low level of competition for this product line;
however, the growth of this line is limited by the growth of new manufacturing facilities and packaging regulations in
pharmaceutical manufacturing. Torque products are used by many of the same customers that purchase our data loggers,
offering channel synergy opportunities.
Corporate and Other
Corporate and other consists of unallocated corporate expenses and other business activities.
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Other Matters Relating to our Business as a Whole
Acquisitions
Year ended March 31, 2024 Acquisition
We acquired 100% of the outstanding shares of GKE GmbH and SAL GmbH on October 16, 2023, and upon approval by
applicable Chinese regulators, we acquired 100% of the outstanding shares of Beijing GKE Science & Technology Co. Ltd.
(“GKE China,” and, together with GKE GmbH and SAL GmbH, “GKE”), effective December 31, 2023 (the "GKE
acquisition"). Total consideration for the acquisition was $87,187, net of cash and financial liabilities but inclusive of
working capital adjustments. Of the total acquisition price, approximately $9,300, at March 31, 2024 exchange rates, will be
held back for a period of 18 months from the acquisition closing date as security against potential indemnification losses.
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 biologic indicators 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. See Note 4. "Significant
Transactions" in Item 8. Financial Statements and Supplementary Data for further information.
Year ended March 31, 2023 Acquisition
On November 17, 2022, we acquired substantially all of the assets and certain liabilities of Belyntic GmbH’s peptide
purification business (“Belyntic” or the “Belyntic acquisition”) for a total cash price of $6,450, of which $4,950 was paid on
the date of acquisition. The remaining $1,500 is due to the Belyntic sellers as patent applications are approved (see Note 13.
"Commitments and Contingencies" in Item 8. Financial Statements and Supplementary Data). The business complements
our existing peptide synthesis business, part of the Biopharmaceutical Development segment, by adding a consumables line
that can be used with the instruments we sell. These PurePep® EasyClean products are an environmentally
conscious chemistry solution to purify peptides.
Year Ended March 31, 2022 Acquisition
On October 20, 2021, we completed the acquisition of 100% of the outstanding shares of Agena Bioscience, Inc. (“Agena” or
“the Agena acquisition”) for adjusted cash consideration of $300,793. Agena is a leading clinical genomics tools company
that develops, manufactures, markets and supports proprietary instruments and related consumables that enable genetic
analysis for a broad range of research applications. The acquisition of Agena moved our business toward the life sciences
tools sector and expanded our market opportunities, particularly in Asia. Agena’s operations comprise our Clinical Genomics
segment.
Manufacturing and Materials
Most of the components, raw materials, and other supplies used in our product lines are available from a number of different
suppliers. We generally maintain multiple sources of supply, but we are dependent on sole or limited sources for certain
items, particularly in our Biopharmaceutical Division. We continue to emphasize reviewing our supply base and designs for
limited source suppliers that might affect our ability to supply critical products to our customers. We also continue to work
with our suppliers to understand existing and potential future supply chain conditions. See further discussion within Item 1A.
Risk Factors, “We face numerous manufacturing and supply chain risks. In addition, our reliance upon sole or limited
sources of supply for certain materials, components and services could cause production interruptions, delays and
inefficiencies.”
Major Customers
No customer represented more than 10% of our accounts receivable or revenues for fiscal year 2024. Typically, no individual
customer represents more than 10% of our consolidated accounts receivable or revenues.
Backlog
We define backlog as firm orders from customers for products and services where the order will be fulfilled within the next
12 months. Backlog as of March 31, 2024 and 2023 was approximately $25.5 million and $38.1 million, respectively. The
decrease in backlog is primarily due to decreases in the Clinical Genomics division attributable to lower customer orders in
the fourth quarter of fiscal year 2024 compared to the fourth quarter of fiscal year 2023 and, to a lesser extent, abated supply
chain issues in our Calibration Solutions division during fiscal year 2024 which allowed us to fulfill previously outstanding
orders, partially offset by the acquisition of GKE. Changes in our backlog are somewhat dependent upon the timing of large,
recurring customer orders, which may be recognized to revenue over a period of up to twelve months, typically.
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Research and Development
Research and development ("R&D") activities are primarily directed towards innovating new products and improving the
quality and performance of our existing products or altering our current products to accommodate use of raw materials that
are more readily available for purchase in our supply chain. Other R&D efforts seek to improve manufacturing efficiencies.
Intellectual Property
We own numerous patents, trademarks, and other proprietary rights, many of which are important to the various facets of our
business. Where appropriate, we seek patent or other intellectual property protection for inventions and developments made
by our personnel that are incorporated into our products or otherwise fall within our fields of interest. There can be no
assurance, however, that any patent or other intellectual property will provide adequate protection for the technology, system,
product, brand, service or process it covers. In addition, the process of preparing, applying for, obtaining and protecting
patents and other intellectual property can be long and expensive, with no assurance that a patent or other intellectual
property will ultimately issue. We rely upon trade secrets, technical know-how and continuing technological innovation to
develop and maintain our proprietary position. Our products and services are sold under various trade names, trademarks and
brand names. We consider our trade names, trademarks and brand names to be valuable in the marketing of our products in
each segment. We do not believe that the loss of any one patent or other proprietary right would have a material adverse
effect on our overall business or on any of our reporting segments.
Regulatory Matters
Our operations are global and are affected by complex state, federal and international laws relating to healthcare,
environmental protection, antitrust, anti-corruption, marketing, fraud and abuse, import and export control, product safety and
efficacy, employment, privacy, government contracts acquisition regulations, and other areas.
We are required to comply with certain International Standard Organization (“ISO”) standards, United States Pharmacopeia
standards and Food and Drug Administration (“FDA”) requirements in order to sell some of our products. Our biological
indicators are developed and manufactured according to ISO 11138 (Sterilization of health care products – Biological
indicators) and our chemical indicators are developed and manufactured according to ISO 11140 (Sterilization of health care
products – Chemical indicators), under a quality system that complies with ISO 13485:2016 (Medical devices – Quality
management systems – Requirements for regulatory purposes and, as applicable, 21 CFR 820 (Quality system regulation).
Specific Calibration Solutions products are compliant under ISO 13485:2016, ISO 17025:2017, and certain 21 CFR 820
regulations. Our Biopharmaceutical Division’s Uppsala, Sweden and Tucson, Arizona facilities are ISO 9001:2015 certified.
Clinical Genomics and GKE GmbH operate quality management systems which comply with the requirements of ISO
13485:2016. SAL GmbH operates a testing lab and quality management system in accordance with ISO 17025:2017 in
Waldems, Germany.
Several products in the Sterilization and Disinfection Control, Calibration Solutions, and Clinical Genomics divisions are
classified by the FDA as medical devices subject to the provisions of the Federal Food, Drug and Cosmetic Act, which
requires any company proposing to market a medical device to notify the FDA of its intention at least 90 days before doing
so. Some of our facilities are subject to FDA regulations and inspections, which may be time-consuming and costly. This
includes ongoing compliance with the FDA’s current Good Manufacturing Practices regulations that require, among other
things, the systematic control of design, manufacture, packaging, storage and transportation of products. Failure to comply
with these practices renders the product adulterated and could subject us to an interruption of manufacturing and sales of
these products, and possible regulatory action by the FDA.
On April 29, 2024 the FDA announced amendments to their regulations and announced a policy to phase out, over the course
of four years, its general enforcement discretion approach for lab developed tests (“LDTs”). We are still assessing the impact
the regulatory changes will have on our results of operations, which may impact certain future U.S. revenues in our Clinical
Genomics division.
The manufacture and sale of medical devices is also regulated by some states. Although there is substantial overlap between
state regulations and the regulations of the FDA, compliance with some state laws may require additional cost or effort;
however, we do not anticipate that complying with state regulations will create any significant issues or burdens.
Foreign countries also have laws regulating medical devices sold in those countries, which require additional resources for
compliance. The time required to obtain approval from countries’ regulating bodies can be lengthy and resource consuming,
particularly as each country’s requirements may differ.
We are subject to data privacy and security laws, regulations, and customer-imposed controls in numerous jurisdictions as a
result of having access to and processing confidential, personal or sensitive data in the course of our business, including the
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EU General Data Protection Regulation which imposes strict requirements on how we collect, transmit, process and retain
personal data.
Government Contracts
Although we transact business with various U.S. government agencies, no government contract or aggregate contracts are of
such magnitude that a renegotiation of profits or termination of the contracts at the election of the government would have a
material adverse effect on our financial results.
Environmental Matters
As a global corporate citizen, we recognize the importance of the environment to a healthy, sustainable future for our
business, our customers, and our communities. We are committed to minimizing the environmental impacts of our business
operations, and we actively evaluate ways to promote rigorous sustainability standards in our operations and products,
including efforts to conserve water and energy and to reduce waste. More information about our environmental, social, and
governance (“ESG”) efforts is included in our ESG brochure, which is available on our website at www.mesalabs.com/esg.
The contents of our ESG brochure are not incorporated by reference into this annual report on Form 10-K.
Human Capital Management
Our people are our greatest asset, and we are proud to outline the material aspects of our human capital program. As a
company, our vision is to Protect the Vulnerable® and we believe that our vision is achieved in large part through the
strength of our workforce. Every day, our talented employees strive to implement lean based tools to find ways to
continuously improve our products and services so that we may better serve our customers and create value for all our
stakeholders. We recruit top talent from all backgrounds using a combination of industry expert recruiters and recruiting tools
to reach a diverse pool of candidates across race, gender, disability, and veteran statuses. We support employees with
compensation, benefits and development programs aimed at ensuring employees are productive and engaged.
Employees
As of March 31, 2024, we had 736 employees (approximately 500 in the U.S.), of whom 345 are employed for
manufacturing and quality assurance, 103 for research and development and engineering, 196 for sales and marketing, and
92 for administration. As our overall headcount has grown, we have continued to attract and retain high-performing, diverse
employees at all levels of the organization. Our voluntary employee turnover decreased approximately 6.8 percentage points
during fiscal year 2024 compared to fiscal year 2023, signaling improved employee satisfaction and engagement.
Talent
We seek to attract, develop and retain the best talent throughout Mesa. In recent years, we have invested heavily in our talent
acquisition and development processes. We’ve implemented standardized assessment processes for candidate selection,
created frameworks for formalized development and career paths, and developed mentoring systems. We’ve also
strengthened our succession planning processes with annual talent reviews and actions.
Diversity and Inclusion
We are committed to diversity and inclusion (“D&I”), and we are always working to improve in this area. We continue to
evolve our talent acquisition process to focus on diversity. We make efforts to work with vendors and to consider candidates
for employment from underrepresented categories. Our global cloud-based human capital management platform enables us to
more accurately track employee representation and identify how we can better enhance our diversity around the world.
Employee Engagement
We have established an engagement process where we leverage external expertise to develop a meaningful survey to assess
what matters most to our employees. We develop plans and communication strategies to address our key findings through a
collaborative process with our employee teams. Our goal is to drive consistent year over year improvement in engagement,
which we believe will drive long-term career progression and company results. In addition to our engagement surveys,
we utilize a variety of channels to facilitate open and direct communication with our employees, including: (i) quarterly town
hall meetings with our executive team; (ii) internally maintained websites; and (iii) an anonymous whistleblower hotline that
is advertised to our employees.
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Total Rewards
We are intentional in providing fair and equitable compensation to all of our employees. Our compensation and benefits are
competitive to market and create incentives to attract and retain employees. In determining merit increases, we evaluate
individual performance—including measuring an individual's contribution to company goals and performing semi-
annual performance reviews—to align financial incentives with individual contributions. Our compensation package includes
market-competitive pay, cash bonuses, stock-based compensation to certain levels of employees, health care and retirement
benefits, paid time off, paid caregiver leave, and 401(K) matching, among other benefits. Our total rewards program:
●
Enables effective business operations and performance by offering comprehensive total rewards that attract,
retain, and motivate our employees and promote their overall wellbeing; and
●
Positions total direct compensation in a competitive range of the applicable market median in each jurisdiction,
differentiated based on tenure, skills, and performance, and designed to attract and retain the best talent.
Health, Safety and Wellness
The health, safety and wellness of all employees is a top priority at Mesa:
●
We deeply embed our environmental, health and safety functions within our operations and business teams to
ensure top priority and focus.
●
We sponsor a variety of health and wellness programs designed to enhance the physical and mental well-being
of our employees around the world; and
●
Our Employee Assistance Program provides employees and their families access to mental health, stress
management and other support resources essential to navigating life changes and challenges.
Available Information
We are subject to the reporting and other information requirements of the Securities Exchange Act of 1934, as amended
(“Exchange Act”). We make available, free of charge, on or through our website at www.mesalabs.com under the link
“Financials” in the Investor Relations section, our annual report on Form 10-K, our quarterly reports on Form 10-Q and our
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, and other information. Information on our website is not incorporated into this annual report on Form 10-K
and is not a part of this report. The Securities and Exchange Commission (“SEC”) also maintains a website at www.sec.gov
containing reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC.
Our code of ethics and Board of Directors committee charters and policies are also posted on the Investor Relations section of
our website. The information on our website is not part of this or any other report Mesa files with, or furnishes to, the SEC.
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ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Annual Report on Form 10-K and other documents we filed with the SEC,
you should carefully consider the following factors, which could materially affect our business, financial condition or results
of operations in future periods. The risks and uncertainties described below are those that we have identified as material, but
these are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that
affect many other companies, such as market conditions, economic conditions, geopolitical events, changes in laws,
regulations or accounting rules, fluctuations in interest rates, terrorism, wars or conflicts, major health concerns, natural
disasters or other disruptions of expected business conditions. Additional risks and uncertainties not currently known to us or
that we currently believe are immaterial also may impair our business, including our results of operations, liquidity and
financial condition.
Business and Strategic Risks
Conditions in the global economy, the markets we serve, and financial markets may adversely affect our business,
financial statements, and access to capital markets.
Our business is sensitive to general economic conditions. Slow or disrupted global economic growth, heightened inflation,
volatility in the currency and credit markets, labor availability constraints, reduced levels of capital expenditures, changes or
anticipation of potential changes in government fiscal, tax, trade and monetary policies (including as a result of upcoming
elections in the U.S.), changes in capital requirements for financial institutions, government deficit reduction and budget
negotiation dynamics, sequestration or government shut-downs, austerity measures, sovereign debt defaults, continuing
elevated interest rates, and other challenges that adversely affect the global economy could adversely affect us and our
distributors, customers and suppliers, including by:
●
reducing demand for our products and services, limiting the financing available to our customers and suppliers,
increasing order cancellations and resulting in longer sales cycles and slower adoption of new technologies;
●
increasing the difficulty in collecting accounts receivable and the risk of excess and obsolete inventories;
●
increasing price competition in our served markets;
●
supply interruptions, which could disrupt our ability to produce our products;
●
increasing the risk of impairment of goodwill and other long-lived assets, and the risk that we may not be able to fully
recover the value of other assets such as tax assets;
●
increasing the risk that counterparties to our contractual arrangements will become insolvent or otherwise unable to
fulfill their contractual obligations, which could increase the risks identified above; and
●
adversely impacting market sizes and growth rates.
If growth in the global economy or in any of the markets we serve slows for a significant period, if there is significant
deterioration in the global economy or such markets or if improvements in the global economy do not benefit the markets we
serve, our business and financial results could be adversely affected. We cannot predict the likelihood, duration or severity of
any disruption in financial markets or any adverse economic conditions in the U.S. and other countries.
Our growth could suffer if the markets into which we sell our products and services decline, do not grow as anticipated or
experience volatility.
Our growth depends in part on the growth of the markets which we serve, and visibility into our markets is limited
(particularly for markets into which we sell through distribution). Our quarterly revenues and profits depend substantially on
the volume and timing of orders received during the quarter, which are difficult to forecast. Any decline or lower than
expected growth in our served markets could diminish demand for our products and services, which would adversely affect
our financial results. Certain of our businesses’ demand depends on customers’ capital spending budgets as well as
government funding policies and interest rates, and matters of public policy and government budget dynamics as well as
product and economic cycles can affect the spending decisions of these entities. Demand for our products and services is also
sensitive to changes in customer order patterns, which may be affected by announced price changes, marketing or
promotional programs, new product introductions, changes in distributor or customer inventory levels, or other factors. Any
of these factors could adversely affect our growth and results of operations in any given period.
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We face competition and if we are unable to compete effectively, we may experience decreased demand and market share
resulting in decreased revenues. Even if we compete effectively, we may be required to reduce prices for our products and
services resulting in decreased profit margins.
The markets for our current and potential products are competitive. Because of the range of products and services we sell and
the variety of markets we serve, we encounter a wide variety of competitors, including several that possess both larger sales
forces and greater capital resources.
In order to compete effectively, we must maintain relationships with key customers, continue to grow our business by
establishing relationships with new customers, develop new products and services to maintain and expand our brand
recognition, and penetrate new markets, including in high growth markets. Our failure to compete effectively or pricing
pressures resulting from competition may adversely impact our results of operations.
Changing industry trends may affect our results of operations.
Various changes within the industries we serve may limit future demand for our products and may include mergers within
key industries we serve, making us more dependent on fewer, larger customers for our sales; decreased product demand
driven by changes in customers' regulatory environments or standard industry practices; price competition for key products;
and new competitor products that may result in customers discontinuing new orders.
Our growth depends in part on the timely development, commercialization, and customer acceptance of new and
enhanced products and services based on technological innovation.
Our growth depends on the acceptance of our products and services in the marketplace, the penetration achieved by the
companies to which we sell, and our ability to introduce new and innovative products that meet the needs of the various
markets we serve. We can offer no assurance that we will be able to continue to introduce new and enhanced products, that
the products we introduce, or have introduced, will be widely accepted by the marketplace, or that our direct sales team or
independent distributors will successfully penetrate our various markets. Our failure to introduce new and enhanced products
or gain widespread acceptance of our products and services could adversely affect our financial results. If we fail to
accurately predict future customer needs and preferences, fail to produce viable technologies, or fail to protect the intellectual
property of such technologies, we may invest heavily in research and development of products and services that do not lead
to significant revenues, which could adversely affect our profitability. Even if we successfully innovate and develop new and
enhanced products and services, we may incur substantial costs in doing so, and our profitability may suffer.
If we are unable to continue to hire and retain skilled personnel, we will have difficulty manufacturing and marketing our
products.
Our success depends largely upon the continued service of our employees and our ability to attract, retain and motivate
personnel, some of whom work in competitive labor markets, particularly Bozeman, Montana. Loss of key personnel or our
inability to hire and retain personnel could materially adversely affect our manufacturing efforts, harm our ability to meet
compliance requirements, and increase backlog.
Adverse changes in our relationships with, or the financial condition, performance, purchasing patterns or inventory
levels of, distributors and other channel partners could adversely affect our financial statements.
We sell a significant number of products to distributors and other channel partners that have valuable relationships with
customers and end-users. Some of these distributors and other partners also sell our competitors’ products or compete with us
directly. Adverse changes in our relationships with these distributors and other partners, or adverse developments in their
financial condition, performance or purchasing patterns, could adversely affect our business and financial statements.
The levels of inventory maintained by our distributors and other channel partners, and changes in those levels, can also
negatively impact our results of operations in any given period. In addition, the consolidation of distributors could adversely
impact our business and financial statements. We cannot directly control the actions of our distributors. Our distributors may
not comply with export laws or follow the terms of the distribution agreements which require compliance with export laws,
which could have legal or financial implications for us.
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Our international operations subject us to a wide range of risks.
Our operations and sales outside of the United States have increased as a result of our strategic acquisitions and the continued
expansion of our commercial organization. Risks related to these increased foreign operations include:
●
fluctuations in foreign currency exchange rates, which may affect reported results from operations as well as actual
costs;
●
interruption in the transportation of materials to us and finished goods to our customers;
●
differences in terms of sale, including longer payment terms than are typical in the United States;
●
local product preferences and product requirements;
●
trade protection measures, embargoes and import or export restrictions and requirements;
●
unexpected changes in laws or regulatory requirements, including changes in labor or tax laws;
●
capital controls and limitations on ownership and on repatriation of earnings and cash;
●
changes in general economic and political conditions in countries where we operate, particularly as a result of
ongoing economic instability within foreign jurisdictions;
●
difficulty in staffing and managing widespread operations;
●
differing labor or employment regulations;
●
difficulties in implementing restructuring actions on a timely or comprehensive basis;
●
differing protection of intellectual property; and
●
greater uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, including
with respect to product and other regulatory approvals.
International business risks have in the past and may in the future negatively affect our business and financial statements.
A deterioration in diplomatic relations between the United States and any country where we conduct business could
adversely affect our future operations and lead to a decline in profitability.
Our international operations are governed by the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside
the United States. Global enforcement of anti-corruption laws has increased in recent years. Our international operations,
which often involve customer relationships with foreign governments, create the risk that there may be unauthorized
payments or offers of payments made by employees, consultants, or distributors. Any alleged or actual violations of these
laws may subject us to government investigations and significant criminal or civil sanctions and other liabilities, and
negatively affect our reputation.
Operational Risks
A significant disruption in, or breach in security of, our information technology systems or data could adversely affect our
business, reputation and financial statements.
We rely on information technology systems, some of which are provided or managed by third-parties, to process, transmit
and store electronic information (including sensitive data such as confidential business information and personally
identifiable data relating to employees, customers, and other business partners), and to manage or support a variety of critical
business processes and activities (such as receiving and fulfilling orders, billing, collecting and making payments, shipping
products, providing services and support to customers and fulfilling contractual obligations). In addition, some products or
software we sell to customers may connect to our systems for maintenance or other purposes. These systems, products and
services (including those we acquire through business acquisitions) may be damaged, disrupted or shut down due to attacks
by computer hackers, computer viruses, ransomware, human error or malfeasance, power outages, hardware failures,
telecommunication or utility failures, catastrophes or other unforeseen events, and in any such circumstances our system
redundancy and other disaster recovery planning may be ineffective or inadequate. Attacks may also target hardware,
software and information installed, stored or transmitted in our products after such products have been purchased and
incorporated into third-party products, facilities or infrastructure. Security breaches of systems provided or enabled by us,
regardless of whether the breach is attributable to a vulnerability in our products or services, could result in the
misappropriation, destruction or unauthorized disclosure of confidential information or personal data belonging to us or to
our employees, partners, customers, or suppliers. Our information technology systems have been subject to computer viruses,
malicious codes, unauthorized access and other cyber-attacks and we expect the sophistication and frequency of such attacks
to continue to increase. Unauthorized tampering, adulteration or interference with our products may also adversely affect
product functionality and result in loss of data, risk to product safety and product recalls or field actions.
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Any attacks, breaches or other disruptions or damage could interrupt our operations or the operations of our customers and
partners, delay production and shipments, result in theft of our and our customers’ intellectual property and trade secrets,
damage customer, business partner, and employee relationships, and our reputation, or result in defective products or
services, legal claims and proceedings, liability and penalties under privacy laws and increased costs for security and
remediation, each of which could adversely affect our business, reputation and financial statements.
Further, a significant number of our employees work remotely, which exposes us to greater cybersecurity risks. Any inability
to maintain reliable information technology systems and appropriate controls with respect to global data privacy and security
requirements and prevent data breaches can result in adverse regulatory consequences, business consequences and litigation.
We face numerous manufacturing and supply chain risks. In addition, our reliance upon sole or limited sources of supply
for certain materials, components and services could cause production interruptions, delays and inefficiencies.
We purchase materials, components and equipment from third parties for use in our manufacturing operations. Our results of
operations could be adversely impacted if we are unable to adjust our purchases to reflect changes in customer demand and
market fluctuations. Suppliers may extend lead times, limit supplies or increase prices. If we cannot purchase sufficient
products at competitive prices and of sufficient quality on a timely enough basis to meet demand, product shipments may be
delayed, our costs may increase, or we may breach our contractual commitments and incur liabilities.
In addition, some of our businesses purchase certain required products from sole or limited source suppliers for reasons of
quality assurance, regulatory requirements, cost effectiveness, availability or uniqueness of design. If these or other suppliers
encounter financial, operating or other difficulties or if our relationship with them changes, we might not be able to quickly
establish or qualify replacement sources of supply. A shortage of components or key materials that comprise components
used in our products could cause a significant disruption to our production schedule and have a substantial adverse effect on
our financial condition or results of operations. The supply chains for our businesses could be disrupted in the future by
supplier capacity constraints, supplier bankruptcy or exiting of the business for other reasons, decreased availability of key
raw materials or commodities and external events such as natural disasters, public health problems, war, terrorist actions,
governmental actions and legislative or regulatory changes. Any of these factors could result in production interruptions,
delays, extended lead times and inefficiencies.
Our revenues and other operating results depend in large part on our ability to manufacture and assemble our products in
sufficient quantities and in a timely manner. Any interruptions we experience in the manufacture or shipment of our products
or changes to the way we manufacture products could delay our ability to recognize revenues in a particular period. In
addition, we must maintain sufficient production capacity in order to meet anticipated customer demand, which carries fixed
costs that we may not be able to offset if orders slow, which would adversely affect our operating margins. If we are unable
to manufacture our products consistently, in sufficient quantities, and on a timely basis, our revenues, gross margins and our
other operating results will be materially and adversely affected.
Because we cannot always immediately adapt our production capacity and related cost structures to changing market
conditions, our manufacturing capacity may at times exceed or fall short of our production requirements. Any or all of these
problems could result in the loss of customers, provide an opportunity for competing products to gain market acceptance, and
otherwise adversely affect our financial condition.
Our financial results are subject to fluctuations in the cost and availability of components and commodities that we use in
our operations.
Our manufacturing operations employ a wide variety of components and raw materials and other commodities, including
metallic-based components, electronic components, chemicals, and plastics and other petroleum-based products. Prices for
and availability of these components, and raw materials and other commodities have fluctuated significantly in the past, and
more recently have increased. Any sustained interruption in the supply of these items could disrupt production, delay
customer order fulfillments, and adversely affect our business. If we are unable to fully recover higher costs through price
increases or offset these increases through cost reductions, or if there is a time delay between the increase in costs and our
ability to recover or offset these costs, our margins and profitability could decline, and our financial results could be
adversely affected.
In addition, transportation costs have increased, which may reduce our gross profit margins unless and until we are able to
pass the cost increases along to our customers.
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Significant developments or uncertainties stemming from the U.S. administration, including changes in U.S. trade
policies, tariffs and the reaction of other countries thereto could have an adverse effect on our business.
Changes, potential changes or uncertainties in U.S. social, political, regulatory and economic conditions or laws and policies
governing foreign trade, manufacturing, and development and investment in the territories and countries where we or our
customers operate, or governing the health care system, can adversely affect our business and financial results. For example,
trade tensions between the United States and China remain high, and each country has continued to impose significant tariffs
on a wide range of goods imported from the other country. China accounted for approximately 12% of our sales during the
year ended March 31, 2024. These factors have adversely affected, and in the future could further adversely affect, our
business and financial results.
Geopolitical and macroeconomic pressures in the markets in which we operate may adversely affect our financial results.
Geopolitical issues around the world can impact macroeconomic conditions and could have a material adverse impact on our
financial results. For example, the ultimate impact of military conflicts (such as the conflict between Russia and Ukraine or
the conflict in Israel and the surrounding areas) on fuel prices, inflation, the global supply chain and other macroeconomic
conditions is unknown and could materially adversely affect global economic growth, disrupting discretionary spending
habits and generally decreasing demand for our products and services. While our sales to Russia, Ukraine and Israel have
historically produced an immaterial amount of revenues and profitability compared to the overall company, we cannot predict
the impact that the conflict or any other global conflict may have on future financial results.
Violation of data privacy laws could adversely affect our business, reputation and financial statements.
If we are unable to maintain reliable information technology systems and appropriate controls with respect to global data
privacy and security requirements and prevent data breaches, we may suffer adverse regulatory consequences, business
consequences and litigation. As a multinational organization, we are subject to data privacy and security laws, regulations,
and customer-imposed controls in numerous jurisdictions as a result of having access to and processing confidential, personal
and/or sensitive data in the course of our business. The EU General Data Protection Regulation imposes strict requirements
on how we collect and process personal data, including, among other things, a requirement for prompt notice of data breaches
to data subjects and supervisory authorities in certain circumstances and significant fines for non-compliance. Data privacy
laws in other jurisdictions, such as California and Colorado, also impose data privacy obligations. Government enforcement
actions can be costly and interrupt the regular operation of our business, and data breaches or violations of data privacy laws
can result in fines, reputational damage and civil lawsuits, any of which may adversely affect our business, reputation and
financial statements. In addition, compliance with the varying data privacy regulations around the world may require
significant expenditures and may require changes in our products or business models that reduce revenues.
Changes to dialysis methods and equipment capabilities may decrease demand for our dialysis products and negatively
impact our financial statements.
Our Dialyguard product line accounts for approximately one-fourth of the revenues and one-third of the gross profit margin
associated with our Calibration Solutions division. The majority of revenues in our Dialyguard business are associated
with products used in dialysis clinics, while a smaller portion of our sales relate to in-home care. Technological
advancements, such as dialysis machines that feature built-in dialysis calibration functionalities, have and may continue to
adversely affect demand for our dialysis products.
We may be unable to efficiently manage our growth as a larger and more geographically diverse organization.
Our strategic acquisitions and the organic expansion of our commercial sales operations have increased the scope and
complexity of our business. As a result, we face challenges inherent in efficiently managing a more complex business with an
increased number of employees over large geographic distances, including the need to implement appropriate systems,
policies, benefits, and compliance programs. Our inability to manage successfully a substantially larger and geographically
more diverse (including from a cultural perspective) organization could materially adversely affect our operating results and
financial statements.
If we suffer loss to our facilities, supply chains, distribution systems or information technology systems due to a
catastrophic event, our operations could be seriously harmed.
Our facilities, supply chains, distribution systems and information technology systems are subject to catastrophic loss due to
fire, flood, earthquake, hurricane, pandemics and epidemics and other public health crises, war, terrorism or other natural or
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human-made disasters. If any of these facilities, supply chains or systems were to experience a catastrophic loss, it could
disrupt our operations, delay production and shipments, result in defective products or services, damage customer
relationships and our reputation and result in legal exposure and large repair or replacement expenses. Our insurance
coverage with respect to natural disasters is limited and is subject to deductible and coverage limits and may be unavailable
or insufficient to protect us against such losses.
The health care industry and related industries that we serve have undergone, and are in the process of undergoing,
significant changes in an effort to reduce costs, which could adversely affect our financial results.
Participants in the health care industry and related industries have implemented, and are implementing, significant changes in
an effort to reduce costs. Many of the end-users to whom our customers supply products rely on government funding of and
reimbursement for health care products and services and research activities. The U.S. Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”), health care
austerity measures in other countries and other potential health care reform changes and government austerity measures have
reduced and may further reduce the amount of government funding or reimbursement available to customers or end-users of
our products and services and/or the volume of medical procedures using our products and services. For example, the
Inflation Reduction Act of 2022 may subject certain products to government-established pricing, potentially impose rebates
and subject manufacturers who fail to adhere to the government's interpretation of the law to penalties.
These changes as well as other impacts from market demand, government regulations, third-party coverage and
reimbursement policies and societal pressures have started changing the way healthcare is delivered, reimbursed and funded
and may cause participants in the health care industry and related industries that we serve to purchase fewer of our products
and services, reduce the prices they are willing to pay for our products or services, reduce the amount of reimbursement and
funding available for our products and services from governmental agencies or third-party payors, affect the acceptance rate
of new technologies and products and increase our compliance and other costs. All of the factors described above could
adversely affect our business and financial results.
The manufacture of many of our products is a highly exacting and complex process, and if we directly or indirectly
encounter problems manufacturing products, our reputation, business and financial results could suffer.
The manufacture of many of our products is a highly exacting and complex process, due in part to strict regulatory
requirements. Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to
follow specific protocols and procedures, problems with raw materials, natural disasters and environmental factors, and if not
discovered before the product is released to market could result in recalls and product liability exposure. Because of the time
required to approve and license certain regulated manufacturing facilities and other stringent regulations of the FDA and
similar agencies regarding the manufacture of certain of our products, an alternative manufacturer may not be available on a
timely basis to replace such production capacity. Any of these manufacturing problems could result in significant costs,
liability, lost revenues, and loss of market share, as well as negative publicity and damage to our reputation that could reduce
demand for our products.
Climate change, or legal or regulatory measures to address climate change and sustainability, may negatively affect us,
and any actions we take or fail to take in response to such matters could damage our reputation.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere
could present risks to our operations. Physical risk resulting from acute changes (such as hurricanes, tornados, wildfires or
flooding) or chronic changes (such as droughts, heat waves or sea level changes) in climate patterns can adversely impact our
facilities and operations and disrupt our supply chains and distribution systems. Concern over climate change can also result
in new or additional legal or regulatory requirements designed to reduce greenhouse gas emissions, mitigate the effects of
climate change on the environment (such as taxation of, or caps on the use of, carbon-based energy) and/or increase
disclosures with respect thereto. Any such new or additional legal or regulatory requirements may increase the costs
associated with, or disrupt, sourcing, manufacturing and distribution of our products, which may adversely affect our
business and financial statements.
Page 17
Acquisition Risks
Any inability to consummate acquisitions at our historical rate and at appropriate prices could negatively impact our
growth rate and stock price.
Our ability to grow revenues, earnings and cash flows at or above our historic rates depends in part upon our ability to
identify and successfully acquire and integrate businesses at appropriate prices and realize anticipated synergies. We may not
be able to consummate acquisitions at rates similar to the past, which could adversely impact our growth rate and our stock
price. Promising acquisitions are difficult to identify and execute for a number of reasons, including high valuations,
competition among prospective buyers, the availability of affordable funding in the capital markets, and the need to satisfy
applicable closing conditions and obtain applicable antitrust and other regulatory approvals on acceptable terms. Changes in
accounting or regulatory requirements, or instability in the credit markets, or global crises that prevent travelling or other
activities necessary for acquisitions could also adversely impact our ability to consummate acquisitions.
Our acquisition of businesses could negatively impact our financial results.
Acquisitions involve a number of financial, accounting, managerial, operational, legal, compliance and other risks and
challenges, including the following, any of which could adversely affect our business and our financial statements:
●
any business, technology, service or product that we acquire could under-perform relative to our expectations and the
price that we paid for it, or not perform in accordance with our anticipated timetable, or we could fail to make such
business profitable;
●
we may incur or assume significant debt in connection with our acquisitions which could cause a deterioration of our
credit rating, result in increased borrowing costs and interest expense and diminish our future access to the capital
markets;
●
acquisitions could cause our results of operations to differ from our own or the investment community’s expectations
in any given period, or over the long-term;
●
pre-closing and post-closing acquisition-related earnings charges could adversely impact our results of operations in
any given period, and the impact may be substantially different from period to period;
●
acquisitions could create demands on our management, operational resources and financial and internal control
systems that we are unable to effectively address, or for which we may incur additional costs;
●
we could experience difficulty in integrating personnel, operations, financial and other systems, and in retaining key
employees and customers;
●
we may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition;
●
we may assume by acquisition unknown liabilities, known contingent liabilities that become realized, known liabilities
that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the
acquired company’s activities. The realization of any of these liabilities or deficiencies may increase our expenses,
adversely affect our financial position or cause us to fail to meet our public financial reporting obligations;
●
in connection with acquisitions, we may enter into post-closing financial arrangements such as purchase price
adjustments, earn-out obligations and indemnification obligations, which may have unpredictable financial results; and
●
as a result of our acquisitions, we have recorded significant goodwill and intangible assets on our balance sheets. If we
are not able to realize the value of these assets, we may be required to incur charges relating to the impairment of these
assets, which could materially impact our financial results. We incurred such a charge as of March 31, 2024 as
described below in “We may be required to recognize additional impairment losses for our goodwill and other
intangible assets.”
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us
and as a result we may face unexpected liabilities, or we may have acquisition agreements with no indemnification
protection at all.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us
against certain liabilities related to the operation of the company before we acquired it. In most of these agreements, however,
the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification
responsibilities. We cannot guarantee that these indemnification provisions will protect us fully or at all, and as a result we
may face unexpected liabilities that could adversely impact our financial statements. In addition, we may enter into
acquisition agreements that have no indemnification protection at all.
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Future strategic transactions or acquisitions may require us to seek additional financing, which we may not be able to
secure on favorable terms, or at all.
We actively evaluate various strategic transactions on an ongoing basis, and in order to complete such transactions, we may
need to seek additional financing. We may not be able to secure such financing on favorable terms, or at all. In addition,
future acquisitions may require the issuance of additional equity securities, which may result in dilution to our
stockholders, or the issuance of debt securities, which may subject us to financial risks and limits on our operations.
Legal, Regulatory, Compliance, and Reputational Risks
We are subject to lawsuits and regulatory proceedings.
We have been a defendant in a number of lawsuits, and in the future may become a party to a variety of litigation and
regulatory proceedings, including claims for damages arising out of the use of products or services and claims relating to
intellectual property matters, employment matters, tax matters, commercial disputes, product liability, marketing matters,
insurance coverage, competition and sales and trading practices, environmental matters, product retirement, personal injury,
and acquisition or divestiture-related matters, as well as regulatory investigations or enforcement. We may also become
subject to lawsuits as a result of past or future acquisitions or as a result of liabilities retained from, or representations,
warranties or indemnities provided in connection with, divested businesses. Any of these lawsuits may include claims for
compensatory damages, punitive and consequential damages or injunctive relief. The defense of these lawsuits may divert
our management’s attention, we may incur significant expenses in defending these lawsuits, and we may be required to pay
damages or settlements or become subject to equitable remedies that could adversely affect our operations and financial
results. Moreover, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us
against such losses. In addition, developments in proceedings in any given period may require us to adjust loss contingency
estimates that we have recorded in our financial statements, record estimates for liabilities or assets previously not susceptible
of reasonable estimates or pay cash settlements or judgments. Any of these developments could adversely affect our financial
results in any given period. We cannot make assurances that our liabilities in connection with litigation and other legal
regulatory proceedings will not exceed our estimates or adversely affect our financial results and business. Please see Note
13. “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained in Item 8. Financial
Statements and Supplementary Data for additional discussion.
Our reputation, ability to do business and prepare financial statements may be impaired by improper conduct by any of
our employees, agents or business partners.
We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed
by employees, agents or business partners of ours (or of businesses we acquire or partner with) that would violate U.S. and/or
non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims,
pricing, sales and marketing practices, conflicts of interest, competition, export and import compliance, money laundering
and data privacy.
If we do not or cannot adequately protect our intellectual property, if third parties infringe our intellectual property rights,
or if we or our customers are alleged to infringe upon others’ intellectual property rights, we may suffer competitive injury
or expend significant resources enforcing or defending our rights.
We own patents, trademarks, copyrights, trade secrets and other intellectual property and licenses to intellectual property
owned by others, which in the aggregate are important to our business. The intellectual property rights that we obtain,
however, may not be sufficiently broad or otherwise may not provide us a significant competitive advantage, and patents may
not be issued for pending or future patent applications owned by or licensed to us. In addition, the steps that we and our
licensors have taken to maintain and protect our intellectual property may not prevent it from being challenged, invalidated,
circumvented or designed-around, particularly in countries where intellectual property rights are not highly developed or
protected. In some circumstances, enforcement may not be available to us because an infringer has a dominant intellectual
property position or for other business reasons, or countries may require compulsory licensing of our intellectual property.
We also rely on nondisclosure and noncompetition agreements with employees, consultants and other parties to protect, in
part, trade secrets and other proprietary rights. There can be no assurance that these agreements will adequately protect our
trade secrets and other proprietary rights and will not be breached, that we will have adequate remedies for any breach, that
others will not independently develop substantially equivalent proprietary information or that third parties will not otherwise
gain access to our trade secrets or other proprietary rights. In addition, we or our customers may be alleged to infringe upon
the intellectual property of third parties. Our failure to obtain or maintain intellectual property rights that convey competitive
advantages, adequately protect our intellectual property, detect or prevent circumvention or unauthorized use of such
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property, and limit the cost of enforcing our intellectual property rights or defending against any allegation of infringement,
could adversely impact our competitive position and results of operations.
We are subject to extensive regulation.
The process of obtaining and maintaining required regulatory approvals is lengthy, expensive and uncertain. We can offer no
assurance that delays will not occur in the future that could have a significant adverse effect on our ability to introduce new
products on a timely basis. Regulatory agencies periodically inspect our manufacturing facilities to ascertain compliance with
“good manufacturing practices” and can subject approved products to additional testing and surveillance programs.
Failure to comply with applicable regulatory requirements can, among other things, result in fines, suspension of regulatory
approvals, product recalls, operating restrictions and criminal penalties. If we fail to comply with regulatory requirements, it
could have an adverse effect on our results of operations and financial condition. We, our representatives and the industries in
which we operate may at times be under review and/or investigation by regulatory authorities. Compliance with applicable
regulations may affect our returns on investment, require us to incur significant expenses or modify our business model or
impair our flexibility in modifying product, marketing, pricing or other strategies. Our products and operations are also often
subject to the rules of industrial standards bodies such as the International Standards Organization, and failure to comply with
these rules could result in withdrawal of certifications needed to sell our products and services and otherwise adversely
impact our business and financial statements.
Certain of our products are medical devices and other products subject to regulation by the U.S. FDA, by other federal and
state governmental agencies, or by comparable agencies of other countries and regions. We cannot guarantee that we will be
able to obtain regulatory clearance (such as 510(k) clearance) or approvals for new products or modifications to (or additional
indications or uses of) existing products within our anticipated timeframe or at all, and if we do obtain such clearance or
approval, it may be time-consuming, costly and subject to restrictions. Our ability to obtain such regulatory clearances or
approvals will depend on many factors and the process for obtaining such clearances or approvals could change over time and
may require the withdrawal of products from the market until such clearances are obtained. The global regulatory
environment has become increasingly stringent and unpredictable. Several countries that did not have regulatory
requirements for medical devices have established such requirements in recent years, and other countries have expanded, or
plan to expand, their existing regulations.
Ensuring that our internal operations and business arrangements with third parties comply with applicable laws and
regulations involves substantial costs. It is also possible that government authorities will conclude that our business practices
do not comply with current or future statutes, regulations, agency guidance or case law. Noncompliance with applicable laws
and regulations can result in, among other things, fines, expenses, injunctions, civil penalties, recalls or seizures of products,
total or partial suspension of production, failure to receive 510(k) clearance of devices, withdrawal of marketing approvals,
reputational damage, business disruption, loss of customers, disbarment from selling to certain federal agencies, criminal
prosecutions and other adverse effects. Further, defending against any such actions can be costly and time-consuming and
may require significant personnel resources. Therefore, even if we are successful in defending against any such actions
brought against us, our business may be negatively impacted.
Off-label marketing of our products could result in substantial penalties.
The FDA strictly regulates the promotional claims that may be made about approved or cleared products. In particular, any
clearances we may receive only permit us to market our products for the uses indicated on the labeling cleared by the FDA.
We may request additional label indications for our current products, and the FDA may deny those requests outright, require
additional data to support any additional indications or impose limitations on the intended use of any cleared products as a
condition of clearance. If the FDA determines that we have marketed our products for off-label use, we can be subject to
fines, injunctions or other penalties. It is also possible that other federal, state or foreign enforcement authorities might take
action if they consider our business activities to constitute promotion of an off-label use, which could result in significant
penalties, including, but not limited to, criminal, civil and administrative penalties, substantial monetary penalties, damages,
fines, disgorgement, exclusion from participation in government healthcare programs, and/or the curtailment of our
operations. Any of these events could significantly harm our business and financial results.
Certain modifications to our products may require new 510(k) clearances or other marketing authorizations and may
require us to recall or cease marketing our products.
Once a medical device is permitted to be legally marketed in the United States pursuant to a 510(k) clearance, a manufacturer
may be required to notify the FDA of certain modifications to the device. Manufacturers determine in the first instance
Page 20
whether a change to a product requires a new 510(k) clearance or premarket submission, but the FDA may review any
manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances are necessary. We
have made modifications to our products in the past and have determined based on our review of the applicable FDA
regulations and guidance that in certain instances new 510(k) clearances or other premarket submissions were not required.
We may make similar modifications or add additional features in the future that we believe do not require a new 510(k)
clearance. If the FDA disagrees with our determinations and requires us to submit new 510(k) notifications, we may be
required to cease marketing or to recall the modified product until we obtain clearance, and we may be subject to significant
regulatory fines or penalties.
Changes in governmental regulations may reduce demand for our products or services or increase our expenses.
We compete in markets in which we and our customers must comply with federal, state, and other jurisdictional regulations,
such as regulations governing health and safety, food and drugs, privacy and electronic communications. We develop,
configure and market our products and services to meet customer needs created by these regulations. These regulations are
complex, change frequently, have tended to become more stringent over time and may be inconsistent across jurisdictions.
Any significant change in any of these regulations (or in the interpretation or application thereof) could reduce demand for,
increase our costs of producing or delay the introduction of new or modified products and services, or could restrict our
existing activities, products and services. In addition, in certain of our international markets our growth depends in part upon
the introduction of new regulations. In these markets, the delay or failure of governmental and other entities to adopt or
enforce new regulations, the adoption of new regulations which our products and services are not positioned to address or the
repeal of existing regulations, could adversely affect demand. In addition, regulatory deadlines may result in substantially
different levels of demand for our products and services from period-to-period.
Product liability suits against us, product defects or unanticipated use or inadequate disclosure with respect to our
products or services could adversely affect our business, reputation and our financial statements.
Manufacturing or design defects in, unanticipated use of, safety or quality issues (or the perception of such issues) with
respect to, or inadequate disclosure of risks relating to the use of products and services that we make or sell, including items
that we source from third parties, can lead to personal injury, property damage or other liability. These events could lead to
recalls or safety alerts, the removal of a product or service from the market and product liability or similar claims being
brought against us. Recalls, removals and product liability and similar claims, regardless of their validity or ultimate
outcome, can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand
for our products and services. Our product liability insurance may not adequately cover our costs arising from defects in our
products or otherwise.
We are subject to export and import control laws and regulations that could impair our ability to compete in international
markets or subject us to liability if we violate such laws and regulations.
We are subject to U.S. export controls and sanctions regulations that restrict the shipment or provision of certain products and
services to certain countries, governments, and persons. While we take precautions to prevent our products and services from
being exported in violation of these laws, we cannot guarantee that the precautions we take will prevent violations. If we are
found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and
for the individuals working for us. We may also be adversely affected through other penalties, reputational harm, loss of
access to certain markets, or otherwise.
Complying with export control and sanctions regulations may be time-consuming and may result in the delay or loss of sales
opportunities or impose other costs. Any change in export or import regulations, economic sanctions or related legislation, or
change in the countries, governments, persons or technologies targeted by such regulations, could result in our decreased
ability to export or sell certain products to existing or potential customers in affected jurisdictions.
We are subject to laws and regulations governing government contracts.
We are subject to laws and regulations governing government contracts, and failure to address these laws and regulations or
comply with government contracts could harm our business by leading to a reduction in revenues associated with these
customers. We have agreements relating to the sale of our products to government entities and, as a result, we are subject to
various statutes and regulations that apply to companies doing business with the government. We are also subject to
investigation for compliance with the regulations governing government contracts. A failure to comply with these regulations
could result in suspension of these contracts, criminal, civil and administrative penalties or debarment.
Page 21
Financial and Tax Risks
Foreign currency exchange rates may adversely affect our financial statements.
As a global company with substantial operations outside the U.S., sales and purchases in currencies other than the U.S. dollar
expose us to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affect our financial statements.
Increased strength of the U.S. dollar increases the effective price of our products sold in U.S. dollars into other countries,
which may require us to lower our prices or adversely affect sales to the extent we do not increase local currency prices.
Decreased strength of the U.S. dollar could adversely affect the cost of materials, products and services we purchase
overseas. Sales and expenses of our non-U.S. businesses are also translated into U.S. dollars for reporting purposes and the
strengthening or weakening of the U.S. dollar could result in unfavorable translation effects. In addition, certain of our
businesses may invoice customers in a currency other than their functional currency, and movements in the invoiced currency
relative to the functional currency could also result in unfavorable translation effects. We also face exchange rate risk from
our investments in subsidiaries owned and operated in foreign countries. We do not enter into hedging arrangements to
mitigate any foreign currency exposure.
We may be required to recognize additional impairment losses for our goodwill and other intangible assets.
As of March 31, 2024, the net carrying value of our goodwill and other intangible assets totaled $293.8 million after
recording impairment losses of $274.5 million related to certain goodwill and finite-lived intangible assets in our Clinical
Genomics division and related to goodwill in our Biopharmaceutical Development division during the fourth quarter of our
fiscal year ended March 31, 2024. In accordance with generally accepted accounting principles, we periodically assess such
assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, loss of
key customers, strategic shifts in our business, inability to effectively integrate acquired businesses, unexpected significant
changes or planned changes in use of our assets, changes in the structure of our business, divestitures, market capitalization
declines, or increases in associated discount rates may further impair our goodwill and other intangible assets in the future.
Our Clinical Genomics and Biopharmaceutical Development divisions have a heightened risk of future impairments if actual
results differ significantly from our estimates; impairment losses resulted in a 0% cushion between the fair and carrying
values of impaired reporting units within our Clinical Genomics and Biopharmaceutical Development divisions as of our
January 1, 2024 impairment testing date. The carrying values of our reporting units generally decline over time as we
amortize intangibles assets. The goodwill associated with our Clinical Genomics division and our Biopharmaceutical
Development division's two reporting units (Immunoassays and Peptides) as of March 31, 2024 was $16.9 million, $32.8
million, and $13.7 million, respectively. Future impairment losses could result from changes in any assumptions, inputs,
exchange rates, market factors and/or increases in the weighted average cost of capital in the future. Assumptions used in
goodwill and intangible asset impairment tests include unobservable Level 3 inputs that are subject to uncertainty. Any
additional losses relating to such impairments would adversely affect our financial statements in the periods recognized.
The loss of key customers, or reductions in their demand for our products and services, could have a significant negative
impact on our revenues, results of operations, and financial position.
Certain of our reporting segments sell to customers who individually comprise greater than 10% of segment revenues. Our
business, financial condition or results of operations could be adversely affected by the loss of any such customers, or by a
reduction in their purchases of our products and services due to downturns in their business, changes in their business
strategies, reduced capital spending, unfavorable macroeconomic conditions, or other factors.
Changes in accounting standards could affect our reported financial results.
New accounting standards or pronouncements that may become applicable from time to time, or changes in the interpretation
of existing standards and pronouncements, could have a significant effect on our reported results of operations for the
affected periods.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to develop and
maintain an effective system of internal control over financial reporting, we may not be able to accurately report our
financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our financial
reporting and adversely affect our business and operating results and the trading price for our common stock.
Under Section 404 of the Sarbanes-Oxley Act of 2002 and rules promulgated by the SEC, companies are required to conduct
an annual comprehensive evaluation of their internal control over financial reporting. Further, each year our independent
registered public accounting firm is required to attest to and report on the effectiveness of our internal control over financial
Page 22
reporting. Management concluded that as of March 31, 2024, our internal control over financial reporting was not
effective. As described in "Part II, Item 9A — Controls and Procedures," we identified three material weaknesses in the
design and operation of our internal control over financial reporting whereby:
i. We did not have adequate supervision and review controls over complex technical accounting related to non-
routine goodwill impairment transactions and related analyses.
ii. During the GKE acquisition's measurement period, Management selected a useful life over which to amortize
acquired customer relationships, but there was evidence that a longer useful life may be appropriate.
iii. 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 material weaknesses will only be considered remediated when we design and implement effective controls. See "Part II,
Item 9A — Controls and Procedures," for our remediation plans.
We expect our remediation efforts to be effective, however, we can provide no assurance that they will be or that additional
material weaknesses will not arise in the future. The existence of these material weaknesses and of any other ineffective
controls over our financial reporting could have negative impacts including one or more of the following:
●
Restatement of previously filed financial statements;
●
Failure to meet our reporting deadlines (which among other consequences could result in a default of our
outstanding debt obligations);
●
Loss of investor confidence;
●
Restrictions our ability to access capital markets;
●
Expenditure of significant resources to correct the deficiencies;
●
Negative impact on the trading price of our common stock.
Failure to comply with reporting requirements could also subject us to sanctions and/or investigations by the SEC, the
Nasdaq Stock Market or other regulatory authorities. We have previously implemented several significant ERP modules and
have acquired businesses that were subsequently required to adopt our systems of internal controls. The implementation of
these systems represents a change in our internal control over financial reporting. If we fail to remedy any deficiencies or
maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties or
shareholder litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do
not accurately reflect our operating results or financial condition.
Our failure to maintain appropriate environmental, social, and governance ("ESG") practices and disclosures could
result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results.
Governments, investors, customers, and employees are enhancing their focus on ESG practices and disclosures, and
expectations in this area are rapidly evolving and increasing. While we monitor the various and evolving standards and
associated reporting requirements, failure to adequately maintain appropriate ESG practices that meet stakeholder
expectations may result in reputational harm, loss of business, reduced market valuation, an inability to attract customers, and
an inability to attract and retain top talent.
Changes in our tax rates or exposure to additional income tax liabilities or assessments could affect our profitability. In
addition, audits by tax authorities could result in additional tax payments for prior periods.
We are subject to income taxes in the U.S. and in various non-U.S. jurisdictions. The amount of income taxes we pay is
subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities, such as those audits
described elsewhere in this report. If audits result in payments or assessments different from our reserves, our future results
may include unfavorable adjustments to our tax liabilities and our financial results could be adversely affected. Any further
significant changes to the tax system in the United States or in other jurisdictions (including changes in the taxation of
international income as further described below) could adversely affect our financial results.
Our ability to use net operating losses and tax credit carryforwards and certain built-in losses to reduce future tax
payments is limited by provisions of the Internal Revenue Code, and it is possible that certain transactions or a
combination of certain transactions may result in material additional limitations on our ability to use our net operating
loss and tax credit carryforwards.
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Section 382 and 383 of the Internal Revenue Code of 1986, as amended, contain rules that limit the ability of a company that
undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year
period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the
ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly
or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the
company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and
tax credit carryforwards and certain built-in losses is equal to the product of the applicable long-term, tax-exempt rate and the
value of the company’s stock immediately before the ownership change. We may be unable to offset our taxable income with
losses, or our tax liability with credits, before such losses and credits expire and therefore would incur larger federal income
tax liability. Federal net operating losses generated after December 31, 2017 are not subject to expiration and generally may
not be carried back to prior taxable years except that, under the Coronavirus Aid, Relief, and Economic Security Act, net
operating losses generated in 2018, 2019 and 2020 may be carried back five taxable years. Additionally, for taxable years
beginning after March 31, 2021, the deductibility of such deferral net operating losses is limited to 80% of our taxable
income in any future taxable year.
Changes in tax law relating to multinational corporations could adversely affect our tax position.
The U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business, and the
Organization for Economic Co-operation and Development (“OECD”) have recently focused on issues related to the taxation
of multinational corporations. One example is in the area of “base erosion and profit shifting,” where profits are claimed to be
earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax
rates to a jurisdiction with lower tax rates. The OECD has released several components of its comprehensive plan to create an
agreed set of international rules for addressing base erosion and profit shifting. As a result, the tax laws in the United States
and other countries in which we do business could change on a prospective or retroactive basis, and any such changes could
adversely affect our business and financial results.
Our business is subject to sales tax in numerous states.
The application of indirect taxes, such as sales tax, is a complex and evolving issue. A company is required to collect and
remit state sales tax from certain of its customers if that company is determined to have “nexus” in a particular state. The
determination of nexus varies by state and often requires knowledge of each jurisdiction’s tax case law. The application and
implementation of existing, new or future laws could change the states in which we are required to collect and remit sales
taxes. If any jurisdiction determines that we have “nexus” in additional locations that we have not contemplated, it could
have an adverse effect on our financial results.
If global credit market conditions deteriorate, our financial performance could be adversely affected.
The cost and availability of credit are subject to changes in the global economic environment. If conditions in major credit
markets deteriorate, our ability to obtain debt financing or the terms associated with that debt financing may be negatively
affected, which could affect our results of operations.
Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business
or the ability to raise capital to repay the remaining principal amount of our 1.375% convertible senior notes due August
15, 2025 (the “2025 Notes”) at maturity or repurchase the notes in the event of a fundamental change, or to repay
borrowings under our revolving credit facility, term loan, swingline loan, and letters of credit (together referred to as the
"Credit Facility"), or if we incur more debt.
We incurred significant indebtedness in the amount of $172.5 million in the form of the 2025 Notes which mature on August
15, 2025, unless earlier converted. See Note 15. "Subsequent Events" in Item 8. Financial Statements and Supplementary
Data for further information regarding our partial repurchases of the 2025 Notes following our fiscal year ended March 31,
2024. We also have a Credit Facility, under which we have incurred significant indebtedness, and under which we could
borrow additional amounts under that at any time, incurring more debt.
At our option, we may settle the 2025 notes in shares of our common stock, cash, or a combination thereof. Holders of the
2025 Notes also have the right to require us to repurchase all or a portion of their 2025 Notes upon the occurrence of a
fundamental change (as defined in the applicable indenture governing the 2025 Notes) at a repurchase price equal to 100% of
the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, which could adversely affect our
liquidity. In addition, if the 2025 Notes have not previously been converted or repurchased due to a decline in our share price,
Page 24
we may elect to repay or we may be required to repay the 2025 Notes in cash upon maturity. Our ability to make required
cash payments in connection with conversions of the 2025 Notes, to repurchase the 2025 Notes in the event of a fundamental
change, to repay or refinance the 2025 Notes, and/or to make required payments or refinance the Credit Facility at maturity
will depend on market conditions and our future performance, which are subject to economic, financial, competitive, and
other factors beyond our control. Our debt and related debt service obligations could have negative consequences, including
requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, reducing
our flexibility in planning for or reacting to changes in our business and market conditions, and exposing us to interest rate
risk on variable rate debt. We could be required under applicable accounting rules to reclassify all or a portion of the
outstanding principal of the notes as a current rather than long-term liability within the next twelve months, which would
result in a material reduction of our net working capital. In addition, our ability to repurchase or to pay cash upon conversion
or at maturity of the 2025 Notes may be limited by law or regulatory authority. Our failure to repurchase Notes following a
fundamental change as required by the applicable indenture would constitute a default under the indenture governing the
Notes. A default under the indenture or agreements governing our future indebtedness, or failure to make required payments
related to any of our indebtedness, could have a material adverse effect on our business, results of operations, and financial
condition. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we
may not have sufficient funds to repay indebtedness as required.
Additional stock issuances could result in significant dilution to our stockholders.
We may issue additional equity securities to raise capital, make acquisitions, or for a variety of other purposes. Additional
issuances of our stock may be made pursuant to the exercise or conversion of new or existing convertible debt securities,
stock options, or other equity incentive awards. We rely on equity-based compensation as an important tool in recruiting and
retaining employees. The amount of dilution due to equity-based compensation of our employees and other additional
issuances could be substantial. In addition, in March 2022 we entered a sales agreement with Jefferies LLC ("Jefferies") to
sell shares of our common stock, from time to time, with aggregate gross sales proceeds up to $150.0 million through an at-
the-market equity offering program under which Jefferies acts as our sales agent. Further, we may settle all or a portion of the
2025 Notes in shares or in cash. We include shares of common stock issuable upon conversion of the 2025 Notes in our
diluted (loss) earnings per share to the extent such shares are not anti-dilutive. If we issue common stock or securities
convertible into common stock for the above reasons, or any other reason, our common stockholders would experience
additional dilution and, as a result, our stock price may decline.
Our stock price may be volatile, which may subject us to a securities class action litigation.
The trading price of our common stock price may be volatile and could be subject to wide fluctuations in price in response to
various factors, many of which are beyond our control, including:
●
general economic, industry and market conditions;
●
actions by institutional or other large stockholders;
●
the depth and liquidity of the market for our common stock;
●
volume and timing of orders for our products;
●
developments generally affecting life sciences tools companies;
●
the announcement of new products or product enhancements by us or our competitors;
●
changes in earnings estimates or recommendations by securities analysts;
●
investor perceptions of us and our business, including changes in market valuations of life sciences tools companies
generally; and
●
our results of operations and financial performance.
In addition, the stock market in general, and the Nasdaq Stock Market and the market for products and devices sold into the
pharmaceutical, medical and healthcare industries in particular, have experienced substantial price and volume volatility that
is often seemingly unrelated to the operating performance of particular companies, which have resulted in decreased stock
prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or
prospects. These broad market fluctuations may cause the trading price of our common stock to decline, regardless of our
actual operating performance. In the past, securities class action litigation has at times been brought against a company after a
period of volatility in the market price of its common stock. We may become involved in this type of litigation in the future.
Any securities litigation claims brought against us could result in substantial expense and the diversion of management’s
attention from our business.
Page 25
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C. CYBERSECURITY
Governance Related to Cybersecurity Risks
We recognize the importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our
information systems and protect the confidentiality, integrity, and availability of our data.
Our Board of Directors has delegated its responsibility for oversight of cybersecurity risks to our Audit Committee. In
accordance with its charter, our Audit Committee is responsible for governing management’s review and assessment of our
cybersecurity and other information technology risks, controls and procedures. Management's Business Information Services
team provides the Audit Committee with quarterly updates on our cybersecurity program, detailing our monitoring and
mitigation efforts. Mesa’s Audit Committee has two members with prior work experience overseeing or assessing a
cybersecurity function. The Audit Committee briefs the full Board on cybersecurity matters regularly. We have established
procedures to keep management and the Audit Committee informed about security incidents that could significantly impact
the business.
Our information security program is led by our Information Security Manager, who has over ten years of cybersecurity
experience, who in turn reports to our Vice President of Information Services, who has over 25 years of experience in the
industry. The Information Security Manager regularly meets with our Business Information Services team, and as applicable,
appropriate executive and Board of Directors personnel, to review our cybersecurity posture, the broader cybersecurity
landscape, any identified cybersecurity incidents, our monitoring of cybersecurity risks through continuous mitigation efforts,
and any anticipated enhancements to our policies, procedures and controls.
Cybersecurity Risk Management and Strategy
Our cybersecurity program, guided by industry standards, encompasses processes for the identification, assessment, and
management of cybersecurity risks. We carry out regular risk assessments, supported by external vendors, to evaluate our
cybersecurity program, pinpoint areas for enhancement, and devise strategies to mitigate cybersecurity risks. We perform
ongoing security testing and have implemented a vulnerability management process to address identified security risks based
on severity. An external vendor provides us with quarterly vulnerability scans, annual penetration tests, security tabletops,
and an enterprise-wide annual security assessment to assess and validate our physical, technical, external, and administrative
controls. Third parties that access, process, store or transmit our information or that have access to our systems may have and
be subject to additional cybersecurity controls.
We maintain cybersecurity policies that articulate Mesa’s expectations and requirements with respect to topics such as
acceptable use of technology and data, data privacy, risk management, education and awareness and event and incident
management. Consistent with our position that cybersecurity is the responsibility of every Mesa team member, we regularly
educate and share best practices to raise awareness of cybersecurity threats. Every year, associates in applicable job
categories are required to take information security and protection training, and we conduct ongoing simulated testing to
educate employees on phishing.
Our Information Security Manager and Business Information Services team oversee the day-to-day prevention, detection,
mitigation, and resolution of cybersecurity risks, utilizing third-party security software and services. We also deploy
processes and technologies to monitor security alerts from both internal and external sources, including information security
research. In case of a confirmed security incident, we have a full incident response plan that includes engaging an incident
handling team, guidance for determining materiality, and steps to respond, remediate, and recover from the security incident.
To date, risks from cybersecurity threats have not materially affected our business strategy, results of operations or financial
condition. We can provide no assurance that there will not be cybersecurity incidents in the future or that such incidents will
not materially affect us; however, based on available information as of the date of this annual report, we do not believe that
such threats are reasonably likely to materially affect our business. We maintain a cybersecurity insurance policy and a
retainer for third-party incident response services which may mitigate certain financial impacts of a cybersecurity incident,
should one occur.
Page 26
ITEM 2. PROPERTIES
As of March 31, 2024, we owned two facilities and both are material to our business: one in Lakewood, Colorado and the
other in Bozeman, Montana. Both facilities are used for manufacturing and distribution, engineering, research and
development, sales and marketing, and administration activities. Two of our four segments use the properties: Sterilization
and Disinfection Control and Calibration Solutions. We have fourteen leased facilities used by our Sterilization and
Disinfection Control (international), Clinical Genomics, and Biopharmaceutical Development divisions. The leased facilities
are used for manufacturing, research and development, administration, and all other such business activities.
Item 3. LEGAL PROCEEDINGS
For information regarding legal proceedings, refer to Note 13. “Commitments and Contingencies” in our Consolidated
Financial Statements included in Item 8. Financial Statements and Supplementary Data.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Page 27
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Market (“Nasdaq”) under the symbol “MLAB.”
While we have paid dividends to holders of our common stock on a quarterly basis since 2003, the declaration and payment
of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, business
development needs and regulatory considerations, and is at the sole discretion of our Board of Directors. At this time, we
expect to continue paying dividends commensurate with our historical practice.
As of March 31, 2024, there were 60 holders of record of our common stock. This amount does not include “street name”
holders or beneficial holders of our common stock, who hold their shares through banks, brokers or other financial
institutions.
During the year ended March 31, 2024, we did not sell any equity securities that were not registered under the Securities Act
of 1933, as amended.
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. This plan will continue until the maximum is reached or the plan is terminated by further
action of the Board of Directors. We made no repurchases of our common stock during the years ended March 31, 2024,
March 31, 2023, or March 31, 2022. As of March 31, 2024, 137,514 shares remained available to repurchase pursuant to the
repurchase plan.
See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for
information regarding securities authorized for issuance.
Set forth below is a line graph comparing, for the period March 31, 2020 through March 31, 2024, the cumulative total
shareholder return on our common stock against the cumulative total return of (a) the S&P Composite Stock Index (b) the
S&P Small Cap 600, and (c) a self-selected peer group, comprised of the following companies: Danaher Corp., Repligen
Corp., Steris Corp., Utah Medical Products, Inc., Fortive Corp., Merit Medical Systems, Inc., Transcat Inc., Electro-Sensors,
Inc., Onto Innovation Inc., Metler-Toledo International Inc., and Illumina, Inc. The graph shows the value on March 31 of
each year, assuming an original investment of $100 in each on March 31, 2020 and reinvestment of cash dividends.
ITEM 6. RESERVED
Page 28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, unless specified)
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 March 31, 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 are described
further in "Results of Operations" below. Unallocated corporate expenses and other business activities are reported within
Corporate and Other.
Corporate Strategy
We strive to create 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 Revenues 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®.
During fiscal year 2024, we completed the acquisition of GKE. 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.
Improving Our Operating Efficiency
We 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, manufacturing efficiencies, costs of products and labor,
foreign currency rates, and price competition. Historically, as we have integrated our acquisitions and taken advantage of
manufacturing efficiencies, our gross profit percentages for some products have improved. There are, however, differences in
gross profit percentages between product lines, and ultimately the mix of sales will continue to impact our overall gross
profit.
Page 29
Hire, Develop, and Retain Top Talent
At the center of our organization are talented people who are capable of taking on new challenges using a team approach. It is
our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously 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 our fiscal year 2024, approximately 51% of our revenues
were earned outside of the United States. Since we serve a number of industries across a variety of global markets, we may
be affected by world-wide, regional, or industry-specific economic or political factors, trends and costs associated with a
global labor force, and increasing regulation. However, our diversity in industry, geography, and product and service
offerings may limit the impact of changes in specific industry trends or local economic changes in our consolidated operating
results. We actively monitor trends affecting industries we operate in, including by monitoring key competitors and
customers and by staying abreast of changes to local economies and how they may affect our operations.
Overall, supply chain disruptions, labor shortages and resulting manufacturing difficulties that impacted business operations
in fiscal year 2023 largely abated during fiscal year 2024, facilitating organic revenues growth in our Sterilization and
Disinfection and Calibration Solutions divisions.
During fiscal year 2024, we completed the acquisition of GKE, which 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’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
began consolidating the results of GKE's operations into our financial statements in the third quarter of our fiscal year.
Several challenging macroeconomic factors existed during fiscal year 2024:
●
Softening of discretionary capital asset purchases across the life sciences tools market, with some abatement during the
fourth quarter of fiscal year 2024, contributing to declines in our organic revenues growth in our Biopharmaceutical
Development and Clinical Genomics divisions.
●
Economic slowdowns in China (partially attributable to the local government executing initiatives that may dissuade
customers from making capital purchases of any kind) impacted our revenues, particularly in our Clinical Genomics
division.
● High interest rates resulting in expensive capital negatively impacting customer purchases and our overall profitability,
particularly our Clinical Genomics and Biopharmaceutical Development divisions.
In response to decreased revenues growth, we took steps to preserve our financial model, implementing reductions in force
and other cost savings initiatives in our Clinical Genomics and Biopharmaceutical Development divisions. We expect to
realize incremental cost savings of approximately $4,000 from these initiatives in fiscal year 2025, of which approximately
$900 will benefit cost of revenues and $3,100 will benefit operating expenses; however, the majority of these savings may be
offset by higher performance-based payments such as bonus and sales commissions if we meet internal revenue growth
targets. Management's efforts, coupled with the GKE acquisition, have allowed us to slightly increase our consolidated gross
profit margin as a percentage of revenues. Overall, excluding impairment, our operating expenses remained flat during fiscal
year 2024 compared to fiscal year 2023, despite the acquisition of GKE in fiscal year 2024.
A weakening or strengthening of foreign currencies against the United States dollar ("USD") increases or decreases our
reported revenues, gross profit margins, and operating expenses, and impacts the comparability of our results between
periods.
Results of Operations
Our results of operations and year-over-year changes are discussed in the following section. The tables and discussion below
should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto appearing in
Item 8. Financial Statements and Supplementary Data (in thousands, except percent data). Refer to Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year
ended March 31, 2023, filed on May 30, 2023, for a comparison of results of operations for the years ended March
31, 2023 and March 31, 2022.
During the fourth quarter of fiscal year 2024 we recorded total impairment losses of $274,533 related to goodwill in our
Clinical Genomics and Biopharmaceutical Development divisions and related to intangible assets in our Clinical Genomics
division as discussed further in "Impairment" below. In fiscal year 2025, we expect a net decrease in non-cash amortization
Page 30
expense of approximately $3,700 within costs of revenues and $6,800 within operating expenses in the Clinical
Genomics division due to impairment losses reducing the carrying values of intangible assets.
Results by reportable segment are as follows:
Revenues
Organic Revenues
Growth (non-GAAP) (a)
Gross Profit as a % of
Revenues
Year
Ended
March 31,
2024
Year
Ended
March 31,
2023
Year
Ended
March 31,
2024
Year
Ended
March 31,
2023
Year
Ended
March 31,
2024
Year
Ended
March 31,
2023
Sterilization and Disinfection
Control
$
75,124 $
64,609
1.9 %
9.4 %
71 %
72 %
Clinical Genomics
52,588
62,299
(15.6 %)
(12.9 %)
51 %
52 %
Biopharmaceutical Development
40,712
47,365
(14.3 %)
3.8 %
62 %
64 %
Calibration Solutions
47,763
44,807
6.6 %
(4.4 %)
58 %
54 %
Reportable segments
$
216,187 $
219,080
(5.6 %)
0.6 %
62 %
61 %
(a) Organic revenues growth is a non-GAAP measure of financial performance. See "Non-GAAP Reconciliations" below for
further information and for a reconciliation of organic revenues growth to total revenues growth.
Our consolidated results of operations are as follows:
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Revenues
$
216,187 $
219,080 $
184,335
(1 %)
19 %
Gross profit
133,250
133,693
109,090
- %
23 %
Operating expenses (excluding impairment
losses)
130,792
130,373
104,388
- %
25 %
Impairment losses
274,533
-
-
100 %
- %
Operating (loss) income
(272,075 )
3,320
4,702
(8,295 %)
(29 %)
Net (loss) income
$ (254,246 ) $
930 $
1,871
(27,438 %)
(50 %)
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.
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Revenues
$
75,124 $
64,609 $
59,044
16 %
9 %
Gross profit
53,302
46,520
43,720
15 %
6 %
Gross profit as a % of revenues
71 %
72 %
74 %
(1 %)
(2 %)
Sterilization and Disinfection Control revenues increased 16% for fiscal year 2024 compared to fiscal year 2023. The
acquisition of GKE contributed $9,289 of revenues and $5,357 of gross profit to the Sterilization and Disinfection Control
division during the year. GKE's gross profit as a percentage of revenues was 58% during fiscal year 2024, including
$1,229 of amortization of the non-cash inventory step-up related to purchase accounting.
Excluding GKE, revenues in the Sterilization and Disinfection control division increased 2% in fiscal year 2024 compared to
fiscal year 2023. Excluding $1,229 of amortization of the non-cash inventory step-up related to the GKE acquisition during
Page 31
fiscal year 2024, the Sterilization and Disinfection Control division's gross profit margin percentage was 73%. Fiscal year
2024 benefited from price increases and higher revenues on a partially fixed cost base.
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.
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Revenues
$
52,588 $
62,299 $
32,840
(16 %)
90 %
Gross profit
27,078
32,485
11,941
(17 %)
172 %
Gross profit as a % of revenues
51 %
52 %
36 %
(1 %)
16 %
Clinical Genomics revenues decreased 16% in fiscal year 2024 compared to fiscal year 2023, largely due to the loss of Sema4
as a customer in the third quarter of fiscal year 2023, as well as China's economic slowdown. Also contributing to the decline
was the persistently high cost of capital, which strained our customers' ability to purchase the division's hardware. Excluding
the loss of revenues to Sema4, revenues from our Clinical Genomics division would have been 9% lower during fiscal year
2024 compared to fiscal year 2023. We expect revenues in the Clinical Genomics division to remain flat in fiscal year
2025 as we begin executing a new strategy to cultivate sustainable long-term growth.
Gross profit percentage for the Clinical Genomics division decreased one percentage point for fiscal year 2024 compared to
fiscal year 2023, primarily due to lower revenues on a partially fixed cost base, and to a lesser extent, unfavorable product
mix, particularly decreases in sales of high-margin consumables products, partially offset by a decrease in non-cash
amortization expense of $1,227 following the impairment of acquired intangible assets in fiscal 2024. We expect costs of
revenues in the Clinical Genomics division to decrease by approximately $3,700 in fiscal year 2025 as a result of lower non-
cash amortization expense subsequent to the impairment in fiscal 2024. During the fourth quarter of fiscal 2024, we
appointed a new General Manager to oversee the Clinical Genomics division, with a goal of establishing business processes
that will support long-term growth.
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.
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Revenues
$
40,712 $
47,365 $
45,579
(14 %)
4 %
Gross profit
25,400
30,340
28,605
(16 %)
6 %
Gross profit as a % of revenues
62 %
64 %
63 %
(2 %)
1 %
Biopharmaceutical Development's revenues decreased 14% for fiscal year 2024 compared to fiscal year 2023, primarily due
to continued softening demand for capital equipment, including our instruments, in the biopharmaceutical industry, with
some abatement during the fourth quarter of fiscal year 2024. The decrease was partially offset by an increase in revenues
from consumables and services, as well as price increases. Despite adverse macroeconomic factors, revenues from the
division's consumables and services grew 10% compared to the prior year period.
Biopharmaceutical Development's gross profit percentage decreased two percentage points during fiscal year 2024 as a result
of lower overall revenues on a partially fixed cost base, partially offset by favorable product mix.
Page 32
Calibration Solutions
The Calibration Solutions division develops, manufactures and sells 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, primarily in medical device manufacturing, pharmaceutical
manufacturing, laboratory, and hospital environments.
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Revenues
$
47,763 $
44,807 $
46,872
7 %
(4 %)
Gross profit
27,547
24,388
24,989
13 %
(2 %)
Gross profit as a % of revenues
58 %
54 %
53 %
4 %
1 %
Calibration Solutions revenues increased 7% for fiscal year 2024 compared to fiscal year 2023, largely due to the abatement
of production difficulties and supply constraints that limited our ability to manufacture ordered quantities of certain products
during the first three quarters of fiscal year 2023. This abatement has allowed us to return to normal operations and growth
during fiscal year 2024, driving orders growth, along with a reduction of past due backlog.
The Calibration Solutions division's gross profit percentage increased four percentage points in fiscal year 2024 compared to
fiscal year 2023, primarily due to increased revenues on a partially fixed cost base.
Corporate and Other
Corporate and Other consists of unallocated corporate expenses and other business activities. Unallocated corporate expenses
were $77, $40, and $165 for fiscal years 2024, 2023, and 2022, respectively, and were recorded in cost of revenues in the
Consolidated Statements of Operations.
Operating Expense
Excluding impairment losses of $274,533, operating expenses for fiscal year 2024 were approximately flat compared to fiscal
year 2023. Lower costs resulting from decreases in intangible asset amortization expense following impairment losses that
reduced asset carrying values, lower bonus accruals, and lower stock compensation expense attributable to both performance
outcomes and the timing of award grants during the year were partially offset by operating expenses incurred by GKE during
fiscal year 2024, acquisition and integration costs related to GKE, and increased marketing efforts.
Selling Expense
Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales
levels.
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Selling expense
$
38,625 $
37,439
28,310
3 %
32 %
As a percentage of revenues
18 %
17 %
15 %
1 %
2 %
Selling expense increased 3% for fiscal year 2024, primarily as a result of increased marketing efforts and implementation of
a new customer management software in certain divisions, partially offset by lower commissions on lower revenues and
lower recruiting and training costs in fiscal 2024. Excluding the GKE acquisition, selling expense would have increased 2%
in fiscal year 2024 compared to fiscal year 2023.
Page 33
General and Administrative Expense
Labor costs, non-cash stock-based compensation and amortization of intangible assets drive the substantial majority of
general and administrative expense.
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
General and administrative, other than
impairment of finite-lived intangible assets and
goodwill
$
72,867 $
72,444 $
60,311
1 %
20 %
As a percentage of revenues
34 %
33 %
33 %
1 %
- %
General and administrative expenses that affect
the comparability of years presented:
General and administrative amortization of
intangible assets, excluding GKE
19,284
22,025
18,000
(12 %)
22 %
General and administrative expense related to
GKE operations
3,416
-
-
NA
NA
Costs incurred related to acquisitions and
integrations of acquirees
2,235
1,142
1,244
96 %
(8 %)
Total general and administrative expenses that
affect the comparability of years presented
24,935
23,167
19,244
8 %
20 %
Total general and administrative expenses,
excluding expenses that affect the comparability
of years presented
$
47,932 $
49,277 $
41,067
(3 %)
20 %
General and administrative expenses, other than impairment of finite-lived intangible assets and goodwill, increased
1% for the year ended March 31, 2024; excluding amounts impacting comparability as presented in the table above, expense
would have decreased approximately 3% in fiscal 2024 compared to fiscal 2023, largely due to the effect of our ongoing cost
containment efforts which reduced personnel related costs, as well as lower bonus expense due to performance, and lower
stock-based compensation expense attributable to both performance outcomes and the timing of award grants during fiscal
year 2024.
Impairment
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Impairment of finite-lived intangible assets
$
117,641 $
- $
-
NA
NA
Impairment of goodwill
156,892
-
-
NA
NA
Total impairment losses
$
274,533 $
- $
-
As a percentage of revenues
127 %
- %
- %
127 %
0 %
Impairment losses were recorded in our Clinical Genomics and Biopharmaceutical Development divisions in fiscal year
2024. The impairment losses are primarily the result of higher weighted average cost of capital, which decreases the fair
value of businesses, as well as downward revisions of expected future performance compared to the expectations that existed
at the time of our most-recent quantitative impairment analyses, specifically due to the effects of:
●
decreased spending on capital equipment in the biopharmaceutical and pharmaceutical markets as a whole;
●
persistent economic uncertainty in China throughout our fiscal year 2024;
●
persistently high interest rates decreasing our customers' purchases of capital equipment.
We also appointed a new general manager to lead the Clinical Genomics division. Immediately, new division management
began restructuring the division, eliminating 17 positions, and began to implement an updated business strategy, which
resulted in a downward revision of financial expectations for the coming years, particularly the next 1.5 – 2 years as we
adjust our business strategy to better support long-term growth. See Note 6. "Goodwill and Intangible Assets, Net" in Item 8.
Financial Statements and Supplementary Data for further information.
Page 34
Research and Development Expense
Research and development expense is predominantly comprised of labor costs and third-party consultants.
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Research and development expense
$
19,300 $
20,490 $
15,767
(6 %)
30 %
As a percentage of revenues
9 %
9 %
9 %
- %
- %
Research and development expenses for fiscal year 2024 decreased 6% compared to fiscal year 2023, primarily due to our
cost containment efforts in fiscal year 2024, including a reduction in force related to our Biopharmaceutical Development
division during the second quarter of fiscal year 2024, lower third-party consulting costs, and lower bonus accruals in fiscal
year 2024.
Nonoperating Expense, Net
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Nonoperating expense, net
$
3,573
3,709
1,128
(4 %)
229 %
Nonoperating expense, net for fiscal year 2024 is composed primarily of interest expense and amortization of the debt
issuance costs associated with the 2025 Notes and the Credit Facility. Interest expense related to the Credit Facility was
approximately $909 higher in fiscal year 2024 compared to fiscal year 2023 due to higher outstanding balances for a portion
of fiscal year 2024 related to borrowings used to fund the GKE acquisition, as well as higher interest rates. Increases in
interest expense were partially offset by net unrealized foreign currency gains of approximately $1,440 resulting from the
movement of the euro against the U.S. dollar related to a U.S. dollar denominated intercompany loan we issued to our wholly
owned subsidiary, Mesa Germany GmbH, during fiscal year 2024 to fund the purchase of GKE.
Income Taxes
Year Ended March 31,
Percentage Change
2024
2023
2022
2024 vs.
2023
2023 vs.
2022
Income tax (benefit) expense
$
(21,402 ) $
(1,319 ) $
1,703
1,523 %
(177 %)
Effective tax rate
8 %
339 %
48 %
(331 %)
291 %
Our income tax rate varies based upon many factors, but in general we anticipate that on a go-forward basis, our effective tax
rate will be approximately 25%, plus or minus the impact of excess tax benefits and deficiencies associated with share-based
payment awards to employees (please see Note 12. “Income Taxes” within Item 8. Financial Statements and Supplementary
Data) and purchase price accounting for any future acquisitions. The change in our effective tax rate during fiscal
year 2024 is primarily due to impairment losses recorded in fiscal year 2024 and the related tax impacts and resulting
valuation allowance established. Tax benefits and deficiencies associated with share-based payment awards to our employees
have caused and, in the future, may cause large fluctuations in our realized effective tax rate based on timing, volume, and the
nature of stock options exercised under our share-based payment program.
Net (Loss) Income
Net (loss) income varies with the changes in revenues, gross profit, and operating expenses. Net loss in fiscal year 2024
reflects, respectively, $274,533, $27,341, $4,233, and $11,936 of non-cash impairment losses on goodwill and finite-lived
intangible assets, non-cash amortization of intangible assets acquired in a business combination, non-cash depreciation, and
non-cash stock-based compensation expense.
Page 35
Non-GAAP Reconciliations
Adjusted operating income (which excludes the non-cash impact of amortization of finite-lived intangible assets acquired in a
business combination, depreciation, stock-based compensation, and impairment of goodwill and finite-lived intangible assets)
and organic revenues growth (reported revenues growth excluding the impact of revenues growth from recent acquisitions)
are used by management as supplemental performance measures in order to compare current financial performance to
historical performance, to assess the ability of our assets to generate cash, and to evaluate potential acquisitions.
Adjusted operating income and organic revenues growth should not be considered alternatives to, or more meaningful than,
net (loss) income, operating (loss) income, reported revenues growth, cash flow from operating activities or any other
measure of financial performance presented in accordance with GAAP as measures of operating performance or liquidity.
The following table sets forth our reconciliation of operating (loss) income to adjusted operating income, a non-GAAP
measure:
Year Ended March 31,
2024
2023
2022
Operating (loss) income
$
(272,075 ) $
3,320 $
4,702
Amortization of intangible assets acquired in a business combination
27,341
28,821
21,806
Depreciation of long-lived assets
4,233
4,313
3,262
Stock-based compensation
11,936
12,538
11,391
Impairment losses on goodwill and finite-lived intangible assets
274,533
-
-
Adjusted Operating Income (non-GAAP)
$
45,968 $
48,992 $
41,161
The following table sets forth our reconciliation of total revenues growth to organic revenues growth, a non-GAAP measure:
Total Revenues Growth Impact of Acquisitions
Organic Revenues
Growth (non-GAAP)
Year
Ended
March 31,
2024
Year
Ended
March 31,
2023
Year
Ended
March 31,
2024
Year
Ended
March 31,
2023
Year
Ended
March 31,
2024
Year
Ended
March 31,
2023
Sterilization and Disinfection
Control
16.3 %
9.4 %
(14.4 %)
- %
1.9 %
9.4 %
Clinical Genomics
(15.6 %)
89.7 %
- %
(102.6 %)
(15.6 %)
(12.9 %)
Biopharmaceutical Development
(14.3 %)
3.9 %
- %
(0.1 %)
(14.3 %)
3.8 %
Calibration Solutions
6.6 %
(4.4 %)
- %
- %
6.6 %
(4.4 %)
Total Company
(1.3 %)
18.8 %
(4.3 %)
(18.2 %)
(5.6 %)
0.6 %
Page 36
Liquidity and Capital Resources
Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our
Credit Facility and the Open Market Sale AgreementSM described below, 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 short-term
and long-term operating requirements, scheduled principal and interest payments on debt, dividend payments, and anticipated
capital expenditures.
Our more significant uses of resources have historically included acquisitions, payments on debt principal and interest
obligations, long-term capital expenditures, and quarterly dividends to shareholders. We had $28,214 and $32,910 of cash
and cash equivalents as of March 31, 2024 and 2023, respectively. Working capital is the amount by which current assets
exceed current liabilities. We had working capital of $65,040 and $75,616 on March 31, 2024 and 2023, respectively.
As of March 31, 2024, aggregate principal of $172,500 was outstanding under our 2025 Notes and $50,500 was
outstanding under the Credit Facility. During the third quarter of fiscal year 2024, we borrowed a total of $71,000 under the
Credit Facility to fund the majority of the GKE acquisition, and we repaid $20,500 against that outstanding balance during
the third and fourth quarters of fiscal year 2024. Subsequent to March 31, 2024, we repaid an additional $7,500.
Subsequent to our fiscal year end, in April 2024 we amended the terms of the Credit Facility. The amended Credit Facility
has been modified 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, which is subject to principal amortization payments; and
(iv) Make certain changes to the financial covenants.
In April 2024, we used the proceeds from the term loan to fund repurchases of $75,000 in aggregate principal amount of the
2025 Notes for an aggregate cash purchase price of $71,410, including accrued and unpaid interest. We expect to settle the
remaining $97,500 aggregate principal amount of the 2025 Notes in cash upon maturity using cash from operations and
borrowings under the Credit Facility's revolving line of credit.
We will be required to make quarterly principal payments on the $75,000 term loan borrowings as follows: $938 each quarter
from June 30, 2024 to March 31, 2026; $1,406 each quarter from June 30, 2026 to March 31, 2028; and $1,875 each quarter
from June 30, 2028 to March 31, 2029. The remaining unpaid balance will be due at maturity in April 2029; however, we
anticipate that we will have the ability to refinance outstanding debt at that time, if necessary. We believe cash from
operations will be sufficient to make all required quarterly principal payments and interest payments on our outstanding debt
obligations.
At the interest rate in effect at the time of borrowing under the term loan, we would expect to incur interest expense of
approximately $10,500 per year on borrowings of $50,500 under the revolving credit facility and $75,000 under the term
loan. We expect to pay annual cash interest of approximately $1,350 related to the remaining 2025 Notes until maturity.
We maintain relationships and cash deposits at multiple banking institutions across the world in an effort to diversify and
reduce risk of loss related to concentrations of cash deposits.
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 to date.
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 we have the ability to
issue more equity or debt in the future in order to finance our acquisition and investment activities; however, additional
equity or debt financing, or other transactions, may not be available on acceptable terms, if at all.
We may from time to time repurchase or take other steps to reduce our debt. These actions may include retirements or
refinancing of outstanding debt, privately negotiated transactions or otherwise. The amount of debt that may be retired, if
any, could be material and would be decided at the sole discretion of our Board of Directors and would depend on market
conditions, our cash position, and other considerations.
Page 37
Dividends
We have paid regular quarterly dividends since 2003. We declared and paid dividends of $0.16 per share each quarter of the
years ended March 31, 2024, 2023, and 2022.
In April 2024, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on
June 14, 2024, to shareholders of record at the close of business on May 31, 2024.
Cash Flows
Our cash flows from operating, investing, and financing activities were as follows:
Year Ended March 31,
2024
2023
2022
Net cash provided by operating activities
$
44,133 $
27,983 $
39,223
Net cash (used in) investing activities
(81,306 )
(9,494 )
(305,225 )
Net cash provided by (used in) financing activities
32,836
(33,328 )
52,576
Cash flows from operating activities for the year ended March 31, 2024 provided $44,133. We generated $23,085 more cash
from working capital in fiscal year 2024 than in fiscal year 2023, primarily due to lower purchases of inventories in fiscal
year 2024 compared to fiscal year 2023 when we were building safety stock to mitigate potential supply chain issues, and due
to collections on receivables that were outstanding during the prior fiscal year. Net (loss) income and non-cash adjustments
totaled $38,160 for fiscal year 2024 compared to $45,095 for fiscal year 2023. Cash used in investing activities was higher
during fiscal year 2024 compared to fiscal year 2023 due to cash expended on the GKE acquisition, partially offset by
corresponding costs related to the acquisition of Belyntic in fiscal year 2023. Cash provided by financing activities primarily
resulted from a $71,000 draw on the Credit Facility partially offset by $33,500 repaid on previously outstanding balances and
on the drawn amount, compared to $36,000 repaid on the Credit Facility in fiscal year 2023.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the
United States, which require management to make estimates, judgments, and assumptions that affect the amounts reported in
our Consolidated Financial Statements and accompanying notes. We believe that the following are the more critical judgment
areas in the application of accounting policies that currently affect our financial condition and results of operations.
Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the
Audit Committee of our Board of Directors. While our estimates and assumptions are based on our knowledge of current
events and circumstances and actions we may take in the future, actual results may ultimately differ from these estimates and
assumptions. For a discussion of our significant accounting policies, see Note 1. “Description of Business and Summary of
Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data.
Purchase Accounting for Acquisitions
We account for all business combinations in which we obtain control over another entity using the acquisition method of
accounting, which requires most assets (both tangible and intangible) and liabilities to be recognized at fair value at the date
of acquisition. The excess of the purchase price over the fair value of acquired assets less liabilities is recognized as goodwill.
We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple
analyses. These types of analyses require us to make and monitor assumptions and estimates regarding industry and
economic factors, the profitability of future business strategies, discount rates and expected cash flow. For all material
acquisitions, we engage external valuation specialists to aid management in preparing our fair value models. Certain
adjustments to the assessed fair values of acquired assets or liabilities made subsequent to the acquisition date but within a
one-year measurement period are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement
period are recorded within earnings. We expense all costs as incurred related to an acquisition, such as legal and advisory
fees, in general and administrative expenses.
Results of operations of acquired companies are included in our Consolidated Financial Statements from the date of the
acquisition forward. If actual results are not consistent with our assumptions and estimates, or if our assumptions and
estimates change due to new information, we may be exposed to further impairment losses, as described under "Acquired
Intangible Assets, Impairment Testing" below. For the fiscal years ended March 31, 2024, 2023 and 2022, we acquired
businesses for total net purchase prices of $87,187, $6,140, and $300,793, respectively.
Page 38
Acquired Intangible Assets, Impairment Testing
Our business acquisitions typically result in the recognition of goodwill and other intangible assets, which affect the amount
of future period amortization expense and impairment losses we may incur. During fiscal year 2024, we recorded impairment
losses totaling $274,533 related to goodwill in our Clinical Genomics and Biopharmaceutical Development divisions and to
finite-lived intangible assets in our Clinical Genomics division as described in Note 6. "Goodwill and Intangible Assets, Net"
in Item 8. Financial Statements and Supplementary Data. Should the fair values of our reporting units or finite-lived
intangible assets decline because of reduced operating performance, market declines, or other indicators of impairment, or as
a result of changes in the discount rates, additional charges for impairment may be necessary.
Intangible assets with finite lives are amortized over their useful lives using the straight-line method, and amortization
expense is recorded within cost of revenues or general and administrative expense in the Consolidated Statements of
Operations. Impairment assessments over finite-lived intangibles are conducted if events or conditions indicate that asset
carrying amounts may not be recoverable. Events or conditions indicating potential impairment include but are not limited
to changes in the competitive landscape, any internal decisions to pursue new or different technology strategies, losses of
significant customers, or significant changes in business performance or in the markets and industries we serve, including
adverse changes in the prices paid for our products or changes in the size of the markets for our products. If impairment
indicators are present, we determine whether the carrying value of the underlying intangible asset or asset group is
recoverable through undiscounted estimated future cash flows. If the asset or asset group is not found to be recoverable, we
estimate the asset's fair value using Level 3 inputs and discounted cash flow models and recognize impairment losses as
necessary. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the
intangible asset is amortized prospectively over the revised remaining useful life.
Goodwill is not subject to amortization. We test goodwill for impairment on an annual basis during the fourth quarter of each
year as of January 1st, or more frequently if events and circumstances indicate it is more likely than not that the fair value of
a given goodwill reporting unit is less than its carrying value. Events that would indicate impairment and trigger interim
impairment assessments include but are not limited to: adverse current or expected economic, market, or industry-
specific conditions, including a decline in our market capitalization; adverse changes or expected changes in business climate
or in the operational performance of the business; adverse changes in legal factors; and adverse actions or assessments by a
regulator. We monitor for indications of impairment throughout the year and perform qualitative and quantitative impairment
tests as necessary based on quarterly preliminary assessments of our performance and any challenging circumstances and
events. Our annual impairment tests typically begin with a qualitative assessment, and further quantitative assessments are
performed if we determine it is more likely than not that the fair value is greater than the carrying amount. We also perform
quantitative assessments of reporting units at least every five years, irrespective of whether any indicators exist that suggest a
reporting unit may be impaired. Estimates of fair value require assumptions related to revenue and operating income growth
rates, discount rates, weighted average cost of capital, and other factors. Different assumptions from those made in our
analysis could materially affect projected cash flows and our evaluation of goodwill and finite-lived intangible assets for
impairment.
As detailed in Note 6, "Goodwill and Intangible Assets, Net" within in Item 8, Financial Statements and Supplementary
Data, we performed quantitative impairment tests of the Clinical Genomics division and both reporting units within the
Biopharmaceutical Development division during fiscal year 2024. As a result, we recorded impairment losses related to
goodwill and finite-lived intangible assets in the Clinical Genomics division and impairment losses related to goodwill in the
Immunoassays reporting unit of the Biopharmaceutical Development division. Impaired reporting units were written down to
their respective fair values, resulting in approximately zero excess fair value over carrying amount as of our testing date on
January 1, 2024. The fair value of the Peptides reporting unit within our Biopharmaceutical Development division exceeded
carrying value by approximately 36% as of our testing date, and no impairment losses were recorded for this reporting unit.
The Clinical Genomics and Biopharmaceutical Development divisions have a heightened risk of future impairment losses if
actual results differ significantly from our estimates, including if any changes in assumptions, inputs, market factors and/or
increases in the weighted average cost of capital occur in the future. The Clinical Genomics division had $16,940 of goodwill
as of March 31, 2024. The Biopharmaceutical Development division had $46,515 of goodwill as of March 31, 2024. The fair
values of the Clinical Genomics and Biopharmaceutical Development divisions as a whole were $58,900 and $119,000,
respectively, as of the date of our annual impairment testing.
Stock-based Compensation
We recognize compensation expense for equity awards over the vesting period based on the fair value of the awards at grant
date. We use the Black-Scholes-Merton valuation model ("Black-Scholes") to estimate the fair value of our stock options.
The Black-Scholes model requires assumptions to be made regarding our stock price volatility, the expected life of awards,
and expected dividend rates. The volatility assumption and the expected life assumptions are based on our historical data.
Compensation expense related to performance share awards is based in part on the estimated probability of
Page 39
achieving performance goals associated with particular levels of payout. We determine the probability of achievement of
future levels of performance by comparing the relevant performance level with our internal estimates of future performance.
Those estimates are based on a number of assumptions, and different assumptions may result in different conclusions
regarding the probability of achieving future levels of performance relevant to the payout levels for the awards. Valuations
for awards containing market conditions are prepared using a lattice model. Had we arrived at different assumptions of stock
price volatility or expected lives of our options, or different assumptions regarding the probability of our achieving future
levels of performance with respect to performance share awards, our stock-based compensation expense and results of
operations could have been different.
Income Taxes
Our provision for income taxes requires the use of estimates in determining the timing and amounts of deductible and taxable
items, including impacts on effective tax rates, deferred tax items and valuation allowances based on management’s
interpretation and application of complex tax laws and accounting guidance. We establish reserves for uncertain tax positions
for material, known tax exposures relating to deductions, transactions and other matters involving uncertainty as to the
measurement and recognition of the item. While we believe that our reserves are adequate, issues raised by a tax authority
may be finally resolved at an amount different than the related reserve and could materially increase or decrease our income
tax provision in the current and/or future periods.
Recent Accounting Standards and Pronouncements
For a discussion of the new accounting standards impacting the Company, refer to Note 1. “Description of Business and
Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data.
Contractual Obligations
We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary
course of business.
On a consolidated basis, at March 31, 2024, we had contractual obligations for open purchase orders of approximately
$18,400 for routine purchases of supplies and inventory, of which the substantial majority are payable in less than one year.
See "Liquidity and Capital Resources" for information related to future required debt payments. For a description of our
contractual obligations and other commercial commitments as of March 31, 2023, see our Annual Report on Form 10-K for
the fiscal year ended March 31, 2023, filed with the Securities and Exchange Commission on May 30, 2023.
Page 40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no derivative instruments and minimal exposure to commodity market risks.
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 our functional currency or the functional currency of the applicable subsidiary. We also face
translational exchange rate risk related to the translation of financial statements of our foreign operations into U.S. dollars,
our functional currency. Costs incurred and sales recorded by subsidiaries operating outside of the United States are
translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to
movements in the exchange rates of various currencies against the U.S. dollar. Our Biopharmaceutical Development division
is particularly susceptible to currency exposures since it incurs a substantial portion of its expenses in Swedish Krona, while
most revenue contracts are in U.S. dollars and euros. Therefore, when the Swedish Krona strengthens or weakens against the
U.S. dollar, operating profits are increased or decreased, respectively. The effect of a change in currency exchange rates on
our international subsidiaries' assets and liabilities is reflected in the accumulated other comprehensive income component of
stockholders’ equity.
A hypothetical 10 percent increase in currency exchange rates compared to the U.S. dollar (U.S. dollar strengthening) would
have resulted in an estimated $410 after tax decrease in net loss over a one-year period, excluding the impact of non-recurring
impairment losses recorded in the euro, Swedish krona, and Chinese yuan in fiscal year 2024. Actual changes in market
prices or rates may differ from hypothetical changes.
Interest Rates
Our Credit Facility bears interest at either a base rate or a SOFR rate, plus an applicable spread. Based on our interest rate and
balances outstanding as of March 31, 2024, we estimate that if interest rates increased 1 percentage point, we would
incur approximately $505 of additional interest expense per year. Our risk with respect to interest rates has increased
subsequent to the end of fiscal year 2024 due to our additional borrowings under the Credit Facility's term loan of $75,000 as
of April 5, 2024, with an interest rate of 8.4% as of the date of the borrowing.
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 direct impact on our financial results, 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. Additionally, inflationary pressures may impact our customers' ability to purchase our products and
services. We cannot reasonably estimate our ability to successfully recover any inflation cost increases into the future.
Page 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Mesa Laboratories, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Mesa Laboratories, Inc. (the Company) as of March 31,
2024, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the year
ended March 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
March 31, 2024, and the results of its operations and its cash flows for the year ended March 31, 2024, in conformity with
accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2024, based on criteria established
in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013. Our report dated June 28, 2024 expressed an opinion that the Company had not maintained effective
internal control over financial reporting as of March 31, 2024, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Valuation of Intangible Assets Acquired in the GKE Business Combination
As described in Note 4 to the financial statements, the Company acquired 100% of the outstanding shares of GKE for
consideration of $87.2M during the year ended March 31, 2024. The transaction was accounted for as a business combination
using the acquisition method of accounting. Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their respective fair values, including intangible assets acquired primarily related to customer
relationships and trademarks and trade name. The customer relationships were valued using a multi-period excess earnings
income approach (a form of the income approach) that discounted expected future cash flows to fair value which
utilize assumptions related to revenue projections, free cash flows and discount rates. The trademarks and trade name were
valued using a relief from royalty method which utilizes assumptions related to revenue projections and royalty rates.
Page 42
We identified the fair value of these intangible assets as a critical audit matter because auditing management's significant
assumptions, including revenue projections, free cash flows, royalty rates, attrition rates and discount rates, in developing the
estimates required a high degree of auditor judgment and increased audit effort, including the use of valuation specialists to
assist in performing related procedures and evaluating the audit evidence obtained.
Our audit procedures related to the significant assumptions used by management in estimating the fair value of certain
intangible assets included the following, among others:
● Assessing the reasonableness of management’s revenue projections and free cash flows by:
● Comparing the assumptions to the subsequent performance of the acquired company;
● Evaluating the consistency of the assumptions with external market and industry data, and;
● Comparing the revenue projections to historical company data to the extent practical.
● Evaluating the reasonableness of management’s selection of comparable entities with similar operations and economic
characteristics used in the determination of significant assumptions.
● Evaluating the reasonableness of the selected attrition rates based on company specific and external market and industry
data.
● With the assistance of our valuation specialists, we assessed the Company's valuation methodologies and significant
assumptions by evaluating the reasonableness of the discount rates and royalty rates by comparing the underlying source
information to publicly available market data and verifying the accuracy of the calculations.
Goodwill and Intangible Asset Impairments
As described in Notes 1 and 6 to the financial statements, the Company recognized impairment losses on goodwill and
intangible assets of $156.9M and $117.6M, respectively, during the year ended March 31, 2024.
Management tests for goodwill impairment at the reporting unit level on an annual basis during the last quarter of its fiscal
year as of January 1st, or more frequently if facts, events and circumstance indicate it is more likely than not that the fair value
of a given reporting unit is less than its carrying value. Management estimates fair values in connection with quantitative
impairment evaluations based on discounted cash flow and market multiple models which utilize assumptions related to
revenue projections, estimated gross margins, discount rates and market multiples. Based on management’s testing, the
Company recognized $118.7M and $38.2M of goodwill impairment within the Company’s Clinical Genomics reporting unit
and within reporting units within the Biopharmaceutical Development segment, respectively.
Impairment assessments of finite-lived intangible assets are conducted if events or conditions indicate that the asset groups
carrying amounts may not be recoverable. If impairment indicators are present, management determines whether the carrying
value of the asset group is recoverable through undiscounted estimated future cash flows. If the asset group is determined not
to be recoverable, management estimates the asset groups and individual assets fair value based on discounted cash flow and
market multiples which utilize assumptions related to revenue projections, estimated gross margins, discount rates, attrition
rates and royalty rates. Based on management’s testing, the Company identified $117.6M of intangible asset impairment
within the Clinical Genomics segment.
We identified goodwill and intangible asset impairment assessments as a critical audit matter because auditing management's
assessments, including the significant assumptions, involved a high degree of auditor judgment and increased audit effort,
including the use of valuation specialists to assist in performing related procedures and evaluating the audit evidence
obtained.
Our audit procedures related the goodwill and intangible asset impairment assessments included the following, among others:
●
Assessing the reasonableness of management’s forecast of future revenues and gross margins by comparing
the future revenue growth rates and gross margins to historical company data and evaluating consistency with
external market and industry data.
●
Evaluating the reasonableness of management’s selection of comparable entities with similar operations and
economic characteristics.
●
Evaluating the reasonableness of the selected attrition rates based on company specific and external market
and industry data.
●
With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s valuation
methodologies and significant assumptions by:
Page 43
●
Evaluating the reasonableness of the discount rate, royalty rates and market multiples of comparable
companies by comparing the underlying source information to publicly available market data and
verifying the accuracy of the calculations.
●
Evaluating the appropriateness of the valuation methods used by management, testing their
mathematical accuracy, and evaluating the allocation of fair value methods used in the analysis.
●
Evaluating the reasonableness of the valuation of the reporting units based on a market capitalization
reconciliation.
/s/ RSM US LLP
We have served as the Company’s auditor since 2023.
Los Angeles, California
June 28, 2024
Page 44
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Mesa Laboratories, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Mesa Laboratories, Inc.’s (the Company) internal control over financial reporting as of March 31, 2024,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weaknesses
described below on the achievement of the objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of March 31, 2024, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the accompanying consolidated balance sheet of Mesa Laboratories, Inc. as of March 31, 2024, the
related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the year ended
March 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements) of the
Company, and our report dated June 28, 2024, expressed an unqualified opinion.
As described in Management's Annual Report on Internal Control Over Financial Reporting, management has excluded
GKE GmbH, SAL GmbH, and Beijing GKE Science & Technology Co. Ltd. (together, “GKE”) from its assessment of
internal control over financial reporting as of March 31, 2024 because GKE was acquired by the Company in a business
combination in the third quarter of fiscal year 2024. We have also excluded GKE from our audit of internal control over
financial reporting. GKE consists of wholly owned subsidiaries whose total assets and net income represent approximately
25% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended March 31,
2024.
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. The following material weaknesses have been identified and included in
management’s assessment.
Management did not have adequate supervision and review controls over the complex accounting for significant and
unusual transactions. Specifically, the supervision and review of the accounting for goodwill impairment and acquisitions,
including the work performed by external advisors, was not designed to operate at a sufficient level of precision.
Management did not have adequate supervision and review controls over the determination of the useful lives of recently
acquired intangible assets. Specifically, management selected a useful life for an acquired asset that was not consistent with
the economic life used to value the asset.
Certain controls regarding user access and change management to the Company’s enterprise resource planning tool, a part
of the information technology general controls (“ITGC”), were not operating effectively. This material weakness extended
to automated and manual business process controls across the financial reporting and business transaction cycles which rely
upon the affected ITGCs.
These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit
of the 2024 consolidated financial statements, and this report does not affect our report dated June 28, 2024 on those
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
Page 45
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Los Angeles, California
June 28, 2024
Page 46
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Mesa Laboratories, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Mesa Laboratories, Inc. (the “Company”) as of March 31,
2023, the related consolidated statements of operations, comprehensive (loss), stockholders' equity, and cash flows for each
of the years in the two-year period ended March 31, 2023, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of March 31, 2023, and the results of its operations and its cash flows for each of the years in the
two-year period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Plante & Moran, PLLC
We served as the Company’s auditor from 1986 to 2023.
Denver, Colorado
May 30, 2023
Page 47
Mesa Laboratories, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
March 31,
March 31,
2024
2023
ASSETS
Current assets
Cash and cash equivalents
$
28,214 $
32,910
Accounts receivable, less allowances of $1,321 and $849, respectively
39,055
42,551
Inventories
32,675
34,642
Prepaid expenses and other
9,408
8,872
Total current assets
109,352
118,975
Noncurrent assets
Property, plant and equipment, net
31,766
28,149
Deferred tax asset
1,292
1,076
Other assets
10,538
10,373
Customer relationships, net
85,383
152,189
Intellectual property, net
15,701
46,400
Other intangibles, net
12,668
18,226
Goodwill
180,096
286,444
Total assets
$
446,796 $
661,832
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
$
6,041 $
6,134
Accrued payroll and benefits
9,935
9,433
Unearned revenues
15,478
15,694
Other accrued expenses
12,858
12,098
Total current liabilities
44,312
43,359
Noncurrent liabilities
Deferred tax liability
19,780
34,028
Acquisition-related holdbacks
8,792
1,537
Other long-term liabilities
6,821
6,156
Credit facility
50,500
13,000
Convertible senior notes, net of debt issuance costs
171,198
170,272
Total liabilities
301,403
268,352
Stockholders’ equity
Common stock, no par value; authorized 25,000,000 shares; issued and
outstanding, 5,394,491 and 5,369,466 shares, respectively
343,642
332,076
(Accumulated deficit) retained earnings
(183,494 )
74,199
Accumulated other comprehensive (loss)
(14,755 )
(12,795 )
Total stockholders’ equity
145,393
393,480
Total liabilities and stockholders’ equity
$
446,796 $
661,832
See accompanying notes to consolidated financial statements.
Page 48
Mesa Laboratories, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended March 31,
2024
2023
2022
Revenues
Product
$
176,796 $
180,520 $
149,422
Service
39,391
38,560
34,913
Total revenues
216,187
219,080
184,335
Cost of revenues
Cost of products
57,200
60,937
54,747
Cost of services
25,737
24,450
20,498
Total cost of revenues
82,937
85,387
75,245
Gross profit
133,250
133,693
109,090
Operating expense
Selling
38,625
37,439
28,310
General and administrative, other than impairment of finite-lived
intangible assets and goodwill
72,867
72,444
60,311
Research and development
19,300
20,490
15,767
Impairment of finite-lived intangible assets
117,641
-
-
Impairment of goodwill
156,892
-
-
Total operating expense
405,325
130,373
104,388
Operating (loss) income
(272,075 )
3,320
4,702
Nonoperating expense
Interest expense and amortization of debt issuance costs
5,697
4,770
3,885
Other (income), net
(2,124 )
(1,061 )
(2,757 )
Total nonoperating expense, net
3,573
3,709
1,128
(Loss) earnings before income taxes
(275,648 )
(389 )
3,574
Income tax (benefit) expense
(21,402 )
(1,319 )
1,703
Net (loss) income
$
(254,246 ) $
930 $
1,871
Net (loss) earnings per share
Basic
$
(47.20 ) $
0.17 $
0.36
Diluted
$
(47.20 ) $
0.17 $
0.35
Weighted-average common shares outstanding
Basic
5,386
5,321
5,212
Diluted
5,386
5,361
5,335
See accompanying notes to consolidated financial statements.
Page 49
Mesa Laboratories, Inc.
Consolidated Statements of Comprehensive (Loss)
(In thousands)
Year Ended March 31,
2024
2023
2022
Net (loss) income
$
(254,246 ) $
930 $
1,871
Other comprehensive (loss)
Foreign currency translation adjustments
(1,960 )
(16,461 )
(12,450 )
Comprehensive (loss)
$
(256,206 ) $
(15,531 ) $
(10,579 )
See accompanying notes to consolidated financial statements.
Page 50
Mesa Laboratories, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
Common Stock
Number of
Shares Amount
(Accumulated
Deficit)
Retained
Earnings
AOCI*
Total
March 31, 2021
5,140,568 $
317,652 $
72,459 $
16,116 $
406,227
Exercise of stock options and vesting of restricted
stock units
128,337
8,027
-
-
8,027
Tax withholding on restricted stock units
(3,278 )
(875 )
-
-
(875 )
Dividends paid, $0.64 per share
-
-
(3,339 )
-
(3,339 )
Stock-based compensation expense
-
11,391
-
-
11,391
Foreign currency translation
-
-
-
(12,450 )
(12,450 )
Cumulative adjustment due to adoption of ASU
2020-06
-
(22,735 )
5,684
-
(17,051 )
Net income
-
-
1,871
-
1,871
March 31, 2022
5,265,627
313,460
76,675
3,666
393,801
Exercise of stock options and vesting of restricted
stock units
108,737
6,997
-
-
6,997
Tax withholding on restricted stock units
(4,898 )
(919 )
-
-
(919 )
Dividends paid, $0.64 per share
-
-
(3,406 )
-
(3,406 )
Stock-based compensation expense
-
12,538
-
-
12,538
Foreign currency translation
-
-
-
(16,461 )
(16,461 )
Net income
-
-
930
-
930
March 31, 2023
5,369,466
332,076
74,199
(12,795 )
393,480
Exercise of stock options and vesting of restricted
stock units
30,418
358
-
-
358
Tax withholding on restricted stock units
(5,393 )
(728 )
-
-
(728 )
Dividends paid, $0.64 per share
-
-
(3,447 )
-
(3,447 )
Stock-based compensation expense
-
11,936
-
-
11,936
Foreign currency translation
-
-
-
(1,960 )
(1,960 )
Net (loss)
-
-
(254,246 )
-
(254,246 )
March 31, 2024
5,394,491 $
343,642 $
(183,494 ) $
(14,755 ) $
145,393
*Accumulated Other Comprehensive (Loss) Income.
See accompanying notes to consolidated financial statements.
Page 51
Mesa Laboratories, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended March 31,
2024
2023
2022
Cash flows from operating activities:
Net (loss) income
$
(254,246 ) $
930 $
1,871
Adjustments to reconcile net (loss) income to net cash from
operating activities:
Depreciation of property, plant and equipment
4,233
4,313
3,262
Amortization of acquisition-related intangibles
27,341
28,821
21,806
Stock-based compensation expense
11,936
12,538
11,391
Impairment loss on goodwill and finite-lived intangible assets
274,533
-
-
Non-cash interest and debt amortization
926
907
1,029
Deferred taxes
(28,421 )
(3,494 )
128
Amortization of step-up in inventory basis
1,229
-
7,462
Other
629
1,080
(534 )
Cash from changes in operating assets and liabilities:
Accounts receivable, net
4,940
(2,121 )
(6,752 )
Inventories
2,563
(10,182 )
(1,045 )
Prepaid expenses and other assets
211
(510 )
(3,606 )
Accounts payable
(97 )
(1,545 )
1,370
Accrued liabilities and taxes payable
(1,236 )
(3,360 )
255
Unearned revenues
(408 )
606
2,586
Net cash provided by operating activities
44,133
27,983
39,223
Cash flows from investing activities:
Acquisitions, net of cash acquired and holdback liabilities
(78,739 )
(4,950 )
(300,793 )
Purchases of property, plant and equipment
(2,567 )
(4,544 )
(4,432 )
Net cash (used in) investing activities
(81,306 )
(9,494 )
(305,225 )
Cash flows from financing activities:
Proceeds from the issuance of debt
71,000
-
70,000
Repayment of debt
(33,500 )
(36,000 )
(21,000 )
Dividends paid
(3,447 )
(3,406 )
(3,339 )
Proceeds from the exercise of stock options
358
6,997
8,027
Payment of tax withholding obligation on vesting of restricted stock
(728 )
(919 )
(875 )
Other financing, net
(847 )
-
(237 )
Net cash provided by (used in) financing activities
32,836
(33,328 )
52,576
Effect of exchange rate changes on cash and cash equivalents
(359 )
(1,597 )
(1,093 )
Net (decrease) in cash and cash equivalents
(4,696 )
(16,436 )
(214,519 )
Cash and cash equivalents at beginning of period
32,910
49,346
263,865
Cash and cash equivalents at end of period
$
28,214 $
32,910 $
49,346
Cash paid for:
Income taxes
$
4,591 $
1,356 $
3,048
Interest
$
4,648 $
3,485 $
2,762
Supplemental non-cash activity:
Acquisition-related consideration held back against potential
indemnification losses
$
8,448 $
- $
-
Contingent consideration from new acquisitions
$
- $
1,190 $
-
See accompanying notes to consolidated financial statements.
Page 52
Mesa Laboratories, Inc.
Notes to Consolidated Financial Statements
(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 Annual Report on Form 10-K, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries is
collectively referred to as “we,” “us,” “our,” the “Company,” or "Mesa."
We are a global leader in the design and manufacture of life sciences tools and critical quality control solutions for regulated
applications in the pharmaceutical, healthcare, and medical device industries. We offer products and services to help our
customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world.
We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in
North America, Europe and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the
world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.
As of March 31, 2024, we managed our operations in four reportable segments, or divisions:
●
Sterilization and Disinfection Control - manufactures and sells biological, chemical and cleaning indicators which are
used to assess the effectiveness of sterilization, decontamination, disinfection and cleaning processes, including steam,
hydrogen peroxide, ethylene oxide, radiation, and other processes in the medical device, pharmaceutical and healthcare
industries. The division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries.
●
Clinical Genomics - develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools
and related consumables and services that enable clinical research labs and contract research organizations to
perform genomic testing for a broad range of research applications in several therapeutic areas, such as screenings for
hereditary diseases, pharmacogenetics, oncology related applications, and toxicology research.
●
Biopharmaceutical Development - develops, manufactures and sells automated systems for protein analysis
(immunoassays) and peptide synthesis solutions. Protein analysis and peptide synthesis solutions accelerate the discovery,
development, and manufacture of biotherapeutic therapies, among other applications.
●
Calibration Solutions - develops, manufactures and sells 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.
Unallocated corporate expenses and other business activities are reported within Corporate and Other.
Principles of Consolidation and Basis of Presentation
Our Consolidated Financial Statements are 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 (“GAAP”), and
include our accounts and those of our wholly owned subsidiaries after elimination of all intercompany accounts and
transactions.
Management Estimates
The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities in our Consolidated Financial Statements and accompanying notes. Actual results could differ from our
estimates under different assumptions or conditions.
Page 53
Summary of Significant Accounting Policies
Foreign Currency
Exchange rate adjustments resulting from foreign currency transactions are recognized in net earnings, whereas effects
resulting from the translation of financial statements are reflected as a component of accumulated other
comprehensive income within stockholders’ equity. Assets and liabilities of subsidiaries operating outside the United States
with a functional currency other than the U.S. dollar are translated into U.S. dollars at period end exchange rates, and revenue
and expense accounts are translated at weighted average period rates.
Fair Value Measurements
Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction
between market participants. We determine fair value based on the following input hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not
active, or other inputs that are observable or that can be corroborated with observable market data.
Level 3: Unobservable inputs supported by little or no market activity. Pricing models, discounted cash flow
methodologies, and other similar techniques involving significant management judgment or estimation typically
require unobservable inputs.
Assets recognized or disclosed at fair value in the Consolidated Financial Statements on a nonrecurring basis are measured at
fair value if determined to be impaired or if purchased pursuant to our acquisition of a business, including items such as
inventory, property and equipment, operating lease assets, goodwill, and other intangible assets. Fair values assigned to assets
acquired and liabilities assumed in acquisitions, except deferred revenues and certain other exceptions as defined by
applicable accounting guidance, are measured using Level 3 inputs.
Revenue Recognition
Our revenues come from product sales, which include consumables and hardware, and services, which include discrete and
ongoing maintenance, calibration, and testing services. Revenues are recognized when or as we satisfy our performance
obligations under the terms of a contract, which occurs when control of the promised products or services transfers to our
customers. We recognize the amount of consideration we expect to receive in exchange for transferring products or services
to our customers (the transaction price) as revenue. For all revenue contracts, prices are fixed at the time of purchase and no
price protections or variables are offered. The significant majority of our revenues and related receivables are generated from
contracts with customers that are 12 months or less in duration.
We generally recognize revenues as follows:
Product sales: Our performance obligations related to product sales generally consist of the promise to sell tangible goods to
distributors or end users. Control of these goods is typically transferred upon shipment, at which time our obligation to the
customer is satisfied and revenue is recognized. Purchase orders typically provide evidence of an arrangement for product
sales. Products sold include an assurance-type warranty which is accounted for as part of accrued warranty expense.
Services: We generate service revenues from discrete and ongoing maintenance, calibration, and testing services performed
with respect to our physical products. For discrete services, our obligation to complete specified work is satisfied and revenue
is recognized upon performance of the service. Obligations arising from ongoing service contracts in which we promise to
stand ready to provide maintenance or other services on an as-needed basis for a certain period of time are satisfied by
completing any services that are contractually required during the contract period, if requested by the customer, or simply by
the passage of time if no services are requested. For ongoing service contracts, revenue is recognized on a straight-line basis
over the life of the contract in a faithful depiction of our obligation to provide services over the contract period. Evidence of a
service arrangement may be in the form of a formal contract or a purchase order.
Collectability is reasonably assured through our customer review process, and payment is typically due within 60 days or
less.
We expense commission costs (typically our only significant incremental cost to obtain a contract) as incurred and to account
for shipping and handling costs as fulfillment costs. The substantial majority of our contracts have original durations of one
Page 54
year or less, and we have elected not to disclose the expected timing or allocated transaction prices of future performance
obligations such as obligations to perform maintenance and repair services. Additionally, we have elected to not
assess whether a significant financing component exists when the period between when we perform our performance
obligation and when the customer remits payment is one year or less. None of our contracts contained financing components
as of or for the fiscal years ended March 31, 2024 or 2023.
Contracts with customers may contain multiple obligations. For such arrangements, the transaction price is allocated to each
obligation based on the estimated relative standalone selling prices of the promised products or services underlying each
obligation. Standalone selling prices are based on the price at which the product or service would be sold separately. If the
standalone selling price is not observable through past transactions, we estimate the standalone selling price considering
available information such as market conditions and internally approved pricing guidelines. In limited circumstances, for
obligations with highly variable or unobservable standalone selling prices, we may assign standalone prices to obligations
based on the residual transaction price after all observable standalone selling prices have been determined. Discounts may be
approved at the time of purchase and are included within a contract’s fixed transaction price. Discounts are typically allocated
to obligations included in the contract based on the standalone values of such obligations. All expected and actual
consideration from customers is included in the transaction price.
Shipping and Handling
Payments made by customers to us for shipping and handling costs are included in revenues on the Consolidated Statements
of Operations, and our expenses are included in cost of revenues. We account for shipping and handling costs arising from
contracts with customers as fulfillment costs. Shipping and handling for inventory and materials we purchase is included as a
component of inventory on the Consolidated Balance Sheets and is expensed to cost of revenues when products are sold.
Unearned Revenues
Certain of our products may be sold with associated time-based service contracts whereby we provide repairs, technical
support, parts, and various analytical or maintenance services. In the event these contracts are paid in advance by the
customer, the associated amounts are recorded as an unearned revenue liability and recognized as revenue ratably over the
term of the service period, generally one year. Prepayments from customers with respect to other products and services are
likewise recorded as unearned revenue liabilities and are recognized to revenue when earned.
Accrued Warranty Expense
We typically provide assurance-type limited product warranties on our products and, accordingly, accrue for estimates of
related warranty expenses.
Accounts Receivable and Allowance for Credit Losses
All trade accounts receivable are reported at net realizable value on the accompanying Consolidated Balance Sheets, adjusted
for any write-offs and net of allowances for credit losses. Allowances for credit losses represent our best estimate and current
expectation of future credit losses from trade accounts. We estimate credit losses based on historical information, current and
expected future economic and market conditions, and reviews of the current status of customers’ trade accounts receivable. In
circumstances in which we become aware of a specific customer’s inability to meet its financial obligations, a specific
reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be
collected. To mitigate credit risk, we consider the creditworthiness of new and existing customers, establish credit limits, and
regularly review outstanding balances and payment histories. We may require pre-payments from customers under certain
circumstances and may limit future purchases until payments are made on past due amounts.
We do not believe our trade accounts receivable represent significant concentrations of credit risk due to our diversified
portfolio of individual customers and geographical areas.
Differences may arise between estimated and actual losses, which could materially affect the provision for credit losses and,
therefore, net earnings. We recorded $790, $736, $304 and of expense associated with credit losses for the years ended March
31, 2024, 2023, and 2022, respectively.
Cash Equivalents
We classify any highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents;
no cash equivalents are included on our Consolidated Balance Sheets as of March 31, 2024 or 2023.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventory is recorded to cost of products upon sale using a
weighted average costing methodology. Inventories purchased as part of a business combination are recorded at fair value.
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Our work in process and finished goods inventories include the costs of raw materials, labor and overhead, which are
estimated based on trailing twelve months of expense and standard labor hours for each product. We evaluate labor and
overhead costs annually unless specific circumstances necessitate a mid-year evaluation for specific items.
We monitor inventory costs relative to selling prices and perform physical cycle count procedures on inventories throughout
the year to determine if a lower of cost or net realizable value reserve is necessary. We estimate and maintain an inventory
reserve as needed for such matters as excess or obsolete inventory, shrinkage, and scrap. This reserve may fluctuate as our
assumptions change due to new information, discrete events, or changes in our business such as entering new markets or
discontinuing a specific product; however, once inventory is written down, a new cost basis is established that is not
subsequently written back up in future fiscal years.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation, except for assets acquired in acquisitions,
which are recorded at fair value. Expenditures for major renewals and improvements that extend the life of the asset are
capitalized, while expenditures for minor replacements, maintenance, and repairs are expensed as incurred.
Depreciation is calculated using the straight-line method over the assets’ estimated useful lives. Upon asset retirement or
disposal, accounts are relieved of cost and accumulated depreciation, and any related gain or loss is reflected in our results of
operations. In some cases, particularly with respect to business consolidation or closure activities, accelerated depreciation
may be required for the revised remaining useful lives of assets designated to be abandoned in the future.
At least annually, we evaluate and adjust as necessary the estimated useful lives of property, plant and equipment. Any
changes in estimated useful lives are recorded prospectively. Estimated useful lives of significant classes of depreciable
assets are as follows:
Category
Useful Lives in Years
Buildings and building improvements
40 (or less)
Manufacturing equipment
7 (or less)
Office, lab and other equipment, furniture and fixtures
7 (or less)
Computer equipment
3 (or less)
Leasehold improvements
Lesser of the economic life or the remaining term in the
respective lease
Land is not depreciated and construction in progress is not depreciated until placed in service, at which time it is assigned a
useful life consistent with the nature of the asset.
Leases
We determine whether contractual arrangements contain a lease at the inception of the arrangement. If a lease is identified in
an arrangement, we recognize a right-of-use asset ("ROU") and liability on our Consolidated Balance Sheets and
determine whether the lease should be classified as a finance or operating lease. We do not have any finance leases; our
operating leases have remaining terms between two months and twelve years as of March 31, 2024. We do not recognize
assets or liabilities for leases with original durations of less than 12 months, and our short-term leases are not material.
A contract is a lease or contains one when (1) the contract contains an explicitly or implicitly identified asset and (2) the
customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what
purpose the asset is used during the term of the contract in exchange for consideration. Operating lease assets and liabilities
are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not
yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the calculation of operating
lease liabilities, adjusted for prepayments. Adjustments would also be made for accrued lease payments, initial direct costs,
lease incentives, and impairment of operating lease assets, none of which are present in any of our current lease contracts.
When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease, otherwise we
use our incremental borrowing rate based on the information available at lease commencement. When we acquire a business,
we generally retain the acquiree's classification of its leases, and we evaluate ROU assets and liabilities in accordance with
ASC 842.
Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line
basis over the lease term. Lease expense is recorded in cost of revenues or selling, general and administrative, or research and
development expense on our Consolidated Statements of Operations, depending on the nature of use of the underlying asset.
Many of our leases include one or more renewal or termination options exercisable at our discretion, which are included in
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the determination of the lease term if we are reasonably certain to exercise the option. Renewal terms typically allow us to
extend lease terms between 1 and 3 years. We have also entered into lease agreements that have variable payments related to
certain indexes. Variable lease payments are recognized in the period in which those payments are incurred. All non-lease
components are readily identifiable in our lease contract. We account for non-lease components separately from the lease
component to which it is related.
Acquired Intangible Assets, Impairment Testing
Our goodwill and other intangible assets result from acquisitions of existing businesses. Intangible assets affect the amount of
future amortization expense and possible impairment losses we may incur.
Intangible assets with finite lives are amortized over their useful lives using the straight-line method, and amortization
expense is recorded within cost of revenues or general and administrative expense in the Consolidated Statements of
Operations. Impairment assessments are conducted if events or conditions indicate that the carrying value of an asset or asset
group may not be recoverable. Events or conditions indicating potential impairment include but are not limited to changes in
the competitive landscape, any internal decisions to pursue new or different technology strategies, losses of significant
customers, or significant changes in business performance or in the markets and industries we serve, including adverse
changes in the prices paid for our products or changes in the size of the markets for our products. If impairment indicators are
present, we determine whether the carrying value of the underlying intangible asset or asset group is recoverable through
undiscounted estimated future cash flows. If the asset or asset group is not found to be recoverable, we estimate the asset's
fair value using Level 3 inputs and discounted cash flow models and recognize impairment losses as necessary. If the
estimate of an intangible asset’s remaining useful life is changed in response to impairment testing, the remaining carrying
amount of the intangible asset is amortized prospectively over the revised remaining useful life.
Acquired intangible assets deemed to have finite lives are amortized on a straight-line basis over their useful lives, generally
ranging from three to fifteen years. We determine the useful lives of finite intangible assets based on the specific facts and
circumstances related to each asset, and we evaluate the appropriateness of assigned useful lives at least annually. Factors we
consider when determining useful lives include the contractual term of any agreement related to the asset, the historical
performance of the asset, our long-term strategy for using the asset, any laws or other local regulations which could impact
the useful life of the asset, and economic factors such as competition or specific market conditions.
Goodwill is not subject to amortization. We test goodwill for impairment as of January 1st each year, or more frequently if
events and circumstances indicate it is more likely than not that the fair value of a given goodwill reporting unit is less than
its carrying value. Events that could indicate impairment and that would trigger interim impairment testing include but are
not limited to: adverse current or expected economic, market, or industry-specific conditions, including a decline in our
market capitalization; sustained adverse changes or expected changes in business climate or in the operational performance of
the business; adverse changes in legal factors; and adverse actions or assessments by a regulator. We monitor for indications
of impairment throughout the year and perform qualitative and quantitative impairment tests as necessary based on quarterly
preliminary assessments of our performance. Our annual impairment tests typically begin with a qualitative assessment, and
further quantitative assessments are performed if we determine it is more likely than not that the fair value of a reporting unit
is greater than the carrying amount. We also perform quantitative assessments of reporting units at least every five years,
irrespective of whether any indicators exist that suggest a reporting unit may be impaired.
The fair value measurements used in testing intangible assets for impairment are typically based on discounted cash flow
projection and market multiple models, using Level 3 inputs. See “Fair Value Measurements” for a description of input
levels. Significant assumptions include, among others, the weighted average cost of capital, expected revenues growth,
expected cash outflows, and terminal growth rates. In certain cases, management uses other market information when
available to estimate fair value. Impairment losses are recognized through earnings and represent excess carrying value over
estimated fair value.
During the fourth quarter of fiscal 2024, we recorded impairment losses related to goodwill and intangible assets totaling
$274,533 in our Clinical Genomics and Biopharmaceutical Development divisions. See Note 6. “Goodwill and Intangible
Assets, Net.”
Research & Development Costs
We conduct research and development activities for the purpose of developing new products and enhancing the functionality,
effectiveness, reliability, and accuracy of existing products. Research and development costs are expensed as incurred.
Research and development expense is predominantly comprised of labor costs and third-party consultants, but we may from
time to time purchase in-process research and development with the intention of developing a saleable product.
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Convertible Debt
Our convertible 1.375% Convertible Senior Notes due 2025 (the "2025 Notes") do not have material embedded derivatives
and are recorded as long-term liabilities in our Consolidated Balance Sheets as of March 31, 2024. When the 2025 Notes are
within one year of maturity, or when the criteria necessary for conversion as described in Note 8. “Indebtedness” have been
met, the 2025 Notes will be reclassified as short-term liabilities. We may settle the 2025 Notes in shares of common stock or
in cash, as the case may be. We apply the if-converted method to calculate the potentially dilutive impact of the 2025 Notes
on net (loss) earnings per share. Debt issuance costs are amortized to bring the carrying value of the 2025 Notes to face using
the effective interest method over the life of the indenture governing the 2025 Notes.
Stock-based Compensation
We issue shares in the form of stock options and full-value awards as part of employee and non-employee director
compensation pursuant the Amended and Restated Mesa Laboratories, Inc. 2021 Equity Incentive Plan (the "2021 Equity
Plan"). Our shareholders approved an amendment to the 2021 Equity Plan during fiscal year 2024, increasing the number of
shares that can be issued under the plan from 330 shares to 660 shares. Some shares are fully vested and outstanding under
our Mesa Laboratories, Inc. 2014 Equity Plan.
The Equity Plans are administered by the Compensation Committee of the Board of Directors, which has the authority to
grant equity awards, or to delegate its authority under the plan to make grants (subject to certain legal and regulatory
restrictions), including the authority to determine the individuals to whom awards will be granted, the type of awards and
when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule, and all other
terms and conditions of the awards.
For purposes of counting the shares remaining under the 2021 Equity Plan, each share underlying a stock option or a full
value award counts as one share used. We issue new shares of common stock upon the exercise of stock options and the
vesting of time-based restricted stock units ("RSUs") and performance-based RSUs ("PSUs").
Stock options and service-based stock awards generally vest equally over a three year term and stock options generally expire
after six years. Awards granted to non-employee directors generally vest one year from the grant date. We recognize stock-
based compensation expense based on the fair value of stock awards at the grant date and recognize the expense over the
related service period using a straight-line vesting expense schedule. The 2021 Equity Plan includes retiree provisions which
result in the acceleration of stock-based compensation for expense for retiree-eligible participants. Compensation expense
related to employees eligible to retire at grant date or during the award term is recognized on a straight-line basis between the
grant date and the date of retirement eligibility, and the applicable retirees retain full rights to the awards upon retirement as
per the plan provisions.
Expense for PSUs is recognized, net of estimated forfeitures, over the related service period using a straight-line vesting
schedule when it is probable that performance goals will be achieved. Performance goals are determined by the Board of
Directors and may include measures such as revenues growth and profitability targets. A portion of the PSUs include a
market condition in the form of a relative total shareholder return "TSR" modifier, which adjusts the quantity of shares
earned up or down by a maximum of 20% pursuant to a market-based measure of performance comparing Mesa's share price
to a peer group over a three year period. Compensation expense on stock awards subject to performance conditions is
recognized over the longer of the estimated performance goal attainment period or time vesting period. As of each reporting
period, we estimate the number of PSUs expected to vest based on our current estimate of performance compared to the
target metrics in the award documents and adjust for the relative TSR percentage, and if necessary, a cumulative-effect
adjustment is recorded.
The grant date fair value of the PSUs with a relative TSR modifier is determined using the Monte Carlo simulation valuation
model.
The fair value of RSUs and performance-based RSUs without a market condition are based on the closing price of Mesa's
common stock on the award date, less the present value of expected dividends not received during the vesting period. RSUs
we issue are equivalent to nonvested shares under the applicable accounting guidance.
The fair value of each granted stock option is estimated on the grant date using the Black-Scholes option pricing model. The
assumptions used to calculate the fair value of granted options reflect market conditions and our historical experience. We
estimate expected forfeitures using a dynamic forfeiture model based on company specific historical data when determining
the amount of stock-based compensation costs to recognize each period. The expected life of options represents the estimated
period of time until exercise and is based on historical experience of similar awards for similar subsets of our employee
population, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior.
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Expected stock price volatility is based on the historical volatility of our own stock price over the period of time
commensurate with the expected life of the award. The risk-free rate is based on the United States Treasury yield curve in
effect at the time of grant for the estimated life of the stock option. The dividend yield assumption is based on our anticipated
cash dividend payouts. To date, we have identified no instances in which an adjustment to our observable market price would
be required compared to the closing price of Mesa's common stock on the award date as an input to our fair value
calculations.
We allocate stock-based compensation expense to cost of revenues, selling, research and development, and general and
administrative expense in the Consolidated Statements of Operations.
Net (Loss) Earnings Per Share
Basic net (loss) earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common
shares outstanding during the reporting period. Diluted (loss) earnings per share (“diluted EPS”) is computed similarly to
basic EPS, except it includes the effects of potential dilution that could occur if dilutive securities vested, were exercised or
converted. Potentially dilutive securities include stock options, RSUs and PSUs (collectively “stock awards”), as well as
common shares underlying the 2025 Notes. Potentially dilutive securities are excluded from the calculation of diluted EPS in
the event they are subject to performance conditions that have not yet been achieved or if they would otherwise be
antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss; in
such cases the inclusion of the potential common shares would have an antidilutive effect. See Note 10. “Net (Loss) Earnings
per Share” for EPS calculations for the years ended March 31, 2024, 2023 and 2022.
Income Taxes
Income tax expense includes U.S., state, local and international income taxes. Deferred tax assets and liabilities are
recognized and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the tax basis of existing assets and liabilities used for income tax purposes. The tax rate used
to determine the deferred tax assets and liabilities is based on the enacted tax rate for the year and the manner in which the
differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will
more likely than not be realized.
From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty, such as
acquisitions. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We
prepare and file tax returns based on interpretation of tax laws and regulations. In the normal course of business, our tax
returns are subject to examination by various taxing authorities. Such examinations may result in future tax, interest and
penalty assessments by these taxing authorities. In determining our income tax provision for financial reporting purposes, we
establish a reserve for uncertain tax income positions unless we determine it is not more likely than not that such positions
would be sustained upon examination, based on their technical merits. That is, for financial reporting purposes, we only
recognize tax benefits taken on the tax return that we believe are more likely than not of being sustained. There is
considerable judgment involved in determining whether positions taken on the tax return are more likely than not of being
sustained. We adjust our tax reserve estimates periodically because of ongoing examinations by, and settlements with, the
various taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated income tax
provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any
related estimated interest. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax
positions as part of general administrative expense. (See Note 12. “Income Taxes”).
Acquisition Related Contingent Consideration Liabilities
Acquisition related contingent consideration liabilities consist of estimated amounts due under various acquisition
agreements and may be based on revenues growth, specified profitability growth metrics, or the attainment of milestones
such as patent approvals. At each reporting period, we evaluate the expected future payments and any associated discount
rates to determine the fair value of the contingent consideration. We adjust contingent consideration to fair value at each
reporting period through general and administrative expenses in the Consolidated Statements of Operations. See Note 13.
“Commitments and Contingencies” for information regarding existing contingent consideration liabilities as of March 31,
2024.
In addition to contingent consideration liabilities, we may hold back a portion of the purchase price related to an acquisition
as security against potential indemnification losses. Such holdbacks relate to circumstances that existed as of the date of
acquisition, and as such they are not considered contingencies; however, amounts ultimately paid related to holdbacks may
differ from the estimates management makes upon acquisition, depending upon whether pre-acquisition liabilities are
identified during the holdback period.
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Legal Contingencies
We are party to various claims and legal proceedings that arise in the normal course of business. We record an accrual for
legal contingencies when we determine it is probable we have incurred a liability and can reasonably estimate the amount of
the loss (See Note 13. “Commitments and Contingencies”).
Purchase Accounting for Acquisitions
We account for all business combinations in which we obtain control over another entity using the acquisition method of
accounting, which requires most assets (both tangible and intangible) and liabilities to be recorded at fair value at the date of
acquisition. The excess of the purchase price over the fair value of acquired assets less liabilities is recognized as goodwill.
We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple
analyses, which rely heavily on Level 3 inputs. These types of analyses require us to make and monitor assumptions and
estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.
For all material acquisitions, we engage external valuation specialists to aid management in preparing our fair value models.
Certain adjustments to the assessed fair values of acquired assets or liabilities made subsequent to the acquisition date but
within the measurement period are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement
period are recorded within earnings. We expense all acquisition related costs, such as legal and advisory fees, as incurred in
general, and administrative expenses in the Consolidated Statements of Operations.
Results of operations of acquired companies are included in our Consolidated Financial Statements from the date of the
acquisition forward. If actual results are not consistent with our assumptions and estimates, or if our assumptions and
estimates change due to new information, we may be exposed to additional losses. For the years ended March 31, 2024, 2023
and 2022, we acquired businesses for total net purchase prices of $87,187, $6,140, and $300,793, respectively.
Business Consolidation Costs
We estimate liabilities for business closure activities by gathering detailed estimates of costs and, if applicable, asset sale
proceeds, for each business consolidation initiative. For a typical business consolidation initiative, we estimate costs of
employee severance, impairment of property and equipment and other assets including estimating net realizable value, if
necessary, accelerated depreciation, termination payments for contracts and leases, and any other qualifying costs related to
an exit plan. Such charges represent our best estimates; however, they require assumptions about plans that may change over
time. The estimated costs are grouped by specific projects within the overall exit plan and are monitored at each reporting
period. Any subsequent changes to the original estimates are recorded in current earnings.
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. It is not possible to accurately predict the future impact of such
events and circumstances. However, we have reviewed the estimates used in preparing the financial statements and
have identified the following factors that have a reasonable possibility of being materially affected in the near term:
●
Estimates regarding the recoverability of deferred tax assets and estimates regarding cash needs and associated
indefinite reinvestment assertions.
●
Estimates of the net realizable value of inventory.
●
Estimates regarding future financial performance and other inputs into fair value estimates related to impairment tests
for goodwill and intangible assets that could result in additional future impairment losses.
We do not believe that there are any significant risks that have not already been disclosed in the Consolidated Financial
Statements.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." ASU No. 2023-
07 requires all annual disclosures currently required by Topic 280 to be included in interim periods and requires disclosure of
significant segment expenses regularly provided to the chief operating decision maker ("CODM"), a description of other
segment items by reportable segment, and applicable additional measures of segment profit or loss used by the CODM when
allocating resources and assessing business performance. The ASU is effective for fiscal years beginning after December 15,
2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. We are currently
assessing the effect the adoption of this standard will have on our consolidated financial statements.
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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 statements.
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.
Recently Adopted Accounting Pronouncements
There have been no accounting pronouncements applicable to us that we were required to adopt or that we have elected to
adopt during fiscal year 2024.
Note 2. 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 may be offered with
accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function.
Consumables are typically used on a one-time basis and require frequent replacement in our customers' operating cycles.
Consumables sold by our Clinical Genomics and Biopharmaceutical Development divisions, such as reagents used for
molecular and genetic analysis or solutions used for protein synthesis, are critical to the ongoing use of our instruments.
Consumables such as biological indicator test strips sold by our Sterilization and Disinfection Control division are used on a
standalone basis.
Revenues from hardware and consumables are recognized upon transfer to the customer, typically at the point of shipment.
We also offer maintenance, calibration, and testing service contracts. These contracts result in revenues recognized over time,
for example, when we are obligated to perform labor and replace parts on an as-needed basis over a contractually specified
period, or at a point in time, upon completion of a specific, discrete service. In many cases, our contracts contain both
revenues recognized over time and revenues recognized at a point in time.
We evaluate our revenues internally based on business division and the nature of goods and services provided.
The following tables present disaggregated revenues from contracts with customers for the years ended March 31, 2024,
2023 and 2022:
Year Ended March 31, 2024
Sterilization
and
Disinfection
Control (1)
Clinical
Genomics
Biopharmaceutical
Development
Calibration
Solutions Total
Consumables
$
65,459 $
36,086 $
17,086 $
2,345 $ 120,976
Hardware and Software
549
12,254
12,993
30,024
55,820
Services
9,116
4,248
10,633
15,394
39,391
Total revenues
$
75,124 $
52,588 $
40,712 $
47,763 $ 216,187
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Year Ended March 31, 2023
Sterilization
and
Disinfection
Control
Clinical
Genomics
Biopharmaceutical
Development
Calibration
Solutions Total
Consumables
$
55,605 $
43,374 $
15,800 $
3,062 $ 117,841
Hardware and Software
692
13,347
22,079
26,561
62,679
Services
8,312
5,578
9,486
15,184
38,560
Total revenues
$
64,609 $
62,299 $
47,365 $
44,807 $ 219,080
Year Ended March 31, 2022
Sterilization
and
Disinfection
Control
Clinical
Genomics
(2)
Biopharmaceutical
Development
Calibration
Solutions Total
Consumables
$
50,311 $
22,271 $
15,551 $
3,675 $ 91,808
Hardware and Software
700
6,726
21,651
28,537
57,614
Services
8,033
3,843
8,377
14,660
34,913
Total revenues
$
59,044 $
32,840 $
45,579 $
46,872 $ 184,335
(1) Beginning October 16, 2023, revenues of $8,214 from GKE GmbH and SAL GmbH are included in the Sterilization and
Disinfection Control division. Revenues of $1,075 from GKE China are included in the Sterilization and Disinfection Control
division beginning on January 1, 2024.
(2) Revenues in the Clinical Genomics division represent transactions subsequent to the acquisition of Agena Bioscience, Inc.
on October 20, 2021.
Contract Balances
Our contracts have varying payment terms and conditions. Some customers prepay for products and services, resulting in
either unearned revenues or customer deposits, called contract liabilities. Short-term contract liabilities are included within
unearned revenues in the accompanying Consolidated Balance Sheets, and long-term contract liabilities are included within
other long-term liabilities in the accompanying Consolidated Balance Sheets. The significant majority of our revenues and
related receivables and contract liabilities are generated from contracts with customers with original expected 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, 2023
$
16,098
Prior year liabilities recognized in revenues during the year ended March 31, 2024
(9,557 )
Contract liabilities added during the year ended March 31, 2024, net of revenues recognized
9,145
Contract liabilities balance as of March 31, 2024
$
15,686
Note 3. Fair Value Measurements
Our financial instruments generally consist of cash and cash equivalents, trade accounts receivable, obligations under trade
accounts payable, and debt. Due to their short-term nature, the carrying values of cash and cash equivalents, trade accounts
receivable, and trade accounts payable approximate fair value; they are classified within Level 1 of the fair value hierarchy.
The financial instruments that subject us to the highest concentration of credit risk are cash and accounts receivable. We
maintain relationships and cash deposits at multiple banking institutions across the world in an effort to diversify and reduce
risk of loss. Concentration of credit risk with respect to accounts receivable is limited to customers to whom we make
significant sales. No customers accounted for more than 10% of total trade receivables as of March 31, 2024.
As of March 31, 2024, we had outstanding $172,500 aggregate principal of 1.375% convertible senior notes due August 15,
2025, which we refer to as our 2025 Notes. We estimate the fair value of the 2025 Notes using Level 2 inputs based on the
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last actively traded price or observable market input preceding the end of the reporting period. The estimated fair value and
carrying value of the 2025 Notes were as follows:
March 31, 2024
March 31, 2023
Carrying
Value
Fair Value
(Level 2)
Carrying
Value
Fair Value
(Level 2)
2025 Notes
$
171,198 $
163,013 $
170,272 $
161,072
See Note 15. "Subsequent Events" for information related to our partial repurchase of the 2025 Notes in April 2024.
The Belyntic acquisition obligates us to pay contingent consideration of up to $1,500 cash upon regulatory approval of
certain patent applications (see Note 13. "Commitments and Contingencies"). We estimate the fair value of the remaining
contingent consideration using Level 3 inputs and a probability-weighted outcome analysis based on our expectations of
patent approval leveraging our historical experience and expert input, and we adjust the estimated fair value at each reporting
period through earnings. The fair value of the remaining contingent consideration was $571 as of March 31, 2024, of which
$436 is recorded in Other accrued expenses and $135 is recorded in acquisition-related holdbacks on the accompanying
Consolidated Balance Sheets.
Amounts recognized or disclosed at fair value in the 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 (see Note 4. "Significant Transactions"). Additionally, assets such as property and
equipment, operating lease assets, goodwill and other intangible assets are adjusted to fair value if determined to be impaired.
We recorded $274,533 of non-cash impairment losses to goodwill and other intangible assets during the fiscal year ended
March 31, 2024 (see Note 6. "Goodwill and Intangible Assets, Net" for further information); no impairment losses were
recorded during the years ended March 31, 2023 or March 31, 2022. Fair values of such assets and
liabilities require measurement using Level 3 inputs.
There were no transfers between the levels of the fair value hierarchy during the fiscal years ended March 31, 2024 and
2023.
Note 4. Significant Transactions
Acquisition of GKE
We acquired 100% of the outstanding shares of GKE GmbH and SAL GmbH effective October 16, 2023, on which date we
began including the entities as wholly owned subsidiaries in our consolidated financial statements. Upon approval by
applicable Chinese regulators, we acquired 100% of the outstanding shares of Beijing GKE Science & Technology Co. Ltd.
(“GKE China,” and, together with GKE GmbH and SAL GmbH, “GKE”), effective December 31, 2023 (the "GKE
acquisition"). GKE China is included as a wholly owned subsidiary in our Consolidated Balance Sheets as of December 31,
2023, and we began consolidating the results of its operations on January 1, 2024.
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.
Total consideration for the GKE acquisition was $87,187, net of cash and financial liabilities and inclusive of working capital
adjustments. Of the total acquisition price, approximately $9,300 at March 31, 2024 exchange rates is being held back for a
period of 18 months from acquisition closing as security against potential indemnification losses. We funded the acquisition
through a combination of cash on-hand and a total of $71,000 borrowed under our line of credit (See
Note 8. "Indebtedness").
Allocation of Purchase Price
We accounted for the GKE acquisition as a business combination using the acquisition method of accounting. Under the
acquisition method of accounting, the acquiree's identifiable assets acquired and liabilities assumed are recorded at their
Page 63
acquisition date fair values and are consolidated with those of the acquirer. The multi-period excess earnings method, a form
of the income approach, was used to value acquired customer relationships, while the relief from royalty method was used to
value acquired intellectual property and trade names. The non-compete agreements were valued using a probability-weighted
estimate of the expected economic impact that would occur in the absence of the agreements. Significant judgments and
estimates are required when performing valuations, including, among other assumptions, internal rates of return, revenue
growth rates, customer attrition rates, and royalty rates, all of which are considered Level 3 inputs. We worked with external
valuation experts to prepare the valuation using information obtained during due diligence and from professional valuation
databases and other sources. These estimates were based on assumptions that we believe to be reasonable; however, actual
results may differ from these estimates.
The following table summarizes the allocation of the purchase price as of acquisition:
Life (in years)
Amount
Cash and cash equivalents
$
4,191
Accounts receivable (a)
2,252
Inventories (b)
4,730
Other current assets
176
Total current assets
11,349
Property, plant and equipment (c)
3,398
Other noncurrent assets
3,041
Intangible assets:
Customer relationships (d)
12
34,708
Intellectual property (d)
7
3,208
Trade names (d)
10
5,412
Non-compete agreements (d)
3
743
Goodwill (e)
48,850
Total assets acquired
$
110,709
Accounts payable
11
Deferred tax liability
13,901
Other current liabilities
2,746
Long-term liabilities
2,673
Total liabilities assumed
19,331
Total purchase price, net of cash acquired
$
87,187
(a) Accounts receivable are expected to be collected. The carrying value of accounts receivable at acquisition approximates
fair value.
(b) Includes $2,414 of inventory step-up, which we expect to amortize within approximately one year from the acquisition
date. During the period from October 16, 2023 to March 31, 2024, $1,229 of inventory step-up amortization was recorded
to cost of revenues.
(c) Includes $2,353 of fixed asset step-up, which will be amortized based on the underlying assets' expected lives. During the
period from October 16, 2023 to March 31, 2024, $365 of property, plant and equipment step-up was recorded to
depreciation expense.
(d) Acquired amortizable intangible assets are currently expected to be amortized on a straight-line basis over a weighted
average period of 11.2 years. The identified intangible assets will be amortized on a straight-line basis over their useful
lives, which approximates the pattern that assets' economic benefits are expected to be consumed. Amortization expense
for customer relationships, trade names, and noncompete agreements will be expensed to general and administrative
expense, and amortization expense for intellectual property will be expensed to cost of revenues. During the period from
October 16, 2023 and March 31, 2024, $2,005 of amortization expense was recorded to general and administrative costs
and $266 of amortization expense was recorded to cost of revenues in the Sterilization Disinfection Control division
related to the GKE acquisition.
(e) Acquired goodwill of $48,850, all of which is allocated to the Sterilization Disinfection Control division, represents the
value expected to arise from the benefits of expanded market opportunities, particularly in the healthcare industry, as well
as expected synergies and GKE's assembled workforce, none of which qualify as amortizable intangible assets. The
goodwill acquired is expected to be deductible for U.S. taxes with respect to GILTI; the goodwill is not expected to be
deductible for foreign tax purposes.
Page 64
Acquisition related costs such as legal and advisory fees were approximately $835 during fiscal year 2024; these costs are
not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred and
are reflected on the Consolidated Statements of Operations in general and administrative expenses.
GKE's operations contributed $9,289 to revenues and $1,046 of net income (including $2,271 of non-cash amortization
expense related to acquired intangible assets and $1,229 of non-cash inventory step up expense) to our consolidated results
during the twelve months ended March 31, 2024.
Supplemental unaudited pro-forma information
Combined revenues from Mesa and GKE for fiscal years 2024 and 2023 would have been approximately $229,260 and
$241,360, respectively, had the GKE acquisition occurred at the beginning of our prior fiscal year on April 1, 2022.
It is impracticable for us to disclose pro-forma net earnings information regarding the combined results of the operations of
Mesa and GKE as if the acquisition had occurred at an earlier date. Prior to acquisition, GKE was a privately owned
company with financial statements prepared on a statutory, rather than GAAP, basis, using a different fiscal year end than
Mesa's. Certain financial information cannot be recreated for accurate financial results. For example, prior to Mesa's
ownership, GKE accounted for inventory at an unburdened rate and performed only annual inventory counts, such that we
cannot accurately estimate cost of goods sold. Additionally, all transactions occurring between the three GKE entities, which
are substantial, were accounted for at arms-length prior to acquisition; we eliminated intercompany transactions from a
revenue perspective above, but we do not have sufficient historical detail to eliminate intercompany cost of revenues
accurately. As presentation of pro-forma net earnings information would require extensive estimation and could not be
sourced from sufficiently factual information reasonably aligned with GAAP, it is impracticable for us to disclose pro-forma
net earnings information.
Belyntic, GmbH
On November 17, 2022, we acquired substantially all of the assets and certain liabilities of Belyntic GmbH’s peptide
purification business (“the Belyntic acquisition”) for a total cash price of $6,450, of which $4,950 was paid on the date of
acquisition. The remaining $1,500 becomes due to the Belyntic sellers as patent applications are approved (see Note
13. "Commitments and Contingencies"). The business complements our existing peptide synthesis business, part of the
Biopharmaceutical Development segment, by adding a new consumables line that can be used with the instruments we sell.
The new PurePep® EasyClean products are an environmentally conscious chemistry solution to purify peptides. During the
twelve months ended March 31, 2024, we recorded certain measurement period adjustments to reclassify amounts from
intangible assets into goodwill. Our preliminary purchase price allocation was finalized as of December 31, 2023.
Agena Bioscience, Inc.
On October 20, 2021, we completed the acquisition of 100% of the outstanding shares of Agena Bioscience, Inc. (“Agena” or
“the Agena acquisition”) for adjusted cash consideration of $300,793. Agena is a leading clinical genomics tools company
that develops, manufactures, markets and supports proprietary instruments and related consumables that enable genetic
analysis for a broad range of research applications. The acquisition of Agena moved our business toward the life sciences
tools sector and expanded our market opportunities, particularly in Asia. Agena’s operations comprise our Clinical Genomics
segment.
Page 65
Note 5. Leases
We have operating leases for buildings and office equipment used in manufacturing and distribution, engineering, research
and development, sales and marketing, and administration activities. The following table presents the lease balances within
the Consolidated Balance Sheets related to our operating leases:
Lease Assets and Liabilities
Balance Sheet Location
March 31,
2024
March 31,
2023
Operating lease ROU asset
Other assets
$
9,671 $
8,693
Current operating lease liabilities
Other accrued expenses
2,986
2,868
Noncurrent operating lease liabilities
Other long-term liabilities
6,613
5,752
The components of lease costs, the weighted average remaining lease term and the weighted average discount rate were as
follows:
Year Ended March 31,
2024
2023
Operating lease expense
$
3,453 $
3,064
Variable lease expense
530
704
Total lease expense
$
3,983 $
3,768
Weighted average remaining lease term in years
4.6
3.3
Weighted average discount rate
4.1 %
2.0 %
Supplemental cash flow information related to leases was as follows:
Year Ended March 31,
2024
2023
Cash paid for amounts included in the measurements of lease liabilities
$
3,392 $
3,017
Operating lease assets obtained in exchange for operating lease obligations
4,265
1,426
Increases in operating lease right of use assets and lease liabilities are primarily due to the acquisition of GKE.
As of March 31, 2024 maturities of lease liabilities are as follows for future years ending March 31:
2025
$
3,306
2026
2,721
2027
2,169
2028
444
2029
413
Thereafter
1,792
Future value of lease liabilities
10,845
Less: imputed interest
1,246
Present value of lease liabilities
$
9,599
The maturity schedule above does not include discounted future minimum lease payments for leases not yet commenced of
approximately $7,633 for manufacturing, office and warehouse facilities used by our Biopharmaceutical Development
division in Uppsala, Sweden. The lease has a term of 10 years and is expected to commence during the first quarter of fiscal
year 2025.
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Note 6. Goodwill and Intangible Assets, Net
Goodwill
Goodwill arises from the excess purchase price of acquired businesses over the fair value of acquired tangible and intangible
assets, less assumed liabilities.
Changes in the carrying amount of goodwill were as follows:
Sterilization
and
Disinfection
Control
Clinical
Genomics
Biopharmaceutical
Development
Calibration
Solutions Total
March 31, 2022
$
29,750 $ 135,914 $
88,265 $
37,237 291,166
Effect of foreign currency translation
(191 )
49
(7,381 )
(20 )
(7,543 )
Goodwill related to Belyntic acquisition
-
-
2,973
-
2,973
Measurement period adjustment, Agena
acquisition
-
(152 )
-
-
(152 )
March 31, 2023
$
29,559 $ 135,811 $
83,857 $
37,217 286,444
Effect of foreign currency translation
1,021
(130 )
(32 )
(6 )
853
Impairment losses
- (118,741 )
(38,151 )
- (156,892 )
Goodwill related to GKE acquisition
48,850
-
-
-
48,850
Measurement period adjustment, Belyntic
Acquisition
-
-
841
-
841
March 31, 2024
$
79,430 $
16,940 $
46,515 $
37,211 $ 180,096
In the third quarter of fiscal year 2024, we completed the acquisition of GKE. See Note 4. “Significant Transactions” for
further information.
During the fourth quarter of our fiscal year ended March 31, 2024, we recorded consolidated goodwill impairment losses of
$156,892 related to our Clinical Genomics and Biopharmaceutical Development divisions.
For reporting units associated with our Clinical Genomics and Biopharmaceutical Development divisions, we performed
quantitative impairment analyses over goodwill because declining revenues growth in both divisions indicated that the fair
values of the businesses might have declined below their carrying values. We also performed quantitative impairment
analyses on finite-lived intangible assets within those divisions. More information on the impairment losses is included in the
“Impairment Losses” section below. We performed qualitative impairment tests over reporting units in our Sterilization and
Disinfection Control and Calibration Solutions divisions and concluded that it was not more likely than not that the fair
values of those businesses had declined below their carrying values.
Finite-Lived Intangible Assets
Other intangible assets were as follows:
March 31, 2024
March 31, 2023
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Customer relationships
$
189,911 $
(104,528 ) $
85,383 $
238,247 $
(86,058 ) $
152,189
Intellectual property
41,602
(25,901 )
15,701
65,950
(19,550 )
46,400
Other intangibles
19,559
(6,891 )
12,668
24,793
(6,567 )
18,226
Total
$
251,072 $
(137,320 ) $
113,752 $
328,990 $
(112,175 ) $
216,815
Page 45
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Amortization expense for finite-lived intangible assets acquired in a business combination was as follows:
Year Ended March 31,
2024
2023
2022
Amortization in cost of revenues
$
6,052 $
6,796 $
3,806
Amortization in general and administrative
21,289
22,025
18,000
Total
$
27,341 $
28,821 $
21,806
Other than amortization expense, the changes in finite-lived intangible assets from March 31, 2023 to March 31, 2024
primarily reflect impairment losses totaling $117,641 as further described below, additions of $44,071 related to purchase
accounting for GKE as of the acquisition date, and foreign currency impacts. See Note 4. “Significant Transactions” for
additional information related to our acquisition of GKE. All impairment losses related to finite-lived intangible assets were
recorded in our Clinical Genomics division. Of the $117,641 impairment losses, $79,116 related to customer relationships,
$28,531 related to patents and other technology-related propriety information, and $9,994 related to trademarks and trade
names.
In addition to testing definite-lived intangible assets for impairment in our Clinical Genomics and Biopharmaceutical
Development divisions, we also quantitatively tested trademarks and trade names which were previously identified as
indefinite-lived intangible assets in our Biopharmaceutical Development division. We concluded the trademarks and trade
names were not impaired; however, as of our impairment testing date on January 1, 2024, we have assigned a useful life of
10 years from the original acquisition date to these assets in response to increased pressures and risks in the
biopharmaceutical industry resulting from macroeconomic influences. The trademarks and trade names will now amortize
through October 2029, resulting in additional expected non-cash amortization expense of approximately $700 per year. We
reassessed the remaining useful lives of our intangible assets in conjunction with our impairment testing and made no further
material changes to our expectations of the remaining useful lives of our intangible assets because, while the value of certain
assets has diminished since acquisition, the expected duration of their usefulness has not changed in response to the
macroeconomic and other factors leading to the impairment losses.
The range of useful lives and weighted-average remaining useful lives of amortizable intangible assets as of March 31, 2024
were as follows:
Approx.
Est.
Useful
Weighted
Avg.
Life
Remaining
Life
Description
(Years)
(Years)
Customer Relationships
7 - 14
8.0
Intellectual Property
7 - 10
5.9
Other Intangibles
3 - 12
7.9
The following is estimated amortization expense for the years ending March 31:
Amortization
Year
Expense
2025
$
17,788
2026
16,988
2027
16,328
2028
15,735
2029
15,182
Impairment Losses
In conjunction with our annual impairment testing, we engaged external valuation specialists to aid in performing
recoverability tests, and ultimately fair value tests, over intangible assets in our Clinical Genomics division and both
reporting units (Immunoassays and Peptides) of our Biopharmaceutical Development division. Fair value testing was
performed by weighting Gordon Growth and Exit Multiple discounted cash flow models and guideline public company
Page 68
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 our valuation specialists and are based on internal expectations for future performance,
market indicators, and reputable valuation research resources. Impairment losses are recorded in either Impairment of finite-
lived intangible assets or Impairment of goodwill in the accompanying Consolidated Statements of Operations. As of the date
of our annual goodwill impairment testing, January 1, 2024, the total fair values of the Clinical Genomics and
Biopharmaceutical Development divisions were $58,900 and $119,000, respectively. Impairment losses 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 January 1, 2024 impairment testing date. The fair value of the
Peptides reporting unit within our Biopharmaceutical Development division exceeded carrying value by approximately 36%
as of our testing date, and no impairment losses were recorded for this reporting unit. The goodwill associated with each of
Clinical Genomics, Immunoassays, and Peptides reporting units as of March 31, 2024 was $16,940, $32,807, and $13,708,
respectively. As such, the Clinical Genomics and Biopharmaceutical Development divisions are susceptible to further
impairment losses in the future if actual results differ significantly from our estimates. Assumptions used in goodwill and
intangible asset impairment tests include unobservable Level 3 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, will occur in the Clinical Genomics and Biopharmaceutical Development divisions in the future.
We monitor each of our divisions for indicators of impairment on a quarterly basis. Several changes to the Clinical Genomics
division occurred during the fourth quarter of fiscal year 2024 that were incorporated into our impairment analyses and
contributed to the recognized impairment loss. First, we enacted changes in our management structure, whereby a new
General Manager was assigned to lead the division. Immediately, the new manager began restructuring the division,
eliminating 17 positions. Additionally, new division management began to implement an updated business strategy, which
resulted in a downward revision of financial expectations for the coming years, particularly the next 1.5 – 2 years, but which
will better position the division to achieve sustainable long-term growth. Additionally, in the fourth quarter of 2024, we lost
two individually immaterial customer contracts as continued economic difficulties resulted in their bankruptcy. These
internal changes, coupled with difficult macroeconomic conditions described further below ultimately contributed to the
impairment losses recorded related to the Clinical Genomics division.
Throughout fiscal year 2024, we performed regular analyses comparing the results of the Biopharmaceutical Development
division with our expectations at the time of purchase. Our analyses in the first three quarters of fiscal 2024 indicated that
reporting units associated with the Biopharmaceutical Development division more likely than not were not impaired, in part
because actual operating costs to date had been lower than were expected at acquisition. However, in the fourth quarter of
fiscal year 2024, persistent difficult macroeconomic trends resulted in a downward revision of financial expectations for the
coming years compared to when the division was acquired, ultimately resulting in a downward revision of previous forecasts
of the division’s results, particularly after the division failed to meet our revenue expectations during the fourth quarter.
Conditions that negatively impacted both the Clinical Genomics and the Biopharmaceutical Development division included:
●
significant increases in discount rates used to value the reporting units due elevated risk-free rates and
macroeconomic risk in the market;
●
macroeconomic factors, particularly in the biopharmaceutical and pharmaceutical markets, including decreased
spending on capital equipment and consolidation of some served customers;
●
continued uncertainty in the wider macroeconomic environment, including persistently elevated interest rates
compared to when the acquisitions were consummated; and,
●
macroeconomic uncertainty in China, which resulted in lower than expected capital equipment purchases;
●
continuing high interest rates limiting our customers’ spend on capital equipment.
The nature of our Sterilization and Disinfection Control and Calibration Solutions divisions makes them less sensitive to
existing macroeconomic conditions, particularly since the product lines offered by these divisions do not require our
customers to initially invest in high-dollar capital equipment to the same degree as in our Clinical Genomics and
Biopharmaceutical Development divisions.
Note 7. Supplemental Balance Sheet Information
Significant changes in balance sheet amounts below are primarily attributable to the acquisition of GKE and related step-up
amounts under purchase accounting. See Note 4. "Significant Transactions" for details.
Page 69
Inventories consisted of the following:
March 31,
2024
March 31,
2023
Raw materials
$
18,335 $
20,064
Work in process
1,256
617
Finished goods
13,084
13,961
Total inventories
$
32,675 $
34,642
In addition to sales of existing inventories, higher non-cash scrap expense in fiscal year 2024 contributed to the overall
decrease in inventories, partially offset by the GKE acquisition and inventory purchases to meet current production needs.
Prepaid expenses and other consisted of the following:
March 31,
2024
March 31,
2023
Prepaid expenses
$
2,932 $
2,498
Deposits
1,898
1,376
Prepaid income taxes
1,237
953
Other current assets
3,341
4,045
Total prepaid expenses and other
$
9,408 $
8,872
Property, plant and equipment consisted of the following:
March 31,
2024
March 31,
2023
Land
$
889 $
889
Buildings and building improvements
23,480
22,005
Manufacturing equipment
19,540
14,481
Computer equipment
3,613
4,413
Other
5,383
4,394
Construction in progress
1,380
1,735
Gross total
54,285
47,917
Accumulated depreciation
(22,519 )
(19,768 )
Property, plant and equipment, net
$
31,766 $
28,149
Depreciation expense was as follows:
Year Ended March 31,
2024
2023
2022
Depreciation expense in Cost of revenues
$
3,031 $
3,163 $
2,243
Depreciation expense in Operating expense
1,202
1,150
1,019
Total depreciation expense
$
4,233 $
4,313 $
3,262
Accrued payroll and benefits consisted of the following:
March 31,
2024
March 31,
2023
Bonus payable
$
3,838 $
4,461
Wages and paid-time-off payable
3,072
2,329
Payroll related taxes
1,956
1,982
Other benefits payable
1,069
661
Total accrued payroll and benefits
$
9,935 $
9,433
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Other accrued expenses consisted of the following:
March 31,
2024
March 31,
2023
Accrued business taxes
$
5,557 $
5,941
Current operating lease liabilities
2,986
2,868
Income taxes payable
1,615
992
Other
2,700
2,297
Total other accrued expenses
$
12,858 $
12,098
Note 8. Indebtedness
Credit Facility
On March 5, 2021, we entered into a four-year senior secured credit agreement that included 1) a revolving credit facility in
an aggregate principal amount of up to $75,000 (the "Revolver"), 2) a swingline loan in an aggregate principal
amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500 at any time. The
agreement also provided for an incremental term loan or an increase in revolving commitments in an aggregate principal
amount of at a minimum $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender
considerations. On October 5, 2023, we amended the terms of our four-year senior credit facility to increase the maximum
principal amount available to us under the Revolver from $75,000 to $125,000. We refer to the agreement in whole as the
“Credit Facility.”
Subsequent to the end of fiscal year 2024, on April 5, 2024, we further amended and restated the terms of the Credit Facility.
The amended Credit Facility has been modified 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.
Amounts borrowed under the Credit Facility bear interest at either a base rate or a SOFR rate plus an applicable spread
ranging from 1.5% to 3.5%, depending on our total net leverage ratio. The interest rate on borrowings under our line of credit
as of March 31, 2024 was 7.2%.
We are obligated to pay quarterly unused commitment fees of between 0.20% and 0.35% of the Revolver’s aggregate
principal amount, based on our leverage ratio. We incurred unused commitment fees of $164 and $107 for the years ended
March 31, 2024, and March 31, 2023, respectively. The balance of unamortized customary lender fees was $321 and $312 as
of March 31, 2024 and 2023, respectively.
During the second quarter of fiscal year 2024, we borrowed a total of $71,000 under the Revolver to fund the majority of the
GKE acquisition, and repaid $20,500 against that outstanding balance during the third and fourth quarters of fiscal year
2024. As of March 31, 2024, the outstanding balance under our Credit Facility was $50,500. Subsequent to March 31, 2024,
we repaid an additional $7,500 on our line of credit. We borrowed $75,000 under the Term Loan on April 5, 2024 at a rate of
8.4% as of the borrowing date, largely to fund the repurchase of a portion of the 2025 Notes. See Note 15. "Subsequent
Events."
The financial covenants in the Credit Facility as amended include a maximum leverage ratio of 4.50 to 1.00 for the first five
testing dates on which the line of credit is outstanding; 4.0 to 1.0 on each of the sixth, seventh, eighth, and ninth testing dates;
and 3.5 to 1.0 on each testing date following the ninth testing date. The Credit Facility also stipulates a minimum fixed
charge coverage ratio of 1.25 to 1.0 and a minimum senior net leverage ratio of 3.5 to 1. Other covenants include restrictions
on our ability to incur debt, grant liens, make fundamental changes, engage in certain transactions with affiliates, or conduct
asset sales. As of March 31, 2024, we were in compliance with all required covenants under the terms of the Credit Facility,
both before and after the amendment and restatement.
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Convertible Notes
On August 12, 2019, we issued an aggregate principal amount of $172,500 of 2025 Notes. The 2025 Notes mature on August
15, 2025, unless earlier repurchased or converted, and bear interest at a rate of 1.375% payable semi-annually in arrears
on February 15 and August 15 each year beginning on February 15, 2020. The 2025 Notes are initially convertible at a
conversion rate of 3.5273 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial
conversion price of approximately $283.50 per share of common stock. Noteholders may convert their 2025 Notes at their
option only in the following circumstances:
(i) during any calendar quarter commencing after the calendar quarter ended on December 31, 2019 (and only during such
calendar quarter), if the last reported sale price per share of our common stock exceeds 130% of the conversion price for
each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of
the immediately preceding calendar quarter;
(ii) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive
trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our
common stock on such trading day and the conversion rate on such trading day;
(iii) upon the occurrence of certain corporate events or distributions on our common stock, including certain distributions, the
occurrence of a fundamental change (as defined in the indenture governing the 2025 Notes) or a transaction resulting in
the Company’s common stock converting into other securities or property or assets; and
(iv) 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.
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 if-converted value of the 2025 Notes did not exceed the principal balance as of March 31,
2024.
Immediately following completion of the amendment of the Credit Facility, on April 5, 2024, we entered into separate,
privately negotiated purchase agreements (the “Purchase Agreements”) with a limited number of holders of our outstanding
2025 Notes. Pursuant to the Purchase Agreements, we purchased $75,000 in aggregate principal amount of the 2025 Notes
for an aggregate cash purchase price of approximately $71,410, including accrued and unpaid interest. See Note 15.
"Subsequent Events."
Debt issuance costs related to the 2025 Notes are comprised of commissions payable to the initial purchasers
of $5,175 and third party offering costs of $255. The debt issuance costs are being amortized to interest expense using the
effective interest method over the six-year contractual term of the 2025 Notes.
The net carrying amount of the 2025 Notes was as follows:
March 31,
2024
March 31,
2023
Principal outstanding
$
172,500 $
172,500
Unamortized debt issuance costs
(1,302 )
(2,228 )
Net carrying value
$
171,198 $
170,272
We recognized interest expense on the 2025 Notes as follows:
Year Ended March 31,
2024
2023
2022
Coupon interest expense at 1.375%
$
2,372 $
2,372 $
2,372
Amortization of debt issuance costs
926
907
890
Total
$
3,298 $
3,279 $
3,262
The effective interest rate of the liability component of the 2025 Notes is approximately 1.9%.
As of March 31, 2024, the 2025 Notes, net of unamortized debt issuance costs are classified as a long-term liability on
our Consolidated Balance Sheets as the circumstances necessary for conversion were not satisfied as of the end of the
period and the private repurchases contemplated by the Purchase Agreements had not yet occurred. The circumstances
necessary for voluntary conversion were not met during fiscal year 2024.
Page 72
Note 9. Stock Transactions and Stock-Based Compensation
(dollars and shares in thousands, except per share values)
Stock-Based Compensation
We issue shares in the form of stock options, RSUs and PSUs to employees and non-employee directors pursuant to the
2021 Equity Plan, and we have awards outstanding under the 2014 Equity Plan. The 2021 Equity Plan authorizes the issuance
of 660 shares of common stock to eligible participants, and there were 373 shares available for future grants under the plan as
of March 31, 2024. Under the 2014 Equity Plan, 1,100 shares of common stock were authorized and reserved for eligible
participants, all of which have been issued and 77 of which remain outstanding as of March 31, 2024.
Stock-based compensation expense recognized in the Consolidated Financial Statements was as follows:
Year Ended March 31,
2024
2023
2022
Stock-based compensation expense
$
11,936 $
12,538 $
11,391
Amount of income tax expense (benefit) recognized in earnings
2,718
(1,169 )
(4,055 )
Stock-based compensation expense, net of tax
$
14,654 $
11,369 $
7,336
Stock Options
We use the Black-Scholes option-pricing model to estimate the fair value of stock option awards granted. The weighted
average assumptions utilized in the model were as follows:
Year Ended March 31,
2024
2023
2022
Weighted-average value at grant date
$
130.07 $
185.60 $
268.81
Expected life (years)
3.52
3.52
3.52
Expected dividend yield
0.07 %
0.07 %
0.06 %
Volatility
37.82 %
37.29 %
38.82 %
Risk-free interest rate
4.16 %
3.55 %
0.46 %
Using the assumptions in the tables above, the weighted-average Black-Scholes fair value per share at grant date for the years
ended March 31, 2024, 2023 and 2022 were $42.76, $58.94 and $76.02, respectively. These fair values are before the
estimated effect of forfeitures, which reduces the amount of expense recorded in our Consolidated Statements of Operations.
Stock option activity under the 2021 Equity Plan and 2014 Equity Plan as of March 31, 2024, and changes for the year then
ended, are presented below (shares and dollars in thousands, except per-share data):
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, 2023
163 $
200.62
3.3 $
1,643
Awards granted
56
130.07
Awards forfeited or expired
(23 )
192.15
Awards exercised or distributed
(2 )
132.40
24
Outstanding as of March 31, 2024
194 $
181.89
3.2 $
26
Exercisable awards as of March, 31, 2024
109 $
197.63
2.0 $
-
Exercisable awards and awards expected to vest, March 31, 2024
187 $
183.16
3.2 $
23
The total intrinsic value of stock options exercised during the years ended March 2023 and March 2022 was $6,902, and
$15,209, respectively. Unrecognized stock-based compensation expense for stock options expected to vest as of March 31,
2024 was $2,388 and is expected to be recognized over a weighted average period of 1.8 years. The total fair value of options
vested was $2,749, $2,763, and $2,856 during the years ended March 31, 2024, 2023 and 2022, respectively.
Page 73
Time-Based Restricted Stock Units (RSUs)
RSU activity under the 2021 Equity Plan was as follows (shares and dollars in thousands, except per-share data):
Time-Based Restricted Stock Units
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
per Share
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Nonvested at March 31, 2023
57 $
209.27
1.0 $
9,993
Awards granted
55
133.30
Awards forfeited or expired
(8 )
166.78
Awards distributed
(28 )
212.22
3,658
Nonvested as of March 31, 2024
76 $
157.83
1.0 $
8,325
Expected to vest
69 $
158.85
1.8 $
7,540
For the years ended March 31, 2023 and 2022, the weighted average fair values per RSU granted were $187.21 and $274.55,
respectively. Unrecognized stock-based compensation expense for RSUs that we have determined are probable of vesting
was $6,317 as of March 31, 2024 and is expected to be recognized over a weighted average period of 1.7 years. The total fair
value of RSUs vested was $5,881, $6,751, and $5,320 during the years ended March 31, 2024, 2023 and 2022, respectively.
The total intrinsic value of time-based RSUs distributed during the years ended March 31, 2023 and March 2022 was $5,004
and $5,320, respectively.
Performance-Based Restricted Stock Units (PSUs)
We grant performance-based RSUs to certain key employees. Vesting of the awards is contingent upon meeting certain
service conditions, as well as meeting certain performance and/or market conditions.
PSU activity under the 2021 Equity Plan was as follows (shares and dollars in thousands, except per-share data):
Performance-Based Restricted Stock Units
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
per Share
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Nonvested at March 31, 2023 at target
44 $
286.02
3.5 $
7,958
Awards granted
32
132.29
Performance adjustment
(19 )
177.84
Awards forfeited or expired at target
(1 )
132.29
Nonvested as of March 31, 2024 at target
56 $
240.96
2.6 $
6,142
Expected to vest
55 $
243.67
2.4 $
5,984
For the years ended March 31, 2023 and 2022, the average fair value per PSU granted was $182.14 and $302.15,
respectively. Unrecognized stock-based compensation expense for PSUs that we have determined probable of vesting was
$5,703 as of March 31, 2024 and is expected to be recognized over a weighted average period of 2.4 years. Total fair value of
PSUs vested was $1,926 and $5,671 during the years ended March 31, 2023 and 2022, respectively. There were no PSUs
vested or distributed during the year ended March 31, 2024. The total intrinsic value of PSUs distributed during the years
ended March 31, 2023 and 2022 was $1,776 and $7,549, respectively.
During the year ended March 31, 2024, the Compensation Committee of the Board of Directors created a plan to award to
eligible employees 32 PSUs (the "FY24 PSUs") at target that are subject to service, performance, and market conditions. The
performance period for the FY24 PSUs is from April 1, 2023 through March 31, 2024, and the service period is
from June 21, 2023 through June 21, 2026. Based on actual performance during the performance period, 15 of the FY24
PSUs are expected to vest, net of estimated forfeitures. In addition, the quantity of shares earned based on company
performance will be adjusted up or down by a maximum of 20% pursuant to a market-based measure of performance
comparing Mesa’s share price to a peer group over the period from April 1, 2023 until March 31, 2026.
Page 74
On October 28, 2021, the Compensation Committee of the Board of Directors granted a special long-term equity award
consisting of performance stock units covering a target of 40 shares that is subject to both performance and service conditions
to our Chief Executive Officer. The performance period of the award was the three-year period from April 1,
2021 through March 31, 2024. The service periods commence on October 28, 2021 and end on each of October 27,
2024, October 27, 2025, and October 27, 2026, on which dates eligible PSUs will vest and be distributed. The performance
metrics are cumulative GAAP revenues over the performance period and cumulative adjusted operating income over the
performance period. Based on actual performance through the period ended March 31, 2024, 35 shares are expected to vest.
During the year ended March 31, 2024, we adjusted our estimate of PSUs expected to vest under all outstanding plans based
on actual results achieved through applicable performance periods. We recorded a cumulative effect release of ($812) during
the period (approximately $640, net of estimated tax as well as $0.12 per basic and diluted share), which is recorded in
general and administrative expense on our Consolidated Statements of Operations. In the future, we expect non-cash stock-
based compensation expense of approximately $934 per quarter related to outstanding PSUs following our new estimate of
performance share units expected to vest.
In November 2005, our Board of Directors approved a program to repurchase up to 300 shares of our outstanding common
stock. Under the program, shares of common stock may be purchased from time to time in the open market at prevailing
prices or in negotiated transactions off the market. Shares of common stock repurchased will be cancelled and repurchases of
shares of common stock will be funded through existing cash reserves. There were no repurchases of our shares of common
stock under this plan during the years ended March 31, 2024, 2023 or 2022. As of March 31, 2024, we have repurchased
162 shares under this plan.
Under applicable law, Colorado corporations are not permitted to retain treasury stock. The price paid for repurchased shares
is allocated between common stock and retained earnings based on management’s estimate of the original sales price of the
underlying shares.
Note 10. Net (Loss) Earnings Per Share
(dollars and shares in thousands, except per share values)
The following table presents a reconciliation of the denominators used in the computation of basic and diluted net (loss)
earnings per share:
Year Ended March 31,
2024
2023
2022
Net (loss) earnings available for shareholders
$
(254,246 ) $
930 $
1,871
Weighted average outstanding shares of common stock
5,386
5,321
5,212
Dilutive effect of stock options
-
26
100
Dilutive effect of unvested stock awards
-
14
23
Fully diluted shares
5,386
5,361
5,335
Basic (loss) earnings per share
$
(47.20 ) $
0.17 $
0.36
Diluted (loss) earnings per share
$
(47.20 ) $
0.17 $
0.35
The impact of the assumed conversion of the 2025 Notes calculated under the if-converted method was anti-dilutive, and as
such shares underlying the 2025 Notes were excluded from the diluted EPS calculation for the fiscal years ended March 31,
2024, 2023, and 2022.
The following stock awards were excluded from the calculation of diluted EPS:
Year Ended March 31,
2024
2023
2022
Assumed conversion of convertible debt
608
608
608
Stock awards that were anti-dilutive
268
154
40
Total stock awards excluded from diluted EPS
876
762
648
Page 75
Note 11. Employee Benefit Plans
We adopted the Mesa Laboratories, Inc. 401(K) Retirement Plan effective January 1, 2000. Under this plan, we match 100%
of the first 4% of eligible pay contributed by each eligible employee, and contributions vest immediately. Participation is
voluntary, and employees are eligible on the first day of the month following their start date. Our contribution obligations to
the Mesa Laboratories, Inc. 401(K) retirement plan were $2,078, $1,768 and $1,185 during the years ended March 31, 2024,
2023 and 2022, respectively.
Note 12. Income Taxes
Provision for Income Taxes
Earnings before income taxes were as follows:
Year Ended March 31,
2024
2023
2022
Domestic
$
(233,853 ) $
1,887 $
4,579
Foreign
(41,795 )
(2,276 )
(1,005 )
Total (loss) earnings before income taxes
$
(275,648 ) $
(389 ) $
3,574
The components of our provision for income taxes were as follows:
Year Ended March 31,
2024
2023
2022
Current tax provision:
U.S. Federal
$
3,002 $
593 $
(83 )
U.S. State
1,678
538
286
Foreign
2,330
1,070
1,372
Total current tax expense
7,010
2,201
1,575
Deferred tax provision:
U.S. Federal
(20,387 )
(1,432 )
1,707
U.S. State
(1,853 )
(210 )
337
Foreign
(6,172 )
(1,878 )
(1,916 )
Total deferred tax (benefit) expense
(28,412 )
(3,520 )
128
Total income tax (benefit) expense
$
(21,402 ) $
(1,319 ) $
1,703
Page 76
A reconciliation of our income tax provision and the amounts computed by applying statutory rates to earnings before income
taxes was as follows (percentages may not perfectly sum due to rounding):
Year Ended March 31,
2024
2023
2022
Amount
%
Amount
%
Amount
%
(Loss)/ income before income
taxes
$ (275,648 )
$
(389 )
$
3,574
Federal income taxes at statutory
rates
(57,886 )
21.0 %
(82 )
21.0 %
751
21.0 %
State income taxes, net of federal
benefit
(2,508 )
0.9 %
(1,075 )
276.3 %
628
17.6 %
Compensation adjustments
2,738
(1.0 %)
1,506
(387.1 %)
(16 )
(0.4 %)
Research and development credit
(1,093 )
0.4 %
(1,010 )
259.6 %
(495 )
(13.9 %)
Return to provision adjustment
(182 )
0.1 %
(125 )
32.1 %
(68 )
(1.9 %)
Subpart F, GILTI, & FDII
(412 )
0.1 %
(127 )
32.6 %
6
0.2 %
Foreign rate differential
(566 )
0.2 %
(313 )
80.5 %
(152 )
(4.3 %)
Permanent difference
479
(0.2 %)
33
(8.5 %)
64
1.8 %
Goodwill impairment
32,594
(11.8 %)
-
- %
-
- %
Valuation allowance
5,398
(2.0 %)
(126 )
32.4 %
304
8.5 %
Interest reserve adjustment
-
- %
-
- %
668
18.7 %
Other
36
- %
-
- %
13
0.4 %
Total income tax (benefit)
expense
$
(21,402 )
7.8 % $
(1,319 )
339.1 % $
1,703
47.6 %
Effective income tax rate
7.76 %
339.07 %
47.65 %
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets (liabilities) were as follows:
March 31,
2024
March 31,
2023
Deferred tax assets:
Capitalized research expenditures
$
5,116 $
3,124
Credits
2,528
4,769
Allowances and reserves
3,033
2,376
Stock compensation deductible differences
1,346
1,384
Operating lease liabilities
2,182
1,850
Inventories
668
1,348
Net operating loss
6,633
6,945
Other
187
149
Net deferred tax assets, gross
21,693
21,945
Valuation allowance
(5,975 )
(582 )
Net deferred tax assets, net
15,718
21,363
Deferred tax liabilities:
Operating lease right-of-use assets
(2,120 )
(1,811 )
Goodwill and intangible assets
(28,694 )
(49,781 )
Property, plant and equipment
(2,813 )
(2,502 )
Other
(579 )
(221 )
Total deferred tax liabilities
(34,206 )
(54,315 )
Deferred tax asset/(liabilities)
(18,488 )
(32,952 )
Page 77
Valuation Allowance
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. In evaluating the need for a valuation allowance, management takes
into account various factors, including future reversals of existing taxable temporary differences, projected future taxable
income, tax planning strategies, and results of recent operations. Based on this evaluation, the Company has concluded that a
valuation allowance is necessary on its U.S. and certain German operations and do not expect to fully realize its deferred tax
assets as of March 31, 2024.
The following table summarizes the changes in our valuation allowance for deferred tax assets:
Year Ended March 31,
2024
2023
2022
Beginning balance
$
582 $
708 $
404
Additions charged to income tax expense and other accounts
5,398
567
304
Deductions from reserves
(5 )
(693 )
-
Ending balance
$
5,975 $
582 $
708
Net Operating Loss Credit and Carryforwards
As of March 31, 2024, the Company had U.S. and Foreign net operating loss (“NOL”) carryforwards consisting of the
following:
March 31,
2024
Expiration
Date
Pre-2018 federal NOL carryforwards
$
-
N/A
Post-2018 federal NOL carryforwards
-
Indefinite
State NOL carryforwards
8,709 March 31, 2035
Foreign NOL carryforwards
22,595
Indefinite
As of March 31, 2024, the Company had U.S. tax credit carryforwards consisting of the following:
March 31,
2024
Expiration
Date
Federal research tax credit carryforwards
$
-
N/A
State research tax credits carryforwards
3,181 March 31, 2036
Federal foreign tax credit carryforwards
15 March 31, 2037
Undistributed earnings in foreign subsidiaries
For the year ended March 31, 2024, provisions have not been made for income taxes on $55,794 of undistributed earnings
that were deemed permanently reinvested in foreign subsidiaries at March 31, 2024. Determination of the amount of
unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on
certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the
Company no longer plans to permanently reinvest these undistributed earnings.
Page 78
Uncertain Tax Positions
Uncertain tax positions, if ever recognized in the financial statements, would be recorded in the consolidated statements of
operations as part of the income tax provision. A reconciliation of the beginning and ending amount of unrecognized tax
benefits, exclusive of interest and penalties, included in the deferred tax liability on the accompanying Consolidated Balance
Sheets of the Company is as follows:
Year Ended March 31,
2024
2023
2022
Beginning balance
$
92 $
1,329 $
64
(Decrease) increase related to prior period tax positions
(92 )
(1,272 )
1,179
Increases related to current period tax positions
-
35
86
Ending balance
$
- $
92 $
1,329
As of March 31, 2024, the Company has not recorded any gross unrecognized tax benefits. The Company recognizes interest
and penalties accrued on uncertain income tax positions in other expense and general and administrative expense,
respectively. Interest and penalties included in other long-term liabilities on the accompanying Consolidated Balance Sheets
of the Company were $0 for each of the years ended March 31, 2024, 2023 and 2022. The Company does not expect a
material change in unrecognized tax benefits or interest in the next 12 months.
The Company files income tax returns in the U.S. various states and foreign jurisdictions. In the normal course of business,
the Company is subject to examination by taxing authorities throughout the world. The following tax years remain subject to
examination:
Significant Jurisdictions
Open Years
U.S. Federal
2020-2022
U.S. States
2019-2022
Foreign
2016-2022
Note 13. Commitments and Contingencies
We are party to various legal proceedings arising in the ordinary course of business. As of March 31, 2024, we are not party
to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position,
results of operations, or cash flows.
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 $571 as of March 31, 2024.
As part of the GKE acquisition, we have agreed to pay the GKE sellers approximately $9,300 (at March 31, 2024 exchange
rates) 18 months following the acquisition date, pending adjustments for potential indemnification losses that may arise.
See Note 15. "Subsequent Events" for further information on debt commitments incurred subsequent to the end of fiscal year
2024.
Note 14. Segment Data
Segment information is prepared on the same basis that our chief operating decision maker, our CEO, uses to manage our
segments, evaluate financial results, and make key operating decisions. Our four reportable segments are organized primarily
by the nature of the goods and services they sell. We evaluate the performance of our operating segments based on revenues,
organic revenues growth, and gross profit. The accounting policies of the operating segments are the same as those described
in Note 1. "Description of Business and Summary of Significant Accounting Policies."
Page 79
The following tables set forth our segment information:
Year Ended March 31,
2024
2023
2022
Revenues (a):
Sterilization and Disinfection Control (b)
$
75,124 $
64,609 $
59,044
Clinical Genomics
52,588
62,299
32,840
Biopharmaceutical Development
40,712
47,365
45,579
Calibration Solutions
47,763
44,807
46,872
Total revenues
$
216,187 $
219,080 $
184,335
Gross profit:
Sterilization and Disinfection Control (b)
$
53,302 $
46,520 $
43,720
Clinical Genomics
27,078
32,485
11,941
Biopharmaceutical Development
25,400
30,340
28,605
Calibration Solutions
27,547
24,388
24,989
Reportable segment gross profit
133,327
133,733
109,255
Corporate and Other (c)
(77 )
(40 )
(165 )
Gross profit
$
133,250 $
133,693 $
109,090
Reconciling items:
Operating expenses
405,325
130,373
104,388
Operating (loss) income
(272,075 )
3,320
4,702
Nonoperating expense, net
3,573
3,709
1,128
(Loss) earnings before income taxes
$
(275,648 ) $
(389 ) $
3,574
(a) Intersegment revenues are not significant and are eliminated to arrive at consolidated totals.
(b) Includes GKE results beginning at acquisition.
(c) Unallocated corporate expenses and other business activities are reported within Corporate and Other.
The following table sets forth depreciation and amortization expense recorded in costs of revenues and included in the
determination of gross profit above. Increases in the Sterilization and Disinfection Control division are primarily attributable
to the GKE acquisition.
Year Ended March 31,
2024
2023
2022
Sterilization and Disinfection Control
$
1,469 $
818 $
860
Clinical Genomics
5,385
6,808
3,093
Biopharmaceutical Development
1,563
1,435
1,615
Calibration Solutions
280
366
390
Unallocated
386
532
91
Total depreciation and amortization expense in Cost of revenues
$
9,083 $
9,959 $
6,049
The following table sets forth net inventories by reportable segment. Our chief operating decision maker is not provided with
any other segment asset information. The increase in inventories in our Sterilization and Disinfection Control division is
primarily due to the GKE acquisition.
March 31,
March 31,
2024
2023
Sterilization and Disinfection Control
$
7,014 $
3,492
Clinical Genomics
11,813
13,985
Biopharmaceutical Development
6,304
8,384
Calibration Solutions
7,544
8,781
Total inventories
$
32,675 $
34,642
Page 80
The following table sets forth a summary of long-lived assets by geographic area. Long-lived assets exclude goodwill and
intangible assets acquired in a business combination and deferred tax assets. The increase in long-lived assets in Germany is
primarily due to the GKE acquisition.
As of March 31,
2024
2023
United States
$
32,229 $
34,729
Germany
7,596
931
Other
2,479
2,862
Total long-lived assets
$
42,304 $
38,522
Revenues from external customers are attributed to individual countries based upon locations to which the product is shipped
or exported, as follows:
Year Ended March 31,
2024
2023
2022
United States
$
106,395 $
117,281 $
99,068
China
24,933
25,797
16,518
Other
84,859
76,002
68,749
Total revenues
$
216,187 $
219,080 $
184,335
Increases in revenues from countries other than the United States and China are primarily attributable to the acquisition of
GKE. No customer accounts for 10% or more of our consolidated revenues. No foreign country other than China exceeds
10% of total revenues.
Note 15. Subsequent Events
On April 5, 2024, we entered into separate, privately negotiated purchase agreements with a limited number of holders of our
outstanding 2025 Notes. Pursuant to these purchase agreements, on April 11, 2024, we repurchased $75,000 in aggregate
principal amount of the 2025 Notes for an aggregate cash purchase price of approximately $71,250, plus accrued and unpaid
interest of $160. We are currently evaluating the appropriate accounting treatments for the repurchase, which will be recorded
and disclosed in our upcoming Condensed Consolidated Financial Statements and the Notes thereto for the period ended June
30, 2024.
Under terms of our Credit Facility as amended on April 5, 2024, (see Note. 8 "Indebtedness"), we borrowed $75,000 under
the Term Loan effective April 5, 2024 at a rate of 8.4% as of the borrowing date, largely to fund the repurchase of a portion
of our 2025 Notes as described above. We will be required to make quarterly principal payments on the $75,000 term loan
borrowings as follows: $938 each quarter from June 30, 2024 to March 31, 2026; $1,406 each quarter from June 30, 2026 to
March 31, 2028; and $1,875 from June 30, 2028 to March 31, 2029. The remaining unpaid balance of $48,750 will be due at
maturity in April 2029; however, we anticipate that we will have the ability to refinance the debt at that time if necessary.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended) that are designed to reasonably ensure that information required to be disclosed by us in the reports
we file or submit under the Securities Exchange Act of 1934, as amended, 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 principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our
management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of
our disclosure controls and procedures as of March 31, 2024. Based on that evaluation, our management concluded that our
disclosure controls and procedures were not effective as of March 31, 2024.
Nevertheless, based on the performance of additional procedures by management designed to ensure reliability of financial
reporting, our management has concluded that, notwithstanding the material weaknesses described below, the consolidated
financial statements, included in this Annual Report on Form 10-K, fairly present, in all material respects, our financial
position, results of operations, and cash flows as of the dates, and for each of the periods presented, in conformity with U.S.
GAAP.
Management's Annual Report on Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the
United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management evaluated the effectiveness of our internal control over financial reporting as of March 31, 2024, using the
framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in 2013. Based on that evaluation, our management concluded that our internal control over
financial reporting was not effective as of March 31, 2024 due to the material weaknesses described below.
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.
Management identified a material weakness in the design of our controls over accounting for complex and non-routine
transactions. Specifically, Management did not have adequate supervision and review controls over the complex accounting
for goodwill impairment and acquisitions. This material weakness did not result in an error in any of our previously issued
consolidated financial statements including the consolidated financial statements as of and for the year ended March 31,
2024.
Management identified a material weakness in the design of our controls over determining the useful lives of our recently
acquired intangibles. Specifically, while still in the measurement period related to the acquisition of GKE, Management
selected a useful life related to customer relationships acquired in the GKE acquisition, but there was evidence that a longer
useful life may be appropriate. This material weakness did not result in a material error in any of our previously issued
consolidated financial statements including the consolidated financial statements as of and for the year ended March 31,
2024.
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Additionally, during the year ended March 31, 2024, Management identified that several change management and logical
access controls related to our enterprise resource planning tool were not operating effectively for portions 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. This combination of control deficiencies indicates that there is a reasonable possibility that a material
misstatement could fail to be detected on a timely basis. Upon discovery of the failures, Management performed reviews of
system data to ascertain whether change management processes had been used inappropriately and identified no instances of
misuse of roles or unapproved changes to the enterprise resource planning tool. Management promptly initiated corrective
actions to remediate the deficient controls that resulted in the material weakness; however, there are insufficient instances of
each control having operated to evidence remediation of each control deficiency that aggregated to the material weakness.
This material weakness did not result in an error in any of our previously issued financial statements, including the
consolidated financial statements as of and for the year ended March 31, 2024.
Remediation Plans
Following identification of the material weaknesses, and as part of our commitment to strengthen our internal control over
financial reporting, we are implementing remedial actions under the oversight of the Audit Committee of our Board of
Directors to address our material weaknesses.
Technical accounting related to non-routine transactions
On highly-technical, non-routine and complex accounting transactions, we will begin to engage third-party advisors with the
requisite skills and technical expertise to assist us in an appropriate combination of assessing, performing or reviewing such
transactions. Specifically, we intend to:
●
identify non-routine transactions that arise and evaluate whether the transaction warrants additional advisor
oversight or validation of analyses based on complexity or changes in applicable regulations;
●
identify and select qualified third-party advisors, ensuring that those advisors have adequate knowledge to
prepare or review the specific complex accounting transaction contemplated;
●
ensure that third-party providers follow a process that incorporates appropriate review controls;
●
perform a final internal review over the work of third parties to ensure Management consensus with the work
product.
Assessment of useful lives of recently acquired intangibles
During the first quarter of fiscal year 2025, during the measurement period related to the GKE acquisition, we will modify
the useful life of our customer relationship intangible and record a cumulative effect true up to release amortization expense.
Information technology general controls
Management has modified the reports used as source data to test change management in its enterprise resource planning
tool. Additionally, Management has designed a control to enhance its review of roles, particularly those with ability add, edit,
or delete transactions. We believe that executing these steps will provide sufficient evidence to remediate the deficiencies
related to operating effectiveness and design of our controls.
Management intends to thoroughly evaluate the design of its information technology application controls related to its
enterprise resource planning tool and other in scope systems during its fiscal year 2025. Management may leverage the use of
a third party specialist to accomplish this evaluation.
We will continue to monitor the design and operating effectiveness of these and other processes, procedures and controls and
make any further changes management determines appropriate.
Our CEO and CFO have certified that, based on their knowledge, our consolidated financial statements and other financial
information included in this Annual Report on Form 10-K (“Form 10-K”), fairly present, in all material respects, our
financial condition, results of operations and cash flows as of, and for, the periods presented in this Form 10-K.
Page 83
Prior Year Material Weakness
As disclosed in Part II Item 9A. Controls and Procedures in our annual report on Form 10-K filed with the Securities and
Exchange Commission on May 30, 2023 for the year ended March 31, 2023, we identified two material weaknesses in
internal controls:
1) Management's review controls over fair value calculations, including Management's preliminary valuation of the
Belyntic Acquisition were insufficient. Specifically, Management failed to utilize resources with an appropriate level of
knowledge and expertise in performing and reviewing the fair value calculations.
2) Management's review controls over the qualitative assessment of goodwill impairment were insufficient to identify
potential impairment triggers.
Remediation Status for Prior Year Material Weaknesses in Internal Control Over Financial Reporting
In response to the material weaknesses identified in the prior year we, with the oversight from the Audit Committee of the
Board of Directors, developed a plan to remediate the material weaknesses. Our remediation plan required that:
1) Management will utilize a valuation specialist with the requisite knowledge to perform such valuations for all
acquisitions of businesses.
2) Members of Management with requisite knowledge perform formal quarterly analyses of potential impairment
triggers.
As a result of control activities performed during fiscal year 2024, we concluded that the material weakness regarding fair
value calculations was remediated as of June 30, 2023, and the material weakness regarding goodwill impairment
assessments was remediated as of September 30, 2023. We will continue to perform formal quarterly impairment
trigger analyses in future periods. We will likewise continue to utilize a valuation specialist with the requisite knowledge to
perform valuations for all future acquisitions of businesses, as such acquisitions occur.
RSM US LLP, the independent registered public accounting firm that audited our consolidated financial statements included
in this Form 10-K, has issued an unqualified opinion on our consolidated financial statements and has issued an attestation
report on our internal control over financial reporting as of March 31, 2024 within Item 8. Financial Statements and
Supplementary Data in this annual report on Form 10-K.
Changes in internal control over financial reporting
We acquired GKE in the third quarter of our fiscal year 2024. The financial results of each of these acquisitions are included
in our audited consolidated financial statements as of March 31, 2024. The Company's total assets as of March 31, 2024
include $113.5 million from GKE. The Company's consolidated revenues for the year ended March 31, 2024 includes $9.2
million from GKE. As the acquisition occurred in the third quarter of fiscal year 2024, the scope of our assessment of our
internal control over financial reporting does not include the acquisition. This exclusion is in accordance with the Securities
and Exchange Commission’s guidance that an assessment of a recently acquired business may be omitted from our scope in
the year of acquisition.
Other than the items discussed above, there were no other changes to our internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act) during the three and twelve months ended March 31, 2024 that have materially
affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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In thousands, except per share data
*
The non-GAAP measure of adjusted operating income is defined to exclude the non-cash impact of amortization of intangible assets acquired in a business combination, depreciation of long-lived assets, stock-based
compensation and impairment of goodwill and other assets. We adjusted this non-GAAP measure to exclude depreciation in fiscal 2024; prior year amounts presented have been adjusted accordingly to conform with current
presentation. Reconciliation can be found on back cover.
(#) During the fiscal year ended March 31, 2024, we completed the GKE acquisition, which contributed $9,289 to revenues. Additionally, we recorded a $274.5 million charge related to the impairment of goodwill and intangible
assets.
OPERATIONAL DATA
COMPANY SUMMARY BY SEGMENT
Year Ended March 31
2024 (#)
2023
2022
2021
2020(^)
2019
Revenues
$216,187
$219,080
$184,335
$133,937
$117,687
$103,135
Gross profit
$133,250
$133,693
$109,090
$87,014
$65,362
$60,916
Gross profit margin
62%
61%
59%
65%
55%
59%
Net income (loss)
$(254,246)
$930
$1,871
$3,274
$1,778
$7,484
Earnings (loss) per diluted share
$(47.20)
$0.17
$0.35
$0.64
$0.41
$1.86
Adjusted operating income*
$45,968
$48,992
$41,161
$39,098
$26,595
$28,195
Adjusted operating income per
diluted share*
$8.53
$9.14
$7.72
$7.63
$6.08
$6.99
Weighted average diluted
shares outstanding
5,386
5,361
5,335
5,124
4,371
4,033
Sterilization and
Disinfection Control
Clinical
Genomics
Biopharmaceutical
Development
Calibration
Solutions
Reportable
Segments
Fiscal year ended March 31
2024
2023
2024
2023
2024
2023
2024
2023
2024
2023
Revenues
$75,124 $64,609 $52,588 $62,299 $40,712 $47,365 $47,763 $44,807 $216,187 $184,335
Organic Revenue Growth
2%
9%
(16%)
(13%)
(14%)
4%
7%
(4%)
(6%)
13%
Gross Profit as a %
of Revenues
71%
72%
51%
52%
62%
64%
58%
54%
62%
59%
*The following table sets forth our reconciliation of operating (loss) income to adjusted operating income, a non-GAAP measure:
Year Ended March 31
2024
2023
2022
2021
2020
Operating income (loss)
$(272,075)
$3,320
$4,702
$12,358
$7,923
Amortization of intangible assets
acquired in a business combination
$ 27,341
$ 28,821
$ 21,806
$ 14,513
$ 10,637
Depreciation of long-lived assets
$ 4,233
$ 4,313
$3,262
$ 2,959
$ 2,234
Stock-based compensation
$ 11,936
$12,538
$11,391
$ 9,268
$ 5,525
Impairment losses on goodwill and finite-lived
intangible assets
$ 274,533
-
-
-
$ 276
Adjusted Operating Income (non-GAAP)
$45,968
$48,992
$41,161
$39,098
$26,595
Our purpose is to protect
the vulnerable.
We fulfill that purpose by ensuring the safety and efficacy of the products people
use every day and by helping to maintain critical environments for healthcare
services, biopharmaceuticals, medical devices, environmental, and food and
beverage industries.
12100 West 6th Avenue | Lakewood, CO 80228 | (303) 987-8000 | mesalabs.com
Shares traded on the NASDAQ Global Market under the symbol MLAB
TRANSFER AGENT
Computershare Investor Services
Denver, Colorado
INDEPENDENT AUDITORS
RSM US LLP
Los Angeles, California
SEC COUNSEL
Davis Graham & Stubbs LLP
Denver, Colorado
Our 2024 Leadership Team
Mark C. Capone
Retired Chief Executive Officer,
Myriad Genetics
OFFICERS
John V. Sakys
Vice President and
Chief Financial Officer
Gary M. Owens
President and CEO
Brian D. Archbold
SVP of Operations and
Continuous Improvement
Jennifer S. Alltoft
VP - Business Development and
Commercialization, Sumitovant
Biopharma, Ltd.
Shiraz S. Ladiwala
Retired SVP - Strategy and Corporate
Development, Thermo Fisher Scientific
Retired Chief Financial Officer, Corning
Tony Tripeny
DIRECTORS
John J. Sullivan, PhD.
Chairperson, Retired President
and CEO, Mesa Laboratories, Inc.
Gary M. Owens
President and Chief Executive
Officer, Mesa Laboratories, Inc.
Shannon M. Hall
Chief Executive Officer, Pow-bio