Mesa Laboratories Inc 10-Q for FY2023 Q1
Mesa Laboratories Inc (MLAB)
About this 10-Q
Mesa Laboratories Inc filed this 10-Q on August 4, 2022, covering the quarter ended June 30, 2022 (FY2023 Q1).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $50.45M
- up 44.5% from $34.92M a year earlier
- Net loss
- $1.44M
- compared with net income of $2M a year earlier
- Diluted EPS
- -$0.27
- compared with $0.38 a year earlier
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___
Commission File No:
MESA LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer | |||
| incorporation or organization) | Identification number) | |||
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name on each exchange on which registered |
| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date:
There were
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| 2 | ||
| Condensed Consolidated Statements of Comprehensive (Loss) Income |
3 | |
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| 5 | ||
| 6 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
20 | |
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| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
22 | |
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| Exhibit 31.1 Certifications Pursuant to Rule 13a-14(a) |
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| Exhibit 31.2 Certifications Pursuant to Rule 13a-14(a) |
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| Exhibit 32.1 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350 |
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| Exhibit 32.2 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350 |
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Condensed Consolidated Balance Sheets
(unaudited)
(dollars in thousands, except share amounts)
| June 30, | March 31, | |||||||
| 2022 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowances of $ and $, respectively | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net of accumulated depreciation of $ and $ respectively | ||||||||
| Deferred tax asset | ||||||||
| Other assets | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll and benefits | ||||||||
| Unearned revenues | ||||||||
| Other accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Deferred tax liability | ||||||||
| Other long-term liabilities | ||||||||
| Credit Facility | ||||||||
| Convertible senior notes, net of discounts and debt issuance costs | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, par value; authorized shares; issued and outstanding, and shares, respectively | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
| Three Months Ended June 30, |
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| 2022 |
2021 |
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| Revenues |
$ | $ | ||||||
| Cost of revenues |
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| Gross profit |
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| Operating expenses: |
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| Selling |
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| General and administrative |
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| Research and development |
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| Total operating expenses |
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| Operating (loss) income |
( |
) | ||||||
| Nonoperating expense (income): |
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| Interest expense and amortization of debt discount |
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| Other (income) expense, net |
( |
) | ||||||
| Total nonoperating expense |
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| (Loss) earnings before income taxes |
( |
) | ||||||
| Income tax (benefit) |
( |
) | ( |
) | ||||
| Net (loss) income |
$ | ( |
) | $ | ||||
| (Loss) earnings per share: |
||||||||
| Basic |
$ | ( |
) | $ | ||||
| Diluted |
$ | ( |
) | $ | ||||
| Weighted-average common shares outstanding: |
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| Basic |
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| Diluted |
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See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in thousands)
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Other comprehensive (loss) income: | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Comprehensive (loss) income | $ | ( | ) | $ | ||||
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Non-cash interest and debt amortization | ||||||||
| Deferred taxes | ( | ) | ||||||
| Other | ( | ) | ( | ) | ||||
| Cash (used in) provided by changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities and taxes payable | ( | ) | ||||||
| Unearned revenues | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments of debt | ( | ) | ||||||
| Dividends | ( | ) | ( | ) | ||||
| Proceeds from the exercise of stock options | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See accompanying notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(dollars in thousands, except per share data)
| Common Stock | ||||||||||||||||||||
| Number of Shares | Amount | Retained Earnings | AOCI* | Total | ||||||||||||||||
| March 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Exercise of stock options and vesting of restricted stock units | ||||||||||||||||||||
| Dividends paid, $ per share | - | - | ( | ) | - | ( | ) | |||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||
| Foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||
| Net (loss) | - | ( | ) | ( | ) | |||||||||||||||
| June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | ||||||||||||||||||||
| Number of Shares | Amount | Retained Earnings | AOCI* | Total | ||||||||||||||||
| March 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Exercise of stock options and vesting of restricted stock units | ||||||||||||||||||||
| Dividends paid, $0.16 per share | - | - | ( | ) | - | ( | ) | |||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||
| Cumulative adjustment due to adoption of ASU No. 2020-06 | - | ( | ) | - | ( | ) | ||||||||||||||
| Net income | - | - | - | |||||||||||||||||
| June 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
*Accumulated Other Comprehensive (Loss) Income.
See accompanying notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(dollar and share amounts in thousands, unless otherwise specified)
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
In this quarterly report on Form 10-Q, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries is collectively referred to as “we,” “us,” “our,” the “Company” or “Mesa.”
We are a multinational manufacturer, developer, and seller of life science tools and critical quality control products and services, many of which are sold into niche markets that are driven by regulatory requirements. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.
As of June 30, 2022, we managed our operations in four reportable segments, or divisions:
| ● | Clinical Genomics - develops, manufactures, and sells highly sensitive, low-cost, high-throughput, genetic analysis tools used by labs to perform clinical genomic testing in several therapeutic areas, such as newborn screenings, pharmacogenetics, and oncology. | |
| ● | Sterilization and Disinfection Control - manufactures and sells biological, cleaning, and chemical indicators which are used to assess the effectiveness of sterilization and disinfection processes in the hospital, dental, medical device, and pharmaceutical industries. The division also provides testing and laboratory services, mainly to the dental industry. |
| ● | Biopharmaceutical Development - develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic drugs. Customers include biopharmaceutical research, development, and manufacturing teams at biopharmaceutical companies and academic research and development laboratories. |
| ● | Calibration Solutions - develops, manufactures, and sells quality control and calibration products used to measure or calibrate temperature, pressure, pH, humidity, and other such parameters for health and safety purposes, primarily in hospital, medical device manufacturing, pharmaceutical manufacturing, and various laboratory environments. |
Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, such unaudited information includes all adjustments, consisting of normal recurring adjustments necessary for the fair statement of our financial position and results of operations. The results of operations for the interim periods are not necessarily indicative of results that may be achieved for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended March 31, 2022.
Certain prior year amounts have been reclassified in order to conform to the current year presentation.
Our fiscal year ends on March 31. References in this Quarterly Report to a particular “year” or “year-end” mean our fiscal year and references to the first quarter of fiscal year 2023 refer to the period from April 1, 2022 through June 30, 2022. References to “fiscal year 2022” refer to the fiscal year ended March 31, 2022, and to “fiscal year 2023” refer to the fiscal year ending March 31, 2023.
Prior Period Reclassification
Certain amounts presented in Note 3. "Revenue Recognition" in prior periods of fiscal year 2022 have been reclassified out of revenues from consumables and into revenues from hardware and services. These reclassifications have not resulted in any change to the Condensed Consolidated Financial Statements for the three months ended June 30, 2022 and 2021.
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 judgement about the outcome of future events. Our estimates include, among others, asset reserve requirements as well as the amounts of future cash flows associated with certain assets and businesses that are used in assessing the risk of impairment. The negative impacts associated with the ongoing novel coronavirus ("COVID-19") global pandemic significantly lessened during fiscal year 2022. The extent and duration of negative impacts in the future, which may include inflationary pressures and supply chain disruptions, are uncertain and may require changes to estimates. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued accounting pronouncements and have concluded that they are either not applicable to us or are not expected to have a significant impact on our consolidated financial statements.
Note 2. Significant Transactions
Acquisition of Agena Bioscience, Inc.
On October 20, 2021, we completed the acquisition of Agena Bioscience, Inc. (“Agena”) for $
We funded the acquisition and transactions relating thereto with cash on hand and borrowings under the Credit Facility (as defined below). Of the cash consideration we paid, approximately $
Agena Preliminary Purchase Price Allocation
During the three months ended June 30, 2022, we continued analyses of the valuation of net assets acquired in the Agena Acquisition. This preliminary purchase price allocation is subject to revision as more detailed analyses are completed with respect to prepaid taxes, tax accruals, and deferred tax positions.
The following table summarizes the allocation of the preliminary purchase price as of October 20, 2021:
| Life (in years) | Amount | ||||||
| Cash and cash equivalents | $ | ||||||
| Accounts receivable | |||||||
| Other current assets | |||||||
| Total current assets | |||||||
| Property, plant and equipment/noncurrent assets | |||||||
| Deferred tax asset | |||||||
| Intangible assets: | |||||||
| Goodwill | N/A | ||||||
| Customer relationships | |||||||
| Intellectual property | |||||||
| Tradenames | |||||||
| Total Assets acquired | $ | ||||||
| Accounts payable | |||||||
| Unearned revenues | |||||||
| Other current liabilities | |||||||
| Total current liabilities | |||||||
| Deferred tax liability | |||||||
| Other noncurrent liabilities | |||||||
| Total liabilities assumed | $ | ||||||
| Total purchase price, net of cash acquired | $ | ||||||
Acquired Goodwill
Acquired goodwill of $
Unaudited Pro Forma Information
The following unaudited pro forma financial information presents the combined results of operations of Mesa and Agena as if the acquisition had occurred on April 1, 2021 after giving effect to certain pro forma adjustments.
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Pro forma total revenues | $ | $ | ||||||
| Pro forma net income | ( | ) | ||||||
The pro forma financial information includes adjustments that are directly attributable to the business combinations and are factually supportable. The pro forma adjustments include incremental amortization of intangible assets, additional stock based compensation expense for key Agena employees, the removal of interest expense attributable to Agena’s external debt that was paid off as part of the acquisition, and the pro forma tax impact for such adjustments. Cost savings or operating synergies expected to result from the acquisition are not included in the pro forma results. For the three months ended June 30, 2022, the pro forma financial information excludes $
Note 3. Revenue Recognition
We develop, manufacture, market, sell, and maintain life sciences tools and quality control instruments and software, consumables, and services.
Sales of hardware and software, such as instruments used for molecular and genetic analysis, protein synthesizers, medical meters, wireless sensor systems, and data loggers, are generally driven by our acquisition of new customers, growth of existing customers, or customers replacing existing equipment. Hardware sales may be offered with accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function. We also offer discrete and ongoing service and maintenance contracts on our instruments.
Our consumables, such as panels or reagents that are used for molecular and genetic analysis, are critical for the ongoing use of our instruments. In contrast, biological indicator test strips are used on a standalone basis. Consumables are typically used on a one-time basis and require frequent replacement in our customers' operating cycles.
We evaluate our revenues internally based on operating segment, the timing of revenue generation, and the nature of goods and services provided. Typically, discrete revenue is recognized at the shipping point or upon completion of the service, while contracted revenue is recognized over a period of time reflective of the performance obligation period in the applicable contract. The significant majority of our revenues and related receivables are generated from contracts with customers that are 12 months or less in duration.
The following tables present disaggregated revenues for the three months ended June 30, 2022 and 2021, respectively:
| Three Months Ended June 30, 2022 | ||||||||||||||||||||
| Clinical Genomics* | Sterilization and Disinfection Control | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||||||||
| Discrete Revenues | ||||||||||||||||||||
| Consumables | $ | $ | $ | $ | $ | |||||||||||||||
| Hardware and Software | ||||||||||||||||||||
| Services | ||||||||||||||||||||
| Contracted Revenues | ||||||||||||||||||||
| Services and Software | ||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||
| Clinical Genomics* | Sterilization and Disinfection Control | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||||||||
| Discrete Revenues | ||||||||||||||||||||
| Consumables | $ | $ | $ | $ | $ | |||||||||||||||
| Hardware and Software | ||||||||||||||||||||
| Services | ||||||||||||||||||||
| Contracted Revenues | ||||||||||||||||||||
| Services and Software | ||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | $ | |||||||||||||||
*Revenues in the Clinical Genomics division represent transactions subsequent to the Agena Acquisition on October 20, 2021.
Revenues from external customers are attributed to individual countries based upon the locations to which the products are shipped or exported, or the location of service performed, as follows:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| United States | $ | $ | ||||||
| Foreign | ||||||||
| Total revenues | $ | $ | ||||||
No foreign country exceeds 10% of total revenues.
Contract Balances
Our contracts have varying payment terms and conditions. Some customers prepay for products and services, resulting in unearned revenues or customer deposits, called contract liabilities. Short-term contract liabilities are included within other accrued expenses and unearned revenues in the accompanying Condensed Consolidated Balance Sheets, and long-term contract liabilities are included within other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.
A summary of contract liabilities is as follows:
| Contract liabilities as of March 31, 2022 | $ | |||
| Prior year liabilities recognized in revenues during the three months ended June 30, 2022 | ( | ) | ||
| Contract liabilities added during the three months ended June 30, 2022, net of revenues recognized | ||||
| Contract liabilities balance as of June 30, 2022 | $ |
Contract liabilities primarily relate to service contracts with original expected service durations of 12 months or less and will be recognized to revenue as time passes.
Note 4. Fair Value Measurements
Our financial instruments consist primarily of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable, and debt. Due to their short-term nature, the carrying values for cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate fair value. We measure our cash equivalents at fair value using quoted market prices in an active market, and we classify them within Level 1 of the fair value hierarchy.
Historically, the financial instruments that subject us to the highest concentration of credit risk are cash and cash equivalents and accounts receivable. It is our policy to invest in highly liquid cash equivalent financial instruments with high credit ratings and to maintain low single issuer exposure (except U.S. treasuries). Concentration of credit risk with respect to accounts receivable is limited to customers to which we make significant sales. We reserve an allowance for potential write-offs of accounts receivable using historical collection experience and current and expected future economic and market conditions, but we have not written off any significant accounts to date. To manage credit risk, we consider the creditworthiness of new and existing customers, and we 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 have outstanding $
| June 30, 2022 |
March 31, 2022 |
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| Carrying Value |
Fair Value (Level 2) |
Carrying Value |
Fair Value (Level 2) |
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| Notes |
$ | $ | $ | $ | ||||||||||||
Assets recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a nonrecurring basis include items such as property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired. There were no transfers between the levels of the fair value hierarchy during the three months ended June 30, 2022 or 2021, respectively.
Note 5. Supplemental Balance Sheets Information
Inventories consist of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Inventories, net | $ | $ | ||||||
Prepaid and other consist of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid income taxes | ||||||||
| Other current assets | ||||||||
| Total prepaid expenses and other | $ | $ | ||||||
Accrued payroll and benefits consist of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Bonus payable | $ | $ | ||||||
| Wages and paid-time-off payable | ||||||||
| Payroll related taxes | ||||||||
| Other benefits payable | ||||||||
| Total accrued payroll and benefits | $ | $ | ||||||
Note 6. Goodwill and Intangible Assets, Net
Finite-lived intangible assets consist of the following:
| June 30, 2022 |
March 31, 2022 |
|||||||||||||||||||||||
| Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
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| Customer relationships |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Intellectual property |
( |
) | ( |
) | ||||||||||||||||||||
| Other Intangibles |
( |
) | ( |
) | ||||||||||||||||||||
| Total |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
Amortization expense for finite-lived intangible assets acquired in a business combination was $
For the following fiscal years ending March 31, amortization expense is estimated as follows:
| Remainder of 2023 |
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| 2024 |
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| 2025 |
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| 2026 |
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| 2027 |
|
The change in the carrying amount of goodwill was as follows:
| Clinical Genomics | Sterilization and Disinfection Control | Biopharmaceutical Development | Calibration Solutions | Total | ||||||||||
| March 31, 2022 | $ | | $ | | $ | | $ | | $ | | ||||
| Effect of foreign currency translation |
|
|
|
|
| |||||||||
| June 30, 2022 | $ | | $ | | $ | | $ | | $ | | ||||
Note 7. Indebtedness
Credit Facility
We maintain a senior credit facility (the “Credit Facility”) that includes 1) a revolving credit facility in an aggregate principal amount of up to $
matures in March, 2025. The Credit Facility also provides for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $
Amounts borrowed under the Credit Facility bear interest at either a base rate or a Eurodollar rate, plus an applicable spread. The weighted average interest rate on borrowing under our line of credit during the first quarter of fiscal year 2023 was
The financial covenants in the Credit Facility include a maximum leverage ratio of
In July 2022, we repaid $12,000 of the outstanding balance on our Credit Facility.
Convertible Notes
On August 12, 2019, we issued an aggregate principal amount of $
Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. Our current intent is to settle conversions entirely in shares of common stock. We will reevaluate this policy from time to time as we receive conversion notices from note holders. The circumstances necessary for conversion were not met during the three months ended June 30, 2022. As of June 30, 2022, the Notes are classified as a long-term liability on our Condensed Consolidated Balance Sheets as the circumstances necessary for conversion were not satisfied as of the end of the period. The if-converted value of the Notes did not exceed the principal balance as of June 30, 2022.
The net carrying amount of the Notes was as follows:
| June 30, 2022 | March 31, 2022 | |||||||
| Principal outstanding | $ | $ | ||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Net carrying value | $ | $ | ||||||
We recognized interest expense on the Notes as follows:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Coupon interest expense at 1.375% | $ | $ | ||||||
| Amortization of debt discounts and issuance costs | ||||||||
| Total | $ | $ | ||||||
The effective interest rate on the notes is approximately
Note 8. Stockholders' Equity
Stock-Based Compensation
During the first quarter of fiscal year 2023, we issued stock options, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") pursuant to the Mesa Laboratories, Inc. 2021 Equity Incentive Plan (the "2021 Equity Plan"), which authorizes the issuance of
Expense recognized related to stock-based compensation is as follows:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock-based compensation expense | $ | $ | ||||||
| Amount of income tax (benefit) expense recognized in earnings | ( | ) | ( | ) | ||||
| Stock-based compensation expense, net of tax | $ | $ | ( | ) | ||||
Stock-based compensation expense is included in cost of revenues, selling, general and administrative, and research and development expense in the accompanying unaudited Condensed Consolidated Statements of Operations.
The following is a summary of stock option award activity for the three months ended June 30, 2022:
| 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, 2022 | $ | $ | ||||||||||||||
| Awards granted | ||||||||||||||||
| Awards forfeited or expired | ( | ) | ||||||||||||||
| Awards exercised | ( | ) | ||||||||||||||
| Outstanding as of June 30, 2022 | $ | $ | ||||||||||||||
The stock options granted during the three months ended June 30, 2022 vest in equal installments on the first, second, and third anniversary of the grant date.
The following is a summary of RSU award activity for the three months ended June 30, 2022:
| Time-Based Restricted Stock Units | Performance-Based Restricted Stock Units | |||||||||||||||
| Number of Shares | Weighted- Average Grant Date Fair Value per Share | Number of Shares | Weighted- Average Grant Date Fair Value per Share | |||||||||||||
| Outstanding as of March 31, 2022(1) | $ | $ | ||||||||||||||
| Awards granted (1) | ||||||||||||||||
| Performance adjustment(2) | ||||||||||||||||
| Awards forfeited | ( | ) | ||||||||||||||
| Awards distributed | ( | ) | ( | ) | ||||||||||||
| Outstanding as of June 30, 2022(1) | $ | $ | ||||||||||||||
| (1) | Balances for performance-based restricted stock units ("PSUs") are reflected at target. |
| (2) | During the three months ended June 30, 2022, the fiscal year 2020 PSUs vested and were distributed at 126% of target, based on actual performance results and completion of service conditions. |
The outstanding time-based RSUs vest and settle in shares of our common stock on a one-for-one basis. All of the RSUs granted during the three months ended June 30, 2022 vest in equal installments on the first, second, and third anniversary of the grant date. We recognize the expense relating to RSUs, net of estimated forfeitures, on a straight-line basis over the vesting period.
PSUs vest upon completion of the service period described in the award agreement and based on achievement of the financial targets described in the award agreements. We recognize the expense relating to the performance-based RSUs based on the probable outcome of achievement of the financial targets on a straight-line basis over the service period.
During the three months ended June 30, 2022, the Compensation Committee of the Board of Directors created a plan to award
During fiscal year 2020, we awarded 8 PSUs (the "FY 20 PSUs") subject to both service and performance conditions to eligible employees. The FY 20 PSUs had a grant date fair value of $
Note 9. Earnings (Loss) Per Share
Basic (loss) earnings per share is computed by dividing net (loss) 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 (loss) earnings per share, except that it includes the potential dilution that could occur if dilutive securities were exercised. Potentially dilutive securities include stock options and both time and performance based RSUs (collectively “stock awards”), as well as common shares underlying the Notes. Stock awards are excluded from the calculation of diluted EPS if they are subject to performance conditions that have not yet been achieved or are antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would then have an antidilutive effect. There was no dilution in our diluted EPS calculation for the three months ended June 30, 2022 as we incurred a net loss and the effect would have been antidilutive.
The impact of the assumed conversion of the Notes calculated under the if-converted method was antidilutive, and as such, shares underlying the Notes were excluded from the diluted EPS calculation for three months ended June 30, 2022 and June 30, 2021.
The following table presents a reconciliation of the denominators used in the computation of basic and diluted (loss) earnings per share:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net (loss) income available for shareholders | $ | ( | ) | $ | ||||
| Weighted average outstanding shares of common stock | ||||||||
| Dilutive effect of stock options | ||||||||
| Dilutive effect of RSUs | ||||||||
| Fully diluted shares | ||||||||
| Basic (loss) earnings per share | $ | ( | ) | $ | ||||
| Diluted (loss) earnings per share | $ | ( | ) | $ | ||||
The following stock awards were excluded from the calculation of diluted EPS:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Assumed conversion of the Notes | ||||||||
| Stock awards that were anti-dilutive | ||||||||
| Stock awards subject to performance conditions | ||||||||
| Total stock awards excluded from diluted EPS | ||||||||
Note 10. Income Taxes
For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax income. Each quarter, our estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. Additionally, the tax effects of significant unusual or infrequently occurring items are recognized as discrete items in the interim period in which the events occur. There is a potential for volatility in the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, settlement with taxing authorities, and foreign currency fluctuations.
Our effective income tax rate was (
Note 11. Commitments and Contingencies
We review the adequacy of our legal reserves on a quarterly basis and establish reserves for loss contingencies that are both probable and reasonably estimable. As of June 30, 2022, there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets.
Note 12. Segment Information
During fiscal year 2022, we realigned our financial reporting segments to reflect how management evaluates the business and allocates resources. The acquisition of Agena expanded our presence further into the life sciences tools market and provided an impetus for the creation of our new Clinical Genomics reportable segment. The strategic shift in our business also resulted in a change to the way we manage other business units, and as a result, our historical Instruments and Continuous Monitoring reportable segments have been combined to create Calibration Solutions. Prior year amounts presented have been reclassified to conform to current year presentation. Our change in financial reporting segments has not resulted in any change to previously reported consolidated amounts.
| Three Months Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Revenues: |
||||||||
| Clinical Genomics |
$ | $ | ||||||
| Sterilization and Disinfection Control |
||||||||
| Biopharmaceutical Development |
||||||||
| Calibration Solutions |
||||||||
| Total revenues (a) |
$ | $ | ||||||
| Gross profit |
||||||||
| Clinical Genomics |
$ | $ | ||||||
| Sterilization and Disinfection Control |
||||||||
| Biopharmaceutical Development |
||||||||
| Calibration Solutions |
||||||||
| Reportable segment gross profit |
||||||||
| Corporate and Other (b) |
( |
) | ( |
) | ||||
| Gross profit |
$ | $ | ||||||
| Reconciling Items: |
||||||||
| Operating expenses |
||||||||
| Operating (loss) income |
( |
) | ||||||
| Nonoperating (income) expense, net |
||||||||
| (Loss) earnings before income taxes |
$ | ( |
) | $ | ||||
| (a) |
Intersegment revenues are not significant and are eliminated to arrive at consolidated totals. |
| (b) |
Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other. |
The following table sets forth inventories by reportable segment. Our chief operating decision maker is not provided with any other segment asset information.
| June 30, |
March 31, |
|||||||
| 2022 |
2022 |
|||||||
| Clinical Genomics |
$ | $ | ||||||
| Sterilization and Disinfection Control |
||||||||
| Biopharmaceutical Development |
||||||||
| Calibration Solutions |
||||||||
| Total inventories |
$ | $ | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position; potential impairment of future earnings; anticipated effects of, and future actions to be taken in response to, the COVID-19 pandemic; results of acquisitions; 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 components; and adequacy of capital resources and financing plans constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management’s beliefs and assumptions. In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company’s behalf. Words such as “expect,” “intend,” “seek,” “believe,” “anticipate,” “could,” “estimate,” “plan,” “target,” “may,” “project,” or variations of such words and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including risks associated with: our ability to successfully grow our business, including as a result of acquisitions; the results that acquisitions have on our operations; our ability to consummate acquisitions at our historical rate and at appropriate prices, and our ability to effectively integrate acquired businesses and achieve desired results; the market acceptance of our products; technological or market viability of our products; reduced demand for our products, including as a result of competitive factors; conditions in the global economy and the particular markets we serve; the duration and impact of the COVID-19 pandemic and its adverse effects on our business; significant developments or uncertainties stemming from governmental actions, including changes in trade policies and medical device regulations; the timely development and commercialization, and customer acceptance, of enhanced and new products and services; retirement of old products and customer migration to new products; projections of revenues, growth, operating results, profit margins, earnings, expenses, margins, tax rates, tax provisions, liquidity, cash flows, demand, and competition; the effects of additional actions taken to become more efficient or lower costs; restructuring activities; laws regulating fraud and abuse in the health care industry and the privacy and security of health and personal information; product liability; information security; outstanding claims, legal and regulatory proceedings; international business challenges including anti-corruption and sanctions laws; tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic, industry, and capital markets conditions; the timing of any of the foregoing; and assumptions underlying any of the foregoing. Such risks and uncertainties also include those listed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2022 and in this report. The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. We disclaim any obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Overview
We are a multinational manufacturer, developer, and seller of life science tools and quality control products and services, many of which are sold into niche markets that are driven by regulatory requirements. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins. As of June 30, 2022, we managed our operations in four reportable segments, or divisions: Clinical Genomics, Sterilization and Disinfection Control, Biopharmaceutical Development, and Calibration Solutions. Each of our divisions are described further in "Results of Operations" below. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.
Corporate Strategy
We strive to create shareholder value and further our purpose of Protecting the Vulnerable® by growing our business both organically and through acquisitions, by improving our operating efficiency, and by continuing to hire, develop and retain top talent. As a business, we commit to our purpose of Protecting the Vulnerable® every day by taking a customer-focused approach to developing, building, and delivering our products. We serve a broad set of industries, in particular the pharmaceutical, healthcare services, and medical device verticals, that require dependable quality control and calibration solutions to ensure the safety and efficacy of the products they use. By delivering the highest quality products possible, we are committed to protecting people, the environment, and end products.
Organic Revenues Growth
Organic revenues growth is primarily driven by the expansion of our customer base, increases in sales volumes, price increases, and 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; however as a result of high inflation in recent quarters, we have elected to put through additional price increases which will take effect during the second quarter of our fiscal year 2023.
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.
Inorganic Growth - Acquisitions
During the third quarter of fiscal year 2022, we completed the acquisition of Agena for an aggregate net purchase price of $300,793. Agena is a leading clinical genomics tools company that develops, manufactures, and sells highly sensitive, low-cost, high-throughput, genetic analysis tools used by clinical labs to perform genomic clinical testing in several therapeutic areas, such as newborn screenings, pharmacogenetics and oncology. The acquisition of Agena accelerated our strategic trajectory towards higher growth applications within the regulated segments of the life sciences tools market.
Over the past decade, we have consummated a number of acquisitions as part of our growth strategy. The acquisitions of these businesses have allowed us to expand our product offerings, globalize our company, and increase the scale at which we operate, which in turn affords us the ability to improve our operating efficiency, extend our customer base, and further the pursuit of our purpose: Protecting the Vulnerable®.
Improving Our Operating Efficiency
We maximize value in both our existing businesses and those we acquire by implementing efficiencies in our manufacturing, commercial, engineering, and administrative operations. We achieve efficiencies using the four pillars that make up The Mesa Way, which is our customer-centric, lean-based system for continuously improving and operating a set of high-margin, niche businesses. The Mesa Way is focused on: Measuring What Matters using our customers' perspective and setting high standards for performance; Empowering Teams to improve operationally and exceed customer expectations; Steadily Improving using lean-based tools designed to help us identify the root cause of opportunities and prioritize the biggest opportunities; and Always Learning so that performance continuously improves.
Hire, Develop, and Retain Top Talent
At the center of our organization are talented people who are capable of taking on new challenges using a team approach. It is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously improve our products, our services, and ourselves, resulting in long-term value creation for our shareholders.
General Trends
COVID-19 has caused or exacerbated broad market phenomena such as supply chain disruptions, inflation, and wage pressure to which we are susceptible. While supply chain constraints continue to impact all of our divisions and particularly our Calibration Solutions and Biopharmaceutical Development divisions, we expect that constraints will abate somewhat over the remainder of fiscal year 2023. We continue to work with our suppliers to understand the existing and potential future impacts to our supply chain and are taking actions in an effort to mitigate such impacts, including pre-ordering components in higher quantities than usual, which has resulted in increased raw materials balances on our consolidated balance sheets as of June 30, 2022. We have also experienced labor shortages and inflationary pressures due to labor market conditions, impacting all of our divisions, but particularly our Sterilization and Disinfection Control division. It is possible that labor shortages in our Sterilization and Disinfection Control Division may continue to impact our ability to manufacture product on preferred timelines during the remainder of fiscal year 2023 which could directly impact our revenues and related gross profit.
We continue to actively monitor the COVID-19 pandemic, including the spread of variants of the virus and the potential impacts that the virus may have on our employees, our customers, and our supply chain. Conditions related to the COVID-19 pandemic have generally improved during the first quarter of our fiscal year 2023; however, there has been significant variation in business impact by geography. For example, late in fiscal year 2022, an increase in COVID-19 cases in certain parts of China resulted in the re-imposition of government mandated shut-downs and restrictions, which impacted our operations in China, particularly our Clinical Genomics division. Such regulatory restrictions have negatively impacted commercial execution, limiting sales of Clinical Genomics consumables to existing customers and instruments to new customers. As stay-at-home and quarantine mandates have eased to some extent, we expect an eventual return to normalized activity levels. The continued impact of COVID-19 remains highly uncertain because of the speed with which the situation continues to evolve, the global breadth of its spread, the range of governmental and community responses thereto and the diversity of our geographic reach and business offerings. Even after the COVID-19 pandemic has largely subsided as a public health matter, we may experience material adverse impacts to our business as a result of the pandemic's adverse impact on the global economy, in-person collaboration and sales efforts, and our customers’ changed purchasing behaviors and confidence.
Results of Operations
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements and the notes thereto appearing in Item 1. Financial Statements (in thousands, except percent data).
Revenues from our reportable segments increased 44% for the three months ended June 30, 2022. Revenues growth was primarily attributable to the acquisition of Agena; however, organic revenues growth was 3% for the three months ended June 30, 2022. Gross profit as a percentage of revenues decreased two percentage points for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily as a result of continued supply chain constraints, wage and other inflationary pressures, and impacts of government-imposed lockdowns related to the COVID-19 pandemic. Results by reportable segment are as follows:
| Revenues |
Organic Revenues Growth |
Gross Profit as a % of Revenues |
||||||||||||||||||||||
| Three Months Ended June 30, 2022 |
Three Months Ended June 30, 2021 |
Three Months Ended June 30, 2022 |
Three Months Ended June 30, 2021 |
Three Months Ended June 30, 2022 |
Three Months Ended June 30, 2021 |
|||||||||||||||||||
| Clinical Genomics (*) |
$ | 14,505 | $ | - | N/A | N/A | 54 | % | N/A | |||||||||||||||
| Sterilization and Disinfection Control |
14,774 | 15,150 | (2 | %) | 16 | % | 73 | % | 75 | % | ||||||||||||||
| Biopharmaceutical Development |
10,967 | 8,877 | 24 | % | 49 | % | 65 | % | 53 | % | ||||||||||||||
| Calibration Solutions |
10,207 | 10,893 | (6 | %) | - | % | 55 | % | 56 | % | ||||||||||||||
| Mesa's reportable segments |
$ | 50,453 | $ | 34,920 | 3 | % | 17 | % | 62 | % | 64 | % | ||||||||||||
(*) Revenues in the Clinical Genomics division represent transactions subsequent to the Agena Acquisition on October 20, 2021.
Our unaudited condensed consolidated results of operations are as follows:
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Revenues |
$ | 50,453 | $ | 34,920 | 44 | % | ||||||
| Gross profit |
31,341 | 22,211 | 41 | % | ||||||||
| Operating expenses |
35,935 | 19,088 | 88 | % | ||||||||
| Operating (loss) income |
(4,594 | ) | 3,123 | (247 | %) | |||||||
| Net (loss) income |
$ | (1,438 | ) | $ | 1,995 | (172 | %) | |||||
Reportable Segments
Clinical Genomics
The Clinical Genomics division, created following the Agena Acquisition, develops, manufactures, and sells highly sensitive, low-cost, high-throughput, genetic analysis tools used by clinical labs to perform genomic clinical testing in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics and oncology related applications.
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Revenues |
$ | 14,505 | $ | - | N/A | |||||||
| Gross profit |
7,849 | - | N/A | |||||||||
| Gross profit as a % of revenues |
54 | % | N/A | N/A | ||||||||
Clinical Genomics revenues were negatively impacted by the government-imposed shutdowns in parts of China due to the COVID-19 pandemic, which began at the end of fiscal year 2022 and continued throughout the majority of the first quarter of fiscal year 2023. Shut-downs in China limited our sales efforts and decreased sales of consumables as laboratory customers were closed, limiting usage of our products. As these government-imposed shutdowns become less frequent, we expect to see a recovery to more normal demand. Of the revenues reported, $195 represents revenues from COVID-19 related sales.
Clinical Genomics gross profit was $7,849 for the three months ended June 30, 2022 and was significantly impacted by lower than expected revenues due to the government-imposed shutdowns in China related to the COVID-19 pandemic. The decreased revenues impacted gross profit as a percentage of revenues as lower revenues were available to cover our partially fixed cost base.
Sterilization and Disinfection Control
Our Sterilization and Disinfection Control division manufactures and sells biological, cleaning, and chemical indicators which are used to assess the effectiveness of sterilization and disinfection processes in the hospital, medical device, and pharmaceutical industries. The division also provides testing and laboratory services, mainly to the dental industry. Sterilization and disinfection control products are disposable and are used on a routine basis.
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Revenues |
$ | 14,774 | $ | 15,150 | (2 | %) | ||||||
| Gross profit |
10,768 | 11,428 | (6 | %) | ||||||||
| Gross profit as a % of revenues |
73 | % | 75 | % | (2 | %) | ||||||
Sterilization and Disinfection Control revenues decreased 2% for the three months ended June 30, 2022 primarily due to the strengthening of the U.S. dollar ("USD") against the euro and labor shortages which impacted our ability to manufacture products on desired timelines, partially offset by favorable product mix and to a lesser extent price increases.
Sterilization and Disinfection Control's gross profit percentage decreased two percentage points for the three months ended June 30, 2022 as a result of lower revenues due to the strengthening of the USD against the euro and increased labor and labor-related costs.
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 manufacturing of biotherapeutic drugs.
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Revenues |
$ | 10,967 | $ | 8,877 | 24 | % | ||||||
| Gross profit |
7,077 | 4,692 | 51 | % | ||||||||
| Gross profit as a % of revenues |
65 | % | 53 | % | 12 | % | ||||||
Biopharmaceutical Development revenues increased 24% for the three months ended June 30, 2022 primarily due to increased sales of both consumables and services, as well as price increases and an easier compare to the first quarter of fiscal year 2022. Increases in revenues were partially offset by unfavorable changes in foreign exchange rates.
Biopharmaceutical Development's gross profit percentage increased 12 percentage points for the first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 as a result of a favorable change in foreign exchange rates applied to costs recorded in Swedish Krona ("SEK"), favorable product mix of peptide synthesis solutions, and production efficiencies resulting from increased revenues, partially offset by higher labor and material costs.
Calibration Solutions
The Calibration Solutions division designs, manufactures, and markets quality control and calibration products used to measure or calibrate temperature, pressure, pH, humidity, and other such parameters for health and safety purposes, primarily in hospital, medical device manufacturing, pharmaceutical, and laboratory environments.
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Revenues |
$ | 10,207 | $ | 10,893 | (6 | %) | ||||||
| Gross profit |
5,664 | 6,112 | (7 | %) | ||||||||
| Gross profit as a % of revenues |
55 | % | 56 | % | (1 | %) | ||||||
Calibration Solutions division revenues decreased 6% for the three months ended June 30, 2022 primarily as a result of supply constraints limiting our ability to manufacture ordered quantities of certain products, partially offset by price increases and increased calibration hardware sales.
The Calibration Solutions division's gross profit percentage decreased one percentage point during the three months ended June 30, 2022. Costs in this division increased somewhat from the first quarter of 2022 to the first quarter of 2023, partially offset by a favorable product mix.
Operating Expenses
Operating expenses increased 88% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily as a result of the Agena Acquisition and as our overall business grew.
Selling
Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels.
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Selling expense |
$ | 10,023 | $ | 4,858 | 106 | % | ||||||
| As a percentage of revenues |
20 | % | 14 | % | 6 | % | ||||||
Selling expense for the three months ended June 30, 2022 increased 106% primarily as a result of the acquisition of Agena. Excluding the impact of Agena, selling expense increased 17% for the three months ended June 30, 2022, primarily as a result of professional services costs as we made improvements to our corporate website, as well as increased travel and tradeshow costs as we continued to resume in-person meetings and events.
General and Administrative
Labor costs, including non-cash stock-based compensation, and amortization of intangible assets drive the substantial majority of our general and administrative expense.
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| General and administrative expense |
$ | 20,212 | $ | 11,419 | 77 | % | ||||||
| As a percentage of revenues |
40 | % | 33 | % | 7 | % | ||||||
General and administrative expenses increased 77% for the three months ended June 30, 2022 primarily as a result of the acquisition of Agena, including $2,490 of amortization of intangibles associated with intangibles acquired in the Agena Acquisition. Excluding the impact of Agena, general and administrative expenses increased 33% for the three months ended June 30, 2022.
Excluding Agena, the increase in general and administrative costs for the first quarter of fiscal year 2023 was a result of higher stock-based compensation expense, increased labor and labor-related expenses, and costs associated with the implementation of our enterprise resource planning tool for Agena, partially offset by lower legal expenses.
Research and Development
Research and development expense is predominantly comprised of labor costs and costs of third-party consultants.
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Research and development expense |
$ | 5,700 | $ | 2,811 | 103 | % | ||||||
| As a percentage of revenues |
11 | % | 8 | % | 3 | % | ||||||
Research and development expenses increased 103% for the three months ended June 30, 2022 primarily as a result of the acquisition of Agena. Excluding the impact of Agena, research and development costs for the three months ended June 30, 2022 increased 23% primarily as a result of our purchase of in process research and development technology that we intend to further develop in order to enhance a product offering in our Sterilization and Disinfection Control division.
Nonoperating Expense
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Nonoperating (income) expense |
$ | 818 | 1,705 | (52 | %) | |||||||
Nonoperating expense for the three months ended June 30, 2022 is composed primarily of interest expense and amortization of the debt discount associated with the Notes and net gains on foreign currency transactions. Nonoperating expense was lower in the first quarter of fiscal year 2023 compared to the first quarter of fiscal year 2022 as the USD strengthened against the SEK and the euro resulting in realized and unrealized gains that partially offset interest expense and amortization of debt discount on the Notes and the Credit Facility.
Income Taxes
| Three Months Ended June 30, |
Percentage |
|||||||||||
| 2022 |
2021 |
Change |
||||||||||
| Income tax provision (benefit) |
$ | (3,974 | ) | $ | (577 | ) | 589 | % | ||||
| Effective tax rate |
73.4 | % | (40.7 | %) | 114 | % | ||||||
Our effective income tax rate was (73.4%) for the three months ended June 30, 2022 and (40.7%) for the three months ended June 30, 2021. The effective tax rate for the three months ended June 30, 2022 differed from the statutory federal rate of 21% primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictions The effective tax rate for the first quarter of our fiscal year 2023 was higher than the same period in 2022 primarily due to the share based compensation and the effect of income in foreign jurisdictions.
Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.
Net Income
Net income for the three months ended June 30, 2022 varied with the changes in revenues, gross profit, and operating expenses (and included $7,320 and $3,432 of non-cash amortization of intangible assets acquired in a business combination and stock-based compensation expense, respectively).
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 our Open Market Sale AgreementSM, working capital and potential additional equity and debt offerings. We believe that cash flows from operating activities and potential cash provided by borrowings from our Credit Facility or funds from our Open Market Sale AgreementSM, when necessary, will be sufficient to meet our ongoing operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures. We currently expect to settle the Notes in shares of our common stock, but we may re-finance the debt, depending on conditions in the market and the share price of our common stock.
Our more significant uses of resources have historically included acquisitions, payments of debt and interest obligations, long-term capital expenditures, and quarterly dividends to shareholders. Working capital is the amount by which current assets exceed current liabilities. We had working capital of $84,000 and $76,263 as of June 30, 2022 and March 31, 2022, respectively. As of June 30, 2022, and March 31, 2022, we had $43,747 and $49,346, respectively, of cash and cash equivalents. We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
As of June 30, 2022, $172,500 in aggregate principal Notes was outstanding and $47,000 was outstanding under the Credit Facility. In July 2022, we repaid $12,000 of the amount outstanding under the Credit Facility.
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 million.
We routinely evaluate opportunities for strategic acquisitions. Future material acquisitions may require that we obtain additional capital, assume additional third-party debt or incur other long-term obligations. We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities; however, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all.
We may from time to time repurchase or take other steps to reduce our debt. These actions may include retirements or refinancing of outstanding debt, privately negotiated transactions or otherwise. The amount of debt that may be retired, if any, could be material and would be decided at the sole discretion of our Board of Directors and would depend on market conditions, our cash position, and other considerations.
Dividends
We have paid regular quarterly dividends since 2003. We declared and paid dividends of $0.16 per share during the quarter ended June 30, 2022, as well as each quarter of fiscal year 2022.
In July 2022, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on September 15, 2022, to shareholders of record at the close of business on August 31, 2022.
Cash Flows
Our cash flows from operating, investing, and financing activities were as follows (in thousands):
| Three Months Ended June 30, |
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| 2022 |
2021 |
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| Net cash (used in) provided by operating activities |
$ | (2,811 | ) | $ | 9,589 | |||
| Net cash (used in) investing activities |
(225 | ) | (653 | ) | ||||
| Net cash (used in) provided by financing activities |
(1,407 | ) | 265 | |||||
Cash flows from operating activities for the three months ended June 30, 2022 used $2,811. Of the amount of cash used, $10,233 related to net decreases working capital accounts, $4,972 represented net loss for the first quarter of 2023, partially offset by amortization and stock-based compensation expense. Cash used in working capital during the first quarter of fiscal year 2023 included: payment of bonuses accrued at year end, higher inventory as we work to manage supply chain constraints by increasing our stock of raw materials inventory, as well as payments made for prepaid insurance policies and other annual renewals. In the first quarter of fiscal year 2022, changes in operating assets and liabilities represented $1,430 as our cash bonus paid was smaller, and more receivables were collected during the quarter. Cash used in investing activities was lower during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, due to less purchases of property, plant, and equipment during the period. Cash used by financing activities primarily resulted from $2,000 repaid on our Credit Facility during the quarter.
Contractual Obligations and Other Commercial Commitments
We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of our contractual obligations and other commercial commitments as of March 31, 2022, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the Securities and Exchange Commission on May 31, 2022.
On a consolidated basis, at June 30, 2022, we had contractual obligations for open purchase orders of approximately $24,081 for routine purchases of supplies and inventory, which are payable in less than one year. Open purchase orders continue to increase as we take proactive steps to mitigate risks in supply by increasing our orders of certain critical raw materials.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no off-balance sheet arrangements or obligations.
Critical Accounting Policies and Estimates
Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended March 31, 2022, in the Critical Accounting Policies and Estimates section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our reporting currency is U.S. dollars, and the functional currency of each of our material foreign subsidiaries is its respective local currency. Our operations include activities outside of the U.S. and we have currency risk on the transactions in other currencies and translation adjustments resulting from the conversion of our international financial results into the U.S. dollar. We face currency exposures in our global operations as a result of various factors including intercompany currency denominated loans, selling our products in various currencies, purchasing raw materials and equipment in various currencies, and tax exposures not denominated in the functional currency. These exposures have increased as we have continued to expand internationally, including the acquisition of Gyros Protein Technologies Holding AB, which conducts a substantial portion of its business expenses in Swedish Krona, and the acquisition of Agena, which conducts a portion of its business in euros and a portion in Chinese Yuan. Fluctuations in exchange rates have and may continue to adversely affect our results of operations, financial position, and cash flows. We do not hedge exposure to exchange rates.
Our Credit Facility bears interest at either a base rate or a Eurodollar rate, plus an applicable spread. Based on the balance currently outstanding against our line of credit, if interest rates increased by 75 basis points, we would incur approximately $353 of additional interest expense per year.
We have no derivative instruments. We have minimal exposure to commodity market risks.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As of June 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
The Agena Acquisition was completed on October 20, 2021, and the financial results of Agena are included in our Condensed Consolidated Financial Statements as of March 31, 2022 and for the period then ended, and as of June 30, 2022 and for the three months then ended. During the time since acquisition, we have assessed the control environment of Agena and made certain changes to Agena's internal controls over financial reporting, including design changes that were required as we brought Agena onto our enterprise resource planning tool. We now consider Agena to be included in the scope of our assessment of internal controls over financial reporting.
See Note 11. “Commitments and Contingencies” within Item 1. Financial Statements for information regarding any legal proceedings in which we may be involved.
During the first quarter of fiscal year 2023, there were no material changes from the risk factors described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended March 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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, of which 162,486 have been purchased to date; however, no shares have been purchased under the plan in the last three fiscal years. This plan will continue until the maximum is reached or the plan is terminated by further action of the Board of Directors. During the three months ended June 30, 2022, 2,187 shares with a weighted average price paid per share of $188.67 were retained by the Company to settle employee withholding tax liabilities.
α Indicates a compensatory arrangement
* Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MESA LABORATORIES, INC.
(Registrant)
| DATED: August 4, 2022 | BY: | /s/ Gary M. Owens. Gary M. Owens Chief Executive Officer |
| DATED: August 4, 2022 | BY: | /s/ John V. Sakys John V. Sakys Chief Financial Officer |
Exhibit 10.1
Note: Do not sign and return this document to the Company. By clicking on the “ACCEPT” box, you acknowledge that you have read the information below and agree to be bound by the terms of the Plan and this Agreement. Please provide such acceptance within ninety (90) days of the Grant Date.
Mesa Laboratories, Inc.
2021 Equity Incentive Plan
Performance Stock Unit Award Agreement
GrantDate
ParticipantName
Address 1
Address 2
Dear ParticipantName:
We are pleased to inform you that Mesa Laboratories, Inc. (the “Company”) has made an award of performance stock units to you (the “Performance Stock Units”) as indicated in this Performance Stock Unit Award Agreement (this “Award Agreement”). The Performance Stock Units are issued pursuant to the Company’s 2021 Equity Incentive Plan (the “Plan”) and are subject to and governed by the Plan generally. All capitalized terms not defined herein shall have the meanings given to such terms in the Plan.
| Notice of Award | ||
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Grant Date |
GrantDate |
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Target Performance Stock Units |
QuantityGranted (“Target PSUs”) |
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Performance Period |
April 1, 2022 – March 31, 2023 |
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Time-Vesting Date |
March 31, 2025 |
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Settlement Date |
DistributionDateandQuantity |
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Overview |
This award of Performance Stock Units entitles you to earn shares of Common Stock based on the satisfaction of the performance goals set forth in Appendix A and your Continuous Service (defined below) thereafter through the Time-Vesting Date. |
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General Vesting and Payment Provisions |
The actual number of shares of Common Stock earned, if any, is equal to the number of Performance Stock Units that become vested (“Vested PSUs”), determined as follows (except as otherwise set forth herein): |
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| ● | First, at the end of the Performance Period, the Company will determine the number of Performance Stock Units that are eligible to vest (the “Conditional PSUs”) by applying the formula(s) in Appendix A taking into account the level of achievement of the relevant performance goals and the Target PSUs awarded to you. The Conditional PSUs, if any, may be greater than or less than the Granted PSUs, but can never exceed the Max PSUs. | |
| ● | Next, the Conditional PSUs, if any, shall become Vested PSUs based on your Continuous Service with the Company or its Subsidiaries following the end of the Performance Period through the Time-Vesting Date. The Company shall issue you one share of Common Stock for each Vested PSU, as described in the “Payment” section below. | |
| You have no rights as a stockholder of the Company pursuant to this Agreement until such time, if any, as shares of Common Stock are issued to you. | ||
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Award Determination |
The Company shall determine the number of your Conditional PSUs as soon as practicable following the end of the Performance Period, and in all events within twenty (20) days following the last day of the Performance Period. |
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Vesting Date |
Subject to your Continuous Service with the Company or Subsidiaries from the Grant Date through the Time-Vesting Date, all Conditional PSUs shall become Vested PSUs on the Time-Vesting Date. For purposes of this Agreement, the term “Continuous Service” shall mean your uninterrupted service to the Company or any Subsidiary as an employee, non-employee director, or consultant. The Administrator shall determine in its discretion whether and when your Continuous Service has ended (including as a result of any leave of absence); provided, however, that your Continuous Service shall not be deemed to have ended in the event you retire or otherwise terminate as an employee but continue to perform services for the Company as a non-employee director or consultant. |
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Termination of Continuous Service |
General
Prior to the End of Performance Period.
In the event that your Continuous Service with the Company or its Subsidiaries is terminated during the Performance Period for any reason other than for “Cause,” “Normal Retirement,” death or “Disability,” then (i) if less than 12 months have elapsed between the Grant Date and the date of termination, the Performance Stock Units shall be terminated and cancelled in full without payment, and you shall thereafter cease to have any rights with respect to such forfeited Performance Stock Units, or (ii) if 12 months or more have elapsed between the Grant Date and the date of termination, you shall be entitled to receive a number of Vested PSUs (if any) equal to the product of (x) a number of PSUs equal to the lesser of (i) the Target PSUs, or (ii) the number of PSUs determined in accordance with Appendix A based on the performance through the end of the Performance Period, multiplied by (y) a fraction, (i) numerator of which shall be the number of whole and partial calendar months of service during the Performance Period through the date of termination, with any partial calendar months credited as whole calendar months, and (ii) the denominator of which is the total number of months in the Performance Period. Vested PSUs, if any, shall be payable on the Settlement Date as set forth in the “Payment” section below.
On or After the End of the Performance Period.
In the event that your Continuous Service with the Company or its Subsidiaries is terminated following the end of the Performance Period and prior to the Time-Vesting Date for any reason other than for “Cause,” “Normal Retirement,” death or “Disability,” your Conditional PSUs, if any, shall immediately become Vested PSUs. Vested PSUs, if any, shall be payable on the Settlement Date as set forth in the “Payment” section below.
Termination without Cause
In the event that your Continuous Service with the Company or its Subsidiaries is terminated prior to the Time-Vesting Date for Cause, then all Performance Stock Units shall be terminated and cancelled in full without payment, and you shall thereafter cease to have any rights with respect to such forfeited Performance Stock Units. |
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Normal Retirement
Prior to the End of Performance Period.
In the event that your Continuous Service with the Company or its Subsidiaries is terminated during the Performance Period because of your “Normal Retirement,” then you shall be entitled to receive a number of Vested PSUs (if any) determined in accordance with Appendix A based on the performance through the end of the Performance Period. Vested PSUs, if any, shall be payable on the Settlement Date as set forth in the “Payment” section below.
On or After the End of the Performance Period.
In the event that your Continuous Service with the Company or its Subsidiaries is terminated following the end of the Performance Period and prior to the Time-Vesting Date because of your “Normal Retirement,” your Conditional PSUs, if any, shall immediately become Vested PSUs. Vested PSUs, if any, shall be payable on the Settlement Date as set forth in the “Payment” section below.
Disability
Prior to the End of Performance Period.
In the event that your Continuous Service with the Company or its Subsidiaries is terminated during the Performance Period as a result of “Disability,” then you shall be entitled to receive a number of Vested PSUs equal to the product of (x) the Target PSUs, multiplied by (y) a fraction, (i) numerator of which shall be the number of whole and partial calendar months of service during the Performance Period through the date of termination, with any partial calendar months credited as whole calendar months, and (ii) the denominator of which is the total number of months in the Performance Period. Vested PSUs shall be payable on the Settlement Date as set forth in the “Payment” section below. |
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On or After the End of the Performance Period.
In the event that your Continuous Service with the Company or its Subsidiaries is terminated following the end of the Performance Period and prior to the Time-Vesting Date as a result of “Disability,” your Conditional PSUs, if any, shall immediately become Vested PSUs. Vested PSUs, if any, shall be payable on the Settlement Date as set forth in the “Payment” section below.
Death
Prior to the End of Performance Period.
In the event that your Continuous Service with the Company or its Subsidiaries is terminated during the Performance Period as a result of your death, then you shall be entitled to receive a number of Vested PSUs equal to the Target PSUs. Vested PSUs, if any, shall be payable within 90 days of your death, as set forth in the “Payment” section below.
On or After the End of the Performance Period.
In the event that your employment with the Company or its Subsidiaries is terminated following the end of the Performance Period and prior to the Time-Vesting Date as a result of your death, your Conditional PSUs, if any, shall immediately become Vested PSUs. Vested PSUs, if any, shall be payable within 90 days of your death, as set forth in the “Payment” section below.
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Payment |
General
The Company shall issue to you one share of Common Stock for each Vested PSU hereunder, with the delivery of such Common Stock to occur on the Settlement Date (except as set forth below under the headings entitled “Death” and “Change of Control”).
Death
Notwithstanding the foregoing, in the event you terminate Continuous Service as a result of your death, delivery of Common Stock shall occur within 90 days after the date of death; provided, however, that in the event such 90-day period spans more than one taxable year, the issuance of Common Stock shall occur in the later taxable year. |
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Change of Control |
The provisions of Section 8.2 of the Plan shall apply upon the occurrence of a Change of Control. |
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Other Agreements |
The terms of this Performance Stock Unit Award, including the provisions above regarding your termination of Continuous Service, are subject to and are modified by any contrary terms in any employment agreement, severance letter, of similar agreement between you and the Company that may be in effect from time to time (an “Other Agreement”). |
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Other Terms and Conditions |
Are set forth in the accompanying Performance Stock Unit Award Terms and Conditions and the Plan. |
Online Acceptance of Performance Stock Unit Award Agreement
By your online acceptance, you and the Company agree that the Performance Stock Units granted hereby are granted under and governed by the terms and conditions of this Performance Stock Unit Award Agreement and the accompanying Performance Stock Unit Award Terms and Conditions (the “Award Documents”), and the terms of the Plan. You hereby represent and acknowledge that you have been provided the opportunity to review the Plan and the Award Documents in their entirety, and you hereby agree to accept as binding, conclusive, and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and the Award Documents.
Appendix A
Performance Goals
Calculation of Conditional PSUs. The number of PSUs, if any, shall be determined based on Mesa Laboratories, Inc.’s (“Mesa” or the “Company”) performance over the Performance Period as measured by the following three metrics: Revenues (as defined below) and adjusted operating income (“AOI”) (also defined below), and performance against non-financial areas of strategic importance. Thirty-five percent of the Target PSUs shall be assigned to Revenues, 35% of the Target PSUs shall be assigned to AOI (together, revenue and AOI represent the “Financial Metrics”), and 30% shall be assigned to Strategic Performance. The amount earned as a result of the Financial Metrics shall be calculated separately, in accordance with the table below. The total PSUs, if any, shall be the sum of the PSUs earned in respect of each performance metric.
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Revenues |
AOI |
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Revenues (thousands) |
Revenues % Payout |
AOI (thousands) |
AOI % Payout |
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Maximum |
$ | 236,981 | 200 | % | $ | 59,454 | 200 | % | ||||||||
| 235,600 | 175 | % | 58,872 | 175 | % | |||||||||||
| 234,220 | 150 | % | 58,290 | 150 | % | |||||||||||
| 232,839 | 125 | % | 57,708 | 125 | % | |||||||||||
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Target |
231,458 | 100 | % | 57,126 | 100 | % | ||||||||||
| 227,997 | 75 | % | 55,668 | 75 | % | |||||||||||
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Threshold |
225,921 | 60 | % | 54,793 | 60 | % | ||||||||||
| 225,920 | 0 | % | 54,792 | 0 | % | |||||||||||
If the Company’s performance during the Performance Period falls between any of the percentages in the table above, the Revenues PSUs or AOI PSUs, as applicable, shall be calculated using linear interpolation (e.g. if Revenues for the Performance Period are $233,529, the result would be 137.5% payout of Revenues PSUs).
Strategic Performance/Achievement of Company Goals (which include but are not limited to bookings growth, OTD, improving employee engagement, product line and functional strategy implementation, acquisitions and integrations) shall represent 30% of the value of the award and success under the measure will be determined by the Compensation Committee of the Board of Directors.
Definitions
Revenues: Revenues is defined as GAAP revenues earned by the company over the Performance Period from April 1, 2022 through March 31, 2023. The number will be equal to GAAP revenues reported on Form 10-K for the fiscal year ending March 31, 2023. For the avoidance of doubt, results of acquisitions during the Performance Period will not be included in the final calculation of Revenues.
AOI: AOI, or Adjusted Operating Income is defined as GAAP operating income, exclusive of the non-cash impact of amortization of intangible assets acquired in a business combination, stock-based compensation and impairment of goodwill and long-lived assets. Furthermore, AOI will be adjusted to exclude transaction and implementation related costs associated with the Agena Acquisition. AOI will be measured over the Performance Period from April 1, 2022 through March 31, 2023. The number will be calculated by subtracting amortization of intangible assets acquired in a business combination, stock-based compensation and impairment of goodwill and long-lived assets from GAAP operating income as reported in the Company’s Form 10-K for the fiscal year ending March 31, 2023. For the avoidance of doubt, results of acquisitions during the Performance Period will not be included in the final calculation of AOI.
Performance Stock Unit Award Terms and Conditions
The following terms and conditions apply to the Performance Stock Units granted to you by the Company, as specified in the accompanying Performance Stock Unit Award Agreement (the “Award Agreement”).
1. Award of Performance Stock Units. The Company has issued to you the Performance Stock Units set forth above in the Award Agreement, effective on the Grant Date, and subject to the terms and conditions set forth in the Award Agreement and the Performance Stock Unit Award Terms and Conditions (together, the “Award Documents”), and the Plan (which is incorporated herein by reference).
2. Performance Stock Units Non-Transferable. Performance Stock Units (and related rights) may not be sold, assigned, alienated, transferred by gift or otherwise, pledged, hypothecated, or otherwise disposed of, by operation of law or otherwise. Any attempt to assign, alienate, transfer, pledge, sell or otherwise dispose of the Performance Stock Units or its related rights shall be ineffective and, if any such attempt is made, the Performance Stock Units will be forfeited and all of your rights under the Plan and the Award Documents shall immediately terminate without any payment or consideration by the Company.
3. Vesting. Unless otherwise provided in the Plan, your Performance Stock Units shall vest and become Vested PSUs in accordance with the terms and conditions of the Award Agreement, or as set forth in the “Other Agreements” section of the Award Agreement.
4. Payment. Payment in respect of Vested PSUs shall be made at the time(s) and in the form(s) set forth in the Award Agreement. Any distribution or delivery to be made to you under the Award Documents will, if you are then deceased, be made to the administrator or executor of your estate. Any such administrator or executor must furnish the Company or its designated agent with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company or its designated agent to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.
5. Stockholder Rights. You and your estate or heirs shall not have any rights as a stockholder of the Company until you become the holder or record of any Shares issued as payment pursuant to Section 4, above, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date prior to the date you become the holder of record of such Shares unless specifically provided otherwise in the Plan.
6. Additional Requirements. The transfer of any Shares hereunder shall be effective only at such time as the company shall have determined that the issuance and delivery of such Shares is in compliance with all applicable laws and the requirements of any securities exchange on which the Shares are then traded. You acknowledge that Shares acquired as payment pursuant to Section 4, above, may bear such legends as the Company deems appropriate to comply with applicable federal, state or foreign securities laws. In connection therewith and prior to the issuance of the Shares, you may be required to deliver to the Company such other documents as may be reasonably necessary to ensure compliance with applicable law.
7. Termination of Employment; Forfeiture. Upon the termination of your continued employment or service for any reason, any Performance Stock Units that have not become or are not eligible to become Vested PSUs in accordance with Section 3 and the Award Agreement (after taking into account the “Other Agreements” section of the Award Agreement) shall immediately be forfeited. Upon forfeiture, you shall have no further rights with respect to such Performance Stock Units.
8. Tax Treatment; Section 409A. You may incur tax liability as a result of the receipt of Performance Stock Units and payments thereunder. You should consult your own tax adviser for tax advice. You acknowledge that the Administrator, in the exercise of its sole discretion and without your consent, may amend or modify the Award Documents in any manner, and delay the payment of any amounts thereunder, to the minimum extent necessary to satisfy the requirements of Section 409A. The Company will provide you with notice of any such amendment or modification. This Section 6 does not, and shall not be construed so as to, create any obligation on the part of the Company to adopt any such amendments or to take any other actions or to indemnify you for any failure to do so.
9. Tax Withholding. You shall make appropriate arrangements with the Company’s agent to provide for payment of any federal, state, local or foreign taxes of any kind required by law to be withheld in respect of your Performance Stock Units. Such arrangements may include, but are not limited to, the payment of the withholding amount by you in cash, withholding from proceeds of the sale of Shares acquired as payment for the PSUs either through a voluntary sale or through a mandatory sale arranged by the Company’s agent (on your behalf pursuant to this authorization without further consent), non-discretionary withholding by the Company’s agent of Shares that would otherwise be issuable to you as payment in respect of your Performance Stock Units, or voluntary share withholding as described below. Voluntary Share withholding is subject to the prior approval of the Administrator, which may be withheld by the Administrator in its sole discretion. If approved, you may elect to satisfy the statutory withholding obligations, in whole or in part, by having the Company’s agent withhold Shares otherwise issuable to you hereunder. The Shares delivered or withheld shall have an aggregate fair market value not in excess of the maximum statutory tax rates in your applicable jurisdictions. The fair market value of the Shares used to satisfy the withholding obligation shall be determined by the Company’s agent as of the date on which taxation occurs. Shares used to satisfy any tax withholding obligation must be vested and cannot be subject to any repurchase, forfeiture, or other similar requirements. Any election by you to have Shares withheld shall be irrevocable, made in writing (or electronically), signed by you (including electronically), and shall be subject to any restrictions or limitations that the Administrator, in its sole discretion, deems appropriate. Further, if you become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, you acknowledge that the Company and/or its Subsidiaries (or former employer, as applicable) may be required to withhold or account for federal, state, local or foreign taxes of any kind in more than one jurisdiction.
10. Acknowledgements. If you reside outside the U.S., the following additional provisions shall apply:
a. the Performance Stock Units and the Shares issuable pursuant to the Performance Stock Units are not intended to replace any pension rights;
b. no claim or entitlement to compensation or damages shall arise from forfeiture of the Performance Stock Units resulting from termination of your employment or services by the Company or its Subsidiaries (whether or not in breach of employment laws in the country where you resides and whether or not later found to be invalid) and in consideration of the Performance Stock Units to which you are otherwise not entitled, you irrevocably agree never to institute any claim against the Company or its Subsidiaries, waive your ability, if any, to bring any such claim, and releases the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, you shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims;
c. in the event of termination of your Continuous Service (regardless of the reason for such termination and whether or not in breach of employment laws in the country where you reside or are employed or provide services or the terms of your employment agreement, if any, and whether or not later found to be invalid), your right to vest in the Performance Stock Units under the Plan, if any, will terminate effective as of the date that you are no longer actively providing services and will not be extended by any notice period mandated under employment laws in the country where you reside or are employed or provide services (e.g., active employment would not include any contractual notice period or any period of “garden leave” or similar period mandated in the country in which you reside or are employed or provide services or the terms of your employment agreement, if any); the Administrator shall have the exclusive discretion to determine when you are no longer actively providing services for purposes of the Performance Stock Units (including whether or not you may still be considered as actively providing services while on an approved leave of absence);
d. the Performance Stock Units and the Shares issuable pursuant to the Performance Stock Units are extraordinary items that do not constitute compensation of any kind for services of any kind rendered to the Company or you, and are outside the scope of your employment or service contract, if any; and
e. neither the Company nor any Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amount due to you pursuant to this Award or upon the subsequent sale of Shares acquired hereunder.
11. Personal Information. The Company and its Subsidiaries may collect, store, disclose, use, or otherwise process certain personal information about you for the purpose of managing and administering the Plan, such as your name, home address and telephone number, date of birth, social security number or other employee identification number, e-mail address, salary, nationality, job title, any shares or directorships held in the Company, details of all Performance Stock Units and other equity awards or any other entitlement to shares awarded, canceled, purchased, vested, unvested or outstanding in your favor (“Data”). The Company and/or its Subsidiaries may disclose Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and the Company and/or any of its Subsidiaries may each further disclose Data to any third parties assisting the Company in the implementation, administration and management of the Plan, including the Company’s stock plan administrative agent and the Plan recordkeeper. These recipients may be located throughout the world, including the United States. You understand and agree that these parties may receive, possess, use, retain, transfer, and otherwise process the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer or disclosure of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares on your behalf to a broker or other third party with whom you may elect to deposit any shares acquired pursuant to the Plan. Notwithstanding anything to the contrary in this Section 8, you acknowledge and agree that the Company and its Subsidiaries may also collect, store, use, disclose, and otherwise process your Data where such processing is necessary to comply with a legal obligation, for the Company or its Subsidiaries’ legitimate business purposes, or with your consent if applicable law requires consent. You may, at any time, request to access, correct, delete or restrict processing of your Data by contacting the Company in writing. Applicable law may allow or require the Company to refuse to provide you with access to, delete, or restrict processing of some or all of the Data that the Company or its Subsidiaries hold about you, or the Company or its Subsidiaries may have destroyed, erased, or made such Data anonymous in accordance with applicable record retention obligations and practices. If the Company cannot provide you with access to, delete or restrict processing of your Data, the Company will inform you of the reasons why, subject to any legal or regulatory restrictions. For more information on the processing of your Data, contact your human capital representative.
12. Other Employee Benefits. Except as specifically provided otherwise in any relevant employee benefit plan, program, or arrangement, the Performance Stock Units evidenced hereby are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.
13. Electronic Delivery. BY YOUR ELECTRONIC ACCEPTANCE OF THIS AWARD, YOU HEREBY CONSENT TO ELECTRONIC DELIVERY OF THE PLAN, AND ANY DISCLOSURE OR OTHER DOCUMENTS RELATED TO THE PLAN, INCLUDING FUTURE AWARD DOCUMENTS (COLLECTIVELY, THE “PLAN DOCUMENTS”). THE COMPANY (THROUGH ITS’ STOCK PLAN ADMINISTRATIVE AGENT) MAY DELIVER THE PLAN DOCUMENTS ELECTRONICALLY TO YOU BY E-MAIL, BY POSTING SUCH DOCUMENTS ON THE AGENT’S WEBSITE OR BY ANOTHER MODE OF ELECTRONIC DELIVERY AS DETERMINED BY THE COMPANY’S AGENT IN ITS SOLE DISCRETION. YOU ACKNOWLEDGE THAT YOU ARE ABLE TO ACCESS, VIEW AND RETAIN AN E-MAIL ANNOUNCEMENT INFORMING YOU THAT THE PLAN DOCUMENTS ARE AVAILABLE IN EITHER HTML, PDF OR SUCH OTHER FORMAT AS THE COMPANY’S AGENT DETERMINES IN ITS SOLE DISCRETION.
14. Notices. Any notice required or permitted to be given hereunder shall be in writing and shall be given by hand delivery, by e-mail, by facsimile, or by first class registered or certified mail, postage prepaid, addressed, if to the Company, to its Corporate Secretary, and if to you, to your address now on file with the Company, or to such other address as either may designate in writing. Any notice shall be deemed to be duly given as of the date delivered in the case of personal delivery, e-mail, or facsimile, or as of the second day after enclosed in a properly sealed envelope and deposited, postage prepaid, in a United States post office, in the case of mailed notice.
15. Amendment. Except as provided herein, the Award Documents may not be amended or otherwise modified unless evidenced in writing and signed by the Company and you.
16. Relationship to Plan. Nothing in the Award Documents shall alter the terms of the Plan. If there is a conflict between the terms of the Plan and the terms of the Award Documents, the terms of the Plan shall prevail.
17. Construction; Severability. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of the Award Documents. The invalidity or unenforceability of any provision of the Award Documents shall not affect the validity or enforceability of any other provision hereof, and each other provision hereof shall be severable and enforceable to the extent permitted by law.
18. Waiver. Any provision contained in the Award Documents may be waived, either generally or in any particular instance, by the Administrator appointed under the Plan, but only to the extent permitted under the Plan.
19. Binding Effect. The Award Documents shall be binding upon and inure to the benefit of the Company and to you and your respective heirs, executors, administrators, legal representatives, successors and assigns.
20. Rights to Employment or Service. Nothing contained in the Award Documents shall be construed as giving you any right to be retained in the Continuous Service of the Company or any of its Subsidiaries and the Award Documents are limited solely to governing your rights and obligations with respect to the Performance Stock Units.
21. Governing Law. The Award Documents shall be governed by and construed in accordance with the laws of the State of Colorado, without regard to the choice of law principles thereof.
22. Company Policies to Apply; Potential Clawback. The sale of any shares of Common Stock received as payment under the Performance Stock Units is subject to the Company’s policies regulating securities trading by employees, all relevant federal and state securities laws and the listing requirements of any stock exchange on which the shares of the Company’s Common Stock are then traded. In addition, participation in the Plan and receipt of remuneration as a result of the Performance Stock Units is subject in all respects to any laws, rules, and regulations related to the clawback of compensation that may be in effect from time to time.
23. Section 409A Compliance. The Performance Stock Units granted hereunder are intended to comply with or be exempt from the requirements of Section 409A, and the Award Documents shall be interpreted and administered in a manner consistent with such intent. You shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on you in connection with the Performance Stock Units granted hereunder (including any taxes and penalties under Section 409A), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold you harmless from any or all of such taxes or penalties.
Exhibit 31.1 Certifications Pursuant to Rule 13a-14(a)
I, Gary M. Owens, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Mesa Laboratories, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 4, 2022 |
/s/ Gary M. Owens Gary M. Owens Chief Executive Officer |
Exhibit 31.2 Certifications Pursuant to Rule 13a-14(a)
I, John V. Sakys, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Mesa Laboratories, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 4, 2022 |
/s/ John V. Sakys John V. Sakys Chief Financial Officer |
Exhibit 32.1 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350
In connection with the Quarterly Report of Mesa Laboratories, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary M. Owens, Chief Executive Officer of the Company, certify, pursuant to Rule 13a-14(b) and 18 U.S.C. § 1350, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 4, 2022 |
/s/ Gary M. Owens Gary M. Owens Chief Executive Officer |
Exhibit 32.2 Certifications Pursuant to Rule 13a-14(b) and 18 U.S.C Section 1350
In connection with the Quarterly Report of Mesa Laboratories, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John V. Sakys, Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(b) and 18 U.S.C. § 1350, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 4, 2022 |
/s/ John V. Sakys John V. Sakys Chief Financial Officer |