Part I. Financial Information

Item 1. Financial Statements

Mesa Laboratories, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(dollars in thousands, except share amounts)

See accompanying notes to Condensed Consolidated Financial Statements.

Mesa Laboratories, Inc.

Condensed Consolidated Statements of IncomeOperations

(unaudited)

(in thousands, except per share data)

See accompanying notes to Condensed Consolidated Financial Statements.

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(unaudited)

(in thousands) 

See accompanying notes to Condensed Consolidated Financial Statements.

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

See accompanying notes to Condensed Consolidated Financial Statements.

Mesa Laboratories, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(dollars in thousands, except per share data)

*Accumulated Other Comprehensive Income (Loss). Income.

See accompanying notes to Condensed Consolidated Financial Statements.

Mesa Laboratories, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(dollar and share amounts in thousands, unless otherwise specified)

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business

In this quarterly report on Form 10-Q, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries is collectively referred to as “we,” “us,” “our,” the “Company” or “Mesa Labs.“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, 20212022, , we managed our operations in 4four reportable segments, or divisions. Our divisions:

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 athe fair presentationstatement 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, 20212022.

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 20222023 refersrefer to the period from April 1, 20212022 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 current global business environment continues to be impacted directly and indirectly bynegative impacts associated with the effects of theongoing novel coronavirus ("COVID-19"), global pandemic significantly lessened during fiscal year 2022. The extent and it is not possible to accurately predictduration of negative impacts in the future, impact of COVID-which 19.may However, we have reviewed the estimates used in preparing the financial statementsinclude inflationary pressures and have identified the following factors that have a reasonable possibility of being materially affected by the impacts of COVID-supply chain disruptions, are uncertain and 19may during the near term: 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.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2020-06,Debt with Conversion and Other Options and Derivatives and HedgingAccounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies the accounting for certain financial instruments with characteristics of both liabilities and equity, such as our convertible senior notes, due 2025 (the "Notes"). ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. It is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted at the beginning of any fiscal year after December 15, 2020. The update permits the use of either the modified retrospective or full retrospective method of transition.

We early adopted ASU 2020-06 effective April 1, 2021 on a modified retrospective basis, and our adoption of this standard had a material effect on our consolidated financial statements. Upon adoption, we derecognized the $22,735 equity conversion feature, net of taxes, that was recorded to common stock, and we derecognized the deferred tax liability of $5,747. We recorded an increase to the Note balance of an aggregate $22,799 as a result of the reversal of the separation of the debt and equity components of the convertible debt. The net effect of these adjustments, which represents historical non-cash interest expense, net of taxes of $5,683, was recorded as an increase in the balance of beginning retained earnings as of April 1, 2021. The adoption of this standard will significantly decrease the amount of non-cash interest expense recognized in future periods as a result of eliminating the discount associated with the equity component. Our statements of cash flows reflect the lower non-cash interest expense in effect after the adoption of ASU No.2020-06.

We have always intended to settle the Notes in shares of common stock rather than in cash, in each period in which the Notes have been outstanding, and therefore, we have applied the if-converted method to calculate the potentially dilutive impact of the Notes on earnings per share. In each reporting period, we have determined that the Notes were antidilutive. Due to decreases in non-cash interest expense that will result from the adoption of ASU 2020-06, it is likely the Notes will have a dilutive effect in future periods, which would decrease our diluted earnings per share. 

Note 2.2. Significant Transactions

Acquisition of Agena Bioscience, Inc.

On October 20, 2021, we completed the acquisition of Agena Bioscience, Inc. (“Agena”) for $300,793, net of cash acquired but inclusive of working capital adjustments (the “Agena Acquisition”). The Agena Acquisition aligned with our overall acquisition strategy, moved our business towards the life sciences tools sector, and expanded our market opportunities, particularly in Asia. Agena is a leading clinical genomics tools company that develops, manufactures, markets, and supports proprietary instruments and related consumables and services that enable genetic analysis for a broad range of diagnostic and research applications. Using Agena's MassARRAY® instruments and chemical reagent solutions, customers can analyze DNA samples for a variety of high volume clinical testing applications, such as inherited genetic disease testing, pharmacogenetics, various oncology tests, infectious disease testing, and other highly-differentiated applications.

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 $267,000 represented cash consideration to holders of Agena’s preferred and common stock, approximately $2,000 represented cash consideration paid for the settlement of Agena’s warrants, and approximately $31,800 represented cash consideration for the settlement of Agena's vested stock options as of the closing date.

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:

Acquired Goodwill

Acquired goodwill of $135,880, all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from the value of expanded market opportunities, expected synergies, and assembled workforce, none of which qualify as amortizable intangible assets. The goodwill acquired is not deductible for income tax purposes.

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. 

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 $356 of non-recurring acquisition-related expenses as well as costs associated with a performance share award granted to key employees of Agena that would have been fully expensed by the start of our first quarter 2022. These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.

Note 3. Revenue Recognition

We design,develop, manufacture, market, sell, and maintain life sciences tools and quality control instruments and software, consumables, and services driven primarily by the regulatory requirementsservices.

Sales of niche markets. Our consumables,hardware and software, such as biological indicator test strips are typicallyinstruments used on a standalone basis; however, some of our chemical solutions, such asfor molecular and genetic analysis, protein synthesis and calibration solutions are critical to the ongoing use of our instruments. Hardware and software sales, such assynthesizers, medical meters, protein synthesizers, wireless sensor systems, and data loggers, are generally driven by our acquisition of new customers, growth of existing customers, or customer replacement ofcustomers 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 on-demanddiscrete and annualongoing service and maintenance contracts to support customers'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 equipment. 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 product line,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. Consumables are typically used on a one-time basis requiring frequent replacement in our customers' operating cycles. Substantially allThe 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 quartersthree months ended June 30, 20212022 and 20202021, respectively:

*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:

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 which are included within other accrued expenses and unearned revenues in the accompanying Condensed Consolidated Balance Sheets. We did not have anySheets, and long-term contract assets as of June 30, 2021 or March 31, 2021. Unbilled receivables, whichliabilities are not classified as contract assets, represent arrangementsincluded within other long-term liabilities in which sales have been recorded prior to billing and right to payment is unconditional.the accompanying Condensed Consolidated Balance Sheets.

A summary of contract liabilities is as follows:

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 3.4. 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, and we value them using quoted market prices in an active market. Cashhierarchy. 

Historically, the financial instruments that subject us to the highest concentration of credit risk are cash and cash equivalents onand accounts receivable. It is our Condensed Consolidated Balance Sheets included $230,822policy to invest in a moneyhighly 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 account at bothconditions, but we have June 20, 2021 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 March 31, 2021.may limit future purchases until payments are made on past due amounts.

During fiscal year 2020, we issuedWe have outstanding $172,500 aggregate principal of 1.375% convertible senior notes due August 15, 2025. 2025 (the "Notes"). We estimate the fair value of the Notes based on level 2 inputs of the last actively traded price or observable market observable input beforepreceding the end of the reporting period.period and the fair value is approximately correlated to our stock price. The estimated fair value and carrying value of the Notes arewere as follows:

The carrying value of the Notes increased as a result of the adoption of ASU 2020-06, discussed further in Note 1. "Description of Business and Summary of Significant Accounting Policies" and Note 6. "Indebtedness." 

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 quarterthree months ended June 30, 2022 or 2021, or the quarter ended June 30, 2020.respectively.

Cash and cash equivalents and accounts receivables are the financial instruments that subject us to the highest concentration of credit risk. 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 whom we make significant sales. We reserve an allowance for potential write-offs of accounts receivable using historical collection experience, 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.

Note 4. Inventories, Net

Inventories consist of the following:

Note 5. Supplemental Balance Sheets Information

Inventories consist of the following:

Prepaid and other consist of the following:

Accrued payroll and benefits consist of the following:

Note 5.6. Goodwill and Intangible Assets, Net

Finite-lived intangible assets consist of the following:

Amortization expense for finite-lived intangible assets acquired in a business combination was $3,816$7,320 and $3,354$3,816 for the quartersthree months ended June 30, 20212022 and 20202021,, respectively. DuringAmortization for technology intangibles is included in cost of revenues and amortization for other types of intangibles is expensed to general and administrative expense on the quarter ended June 30, 2020, we reduced the valueStatements of our intangible assets due to a purchase price adjustment that resulted in a cumulative effect net decrease to amortization expense of $334. Operations.

TheFor the following is estimated amortization expense for the fiscal years ending March 31,:amortization expense is estimated as follows:

The change in the carrying amount of goodwill was as follows:

Note 67. Indebtedness

Credit Facility

On March 5, 2021, we entered intoWe maintain a four-year senior secured credit agreementfacility (the “Credit Facility”) that includes 1) a revolving credit facility in an aggregate principal amount of up to $75,000, 2) a swingline loan in an aggregate principal amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500 at any time. time and

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 $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender considerations (together,considerations. As of June 30, 2022, we had $47,000 outstanding under the available facilities are referred to as the "Credit Facility").Credit Facility. 

TheAmounts borrowed under the Credit Facility bearsbear interest at either a base rate or a Eurodollar rate, plus an applicable spread. The balanceweighted average interest rate on borrowing under our line of unamortized customary lendercredit during the first quarter of fiscal year 2023 was 1.75%. We are obligated to pay quarterly unused commitment fees of $609between 0.15% and $650 as0.35% of June 30, 2021 and March 31, 2021, respectively, are recorded within prepaid expenses and other assetsthe Credit Facility’s aggregate principal amount, based on our Condensed Consolidated Balance Sheets. The fees are being expensed on a straight line basis over the life of the agreement.leverage ratio. 

The most restrictive financial covenants in the Credit Facility include a maximum leverage ratio of 5.50 to 1.00 for the firstfour testing dates on which the line of credit is outstanding; 5.0 to 1.0 on each offor the fifth, sixth, seventh, andperiod ended eighthJune 30, 2022,  testing dates; and 4.5 to 1.0 on each testing date following the eighth testing date, except that we may have a leverage ratio of 5.75 to 1.0 for a period of four consecutive quarters following a permitted acquisition. The Credit Facility also stipulates a minimum fixed charge coverage ratio of 1.25 to 1.0. Other covenants include restrictions on our ability to incur debt, grant liens, make fundamental changes, engage in certain transactions with affiliates, or conduct asset sales. As of June 30, 20212022, we were in compliance with all required covenants.

AsIn July 2022, we repaid $12,000 of and throughout the quarter ended June 30, 2021, we had 0 outstanding balance under theon our Credit Facility. We are obligated to pay unused commitment fees of between 0.15% and 0.35% of the Credit Facility’s aggregate principal amount, based on our leverage ratio. Since the Credit Facility's inception, the rate applied to our unused commitment fees has been 0.15%. We incurred $37 and $0 in unused commitment fees during the quarters ended June 30, 2021 and 2020, respectively.

Convertible Notes 

We issued the Notes onOn August 12, 2019, we issued an aggregate principal amount of $172,500 of Notes. The net proceeds from the Notes, after deducting underwriting discounts and theycommissions and other related offering expenses payable by us were approximately $167,056. The Notes mature on August 15, 2025, unless earlier repurchased or converted. The Notesconverted, and bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 each year beginning on February 15, 2020. They are initially convertible at a conversion rate of 3.5273 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $283.50 per share of common stock. Noteholders may convert their Notes at their option only in the following circumstances:

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 quarterthree months ended June 30, 20212022. As of June 30, 2021, 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 quarter.period. The if-converted value of the Notes did not exceed the principal balance as of June 30, 20212022.

Debt issuance costs related to the Notes are comprised of discounts and commissions payable to the initial purchasers of $5,175 and third party offering costs of $255. The debt issuance costs are being amortized to interest expense using the effective interest method over the six-year contractual term of the Notes.

Due to our adoption of ASU No.2020-06 on April 1, 2021, we no longer bifurcate the Notes into a liability and an equity component in our Condensed Consolidated Balance Sheets (see Note 1. "Description of Business and Summary of Significant Accounting Policies"). The Notes are accounted for entirely as a liability, and the issuance costs of the Notes are accounted for wholly as debt issuance costs. The equity conversion feature that was recorded to common stock, as well as the unamortized debt discount and amortization expense attributable to equity, have been derecognized.

The net carrying amount of the Notes werewas as follows:

We recognized interest expense on the Notes as follows:

The effective interest rate on the notes is approximately 1.9%. Prior to the adoption of ASU 2020-06, the effective interest rate was approximately 5.5%. 

Note 78. Stockholders' Equity

Stock-Based Compensation

AmountsDuring 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 330 shares of common stock to eligible participants.

Expense recognized related to stock-based compensation areis as follows: 

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 Income.Operations.

The following is a summary of stock option award activity for the quarterthree months ended June 30, 20212022::

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 restricted stock unit ("RSU")RSU award activity for the quarterthree months ended June 30, 20212022:: 

The outstanding time-based RSUs vest and settle in shares of our common stock on a one-for-one basis. Time-basedAll of the RSUs issued to non-employee directors granted during the three months ended June 30, 2022 vest one year fromin equal installments on the first, second, and third anniversary of the grant date. Outstanding time-based RSUs issued to employees have historically been granted with vesting periods of three, four, or five years. We recognize the expense relating to RSUs, net of estimated forfeitures, on a straight-line basis over the vesting period.

Performance-based RSUsPSUs 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 fiscal yearthe 2020,three we awardedmonths ended 8June 30, 2022, the Compensation Committee of the Board of Directors created a plan to award 19 PSUs at target (the "FY 2023 PSUs") that are subject to both service and performance conditions to eligible employees. The performance period for the FY 2023 PSUs had a grant date fair value ofis from $202.00April 1, 2022 until March 31, 2023 and the service period is from April 1, 2022 until March 31, 2025. Of the FY 23 per share andPSUs, 13 vest based on our achievement of specific performance criteria forduring fiscal year 2023 and they have a grant date fair value of $185.57. The remaining 6 awards will be settled in shares of our common stock, but they are subject to performance criteria that are subjective and as such do not have a grant date. The awards will be marked-to-market each reporting period during the three-year period from April 1, 2019 through March 31, 2022 and on a pro-rata basis after 12 months of continued service through June 15, 2022. performance period. The quantity of shares that will be issued upon vesting will range from 0% to 200% of the targeted number of shares; if the defined minimum targets are not met, then no shares will vest. Based on actual

During fiscal year 2020, we awarded 8 PSUs (the "FY 20 PSUs") subject to both service and projected performance throughconditions to eligible employees. The FY 20 PSUs had a grant date fair value of $202.00 per share and vested during the quarterthree months ended June 30, 2021,2022.  we estimate that 6 FY 20 PSUs will vest.Based on actual performance targets achieved, the awards vested at 126% of target, resulting in a total of 10 awards distributed. 

During the quarter ended June 30, 2021, the Compensation Committee of the Board of Directors modified a time-based restricted stock award granted to our Chief Executive Officer during fiscal year 2017, distributing 3 remaining outstanding shares effective June 8, 2021. The original award required vesting of 1 awards on each: March 20, 2022, 2023, and 2024. As a result of the modification, we recognized the previously unrecognized compensation cost of $351 during the quarter ended June 30, 2021. 

Public Offering of Common Stock

On June 12, 2020, we completed the sale and issuance of 600 shares of our common stock and on June 19, 2020, our underwriters exercised in full their option to purchase an additional 90 shares of our common stock. The offering price to the public was $225.00 per share. The total proceeds we received from the offering, net of underwriting discounts and commissions and other offering expenses was $145,935. 

Note 89. 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 RSUs, including RSUs that containboth time and performance conditions which have been achieved as of the reporting periodbased RSUs (collectively “stock awards”), as well as common shares underlying our convertible senior notes.the Notes. Stock awards are excluded from the calculation of diluted EPS in the event thatif 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 anti-dilutive,antidilutive, and as such, shares underlying the Notes were excluded from the diluted EPS calculation for quarterthree months ended June 30, 20212022 . 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:

The following stock awards were excluded from the calculation of diluted EPS:

Note 910. 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. The impact of changes in tax laws or rates on deferred tax amounts, impairments of non-deductible goodwill, excess benefits from stock-based compensation, and changes in tax reserves resulting from the finalization of tax audits or reviews are examples of significant unusual or infrequently occurring items that are recognized as discrete items in the interim period in which the event occurs. There is a potential for volatility ofin 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 (40.7)% and (61.4(73.4%)% for the quartersthree months ended June 30, 20212022 and (40.7%) for the 2020three, respectively.  months ended June 30, 2021. The effective tax rate for the quarterthree months ended June 30, 20212022 differed from the statutory federal rate of 21% primarily due to the benefit of share-based payment awards for employees and the effect of income generated in foreign derived intangible income, partially offset by the limitations imposed by Section 162(m), and expenses for state income taxes.

jurisdictions  The effective tax year ended December 31, 2018for Gyros US, Inc., and its subsidiary, which we acquired as part of the Gyros Protein Technologies ("GPT") acquisition, is under examination by the IRS. We expect the examination to be completed during fiscal year 2022. Additionally, the tax year ended March 31, 2019for Mesa Laboratories, Inc. is under review by the IRS. We do not currently have a timelinerate for the completionfirstthree months of 2023 was higher than the Mesa Laboratories, Inc. examination. 

Since we are subjectsame period in 2022 primarily due to audit by various taxing authorities, it is reasonably possible that the amountshare based compensation and the effect of unrecognized tax benefits will change during the next 12 months. However, we do not expect the change, if any, to have a material effect on our financial condition or results of operations within the next 12 months.income in foreign jurisdictions.

Note 1011. 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, 20212022, there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets. 

Companies are required to collect and remit sales tax from certain customers if the company is determined to have nexus in a particular state. The determination of nexus varies by state and often requires technical knowledge of each jurisdiction's tax case law. During fiscal year 2021, we determined that certain subsidiaries of GPT had established nexus in various jurisdictions during prior periods without properly collecting and remitting sales tax, and in certain cases had collected sales tax and not remitted it. The estimated accrued liability for this matter is included in other accrued expenses on the Condensed Consolidated Balance Sheets. The balance was $2,517 and $2,714 as of June 30, 2021 and March 31, 2021, respectively. The balance decreased because we settled our obligations with certain states during the quarter, partially offset by additional taxes, interest, and penalties incurred. Approximately $1,899 of the liability is considered a preacquisition contingency and was included in purchase accounting. 

Note 11. Significant Transaction

We completed the previously-announced closure of our Butler, New Jersey facility during the quarter ended June 30, 2021. The facility was primarily used in the production of our gas flow calibration and air sampling equipment, which is part of our Instruments division. Our manufacturing facility in Lakewood, Colorado is currently undergoing renovations that will allow it to accommodate the production of the gas flow calibration and air sampling equipment. Consolidating the production of these products is expected to reduce facilities costs and streamline our use of lean manufacturing tools under central management to further encourage production efficiencies.

As a result of the facility consolidation, we incurred $53 of severance costs during the quarter ended June 30, 2021 which were recorded to cost of revenues, selling, and general and administrative expense on the Consolidated Statement of Income. As of June 30, 2021, a total of $156 remained outstanding and accrued, which primarily relates to severance costs. We do not expect to incur any material expenses related to the Butler, New Jersey consolidation in future periods.