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 Operations

(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 Stockholders’ Equity

(unaudited)

(dollars in thousands, except per share data)

*Accumulated Other Comprehensive (Loss) Income.

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 (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”“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, 2023, we managed our operations in four reportable segments, or divisions:

Non-reportable operating segments and unallocatedUnallocated corporate expenses are reported within Corporate and Other.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission.information. In the opinion of management, such unaudited information includes all adjustments, consisting of normal recurring adjustments necessary for the fair statement of our financial position and results of operations. The results of operations for 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. We made no material changes to the application of our significant accounting policies that were disclosed in our Form 10-K. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended March 31, 20222023.

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“quarter” refer to our fiscal year and references to the first quarter ofor 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.quarters, respectively.

Prior Period ReclassificationReclassifications

Certain prior year 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. Theseto conform with current presentation. The reclassifications have not resulted in any changechanges to consolidated or segment amounts reported in the Condensed Consolidated Financial Statements for theany periods presented in this Form three10 months ended June 30, 2022 and 2021.-Q.

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 judgementjudgment about the outcome of future events. Our estimates include, among others, asset reserve requirements as well asThe global business environment continues to be impacted by cost pressure, the amountsoverall effects of future cash flows associated with certain assetsthe current high inflation environment on customers' purchasing patterns, high interest rates, the conflict in Ukraine, and businesses that are used in assessing the risk of impairment. The negative impacts associated with the ongoing novel coronavirus ("COVID-other factors. It is 19") global pandemic significantly lessened during fiscal year 2022.not The extent and duration of negative impacts inpossible to accurately predict the future which may include inflationary pressuresimpact of such events and supply chain disruptions, are uncertain and may require changes to estimates.circumstances. Actual results could differ from thoseour 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.Belyntic GmbH

On October 20, 2021,November 17, 2022, we completedacquired substantially all of the acquisitionassets and certain liabilities of Agena Bioscience, Inc.Belyntic GmbH’s peptide purification business (“Agena”the Belyntic acquisition”) for $300,793, net$6,450, of cash acquired but inclusivewhich $4,950 was paid on the date of working capital adjustments (the “Agena Acquisition”).acquisition. The Agena Acquisition aligned withremaining $1,500 will be paid upon the approval of pending patent applications. The business complements our overall acquisition strategy, moved ourexisting peptide synthesis 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 aspart of the closing date.

Agena Preliminary Purchase Price AllocationBiopharmaceutical Development segment, by adding a new consumables line. The new PurePep® EasyClean products are a green chemistry solution to purify peptides.

During thefiscal year three2023 months ended June 30, 2022, ,we continued analysesprepared a preliminary analysis of the valuation of net assets acquired in the Agena Acquisition. ThisBelyntic acquisition. During the three months ended June 30, 2023, based on detailed financial analysis of the financial model, we recorded measurement period adjustments to reclassify amounts from intangible assets into goodwill. Our preliminary purchase price allocation is subject to further 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.completed.

Note 3. Revenue Recognition

We develop, manufacture, market, sell and maintain life sciences tools and quality control instruments and related software, consumables, and services. We evaluate revenues internally based primarily on operating segment and the nature of goods and services provided.

Sales of hardware and software,Hardware sales include physical products 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.loggers. 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. Consumables such as reagents used for molecular and genetic analysis or solutions used for protein synthesis are critical to the ongoing use of our instruments. Consumables such as biological indicator test strips are used on a standalone basis.

We evaluatealso offer maintenance, calibration, and testing service contracts. Under our revenues internally basedservice contracts we perform labor and replace parts on operating segment, the timingan as-needed basis over a contractually specified period of revenue generation, and the nature of goods and services provided. time or perform specific, discrete services. 

Typically, discrete revenue is recognized at the shipping point orupon shipment of a product, upon completion of thea discrete service, while contracted revenue is recognizedor over a period of time reflective of the performance obligation period in the applicable contract.contract, depending on when our obligation to the customer is satisfied. 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 2023and 20212022, 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 servicelocations where services are performed, as follows:

Other than China, Nono 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 primarily relate to service contracts with original expected service durations of 12 months or less and will be recognized to revenue over time as time passes.our performance obligations are satisfied.

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 themvalue; they are classified 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 policyWe maintain relationships and cash deposits at multiple banking institutions across the world in an effort to invest in highly liquid cash equivalent financial instruments with high credit ratingsdiversify and to maintain low single issuer exposure (except U.S. treasuries).reduce risk of loss. Concentration of credit risk with respect to accounts receivable is limited to customers to whichwhom we make significant sales. One distributor accounted for approximately 13% of total trade receivables as of June 30, 2023, compared to 18% as of our fiscal year ended March 31, 2023. The distributor's outstanding balance was current as of June 30, 2023, and the substantial majority has since been collected.

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.conditions. 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 $172,500 aggregate principal of 1.375% convertible senior notes due August 15, 2025 (the "Notes"). We estimate the fair value of the Notes based on the last actively traded price or observable market input preceding the end of the reporting period, and the fair value is approximately correlated to our stock price. The estimated fair value and carrying value of the Notes werewas as follows:

AssetsAmounts recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a nonrecurring basis include itemsthe initial recognition and disclosure of most assets and liabilities purchased in a business acquisition and any related measurement period adjustments. Additionally, assets such as property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured atadjusted to fair value if determined to be impaired. We recorded no impairments during the three months ended June 30, 2023 or 2022. Fair values of such assets and liabilities require measurement using Level 3 inputs. There were no transfers between the levels of the fair value hierarchy during the three months ended June 30, 2022 2023or 2021,2022, respectively.

Note 5. Supplemental Balance Sheets Information

Inventories consistconsisted of the following:

Prepaid expenses and other consistcurrent assets consisted of the following: 

Accrued payroll and benefits consisted of the following:

Accrued payroll and benefits consistother expenses consisted of the following:

Note 6. Goodwill and Intangible Assets, Net

Finite-lived intangibleIntangible assets, consistthe significant majority of which are finite-lived, consisted of the following:

Amortization expense for finite-lived intangible assets acquired in a business combination was $7,320 and $3,816 for the three months ended June 30, 2022 and 2021, respectively. Amortization 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 Statements of Operations.as follows:

		Three Months Ended June 30,
		2023				2022
Amortization in cost of revenues		$	1,728			$	1,708
Amortization in general and administrative			5,492				5,612
Total		$	7,220			$	7,320

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

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

Goodwill in the Biopharmaceutical Development division related to the Belyntic acquisition and is tax deductible.

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 $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 and

$2,500. The Credit Facility 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. 

As of June 30, 2022, 2023, we had $47,000$5,000 outstanding under the Credit Facility. We paid an additional $3,500 on the outstanding Credit Facility balance in July 2023. 

Amounts borrowed under the Credit Facility bear interest at either a base rate or a EurodollarSOFR rate, plus an applicable spread. The weighted average interest rate on borrowingborrowings under our line of credit during theas of first quarter of fiscal year June 30, 2023 was 1.75%7.0%. We are obligated to pay quarterly unused commitment fees of between 0.15% and 0.35% of the Credit Facility’s aggregate principal amount, based on our leverage ratio. 

The financial covenants in the Credit Facility include a maximum leverage ratio of 5.0 to 1.0 for the period ended June 30, 2022, 2023, 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, 20222023, we were in compliance with all covenants.

In July 2022, we repaid $12,000 of the outstanding balance on our Credit Facility.

ConvertibleConvertible Notes 

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

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 voluntary conversion were not met during the three months ended June 30, 20222023. As of June 30, 20222023, 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.Sheets. The if-converted value of the Notes did not exceed the principal balance as of June 30, 20222023.

The net carrying amount of the Notes was as follows:

We recognized interest expense on the Notes as follows:

The effective interest rate on the notes is approximately 1.9%.

Note 8. Stockholders' Equity

Stock-Based Compensation

During the firstthree quarter of fiscal yearmonths ended June 30, 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 is 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 Operations.

The following is a summary of stock option award activity for the three months ended June 30, 2022:2023:

The stock options granted during the three months ended June 30, 2022 2023vest 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, 2022:2023:

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 2023vest 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.

Mesa grants PSUs to certain key employees. The number of shares earned is determined at the end of each performance period based on Mesa's achievement of certain pre-defined targets defined in the related award agreement. 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.agreement. We recognize the expense relating to the performance-based RSUs based on the probable outcome of achievement of the financialperformance targets on a straight-line basis over the service period. 

During the three months ended June 30, 2022, 2023, the Compensation Committee of the Board of Directors created a plan to award 1932 PSUs at target (the "FY 23"FY24 PSUs") with a grant date fair value of $132.29 that are subject to both service, performance, and performancemarket conditions to eligible employees. The performance period for the FY 23 PSUs is from April 1, 2022 until March 31, 2023 and the service period is from April 1, 20222023 untilthrough June 21, 2026. The company performance conditions will be measured for the period from April 1, 2023 through March 31, 2025.2024. Of the FY 23 PSUs, 13 vest based on our achievement of specific performance criteria during 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 performance period. The quantity of shares that will be issuedearned based upon vestingcompany performance will range from 0% to 200% of the targeted number of shares; if the defined minimum targets are not met, then no shares will vest.

During fiscal yearvest for performance. In addition, the number of PSUs earned based on company performance will be adjusted up or down by a maximum of 20% pursuant to a market-based measure of performance comparing Mesa’s share price to a peer group over the period from 2020,April 1, 2023  we awardeduntil 8March 31, 2026.  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 $202.00 per share and vested during the three months ended June 30, 2022.  Based on actual performance targets achieved, the awards vested at 126% of target, resulting in a total of 10 awards distributed. 

Note 9. EarningsNet (Loss) Per Share

Basic net (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 the three months ended June 30, 2022 2023and 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 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,they relate, changes in tax laws and foreign tax holidays, settlement with taxing authorities, and foreign currency fluctuations.

Our effective income tax rate was (73.4%)41.4% for the three months ended June 30, 2022 2023and (40.7%)73.4% for the three months ended June 30, 2021.2022. The effective tax rate for the three months ended June 30, 2022 2023differed 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 jurisdictionsjurisdictions. The change in our effective tax rate for the firstthree months ofended June 30, 2023 was higher than the same period in 2022is primarily due to the share based compensationlower windfall benefits on stock option exercises and the effect of income in foreign jurisdictions.

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, 20222023, there were no material legal reserves recorded on the accompanying unaudited Condensed Consolidated Balance Sheets.

Note 12. Segment Information

During fiscal year 2022, we realignedThe following tables set forth 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.segment information: