See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
*Accumulated Other Comprehensive (Loss) Income.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
(dollar and share amounts in thousands, unless otherwise specified)
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
In this Annual Report on Form 10-K, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries is collectively referred to as “we,” “us,” “our,” the “Company,” or "Mesa."
We are a multinational manufacturer, developer, and seller of life sciences tools and critical quality control products and services, many of which are sold into niche markets 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, as well as by independent distributors in these areas and throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.
As of March 31, 2023, 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 and related consumables and services that enable clinical labs to perform genomic testing for a broad range of diagnostic and research applications in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics, and oncology related applications. |
| ● | | Sterilization and Disinfection Control - manufactures and sells biological, cleaning, and chemical indicators which are used to assess the effectiveness of sterilization and disinfection processes, including steam, gas, hydrogen peroxide, ethylene oxide, radiation, and other 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 therapies, among other applications. |
| ● | | Calibration Solutions - develops, manufactures and sells quality control products using principles of advanced metrology to measure or calibrate critical chemical or physical parameters in various dialysis, process monitoring, instrument monitoring, environmental monitoring, gas flow, environmental air quality, and torque applications, primarily in hospital, medical device manufacturing, pharmaceutical manufacturing, and laboratory environments. |
Unallocated corporate expenses and other business activities are reported within Corporate and Other.
Principles of Consolidation and Basis of Presentation
Our Consolidated Financial Statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (“GAAP”), and include our accounts and those of our wholly owned subsidiaries after elimination of all intercompany accounts and transactions.
Prior Period Reclassification
During fiscal year 2022 we combined our historical Instruments and Continuous Monitoring reportable segments to create the Calibration Solutions reportable segment. Prior year amounts from fiscal year 2021 have been recast to conform to current year presentation, consistent with our Annual Report on Form 10-K for the year ended March 31, 2022. Our change in financial reporting segments has not resulted in any change to consolidated amounts reported in the Consolidated Financial Statements for any periods presented in this Annual Report on Form 10-K.
Certain amounts presented in Note 2. "Revenue" in prior periods of fiscal year 2022 and 2023 have been reclassified. Specifically, we reclassified a portion of the Biopharmaceutical Development division's revenues from consumables into revenues from hardware and services. Certain revenues related to Clinical Genomics division have been reclassified out of revenues from hardware and into revenues from consumables. These reclassifications allow for consistency of presentation across divisions and have not resulted in any change to consolidated or segment amounts reported in the Consolidated Financial Statements for any periods presented in this Annual Report on Form 10-K.
Management Estimates
The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our Consolidated Financial Statements and accompanying notes. Actual results could differ from our estimates under different assumptions or conditions.
Summary of Significant Accounting Policies
Foreign Currency
Exchange rate adjustments resulting from foreign currency transactions are recognized in net earnings, whereas effects resulting from the translation of financial statements are reflected as a component of accumulated other comprehensive income within stockholders’ equity. Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than the U.S. dollar are translated into U.S. dollars at period end exchange rates, and revenue and expense accounts are translated at weighted average period rates.
Fair Value Measurements
Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. We determine fair value based on the following input hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or that can be corroborated with observable market data.
Level 3: Unobservable inputs supported by little or no market activity. Pricing models, discounted cash flow methodologies, and other similar techniques involving significant management judgment or estimation typically require unobservable inputs.
Assets recognized or disclosed at fair value in the Consolidated Financial Statements on a nonrecurring basis are measured at fair value if determined to be impaired or if purchased pursuant to our acquisition of a business, including items such as inventory, property and equipment, operating lease assets, goodwill, and other intangible assets. Fair values assigned to assets acquired and liabilities assumed in acquisitions, except deferred revenues, are measured using Level 3 inputs.
Revenue Recognition
Our revenues come from product sales, which include consumables and hardware; as well as services, which include discrete and ongoing maintenance, calibration, and testing services. Revenues are recognized when or as we satisfy our performance obligations under the terms of a contract, which occurs when control of the promised products or services transfers to our customers. We recognize the amount of consideration we expect to receive in exchange for transferring products or services to our customers (the transaction price) as revenue. For all revenue contracts, prices are fixed at the time of purchase and no price protections or variables are offered. The significant majority of our revenues and related receivables are generated from contracts with customers that are 12 months or less in duration.
We generally recognize revenues as follows:
Product sales: Our performance obligations related to product sales generally consist of the promise to sell tangible goods and integrated software to distributors or end users. Control of these goods is typically transferred upon shipment, at which time our performance obligation is satisfied and revenue is recognized. Purchase orders typically provide evidence of an arrangement for product sales. Products sold include an assurance-type warranty which is accounted for as part of accrued warranty expense.
Services: We generate service revenues from discrete and ongoing maintenance, calibration, and testing services performed on our physical products. For discrete services, our performance obligation to complete specified work is satisfied and revenue is recognized upon performance of the service. Performance obligations arising from ongoing service contracts in which we promise to stand ready to provide maintenance or other services on an as-needed basis are satisfied by completing any services that are contractually required during the contract period, if requested by the customer, or simply by the passage of time if no services are requested. For ongoing service contracts, revenue is recognized on a straight-line basis over the life of the contract in a faithful depiction of our obligation to provide services over the contract period. Evidence of a service arrangement may be in the form of a formal contract or a purchase order.
Collectability is reasonably assured through our customer review process, and payment is typically due within 60 days or less.
Upon adoption of Accounting Standards Codification 606, we elected the practical expedients to expense commission costs (typically our only significant incremental cost to obtain a contract) as incurred and to account for shipping and handling costs as fulfillment costs. The substantial majority of our contracts have original durations of one year or less, and we have elected not to disclose the expected timing or allocated transaction prices of future performance obligations such as obligations to perform maintenance and repair services. Additionally, we have elected to not assess whether a significant financing component exists when the period between when we perform our performance obligation and when the customer remits payment is one year or less. None of our contracts contained significant financing components as of or for the fiscal years ended March 31, 2023 or 2022.
Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. Standalone selling prices are based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price considering available information such as market conditions and internally approved pricing guidelines. In limited circumstances, for obligations with highly variable or unobservable standalone selling prices, we may assign standalone prices to obligations based on the residual transaction price after all observable standalone selling prices have been determined. Discounts may be approved at the time of purchase and are included within a contract’s fixed transaction price. Discounts are typically allocated to the performance obligations included in the contract based on the standalone values of such obligations. All expected and actual consideration from customers is included in the transaction price.
Shipping and Handling
Payments made by customers to us for shipping and handling costs are included in revenues on the Consolidated Statements of Income, and our expenses are included in cost of revenues. We account for shipping and handling costs arising from contracts with customers as fulfillment costs. Shipping and handling for inventory and materials we purchase is included as a component of inventory on the Consolidated Balance Sheets, and expensed to cost of revenues when products are sold.
Unearned Revenues
Certain of our products may be sold with associated time-based service contracts whereby we provide repairs, technical support, parts, and various analytical or maintenance services. In the event these contracts are paid in advance by the customer, the associated amounts are recorded as an unearned revenue liability and recognized as revenue ratably over the term of the service period, generally one year. Prepayments from customers with respect to other products and services are likewise recorded as unearned revenue liabilities and are recognized to revenue when earned.
Accrued Warranty Expense
We typically provide assurance-type limited product warranties on our products and, accordingly, accrue for estimates of related warranty expenses.
Accounts Receivable and Allowance for Doubtful Accounts
All trade accounts receivable are reported at net realizable value on the accompanying Consolidated Balance Sheets, adjusted for any write-offs and net of allowances for doubtful accounts. Allowances for doubtful accounts represent our best estimate and current expectation of future credit losses from trade accounts. We estimate credit losses based on historical information, current and expected future economic and market conditions, and reviews of the current status of customers’ trade accounts receivable. In circumstances in which we become aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected.
We do not believe our trade accounts receivable represent significant concentrations of credit risk due to our diversified portfolio of individual customers and geographical areas. See Note 3. “Fair Value Measurements” for further discussion and for information on how we manage credit risk.
Differences may arise between estimated and actual losses, which could materially affect the provision for credit losses and, therefore, net earnings. We recorded $736, $304, and $100 of expense associated with doubtful accounts for the years ended March 31, 2023, 2022, and 2021, respectively. The increase in bad debt expense reflects the uncertainty in market and macro-economic conditions.
Inventories
Inventories are stated at the lower of cost or net realizable value and are relieved to cost of products upon sale using a weighted average costing methodology. Inventories acquired in an acquisition are recorded at fair market value. Our work in process and finished goods inventories include the costs of raw materials, labor and overhead, which are estimated based on trailing twelve months of expense and standard labor hours for each product. We evaluate labor and overhead costs annually unless specific circumstances necessitate a mid-year evaluation for specific items.
We monitor inventory costs relative to selling prices and perform physical cycle count procedures on inventories throughout the year to determine if a lower of cost or net realizable value reserve is necessary. We estimate and maintain an inventory reserve as needed for such matters as excess or obsolete inventory, shrinkage, and scrap. This reserve may fluctuate as our assumptions change due to new information, discrete events, or changes in our business, such as entering new markets or discontinuing a specific product; however, once inventory is written down, a new cost basis is established that is not subsequently written back up in future fiscal years.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less allowances for depreciation, except for assets acquired in acquisitions, which are recorded at fair value. Expenditures for major renewals and improvements that extend the life of the asset are capitalized, while expenditures for minor replacements, maintenance, and repairs are expensed as incurred.
Depreciation is calculated using the straight-line method over the assets’ estimated useful lives. Upon asset retirement or disposal, accounts are relieved of cost and accumulated depreciation, and any related gain or loss is reflected in our results of operations. In some cases, particularly with respect to business consolidation or closure activities, accelerated depreciation may be required for the revised remaining useful lives of assets designated to be abandoned in the future.
At least annually, we evaluate and adjust as necessary the estimated lives of property, plant and equipment. Any changes in estimated useful lives are recorded prospectively. Estimated useful lives of significant classes of depreciable assets are as follows:
Category | Useful Lives in Years |
Buildings and building improvements | 40 (or less) |
Manufacturing equipment | 7 (or less) |
Office, lab and other equipment | 7 (or less) |
Computer equipment | 3 (or less) |
Leasehold improvements | Lesser of the economic life or the remaining term in the respective lease |
Land is not depreciated and construction in progress is not depreciated until placed in service, at which time it is assigned a useful life consistent with the nature of the asset.
Leases
Under ASC 842, we determine whether contractual arrangements contain a lease at the inception of the arrangement. If a lease is identified in an arrangement, we recognize a right-of-use asset ("ROU") and liability on our Consolidated Balance Sheets and determine whether the lease should be classified as a finance or operating lease. We do not have any finance leases. We do not recognize assets or liabilities for leases with terms of less than 12 months, and our short-term leases are not material.
A contract is a lease or contains one when (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments. Adjustments would also be made for accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets, none of which are present in any of our current lease contracts. When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease, otherwise we use our incremental borrowing rate based on the information available at lease commencement. When we acquire a business, we retain the acquiree's classification of its leases. We evaluate the ROU assets and liabilities in accordance with ASC 842.
Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Lease expense is recorded in cost of products, selling, general and administrative, or research and development on our Consolidated Statements of Income, depending on the nature of use of the underlying asset. Many of our leases include one or more renewal or termination options exercisable at our discretion, which are included in the determination of the lease term if we are reasonably certain to exercise the option. We have also entered into lease agreements that have variable payments related to certain indexes. Variable lease payments are recognized in the period in which those payments are incurred. All non-lease components are readily identifiable in our lease contract. We account for non-lease components separately from the lease component to which it is related.
Acquired Intangible Assets
Our goodwill and other intangible assets result from acquisitions of existing businesses. Upon acquisition, we record the fair values of separately identifiable indefinite and definite lived intangible assets using, among other sources of relevant information, independent appraisals, or actuarial or other valuations. Intangible assets affect the amount of future amortization expense and possible impairment charges we may incur.
Goodwill and indefinite lived intangible assets (certain tradenames we intend to renew and continue using indefinitely) are not subject to amortization and are tested for impairment qualitatively, and if necessary, quantitatively, at least annually during the fourth quarter of our fiscal year, or when events or changes in circumstances indicate it may be more likely than not that carrying value exceeds fair value. We perform impairment tests of goodwill at the reporting unit level and tests for other indefinite lived intangible assets at the asset level.
Intangible assets deemed to have finite lives are amortized on a straight-line basis over their useful lives, generally ranging from five to fifteen years (See Note 6. “Goodwill and Intangible Assets”). We determine the useful lives of finite intangible assets based on the specific facts and circumstances related to each asset, and we evaluate the appropriateness of assigned useful lives at least annually. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and economic factors such as competition or specific market conditions. Finite-lived intangible assets are tested for impairment if events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group might not be recoverable.
The fair value measurements used in testing intangible asset impairments are typically based on discounted cash flow projection models, using Level 3 inputs. See “Fair Value of Financial Instruments” for a description of input levels. Significant assumptions include, among others, the weighted average cost of capital, net sales growth, and terminal growth rates. In certain cases, management uses other market information when available to estimate fair value. Impairment charges represent the excess carrying amount over estimated fair value. We do not believe our goodwill and other intangible assets are impaired as of March 31, 2023.
Research & Development Costs
We conduct research and development activities for the purpose of developing new products and enhancing the functionality, effectiveness, reliability, and accuracy of existing products. Research and development costs are expensed as incurred. Research and development expense is predominantly comprised of labor costs and third-party consultants, but we may from time to time purchase in-process research and development with the intention of developing a saleable product.
Convertible Debt
Our convertible
1.375% Convertible Senior Notes due
2025 (the
"2025 Notes") do
not have embedded derivatives and are recorded as long-term liabilities in our Consolidated Balance Sheets. When the
2025 Notes are within
one year of maturity, or when
criteria necessary for conversion as described in Note
8. “Indebtedness” have been met, the
2025 Notes will be reclassified as short-term liabilities, depending on the expected timing and likelihood of optional conversions. At our option, we
may settle the
2025 Notes in shares of common stock or in cash. We apply the if-converted method to calculate the potentially dilutive impact of the
2025 Notes on earnings per share. The short-term portion of unamortized fees is recorded within prepaid expenses and other, and the long-term portion is recorded in other assets on our Consolidated Balance Sheets. The fees are being expensed on a straight line basis over the life of the indenture governing the
2025 Notes.
Stock-based Compensation
We issue shares in the form of stock options and full-value awards as part of employee and non-employee director compensation pursuant to the Mesa Laboratories, Inc. 2014 Equity Plan (the "2014 Equity Plan") and the Mesa Laboratories, Inc. 2021 Equity Incentive Plan (the "2021 Equity Plan" or together, "the Equity Plans").
The Equity Plans are administered by the Compensation Committee of the Board of Directors, which has the authority to grant equity awards, or to delegate its authority under the plan to make grants (subject to certain legal and regulatory restrictions), including the authority to determine the individuals to whom awards will be granted, the type of awards and when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule, and all other terms and conditions of the awards.
For purposes of counting the shares remaining under the 2021 Equity Plan, each share underlying a stock option or a full value award counts as one share used. For purposes of counting the shares remaining available under the 2014 Equity Plan, each share issuable pursuant to outstanding full value awards counts as five shares issued, whereas each share underlying a stock option counts as one share issued. We issue new shares of common stock upon the exercise of stock options and the vesting of time-based restricted stock units ("RSUs") and performance-based RSUs ("PSUs").
Stock options and service-based stock awards generally vest equally over a
three to
five year term and stock options generally expire after
six to
ten years. Awards granted to non-employee directors generally vest
one year from the grant date. We recognize stock-based compensation expense based on the fair value of stock awards at the grant date and recognize the expense over the related service period using a straight-line vesting expense schedule. The
2021 Equity plan includes retiree provisions, which result in the acceleration of stock-based compensation for expense for retiree-eligible participants. Compensation expense related to employees eligible to retire and retain full rights to the awards is recognized over the calculated service period required to earn the award according to the plan provisions.
Expense for PSUs is recognized when it is probable that performance goals will be achieved. Performance goals are determined by the Board of Directors and
may include measures such as revenues growth and profitability targets. Compensation expense on stock awards subject to performance conditions is recognized over the longer of the estimated performance goal attainment period or time vesting period. As of each reporting period, we estimate the number of PSUs expected to vest based on our current estimate of performance compared to the target metrics in the award documents, and if necessary, a cumulative-effect adjustment is recorded.
The fair value of RSUs is based on the closing price of Mesa's common stock on the award date, less the present value of expected dividends
not received during the vesting period. RSUs we issue are equivalent to nonvested shares under the applicable accounting guidance.
The fair value of each granted stock option is estimated on the grant date using the Black-Scholes option valuation model. The assumptions used to calculate the fair value of granted options reflect market conditions and our historical experience. We estimate expected forfeitures using a dynamic forfeiture model based on company specific historical data when determining the amount of stock-based compensation costs to recognize each period. The expected life of options represents the estimated period of time until exercise and is based on historical experience of similar awards for similar subsets of our employee population, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior. Expected stock price volatility is based on the historical volatility of our own stock price over the period of time commensurate with the expected life of the award. The risk-free rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option. The dividend yield assumption is based on our anticipated cash dividend payouts.
We allocate stock-based compensation expense to cost of revenues, selling, research and development, and general and administrative expense in the Consolidated Statements of
Income.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share (“diluted EPS”) is computed similarly to basic earnings per share, except it includes the effects of potential dilution that could occur if dilutive securities were exercised. Potentially dilutive securities include stock options, RSUs and PSUs (collectively “stock awards”), as well as common shares underlying the 2025 Notes. Potentially dilutive securities are excluded from the calculation of diluted EPS in the event they are subject to performance conditions that have not yet been achieved or if they would otherwise be antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss; in such cases the inclusion of the potential common shares would have an antidilutive effect. See Note 10. “Earnings per Share” for EPS calculations for the years ended March 31, 2023, 2022 and 2021.
Income Taxes
Income tax expense includes U.S., state, local and international income taxes. Deferred tax assets and liabilities are recognized and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax basis of existing assets and liabilities used for income tax purposes. The tax rate used to determine the deferred tax assets and liabilities is based on the enacted tax rate for the year and the manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty, such as acquisitions. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We prepare and file tax returns based on interpretation of tax laws and regulations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities. In determining our income tax provision for financial reporting purposes, we establish a reserve for uncertain tax income positions unless we determine it is not more likely than not that such positions would be sustained upon examination, based on their technical merits.. That is, for financial reporting purposes, we only recognize tax benefits taken on the tax return that we believe are more likely than not of being sustained. There is considerable judgment involved in determining whether positions taken on the tax return are more likely than not of being sustained. We adjust our tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated income tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any related estimated interest. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of general administrative expense. (See Note 12. “Income Taxes”).
Acquisition Related Contingent Consideration Liabilities
Acquisition related contingent consideration liabilities consist of estimated amounts due under various acquisition agreements and may be based on revenues growth, specified profitability growth metrics, or the attainment of milestones such as patent approvals. At each reporting period, we evaluate the expected future payments and any associated discount rate to determine the fair value of the contingent consideration. We re-evaluate the fair value of contingent liabilities at each reporting period and record any necessary adjustments in other expense, net on the Consolidated Statements of Income. See Note 13. “Commitments and Contingencies” for information regarding existing contingent consideration liabilities as of March 31, 2023.
Legal Contingencies
We are party to various claims and legal proceedings that arise in the normal course of business. We record an accrual for legal contingencies when we determine it is probable we have incurred a liability and can reasonably estimate the amount of the loss (See Note 13. “Commitments and Contingencies”).
Purchase Accounting for Acquisitions
We account for all business combinations in which we obtain control over another entity using the acquisition method of accounting, which requires most assets (both tangible and intangible) and liabilities (including any applicable contingent consideration, but excluding deferred revenue, which is measured at book value) to be recorded at fair value at the date of acquisition. The excess of the purchase price over the fair value of acquired assets less liabilities is recognized as goodwill. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses, which rely heavily on Level 3 inputs. These types of analyses require us to make and monitor assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow. Certain adjustments to the assessed fair values of acquired assets or liabilities made subsequent to the acquisition date but within the measurement period are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded within earnings. We expense all acquisition costs as incurred related to an acquisition in selling, general, and administrative expenses.
Results of operations of acquired companies are included in our Consolidated Financial Statements from the date of the acquisition forward. If actual results are not consistent with our assumptions and estimates, or if our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future. For the years ended March 31, 2023, 2022 and 2021, our acquisitions of businesses (net of cash acquired and including contingent consideration) totaled $6,140, $300,793, and $0, respectively.
Business Consolidation Costs
We estimate liabilities for business closure activities by gathering detailed estimates of costs and, if applicable, asset sale proceeds, for each business consolidation initiative. For a typical business consolidation initiative, we estimate costs of employee severance, impairment of property and equipment and other assets including estimating net realizable value, if necessary, accelerated depreciation, termination payments for contracts and leases, and any other qualifying costs related to the exit plan. Such charges represent our best estimates; however, they require assumptions about plans that may change over time. The estimated costs are grouped by specific projects within the overall exit plan and are monitored at each reporting period. Any subsequent changes to the original estimates are recorded in current earnings.
Risks and Uncertainties
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management's judgement about the outcome of future events. The current global business environment continues to be impacted directly and indirectly by the effects of the novel coronavirus ("COVID-19"), the conflict in Ukraine, and other factors. It is not possible to accurately predict the future impact of such events and circumstances. However, we have reviewed the estimates used in preparing the financial statements and have identified the following factors that have a reasonable possibility of being materially affected in the near term:
| ● | Estimates regarding the future financial performance of the business used in the impairment tests for goodwill and long-lived assets acquired in a business combination; however, our impairment tests conducted during the quarter ended March 31, 2023 concluded that goodwill is not impaired; |
| ● | Estimates regarding the recoverability of deferred tax assets and estimates regarding cash needs and associated indefinite reinvestment assertions; |
| ● | Estimates regarding recoverability for customer receivables; |
| ● | Estimates of the net realizable value of inventory. |
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
There have been no accounting pronouncements applicable to us that we were required to adopt or that we have elected to adopt during fiscal year 2023.
Note 2. Revenue
We develop, manufacture, market, sell and maintain life sciences tools and quality control instruments and related software, consumables, and services.
Hardware sales include physical products such as instruments used for molecular and genetic analysis, protein synthesizers, medical meters, wireless sensor systems, and data loggers. Hardware sales may be offered with accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function.
Consumables are typically used on a one-time basis and require frequent replacement in our customers' operating cycles. Consumables 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 also offer maintenance, calibration, and testing service contracts. These contracts result in revenues recognized over time, for example, when we are obligated to perform labor and replace parts on an as-needed basis over a contractually specified period of time, or at a point in time, upon completion of a specific, discrete service. In many cases, our contracts contain both revenues recognized over time and revenues recognized at a point in time.
We evaluate our revenues internally based on operating segment, the nature of goods and services provided, and the timing of revenue generation.
The following tables present disaggregated revenues from contracts with customers for the years ended March 31, 2023, 2022 and 2021:
| | Year Ended March 31, 2023 | |
| | Clinical Genomics (1) | | | Sterilization and Disinfection Control | | | Biopharmaceutical Development | | | Calibration Solutions | | | Total | |
Consumables | | $ | 43,374 | | | $ | 55,605 | | | $ | 15,800 | | | $ | 3,062 | | | $ | 117,841 | |
Hardware and Software | | | 13,347 | | | | 692 | | | | 22,079 | | | | 26,561 | | | | 62,679 | |
Services | | | 5,578 | | | | 8,312 | | | | 9,486 | | | | 15,184 | | | | 38,560 | |
Total Revenues | | $ | 62,299 | | | $ | 64,609 | | | $ | 47,365 | | | $ | 44,807 | | | $ | 219,080 | |
| | Year Ended March 31, 2022 | |
| | Clinical Genomics (1) | | | Sterilization and Disinfection Control | | | Biopharmaceutical Development | | | Calibration Solutions | | | Total | |
Consumables | | $ | 22,271 | | | $ | 50,311 | | | $ | 15,551 | | | $ | 3,675 | | | $ | 91,808 | |
Hardware and Software | | | 6,726 | | | | 700 | | | | 21,651 | | | | 28,537 | | | | 57,614 | |
Services | | | 3,843 | | | | 8,033 | | | | 8,377 | | | | 14,660 | | | | 34,913 | |
Total Revenues | | $ | 32,840 | | | $ | 59,044 | | | $ | 45,579 | | | $ | 46,872 | | | $ | 184,335 | |
| | Year Ended March 31, 2021 | |
| | Clinical Genomics (1) | | | Sterilization and Disinfection Control | | | Biopharmaceutical Development | | | Calibration Solutions | | | Total | |
Consumables | | $ | - | | | $ | 45,869 | | | $ | 13,942 | | | $ | 3,198 | | | $ | 63,009 | |
Hardware and Software | | | - | | | | 505 | | | | 13,545 | | | | 29,969 | | | | 44,019 | |
Services | | | - | | | | 6,745 | | | | 6,405 | | | | 13,759 | | | | 26,909 | |
Total Revenues | | $ | - | | | $ | 53,119 | | | $ | 33,892 | | | $ | 46,926 | | | $ | 133,937 | |
(1) Revenues in the Clinical Genomics division represent transactions subsequent to the acquisition of Agena Bioscience, Inc. on October 20, 2021.
Contract Balances
Our contracts have varying payment terms and conditions. Some customers prepay for products and services, resulting in either unearned revenues or customer deposits, called contract liabilities. Short-term contract liabilities are included within other accrued expenses and unearned revenues in the accompanying Consolidated Balance Sheets, and long-term contract liabilities are included within other long-term liabilities in the accompanying Consolidated Balance Sheets. The significant majority of our revenues and related receivables and contract liabilities are generated from contracts with customers with original expected durations of 12 months or less. Contract liabilities will be recognized to revenue as we satisfy our obligations under the terms of the contracts.
A summary of contract liabilities is as follows:
Contract liabilities as of March 31, 2022 | | $ | 15,069 | |
Prior year liabilities recognized in revenues during the year ended March 31, 2023 | | | (8,643 | ) |
Contract liabilities added during the year ended March 31, 2023, net of revenues recognized | | | 9,672 | |
Contract liabilities balance as of March 31, 2023 | | $ | 16,098 | |
Note 3. Fair Value Measurements
Our financial instruments generally consist of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable, and debt. Due to their short-term nature, the carrying values of cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate fair value.
The financial instruments that subject us to the highest concentration of credit risk are cash and accounts receivable. We maintain relationships and cash deposits at multiple banking institutions across the world in an effort to diversify and reduce risk of loss. Concentration of credit risk with respect to accounts receivable is limited to customers to whom we make significant sales. Unusually, one of our distributors accounted for approximately 18% of total trade receivables as of March 31, 2023. Some of this balance was attributable to orders placed in the last months of fiscal year 2023, but a substantial portion was aged from earlier months; we have since collected payments for all aged balances and have continued to collect currently due amounts.
To manage credit risk, we consider the creditworthiness of new and existing customers, establish credit limits, and regularly review outstanding balances and payment histories. We may require pre-payments from customers under certain circumstances and may limit future purchases until payments are made on past due amounts.
We have outstanding $172,500 aggregate principal of 1.375% convertible senior notes due August 15, 2025, which we refer to as our 2025 Notes. We estimate the fair value of the 2025 Notes based on the last actively traded price or observable market input preceding the end of the reporting period. The estimated fair value and carrying value of the 2025 Notes were as follows:
| | March 31, 2023 | | | March 31, 2022 | |
| | Carrying Value | | | Fair Value (Level 2) | | | Carrying Value | | | Fair Value (Level 2) | |
2025 Notes | | $ | 170,272 | | | $ | 161,072 | | | $ | 169,365 | | | $ | 185,438 | |
There were no transfers between the levels of the fair value hierarchy during the fiscal years ended March 31, 2023 and 2022.
Our financial liabilities based upon Level 3 inputs include a contingent consideration arrangement relating to our acquisition of substantially all the assets and certain liabilities of Belyntic GmbH’s peptide purification business (the "Belyntic acquisition," see Note 4. "Significant Transactions"). We are obligated to pay contingent consideration of $1,500 cash upon approval of pending patent applications, expected within 36 months of the acquisition date. The fair value of the contingent consideration was $1,190 as of March 31, 2023, and was recorded in other long-term liabilities on the accompanying Consolidated Balance Sheets. We estimated the fair value of the contingent consideration at inception using a probability-weighted outcome analysis based on our expectations of patent approval, leveraging our historical experience and expert input. The amount ultimately paid for the contingency could range from $0 to $1,500.
Note 4. Significant Transactions
Acquisitions
Belyntic, GmbH
On November 17, 2022, we acquired substantially all of the assets and certain liabilities of Belyntic GmbH’s peptide purification business. We paid $4,950 on the date of acquisition, and we expect to pay an additional $1,500 based on the probable approval of pending patent applications expected within 36 months of the acquisition date. The business complements our existing peptide synthesis business, part of the Biopharmaceutical Development segment, by adding a new consumables line. We have prepared a preliminary analysis of the valuation of net assets acquired in the Belyntic acquisition, which is subject to revision as more detailed analyses are completed.
Agena Bioscience, Inc.
On October 20, 2021, we completed the acquisition of Agena Bioscience, Inc. for $300,793, net of cash acquired but inclusive of working capital adjustments. 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.
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.
Allocation of Purchase Price
The allocation of purchase price is based on the fair value of assets acquired and liabilities assumed, except deferred revenue recorded at book value, as of the acquisition date, based on the final valuation of Agena. The relief from royalty method was used to value our trade names and developed technology, while the multi-period excess earnings method, a form of the income approach, was used to value our customer relationships. These methods involve the use of significant estimates and assumptions depending on the underlying asset being valued, but may include internal rate of return, revenue growth rates, customer attrition rate, and royalty rates, all of which are considered Level 3 inputs. We obtained the information used to prepare the valuation during due diligence and from other sources. These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. We have made appropriate adjustments to deferred taxes and tax-related balances within the measurement period during the year ended March 31, 2023.
The following table summarizes the allocation of the purchase price as of October 20, 2021:
| | Life (in years) | | | Amount | |
Cash and cash equivalents | | | | | | $ | 7,544 | |
Accounts receivable | | | | | | | 11,100 | |
Other current assets | | | | | | | 25,480 | |
Total current assets | | | | | | | 44,124 | |
Property, plant and equipment/noncurrent assets | | | | | | | 15,832 | |
Deferred tax asset | | | | | | | 811 | |
Intangible assets: | | | | | | | | |
Goodwill | | | N/A | | | | 135,728 | |
Customer relationships | | | 12 | | | | 103,800 | |
Intellectual property | | | 8 | | | | 45,400 | |
Tradenames | | | 12 | | | | 15,700 | |
Total assets acquired | | | | | | $ | 361,395 | |
Accounts payable | | | | | | | 2,174 | |
Unearned revenues | | | | | | | 2,713 | |
Other current liabilities | | | | | | | 11,052 | |
Total current liabilities | | | | | | | 15,939 | |
Deferred tax liability | | | | | | | 28,856 | |
Other noncurrent liabilities | | | | | | | 8,263 | |
Total liabilities assumed | | | | | | $ | 53,058 | |
Total purchase price, net of cash acquired | | | | | | $ | 300,793 | |
Acquired Goodwill
Acquired goodwill of $135,728 as of the acquisition date, all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from 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.
Note 5. Leases
We have operating leases for buildings and office equipment. The following table presents the lease balances within the Consolidated Balance Sheets related to our operating leases:
Lease Assets and Liabilities | Balance Sheet Location | | March 31, 2023 | | | March 31, 2022 | |
Operating lease ROU asset | Other assets | | $ | 8,693 | | | $ | 10,201 | |
Current operating lease liabilities | Other accrued expenses | | | 2,868 | | | | 2,768 | |
Noncurrent operating lease liabilities | Other long-term liabilities | | | 5,752 | | | | 7,436 | |
The components of lease costs, the weighted average remaining lease term and the weighted average discount rate were as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | |
Operating lease expense | | $ | 3,064 | | | $ | 1,973 | |
Variable lease expense | | | 704 | | | | 419 | |
Total lease expense | | $ | 3,768 | | | $ | 2,392 | |
Weighted average remaining lease term in years | | | 3.3 | | | | 4.3 | |
Weighted average discount rate | | | 2.0 | % | | | 1.7 | % |
Supplemental cash flow information related to leases was as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | |
Cash paid for amounts included in the measurements of lease liabilities | | $ | 3,017 | | | $ | 1,896 | |
Operating lease assets obtained in exchange for operating lease obligations | | | 1,426 | | | | 10,577 | |
Maturities of lease liabilities are as follows as for the years ending March 31:
2024 | | $ | 3,018 | |
2025 | | | 2,384 | |
2026 | | | 1,984 | |
2027 | | | 1,490 | |
Future value of lease liabilities | | | 8,876 | |
Less: imputed interest | | | 256 | |
Present value of lease liabilities | | $ | 8,620 | |
Note 6. Goodwill and Intangible Assets
Goodwill arises from the excess purchase price of acquired businesses over the fair value of acquired tangible and intangible assets, less assumed liabilities.
Changes in the carrying amount of goodwill were as follows:
| | Clinical Genomics | | | Sterilization and Disinfection Control | | | Biopharmaceutical Development | | | Calibration Solutions | | | Total | |
March 31, 2021 | | $ | - | | | $ | 30,153 | | | | 93,399 | | | $ | 37,289 | | | $ | 160,841 | |
Effect of foreign currency translation | | | 34 | | | | (403 | ) | | | (5,134 | ) | | | (52 | ) | | | (5,555 | ) |
Goodwill related to Agena Acquisition | | | 135,880 | | | | - | | | | - | | | | - | | | | 135,880 | |
March 31, 2022 | | $ | 135,914 | | | $ | 29,750 | | | $ | 88,265 | | | $ | 37,237 | | | | 291,166 | |
Effect of foreign currency translation | | | 49 | | | | (191 | ) | | | (7,381 | ) | | | (20 | ) | | | (7,543 | ) |
Goodwill related to Belyntic Acquisition | | | - | | | | - | | | | 2,973 | | | | - | | | | 2,973 | |
Measurement period adjustment - Agena Acquisition | | | (152 | ) | | | - | | | | - | | | | - | | | | (152 | ) |
March 31, 2023 | | $ | 135,811 | | | $ | 29,559 | | | $ | 83,857 | | | $ | 37,217 | | | $ | 286,444 | |
Other intangible assets were as follows:
| | March 31, 2023 | | | March 31, 2022 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Customer relationships | | $ | 238,247 | | | $ | (86,058 | ) | | $ | 152,189 | | | $ | 244,157 | | | $ | (67,469 | ) | | $ | 176,688 | |
Intellectual property | | | 65,950 | | | | (19,550 | ) | | | 46,400 | | | | 65,893 | | | | (12,620 | ) | | | 53,273 | |
Other intangibles | | | 24,793 | | | | (6,567 | ) | | | 18,226 | | | | 25,350 | | | | (5,194 | ) | | | 20,156 | |
Total | | $ | 328,990 | | | $ | (112,175 | ) | | $ | 216,815 | | | $ | 335,400 | | | $ | (85,283 | ) | | $ | 250,117 | |
The range of useful lives and weighted-average remaining useful lives of amortizable intangible assets as of March 31, 2023 were as follows:
| | | | | | | Est. Useful | Weighted Avg. |
| | | | | | | Life | Remaining Life |
Description | | | | | | | (Years) | (Years) |
Customer relationships | | | | | | | 10 - 14 | 8.8 |
Intellectual property | | | | | | | 8 - 14 | 6.5 |
Other intangibles | | | | | | | 3 - 12 | 10.4 |
The following is estimated amortization expense for the years ending March 31:
2024 | | $ | 28,580 | |
2025 | | | 26,999 | |
2026 | | | 26,233 | |
2027 | | | 25,733 | |
2028 | | | 25,275 | |
Amortization expense for finite-lived intangible assets acquired in a business combination was as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Amortization in Cost of revenues | | $ | 6,796 | | | $ | 3,806 | | | $ | 1,430 | |
Amortization in General and administrative | | | 22,025 | | | | 18,000 | | | | 13,083 | |
Total | | $ | 28,821 | | | $ | 21,806 | | | $ | 14,513 | |
Note 7. Supplemental Balance Sheets Information
Property, plant and equipment consisted of the following:
| | March 31, 2023 | | | March 31, 2022 | |
Land | | $ | 889 | | | $ | 889 | |
Buildings and building improvements | | | 22,005 | | | | 21,537 | |
Manufacturing equipment | | | 14,481 | | | | 17,336 | |
Computer equipment | | | 4,413 | | | | 4,519 | |
Other | | | 4,394 | | | | 1,578 | |
Construction in progress | | | 1,735 | | | | 487 | |
Gross total | | | 47,917 | | | | 46,346 | |
Accumulated depreciation | | | (19,768 | ) | | | (17,726 | ) |
Property, plant and equipment, net | | $ | 28,149 | | | $ | 28,620 | |
Depreciation expense was as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Depreciation expense in Cost of revenues | | $ | 3,163 | | | $ | 2,243 | | | $ | 1,859 | |
Depreciation expense in Operating expense | | | 1,150 | | | | 1,019 | | | | 1,100 | |
Total depreciation expense | | $ | 4,313 | | | $ | 3,262 | | | $ | 2,959 | |
Inventories consisted of the following:
| | March 31, 2023 | | | March 31, 2022 | |
Raw materials | | $ | 20,064 | | | $ | 14,172 | |
Work in process | | | 617 | | | | 4,419 | |
Finished goods | | | 13,961 | | | | 6,015 | |
Inventories, net | | $ | 34,642 | | | $ | 24,606 | |
Accrued payroll and benefits consisted of the following:
| | March 31, 2023 | | | March 31, 2022 | |
Bonus payable | | $ | 4,461 | | | $ | 7,468 | |
Wages and paid-time-off payable | | | 2,329 | | | | 3,677 | |
Payroll related taxes | | | 1,982 | | | | 2,069 | |
Other benefits payable | | | 661 | | | | 1,503 | |
Total accrued payroll and benefits | | $ | 9,433 | | | $ | 14,717 | |
Other accrued expenses consisted of the following:
| | March 31, 2023 | | | March 31, 2022 | |
Accrued business taxes | | $ | 5,941 | | | $ | 4,967 | |
Current operating lease liabilities | | | 2,868 | | | | 2,768 | |
Customer deposits | | | 1,287 | | | | 751 | |
Income taxes payable | | | 992 | | | | 928 | |
Other | | | 2,297 | | | | 2,197 | |
Total other accrued expenses | | $ | 13,385 | | | $ | 11,611 | |
Note 8. Indebtedness
Credit Facility
On March 5, 2021, we entered into a four-year senior secured credit agreement 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. The agreement 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. We refer to the facility and related agreement as the “Credit Facility”.
We borrowed $70,000 under the Credit Facility during fiscal year 2022 to provide a portion of the cash needed to complete the Agena Acquisition. We repaid $36,000 against our outstanding balance during the year ended March 31, 2023. As of March 31, 2023, the outstanding balance under our Credit Facility was $13,000. In April 2023 we repaid $3,000 on our line of credit.
On December 22, 2022, Mesa and the lenders amended the Credit Facility to replace references to the Eurodollar Rate with references to the Secured Overnight Financing Rate ("SOFR").
Amounts borrowed under the Credit Facility bear interest at either a base rate or a SOFR rate, plus an applicable spread. The interest rate on borrowings under our line of credit as of March 31, 2023 was 6.7%. 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. We incurred unused commitment fees of $107 and $78 for the years ended March 31, 2023, and March 31, 2022, respectively. The balance of unamortized customary lender fees was $312 and $484 as of March 31, 2023 and 2022, respectively.
The financial covenants in the Credit Facility include a maximum leverage ratio of 5.50 to 1.00 for the first four testing dates on which the line of credit is outstanding; 5.0 to 1.0 on each of the fifth, sixth, seventh, and eighth 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 March 31, 2023, we were in compliance with all required covenants.
Convertible Notes
On August 12, 2019, we issued an aggregate principal amount of $172,500 of 2025 Notes. The 2025 Notes mature on August 15, 2025, unless earlier repurchased or converted, and bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 each year beginning on February 15, 2020. The 2025 Notes are initially convertible at a conversion rate of 3.5273 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $283.50 per share of common stock. Noteholders may convert their 2025 Notes at their option only in the following circumstances:
(i) | during any calendar quarter commencing after the calendar quarter ended on December 31, 2019 (and only during such calendar quarter), if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; |
(ii) | during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; |
(iii) | upon the occurrence of certain corporate events or distributions on our common stock, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2025 Notes) or a transaction resulting in the Company’s common stock converting into other securities or property or assets; and |
(iv) | at any time from, and including, April 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date. |
Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. 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 year ended March 31, 2023. As of March 31, 2023, the 2025 Notes are classified as a long-term liability on our Consolidated Balance Sheets as the circumstances necessary for conversion were not satisfied as of the end of the period. The if-converted value of the 2025 Notes did not exceed the principal balance as of March 31, 2023.
Debt issuance costs related to the 2025 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 2025 Notes.
The net carrying amount of the 2025 Notes was as follows:
| | March 31, 2023 | | | March 31, 2022 | |
Principal outstanding | | $ | 172,500 | | | $ | 172,500 | |
Unamortized debt issuance costs | | | (2,228 | ) | | | (3,135 | ) |
Net carrying value | | $ | 170,272 | | | $ | 169,365 | |
We recognized interest expense on the 2025 Notes as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Coupon interest expense at 1.375% | | $ | 2,372 | | | $ | 2,372 | | | $ | 2,372 | |
Amortization of debt discounts and issuance costs | | | 907 | | | | 890 | | | | 5,397 | |
Total | | $ | 3,279 | | | $ | 3,262 | | | $ | 7,769 | |
The effective interest rate of the liability component of the 2025 Notes is approximately 1.9%. Interest expense and amortization of debt discount was lower for the year ended March 31, 2022 compared to the year ended March 31, 2021 due to our adoption of ASU 2020-06.
Note 9. Stock Transactions and Stock-Based Compensation
(dollars and shares in thousands, except per share values)
In November 2005, our Board of Directors approved a program to repurchase up to 300 shares of our outstanding common stock. Under the program, shares of common stock may be purchased from time to time in the open market at prevailing prices or in negotiated transactions off the market. Shares of common stock repurchased will be cancelled and repurchases of shares of common stock will be funded through existing cash reserves. There were no repurchases of our shares of common stock under this plan during the years ended March 31, 2023, 2022 and 2021. As of March 31, 2023, we have repurchased 162 shares under this plan.
Under applicable law, Colorado corporations are not permitted to retain treasury stock. The price paid for repurchased shares is allocated between common stock and retained earnings based on management’s estimate of the original sales price of the underlying shares.
Public Offerings of Common Stock
On June 12, 2020, we completed the sale and issuance of a total 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 we paid, was $145,935.
Stock-Based Compensation
We issue shares in the form of stock options, RSUs and PSUs to employees and non-employee directors pursuant to the 2014 and 2021 Equity Plans. Our shareholders approved the 2021 Equity Plan during fiscal year 2022. The plan authorizes the issuance of 330 shares of common stock to eligible participants. 145 shares were available for future grants as of March 31, 2023. Under the 2014 Equity Plan, 1,100 shares of common stock have been authorized and reserved for eligible participants, all of which have been issued and 95 of which remain outstanding as of March 31, 2023.
Stock-based compensation expense recognized in the Consolidated Financial Statements was as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Stock-based compensation expense | | $ | 12,538 | | | $ | 11,391 | | | $ | 9,268 | |
Amount of income tax (benefit) recognized in earnings | | | (1,169 | ) | | | (4,055 | ) | | | (1,816 | ) |
Stock-based compensation expense, net of tax | | $ | 11,369 | | | $ | 7,336 | | | $ | 7,452 | |
Stock Options
We use the Black-Scholes option-pricing model to estimate the fair value of stock option awards granted. The weighted average assumptions utilized in the model were as follows:
| | 2023 | | | 2022 | | | 2021 | |
Risk-free interest rate | | | 3.55 | % | | | 0.46 | % | | | 0.27 | % |
Expected life (years) | | | 3.52 | | | | 3.52 | | | | 3.86 | |
Expected dividend yield | | | 0.07 | % | | | 0.06 | % | | | 0.10 | % |
Volatility | | | 37.29 | % | | | 38.82 | % | | | 38.83 | % |
Weighted-average Black-Scholes fair value per share at date of grant | | $ | 58.94 | | | $ | 76.02 | | | $ | 67.66 | |
The amounts shown above for the estimated fair value per option granted are before the estimated effect of forfeitures, which reduces the amount of expense recorded in our Consolidated Statements of Income.
Stock option activity under the 2021 Equity Plan and legacy plans as of March 31, 2023, and changes for the year then ended are presented below (shares and dollars in thousands, except per-share data):
| | Stock Options | |
| | Shares Subject to Options | | | Weighted- Average Exercise Price per Share | | | Weighted-Average Remaining Contractual Life (Years) | | | Aggregate Intrinsic Value | |
Outstanding as of March 31, 2022 | | | 202 | | | $ | 167.14 | | | | 2.9 | | | $ | 18,261 | |
Awards granted | | | 43 | | | | 185.60 | | | | | | | | | |
Awards forfeited or expired | | | (9 | ) | | | 218.13 | | | | | | | | | |
Awards exercised or distributed | | | (73 | ) | | | 97.34 | | | | | | | | | |
Outstanding as of March 31, 2023 | | | 163 | | | $ | 200.62 | | | | 3.3 | | | $ | 1,643 | |
Exercisable as of March, 31, 2023 | | | 83 | | | $ | 193.05 | | | | 2.3 | | | $ | 1,405 | |
Exercisable and expected to vest, March 31, 2023 | | | 160 | | | $ | 200.62 | | | | 3.2 | | | $ | 1,641 | |
The total intrinsic value of stock options exercised during the years ended March 31, 2023, 2022 and 2021 was $6,902, $15,209, and $9,559, respectively. Unrecognized stock-based compensation expense for stock options expected to vest as of March 31, 2023 was $2,835 and is expected to be recognized over a weighted average period of 1.7 years. The total fair value of options vested was $2,763, $2,856, and $2,005 during the years ended March 31, 2023, 2022 and 2021, respectively. The weighted-average grant price of awards granted during the years ended March 31, 2022 and 2021 was $268.81 and $226.72, respectively.
Time-Based Restricted Stock Units (RSUs)
RSU activity under the 2014 and 2021 Equity Plans was as follows (shares and dollars in thousands, except per-share data):
| | Time-Based Restricted Stock Units | |
| | Number of Shares | | | Weighted- Average Grant Date Fair Value per Share | | | Weighted- Average Remaining Contractual Life (Years) | | | Aggregate Intrinsic Value | |
Nonvested at March 31, 2022 | | | 51 | | | $ | 252.86 | | | | 1.0 | | | $ | 13,019 | |
Awards granted | | | 43 | | | | 187.21 | | | | | | | | | |
Awards forfeited or expired | | | (10 | ) | | | 229.52 | | | | | | | | | |
Awards distributed | | | (27 | ) | | | 250.85 | | | | | | | | | |
Nonvested as of March 31, 2023 | | | 57 | | | $ | 209.27 | | | | 1.0 | | | $ | 9,993 | |
Expected to vest | | | 53 | | | $ | 209.43 | | | | 1.8 | | | $ | 9,254 | |
For the years ended March 31, 2022 and 2021, the weighted average fair value per RSU granted was $274.55 and $231.61, respectively. Unrecognized stock-based compensation expense for RSUs that we have determined are probable of vesting was $6,893 as of March 31, 2023 and is expected to be recognized over a weighted average period of 1.8 years. The total fair value of RSUs vested was $6,751, $5,320, $1,819 during the years ended March 31, 2023, 2022 and 2021, respectively. The total intrinsic value of time-based RSUs distributed during the years ended March 31, 2023, 2022 and 2021 was $5,004, $5,320, and $2,429, respectively.
Performance-Based Restricted Stock Units (PSUs)
Performance-based RSUs 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.
PSU activity under the 2014 and 2021 Equity Plans was as follows (shares and dollars in thousands, except per-share data):
| | Performance-Based Restricted Stock Units | |
| | Number of Shares | | | Weighted- Average Grant Date Fair Value per Share | | | Weighted- average Remaining Contractual Life (Years) | | | Aggregate Intrinsic Value | |
Nonvested at March 31, 2022 at target | | | 55 | | | $ | 288.45 | | | | 4.3 | | | $ | 14,093 | |
Awards granted | | | 19 | | | | 182.14 | | | | | | | | | |
Performance adjustment | | | (20 | ) | | | | | | | | | | | | |
Awards distributed | | | (10 | ) | | | 202.00 | | | | | | | | | |
Nonvested as of March 31, 2023 at target | | | 44 | | | $ | 286.02 | | | | 3.5 | | | $ | 7,958 | |
Expected to vest | | | 42 | | | $ | 287.48 | | | | 3.4 | | | | 7,306 | |
For the year ended March 31, 2022, the average fair value per PSU granted was $302.15. Unrecognized stock-based compensation expense for PSUs that we have determined probable of vesting was $7,642 as of March 31, 2023 and is expected to be recognized over a weighted average period of 3.4 years. Total fair value of PSUs vested was $1,926 and $5,671 during the years ended March 31, 2023 and 2022, respectively. The total intrinsic value of PSUs distributed during the years ended March 31, 2023, 2022 and 2021 was $1,776, $7,549, and $0, respectively. There were no PSUs granted or distributed during the year ended March 31, 2021.
During the year ended March 31, 2023, the Compensation Committee of the Board of Directors created a plan to award 19 PSUs at target (the "FY23 PSUs") that are subject to both service and performance conditions to eligible employees. The performance period for the FY23 PSUs is from April 1, 2022 until March 31, 2023 and the service period is from April 1, 2022 until March 31, 2025. Of the total FY23 PSUs granted, 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. Based on actual performance during the performance period, we reduced the number of awards expected to vest to 0. The remaining awards will be settled in shares of our common stock, but they are subject to performance criteria that are subjective and as such their grant date was assigned as of March 31, 2023 when the criteria were defined and the number of awards was decided. Five shares are expected to be issued upon vesting based on determinations made by the Board of Directors.
During fiscal year 2022, we awarded 7 PSUs to key employees of Agena subject to both service and performance conditions. Based on actual performance through the period ended March 31, 2023, the awards did not vest.
On October 28, 2021, the Compensation Committee of the Board of Directors granted a special long-term equity award consisting of performance stock units covering a target of 40 shares (“PSUs”) that is subject to both performance and service conditions to our Chief Executive Officer. The performance period of the award is the three-year period from April 1, 2021 through March 31, 2024 and the service periods commence on October 28, 2021 and ends on October 27, 2024, October 27, 2025, and October 27, 2026, on which dates eligible PSUs will vest and be distributed. The performance metrics are cumulative GAAP revenues over the performance period and cumulative adjusted operating income over the performance period. The quantity of shares that will be issued upon vesting will range from 0 to 40; if financial performance targets are not met, then no shares will vest. Based on actual performance through the period ended March 31, 2023, the award is estimated to vest at 93%.
During the year ended March 31, 2023, we adjusted our estimate of PSUs expected to vest under all outstanding plans based on actual results achieved through the performance period. We recorded a cumulative effect release of ($1,787) during the period ($1,322, net of tax as well as $0.25 per basic and diluted share), which is recorded in general and administrative and selling expense on our Condensed Consolidated Statements of Income.
In the future, we expect non-cash stock-based compensation expense to decrease approximately $402 per quarter as a result of our new estimate of performance share units expected to vest.
Note 10. Earnings Per Share
(dollars and shares in thousands, except per share values)
The following table presents a reconciliation of the denominators used in the computation of basic and diluted earnings per share:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Net earnings available for shareholders | | $ | 930 | | | $ | 1,871 | | | $ | 3,274 | |
Weighted average outstanding shares of common stock | | | 5,321 | | | | 5,212 | | | | 4,975 | |
Dilutive effect of stock options | | | 26 | | | | 100 | | | | 125 | |
Dilutive effect of unvested stock awards | | | 14 | | | | 23 | | | | 24 | |
Fully diluted shares | | | 5,361 | | | | 5,335 | | | | 5,124 | |
| | | | | | | | | | | | |
Basic earnings per share | | $ | 0.17 | | | $ | 0.36 | | | $ | 0.66 | |
Diluted earnings per share | | $ | 0.17 | | | $ | 0.35 | | | $ | 0.64 | |
The impact of the assumed conversion of the 2025 Notes calculated under the if-converted method was anti-dilutive, and as such shares underlying the 2025 Notes were excluded from the diluted EPS calculation for the fiscal years ended March 31, 2023, 2022, and 2021.
The following stock awards were excluded from the calculation of diluted EPS:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Assumed conversion of convertible debt | | | 608 | | | | 608 | | | | 608 | |
Stock awards that were anti-dilutive | | | 154 | | | | 40 | | | | 44 | |
Stock awards subject to performance conditions | | | 48 | | | | 26 | | | | 14 | |
Total stock awards excluded from diluted EPS | | | 810 | | | | 674 | | | | 666 | |
Note 11. Employee Benefit Plans
We adopted the Mesa Laboratories, Inc. 401(K) Retirement Plan effective January 1, 2000. Under this plan, we match 100% of the first 4% of pay contributed by each eligible employee, and contributions vest immediately. Participation is voluntary, and employees are eligible on the first day of the month following their start date.
During the years ended March 31, 2023, 2022 and 2021, respectively, we contributed $1,768, $1,185, and $935 to Mesa Laboratories, Inc. 401(K) retirement plans on behalf of employees. Our employer match has increased over the years as employees from acquired companies have joined our 401(K) Retirement Plan.
Note 12. Income Taxes
Provision for Income Taxes
Earnings before income taxes were as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Domestic | | $ | 1,887 | | | $ | 4,579 | | | $ | 6,297 | |
Foreign | | | (2,276 | ) | | | (1,005 | ) | | | (3,994 | ) |
Total (loss) earnings before income taxes | | $ | (389 | ) | | $ | 3,574 | | | $ | 2,303 | |
The components of our provision for income taxes were as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Current tax provision: | | | | | | | | | | | | |
U.S. Federal | | $ | 593 | | | $ | (83 | ) | | $ | 1,500 | |
U.S. State | | | 538 | | | | 286 | | | | 628 | |
Foreign | | | 1,070 | | | | 1,372 | | | | 404 | |
Total current tax expense | | | 2,201 | | | | 1,575 | | | | 2,532 | |
Deferred tax provision: | | | | | | | | | | | | |
U.S. Federal | | | (1,432 | ) | | | 1,707 | | | | (2,410 | ) |
U.S. State | | | (210 | ) | | | 337 | | | | (619 | ) |
Foreign | | | (1,878 | ) | | | (1,916 | ) | | | (474 | ) |
Total deferred tax (benefit) expense | | | (3,520 | ) | | | 128 | | | | (3,503 | ) |
Total income tax (benefit) expense | | $ | (1,319 | ) | | $ | 1,703 | | | $ | (971 | ) |
A reconciliation of our income tax provision and the amounts computed by applying statutory rates to earnings before income taxes was as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Federal income taxes at statutory rates | | $ | (82 | ) | | $ | 751 | | | $ | 483 | |
State income taxes, net of federal benefit | | | (1,075 | ) | | | 628 | | | | (221 | ) |
Tax benefit of stock option exercises | | | (1,169 | ) | | | (4,055 | ) | | | (1,816 | ) |
Research and development credit | | | (1,010 | ) | | | (495 | ) | | | (165 | ) |
Limitation for 162(m) | | | 2,675 | | | | 4,039 | | | | 1,113 | |
Return to provision adjustment | | | (125 | ) | | | (68 | ) | | | (172 | ) |
Subpart F, GILTI, & FDII | | | (127 | ) | | | 6 | | | | (999 | ) |
Foreign rate differential | | | (439 | ) | | | 152 | | | | 810 | |
Permanent Difference | | | 33 | | | | 64 | | | | 15 | |
Interest reserve adjustment | | | - | | | | 668 | | | | - | |
Other | | | - | | | | 13 | | | | (19 | ) |
Total income tax (benefit) expense | | $ | (1,319 | ) | | $ | 1,703 | | | $ | (971 | ) |
The Company has elected to recognize U.S. taxes on global intangible low-taxed income ("GILTI") as a period expense in the year the tax is incurred.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) were as follows:
| | March 31, 2023 | | | March 31, 2022 | |
Deferred tax assets: | | | | | | | | |
Net operating loss | | $ | 6,945 | | | $ | 11,274 | |
Credits | | | 4,769 | | | | 5,321 | |
Allowances and reserves | | | 2,376 | | | | 1,977 | |
Capitalized research expenditures(1) | | | 3,124 | | | | - | |
Stock compensation deductible differences | | | 1,384 | | | | 2,137 | |
Inventories | | | 1,348 | | | | 1,316 | |
Other | | | 188 | | | | 394 | |
Total deferred tax assets | | | 20,134 | | | | 22,419 | |
Deferred tax liabilities: | | | | | | | | |
Goodwill and intangible assets | | | (49,781 | ) | | | (56,145 | ) |
Property, plant and equipment | | | (2,502 | ) | | | (3,284 | ) |
Other | | | (221 | ) | | | (188 | ) |
Total deferred tax liabilities | | | (52,504 | ) | | | (59,617 | ) |
Valuation allowance | | | (582 | ) | | | (708 | ) |
Net deferred tax (liability) | | $ | (32,952 | ) | | $ | (37,906 | ) |
(1) Under the Tax Cut and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S tax purposes effective January 1, 2022. The mandatory capitalization requirement increases our deferred tax assets and cash tax liabilities. |
Valuation Allowance
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In evaluating the need for a valuation allowance, management takes into account various factors, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. Based on this evaluation, the Company has concluded that its U.S. operations and the majority of foreign operations have a sufficient source of income to realize our existing deferred tax assets as of March 31, 2023. The Company’s valuation allowance movement during fiscal year 2023 is mainly related to a change of judgement regarding the realizability of deferred tax assets in Canada and Germany.
The following table summarizes the changes in our valuation allowance for deferred tax assets:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Beginning balance | | $ | 708 | | | $ | 404 | | | $ | 391 | |
Additions charged to income tax expense and other accounts | | | 567 | | | | 304 | | | | 13 | |
Deductions from reserves | | | (693 | ) | | | - | | | | - | |
Ending balance | | $ | 582 | | | $ | 708 | | | $ | 404 | |
Net Operating Loss Credit and Carryforwards
As of March 31, 2023, the Company had U.S. and Foreign net operating loss (“NOL”) carryforwards consisting of the following:
| | March 31, 2023 | | | Expiration Date | |
Pre-2018 federal NOL carryforwards | | $ | - | | | | N/A | |
Post-2018 federal NOL carryforwards | | | 2,819 | | | Indefinite | |
State NOL carryforwards | | | 7,210 | | | March 31, 2037 | |
Foreign NOL carryforwards | | | 22,262 | | | Indefinite | |
As of March 31, 2023, the Company had U.S. tax credit carryforwards consisting of the following:
| | March 31, 2023 | | | Expiration Date | |
Federal research tax credit carryforwards | | $ | 2,428 | | | March 31, 2038 | |
State research tax credits carryforwards | | | 2,944 | | | March 31, 2034 | |
Federal foreign tax credit carryforwards | | | 15 | | | March 31, 2036 | |
As a result of the Agena acquisition in fiscal year 2022, an ownership change as defined in Section 382 of the Internal Revenue Code occurred resulting in limitations on the Company’s use of acquired federal and state net operating losses, as well as certain tax credits. As of March 31, 2023, $1,513 of the Company’s federal tax loss carryforwards, and $1,360 of the Company’s federal research and development credit carryforwards are subject to Section 382 and other restrictions.
Undistributed earnings in foreign subsidiaries
For the year ended March 31, 2023, provisions have not been made for income taxes on $65,028 of undistributed earnings that were deemed permanently reinvested in foreign subsidiaries at March 31, 2023. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.
Uncertain Tax Positions
Uncertain tax positions, if ever recognized in the financial statements, would be recorded in the consolidated statements of operations as part of the income tax provision. A reconciliation of the beginning and ending amount of unrecognized tax benefits, exclusive of interest and penalties, included in the deferred tax liability on the accompanying Consolidated Balance Sheets of the Company is as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Beginning balance | | $ | 1,329 | | | $ | 64 | | | $ | 653 | |
(Decrease) increase related to prior period tax positions | | | (1,272 | ) | | | 1,179 | | | | (629 | ) |
Increases related to current period tax positions | | | 35 | | | | 86 | | | | 40 | |
Ending balance | | $ | 92 | | | $ | 1,329 | | | $ | 64 | |
As of March 31, 2023, the Company recorded gross unrecognized tax benefits of $92, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties accrued on uncertain income tax positions in other expense and general and administrative expense, respectively. Interest and penalties included in other long-term liabilities on the accompanying Consolidated Balance Sheets of the Company were $0 for each of the years ended March 31, 2023, 2022 and 2021. The Company does not expect a material change in unrecognized tax benefits or interest reversal in the next 12 months.
The Company files income tax returns in the U.S. various states and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following tax years remain subject to examination:
Significant Jurisdictions | | Open Years | |
U.S. Federal | | | 2019 - 2021 | |
U.S. States | | | 2018 - 2021 | |
Foreign | | | 2016 - 2021 | |
In various jurisdictions, years prior to those listed above remain open solely for the purposes of examination of the Company’s NOL and credit carryforwards.
Note 13. Commitments and Contingencies
We are party to various legal proceedings arising in the ordinary course of business. As of March 31, 2023, we are not party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
As part of the Belyntic acquisition, we have agreed to pay up to an additional $1,500 to the sellers upon approval of contractually specified pending patents. We believe it is probable the patents will be issued and that we will pay the sellers in full within 36 months from the date of acquisition. The liability is recorded at an estimated fair value of $1,190 in other long-term liabilities on the accompanying Consolidated Balance Sheets.
Note 14. Segment Data
Segment information is prepared on the same basis that our CEO and chief operating decision maker uses to manage our segments, evaluate financial results, and make key operating decisions. Our four reportable segments are organized primarily by the nature of the goods and services they sell. When determining our reportable segments, we aggregated operating segments based on their similar economic and operating characteristics. We evaluate the performance of our operating segments based on revenues, organic revenues growth, and gross profit. The accounting policies of the operating segments are the same as those described in Note 1. "Description of Business and Summary of Significant Accounting Policies."
The following tables set forth our segment information:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
Revenues (a): | | | | | | | | | | | | |
Clinical Genomics | | $ | 62,299 | | | $ | 32,840 | | | $ | - | |
Sterilization and Disinfection Control | | | 64,609 | | | | 59,044 | | | | 53,119 | |
Biopharmaceutical Development | | | 47,365 | | | | 45,579 | | | | 33,892 | |
Calibration Solutions | | | 44,807 | | | | 46,872 | | | | 46,926 | |
Reportable segment revenues | | | 219,080 | | | | 184,335 | | | | 133,937 | |
Corporate and Other (b) | | | - | | | | - | | | | - | |
Total revenues | | $ | 219,080 | | | $ | 184,335 | | | $ | 133,937 | |
| | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | |
Clinical Genomics | | $ | 32,485 | | | $ | 11,941 | | | $ | - | |
Sterilization and Disinfection Control | | | 46,520 | | | | 43,720 | | | | 39,870 | |
Biopharmaceutical Development | | | 30,340 | | | | 28,605 | | | | 21,035 | |
Calibration Solutions | | | 24,388 | | | | 24,989 | | | | 26,112 | |
Reportable segment gross profit | | | 133,733 | | | | 109,255 | | | | 87,017 | |
Corporate and Other (b) | | | (40 | ) | | | (165 | ) | | | (3 | ) |
Gross profit | | $ | 133,693 | | | $ | 109,090 | | | $ | 87,014 | |
| | | | | | | | | | | | |
Reconciling items: | | | | | | | | | | | | |
Operating expenses | | | 130,373 | | | | 104,388 | | | | 74,656 | |
Operating income | | | 3,320 | | | | 4,702 | | | | 12,358 | |
Nonoperating expense | | | 3,709 | | | | 1,128 | | | | 10,055 | |
Earnings before income taxes | | $ | (389 | ) | | $ | 3,574 | | | $ | 2,303 | |
| (a) | Intersegment revenues are not significant and are eliminated to arrive at consolidated totals. |
| (b) | Unallocated corporate expenses and other business activities are reported within Corporate and Other. |
The following table sets forth net inventories by reportable segment. Our chief operating decision maker is not provided with any other segment asset information.
| | March 31, | | | March 31, | |
| | 2023 | | | 2022 | |
Clinical Genomics | | $ | 13,985 | | | $ | 11,802 | |
Sterilization and Disinfection Control | | | 3,492 | | | | 2,176 | |
Biopharmaceutical Development | | | 8,384 | | | | 4,495 | |
Calibration Solutions | | | 8,781 | | | | 6,133 | |
Reportable segment inventory | | | 34,642 | | | | 24,606 | |
Corporate and Other | | | - | | | | - | |
Total inventories, net | | $ | 34,642 | | | $ | 24,606 | |
The following table sets forth a summary of long-lived assets by geographic area. Long-lived assets exclude goodwill and intangible assets acquired in a business combination and deferred tax assets.
| | As of March 31, | |
| | 2023 | | | 2022 | |
United States | | $ | 34,729 | | | $ | 36,475 | |
Foreign | | | 3,793 | | | | 3,975 | |
Total | | $ | 38,522 | | | $ | 40,450 | |
Revenues from external customers are attributed to individual countries based upon locations to which the product is shipped or exported, as follows:
| | Year Ended March 31, | |
| | 2023 | | | 2022 | | | 2021 | |
United States | | $ | 117,281 | | | $ | 99,068 | | | $ | 71,387 | |
China | | | 25,797 | | | | 16,518 | | | | 6,612 | |
Other | | | 76,002 | | | | 68,749 | | | | 55,938 | |
Total revenues | | $ | 219,080 | | | $ | 184,335 | | | $ | 133,937 | |
No customer accounts for 10% or more of our consolidated revenues. No foreign country other than China exceeds 10% of total revenues.
Note 15. Subsequent Events
None.