Mesa Laboratories(MLAB) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis of operations and liquidity, market risk disclosures, and internal control effectiveness Financial Statements The company reported a net loss of $1.2 million for the three months and $1.8 million for the six months ended September 30, 2023, a significant downturn from the net income of $1.3 million and a smaller net loss of $0.1 million in the respective prior-year periods. This was driven by a 10% and 5% decrease in revenues for the three and six-month periods, respectively. Total assets decreased to $637.2 million from $661.8 million at March 31, 2023, primarily due to amortization of intangible assets and a decrease in accounts receivable. Cash from operations improved significantly to $19.7 million for the six-month period, up from $7.7 million in the prior year Condensed Consolidated Balance Sheets Total assets and liabilities decreased, primarily due to amortization of intangibles and debt repayment, while stockholders' equity also saw a slight decline - Total assets decreased from $661.8 million on March 31, 2023, to $637.2 million on September 30, 2023, mainly due to decreases in customer relationships, intellectual property, and goodwill[10] - Total liabilities decreased from $268.4 million to $249.4 million, largely driven by the repayment of the $13.0 million balance on the Credit Facility[10] Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | March 31, 2023 | | :--- | :--- | :--- | | Total current assets | $117,662 | $118,975 | | Total assets | $637,188 | $661,832 | | Total current liabilities | $39,816 | $43,359 | | Total liabilities | $249,429 | $268,352 | | Total stockholders' equity | $387,759 | $393,480 | Condensed Consolidated Statements of Operations Revenues declined and the company swung to an operating loss for the three-month period, with a wider operating loss for the six-month period - Revenues declined by 9.5% YoY for the three months and 4.9% YoY for the six months ended September 30, 2023[12] - The company swung from an operating income of $4.0 million in Q2 2022 to an operating loss of $60 thousand in Q2 2023. For the six-month period, the operating loss widened from $0.6 million to $0.7 million[12] Key Operating Results (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $53,165 | $58,749 | $103,810 | $109,202 | | Gross Profit | $32,109 | $36,386 | $63,292 | $67,727 | | Operating (Loss) Income | $(60) | $3,995 | $(724) | $(599) | | Net (Loss) Income | $(1,230) | $1,306 | $(1,779) | $(132) | | Diluted EPS | $(0.23) | $0.24 | $(0.33) | $(0.02) | Condensed Consolidated Statements of Comprehensive (Loss) Comprehensive losses were significantly influenced by foreign currency translation adjustments, though the impact was less severe than in the prior year - Significant comprehensive losses were driven by foreign currency translation adjustments, which amounted to a loss of $8.0 million for the six months ended September 30, 2023, though this was a smaller impact than the $29.2 million loss in the same period of 2022[15] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased due to net loss, foreign currency translation losses, and dividends paid, partially offset by stock-based compensation - Total stockholders' equity decreased from $393.5 million at March 31, 2023, to $387.8 million at September 30, 2023. The decrease was primarily due to a net loss of $1.8 million, foreign currency translation losses of $8.0 million, and dividends paid of $1.7 million, partially offset by stock-based compensation of $6.2 million[18] - Dividends of $0.16 per share were paid in each of the first two quarters of fiscal 2024[18] Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved due to working capital changes, while financing activities primarily involved debt repayment and dividend payments - Net cash provided by operating activities increased significantly to $19.7 million for the six months ended September 30, 2023, compared to $7.7 million in the prior-year period, mainly due to favorable changes in working capital, particularly accounts receivable[21] - Net cash used in financing activities was $15.1 million, primarily due to a $13.0 million payment on debt and $1.7 million in dividend payments[21] - Cash and cash equivalents increased by $2.7 million during the six-month period to end at $35.6 million[21] Notes to Condensed Consolidated Financial Statements Key disclosures include the post-quarter acquisition of GKE GmbH, revenue breakdown by segment and geography, and details on convertible senior notes - On October 14, 2023, subsequent to the quarter end, the company acquired GKE GmbH and SAL GmbH for €85.0 million, funded by cash on hand and $65.0 million borrowed under its credit facility[32][33] - For the six months ended September 30, 2023, consumables represented the largest portion of revenue at $57.2 million, followed by hardware/software at $27.2 million and services at $19.4 million[43] - The United States is the largest geographic market, accounting for $53.6 million in revenue for the six months ended September 30, 2023, followed by China at $13.6 million[43] - As of September 30, 2023, the company had $172.5 million in aggregate principal of 1.375% convertible senior notes outstanding, due in 2025[63] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 5% year-to-date revenue decline to macroeconomic factors, including softening demand for capital equipment in life sciences and the loss of a significant customer (Sema4) in the Clinical Genomics segment. Despite lower revenues, gross profit margins remained relatively stable due to proactive cost containment efforts. The company continues to pursue its strategy of organic growth and acquisitions, highlighted by the post-quarter acquisition of GKE. Operating expenses decreased 6% year-to-date, reflecting lower stock-based compensation and cost-saving initiatives. Liquidity remains strong with $35.6 million in cash and an expanded credit facility used to fund the GKE acquisition Results of Operations Total revenues for the six months ended September 30, 2023, decreased by 5% to $103.8 million, driven by declines in the Clinical Genomics (-12%) and Biopharmaceutical Development (-18%) segments. This was partially offset by growth in Calibration Solutions (+6%) and Sterilization and Disinfection Control (+4%). Gross profit margin slightly decreased from 62% to 61%. Operating expenses fell by 6%, primarily due to lower stock-based compensation and cost control measures, leading to a slightly wider operating loss of $0.7 million compared to $0.6 million in the prior year Revenues by Segment - Six Months Ended Sep 30 (in thousands) | Segment | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Sterilization and Disinfection Control | $33,007 | $31,738 | 4.0% | | Clinical Genomics | $28,918 | $32,940 | (12.2%) | | Biopharmaceutical Development | $19,096 | $23,111 | (17.8%) | | Calibration Solutions | $22,789 | $21,413 | 6.4% | | Total | $103,810 | $109,202 | (5.0%) | - The decline in Clinical Genomics revenue was primarily due to the loss of customer Sema4 at the beginning of Q3 fiscal 2023[110] - The Biopharmaceutical Development segment's revenue decrease was driven by softening demand for capital equipment, a trend seen across the life sciences tools market[115][100] - Operating expenses decreased by 6% for the six-month period, mainly due to lower stock-based compensation and strategic cost containment activities[121] Liquidity and Capital Resources The company maintains a strong liquidity position with $35.6 million in cash and cash equivalents as of September 30, 2023. Working capital increased to $77.8 million. During the quarter, the company had no outstanding balance on its credit facility, but subsequent to quarter-end, it amended the facility to increase its capacity from $75 million to $125 million and borrowed $65 million to partially fund the GKE acquisition. The company continues its long-standing practice of paying quarterly dividends, declaring $0.16 per share - Working capital stood at $77.8 million as of September 30, 2023, up from $75.6 million at March 31, 2023[135] - Subsequent to the quarter's end, the company increased its credit facility to $125 million and drew down $65 million to help fund the GKE acquisition[136] - Cash flow from operations for the six-month period was strong at $19.7 million, a significant increase from $7.7 million in the prior year period[142] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks primarily from foreign currency exchange rates and interest rates. Transactional and translational foreign exchange risk exists due to significant international operations, with the Biopharmaceutical Development division being particularly susceptible to fluctuations in the Swedish Krona. Interest rate risk is tied to its variable-rate Credit Facility; a 1 percentage point increase in rates would add approximately $650,000 in annual interest expense based on borrowings for the GKE acquisition. Inflation risk is managed through price increases, but this may impact sales volume - The company faces both transactional and translational foreign currency exchange rate risk, with the Biopharmaceutical Development division particularly exposed to movements in the Swedish Krona versus the U.S. dollar and euro[148] - A hypothetical 1 percentage point increase in interest rates would result in an estimated $650,000 of additional annual interest expense on the borrowings used to fund the GKE acquisition[150] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023. The company has successfully remediated the two material weaknesses in internal control over financial reporting that were identified in fiscal year 2023. These weaknesses related to fair value calculations for acquisitions and the goodwill impairment assessment. Remediation actions included engaging a third-party valuation specialist and implementing a formal quarterly impairment trigger analysis - The company concluded that its disclosure controls and procedures were effective as of September 30, 2023[155] - Two material weaknesses identified in fiscal year 2023 related to 'Fair Value Calculations' and 'Goodwill Impairment Assessment' have been remediated as of September 30, 2023[156][157] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, other corporate information, and filed exhibits Legal Proceedings The company reports no material legal reserves recorded on its balance sheet as of September 30, 2023 - As of September 30, 2023, there were no material legal reserves recorded on the unaudited Condensed Consolidated Balance Sheets[80][161] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2023 - No material changes from the risk factors described in the Annual Report on Form 10-K for the year ended March 31, 2023, were reported during the six months ended September 30, 2023[162] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company purchased 18 shares of its equity securities. These purchases were not part of a publicly announced plan but were related to satisfying employee tax withholding obligations upon the vesting of restricted stock awards. The company's 2005 share repurchase plan remains in place but has not been utilized in the last three fiscal years - Shares purchased during the period were transferred from employees to satisfy minimum tax withholding obligations related to vesting restricted stock awards[166] - The company has a share repurchase plan allowing for the repurchase of up to 300,000 shares, but no shares have been purchased under this plan in the last three fiscal years[166] Other Information Several company directors and officers, including Director John Schmieder, CFO John Sakys, and SVP Brian Archbold, entered into Rule 10b5-1 trading plans for the purchase or sale of company securities during the quarter - Director John Schmieder, CFO John Sakys, and SVP Brian Archbold each entered into written trading arrangements under Exchange Act Rule 10b5-1(c)[164][165][166] Exhibits The report lists several exhibits filed with the SEC, including an amendment to the credit agreement, certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act, and XBRL data files - Key exhibits filed include Amendment No. 2 to the Credit Agreement and CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[167]