Item
2
.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This report contains information that may constitute "forward-looking statements.” Generally, the words
“will,”
“estimate,”
"believe,"
"expect,"
"ant
icipate," "intend,"
"project,"
and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events
,
or developments that we expect or anticipate will occur in the future — including statements relating to revenues growth and statements expressing general views about future operating results — are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events
,
or otherwise, except as required by law.
In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections.
These risks and uncertainties include, but are not limited t
o
those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended March 31, 201
8
, and those described from time to time in our subsequent reports filed with the Securities and Exchange Commission.
General Discussion
We pursue a strategy of focusing primarily on quality control products and services, which are sold into niche markets that are driven by regulatory requirements. We prefer markets in which we can establish a strong presence and achieve high gross margins. We are organized into four divisions across nine physical locations. Our Sterilization and Disinfection Control Division (“SDC” Division) manufactures and sells biological, cleaning, and chemical indicators. Biological, cleaning, and chemical indicators are used to assess the effectiveness of sterilization and disinfection processes in the hospital, dental, medical device, and pharmaceutical industries. The division also provides testing and laboratory services, mainly to the dental industry. Our Instruments Division designs, manufactures, and markets quality control instruments and disposable products utilized in the healthcare, pharmaceutical, food and beverage, medical device, industrial hygiene, and environmental air sampling industries. Our Cold Chain Monitoring Division designs, develops, and markets systems which are used to monitor various environmental parameters such as temperature, humidity, and differential pressure to ensure that critical storage and processing conditions are maintained in hospitals, pharmaceutical and medical device manufacturers, blood banks, pharmacies, and laboratory environments. Our Cold Chain Packaging Division provides packaging development consulting services and thermal packaging products such as coolers, boxes, insulation materials, and phase-change products to control temperature during the customer’s transport of their own products.
Our revenues come from three main sources – hardware and software, consumables, and services. Product sales (hardware, software, and consumables) are dependent on several factors, including general economic conditions, both domestic and international, customer capital spending trends, competition, introduction of new products and acquisitions. Sterilization and disinfection control products and most products in our Cold Chain Packaging Division are disposable and are used on a routine basis, thus product sales are less sensitive to general economic conditions. Instrument products and cold chain monitoring products and systems have a longer life, and their purchase by our customers is somewhat discretionary, so sales are more sensitive to general economic conditions. Cold chain monitoring and instruments products may be sold in conjunction with a perpetual or subscription-based software license, which may be required for the related hardware to function. Service demand is driven by our customers’ quality control and regulatory environments, which require periodic repair and recalibration or certification of our instrument products and cold chain monitoring systems. We typically evaluate costs and pricing annually. Our policy is to price our products competitively and, where possible, we pass along cost increases in order to maintain our margins.
Gross profit is affected by our product mix, manufacturing efficiencies, and price competition. Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross margin percentages for some products have improved. There are, however, differences in gross margin percentages between product lines, and ultimately the mix of sales will continue to impact our overall gross margin.
During the nine months ended December 31, 2018, we completed a business combination (the “Point Six Wireless Acquisition”) whereby we acquired substantially all of the assets (other than current assets) and certain liabilities of Point Six Wireless, LLC’s continuous monitoring business.
General Trends
Our strategic objectives include growth both organically and through further acquisitions. During the nine months ended December 31, 2018, we continued to build our infrastructure to prepare for future growth, including completing the relocation and sale of the old Bozeman manufacturing facility, moving those operations into the new Bozeman building, the addition of key personnel to our operations, sales and marketing, and research and development teams, and the continued rollout of phase three of our ERP implementation project (European operations), which was completed as of December 31, 2018.
The markets for sterilization and disinfection control products remain strong, as the disposable nature of these products makes them less sensitive to general economic conditions. The worldwide market for sterilization and disinfection control products is growing as more countries focus on verifying the effectiveness of sterilization and disinfection processes.
Demand for our instruments products and cold chain services and monitoring systems remains solid and we strive to continue to grow revenues going forward. In general, our instruments products and cold chain monitoring systems are more impacted by general economic conditions than our sterilization and disinfection control and cold chain packaging products. As a result, uncertainty about global economic conditions may cause businesses to postpone spending in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values. Worldwide and regional economic conditions could also reduce the demand for our products and services, as our customers reduce or delay capital equipment and other types of purchases.
We are working on several research and development projects that, if completed, may result in enhanced or new products for both existing customers and new markets. We are hopeful that we will have enhanced or new products and services available for sale in the coming year.
Overall revenues increased 13 percent and 11 percent for the three and nine months ended December 31, 2018. Organic revenues growth by reporting segment was as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2018
|
|
Sterilization and Disinfection Control
|
|
|
6
|
%
|
|
|
1
|
%
|
Instruments
|
|
|
14
|
%
|
|
|
8
|
%
|
Cold Chain Monitoring
|
|
|
14
|
%
|
|
|
6
|
%
|
Cold Chain Packaging
|
|
|
29
|
%
|
|
|
26
|
%
|
Total Company
|
|
|
11
|
%
|
|
|
6
|
%
|
During the three months ended December 31, 2018, we performed a financial analysis of the Cold Chain Packaging Division, which revealed that gross profits for the segment continue to decline, primarily due to rising commodity costs. As a result, we performed an impairment test on the reporting segment, and recognized non-cash impairment charges of $1,028 on goodwill and $2,641 on long-lived assets, in impairment loss on goodwill and long-lived assets on the accompanying condensed consolidated statements of operations.
Results of Operations
(Dollars in thousands)
The following table sets forth, for the periods indicated, condensed consolidated statements of operations data. The table and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto appearing elsewhere in this report:
|
|
Three Months Ended
December 31,
|
|
|
|
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
Revenues
|
|
$
|
26,682
|
|
|
$
|
23,671
|
|
|
$
|
3,011
|
|
|
|
13
|
%
|
Cost of revenues
|
|
|
11,048
|
|
|
|
10,990
|
|
|
|
58
|
|
|
|
1
|
%
|
Gross profit
|
|
$
|
15,634
|
|
|
$
|
12,681
|
|
|
$
|
2,953
|
|
|
|
23
|
%
|
Gross profit margin
|
|
|
59
|
%
|
|
|
54
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
$
|
2,054
|
|
|
$
|
1,942
|
|
|
$
|
112
|
|
|
|
6
|
%
|
General and administrative
|
|
|
7,731
|
|
|
|
6,256
|
|
|
|
1,475
|
|
|
|
24
|
%
|
Research and development
|
|
|
860
|
|
|
|
752
|
|
|
|
108
|
|
|
|
14
|
%
|
Impairment loss on goodwill and long-lived assets
|
|
|
3,669
|
|
|
|
13,819
|
|
|
|
(10,150
|
)
|
|
|
(73
|
%)
|
|
|
$
|
14,314
|
|
|
$
|
22,769
|
|
|
$
|
(8,455
|
)
|
|
|
(37
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
1,320
|
|
|
$
|
(10,088
|
)
|
|
$
|
11,408
|
|
|
|
113
|
%
|
Net income (loss)
|
|
$
|
858
|
|
|
$
|
(11,086
|
)
|
|
$
|
11,944
|
|
|
|
108
|
%
|
Net income (loss) margin
|
|
|
3
|
%
|
|
|
(47
|
%)
|
|
|
50
|
%
|
|
|
|
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
Revenues
|
|
$
|
76,689
|
|
|
$
|
69,298
|
|
|
$
|
7,391
|
|
|
|
11
|
%
|
Cost of revenues
|
|
|
31,387
|
|
|
|
30,713
|
|
|
|
674
|
|
|
|
2
|
%
|
Gross profit
|
|
$
|
45,302
|
|
|
$
|
38,585
|
|
|
$
|
6,717
|
|
|
|
17
|
%
|
Gross profit margin
|
|
|
59
|
%
|
|
|
56
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
$
|
5,748
|
|
|
$
|
6,909
|
|
|
$
|
(1,161
|
)
|
|
|
(17
|
%)
|
General and administrative
|
|
|
22,824
|
|
|
|
19,525
|
|
|
|
3,299
|
|
|
|
17
|
%
|
Research and development
|
|
|
2,539
|
|
|
|
2,790
|
|
|
|
(251
|
)
|
|
|
(9
|
%)
|
Impairment loss on goodwill and long-lived assets
|
|
|
3,669
|
|
|
|
13,819
|
|
|
|
(10,150
|
)
|
|
|
(73
|
%)
|
Estimated legal settlement
|
|
|
3,300
|
|
|
|
--
|
|
|
|
3,300
|
|
|
|
N/A
|
|
|
|
$
|
38,080
|
|
|
$
|
43,043
|
|
|
$
|
(4,963
|
)
|
|
|
(12
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
7,222
|
|
|
$
|
(4,458
|
)
|
|
$
|
11,680
|
|
|
|
262
|
%
|
Net income (loss)
|
|
$
|
6,082
|
|
|
$
|
(7,216
|
)
|
|
$
|
13,298
|
|
|
|
184
|
%
|
Net income (loss) margin
|
|
|
8
|
%
|
|
|
(10
|
%)
|
|
|
18
|
%
|
|
|
|
|
Revenues
The following tables summarize our revenues by source:
|
|
Three Months Ended December 31,
|
|
|
|
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
Sterilization and Disinfection Control
|
|
$
|
11,545
|
|
|
$
|
10,630
|
|
|
$
|
915
|
|
|
|
9
|
%
|
Instruments
|
|
|
9,341
|
|
|
|
8,182
|
|
|
|
1,159
|
|
|
|
14
|
%
|
Cold Chain Monitoring
|
|
|
3,744
|
|
|
|
3,267
|
|
|
|
477
|
|
|
|
15
|
%
|
Cold Chain Packaging
|
|
|
2,052
|
|
|
|
1,592
|
|
|
|
460
|
|
|
|
29
|
%
|
Total
|
|
$
|
26,682
|
|
|
$
|
23,671
|
|
|
$
|
3,011
|
|
|
|
13
|
%
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
Sterilization and Disinfection Control
|
|
$
|
34,475
|
|
|
$
|
30,798
|
|
|
$
|
3,677
|
|
|
|
12
|
%
|
Instruments
|
|
|
26,776
|
|
|
|
24,768
|
|
|
|
2,008
|
|
|
|
8
|
%
|
Cold Chain Monitoring
|
|
|
9,917
|
|
|
|
9,335
|
|
|
|
582
|
|
|
|
6
|
%
|
Cold Chain Packaging
|
|
|
5,521
|
|
|
|
4,397
|
|
|
|
1,124
|
|
|
|
26
|
%
|
Total
|
|
$
|
76,689
|
|
|
$
|
69,298
|
|
|
$
|
7,391
|
|
|
|
11
|
%
|
Three
and
nine
months ended
December 31
, 2018
versus
December 31
, 2017
Sterilization and Disinfection Control revenues for the three months ended December 31, 2018 increased nine percent, primarily as a result of six percent organic revenues growth, and to a lesser extent, the acquisition of BAG Health Care GmbH Hygiene Monitoring (“BAG”) during fiscal year 2018. Sterilization and Disinfection Control revenues increased 12 percent for the nine months ended December 31, 2018, primarily as a result of the acquisitions of BAG, SIMICON GmbH, and Hucker & Hucker GmbH during fiscal year 2018.
Instruments revenues for the three and nine months ended December 31, 2018 increased 14 percent and eight percent, respectively, primarily due to the timing of orders and modest price increases. Instrument revenues for the three months ended December 31, 2017 were impacted by a slower than expected adoption of an updated medical product and the discontinuation of its predecessor product. However, the adoption rate of the product has increased over the past calendar year.
Cold Chain Monitoring revenues increased 15 percent and six percent for the three and nine months ended December 31, 2018, respectively, primarily as a result of organic revenues growth. Revenues in this division fluctuate quarter over quarter due to the timing of performance obligations and the nature and timing of orders and installations within any given quarter.
Cold Chain Packaging revenues increased 29 percent and 26 percent for the three and nine months ended December 31, 2018, respectively, as a result of the normalization in the order rate of the division’s largest customer.
Gross Profit
The following summarizes our gross profit by segment:
|
|
Three Months Ended December 31,
|
|
|
|
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
Sterilization and Disinfection Control
|
|
$
|
7,876
|
|
|
$
|
7,134
|
|
|
$
|
742
|
|
|
|
10
|
%
|
Gross profit margin
|
|
|
68
|
%
|
|
|
67
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments
|
|
|
5,922
|
|
|
|
5,150
|
|
|
|
772
|
|
|
|
15
|
%
|
Gross profit margin
|
|
|
63
|
%
|
|
|
63
|
%
|
|
|
--
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Chain Monitoring
|
|
|
1,575
|
|
|
|
(43
|
)
|
|
|
1,618
|
|
|
|
3,763
|
%
|
Gross profit margin
|
|
|
42
|
%
|
|
|
(1
|
%)
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Chain Packaging
|
|
|
261
|
|
|
|
440
|
|
|
|
(179
|
)
|
|
|
(41
|
%)
|
Gross profit margin
|
|
|
13
|
%
|
|
|
28
|
%
|
|
|
(15
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
15,634
|
|
|
$
|
12,681
|
|
|
$
|
2,953
|
|
|
|
23
|
%
|
Gross profit margin
|
|
|
59
|
%
|
|
|
54
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
|
|
Percent
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Change
|
|
Sterilization and Disinfection Control
|
|
$
|
23,660
|
|
|
$
|
20,676
|
|
|
$
|
2,984
|
|
|
|
14
|
%
|
Gross profit margin
|
|
|
69
|
%
|
|
|
67
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments
|
|
|
16,909
|
|
|
|
15,021
|
|
|
|
1,888
|
|
|
|
13
|
%
|
Gross profit margin
|
|
|
63
|
%
|
|
|
61
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Chain Monitoring
|
|
|
4,203
|
|
|
|
2,044
|
|
|
|
2,159
|
|
|
|
106
|
%
|
Gross profit margin
|
|
|
42
|
%
|
|
|
22
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Chain Packaging
|
|
|
530
|
|
|
|
844
|
|
|
|
(314
|
)
|
|
|
(37
|
%)
|
Gross profit margin
|
|
|
10
|
%
|
|
|
19
|
%
|
|
|
(9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
45,302
|
|
|
$
|
38,585
|
|
|
$
|
6,717
|
|
|
|
17
|
%
|
Gross profit margin
|
|
|
59
|
%
|
|
|
56
|
%
|
|
|
3
|
%
|
|
|
|
|
Three
and
nine
months ended
December 31
, 2018
versus
December 31
, 2017
Sterilization and Disinfection Control gross profit margin percentage increased for both the three and nine months ended December 31, 2018 primarily as a result of $150 and $503 of moving expenses related to the Bozeman facility that were incurred during the three and nine months ended December 31, 2017, respectively. Excluding the impact of the moving expenses, gross margin percentage for both periods was essentially flat as compared to the prior year.
Instruments gross margin percentage was flat during the three months ended December 31, 2018, primarily due to product and service mix, offset by volume-based efficiencies associated with an increase in revenues. Instruments gross margin percentage increased during the nine months ended December 31, 2018 due primarily to favorable product and service mix, as well as a $163 increase in inventory reserve recorded in the nine months ended December 31, 2017 as a result of the decision to discontinue the sale of certain instruments products.
Cold Chain Monitoring gross profit margin percentage increased during the three months ended December 31, 2018 primarily due to $1,700 of inventory reserve expense recorded in the three months ended December 31, 2017; excluding the impact of the reserve in the comparable period, gross margin percentage decreased as a result of timing of orders and unfavorable product mix variations. Cold Chain Monitoring gross profit margin percentage increased during the nine months ended December 31, 2018, primarily due to $1,916 of inventory reserve expense recorded in the nine months ended December 31, 2017. Excluding the impact of the inventory reserve charge in the comparable period, gross profit margin percentage was flat as compared to the nine months ended December 31, 2017.
Cold Chain Packaging gross profit margin decreased during the three and nine months ended December 31, 2018 primarily as a result of significantly higher commodities costs than in previous periods, and to a lesser extent, sales volumes related to a large customer contract containing lower-than-standard contractual pricing. We are currently implementing a commercial initiative to pass some of our increasing commodities costs on to our customers. Even if we are successful with this initiative, we expect that our Cold Chain Packaging gross profit margin percentage will continue to be substantially lower than the historical results of our other segments due to the nature of these products. See
General Trends
for additional discussion.
Operating Expenses
Operating expenses for the three and nine months ended December 31, 2018 decreased in total as compared to the prior year as follows:
Selling
Three
and
nine
months ended
December 31
, 2018
versus
December 31
, 2017
Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels. Selling expense increased six percent for the three months ended December 31, 2018 and decreased 17 percent for the nine months ended December 31, 2018, primarily due to timing of the reduction and replacement of selling personnel. As a percentage of revenues, selling expense was eight percent and seven percent for the three and nine months ended December 31, 2018, respectively, as compared to eight percent and ten percent for the three and nine months ended December 31, 2017, respectively. We plan to continue to strategically reinvest in sales and marketing resources in an effort to further increase organic revenues growth.
General and
A
dministrative
Three
and
nine
months
ended
December
31
, 2018
versus
December 31
, 2017
Labor costs, including non-cash stock-based compensation, and amortization of intangible assets drive the substantial majority of general and administrative expense. General and administrative expenses increased $1,475 during the three months ended December 31, 2018, due primarily to increased incentive-based compensation as a result of the Company’s financial performance and higher salary expense. General and administrative costs increased $3,299 during the nine months ended December 31, 2018, due primarily to increased incentive-based compensation as a result of the Company’s financial performance and increases in non-cash stock-based compensation expense. We expect to incrementally increase our headcount in the future as we continue to invest in future organic revenues growth.
Research and Development
Three
and
nine
months ended
December 31
, 2018
versus
December 31
, 2017
Research and development expense is predominantly comprised of labor costs and third-party consultants. Research and development expenses for the three months ended December 31, 2018 increased 14 percent and for the nine months ended December 31, 2018, decreased nine percent, due to streamlining the necessary engineers, materials, and supplies required to support existing businesses in the prior year. During the three months ended December 31, 2018, we began to make incremental investments in research and development to enhance existing products.
Impairment Loss on Goodwill and Long-Lived Assets
Three
and nine
months ended
December 31, 2018
versus
December 31, 2017
During the three and nine months ended December 31, 2018, we recorded impairment expense of $3,669 related to goodwill and long-lived assets associated with our Cold Chain Packaging Division. During the three and nine months ended December 31, 2017, we recorded impairment expense of $13,819 related to goodwill associated with our Cold Chain Packaging Division. See
General Trends
above for additional discussion.
Estimated Legal Settlement
Three
and
nine
months ended
December 31
, 2018
versus
December 31
, 2017
During the nine months ended December 31, 2018, we recorded a $3,300 estimated legal settlement expense; see Note 10. “Commitments and Contingencies” within Item 1.
Financial Statements
.
Other Expense
Other expense for the three months ended December 31, 2018 is composed primarily of interest expense associated with our Credit Facility. During the nine months ended December 31, 2018, other expense is composed of interest expense associated with our credit facility, offset by a $288 gain recorded on the sale of our Bozeman facility; see Note 5. “Facility Relocation” within Item 1.
Financial Statements
for more information.
Net Income
Our income tax rate varies based upon many factors but in general, we anticipate that on a go-forward basis, our effective tax rate will be approximately 26 percent, plus or minus the impact of excess tax benefits and deficiencies associated with share-based payment awards to employees; see Note 8. “Income Taxes” within Item 1.
Financial Statements
for additional discussion. The excess tax benefits and deficiencies associated with share-based payment awards to our employees have caused and, in the future, may cause large fluctuations in our realized effective tax rate based on timing, volume, and nature of stock options exercised under our share-based payment program. Net income for the nine months ended December 31, 2018 varied with the changes in revenues, gross profit, and operating expenses (which includes $5,418 and $2,424 of non-cash amortization of intangible assets and stock-based compensation, respectively). Net income for the nine months ended December 31, 2018 was also significantly impacted by a $3,669 impairment loss on goodwill and long-lived assets (see Note 3. “Impairment Loss on Goodwill and Long-Lived Assets” within Item 1.
Financial Statements.
Liquidity and Capital Resources
Our sources of liquidity include cash generated from operations, working capital, capacity under our Credit Facility, and potential equity and debt offerings. We believe that cash generated from these sources will be sufficient to meet our short-term and long-term needs. Our more significant uses of resources have historically included long-term capital equipment expenditures, payment of debt obligations, quarterly dividends to shareholders, and acquisitions. Working capital is the amount by which current assets exceed current liabilities. We had working capital of $11,778 and $14,698 at December 31, 2018 and March 31, 2018, respectively.
Given our cash flow projections and unused capacity on our line of credit that is available until March 1, 2022, our liquidity is strong and is expected to meet our ongoing cash and debt service requirements for our general business needs. Interest-bearing debt of $29,500 and $46,625 was outstanding at December 31, 2018 and March 31, 2018, respectively. The Term Loan requires 20 quarterly principal payments, which began on March 31, 2017, in the amount of $250,000 (increasing by $125,000 each year up to $750,000 in the fifth year). The remaining balance of principal and accrued interest are due on March 1, 2022. We were in compliance with all loan agreements at December 31, 2018 and for all prior years presented and have met all debt payment obligations.
Subsequent to December 2018, we made a $3,000 payment under our line of credit.
As of June 30, 2018, our previously-announced move of our Omaha, Traverse City, and old Bozeman manufacturing facilities to our new facility in Bozeman, Montana was complete. We also completed the sale of our old Bozeman facility during the nine months ended December 31, 2018, which resulted in a gain of $288.
We have recorded an estimated litigation accrual of $3,300, which we expect to pay over the next twelve months; see Note 10. “Commitments and Contingencies” within Item 1.
Financial Statements
.
We routinely evaluate opportunities for strategic acquisitions. Future material acquisitions may require that we obtain additional capital, assume third party debt or incur other long-term obligations. We believe that we have the option to utilize both equity and debt instruments as vehicles for the long-term financing of our investment activities and acquisitions. At December 31, 2018, we had $68,000 on unused capacity under our line of credit, subject to covenant restrictions. In addition, in June 2018, the SEC declared effective our Universal Shelf Registration Statement which allows us to sell, in one or more public offerings, common stock or warrants, or any combination of such securities for proceeds in an aggregate amount of up to $300,000. The terms of any offering, including the type of securities involved, would be established at the time of sale.
Dividends
We have paid regular quarterly dividends since 2003. We declared and paid dividends of $0.16 per share for the three months ended June 30, 2018, September 30, 2018, and December 31, 2018 as well as each quarter for the year ending March 31, 2018.
In January 2019, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on March 15, 2019, to shareholders of record at the close of business on February 28, 2019.
Cash Flows
Our cash flows from operating, investing, and financing activities were as follows (in thousands):
|
|
Nine Months Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net cash provided by operating activities
|
|
$
|
20,292
|
|
|
$
|
16,078
|
|
Net cash used in investing activities
|
|
|
(3,825
|
)
|
|
|
(16,840
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(16,057
|
)
|
|
|
884
|
|
At December 31, 2018, we had contractual obligations for open purchase orders of approximately $3,823 for routine purchases of supplies and inventory, which are payable in less than one year.
Critical Accounting Estimates
Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstance. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended March 31, 2018 in the Critical Accounting Policies and Estimates section of “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.”