Mesa Laboratories, Inc. (NASDAQ:MLAB) today announced results for
the first quarter (“1Q21”).
Financial highlights for the quarter ended June 30, 2020 as
compared to last year:
- Revenues increased 14%
- Operating income decreased 41%
- Non-GAAP adjusted operating income1 excluding unusual items
decreased 2%
Financial Results (amounts in thousands, except
per share data)
In comparison to the same quarter in the prior year, 1Q21
revenues increased 14% to $29,941, operating income decreased 41%
to $3,198, and net income was $1,025, a decrease of 78% or $0.22
per diluted share of common stock. As detailed in the Unusual
Items table below, operating income for 1Q21 was impacted by
unusual items totaling $(364).
Total revenues, excluding the Cold Chain Packaging division
(which we exited during 3Q20) increased 20% for 1Q21, while organic
revenues declined 4% quarter over quarter.
On a non-GAAP basis, in comparison to the same quarter in the
prior year, 1Q21 adjusted operating income (“AOI”) decreased 1% to
$7,820 or $1.67 per diluted share of common stock. As
detailed in the Unusual Items table below, AOI for 1Q21 was
impacted by unusual items totaling $(20). Excluding the
unusual items, AOI would have decreased 2% to $7,800 for 1Q21.
A reconciliation of non-GAAP measures is provided in the
tables below.
Division Performance
- Sterilization and Disinfection Control (44% of revenues in
1Q21) delivered strong results in the quarter with total and
organic revenues growth of 8%. The primary performance driver
was accelerated ordering in 4Q20 which was fulfilled in this
quarter. Without the associated backlog draw down, revenues
would have been roughly flat year over year. Increased
volumes again delivered strong margin performance with gross profit
percentage expanding 610 bps year over year. We expect
revenues growth to slow, perhaps in a significant fashion in 2Q21
as customer level inventories correct after the run up in 4Q20 and
1Q21.
- Instruments (25% of revenues in 1Q21) organic revenues
contracted 20% in the quarter. With greater exposure to
industrial capital equipment and governmental spending, we expect
continued weakness in Instruments orders and revenues to persist
throughout the COVID-19 pandemic. Division gross profit
percentage contracted 270 bps quarter over quarter primarily due to
lower sales volumes.
- Biopharmaceutical Development (20% of revenues in 1Q21)
experienced disappointing softness, as the slow-down in
biopharmaceutical lab activity impacted both hardware and
consumable sales. Returning to pre-COVID-19 performance will
depend on the pace of lab reopenings and implementation of
procedures to allow our teams to travel to and safely work at
customer sites. While gross profit percentage performance was
very positive at 71% when excluding purchase accounting true up
adjustments, revenues were not high enough for the division to
contribute meaningfully to the bottom line.
- Continuous Monitoring (11% of revenues in 4Q20) organic
revenues contracted 2% in the quarter while also benefiting from a
strong backlog position entering the quarter. Our ability to
sell, install, and service our systems has been hampered by our
limited ability to travel to and enter customer sites in the
healthcare industry. The healthcare segment did begin to open
meaningfully towards the end of the quarter and if this trend
continues, we expect to see service and installation activity
normalize in our second and third fiscal quarters. Greater
new system sales should follow but the weakened economic position
of hospital and decreased capital budgets may delay this division
returning to growth. Division gross profit percentage
decreased 1060 bps quarter over quarter primarily due to low
service revenues volumes. We also reorganized
the business unit during the quarter, which we believe will
allow it to operate more efficiently moving forward. This
reorganization was one step in our road map to improve the
division’s operations and resulting gross profit percentage.
Executive Commentary
“The first quarter showed the resilience of our business, The
Mesa Way operating model, and our team. We navigated dramatic
changes in both customer demand and internal operations to deliver
for our customers, a large number of which are actively fighting
for patients of COVID-19 or working on a long-term cure. The
Mesa Way was central to this endeavor, enabling us to quickly align
priorities, empower teams closest to the customer to make critical
decisions, and drive experiments that rapidly opened new ways to
service our customers,” said Gary Owens, Chief Executive Officer of
Mesa Labs.
“Financially, organic revenues, which contracted 4%
(Biopharmaceutical Development is excluded as it was acquired
effective 3Q20) were buoyed by backlog burn in our Sterilization
and Disinfection Control division. Solid overall revenue
performance versus expectations and cost reduction measures enabled
overall gross profit as a percentage of revenues to expand by 340
basis points when excluding Packaging from the prior year, and 260
basis points when also excluding the impact of true-up adjustments
related to purchase accounting in the current quarter.
Adjusted operating income excluding unusual items decreased 2% from
the prior year as our strong performance in the Sterilization and
Disinfection Control division was offset by lower volumes and
profits in our other divisions. We continue to be forward
invested in sales and other operating costs in our
Biopharmaceutical Development division as we believe the downturn
in revenues is COVID-19 related and thus temporary.
“Order performance when excluding Packaging (prior year) and
Biopharmaceutical Development (current year) was roughly in line
with our expectations and contracted in the low-teens due to
COVID-19 related headwinds in demand. While we see some green
shoots of activity in the biopharmaceutical vertical, medical
device and industrial verticals remain weak. Healthcare is a
mixed bag as we are dependent on surgical volumes for Sterilization
and Disinfection Control and capital budgets for Continuous
Monitoring. Regardless of the pace and shape of recovery, we
remain in a strong financial position with high operating cash flow
and a cash position reinforced by $146M of net proceeds related to
an equity raise completed in June,” concluded Mr. Owens.
1 The non-GAAP measures of adjusted operating income and
adjusted operating income per diluted share are defined to exclude
the non-cash impact of amortization of intangible assets acquired
in a business combination, stock-based compensation and impairment
of goodwill and long-lived assets. A reconciliation between
these non-GAAP measures and their GAAP counterparts is set forth in
the table below, along with additional information regarding their
use.
Financial Summary (Unaudited except for the
information as of March 31, 2020)
| |
|
Consolidated Condensed Statements of Income |
| |
|
| (Amounts in thousands, except per
share data) |
Three Months Ended June 30, |
| |
2020 |
2019 |
|
Revenues |
$ |
29,941 |
|
$ |
26,288 |
|
| Cost of revenues |
|
9,973 |
|
|
10,149 |
|
|
Gross profit |
|
19,968 |
|
|
16,139 |
|
| Operating expenses |
|
16,770 |
|
|
10,747 |
|
| Operating income |
|
3,198 |
|
|
5,392 |
|
| Nonoperating expense |
|
2,816 |
|
|
32 |
|
| Earnings before income taxes |
|
382 |
|
|
5,360 |
|
| Income tax (benefit) expense |
|
(643 |
) |
|
763 |
|
| Net income |
$ |
1,025 |
|
$ |
4,597 |
|
| |
|
|
| Earnings per share (basic) |
$ |
0.23 |
|
$ |
1.18 |
|
| Earnings per share (diluted) |
|
0.22 |
|
|
1.13 |
|
| |
|
|
| Weighted average common shares
outstanding: |
|
|
| Basic |
|
4,528 |
|
|
3,901 |
|
| Diluted |
|
4,669 |
|
|
4,086 |
|
| |
|
|
|
|
|
|
|
Consolidated Condensed Balance Sheets |
|
|
| (Amounts in thousands) |
June 30,2020 |
March 31,2020 |
|
Cash and cash equivalents |
$ |
230,951 |
|
$ |
81,380 |
|
| Other current assets |
|
38,805 |
|
|
41,412 |
|
|
Total current assets |
|
269,756 |
|
|
122,792 |
|
| Property, plant and equipment,
net |
|
21,796 |
|
|
22,066 |
|
| Other assets |
|
285,181 |
|
|
275,348 |
|
|
Total assets |
$ |
576,733 |
|
$ |
420,206 |
|
| |
|
|
| Liabilities |
$ |
194,499 |
|
$ |
200,193 |
|
| Stockholders’ equity |
|
382,234 |
|
|
220,013 |
|
|
Total liabilities and stockholders’ equity |
$ |
576,733 |
|
$ |
420,206 |
|
| |
|
|
|
|
|
|
| (Amounts in thousands, except per
share data) |
Three Months Ended June 30, |
| |
2020 |
2019 |
|
Operating income (GAAP) |
$ |
3,198 |
|
$ |
5,392 |
|
| Amortization of intangible
assets |
|
3,354 |
|
|
1,672 |
|
| Stock-based compensation
expense |
|
1,268 |
|
|
868 |
|
| Adjusted operating income
(non-GAAP) |
$ |
7,820 |
|
$ |
7,932 |
|
| |
|
|
| Adjusted operating income per
share (basic) |
$ |
1.73 |
|
$ |
2.03 |
|
| Adjusted operating income per
share (diluted) |
$ |
1.67 |
|
|
1.94 |
|
| |
|
|
| Weighted average common shares
outstanding: |
|
|
| Basic |
|
4,528 |
|
|
3,901 |
|
| Diluted |
|
4,669 |
|
|
4,086 |
|
| |
|
|
| Biopharmaceutical
Development Segment |
|
|
| Revenues (GAAP) |
$ |
5,949 |
|
$ |
-- |
|
| |
|
|
| Gross profit (GAAP) |
$ |
4,466 |
|
$ |
-- |
|
| Impact of non-cash true-up
adjustments related to GPT purchase accounting on gross profit
(GAAP) |
|
(258 |
) |
|
-- |
|
| Adjusted gross profit
(non-GAAP) |
$ |
4,208 |
|
$ |
-- |
|
| |
|
|
| Gross profit percentage
(GAAP) |
|
75 |
% |
|
-- |
% |
| Adjusted gross profit percentage
(non-GAAP) |
|
71 |
% |
|
-- |
% |
| |
|
|
Detail of Unusual Items (Unaudited)
As discussed above, operating income and adjusted operating
income have been impacted by various unusual items during the three
months ended June 30, 2020. The following table provides
detail of such items and reconciles the impact on operating income
as reported under GAAP and non-GAAP adjusted operating
income. (Amounts in thousands.)
| |
|
| Impact of unusual
items on operating (loss) income |
Three Months Ended June 30, |
| |
2020 |
2019 |
|
Operating income (GAAP) |
$ |
3,198 |
|
$ |
5,392 |
|
| |
|
|
| Unusual items – before
tax |
|
|
| Non-cash true up of cost of
revenues expense associated with the step up to fair value of GPT
inventory due to application of purchase accounting |
$ |
(436 |
) |
$ |
-- |
|
| Non-cash true up of cost of
revenues related to adjustment of the value of intangible assets
related to purchase accounting |
|
178 |
|
|
| Non-cash true up of
administrative expense related to adjustment of the value of
intangible assets related to purchase accounting |
|
(522 |
) |
|
| GPT integration costs |
|
416 |
|
|
-- |
|
| Total Impact of unusual items on
operating income – before tax |
|
(364 |
) |
|
-- |
|
| |
|
|
| Operating income excluding
unusual items |
$ |
2,834 |
|
$ |
5,392 |
|
| |
|
|
| |
|
|
| Impact of unusual
items on adjusted operating income |
Three Months Ended June 30, |
| |
2020 |
2019 |
| Adjusted operating income
(non-GAAP) |
$ |
7,820 |
|
$ |
7,932 |
|
| |
|
|
| Unusual items – before
tax |
|
|
| Non-cash true up of cost of
revenues expense associated with the step up to fair value of GPT
inventory due to application of purchase accounting |
$ |
(436 |
) |
$ |
-- |
|
| GPT integration costs |
|
416 |
|
|
-- |
|
| Total impact of unusual items on
adjusted operating income – before tax |
|
(20 |
) |
|
-- |
|
| |
|
|
| Adjusted operating income
excluding unusual items |
$ |
7,800 |
|
$ |
7,932 |
|
| |
|
|
|
|
|
|
The non-GAAP measures of adjusted operating income and adjusted
operating income per share presented in the reconciliation above
are defined to exclude the non-cash impact of amortization of
intangible assets acquired in a business combination, stock-based
compensation and impairment of goodwill and long-lived
assets. We believe that excluding these non-cash expenses
provides the ability to better understand the operations of Mesa
Labs.
We provide non-GAAP adjusted operating income, non-GAAP adjusted
operating income per share amounts and non-GAAP adjusted operating
income excluding unusual items in order to provide meaningful
supplemental information regarding our operational
performance. Our management uses non-GAAP measures to
evaluate the performance of our business and to compensate
employees. This information facilitates management's internal
comparisons to our historical operating results as well as to the
operating results of our competitors. Since management finds
this measure to be useful, we believe that our investors can
benefit by evaluating both non-GAAP and GAAP results.
Our management recognizes that items such as amortization of
intangible assets, stock-based compensation expense and impairment
losses on goodwill and long-lived assets can have a material impact
on our operating and net income. To gain a complete picture
of all effects on our profit and loss from any and all events,
management does (and investors should) rely upon the GAAP
consolidated statements of income. The non-GAAP numbers focus
instead upon our core operating business.
Readers are reminded that non-GAAP measures are merely a
supplement to, and not a replacement for, or superior to financial
measures prepared according to GAAP. They should be evaluated
in conjunction with the GAAP financial measures. Our non-GAAP
information may be different from the non-GAAP information provided
by other companies.
Forward Looking StatementsThis press release contains
forward-looking statements regarding our future business
expectations. Forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ
materially from our historical experience and present expectations
or projections. Any statements contained herein that are not
statements of historical fact may be forward-looking statements,
including statements relating to: the duration and impact of the
COVID-19 pandemic and the myriad of its effects on our business
including related decreases in customer demand and spending; our
ability to successfully grow our business, including as a result of
acquisitions; the market acceptance of our products; reduced demand
for our products that adversely impacts our future revenues, cash
flows, results of operations and financial condition; inability to
consummate acquisitions at our historical rate and at appropriate
prices, and to effectively integrate acquired businesses;
conditions in the global economy and the particular markets we
serve; significant developments or uncertainties stemming from the
U.S. government, including changes in U.S. trade policies and
medical device regulations; the timely development and
commercialization, and customer acceptance, of enhanced and new
products and services; projections of revenues, growth, operating
results, profit margins, expenses, earnings, margins, tax rates,
tax provisions, cash flows, liquidity, demand, and competition; the
effects of additional actions taken to become more efficient or
lower costs; restructuring activities; laws regulating fraud and
abuse in the health care industry and the privacy and security of
health and personal information; outstanding claims, legal
proceedings, tax audits and assessments and other contingent
liabilities; and foreign currency exchange rates and fluctuations
in those rates; general economic, industry, and capital markets
conditions; the timing of any of the foregoing; assumptions
underlying any of the foregoing; and any other statements that
address events or developments that Mesa Labs intends or believes
will or may occur in the future. Without limiting the foregoing,
the words “expect,” “seek,” “anticipate,” “intend,” “plan,”
“believe,” “could,” “should,” “estimate,” “may,” “target,”
“project,” and similar expressions identify forward-looking
statements. However, the absence of these words or similar
expressions does not mean that a statement is not forward-looking.
These forward-looking statements are made based on expectations and
beliefs concerning future events affecting us and are subject to
risks and uncertainties relating to our operations and business
environments, all of which are difficult to predict and many of
which are beyond our control, that could cause our actual results
to differ materially from those matters expressed or implied by
these forward-looking statements. These risks and
uncertainties also include, but are not limited to, those described
in our filings with the Securities and Exchange Commission
including our Annual Report on Form 10-K for the year ended March
31, 2020 and our subsequent Quarterly Reports on Form 10-Q. We
assume no obligation to update the information in this press
release.
About Mesa Laboratories, Inc.
Mesa Labs is a global leader in the design and manufacturing of
critical quality control solutions for the pharmaceutical,
healthcare, medical device, industrial safety, environmental, and
food and beverage industries. Mesa offers products and
services through four divisions (Sterilization and Disinfection
Control, Biopharmaceutical Development, Instruments and Continuous
Monitoring) to help our customers ensure product integrity,
increase patient and worker safety, and improve the quality of life
throughout the world.
For more information about Mesa Labs, please visit its website
at www.mesalabs.com
CONTACT: Gary Owens.; President and CEO, or John Sakys; CFO,
both of Mesa Laboratories, Inc., +1-303-987-8000
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