Mesa Laboratories, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2011, fiscal 2012. The supplied request metadata identifies “2010 Q2,” but the filing itself clearly reports the September 30, 2011 period.
Business Context
Mesa manufactures and distributes electronic measurement systems, biological indicators, and related services for niche medical, pharmaceutical, food-processing, industrial, and renal-treatment applications. Reportable segments are Biological Indicators and Instrumentation Products.
Financial Results
| Metric | Q2 FY2012 | Q2 FY2011 | Six Months FY2012 | Six Months FY2011 |
|---|---|---|---|---|
| Sales | $9.291 million | $7.754 million | $18.178 million | $15.209 million |
| Net income | $2.053 million | $1.429 million | $3.733 million | $2.749 million |
| Diluted EPS | $0.59 | $0.43 | $1.09 | $0.83 |
| Gross margin | 62.1% | 58.7% | 61.4% | 58.7% |
| Net margin | 22.1% | 18.4% | 20.5% | 18.1% |
Six-month operating income was $5.979 million versus $4.537 million, and EBITDA as presented by management was $6.982 million versus $5.325 million. Cash provided by operating activities was $4.575 million versus $4.074 million.
- Biological Indicator sales increased 30.9% to $9.624 million for the six months, primarily reflecting the Apex acquisition, a full period of Bozeman operations, and organic growth.
- Instrumentation sales increased 8.9% to $8.554 million for the six months.
- Parts and service revenue increased to $2.223 million from $2.024 million, representing 12% versus 13% of total revenue.
- Cash and cash equivalents were $4.952 million at September 30, 2011, compared with $3.546 million at March 31, 2011.
- Current assets were $17.448 million and current liabilities were $6.409 million, producing a reported current ratio of approximately 3:1.
- Net capital expenditures were $343,000 for the six months.
Material Changes Versus Prior Comparable Period
- Sales increased 19.8% in the quarter and 19.5% for the six months.
- Six-month net income increased 36%; diluted EPS increased from $0.83 to $1.09.
- Gross margin improved to 61% from 59% for the six months, reflecting manufacturing efficiencies, insourcing of Torqo production, and product mix.
- SG&A increased to $4.469 million from $3.831 million, while research and development increased to $714,000 from $565,000.
- Amortization increased to $752,000 from $512,000 because of recent acquisitions.
- Cash flow from investing improved materially because the prior-year period included $11.722 million of acquisition spending and $2.150 million for a building; current-period investing outflow was $313,000.
- Debt payments were $2.500 million, compared with $578,000 in the prior-year period.
Debt, Liquidity, Outlook, and Risks
Total debt consisted principally of a $2.000 million reducing credit facility balance, $2.000 million drawn on a revolving line, and $2.000 million of notes payable. The revolving balance was due December 23, 2011; management stated that sufficient funds were available for repayment. Debt maturities were reported as $2.5 million in fiscal 2012, $1.0 million in fiscal 2013, and $500,000 in fiscal 2014. The facilities carry variable rates with a 3.25% floor, are secured by most company assets, and contain restrictive covenants. Mesa reported compliance with those covenants.
Management expected general and administrative costs to stabilize after acquisition-related increases, but anticipated continuing amortization and personnel costs. Management also expected biological-indicator sales to represent a larger proportion of revenue while noting that Apex products could eventually improve segment margins. No formal quantitative revenue or earnings guidance was provided.
On September 30, 2011, Mesa entered a Photonic Biosystems technology license. Payments include $150,000 initially, $25,000 by January 2012, $75,000 upon FDA 510(k) clearance, and $50,000 to $150,000 upon marketing, plus royalties. A $350,000 Apex holdback was expected to be paid in December, subject to resolution of certain purchased receivables. The company continued a share-repurchase authorization for up to 300,000 shares but stated that buybacks were being minimized because of lower cash and higher debt. A quarterly dividend of $0.12 per share was paid on September 15, 2011.
Key risks include economic conditions, competition across Mesa’s markets, execution and integration of acquisitions, product development, personnel, changes in business strategy, debt repayment requirements, customer credit losses, inventory and intangible-asset impairment, and regulatory clearance for the licensed technology. The filing states that there were no material changes to the risks disclosed in the fiscal 2011 Form 10-K. No legal proceedings were reported.
Important Facts for Investors to Verify
- Confirm the reporting-period discrepancy between the request metadata and the filing’s September 30, 2011 period.
- Verify repayment or refinancing of the $2.000 million revolving credit balance due December 23, 2011.
- Assess whether acquisition-driven biological-indicator growth and projected margin benefits were sustained.
- Review integration costs, amortization, goodwill, and intangible-asset impairment exposure from the SGM Biotech and Apex acquisitions.
- Track the Photonic Biosystems license payments, FDA 510(k) clearance, commercialization timing, and royalty obligations.
- Evaluate liquidity after debt service, dividends, repurchases, and any additional acquisitions.
- Review accounts-receivable collection issues related to the Apex holdback and the company’s elevated 66-day days-sales-outstanding measure.