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Note 11 - Significant Transactions

9 Months Ended

Dec. 31, 2021

Note 11. Significant Transactions

Acquisition of Agena Bioscience, Inc.

On October 20, 2021, we completed the acquisition of Agena Bioscience, Inc., which aligns with our overall acquisition strategy, moves our business towards the life sciences tools sector, and expands our market opportunities, particularly in Asia. Agena is a leading clinical genomics tools company that develops, manufactures, markets, and supports proprietary instruments and related consumables and services that enable genetic analysis for a broad range of diagnostic and research applications. Using Agena's MassARRAY® instruments and chemical reagent solutions, customers can analyze DNA samples for a variety of high volume clinical testing applications, such as inherited genetic disease testing, pharmacogenetics, various oncology tests, infectious disease testing, and other highly-differentiated applications. Agena sells its products primarily to clinical labs, including large specialty, reference and pathology labs, as well as a variety of academic, hospital, and government facilities. Agena’s products are marketed directly to laboratories as well as to in vitro diagnostic development partners globally. Agena's products are differentiated in the market because they combine the throughput and analytical capabilities of mass spectrometry with the flexibility, ease-of-use and cost advantages of polymerase chain reaction ("PCR") methods.

We funded the acquisition and transactions relating thereto with cash on hand and borrowings under the Credit Facility. See Note 6. "Indebtedness" for additional details regarding the Credit Facility. At the completion of the Agena Acquisition on October 20, 2021, each Agena common share issued and outstanding was converted into the right to receive $5.96 per share in cash, subject to adjustment, without interest. We paid $300,793, net of cash acquired, but inclusive of working capital adjustments, to complete the Agena Acquisition. 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.

Preliminary Allocation of Purchase Price

We accounted for the Agena Acquisition as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the acquiree's identifiable assets acquired and liabilities assumed are recorded at their acquisition date fair values and consolidated with those of Mesa. Significant judgments and estimates are required when performing valuations. For example, we use judgment when estimating the fair value of intangible assets using a discounted cash flow model because this method involves the use of significant estimates and assumptions with respect to revenue growth rates, customer attrition rate and discount rates, all of which are considered Level 3 inputs. We obtained the information used to prepare the preliminary 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. The following table summarizes the allocation of the preliminary purchase price as of October 20, 2021:

Life (in years)

Amount

Cash and cash equivalents
$ 7,544

Accounts receivable (a)
11,100

Other current assets (b)
24,324

Total current assets
42,968

Property, plant and equipment/ noncurrent assets
16,976

Deferred tax asset
792

Intangible assets:

Goodwill (c)
N/A 136,006

Customer relationships (d)
16 107,100

Intellectual property (d)
10 46,200

Tradenames (d)
N/A 15,900

Total assets acquired
$ 365,942

Accounts payable
2,174

Unearned revenues
2,713

Other current liabilities
12,549

Total current liabilities
17,436

Deferred tax liability
31,907

Other noncurrent liabilities
8,262

Total liabilities assumed
57,605

Total purchase price, net of cash acquired
$ 300,793

(a) Trade receivables, net, which is expected to be collected.

(b) Includes $6,062 of inventory step-up, which was amortized entirely within the third quarter of fiscal year 2022.

(c) Acquired goodwill of $136,006, all of which is allocated to the Clinical Genomics reportable segment, represents the value expected to arise from the value of 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.

(d) Customer relationships and intellectual property are currently expected to be amortized on a straight line basis over a weighted average 14.2 year period. The identified intangible assets will be amortized on a straight line basis over their useful lives, which approximates the pattern that the assets' economic benefits are expected to be consumed over time. Tradenames are considered indefinite-lived intangibles. Amortization expense for customer relationships will be amortized to general and administrative expenses; amortization expense for intellectual property will be recorded to cost of revenues. During the period from October 20, 2021 until December 31, 2021, $1,320 of amortization expense was recorded to general and administrative costs and $911 of amortization expense was recorded to cost of revenues and allocated to the Clinical Genomics Division. Once our final valuation is complete, the amount of amortization expense will be trued up and amortization will be based on our final allocation.

This preliminary purchase price allocation is subject to revision as more detailed analyses are completed. If additional information about the fair value of assets acquired and liabilities assumed becomes available, we may further revise the preliminary purchase price allocation as soon as is practical, but will not do so more than one year from the acquisition date. Only items identified as of the acquisition date are considered for subsequent adjustment. Any such revisions or changes may be material. The final allocation may include, but not be limited to: (1) changes in allocations to intangible assets such as trade names, intellectual property and customer relationships, as well as goodwill, (2) changes to inventory, (3) changes to deferred tax balances, and (4) other changes to assets and liabilities.

Acquisition-related costs, such as legal and advisory fees, of $605 and $723 for the three and nine months ended December 31, 2021, respectively, are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred and are reflected on the Condensed Consolidated Statement of Operations in general and administrative expenses.

Unaudited Pro Forma Information

Agena's operations contributed $16,485 to revenues and ($4,532) of net loss to our consolidated results during the third quarter of fiscal year 2022, including the inventory-step up amounting to $6,062 that was fully amortized in the third quarter of fiscal year 2022. We included the operating results of Agena in our Condensed Consolidated Statements of Operations beginning on October 20, 2021, subsequent to the acquisition date. The following pro forma financial information presents the combined results of operations of Mesa and Agena as if the acquisition had occurred on April 1, 2020 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected only include those adjustments that are directly attributable to the Agena Acquisition, are factually supportable and have a recurring impact; they do not reflect any adjustments for anticipated expense savings resulting from the acquisition and are not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on April 1, 2020 or of future results.

	*Three Months Ended December 31,*					*Nine Months Ended December 31,*
	*2021*		*2020*			*2021*		*2020*
Pro forma total revenues (1)	$	56,659	$	62,424		$	163,734	$	154,172
Pro forma net income (2)		477		(1,712	)		7,318		(6,082	)

(1) Net revenues were adjusted to include net revenues of Agena.

(2) Pro forma adjustments to net earnings attributable to Mesa include the following:

● Excludes acquisition-related transaction costs incurred in the three and nine months ended December 31, 2021.

● Excludes interest expense attributable to Agena external debt that was paid off as part of the acquisition.

● Additional amortization expense of $2,828 and $8,485 for the three and nine month periods presented, respectively, based on the increased fair value of amortizable intangible assets acquired.

● Additional charge to cost of revenues of $6,062 was included in the three and nine months ended December 31, 2020 based on the step up value of inventory. $6,062 was excluded from the three and nine months ended December 31, 2021 based on the step up value of inventory which would have been fully amortized within the first three months of the acquisition.

● Additional stock based compensation expense representing expense for performance share units awarded to certain key Agena employees.

● Income tax effect of applicable adjustments made at a blended federal and state statutory rate (approximately 26%).

Butler, New Jersey Closure

We completed the previously announced closure of our Butler, New Jersey facility during the three months ended June 30, 2021. The facility was primarily used in the production of our gas flow calibration and air sampling equipment, which is part of our Calibration Solutions division. Our manufacturing facility in Lakewood, Colorado is currently undergoing renovations that will allow it to accommodate the production of the gas flow calibration and air sampling equipment. Consolidating the production of these products is expected to reduce facilities costs and streamline our use of lean manufacturing tools under central management to further encourage production efficiencies. As a result of the facility consolidation, we incurred $0 and $77 of severance costs during the three and nine months ended December 31, 2021, respectively, which were recorded to cost of revenues, selling, and general and administrative expense on the Condensed Consolidated Statement of Operations. As of December 31, 2021, there were no outstanding and accrued costs, and we do not expect to incur any material expenses related to the Butler, New Jersey facility closure in future periods.