Mesa Labs? Third Quarter Results: A Mixed Brew of Numbers

In a performance that could only be described as both refreshing and a bit flat, Mesa Laboratories, Inc. (NASDAQ: MLAB) has reported its third quarter earnings, revealing a complex tapestry of financial metrics that leave us pondering the company's direction. For the quarter ending December 31, 2019, the company revealed a revenue forecast that increased 19% year-over-year, hitting $31,655. However, this growth is paired with an operating loss that spiraled down 356% to $(3,381), raising eyebrows and prompting questions about the sustainability of this trajectory.

EPS and Earnings Surprise: What Gives?

The net loss for the quarter deepened to $(4,630), or $(1.06) per diluted share, a sobering contrast to the EPS consensus that might have led investors to expect a brighter outcome. This substantial earnings surprise?one that wasn?t exactly a surprise given the hints dropped in previous quarters?has certainly given analysts and investors something to chew on.

Unusual Items and Adjusted Metrics

Drilling down into the numbers, we see that the impact of unusual items has played a significant role in the reported figures. For example, operating income for the quarter was affected by unusual items totaling $8,636, which complicates the narrative for MLAB?s performance. Excluding these items, operating income would have shown a more palatable 5% increase to $5,255. It?s a classic case of the old ?adjusted this, adjusted that,? which makes one wonder: is it all just smoke and mirrors?

Year-to-Date Performance: The Bigger Picture

Looking at the broader nine-month results, revenues climbed 9% to $83,479, but the operating income took a 9% hit, dropping to $6,595. Here, net income also fell significantly, down 50% to $3,029, or $0.69 per diluted share. The persistent theme of unusual items continues, with impacts of $8,676 and $6,969 for the respective periods. If you?re wondering why the stock isn?t soaring, this may very well be the reason.

How Do the Divisions Stack Up?

Let?s take a closer look at the performance of Mesa Labs? divisions. The Sterilization and Disinfection Control segment, which accounted for 37% of revenues, managed to muster only 1% organic growth. However, there?s a silver lining: they saw a backlog increase attributed to vendor changes and the completion of product re-validation. This suggests that while growth may be sluggish, the groundwork for future performance could be solidifying.

Meanwhile, the Instruments division, making up 32% of revenues, posted a commendable organic growth of 2% and total growth of 7% thanks to the acquisition of IBP. This segment?s expansion is a bright spot, with gross margin percentages improving across the board, which is a tactic that can help cushion the company against unforeseen market fluctuations.

Biopharmaceutical Development, which contributed 18% of revenues in the third quarter, performed as expected, hinting that the acquisition of Gyros Protein Technologies may bear fruit in the long run. The revenue target for the first year post-acquisition is set between $37,000 to $40,000, with gross margins projected in the mid to high 60s. If they can hit that target, it could be a game changer for MLAB.

Looking Ahead: What?s Next for Mesa Labs?

The question now for investors is whether Mesa Labs can navigate through these choppy waters. With organic revenue growth reported at 2% for the quarter, the company is treading carefully. It appears that while they?ve exited the Cold Chain Packaging division, total revenues still reflect a healthy 28% increase?something to hang your hat on if you?re a bullish investor.

As we look into the crystal ball, the company?s ability to manage its unusual items effectively, along with the performance of its various divisions, will be critical in determining whether this stock can rise above the fray. For now, investors may want to keep their seatbelts fastened; the road ahead looks like it might be a bumpy one.