What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-05 compared with 2024-02-05 · 128 added, 167 removed, 185 unchanged (61% of the section changed)

37 unchanged sentences

We disclaim any obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

We are a multinational manufacturer, developer, and seller of life science tools and quality control products and services, many of which are sold into niche markets driven by regulatory requirements.

We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe, and Asia Pacific, as well as by independent distributors in these areas and throughout the rest of the world.

We are a global leader in the design and manufacture of life sciences tools and critical quality control solutions for regulated applications in the pharmaceutical, healthcare, and medical device industries.

We offer products and services to help our customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world.

We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world.

We prefer markets in which we can establish a strong presence and achieve high gross profit margins.

As of December 31, 2023, we managed our operations in four reportable segments, or divisions:

As of June 30, 2024, we managed our operations in four reportable segments, or divisions:

Sterilization and Disinfection Control, Clinical Genomics, Biopharmaceutical Development, and Calibration Solutions.

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As a business, we commit to our purpose of Protecting the Vulnerable® every day by taking a customer-focused approach to developing, building, and delivering our products.

We serve a broad set of industries, in particular the pharmaceutical, healthcare services, and medical device verticals, in which the safety, quality, and efficacy of products is critical.

By delivering the highest quality products possible, we are committed to protecting the communities we serve.

We serve a broad set of industries, in particular the pharmaceutical, healthcare services, and medical device verticals, in which the safety, quality, and efficacy of products is critical, by delivering the highest quality products possible.

We are committed to protecting the communities we serve.

Organic Revenues Growth

Organic revenues growth is driven by the expansion of our customer base, increases in sales volumes, new product offerings, and price increases, and may be affected positively or negatively by changes in foreign currency rates.

Our ability to increase organic revenues is affected by general economic conditions, both domestic and international, customer capital spending trends, competition, our efforts to market and sell products, and the introduction of new products.

Our ability to increase organic revenues is affected by general economic conditions, both domestic and international, customer capital spending trends, competition, and the introduction of new products.

Our policy is to price our products competitively and, where possible, we pass along cost increases to our customers in order to maintain our margins.

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We are a global company, with multinational operations.

During the three and nine months ended December 31, 2023, approximately 52% and 50% of our revenues, respectively, were earned outside of the United States.

Since we serve a number of industries across a variety of global markets, we may be affected by world-wide, regional, or industry-specific economic or political factors, trends and costs associated with a global labor force, and increasing regulation.

However, our diversity in industry, geography, and product and service offerings may limit the impact of changes in specific industry trends or local economic changes in our consolidated operating results.

We actively monitor trends affecting industries we operate in, including by monitoring key competitors and customers and by staying abreast of changes to local economies and how they may affect our operations.

We continue to invest in growing Mesa through further acquisitions, which helps us address the rapid pace of technological change in our served markets, further globalize our business, and enter new markets.

To that end, during the third quarter of our fiscal year 2024, we completed the acquisition of GKE, a developer and manufacturer of high-margin consumable chemical sterilization indicators used to protect patient safety across global healthcare markets.

GKE’s healthcare-focused commercial capabilities in Europe and Asia greatly expand our reach in the healthcare markets in those geographies.

We are working to obtain regulatory 510(k) clearance on certain GKE products for sale in the United States, which would further expand organic revenues growth opportunities from the GKE business.

We began consolidating the results of GKE's operations into our financial statements and began benefitting from the acquisition in the third quarter of our fiscal year.

Several challenging macroeconomic factors persisted during the third quarter of fiscal year 2024:

Continued softening of discretionary capital asset purchases across the life sciences tools market, contributing to declines in our organic revenues growth.

Economic slowdowns and anti-corruption initiatives in China negatively impacting our revenues, particularly in our Clinical Genomics division.

High interest rates resulting in expensive capital, negatively impacting our overall profitability.

We expect these macroeconomic challenges to continue at least through the last quarter of our fiscal year 2024.

On the other hand, supply chain disruptions, labor shortages and resulting manufacturing difficulties that impacted business operations in fiscal year 2023 largely abated during the nine months ended December 31, 2023.

Additionally, in response to weaker revenues, we worked to reduce operating expenses, taking steps to preserve our financial model by reducing costs in our Biopharmaceutical Development division through a reduction in force in the second quarter of fiscal year 2024, and following the loss of a significant customer to our Clinical Genomics division, Sema4, at the beginning of the third quarter of fiscal year 2023.

Management's efforts, coupled with the GKE acquisition, have allowed us to maintain our gross profit margins as a percentage of revenues.

Overall, our operating expenses, which include $1,275 of one-time GKE acquisition and integration costs as well as GKE's consolidated results of operations in the third quarter, remained approximately consistent during the nine months ended December 31, 2023 compared to the same period in the prior year despite a difficult overall environment.

During the three months ended June 30, 2024, approximately 54% of our revenues were earned outside of the United States.

We face both opportunities and challenges resulting from our geographic and industry diversity, such as varied economic environments across served geographies, technological expansion in served markets, opportunities in high-growth markets, changes in trends and costs of a global labor force, and increasing regulation.

Continued growth of our revenue will depend on our ability to (i) continue commercial efforts to expand business with new and existing customers, (ii) identify, consummate, and integrate acquisitions successfully, and (iii) develop or purchase differentiated products and services.

We maintain our profitability by improving the effectiveness of our sales forces, continuing to pursue cost reduction initiatives, and improving our operating efficiency.

During the first quarter of fiscal year 2025, our revenues increased 14.9%, primarily driven by revenues of $6,254 from GKE, which we acquired in the third quarter of fiscal year 2024.

Organic revenues increased 2.5% during the first quarter of fiscal year 2025 primarily as a result of 21.4% organic revenues growth from our Biopharmaceutical Development division, and to a lesser extent organic revenues increases of 4.9% and 3.0% from our Sterilization and Disinfection Control division and our Calibration Solutions divisions, respectively.

Our Biopharmaceutical Development division, in particular, benefited from an improved environment for capital equipment purchases in the biopharmaceutical vertical.

Organic revenues growth in our Clinical Genomics business declined 14.7% as we continue to experience challenges from the economic slowdown in China and regulatory challenges that are beginning to impact sales of new Clinical Genomics instruments in the United States.

However, the Clinical Genomics division's revenues increased 2.5% compared to the fourth quarter of fiscal year 2024.

Gross profit increased two percentage points in the first quarter of fiscal year 2025 compared to the first quarter of fiscal year 2024, primarily attributable to lower amortization of intangible expenses flowing through cost of revenues as a result of the Clinical Genomics intangible asset impairment charge recorded in the fourth quarter of fiscal year 2024 and overall organic revenues growth on our partially fixed cost structure.

Operating expenses remained relatively flat despite a 14.9% increase in revenues.

Operating expenses incurred by GKE were offset by lower amortization expense as we impaired a portion of the intangible assets held by the Clinical Genomics division.

As a result, operating income was $5,580, an increase of $6,244 versus the comparable prior year period.

GKE contributed $2,717 to our consolidated operating income during the first quarter of fiscal year 2025.

A weakening or strengthening of foreign currencies against the United States dollar ("USD") increases or decreases our reported revenues, gross profit margins, and operating expenses, and impacts the comparability of our results between periods.

Generally, the USD strengthening against major currencies adversely impacts our reported revenues, but to a lesser extent, positively impacts our reported expenses;

conversely, the weakening of the U.S.

dollar against major currencies positively impacts our reported revenues but negatively impacts our reported expenses.

The ultimate impact to gross profit as a percentage of revenue depends on the magnitude of changes in foreign currencies.

Results of Operations

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Financial Statements (in thousands, except percent data).

Revenues generated by our reportable segments for the three and nine months ended December 31, 2023 decreased 1% and 4%, respectively, largely due to softening demand for new capital equipment in the pharmaceutical markets, including lower demand for hardware sold by our Biopharmaceutical Development, as well as due to China's economic slowdown and anti-corruption initiatives.

Revenues also decreased for the year to date period compared to the corresponding prior year period due to the fiscal year 2023 loss of Sema4.

These decreases in revenue were partially offset by approximately $3,837 of inorganic revenues growth from the GKE acquisition during the three and nine months ended December 31, 2023.

Although revenues were lower in the first three quarters of fiscal year 2024 compared to the prior year periods, gross profit as a percentage of revenues remained steady due to our proactive cost containment efforts and favorable product mix.

Results by reportable segment are as follows:

Organic Revenues Growth (non-GAAP)

Gross Profit as a % of Revenues

Three Months Ended December 31, 2023

Three Months Ended December 31, 2022

Three Months Ended December 31, 2023

Three Months Ended December 31, 2022

Three Months Ended December 31, 2023

Three Months Ended December 31, 2022

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Mesa's reportable segments

Organic Revenues Growth (non-GAAP)

Organic Revenues Growth (non-GAAP) (a)

Gross Profit as a % of Revenues

Nine Months Ended December 31, 2023

Nine Months Ended December 31, 2022

Nine Months Ended December 31, 2023

Nine Months Ended December 31, 2022

Nine Months Ended December 31, 2023

Nine Months Ended December 31, 2022

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Sterilization and Disinfection Control

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Our unaudited Condensed Consolidated Results of Operations are as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Operating expense

Operating (loss) income

Operating income (loss)

Net income (loss)

Reportable Segments

Sterilization and Disinfection Control

The Sterilization and Disinfection Control Division manufactures and sells biological, chemical, and cleaning indicators used to assess the effectiveness of sterilization and disinfection processes in the pharmaceutical, medical device, hospital, and dental industries.

The division also provides testing and laboratory services, mainly to the dental industry.

Our Sterilization and Disinfection Control division manufactures and sells biological, chemical and cleaning indicators used to assess the effectiveness of sterilization, decontamination, disinfection and cleaning processes in the pharmaceutical, medical device, and healthcare industries.

The division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries.

Sterilization and Disinfection Control products are disposable and are used on a routine basis.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Gross profit as a % of revenues

Sterilization and Disinfection Control's revenues increased 19% and 9%, respectively, for the three and nine months ended December 31, 2023 compared to the prior year periods.

The GKE acquisition contributed $3,837 of revenues and $2,742 of gross profit of to the Sterilization and Disinfection control division during the three and nine months ended December 31, 2023.

GKE's gross profit as a percentage of revenues was 71% for the three and nine months ended December 31, 2023.

Excluding the GKE acquisition, revenues in the Sterilization and Disinfection Control division would have decreased 5% during the three months ended December 31, 2023 due to slower than usual order fulfillment, despite an increase in orders placed during the third quarter of fiscal year 2024.

Revenues would have increased 1% for the nine months ended December 31, 2023 compared to the prior year period, primarily due to price increases implemented during the fourth quarter of fiscal year 2023.

Sterilization and Disinfection Control's gross profit percentage increased 1% for both the three and nine months ended December 31, 2023 compared to the prior year periods.

Excluding $412 of amortization of the non-cash inventory step-up related to the GKE acquisition during the three and nine months ended December 31, 2023, the division's gross profit would have been 74% and 73%, respectively.

Sterilization and Disinfection Control's revenues increased 44% for the three months ended June 30, 2024 compared to the prior year period.

The GKE acquisition contributed $6,254 of revenues to the Sterilization and Disinfection Control division and organic revenues growth was 4.9%.

The organic revenues growth was primarily a result of strong commercial execution resulting in increased order quantities, particularly to life sciences customers.

Sterilization and Disinfection Control's gross profit percentage decreased 5% for the three months ended June 30, 2024 compared to the prior year period.

Excluding $778 of amortization of the non-cash inventory step-up related to the GKE acquisition during the three months ended June 30, 2024, the division's gross profit would have been 71%, representing a decline of 1.5 percentage points.

The decline of approximately 1.5 percentage points compared with the first quarter of fiscal year 2023, was due primarily to increased labor costs, and to a lesser extent, the impact of foreign currency changes.

Clinical Genomics

The Clinical Genomics division develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools and related consumables and services that enable clinical labs to perform genomic testing for a broad range of diagnostic and research applications in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics, and oncology related applications.

Three Months Ended December 31,

Nine Months Ended December 31,

The Clinical Genomics division develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools and related consumables and services that enable clinical research labs and contract research organizations to perform genomic testing for a broad range of research applications in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics, and oncology related applications, and toxicology research.

Three Months Ended June 30,

Gross profit as a % of revenues

Clinical Genomics revenues decreased 19% and 15%, respectively, for the three and nine months ended December 31, 2023 compared to the prior year periods.

The decreases for the three and nine months ended December 31, 2023 were primarily due to decreases in new systems-related revenues in China as a result of China's economic slowdown and anti-corruption initiatives, which began to significantly impact us during the third quarter of fiscal year 2024.

Excluding the loss of Sema4, revenues from our Clinical Genomics division would have been 5% lower during the nine months ended December 31, 2023 compared to the prior year period.

Gross profit percentage for the Clinical Genomics division decreased 1% and 5%, respectively, for the three and nine months ended December 31, 2023 compared to the prior year periods, primarily due to lower revenues on a partially fixed cost base, and to a lesser extent, unfavorable product mix, particularly due to the loss of high-margin consumables revenues from Sema4 that existed during the first two quarters of fiscal year 2023.

Although orders and revenues in China were fairly strong in the first two quarters of fiscal year 2024, we expect the ongoing macroeconomic slowdowns in China to negatively affect our reported revenues and new orders in the last quarter of fiscal year 2024.

Clinical Genomics revenues decreased 15% for the three months ended June 30, 2024 compared to the prior year period.

The decrease for the three months ended June 30, 2024 versus the comparable prior year period was primarily due to decreases in new systems-related revenues in China as a result of China's economic slowdown and anti-corruption initiatives, which began to significantly impact us during the third quarter of fiscal year 2024, and to a lesser extent, decreased instrument sales in the United States due to increased regulation of lab-developed tests.

Gross profit percentage for the Clinical Genomics division increased seven percentage points for the three months ended June 30, 2024 versus the comparable prior year period, primarily due to lower intangibles amortization expense as a result of an impairment charge recorded in the fourth quarter of fiscal year 2024.

Excluding the impact of amortization expense, gross profit as a percentage of revenues would have decreased two percentage points primarily as a result of lower revenues on a partially-fixed cost base.

Biopharmaceutical Development

1 unchanged sentence

Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic therapies, among other applications.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Gross profit as a % of revenues

Biopharmaceutical Development revenues decreased 19% and 18%, respectively, for the three and nine months ended December 31, 2023 compared to the prior year periods, primarily due to continued softening demand for capital equipment, partially offset by an increase in revenues from consumables and services as well as price increases.

Despite adverse macroeconomic factors, revenues from the division's consumables and services have remained strong during fiscal year 2024, with growth of 14.3% during the nine months ended December 31, 2023 compared to the prior year period.

Gross profit percentage for the three and nine months ended December 31, 2023 decreased 1% compared to the prior year periods primarily due to a decrease in overall revenues on a partially fixed cost base, partially offset by favorable product mix with a higher percentage of consumables and services.

Biopharmaceutical Development revenues increased 21% for the three months ended June 30, 2024 versus the comparable prior year period, primarily due to increased capital spending in the biopharmaceutical markets, resulting in an 80% increase in revenues from hardware and software sales versus the comparable prior year period.

Gross profit percentage for the three months ended June 30, 2024 increased one percentage point compared to the prior year period primarily due to increased revenues on a partially fixed cost base and a favorable product mix.

Calibration Solutions

The Calibration Solutions division develops, manufactures and sells quality control products using principles of advanced metrology to measure or calibrate critical chemical or physical parameters in various dialysis, process monitoring, instrument monitoring, environmental monitoring, gas flow, environmental air quality, and torque applications, primarily in medical device manufacturing, pharmaceutical manufacturing, laboratory, and hospital environments.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Gross profit as a % of revenues

Calibration Solutions revenues increased 13% and 9%, respectively, for the three and nine months ended December 31, 2023 compared to the prior year periods, primarily due to the abatement of production difficulties and supply constraints that limited our ability to manufacture ordered quantities of certain products during the first nine months of fiscal year 2023.

This abatement has allowed us to return to normal operations during fiscal year 2024, driving steady orders along with a reduction of past due backlog.

The Calibration Solutions division's gross profit percentage increased 6% and 3% for the three and nine months ended December 31, 2023, respectively, compared to the prior year periods, primarily due to increased revenues on a partially fixed cost base and favorable product mix.

Calibration Solutions revenues increased 3% for the three months ended June 30, 2024 compared to the prior year period, primarily due a reduction of past due backlog as supply chain issues have abated.

The Calibration Solutions division's gross profit percentage increased five percentage points for the three months ended June 30, 2024, compared to the prior year period, primarily due to increased revenues on a partially-fixed cost base and favorable product mix.

Operating Expense

Operating expense increased 14% for the three months ended December 31, 2023 compared to the prior year period.

Excluding expenses related to the acquisition and integration of GKE ($770 of acquisition and integration related costs and $1,456 of operating expenses attributable to GKE), operating expenses would have increased 6% for the three months ended December 31, 2023.

We decreased our estimate of bonus payouts in both the third quarter of fiscal year 2023 and the third quarter of fiscal year 2024 based on company performance;

the reduction was approximately $1,000 greater in the third quarter of fiscal year 2023.

Operating expense remained consistent for the nine months ended December 31, 2023, primarily as a result of lower stock-based compensation expense attributable to the timing of award grants in fiscal year 2024.

Additionally, cost savings from our strategic cost containment activities following the loss of Sema4 and from the reduction in force in our Biopharmaceutical Development division in the third quarter of fiscal year 2024 reduced our operating expenses.

Excluding the GKE acquisition, operating expense would have decreased approximately 3% for the nine months ended December 31, 2023.

Operating expense decreased one percentage point for the three months ended June 30, 2024 versus the comparable prior year period.

The increase in operating expenses from GKE's operations were offset by lower amortization of intangible assets as a result of the impairment charge recorded in the fourth quarter of fiscal year 2024.

Selling Expense

1 unchanged sentence

accordingly, it may vary with sales levels.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Selling expense

As a percentage of revenues

Selling expense for the three and nine months ended December 31, 2023 increased 15% and 3%, respectively, compared to the prior year periods, primarily as a result of increased marketing efforts, our implementation of Salesforce in certain divisions and backfilling select open positions in our Biopharmaceutical Division, partially offset by lower commissions on lower revenues in fiscal year 2024 to date.

Excluding the GKE acquisition, selling expense for the three and nine months ended December 31, 2023 would have increased 12% and 2%, respectively.

Selling expense for the three months ended June 30, 2024 increased 13% compared to the prior year period.

The increase is primarily attributable to sales and marketing costs from GKE and higher commissions as revenues increased, partially offset by lower professional services costs as we made improvements to our corporate website in the prior year.

General and Administrative Expense

Labor costs, non-cash stock-based compensation and non-cash amortization of intangible assets drive the substantial majority of our general and administrative expense.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

General and administrative expense

As a percentage of revenues

General and administrative expenses increased 21% and 1%, respectively, for the three and nine months ended December 31, 2023 compared to the prior year periods, largely due to the GKE acquisition.

Acquisition and integration costs were $770 and $1,275, respectively for the three and nine months ended December 31, 2023, compared to $251 and $874, respectively, for the three and nine months ended December 31, 2022 related to the Belyntic and Agena acquisitions.

Further, amortization of intangible assets acquired in the GKE acquisition resulted in $838 of non-cash general and administrative amortization expense.

The third quarter of fiscal year 2023 also included a release in bonus expense resulting from a change in the estimated payout of the bonus.

Increases in general and administrative expense for the three and nine months ended December 31, 2023 were partially offset by our general cost containment measures.

Excluding GKE, general and administrative expenses would have increased 13% for the three months ended December 31, 2023 and would have decreased 1% for the nine months ended December 31, 2023.

General and administrative expenses decreased 7% for the three months ended June 30, 2024 versus the comparable prior year period, largely due to the decrease of amortization of intangible assets due to an impairment charge recorded in the fourth quarter of fiscal year 2024.

Excluding amortization expenses, general and administrative expense would have increased $964, primarily as a result of GKE's general and administrative expenses and costs associated with integrating GKE into Mesa's enterprise resource planning tool, partially offset by lower personnel-related expense.

Research and Development Expense

Research and development expense is predominantly comprised of labor costs and costs of third-party consultants.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Research and development expense

As a percentage of revenues

Research and development expenses decreased 10% and 9%, respectively, for the three and nine months ended December 31, 2023 compared to the prior year periods, primarily due to our cost containment efforts in fiscal year 2024, including the reduction in force related to our Biopharmaceutical Development division during the second quarter of fiscal year 2024 and due to the purchase of in-process research and development technology used to enhance an existing Sterilization and Disinfection Control division product offering during the first quarter of fiscal year 2023.

Nonoperating (Income) Expense, Net

Three Months Ended December 31,

Nine Months Ended December 31,

Research and development expenses decreased 2% for the three months ended June 30, 2024 versus the comparable prior year period, primarily due to cost containment efforts undertaken in fiscal year 2024 that benefitted the first quarter of fiscal year 2025.

Nonoperating (Income) Expense, Net

Nonoperating (income) expense, net for the three and nine months ended December 31,2023 is composed primarily of gains and losses on foreign currency transactions as well as interest expense and amortization of the debt issuance costs associated with the Notes and the Credit Facility.

In addition, during the three months ended December 31, 2023, Mesa issued an intercompany loan denominated in U.S.

dollars to our wholly owned subsidiary, Mesa Germany GmbH, to purchase GKE.

As a result, nonoperating income increased for the three and nine months ended December 31, 2023 as we recorded net unrealized gains on foreign currency of $3,291 resulting from the movement of the euro against the U.S.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Nonoperating expense, net

Nonoperating expense, net for the three months ended June 30, 2024 is composed primarily of a gain recorded related to the extinguishment of the Notes, offset by the combination of interest expense and debt issuance costs, and gains and losses on foreign currency transactions.

The $3,197 gain on extinguishment of the Notes was a result of the settlement of $75,000 aggregate principal of our Notes.

The gain represents the difference between the fair value and the carrying value of the Notes and any unamortized debt issuance costs at the time of settlement.

Interest expense increased as the amount outstanding on our Credit Facility increased, while the principal amount of our Notes decreased.

The interest rate on our Credit Facility is variable, but was approximately 6.5 percentage points higher than the fixed-rate interest on the Notes during the first quarter of fiscal year 2025.

Three Months Ended June 30,

Income tax (benefit)

Effective tax rate

Our effective income tax rate was (8.7)% and 76.5% for the three and nine months ended December 31, 2023, respectively, and 206.6% and 384.8% for the three and nine months ended December 31, 2022, respectively.

The effective tax rate for the three and nine months ended December 31, 2023 differed from the statutory federal rate of 21% primarily due to the share-based payment awards for employees and the effect of income generated in foreign jurisdictions.

The change in our effective tax rate for the three and nine months ended December 31, 2023 compared to the prior period is primarily due to lower windfall benefits on stock option exercises.

Our effective income tax rate was 13.2% for the three months ended June 30, 2024 and 41.4% for the three months ended June 30, 2023.

The effective tax rate for the three months ended June 30, 2024 differed from the statutory federal rate of 21% primarily due to the valuation allowance established for subsidiaries in the United States in the fiscal year ended March 31, 2024.

The change in our effective tax rate for the three months ended June 30, 2024 compared to the prior year period is primarily due to lower windfall benefits on stock option exercises.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income.

We carefully monitor these factors and adjust our effective income tax rate accordingly.

Net income varies with changes in revenues, gross profit, and operating expense (and included $22,380 and $9,144 of non-cash amortization of intangible assets acquired in business combinations and stock-based compensation expense, respectively, for the three and nine months ended December 31, 2023).

Net income varies with changes in revenues, gross profit, and operating expense (and included $4,061, $2,928 and $1,404 of non-cash amortization of intangible assets acquired in business combinations, stock-based compensation expense, and depreciation expense, respectively, for the three months ended June 30, 2024).

Market-Based Awards

The performance-based restricted stock awards granted during the nine months ended December 31, 2023 included a market-based component.

The performance-based restricted stock awards granted during fiscal year 2025 and fiscal year 2024 included a market-based component.

Liquidity and Capital Resources

1 unchanged sentence

We believe that cash flows from operating activities and potential cash provided by borrowings from our Credit Facility or funds from our Open Market Sale Agreement SM , when necessary, will be sufficient to meet our ongoing operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures.

At our option, we may settle the Notes in shares of our common stock or in cash, depending on conditions in the market and the share price of our common stock.

Our more significant uses of resources have historically included acquisitions, payments of debt and interest obligations, long-term capital expenditures, and quarterly dividends to shareholders.

During fiscal year 2024, we acquired GKE for $87,187, net of cash and financial liabilities and inclusive of working capital adjustments.

Of the total acquisition price, approximately $9,200 (at June 30, 2024 exchange rates) is being held back for a period of 18 months from the acquisition closing as security against potential indemnification losses.

Working capital is the amount by which current assets exceed current liabilities.

We had working capital of $74,172 and $75,616 as of December 31, 2023 and March 31, 2023, respectively.

As of December 31, 2023 and March 31, 2023, we had $28,224 and $32,910, respectively, of cash and cash equivalents.

As of December 31, 2023, Notes with an aggregate principal amount of $172,500 were outstanding and $62,000 was outstanding under the Credit Facility.

During the three months ended December 31, 2023, we borrowed a total of $71,000 under the Credit Facility to fund the majority of the acquisition of GKE.

We had working capital of $51,825 and $65,040 as of June 30, 2024 and March 31, 2024, respectively.

As of June 30, 2024 and March 31, 2024, we had $28,472 and $28,214, respectively, of cash and cash equivalents.

During the first quarter of fiscal year 2025, we amended and restated our Credit Facility to:

Allow proceeds from the Credit Facility to be used to redeem some or all of the Notes.

Add a $75,000 senior secured term loan facility.

Extend the maturity of the Credit Facility to April 2029.

Make certain changes to the financial covenants.

Under the revised Credit Facility, we maintain access to our Revolver, allowing access to up to $125,000 of borrowings.

During the three months ended December 31, 2023, we borrowed a total of $71,000 under the Revolver to fund the majority of the acquisition of GKE.

As of June 30, 2024, $42,000 remained outstanding under the Revolver, and $83,000 was available to borrow.

During July 2024, we repaid $3,500 on our Revolver.

We used the $75,000 proceeds from borrowings under the Term Loan to enter into a separate, privately negotiated purchase agreements with a limited number of holders of our Notes.

Pursuant to the purchase agreements, we purchased $75,000 aggregate principal amount of the Notes for an aggregate cash purchase price of approximately $71,250.

Following these transactions, $97,500 aggregate principal amount of the 2025 notes remaining outstanding.

At our current interest rate, we expect to incur interest expense of approximately $9,701 per year on borrowings of $115,353 under the Credit Facility.

10 unchanged sentences

We have paid regular quarterly dividends since 2003.

We declared and paid dividends of $0.16 per share during each of the quarters ended June 30, 2023, September 30, 2023, and December 31, 2023, as well as each quarter of fiscal year 2023.

In January 2024, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on March 15, 2024, to shareholders of record at the close of business on February 29, 2024.

We paid dividends of $0.16 per share during the three months ended June 30, 2024, as well as each quarter of fiscal year 2024.

In July 2024, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on September 16, 2024, to shareholders of record at the close of business on August 30, 2024.

Goodwill and Intangible Assets

We perform analyses at least quarterly to identify potential impairment indicators and to assess whether it is more likely than not that our goodwill reporting units are impaired.

We have determined our goodwill reporting units are not impaired as of June 30, 2024;

however, impairment losses recorded in the prior fiscal year resulted in a 0% cushion between the fair and carrying values of our Clinical Genomics division and the Immunoassays reporting unit within our Biopharmaceutical Development division as of our most recent annual impairment testing date on January 1, 2024.

Revenues related to our Biopharmaceutical Development division were higher than our impairment model indicated;

however, our Clinical Genomics reporting unit remains susceptible to future impairment losses if actual results differ significantly from the assumptions used in our most recent impairment tests.

At our last testing date, fair value of the applicable reporting units was assessed by weighting Gordon Growth and Exit Multiple discounted cash flow models and guideline public company models (one-year forward multiples), relying on unobservable Level 3 inputs, including but not limited to, discount rates, expected useful lives, applicable competitors, and anticipated revenues growth and margins.

Inputs were established through discussions between Management and external valuation specialists, and were based on internal expectations for future performance, market indicators, and reputable valuation research resources.

These assumptions required inputs and estimates that are subject to uncertainty such that there is a reasonable possibility that further impairment losses, which could be material to our consolidated financial statements, may occur in the future.

Our cash flows from operating, investing, and financing activities were as follows (in thousands):

Nine Months Ended December 31,

Three Months Ended June 30,

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash provided by (used in) financing activities

Cash flows from operating activities for the nine months ended December 31, 2023 provided $31,250.

Net income and non-cash adjustments totaled $33,838 for the nine months ended December 31, 2023 compared to $34,588 for the nine months ended December 31, 2022.

We generated $16,536 more cash from working capital in the nine months ended December 31, 2023 than in the nine months ended December 31, 2022, primarily due to higher collections on trade receivables and lower inventory purchases, as we were building safety stock during the nine months ended December 31, 2023 to mitigate supply chain risks.

Cash used in investing activities for the nine months ended December 31, 2023 increased compared to the nine months ended December 31, 2022 primarily due to the acquisition of GKE.

Cash provided by financing activities primarily resulted from a $71,000 total drawdown on the Credit Facility offset by $22,000 repaid during the nine months ended December 31, 2023 compared to $30,000 repaid on the Credit Facility for the nine months ended December 31, 2022.

Net cash (used in) financing activities

Cash flows from operating activities for the three months ended June 30, 2024 provided $10,433, an increase of $494 versus the comparable prior year period.

The increase in cash flows from operating activities for the three months ended June 30 2024 compared with June 30, 2023 was primarily a result of:

improved operating performance, primary due to an increase in revenues of $7,525;

reduction in cash used by operating assets, primarily as a result of the timing of tax payments;

partially offset by

approximately $2,080 more paid for interest as we had more debt outstanding at higher rates.

Cash used in investing activities for the three months ended June 30, 2024 increased compared to the three months ended June 30, 2023 primarily due to spending on property, plant, and equipment.

Cash provided by financing activities resulted in a $9,109 use of cash for the three months ended June 30, 2024.

Net proceeds on the term loan were almost fully offset by payments made to repurchase the Notes.

We used $9,438 of cash to repay the Credit Facility compared to $8,000 in the comparable prior year period.

Contractual Obligations and Other Commercial Commitments

We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business.

For a description of our contractual obligations and other commercial commitments as of March 31, 2023, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with the Securities and Exchange Commission on May 30, 2023.

On a consolidated basis, as of December 31, 2023, we had contractual obligations for open purchase orders of approximately $12,539 for routine purchases of supplies and inventory, the majority of which are payable in less than one year.

As part of the Belyntic acquisition, we agreed to pay $1,500 to the sellers if contractually specified patents related to the technology purchased are issued.

We paid $188 to the Belyntic sellers during the three months ending December 31, 2023.

We are committed to pay an additional $563 during the fourth quarter of fiscal year 2024, and we believe it is probable the remaining patents will be issued and we will pay the sellers in full within the next 12 months.

As part of the GKE acquisition consummated during the three months ended December 31, 2023, we have agreed to pay the GKE sellers approximately $9,500 of the acquisition price approximately 18 months following the acquisition, pending adjustments for potential indemnification losses that may arise.

The liability is recorded as in Other long-term liabilities in our Condensed Consolidated Balance Sheets as of December 31, 2023.

For a description of our contractual obligations and other commercial commitments as of March 31, 2024, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission on June 28, 2024.

On a consolidated basis, as of June 30, 2024, we had contractual obligations for open purchase orders of approximately $15,500 for routine purchases of supplies and inventory, the majority of which are payable in less than one year.

As part of the GKE acquisition, we have agreed to pay the GKE sellers approximately $9,200 (at June 30, 2024 exchange rates) of the acquisition price approximately 18 months following the acquisition, pending adjustments for potential indemnification losses that may arise.

As part of the Belyntic acquisition, we agreed to pay $1,500 to the sellers if specified patents related to the technology purchased are issued.

The estimated fair value of the probable remaining contingent consideration was $650 as of June 30, 2024 .

See "Liquidity and Capital Resources" for information related to future required debt payments.

Critical Accounting Policies and Estimates

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Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Acquired Intangible Assets and Financial Condition

Fair values assigned to intangible assets acquired in the GKE acquisition were measured using Level 3 inputs.

Material changes in our financial condition as of December 31, 2023 compared to March 31, 2023, including changes in acquired intangibles and other balances, are primarily attributable to the GKE acquisition.

Non-GAAP Measures

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We believe that presenting supplemental organic revenues growth facilitates comparability between current period and prior period information, and provides insight into Mesa’s short-term and long-term financial trends.

We use organic revenue growth internally to forecast and evaluate Mesa’s operating performance, to compare revenues of current periods to prior periods, in our financial and operating decision-making, and for compensation purposes.

We use organic revenue growth internally to forecast and evaluate Mesa’s operating performance and to compare revenues of current periods to prior periods, for financial and operating decision-making and compensation purposes.

A reconciliation of organic revenues growth to total revenues growth is as follows:

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Organic Revenues Growth (non-GAAP)

Three Months Ended December 31, 2023

Three Months Ended December 31, 2022

Three Months Ended December 31, 2023

Three Months Ended December 31, 2022

Three Months Ended December 31, 2023

Three Months Ended December 31, 2022

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Total Company

Total Revenues Growth

Impact of Acquisitions

Organic Revenues Growth (non-GAAP)

Nine Months Ended December 31, 2023

Nine Months Ended December 31, 2022

Nine Months Ended December 31, 2023

Nine Months Ended December 31, 2022

Nine Months Ended December 31, 2023

Nine Months Ended December 31, 2022

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Sterilization and Disinfection Control

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Total Company

(1) GAAP Clinical Genomics revenues growth was 194.4% for the nine months ended December 31, 2022 due to a significantly shorter period of ownership during the nine months ended December 31, 2021.

Quantitative and Qualitative Disclosures a bout Market Risk

16 unchanged sentences

Our Credit Facility bears interest at either a base rate or a SOFR rate plus an applicable spread.

Based on the balance outstanding as of December 31, 2023, we estimate that if interest rates increased 1 percentage point, we would incur approximately $620 of additional interest expense per year.

Based on the balance outstanding as of June 30, 2024, we estimate that if interest rates increased 1 percentage point, we would incur approximately $1,150 of additional cash interest expense per year.

Inflation Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis