What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-05 · 159 added, 112 removed, 201 unchanged (57% of the section changed)

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In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company ’ s behalf.

Words such as “ seek, ” “ believe, ” “ may, ” “ intend, ” “ could, ” “ expect, ” “ anticipate, ” “ plan, ” “ target, ” “ estimate, ” “ project, ” or variations of such words and similar expressions are intended to identify forward-looking statements.

Words such as “ seek, ” “ believe, ” “ may, ” “ intend, ” “ could, ” “ target, ” “ expect, ” “ anticipate, ” “ plan, ” “ estimate, ” “ project, ” or variations of such words and similar expressions are intended to identify forward-looking statements.

Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including risks associated with:

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

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

As of September 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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Improving Our Operating Efficiency

We maximize value in our existing businesses and those we acquire by implementing efficiencies in our manufacturing, commercial, engineering, and administrative operations.

Our ongoing goal is to maximize value in our existing businesses and those we acquire by implementing efficiencies in our manufacturing, commercial, engineering, and administrative operations.

We achieve efficiencies using the four pillars that make up the Mesa Way , which is our customer-centric, lean-based system for continuously improving and operating the manufacturing and administrative aspects of our high-margin, niche businesses.

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and "Always Learning" so that performance continuously improves.

Gross profit is affected by many factors including our product mix, manufacturing efficiencies, costs of products and labor, foreign currency rates, and price competition.

Gross profit is affected by many factors including our product mix, foreign currency rates, manufacturing efficiencies, costs of products and labor, and price competition.

Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross profit percentages for some products have improved.

There are, however, differences in gross profit percentages between product lines, and ultimately the mix of sales will continue to impact our overall gross profit.

There are, however, differences in gross profit percentages between product lines, and ultimately our mix of revenues will continue to impact our overall gross profit.

Hire, Develop, and Retain Top Talent

At the center of our organization are talented people who are capable of taking on new challenges using a team approach.

It is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously and sustainably improve our products, our services, and ourselves, resulting in long-term value creation for our stakeholders.

Indeed, it is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways to continuously and sustainably improve our products, our services, and ourselves, resulting in long-term value creation for our stakeholders.

General Trends

We are a global company with multinational operations.

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.

During the six months ended September 30, 2024, approximately 53% 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, technology changes in served markets, opportunities in high-growth markets, the impact of foreign currency movements against the U.S.

dollar ("USD"), 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.

During the first half of fiscal year 2025, our revenues increased 11.7%, versus the comparable prior year period, primarily driven by revenues of $12,117 from GKE, which we acquired in the third quarter of fiscal year 2024.

Organic revenues increased 0.1% during the first half of fiscal year 2025 primarily as a result of 25.0% organic revenues growth from our Biopharmaceutical Development division, and to a lesser extent organic revenues increases of 5.6% from our Calibration Solutions division.

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.

Organic revenues in our Clinical Genomics business declined 20.8% as we continue to experience challenges from the economic slowdown in China and regulatory challenges that are impacting sales of new Clinical Genomics instruments in the United States.

However, the Clinical Genomics division's revenues have increased sequentially in both the first and second quarters of fiscal year 2025.

Gross profit as a percentage of revenues increased 1.7 percentage points in the first half of fiscal year 2025 compared to the first half 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 margin contribution of 62.3% from the GKE acquisition, including $1,232 of non-cash inventory step up amortization.

Operating expenses declined slightly during the first half of fiscal year 2025 versus the comparable prior year period, despite an 11.7% increase in revenues.

Operating expenses incurred by GKE during the six months ended September 30, 2024 were offset by lower amortization expense as we impaired a portion of the intangible assets held by the Clinical Genomics division in fiscal year 2024.

The weakening of the USD increased reported expenses incurred in Europe, but despite foreign currency headwinds, operating income was $9,088, an increase of $9,812 versus the comparable prior year period.

Additionally, we recorded about $900 more for bonuses in the first six months of fiscal year 2025 versus the comparable prior year period due to improved performance.

GKE contributed $4,533 to our consolidated operating income during the first half of fiscal year 2025.

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

Results of Operations

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Gross Profit as a % of Revenues

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

Three Months Ended September 30,

Sterilization and Disinfection Control

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Mesa's reportable segments

Organic Revenues Growth (non-GAAP) (a)

Gross Profit as a % of Revenues

Six Months Ended September 30,

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Mesa's reportable segments

Organic revenues growth is a non-GAAP measure of financial performance.

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Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Operating expense

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Gross profit as a % of revenues

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.

The Sterilization and Disinfection Control division's revenues increased 30.0% and 36.8% for the three and six months ended September 30, 2024, respectively versus the comparable prior year periods.

The GKE acquisition contributed inorganic revenues of $5,863 and $12,117 for the three and six months ended September 30, 2024, respectively.

Organic revenues declined 4.3% for the three months ended September 30, 2024 and increased 0.1% for the six months ended September 30, 2024.

Strong commercial execution that resulted in organic revenues growth in the first quarter of fiscal year 2025 and significant orders growth of 6% in the first half of the fiscal year excluding GKE was largely offset by lower than expected order fulfillments.

However, the past due backlog for the division has increased and is expected to be fulfilled over the next two quarters.

We anticipate positive organic revenues growth in the Sterilization and Disinfection Control division in fiscal year 2025.

The Sterilization and Disinfection Control division's gross profit percentage decreased 4.7 percentage points and 4.9 percentage points for the three and six months ended September 30, 2024, respectively, versus the comparable prior year periods.

The three and six months ended September 30, 2024 includes $588 and $1,476, respectively, of both amortization of GKE’s intangible assets and amortization of non-cash inventory step-up, which affect the comparability of gross margins as a percentage of revenues.

There will be no further charges for the inventory step up.

Excluding these non-cash charges from purchase accounting, the Sterilization and Disinfection Control division’s margin decreased 2.1 percentage points and 1.6 percentage points for the three and six months ended September 30, 2024, respectively.

Beginning in the third quarter of fiscal year 2025, when the inventory step up is no longer being amortized through cost of revenues, we expect GKE's gross profit percentage will be in the low 70s.

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 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,

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, oncology related applications, and toxicology research.

Three Months Ended September 30,

Six Months Ended September 30,

Gross profit as a % of revenues

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.

The Clinical Genomics division's revenues decreased 26.0% and 20.8% for the three and six months ended September 30, 2024 versus the comparable prior year periods.

The decrease for the three and six months ended September 30, 2024 was primarily due to decreases in revenues from consumables, and to a lesser extent, new systems 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.

Decreased instrument sales in the United States due to increased regulation of lab-developed tests further contributed to decreased revenues.

Gross profit percentage for the Clinical Genomics division increased 1.7 and 4.1 percentage points for the three and six months ended September 30, 2024 versus the comparable prior year periods, 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 5.8 and 4.0 percentage points for the three and six months ended September 30, 2024, respectively, primarily as a result of lower revenues on a partially fixed cost base as well as realizing lower margins on certain strategic instrument sales into our APAC region that we expect will increase our consumables sales in the future.

Biopharmaceutical Development

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Gross profit as a % of revenues

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.

The Biopharmaceutical Development division's revenues increased 28.9% and 25.0% for the three and six months ended September 30, 2024 versus the comparable prior year periods, primarily due to increased capital spending in the biopharmaceutical markets.

Revenues from hardware and software sales increased 108.8% and 93.7% for the three and six months ended September 30, 2024, respectively, versus the comparable prior year periods.

For the three and six months ended September 30, 2024, gross margin as a percentage of revenues for the Biopharmaceutical Development division increased slightly as a result of favorable product mix, as well as increased revenues on a partially fixed cost base.

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 June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Gross profit as a % of revenues

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.

The Calibration Solutions division's revenues increased 8.2% and 5.6%, respectively, for the three and six months ended September 30, 2024 versus the comparable prior year period, primarily due to commercial efforts and increases in prices, particularly in our Renal Care product lines.

The Calibration Solutions division's gross profit percentage increased 2.2 and 3.8 percentage points for the three and six months ended September 30, 2024, respectively, versus the comparable prior year period, primarily due to increased revenues on a partially-fixed cost base and favorable product mix.

Operating Expense

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.

Operating expense decreased 0.7% and 0.6% for the three and six months ended September 30, 2024, respectively, versus the comparable prior year period.

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

Selling Expense

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accordingly, it may vary with sales levels.

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Selling expense

As a percentage of revenues

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.

Selling expense for the three and six months ended September 30, 2024 increased 2.1% and 7.2%, respectively, versus the comparable prior year periods.

The increase is primarily attributable to sales and marketing costs from GKE and higher commissions as revenues increased.

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 June 30,

Three Months Ended September 30,

Six Months Ended September 30,

General and administrative expense

As a percentage of revenues

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.

General and administrative expenses decreased 0.4% and 3.7% for the three and six months ended September 30, 2024, respectively, 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 expense, general and administrative expense would have increased 12.3% for the three months ended September 30, 2024, primarily as a result of GKE's general and administrative expenses as well as higher non-cash stock-based compensation expense.

Excluding amortization expense, for the six months ended September 30, 2024, general administrative costs would have increased 9.4%, primarily as a result of general and administrative costs from GKE and costs associated with integrating GKE into our enterprise resource planning tool.

Research and Development Expense

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

Three Months Ended June 30,

Three Months Ended September 30,

Six Months Ended September 30,

Research and development expense

As a percentage of revenues

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.

Research and development expenses decreased 7.2% and 4.4% for the three and six months ended September 30, 2024, respectively, versus the comparable prior year periods.

We undertook cost containment efforts during fiscal year 2024, which included recording severance.

Lower costs in the three and six months ended September 30, 2024 were a result of lower headcount, no severance charges, and reduced research and development supplies purchases.

Nonoperating (Income) Expense, Net

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.

Three Months Ended September 30,

Six Months Ended September 30,

Interest expense and amortization of debt issuance costs

(Gain) on extinguishment of convertible senior notes

Other (income) expense, net

Nonoperating (income) expense, net

Nonoperating expense, net for the six months ended September 30, 2024 is composed primarily of a $3,197 gain recorded related to the partial extinguishment of the Notes during the first quarter of fiscal year 2025.

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)

The gain on the extinguishment was offset by the combination of interest expense and debt issuance costs, and gains and losses on foreign currency transactions.

We incurred significantly more interest expense during the three and six months ended September 30, 2024 versus the comparable prior year period as we re-financed our Credit Facility during the first quarter of fiscal year 2025 in order to repurchase a portion of the Notes.

We had $107,953 outstanding under our Credit Facility as of September 30, 2024, net of discounts on the Term Loan, and $0 outstanding under our Credit Facility as of September 30, 2023.

The interest rate on our Credit Facility is variable, but was approximately 7.0 percentage points higher than the fixed-rate interest on the Notes during the first half of fiscal year 2025.

During the third quarter of fiscal year, Mesa issued an intercompany loan denominated in USD to our wholly owned subsidiary, Mesa Germany GmbH, to purchase GKE.

Nonoperating income increased for the three and six months ended September 30, 2024 as we recorded net unrealized gains on foreign currency resulting from the weakening of the USD against the euro.

Three Months Ended September 30,

Six Months Ended September 30,

Income tax expense (benefit)

Effective tax rate

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 effective income tax rate was 10.1% for the three months ended September 30, 2024 and 7.2% for the three months ended September 30, 2023.

Our effective income tax rate was 11.7% for the six months ended September 30, 2024 and 21.4% for the six months ended September 30, 2023.

The change in the effective tax rate for both the three and six months ended September 30, 2024 compared to the prior year periods is primary due to the valuation allowance established on the US deferred taxes during fiscal year 2024.

The effective tax rate for both the three and the six months ended September 30, 2024 differed from the statutory federal rate of 21% primarily due to the valuation allowance established on the US deferred taxes during fiscal year 2024.

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 $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).

Net income varies with changes in revenues, gross profit, and operating expense (and included $8,611, $6,765 and $2,922 of non-cash:

amortization of intangible assets acquired in business combinations, stock-based compensation expense, and depreciation expense, respectively, for the six months ended September 30, 2024).

Market-Based Awards

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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.

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

We expect to pay a holdback of approximately $9,700 (at September 30, 2024 exchange rates) from the acquisition in April 2025, pending adjustments for potential indemnification losses.

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

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.

We had working capital of $(45,252) and $65,040 as of September 30, 2024 and March 31, 2024, respectively.

As of September 30, 2024 and March 31, 2024, we had $24,337 and $28,214, respectively, of cash and cash equivalents.

Our working capital balance is negative as of September 30, 2024 primarily because of the balance on the Notes is now current, due August 15, 2025, which is within 12 months of September 30, 2024.

See further discussion below.

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.

Add the $75,000 senior secured Term Loan.

Extend the maturity of the Credit Facility to April 2029.

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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.

As of September 30, 2024, $35,500 remained outstanding under the Revolver.

During October 2024, we repaid $4,500 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.

Following these transactions, $97,500 aggregate principal amount of the Notes remains outstanding and is now classified as current on our condensed consolidated balance sheets.

At the interest rate effective through October 30, 2024, within the next twelve months we expect to incur cash interest expense of approximately $7,300 (adjusted for required future principal payments) on undiscounted borrowings of $104,125 related to the Credit Facility as of the date of this filing.

We have $97,500 due on the Notes in August 2025.

Together with the current portion of our Term Loan, the cash needed for principal debt payments is $101,250 within the next 12 months.

We plan use cash on hand, draws against our Revolver, which has $94,000 available as of the date of this filing, and cash generated from operating activities over the next three quarters to fund the amount due.

In April 2022, we entered into an Open Market Sale Agreement SM pursuant to which we may issue and sell, from time to time, shares of our common stock with an aggregate value of up to $150,000.

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We may from time to time repurchase or take other steps to reduce our debt.

These actions may include retirements or refinancing of outstanding debt, pursuing privately negotiated transactions, or otherwise.

These actions may include retirements or refinancing of outstanding debt through tender offers, privately negotiated transactions, or otherwise.

The amount of debt that may be retired, if any, could be material.

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We have paid regular quarterly dividends since 2003.

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.

We paid dividends of $0.16 per share during the three months ended September 30, 2024, as well as each quarter of fiscal years 2025 and 2024.

In October 2024, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on December 16, 2024, to shareholders of record at the close of business on November 29, 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;

We have determined our goodwill reporting units are not impaired as of September 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.

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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.

While revenues in our Clinical Genomics division have declined somewhat from fiscal year 2024 levels, we deployed cost saving measures late in fiscal year 2024, primarily a reduction in force, and as a result, we believe that our operating cash flows for fiscal year 2025 for Clinical Genomics will approximate the levels used in our recent impairment model.

At our last testing date, the 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.

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

Three Months Ended June 30,

Six Months Ended September 30,

Net cash provided by operating activities

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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

Cash flows from operating activities for the six months ended September 30, 2024 provided $15,704, a decrease of $4,011 versus the comparable prior year period.

The decrease in cash flows from operating activities for the six months ended September 30, 2024 compared to September 30, 2023 was primarily a result of:

lower cash collected on accounts receivable,

higher payments made for income taxes,

approximately $3,900 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.

partially offset by

cash provided by improved operating performance, primarily due to an increase in revenues of $12,193.

Cash used in investing activities for the six months ended September 30, 2024 increased compared to the six months ended September 30, 2023 primarily due to spending on property, plant and equipment, including for our new leased facility in Sweden.

Cash used in financing activities resulted in a $17,719 use of cash for the six months ended September 30, 2024.

Net proceeds from borrowings under the Term Loan in the first quarter of fiscal year 2025 were almost fully offset by payments made to repurchase the Notes.

We used $15,000 of cash to repay the Revolver and $1,875 to pay down the Term Loan in the six months ended September 30, 2024, compared to $13,000 to pay down the Revolver in the comparable prior year period.

Contractual Obligations and Other Commercial Commitments

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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.

On a consolidated basis, as of September 30, 2024, we had contractual obligations for open purchase orders of approximately $18,030 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 $9,700 (at September 30, 2024 exchange rates) of the acquisition price in April 2025, 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 .

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

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

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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 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 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

Three Months Ended September 30,

Sterilization and Disinfection Control

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Total Company

Total Revenues Growth

Impact of Acquisitions

Organic Revenues Growth (non-GAAP)

Six Months Ended September 30,

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Total Company

Quantitative and Qualitative Disclosures a bout Market Risk

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Transactional exchange rate risk arises from the purchase and sale of goods and services in currencies other than the functional currency of the applicable subsidiary.

We also face translational exchange rate risk related to the translation of financial statements of our foreign operations into U.S.

dollars, our functional currency.

Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S.

dollars using average exchange rates effective during the respective period.

As a result, we are exposed to movements in the exchange rates of various currencies against the U.S.

Our Biopharmaceutical Development division is particularly susceptible to currency exposures since it incurs a substantial portion of its expenses in Swedish Krona, while most of the division's revenue contracts are in U.S.

dollars and euros.

Therefore, when the Swedish Krona strengthens or weakens against the U.S.

dollar, operating profits are increased or decreased, respectively.

As we continue to consummate acquisitions of companies with foreign operations or with functional currencies other than the U.S.

dollar, our foreign currency exchange rate risk will increase.

We also face translational exchange rate risk related to the translation of financial statements of our foreign operations into USD, our functional currency.

Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into USD using average exchange rates effective during the respective period.

As a result, we are exposed to movements in the exchange rates of various currencies against the USD.

Therefore, when the Swedish Krona strengthens or weakens against the USD, operating profits are increased or decreased, respectively.

As we continue to consummate acquisitions of companies with foreign operations or with functional currencies other than the USD, our foreign currency exchange rate risk will increase.

The effect of a change in currency exchange rates on our international subsidiaries' assets and liabilities is reflected in the accumulated other comprehensive income component of stockholders’ equity.

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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 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.

Based on the balance outstanding as of the date of this filing and required future principal payments, we estimate that if interest rates increased 1 percentage point, we would incur approximately $920 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