What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-04 compared with 2024-11-07 · 174 added, 163 removed, 197 unchanged (63% of the section changed)

17 unchanged sentences

technological or market viability of our products;

reduced demand for our products, including as a result of competitive factors;

potential reduced demand for our products, including as a result of competitive factors;

conditions in the global economy and the particular markets we serve;

3 unchanged sentences

the potential inaccuracy of projections of revenues, growth, operating results, profit margins, earnings, expenses, margins, tax rates, tax provisions, liquidity, cash flows, demand, and competition;

the effects of additional actions taken to become more efficient or lower costs ; supply chain challenges;

the effects of actions taken to become more efficient or lower costs ; supply chain challenges;

cost pressures;

laws regulating fraud and abuse in the health care industry and the privacy and security of health and personal information;

laws regulating fraud and abuse in the health care industry, privacy and security of health and personal information;

product liability;

13 unchanged sentences

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

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

As of December 31, 2024, we managed our operations in four reportable segments, or divisions:

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

4 unchanged sentences

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 serve a broad set of industries, in particular the pharmaceutical, healthcare, 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.

Organic revenues growth is driven by 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, and the introduction of new products.

3 unchanged sentences

Over the past decade, we have consummated a number of acquisitions as part of our growth strategy.

These acquisitions have allowed us to expand our product offerings and the industries we serve, globalize our company, and increase the scale at which we operate.

We may pursue acquisitions of businesses, technologies, or intangibles such as customer lists, depending on available strategic opportunities.

Our acquisitions have allowed us to expand our product offerings and the industries we serve, globalize our company, and increase the scale at which we operate.

In turn, this growth affords us the ability to improve our operating efficiency, extend our customer base, and further the pursuit of our purpose:

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The Mesa Way is focused on:

"Measuring What Matters" using our customers' perspective and setting high standards for performance;

"Measuring What Matters" based on our customers' perspectives and setting high standards of performance;

"Empowering Teams" to improve operationally and exceed customer expectations;

"Sustainably Improving" using lean-based tools designed to help us identify and prioritize the biggest opportunities;

"Sustainably Improving" using lean-based tools designed to help us identify and prioritize the best opportunities;

and "Always Learning" so that performance continuously improves.

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

Our gross profit is affected by many factors, including 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.

1 unchanged sentence

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.

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.

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

Indeed, it is our exceptionally talented workforce that works together 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 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.

During the nine months ended December 31, 2024, approximately 52% 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 operating in varied economic environments across served geographies, technology changes in served markets, expansion opportunities in high-growth markets, the impacts 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 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 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.

Our continued revenues growth 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, by continuing to pursue cost reduction initiatives, and by improving our operating efficiency.

During the first three quarters of fiscal year 2025, our revenues increased 13.7% versus the comparable prior year period.

GKE, which we purchased during the third quarter of fiscal year 2024, contributed $18,971 of revenues in the first three quarters of fiscal year 2025 compared with $3,837 from the acquisition date in mid-October 2023 through December 31, 2023.

Organic revenues increased 4.3% during the first three quarters of fiscal year 2025, primarily as a result of organic revenues growth of 26.6% from our Biopharmaceutical Development division, 10.1% from our Calibration Solutions division, and 2.9% from our Sterilization and Disinfection Control division, partially offset by a 14.2% organic revenue decline in our Clinical Genomics division.

Our Biopharmaceutical Development division has particularly benefited from an improved environment for capital equipment purchases in the biopharmaceutical vertical in fiscal year 2025.

Furthermore, consumables revenues in our Biopharmaceutical Development division increased by 20.3% in the third quarter of fiscal year 2025 versus the comparable prior year period, as customers who purchased equipment over the past 12 months are adopting our technology into their businesses, resulting in escalating consumables purchases.

Our Clinical Genomics business continued to experience challenges presented by changing global regulatory environments.

However, Clinical Genomics' revenues increased 10.2% from the second quarter to the third quarter of fiscal year 2025, and increased 1.0% in the third quarter of fiscal year 2025 versus the comparable prior year period.

Gross profit as a percentage of revenues increased 1.4 percentage points in the first nine months of fiscal year 2025 versus the comparable prior year period, primarily due to $3,388 of lower intangible asset amortization expense 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, partially offset by higher performance-based compensation costs related to our financial performance.

Operating expenses were approximately flat during the nine months ended December 31, 2025 versus the comparable prior year period.

Increases in operating expense were primarily attributable to (i) higher performance-based compensation expenses and higher professional services costs for compliance activities and integration activities related to the GKE acquisition and (ii) nine months of operating expenses from GKE, versus only about two and a half months in the comparable year to date period.

These increases were largely offset by lower amortization expense in fiscal year 2025.

The strengthening of the USD also decreased reported expenses incurred in Europe.

Operating income was $14,867 for the nine months ended December 31, 2025, an increase of $15,658 versus the comparable prior year period, primarily due to increased revenues and lower amortization expense.

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

Results of Operations

5 unchanged sentences

Gross Profit as a % of Revenues

Three Months Ended September 30,

Three Months Ended December 31,

Sterilization and Disinfection Control

5 unchanged sentences

Gross Profit as a % of Revenues

Six Months Ended September 30,

Nine Months Ended December 31,

Sterilization and Disinfection Control

6 unchanged sentences

Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Operating expense

Operating income (loss)

Net income (loss)

Net (loss) income

Reportable Segments

3 unchanged sentences

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

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

The Sterilization and Disinfection Control division's revenues increased 21.6% and 31.2% for the three and nine months ended December 31, 2024, respectively, versus the comparable prior year periods.

The increase is primarily attributable to the GKE acquisition, which contributed inorganic revenues of $2,857 and $14,974 for the three and nine months ended December 31, 2024, respectively.

The division's organic revenues increased 7.8% and 2.9% for the three and nine months ended December 31, 2024 compared to the corresponding prior year periods.

Excluding GKE, orders increased 13.1% and 8.5% for the three and nine months ended December 31, 2024, driven by strong commercial execution.

Increased orders, in turn, resulted in an increase in past due backlog as of December 31, 2024 versus both September 30, 2024 and March 31, 2024.

We expect to increase order fulfillments during the fourth quarter which will enable us to lower our past due backlog, and drive increased organic revenue growth for fiscal year 2025.

For the three months ended December 31, 2024, gross profit percentage declined because the division made larger than normal sales to certain distributors at lower than typical margins, and experienced unfavorable changes in foreign currency.

The division benefitted from $412 lower non-cash inventory step-up amortization in the three months ended December 31, 2024 versus the comparable prior year period.

For the nine months ended December 31, 2024, gross profit declined because we incurred $820 more non-cash inventory step-up amortization costs versus the comparable prior year period, made larger than normal sales to certain distributors at lower than typical margins, and experienced unfavorable changes in foreign currency.

Excluding the impact of non-cash inventory step up amortization, gross profit percentage would have been 70.0% and 74.3% and 70.5% and 73.4% for the three and nine months ended December 31, 2024 and 2023, respectively.

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, oncology related applications, and toxicology research.

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

The Clinical Genomics division's revenues increased 1.0% for the three months ended December 31, 2024 versus the comparable prior year period, primarily due to strong consumables growth in North America, partially offset by decreased revenues in China.

Revenues in China have been impacted since the third quarter of fiscal year 2024 by lower demand, driven by weakness in spending on capital equipment as China’s government continues to play a significant role in regulating industry development by imposing sector-specific policies and maintaining control over China’s economic growth through setting monetary policy and determining treatment of particular industries.

Additionally, hardware sales in the United States continue to be impacted by increased regulations of new lab-developed tests.

Clinical Genomics revenues decreased 14.2% for the nine months ended December 31, 2024 versus the comparable period primarily due to decreased revenues in China, and to a lesser extent, lower hardware sales in the United States as a result of regulatory challenges that affected results for the three months ended December 31, 2024.

Gross profit percentage for the Clinical Genomics division increased 3.5 and 4.0 percentage points for the three and nine months ended December 31, 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 amortization expense, gross profit as a percentage of revenues would have decreased 6.3% for the three months ended December 31, 2024 versus the comparable prior year period, primarily attributable to lower margin instrument sales into the APAC region.

Excluding amortization expense, gross profit as a percentage of revenues would have decreased 4.7% for the nine months ended December 31, 2024 versus the comparable prior year period as a result of lower revenues on a partially fixed cost base and lower margin instrument sales into the APAC region.

The lower margin sales into APAC reflect a change in our strategy for growth in this division that we expect will drive our future consumables sales.

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 September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

The Biopharmaceutical Development division's revenues increased 29.8% and 26.6% for the three and nine months ended December 31, 2024 versus the comparable prior year periods, primarily due to increased capital spending in the biopharmaceutical markets.

Revenues from hardware and software sales increased 69.7% and 85.5% for the three and nine months ended December 31, 2024, respectively, versus the comparable prior year periods.

Consumables revenues increased 20.3% for the three months ended December 31, 2024 versus the comparable prior year period as customers who purchased hardware over the past 12 months are adopting our technology into their business, increasing their demand for consumables.

For the three months ended December 31, 2024, gross margin as a percentage of revenues for the Biopharmaceutical Development division decreased slightly as a result of unfavorable product mix.

For the nine months ended December 31, 2024, gross margin as a percentage of revenues for the Biopharmaceutical Development division increased slightly, primarily as a result of higher revenues on a partially fixed cost base and a favorable product mix, partially offset by foreign currency impacts.

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 September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

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.

The Calibration Solutions division's revenues increased 18.7% and 10.1%, respectively, for the three and nine months ended December 31, 2024 versus the comparable prior year periods, primarily due to commercial efforts and price increases, particularly in our Renal Care product lines.

The Calibration Solutions division's gross profit percentage increased 1.7 and 3.0 percentage points for the three and nine months ended December 31, 2024, respectively, versus the comparable prior year periods, primarily due to increased revenues on a partially fixed cost base and a favorable product mix.

Operating Expense

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.

Operating expense increased 1.5% and 0.1% for the three and nine months ended December 31, 2024, respectively, versus the comparable prior year periods.

Excluding decreased amortization expense resulting from prior year impairments of intangible assets, operating expense increased 10.5% and 7.6% for the three and nine months ended December 31, 2024.

Selling Expense

1 unchanged sentence

accordingly, it may vary with sales levels.

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Selling expense

As a percentage of revenues

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.

Selling expense for the three and nine months ended December 31, 2024 increased 7.3% and 7.2%, respectively, versus the comparable prior year periods.

The increases are primarily attributable to increased performance-based compensation expense as our financial results improved and, for the nine months ended December 31, 2024, the addition of GKE's selling expenses.

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 September 30,

Six Months Ended September 30,

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

Three Months Ended December 31,

Nine Months Ended December 31,

General and administrative expense

As a percentage of revenues

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.

Excluding decreased amortization expense related to prior year intangible asset impairments, general and administrative expense would have increased 10.5% for the three months ended December 31, 2024, primarily as a result of higher performance-based compensation expense.

Excluding amortization expense, for the nine months ended December 31, 2024, general administrative costs would have increased 9.8%, primarily as a result of higher expense for performance-based personnel costs, the addition of GKE's administrative operating expenses, professional services costs related to integrating GKE into our enterprise resource planning tool, and other compliance efforts.

Research and Development Expense

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

Three Months Ended September 30,

Six Months Ended September 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Research and development expense

As a percentage of revenues

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 September 30,

Six Months Ended September 30,

Research and development expenses increased 17.7% and 2.3% for the three and nine months ended December 31, 2024, respectively, versus the comparable prior year periods, primarily as a result of higher performance-based compensation expense, partially offset by lower salaries expense, which is expected to continue to future periods, and reduced project-specific research and development supplies purchases following our fiscal year 2024 cost containment efforts.

Non-operating Expense (Income), Net

Three Months Ended December 31,

Nine Months Ended December 31,

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.

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)

Other expense (income), net

Non-operating expense (income), net

We incurred significantly more interest expense during the three and nine months ended December 31, 2024 versus the comparable prior year periods as we re-financed our Credit Facility during the first quarter of fiscal year 2025 in order to repurchase $75,000 in aggregate principal of our Notes.

We had $98,553 outstanding under our Credit Facility as of December 31, 2024, net of discounts on the Term Loan, compared to $62,000 outstanding under our Credit Facility as of December 31, 2023.

Amounts outstanding under the Credit Facility bear interest at a significantly higher rate than amounts outstanding under the Notes.

The $2,887 gain on extinguishment of our Notes represents the difference between the fair value and the carrying value of the Notes and unamortized debt issuance costs at the time of partial extinguishment in the first quarter of fiscal year 2025.

During the third quarter of our prior fiscal year, we issued an intercompany loan denominated in USD to a wholly owned, euro-denominated subsidiary to fund the purchase of GKE.

We recorded net unrealized foreign currency losses on the loan for the three and nine months ended December 31, 2024 due to the strengthening of the USD against the euro.

Three Months Ended December 31,

Nine Months Ended December 31,

Income tax (benefit) expense

Effective tax rate

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 effective income tax rate was 24.4% for the three months ended December 31, 2024 compared to (8.7)% for the three months ended December 31, 2023.

Our effective income tax rate was 6.5% for the nine months ended December 31, 2024 compared to 206.6% for the nine months ended December 31, 2023.

The change in the effective tax rate for both the three and nine months ended December 31, 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 nine months ended December 31, 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 $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).

Net (Loss) Income

Net (loss) income varies with changes in revenues, gross profit, operating expense, and currency exchange rate fluctuations.

Net (loss) included $13,002, $10,004 and $4,028 of non-cash amortization of intangible assets acquired in business combinations, stock-based compensation expense, and depreciation expense, respectively, for the nine months ended December 31, 2024.

Market-Based Awards

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

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

Liquidity and Capital Resources

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our Credit Facility and Open Market Sale Agreement SM , working capital, and potential additional equity and debt offerings.

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.

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our Credit Facility and our Open Market Sale Agreement SM , working capital, and potential additional equity and debt offerings.

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

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 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.

We expect to pay a holdback of approximately $9,000 (at December 31, 2024 exchange rates) related to 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 $(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:

We had working capital of $(45,033) and $65,040 as of December 31, 2024 and March 31, 2024, respectively.

Our working capital balance was negative as of December 31, 2024 because the balance on our Notes, due August 15, 2025, is due within twelve months of December 31, 2024 and is therefore classified as a current liability.

As of December 31, 2024 and March 31, 2024, we had $30,956 and $28,214, respectively, of cash and cash equivalents.

During the first quarter of fiscal year 2025, and in anticipation of settling the Notes, 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.

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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 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.

During fiscal year 2024, we borrowed a total of $71,000 under the Revolver to fund the majority of the GKE acquisition.

As of December 31, 2024, $27,000 remained outstanding under the Revolver.

In January 2025, we repaid an additional $4,500 on the Revolver.

We used proceeds of $75,000 from borrowings under the Term Loan to enter into 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 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.

Following these transactions, $97,500 aggregate principal amount of the Notes remained outstanding and is now classified as current in our unaudited Condensed Consolidated Balance Sheets.

Using the interest rate and debt balance outstanding effective as of January 31, 2025, we expect to incur cash interest expense within the next twelve months of approximately $7,000 (adjusted for required future principal payments) on undiscounted borrowings of $94,688 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.

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

We plan use cash on hand, draws against our Revolver, which had $102,500 available as of the date of this filing, and cash generated from operating activities over the next two quarters to fund the amounts 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 routinely evaluate opportunities for strategic acquisitions.

Future material acquisitions may require that we obtain additional capital, assume additional third-party debt or incur other long-term obligations.

Future material acquisitions may require us to obtain additional capital, assume additional third-party debt or incur other long-term obligations.

We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities;

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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 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.

We paid dividends of $0.16 per share during the three months ended December 31, 2024, as well as each quarter of fiscal years 2025 and 2024.

In January 2025, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on March 17, 2025, to shareholders of record at the close of business on February 28, 2025.

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 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.

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.

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.

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.

We perform analyses at least quarterly to identify potential impairment indicators and assess whether it is more likely than not that any of our five goodwill reporting units (Sterilization and Disinfection Control, Clinical Genomics, Immunoassays (BPD), Peptides (BPD), and Calibration Solutions) is impaired.

We determined our goodwill reporting units are not impaired as of December 31, 2024;

however, changes in discount rates due to market volatility, failure to meet previously forecasted cash flows, and various other factors could result in future impairment losses in certain of our reporting units.

Impairment losses recorded in the prior fiscal year related to our Clinical Genomics and Immunoassays reporting units resulted in a 0% cushion between their fair and carrying values as of our most recent annual impairment testing date, January 1, 2024.

Our Biopharmaceutical Development division's Immunoassays reporting unit has exceeded the performance expectations used in our previous impairment models;

however, the Peptides reporting unit within our Biopharmaceutical Development Division is sensitive to changes in inputs and assumptions due to the reporting unit's small size, and Peptides may become impaired in the future if it does not meet performance expectations, or if the estimated weighted average cost of capital increases.

As of our prior year goodwill testing date, Peptides' fair value exceeded its carrying value by approximately 36%.

Our qualitative analyses to date indicate that it is more likely than not that the Peptides reporting unit is unimpaired as of December 31, 2024.

Goodwill and other intangible assets net of amortization related to the Peptides reporting unit totaled $13,709 and $918, respectively, as of December 31, 2024.

As a result of cost saving measures deployed late in fiscal year 2024 and continuing throughout fiscal year 2025, we do not believe our Clinical Genomics division is impaired as of December 31, 2024 despite lower than anticipated revenues;

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

Goodwill and other intangible assets net of amortization related to the Clinical Genomics reporting unit totaled $16,869 and $9,617, respectively, as of December 31, 2024.

When and if we determine it is more likely than not that a reporting unit is impaired based on robust qualitative assessments, or if we otherwise so choose, we perform quantitative goodwill testing with the aid of external valuation specialists to assess the fair values of our reporting units using weighted Gordon Growth and Exit Multiple discounted cash flow models and guideline public company models.

Fair value estimates for goodwill testing require the use of unobservable Level 3 inputs, including but not limited to discount rates, the expected useful lives of assets, competitors, and anticipated revenues growth and margins.

We establish inputs and assumptions through discussions with external valuation experts, and we consider market indicators, reputable valuation research resources, and internal expectations of future performance in developing our models.

Fair value estimates 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.

We performed quantitative impairment tests over our Clinical Genomics, Immunoassays, and Peptides reporting units in the prior fiscal year.

We intend to perform quantitative impairment tests for all reporting units for our annual impairment testing in the fourth quarter of fiscal year 2025.

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

Six Months Ended September 30,

Nine Months Ended December 31,

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash (used in) financing activities

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;

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 cash (used in) provided by financing activities

Cash flows from operating activities for the nine months ended December 31, 2024 provided $34,143, an increase of $2,893 versus the comparable prior year period.

The increase in cash flows from operating activities for the nine months ended December 31, 2024 compared to December 31, 2023 was primarily a result of:

improved performance, including an increase in revenues of $21,560 compared to the prior year period, partially offset by

$5,600 more cash paid for interest on our Credit Facility as we had more debt outstanding for a loner portion of fiscal year 2025.

Other than the GKE acquisition, cash used in investing activities for the nine months ended December 31, 2024 increased compared to the nine months ended December 31, 2023 as we purchased equipment for our leased facility used by our Biopharmaceutical Development division.

Cash used in financing activities resulted in a $28,316 use of cash for the nine months ended December 31, 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.

We used $23,500 of cash to repay the Revolver and $2,813 to pay down the Term Loan in the nine months ended December 31, 2024, compared to $22,000 to pay down the Revolver 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.

We are party to contractual obligations that involve commitments to remit 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, 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 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 September 30, 2024 .

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

On a consolidated basis, as of December 31, 2024, we had contractual obligations for open purchase orders of approximately $19,160 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 agreed to pay the GKE sellers approximately $9,000 (at December 31, 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 are issued.

The estimated fair value of the probable remaining contingent consideration was $650 as of December 31, 2024 .

On January 2, 2025, a notice of allowance was issued for one of the two remaining pending patents, and we expect to pay the Belyntic sellers $563 for the patent within fiscal year 2025 or early in fiscal year 2026, depending upon the final patent approval date.

We expect the other remaining patent will likely be approved within one year of December 31, 2024.

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

Critical Accounting Policies and Estimates

Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters.

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters.

These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstances.

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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 for compensation purposes.

We use organic revenues 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 for 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 September 30,

Three Months Ended December 31,

Sterilization and Disinfection Control

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Organic Revenues Growth (non-GAAP)

Six Months Ended September 30,

Nine Months Ended December 31,

Sterilization and Disinfection Control

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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 USD and euros.

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

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

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

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.

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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 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.

Based on the balance outstanding as of December 31, 2024 and required future principal payments, we estimate that if interest rates increased 1 percentage point, we would incur approximately $930 of additional cash interest expense per year.

Inflation Risk

Inflation generally impacts us by increasing our costs of labor, materials, and freight.

The rates of inflation experienced in recent years have not had a significant impact on our financial statements as inflationary cost increases have been offset by annual price increases.

We have historically offset inflationary cost increases by our annual price increases, and inflation has not had a significant impact on our financial statements.

However, any price increases imposed may lead to declines in sales volume if competitors do not similarly adjust prices.

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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