MESA LABORATORIES INC /CO/ 10-Q

Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, except per share amounts) Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ” ). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position; results of acquisitions; management ’ s strategy, plans and objectives for future operations or acquisitions, product development and sales; and adequacy of capital resources and financing plans constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management ’ s beliefs and assumptions. 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, ” “ 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: our ability to successfully grow our business, including as a result of acquisitions; the effect that acquisitions have on our operations; our ability to consummate acquisitions at our historical rate and at appropriate prices, and our ability to effectively integrate acquired businesses and achieve desired results; the market acceptance of our products; technological or market viability of our products; potential reduced demand for our products, including as a result of competitive factors; conditions in the global economy and the particular markets we serve; significant developments or uncertainties stemming from governmental actions, including changes in trade policies and medical device regulations; the timely development and commercialization, and customer acceptance, of enhanced and new products and services; retirement of old products and customer migration to new products; 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 actions taken to become more efficient or lower costs ; supply chain challenges; cost pressures; laws regulating fraud and abuse in the health care industry, privacy and security of health and personal information; product liability; information security; outstanding claims, legal and regulatory proceedings; international business challenges including anti-corruption and sanctions laws and political developments; tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic, industry, and capital markets conditions ; the timing of any of the foregoing ; and assumptions underlying any of the foregoing. Such risks and uncertainties also include those listed in Item 1A. “ Risk Factors ” in our Annual Report on Form 10-K for the year ended March 31, 2024 and in this report. The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. We disclaim any obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. Overview We are a global leader in the design and manufacture of life sciences tools and critical quality control solutions for regulated applications in the pharmaceutical, healthcare, and medical device industries. We offer products and services to help our customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins. As of December 31, 2024, we managed our operations in four reportable segments, or divisions: Sterilization and Disinfection Control, Clinical Genomics, Biopharmaceutical Development, and Calibration Solutions. Each of our divisions is described further in "Results of Operations" below. Unallocated corporate expenses and other business activities are reported within Corporate and Other. Corporate Strategy We strive to create stakeholder value and further our purpose of Protecting the Vulnerable® by growing our business both organically and through acquisitions, by improving our operating efficiency, and by continuing to hire, develop and retain top talent. 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, 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 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. Our policy is to price our products competitively and, where possible, we pass along cost increases to our customers in order to maintain our margins. We typically evaluate costs and pricing annually, with price increases effective January 1. Inorganic Growth - Acquisitions Over the past decade, we have consummated a number of acquisitions as part of our growth strategy. 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: Protecting the Vulnerable®. Improving Our Operating Efficiency 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. The Mesa Way is focused on: "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 best opportunities; and "Always Learning" so that performance continuously improves. Page 16 Table of Contents 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. 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-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 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. 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 Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto appearing in Item 1. Financial Statements (in thousands, except percent data). Results by reportable segment are as follows: Revenues Organic Revenues Growth (non-GAAP) (a) Gross Profit as a % of Revenues Three Months Ended December 31, Three Months Ended December 31, Three Months Ended December 31, 2024 2023 2024 2023 2024 2023 Sterilization and Disinfection Control $ 23,507 $ 19,338 7.8 % (4.8 %) 70.0 % 72.1 % Clinical Genomics 12,667 12,546 1.0 % (19.5 %) 54.9 % 51.4 % Biopharmaceutical Development 12,237 9,430 29.8 % (19.1 %) 61.6 % 61.9 % Calibration Solutions 14,429 12,159 18.7 % 12.9 % 61.0 % 59.3 % Mesa's reportable segments $ 62,840 $ 53,473 12.6 % (8.6 %) 63.3 % 62.5 % Page 17 Table of Contents Revenues Organic Revenues Growth (non-GAAP) (a) Gross Profit as a % of Revenues Nine Months Ended December 31, Nine Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 2024 2023 Sterilization and Disinfection Control $ 68,669 $ 52,345 2.9 % 1.0 % 68.7 % 72.6 % Clinical Genomics 35,570 41,464 (14.2 %) (14.6 %) 54.4 % 50.4 % Biopharmaceutical Development 36,112 28,526 26.6 % (18.2 %) 62.8 % 62.3 % Calibration Solutions 38,492 34,948 10.1 % 8.6 % 60.4 % 57.4 % Mesa's reportable segments $ 178,843 $ 157,283 4.3 % (6.2 %) 62.9 % 61.5 % (a) Organic revenues growth is a non-GAAP measure of financial performance. See "Non-GAAP Measures" below for further information and for a reconciliation of organic revenues growth to total revenues growth. Our unaudited condensed consolidated results of operations are as follows: Three Months Ended December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Revenues $ 62,840 $ 53,473 17.5 % $ 178,843 $ 157,283 13.7 % Gross profit 39,754 33,402 19.0 % 112,458 96,694 16.3 % Operating expense 33,975 33,469 1.5 % 97,591 97,485 0.1 % Operating income (loss) 5,779 (67 ) 8,725.4 % 14,867 (791 ) 1,979.5 % Net (loss) income $ (1,676 ) $ 2,116 (179.2 %) $ 5,140 $ 337 1,425.2 % Reportable Segments Sterilization and Disinfection Control Our Sterilization and Disinfection Control division manufactures and sells biological, chemical and cleaning indicators used to assess the effectiveness of sterilization, decontamination, disinfection and cleaning processes in the pharmaceutical, medical device, and healthcare industries. The division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries. Sterilization and Disinfection Control products are disposable and are used on a routine basis. Three Months Ended December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Revenues $ 23,507 $ 19,338 21.6 % $ 68,669 $ 52,345 31.2 % Gross profit 16,461 13,951 18.0 % 47,191 38,018 24.1 % Gross profit as a % of revenues 70.0 % 72.1 % (2.1 pt) 68.7 % 72.6 % (3.9 pt) 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 December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Revenues $ 12,667 $ 12,546 1.0 % $ 35,570 $ 41,464 (14.2 %) Gross profit 6,948 6,449 7.7 % 19,344 20,904 (7.5 %) Gross profit as a % of revenues 54.9 % 51.4 % 3.5 pt 54.4 % 50.4 % 4.0 pt 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. Page 18 Table of Contents 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 Our Biopharmaceutical Development division develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic therapies, among other applications. Three Months Ended December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Revenues $ 12,237 $ 9,430 29.8 % $ 36,112 $ 28,526 26.6 % Gross profit 7,539 5,841 29.1 % 22,665 17,783 27.5 % Gross profit as a % of revenues 61.6 % 61.9 % (0.3 pt) 62.8 % 62.3 % 0.5 pt 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 December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Revenues $ 14,429 $ 12,159 18.7 % $ 38,492 $ 34,948 10.1 % Gross profit 8,806 7,212 22.1 % 23,258 20,050 16.0 % Gross profit as a % of revenues 61.0 % 59.3 % 1.7 pt 60.4 % 57.4 % 3.0 pt 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 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 Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels. Three Months Ended December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Selling expense $ 10,450 $ 9,737 7.3 % $ 30,415 $ 28,363 7.2 % As a percentage of revenues 16.6 % 18.2 % (1.6 pt) 17.0 % 18.0 % (1.0 pt) 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. Page 19 Table of Contents General and Administrative Expense 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, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change General and administrative expense $ 18,472 $ 19,438 (5.0 %) $ 52,754 $ 55,024 (4.1 %) As a percentage of revenues 29.4 % 36.4 % (7.0 pt) 29.5 % 35.0 % (5.5 pt) 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 December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Research and development expense $ 5,053 $ 4,294 17.7 % $ 14,422 $ 14,098 2.3 % As a percentage of revenues 8.0 % 8.0 % - pt 8.1 % 9.0 % (0.9 pt) 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, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Interest expense and amortization of debt issuance costs $ 2,842 $ 1,856 53.1 % $ 9,340 $ 3,809 145.2 % (Gain) on extinguishment of convertible senior notes - - N/A (2,887 ) - N/A Other expense (income), net 5,154 (3,869 ) (233.2 %) 2,914 (4,284 ) (168.0 %) Non-operating expense (income), net $ 7,996 $ (2,013 ) (497.2 %) $ 9,367 $ (475 ) (2,072.0 %) 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. Income Taxes Three Months Ended December 31, Total Nine Months Ended December 31, Total 2024 2023 Change 2024 2023 Change Income tax (benefit) expense $ (541 ) $ (170 ) 218.2 % $ 360 $ (653 ) (155.1 %) Effective tax rate 24.4 % (8.7 %) 33.1 pt 6.5 % 206.6 % (200.1 pt) 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 (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. Page 20 Table of Contents Market-Based Awards 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 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 $9,000 (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 $(45,033) 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. ● Add the $75,000 senior secured Term Loan. ● Extend the maturity of the Credit Facility to April 2029. ● Make certain changes to the financial covenants. Under the revised Credit Facility, we maintain access to our Revolver, allowing access to up to $125,000 of borrowings. During 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 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 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. We have not sold any shares under this agreement. We routinely evaluate opportunities for strategic acquisitions. 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; however, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all. 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 through tender offers, privately negotiated transactions, or otherwise. The amount of debt that may be retired, if any, could be material. Retirement would be decided at the sole discretion of our Board of Directors and would depend on market conditions, our cash position, and other considerations. Dividends We have paid regular quarterly dividends since 2003. 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 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. Page 21 Table of Contents 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. Cash Flows Our cash flows from operating, investing, and financing activities were as follows (in thousands): Nine Months Ended December 31, 2024 2023 Net cash provided by operating activities $ 34,143 $ 31,250 Net cash (used in) investing activities (3,492 ) (81,732 ) Net cash (used in) provided by financing activities (28,316 ) 45,769 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 $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 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 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. Page 22 Table of Contents Critical Accounting Policies and Estimates 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. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended March 31, 2024, in the Critical Accounting Policies and Estimates section of Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. Non-GAAP Measures In addition to the financial measures prepared in accordance with generally accepted accounting principles, we present organic revenues growth (reported revenues growth excluding revenues from recent acquisitions), as a supplemental non-GAAP financial measure. 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 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: Total Revenues Growth Impact of Acquisitions Organic Revenues Growth (non-GAAP) Three Months Ended December 31, Three Months Ended December 31, Three Months Ended December 31, 2024 2023 2024 2023 2024 2023 Sterilization and Disinfection Control 21.6 % 18.8 % (13.8 %) (23.6 %) 7.8 % (4.8 %) Clinical Genomics 1.0 % (19.5 %) - % - % 1.0 % (19.5 %) Biopharmaceutical Development 29.8 % (19.0 %) - % (0.1 %) 29.8 % (19.1 %) Calibration Solutions 18.7 % 12.9 % - % - % 18.7 % 12.9 % Total Company 17.5 % (1.5 %) (4.9 %) (7.1 %) 12.6 % (8.6 %) Total Revenues Growth Impact of Acquisitions Organic Revenues Growth (non-GAAP) Nine Months Ended December 31, Nine Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 2024 2023 Sterilization and Disinfection Control 31.2 % 9.0 % (28.3 %) (8.0 %) 2.9 % 1.0 % Clinical Genomics (14.2 %) (14.6 %) - % - % (14.2 %) (14.6 %) Biopharmaceutical Development 26.6 % (17.9 %) - % (0.3 %) 26.6 % (18.2 %) Calibration Solutions 10.1 % 8.6 % - % - % 10.1 % 8.6 % Total Company 13.7 % (3.8 %) (9.4 %) (2.4 %) 4.3 % (6.2 %) I tem 3. Quantitative and Qualitative Disclosures a bout Market Risk Foreign Currency Exchange Rates We face exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates. 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 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. 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. 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. 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. Interest Rates Our Credit Facility bears interest at either a base rate or a SOFR rate plus an applicable spread. Based on the balance outstanding as of December 31, 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. 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. We cannot reasonably estimate our ability to successfully recover any impact of inflation cost increases into the future. Other We have no derivative instruments. We have minimal exposure to commodity market risks. Page 23 Table of Contents