MESA LABORATORIES INC /CO/ 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis (“MD&A”) is intended to help investors understand Mesa, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in this Annual Report on Form 10-K. Unless the context requires otherwise, the terms “Mesa,” “Company,” “we,” “its,” and “our” in this Annual Report on Form 10-K refer to Mesa Laboratories, Inc. and its subsidiaries. This section generally discusses our fiscal years ended March 31, 2025 and March 31, 2024 items and year-to-year comparisons between fiscal year 2025 and fiscal year 2024. Discussions of fiscal year 2023 items and year-to-year comparisons between fiscal year 2024 and fiscal year 2023 that are not included in this report can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's 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 . (dollars in thousands, unless otherwise specified) 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 March 31, 2025, 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 industries, in which the safety, quality, and efficacy of products are critical. By delivering the highest quality products possible, we are committed to protecting the communities we serve. Organic Revenues Growth Organic revenues growth is driven by the expansion of our customer base, increases in sales volumes, new product offerings, and price increases, and may be affected positively or negatively by changes in foreign currency rates. Our ability to increase organic revenues is affected by general economic conditions, both domestic and international, customer capital spending trends, competition, currency exchange rates, 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. We evaluate the need to increase prices at other times of the year in response to changes in regulatory policy, such as the imposition of tariffs, or significant increases in the price of inputs to our products which could result from drastic changes to the macroeconomy. Inorganic Revenues Growth - Acquisitions 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. 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®. During fiscal year 2024, we completed the acquisition of GKE. GKE develops, manufactures and sells a highly competitive portfolio of chemical sterilization indicators, biologics, and process challenge devices to protect patient safety across global healthcare markets. 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 customers' perspective and setting high standards for 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 19 Table of Contents Our gross profit is affected by many factors including our product mix, foreign currency rates, manufacturing efficiencies, costs of products and labor, costs of transporting goods, and price competition. Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross profit percentages for some products have improved. There are, however, differences in gross profit percentages between product lines, and ultimately the mix of revenues will continue to impact our overall gross profit. Hire, Develop, and Retain Top Talent At the center of our organization are highly talented people who are capable of taking on new challenges using a team approach. Indeed, it is our exceptionally talented workforce that works together 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 our fiscal year 2025, 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 force, by continuing to pursue cost reduction initiatives, and by improving our operating efficiency.  Our revenues increased 11.5% in fiscal year 2025 compared with fiscal year 2024. GKE, which we purchased during the third quarter of fiscal year 2024, contributed $24.8 million of revenues in fiscal year 2025 compared with $9.3 million from the acquisition date in mid-October 2023 through March 31, 2024. Organic revenues increased 4.6% during fiscal year 2025, primarily as a result of organic revenues growth of 19.7% from our Biopharmaceutical Development division, 8.3% from our Calibration Solutions division, and 4.7% from our Sterilization and Disinfection Control division, partially offset by a 10.5% organic revenues decline in our Clinical Genomics division. Our Biopharmaceutical Development division has particularly benefited from improved capital equipment sales in fiscal year 2025 after being adversely impacted by industry-wide capital investment declines in the biopharmaceutical vertical in fiscal year 2024; hardware and software sales in the division increased 51.2% in fiscal year 2025 compared to fiscal year 2024. In general, we expect that as customers who have purchased equipment over the past 12 months adopt our technology into their businesses, consumables purchases will continue to increase in future periods. Our Clinical Genomics business continued to experience challenges presented by changing global regulatory environments. However, we began to realize benefits from implementing strategic changes in the Clinical Genomics division late in fiscal year 2024, and organic revenues growth increased 1.0% and 3.5% in the third and fourth quarters of fiscal year 2025 compared to prior year periods, respectively, despite continued regulatory challenges. Gross profit as a percentage of revenues increased one percentage point in fiscal year 2025 versus fiscal year 2024, primarily due to $3.4 million of lower intangible asset amortization expense flowing through cost of revenues as a result of the Clinical Genomics intangible asset impairment loss recorded in the fourth quarter of fiscal year 2024, partially offset by higher performance-based compensation costs related to our financial performance. Excluding a $274.5 million impairment loss recorded in the fourth quarter of fiscal year 2024, operating expenses increased 3.2% during fiscal year 2025 versus fiscal year 2024. 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) twelve months of operating expenses from GKE versus only about five and a half months in the comparable prior year period. These increases were partially offset by $4.8 million lower amortization expense in fiscal year 2025. We source parts and materials used to produce our products from many different countries and we sell our products globally. In the first quarter of fiscal year 2026, the United States implemented tariffs on imports from most countries, which has prompted retaliatory tariffs on U.S. imports in certain cases. In April 2025, the effective date of certain tariffs was delayed; however, tariffs remain in place on most products imported to the U.S. as well as on products exported from the U.S. into China. The amount of tariffs that will remain in place over the long term is uncertain and is expected to vary by country. While we are seeking ways to minimize the impact of tariffs, if the effective tariffs remain in place, we expect to incur additional costs to source materials, import, and export our products. We may experience decreasing revenues if we are unable to price our products competitively in China, or we may experience declining gross margins if we chose to absorb the costs of tariffs in our own business; these impacts could be material. 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. Page 20 Table of Contents Results of Operations Results by reportable segment are as follows: Revenues Organic Revenues Growth (non-GAAP) (a) Gross Profit as a % of Revenues Year ended March 31, Year ended March 31, Year ended March 31, amounts in thousands, except percentage data 2025 2024 2025 2024 2025 2024 Sterilization and Disinfection Control $ 93,418 $ 75,124 4.7 % 1.9 % 69.2 % 71.0 % Clinical Genomics 47,081 52,588 (10.5 %) (15.6 %) 54.5 % 51.5 % Biopharmaceutical Development 48,730 40,712 19.7 % (14.3 %) 61.4 % 62.4 % Calibration Solutions 51,749 47,763 8.3 % 6.6 % 59.2 % 57.7 % Reportable segments $ 240,978 $ 216,187 4.6 % (5.6 %) 62.6 % 61.6 % (a) Organic revenues growth is a non-GAAP measure of financial performance. See "Non-GAAP Reconciliations" below for further information and for a reconciliation of organic revenues growth to total revenues growth. Our consolidated results of operations are as follows: Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Revenues $ 240,978 $ 216,187 $ 219,080 11.5 % (1.3 %) Gross profit 150,870 133,250 133,693 13.2 % (0.3 %) Operating expense (excluding impairment losses) 134,534 130,792 130,373 2.9 % 0.3 % Impairment losses - 274,533 - (100.0 %) 100.0 % Operating income (loss) 16,336 (272,075 ) 3,320 106.0 % (8,295.0 %) Net (loss) income $ (1,974 ) $ (254,246 ) $ 930 99.2 % (27,438.3 %) We cannot accurately predict the impact that tariffs will have on our business in fiscal year 2026. In fiscal year 2025: ● We recognized $25.3 million of revenues from sales to customers in China, over $18.0 million of which was derived from products exported from the U.S. ● We recognized $116.6 million of revenues from sales to customers in the United States, over $16.0 million of which was derived from products imported to the U.S. from Sweden. ● We recognized approximately $56.1 million of revenues from customers in Europe, over $27.0 million of which was derived from products imported to Europe from the U.S. Our ability to continue to sell products at margins we have historically realized, in light of effective tariffs, will depend on price elasticity, customer demand, continued evolution of tariff rates, and overall market conditions, among other factors. We purchase a relatively immaterial portion of the materials we use in manufacturing our products from non-domestic sources that would likely be subject to effective or potential future tariffs. 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. Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Revenues $ 93,418 $ 75,124 $ 64,609 24.4 % 16.3 % Gross profit 64,660 53,302 46,520 21.3 % 14.6 % Gross profit as a % of revenues 69.2 % 71.0 % 72.0 % (1.8 pt) (1.0 pt) Sterilization and Disinfection Control revenues increased 24.4% for fiscal year 2025 compared to fiscal year 2024. GKE contributed $15.5 million more to revenues and $11.2 million more to gross profit during fiscal year 2025 compared to the partial year of ownership in fiscal year 2024. GKE's gross profit as a percentage of revenues was 66.5% and 57.7% during fiscal year 2025 and 2024, respectively. Excluding $1.2 million of amortization of the non-cash inventory step-up related to the GKE acquisition in each year, the Sterilization and Disinfection Control division's gross profit margin percentage was 70.5% and 72.6% during fiscal year 2025 and 2024, respectively. Excluding inorganic growth from the GKE acquisition, revenues in the Sterilization and Disinfection control division increased 4.7% and orders increased 6.4% in fiscal year 2025 compared to fiscal year 2024, driven by strong commercial execution. Increased order levels resulted in higher than normal past due backlog at certain times of the year. As of March 31, 2025, the Sterilization and Disinfection Control division's past due backlog was approximately $2.0 million higher compared to March 31, 2024, but has decreased approximately 27% compared to the end of the third quarter of our fiscal year 2025. Gross profit as a percentage of revenues in the Sterilization and Disinfection Control division declined 1.8 percentage points, primarily as a result of higher expense for performance-based personnel costs and temporary labor costs utilized to increase capacity to decrease our past due backlog. The Sterilization and Disinfection Control division recorded approximately $7.0 million of product revenues sourced directly from the U.S. into China during fiscal year 2025. We expect to continue sales of Sterilization and Disinfection Control products into China in fiscal year 2026 despite tariff charges; however, given the effective tariffs, we cannot predict whether sales volumes and/or gross profit margins on sales from the U.S. into China will decline compared to fiscal year 2025. Page 21 Table of Contents 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. Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Revenues $ 47,081 $ 52,588 $ 62,299 (10.5 %) (15.6 %) Gross profit 25,670 27,078 32,485 (5.2 %) (16.6 %) Gross profit as a % of revenues 54.5 % 51.5 % 52.1 % 3.0 pt (0.6 pt) Clinical Genomics revenues decreased 10.5% in fiscal year 2025 compared to fiscal year 2024, largely due to decreased revenues in China, and to a lesser extent lower hardware sales in the United States as a result of increased regulations of new lab-developed tests that were in place for almost all of fiscal year 2025. Restrictions on lab-developed tests that affected this division were vacated by a federal court ruling in March 2025; however, the FDA may appeal this favorable ruling within 60 days of the ruling. 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 monetary policy and the treatment of particular industries. Gross profit as a percentage of revenues for the Clinical Genomics division increased 3.0 percentage points for fiscal year 2025 compared to fiscal year 2024, primarily due to lower intangibles amortization expense as a result of impairment losses recorded in the fourth quarter of fiscal year 2024. Excluding amortization expense, gross profit as a percentage of revenues would have decreased 3.8 percentage points for fiscal year 2025 compared to fiscal year 2024, attributable to lower margin instrument sales into China, reserves for slow-moving inventory as sales declined, and to a lesser extent, lower revenues on a partially fixed cost base. The lower margin sales of hardware into China reflected a change in our strategy for growth in this division that we expected would drive future consumables sales. However, until effective tariffs into China moderate significantly, it is unlikely that we will be able to realize increased sales in China. The Clinical Genomics division recorded over $8.0 million of revenues from sales of goods produced in the U.S. to customers in China in fiscal year 2025, approximately half of which were sales of hardware and software. If effective tariffs remain in place for all of fiscal year 2026, we expect that revenues from sales of Clinical Genomics hardware will decline, however, we expect continued revenues from sales of consumables to existing customers. Biopharmaceutical Developmen t Our Biopharmaceutical Development division develops, manufactures, sells and services automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biologic therapies, among other applications. Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Revenues $ 48,730 $ 40,712 $ 47,365 19.7 % (14.0 %) Gross profit 29,913 25,400 30,340 17.8 % (16.3 %) Gross profit as a % of revenues 61.4 % 62.4 % 64.1 % (1.0 pt) (1.7 pt) Biopharmaceutical Development's revenues increased 19.7% for fiscal year 2025 compared to fiscal year 2024, benefitting from increased capital spending in the biopharmaceutical markets. Revenues from hardware and software increased 51.2% and revenues from consumables and services increased 4.9% in fiscal year 2025 compared to fiscal year 2024. Biopharmaceutical Development's gross profit as a percentage of revenues decreased one percentage point during fiscal year 2025, primarily as a result of higher materials costs, increased expense for performance-based personnel costs and unfavorable product mix. We produce the majority of the Biopharmaceutical Development division's products outside of the United States, and we believe we will be able to increase prices to substantially cover the impact of effective tariffs on these products imported into the U.S. Over $2.0 million of our Biopharmaceutical Development division’s product revenues were sourced from U.S. subsidiaries and sold into China in fiscal year 2025; effective tariffs are expected to negatively impact future sales and/or the profitability of the sales made to customers in China for this division. Page 22 Table of Contents Calibration Solutions The Calibration Solutions division develops, manufactures, sells and services quality control products using principles of advanced metrology to enable customers to measure and calibrate critical parameters in applications such as renal care, environmental and process monitoring, gas flow, air quality and torque testing, primarily in medical device manufacturing, pharmaceutical manufacturing, laboratory and hospital environments. Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Revenues $ 51,749 $ 47,763 $ 44,807 8.3 % 6.6 % Gross profit 30,637 27,547 24,388 11.2 % 13.0 % Gross profit as a % of revenues 59.2 % 57.7 % 54.4 % 1.5 pt 3.3 pt Calibration Solutions revenues increased 8.3% for fiscal year 2025 compared to fiscal year 2024, primarily due to commercial efforts, particularly in our renal care product lines, and price increases. The Calibration Solutions division's gross profit as a percentage of revenues increased 1.5 percentage points in fiscal year 2025 compared to fiscal year 2024, primarily due to increased revenues on a partially fixed cost base and product mix, partially offset by increased expense for performance-based personnel costs. Approximately $10.0 million of the Calibration Solution division’s product revenues in fiscal year 2025 were from customers outside of the United States. While we cannot predict the impact effective or potential tariffs will have on the division, we do not expect material impacts to gross profit as a percentage of revenues at this time. Operating Expense Excluding fiscal year 2024 impairment losses of $274.5 million, operating expenses for fiscal year 2025 increased 3.2% and were 56.0% and 60.5% of revenues for fiscal years 2025 and 2024, respectively. Selling Expense Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels. Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Selling expense $ 41,683 $ 38,625 $ 37,439 7.9 % 3.2 % As a percentage of revenues 17.3 % 17.9 % 17.1 % (0.6 pt) 0.8 pt Selling expense increased 7.9% for fiscal year 2025, but decreased 0.6 percentage points as a percentage of revenues. The increases in dollar terms are primarily attributable to increased performance-based compensation expense as our financial results improved, and the addition of GKE's selling expenses. General and Administrative Expense Labor costs, non-cash stock-based compensation and amortization of intangible assets drive the substantial majority of general and administrative expense. Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 General and administrative, other than impairment of finite-lived intangible assets and goodwill $ 73,333 $ 72,867 $ 72,444 0.6 % 0.6 % As a percentage of revenues 30.4 % 33.7 % 33.1 % (3.3 pt) 0.6 pt General and administrative expenses increased 0.6% for fiscal year 2025 and decreased 3.3 percentage points as a percentage of revenues. Amortization expense decreased $4.8 million, primarily driven by lower intangible asset values from the impairment losses recorded in the fourth quarter of fiscal year 2024, partially offset by a $1.3 million increase in amortization expense from owning GKE's intangibles for the full fiscal year 2025. Excluding amortization expense, for fiscal year 2025, general and administrative costs would have increased 10.2%, primarily as a result of higher expense for performance-based personnel costs, the addition of GKE's administrative operating expenses for a full year in fiscal year 2025 versus a partial year in fiscal year 2024, and 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 third-party consultants. Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Research and development expense $ 19,518 $ 19,300 $ 20,490 1.1 % (5.8 %) As a percentage of revenues 8.1 % 8.9 % 9.4 % (0.8 pt) (0.5 pt) Research and development expenses for fiscal year 2025 increased 1.1% compared to fiscal year 2024, primarily due to higher performance-based compensation expense and the inclusion of GKE's results for a full year of operations. These increases were partially offset by lower salaries expense, which is expected to continue into future periods. Impairment Impairment losses were recorded in our Clinical Genomics and Biopharmaceutical Development divisions in fiscal year 2024. The impairment losses were primarily the result of higher weighted average cost of capital, which decreases the fair value of businesses, as well as downward revisions of expected future performance compared to the expectations that existed at the time of our previous quantitative impairment analyses. We did not record any impairment losses in fiscal year 2025; however, certain reporting units remain sensitive to potential future impairment. See Note 6. "Goodwill and Intangible Assets, Net" in Item 8. Financial Statements and Supplementary Data for further information. Page 23 Table of Contents Nonoperating Expense, Net Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Interest expense and amortization of debt issuance costs $ 11,859 $ 5,697 $ 4,770 108.2 % 19.4 % (Gain) on extinguishment of convertible senior notes (2,887 ) - - N/A N/A Other expense (income), net 1,403 (2,124 ) (1,061 ) (166.1 %) 100.2 % Nonoperating expense, net $ 10,375 $ 3,573 3,709 190.4 % (3.7 %) We incurred significantly more interest expense during fiscal year 2025 than in fiscal year 2024 as we refinanced our Credit Facility during the first quarter of fiscal year 2025 in order to repurchase $75.0 million in aggregate principal of our Notes. We had $80.7 million outstanding under our Credit Facility as of March 31, 2025, net of discounts on the Term Loan, compared to $50.5 million outstanding under our Credit Facility as of March 31, 2024. Amounts outstanding under the Credit Facility bear interest at a significantly higher rate than amounts outstanding under the Notes. The $2.9 million gain on extinguishment of our Notes represents the difference between the cash paid to extinguish a portion of the Notes and their pro-rata carrying value the time of extinguishment in the first quarter of fiscal year 2025. Income Taxes Year Ended March 31, Total Change amounts in thousands, except percentage data 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Earnings (loss) before income taxes $ 5,961 $ (275,648 ) $ (389 ) $ 281,609 $ (275,259 ) Income tax expense (benefit) 7,935 (21,402 ) (1,319 ) 29,337 (20,083 ) Effective tax rate 133.1 % 7.8 % 339.1 % 125.3 pt (331.3 pt) Our effective income tax rate was 133.1% for fiscal year 2025 compared to 7.8% for fiscal year 2024. The effective tax rate of 133.1% for fiscal year 2025 differed from the statutory federal rate of 21% primarily due to adjustments to the valuation allowance related to our operations in the U.S. and Germany, and varying applicable tax rates in foreign jurisdictions. Our effective income tax rate of 7.8% for fiscal year 2024 differed from the statutory federal rate primarily due to the tax effect from intangible asset impairment losses recorded in the fourth quarter of fiscal year 2024. Please see Note 12. “Income Taxes” within Item 8. Financial Statements and Supplementary Data ) for a reconciliation of our income tax provision, including the impact of specific items on our overall effective income tax rate. Our future effective income tax rate depends on various factors, such as changes in the realizability of deferred tax assets, 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 the changes in revenues, gross profit, and operating expenses. Net (loss) income in fiscal year 2025 reflects, respectively, $19,145, $5,382, and $13,142 of non-cash amortization of intangible assets acquired in a business combination, non-cash depreciation, and non-cash stock-based compensation expense. Non-GAAP Reconciliations Adjusted operating income (which excludes the non-cash impact of amortization of finite-lived intangible assets acquired in a business combination, depreciation, stock-based compensation, and impairment of goodwill and finite-lived intangible assets) and organic revenues growth (reported revenues growth excluding the impact of revenues growth from recent acquisitions) are used by management as supplemental performance measures in order to compare current financial performance to historical performance, to assess the ability of our assets to generate cash, and to evaluate potential acquisitions. Adjusted operating income and organic revenues growth should not be considered alternatives to, or more meaningful than, net (loss) income, operating income (loss), reported revenues growth, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance or liquidity. The following table sets forth our reconciliation of operating income (loss) to adjusted operating income, a non-GAAP measure: Year Ended March 31, amounts in thousands 2025 2024 2023 Operating income (loss) $ 16,336 $ (272,075 ) $ 3,320 Amortization of intangible assets acquired in a business combination 19,145 27,341 28,821 Depreciation of long-lived assets 5,382 4,233 4,313 Stock-based compensation 13,142 11,936 12,538 Impairment losses on goodwill and finite-lived intangible assets - 274,533 - Adjusted operating income (non-GAAP) $ 54,005 $ 45,968 $ 48,992 Page 24 Table of Contents The following table sets forth our reconciliation of total revenues growth to organic revenues growth, a non-GAAP measure: Total Revenues Growth Impact of Acquisitions Organic Revenues Growth (non-GAAP) Year ended March 31, Year ended March 31, Year ended March 31, 2025 2024 2025 2024 2025 2024 Sterilization and Disinfection Control 24.4 % 16.3 % (19.7 %) (14.4 %) 4.7 % 1.9 % Clinical Genomics (10.5 %) (15.6 %) - % - % (10.5 %) (15.6 %) Biopharmaceutical Development 19.7 % (14.3%) - % - % 19.7 % (14.3 %) Calibration Solutions 8.3 % 6.6 % - % - % 8.3 % 6.6 % Total Company 11.5 % (1.3 %) (6.9 %) (4.3 %) 4.6 % (5.6 %) Liquidity and Capital Resources Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand and cash available from our Credit Facility (See Note 8. "Indebtedness" for a description of the Credit Facility), 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, when necessary, will be sufficient to meet our ongoing short-term and long-term operating requirements, scheduled principal and interest payments on debt, dividend payments, and anticipated capital expenditures. Our Open Market Sale Agreement SM expired in April 2025. Our more significant uses of resources have historically included acquisitions, payments on debt principal 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 acquired and financial liabilities assumed and inclusive of working capital adjustments. We paid a holdback of $9,555 related to the acquisition in April 2025. We had $27.3 million and $28.2 million of cash and cash equivalents as of March 31, 2025 and 2024, respectively. Working capital is the amount by which current assets exceed current liabilities. Our working capital balance was negative as of March 31, 2025 because the balance on our Notes, due August 15, 2025, is due within twelve months of our year end date and is therefore classified as a current liability. We had working capital of $(61.3) million and $65.0 million as of March 31, 2025 and 2024, respectively. During the first quarter of fiscal year 2025, and in anticipation of settling the Notes, we amended and restated our Credit Facility to: (i) Extend the maturity of the Credit Facility to April 2029; (ii) Allow proceeds from the Credit Facility to be used to redeem some or all of the Company’s Notes; (iii) Add the $75.0 million senior secured Term Loan; and (iv) Make certain changes to the financial covenants. Under the revised Credit Facility, we maintain access to our Revolver, allowing access to up to $125.0 million of borrowings. During fiscal year 2024, we borrowed a total of $71.0 million under the Revolver to fund the majority of the GKE acquisition. As of March 31, 2025, $10.0 million remained outstanding under the Revolver. We used proceeds of $75.0 million 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 $75.0 million aggregate principal amount of the Notes for an aggregate cash purchase price of approximately $71.3 million. Following these transactions, $97.5 million aggregate principal amount of the Notes remained outstanding and is now classified as current in our Consolidated Balance Sheets. Using the interest rate and debt balance outstanding effective as of April 30, 2025, we expect to incur cash interest expense within the next twelve months of approximately $10.6 million (adjusted for required future principal payments and expected borrowings to pay off the Notes. We have $97.5 million principal amount due on the Notes in August 2025. Together with the current portion of our Term Loan, the cash needed for principal debt payments is $101.3 million within the next twelve months. We plan use cash on hand, draws against our Revolver, which had $115.0 million available as of March 31, 2025, and cash generated from operating activities over the next four months 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 $150.0 million. We did not sell any shares under this agreement, and it expired in April 2025. 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 declared and paid dividends of $0.16 per share each quarter of the years ended March 31, 2025, 2024, and 2023. In April 2025, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on June 16, 2025, to shareholders of record at the close of business on May 30, 2025. Page 25 Table of Contents Cash Flows Our cash flows from operating, investing, and financing activities were as follows: Year Ended March 31, 2025 2024 2023 Net cash provided by operating activities $ 46,808 $ 44,133 $ 27,983 Net cash (used in) investing activities (4,499 ) (81,306 ) (9,494 ) Net cash (used in) provided by financing activities (44,509 ) 32,836 (33,328 ) Cash flows from operating activities for the year ended March 31, 2025 provided $46.8 million, an increase of $2.7 million versus the prior year. The increase in cash flows from operating activities for the year ended March 31, 2025 compared to March 31, 2024 was primarily a result of: ● improved performance, including an increase in operating profits from an increase in revenues of $24.8 million compared to the prior year, partially offset by ● higher cash spent for commissions, professional services costs, and GKE operating expenses for the full year of 2025 versus a partial year of 2024, and ● $6.4 million more cash used for interest payments on our debt, as we had higher balances outstanding for a longer period of time during fiscal year 2025. Cash used in investing activities in fiscal year 2025 primarily resulted from purchases of property, plant and equipment used in our normal operations. In fiscal year 2024, we used $78.7 million to fund the GKE acquisition. Cash used in financing activities in fiscal year 2025 primarily relates to principal payments of $44.3 million made on our Line of Credit. Additionally, we received proceeds of $73.5 from borrowings under our Line of Credit, which we used to fund a $71.6 million repurchase of our Notes. In fiscal year 2024, we drew $71.0 million against our line of credit to partially fund the purchase of GKE, and we repaid $33.5 million during the year. Critical Accounting Policies and Estimates Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates, judgments, and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. We believe that the following are the more critical judgment areas in the application of accounting policies that currently affect our financial condition and results of operations. Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit Committee of our Board of Directors. While our estimates and assumptions are based on our knowledge of current events and circumstances and actions we may take in the future, actual results may ultimately differ from these estimates and assumptions. For a discussion of our significant accounting policies, see Note 1. “Description of Business and Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data . Goodwill Impairment Testing We test goodwill for impairment on an annual basis as of January 1st each year, or more frequently if events and circumstances indicate it is more likely than not that the fair value of a given goodwill reporting unit is less than its carrying value. Events that would indicate impairment and trigger interim impairment tests include, but are not limited to: adverse current or expected economic, market, or industry-specific conditions, including a decline in our market capitalization; adverse changes or expected changes in business climate or in the operational performance of the business; adverse changes in legal factors; and adverse actions or assessments by a regulator. We monitor for indications of impairment throughout the year and perform qualitative and quantitative impairment tests as necessary based on quarterly preliminary assessments of our performance and any challenging circumstances and events. In fiscal year 2025 we elected to perform quantitative impairment tests over all five of our reporting units in conjunction with our annual impairment testing date. We estimated the fair values of our reporting units primarily using a discounted cash flow approach, supplemented by market multiple models. Our fair value measurements required the use of significant Level 3 inputs, including but not limited to: discount rates, forecasted results including earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue, revenue growth rates, operating expenses, the identification of comparable public entities, and applied market multiples. We estimated such inputs using internal expectations of future performance based on our historical experience, available financial data such as backlog and customer orders, and analyses over relevant facts and circumstances that have bearing on our assumptions, leveraging expert input where applicable. There are inherent uncertainties related to valuation assumptions, and in management’s judgment in applying them. Our assumptions and inputs are forward-looking, and could differ from actual future facts and conditions. Different assumptions from those used in our analyses could materially affect projected cash flows and our evaluation of the fair values of our reporting units. The Company engages third-party valuation specialists to aid in calculating fair value estimates. As a result of our fiscal 2025 impairment testing, we concluded that in all instances, the fair values of our reporting units exceeded their carrying values, and no impairment losses have been incurred or recorded in fiscal year 2025. Page 26 Table of Contents In addition to our annual impairment testing, as of March 31, 2025, we performed our regular quarterly review of potential indicators of impairment, and we performed certain sensitivity tests (including certain lookback analyses with probability-weighted adjustments to future performance outcomes) to ensure that changes in facts, circumstances and expectations did not indicate that it was more likely than not that any of our goodwill reporting units was impaired as of March 31, 2025. We concluded that, based on information known or reasonably knowable as of March 31, 2025, our reporting units more-likely-than-not remained unimpaired. However, Clinical Genomics and Peptides (a reporting unit within our Biopharmaceutical Development division) are sensitive to significant changes in assumptions and have a heightened risk of future impairment losses if actual results differ significantly from our estimates, including if significant changes to performance expectations, market factors, increases in the weighted average cost of capital, or changes in other unobservable and uncertain Level 3 inputs used to estimate the reporting units' fair values occur. Further, subsequent to March 31, 2025, escalating global trade tensions resulted in tariffs that could adversely impact our total revenues and/or the profitability of sales we make into China. We are evaluating the significance of these tariffs to our reporting units, and whether the tariffs represent a triggering event sufficient to require additional quantitative impairment testing of our goodwill and other long-lived assets in the first quarter of our fiscal year 2026. Depending on the persistence and magnitude of the tariffs imposed subsequent to our March 31, 2025 reporting period, and other factors, it is reasonably possible we will incur impairment losses with respect to the Clinical Genomics and Peptides reporting units in the future. The fair values of Clinical Genomics and Peptides exceeded their carrying values by approximately 40% and 20%, respectively, as of our January 1, 2025 annual impairment testing date. The carrying values of goodwill and other intangible assets associated with our Clinical Genomics reporting unit were $16.9 million and $9.3 million, respectively as of March 31, 2025. The carrying values of goodwill and other intangible assets associated with our Peptides reporting unit were $13.7 million and $0.9 million, respectively, as of March 31, 2025. Stock- b ased Compensation We recognize compensation expense for equity awards on a straight-line basis over the vesting period based upon 1) the fair value of the awards at grant date, and 2) the number of awards that are ultimately expected to vest; accordingly, such compensation expense is adjusted by an amount of estimated forfeitures. Further, we recognize and adjust compensation expense for awards that vest based on performance conditions by estimating the probability that applicable performance thresholds will be achieved in the future. The fair value of our market-based awards at grant date is assessed by a knowledgeable third-party using a Monte Carlo simulation, and requires the use of estimation. Our estimates of forfeiture rates, the probability of achieving performance goals, and the fair value of awards with market conditions each require judgment and, to the extent actual results or updated estimates of forfeiture rates or performance achievement differ from our current estimates, a cumulative adjustment to stock-based compensation expense may be recorded in periods in which estimates are revised. Income Taxes, Valuation of Deferred Taxes Our provision for income taxes requires the use of estimates in determining deferred tax items and related valuation allowances based on management’s interpretation and application of complex tax laws and accounting guidance. We establish allowances for uncertain tax positions for material, known tax exposures relating to deductions, transactions and other matters involving uncertainty as to the measurement and recognition of the item. While we believe that our allowances are adequate, issues raised by a tax authority may be finally resolved at an amount different than the related reserve and it is reasonably possible that our income tax provision in the current and/or future periods could materially increase or decrease. Recent Accounting Standards and Pronouncements For a discussion of the new accounting standards impacting the Company, refer to Note 1. “Description of Business and Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data . Contractual Obligations We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. On a consolidated basis, at March 31, 2025, we had contractual obligations for open purchase orders of approximately $14,300 for routine purchases of supplies and inventory, of which the substantial majority are payable in less than one year. See "Liquidity and Capital Resources" for information related to future required debt payments. 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.