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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-02-04 · 182 added, 241 removed, 130 unchanged (76% of the section changed)

19 unchanged sentences

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;

significant developments or uncertainties stemming from governmental actions, including changes in trade policies such as tariffs, and changes in medical device regulations;

the timely development and commercialization, and customer acceptance, of enhanced and new products and services;

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cost pressures;

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

laws regulating fraud and abuse in our industries, privacy and security of health and personal information;

product liability;

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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.

As of June 30, 2025, we managed our operations in four reportable segments, or divisions:

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

Each of our divisions is described further in "Results of Operations" below.

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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.

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

We serve a broad set of industries, in particular the pharmaceutical, healthcare and medical device sectors, 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.

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 the impact of changes in foreign currency rates on our reported revenues.

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 and services 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 significant facts and circumstances that may arise, such as increases in the price of inputs to our products, or in response to changes in government or regulatory policies, for example, due to the imposition of tariffs.

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.

Over the past decade, we have consummated a number of acquisitions of businesses, technologies, or intangibles such as customer lists, as part of our growth strategy.

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.

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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:

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

We achieve efficiencies using the Mesa Way , our customer-centric, lean-based system for continuously improving our operations.

The Mesa Way is built on four key pillars:

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

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

"Empowering Teams" to improve operationally and to 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.

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.

and "Always Learning" to continuously build knowledge and capabilities to drive long-term performance.

Our gross profit is affected by many factors, including the types of products and services sold and the geographical region in which we sell them, labor and product costs (including costs of transporting, importing and exporting goods, and associated tariffs), manufacturing efficiencies, foreign currency rates and price competition.

Historically, as we have integrated acquisitions into our business 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.

We continuously pursue opportunities to improve the efficiency of our administrative functions, including through the use of process automation and artificial intelligence.

Hire, Develop, and Retain Top Talent

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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.

During the three months ended June 30, 2025, approximately 54% of our revenues were earned outside of the United States.

Our geographic and industry diversity presents both opportunities and challenges, including those associated with operating in varied economic environments, complying with increasing regulatory requirements including tariffs and reciprocal tariffs, navigating global labor trends and costs, adapting to technology changes in served markets, pursuing expansion opportunities in high-growth markets, and monitoring foreign currency impacts against the U.S.

dollar ("USD").

Our continued revenues growth will depend on our ability to (i) expand business with new and existing customers through ongoing commercial efforts, (ii) identify, consummate and integrate acquisitions successfully, and (iii) develop or acquire differentiated products and services.

We strive to maintain our profitability by improving the effectiveness of our sales force, by continuing to pursue cost reduction initiatives, and by taking a long-term strategic approach to investments in our business that we believe will support future commercial success.

During the first quarter of fiscal year 2026, our revenues increased 2.4% versus the comparable prior year period, primarily as a result of organic revenues growth in our Sterilization and Disinfection Control and Calibration Solutions divisions, partially offset by revenues declines in our Clinical Genomics and Biopharmaceutical Development divisions.

Gross profit as a percentage of revenues decreased 2.0 percentage points to 62.0% in the first quarter of fiscal year 2026 versus the comparable prior year period;

however, the direct impact of tariffs on our gross profit percentage for the first quarter of fiscal year 2026 was modest.

Operating expenses increased 7.0% for the three months ended June 30, 2025 versus the comparable prior year period.

Changes in global markets, including the weakening of the U.S.

dollar, current tariffs and inflationary pressures, and economic uncertainty during the three months ended June 30, 2025 have resulted in higher reported costs of revenues and operating expenses.

We expect that the impact of current tariffs will continue to apply upward pressure on our costs.

In future periods, we expect to partially offset the operating profit impact of the enacted tariff with price increases, supply chain adjustments, surcharges, and additional productivity and cost savings actions;

however, we cannot predict the impact rising costs will ultimately have on our operating profits.

We source parts and materials from vendors and sell to customers throughout the world.

Beginning in the first quarter of fiscal year 2026, the U.S.

implemented significant tariffs on imports from a wide range of countries, which prompted retaliatory tariffs by a number of countries, resulting in some cases in a cycle of further retaliatory tariffs by both the U.S.

and other countries.

In early April 2025, actions were taken by the U.S.

and certain other countries to delay the effective date of certain of these tariffs, but a number of the new tariffs remain in effect, including significant tariffs between the U.S.

In addition to changes in trade policy, there have been a number of international and domestic policy and regulatory changes in recent years that have resulted in uncertainty and in some cases, slower selling cycles for our instruments.

Our Sterilization and Disinfection Control and Calibration Solutions division benefited from strong commercial execution and increased orders in the first quarter of fiscal year 2026 compared to the same period in fiscal year 2025.

Both the Biopharmaceutical Development and Clinical Genomics divisions experienced challenges presented by changing global trade and regulatory environments, including the impact of tariffs and uncertainty regarding their duration and magnitude, which contributed to delays in customer purchasing decisions.

The strengthening of foreign currencies against the U.S.

dollar increases our reported revenues, gross profit margins, operating expenses and other income, and impacts the comparability of our results between periods.

Conversely, the strengthening of the U.S.

dollar against other major currencies would adversely impact our revenues and results of operations overall.

Results of Operations

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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).

Financial Statements (Unaudited) .

Results by reportable segment are as follows:

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Gross Profit as a % of Revenues

Three Months Ended December 31,

Three Months Ended June 30,

amounts in thousands, except percent data

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Mesa's reportable segments

Organic Revenues Growth (non-GAAP) (a)

Gross Profit as a % of Revenues

Nine Months Ended December 31,

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Mesa's reportable segments

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

See "Non-GAAP Measures" below for further information and for a reconciliation of organic revenues growth to total revenues growth.

Organic revenues growth in our Sterilization and Disinfection Control division for the three months ended June 30, 2024 differed from total GAAP revenues growth due to the acquisition of GKE;

for all other amounts presented, GAAP revenues growth is equivalent to organic revenues growth.

Our unaudited condensed consolidated results of operations are as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

amounts in thousands, except percent data

Operating expense

Operating income (loss)

Net (loss) income

Operating income

Reportable Segments

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

Three Months Ended December 31,

Nine Months Ended December 31,

Gross profit as a % of revenues

The Sterilization and Disinfection Control division's revenues increased 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,

Nine Months Ended December 31,

Three Months Ended June 30,

amounts in thousands, except percent data

Gross profit as a % of revenues

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

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

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

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

Gross profit percentage for the Clinical Genomics division increased 3.5 and 4.0 percentage points for the three and nine months ended December 31, 2024 versus the comparable prior year periods, primarily due to lower intangibles amortization expense as a result of an impairment charge recorded in the fourth quarter of fiscal year 2024.

Excluding amortization expense, gross profit as a percentage of revenues would have decreased 6.3% for the three months ended December 31, 2024 versus the comparable prior year period, primarily attributable to lower margin instrument sales into the APAC region.

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

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

The Sterilization and Disinfection Control division's revenues increased 10.7% for the three months ended June 30, 2025 versus the comparable prior year period.

Growth was driven by strong commercial execution resulting in increased sales volumes, and to a lesser extent, increased order fulfillments of our past due backlog as our manufacturing productivity increased, as well as the benefit of higher reported revenues as the euro strengthened against the U.S.

We reduced our past due backlog by approximately $0.8 million compared to March 31, 2025.

Gross profit as a percentage of revenues increased 3.7 percentage points for three months ended June 30, 2025, primarily as a result of a $0.8 million charge for non-cash inventory step-up amortization related to the GKE acquisition that was recorded in the comparable prior year period, and to a lesser extent, favorable foreign currency impacts.

Excluding the impact of non-cash inventory step-up amortization, gross profit as a percentage of revenue would have been 71.5% and 71.2% for the three months ended June 30, 2025 and 2024, respectively.

Biopharmaceutical Development

Our Biopharmaceutical Development division develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions.

Our Biopharmaceutical Development division ("BPD") 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 biotherapeutic therapies, among other applications.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

amounts in thousands, except percent data

Gross profit as a % of revenues

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.

The Biopharmaceutical Development division's revenues decreased 4.3% for the three months ended June 30, 2025 versus the comparable prior year period.

The decline in revenues for the three months ended June 30, 2025 was driven by the timing of customer immunoassays order placements, including order delays as customers navigate purchasing decisions amid evolving macroeconomic uncertainty and tariff conditions, partially offset by higher reported revenues from the strengthening of the euro against the U.S.

While revenues from hardware, and to a lesser extent consumables, declined, revenues from services increased 3.5% for the three months ended June 30, 2025 versus the comparable prior year period.

Gross profit as a percentage of revenues for the Biopharmaceutical Development division decreased 11.4 percentage points for the three months ended June 30, 2025.

The decrease was primarily due to unfavorable product mix as higher-margin immunoassays revenues comprised approximately 68% of the division’s total revenues, versus approximately 76% in the comparable prior year period, and decreased revenues.

Additionally, a large percentage of the division’s cost of goods is denominated in Swedish krona, which appreciated approximately 12% against the U.S.

dollar for the three months ended June 30, 2025 versus the comparable prior year period.

We do not expect the peptides mix to remain at elevated levels throughout the rest of fiscal year 2026, and as a result, we anticipate gross margin percentage for the Biopharmaceutical Development division will improve.

Calibration Solutions

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

Three Months Ended December 31,

Nine Months Ended December 31,

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 and torque testing.

Three Months Ended June 30,

amounts in thousands, except percent data

Gross profit as a % of revenues

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.

The Calibration Solutions division's revenues increased 4.7% for the three months ended June 30, 2025 versus the comparable prior year period, primarily due to commercial efforts to renew contracts with larger customers that incentivized utilization of our service offerings, particularly in our renal care product line and, to a lesser extent, price increases.

The Calibration Solutions division's gross profit as a percentage of revenues decreased 4.4 percentage points for the three months ended June 30, 2025 versus the comparable prior year period, primarily due to increased labor costs, as we have hired additional employees to support future growth, and to a lesser extent as a result of increased manufacturing input costs, primarily due to tariffs, and product mix.

Clinical Genomics

The Clinical Genomics division develops, manufactures and sells highly sensitive 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 June 30,

amounts in thousands, except percent data

Gross profit as a % of revenues

The Clinical Genomics division's revenues decreased 9.7% for the three months ended June 30, 2025 versus the comparable prior year period, primarily due to lower sales in China as a result of macroeconomic, regulatory and tariff uncertainty.

Decreases in China were partially offset by 18.6% increases in revenues in the United States, primarily from consumables, as we execute our new product development and commercial strategy.

While we anticipate revenues growth in the U.S.

and Europe in the remainder of the fiscal year, we expect revenues from China over the remainder of the fiscal year to continue to decrease compared to the prior year.

Gross profit percentage for the Clinical Genomics division decreased 4.2 percentage points for the three months ended June 30, 2025 versus the comparable prior year period, primarily due to lower revenues on a partially fixed cost base.

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.

Operating expense increased 7.0% for the three months ended June 30, 2025 versus the comparable prior year period.

Reported selling, general and administrative, and research and development expenses increased due to the weakening of the U.S.

dollar against the euro and Swedish krona for the three months ended June 30, 2025 compared to the prior year period.

Selling Expense

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accordingly, it may vary with sales levels.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

amounts in thousands, except percent data

Selling expense

As a percentage of revenues

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.

Selling expense for the three months ended June 30, 2025 increased 8.1% versus the comparable prior year period.

The increase is primarily attributable to investments in additional personnel expenses in an effort to continue to drive higher organic growth.

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,

Nine Months Ended December 31,

Three Months Ended June 30,

amounts in thousands, except percent data

General and administrative expense

As a percentage of revenues

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.

General and administrative expense increased 6.8%, primarily due to higher personnel costs, including increased non-cash stock-based compensation resulting from an adjustment to performance-based awards to reflect achievement against targets through June 30, 2025.

Increases to stock-based compensation expense were partially offset by lower consulting and professional services expenses, as our prior year results included consulting costs related to integrating GKE into our enterprise resource planning system.

Research and Development Expense

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

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

amounts in thousands, except percent data

Research and development expense

As a percentage of revenues

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

Non-operating Expense (Income), Net

Three Months Ended December 31,

Nine Months Ended December 31,

Research and development expenses increased slightly for the three months ended June 30, 2025 versus the comparable prior year period, primarily as a result of purchases of supplies to support project-specific research and development activities.

Non-Operating (Income) Expense, Net

Three Months Ended June 30,

amounts in thousands, except percent data

Interest expense and amortization of debt issuance costs

(Gain) on extinguishment of convertible senior notes

Other expense (income), net

Non-operating expense (income), net

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

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

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

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

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

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

Three Months Ended December 31,

Nine Months Ended December 31,

Income tax (benefit) expense

Other (income) expense, net

Non-operating (income) expense, net

During the three months ended June 30, 2025, the U.S.

dollar weakened against the euro.

As a result, we recognized unrealized foreign currency gains of approximately $6.1 million from an intercompany U.S.

dollar-denominated loan issued in fiscal year 2024 to one of our wholly owned, euro-denominated subsidiaries.

We incurred less interest expense during the three months ended June 30, 2025 versus the comparable prior year period primarily due to lower balances outstanding under our revolving line of credit in fiscal 2026, and to a lesser extent due to lower interest rates on our floating rate debt.

We expect interest expense to increase in each remaining quarter of fiscal year 2026 compared to the first quarter of 2026 as our convertible notes mature in August 2025 and will be replaced with a borrowings under our revolving line of credit that will bear interest at a higher rate.

The $2.9 million gain on extinguishment of the convertible notes reported in the first quarter of fiscal year 2025 was a result of the settlement of $75.0 million aggregate principal of the notes during that period.

Three Months Ended June 30,

amounts in thousands, except percent data

Income tax expense

Effective tax rate

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 effective income tax rate was 32.4% for three months ended June 30, 2025 compared to 13.2% for the three months ended June 30, 2024.

The change in the effective tax rate for three months ended June 30, 2025 compared to the prior year period is primarily due to prior year valuation allowance adjustments related to our operations in Germany and an increase in German statutory taxes in the current fiscal year.

The effective tax rate for the three months ended June 30, 2025 differed from the statutory federal rate of 21% primarily due to the valuation allowances previously established on the U.S.

deferred taxes and varying applicable tax rates in foreign jurisdictions.

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.

Market-Based Awards

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

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

Net income included $4.6 million, $3.9 million and $1.4 million of non-cash amortization of intangible assets, stock-based compensation expense, and depreciation expense, respectively, and currency gains of $6.2 million for the three months ended June 30, 2025.

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.

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, and cash available from borrowings under our Credit Facility.

We believe these sources of cash are sufficient to meet our ongoing operating requirements, scheduled debt service obligations, dividend payments and anticipated capital expenditures.

Historically, our more significant uses of cash have included acquisitions, payments on debt principal and interest obligations, and quarterly dividends paid to shareholders.

In April 2025, we released a $9.6 million holdback payment related to the GKE acquisition.

This amount was previously withheld from GKE’s purchase price to cover potential post-closing adjustments and indemnification obligations.

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 had negative working capital of $(51.2) million and $(61.3) million as of June 30, 2025 and March 31, 2025, respectively.

Our negative working capital balances are primarily due to the classification of the $97.5 million remaining principal on our Notes, due August 15, 2025, as a current liability on our Condensed Consolidated Balance Sheets.

We held $21.3 million and $27.3 million in cash and cash equivalents as of June 30, 2025 and March 31, 2025, respectively.

We have an outstanding Revolver that allows us to borrow to up to $125.0 million.

During fiscal year 2024, we borrowed a total of $71.0 million under the Revolver to fund the majority of the GKE acquisition and since then we have borrowed against the revolver from time to time to fund general corporate needs.

As of June 30, 2025, $14.0 million remained outstanding.

Subsequent to June 30, 2025, we repaid an additional $3,000 on the Revolver.

Including the current portion of our Term Loan and the Notes, principal debt payments due within the next twelve months total $101.7 million.

We plan to fund the amounts due using a combination of cash on hand, draws against our Revolver, which had $111.0 million available as of June 30, 2025, and cash generated from operating activities until maturity.

Based on applicable interest rates and debt balances outstanding as of June 30, 2025, we expect to incur approximately $12.3 million in cash interest expense over the next twelve months, adjusted for scheduled principal payments and anticipated borrowings under the Credit Facility to settle the Notes.

We routinely evaluate opportunities for strategic acquisitions.

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We have paid regular quarterly dividends since 2003.

We paid dividends of $0.16 per share during the three months ended 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.

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.

We paid dividends of $0.16 per share during the three months ended June 30, 2025, as well as each quarter of fiscal year 2025.

In July 2025, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on September 15, 2025, to shareholders of record at the close of business on August 29, 2025.

Goodwill Impairment Testing

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

As of June 30, 2025, we concluded that our reporting units are not impaired;

however, adverse economic, market or industry-specific conditions (including declines in our market capitalization), adverse or expected adverse changes in the business climate or in our operational performance, adverse changes in legal or regulatory environments, failure to achieve forecasted cash flows, or any combination of these or other such factors could result in future impairment losses in our reporting units in the future.

Our Clinical Genomics and Peptides reporting units remain particularly sensitive to significant changes in assumptions and therefore have a heightened risk of future impairment losses.

The valuation of our reporting units for impairment testing purposes relies on significant management judgment and the use of unobservable Level 3 inputs, including discount rates, forecasted results such as earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue growth rates, operating expense projections, the identification of comparable public entities, and applied market multiples.

We continue to monitor the impact of tariffs imposed in calendar year 2025.

Depending on the persistence and magnitude of the tariffs and other factors, it is reasonably possible our Clinical Genomics and Peptides reporting units will incur impairment losses in the future.

As of our most recent annual impairment test on January 1, 2025, the estimated fair values of the Clinical Genomics and Peptides reporting units exceeded their carrying values by approximately 40% and 20%, respectively.

As of June 30, 2025, the carrying values of goodwill and other intangible assets associated with our Clinical Genomics reporting unit were $17.1 million and $8.9 million, respectively.

The carrying values of goodwill and other intangible assets associated with our Peptides reporting unit were $13.7 million and $0.8 million, respectively, as of June 30, 2025.

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

Nine Months Ended December 31,

Three Months Ended June 30,

amounts in thousands

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash (used in) provided by financing activities

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

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

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

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

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

Cash used in financing activities resulted in a $28,316 use of cash for the nine months ended December 31, 2024.

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

We used $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.

Net cash (used in) financing activities

Cash flows from operating activities provided $1.9 million, for the three months ended June 30, 2025, a decrease of $8.8 million versus the comparable prior year period.

The decrease in cash flows from operating activities was primarily a result of:

lower gross margins,

higher cash payments in the first quarter of fiscal year 2026 to settle accrued bonus and commissions that were accrued at the end of fiscal year 2025;

increased cash spent on inventory as we purchase finished goods and warehouse them in international locations as part of our tariff strategy.

Cash used in investing activities increased modestly for the three months ended June 30, 2025 compared to the prior year period as we invested in property, plant and equipment across several manufacturing sites.

Cash used in financing activities resulted in a $8.4 million use of cash for the three months ended June 30, 2025.

We borrowed $10.5 million under the Revolver largely to fund a $9.6 million payment of the GKE acquisition-related holdback and for other general corporate needs.

We repaid $7.4 million of principal on our debt in the three months ended June 30, 2025, compared to $9.4 million in the prior year period.

Recent Accounting 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 I.

Financial Statements (Unaudited).

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.

On a consolidated basis, as of June 30, 2025, we had contractual obligations for open purchase orders of approximately $14.2 million 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 and other payments.

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.

For a description of our contractual obligations and other commercial commitments as of March 31, 2025, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the Securities and Exchange Commission on May 28, 2025.

Critical Accounting Estimates

Critical accounting estimates are those that we consider both significant to the preparation of our financial statements and that require complex, subjective, or highly judgmental assessments.

These estimates often involve assumptions about inherently uncertain matters and are based on our historical experience, as well as other factors we believe to be appropriate under the circumstances.

For example, we incorporate expert input when developing estimates used in the valuation of reporting units for goodwill impairment testing.

The accounting estimates that require significant management judgment and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, in “Critical Accounting Policies and Estimates” in 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.

While we believe our estimates, assumptions and judgements are reasonable, actual results may differ materially from these estimates.

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.

In addition to financial measures prepared in accordance with generally accepted accounting principles, we present organic revenues growth, defined as reported revenues growth excluding revenues from recent acquisitions, as a supplemental non-GAAP financial measure.

We believe this measure facilitates comparability between current and prior period information and provides insight into Mesa’s short-term and long-term performance and growth trends.

We use organic revenues growth internally for forecasting, evaluating operating performance, comparing current and historical revenue results, and informing financial and operating decision-making, including for compensation-setting purposes.

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

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Organic Revenues Growth (non-GAAP)

Three Months Ended December 31,

Three Months Ended June 30,

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Total Company

Total Revenues Growth

Impact of Acquisitions

Organic Revenues Growth (non-GAAP)

Nine Months Ended December 31,

Sterilization and Disinfection Control

Clinical Genomics

Biopharmaceutical Development

Calibration Solutions

Total Company

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.

We have no derivative instruments.

We have minimal exposure to commodity market risks.

For information regarding our exposure to certain market risks, see Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended March 31, 2025.

There were no material changes to our market risk exposure during the three months ended June 30, 2025.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis