MESA LABORATORIES INC /CO/ 10-Q

Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, except per share amounts) Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ” ). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements in this Quarterly Report on Form 10-Q which are not strictly historical statements, including, without limitation, express or implied statements or guidance regarding current or future financial performance and position; results of acquisitions; management ’ s strategy, plans and objectives for future operations or acquisitions, product development and sales; and adequacy of capital resources and financing plans constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates, and management ’ s beliefs and assumptions. In addition, other written and oral statements that constitute forward-looking statements may be made by the Company or on the Company ’ s behalf. Words such as “ seek, ” “ believe, ” “ may, ” “ intend, ” “ could, ” “ target, ” “ expect, ” “ anticipate, ” “ plan, ” “ estimate, ” “ project, ” or variations of such words and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including risks associated with: our ability to successfully grow our business, including as a result of acquisitions; the effect that acquisitions have on our operations; our ability to consummate acquisitions at our historical rate and at appropriate prices, and our ability to effectively integrate acquired businesses and achieve desired results; the market acceptance of our products; technological or market viability of our products; potential reduced demand for our products, including as a result of competitive factors; conditions in the global economy and the particular markets we serve; significant developments or uncertainties stemming from governmental actions, including changes in trade policies such as tariffs, and changes in medical device regulations; the timely development and commercialization, and customer acceptance, of enhanced and new products and services; retirement of old products and customer migration to new products; the potential inaccuracy of projections of revenues, growth, operating results, profit margins, earnings, expenses, margins, tax rates, tax provisions, liquidity, cash flows, demand, and competition; the effects of actions taken to become more efficient or lower costs ; supply chain challenges; cost pressures; laws regulating fraud and abuse in our industries, privacy and security of health and personal information; product liability; information security; outstanding claims, legal and regulatory proceedings; international business challenges including anti-corruption and sanctions laws and political developments; tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic, industry, and capital markets conditions ; the timing of any of the foregoing ; and assumptions underlying any of the foregoing. Such risks and uncertainties also include those listed in Item 1A. “ Risk Factors ” in our Annual Report on Form 10-K for the year ended March 31, 2025 and in this report. The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. We disclaim any obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. Overview We are a global leader in the design and manufacture of life sciences tools and critical quality control solutions for regulated applications in the pharmaceutical, healthcare and medical device industries. We offer products and services to help our customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe and Asia Pacific, and by independent distributors throughout the world. 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. Unallocated corporate expenses and other business activities are reported within Corporate and Other. Page 19 Table of Contents 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. 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 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 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. In turn, this growth affords us the ability to improve our operating efficiency, extend our customer base, and further the pursuit of our purpose: Protecting the Vulnerable®. Improving Our Operating Efficiency Our ongoing goal is to maximize value in our 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 to exceed customer expectations; "Sustainably Improving" using lean-based tools designed to help us identify and prioritize the best opportunities; 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 At the center of our organization are talented people who are capable of taking on new challenges using a team-based approach. Indeed, it is our exceptionally talented workforce that works together to find ways to continuously and sustainably improve our products, our services, and ourselves, resulting in long-term value creation for our stakeholders. Page 20 Table of Contents General Trends We are a global company with multinational operations. 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. and China. 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. Page 21 Table of Contents Results of Operations Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto appearing in Item 1. Financial Statements (Unaudited) . Results by reportable segment are as follows: Revenues Organic Revenues Growth (non-GAAP) (a) Gross Profit as a % of Revenues Three Months Ended June 30, amounts in thousands, except percent data 2025 2024 2025 2024 2025 2024 Sterilization and Disinfection Control $ 25,410 $ 22,957 10.7 % 4.9 % 71.5 % 67.8 % Biopharmaceutical Development 11,486 12,008 (4.3 %) 21.4 % 54.9 % 66.3 % Calibration Solutions 12,350 11,801 4.7 % 3.0 % 57.0 % 61.4 % Clinical Genomics 10,297 11,404 (9.7 %) (14.7 %) 52.7 % 56.9 % Total $ 59,543 $ 58,170 2.4 % 2.5 % 62.0 % 64.0 % (a) Organic revenues growth is a non-GAAP measure of financial performance. See "Non-GAAP Measures" below for further information and for a reconciliation of organic revenues growth to total revenues growth. 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 June 30, Total amounts in thousands, except percent data 2025 2024 Change Revenues $ 59,543 $ 58,170 2.4 % Gross profit 36,939 37,249 (0.8 %) Operating expense 33,875 31,669 7.0 % Operating income 3,064 5,580 (45.1 %) Net income $ 4,742 $ 3,388 40.0 % Page 22 Table of Contents Reportable Segments Sterilization and Disinfection Control Our Sterilization and Disinfection Control division manufactures and sells biological, chemical and cleaning indicators used to assess the effectiveness of sterilization, decontamination, disinfection and cleaning processes in the pharmaceutical, medical device and healthcare industries. The division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries. Sterilization and Disinfection Control products are disposable and are used on a routine basis. Three Months Ended June 30, Total amounts in thousands, except percent data 2025 2024 Change Revenues $ 25,410 $ 22,957 10.7 % Gross profit 18,166 15,558 16.8 % Gross profit as a % of revenues 71.5 % 67.8 % 3.7 pt 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. dollar. 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 ("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 June 30, Total amounts in thousands, except percent data 2025 2024 Change Revenues $ 11,486 $ 12,008 (4.3 %) Gross profit 6,306 7,959 (20.8 %) Gross profit as a % of revenues 54.9 % 66.3 % (11.4 pt) 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. dollar. 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. Page 23 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 and torque testing. Three Months Ended June 30, Total amounts in thousands, except percent data 2025 2024 Change Revenues $ 12,350 $ 11,801 4.7 % Gross profit 7,042 7,242 (2.8 %) Gross profit as a % of revenues 57.0 % 61.4 % (4.4 pt) 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, Total amounts in thousands, except percent data 2025 2024 Change Revenues $ 10,297 $ 11,404 (9.7 %) Gross profit 5,425 6,490 (16.4 %) Gross profit as a % of revenues 52.7 % 56.9 % (4.2 pt) 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. Page 24 Table of Contents Operating Expense 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 Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels. Three Months Ended June 30, Total amounts in thousands, except percent data 2025 2024 Change Selling expense $ 10,933 $ 10,116 8.1 % As a percentage of revenues 18.4 % 17.4 % 1.0 pt 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 June 30, Total amounts in thousands, except percent data 2025 2024 Change General and administrative expense $ 17,958 $ 16,818 6.8 % As a percentage of revenues 30.2 % 28.9 % 1.3 pt 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 June 30, Total amounts in thousands, except percent data 2025 2024 Change Research and development expense $ 4,984 $ 4,735 5.3 % As a percentage of revenues 8.4 % 8.1 % 0.3 pt 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. Page 25 Table of Contents Non-Operating (Income) Expense, Net Three Months Ended June 30, Total amounts in thousands, except percent data 2025 2024 Change Interest expense and amortization of debt issuance costs $ 2,198 $ 2,842 (22.7 %) (Gain) on extinguishment of convertible senior notes - (2,887 ) N/A Other (income) expense, net (6,146 ) 1,720 (457.3 %) Non-operating (income) expense, net $ (3,948 ) $ 1,675 (335.7 %) 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. Income Taxes Three Months Ended June 30, Total amounts in thousands, except percent data 2025 2024 Change Income tax expense $ 2,270 $ 517 339.1 % Effective tax rate 32.4 % 13.2 % 19.2 pt 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 Income 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. Page 26 Table of Contents Liquidity and Capital Resources 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 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. Future material acquisitions may require us to obtain additional capital, assume additional third-party debt or incur other long-term obligations. We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities; however, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all. We may from time to time repurchase or take other steps to reduce our debt. These actions may include retirements or refinancing of outstanding debt through tender offers, privately negotiated transactions, or otherwise. The amount of debt that may be retired, if any, could be material. Retirement would be decided at the sole discretion of our Board of Directors and would depend on market conditions, our cash position and other considerations. Dividends We have paid regular quarterly dividends since 2003. We paid dividends of $0.16 per share during the three months ended 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. Page 27 Table of Contents 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. Cash Flows Our cash flows from operating, investing and financing activities were as follows (in thousands): Three Months Ended June 30, amounts in thousands 2025 2024 Net cash provided by operating activities $ 1,893 $ 10,743 Net cash (used in) investing activities (1,009 ) (891 ) Net cash (used in) financing activities (8,427 ) (9,419 ) 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; and ● 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. 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. 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. Page 28 Table of Contents 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 . While we believe our estimates, assumptions and judgements are reasonable, actual results may differ materially from these estimates. Non-GAAP Measures 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: Total Revenues Growth Impact of Acquisitions Organic Revenues Growth (non-GAAP) Three Months Ended June 30, 2025 2024 2025 2024 2025 2024 Sterilization and Disinfection Control 10.7 % 44.1 % - % (39.2 %) 10.7 % 4.9 % Biopharmaceutical Development (4.3 %) 21.4 % - % - % (4.3 %) 21.4 % Calibration Solutions 4.7 % 3.0 % - % - % 4.7 % 3.0 % Clinical Genomics (9.7 %) (14.7 %) - % - % (9.7 %) (14.7 %) Total Company 2.4 % 14.9 % - % (12.4 %) 2.4 % 2.5 % I tem 3. Quantitative and Qualitative Disclosures a bout Market Risk 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.