Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis (“MD&A”) is intended to help investors understand Mesa, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in this Annual Report on Form 10-K. Unless the context requires otherwise, the terms “Mesa,” “Company,” “we,” “its,” and “our” in this Annual Report on Form 10-K refer to Mesa Laboratories, Inc. and its subsidiaries.
This section generally discusses our fiscal years ended March 31, 2025 and March 31, 2024 items and year-to-year comparisons between fiscal year 2025 and fiscal year 2024. Discussions of fiscal year 2023 items and year-to-year comparisons between fiscal year 2024 and fiscal year 2023 that are not included in this report can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024 filed with the Securities and Exchange Commission on June 28, 2024.
(dollars in thousands, unless otherwise specified)
Overview
We are a global leader in the design and manufacture of life sciences tools and critical quality control solutions for regulated applications in the pharmaceutical, healthcare and medical device industries. We offer products and services to help our customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.
As of March 31, 2025, we managed our operations in four reportable segments, or divisions: Sterilization and Disinfection Control, Clinical Genomics, Biopharmaceutical Development, and Calibration Solutions. Each of our divisions is described further in "Results of Operations" below. Unallocated corporate expenses and other business activities are reported within Corporate and Other.
Corporate Strategy
We strive to create stakeholder value and further our purpose of Protecting the Vulnerable® by growing our business both organically and through acquisitions, by improving our operating efficiency, and by continuing to hire, develop and retain top talent. As a business, we commit to our purpose of Protecting the Vulnerable® every day by taking a customer-focused approach to developing, building, and delivering our products. We serve a broad set of industries, in particular the pharmaceutical, healthcare and medical device industries, in which the safety, quality, and efficacy of products are critical. By delivering the highest quality products possible, we are committed to protecting the communities we serve.
Organic Revenues Growth
Organic revenues growth is driven by the expansion of our customer base, increases in sales volumes, new product offerings, and price increases, and may be affected positively or negatively by changes in foreign currency rates. Our ability to increase organic revenues is affected by general economic conditions, both domestic and international, customer capital spending trends, competition, currency exchange rates, and the introduction of new products. Our policy is to price our products competitively and, where possible, we pass along cost increases to our customers in order to maintain our margins. We typically evaluate costs and pricing annually, with price increases effective January 1. We evaluate the need to increase prices at other times of the year in response to changes in regulatory policy, such as the imposition of tariffs, or significant increases in the price of inputs to our products which could result from drastic changes to the macroeconomy.
Inorganic Revenues Growth - Acquisitions
Over the past decade, we have consummated a number of acquisitions as part of our growth strategy. These acquisitions have allowed us to expand our product offerings and the industries we serve, globalize our company, and increase the scale at which we operate. In turn, this growth affords us the ability to improve our operating efficiency, extend our customer base, and further the pursuit of our purpose: Protecting the Vulnerable®.
During fiscal year 2024, we completed the acquisition of GKE. GKE develops, manufactures and sells a highly competitive portfolio of chemical sterilization indicators, biologics, and process challenge devices to protect patient safety across global healthcare markets.
Improving Our Operating Efficiency
Our ongoing goal is to maximize value in our existing businesses and those we acquire by implementing efficiencies in our manufacturing, commercial, engineering, and administrative operations. We achieve efficiencies using the four pillars that make up the Mesa Way, which is our customer-centric, lean-based system for continuously improving and operating the manufacturing and administrative aspects of our high-margin, niche businesses. The Mesa Way is focused on: "Measuring What Matters" based on customers' perspective and setting high standards for performance; "Empowering Teams" to improve operationally and exceed customer expectations; "Sustainably Improving" using lean-based tools designed to help us identify and prioritize the best opportunities; and "Always Learning" so that performance continuously improves.
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Our gross profit is affected by many factors including our product mix, foreign currency rates, manufacturing efficiencies, costs of products and labor, costs of transporting goods, and price competition. Historically, as we have integrated our acquisitions and taken advantage of manufacturing efficiencies, our gross profit percentages for some products have improved. There are, however, differences in gross profit percentages between product lines, and ultimately the mix of revenues will continue to impact our overall gross profit.
Hire, Develop, and Retain Top Talent
At the center of our organization are highly talented people who are capable of taking on new challenges using a team approach. Indeed, it is our exceptionally talented workforce that works together to continuously and sustainably improve our products, our services, and ourselves, resulting in long-term value creation for our stakeholders.
General Trends
We are a global company with multinational operations. During our fiscal year 2025, approximately 52% of our revenues were earned outside of the United States. We face both opportunities and challenges resulting from our geographic and industry diversity, such as operating in varied economic environments across served geographies, technology changes in served markets, expansion opportunities in high-growth markets, the impacts of foreign currency movements against the U.S. dollar ("USD"), changes in trends and costs of a global labor force, and increasing regulation. Our continued revenues growth will depend on our ability to (i) continue commercial efforts to expand business with new and existing customers, (ii) identify, consummate and integrate acquisitions successfully, and (iii) develop or purchase differentiated products and services. We maintain our profitability by improving the effectiveness of our sales force, by continuing to pursue cost reduction initiatives, and by improving our operating efficiency.
Our revenues increased 11.5% in fiscal year 2025 compared with fiscal year 2024. GKE, which we purchased during the third quarter of fiscal year 2024, contributed $24.8 million of revenues in fiscal year 2025 compared with $9.3 million from the acquisition date in mid-October 2023 through March 31, 2024. Organic revenues increased 4.6% during fiscal year 2025, primarily as a result of organic revenues growth of 19.7% from our Biopharmaceutical Development division, 8.3% from our Calibration Solutions division, and 4.7% from our Sterilization and Disinfection Control division, partially offset by a 10.5% organic revenues decline in our Clinical Genomics division.
Our Biopharmaceutical Development division has particularly benefited from improved capital equipment sales in fiscal year 2025 after being adversely impacted by industry-wide capital investment declines in the biopharmaceutical vertical in fiscal year 2024; hardware and software sales in the division increased 51.2% in fiscal year 2025 compared to fiscal year 2024. In general, we expect that as customers who have purchased equipment over the past 12 months adopt our technology into their businesses, consumables purchases will continue to increase in future periods. Our Clinical Genomics business continued to experience challenges presented by changing global regulatory environments. However, we began to realize benefits from implementing strategic changes in the Clinical Genomics division late in fiscal year 2024, and organic revenues growth increased 1.0% and 3.5% in the third and fourth quarters of fiscal year 2025 compared to prior year periods, respectively, despite continued regulatory challenges.
Gross profit as a percentage of revenues increased one percentage point in fiscal year 2025 versus fiscal year 2024, primarily due to $3.4 million of lower intangible asset amortization expense flowing through cost of revenues as a result of the Clinical Genomics intangible asset impairment loss recorded in the fourth quarter of fiscal year 2024, partially offset by higher performance-based compensation costs related to our financial performance.
Excluding a $274.5 million impairment loss recorded in the fourth quarter of fiscal year 2024, operating expenses increased 3.2% during fiscal year 2025 versus fiscal year 2024. Increases in operating expense were primarily attributable to (i) higher performance-based compensation expenses and higher professional services costs for compliance activities and integration activities related to the GKE acquisition and (ii) twelve months of operating expenses from GKE versus only about five and a half months in the comparable prior year period. These increases were partially offset by $4.8 million lower amortization expense in fiscal year 2025.
We source parts and materials used to produce our products from many different countries and we sell our products globally. In the first quarter of fiscal year 2026, the United States implemented tariffs on imports from most countries, which has prompted retaliatory tariffs on U.S. imports in certain cases. In April 2025, the effective date of certain tariffs was delayed; however, tariffs remain in place on most products imported to the U.S. as well as on products exported from the U.S. into China. The amount of tariffs that will remain in place over the long term is uncertain and is expected to vary by country. While we are seeking ways to minimize the impact of tariffs, if the effective tariffs remain in place, we expect to incur additional costs to source materials, import, and export our products. We may experience decreasing revenues if we are unable to price our products competitively in China, or we may experience declining gross margins if we chose to absorb the costs of tariffs in our own business; these impacts could be material.
A weakening or strengthening of foreign currencies against the USD increases or decreases our reported revenues, gross profit margins, and operating expenses, and impacts the comparability of our results between periods.
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Results of Operations
Results by reportable segment are as follows:
Revenues Organic Revenues Growth (non-GAAP) (a) Gross Profit as a % of Revenues
Year ended March 31, Year ended March 31, Year ended March 31,
Our consolidated results of operations are as follows:
Year Ended March 31, Total Change
We cannot accurately predict the impact that tariffs will have on our business in fiscal year 2026. In fiscal year 2025:
Our ability to continue to sell products at margins we have historically realized, in light of effective tariffs, will depend on price elasticity, customer demand, continued evolution of tariff rates, and overall market conditions, among other factors.
We purchase a relatively immaterial portion of the materials we use in manufacturing our products from non-domestic sources that would likely be subject to effective or potential future tariffs.
Reportable Segments
Sterilization and Disinfection Control
Our Sterilization and Disinfection Control division manufactures and sells biological, chemical and cleaning indicators used to assess the effectiveness of sterilization, decontamination, disinfection and cleaning processes in the pharmaceutical, medical device, and healthcare industries. The division also provides testing and laboratory services, mainly to the dental and pharmaceutical industries. Sterilization and Disinfection Control products are disposable and are used on a routine basis.
Year Ended March 31, Total Change
Gross profit as a % of revenues 69.2 % 71.0 % 72.0 % (1.8 pt) (1.0 pt)
Sterilization and Disinfection Control revenues increased 24.4% for fiscal year 2025 compared to fiscal year 2024. GKE contributed $15.5 million more to revenues and $11.2 million more to gross profit during fiscal year 2025 compared to the partial year of ownership in fiscal year 2024. GKE's gross profit as a percentage of revenues was 66.5% and 57.7% during fiscal year 2025 and 2024, respectively. Excluding $1.2 million of amortization of the non-cash inventory step-up related to the GKE acquisition in each year, the Sterilization and Disinfection Control division's gross profit margin percentage was 70.5% and 72.6% during fiscal year 2025 and 2024, respectively.
Excluding inorganic growth from the GKE acquisition, revenues in the Sterilization and Disinfection control division increased 4.7% and orders increased 6.4% in fiscal year 2025 compared to fiscal year 2024, driven by strong commercial execution. Increased order levels resulted in higher than normal past due backlog at certain times of the year. As of March 31, 2025, the Sterilization and Disinfection Control division's past due backlog was approximately $2.0 million higher compared to March 31, 2024, but has decreased approximately 27% compared to the end of the third quarter of our fiscal year 2025.
Gross profit as a percentage of revenues in the Sterilization and Disinfection Control division declined 1.8 percentage points, primarily as a result of higher expense for performance-based personnel costs and temporary labor costs utilized to increase capacity to decrease our past due backlog.
The Sterilization and Disinfection Control division recorded approximately $7.0 million of product revenues sourced directly from the U.S. into China during fiscal year 2025. We expect to continue sales of Sterilization and Disinfection Control products into China in fiscal year 2026 despite tariff charges; however, given the effective tariffs, we cannot predict whether sales volumes and/or gross profit margins on sales from the U.S. into China will decline compared to fiscal year 2025.
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Clinical Genomics
The Clinical Genomics division develops, manufactures and sells highly sensitive, low-cost, high-throughput genetic analysis tools and related consumables and services that enable clinical research labs and contract research organizations to perform genomic testing for a broad range of research applications in several therapeutic areas, such as screenings for hereditary diseases, pharmacogenetics, oncology related applications, and toxicology research.
Year Ended March 31, Total Change
Gross profit as a % of revenues 54.5 % 51.5 % 52.1 % 3.0 pt (0.6 pt)
Clinical Genomics revenues decreased 10.5% in fiscal year 2025 compared to fiscal year 2024, largely due to decreased revenues in China, and to a lesser extent lower hardware sales in the United States as a result of increased regulations of new lab-developed tests that were in place for almost all of fiscal year 2025. Restrictions on lab-developed tests that affected this division were vacated by a federal court ruling in March 2025; however, the FDA may appeal this favorable ruling within 60 days of the ruling. China’s government continues to play a significant role in regulating industry development by imposing sector-specific policies and maintaining control over China’s economic growth through monetary policy and the treatment of particular industries.
Gross profit as a percentage of revenues for the Clinical Genomics division increased 3.0 percentage points for fiscal year 2025 compared to fiscal year 2024, primarily due to lower intangibles amortization expense as a result of impairment losses recorded in the fourth quarter of fiscal year 2024. Excluding amortization expense, gross profit as a percentage of revenues would have decreased 3.8 percentage points for fiscal year 2025 compared to fiscal year 2024, attributable to lower margin instrument sales into China, reserves for slow-moving inventory as sales declined, and to a lesser extent, lower revenues on a partially fixed cost base. The lower margin sales of hardware into China reflected a change in our strategy for growth in this division that we expected would drive future consumables sales. However, until effective tariffs into China moderate significantly, it is unlikely that we will be able to realize increased sales in China.
The Clinical Genomics division recorded over $8.0 million of revenues from sales of goods produced in the U.S. to customers in China in fiscal year 2025, approximately half of which were sales of hardware and software. If effective tariffs remain in place for all of fiscal year 2026, we expect that revenues from sales of Clinical Genomics hardware will decline, however, we expect continued revenues from sales of consumables to existing customers.
Biopharmaceutical Development
Our Biopharmaceutical Development division develops, manufactures, sells and services automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biologic therapies, among other applications.
Year Ended March 31, Total Change
Gross profit as a % of revenues 61.4 % 62.4 % 64.1 % (1.0 pt) (1.7 pt)
Biopharmaceutical Development's revenues increased 19.7% for fiscal year 2025 compared to fiscal year 2024, benefitting from increased capital spending in the biopharmaceutical markets. Revenues from hardware and software increased 51.2% and revenues from consumables and services increased 4.9% in fiscal year 2025 compared to fiscal year 2024.
Biopharmaceutical Development's gross profit as a percentage of revenues decreased one percentage point during fiscal year 2025, primarily as a result of higher materials costs, increased expense for performance-based personnel costs and unfavorable product mix. We produce the majority of the Biopharmaceutical Development division's products outside of the United States, and we believe we will be able to increase prices to substantially cover the impact of effective tariffs on these products imported into the U.S.
Over $2.0 million of our Biopharmaceutical Development division’s product revenues were sourced from U.S. subsidiaries and sold into China in fiscal year 2025; effective tariffs are expected to negatively impact future sales and/or the profitability of the sales made to customers in China for this division.
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Calibration Solutions
The Calibration Solutions division develops, manufactures, sells and services quality control products using principles of advanced metrology to enable customers to measure and calibrate critical parameters in applications such as renal care, environmental and process monitoring, gas flow, air quality and torque testing, primarily in medical device manufacturing, pharmaceutical manufacturing, laboratory and hospital environments.
Year Ended March 31, Total Change
Gross profit as a % of revenues 59.2 % 57.7 % 54.4 % 1.5 pt 3.3 pt
Calibration Solutions revenues increased 8.3% for fiscal year 2025 compared to fiscal year 2024, primarily due to commercial efforts, particularly in our renal care product lines, and price increases.
The Calibration Solutions division's gross profit as a percentage of revenues increased 1.5 percentage points in fiscal year 2025 compared to fiscal year 2024, primarily due to increased revenues on a partially fixed cost base and product mix, partially offset by increased expense for performance-based personnel costs. Approximately $10.0 million of the Calibration Solution division’s product revenues in fiscal year 2025 were from customers outside of the United States. While we cannot predict the impact effective or potential tariffs will have on the division, we do not expect material impacts to gross profit as a percentage of revenues at this time.
Operating Expense
Excluding fiscal year 2024 impairment losses of $274.5 million, operating expenses for fiscal year 2025 increased 3.2% and were 56.0% and 60.5% of revenues for fiscal years 2025 and 2024, respectively.
SellingExpense
Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels.
Year Ended March 31, Total Change
Selling expense increased 7.9% for fiscal year 2025, but decreased 0.6 percentage points as a percentage of revenues. The increases in dollar terms are primarily attributable to increased performance-based compensation expense as our financial results improved, and the addition of GKE's selling expenses.
General and Administrative Expense
Labor costs, non-cash stock-based compensation and amortization of intangible assets drive the substantial majority of general and administrative expense.
Year Ended March 31, Total Change
General and administrative expenses increased 0.6% for fiscal year 2025 and decreased 3.3 percentage points as a percentage of revenues. Amortization expense decreased $4.8 million, primarily driven by lower intangible asset values from the impairment losses recorded in the fourth quarter of fiscal year 2024, partially offset by a $1.3 million increase in amortization expense from owning GKE's intangibles for the full fiscal year 2025. Excluding amortization expense, for fiscal year 2025, general and administrative costs would have increased 10.2%, primarily as a result of higher expense for performance-based personnel costs, the addition of GKE's administrative operating expenses for a full year in fiscal year 2025 versus a partial year in fiscal year 2024, and professional services costs related to integrating GKE into our enterprise resource planning tool and other compliance efforts.
Research and Development Expense
Research and development expense is predominantly comprised of labor costs and third-party consultants.
Year Ended March 31, Total Change
As a percentage of revenues 8.1 % 8.9 % 9.4 % (0.8 pt) (0.5 pt)
Research and development expenses for fiscal year 2025 increased 1.1% compared to fiscal year 2024, primarily due to higher performance-based compensation expense and the inclusion of GKE's results for a full year of operations. These increases were partially offset by lower salaries expense, which is expected to continue into future periods.
Impairment
Impairment losses were recorded in our Clinical Genomics and Biopharmaceutical Development divisions in fiscal year 2024. The impairment losses were primarily the result of higher weighted average cost of capital, which decreases the fair value of businesses, as well as downward revisions of expected future performance compared to the expectations that existed at the time of our previous quantitative impairment analyses. We did not record any impairment losses in fiscal year 2025; however, certain reporting units remain sensitive to potential future impairment. See Note 6. "Goodwill and Intangible Assets, Net" in Item 8. Financial Statements and Supplementary Datafor further information.
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Nonoperating Expense, Net
Year Ended March 31, Total Change
(Gain) on extinguishment of convertible senior notes (2,887 ) - - N/A N/A
We incurred significantly more interest expense during fiscal year 2025 than in fiscal year 2024 as we refinanced our Credit Facility during the first quarter of fiscal year 2025 in order to repurchase $75.0 million in aggregate principal of our Notes. We had $80.7 million outstanding under our Credit Facility as of March 31, 2025, net of discounts on the Term Loan, compared to $50.5 million outstanding under our Credit Facility as of March 31, 2024. Amounts outstanding under the Credit Facility bear interest at a significantly higher rate than amounts outstanding under the Notes.
The $2.9 million gain on extinguishment of our Notes represents the difference between the cash paid to extinguish a portion of the Notes and their pro-rata carrying value the time of extinguishment in the first quarter of fiscal year 2025.
Income Taxes
Year Ended March 31, Total Change
Our effective income tax rate was 133.1% for fiscal year 2025 compared to 7.8% for fiscal year 2024.
The effective tax rate of 133.1% for fiscal year 2025 differed from the statutory federal rate of 21% primarily due to adjustments to the valuation allowance related to our operations in the U.S. and Germany, and varying applicable tax rates in foreign jurisdictions. Our effective income tax rate of 7.8% for fiscal year 2024 differed from the statutory federal rate primarily due to the tax effect from intangible asset impairment losses recorded in the fourth quarter of fiscal year 2024. Please see Note 12. “Income Taxes” within Item 8. Financial Statements and Supplementary Data) for a reconciliation of our income tax provision, including the impact of specific items on our overall effective income tax rate.
Our future effective income tax rate depends on various factors, such as changes in the realizability of deferred tax assets, tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.
Net (Loss) Income
Net (loss) income varies with the changes in revenues, gross profit, and operating expenses. Net (loss) income in fiscal year 2025 reflects, respectively, $19,145, $5,382, and $13,142 of non-cash amortization of intangible assets acquired in a business combination, non-cash depreciation, and non-cash stock-based compensation expense.
Non-GAAP Reconciliations
Adjusted operating income (which excludes the non-cash impact of amortization of finite-lived intangible assets acquired in a business combination, depreciation, stock-based compensation, and impairment of goodwill and finite-lived intangible assets) and organic revenues growth (reported revenues growth excluding the impact of revenues growth from recent acquisitions) are used by management as supplemental performance measures in order to compare current financial performance to historical performance, to assess the ability of our assets to generate cash, and to evaluate potential acquisitions.
Adjusted operating income and organic revenues growth should not be considered alternatives to, or more meaningful than, net (loss) income, operating income (loss), reported revenues growth, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance or liquidity.
The following table sets forth our reconciliation of operating income (loss) to adjusted operating income, a non-GAAP measure:
Year Ended March 31,
Impairment losses on goodwill and finite-lived intangible assets - 274,533 -
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The following table sets forth our reconciliation of total revenues growth to organic revenues growth, a non-GAAP measure:
Total Revenues Growth Impact of Acquisitions Organic Revenues Growth (non-GAAP)
Year ended March 31, Year ended March 31, Year ended March 31,
Clinical Genomics (10.5 %) (15.6 %) - % - % (10.5 %) (15.6 %)
Biopharmaceutical Development 19.7 % (14.3%) - % - % 19.7 % (14.3 %)
Calibration Solutions 8.3 % 6.6 % - % - % 8.3 % 6.6 %
Liquidity and Capital Resources
Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand and cash available from our Credit Facility (See Note 8. "Indebtedness" for a description of the Credit Facility), and potential additional equity and debt offerings. We believe that cash flows from operating activities and potential cash provided by borrowings from our Credit Facility, when necessary, will be sufficient to meet our ongoing short-term and long-term operating requirements, scheduled principal and interest payments on debt, dividend payments, and anticipated capital expenditures. Our Open Market Sale AgreementSM expired in April 2025.
Our more significant uses of resources have historically included acquisitions, payments on debt principal and interest obligations, long-term capital expenditures, and quarterly dividends to shareholders. During fiscal year 2024, we acquired GKE for $87,187, net of cash acquired and financial liabilities assumed and inclusive of working capital adjustments. We paid a holdback of $9,555 related to the acquisition in April 2025.
We had $27.3 million and $28.2 million of cash and cash equivalents as of March 31, 2025 and 2024, respectively. Working capital is the amount by which current assets exceed current liabilities. Our working capital balance was negative as of March 31, 2025 because the balance on our Notes, due August 15, 2025, is due within twelve months of our year end date and is therefore classified as a current liability. We had working capital of $(61.3) million and $65.0 million as of March 31, 2025 and 2024, respectively.
During the first quarter of fiscal year 2025, and in anticipation of settling the Notes, we amended and restated our Credit Facility to:
(i) Extend the maturity of the Credit Facility to April 2029;
(iii) Add the $75.0 million senior secured Term Loan; and
(iv) Make certain changes to the financial covenants.
Under the revised Credit Facility, we maintain access to our Revolver, allowing access to up to $125.0 million of borrowings. During fiscal year 2024, we borrowed a total of $71.0 million under the Revolver to fund the majority of the GKE acquisition. As of March 31, 2025, $10.0 million remained outstanding under the Revolver.
We used proceeds of $75.0 million from borrowings under the Term Loan to enter into separate, privately negotiated purchase agreements with a limited number of holders of our Notes. Pursuant to the purchase agreements, we purchased $75.0 million aggregate principal amount of the Notes for an aggregate cash purchase price of approximately $71.3 million. Following these transactions, $97.5 million aggregate principal amount of the Notes remained outstanding and is now classified as current in our Consolidated Balance Sheets.
Using the interest rate and debt balance outstanding effective as of April 30, 2025, we expect to incur cash interest expense within the next twelve months of approximately $10.6 million (adjusted for required future principal payments and expected borrowings to pay off the Notes.
We have $97.5 million principal amount due on the Notes in August 2025. Together with the current portion of our Term Loan, the cash needed for principal debt payments is $101.3 million within the next twelve months. We plan use cash on hand, draws against our Revolver, which had $115.0 million available as of March 31, 2025, and cash generated from operating activities over the next four months to fund the amounts due.
In April 2022, we entered into an Open Market Sale AgreementSM pursuant to which we may issue and sell, from time to time, shares of our common stock with an aggregate value of up to $150.0 million. We did not sell any shares under this agreement, and it expired in April 2025.
We routinely evaluate opportunities for strategic acquisitions. Future material acquisitions may require us to obtain additional capital, assume additional third-party debt or incur other long-term obligations. We believe that we have the ability to issue more equity or debt in the future in order to finance our acquisition and investment activities; however, additional equity or debt financing, or other transactions, may not be available on acceptable terms, if at all.
We may from time to time repurchase or take other steps to reduce our debt. These actions may include retirements or refinancing of outstanding debt through tender offers, privately negotiated transactions, or otherwise. The amount of debt that may be retired, if any, could be material. Retirement would be decided at the sole discretion of our Board of Directors and would depend on market conditions, our cash position, and other considerations.
Dividends
We have paid regular quarterly dividends since 2003. We declared and paid dividends of $0.16 per share each quarter of the years ended March 31, 2025, 2024, and 2023.
In April 2025, our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on June 16, 2025, to shareholders of record at the close of business on May 30, 2025.
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Cash Flows
Our cash flows from operating, investing, and financing activities were as follows:
Year Ended March 31,
Net cash (used in) investing activities (4,499 ) (81,306 ) (9,494 )
Net cash (used in) provided by financing activities (44,509 ) 32,836 (33,328 )
Cash flows from operating activities for the year ended March 31, 2025 provided $46.8 million, an increase of $2.7 million versus the prior year. The increase in cash flows from operating activities for the year ended March 31, 2025 compared to March 31, 2024 was primarily a result of:
Cash used in investing activities in fiscal year 2025 primarily resulted from purchases of property, plant and equipment used in our normal operations. In fiscal year 2024, we used $78.7 million to fund the GKE acquisition.
Cash used in financing activities in fiscal year 2025 primarily relates to principal payments of $44.3 million made on our Line of Credit. Additionally, we received proceeds of $73.5 from borrowings under our Line of Credit, which we used to fund a $71.6 million repurchase of our Notes. In fiscal year 2024, we drew $71.0 million against our line of credit to partially fund the purchase of GKE, and we repaid $33.5 million during the year.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates, judgments, and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. We believe that the following are the more critical judgment areas in the application of accounting policies that currently affect our financial condition and results of operations. Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit Committee of our Board of Directors. While our estimates and assumptions are based on our knowledge of current events and circumstances and actions we may take in the future, actual results may ultimately differ from these estimates and assumptions. For a discussion of our significant accounting policies, see Note 1. “Description of Business and Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data.
Goodwill Impairment Testing
We test goodwill for impairment on an annual basis as of January 1st each year, or more frequently if events and circumstances indicate it is more likely than not that the fair value of a given goodwill reporting unit is less than its carrying value. Events that would indicate impairment and trigger interim impairment tests include, but are not limited to: adverse current or expected economic, market, or industry-specific conditions, including a decline in our market capitalization; adverse changes or expected changes in business climate or in the operational performance of the business; adverse changes in legal factors; and adverse actions or assessments by a regulator. We monitor for indications of impairment throughout the year and perform qualitative and quantitative impairment tests as necessary based on quarterly preliminary assessments of our performance and any challenging circumstances and events.
In fiscal year 2025 we elected to perform quantitative impairment tests over all five of our reporting units in conjunction with our annual impairment testing date. We estimated the fair values of our reporting units primarily using a discounted cash flow approach, supplemented by market multiple models. Our fair value measurements required the use of significant Level 3 inputs, including but not limited to: discount rates, forecasted results including earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue, revenue growth rates, operating expenses, the identification of comparable public entities, and applied market multiples. We estimated such inputs using internal expectations of future performance based on our historical experience, available financial data such as backlog and customer orders, and analyses over relevant facts and circumstances that have bearing on our assumptions, leveraging expert input where applicable. There are inherent uncertainties related to valuation assumptions, and in management’s judgment in applying them. Our assumptions and inputs are forward-looking, and could differ from actual future facts and conditions. Different assumptions from those used in our analyses could materially affect projected cash flows and our evaluation of the fair values of our reporting units. The Company engages third-party valuation specialists to aid in calculating fair value estimates.
As a result of our fiscal 2025 impairment testing, we concluded that in all instances, the fair values of our reporting units exceeded their carrying values, and no impairment losses have been incurred or recorded in fiscal year 2025.
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In addition to our annual impairment testing, as of March 31, 2025, we performed our regular quarterly review of potential indicators of impairment, and we performed certain sensitivity tests (including certain lookback analyses with probability-weighted adjustments to future performance outcomes) to ensure that changes in facts, circumstances and expectations did not indicate that it was more likely than not that any of our goodwill reporting units was impaired as of March 31, 2025. We concluded that, based on information known or reasonably knowable as of March 31, 2025, our reporting units more-likely-than-not remained unimpaired. However, Clinical Genomics and Peptides (a reporting unit within our Biopharmaceutical Development division) are sensitive to significant changes in assumptions and have a heightened risk of future impairment losses if actual results differ significantly from our estimates, including if significant changes to performance expectations, market factors, increases in the weighted average cost of capital, or changes in other unobservable and uncertain Level 3 inputs used to estimate the reporting units' fair values occur. Further, subsequent to March 31, 2025, escalating global trade tensions resulted in tariffs that could adversely impact our total revenues and/or the profitability of sales we make into China. We are evaluating the significance of these tariffs to our reporting units, and whether the tariffs represent a triggering event sufficient to require additional quantitative impairment testing of our goodwill and other long-lived assets in the first quarter of our fiscal year 2026. Depending on the persistence and magnitude of the tariffs imposed subsequent to our March 31, 2025 reporting period, and other factors, it is reasonably possible we will incur impairment losses with respect to the Clinical Genomics and Peptides reporting units in the future. The fair values of Clinical Genomics and Peptides exceeded their carrying values by approximately 40% and 20%, respectively, as of our January 1, 2025 annual impairment testing date. The carrying values of goodwill and other intangible assets associated with our Clinical Genomics reporting unit were $16.9 million and $9.3 million, respectively as of March 31, 2025. The carrying values of goodwill and other intangible assets associated with our Peptides reporting unit were $13.7 million and $0.9 million, respectively, as of March 31, 2025.
Stock-based Compensation
We recognize compensation expense for equity awards on a straight-line basis over the vesting period based upon 1) the fair value of the awards at grant date, and 2) the number of awards that are ultimately expected to vest; accordingly, such compensation expense is adjusted by an amount of estimated forfeitures. Further, we recognize and adjust compensation expense for awards that vest based on performance conditions by estimating the probability that applicable performance thresholds will be achieved in the future. The fair value of our market-based awards at grant date is assessed by a knowledgeable third-party using a Monte Carlo simulation, and requires the use of estimation. Our estimates of forfeiture rates, the probability of achieving performance goals, and the fair value of awards with market conditions each require judgment and, to the extent actual results or updated estimates of forfeiture rates or performance achievement differ from our current estimates, a cumulative adjustment to stock-based compensation expense may be recorded in periods in which estimates are revised.
Income Taxes, Valuation of Deferred Taxes
Our provision for income taxes requires the use of estimates in determining deferred tax items and related valuation allowances based on management’s interpretation and application of complex tax laws and accounting guidance. We establish allowances for uncertain tax positions for material, known tax exposures relating to deductions, transactions and other matters involving uncertainty as to the measurement and recognition of the item. While we believe that our allowances are adequate, issues raised by a tax authority may be finally resolved at an amount different than the related reserve and it is reasonably possible that our income tax provision in the current and/or future periods could materially increase or decrease.
Recent Accounting Standards and Pronouncements
For a discussion of the new accounting standards impacting the Company, refer to Note 1. “Description of Business and Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data.
Contractual Obligations
We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business.
On a consolidated basis, at March 31, 2025, we had contractual obligations for open purchase orders of approximately $14,300 for routine purchases of supplies and inventory, of which the substantial majority are payable in less than one year. See "Liquidity and Capital Resources" for information related to future required debt payments. For a description of our contractual obligations and other commercial commitments as of March 31, 2024, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission on June 28, 2024.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have no derivative instruments and minimal exposure to commodity market risks.
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 our functional currency or 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 U.S. dollars, our functional currency. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar. 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 its revenue contracts are in U.S. dollars and euros. Therefore, when the Swedish Krona strengthens or weakens against the U.S. dollar, operating profits are increased or decreased, respectively. 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.
A hypothetical 10 percent change in currency exchange rates compared to the U.S. dollar (U.S. dollar strengthening) would have resulted in an approximate estimated $2,000 increase in net loss over a one-year period. Actual changes in market prices or rates will likely differ from hypothetical changes.
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Interest Rates
Our Credit Facility bears interest at either a base rate or a SOFR rate, plus an applicable spread. Based on our interest rates and balances outstanding as of the date of this filing, adjusted for future required principal payments and expected new borrowings under our Credit Facility to repay our Notes, we estimate that if interest rates increased 1 percentage point, we would incur approximately $1,500 of additional cash interest expense per year than we would if current rates remain unchanged.
Inflation Risk
Inflation generally impacts us by increasing our costs of labor, materials, and freight. The rates of inflation experienced in recent years have not had a significant direct impact on our financial results, as inflationary cost increases have been offset by annual price increases. However, any price increases imposed may lead to declines in sales volume if competitors do not similarly adjust prices. Additionally, inflationary pressures may impact our customers' ability to purchase our products and services. We cannot reasonably estimate our ability to successfully recover any inflation cost increases into the future.
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Mesa Laboratories, Inc.
Opinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Mesa Laboratories, Inc. (and subsidiaries) (the “Company”) as of March 31, 2025, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the year ended March 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of March 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2025, and the consolidated results of its operations and its cash flows for the year ended March 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the (consolidated) financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Fair Value of the Reporting Units for Goodwill Impairment Assessment
As described in Note 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $181.8 million as of March 31, 2025. The Company performs an annual impairment test for goodwill as of January 1 of each year, or more frequently if facts or circumstances indicate it is more-likely-than not that a reporting unit may be impaired. The Company first has the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount, or to bypass the qualitative assessment and perform a quantitative assessment. As of January 1, 2025, the Company elected to bypass the qualitative assessment and perform a quantitative assessment where the Company determined the fair value of each reporting unit and compared the fair value to the reporting unit’s carrying amount. The Company estimates the fair value of each reporting unit based on a combination of an income approach, that utilizes discounted cash flows specific to each reporting unit, and a market approach, that considers guideline public company market multiples.
We identified auditing the Company’s estimates of the fair value of each reporting unit for purposes of its goodwill impairment assessment as a critical audit matter. The performance of audit procedures related to management's estimates of the fair value of each reporting unit required extensive audit effort, including the use of our valuation specialists with specialized skill and knowledge pertaining to valuation techniques. Additionally, the evaluation of the audit evidence for the more significant assumptions required especially challenging and subjective auditor judgement.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to the Company's goodwill impairment assessments included the following, among others:
● Testing the Company’s process used to develop the estimates.
● Evaluating the significant assumptions used, including the reasonableness of:
● management’s selection of comparable entities.
/s/ Moss Adams LLP
We have served as the Company’s auditor since 2024.
Los Angeles, California
May 28, 2025
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Mesa Laboratories, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Mesa Laboratories, Inc. (the Company) as of March 31, 2024, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the year ended March 31, 2024, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024, and the results of its operations and its cash flows for the year ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ RSM US LLP
We served as the Company's auditor from 2023 to 2024.
Los Angeles, California
June 28, 2024
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Mesa Laboratories, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive (loss), stockholders' equity, and cash flows of Mesa Laboratories, Inc. (the “Company”) for the year ended March 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the results of the Company's operations and its cash flows for the year ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Plante & Moran, PLLC
We served as the Company’s auditor from 1986 to 2023.
Denver, Colorado
May 30, 2023
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Mesa Laboratories, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
ASSETS
Current assets
Noncurrent assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Term loan, current portion 3,750 -
Convertible senior notes, current portion, net of debt issuance costs 97,297 -
Noncurrent liabilities
Term loan, noncurrent portion, net of debt issuance costs 66,902 -
Stockholders’ equity
Accumulated other comprehensive (loss) (9,775 ) (14,755 )
Total liabilities and stockholders’ equity $ 433,348 $ 446,796
See accompanying notes to consolidated financial statements.
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Mesa Laboratories, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended March 31,
Revenues
Cost of revenues
Operating expense
Impairment of finite-lived intangible assets - 117,641 -
Impairment of goodwill - 156,892 -
Nonoperating expense (income)
Interest expense and amortization of debt issuance costs 11,859 5,697 4,770
Gain on extinguishment of convertible senior notes (2,887 ) - -
Net (loss) earnings per share
Weighted-average common shares outstanding
See accompanying notes to consolidated financial statements.
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Mesa Laboratories, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Year Ended March 31,
Other comprehensive income (loss)
See accompanying notes to consolidated financial statements.
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Mesa Laboratories, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
Common Stock
Number of Shares Amount (Accumulated Deficit) Retained Earnings AOCI* Total
Tax withholding on restricted stock units (4,898 ) (919 ) - - (919 )
Stock-based compensation expense - 12,538 - - 12,538
Foreign currency translation - - - (16,461 ) (16,461 )
Tax withholding on restricted stock units (5,393 ) (728 ) - - (728 )
Stock-based compensation expense - 11,936 - - 11,936
Foreign currency translation - - - (1,960 ) (1,960 )
Tax withholding on restricted stock units (8,596 ) (887 ) - - (887 )
Stock-based compensation expense - 13,142 - - 13,142
Foreign currency translation - - - 4,980 4,980
*Accumulated Other Comprehensive (Loss) Income.
See accompanying notes to consolidated financial statements.
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Mesa Laboratories, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended March 31,
Cash flows from operating activities:
Depreciation of property, plant and equipment 5,382 4,233 4,313
Amortization of step-up in inventory basis 1,232 1,229 -
Gain on extinguishment of convertible senior notes (2,887 ) - -
Non-cash interest expense and debt issuance cost amortization 990 926 907
Impairment loss on goodwill and finite-lived intangible assets - 274,533 -
Cash from changes in operating assets and liabilities:
Prepaid expenses and other assets, pending taxes 498 211 (510 )
Accrued liabilities and taxes payable, pending taxes 9,504 (1,236 ) (3,360 )
Cash flows from investing activities:
Acquisition of customer lists (250 ) - -
Purchases of property, plant and equipment (4,249 ) (2,567 ) (4,544 )
Net cash (used in) investing activities (4,499 ) (81,306 ) (9,494 )
Cash flows from financing activities:
Proceeds from Credit Facility borrowings 73,465 71,000 -
Repurchase of convertible senior notes (71,560 ) - -
Proceeds from the exercise of stock options 2,644 358 6,997
Other financing, net (452 ) (847 ) -
Net cash (used in) provided by financing activities (44,509 ) 32,836 (33,328 )
Net (decrease) in cash and cash equivalents (893 ) (4,696 ) (16,436 )
Cash paid for:
Supplemental non-cash activity:
Contingent consideration from new acquisitions $ - $ - $ 1,190
See accompanying notes to consolidated financial statements.
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Mesa Laboratories, Inc.
Notes to Consolidated Financial Statements
(dollar and share amounts in thousands, unless otherwise specified)
Note 1.Description of Business and Summary of Significant Accounting Policies
Description of Business
In this Annual Report on Form 10-K, Mesa Laboratories, Inc., a Colorado corporation, together with its subsidiaries is collectively referred to as “we,” “us,” “our,” the “Company,” or "Mesa."
We are a global leader in the design and manufacture of life sciences tools and critical quality control solutions for regulated applications in the pharmaceutical, healthcare and medical device industries. We offer products and services to help our customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world. We have manufacturing operations in the United States and Europe, and our products are marketed by our sales personnel in North America, Europe and Asia Pacific, and by independent distributors in these areas as well as throughout the rest of the world. We prefer markets in which we can establish a strong presence and achieve high gross profit margins.
As of March 31, 2025, we managed our operations in four reportable segments, or divisions:
Unallocated corporate expenses and other business activities are reported within Corporate and Other.
Principles of Consolidation and Basis of Presentation
Our Consolidated Financial Statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (“GAAP”), and include our accounts and those of our wholly owned subsidiaries after elimination of all intercompany accounts and transactions.
Management Estimates
The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our Consolidated Financial Statements and accompanying notes. Actual results could differ from our estimates under different assumptions or conditions.
Summary of Significant Accounting Policies
Foreign Currency
Exchange rate adjustments resulting from foreign currency transactions are recognized in net (loss) earnings, whereas effects resulting from the translation of financial statements are reflected as a component of accumulated other comprehensive income within stockholders’ equity. Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than the U.S. dollar are translated into U.S. dollars at period end exchange rates, and revenue and expense accounts are translated at weighted average period rates.
Fair Value Measurements
Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. We determine fair value based on the following input hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or that can be corroborated with observable market data.
Level 3: Unobservable inputs supported by little or no market activity. Pricing models, discounted cash flow methodologies, and other similar techniques involving significant management judgment or estimation typically require unobservable inputs.
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Most assets and liabilities purchased in business acquisitions are measured, recognized and disclosed at fair value in the Consolidated Financial Statements on a non-recurring basis upon acquisition, or as necessary during the measurement period. Additionally, assets such as property and equipment, operating lease assets, and goodwill and other intangible assets are measured and presented at fair value on a nonrecurring basis if determined to be impaired. Such fair value measurements require the use of Level 3 inputs. Our current liabilities generally approximate their fair values.
Revenue Recognition
Our revenues come from product sales, which include consumables and hardware, and services, which include discrete and ongoing maintenance, calibration, and testing services. Revenues are recognized when or as we satisfy our performance obligations under the terms of a contract, which occurs when control of the promised products or services transfers to a customer. We recognize the amount of consideration we expect to receive in exchange for transferring products or services to our customers (the transaction price) as revenue. For our revenue contracts, prices are fixed at the time of purchase and no price protections or variables are typically offered. The significant majority of our revenues and related receivables are generated from contracts with customers that are 12 months or less in duration.
We generally recognize revenues as follows:
Product sales:Our performance obligations related to product sales generally consist of the promise to sell tangible goods to distributors or end users. Control of these goods is typically transferred upon shipment, at which time our obligation to the customer is satisfied and revenue is recognized.
Services: We generate service revenues from discrete and ongoing maintenance, calibration, and testing services performed with respect to our physical products. For discrete services, our obligation to complete specified work is satisfied and revenue is recognized upon performance of the service. Obligations arising from ongoing service contracts in which we promise to stand ready to provide maintenance or other services on an as-needed basis for a certain period of time are satisfied by completing any services that are contractually required during the contract period, if requested by the customer, or simply by the passage of time if no services are requested. For ongoing service contracts, revenue is recognized on a straight-line basis over the life of the contract in a faithful depiction of our obligation to provide services over the contract period.
Purchase orders or formal contracts typically provide evidence of the existence and key terms of arrangements with customers with respect to sales of our products and services.
Collectability is reasonably assured through our customer review process, and payment is typically due within 60 days or less.
We expense commission costs (typically our only significant incremental cost to obtain a contract) as incurred. The substantial majority of our contracts have original durations of one year or less, and we have elected not to disclose the expected timing or allocated transaction prices of future performance obligations such as obligations to perform maintenance and repair services. Additionally, we have elected to not assess whether a significant financing component exists when the period between when we fulfill our performance obligation and when the customer remits payment is one year or less. None of our contracts contained significant financing components as of or for the fiscal years ended March 31, 2025 or 2024.
Contracts with customers may contain multiple obligations. For such arrangements, the transaction price is allocated to each obligation based on the estimated relative standalone selling prices of the promised products or services underlying each obligation. Standalone selling prices are the price at which the product or service would be sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price considering available information such as market conditions and internally approved pricing guidelines. In limited circumstances, for obligations with highly variable or unobservable standalone selling prices, we may assign standalone prices to obligations based on the residual transaction price after all observable standalone selling prices have been determined. Discounts may be approved at the time of purchase and are included within a contract’s fixed transaction price. Discounts are typically allocated to obligations included in the contract based on the standalone values of such obligations. All expected and actual consideration from customers is included in the transaction price.
Shipping and Handling
Payments made by customers to us for shipping and handling costs are included in revenues in our Consolidated Statements of Operations, and our expenses are included in cost of revenues. We account for shipping and handling costs arising from contracts with customers as fulfillment costs. Shipping and handling for inventory and materials we purchase is included as a component of inventory on the Consolidated Balance Sheets, and is expensed to cost of revenues when products are sold.
Unearned Revenues
Certain of our products may be sold with associated service contracts whereby we must provide repairs, technical support, parts, and various analytical or maintenance services over a period of time. In the event these contracts are paid in advance by the customer, the associated amounts are recorded as unearned revenue liabilities and are recognized to revenue ratably over the term of the service period, generally one year. Prepayments from customers with respect to other products and services are likewise recorded as unearned revenue liabilities and are recognized to revenue when earned.
Accrued Warranty Expense
We typically provide assurance-type limited product warranties on our products and, accordingly, accrue for estimates of related warranty expenses.
Accounts Receivable and Allowance for Credit Losses
All trade accounts receivable are reported at net realizable value on the accompanying Consolidated Balance Sheets, adjusted for any write-offs and net of allowances for credit losses. Allowances for credit losses represent our best estimate and current expectation of future credit losses from trade accounts receivable. We estimate credit losses based on historical information, current and expected future economic and market conditions, and reviews of the current status of customers’ trade accounts receivable. In circumstances in which we become aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected. To mitigate credit risk, we consider the creditworthiness of new and existing customers, establish credit limits, and regularly review outstanding balances and payment histories. We may require pre-payments from customers under certain circumstances and may limit future purchases until payments are made on past due amounts.
We do not believe our trade accounts receivable represent significant concentrations of credit risk due to our diversified portfolio of individual customers and geographical areas.
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Differences may arise between estimated and actual losses, which could materially affect the provision for credit losses and, therefore, net (loss) earnings. We recorded $218, $790, and $736 of expense associated with credit losses for the years ended March 31, 2025, 2024, and 2023, respectively.
Cash Equivalents
We classify any highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents; no cash equivalents are included on our Consolidated Balance Sheets as of March 31, 2025 or 2024.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventory is recorded to cost of products upon sale using a weighted average costing methodology. Inventories purchased as part of a business combination are recorded at fair value. Our work-in-process and finished goods inventories include the costs of raw materials, labor and overhead, which are estimated based on trailing twelve months of expense and standard labor hours for each product. We evaluate labor and overhead costs annually unless specific circumstances necessitate a mid-year evaluation for specific items.
We monitor inventory costs relative to selling prices and perform physical cycle count procedures on inventories throughout the year to determine if a lower of cost or net realizable value reserve is necessary. We estimate and maintain an inventory reserve as needed for such matters as excess or obsolete inventory, shrinkage and scrap. This reserve may fluctuate as our assumptions change due to new information, discrete events, or changes in our business such as entering new markets or discontinuing a specific product; however, once inventory is written down, a new cost basis is established that is not subsequently written back up in future fiscal years.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation, except for assets acquired in business acquisitions, which are recorded at fair value. Expenditures for major renewals and improvements that extend the life of the asset are capitalized, while expenditures for minor replacements, maintenance and repairs are expensed as incurred.
Depreciation is calculated using the straight-line method over our assets’ estimated useful lives. Upon asset retirement or disposal, accounts are relieved of cost and accumulated depreciation, and any related gain or loss is reflected in our results of operations. In some cases, particularly with respect to business consolidation or closure activities, impairment losses or accelerated depreciation may be recorded to reflect revised remaining useful lives of assets designated to be abandoned in the future.
At least annually, we evaluate and adjust as necessary the estimated useful lives of property, plant and equipment. Any changes in estimated useful lives are recorded prospectively. Estimated useful lives of significant classes of depreciable assets are as follows:
Category Useful Lives in Years
Buildings and building improvements 40 (or less)
Manufacturing equipment 7 (or less)
Office, lab and other equipment, furniture and fixtures 7 (or less)
Computer equipment 3 (or less)
Land is not depreciated. Construction in progress is not depreciated until placed in service, at which time it is assigned a useful life consistent with the nature of the asset.
Leases
We determine whether contractual arrangements contain a lease at the inception of the arrangement. If a lease is identified, we determine whether the lease should be classified as a finance or operating lease; we did not have any finance leases during any fiscal years presented herein. Our operating leases have remaining terms of between three months and eleven years as of March 31, 2025.
A contract is a lease or contains one when (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. We have elected to account for non-lease components of our lease contracts together with the lease components to which they relate for our operating leases. Operating lease right-of-use ("ROU") assets and lease liabilities are recognized at the lease commencement date. We do not capitalize assets or liabilities for leases with original durations of less than 12 months, and our short-term leases are not material. Operating lease liabilities represent the present value of fixed lease payments not yet paid. ROU assets represent our right to use an underlying asset and are based upon the related operating lease liability, adjusted for prepayments made prior to commencement, any initial direct costs incurred, and other applicable items. Adjustments to ROU assets would also be made for prepaid variable lease payments or impairment losses, if necessary. When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease, otherwise we use our incremental borrowing rate based on the information available at lease commencement. When we acquire a business, we generally retain the acquiree's classification of its leases, and we evaluate ROU assets and liabilities in accordance with ASC 842.
Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Lease expense is recorded in cost of revenues or selling, general and administrative, or research and development expense in our Consolidated Statements of Operations, depending on the nature of use of the underlying asset. Many of our leases include one or more renewal or termination options exercisable at our discretion, which are included in the initial determination of the lease term if we are reasonably certain to exercise the option. Renewal terms typically allow us to extend lease terms between one and three years. We have also entered into lease agreements that have variable payments related to certain indexes, and other variable payments based on, for example, a pro-rata portion of actual maintenance costs incurred by the lessor. Variable lease payments are recognized in the period in which those payments are incurred as lease costs.
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Intangible Assets, Impairment Testing
Our goodwill and other intangible assets result from acquisitions of businesses. Intangible assets affect the amount of future amortization expense and possible impairment losses we may incur.
We amortize intangible assets with finite lives (generally ranging from three to fifteen years), using the straight-line method over the asset's useful life. We determine the useful lives of finite intangible assets based on the specific facts and circumstances related to each asset, and we evaluate the appropriateness of assigned useful lives at least annually. Changes to remaining useful lives, if necessary, are accounted for prospectively. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and economic factors such as competition or specific market conditions. Amortization expense is recorded within cost of revenues or general and administrative expense in the Consolidated Statements of Operations.
Impairment assessments related to finite-lived intangibles are conducted if events or conditions indicate that the carrying value of an asset or asset group may not be recoverable. Events or conditions indicating potential impairment include but are not limited to changes in the competitive landscape, changes in the extent or manner in which we intend to use the assets, any internal decisions to pursue new or different technology strategies, losses of significant customers, or significant changes in business performance or in the markets and industries we serve, including adverse changes in the prices paid for our products or changes in the size of the markets for our products, or changes in the regulatory or macroeconomic environment that are likely to materially impact our future cash flows. If impairment indicators are present, we determine whether the carrying value of the underlying intangible asset or asset group is recoverable through analyses of undiscounted estimated future cash flows. If the asset or asset group is not found to be recoverable, we estimate the asset's fair value using Level 3 inputs and discounted cash flow models, and we recognize impairment losses as necessary.
Goodwill is not subject to amortization. We test goodwill for impairment as of January 1st each year, or more frequently if events and circumstances indicate it is more likely than not that the fair value of a given goodwill reporting unit is less than its carrying value. Events that could indicate impairment and that would trigger interim impairment testing include but are not limited to: adverse current or expected economic, market, or industry-specific conditions, including a sustained decline in our market capitalization; sustained adverse changes or expected changes in business climate or in the operational performance of the business; adverse changes in legal factors; and adverse actions or assessments by a regulator. We monitor for indications of impairment throughout the year and perform qualitative and quantitative impairment tests as necessary based on quarterly assessments of our performance. Our annual impairment tests may begin with a qualitative assessment, and further quantitative assessments are performed i) if we determine it is more likely than not that the fair value of a reporting unit is less than the carrying amount, ii) at least every five years, or iii) if we otherwise elect to perform quantitative tests, as we did in fiscal year 2025.
The fair value measurements used in testing intangible assets for impairment are typically based on discounted cash flow projection and market multiple models, using Level 3 inputs. See “Fair Value Measurements” for a description of input levels. Significant assumptions include, among others, discount rates, forecasted results including earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue, revenue growth rates, cost inputs, terminal growth rates, cash flows, customer attrition rates (for customer relationships), royalty rates and technology obsolescence rates (for patents and other intellectual property), the identification of comparable public entities, and applied market multiples. In certain cases, management uses other market information when available to estimate fair value. Impairment losses are recognized through earnings and represent excess carrying value over estimated fair value. We do not believe our goodwill and other intangible assets were impaired as of March 31, 2025. We recorded impairment losses of $156,892 and $117,641 related to goodwill and long-lived intangible assets, respectively, during our prior fiscal year.
Research & Development Costs
We conduct research and development activities for the purpose of developing new products and enhancing the functionality, effectiveness, reliability, and accuracy of existing products. Research and development costs are expensed as incurred. Research and development expense is predominantly comprised of labor and third-party consultant costs, as well as materials for projects, but we may from time to time purchase in-process research and development with the intention of developing a saleable product.
Convertible Debt
Our convertible 1.375% Convertible Senior Notes due 2025 (the "Notes") do not have material embedded derivatives and are recorded as current liabilities in our Consolidated Balance Sheets as of March 31, 2025 as they will mature within one year of March 31, 2025. We may settle the Notes in shares of common stock or in cash. We apply the if-converted method to calculate the potentially dilutive impact of the Notes on net (loss) earnings per share. Debt issuance costs are amortized through interest expense to bring the carrying value of the Notes to face using the effective interest method over the life of the indenture governing the Notes.
Stock-based Compensation
We issue shares in the form of full-value awards, and in the past we have issued stock options (collectively, "stock awards"), as part of employee and non-employee director compensation pursuant the Amended and Restated Mesa Laboratories, Inc. 2021 Equity Incentive Plan (the "2021 Equity Plan"). Some shares are fully vested and remain outstanding under our Mesa Laboratories, Inc. 2014 Equity Plan (the "2014 Equity Plan").
The Equity Plans are administered by the Compensation Committee of the Board of Directors, which has the authority to grant equity awards, or to delegate its authority under the plan to make grants (subject to certain legal and regulatory restrictions), including the authority to determine the individuals to whom awards will be granted, the type and timing of awards to be granted, the number of shares to be covered by each award, vesting schedules and all other terms and conditions of the awards.
For purposes of counting the shares remaining under the 2021 Equity Plan, each share underlying a full value award or stock option counts as one share used. We issue new shares of common stock upon the vesting of time-based restricted stock units ("RSUs") and performance-based RSUs ("PSUs"), and upon exercise of stock options.
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Time-based stock awards and stock options generally vest in equal installments on the first,
second and
third anniversaries of the grant date, and stock options generally expire after
six years. Awards granted to non-employee directors generally vest
one year from the grant date. We recognize stock-based compensation expense based on the fair value of stock awards at grant date and recognize the expense over the related service period using a straight-line vesting expense schedule.
The
2021 Equity Plan includes retiree provisions which result in the acceleration of stock-based compensation for expense for retiree-eligible participants. Compensation expense related to employees eligible to retire at grant date or during the award term is recognized on a straight-line basis between the grant date and the date of retirement eligibility, and the applicable retirees retain full rights to the awards upon retirement as per the plan provisions.
Expense for PSUs is recognized, net of estimated forfeitures, using a straight-line vesting schedule when it is probable that performance goals will be achieved. Performance goals are determined by the Board of Directors and may include measures such as revenues growth and profitability targets. A portion of the PSUs include a total shareholder return "TSR" market condition, which compares Mesa's share price to a peer group over a three year period. The TSR is applied to applicable PSU grants as either a stand alone performance measure or as a modifier that adjusts the quantity of shares earned for company performance up or down by a maximum of 20%. Compensation expense on stock awards subject to market or performance conditions is recognized over the longer of the performance goal attainment period or time-vesting period. At each reporting period, we estimate the number of PSUs expected to vest based on our current estimate of probable achievement compared to the target metrics in the award documents, and if necessary, a cumulative-effect adjustment is recorded.
The grant date fair value of the PSUs with market conditions is determined using the Monte Carlo simulation valuation model which uses Level
3 inputs.
The fair value of RSUs and performance-based RSUs without a market condition are based on the closing price of Mesa's common stock on the award date, less the present value of expected dividends
not received during the vesting period. RSUs we issue are equivalent to nonvested shares under applicable accounting guidance.
The fair value of granted stock options is estimated on the grant date using the Black-Scholes option pricing model. The assumptions used to calculate the fair value of granted options reflect market conditions and our historical experience. The expected life of options represents the estimated period of time until exercise and is based on historical experience of similar awards for similar subsets of our employee population, giving consideration to the contractual terms, vesting schedules, and expectations of future employee behavior. Expected stock price volatility is based on the historical volatility of our own stock price over the period of time commensurate with the expected life of the award. The risk-free rate is based on the United States Treasury yield curve in effect at the time of grant nearest to the estimated life of the stock option. The dividend yield assumption is based on our anticipated cash dividend payouts. To date, we have identified
no instances in which an adjustment to our observable market price would be required compared to the closing price of Mesa's common stock on the award date as an input to our fair value calculations.
No stock options were awarded in fiscal year
2025.
We estimate expected forfeitures using a dynamic forfeiture model based on company specific historical data when determining the amount of stock-based compensation costs to recognize each period. We allocate stock-based compensation expense to cost of revenues, selling, research and development, and general and administrative expense in the Consolidated Statements of
Operations.
Income Taxes
Income tax expense includes U.S., state, local and international income taxes. Deferred tax assets and liabilities are recognized and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax basis of existing assets and liabilities used for income tax purposes. The tax rate used to determine the deferred tax assets and liabilities is based on the enacted tax rate for the year and the manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty, such as acquisitions. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We prepare and file tax returns based on interpretation of tax laws and regulations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities. In determining our income tax provision for financial reporting purposes, we establish allowances for uncertain tax income positions unless we determine it is not more likely than not that such positions would be sustained upon examination, based on their technical merits. That is, for financial reporting purposes, we only recognize tax benefits taken on the tax return that we believe are more likely than not of being sustained. There is considerable judgment involved in determining whether positions taken on the tax return are more likely than not of being sustained. We adjust our tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated income tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any related estimated interest. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of general administrative expense. (See Note 12. “Income Taxes”).
Net (Loss) EarningsPer Share
Basic net (loss) earnings per share (“EPS”) is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the reporting period. Diluted (loss) earnings per share (“diluted EPS”) is computed similarly to basic EPS, except it includes the effects of potential dilution that could occur if dilutive securities vested, were exercised, or were converted. Potentially dilutive securities include stock options, RSUs and PSUs, as well as common shares underlying the Notes. Potentially dilutive securities are excluded from the calculation of diluted EPS in the event they are subject to performance conditions that have not yet been achieved as of the reporting date or if they would otherwise be antidilutive. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a net loss; in such cases the inclusion of the potential common shares would have an antidilutive effect. See Note 10. “Net (Loss) Earnings per Share” for EPS calculations for the years ended March 31, 2025, 2024 and 2023.
Acquisition Related Contingent Liabilities
Acquisition related contingent liabilities consist of estimated amounts due under various acquisition agreements and may be based on revenues growth, specified profitability growth metrics, or the attainment of milestones such as patent approvals. At each reporting period, we evaluate the expected probability and timing of future payments, and we adjust the contingent consideration to fair value through earnings in the Consolidated Statements of Operations. See Note 13. “Commitments and Contingencies” for information regarding existing contingent consideration liabilities as of March 31, 2025.
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In addition to contingent consideration liabilities, we may hold back a portion of the purchase price related to acquisitions as security against potential indemnification losses. Such holdbacks relate to circumstances that existed as of the date of acquisition, and as such they are not considered contingencies; however, amounts ultimately paid may differ from the estimates management makes upon acquisition, depending upon whether pre-acquisition liabilities are identified during the holdback period.
Legal Contingencies
We are party to various claims and legal proceedings that arise in the normal course of business. We record an accrual for legal contingencies when we determine it is probable we have incurred a liability and can reasonably estimate the amount of the loss (See Note 13. “Commitments and Contingencies”).
Purchase Accounting for Acquisitions
We account for all business combinations in which we obtain control over another entity using the acquisition method of accounting, which requires most assets (both tangible and intangible) and liabilities to be recorded at fair value at the date of acquisition. The excess of the purchase price over the fair value of identifiable acquired assets less liabilities is recognized as goodwill. We determine fair value using widely accepted valuation techniques, primarily discounted cash flow and market multiple analyses, which rely heavily on Level 3 inputs. These types of analyses require us to make and monitor assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flows. For all material acquisitions, we engage external valuation specialists to aid management in preparing our fair value models. Certain adjustments to the assessed fair values of acquired assets or liabilities made subsequent to the acquisition date, but within the measurement period, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded within earnings. We expense acquisition-related costs, such as legal and advisory fees, as incurred in general, and administrative expenses in the Consolidated Statements of Operations.
Results of operations of acquired companies are included in our Consolidated Financial Statements from the date of the acquisition forward. If actual results are not consistent with our assumptions and estimates, or if our assumptions and estimates change due to new information, we may be exposed to losses. We did not acquire any businesses in fiscal year 2025. For the years ended March 31, 2024 and 2023, we acquired businesses for total net purchase prices of $87,187 and $6,140, respectively.
Risks and Uncertainties
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management's judgment about the outcome of future events. It is not possible to accurately predict the future impact of such events and circumstances. However, we have reviewed the estimates used in preparing the financial statements and have identified the following factors that have a reasonable possibility of being materially affected in the near term:
● Estimates of the net realizable value of inventory.
We do not believe that there are any significant risks that have not already been disclosed in the Consolidated Financial Statements.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform with current year presentation.
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." ASU No.2023-07 is intended to provide financial statement users with more information about reportable segments, including more disaggregated expense information. We adopted ASU 2023-07 effective for our annual fiscal year 2025 reporting period, on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and disclosures and is reflected in Note 14. “Segment Data.”
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU No.2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU No.2023-09, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for public business entities for annual periods years beginning after December 15, 2024 (our fiscal year 2026), with early adoption and prospective or retrospective application permitted. Other than presentation of additional disaggregated data in our income tax footnote disclosures for annual periods, we do not expect the adoption of ASU No.2023-09 to have a material impact on our consolidated financial statement.
In November 2024, the FASB issued Accounting Standards Update ("ASU") No.2024-03, "Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses." ASU No.2024-03 requires that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The ASU is effective for fiscal years beginning after December 15, 2026 (our fiscal year 2028 for annual periods) and interim periods within fiscal years beginning after December 15, 2027 (our fiscal year 2029 for interim periods), with early adoption and prospective or retrospective application permitted. We are currently assessing the effect the adoption of this standard will have on our consolidated financial statement disclosures.
We have reviewed all recently issued accounting pronouncements and have concluded that, other than as described above, they are either not applicable to us or are not expected to have a significant impact on our consolidated financial statements.
Note 2. Revenue
We develop, manufacture, market, sell and maintain life sciences tools and quality control instruments and related consumables.
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Hardware sales include physical products such as instruments used for molecular and genetic analysis, protein synthesizers, medical meters, wireless sensor systems, data loggers, and process challenge devices. Hardware may be offered with accompanying perpetual or annual software licenses, which in some cases are required for the hardware to function.
Consumables are single-use products requiring frequent replacement in our customers' operating cycles. Consumables sold by our Clinical Genomics and Biopharmaceutical Development divisions, such as reagents used for molecular and genetic analysis or solutions used for protein synthesis, are critical to the ongoing use of our instruments. Consumables such as biological and chemical indicator test strips sold by our Sterilization and Disinfection Control division are used on a standalone basis.
Revenues from hardware and consumables are recognized upon transfer to the customer, typically at the point of shipment.
We also offer maintenance, calibration and testing service contracts. Services result in revenues recognized over time, for example, when we are obligated to perform labor and replace parts on an as-needed basis over a contractually specified period, or at a point in time, upon completion of a specific, discrete service. In some cases, our service contracts contain both revenues recognized over time and revenues recognized at a point in time.
We evaluate our revenues internally based on business division and the nature of goods and services provided.
The following tables present disaggregated revenues from contracts with customers for the years ended March 31, 2025, 2024 and 2023:
Contract Balances
Our contracts have varying payment terms and conditions. Some customers prepay for products and services, resulting in either unearned revenues or customer deposits, called contract liabilities. Short-term contract liabilities are included within unearned revenues in the accompanying Consolidated Balance Sheets, and long-term contract liabilities are included within other long-term liabilities in the accompanying Consolidated Balance Sheets. The significant majority of our revenues and related receivables and contract liabilities are generated from contracts with customers with original expected durations of twelve months or less. Contract liabilities will be recognized to revenue as we satisfy our obligations under the terms of the contracts.
A summary of contract liabilities is as follows:
Contract liabilities balance as of March 31, 2025 $ 14,803
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Note 3. Fair Value Measurements
Our financial instruments generally consist of cash and cash equivalents, trade accounts receivable, obligations under trade accounts payable, and debt. Due to their short-term nature, the carrying values of cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate fair value; they are classified within Level 1 of the fair value hierarchy.
The financial instruments that subject us to the highest concentrations of credit risk are cash and accounts receivable. We maintain relationships and cash deposits at multiple banking institutions across the world in an effort to diversify and reduce risk of loss. Concentration of credit risk with respect to accounts receivable is limited to customers to whom we make significant sales. No customers accounted for more than 10% of total trade receivables as of March 31, 2025.
On April 5, 2024, we entered into separate, privately negotiated purchase agreements with a limited number of holders of our 1.375% convertible senior notes due August 15, 2025 (the "Notes"), through which we repurchased $75,000 in aggregate principal amount of the Notes. See Note 8. "Indebtedness" for further information. As of March 31, 2025, we had remaining outstanding $97,500 aggregate principal amount of the Notes. We estimate the fair value of the Notes using Level 2 inputs based on the last actively traded price or observable market input preceding the end of the reporting period. The fair value of the Notes is approximately correlated to our stock price.
Carrying Value Fair Value (Level 2) Carrying Value Fair Value (Level 2)
The carrying amounts of our term loan and revolving line of credit (together, the "Credit Facility") on the Consolidated Balance Sheets approximate fair value due to the variable interest rate pricing on the debt, with the principal balances bearing an interest rate approximating current market rates.
At March 31, 2025 exchange rates, the estimated fair value of consideration held back from the purchase price of the GKE acquisition was approximately $9,300. The liability is reflected within other accrued expenses in our Consolidated Balance Sheets as of March 31, 2025. We adjusted the liability to estimated fair value through earnings throughout fiscal year 2025, which required the use of Level 3 inputs, including discount rate estimates. In April 2025, we paid $9,555 to the GKE sellers to settle the liability in full at the euro spot rate as of the payment date.
The Belyntic acquisition in fiscal year 2023 obligated us to pay contingent consideration of up to $1,500 cash upon regulatory approval of certain patent applications. We estimate the fair value of the remaining contingent consideration using Level 3 inputs and a probability-weighted outcome analysis based on our expectations of patent approval leveraging our historical experience and expert input, and we adjust the estimated fair value at each reporting period through earnings. The fair value of the remaining contingent consideration was $731 as of March 31, 2025, which is recorded in Other Accrued Expenses on the accompanying Consolidated Balance Sheets.
There were no transfers between the levels of the fair value hierarchy during the fiscal years ended March 31, 2025 and 2024.
Note 4. Significant Transactions
Acquisition of GKE, Fiscal year 2024
We acquired 100% of the outstanding shares of GKE GmbH and SAL GmbH effective October 16, 2023, and effective December 31, 2023, we acquired 100% of the outstanding shares of Beijing GKE Science & Technology Co. Ltd.
GKE develops, manufactures and sells a portfolio of chemical sterilization indicators, biologics, and process challenge devices to protect patient safety across global healthcare markets. GKE is included in our Sterilization and Disinfection Control ("SDC") division, and GKE's strengths in chemical indicators are complementary to SDC's strengths in biological indicators as chemical and biological indicators are used in the same sterility validation workflows. Additionally, GKE’s healthcare-focused commercial capabilities in Europe and Asia greatly expand our reach in the healthcare markets in those geographies. We are working to obtain regulatory 510(k) clearance on certain GKE products for sale in the United States, which would further expand organic revenues growth opportunities from the GKE business.
We finalized our purchase price accounting of GKE during fiscal year 2024. Total cash consideration for the GKE acquisition was $87,187, net of cash acquired and financial liabilities assumed and inclusive of working capital adjustments. We funded the acquisition through a combination of cash on-hand and a total of $71,000 borrowed under our line of credit.
During the fiscal years ended March 31, 2025 and 2024, respectively, GKE's operations contributed the following amounts to our consolidated results of operations:
Year ended March 31,
Amortization of inventory step-up recorded in cost of revenues 1,232 1,229
Amortization of acquired intangibles recorded in cost of revenues 503 266
GKE net income includes certain intercompany management fees and other items.
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Supplemental unaudited pro-forma information
Combined revenues from Mesa and GKE for fiscal years 2024 and 2023 would have been approximately $229,260 and $241,360, respectively, had the GKE acquisition occurred on April 1, 2022, at the beginning of our fiscal year 2023.
It is impracticable for us to disclose pro-forma net earnings information regarding the combined results of the operations of Mesa and GKE as if the acquisition had occurred at an earlier date. Prior to acquisition, GKE was a privately owned company with financial statements prepared on a statutory, rather than GAAP, basis, using a different fiscal year end than Mesa's. Certain financial information cannot be recreated for accurate financial results. For example, prior to Mesa's ownership, GKE accounted for inventory at an unburdened rate and performed only annual inventory counts, such that we cannot accurately estimate cost of goods sold. Additionally, all transactions occurring between the three GKE entities, which are substantial, were accounted for at arms-length prior to acquisition; we eliminated intercompany transactions from a revenue perspective above, but we do not have sufficient historical detail to eliminate intercompany cost of revenues accurately. As presentation of pro-forma net earnings information would require extensive estimation and could not be sourced from sufficiently factual information reasonably aligned with GAAP, it is impracticable for us to disclose pro-forma net earnings information.
Note 5. Leases
We have operating leases for buildings and office equipment used in manufacturing and distribution, engineering, research and development, sales and marketing, and administration activities. The following table presents the lease balances within the Consolidated Balance Sheets related to our operating leases:
Operating lease ROU asset Other assets $ 16,382 $ 9,671
Current operating lease liabilities Other accrued expenses 3,523 2,986
Noncurrent operating lease liabilities Other noncurrent liabilities 12,380 6,613
The components of lease costs, the weighted average remaining lease term and the weighted average discount rate were as follows:
Year Ended March 31,
Weighted average remaining lease term in years 6.8 4.6 3.3
Weighted average discount rate 6.2 % 4.1 % 2.0 %
Supplemental cash flow information related to leases was as follows:
Year Ended March 31,
As of March 31, 2025 maturities of lease liabilities are as follows for future years ending March 31:
Future value of lease liabilities 20,026
Less: imputed interest (4,123 )
Present value of lease liabilities $ 15,903
Note 6. Goodwill and IntangibleAssets, Net
Goodwill
Goodwill arises from the excess purchase price of acquired businesses over the fair value of acquired tangible and intangible assets, less assumed liabilities.
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Changes in the carrying amount of goodwill were as follows:
Effect of foreign currency translation 1,021 (130 ) (32 ) (6 ) 853
Goodwill related to GKE acquisition 48,850 - - - 48,850
Measurement period adjustment, Belyntic acquisition - - 841 - 841
Finite-Lived Intangible Assets
Intangible assets other than goodwill were as follows:
Amortization expense for finite-lived intangible assets was as follows:
Year Ended March 31,
Fiscal year 2024 goodwill impairment losses recorded in our Clinical Genomics and Biopharmaceutical Development divisions totaling $156,892 and impairments of other intangible assets in our Clinical Genomics division totaling $117,641 were primarily the result of higher weighted average cost of capital, which decreases the fair value of businesses, as well as downward revisions of expected future performance in fiscal year 2024.
The range of useful lives and weighted-average remaining useful lives of amortizable intangible assets as of March 31, 2025 were as follows:
Approx. Est. Useful Weighted Avg.
Life Remaining Life
Description (Years) (Years)
Customer Relationships 5 - 12 7.2
Other Intangibles 2 - 12 5.8
The following is estimated amortization expense for the years ending March 31:
Fiscal Year Amortization Expense
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Note 7. Supplemental Information
Inventories consisted of the following:
Prepaid expenses and other consisted of the following:
Total prepaid expenses and other $ 8,029 $ 9,408
Property, plant and equipment consisted of the following:
Total property, plant and equipment, net $ 32,333 $ 31,766
Depreciation expense was as follows:
Year Ended March 31,
Depreciation expense in cost of revenues $ 3,160 $ 3,031 $ 3,163
Accrued payroll and benefits consisted of the following:
Wages and paid-time-off payable 3,672 3,072
Total accrued payroll and benefits $ 17,858 $ 9,935
Other accrued expenses consisted of the following:
GKE acquisition holdback (current) $ 9,315 $ -
Current operating lease liabilities 3,523 2,986
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Note 8. Indebtedness
Credit Facility
On March 5, 2021, we entered into a senior secured credit agreement that included 1) a revolving credit facility in an aggregate principal amount of up to $75,000 (the "Revolver"), 2) a swingline loan in an aggregate principal amount not exceeding $5,000, and 3) letters of credit in an aggregate stated amount not exceeding $2,500 at any time. The agreement also provided for an incremental term loan or an increase in revolving commitments in an aggregate principal amount of at a minimum $25,000 and at a maximum $75,000, subject to the satisfaction of certain conditions and lender considerations. We refer to the agreement in whole as the “Credit Facility.”
On October 5, 2023, we amended the terms of the Credit Facility to increase the maximum principal amount available to us under the Revolver from $75,000 to $125,000.
On April 5, 2024, we further amended and restated the terms of the Credit Facility to:
(i) Extend the maturity of the Credit Facility to April 2029;
(iv) Make certain changes to the financial covenants.
In conjunction with the amendment and restatement of the Credit Facility during the year ended March 31, 2025, we incurred $1,987 of customary lender fees and debt issuance costs paid to third parties, of which $1,242 relates to the Revolver and $745 relates to the Term Loan. The balance of unamortized fees and debt issuance costs related to the Credit Facility, including fees from the original debt issuance and all subsequent amendments and restatements, was $1,203 and $321 as of March 31, 2025 and 2024, respectively. Unamortized debt issuance costs related to the Term Loan are reflected in the debt’s carrying value as a discount in our Consolidated Balance Sheets. All such fees are being amortized to interest expense through maturity.
Amounts borrowed under the Credit Facility bear interest at either a base rate or a SOFR rate plus an applicable spread ranging from 1.5% to 3.5%, depending on our total net leverage ratio. The weighted average interest rate on borrowings under the Credit Facility as of March 31, 2025 was 7.2%.
The financial covenants in the Credit Facility as amended include a maximum leverage ratio of 4.50 to 1.00 on each of the quarterly testing dates through December 31, 2024; 4.0 to 1.0 on each of the testing dates between March 31, 2025 and March 31, 2026; and 3.5 to 1.0 on each testing date thereafter. The Credit Facility also stipulates a minimum fixed charge coverage ratio of 1.25 to 1.0 and a maximum senior net leverage ratio of 3.5 to 1. Other covenants include restrictions on our ability to incur debt, grant liens, make fundamental changes to our business as defined in the contract, engage in certain transactions with affiliates, or conduct asset sales. As of March 31, 2025, we were in compliance with all required covenants under the terms of the Credit Facility.
Term Loan
We borrowed $75,000 under the Term Loan on April 5, 2024, to fund privately negotiated repurchases of a portion of the Notes (see "Convertible Notes" below).
We are required to make quarterly principal payments on the Term Loan. During the year ended March 31, 2025, we made required quarterly principal payments on the Term Loan of $3,750. For the fiscal years ending March 31, required future principal debt payments on the Term Loan are as follows:
Fiscal Year Amount
Total outstanding principal $ 71,250
The net carrying amount of the Term Loan was as follows:
Less: discount and debt issuance costs (598 )
Less: current portion (3,750 )
Noncurrent portion $ 66,902
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There was no outstanding balance related to the Term Loan as of March 31, 2024.
Revolver
As of March 31, 2025, the outstanding balance under our Revolver was $10,000, and $115,000 was available for borrowing.
We are obligated to pay quarterly unused commitment fees of between 0.20% and 0.35% of the Revolver’s aggregate principal amount, based on our leverage ratio. We incurred unused commitment fees of $269 and $164 for the years ended March 31, 2025, and March 31, 2024, respectively.
Convertible Notes
On August 12, 2019, we issued an aggregate principal amount of $172,500 of Notes. The net proceeds from the Notes, after deducting underwriting discounts and commissions and other related offering expenses payable by us, were approximately $167,056. The Notes mature on August 15, 2025, unless earlier repurchased or converted, and bear interest at a rate of 1.375% payable semi-annually in arrears on February 15 and August 15 each year beginning on February 15, 2020. The Notes are initially convertible at a conversion rate of 3.5273 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $283.50 per share of common stock.
On April 5, 2024, we entered into separate, privately negotiated transactions with certain holders of the Notes to repurchase $75,000 aggregate principal amount of the Notes for an aggregate repurchase price of $71,250 in cash, plus accrued and unpaid interest of $160 and fees paid to third parties of $310 directly related to the extinguishment. We accounted for the partial repurchase of the Notes as a debt extinguishment, which resulted in the recognition of a gain on extinguishment of $2,887 in other income on the Consolidated Statements of Operations during the year ended March 31, 2025. As of March 31, 2025, $97,500 in aggregate principal amount of the Notes remained outstanding, which we intend to pay using a combination of cash on hand and a draw on our Revolver.
Noteholders may convert their Notes at their option only in the following circumstances:
Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. The circumstances necessary for conversion were not met during fiscal year 2025. The if-converted value of the Notes did not exceed the principal balance as of March 31, 2025.
Debt issuance costs related to the Notes remaining after the partial repurchase in fiscal year 2025 are comprised of commissions payable to the initial purchasers of $2,925 and third party offering costs of $152. The debt issuance costs are being amortized to interest expense using the effective interest method over the remaining contractual term of the Notes.
The net carrying amount of the 2025 was as follows:
Unamortized debt issuance costs (203 ) (1,302 )
We recognized interest expense on the Notes as follows:
Year Ended March 31,
Amortization of debt issuance costs 546 926 907
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The effective interest rate on the Notes is approximately 1.9%.