Mesa Laboratories, Inc.

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 refer to Mesa Laboratories, Inc. and its subsidiaries.

This section generally discusses our fiscal years ended March 31, 2026 and March 31, 2025 and year-to-year comparisons between fiscal year 2026 and fiscal year 2025. Discussions of fiscal year 2024 and year-to-year comparisons between fiscal year 2025 and fiscal year 2024 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 for the fiscal year ended March 31, 2025 filed with the SEC on May 28, 2025.

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 APAC, and by independent distributors in these areas as well as throughout the rest of the world. 

As of March 31, 2026, we managed our operations in four reportable segments, or divisions: Sterilization and Disinfection Control, Biopharmaceutical Development, Calibration Solutions and Clinical Genomics. Each of our divisions is described further in "Results of Operations" below. Unallocated corporate expenses and other business activities are reported within Corporate and Other.

Corporate Strategy

We strive to create stakeholder value and further our purpose of Protecting the Vulnerable® by growing our business both organically and through acquisitions, by improving our operating efficiency, and by continuing to hire, develop and retain top talent. We commit to our purpose every day by taking a customer-focused approach to developing, building and delivering our products and services. We serve a broad set of industries, particularly the pharmaceutical, healthcare and medical device sectors, in which the safety, quality and efficacy of products is critical. By delivering the highest quality products possible, we are committed to protecting the communities we serve.

Organic Revenues Growth

Organic revenues growth is driven by 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. 

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®.

Improving Our Operating Efficiency

Our ongoing goal is to maximize value in our 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, our customer-centric, lean-based system for continuous improvement. The Mesa Way is built on four key pillars: "Measuring What Matters" based on our customers' perspectives to set high standards of performance; "Empowering Teams" to improve operationally and exceed customer expectations; "Sustainably Improving" using lean-based tools designed to help us identify and prioritize the best opportunities; and "Always Learning" to continuously build knowledge and capabilities to drive long-term performance. 

Our gross profit is affected by many factors, including the mix of products and services sold and the geographical regions in which we sell them, labor and product costs (including costs of transporting, importing and exporting goods, as well as associated tariffs), manufacturing efficiencies, foreign currency rates and price competition. Historically, as we have integrated acquisitions into our business and taken advantage of manufacturing efficiencies, our gross profit percentages for some products have improved. There are, however, differences in gross profit percentages between product lines, and ultimately our mix of revenues will continue to impact our overall gross profit.

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

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-based approach. Indeed, it is our exceptionally talented workforce that collaborates to continuously and sustainably improve our products, our services, and ourselves, resulting in long-term value creation for our stakeholders. 

General Trends

As a global company, our geographic and industry diversity presents both opportunities and challenges, including in relation to pursuing expansion opportunities in high-growth markets, operating in varied economic environments, complying with evolving regulatory requirements such as tariffs, navigating global labor trends and costs, adapting to technological changes in markets we serve, and monitoring the effects of foreign currency fluctuations against the U.S. dollar. During fiscal 2026, approximately 53% of our revenues were earned outside of the United States.

In fiscal year 2026, we announced a planned transition in executive leadership, with the appointment of Dr. Siddhartha Kadia as Chief Executive Officer effective in fiscal year 2027.

In fiscal year 2026, revenues grew 3.4% compared to fiscal 2025, driven primarily by growth in our Sterilization and Disinfection Control division, and to a lesser extent, our Calibration Solutions division. Revenues in our Biopharmaceutical Development division were largely consistent with fiscal year 2026. Our Clinical Genomics division experienced revenue declines, primarily due to unfavorable macroeconomic conditions in China and ongoing trade tensions, which have weakened demand for our Clinical Genomics products and services in that region. We expect these challenges to persist into fiscal year 2027; however, we anticipate that the related financial impact will be substantially smaller than in fiscal year 2026. In the Americas and Europe, Clinical Genomics continued to execute its product development and commercial strategy successfully in fiscal year 2026. Currency translation increased reported revenues by 2.2% in fiscal year 2026 compared to fiscal year 2025, primarily affecting the Sterilization and Disinfection Control and Biopharmaceutical Development divisions.

Consolidated gross profit as a percentage of revenues in fiscal year 2026 increased 0.9 percentage points in fiscal year 2026. The improvement was driven by a more favorable geographic revenue mix in the Clinical Genomics division, cost savings initiatives implemented in fiscal years 2025 and 2026, and higher sales on a partially-fixed cost base. These improvements were partially offset by unfavorable foreign currency translation and the impact of tariffs, which together reduced consolidated gross profit as a percentage of revenues by approximately 0.8 percentage points compared to the prior year, with a particularly pronounced effect in our Biopharmaceutical Development division. In addition, fiscal year 2025 results included GKE-related inventory step-up amortization expense, which negatively impacted gross profit margins in fiscal year 2025 and did not recur in fiscal year 2026.

Operating expense increased 3.9% in fiscal year 2026 compared to fiscal year 2025, while operating expense as a percentage of revenues remained largely consistent. The increase in operating expense was primarily driven by costs associated with the departure of our former CEO. Additionally, reported selling expense, general and administrative expense, and research and development expense increased due to the weakening of the U.S. dollar against the euro and Swedish krona in fiscal year 2026 compared to fiscal year 2025. Increases in operating expense were partially offset by lower professional services and consulting costs, as fiscal year 2025 included GKE integration costs.

Changes in foreign currency exchange rates relative to the U.S. dollar affect our reported revenues, gross profit margins, and operating expenses and impact the comparability of our results between periods. A strengthening or weakening of the U.S. dollar can therefore influence reported financial results even when underlying operating performance is unchanged.

Results of Operations

Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto appearing in Item 8. Financial Statements and Supplementary Data. 

Results by reportable segment are as follows:

Our consolidated results of operations are as follows:

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 sterility assurance testing and laboratory services, primarily to dental and pharmaceutical customers. Sterilization and Disinfection Control products are disposable and are used on a routine basis.

Sterilization and Disinfection Control revenues increased 8.7% in fiscal year 2026 compared to fiscal year 2025, primarily due to the weakening of the U.S. dollar and price increases during fiscal 2026, and to a lesser extent, higher sales volumes. Excluding the impact of foreign currency translation, revenues would have increased approximately 4.7% for fiscal year 2026. The Sterilization and Disinfection Control division’s backlog decreased by approximately $1.2 million in fiscal year 2026 as order fulfillments returned to normal levels. 

Gross profit as a percentage of revenues in the Sterilization and Disinfection Control division increased 1.4 percentage points, primarily due to higher revenues on a partially-fixed cost base. Excluding the impact of foreign currency translation and $1.2 million of amortization of the non-cash inventory step-up related to the GKE acquisition recorded in fiscal year 2025, the Sterilization and Disinfection Control division's gross profit margin percentage would have increased approximately 0.8 percentage points in during fiscal year 2026 compared to fiscal year 2025. 

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.

Biopharmaceutical Development revenues were largely consistent in fiscal year 2026 compared to fiscal year 2025, as declines in our immunoassay product lines were partially offset by growth in our peptide product lines. The decline in immunoassays revenues relates primarily to commercial execution challenges, partially offset by the impact of foreign currency. Revenues were impacted to a lesser extent by shipping delays related to export controls that prevented the shipment of certain peptides systems in the second half of fiscal year 2026. Excluding the impacts of foreign currency translation and revenues from tariff recovery surcharges, Biopharmaceutical Development revenues would have declined approximately 3.9% compared to the prior year.

Biopharmaceutical Development's gross profit as a percentage of revenues decreased 2.7 percentage points during fiscal year 2026, primarily due to the impacts of foreign currency translation and tariffs. Excluding the impacts of foreign currency translation and tariffs, gross profit as a percentage of revenues for fiscal year 2026 would have been approximately consistent with fiscal year 2025.  

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, gas flow, environmental and process monitoring and torque testing, primarily in medical device manufacturing, pharmaceutical manufacturing, laboratory and hospital environments.

Calibration Solutions revenues increased 3.5% for fiscal year 2026 compared to fiscal year 2025, primarily driven by price increases and ongoing commercial efforts to establish and renew contracts that incentivize utilization of our service offerings. 

The Calibration Solutions division's gross profit as a percentage of revenues increased 0.5 percentage points in fiscal year 2026 compared to fiscal year 2025, primarily due to increased revenues on a partially fixed cost base and product mix, partially offset by an unfavorable tariff impact of 20 basis points. 

Clinical Genomics

The Clinical Genomics division develops, manufactures and sells highly sensitive, high-throughput genetic analysis tools and related consumables and services that enable clinical research labs and contract research organizations to perform genomic testing across a broad range of non-diagnostic applications in several therapeutic areas, including hereditary disease screenings, pharmacogenetics, oncology related applications and toxicology research. 

Clinical Genomics revenues decreased 3.6% in fiscal year 2026 compared to fiscal year 2025, driven primarily by lower sales to customers in China, reflecting ongoing macroeconomic and regulatory uncertainty as well as ongoing trade tensions. Excluding sales to China, revenues increased 9.2% in fiscal year 2026 compared to fiscal year 2025. 

Clinical Genomics’ gross profit as a percentage of revenues increased 2.8 percentage points in fiscal year 2026 compared to fiscal year 2025, despite lower revenues. The increases in gross profit as a percentage of revenues were primarily attributable to manufacturing and supply chain efficiency improvements, lower personnel-related costs attributable to our cost mitigation efforts, and favorable geographic product mix, as sales outside of China typically generate higher margins. Gross profit as a percentage of revenues for fiscal year 2026 was also positively impacted by product mix, as higher-margin consumables represented a greater portion of the division's total revenues. 

Operating Expense

Operating expense increased 3.9% in fiscal year 2026 compared to fiscal year 2025, while operating expense as a percentage of revenues remained largely consistent. Among other factors, operating expense increased due to the weakening of the U.S. dollar against the euro and Swedish krona in fiscal year 2026.

Selling Expense

Selling expense is driven primarily by labor costs, including salaries and commissions; accordingly, it may vary with sales levels.

Selling expense decreased 2.1% for fiscal year 2026 and decreased 0.9 percentage points as a percentage of revenues. The decrease was primarily attributable to lower commissions-related expense, partially offset by severance costs associated with our cost-savings initiatives. In the prior year, selling expense was somewhat elevated due to costs associated with a sales training initiative. 

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. 

General and administrative expenses increased 7.3% in fiscal year 2026 and increased 1.2 percentage points as a percentage of revenues. The increase was primarily attributable to expenses associated with our former CEO’s departure, including accelerated stock-based compensation expense and severance. Higher expense related to estimated uncollectible accounts receivable, particularly related to customers in China, also contributed to the increase. These increases were partially offset by lower consulting and professional services expenses, as the prior year included consulting costs associated with integrating GKE into our enterprise resource planning system, and by lower amortization expense. Aggregate CEO transition costs were $6.7 million, including $3.7 million of non‑cash stock‑based compensation. Excluding these costs, general and administrative expenses would have declined 1.8% in fiscal year 2026. 

No impairment losses were recorded in fiscal years 2026 or 2025.

Research and Development Expense

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

Research and development expenses increased 4.0% in fiscal 2026 compared to 2025 and were flat as a percentage of revenues. The increase was primarily attributable to consulting services and purchases of supplies to support project-specific research and development activities, as well as severance costs, particularly within our Clinical Genomics division. These increases were partially offset by lower salaries and personnel-related costs associated with our cost-savings initiatives. 

Nonoperating Expense, Net 

Interest expense decreased in fiscal year 2026 compared to fiscal year 2025 due to lower weighted‑average levels of outstanding interest‑bearing debt and a reduction in interest rates applicable to our floating‑rate debt. These decreases were partially offset by a higher interest rate associated with borrowings under the Credit Facility discussed below compared to our previously outstanding convertible notes ("the Notes"), which were settled during fiscal year 2026 using borrowings under the Credit Facility.

Other (income) expense, net primarily consists of gains and losses on foreign currency transactions. In particular, during fiscal year 2026, we recognized unrealized foreign currency gains of approximately $3.7 million related to an intercompany U.S. dollar-denominated loan issued in fiscal year 2024 to one of our wholly owned, euro-denominated subsidiaries. 

Income Taxes

Our effective income tax rate was 44.1% for fiscal year 2026 compared to 133.1% for fiscal year 2025.

The effective tax rate for fiscal year 2026 differed from the statutory federal rate of 21% primarily due to non-deductible executive compensation and taxes related to foreign operations, partially offset by a decrease to our valuation allowance. The effective tax rate for fiscal year 2025 differed from the statutory federal rate of 21% primarily due to increases in our valuation allowance related to our operations in the U.S. and Germany, as well as non-deductible executive compensation and varying applicable tax rates in foreign jurisdictions. 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 Income (Loss)

Net income (loss) varies with the changes in revenues, gross profit, and operating expenses. Net income in fiscal year 2026 reflects, respectively, $18,017, $5,254, and $17,868 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 income (loss), 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:

The following table sets forth our reconciliation of total revenues growth to organic revenues growth, a non-GAAP measure: