Mesa Laboratories MLAB Form 10-Q filing Q1 FY2025

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 June 30, 2024, 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 services, and medical device verticals, in which the safety, quality, and efficacy of products is critical, by delivering the highest quality products possible. We are committed to protecting the communities we serve.

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, 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.

Inorganic 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

We 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 using our 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 biggest opportunities; and Always Learning so that performance continuously improves.

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Gross profit is affected by many factors including our product mix, manufacturing efficiencies, costs of products and labor, foreign currency rates, 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 sales will continue to impact our overall gross profit.

Hire, Develop, and Retain Top Talent

At the center of our organization are talented people who are capable of taking on new challenges using a team approach. It is our exceptionally talented workforce that works together and uses our lean-based tool set to find ways 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 the three months ended June 30, 2024, approximately 54% 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 varied economic environments across served geographies, technological expansion in served markets, opportunities in high-growth markets, changes in trends and costs of a global labor force, and increasing regulation. Continued growth of our revenue will depend on our ability to (i) continue commercial efforts to expand business with new and existing customers, (ii) identify, consummate, and integrate acquisitions successfully, and (iii) develop or purchase differentiated products and services. We maintain our profitability by improving the effectiveness of our sales forces, continuing to pursue cost reduction initiatives, and improving our operating efficiency.

During the first quarter of fiscal year 2025, our revenues increased 14.9%, primarily driven by revenues of $6,254 from GKE, which we acquired in the third quarter of fiscal year 2024. Organic revenues increased 2.5% during the first quarter of fiscal year 2025 primarily as a result of 21.4% organic revenues growth from our Biopharmaceutical Development division, and to a lesser extent organic revenues increases of 4.9% and 3.0% from our Sterilization and Disinfection Control division and our Calibration Solutions divisions, respectively. Our Biopharmaceutical Development division, in particular, benefited from an improved environment for capital equipment purchases in the biopharmaceutical vertical. Organic revenues growth in our Clinical Genomics business declined 14.7% as we continue to experience challenges from the economic slowdown in China and regulatory challenges that are beginning to impact sales of new Clinical Genomics instruments in the United States. However, the Clinical Genomics division's revenues increased 2.5% compared to the fourth quarter of fiscal year 2024.

Gross profit increased two percentage points in the first quarter of fiscal year 2025 compared to the first quarter of fiscal year 2024, primarily attributable to lower amortization of intangible expenses flowing through cost of revenues as a result of the Clinical Genomics intangible asset impairment charge recorded in the fourth quarter of fiscal year 2024 and overall organic revenues growth on our partially fixed cost structure.

Operating expenses remained relatively flat despite a 14.9% increase in revenues. Operating expenses incurred by GKE were offset by lower amortization expense as we impaired a portion of the intangible assets held by the Clinical Genomics division. As a result, operating income was $5,580, an increase of $6,244 versus the comparable prior year period. GKE contributed $2,717 to our consolidated operating income during the first quarter of fiscal year 2025.

A weakening or strengthening of foreign currencies against the United States dollar ("USD") increases or decreases our reported revenues, gross profit margins, and operating expenses, and impacts the comparability of our results between periods.

Results of Operations

Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion below should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto appearing in Item 1. Financial Statements (in thousands, except percent data).

Results by reportable segment are as follows:

(a) Organic revenues growth is a non-GAAP measure of financial performance. See "Non-GAAP Measures" below for further information and for a reconciliation of organic revenues growth to total revenues growth.

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Our unaudited Condensed 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 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.

Sterilization and Disinfection Control's revenues increased 44% for the three months ended June 30, 2024 compared to the prior year period. The GKE acquisition contributed $6,254 of revenues to the Sterilization and Disinfection Control division and organic revenues growth was 4.9%. The organic revenues growth was primarily a result of strong commercial execution resulting in increased order quantities, particularly to life sciences customers.

Sterilization and Disinfection Control's gross profit percentage decreased 5% for the three months ended June 30, 2024 compared to the prior year period. Excluding $778 of amortization of the non-cash inventory step-up related to the GKE acquisition during the three months ended June 30, 2024, the division's gross profit would have been 71%, representing a decline of 1.5 percentage points. The decline of approximately 1.5 percentage points compared with the first quarter of fiscal year 2023, was due primarily to increased labor costs, and to a lesser extent, the impact of foreign currency changes.

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, and oncology related applications, and toxicology research.

Clinical Genomics revenues decreased 15% for the three months ended June 30, 2024 compared to the prior year period. The decrease for the three months ended June 30, 2024 versus the comparable prior year period was primarily due to decreases in new systems-related revenues in China as a result of China's economic slowdown and anti-corruption initiatives, which began to significantly impact us during the third quarter of fiscal year 2024, and to a lesser extent, decreased instrument sales in the United States due to increased regulation of lab-developed tests.

Gross profit percentage for the Clinical Genomics division increased seven percentage points for the three months ended June 30, 2024 versus the comparable prior year period, primarily due to lower intangibles amortization expense as a result of an impairment charge recorded in the fourth quarter of fiscal year 2024. Excluding the impact of amortization expense, gross profit as a percentage of revenues would have decreased two percentage points primarily as a result of lower revenues on a partially-fixed cost base.

Biopharmaceutical Development

Our Biopharmaceutical Development division develops, manufactures, and sells automated systems for protein analysis (immunoassays) and peptide synthesis solutions. Immunoassays and peptide synthesis solutions accelerate the discovery, development, and manufacture of biotherapeutic therapies, among other applications.

Biopharmaceutical Development revenues increased 21% for the three months ended June 30, 2024 versus the comparable prior year period, primarily due to increased capital spending in the biopharmaceutical markets, resulting in an 80% increase in revenues from hardware and software sales versus the comparable prior year period.

Gross profit percentage for the three months ended June 30, 2024 increased one percentage point compared to the prior year period primarily due to increased revenues on a partially fixed cost base and a favorable product mix.

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Calibration Solutions

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

Calibration Solutions revenues increased 3% for the three months ended June 30, 2024 compared to the prior year period, primarily due a reduction of past due backlog as supply chain issues have abated.

The Calibration Solutions division's gross profit percentage increased five percentage points for the three months ended June 30, 2024, compared to the prior year period, primarily due to increased revenues on a partially-fixed cost base and favorable product mix.

Operating Expense

Operating expense decreased one percentage point for the three months ended June 30, 2024 versus the comparable prior year period. The increase in operating expenses from GKE's operations were offset by lower amortization of intangible assets as a result of the impairment charge recorded in the fourth quarter of fiscal year 2024.

Selling Expense

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

Selling expense for the three months ended June 30, 2024 increased 13% compared to the prior year period. The increase is primarily attributable to sales and marketing costs from GKE and higher commissions as revenues increased, partially offset by lower professional services costs as we made improvements to our corporate website in the prior year.

General and Administrative Expense

Labor costs, non-cash stock-based compensation and non-cash amortization of intangible assets drive the substantial majority of our general and administrative expense.

General and administrative expenses decreased 7% for the three months ended June 30, 2024 versus the comparable prior year period, largely due to the decrease of amortization of intangible assets due to an impairment charge recorded in the fourth quarter of fiscal year 2024. Excluding amortization expenses, general and administrative expense would have increased $964, primarily as a result of GKE's general and administrative expenses and costs associated with integrating GKE into Mesa's enterprise resource planning tool, partially offset by lower personnel-related expense.

Research and Development Expense

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

Research and development expenses decreased 2% for the three months ended June 30, 2024 versus the comparable prior year period, primarily due to cost containment efforts undertaken in fiscal year 2024 that benefitted the first quarter of fiscal year 2025.

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Nonoperating (Income) Expense, Net

Nonoperating expense, net for the three months ended June 30, 2024 is composed primarily of a gain recorded related to the extinguishment of the Notes, offset by the combination of interest expense and debt issuance costs, and gains and losses on foreign currency transactions.

The $3,197 gain on extinguishment of the Notes was a result of the settlement of $75,000 aggregate principal of our Notes. The gain represents the difference between the fair value and the carrying value of the Notes and any unamortized debt issuance costs at the time of settlement.

Interest expense increased as the amount outstanding on our Credit Facility increased, while the principal amount of our Notes decreased. The interest rate on our Credit Facility is variable, but was approximately 6.5 percentage points higher than the fixed-rate interest on the Notes during the first quarter of fiscal year 2025.

Income Taxes

Our effective income tax rate was 13.2% for the three months ended June 30, 2024 and 41.4% for the three months ended June 30, 2023. The effective tax rate for the three months ended June 30, 2024 differed from the statutory federal rate of 21% primarily due to the valuation allowance established for subsidiaries in the United States in the fiscal year ended March 31, 2024. The change in our effective tax rate for the three months ended June 30, 2024 compared to the prior year period is primarily due to lower windfall benefits on stock option exercises.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.

Net Income

Net income varies with changes in revenues, gross profit, and operating expense (and included $4,061, $2,928 and $1,404 of non-cash amortization of intangible assets acquired in business combinations, stock-based compensation expense, and depreciation expense, respectively, for the three months ended June 30, 2024).

Market-Based Awards

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

Liquidity and Capital Resources

Our sources of liquidity include cash generated from operations, cash and cash equivalents on hand, cash available from our Credit Facility and Open Market Sale AgreementSM, working capital, 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 or funds from our Open Market Sale AgreementSM, when necessary, will be sufficient to meet our ongoing operating requirements, scheduled interest payments on debt, dividend payments, and anticipated capital expenditures.

Our more significant uses of resources have historically included acquisitions, payments of debt and interest obligations, long-term capital expenditures, and quarterly dividends to shareholders. During fiscal year 2024, we acquired GKE for $87,187, net of cash and financial liabilities and inclusive of working capital adjustments. Of the total acquisition price, approximately $9,200 (at June 30, 2024 exchange rates) is being held back for a period of 18 months from the acquisition closing as security against potential indemnification losses.

Working capital is the amount by which current assets exceed current liabilities. We had working capital of $51,825 and $65,040 as of June 30, 2024 and March 31, 2024, respectively. As of June 30, 2024 and March 31, 2024, we had $28,472 and $28,214, respectively, of cash and cash equivalents.

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During the first quarter of fiscal year 2025, we amended and restated our Credit Facility to:

• Allow proceeds from the Credit Facility to be used to redeem some or all of the Notes.

• Add a $75,000 senior secured term loan facility.

• Extend the maturity of the Credit Facility to April 2029.

• Make certain changes to the financial covenants.

Under the revised Credit Facility, we maintain access to our Revolver, allowing access to up to $125,000 of borrowings. During the three months ended December 31, 2023, we borrowed a total of $71,000 under the Revolver to fund the majority of the acquisition of GKE. As of June 30, 2024, $42,000 remained outstanding under the Revolver, and $83,000 was available to borrow. During July 2024, we repaid $3,500 on our Revolver.

We used the $75,000 proceeds from borrowings under the Term Loan to enter into a separate, privately negotiated purchase agreements with a limited number of holders of our Notes. Pursuant to the purchase agreements, we purchased $75,000 aggregate principal amount of the Notes for an aggregate cash purchase price of approximately $71,250. Following these transactions, $97,500 aggregate principal amount of the 2025 notes remaining outstanding.

At our current interest rate, we expect to incur interest expense of approximately $9,701 per year on borrowings of $115,353 under the Credit Facility.

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 $150,000. We have not sold any shares under this agreement.

We routinely evaluate opportunities for strategic acquisitions. Future material acquisitions may require that we 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, pursuing privately negotiated transactions, or otherwise. The amount of debt that may be retired, if any, could be material. Retirement would be decided at the sole discretion of our Board of Directors and would depend on market conditions, our cash position, and other considerations.

Dividends

We have paid regular quarterly dividends since 2003. We paid dividends of $0.16 per share during the three months ended June 30, 2024, as well as each quarter of fiscal year 2024.

In July 2024, we announced that our Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, payable on September 16, 2024, to shareholders of record at the close of business on August 30, 2024.

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Goodwill and Intangible Assets

We perform analyses at least quarterly to identify potential impairment indicators and to assess whether it is more likely than not that our goodwill reporting units are impaired. We have determined our goodwill reporting units are not impaired as of June 30, 2024; however, impairment losses recorded in the prior fiscal year resulted in a 0% cushion between the fair and carrying values of our Clinical Genomics division and the Immunoassays reporting unit within our Biopharmaceutical Development division as of our most recent annual impairment testing date on January 1, 2024. Revenues related to our Biopharmaceutical Development division were higher than our impairment model indicated; however, our Clinical Genomics reporting unit remains susceptible to future impairment losses if actual results differ significantly from the assumptions used in our most recent impairment tests. At our last testing date, fair value of the applicable reporting units was assessed by weighting Gordon Growth and Exit Multiple discounted cash flow models and guideline public company models (one-year forward multiples), relying on unobservable Level 3 inputs, including but not limited to, discount rates, expected useful lives, applicable competitors, and anticipated revenues growth and margins. Inputs were established through discussions between Management and external valuation specialists, and were based on internal expectations for future performance, market indicators, and reputable valuation research resources. These assumptions required inputs and estimates that are subject to uncertainty such that there is a reasonable possibility that further impairment losses, which could be material to our consolidated financial statements, may occur in the future.

Cash Flows

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

Cash flows from operating activities for the three months ended June 30, 2024 provided $10,433, an increase of $494 versus the comparable prior year period. The increase in cash flows from operating activities for the three months ended June 30 2024 compared with June 30, 2023 was primarily a result of:

• improved operating performance, primary due to an increase in revenues of $7,525;

• reduction in cash used by operating assets, primarily as a result of the timing of tax payments; partially offset by

• approximately $2,080 more paid for interest as we had more debt outstanding at higher rates.

Cash used in investing activities for the three months ended June 30, 2024 increased compared to the three months ended June 30, 2023 primarily due to spending on property, plant, and equipment.

Cash provided by financing activities resulted in a $9,109 use of cash for the three months ended June 30, 2024. Net proceeds on the term loan were almost fully offset by payments made to repurchase the Notes. We used $9,438 of cash to repay the Credit Facility compared to $8,000 in the comparable prior year period.

Contractual Obligations and Other Commercial Commitments

We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of our contractual obligations and other commercial commitments as of March 31, 2024, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission on June 28, 2024.

On a consolidated basis, as of June 30, 2024, we had contractual obligations for open purchase orders of approximately $15,500 for routine purchases of supplies and inventory, the majority of which are payable in less than one year.

As part of the GKE acquisition, we have agreed to pay the GKE sellers approximately $9,200 (at June 30, 2024 exchange rates) of the acquisition price approximately 18 months following the acquisition, pending adjustments for potential indemnification losses that may arise.

As part of the Belyntic acquisition, we agreed to pay $1,500 to the sellers if specified patents related to the technology purchased are issued. The estimated fair value of the probable remaining contingent consideration was $650 as of June 30, 2024*.*

See "Liquidity and Capital Resources" for information related to future required debt payments.

Critical Accounting Policies and Estimates

Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstances. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended March 31, 2024, in the Critical Accounting Policies and Estimates section of Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Non-GAAP Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles, we present organic revenues growth (reported revenues growth excluding revenues from recent acquisitions), as a supplemental non-GAAP financial measure. We believe that presenting supplemental organic revenues growth facilitates comparability between current period and prior period information, and provides insight into Mesa’s short-term and long-term financial trends. We use organic revenue growth internally to forecast and evaluate Mesa’s operating performance and to compare revenues of current periods to prior periods, for financial and operating decision-making and compensation purposes.

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

I****tem 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Rates

We face exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliates. Transactional exchange rate risk arises from the purchase and sale of goods and services in currencies other than the functional currency of the applicable subsidiary. We also face translational exchange rate risk related to the translation of financial statements of our foreign operations into 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 average exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the 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 the division's 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. As we continue to consummate acquisitions of companies with foreign operations or with functional currencies other than the U.S. dollar, our foreign currency exchange rate risk will increase. The effect of a change in currency exchange rates on our international subsidiaries' assets and liabilities is reflected in the accumulated other comprehensive income component of stockholders’ equity.

Interest Rates

Our Credit Facility bears interest at either a base rate or a SOFR rate plus an applicable spread. Based on the balance outstanding as of June 30, 2024, we estimate that if interest rates increased 1 percentage point, we would incur approximately $1,150 of additional cash interest expense per year.

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 impact on our financial statements 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. We cannot reasonably estimate our ability to successfully recover any impact of inflation cost increases into the future.

Other

We have no derivative instruments. We have minimal exposure to commodity market risks.

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Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As of June 30, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report, due to a material weakness identified in the fourth quarter of fiscal year 2024 that has not yet been remediated. Two of the material weaknesses identified in the fourth quarter of fiscal year 2024 were remediated in the first quarter of fiscal year 2025. The material weaknesses are described further below.

Prior Year Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in Part II Item 9A. "Controls and Procedures" in our annual report on Form 10-K for the year ended March 31, 2024, during fiscal year 2024 we identified three material weaknesses in internal controls:

• Controls over technical accounting for complex and non-routine transactions - We did not have adequate supervision and review controls over complex technical accounting related to non-routine goodwill impairment transactions and related analyses.

• Controls over determining the useful lives of our recently acquired intangibles - During the GKE acquisition's measurement period, we selected a useful life over which to amortize acquired customer relationships, but there was evidence that a longer useful life may be appropriate.

• Certain controls related to change management and logical access controls related to our enterprise resource planning tool, part of our information technology general controls set, were not operating effectively for a portion of the year ended March 31, 2024. The failure of these information technology general controls extended to automated application controls across portions of financial reporting and business transaction cycles which rely upon the affected information technology application controls.

Remediation Status for Material Weaknesses in Internal Control Over Financial Reporting

Beginning during the three months ended June 30, 2024, we implemented our previously-disclosed remediation plans:

• Technical accounting for complex and non-routine transactions - We executed two transactions during the first quarter of our fiscal year 2025, partial repurchases of the Notes and the amendment and modification of our Credit Facility, which met our definition of complex technical accounting matters for which we should obtain technical accounting support from an outside expert. We identified and selected qualified third-party advisors, including validation that that the advisors possessed adequate knowledge to address the complexities of the applicable technical accounting matters; and ensured analyses were appropriately reviewed, ensuring consensus on accounting conclusions. Following the execution of our remediation plan for these transactions, management management has concluded that the material weakness has been remediated.

• Assessment of useful lives of recently acquired intangibles - We modified the useful life of our customer relationship intangible and recorded an immaterial cumulative effect true-up to release amortization expense during the three months ended June 30, 2024. Following the execution of our remediation plan related to the useful lives of recently acquired intangible assets, management has concluded that the material weakness has been remediated.

• Information technology general controls - Management modified the reports used as source data to test change management controls in our enterprise resource planning tool and has established new controls to enhance our review of roles, particularly roles with the ability to add, edit or delete transactions. An insufficient number of quarters has elapsed to affirm remediation of the material weakness regarding information technology general controls; we will continue to perform our reviews in future quarters.

Changes in Internal Control Over Financial Reporting

We acquired GKE during the third quarter of our fiscal year ended March 31, 2024. As such, the scope of our assessment of our internal control over financial reporting does not yet include GKE. This exclusion is in accordance with the Securities and Exchange Commission’s general guidance that an assessment of a recently acquired business may be omitted from our scope for one year from the date of acquisition. The Company's total assets as of June 30, 2024 include $113,500 of assets held by GKE. The Company's consolidated revenues for the three months ended June 30, 2024 include $6,300 from GKE.

Other than as discussed above, during the three months ended June 30, 2024 there were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

See Note 11. “Commitments and Contingencies” within Item 1. Financial Statements for information regarding any legal proceedings in which we may be involved.

Item 1A. Risk factors

During the three months ended June 30, 2024, there were no material changes from the risk factors described in Part 1, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended March 31, 2024.

I****tem 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information about the Company's purchases of equity securities for the periods indicated:

(1) Shares purchased during the period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards during the period.

(2) On November 7, 2005, our Board of Directors adopted a share repurchase plan which allows for the repurchase of up to 300,000 of our common shares; however, no shares have been purchased under the plan in any period presented. This plan will continue until the maximum is reached or the plan is terminated by further action of the Board of Directors.

Item 5. Other Information

The following of our directors or officers entered into written plans for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) (each, a "trading arrangement") on the dates indicated:

Senior Vice President of Continuous Improvement Brian Archbold entered into a trading arrangement on June 12, 2024. The trading arrangement is effective through May 30, 2025, and contemplates that Mr. Archbold may sell 558 shares of Mesa Labs' common stock, subject to certain conditions.

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Item 6. Exhibits

• Filed herewith

• Furnished herewith

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Signatures