Mesa Laboratories Inc 2027 Q1 Earnings Call

Please be advised that our remarks today, including answers to your questions, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements include those relating to future financial and operational results, future taxes, future strategic and operational initiatives, new products, and our future net leverage ratio. Words such as seek, expect, plan, intend, anticipate, believe, could, should, estimate, may, project, and target, and similar expressions may also identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated.

Those include risks relating to market acceptance of and demand for our products, our ability to execute on strategic, commercial, and operational initiatives and achieve the anticipated benefits from those initiatives, potential issues relating to our manufacturing, fulfillment, supply chain performance, possible changes in customer purchasing patterns, the development and success of new products and product launches, regulatory matters, the effect on our business of capital allocation decisions and debt reduction initiatives, expected tax rates, national and global economic conditions, and other factors described in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we will provide certain non-GAAP financial information in this call, including adjusted operating income on a trailing 12-month basis.

The relevant definitions and GAAP reconciliations may be found in our earnings release and the supplemental reconciliation posted on the investor relations section of our website at mesalabs.com. With that, let me turn the call over to Mesa's CEO, Siddhartha Kadia.

Thank you, and good afternoon, everyone. This is my first earnings call as Mesa's CEO, and I want to use it the way I intend to use every call going forward, to be direct with you about what's working, what's not yet working, and what I have decided to do about it. I've learned a lot in my first 100 days, and I'm excited about what I've found. Excited enough that I wanted to talk with you earlier than we had originally planned. We had committed to a first call alongside our second quarter results this fall. I didn't want to wait that long. So because it is early, think of today as the appetizer, not the dinner. Dinner comes in the fall at our next earnings call when I put full year guidance in front of you alongside first half results.

Because this is our first call together, let me tell you upfront how I would like you to hear it. My take on this company in one sentence: Mesa is a set of durable, regulation-embedded franchises with real and growing earnings power that had fixable execution problems. I intend to run this company and these calls with a level of directness you can set your calendar by. Here's the shape of what you'll hear today. Three areas I'll update you on. A direct look at where we fell short this quarter and why, where we are investing for growth, and the shape of our margin and balance sheet.

I am going to keep this at an altitude a CEO should, the themes, the diagnosis, and the direction, and let John Sakys, my CFO, take you into the bridge building so the handful of things I most want you to remember don't get lost in numbers. I did not spend my first 100 days writing a vision statement. I spent them inside the company. I have personally visited every Mesa site with more than 25 employees, and I have now met with more than half of our employees worldwide. I attended our global sales meeting with 150 members of our commercial team, and I spent time with dozens of our key customers across the U.S., Europe, and Asia. My engagement is not a listening tour.

It is how I'm installing what I want this company to run on, a growth mindset and an obsession with winning more loyal customers. Loyal customers are the most valuable asset a business like ours can build. They buy again, they buy more, and they tell others. I did not come in with a thesis I needed the data to confirm. I came in to find out what's actually true about this company. You'll see one area, Sterilization and Disinfection Control, SDC, where reported revenue was soft and where I want to share a more precise diagnosis than the one you heard before. I'm going to walk you through exactly what I found because owning what I find is the job. My review didn't only surface problems in SDC, it also revealed opportunities. We weren't moving on fast enough.

The clearest one, accelerating the next generation Gyrolab platform at the heart of our BPD franchise. I will come back to that. These are not vague intentions, they are decisions I have made. If you take three things away from this call, let it be this. One, the core operating model is working and fiscal years and trailing 12 months, not the quarters, are the truth. Biopharmaceutical Development, the business that declined almost 30% a quarter ago, grew 5% year-over-year. Calibration Solutions grew 7.6% year-over-year, continuing a steady contribution to Mesa's overall business. These are recurring regulation-driven businesses and quarter-to-quarter revenues will fluctuate. SDC reported revenue was down this quarter, a delivery reliability issue, not a demand issue. I will walk you through it in a moment.

Measured the way this franchise should be measured, by fiscal year and trailing 12 months, SDC grew from $93 million in FY 2025 to over $101 million in FY 2026, and stands at roughly $101 million on a trailing basis today. Up about 5% from a year ago. Quarterly results can fluctuate based on fulfillment timing, but the underlying health of the franchise is best reflected in our trailing 12-month revenue and adjusted operating income, and both continue to move in the right direction. The second thing to take away from this call, the portfolio is being actively managed. Every business in this portfolio has to earn its place on returns, on margin profile, and on strategic fit. Our core franchises, SDC, BPD, and Calibration Solutions are strong, high-margin businesses we will invest behind. Clinical Genomics is being managed deliberately and this quarter reflects that discipline.

Essentially flat, in line with what we expected. Finally, the third thing. From here, the work is execution and focus, not acquisition. We made real progress on the balance sheet. We paid down nearly $9 million of debt this quarter, and our net leverage ratio, as defined under the terms of our credit facility, stands at 1.85 times. We intend to keep strengthening it from here into the range of 1.5 to 1.75 turns as we move through this fiscal year. But I want to be clear about where my focus is, because it is not on acquisition. The near-term value in this company is self-help. Executing the businesses we already own and deliberately reallocating capital, effort, and management mindshare towards the part of the portfolio that offer the most profitable growth.

At our next earnings call in November, alongside first half results, I will give you a full year guidance. That is a commitment, and I expect to be held to it. Our broader portfolio and capital allocation work continues, and I will bring you into it when it is ready. I will now discuss the results of each of our franchises. Let me start with BPD. BPD grew 5% organically this quarter versus a decline of almost 30% in the same business just a quarter ago. That is an encouraging swing, but I want to be precise about what it is and what it is not, because you should not take one quarter as a victory lap. Is this a comp or is this a fix? The honest answer is that a meaningful part of this quarter reflects easier comparisons and some catch-up in orders that had been deferred by export control processing last year.

Now that's real revenue, but I won't oversell it as a proof of the turnaround is complete. It isn't yet. Here is what we are actually doing to build a durable business. We have brought in a new general manager for BPD, and we are in the middle of rebuilding the commercial engine. The sales processes, pipeline discipline, and coverage this business needs. That work is underway, not finished, and I expect it to take the better part of a year to fully take hold. We are setting BPD up for its next phase of growth. This is a franchise built around Gyrolab, our automated immunoassay platform. As I mentioned at the start of my remarks, Gyrolab has not had a new platform launch since 2018.

We have a next innovation platform in development, and when I looked at the timeline for release of the new platform, I saw a clear opportunity to move with more urgency. We reprioritized our R&D portfolio to concentrate investment on this launch, and we now expect the new Gyrolab platform to launch in fiscal 2028. I want to be clear about what that is and isn't. It's a decision we made and a pace we've reset, not a product you can order today. I'm not going to put revenue on it this afternoon. But it's exactly the kind of self-help opportunity we are now moving on, reigniting the innovation engine and bringing this franchise's next platform. It's also the clearest signal I can give you of the operating tempo I intend to run this company at.