Mesa Laboratories, Inc. Stock

Good afternoon and thank you for joining us to discuss Mesa Laboratories First Quarter 2027 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. Speakers today are Siddhartha Kadia, President and Chief Executive Officer; John Sakys, Vice President and Chief Financial Officer; and Doug Farrell, Investor Relations. It is now my pleasure to introduce Doug Farrell. Mr. Farrell, you may begin.

Thank you, Jen. 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, 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 Security 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 CEO, Siddhartha Kadia.

Thank you, and good afternoon, everyone. This is my first earnings call as Mesa 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, 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 up front 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 this call with the 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 United States, Europe, and Asia.

My engagement is not in listening tours. 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 idea that the data would confirm. I came in to find out what's actually true about this company. You'll see one area, Sterilization and Disinfection Controls, 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'll 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'll 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 fiscal 2025 to over $101 million in fiscal 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.

And 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 $8.7 million of debt this quarter, and our net leverage ratio, as defined under the terms of our credit facility, stands at 1.85x. And we intend to keep strengthening it from here into the range of 1.5x to 1.75x as we move through this fiscal year. But I want to be clear about where my focus is, because it is not on acquisitions. 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 offers the most profitable growth. At our next earnings call in November, alongside first half results, I'll give you full year guidance. That's a commitment, and I expect to be held to it. Our broader portfolio and capital allocation work continues, and I'll bring you into it when it's ready.

I'll 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's an encouraging swing, but I want to be precise about what it is and what it isn't, 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 proof that 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're 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. And we are setting BPD up for its next phase of growth. This is a franchise built around Gyrolab, an automated immunoassay platform. And as I mentioned at the start of my remarks, Gyrolab has not had a new platform launch since 2018. We have a next-generation 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 reset, not a product you can order today, and 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. And it's also the clearest signal I can give you of the operating tempo I intend to run this company at. Even with the commercial work still in progress, and while we continue managing through export control processing on certain in-hand orders, I expect BPD to grow for the full year. And I say that with real conviction, not just hope, because of what I'm seeing in the numbers.

Next, let me speak plainly about SDC. Reported organic revenue was down 3.6% year-over-year for the quarter. And I am not going to dress that up, though I'll show you in a moment why the same franchise is up about 5% on a trailing 12-month basis and why both numbers are true at once. I have looked at the order book and the diagnosis matters. This is a delivery reliability problem, it is not a demand problem. Let me explain both aspects of that. And I'll take the demand first, because it's the shorter story. Demand for this franchise is healthy and intact.

The recurring single-use consumable base tied to processes our customers are required to run is exactly what it has always been, and the order book remains substantial. I will not tell you that demand is surging beyond our capacity because that is not what our data says. In recent quarters, we've been steadily serving demand, not falling further behind it. There's a problem this quarter. First, not that the orders overrun the factory. The problem is that we miss delivery dates on orders we already hold. That is a reliability problem, a promise-keeping problem, and it tells you the fix is standard work and process discipline inside our own four walls, not a capacity race against the market.

Now, the reliability side. The history, briefly. In fiscal 2025, orders ran ahead of what our factory could ship, and past due backlog, orders we held but did not deliver when we promised, built through the year. We disclosed that to you beginning with our third quarter fiscal 2025 report. In fiscal 2026, our teams attacked the backlog. And I want to be more precise than we cleared it. The progress came in bursts. We made headway early.

The problem came back by mid-year. By December, past due backlog was nearly back to its highest level. And then, a genuinely impressive production push in the fourth quarter took it down by more than two-thirds in a single quarter to the more normalized levels we described to you in our year-end earnings release. But a burst is not a fix. A central finding of my 100-day review is that the improvements were episodic rather than locked into the process. When the surge resources came off, throughput slipped back and past due backlog rose again this quarter, up about $1 million from its year-end low. I want to size that honestly in both directions.

It is well below the peaks of last year, and it is, in fact, lower than it was a year ago, but the direction is wrong. And I'm telling you plainly, we are shipping late on promises we made to customers. Finding a durable fix, a delivery reliability our customers can count on, is the single biggest priority for this business. This is also why quarterly SDC revenue looks inconsistent. When delivery timing is the variable, the reported number moves around even when the underlying franchise is steady. It's how a quarter can print down 3.6% inside a trailing 12 months that is up about 5%. The right lens is fiscal years and trailing 12 months.

And on that lens, the story is simple and it's good. SDC revenue was $93.4 million in fiscal 2025, and it was $101.6 million in fiscal 2026. I'll be precise about the composition because precision is what I'm asking you to trust me on. Only about $1 million of that year's growth came from drawing down the backlog. The substantial majority was genuine in-year demand, shipped. And on a trailing 12-month basis, SDC stands at just over $100 million today, up about 5% from a year ago, even with this quarter's missed deliveries inside it. And I want to tell you plainly why. Because I'd rather you understand the real cause than accept a vague apology.

It comes down to a standard we hold ourselves to. We do not release a lot until it meets our internal specifications, full stop. And because this business works with biological materials, there is real natural variability in how long it takes any given lot to clear that bar. That standard is exactly why our customers trust these products inside their own regulated processes. And I'm not going to loosen our quality standards to hit a shipping date. What we are working on is reducing the variability in the process, tightening cycle times without ever touching the release standard. That work is underway, and I've asked my SVP of Operations to make it his singular focus until it's done.

Finally, I want to acknowledge who is on the other end of these promises, because these products are not discretionary purchases. They sit inside our customers' quality control processes in pharmaceutical and medical device manufacturing that itself is tightly regulated. When we ship late, we can create real disruption and extra work for people whose operations count on us. I sat with a number of these customers over my first 100 days and I heard their frustration directly, as I should. I told them what I'll tell you. They have every right to expect better from us. In aggregate, our customers have continued to order from us through this period.

When the product has been available, it has moved. And that reflects the strength of the science and the depth of these relationships. But I want to be careful not to overstate that. Extended delays invite customers to evaluate alternatives. And I'm not going to promise that has cost us nothing anywhere. That is one more reason I refuse to treat loyalty as a cushion. Our teams have proven twice that they can move this backlog.

The task now is converting the surge work into standard work. What I will commit to is a clear read on the durable fix and its trajectory when we give full year guidance at our next earnings call in November. And I'll say this much today. I like the direction of what I'm seeing so far this quarter operationally.

Switching gears now to our remaining two franchises, Calibration Solutions grew 7.6% organically year-over-year, doing exactly what this business is built to do, compounding steadily on a recurring service-driven revenue base. It doesn't generate headlines and that's precisely its value. It's the ballast in the portfolio and it performed on plan. Turning to Clinical Genomics, it was essentially flat this quarter at negative 0.1%. Inside that number, China declined 7%, a significantly slower rate of decline than last year, which is what we told you in May to expect, while the business outside China grew 0.6%.

But one quarter is a data point, not a trend. And I'm not going to extrapolate it in either direction. Our posture on that business is unchanged. We are managing it deliberately with full attention to its cost structure and returns, and we'll have more to share as that work progresses. Let me step up from the individual franchise to the company as a whole. Before John takes you through all the numbers, I want to give you the one I look at first. Adjusted operating income, excluding unusual items, which is how I refer to it throughout, was approximately $66 million on a trailing 12-month basis, up about $2.5 million from where we ended fiscal 2026. In the quarter, adjusted operating income grew nearly 20%, and our margin expanded meaningfully year-over-year. The earnings power of this company is growing in both rate and dollars.

Now, let me be equally direct about how to read that, because I don't want to leave you with the wrong number. Our first quarter is structurally our lightest volume quarter, and this was a strong margin print. I would caution you against simply annualizing it. We see an opportunity this year to reinvest a portion of the operating leverage this business is generating to reallocate cost deliberately towards our faster-growing, higher-return businesses so we can accelerate them. That's a choice to compound growth, not a choice to maximize a single year's margin. How we deploy that leverage is part of the strategy I'll share with you in November. Expense discipline continued across the business, and I expect us to maintain that discipline even as we redeploy some of the capacity into growth investments as the year progresses. And to be clear, the SDC softness sits on the revenue line. So as we make our fulfillment reliable, there is high-margin volume we expect to recover over time. The backlog we ship is margin we recognize.

On the balance sheet, we paid down $8.7 million of debt this quarter, bringing net leverage to 1.85x. Strengthening our balance sheet was a deliberate priority, and we are not stopping there. My intention is to keep bringing our leverage ratio down into the range of 1.5x to 1.75x as we exit this fiscal year. I want to be direct about what that signals. The near-term priority for this company's capital and frankly my own attention, is not making acquisitions. It is executing on the businesses that we own and concentrating our resources behind the highest return parts of this portfolio.

Because that is where the most reliable value creation sits right now. This may change in the later part of the second half of the year with small distributor buyouts or tuck-in acquisitions. But our true north is disciplined capital allocation, and I'll come back to it in November. A word on guidance. As I committed last quarter, we'll provide full year fiscal 2027 guidance at our next earnings call in November, alongside first half results. I know some of you would prefer a full year number today. I'd rather give you what I can stand behind, informed by a full half year of data under the operating changes we made, than anchor you to a figure 100 days into my tenure. What I can tell you today is directional, and I say it with confidence.

First quarter trends are consistent with our internal plan. In May, we told you we expected this business to return to organic growth in the first quarter, and it did. Our balance sheet keeps getting stronger. We intend to keep deleveraging toward the range of 1.5x to 1.75x this year, and our focus is squarely on execution and concentrating resources where the returns are best. Let me close where I began. I'm genuinely excited about what I have found here. Mesa is a set of durable, regulation-embedded franchises with real and growing earnings power.

And the problems we have are execution problems, which are fixable and are being fixed. And at our next earnings call in November, you'll get the guidance. With that, let me hand it to John.

Thank you, Siddhartha, and good afternoon, everyone. Siddhartha has taken you through the operating story of each franchise, so I'll stay in the numbers, including the consolidated income statement, balance sheet, and cash flows. Unless I note otherwise, all comparisons are to the first quarter of fiscal year '26, a record-breaking year. Reconciliation of the non-GAAP measures I'm referring to is included on our Investor Relations website. Total revenues for the first quarter were $60.1 million, an increase of 1% compared to the prior year. On a non-GAAP basis, organic revenues growth was also 1% as we had no acquisitions over the past 12 months. Core organic revenues growth, which excludes a 60-basis-point tailwind from currency translation, was 0.4%.

Just as we communicated in May, this returned Mesa to positive core organic revenues growth for the quarter. Gross profit was $39 million or 64.9% of revenues, up roughly 290 basis points from 62% in the prior year, reflecting lower spend on third-party contracted labor and consultants, supply chain efficiency improvements, and a favorable product mix, partially offset by lower volumes in SDC. Operating expenses declined 5.6% to $32 million, reflecting lower stock-based compensation and continued cost discipline, even as we increased investment in SDC, particularly sales and marketing roles, to support future organic growth. As a result, GAAP operating income increased 100% to $7 million. On a non-GAAP basis, adjusted operating income increased 16.5% to $15 million, or $2.61 per diluted share. AOI in the quarter was negatively impacted by a legal settlement of $382,000. Excluding that item, AOI increased 19.5% to $15.4 million or 25.6% of revenues as compared to 21.7% in the prior year period, or roughly 390 basis points of expansion.

Let me provide a little more context on the trailing 12-month AOI excluding unusual items number that Siddhartha discussed. On that basis, AOI excluding unusual items was approximately $66 million, or up about $2.5 million from where we ended fiscal year '26, which was effectively the improvement we delivered in this quarter since a trailing 12-month swaps last year's first quarter for this one. That improvement was driven primarily by gross profit expansion, which contributed approximately $2 million, along with approximately $0.5 million of benefit from lower cash operating expenses. While sustaining these efficiencies will require continued discipline, this performance reflects progress in improving the earnings profile of the business. Q1 is structurally our lightest volume quarter, and this was a strong margin print. So as Siddhartha said, I would caution you against annualizing the 25.6%. Indeed, we do see an opportunity this year to reinvest a portion of the operating leverage the business is generating into our faster-growing, higher-return businesses, and how we deploy that leverage will be part of what we lay out in November alongside full year guidance.

I'll now walk you through the gross profit expansion division by division. First, SDC, our largest business, which represents 41% of revenues this quarter, delivered revenues of $24.5 million, an organic decline of 3.6%, reflecting the delivery timing dynamics Siddhartha walked you through. Gross profit percentage decreased 150 basis points, primarily from lower revenues on a partially fixed cost base and product mix, primarily a volume effect. Second, BPD delivered revenues of $12.1 million, up 5% organically, on higher immunoassay hardware and consumables volumes, and, to a lesser extent, price. Gross profit percentage increased 800 basis points. A higher mix of immunoassay consumables benefits our gross profit percentage in this business, and we had supply chain efficiencies and operating leverage resulting from the revenues increase. Third, Calibration Solutions delivered revenues of $13.3 million, up 7.6% organically.

Gross profit percentage increased 350 basis points, primarily from higher revenues on a partially fixed cost base. And lastly, Clinical Genomics delivered revenues of $10.3 million, essentially flat. Gross profit percentage increased 790 basis points primarily from price and manufacturing and supply chain efficiency improvements. To summarize, three of our four divisions expanded gross profit percentage meaningfully, which together with continued expense discipline more than offset the volume-driven decline in SDC, our highest margin business. We recorded non-operating expense of $2.7 million in the quarter compared to non-operating income of $3.9 million in the prior year. The swing is primarily attributable to changes in foreign currency rates, particularly unrealized currency gains and losses on an intercompany loan. This non-cash item will continue to create quarter-to-quarter volatility in non-operating expense while the loan remains outstanding.

Income tax expense was $1.5 million, or 35% on pre-tax earnings of $4.4 million. As we disclose in our Form 10-Q, we currently expect a reasonable possibility of a favorable impact on our effective tax rate within the next 12 months from a potential partial release of the U.S. valuation allowance, although the timing and amount remain subject to our ongoing assessment and other factors affecting the tax rate, including the jurisdictional mix of pre-tax income and discrete items. GAAP net income was $2.8 million or $0.49 per diluted share, a decrease of 40.3% driven by the non-operating swing I just described, not by operations. Turning to the balance sheet, we ended the quarter with $30.7 million of cash and cash equivalents, up from $26.9 million at March 31, 2026. During the quarter, we repaid $8.7 million of debt, reducing our total net leverage ratio to 1.85x. As Siddhartha described, we intend to keep strengthening the balance sheet from here, moving toward roughly 1.5x to 1.75x of net leverage as we exit fiscal year '27. From a cash flows perspective, our operating cash flows were a meaningful highlight in Q1 and an important contributor to the strengthening of our balance sheet.

Cash flows from operating activities provided $14.7 million in Q1, a $12.8 million year-over-year increase. The improvement was driven primarily by stronger customer collections across several businesses, as well as improved operating performance, including a $4 million increase in operating income. We continue to take deliberate steps to strengthen our financial position and improve cash generation, and we remain focused on disciplined capital allocation and on preserving the financial flexibility necessary to support Mesa's strategic priorities. As Siddhartha noted, we will provide full year fiscal year '27 guidance at our next earnings call in November alongside first half results. With that, operator, we're ready to open the line for questions.

[Operator Instructions] One moment while we poll for questions. And our first question we'll hear from Paul Knight with KeyBanc Capital Markets.

The question I think a lot of people would have is, you know, this has historically been a company focused on some merger and acquisition activity. What do you think are some of the key portions of the business that are easiest to build upon?

Yes, Paul, that's a great question. And look, I think as I said, three of our four businesses are actually growing nicely and have really good margin and growth profile. One of them, as you know, has been challenged. We are continuing to evaluate our portfolios. I'm not going to comment on specifically where we're going to put more focus, but I can tell you in terms of reallocating capital and mindshare, we certainly dedicated more capital and mindshare to SDC, BPD, and to an extent possible to Clinical Genomics and Calibration Solutions as well.

And John, where are you with liquidity at this juncture in terms of bank line, interest rate?

Yes, we're currently at 1.85x, Paul, with an effective interest rate of 5.6%. And our goal over the remainder of the fiscal year is to drive that down somewhere between 1.75x and 1.5x.

And then my last question is around China. Have conditions eased in the China market?

Good question, Paul. Look, I think China market has structural issues. As you know, our revenue from China at this point is substantially lower than $3.5 million. It's a pretty small part of our company's overall revenue. And while the market itself has headwinds that are not easy, our exposure to the market has declined over the last two years significantly.

[Operator Instructions] And next we'll hear from Tycho Peterson with Jefferies.

Matt on for Tycho. Maybe just to go back to some of the updates on the 100-day overview. On execution, you talked about issues to fix and then some of that's already started. We just kind of love more color on where you're focused on the execution fixes, any costs associated with remedying those, and then some that have already started, you know, where is that, and kind of what are you looking to address? And then also, just as you think about guidance philosophy, you know, for the print in November, we'd just love a little bit more color on, you know, where you think market growth for this business is as we think about the context of go-forward guidance. Thanks.

Yes, let me start. Thank you, Matt. And let me start with the second question first. I think for guidance, I think as I mentioned in the script, we are not going to provide any color on the guidance itself right now. Neither are we going to provide commentary on the market itself. That work is ongoing, and we will be having a full disclosure in November to release along with the first half results. So I would wait for that. I will give you a bit of color on the execution.

I think, you know, execution falls into two or three places. First of all, I found the management team to be solid. Some fantastic people in this company. We have strong technical talent. We also have really strong general managers in place in four of our business segments. Whenever we needed to make a change, we have, as for example, BPD, where we have had execution challenges in the past. We have a new general manager starting. We've also reallocated the full focus of our SVP of Operations on fixing the operations issues. So part of it is actually just talent and significant resource commitment and actually, frankly, mindshare commitment has been towards areas that we know we can fix completely under our own control.

And finally what I'll tell you, I'm also, part of the change actually is also about culture. And while the culture of this company is a strong quality culture with technical resources, I have brought with me a sense of urgency around a culture that doesn't really need a teardown, but it does need a discrimination on allocation of capital resources. And that really starts with me. So what I'm adding is sort of a growth mindset, an obsession with winning loyal customers, and a rhythm where the decisions get made quickly and efficiently with that capital reallocation in mind.

Okay, great. Thanks. And then maybe one for you, John, just to close the loop on the SDC timing. So, any finer point on what the headwind was in the quarter? I think the business was down 4% core. You talked about kind of trailing 12 months up 5%, up mid-single. So, is the delta between those two kind of the magnitude of the impact in the quarter? And then in terms of recouping that, just to be clear, do you think that comes back this quarter? Is that the rest of this year? Just any finer point on the magnitude of the headwind from some of the fulfillment delays in the quarter and then the cadence of recouping that from here? Thank you.

Sure, Matt. So I think what we talked about is primarily delivery execution issues. We talked about an increase in backlog of about $1 million. But the way we like to look at this is on a 12-month basis, right? And the business has grown over the last trailing 12 months. And as we continue to work on our processes, we would expect to continue to clear that backlog. I'm not going to give you a timeframe, but we'll continue to work it and bring it down as quickly as we can.

Super. Thank you.

And this will conclude the question and answer session. I would like to turn the floor back to Doug Farrell for closing remarks.

Thanks very much for joining us today. I'd like to remind everyone that both Siddhartha and John will be attending the Wells Fargo Conference in Boston on September 9th, so that will provide the next opportunity to have a chance to meet with management. Thanks very much for joining us today.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Good afternoon, everyone, and welcome to the 44th Annual JPMorgan Healthcare Conference. My name is Tavon Wilson, Associate Healthcare Group based out of New York. Pleased to introduce Gary Owens and John Sakys, CEO and CFO of Mesa Labs. Thank you.

Thank you, Tavon, and thank you, JPMorgan, for hosting the conference again this year and having us come. Safe harbor statement. I'm pretty sure everyone has got out their legal prescription glasses to get through this one. Mesa Labs, for those of you who aren't over familiar with the story, we're a diversified tools who focuses on mission-critical quality controls for regulated markets. What this means is we enter the drug's life cycle in the development phase, typically clinical trial support, and then we help to make sure that those drugs are intact and get to the right people all the way through development, bioproduction and into the health care system.

As such, you see our purpose is not -- doesn't come up with a big scientific statement, right? Our purpose is very human-centric, and we focus on protecting the vulnerable to make sure that the people get the right drugs and that those drugs are manufactured correctly and that they are of highest quality by the time they get to an arm, not just out of a manufacturing plant.

So we are diversified. We do focus on biopharmaceutical. These highly regulated end markets have a natural stickiness to them as we'll talk about when we talk about our consumable and recurring revenue exposure. Because we focus on the development of drugs, right, we have no NIH funding, right? We're not in academia or anywhere else. We are a broad platform because of the unique needs of these regulated markets and the stability of underlying core technologies, we tend to do is we buy core technologies that are proven. We continue to evolve the applications that they can serve, and we then continue to have recurring revenue stream. The real focus there is then less on being a technology clear or dominant player in one mode of technology, but a market leader for a very important set of customers who have very distinct needs, and that's how we compete against those who have maybe a broader footprint. Also how we maintain focus for our commercial energy and our commercial efforts. We are a disciplined management team. We come from a long background at places you would know, Danaher, Thermo Fisher, Cytiva, Agilent, right, deep operating experience. And we do focus on our version of a lean operating model, which we call the Mesa Way.

We operate in 4 segments today, 40, 20, 20, 20 is kind of how I think about them. The largest being sterility controls. So we ensure that the biologic-based drugs have no contaminants in them that might actually impact the patient safety.

We operate then in biopharmaceutical development, which is a protein analytical platform as most drugs are either proteins or their effect on humans are based on proteins, a very critical technique.

Behind that sits the genomic platform. Obviously, the proteins are created by genes. And so in as much as you have protein deviations, we help to understand the genetic backdrop to those protein deviations or -- and how those can patient safety and health.

And our calibration solutions business is really about environmental monitoring. So what is the environment that those biologically based drugs are living in? And is that safe for them and healthy for them?

So just to get some of the numbers out of the way. Last year, we were around $240 million in revenue. We've been on a 5-year CAGR of around 15%. I think actually, if you went back around 10 years, you'd see right around the same number. We are, for a small company of that size, highly profitable, so close to 63% gross margin. If you think about that, you take out things like amortization, depreciation on a cash gross margin basis, extremely accretive. So we do focus a lot on our organic growth because the operating leverage profile is there. And for this scale, I think we are the, if not one of the very 1 or 2 that are actually meaningfully profitable, and that's AOI, excluding unusual items is our version of an adjusted EBITDA number.

We have been working on increasing our core organic growth rate. So we went from 1%, which is kind of a very obviously unexciting growth rate before to around 3.5% to 4% over the last few years. Obviously, during a lot of ups and downs in the marketplace, we would say that our main leading indicator for the health of our business is clinical trial starts. And so as clinical trial starts really crash during this period, we feel like we are picking up share against those. And obviously, as clinical trial starts to gain, we expect to see acceleration of the core business.

We've been really conscious about changing the profile of the business. As you see, the difference between organic and the total growth, right, is obviously some inorganic activity that we've done to increase the quality of the portfolio, and that we really focus on our vertical market exposure or the end applications that we serve to try to drive that opportunity growth rate higher. And lean for something is not -- it's not like words and it's not shallow. Danaher used to call it fake DBS, right? That's not for us. We do 24 -- I'm sorry, 42 different lean events last year. And you'll see a regular cadence of how we think about improving using experimentation, the quality of our business processes and our ability to serve customers better.

This is kind of back to a chart, right, shows that, that compounding has occurred, and this is the last 10 years or so. You'll see like a pretty steady underlying growth rate despite a lot of market turmoil. Additionally, what you'll see is that our AOI has increased in action or in line with that, meaning we focus on acquisitions and/or leveraging a highly profitable companies, not companies that are built off of revenue multiples or something like that.

Okay. So a little bit deeper dive into where we focus, and I'll actually start in the upper right-hand corner. We focus on protein analytics, a highly automated singleplex ELISA platform. It turns out that this is exactly perfect for supporting clinical trials and engineering a bioprocess. So if you think about what are the first things you do in clinical trial support it's called the PK/PD assays. You inject the drug into somebody for the first time, and you see where it goes and what it does. You haven't been able to do that so far. And obviously, you're impacting patient safety. So a whole rigor around exact quantification of what that is. You're looking at things like dosing and everything else. Great trends here. Obviously, we've been able to -- now that we've gotten a certain amount of scale, expand our penetration globally. And so we have a number of -- we have 30 to 40 people on the ground in China who are helping us to penetrate that market, novel applications for the kinds of tools that we serve. We have a razor-razor blade model, and we expect to see both consumables and services associated with this dedicated analytical device continue to grow. And we do actually also play in the GLP-1s, where we have peptide synthesizers that are capable of helping with the screening and the efficacy and development of new peptide-based modalities regardless of whether they're GLP-1s or other adjacents.

If you think about what underlies some of those protein analytical differences, so in clinical trials one, you might find that you have highly differentiated results for people based off of dosing and mechanisms. Well, there's often underlying a genetic background of that, that deals with how you metabolize those drugs. So in our genomics division, what we do is we analyze the background of some of these individual genes looking for markers that belong on the drug label and FDA-related drug label to make sure they get matched with the right therapy and/or that they get the right dosing associated with how quickly or how slowly they might those drugs.

There, we're growing double digits outside of China. China has obviously been a bit of a challenge during the period where there's been a concerted effort to not have an American presence in the diagnostic supply chain. And so those things are offsetting. Obviously, from a sequential standpoint, we don't see any additional headwinds coming out of China related to this business, but that will take through liberation day impact of our coming fiscal year to see that show up in the year-over-year numbers.

The -- likewise, we use that same protein analyzer to characterize each step in a biomanufacturing process. So if you have a tangential viral filtration filter, the kinds of questions that you're asking is good product in one side, good product out the other side. Did I happen to filter out tighter along with those viral particles? Did I get the viral particles out? Did I accidentally damage the protein going through this process? Did I actually introduce any new leachables into that? Those are all the kinds of questions we would answer with our protein analytics as well on the bioprocessing side.

Then we ensure that because that is an organic process, lots of things like to grow in an organic process and spin-off, and we ensure that those things are indeed sterile as part of the manufacturing process itself. And then we ensure that the environment that those drugs are living in have the right chemical and physical parameters to ensure the integrity of those drugs in the long term and the integrity of the process itself. And often, we'll follow that into the health care system to ensure that they're not denaturing or whatever it might be, all the way to a customer's arms.

So that kind of is maybe a little bit more detail, right, that some people might get into. Really think about it as we don't start in discovery. We start in drug development, clinical trials is one. We have a series of tools in these highly regulated markets that kind of complement each other. And that enables us both to have a differentiated set of technologies and regulatory barriers that keep larger players out of our market and the focus of our commercial efforts that we get commercial efficiency. And this happens both on the patient and the clinical trial support side as well as a parallel process that happens in designing and engineering your process and then using that in pharmaceutical QC in real time. This is just simply an example of the kind of solutions that we have. We call it pharmacokinetics. What does the body do to the drug, right? How does the drug persist in your body over time? How does it get metabolized and flushed out? Obviously that kind of curve profile is not what you're looking for in a drug. You want persistent levels of that drug, active drug in your body. Likewise, pharmacodynamics, we understand how much dosing needs to happen to affect that drug. Before then, you're playing around with cells on plates and squirting things on it. And there is no system in place, human body that affects that. These are the only times you start to begin to understand the complicated things of how the drug is reacting in the body, not only for the target of interest, call it lung cancer, but how much of it ends up on the back of your retina and what does that do? How much of it ends up going to your liver and causing toxicology. How do the metabolites as your body naturally attacks these organic molecules and metabolizes them, what happens to those and where are those? How does your immune system respond? Behind a lot of these things, when you look at outliers or you look at lots of different drugs going after the same kind of disease state, really end up affecting how does that person going to respond and that has a genetic underlying tone to it, which is called pharmacogenomics, pharmacogenetics. And those are the things that we measure with our other platform in genomics segment.

So this is just an example of how we think about how we built this business before. We kind of rank these in terms of regulatory intensity. And obviously, for a company that focuses on regulated tools, regulatory intensity is actually a good thing. So we like pharmaceutical drugs, medical devices and the manufacturing of those is what we would say here, not the discovery of those, but the manufacturing, clinical genomics is the application of all that information that comes out of those clinical trials into the clinical setting to help match a patient to the right therapy.

And then obviously, from a regulatory standpoint, a lot of the same regulations fall into health care services and FDA has food at the very beginning of it. And so you find that a lot of the regulations also cover food, and we take a more opportunistic approach for how those would affect our business.

You take that same view on the left and you match it with the view on the right. So we would say we are 75% plus recurring revenue. That is consumables that are spec-ed into a drug manufacturing process, consumables that are dedicated to our platforms that are unique and required to run our platforms. The service associated with those, which in a regulated environment is not going out to the lowest bidder or Joe's body shop to come service. And that's really a core of our business. And really, what we're doing is placing the CapEx hardware at the top, big ticket stuff, right, to get that ongoing consumable revenue stream.

How this all comes together and how you operate a business with a diverse set of technologies, but going to a common endpoint is really our application of that lean-based operating model, right? You start with the heart of protecting the vulnerable. We follow that through with the Mesa Way, a very experimental, if you're a scientist, right, everything you expect when you're writing a scientific paper, what's your hypothesis, what variables are you changing the equation? What outcome do you expect? How am I isolating that variable and understanding how it impacts it. It's no different in the business world. You're doing the same exact things over and over again that you would do in science instead of doing it on a bench lab, we do it in the real world with businesses.

So we measure what matters and we run experiments to try to do that. That enables us to empower teams by having a common language for how we evaluate and improve our businesses, enables them to manage this diversity of technologies and portfolios. We focus on always improving. That's our goal, not to be perfect. Naturally, what we do in quality control, we demand perfect perfection for our customers. We're never going to be perfect ourselves. We're all humans, but we can always get better as well. And so we're always going to be improving and then constantly creating this learning loop and this learning cycle. It really makes it a fun and exciting place to be. And you'll find that we attract a certain number of people who've been in the space, right, and are really looking for that entrepreneurialism, but also looking for that customer intensity that maybe you don't get from a larger organization.

We talked about our inorganic strategy. This is an example of the last one that we did, GKE, we had a relationship with this company for about 9 years. What they do is they make an alternative kind of sterility indicator. It's called the chemical indicator. It's more of a process monitoring, so they can ensure that your sterility process is working correctly. It has lots of utility and use. This complements our biologic indicators, which will tell you everything is indeed dead. So not the process work correctly, but actually the results of the process work correctly. These are highly complementary to what we do. These are the kind of companies that we would bring unique access to for some of you guys, right? These smaller entrepreneurial companies, right, that aren't in the public markets today, they become part of Mesa and we help them to grow and indirectly, you get exposure to that. There's a series of steps around sterility, and we work to integrate workflows and how we can have a complementary set products around the workflow that are unique to these highly regulated environments, and that's how we kind of build out our portfolio of businesses over time.

The last acquisition because this was controversial isn't the right word. But to get there, we needed to increase our debt levels to approximately 3.8x, 3.9x. This was when interest rates are really high. So there was a little bit of trepidation, right, in terms of certain Bloomberg metrics or other things. So we had a committed target there. We overdelivered that by about 15% to 20%. We hit our core revenue growth of above mid-single digits. So it's accretive to our core revenue profile and accretive to our financial metrics, and this was acquired at about 9x for 100% consumable business. So these are the kind of things that we can do with access to capital that perhaps are more meaningful. You saw that was around 8%, 9% grower for us at the time that if you're looking at other large diversified tool companies, right, their acquisition programs have a hard time actually being meaningful to the total profile of the company. But when we do this right, we can make a real impact for the company and our long-term growth rate.

So where do we go from here? Like I said, clinical trials, I think, for the last 1.5 years or so have kind of flatlined and started to tick up. As we see that market return to health, whether it's from biotech funding and other activities or contributions from outside the America, things going on in China right now that have growth or things kind of people having the funding to accelerate more things in the clinical trials, we expect to grow with that and see that 3%, 4%, 5% kind of percent growth rate accelerate. We continue to evolve core platforms. You noticed I didn't say something about protein analytics. That's a pretty broad statement, right, when you talk about how the body works, which is 100% on proteins. So we have generic platforms that have big domain space and then what people buy those lots of small applications within that. So we get a proven platform, and then we continue to do application development work that both builds our credibility as a resource to come to and the person you come to when you have a protein analytical question, which are hundreds of different questions and support of clinical trials and move from one application to the other over time to accelerate our organic growth rate.

Now that we're getting large enough, we can continue to expand geographically and bring some of those products that might have gone distribution in other markets to where we can enhance that with direct sales and higher customer intimacy to continue to increase our growth rate. We experiment in our commercial ways and use the Mesa Way, which is a highly commercially focused implementation of lean-based operating model, continue to try to grow from there. Naturally, like we talked about before, our operating metrics are really good. So organic growth really has a great financial profile. Our balance sheet is now like I said we were at about 3.8x, 3.9x. Today, we would say I think we're below 3x. Obviously, we ended the last quarter, which was in September 30 right at 3x, and we expect that to continue to go. And when the markets open up again, we think we can find another series of different acquisitions, which will continue to enhance the story and give us scale and leverage in some of those other areas and enhance our financial profile long term. So way we go. Thank you very much. Appreciate your time.

Thank you, Gary, and I appreciate your time and your remarks. We'll take some questions from the audience, but I have a few prepared here as well. And I think a good format for this, we'll start broad and talk about Mesa sort of generally and even just like market generally, and then we'll kind of start to zoom in. So maybe going into the mid-range, and then we'll get maybe targeted to some discrete items.

But I guess to start, I heard you say that you said Mesa is very human-centric from like a vision and strategy perspective. Could you double-click a little bit on that? And how does it make you different from your peers in the LST market?

Yes. I think this is just from a business model perspective, a matter of being in the regulated markets, right? Every answer we have is not about seeing something cool that hasn't been seen before. It's about patient safety and efficacy of the drug being manufactured. That means that when we do our job poorly, people are at risk of dying. That then leads to this regulatory cycle where you're under the watch of the FDA. That means that to do your job well, right, for us, quality is job one. You don't ship a product if it's questionable about whether it's going to work, you don't ship, you focus on quality and the improvement of the quality of the products, maintain that integrity. That gives you integrity with your customers, which develops long-term reputation and where you go from there. The way that you get people motivated to do that, right, you remind them that when they're sitting around their holiday table, they can look out at their family and know that they, each one of those families probably has somebody with a disease state or is taking a drug or is using a medical device that we touch and feel. That gives people a pretty good motivation for doing their job well, gives us heart for what we do, right? And why I think a lot of us are in this sector to be able to do that. But for us, it's super tangible. It's not cool science for cool science sake. It is protecting, right, those people that you know, protecting those people that you care about. That enables you to have a greater focus. And that enables our team to give that 110% and be super happy about doing so.

One thing that I -- and I always do research on your company, it's -- I get back to this thing called the Mesa Way. And you mentioned it briefly up here. And I just wanted to kind of maybe double-click in your own words, like I kind of think of it as lean, right? But what is that for you? And how do you think that's really impacted, especially in the market dynamics we've been in, in the last few years?

Yes. In our language, right, a lot of lean-based operating models are a collection of tools. They're basically like little recipes for how to solve a specific problem. For our perspective, when you change that from solving like a problem for a turnover time for a lave to how do I improve a customer perspective, you click up a level. So we look at value streams or how things are created and interrelated across the business from the customer's perspective and pull a line all the way through that. That gives you a very different vantage point for how to satisfy customers. And that comes from this perspective that we don't solve incremental problems. We solve customer problems to solve customer needs.

So we pull that all the way through. And instead of focusing on a tool, we focus on what I would say is the craftsmanship with the tools, right? Because a lot of times, that process might exist in a customer's mind or their decision-making process or it might exist in their flow. And so it takes a little bit more creativity and you can't be super dogmatic about the tool. You have to be very good with the craftsmanship of it. And that actually makes it a lot more fun because you're not just like cranking out a recipe, right? It's like a star chef versus being in one of these ordered online chefs where there might be a machine squirting fake mashed potatoes into a bucket. It's very different when you start to think about your world that way and you operate that way.

Maybe looking at Mesa just holistically and this portfolio, where do you see synergies across your business lines?

Yes. I mean I think if you look at the thematic things for how we really drive the business, it's really about application development, application marketing and customer intimacy. Those things are really consistent. How you then take and compress your time for application development to come up with the next application, how you prove it out, how you market it to customers, how you support people through that. There's a lot of commonality across our different techniques that we're able to learn from each other and apply and whether that's in how our website operates, how our CRM system operates, how we train people, how we teach them how to approach customer service, all those things are similar.

Much less the fact that we focus on entering clinical trials, one, and our real goal is to get spec into a drug during that development process means that knowing where those drugs are, knowing where they are in their life cycle and having credibility with those customers actually does expand beyond our different portfolios. You're not going to find that with somebody who's calling on an academic researcher one day and then send them into somebody who's doing clinical trial support and think that they're going to be effective. They're simply not. And it's just a different context. So we scale this from that. And then, of course, you see like some of the knowledge things that follow through in terms of what that drug is and what they affect each other, where our tools start to complement each other. And obviously, we'll benefit the more scale we get, the more we'll see benefits from that process.

Great. I want to turn to the market now, but are there any other questions longer term, big picture on Mesa? Okay. So market, and I'd say the adage is this market headwinds, right? And you can pick your poison as to what do you want to say that is? I guess in your own words, just how has Mesa been impacted by headwinds? And then where do you think we are broad scale like in that sort of story in this moment?

Yes. I get the, what I call, headline fatigue, right, from the investor side of the table for what's going on in this industry lately, bioprocess destocking, academic funding, pharmaceutical CapEx cycles, LDT regulations, things that are going on in China, right? There's been a lot of changes to what was a pretty benign status quo for about a decade.

I would say, other than China, which will lap at the end of this coming quarter, so we'll lap that essentially or the impact of that in either April, depending on how you think about it, but it's already lapsed sequentially. Those things to a large extent are over, right? So I don't know, I don't want to be -- sometimes the removal of pain is pleasure, right? And so just not kind of facing these headwinds, we expect to see a natural lift. I think as you look at our business in particular, right, we expect that lift to see in clinical trial starts that we hope to see, right? That will be a great longer-term leading indicator from us. But just the enthusiasm and positivity of the market means the investment cycle will hopefully naturally continue to grow, and that's our hope.

I think if you look at what's happened, though, to the stock and how the investor community has responded, right? And I think this is across the board, not unique to life science tools, is that smaller companies have been savaged, right? Larger companies where maybe you guys want to be able to move in and out of the stock relatively quickly because the news can change any one day and you want to be hyper liquid, right, that's great. And that's, I think, driven money towards larger caps and the way out of smaller caps because we don't have that necessarily flexibility. As hopefully, as the market backdrop starts to clear and get more stable, that will become less of a headwind. And I think you'll see that hopefully, the multiple compression for what even during this most tumultuous time, I think we performed -- outperformed our diversified tool brethren. In the meantime, our multiple gap has expanded dramatically. And hopefully, as these things settle down, you'll see that close back again to what it was, which was a small discount to a small premium actually to some of the larger players in the diversified tool space.

Moving on, I guess, I'd say, let's maybe look into the midterm outlook. So maybe 3-ish, maybe 5-ish years into the future. How does this all add up? Like what are you kind of envisioning for the future of Mesa in that time frame?

Yes. I think for the last several years, right, as the clinical trial starts have probably been on like a minus 10%, we've been able to grow in the 3%, 4% range. You see that indicator start to go again. Again, a great long-term leading indicator for our business. I think you'll see us accelerate hopefully higher than that. Maybe that's possible. I think one of the things that's nice about the quality control markets, right, these things tend to move a little bit more steadily than some of the underlying volatility just given the vital nature of the products that we serve. So I think that's where we would like to see ourselves end up, right, that mid-single-digit plus range that would require the kind of market returning. I'm done guessing when the market is going to kind of behave more normally. But I'll just say we're ready for it. And when we're ready for it and that organic growth rate continues to accelerate, you'll start to see obviously a lot of really good financial ratcheting. I hope it's this year. But I think everybody else kind of says this is maybe a half step towards that. Maybe the next fiscal year will be the right one where we kind of get back to that 6% tools growth rate and healthy clinical trial starts. And I think, obviously, we'd be excited for that, but we're prepared for whatever comes.

I appreciate the realism there that I think you hear some folks who make pontificate as to what is happening in the future, but you can only control what you can control, right? And so...

Yes. I think that lean-based operating model for us has kind of proven out, right? So maybe a good example of that, right, in the first quarter of this fiscal year as the tariffs were hitting and as China was shutting things off and you're working around tariffs by shipping products, right? We had a bit of a profitability crunch in addition to FX changing dramatically during that period, unless you saw that we were able to respond, right, acknowledge where the market was our relationship with different countries, adjust our cost structure. So we added about, what, 300 basis points between the first and second quarter. So now we're operating about 150 basis points higher than we were last year despite all these headwinds, and we think we have more room to do that while continuing to ensure that we're investing for that long-term organic growth.

Now maybe going more into the discrete present day sort of thing. So GKE, you mentioned this earlier, and I appreciate you noting it that you took on some leverage, right? It was upper 3.5x almost.

John is the CFO. He took on the leverage. I took on all the good things.

So well, that's what happened. So just kind of where are we at today from a debt paydown story? And kind of -- is that kind of #1 of the priority mix? Like where do you see yourself at.

Yes. So in line with the GKE acquisition, we did lever up about 3.8x in the 2-year period. We're now down to slightly under 3x as we sit here today. We'll continue to aim to drive that down below 2.5x over the next 12 months, give or so. And we think at that point in time, we'll be positioned, hopefully, as the market rebounds and acquisition opportunities start to come out there that we'll be well positioned.

That's Great. Great. And I guess the question is, do you feel like that laser focus -- I guess even maybe rephrasing it, do you feel like it's a laser focus on deleveraging? Or is it, hey, not only are you able to utilize the free cash flow to delever, but we're also able to focus on R&D, things in the pipeline, having something from an M&A perspective as well?

Yes. The right way to think about this is we buy proven core technologies in these highly regulated markets. We don't need to invest a whole lot in platform redevelopment and advanced high-level R&D. All -- a lot of our R&D resources are focused on either sustaining engineering, keeping those platforms alive and evolving, but they don't want necessarily huge breakthrough innovation. What they want to see is how does it apply to my specific test area. So having a relatively broad generic platform for protein analytics and knocking down and proving out application by application, how we can use that. That means our R&D profile tends to be much lower risk, quicker return. And because we buy them early enough in their cycle, we have a really long runway of how to apply these tools to solve different questions that enable us to accelerate our organic growth and keep up with it without huge R&D investments.

That said, another way to say that, we're fully funded from an R&D standpoint, right? We don't see the need to accelerate funding. We just need the market to grow and continued commercial execution will help us improve our organic growth rate.

No, that's a good clarification because I think what I kind of read that I was like, okay, like we are really focused on deleveraging, but I appreciate your comments here because you're also not sacrificing anything else for that, and that's a great part of the business model. I guess maybe moving on towards valuation. So right now, we know that your valuations are 50 to 60-ish percent of other profitable diversified LST companies. If you had to kind of speak to Wall Street with a megaphone in a way, like what do you think the market is missing there?

Yes. I think, obviously, the tools market has been trading off of new cycles, right, and fear of how those new cycles will impact things. Naturally, if you're a lot larger, you have the ability to mitigate some of those things maybe a little bit more easily, have more flexibility and you have a natural diversity to it. It's a small company. I think typically, small companies are very narrowly focused, right? And so you don't understand like the magnitude of impact of one trend and how that could maybe really hurt a particular company or not. And so I think to a certain extent, right, we've all been operating a little bit on fear for a while, right? I think that was the tone for the last couple of years at this particular conference. It was a little bit more one of fear and what's the downside and how do I mitigate the downside. I hope as this market starts to clear, right? And that's led to a compression for small-cap companies and for us along with it. I hope, in general, right, as we kind of go out of the fear cycle and we get back to an optimism cycle and we start to see some of these things flow through biotech funding, clinical trial starts, right? We start to see the offensive potential again and see that our offensive potential, we feel like is not only as good as large diversified tools from an organic perspective, our ability to move the needle inorganically is superior and that we have a chance then to kind of recoup that ground and see those multiples compress. I think if you look back and say, have the last 4 years been tumultuous for tools, more so than the last 40, I don't know, before it was called life science tools, right, and add it up and then look at the reality of how what we've done and been able to do from an organic growth perspective and from a margin perspective, compare that to anybody else. I would say that's the reality. So get out of the taring everyone with the same brush just because you're small and look at the reality of what's happened. And I think we'll continue to work hard to outperform, right? And we'll do our best to you happy to be investors in the space. We're investors in the space. We're happy to get -- I'm personally really happy to get equity compensation. So I'm a believer.

I guess as I think about it, as I know we've got a couple of minutes left, looking at calendar year 2026, right, we're in January now and kind of starting here. Just what excites you the most about the business? Just -- I know we talked about deleveraging, but even just overall.

Yes. I think we've got -- we're on the back of a lot of things, whether it was 2 years ago, calibration solutions went through a supply chain crisis. Now it's moving offense. And you see that growth rate kind of picking up to 5%, 6%, lapping the headwinds going on in China and seeing the new product development portfolio that we have in clinical genomics, that's how we got to that low double digits in North America and Europe. Maybe that's a little bit hot for what we can do long term, but that's a really nice growth rate that has yet to kind of shine through the year-over-year comps in the P&L. Our sterile disinfection control has gone from a 1%, 2% grower through some really concerted commercial efforts to being 6%, 7%, 8% for the last several years. We'd love to see that continue. And then finally, what am I missing? Protein analytics. That's been a double-digit grower for us. Really, that's the one most anchored to clinical trial starts. Clinical trial starts go negative. We still grow double digits. I'm really going to be happy when clinical trial starts really renew again to see what that business can do. And I think that gets us back to, I don't know, mid-single digit with potential upside in a good year of high single digits. And you look at the ability to do acquisitions even out of our own cash flow, you could add a few points of growth to that. We can be back to being a steady double-digit grower, right, without acquiring any more of your money to do so. But I think that then becomes probably hopefully an exciting story for investors in the long run and those long-term investors who obviously would love to have in the stock.

Thank you. And final question. Anything we didn't discuss today that you wanted to bring up in kind of like the last few minutes here. Any final takeaways? John?

No. I don't think so.

No. I think you guys did a really nice job of covering it. Of course, we're happy to take any questions you guys have afterwards. We're a small company. We're not super foot forward from an IR perspective. So we also take calls anybody, anytime, anywhere. Feel free to call us. And it's not real hard. [email protected]. We're easy to find. So you have no excuse. Thank you.

Thank you both for joining. Thank you, audience.