Mesa Labs jumps on strong Q3 earnings beat, margin expansion
Operating margins surge to 26.2% as Biopharmaceutical Development segment delivers 17.5% organic revenue growth
Mesa Laboratories shares surged in Tuesday morning trading after the quality control instruments maker reported third-quarter results that significantly exceeded analyst expectations. Non-GAAP earnings per share reached $3.07, surpassing estimates and representing the company's second consecutive strong quarterly performance.
The Colorado-based manufacturer reported revenue of $65.1 million for the quarter ended December 31, 2025, a 3.6% increase from the prior year and beating analyst projections of $63.2 million. Sequential growth was even more robust at 7.2%, driven by strength across multiple business segments. On a GAAP basis, net income soared 317% to $3.6 million, or $0.65 per diluted share.
Perhaps most notably for investors, operating income rose 38% to $7.97 million, while non-GAAP adjusted operating income margin expanded to 26.2% from 23.5% in the same quarter last year. This margin improvement came despite what management described as challenging macro conditions in the first three quarters of fiscal 2026.
"Profitability for the quarter, using our preferred metric of AOI excluding unusual items as a percentage of revenues, was very robust at 26.2% versus 23.5% for both 3Q25 and the whole of FY25," said Gary Owens, Mesa's chief executive officer.
The company's four business segments delivered mixed performance, with the Biopharmaceutical Development division standing out as a growth engine. BPD revenue climbed 17.5% organically to $14.4 million, representing 22% of total revenue, driven by higher sales of Immunoassays and Peptides instruments. The segment also delivered a 50 basis point improvement in gross margin.
The Sterilization and Disinfection Control segment, which accounts for 38% of revenue, grew 6% organically to $24.9 million as production issues from the previous quarter were resolved. Backlog decreased by approximately $0.5 million sequentially, suggesting improving operational execution.
However, not all segments showed strength. The Clinical Genomics division experienced a 7.1% organic revenue decline to $11.8 million, primarily due to a 57% contraction in China revenues, which fell by $1.2 million. Excluding China, CG grew 2.4%. The segment also delivered a 560 basis point improvement in gross margin through manufacturing efficiencies and cost reductions.
Mesa used the quarter's strong cash generation to repay $8.7 million of debt, reducing its Total Net Leverage Ratio to 2.62. The company remains committed to driving this metric below 2.5, according to management's commentary.
Looking ahead, Mesa expressed optimism about fourth-quarter momentum. "We remain encouraged that end markets are stabilizing, our innovative solutions remain top of mind with customers, and our highly adaptable operating model and team will enable us to further accelerate both top and bottom-line growth as market conditions improve," Owens stated.
The company expects Clinical Genomics to return to positive organic growth in the fourth quarter, with China revenues projected to be roughly flat sequentially. However, management cautioned that the strong margin rate achieved in the third quarter will "moderate slightly over the next several quarters" as cost realignment benefits are fully realized and investments continue in the Sterilization and Disinfection Control segment.
Analyst sentiment on Mesa has been mixed in recent weeks. The average one-year price target stands at $99.00, with individual forecasts ranging from $83 to $115. Wells Fargo recently raised its target to $83 from $75 with an equal weight rating, while Jefferies maintained a buy rating with a $115 target following the company's second-quarter results.
Mesa Laboratories, which specializes in quality assurance solutions for regulated industries including pharmaceuticals, medical devices, and healthcare, has a market capitalization of approximately $435 million. The stock's 52-week range has been particularly volatile, trading between a low of $55.21 and a high of $154.03, reflecting investor sensitivity to the company's cyclical end markets.
Institutional investors hold 91.8% of outstanding shares, suggesting that today's earnings beat will likely spark significant portfolio repositioning among professional money managers evaluating the sustainability of the margin expansion and growth trajectory.