SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number    0-14902

MERIDIAN BIOSCIENCE, INC.

Incorporated under the laws of Ohio

31-0888197

(I.R.S. Employer Identification No.)

3471 River Hills Drive

Cincinnati, Ohio 45244

(513) 271-3700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	VIVO	NASDAQ Global Select Market

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding July 31, 2019
Common Stock, no par value	42,711,496

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q

		Page(s)
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations Three and Nine Months Ended June 30, 2019 and 2018		1
	Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended June 30, 2019 and 2018		2
	Condensed Consolidated Statements of Cash Flows Nine Months Ended June 30, 2019 and 2018		3
	Condensed Consolidated Balance Sheets June 30, 2019 and September 30, 2018		4-5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity Three and Nine Months Ended June 30, 2019 and 2018		6
	Notes to Condensed Consolidated Financial Statements		7-19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20-27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures		27-28
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		28
Item 1A.	Risk Factors		28
Item 6.	Exhibits		28
Signature			29

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “continues”, “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “signals”, “should” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted earnings and revenue, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the following: Meridian’s operating results, financial condition and continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by Meridian’s competition, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While Meridian has introduced a number of internally developed products and acquired products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly manufacturing costs associated with its introduction of new products or acquired products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in which our customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, can result in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process (including the currently ongoing study and other FDA actions regarding the Company’s LeadCare products). The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of U.S. health care legislation enacted in 2010 – the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act – and any modification or repeal of any of the provisions thereof initiated by Congress or the presidential administration, and any similar initiatives in other countries on its results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and revenues. In the past, the Company has identified a material weakness in our internal control over financial reporting, which has been remediated, but the Company can make no assurances that a material weakness will not be identified in the future, which if identified and not properly corrected, could materially adversely affect our operations and result in material misstatements in our financial statements. In addition to the factors described in this paragraph, as well as those factors identified from time to time in our filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of our most recent Annual Report on Form 10-K contains a list and description of uncertainties, risks and other matters that may affect the Company. Readers should carefully review these forward-looking statements and risk factors, and not place undue reliance on our forward-looking statements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
NET REVENUES	$	48,440		$	51,737		$	150,168		$	160,471
COST OF SALES		20,181			19,775			60,999			61,930
GROSS PROFIT		28,259			31,962			89,169			98,541
OPERATING EXPENSES
Research and development		4,594			4,264			12,294			13,159
Selling and marketing		6,747			8,502			21,221			25,963
General and administrative		8,002			8,380			24,288			26,470
Acquisition-related costs		473			—			1,445			—
Restructuring costs		1,801			913			1,701			5,105
Litigation costs		178			1,168			1,370			3,370
Total operating expenses		21,795			23,227			62,319			74,067
OPERATING INCOME		6,464			8,735			26,850			24,474
OTHER INCOME (EXPENSE)
Interest income		194			109			547			271
Interest expense		(448	)		(375	)		(1,158	)		(1,149	)
Other, net		268			151			(38	)		(94	)
Total other income (expense)		14			(115	)		(649	)		(972	)
EARNINGS BEFORE INCOME TAXES		6,478			8,620			26,201			23,502
INCOME TAX PROVISION		1,399			1,795			5,922			5,087
NET EARNINGS	$	5,079		$	6,825		$	20,279		$	18,415
BASIC EARNINGS PER COMMON SHARE	$	0.12		$	0.16		$	0.48		$	0.44
DILUTED EARNINGS PER COMMON SHARE	$	0.12		$	0.16		$	0.47		$	0.43
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC		42,639			42,349			42,526			42,307
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS		271			409			381			405
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED		42,910			42,758			42,907			42,712
ANTI-DILUTIVE SECURITIES:
Common share options and restricted share units		1,215			995			1,073			1,009
DIVIDENDS DECLARED PER COMMON SHARE	$	—		$	0.125		$	0.250		$	0.375

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 1

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollar amounts in thousands)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
NET EARNINGS	$	5,079		$	6,825		$	20,279		$	18,415
Other comprehensive income (loss):
Foreign currency translation adjustment		1,692			(1,912	)		1,353			(695	)
Unrealized gain (loss) on cash flow hedge		(297	)		109			(1,184	)		874
Income taxes related to items of other comprehensive income		222			(28	)		445			(247	)
Other comprehensive income (loss), net of tax		1,617			(1,831	)		614			(68	)
COMPREHENSIVE INCOME	$	6,696		$	4,994		$	20,893		$	18,347

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 2

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollar amounts in thousands)

Nine Months Ended June 30,	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	20,279		$	18,415
Non-cash items included in net earnings:
Depreciation of property, plant and equipment		3,984			3,320
Amortization of intangible assets		2,778			2,732
Amortization of deferred instrument costs		—			581
Stock-based compensation		2,728			2,882
Deferred income taxes		(852	)		(71	)
Loss on disposition and write-down of fixed assets		220			—
Change in the following, net of acquisition:
Accounts receivable		1,014			(52	)
Inventories		(67	)		(4,118	)
Prepaid expenses and other current assets		(1,849	)		(2,106	)
Accounts payable and accrued expenses		(1,703	)		2,967
Income taxes payable		1,402			(1,003	)
Other, net		412			35
Net cash provided by operating activities		28,346			23,582
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(3,314	)		(3,340	)
Acquisition of GenePOC business		(45,239	)		—
Net cash used for investing activities		(48,553	)		(3,340	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(10,612	)		(15,870	)
Proceeds from revolving credit facility		75,824			—
Payment of debt issuance costs		(489	)		—
Payments on term loan		(50,250	)		(3,375	)
Proceeds and tax benefits from exercises of stock options		614			183
Net cash provided by (used for) financing activities		15,087			(19,062	)
Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash		(451	)		(322	)
Net Increase (Decrease) in Cash and Equivalents and Restricted Cash		(5,571	)		858
Cash and Equivalents and Restricted Cash at Beginning of Period		60,763			58,072
Cash and Equivalents and Restricted Cash at End of Period	$	55,192		$	58,930
Cash and Equivalents	$	55,192		$	57,930
Restricted Cash		—			1,000
Cash and Equivalents and Restricted Cash at End of Period	$	55,192		$	58,930

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 3

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

ASSETS

	June 30,
	2019		September 30,
	(Unaudited)		2018
CURRENT ASSETS
Cash and equivalents	$	55,192	$	59,763
Accounts receivable, less allowances of $421 and $310		31,995		32,336
Inventories		43,305		41,993
Prepaid expenses and other current assets		6,897		4,961
Total current assets		137,389		139,053
PROPERTY, PLANT AND EQUIPMENT, at Cost
Land		1,157		1,160
Buildings and improvements		32,430		32,444
Machinery, equipment and furniture		63,344		50,606
Construction in progress		1,292		1,631
Subtotal		98,223		85,841
Less: accumulated depreciation and amortization		66,398		55,846
Net property, plant and equipment		31,825		29,995
OTHER ASSETS
Goodwill		90,107		54,637
Other intangible assets, net		62,001		23,113
Restricted cash		—		1,000
Deferred instrument costs, net		—		1,239
Fair value of interest rate swap		—		1,722
Deferred income taxes		125		130
Other assets		989		488
Total other assets		153,222		82,329
TOTAL ASSETS	$	322,436	$	251,377

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 4

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY

	June 30,
	2019			September 30,
	(Unaudited)			2018
CURRENT LIABILITIES
Accounts payable	$	8,381		$	6,260
Accrued employee compensation costs		6,795			7,263
Other accrued expenses		3,214			5,065
Current portion of long-term debt		—			5,250
Income taxes payable		1,432			335
Total current liabilities		19,822			24,173
NON-CURRENT LIABILITIES
Post-employment benefits		2,384			2,646
Long-term debt		75,824			44,930
Long-term income taxes payable		736			441
Deferred income taxes		2,917			3,769
Acquisition consideration		32,200			—
Total non-current liabilities		114,061			51,786
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock, no par value; 1,000,000 shares authorized; none issued		—			—
Common shares, no par value; 71,000,000 shares authorized, 42,670,805 and 42,399,962 shares issued, respectively		—			—
Additional paid-in capital		132,311			129,193
Retained earnings		59,005			49,602
Accumulated other comprehensive loss		(2,763	)		(3,377	)
Total shareholders’ equity		188,553			175,418
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	322,436		$	251,377

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 5

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(dollar and share amounts in thousands, except per share data) 

	Common Shares Issued		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
THREE MONTHS ENDED JUNE 30, 2019
Balance at March 31, 2019		42,515	$	131,951	$	54,074		$	(4,380	)	$	181,645
Conversion of restricted share units and exercise of stock options		156		—		—			—			—
Stock compensation expense		—		360		—			—			360
Net earnings		—		—		5,079			—			5,079
Foreign currency translation adjustment		—		—		—			1,692			1,692
Hedging activity, net of tax		—		—		—			(223	)		(223	)
Adoption of ASU 2018-02		—		—		(148	)		148			—
Balance at June 30, 2019		42,671	$	132,311	$	59,005		$	(2,763	)	$	188,553
THREE MONTHS ENDED JUNE 30, 2018
Balance at March 31, 2018		42,344	$	127,583	$	47,936		$	(1,183	)	$	174,336
Cash dividends paid - $0.125 per share		—		—		(5,293	)		—			(5,293	)
Conversion of restricted share units and exercise of stock options		14		183		—			—			183
Stock compensation expense		—		907		—			—			907
Net earnings		—		—		6,825			—			6,825
Foreign currency translation adjustment		—		—		—			(1,912	)		(1,912	)
Hedging activity, net of tax		—		—		—			81			81
Balance at June 30, 2018		42,358	$	128,673	$	49,468		$	(3,014	)	$	175,127
NINE MONTHS ENDED JUNE 30, 2019
Balance at September 30, 2018		42,400	$	129,193	$	49,602		$	(3,377	)	$	175,418
Cash dividends paid - $0.250 per share		—		—		(10,612	)		—			(10,612	)
Conversion of restricted share units and exercise of stock options		271		390		—			—			390
Stock compensation expense		—		2,728		—			—			2,728
Net earnings		—		—		20,279			—			20,279
Foreign currency translation adjustment		—		—		—			1,353			1,353
Hedging activity, net of tax		—		—		—			(887	)		(887	)
Adoption of ASU 2014-09		—		—		(116	)		—			(116	)
Adoption of ASU 2018-02		—		—		(148	)		148			—
Balance at June 30, 2019		42,671	$	132,311	$	59,005		$	(2,763	)	$	188,553
NINE MONTHS ENDED JUNE 30, 2018
Balance at September 30, 2017		42,207	$	125,608	$	46,923		$	(2,946	)	$	169,585
Cash dividends paid - $0.375 per share		—		—		(15,870	)		—			(15,870	)
Conversion of restricted share units and exercise of stock options		151		183		—			—			183
Stock compensation expense		—		2,882		—			—			2,882
Net earnings		—		—		18,415			—			18,415
Foreign currency translation adjustment		—		—		—			(695	)		(695	)
Hedging activity, net of tax		—		—		—			627			627
Balance at June 30, 2018		42,358	$	128,673	$	49,468		$	(3,014	)	$	175,127

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 6

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Dollars in Thousands, Except Per Share Amounts

(Unaudited)

1. Basis of Presentation

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of June 30, 2019, the results of its operations for the three and nine month periods ended June 30, 2019 and 2018, and its cash flows for the nine month periods ended June 30, 2019 and 2018. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s fiscal 2018 Annual Report on Form 10-K. Financial information as of September 30, 2018 has been derived from the Company’s audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year.

2. Significant Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2018 Annual Report on Form 10-K and should be referred to for a description of the Company’s current significant accounting policies, with the exception of Revenue Recognition and Fair Value Measurements, which are set forth below.

Revenue Recognition –

Adoption of New Standard

On October 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers, using the modified retrospective transition method applied to those contracts that were not completed as of that date. Results for reporting periods beginning on or after October 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previously applicable authoritative guidance.

Upon adoption, we recorded a reduction of $116 to the opening balance of retained earnings as of October 1, 2018. This adjustment is related to writing off the book value of clinical diagnostic testing instruments located at customers for which there is no contractual arrangement for the instrument to be returned to the Company. Instruments placed with customers under an agreement to return the instrument to the Company were reclassified to machinery and equipment. Prior to adoption of the new guidance, all instruments placed with customers were capitalized and amortized over an estimated three-year utilization period, with the net balance reflected as deferred instrument costs.

Page 7 

The following table summarizes the impact of the new revenue standard on our opening balance sheet:

	Balance at September 30, 2018			New Revenue Standard Adjustment			Balance at October 1, 2018
PROPERTY, PLAN AND EQUIPMENT
Machinery, equipment and furniture	$	50,606		$	8,696		$	59,302
Accumulated depreciation and amortization		(55,846	)		(7,611	)		(63,457	)
OTHER ASSETS
Deferred instrument costs, net		1,239			(1,239	)		—
NON-CURRENT LIABILITIES
Deferred income taxes		(3,769	)		38			(3,731	)
SHAREHOLDERS’ EQUITY
Retained earnings		(49,602	)		116			(49,486	)

The adoption of this new standard had an immaterial impact on our reported total revenues and operating income, as compared to what would have been reported under the prior standard. Our accounting policies under the new standard were applied prospectively and are noted below following the discussion of Revenue Disaggregation.

Revenue Disaggregation

The following tables present our revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics only):

Revenue by Reportable Segment & Geographic Region

	Three Months Ended June 30,							Nine Months Ended June 30,
	2019		2018		Inc (Dec)			2019		2018		Inc (Dec)
Diagnostics-
Americas	$	27,356	$	30,585		(11	)%	$	85,782	$	95,511		(10	)%
EMEA		5,076		5,144		(