0001193125-22-143065.txt : 20220506 0001193125-22-143065.hdr.sgml : 20220506 20220506082423 ACCESSION NUMBER: 0001193125-22-143065 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220506 DATE AS OF CHANGE: 20220506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERIDIAN BIOSCIENCE INC CENTRAL INDEX KEY: 0000794172 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 310888197 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14902 FILM NUMBER: 22898929 BUSINESS ADDRESS: STREET 1: 3471 RIVER HILLS DR CITY: CINCINNATI STATE: OH ZIP: 45244 BUSINESS PHONE: 5132713700 MAIL ADDRESS: STREET 1: 3471 RIVER HILLS DRIVE CITY: CINCINNATI STATE: OH ZIP: 45244 FORMER COMPANY: FORMER CONFORMED NAME: MERIDIAN DIAGNOSTICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 d345909d10q.htm 10-Q 10-Q
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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 March 31, 2022
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 April 30, 2022
Common Stock, no par value  
43,575,133

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM
10-Q
 
 
  
 
  
Page(s)
 
PART I.
  
  
Item 1.
  
  
  
  
 
1
 
  
  
 
2
 
  
  
 
3
 
  
  
 
4-5
 
  
  
 
6
 
  
  
 
7-18
 
Item 2.
  
  
 
18-26
 
Item 3.
  
  
 
26
 
Item 4.
  
  
 
26
 
PART II.
  
  
Item 1.
  
  
 
27
 
Item 1A.
  
  
 
27
 
Item 6.
  
  
 
28
 
  
  
 
28
 
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”, “can” 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 Bioscience, Inc. (“Meridian” or “the Company”) expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted net earnings, sales, product demand, net revenues, operating margin, other guidance and the impact of
COVID-19
on its business and prospects, 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 the Company’s 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, and in

complying with the ongoing investigation of the Department of Justice described in Meridian’s reports filed with the SEC, 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. 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 that 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 future goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of any modification or repeal of any of the provisions of current U.S. health care legislation, and any similar initiatives in other countries on Meridian’s 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 net revenues. The Company can make no assurances that a material weakness in its internal control over financial reporting will not be identified in the future, which if identified and not properly corrected, could materially
and
adversely affect its operations and result in material misstatements in its consolidated financial statements. Meridian also is subject to risks and uncertainties related to disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as
COVID-19
 
including, without limitation, related supply chain interruptions
.
In addition to the factors described in this paragraph, as well as those factors identified from time to time in the Company’s filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of the Company’s 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 the Company’s forward-looking statements.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(dollar and share amounts in thousands, except per share data)
 
 
  
Three Months Ended
March 31,
 
 
Six Months Ended
March 31,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
NET REVENUES
   $ 111,231     $ 85,264     $ 199,572     $ 178,181  
COST OF SALES
     42,754       27,492       81,936       58,861  
    
 
 
   
 
 
   
 
 
   
 
 
 
GROSS PROFIT
     68,477       57,772       117,636       119,320  
    
 
 
   
 
 
   
 
 
   
 
 
 
OPERATING EXPENSES
                                
Research and development
     5,691       6,065       11,885       11,716  
Selling and marketing
     7,514       6,540       15,255       13,561  
General and administrative
     18,555       12,925       33,215       24,863  
Acquisition-related costs
     68             68        
Selected legal costs
     508       1,030       789       2,257
 
Change in fair value of acquisition consideration
           (2,989 )           (1,942 )
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     32,336       23,571       61,212       50,455  
    
 
 
   
 
 
   
 
 
   
 
 
 
OPERATING INCOME
     36,141       34,201       56,424       68,865  
OTHER INCOME (EXPENSE)
                                
Interest income
     2       6       3       15  
Interest expense
     (341     (472     (713     (1,006
RADx grant income
              200             1,000  
Other, net
     733       (883     572       (1,574
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other income (expense
), net
     394       (1,149     (138     (1,565
    
 
 
   
 
 
   
 
 
   
 
 
 
EARNINGS BEFORE INCOME TAXES
     36,535       33,052       56,286       67,300  
         
INCOME TAX PROVISION
     7,783       6,750       12,194       14,219  
    
 
 
   
 
 
   
 
 
   
 
 
 
NET EARNINGS
   $ 28,752     $ 26,302     $ 44,092     $ 53,081  
    
 
 
   
 
 
   
 
 
   
 
 
 
BASIC EARNINGS PER COMMON SHARE
   $ 0.66     $ 0.61     $ 1.01     $ 1.23  
DILUTED EARNINGS PER COMMON SHARE
   $ 0.65     $ 0.60     $ 1.00     $ 1.21  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
     43,549       43,244       43,495       43,171  
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS
     713       878       617       789  
    
 
 
   
 
 
   
 
 
   
 
 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
     44,262       44,122       44,112       43,960  
    
 
 
   
 
 
   
 
 
   
 
 
 
ANTI-DILUTIVE SECURITIES:
                                
Common share options and restricted share units
     186       166       480       169  
    
 
 
   
 
 
   
 
 
   
 
 
 
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
March 31,
   
Six Months Ended
March 31,
 
    
2022
   
2021
   
2022
   
2021
 
NET EARNINGS
   $ 28,752     $ 26,302     $ 44,092     $ 53,081  
Other comprehensive income (loss):
                                
Foreign currency translation adjustment
     (1,820     79       (1,878     3,380  
Reclassification of realized gain on cash flow hedge
     (935              (935         
Unrealized gain on cash flow hedge
     1,435       439       1,985       460  
Reclassification of amortization of gain on cash flow hedge
              (77           (154
Income taxes related to items of other comprehensive income (loss)
     (122     (80     (257     (66
    
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive
(loss) 
income, net of tax
     (1,442     361       (1,085     3,620  
    
 
 
   
 
 
   
 
 
   
 
 
 
COMPREHENSIVE INCOME
   $ 27,310     $ 26,663     $ 43,007     $ 56,701  
    
 
 
   
 
 
   
 
 
   
 
 
 
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)
 
 
  
Six Months Ended
March 31,
 
 
  
2022
 
 
2021
 
CASH FLOWS FROM OPERATING ACTIVITIES
  
 
Net earnings
   $ 44,092     $ 53,081  
Non-cash
items included in net earnings:
                
Depreciation of property, plant and equipment
     3,369       3,072  
Amortization of intangible assets
     4,966       4,363  
Stock-based compensation
     3,389       2,291  
Deferred income taxes
     1,446       (777
Change in fair value of acquisition consideration
              (1,942
Change in the following:
                
Accounts receivable
     (5,918     (5,267
Inventories
     4,913       (12,185
Prepaid expenses and other current assets
     1,685       1,440  
Accounts payable and accrued expenses
     5,273       77  
Income taxes payable
     3,332       (2,698
Other, net
     (575     36  
    
 
 
   
 
 
 
Net cash provided by operating activities
     65,972       41,491  
    
 
 
   
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
                
Purchase of property, plant and equipment
     (3,179     (11,955
Payment of acquisition consideration holdback
              (5,000
    
 
 
   
 
 
 
Net cash used in investing activities
     (3,179     (16,955
    
 
 
   
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Payment on revolving credit facility
     (35,000     (18,824
Payment of deferred financing costs
     (404      
Proceeds from exercise of stock options
     735       2,852  
Employee taxes paid upon stock swap option exercises and net share settlement of restricted share units
     (801      
    
 
 
   
 
 
 
Net cash used in financing activities
     (35,470     (15,972
    
 
 
   
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
     (607     1,296  
    
 
 
   
 
 
 
Net Increase in Cash and Cash Equivalents
     26,716       9,860  
Cash and Cash Equivalents at Beginning of Period
     49,771       53,514  
    
 
 
   
 
 
 
Cash and Cash Equivalents at End of Period
   $ 76,487     $ 63,374  
    
 
 
   
 
 
 
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
 
    
March 31,
2022
(Unaudited)
    
September 30,
2021
 
CURRENT ASSETS
                 
Cash and cash equivalents
   $ 76,487      $ 49,771  
Accounts receivable, less allowances of $1,122 and $1,078,

respectively
     59,218        53,568  
Inventories, net
     70,926        76,842  
Prepaid expenses and other current assets
     10,929        12,626  
    
 
 
    
 
 
 
Total current assets
     217,560        192,807  
    
 
 
    
 
 
 
PROPERTY, PLANT AND EQUIPMENT, at Cost
                 
Land
     983        989  
Buildings and improvements
     33,043        32,765  
Machinery, equipment and furniture
     82,095        78,410  
Construction in progress
     8,100        9,991  
    
 
 
    
 
 
 
Subtotal
     124,221        122,155  
Less: accumulated depreciation and amortization
     80,848        78,941  
    
 
 
    
 
 
 
Property, plant and equipment, net
     43,373        43,214  
    
 
 
    
 
 
 
OTHER ASSETS
                 
Goodwill
     114,039        114,668  
Other intangible assets, net
     79,058        84,151  
Right-of-use
assets, net
     7,517        5,786  
Deferred income taxes
     8,677        8,731  
Other assets
     1,586        365  
    
 
 
    
 
 
 
Total other assets
     210,877        213,701  
    
 
 
    
 
 
 
TOTAL ASSETS
   $ 471,810      $ 449,722  
    
 
 
    
 
 
 
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
 
 
  
March 31,
2022
(Unaudited)
 
 
September 30,
2021
 
CURRENT LIABILITIES
  
     
 
     
Accounts payable
   $ 15,682      $ 11,701  
Accrued employee compensation costs
     18,131        16,853  
Accrued product recall costs
     3,375        5,100  
Acquisition consideration
     1,000            
Current operating lease obligations
     2,134        1,990  
Current government grant obligations
     675        638  
Other accrued expenses
     8,533        7,027  
Income taxes payable
     6,935        3,848  
    
 
 
    
 
 
 
Total current liabilities
     56,465        47,157  
NON-CURRENT
LIABILITIES
                 
Acquisition consideration
               1,000  
Post-employment benefits
     2,125        2,253  
Long-term operating lease obligations
     5,579        3,932  
Long-term debt
     25,000        60,000  
Government grant obligations
     4,913        5,176  
Long-term income taxes payable
     469        469  
Deferred income taxes
     2,444        1,055  
Other
non-current
liabilities
     183        378  
Total
non-current
liabilities
     40,713        74,263  
    
 
 
    
 
 
 
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, 43,570,530 and 43,361,898 shares issued and outstanding, respectively
     —          —    
Additional
paid-in
capital
     150,985        147,403  
Treasury stock, at cost; 9,655 shares
     (259       
 
Retained earnings
     224,793        180,701  
Accumulated other comprehensive income (loss)
     (887      198  
    
 
 
    
 
 
 
Total shareholders’ equity
     374,632        328,302  
    
 
 
    
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 471,810      $ 449,722  
    
 
 
    
 
 
 
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)
 
 
  
Common
Shares
 
  
Additional
Paid-In

Capital
 
  
Treasury Stock
 
 
Retained
Earnings
 
  
Accumulated

Other
Comprehensive
Income (Loss)
 
 
Total
Shareholders’
Equity
 
 
  
    Sh.    
 
 
Amt.
 
THREE MONTHS ENDED MARCH 31, 2022
  
  
  
 
 
  
 
Balance at December 31, 2021
  
 
43,514
  
$
148,623
  
 
  
 
$
  
 
 
$
196,041
  
$
555
 
$
345,219
Conversion of restricted share units and exercise of stock options
  
 
56
  
 
876
  
 
(10
 
 
(259
 
 
—  
  
 
—  
 
 
617
Stock compensation expense
  
 
—  
  
 
1,486
  
 
—  
 
 
—  
 
 
—  
  
 
—  
 
 
1,486
Net earnings
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
28,752
  
 
—  
 
 
28,752
Foreign currency translation adjustment
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
(1,820
 
 
(1,820
Hedging activity, net of tax
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
378
 
 
378
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Balance at March 31, 2022
  
 
43,570
  
$
 
150,985
  
 
(10
 
$
(259
 
$
224,793
  
$
(887
 
$
374,632
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
THREE MONTHS ENDED MARCH 31, 2021
  
  
  
 
 
  
 
Balance at December 31, 2020
  
 
43,124
  
$
141,395
  
 
  
 
$
  
 
 
$
136,073
  
$
1,399
 
$
278,867
Conversion of restricted share units and exercise of stock options
  
 
205
  
 
2,893
  
 
—  
 
 
—  
 
 
—  
  
 
—  
 
 
2,893
Stock compensation expense
  
 
—  
  
 
1,050
  
 
—  
 
 
—  
 
 
—  
  
 
—  
 
 
1,050
Net earnings
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
26,302
 
  
 
—  
 
 
26,302
 
Foreign currency translation adjustment
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
79
 
 
79
Hedging activity, net of tax
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
282
 
 
282
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Balance at March 31, 2021
  
 
43,329
  
$
145,338
  
 
  
 
$
  
 
 
$
162,375
  
$
1,760
 
$
309,473
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 

 
  
Common
Shares
Issued
 
  
Additional
Paid-In

Capital
 
  
Treasury Stock
 
 
Retained
Earnings
 
  
Accumulated

Other
Comprehensive
Income (Loss)
 
 
Total
Shareholders’
Equity
 
 
  
Sh.
 
 
Amt.
 
SIX MONTHS ENDED MARCH 31, 2022
  
  
  
 
 
  
 
Balance at September 30, 2021
  
 
43,362
  
$
147,403
  
 
  
 
$
  
 
 
$
180,701
  
$
198
 
$
328,302
Conversion of restricted share units and exercise of stock options
  
 
208
  
 
193
  
 
(10
 
 
(259
 
 
—  
  
 
—  
 
 
(66
Stock compensation expense
  
 
—  
  
 
3,389
  
 
—  
 
 
—  
 
 
—  
  
 
—  
 
 
3,389
Net earnings
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
44,092
  
 
—  
 
 
44,092
Foreign currency translation adjustment
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
(1,878
 
 
(1,878
Hedging activity, net of tax
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
793
 
 
793
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Balance at March 31, 2022
  
 
43,570
  
$
150,985
  
 
(10
 
$
(259
 
$
224,793
  
$
(887
 
$
374,632
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
SIX
MONTHS ENDED MARCH 31, 2021
  
  
  
 
 
  
 
Balance at September 30, 2020
  
 
43,069
  
$
 140,195
  
 
  
 
$
  
 
 
$
109,294
  
$
(1,860
 
$
247,629
Conversion of restricted share units and exercise of stock options
  
 
260
  
 
2,852
  
 
—  
 
 
—  
 
 
—  
  
 
—  
 
 
2,852
Stock compensation expense
  
 
—  
  
 
2,291
  
 
—  
 
 
—  
 
 
—  
  
 
—  
 
 
2,291
Net earnings
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
53,081
  
 
—  
 
 
53,081
Foreign currency translation adjustment
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
3,380
 
 
3,380
Hedging activity, net of tax
  
 
—  
  
 
—  
  
 
—  
 
 
—  
 
 
—  
  
 
240
 
 
240
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Balance at March 31, 2021
  
 
43,329
  
$
145,338
  
 
  
 
$
  
 
 
$
162,375
  
$
1,760
 
$
309,473
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
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.
Nature of Business
Meridian Bioscience, Inc. (“Meridian” or “the Company”) was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic testing systems and kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, immunoassay blocking reagents, various Polymerase Chain Reaction (“PCR”) and isothermal amplification master mixes, and bioresearch reagents used by other diagnostic manufacturers and researchers.
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts; and (iii) the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.
The Life Science segment consists of: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany;
and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to pursue revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g., in vitro medical device manufacturing, microRNA detection, next-generation sequencing, plant genotyping, and mutation detection, among others).
 
2.
Basis of Presentation
The Condensed Consolidated Financial Statements are unaudited and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information, and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the Condensed Consolidated Financial Statements include all normal adjustments and disclosures necessary to present fairly the Company’s consolidated financial position as of March 31, 2022, and the results of its operations and shareholders’ equity for the three and six months ended March 31, 2022 and 2021, and cash flows for the six months ended March 31, 2022 and 2021. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s fiscal 2021 Annual Report on Form
10-K,
filed with the SEC on November 23, 2021.
It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Condensed Consolidated Financial Statements to indicate net revenue and/or net revenues.
The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. Included within these estimates are those related to the ongoing impacts of the
COVID-19
pandemic, which has had both positive and negative effects on our business; generally positive effects on our Life Science segment and negative effects on our Diagnostics segment. Actual results could differ from the estimates made by management.
 
Page 7

3.
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 2021 Annual Report on Form
10-K,
filed with the SEC on November 23, 2021, and should be referred to for a description of the Company’s significant accounting policies.
 
(a)
Recent Accounting Pronouncements –
Pronouncements Adopted
On October 1, 2021, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
2019-12”),
which clarified and simplified accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. Adoption of ASU
2019-12
did not have a material impact on the Condensed Consolidated Financial Statements.
Pronouncements Issued but Not Yet Adopted as of March 31, 2022
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the London Interbank Offered Rate (“LIBOR”). The guidance provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company continues to evaluate the impacts of this guidance but does not expect its application to have a material impact on the Condensed Consolidated Financial Statements.

No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the Condensed Consolidated Financial Statements.
 
(b)
Reclassifications –
Certain reclassifications have been made to the prior year Condensed Consolidated Financial Statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.
 
Page 8

4.
Revenue Recognition
Revenue Disaggregation
The following tables present our net revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics segment only):
Net Revenues by Reportable Segment & Geographic Region
 
 
  
Three Months Ended March 31,
 
 
Six Months Ended March 31,
 
 
  
2022
 
  
2021
 
  
Inc (Dec)
 
 
2022
 
  
2021
 
  
Inc (Dec)
 
Diagnostics-
  
  
  
 
  
  
Americas
   $ 33,551      $ 25,290        33   $ 60,164      $ 48,824        23
EMEA
     7,113        6,071        17     13,206        12,101        9
ROW
     439        588        (25 )%      937        1,345        (30
)
%
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total Diagnostics
     41,103        31,949        29     74,307        62,270        19
Life Science-
  
     
  
     
  
     
 
     
  
     
  
     
Americas
     10,377        13,550        (23 )%      18,514        32,296        (43
)
%
EMEA
     33,246        21,773        53     61,894        54,066        14
ROW
     26,505        17,992        47     44,857        29,549        52
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total Life Science
     70,128        53,315        32     125,265        115,911        8
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Consolidated
   $ 111,231      $ 85,264        30   $ 199,572      $ 178,181        12
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Net Revenues by Product Platform/Type
 
 
  
Three Months Ended March 31,
 
 
Six Months Ended March 31,
 
 
  
2022
 
  
2021
 
  
Inc (Dec)
 
 
2022
 
  
2021
 
  
Inc (Dec)
 
Diagnostics-
  
  
  
 
  
  
Molecular assays
   $ 4,385      $ 4,395          $ 9,137      $ 8,985        2
Non-molecular
assays
     36,718        27,554        33     65,170        53,285        22
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total Diagnostics
  
41,103     
31,949        29  
74,307     
62,270        19
Life Science-
                                                    
Molecular reagents
  
40,334     
37,752        7  
71,822     
83,776        (14
)
%
Immunological reagents
     29,794        15,563        91     53,443        32,135        66
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total Life Science
  
70,128     
53,315        32  
125,265     
115,911        8
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
Consolidated
  
$
111,231
 
  
$
85,264
 
  
 
30
 
$
199,572
 
  
$
178,181
 
  
 
12
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
Net Revenues by Disease State (Diagnostics segment only)
 
 
  
Three Months Ended March 31,
 
 
Six Months Ended March 31,
 
 
  
2022
 
  
2021
 
  
Inc (Dec)
 
 
2022
 
  
2021
 
  
Inc (Dec)
 
Diagnostics-
                                                    
Gastrointestinal assays
   $ 20,281      $ 15,666        29   $ 41,900      $ 31,118        35
Respiratory illness assays
     9,491        3,686        157     15,871        8,492        87
Blood chemistry assays
     3,425        4,358        (21
)
%
    3,503        8,753        (60
)
%
Other
     7,906        8,239        (4
)
%
    13,033        13,907        (6
)
%
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Total Diagnostics
   $ 41,103      $ 31,949        29   $ 74,307      $ 62,270        19
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
 
Page 9

Royalty Income
Royalty income received from a third party related to sales of
H. pylori
products, totaled approximately $2,580 and $2,850
in the three months ended March 31, 2022 and 2021, respectively, and $3,550 and $3,710 in the six months ended March 31, 2022 and 2021, respectively.
Royalty income
is included as part of Non-molecular assays and Other within the Net Revenues by Product Platform/Type and Net Revenues by Disease State tables, respectively, above. 
Reagent Rental Arrangements
Revenue allocated to the lease elements of Reagent Rental arrangements totaled approximately $970 and $900
in the three months ended March 31, 2022 and 2021, respectively, and $1,725 and $1,780 in the six months ended March 31, 2022 and 2021, respectively. Such revenue is included as part of net revenues in our Condensed Consolidated Statements of Operations. 
 
5.
Fair Value Measurements
To limit exposure to volatility in the LIBOR interest rate, the Company has entered into interest rate swap agreements, which effectively convert the variable interest rate on the outstanding revolving credit facility discussed in Note 12 to a fixed rate. The fair values of the interest rate swap agreements were determined by reference to a third-party valuation, which is considered a Level 2 input within the fair value hierarchy of valuation techniques, and totaled a
n
$846 asset and a $203
liability, as of March 31, 2022 and September 30, 2021, respectively
. In
conjunction with the paydown of $25,000 on the revolving credit facility
, a $25,000 interest rate swap agreement was terminated during March 2022, resulting
in a gain of $935, which is
recorded in
other income
(expense), net 
in our Condensed Consolidated Statements of Operations
 during the three and six months ended March 31, 2022
.
As indicated in Note 6, we acquired the BreathTek business on July 31, 2021. The fair values of inventories acquired were valued using Level 2 inputs, which included data points that were observable, such as established values of comparable assets and historical sales information (market approach). Identifiable intangible assets, specifically the acquired customer relationships, were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows and attrition rates (income approach). Significant increases (decreases) in any of those unobservable inputs, as of the date of the acquisition, in isolation would result in a significantly lower (higher) fair value measurement.


6.
Business Combinations 
On July 31, 2021, we acquired the BreathTek business, a urea breath test for the detection of
H. pylori
, from Otsuka America Pharmaceutical, Inc. Cash consideration totaled $19,585, subject to a $1,000
holdback, which is recorded in acquisition consideration on the Condensed Consolidated Balance Sheets, to secure the selling party’s performance of certain post-closing obligations that is payable 15 months following the BreathTek acquisition date. As part of the acquisition, we acquired BreathTek inventories and assumed the customer relationships to supply the BreathTek product in North America. Giving effect to purchase adjustments made during the three months ended March 31, 2022 to increase the value of acquired inventories by approximately $100, the acquired inventories and customer relationships were valued on July 31, 2021
on a preliminary basis,
at
 
$
9,955
and $
9,630
,
respectively, with the useful life of the customer relationships estimated at
five years
.
The Company’s consolidated results for the three and six
 months
 ended March 31, 2022 include approximately
 $5,500
and $11,100, respectively, of net
revenues from BreathTek product sales, which contributed approximate
ly
$1,600
and $3,200, respectively, of net earnings. These results, which are reported as part of the Diagnostics segment, include amortization expense related to the customer relationships recorded in the purchase price allocation totaling
$474
and $960, during the three and six months ended March 31, 2022, respectively.
 
Page 10

The following table provides the unaudited consolidated pro forma results for the periods presented as if the BreathTek business had been acquired as of the beginning of fiscal 2021:
 
 
  
Three Months Ended
March 31,
 
  
Six Months Ended
March 31,
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
Net revenues
   $ 111,231      $ 91,033      $ 199,572      $ 188,857  
Net earnings
     28,752        28,099        44,092        56,052  

7.
Lead Testing Matters
On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of a Class I voluntary recall of its LeadCare test kits for the detection of lead in blood, which it had initiated in May 2021. Customers generally run controls when they receive a new lot of product and report to us when the control results are outside of specified ranges. This process identified certain impacted test kit lots that could potentially underestimate blood lead levels when processing patient blood samples. Although it was initially believed that the root cause of the issue related to the plastic containers used for the treatment reagent, additional studies have indicated that the root cause relates to the third-party-sourced cardboard trays that hold the treatment reagent containers. Upon correction of the identified supplier issue, shipment of product resumed during February 2022. The Company continues to work closely with the FDA in its execution of the recall activities, which include notifications to customers and distributors, and providing instructions for the return of impacted test kits. The evaluation of the recall and the related notification process are ongoing. Of the approxima
te 
$5,100
estimated and accrued as of September 30, 2021 to cover the estimated costs of the recall, approxim
at
ely $3,375
remains accrued and is reflected in the Condensed Consolidated Balance Sheet as of March 31, 2022. Anticipated recall-related costs, which primarily include product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees, and other miscellaneous costs are estimated based upon the most recent information available. Information utilized in the accrual estimation process includes observable inputs such as customer
on-hand
inventory data, product sales data, average sales price, and product inventory turns, among other things. Available information is subject to change as the recall period extends, and such changes will be recorded in the period known. There have been no material changes in estimates related to the LeadCare recall reserve during the three or six months ended March 31, 2022.
As previously disclosed, on April 17, 2018,
 
the Company’s wholly owned subsidiary Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlined documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and April 2021, the DOJ issued two subpoenas calling for witnesses to testify before a federal grand jury related to this matter. The March 2021 subpoena was issued to a former employee of Magellan, and the April 2021 subpoena was issued to a current employee of Magellan. In September and October 2021, the DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. It is the Company’s understanding that multiple witnesses have testified before the federal grand jury and the DOJ’s investigation is ongoing. Discussions continue with the DOJ to explore resolution of the matter.
The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately
$508 and $1,030 of expense for attorneys’ fees related to this matter is included within the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021, respectively, and $789 and $2,257, for the six months ended March 31, 2022 and 2021, respectively.
 
Page 11

8.
Cash and Cash Equivalents
Cash and cash equivalents include the following:

 
 
  
March 31,
2022
 
  
September 30,
2021
 
 
Institutional money market funds
   $ 1,020      $ 1,020  
Cash on hand, unrestricted
     75,467        48,751  
    
 
 
    
 
 
 
Total
   $ 76,487      $ 49,771  
    
 
 
    
 
 
 
Cash equivalents, institutional money market funds, are classified within Level 1 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The Company does not adjust the quoted market price for such financial instruments.
 
9.
Inventories, Net
Inventories, net, are comprised of the following:
 
 
  
March 31,
2022
 
  
September 30,
2021
 
 
Raw materials
   $ 15,140      $ 14,843  
Work-in-process
     22,296        25,072  
Finished goods - instruments
     2,596        2,260  
Finished goods - kits and reagents
     30,894        34,667  
    
 
 
    
 
 
 
Total
   $ 70,926      $ 76,842  
    
 
 
    
 
 
 

10.
Goodwill and Other Intangible Assets, Net
Goodwill is not amortized but is subject to an annual impairment test. Goodwill has been assigned to reporting units within the reportable segments. The Company assesses the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment.
Impairment testing is performed at a reporting unit level. During the six months ended March 31, 2022, goodwill decrease
d $629, reflecting: (i) a $376 decrease in Diagnostics segment
 goodwill
; and (ii) a $253 decrease in Life Science segment
 goodwill, primarily due to foreign currency translation
. During the six months ended March 31, 2022, the Company did not observe any triggering events or substantive changes in circumstances requiring the need for an interim impairment assessment.

A summary of other intangible assets, net, subject to amortization is as follows:
 
 
  
March 31, 2022
 
  
September 30, 2021
 
 
  
Gross
Carrying
Value
 
  
Accumulated
Amortization
 
  
Gross
Carrying
Value
 
  
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines
   $ 62,385      $ 24,510      $ 62,416      $ 22,633  
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