SECURITIES AND EXCHANGE COMMISSION
FORM
10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017. |
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2021.
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM
TO
MERIDIAN BIOSCIENCE, INC.
IRS Employer ID
No. 31-0888197
Incorporated under the Laws
State of
Incorporation: Ohio
Securities
Registered Pursuantregistered pursuant to Section 12(b) of the Act:
| | | | |
| | | | Name of each exchange ofon which registered |
Common Shares, No Par Value | | | | The NASDAQ Stock Market LLC |
| | | | (NASDAQ Global Select Market) |
Securities
Registered Pursuantregistered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ☐ ☒ NO
☒If this report is an annual or transition report, indicate☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act. YES ☐
NO ☒
Indicate by 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 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
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted 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 and post such files). YES ☒ NO ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or
an emerging growth company. See
the 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 | | ☐ |
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| Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
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Emerging Growth Companygrowth company | | ☐ | | | | |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule12b-2). YES ☐ NO ☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule12b-2). YES ☐ NO ☒
The aggregate market value of Common Shares held by
non-affiliates
as of March 31, 20172021 was $574,070,312$1,132,216,391 based on a closing sale price of $13.80$26.25 per share on March 31, 2017.2021. As of October 31, 2017, 42,216,5672021, 43,364,448 shares of Common Stock, no par value, Common Shares were issued and outstanding.Documents Incorporated by Reference
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the
Registrant’sProxy Statement for the 2022 Annual
Report toMeeting of Shareholders,
forwhich will be filed within one hundred and twenty days of the fiscal year ended September 30,
2017 furnished to the Commission pursuant to Rule14a-3(b)2021 (2022 Proxy Statement), are incorporated by reference
in Part II as specified and portions of the Registrant’s Proxy Statement to be filed with the Commission for its 2018 Annual Shareholders’ Meeting are incorporated by reference ininto Part III
as specified.of this report to the extent described herein.
MERIDIAN BIOSCIENCE, INC.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This
Annual Report on Form10-K contains forward-looking statements. Thereport includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of 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, which1934. Forward-looking statements may
beappear throughout this report, including the following sections: “Business” (Part I, Item 1 of this Form10-K),
“Risk Factors” (Part I, Item 1A of this Form10-K),
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form10-K).
These forward-looking statements generally are identified by
the words
such as “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “should”“believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar
expressions or the negative versions thereof and which also may be identified by their context. Allexpressions. Forward-looking 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
uponon current expectations
and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of
the CompanyFinancial Condition and
Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form10-K)
and elsewhere in this Form10-K.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date
they are 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 assumesWe undertake no obligation to
publicly update or revise
publicly 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, 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 the ramp upwhether because of new
products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such,information, future events, 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. The international scope of Meridian’s operations, including changes in the relative strengthnovel coronavirus
(“COVID-19”)
pandemic, 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, the outcome of tax reform legislation, breaches of Meridian’s information technology systems and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and revenues. We have identified a material weakness in our internal control over financial reporting that, if 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 this Annual Report on Form10-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.
This Annual Report on Form10-K includes forward-looking statements about our business and results of operations that are subject to risks and uncertainties. See “Forward-Looking Statements” above. Factors that could cause or contribute to such differences include those discussed in Item 1A. “Risk Factors.” In addition to the risk factors discussed herein, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these risks and uncertainties develops into actual events, our business, financial condition or results of operations could be adversely affected.
otherwise.
Unless the context requires otherwise, references in this Annual Report on
Form 10-K
(“Form10-K”)
to “Meridian,” “we,” “us,” “our,” “Company,” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries.
In the discussion that follows, all
dollarsdollar amounts and
sharesshare amounts are in thousands (both tables and text), except per share data.
This
Annual Report on Form
10-K
refers to trademarks such as TRU FLUAlethia, BreathID, BreathTek, Curian, HpSA®
, Immuno, ImmunoSTAT!, LeadCare, MyTaq™, SensiFAST™
, PREMIER, revogeneand LeadCare®SensiFAST™
, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and tradenames referred to in this Form10-K
may appear without theor™
symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames. Our molecular diagnostic test platform formerly known under the tradenames
and, has been rebranded under the tradename Alethia. References to Alethia throughout this Form10-K
refer to our molecular diagnostic tests and instrumentation formerly marketed and sold under theandbrands. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks.WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.meridianbioscience.com
) and our corporate Facebook, Instagram, LinkedIn, Twitter, Vimeo and YouTube accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission (“SEC”) filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report. MARKET AND INDUSTRY INFORMATION
Market data used throughout this Form10-K
is based on management’s knowledge of the industry and good faith estimates of management. All of management’s estimates presented herein are based on industry sources, including analyst reports and management’s knowledge. We also relied, to the extent available, upon management’s review of independent industry surveys and publications prepared by a number of sources and other publicly available information. We are responsible for all of the disclosures in this Form10-K
and while we believe that each of the publications, studies and surveys used throughout this Form10-K
are prepared by reputable sources, we have not independently verified market and industry data from third-party sources. All of the market data used in this Form10-K
involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the estimated market position, market opportunity and market size information included in this Form10-K
is generally reliable, such information, which in part is derived from management’s estimates and beliefs, is inherently uncertain and imprecise and has not been verified by any independent source. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 1A. Risk Factors” of Part I of this Form10-K
and elsewhere in this Form10-K.
These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.
Meridian is a fully-integrated life science company with principal businesses
inin: (i) the development, manufacture, sale and distribution of diagnostic
testtesting systems and kits, primarily for certain gastrointestinal
viral,and respiratory
and parasitic infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies,
PCR/qPCRimmunoassay blocking reagents,
nucleotides, competent cells,specialized Polymerase Chain Reaction (“PCR”) master mixes, and bioresearch reagents used by
researchers and other diagnostic
manufacturers. The Company was incorporatedtest manufacturers and researchers in
Ohio in 1976. Our principal corporate offices are located near Cincinnati, Ohio, USA.During March 2016, we acquired all of the outstanding common stock of Magellan Biosciences, Inc.,immunological and its wholly-owned subsidiary Magellan Diagnostics, Inc. (collectively, “Magellan”), which is now reported as part of our Diagnostics operating segment. Headquartered near Boston, Massachusetts, Magellan is a leading manufacturer of products cleared by the Food & Drug Administration (“FDA”)molecular tests for thepoint-of-care testing of capillary blood to diagnose lead poisoning in childrenhuman, animal, plant and adults. Further details of the Magellan acquisition are set forth in Note 2 of the accompanying Consolidated Financial Statements.
- 5 -
environmental applications.
Our website is
www.meridianbioscience.com
. We make available our Annual Reports on Form10-K,
Quarterly Reports on Form10-Q,
Current Reports on Form8-K,
Proxy Statements and any amendments thereto, free of charge through this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). These reports may also be read and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549, phone number1-800-732-0330.SEC. The SEC maintains an internet site containing these filings and other information regarding Meridian atwww.sec.gov
. The information on our website is not and should not be considered part of this Annual Report on FormOur reportable segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio.
Detailed information related to theWe describe these reportable segments
can be found in
the followingthis “Business” section and in other locations
withinin this
Annual Report on Form10-K:report: | | |
Type of Segment Information | | Location within Annual Report on Form 10-K
|
Physical locations and activities | | Item 2. “Properties” |
| |
Revenue by geographic region | | Item 7. “Management’s Discussion and Analysis of Financial Condition & Results of Operations” (hereafter “MD&A”) |
| |
Financial information | | Note 8Item 8. “Note 15 of Consolidated Financial StatementsStatements” |
Diagnostics Segment
Overview of
Products and Markets
Our primary
Prior to the onset of theCOVID-19
pandemic early in 2020, our largest source of
net revenues
iswas clinical diagnostic products,
withhistorically representing approximatelytwo-thirds
of our consolidated net revenues. However, primarily due to the effects of theCOVID-19
pandemic, our Diagnostics segment
providing 71%provided 40% of consolidated net revenues for fiscal
2017. Third-party2021, following 48% of consolidated net revenues for
this segment were approximately $144,000, $145,000 and $146,000 for fiscal
2017, 2016 and 2015, respectively. As of September 30, 2017,2020. In 2022, we expect our Diagnostics segment
hadto contribute approximately
420 employees in seven countries.50% of our consolidated net revenues.
Our clinical diagnostic products provide accuracy, simplicity and speed; enable early diagnosis and treatment of
common, acute medical conditions; and provide for better patient outcomes at reduced costs. We target diagnostics for disease states
thatthat: (i) are conditions where rapid diagnosis impacts patient outcomes; (ii) have opportunistic demographic and disease profiles; (iii) are underserved by current diagnostic products; and/or (iv) have difficult sample handling requirements (e.g., stool). This approach has allowed us to establish
significantmeaningful market share in our target disease
states.- 6 -
Our clinical diagnostic products span a broad menu of testing platformsstates, gastrointestinal and technologies,respiratory illnesses, and also include transport media that store and preserve specimen samples from patient collection to laboratory testing. Our testing platforms include:
| • | | Isothermal DNA Amplification (illumigene brand) – high sensitivity, molecular platform that is suitable for virtually any moderately-complex laboratory, whether centralized or decentralized; provides flexibility to process from 1 to 10 tests per run in generally under one hour; and requires no batching of samples. |
| • | | Rapid Immunoassay (TRU, ImmunoCard and ImmunoCard STAT! brands) –single-use immunoassays that have fast turnaround times (generally under 20 minutes); and can reduce expensive send-outs for hospitals and outpatient clinics. |
Enzyme-linked Immunoassay (PREMIER brand) – batch immunoassay platform that can process up to 96 tests per run; is highly accurate and economical; and is adaptable to automation.
Anodic Stripping Voltammetry (LeadCare brand)– electrical chemical sensor platform for quantitative determination ofelevated lead levels in blood.
Our clinical diagnostic products are used principally in the detection of infectious diseases caused by various bacteria, viruses, parasites and pathogens, including most notably the following general areas:
| • | | C. difficile – causative agent for antibiotic-associated diarrhea from a hospital-acquired infection |
| • | | Foodborne – EnterohemorrhagicE. coli (EHEC) andCampylobacter jejuni (Campy) |
| • | | H. pylori – stomach ulcers |
| • | | Respiratory – Group AStreptococcus (strep throat),M. pneumoniae (Mycoplasma) andBordetella pertussis (whooping cough), among tests for other diseases |
| • | | Women’s Health & Sexually Transmitted Diseases (“STD”) – Group BStreptococcus, Chlamydia trachomatis,Neisseria gonorrhea, Herpes Simplex Virus Type 1 & Type 2 |
Our clinical diagnostics products also include Magellan’s LeadCare brand of tests for quantitative determination of blood lead levels.
Our product portfolio includes
over 140just under 200 diagnostic tests and transport media, and is marketed to acute care hospitals, reference laboratories, outpatient clinics and physician office laboratories in over 70 countries around the world.
Our testing platforms include: Real-time PCR Amplification (Revogene brand); Isothermal DNA Amplification (Alethia brand); Lateral Flow Immunoassay using fluorescent chemistry (Curian brand); Rapid Immunoassay (Immuno
and ImmunoSTAT! brands);Enzyme-linked
Immunoassay (PREMIER brand); Anodic Stripping Voltammetry (LeadCare brands); and urea breath testing for(BreathID and BreathTek brands).
We continue to invest
Our diagnostic assay research and development programs are focused on menu expansion for our Curian and Revogene instrument platforms, with disease targets in
the gastrointestinal and respiratory areas, as well as next generation blood-chemistry testing. Currently pending clearance at the U.S. Food and Drug Administration (“FDA”) is a 510(k) application for the Curian Campylobacter assay. Our current new product development
forpipeline includes gastrointestinal and respiratory multi-plex assays on our
molecular testingRevogene instrument platform, and
this platform now has nine commercialized tests spanning hospital acquired infections, women’s health, respiratory, sexually transmitted diseases,EHEC Shiga Toxin and
tropical diseases. As of September 30, 2017,combo common antigen and Toxins A and B on our
illumigene Malaria test has been placed in nearly 150 accounts in the EMEA region (i.e., Europe, Middle East and Africa) for use as a screening test for travelers returning to Europe from endemic areas in Africa. Our efforts to develop market channels in the endemic areas of Africa continue, as we work to convince policy-makers of the advantages of a more accurate molecular test to assist in efforts to eradicate malaria.We believe that ourillumigene system has been well-accepted in our global markets. We now have nearly 1,650 customer account placements. Of these account placements, approximately 1,375 accounts have completed evaluations and validations and are regularly purchasing product, with the balance of our account placements being in some stage of product evaluation and/or validation. Of our account placements, Curian instrument platform. In addition, we have nearly 600 accountsother assays on both platforms moving through our upstream marketing assessment processes that are regularly purchasing, evaluating and/expected to add to the development pipeline. For our BreathID platform, we are actively looking at the feasibility of combining Urea and Citrica into a single sachet or validating two or morepouch, which would meaningfully improve our cost of manufacturing BreathID assays.
Our current We are also pursuing opportunities to complement our internal research and development pipeline for immunoassay products includes a new instrumentprograms by securing rights to finished diagnostics tests that utilizes fluorescent chemistrywe can immediately commercialize.
The April 2020 acquisition of Exalenz Bioscience Ltd. (“Exalenz”) and
has colorimetric capabilities. This new platform is being branded under the
“Curian” name. DuringBreathID system, along with the
first half of fiscal 2018, we expect to submit a 510(k) to the FDA for one or more of our existing rapid immunoassay tests using the colorimetric capabilitiesJuly 2021 acquisition of the
Curian instrument. DuringBreathTek business, strengthened our position intesting, as these products provide an alternativenon-invasive
testing approach versus stool antigen testing. Despite the
second halfeffects of
fiscal 2018,theCOVID-19
pandemic and the intense focus ontesting, we
expect to submit a 510(k) tobelieve the
FDA for our first fluorescent assay, a combinationC.difficile common antigen (GDH) and toxin (A/B) test. Looking forward into fiscal 2019 and 2020, we expect to develop additional rapid immunoassay tests using the Curian fluorescent chemistry.Market Trends
The global market for infectious disease tests continues to expand as new disease states are identified, new therapies become available, and worldwide standards of living and access to health care improve. More importantly, within this market, thereThere is a continuing shift from conventional testing which requires highly trained personnel and lengthy turnaround times for test results, to more technologically advanced testing, which can be performed by less highly trained personnel and completed in minutes or hours.
The
increasinggrowing global pressures to contain total health care costs have accelerated the increased use of diagnostic testing.
With rapid and accurate diagnoses of infectious diseases, physicians can pinpoint appropriate therapies quickly, leading to faster recovery, shorter hospital stays and lower overall treatment cost. Integrated Delivery Networks (“IDNs”
) and Accountable Care Organizations (“ACOs”) in our U.S. market have the goal of increasing the efficiency of health care delivery, reducing spending and improving clinical outcomes. We believe our product portfolio positions us competitively with IDNs
ACOs and health care systems that are transitioning from
compensation models to value basedvalue-based reimbursement. OurC. difficile, Group BStreptococcus, Group AStreptococcus andH. pylori products are all examples of how a highly accurate diagnostic test on the front end can mitigate or reduce down-stream costs for antibiotic use, symptom-relieving drugs and hospital stays.- 8 -
We also continue to see aggregation of buying power in our U.S. market via multi-hospital group purchasing organizations and IDNs, consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and acquisition of physician practices by hospitals, health systems and
for-profit
specialty health care companies. We utilize multi-year supply agreements to secure our business where we deem appropriate.Cost containment pressures have also affected health care systems outside the U.S., particularly in Europe, where the health care systems are generally
government-run.
The level of government budget deficits can have an adverse effect on the amount of government health care spend.
Sales, Marketing and Distribution
Our Diagnostics
segment’ssegment relies on direct sales
personnel and
independent distribution
network consists of the following for each of the broad geographic regions we serve:United States
In the U.S., our sales and distribution network consists ofnetworks. We have a direct sales force complemented by independent distributors. Thein four countries, covering the United States (“U.S.”) and certain major markets in the EMEA region (i.e., in Europe, the Middle East and Africa). We also use of independent distributors allowseither in a complementary manner with our direct sales force (e.g., the U.S.) or solely to supply our products to reach any size health care facility
end-users.
We have two independent distribution customers and
also provides our customers the option to purchase our products directly from Meridian or through an authorized distributor. Two independent distributors accounted for 10% or morea reference laboratory customer that together comprised 33% of
consolidatedDiagnostics segment net revenues in fiscal
2017, 2016 and 2015: Cardinal Healthcare Corporation and Thermo Fisher Scientific. Our revenues from Cardinal were approximately $23,000, $20,000 and $29,000 during fiscal 2017, 2016 and 2015, respectively. Our revenues from Thermo Fisher were approximately $18,000, $20,000 and $25,000 during fiscal 2017, 2016 and 2015, respectively.EMEA
In EMEA, our sales and distribution network consists of direct sales forces in Belgium, France, Holland and Italy, and independent distributors in other European countries, Africa and the Middle East. We have implemented a direct sales presence in Germany and the U.K. for ourillumigene products, and utilize independent distributors for our immunoassay products. We maintain a distribution center near Milan, Italy.
ROW
With the exception of Australia, where we utilize a direct sales force, we utilize independent distributors throughout the rest2021, with each contributing 10% or greater of the world (“ROW”).
- 9 -
Diagnostics segment’s net revenues.
Our major competitors in molecular diagnostics are Cepheid (a Danaher business) and Becton Dickinson, whoboth of which have systems with multiple-assay menus. We also face competition in molecular diagnostics, but to a lesser degree, from companies such as Abbott (former Alere business) and Quidel, who have a limited commercial menu and tend to compete strictly on price. We believe that our molecular platform offers a numberQuidel.
Molecular assay sensitivity that is comparable to higher costing PCR;
Low capital investment with no instrument service cost;
Small footprint that is portable and does not consume much laboratory space; and
Product menu that fits with initiatives to improve clinical and economic outcomes.
Our major competitors in rapid immunoassay diagnostics are primarily Abbott (former Alere business) and Quidel. Over the last twoIn recent years, companies such as BioMerieuxbioMerieux have captured market share in our foodbornegastrointestinal category via its BioFire multi-plex panel tests. However, oversince their introduction to the last several months,market, payors have raised concerns over reimbursement levels relative to clinical utility. utility, particularly for panels with 12 or more targets.
For blood lead testing, we believe we have the only
FDA-cleared,
CLIA-waivedtest available commercially. Other blood lead testing systems in use, marketed by our competitors, include Graphite Furnace Atomic Absorption Spectroscopy, which requires a highly-skilledhighly skilled technician and larger laboratory space to operate, in addition to not being portable or suitable foruse. We believe that with the breadth and depth of ourSee product portfolio, we are well positioned for the clinical laboratory.recall discussion included in “Lead Testing Matters” beginning on page 29 within MD&A.
Our Diagnostics segment’s research and development
organizationpersonnel are organized into threepre-clinical
teams: immunoassay,PCR-based
molecular and blood-chemistry. We have a separate team responsible for
infectious disease products is located at our corporate headquarters in Newtown, Ohio, a suburbexecution of
Cincinnati, and has expertise in biochemistry, immunology, mycology, bacteriology, virology, parasitology, and molecular biology. Our Magellan business has a dedicated research and development team in Billerica, Massachusetts. Research and development expenses for the Diagnostics segment for fiscal 2017, 2016 and 2015 were approximately $13,000, $11,000 and $10,000, respectively.clinical trials across all threepre-clinical
programs. Our research and development activities are focused on new product and new technology development, new applications for our existing technologies, and improvements to existing
products.products, including assay-menu expansion. Research and development efforts may occur
in-house
or with collaborative partners. We believe that new product development is a key source for sustaining revenue growth. The products within ourillumigene Revogene and Alethia molecular platform,platforms,product family and blood lead testing family were developed solelyin-house, or substantially so. See “Operating Expenses” section within MD&A on page 39.
in-house.
Our diagnostics products are manufactured at four principal sites in Billerica, Massachusetts (blood-chemistry); Cincinnati, Ohio (immunoassays and molecular tests); Modi’in, Israel, (urea breath tests for); and Quebec City, Quebec, Canada (molecular tests). Our immunoassay and molecular assay products require the production of highly specialized reagents, primers and
enzymes.enzymes, and our BreathID and BreathTek products require the production of urea in pharmaceutical-grade form. We produce
substantially allthe vast majority of our own immunoassay requirements.
PrimersReagents, primers and enzymes for our
illumigene Revogene molecular assay products,
primers for our Alethia molecular assay products, and urea for our BreathID and BreathTek systems are purchased from outside vendors. Our blood lead testing products require the production of electrical chemical sensors, which we manufacture using critical raw materials purchased from outside vendors.
We believe that we have sufficient manufacturing and sourcing capacity for anticipated growth over the next several years.- 10 -
Intellectual Property, Patents and Licenses
We own or license U.S. and foreign patents, most of which are for
selectedselect products manufactured by our Diagnostics segment. These patents are used in our manufacturing processes for
selectedselect products
(method(e.g., method patents) or may relate to the design of the test device technology format
(design(e.g., design patents). In the absence of patent protection, we may be vulnerable to competitors who successfully replicate our production and manufacturing technologies and processes. Our employees are required to sign confidentiality and
non-disclosure
agreements designed to protect our proprietary products.The patents
forapplicable to our
illumigene Alethia products, which represented
17%4%,
20%7% and
21%12% of consolidated
net revenues for fiscal
2017, 20162021, 2020 and
2015,2019, respectively,
arehave been and continue to be licensed from a third party, Eiken Chemical Co., Ltd., under a
non-exclusive
license agreement, with the last remaining U.S. patent expiring in 2022.The patents for the Revogene platform and
expire between 2020related products acquired as part of the GenePOC business are either wholly owned or licensed from two third parties, Laval University and
2022.The Regents of California, under an exclusive license agreement. These patents
wereare issued in the U.S., European
CommunityUnion (“EU”) and other countries. The term of our
exclusive license agreement
and the related patents currently runs
until the last patent expires in 2022, atthrough June 15, 2034, after which
point we will be free to practice the patents without any restriction or royalty obligation.
In September 2021, the U.S. Patent and Trademark Office granted to Meridian Bioscience Canada Inc. (a wholly owned subsidiary) and Laval University a patent for our current Revogene test device and its microfluidic use in our Revogene instrument.
The patents for the BreathID system and related urea breath test forare either wholly owned or licensed from a third party, Oridion Medical 1987 Ltd., under an exclusive, royalty free, license agreement. The licensed and wholly owned patents are issued in the U.S., EU, Israel, Japan, Australia and China. The wholly owned patents have varying expiration dates, with the last being in 2033.
The patents for our
stool antigenproducts, owned by us and which represented 14%approximately 7%, 15%9% and 14%17% of consolidated net revenues for fiscal 2017, 20162021, 2020 and 2015,2019, respectively, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expectAs a result, competition with respect to our stool antigenproducts to increase in the near future, as we currently market the onlyFDA-cleared tests to detectH. pylori antigen in stool samples in the U.S. market. Such competition may have an adverse impact onhas increased, adversely impacting our selling prices for these products, and/or our ability to retain business at prices acceptable to us,us. To mitigate certain of the pricing and consequently, adversely affectvolume pressures we face within the gastrointestinal product category, we have: (i) operated under a strategic collaboration agreement with DiaSorin to selltests; (ii) adjusted selling prices to secure volume; and (iii) upon FDA clearance in March 2020, launched Curian HpSA, our future results of operationsfirst assay on the Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the BreathID and liquidity, including revenues and gross profit. In orderBreathTek products to defend against competition, our product development pipeline includes multiple new product initiatives for the detection ofH. pylori, including drug resistance.mitigate competitive pressures, as these products provide an alternativenon-invasive
option to stool antigen testing. We are unable to provide assurances that we will be successful with any competition defense strategy or that any competition defense strategy will prevent an adverse effect on our future results of operations and liquidity, including net revenues and gross profit.
Our diagnostic products are regulated by the FDA as “devices” pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). Class I and II devices are not expressly approved by the FDA, but, instead, are “cleared” for marketing. Class III devices generally must receive
“pre-market
approval” (“PMA”) from the FDA as to safety and effectiveness. Our diagnostics manufacturing facilities in Cincinnati and Billerica are subject to periodic inspection by the FDA. See page 3029 within MD&A for discussion regarding the FDA’s inspection of our Billerica facility.- 11 -
Each of the diagnostic products currently marketed by
usMeridian in the
United StatesU.S. has
been cleared, approved or authorized for use by the FDA or are exempt from such requirements. The majority of such products have been cleared by the FDA pursuant to
theits 510(k) clearance process,
with our BreathTek product having been approved under the FDA’s PMA process. In the case of our Revogenetest, it has not been FDA cleared or
is exempt from such requirements.approved but rather has been authorized by the FDA for emergency use under its Emergency Use Authorization (“EUA”) process. We believe that most
but not all, products under development will be classified as Class I or II medical devices and, in the case of most of our Class I and all Class II devices, will be eligible for 510(k) clearance; however, we can make no assurances in this regard.
Our urea breath test for
on the BreathID system was cleared as a Class I medical device since the urea drug component was approved by the FDA separately via the New Drug Application process. Our urea breath test foron the BreathTek system was approved by the FDA via the PMA process in 2012. Ourtest on the Revogene platform was submitted to the FDA under its EUA program on June 25, 2021, with EUA being granted on November 9, 2021.Sales of our diagnostic products in foreign countries are subject to foreign government regulation, which is similar to that of the FDA.
Our Cincinnati manufacturing facility isDiagnostics segment facilities are certified to ISO 13485:2012, and our Magellan facility in Billerica, Massachusetts is certified to ISO 13485:2003.
Medical Device Tax
As more fully discussed in the accompanying MD&A, the Company was subject to the medical device tax established as part of the U.S. health care reform legislation through December 31, 2015. Upon expiration of the tax’stwo-year moratorium, which is currently scheduled for December 31, 2017, the Company would become subject to the tax once again. We are unable to predict any future legislative changes or developments related to this moratorium or excise tax.
Seasonal Factors and Sporadic Outbreaks
Our principal business is the sale of13485.
Following a
broad range of clinical diagnostic test kits for common gastrointestinal, viral, upper respiratory and parasitic infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as the H1N1 influenza outbreak during fiscal 2009. While we believe that the breadthfive-year transition period, sales of our diagnostic
product lines reducesproducts in the EU will be subject to new regulations under the In Vitro Diagnostics Regulation of 2017 (“IVDR”) beginning in May 2022. IVDR replaces the previous IVD Regulation (98/79/EC). In October 2021, the European Commission submitted a proposal to the European Parliament that would move back the May 2022 implementation date for diagnostic tests that are currently CE Marked to dates ranging from May 2025 to May 2028, depending on the risk
classification of the diagnostic test. We have completed an assessment of needed remediation activities to comply with IVDR and also determined that
infections subject to seasonality and sporadic outbreaks will cause significant variability in diagnostic revenues, we can make no assurance that revenuesseveral products will not be
impacted period over period by such factors.sellable under IVDR. The net revenues associated with these products are not expected to be material. New diagnostic products launched after May 2022 are required to comply with IVDR.
Life Science Segment
Overview of
Our Life Science segment
focuses on the development, manufacture, saledevelops, manufactures, sells and
distribution ofdistributes bulk antigens, antibodies,
PCR/qPCRimmunoassay blocking reagents,
specialized PCR master mixes, isothermal reagents, enzymes, nucleotides,
competent cells and bioresearch reagents used
predominantly by
researchers,agri-bioin vitro device (“IVD”) manufacturing companies, and
other diagnostic manufacturing companies. Third-party revenues for this segment were approximately $57,000, $51,000to a lesser degree, by researchers and
$49,000 for fiscal 2017, 2016non-human
clinical customers such as veterinary, food and
2015, respectively. As of September 30, 2017, our Life Science segment had approximately 220 employees in seven countries.- 12 -
Most ofenvironmental. The
COVID-19
pandemic has provided the
revenuesopportunity for our Life Science segment
currently come fromto showcase the
manufacture, salebreadth of its reagent products across not onlytesting platforms (molecular, rapid antigen and
distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cellsserology), but also RNA and
bioresearch reagents used by researchers and other diagnostic manufacturing companies focused on the development of immunoassay andDNA based molecular
assay tests. Approximately 72%tests for nearly any infectious disease. For fiscal 2021, approximately 87% of Life Science
segment net revenues
arewere generated from the industrial market, defined as
diagnosticIVD manufacturers, and
the agriculture industry. This continues to be an increasing focusreagents for use intests contributed approximately $111,900 of
our Bioline molecular components business, which historically focused on the academic/research market that comprises the remaining 28% of Life Science revenues.net revenues, following $71,500 in fiscal 2020. We
utilizeengage direct sales teams in
key countries such as the U.S., the
United Kingdom (“U.K.
”),
France, Germany,
France, AustraliaChina and
Singapore. We have added distribution capabilities to our Singapore sales and business development office to increase our presence and our revenue opportunities in Asia for both molecular and immunoassay components. Additionally, in order to further pursue revenue opportunities in Asia, and China in particular, during fiscal 2017 we established a wholly foreign owned enterprise (“WFOE”) location in Beijing, China, after having operated a representative office there since fiscal 2015. The WFOE employs a business development staff and imports product for sales to customers in China. We utilize a network of distributors in other major countries.Australia. During fiscal
2017, 17%2021, 22% of
third-partynet revenues for this segment were from
two diagnosticthree IVD manufacturing customers.
Products such as antibodies, antigens and reagents
Our Life Science segment products are marketed
primarily to
diagnosticIVD manufacturing customers as a source of raw materials for their
immunoassay products,human clinical diagnostics tests, or as an outsourced step in their manufacturing processes.
For example,Selectively, we
supply a number of major diagnostic manufacturers with proteins used to detect hepatitis A virusseek and
rubella virus. These products are typically sold in bulk quantities, and may also be custom-designed for a particular manufacturer’s requirements. Sales efforts are focused onmaintain multi-year supply arrangements
in order to provide stability in volumes and pricing.
We believe this benefits both us andIndependent distributors market our
customers.Molecularmolecular biology products such as PCR/qPCR reagents, nucleotides and competent cells are marketed to academic/research and industrial customers. These products are used in measuringdetecting DNA and RNA in clinicalhuman, animal, plant and agriculturalenvironmental applications. These reagents improve the purity, yield and speed of PCR reactions. Products such as MyTaq and SensiFAST are examples of this type of PCR/qPCR reagent.
Major IVD manufacturing customers often have global
markets become increasingly accessiblefootprints, where we are supplying reagents to
us, most notablyspecific manufacturing sites around the world. IVD manufacturers in specific countries of the Asia-Pacific region
geographic expansion continues(e.g., China) are increasing their efforts in the development and manufacturing of infectious disease tests. We intend to
be a significant strategy foruse the breadth of our
Life Science segment, along with furtherproduct portfolio, particularly molecular reagents, to continue to increase the penetration
into industrial markets withof our
molecular component products.products in IVD manufacturing customers’ tests, regardless of customer class (large multi-national companies or regional companies).
The market for bulk biomedical reagents is highly
competitive. Important competitive
factors includewith respect to product quality, price, customer service and reputation.
We faceOur competitors,
many of whichsuch as Thermo Fisher, often have greater financial, research and development, sales and marketing, and manufacturing
resources, and where sole-source supply arrangements do not exist.resources. Customers also may choose to manufacture their biomedical reagents
in-house
rather than purchase from outside vendors such as Meridian.- 13 -
The academic/research market is highly fragmented. Individual purchases are typically of small quantities. The breadth of product offerings, quality, price and service, includingon-line capabilities and technical resources, are important factors to building customer loyalty and repeat purchases.
us.
Research and Development
Research
Our research and development
expensesactivities for
ourthe Life Science segment
focus on molecular reagents for
eachuse in PCR and isothermal chemistries in detecting both DNA and RNA. Our new product development programs are progressing through sample-specific (e.g., blood, saliva, urine, stool, and plant) mixes in bothair-dryable
and lyophilization-ready forms, and isothermal reagents in bothair-dryable
and lyophilization-ready forms. We also have enzyme development programs that meet the EU Registration, Evaluation, Authorization, and Restriction of
fiscal 2017, 2016 and 2015 were approximately $3,000. The primary focus of this research and development organization is development of new molecular reagent products.Chemicals regulation. See “Operating Expenses” section
within MD&A on page
39.33 within MD&A.
Manufacturing and Government Regulation
Our Life Science
U.S.segment facilities are ISO
9001:200813485 certified, and
our Bioline facilities in the U.K. and Germany are ISO 13485:2012 certified. Additionally, where appropriate, our Life Science
segment facilities comply with Regulation EC
1069:2009.Acquisitions
Acquisitions have played an important role in the growth of our businesses. Our acquisition objectives include, among other things: (i) enhancing product offerings; (ii) improving product distribution capabilities; (iii) providing access to new markets; and/or (iv) providing access to key biologicals or new technologies that lead to new products. Although we cannot provide assurance that we will consummate additional acquisitions in the future, nor can we provide assurance that any acquisitions will accomplish these objectives, we expect that the potential for acquisitions will continue to provide opportunities for revenue and earnings growth in the future.
As previously noted in the Overview section, during March 2016, we acquired all of the outstanding common stock of Magellan. Details of the Magellan acquisition are set forth in Note 2 of the accompanying Consolidated Financial Statements.
1069.
International markets are an important source of
net revenues and future growth opportunities for both of our
reportable segments. For both
reportable segments combined,
net revenues from customers located outside of the
AmericasU.S. and its territories approximated
$59,000$173,000 or
29%55% of consolidated
fiscal 20172021 net revenues,
$52,000$122,000 or
26%48% of consolidated
fiscal 20162020 net revenues, and
$49,000$74,000 or
25%37% of consolidated
2019 net revenues. Since the outbreak of theCOVID-19
pandemic in fiscal
2015 revenues. We2020 and throughout fiscal 2021, a significantly higher percentage of our Life Science segment’s net revenues have been generated from international markets, and we expect to continue to look to
internationalkey European and Asian markets as a source of revenue
growthgrowth. For the Life Science segment, we also continue to focus resources on IVD manufacturing customers in China, India, Japan and Korea. To date, we have not experienced any adverse effects from the trade tensions between the U.S. and China, but we cannot be sure that we will not experience any adverse effects in the future.
- 14 -
Fluctuations in foreign currency exchange rates
sincein fiscal
20162021 compared to fiscal 2020 had an approximate
$1,200 unfavorable$9,200 favorable impact on
fiscal 2017consolidated 2021 net revenues;
$400$1,300 within the Diagnostics segment and
$800$7,900 within the Life Science segment. This compares to
currency exchange rates having an approximate $1,700$1,250 unfavorable impact on consolidated net revenues in fiscal 2016; $7002020; $150 within the Diagnostics segment and $1,000$1,100 within the Life Science segment. Due to natural hedge relationships with expenses, both costIn fiscal 2019, the unfavorable effect on net revenues totaled $2,200; $1,150 within the Diagnostics segment and $1,050 within the Life Science segment.
We are in compliance with applicable portions of the federal and state hazardous waste regulations and have never been a party to any environmental proceeding.
As of September 30, 2021, our Diagnostics segment had approximately 560 employees in ten countries, our Life Science segment had approximately 200 employees in seven countries, and Corporate had five employees, all in the U.S. Approximately 55% of our employees are women. In addition, of our U.S. based employees, which represents approximately 60% of our total worldwide workforce, approximately 25% are ethnically diverse.
Below is additional demographic information about our current employee base as of September 30, 2021.
| | | | |
| | | |
| | | 543 | |
| | | 159 | |
| | | 27 | |
| | | 43 | |
Average length of service in years | | | 7 | |
Employee turnover rate (voluntary) | | | 19 | % |
Fiscal 2021 net revenues per employee (in thousands) | | $ | 415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equal Employment Opportunity Table (by number of employees) U.S. Employee Diversity as of September 30, 2021 | |
| | | | | | | | | | | | | | | | American
Indian/Alaskan
Native | | | | | | | |
Executive/senior level officials and managers | | Male | | | 12 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12 | |
| | Female | | | 3 | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 4 | |
First/mid-level officials and managers | | Male | | | 41 | | | | 4 | | | | 2 | | | | 3 | | | | — | | | | — | | | | 50 | |
| | Female | | | 36 | | | | 4 | | | | — | | | | 4 | | | | — | | | | 1 | | | | 45 | |
| | Male | | | 60 | | | | 4 | | | | 4 | | | | 5 | | | | — | | | | 1 | | | | 74 | |
| | Female | | | 71 | | | | 9 | | | | 5 | | | | 9 | | | | — | | | | 2 | | | | 96 | |
| | Male | | | 59 | | | | 11 | | | | 8 | | | | 5 | | | | — | | | | 1 | | | | 84 | |
| | Female | | | 83 | | | | 18 | | | | 7 | | | | 8 | | | | — | | | | 2 | | | | 118 | |
| | Male | | | 172 | | | | 19 | | | | 14 | | | | 13 | | | | — | | | | 2 | | | | 220 | |
| | Female | | | 193 | | | | 31 | | | | 13 | | | | 21 | | | | — | | | | 5 | | | | 263 | |
We believe that developing a diverse, equitable and inclusive culture is critical to continuing to attract and retain the top talent necessary to deliver on our growth strategy. As such, we continue to invest in the creation of a work environment where our employees can feel inspired to deliver their workplace best every day. We continue to expand our Human Resources Information System (“HRIS”) and other systems to track key human capital metrics, including workforce demographics, diversity, turnover, engagement, and training data.
Diversity, Equity and Inclusion
In 2020, we initiated the “One Meridian Inclusion Diversity and Equity Team,” which is comprised of a group of employees around the world and led by Dr. Lourdes Weltzien, Executive Vice President, Life Science. This team has developed a mission statement and promotes awareness so we can encourage and support an environment in which all employees feel included and empowered to achieve their best.
Compensation and Benefits
We strive to provide pay, benefits, and services that are competitive to market and create incentives to attract and retain employees globally. Our compensation packages include market-competitive pay, cash bonuses, health care and retirement benefits, paid time off, and family leave, among others, depending upon locale. We are focused on pay equity globally and are striving to close the gap in pay among similar roles and responsibilities in certain locations within our organization, after accounting for legitimate business factors that can explain differences, such as performance, time at grade level, and tenure. We intend to conduct market surveys every two years to assess market compensation levels from a total compensation perspective. We also continue to advance transparency in our pay and representation data by complying with all applicable statutory filing requirements.
Communication and Engagement
We strongly believe that Meridian’s success depends on employees understanding how their work contributes to the Company’s overall strategy. To this end, we utilize a variety of channels to facilitate open and direct communication, including: (i) One Meridian Company-wide intranet; (ii) quarterly CEO update videos; (iii) open forums or town hall meetings with executives; (iv) regular ongoing update communications; and (v) employee engagement surveys.
Health, Wellness and Safety
We are committed to the safety of our employees and communities, from operations to product development to supplier partnerships. Our ultimate goal is to achieve zero serious injuries through continued investment in, and focus on, our core safety programs and injury-reduction initiatives. We provide access to a variety of innovative, flexible, and convenient health and wellness tools.
In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition, cash flows or future results. Any one of these factors could cause our actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition and/or operating results.
Risks Affecting GrowthRelated to Our Strategy
Our financial condition, results of operations and
Profitabilitycash flows could be adversely affected by the ongoing and evolvingCOVID-19
pandemic. Net revenues for our Diagnostics segment may be impacted by our reliance upon large customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Net revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.
Intense competition could adversely affect our profitability and operating results.
We expect to continue to face increased competition resulting from the expiration of our
Businesspatents.
Risks Related to our Intellectual Property
We may be unable to protect or obtain adequate patent protection for intellectual property that we utilize or intend to utilize.
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Risks Related to our Operations
We may be unable to develop new products
and services or acquire products
and services on favorable terms.
The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results
Table of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and services that incorporate technological advances, meet customer requirements and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations.In addition, we must regularly allocate considerable resources to research and development of new products, services and technologies. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a product in which we have invested substantial resources.
- 15 -
Contents
We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
One
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities could adversely affect our business and operating results.
We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity and supply chains.
Increased prices for, poor quality of, or extended inability to source raw materials or services used in our products, and supply chain disruptions, could adversely affect profitability.
Risks Related to Legal, Regulatory and International Matters
We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.
If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our growth strategies is the acquisition of companies and/products or products. Although additional acquisitions of companiesany component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may enhancebe negatively impacted.
We incur costs and demands upon management as a result of complying with the opportunitylaws and regulations affecting public companies in the U.S., and failure to increasecomply with these laws could harm our business and the price of our common stock.
We could be adversely affected by health care reform legislation.
Efforts to reduce the U.S. federal deficit could adversely affect our results of operations.
Global market, political, environmental, and economic conditions, including those related to the financial markets, could have a material adverse effect on our operating results, financial condition, and liquidity.
We depend on international net earnings over time, such acquisitionsrevenues, and our operating results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.
New tariffs and other trade measures could adversely affect our operating results.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products.
Risks Related to Our Common Stock
The market price of our common stock may be volatile and fluctuate significantly, which could result in greater administrative burdens, increased exposuresubstantial losses for stockholders and subject us to litigation.
Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
The authority of our board to issue preferred stock and the uncertainties inherent in marketing new products,effects of certain provisions of Ohio corporation law may discourage takeover bids.
One or more cybersecurity incidents may adversely impact our financial riskscondition, results of additional operating costs,operations and riskreputation.
Our business could be negatively affected if we are unable to attract, hire and retain key personnel.
Our bank credit agreement imposes restrictions with respect to our operations, which could adversely impact our business.
Risks Related to Our Strategy
Our financial condition, results of
asset impairments if future revenuesoperations and cash flows
could be adversely affected by the ongoing and evolvingCOVID-19
pandemic. Any outbreak of contagious diseases, such asCOVID-19,
or other adverse public health developments, could have material and adverse effects on our business operations. Such adverse effects could include diversion or prioritization of health care resources away from the conduct of diagnostic testing, disruptions of or restrictions on the ability of laboratories to process our tests, and delays with respect to or difficulties in patients accessing our tests, including those resulting from an inability to travel as a result of quarantines or other restrictions resulting fromCOVID-19.
AsCOVID-19
continues to affect individuals and businesses around the globe, we may experience disruptions that could severely impact our business, including:
decreased volume of testing and related sales of certain of our Diagnostics segment products as a result of disruptions to health care providers and limitations on the ability of providers to administer tests;
disruptions or restrictions on the ability of the Company’s, our collaborators’, or our suppliers’ personnel to travel, and temporary closures of our facilities, or the facilities of our collaborators or suppliers;
limitations on employee resources that would otherwise be focused on the development of our products, the processing of our diagnostic tests, and/or the conduct of our clinical trials, because of illness of employees or their families, or requirements imposed on employees to avoid contact with large groups of people; and
delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.
In addition, the continued spread ofCOVID-19
globally could adversely affect our manufacturing and supply chains. Parts of our direct and indirect supply chains are
deficient.located overseas, including in China, and may accordingly be subject to disruption. Additionally, our results of operations could be adversely affected to the extent thatCOVID-19
or any other epidemic harms our business or the economy in general either domestically or in any other region in which we do business. The
principal benefitsextent to whichCOVID-19
affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity ofCOVID-19,
and the actions to containCOVID-19
or treat its impact, among others, which could have an adverse effect on our business, results of operations and financial condition. Over the course of theCOVID-19
pandemic, we have generally seen a slowing of our assay instrument placements and sales of related test kits, as diagnostic testing sites turned their attention to critical care testing. We are unable to predict when expected
sales volume levels for our instruments and related test kits will return. Also, as a result of theCOVID-19
pandemic, certain clinical trials related to
result from any acquisitions we makeour products which were underway or scheduled to begin have been temporarily placed on hold. Such delays will
not be achieved fully unlessimpact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, theCOVID-19
pandemic could slow down our efforts to expand our product portfolio through acquisition opportunities, impacting the speed with which we are able to
successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be ablebring additional products to
identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s earnings and financial results.Revenuesmarket.
Net revenues for our Diagnostics segment may be impacted by our reliance upon
two key distributorslarge customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Our Diagnostics segment’s
net revenues from sales through
three customers, including two
U.S.key distributors, were
29%approximately 33%, 32% and
27%, respectively,31% of the Diagnostics segment’s total
net revenues
for 2021, 2020 and 2019, respectively, or
21%approximately 13%, 15% and
20%21%, respectively, of
oureach year’s consolidated
revenues, for fiscal 2017 and fiscal 2016. These parties distribute our products and other laboratory products toend-user customers.net revenues. The loss of
eitherany one of these
distributorscustomers could negatively impact our
net revenues and results of operations unless suitable alternatives were timely found or
in the case of distributor customers, lost sales to one distributor were absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future selling, general and administrative expenses.
In addition, buying patterns of these
two distributorscustomers may fluctuate from quarter to quarter, potentially leading to uneven concentration levels on a quarterly basis.
Seasonal Factors and Sporadic Outbreaks
Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal
viral, upperand respiratory
and parasitic infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as
H1N1 influenza.an influenza outbreak or theCOVID-19
pandemic. While we believe that the breadth of our
diagnosticDiagnostics segment product lines
normally reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in
diagnosticDiagnostics segment net revenues,
theCOVID-19
pandemic has had a significant adverse impact on our Diagnostics segment net revenues since it began in fiscal 2020. Accordingly, we can make no assurance that
net revenues will not be negatively impacted period over period by such factors.
Changing Diagnostic Market Conditions
Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of group purchasing organizations (“GPOs”) and
integrated delivery networks (“IDNs”)IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs
andand/or IDNs, which could adversely affect our results of operations.
We could be adversely affected by health care reform legislation.
Third-party payers for medical products and services, including state, federal and foreign governments, are increasingly concerned about escalating health care costs and can indirectly affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement they will provide for diagnostic testing services. Following years of increasing pressure, during 2010 the U.S. government enacted comprehensive health care reform with the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, which makes changes that are expected to significantly impact the pharmaceutical and medical device industries. The Protecting Access to Medicare Act of 2014 will require applicable laboratories to report all private payor reimbursement rates and the volumes for each test they perform. Although a final rule has yet to be published, the statute requires that Medicare establish reimbursement rates based on the weighted median of private insurance reimbursement rates effective January 1, 2017. The new Medicare rates would be subject to a maximum reduction of 10% a year for the initial three year period and a maximum of 15% a year for the subsequent three year period. There is no limit on the amount of potential rate increases. As a result, some of our customers in the United States may experience lower Medicare reimbursement rates for our products, which may adversely affect our business, financial condition and results of operations. Although to date, we have not seen any significant effect on the reimbursement rates for our products, if reimbursement amounts for diagnostic testing services are decreased in the future, such decreases may reduce the amount that will be reimbursed to hospitals or physicians for such services and consequently, could place constraints on the levels of overall pricing, which could have a material effect on our
Net revenues
and/or results of operations.In addition, as more fully discussed in the accompanying MD&A, the Company was subject to a 2.3% medical device tax established as part of the U.S. health care reform legislation through December 31, 2015. Upon expiration of the tax’stwo-year moratorium, which is currently scheduled for December 31, 2017, the Company would become subject to the tax once again. We are unable to predict any future legislative changes or developments related to this moratorium or excise tax.
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Additional state and federal health care reform measures may be adopted in the future, any of which could have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the United States government has in the past considered, is currently considering and may in the future consider, health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public reimbursement for health care services. Further, state and local governments, as well as a number of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the United States or elsewhere, and current uncertainty about whether and how changes may be implemented, could have a negative impact on the demand for our products. We are unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what effect such policies would have on our business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers.
Efforts to reduce the U.S. federal deficit could adversely affect our results of operations.
As part of the Budget Control Act passed in August 2011 to extend the federal debt limit and reduce government spending, $1.2 trillion in automatic spending cuts (known as sequestration) were implemented in 2013. The sequestration requires a 2% cut in Medicare payments for all services, including our diagnostic tests, which, due to subsequent legislative amendments to the statute, will remain in effect through 2024 unless Congressional action is otherwise taken. Government research funding has also been reduced as a result of the sequestration. On January 2, 2013, the American Taxpayer Relief Act of 2012 also was signed into law, which, among other things, further reduces Medicare payments to providers such as hospitals, imaging centers and cancer treatment centers, and increases the statute of limitations period for the government to recover overpayments to providers from three to five years.
Such reductions in government health care spending or research funding could result in reduced demand for our products or additional pricing pressure. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S. government default on its debt could have broad macroeconomic effects that could, among other things, raise our borrowing costs. Any future shutdown of the federal government or failure to enact annual appropriations could also have a material adverse impact on our business.
Revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.
Our Life Science segment’s
net revenues from
sales of purified antigens and reagents to twothree diagnostic manufacturing customers were
17%22%, 30% and
18%27% of the Life Science segment’s total
net revenues for
fiscal 20172021, 2020 and
fiscal 2016, respectively;2019, respectively. Sales to these three diagnostic manufacturing customers comprised 13%, 16% and
5%9% of
our consolidated
net revenues for
each2021, 2020 and 2019, respectively. In addition, in excess of
fiscal 2017 and fiscal 2016. Our10% of the Life Science
segmentsegment’s total net revenues has
fivehistorically been concentrated among a number of other significant
customers who purchase antigens, antibodies and reagents, which together comprised 10% and 7% of the segment’s total revenues for fiscal 2017 and fiscal 2016, respectively.customers. Any significant alteration of buying patterns from these customers
resulting from the decline inCOVID-19
related demand, or otherwise, could adversely affect our period over period
net revenues and results of operations.
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Intense competition could adversely affect our
profitability.profitability and operating results.
The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small
start-up
companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors.
We expect
to continue to face increased competition resulting from
the expiration of our H. pylori patents.
The patents for our
stool antigenproducts, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expectAs a result, competition with respect to our stool antigenproducts, to increase in the near future, as we currently market the onlyFDA-cleared tests to detectH. pylori antigen in stool samples in the U.S. market. At present, we are awarehigh margin products which represent approximately 7% of two companies that have commenced clinical trials ofH. pylori products in the U.S., one of which is DiaSorin Inc. (see Item 3. “Legal Proceedings”). Such competition may have an adverse impact onour total net revenues has increased, adversely impacting our selling prices for these products, and/or our ability to retain business at prices acceptable to us,us. To mitigate certain of the pricing and consequently, adversely affectvolume pressures we face within the gastrointestinal product category, we have: (i) operated under a strategic collaboration agreement with DiaSorin to selltests; (ii) adjusted selling prices to secure volume; and (iii) upon FDA clearance in March 2020, launched Curian HpSA, our future results of operationsfirst assay on the Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the BreathID and liquidity, including revenues and gross profit. In orderBreathTek products to mitigate any loss in revenues, among other things, we are researching and experimenting with new products and attemptingcompetitive pressures, as these systems provide an alternativenon-invasive
option to secure significant customers under long-term contracts.stool antigen testing. We are unable to provide assurances that we will be successful with any mitigation strategy or that any mitigation strategy will prevent an adverse effect on our future results of operations and liquidity, including net revenues and gross profit.See Item 3. “Legal Proceedings” for a discussion of the status of certain litigation related to our intellectual property.
We depend on international revenues, and our financial results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.
We sell products and services into approximately 70 countries. Approximately 29% and 26% of our net revenues for fiscal 2017 and 2016, respectively, were attributable to markets outside of the Americas. For fiscal 2017, approximately 15% of our consolidated revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates for the Australian dollar, British pound, Chinese yuan, Euro and Singapore dollar to the U.S. dollar. We are also subject to other risks associated with international operations, including longer customer payment cycles, tariff regulations, requirements for export licenses, instability of foreign governments, and governmental requirements with respect to the importation and distribution of medical devices and immunodiagnostic and molecular biology reagents, all of which may vary by country.
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Risks Affecting our Manufacturing Operations
We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.
Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or approvals, or timely clearances or approvals, to market future products in the United States and other countries. Costs and difficulties in complying with laws and regulations administered by the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing products.
Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and costs of approvals difficult to predict. The failure to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to manufacture or sell products, and other civil or criminal sanctions.
If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
Our diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”) which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of the products we sell. The FDA may evaluate our compliance with the QSR, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the facility’s written response and mayre-inspect to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action.
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FDA enforcement actions, which include seizure, injunction and criminal prosecution, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, sales and profitability.
We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product or any of its components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our business, financial condition and results of operations.
On June 29, 2017, the FDA, in connection with its recent Safety Notification related to Magellan’s lead testing systems for venous blood samples, issued its Form FDA 483 to Magellan. This was followed by the FDA issuing a Warning Letter related to the matter on October 23, 2017. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA. See a more detailed discussion of this matter within MD&A on page 30.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results.
Products and services manufactured at facilities we own or lease comprised a majority of our revenues. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters, such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities could materially and adversely affect our operating results.
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We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Raw Materials and Components
Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which make it time consuming and costly to switch raw materials and components inFDA-cleared products. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained.
We utilize third-party manufacturers for our instrumentation. One third party manufactures our proprietaryillumipro-10 Incubator/Reader (instrument), a component of ourillumigene molecular system, and a separate third party manufactures our proprietary LeadCare instruments. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source solely from one manufacturer to limit the costs involved in clearing the system for marketing in the United States. If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instruments could have a material adverse effect on our operating results.
Additionally, one third party manufactures a certain reagent for use with ourillumigene assays. While alternative suppliers exist, we elect to utilize this third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our operating results.
Finished Products
We outsource the manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturingin-house.
Four products manufactured exclusively for us by two separate and independent companies accounted for 11%, 12% and 15% of consolidated revenues in fiscal 2017, 2016 and 2015, respectively. Meridian owns all rights and title to the FDA 510(k) clearances for these products.
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Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining adequate inventory levels, supplier qualification procedures, supplier audits, site visits and frequent communication. Additionally, we have identified potential alternate suppliers.
Risks Related to
Our Intellectual Property
and Product Liability
We may be unable to protect or obtain
proprietary rightsadequate patent protection for intellectual property that we utilize or intend to utilize.
In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses, or proprietary or patented technologies, in the future.
See Item 3. “Legal Proceedings” for a discussion
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Litigation over intellectual property rights is prevalent in the life science and diagnostic industry.industries. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our future results of operations and liquidity, including net revenues and gross profit.
Risks Related to Our Operations
We may be unable to develop new products or acquire products on favorable terms.
The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and services that incorporate technological advances, meet customer requirements, and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations.
In addition, we must regularly allocate considerable resources to research and development of new or acquired products, services and technologies, and protecting intellectual property. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a project in which we have invested substantial resources, any of which could adversely affect our results of operations.
We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional operating costs, disrupted operations, challenges in employee retention, and increased risk of asset impairments if future net revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s net earnings and results of operations.
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
We are subject to income taxes in the U.S. and various other global jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings by jurisdiction and the valuation of deferred tax assets and liabilities. Recently, the current U.S. presidential administration committed to tax reform, and if enacted, the impact could be material to our tax provision and value of deferred tax assets and liabilities. We recognize deferred tax assets and liabilities based on the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Significant judgment is required in determining our provision for income taxes. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. If we are unable to generate sufficient future taxable income, if there is a material change in the actual effective tax rates, or if there is a change to the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance against our deferred tax assets, which could result in a material increase in our effective tax rate.
Changes in tax laws or tax rulings could have a material impact on our effective tax rate. Many countries in the EU, as well as several other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws. Certain proposals could include recommendations that could increase our tax obligations in those countries where we do business.
Any changes in the taxation of our activities in such jurisdictions may result in a material increase in our effective tax rate.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results.
Products and services manufactured at facilities we own or lease comprised a majority of our net revenues. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities, including interruptions that have resulted from product recall activities like those currently being experienced in our Billerica facility (see “Lead Testing Matters” beginning on page 29 within MD&A) could materially and adversely affect our results of operations.
We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Raw Materials and Components
Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components inFDA-cleared
products. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained. We utilize third-party manufacturers for certain of our instrumentation. One third party manufactures our proprietary Alethia Incubator/Reader (instrument), a component of our Alethia molecular system, and an additional third party manufactures our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the U.S. If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instruments could have a material adverse effect on our results of operations.
Additionally, one third party manufactures a certain reagent for use with our Alethia assays. While alternative suppliers exist, we elect to utilize this third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our results of operations.
We outsource the manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturingin-house.
Four products manufactured exclusively for us by two separate and independent companies accounted for 6%, 7% and 11% of consolidated net revenues in 2021, 2020 and 2019, respectively. Meridian owns all rights and title to the FDA 510(k) clearances for these products.
Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining adequate inventory levels, supplier qualification procedures, supplier audits, site visits, and frequent communication. Additionally, we have identified potential alternate suppliers.
Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity and supply chains.
To manage our anticipated future growth effectively, it may become necessary for us to enhance our manufacturing and supply chain capabilities, infrastructure and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth andscale-up
of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our net revenues could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on our future consolidated financial condition and results of operations. Increased prices for, poor quality of, or extended inability to source raw materials or services used in our products, and supply chain disruptions, could adversely affect profitability.
Our profitability is affected by the prices of the raw materials used in the manufacture of our products. These prices fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel-related delivery costs, competition, import duties, tariffs, currency exchange rates, and, in some cases, government regulation. Significant increases in the prices of raw materials, similar to the inflationary increases we have experienced in the second half of 2021, that cannot be recovered through increases in the price of our products and/or offset by savings in other areas, could adversely affect our results of operations and cash flows.
We cannot guarantee that the prices we are paying for raw materials today will continue in the future, or that the marketplace will continue to support current prices for our products, or that such prices can be adjusted to fully or partially offset raw material price increases in the future. Any increases in prices resulting from a tightening supply of these or other commodities could adversely affect our profitability. We do not engage in hedging transactions for raw material purchases, but we do enter into some fixed-price supply contracts.
Our dependency upon regular deliveries of supplies and the quality of those supplies upon delivery from particular suppliers means that interruptions, stoppages, or deterioration of quality in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. Several of the raw materials used in the manufacture of our products currently are procured from a single source. In some cases, we also outsource certain services to suppliers, including but not limited to, engineering, assembly, shipping, and commissioning services. If a supplier were unable to deliver these materials or services, or if the quality of these materials or services declined, for an extended period of time as a result of financial difficulties, catastrophic events affecting their facilities, or other factors, including recent supply chain disruptions we have experienced, or if we were unable to negotiate acceptable terms for the supply of materials or services with these suppliers, our business could be adversely affected. We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs. Extended inability to source a necessary raw material or service could cause us to cease manufacturing one or more products for a period of time, which could also lead to loss of customers, as well as reputational, competitive, or business harm, which could have a material adverse effect on our business, consolidated financial condition, and results of operations.
Risks Related to Legal, Regulatory and International Matters
We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.
Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or approvals, or timely clearances or approvals, to market future products in the U.S. and other countries. Costs and difficulties in complying with laws and regulations administered by the FDA, the U.S. Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control and Prevention (“CDC”), or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing products.
Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and cost of approvals difficult to predict. Failure to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to manufacture or sell products, and other civil or criminal sanctions.
If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
Our diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products. The FDA may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the facility’s written response and mayre-inspect
to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. FDA enforcement actions, which include seizure, injunction, criminal prosecution, and civil penalties, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, net revenues and profitability.
We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product, or any of its components, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our business, consolidated financial condition and results of operations.
As described in Item 3. “Legal Proceedings”, 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 outlines 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 agencies and 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, 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 subpoena was issued to a current employee of Magellan. In September and October 2021, DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $2,803, $2,035 and $1,585 of expense for attorneys’ fees related to this matter is included within the Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and 2019, respectively.
Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare II, LeadCare Plus and LeadCare Ultra testing systems. In February 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of the Company’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the FDA or the CDC is necessary to protect the public health. The Company intends to fully cooperate with the FDA or CDC on anyfollow-up
based on the third-party study. During October 2019, the FDA performed afollow-up
inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. Since the inspection, we have submitted a number of written responses to the FDA regarding the five Form FDA 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64(d)(3). During June 2021, the FDA performed an inspection of Magellan’s manufacturing facility. As a result of this inspection, the FDA issued one Form 483 observation. On August 3, 2021, FDA sent Magellan aclose-out
letter for the Warning Letter that FDA issued to Magellan on October 23, 2017. The FDA’sclose-out
letter notified Magellan that FDA has completed an evaluation of Magellan’s corrective actions in response to FDA’s Warning Letter, and based on FDA’s evaluation, Magellan has addressed the issues identified in the Warning Letter. FDA’sclose-out
letter also stated that future FDA inspections of Magellan and regulatory activities will further assess the adequacy and sustainability of Magellan’s corrections. We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the U.S., and failure to comply with these laws could harm our business and the price of our common stock.
As a public company listed in the U.S., we incur significant legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board (“PCAOB”) and the NASDAQ Global Select Market, may increase our legal and financial compliance costs and/or make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.
We could be adversely affected by health care reform legislation.
Third-party payers for medical products and services, including state, federal and foreign governments, are increasingly concerned about escalating health care costs and can indirectly affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement they will provide for diagnostic testing services. Following years of increasing pressure, during 2010 the U.S. government enacted comprehensive health care reform with the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, which made changes that significantly impact the pharmaceutical and medical device industries. The Protecting Access to Medicare Act of 2014 requires applicable laboratories to report all private payor reimbursement rates and the volumes for each test they perform. The statute requires that Medicare establish reimbursement rates based on the weighted median of private insurance reimbursement rates effective January 1, 2017. The new Medicare rates would be subject to a maximum reduction of 10% a year for the initial three-year period and a maximum of 15% a year for the subsequent three-year period. There is no limit on the amount of potential rate increases. As a result, some of our customers in the U.S. may experience lower Medicare reimbursement rates for our products, which may adversely affect our business, financial condition and results of operations. We are seeing some effect on the reimbursement rates for our products. If reimbursement amounts for diagnostic testing services decrease further in the future, such decreases may reduce the amount that will be reimbursed to hospitals or physicians for such services and consequently, could place constraints on the levels of overall pricing, which could have a material effect on our net revenues and results of operations.
Additional state and federal health care reform measures may be adopted in the future, any of which could have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the U.S. government has in the past considered, is currently considering, and may in the future consider, health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public reimbursement for health care services. Further, state and local governments, as well as a number of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the U.S. or elsewhere, and current uncertainty about whether and how changes may be implemented, could have a negative impact on the demand for our products. We are unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what effect such policies would have on our business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers.
Efforts to reduce the U.S. federal deficit could adversely affect our results of operations.
Any reductions in government health care spending or research funding in an effort to reduce the U.S. federal deficit could result in reduced demand for our products or additional pricing pressure. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S. government default on its debt could have broad macroeconomic effects that could, among other things, raise our borrowing costs. Any future shutdown of the federal government or failure to enact annual appropriations could also have a material adverse impact on our consolidated financial condition, and results of operations.
Global market, political, environmental, and economic conditions, including those related to the financial markets, could have a material adverse effect on our operating results, financial condition, and liquidity.
Our business is sensitive to changes in general economic, political and environmental conditions, both inside and outside the U.S. Conditions such as the following, among others, may create additional risk to our results of operations: (i) continuing uncertainties in the eurozone; (ii) the effects of climate change regulation; (iii) the global effects of the ongoingCOVID-19
pandemic, including the Emergency Temporary Standard (“ETS”)COVID-19
workplace vaccination and testing mandate from the Occupational Safety and Health Administration (“OSHA”); (iv) unanticipated implications from the voluntary exit of the U.K. from the EU; and (v) uncertainties in China and emerging markets. Instability in the global economy and financial markets can adversely affect our business in several ways, including limiting our customers’ ability to obtain sufficient credit or pay for our products within the terms of sale. Competition could further intensify among the manufacturers and distributors with whom we compete for volume and market share, resulting in lower net revenue due to steeper discounts and productmix-down. In
particular, if certain key or sole suppliers were to become capacity constrained or insolvent, it could result in a reduction or interruption in supplies or a significant increase in the price of supplies.
The U.K. left the EU on January 31, 2020. While all EU rules and laws continued to apply to the U.K. through the transition period, which ended December 31, 2020, the U.K. and the EU reached a free trade agreement on December 24, 2020, which was ratified on April 28, 2021 and went into effect on May 1, 2021. The agreement includes regulatory and customs cooperation mechanisms, as well as provisions supporting open and fair competition. Under the trade agreement, the U.K. is free to set its own trade policy and can negotiate with other countries that do not currently have free trade deals with the EU. Although the full impact of the trade agreement is uncertain, it is possible that the recent changes to the trading relationship between the U.K. and the EU due to the trade agreement could result in increased cost of goods imported into and exported from the U.K., which may decrease the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the trade agreement will have on our business; however, Brexit and its related effects could potentially have an adverse impact on our consolidated financial condition, and results of operations.
We depend on international net revenues, and our operating results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.
We sell products and services into approximately 70 countries. For fiscal 2021, approximately 40% of our consolidated net revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates for the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and New Israeli shekel. In addition, we have manufacturing operations, suppliers, and employees located outside the U.S. Since our growth strategy depends in part on our ability to further penetrate markets outside the U.S., we expect to continue to increase our revenue and presence outside the U.S., including in emerging markets.
Our international business is subject to risks that are often encountered innon-U.S.
operations, including: interruption in the transportation of materials to us and finished goods to our customers, including conditions where recovery from natural disasters may be delayed due to country-specific infrastructure and resources;
differences in terms of sale, including payment terms;
local product preferences and product requirements;
changes in a country’s or region’s political or economic condition, including with respect to safety and health issues;
trade protection measures and import or export licensing requirements;
unexpected changes in laws or regulatory requirements, including unfavorable changes with respect to tax, trade or sanctions compliance matters;
limitations on ownership and on repatriation of earnings and cash;
difficulty in staffing and managing widespread operations;
differing labor regulations;
difficulties in enforcing contract and property rights under local law;
difficulties in implementing restructuring actions on a timely or comprehensive basis; and
differing protection of intellectual property.
Such risks may be more likely or pronounced in emerging markets, where our operations may be subject to greater uncertainty due to increased volatility associated with the developing nature of their economic, legal, and governmental systems.
If we are unable to successfully manage the risks associated with expanding our global business or to adequately manage operational fluctuations, it could adversely affect our business, financial condition, or results of operations.
New tariffs and other trade measures could adversely affect our operating results.
The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include countries from which we import components or raw materials. We are currently not aware of any new import duties imposed on our products. Any such new import duties or restrictions could have a material adverse effect on our business, results of operations or financial condition. Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods.
Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental actions related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, manufacturers, suppliers and/or the economic environments in which we operate and, thus may adversely impact our businesses. In addition, there may be changes to existing trade agreements, like the North American Free Trade Agreement (“NAFTA”) and its anticipated successor agreement, the U.S.-Mexico-Canada Agreement (“USMCA”), which is still subject to approval by the U.S., Mexico and Canada, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the U.S., particularly tariffs on products manufactured in Mexico, among other possible changes. It remains unclear what the U.S. administration or foreign governments will or will not do with respect to tariffs, NAFTA, USMCA or other international trade agreements and policies. Any changes to NAFTA (or subsequent trade agreements) could impact our operations in countries where we manufacture or sell products, or source components or materials, which could adversely affect our business and results of operations.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products.
The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We currently carry product liability insurance at a level we believe is commercially reasonable, although there is no assurance that it will be adequate to cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related to our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our
business.results of operations.
Risks Related to Our Common Stock
The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation.
The market price of our common stock may be subject to significant fluctuations due to numerous factors, including but not limited to the risks described in this “Risk Factors” section. In addition, the stock market in general, the NASDAQ Global Market and the market for diagnostics companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our consolidated financial condition and results of operations.
Other Risks Affecting Our Business
Our business could be negatively affected if we are unable to attract, hireimpacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
In recent years, proxy contests and
retain key personnel.Our future success depends on our continued ability to attract, hire and retain highly qualified personnel, including our executive officers and scientific, technical, sales and marketing employees, and their ability to manage growth successfully.other forms of stockholder activism have been directed against numerous public companies. If such key employees were to leave and we were unable to obtain adequate replacements, our operating results could be adversely affected.
Our bank credit agreements impose restrictionsa proxy contest or an unsolicited takeover proposal is made with respect to our operations.
Our bank credit agreements contain a number of financial covenants that require us, to meet certain financial ratios and tests. If we fail to comply with the obligations in the credit agreements, we would be in default under the credit agreements. If an event of default is not cured or waived, it could result in acceleration of any indebtedness under our credit agreements, which could have a material adverse effect on our business. At September 30, 2017, we have approximately $55,000 outstanding on a five-year term loan entered into in connection with the Magellan acquisition and no borrowings are outstanding under our $30,000 bank revolving credit facility.
We face risks related to global economic conditions.
We currently generate significant operating cash flows, which combined with access to the credit markets, provides us with discretionary funding capacity for research and development and other strategic activities. However, as an enterprise with global operations and markets, our operations and financial performance are in part dependent upon global economic conditions, and we could be negatively impacted by a global, regional or national economic crisis, including sovereign riskincur significant costs in the event of deterioration in the credit worthiness of or a default by local governments. We are particularly susceptible to the economic conditions in countries where government-sponsored health care systems are the primary payers for health care, including those countries within the European Union that are reducing their public expenditures in an effort to achieve cost savings. The uncertainty in global economic conditions poses a risk to the overall economy that could impact demand fordefending our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. As such, if global economic conditions deteriorate significantly, our business could be negatively impacted, including such areas as reduced demand for our products from a slow-down in the general economy, supplier or customer disruptions resulting from tighter credit markets, and/or temporary interruptions in our ability to conductday-to-day transactions through our financial intermediaries involving the payment to or collection of funds from our customers, vendors and suppliers. Whileto-date such factors have not had a significant negative impact on our results or operations, we continue to monitor and plan for the potential impact of these global economic factors.
- 24 -
Following its June 23, 2016 vote to leave the European Union (commonly referred to as “Brexit”), on March 29, 2017, the United Kingdom invoked Article 50 of the Lisbon Treaty; thus formally commencing the process of exiting the European Union. While the impact of Brexit remains uncertain, the resulting immediate changes in foreign currency exchange rates have had a limited overall impact due to natural hedging. However, any predicted deterioration in the United Kingdom and European economic outlook maycompany, which would have an adverse effect on revenue growth, butour financial results. Shareholder activists may also seek to involve themselves in the extent of such effect cannot yet be quantified. In the longer term, it is possible that we will be directly impacted in a number of key areas including the hiringgovernance, strategic direction and retention of qualified staff, regulatory affairs, manufacturing and logistics. We are closely monitoring the Brexit developments in order to determine, quantify and proactively address changes as they become clear. Despite the Brexit developments, we do not expect macroeconomic conditions to have a significant impact on our liquidity needs, financial condition or results of operations although no assurances can be made in this regard. We intend to continue to fund our working capital requirements and dividends from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through our $30,000 bank revolving credit facility. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the collectibility of our customer accounts receivable or impact credit terms withcompany. Such proposals may disrupt our vendors, or disruptbusiness and divert the supply of raw materials and services.
Breachesattention of our information technology systems could have a material adverse effect on our operations.
We rely on information technology systems to process, transmitmanagement and store electronic information in ourday-to-day operations. The secure processing, maintenanceemployees, and transmission of this information is criticalany perceived uncertainties as to our operations. Like many multinational corporations, our information technology systems may be subjected to computer viruses or other malicious codes, unauthorized access attempts, and cyber- or phishing-attacks. We also store certain information with third parties that could be subject to these types of attacks. Anyfuture direction resulting from such breach could compromise our networks, and the information stored therein could be accessed, publicly disclosed, lost or stolen. Such attacksa situation could result in our intellectual property and other confidential information being lost or stolen, disruption of our operations, and other negative consequences, such as increased costs for security measures or remediation costs, and diversion of management attention. Any such access, disclosure or otherthe loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption ofpotential business opportunities, be exploited by our operations, damagecompetitors, cause concern to our reputation and/current or cause a loss of confidence in our productspotential customers, and services,make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business revenuesbusiness. In addition, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and competitive position. While we will continueprospects of our business.
The authority of our board to
implement additional protective measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent,issue preferred stock and the
techniques used in such attacks change rapidly. There can be no assurances that our protective measures will prevent attacks that could have a significant impact on our business.- 25 -
Natural disasters, war and other events could adversely affect our future revenues and operating income.
Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the United States and other governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the United States and in areas outsideeffects of the United States in which we operate. These events could result in decreased demand for our products, adversely affect our manufacturing and distribution capabilities, or increase the costs for, or cause interruptions in, the supplycertain provisions of materials from our suppliers.
Risks Related to Our Common Stock
We have identified a material weakness in our internal control over financial reporting that, if not properly corrected, could materially adversely affect our operations and result in material misstatements in our financial statements.
As described in “Item 9A. Controls and Procedures,” we have concluded that our internal control over financial reporting was ineffective as of September 30, 2017 because a material weakness existed in our internal control over financial reporting. If we are unable to remediate our material weakness in a timely manner, weOhio corporation law may be unable to provide holders of our securities with required financial information in a timely and reliable manner and we may incorrectly report financial information. Either of these events could have a material adverse effect on our operations, investor, supplier and customer confidence in our reported financial information and/or the trading price of our common stock.
Additional stock issuance authorizations.
discourage takeover bids.
Our board of directors has the authority to issue up to 1,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of such shares without any future vote or action by the shareholders. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company that have not been negotiated with the board of directors. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, sales of substantial amounts of shares in the public market could adversely affect the market price of our common stock and our ability to raise additional capital at a price favorable to us.
One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation.
Our operations involve the use of multiple systems that process, store and transmit sensitive information about our customers, suppliers, employees, financial position, operating results and strategies. We face global cybersecurity risks and threats on a continual and ongoing basis, which include, but are not limited to, attempts to access systems and information, computer viruses, orattacks. These risks and threats range from uncoordinated individual attempts to sophisticated and targeted measures. While we are not aware of any material cyber-attacks or breaches of our systems to date, we have and continue to implement measures to safeguard our systems and information and mitigate potential risks, including employee training around phishing, malware and other cyber risks, but there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems, compromise sensitive information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events, including breaches of our security measures or those of our third-party service providers, could negatively impact our reputation and our competitive position and could result in litigation with third parties, regulatory action, loss of business due to disruption of operations and/or reputational damage, potential liability and increased remediation and protection costs, any of which could have a material adverse effect on our consolidated financial condition and results of operations. In an effort to mitigate the financial impact such an attack might have on the Company, we maintain cyber liability insurance coverage. However, such coverage may be insufficient to cover the full impact of a cyber-attack. Additionally, as cybersecurity risks become more sophisticated, we may need to increase our investments in security measures which could have a material adverse effect on our consolidated financial condition and results of operations. Our business could be negatively affected if we are unable to attract, hire and retain key personnel.
Our future success depends on our continued ability to attract, hire and retain highly qualified personnel, including our executive officers and scientific, technical, sales and marketing employees, and their ability to manage growth successfully. If such key employees were to leave and we were unable to obtain adequate replacements, our results of operations could be adversely affected.
Our bank credit agreement imposes restrictions with respect to our operations, which could adversely impact our business.
Our bank credit agreement contains a number of financial covenants that require us to meet certain financial ratios and tests. If we fail to comply with the obligations in the credit agreement, we would be in default under the credit agreement. If an event of default is not cured or waived, it could result in acceleration of any indebtedness under our credit agreement, which could have a material adverse effect on our business. At September 30, 2021, we had $60,000 outstanding on a $160,000 bank revolving credit facility.
UNRESOLVED STAFF COMMENTS
Our corporate offices
Diagnostics manufacturing facility, and Diagnostics research and development facility are located
in five buildings totaling approximately 120,000 square feet on 10 acres of land in the Village of Newtown, a suburb of Cincinnati, Ohio.
These propertiesOur Newtown campus includes sites for diagnostic test manufacturing and distribution, immunoassay research and development and administrative functions. Our Newtown campus also includes a new facility where we are
owned by us. Magellan’s operations are headquartered in an approximately 32,000 square foot leased facilityexpanding and automating our Revogene diagnostic test device manufacturing. We also have diagnostic test manufacturing and distribution sites in Billerica, Massachusetts
(blood-chemistry), Modi’in, Israel (BreathID and BreathTek urea breath testing systems), and Quebec City, Quebec, Canada (Revogene diagnostic test device and instrument manufacturing). Our sites in
which it conducts manufacturing,Billerica, Modi’in and Quebec City also include research and development
sales, and administrative activities.functions. We also operate a Diagnostics sales and distribution center near Milan, Italy
in an approximately 18,000 square foot building. This facility is owned by our wholly-owned Italian subsidiary, Meridian Bioscience Europe s.r.l. We alsoand rent office space in Paris, France and
Braine-l’Alleud,
Belgium for sales and administrative functions, and space in Manasquan, New Jersey and Changzhou, China to house BreathID technical service and repair functions.Our Life Science operations are conducted in several facilities in Memphis, Tennessee; Boca Raton, Florida;
Taunton, Massachusetts; London, England; Luckenwalde, Germany; Sydney, Australia;
Singapore; and Beijing, China.
Our facilityManufacturing of molecular reagents occurs in
our London and Luckenwalde sites. Manufacturing of immunoassay reagents occurs in our Memphis
Tennessee consists of two buildings totaling approximately 44,000 square feet and
is owned by us. Our leased facility in Boca Raton
Florida contains approximately 7,500 square feet of manufacturing space. Following are details ofsites. Our site in London also includes our
other Life Science facilities, all of which are leased: Taunton – approximately 10,000 square feet of sales and warehouse space; London – approximately 21,000 square feet of sales, warehouse, distribution,primary research and development
manufacturing and administrative office space; Luckenwalde –approximately 10,000 square feet of sales, warehouse and manufacturing space; Sydney – approximately 5,000 square feet of sales, warehouse, research and development, and manufacturing space; Singapore – approximately 2,000 square feet of sales and business development space; Beijing – less than 1,000 square feet of sales and business development space.function.
We are a party to various litigation matters that we believe are in the normal course of business. Aside from the matters discussed below, the ultimate resolution of these matters is not expected to have a material adverse effect on our
consolidated financial position, results of operations or cash flows, and no material provision has been made in the
accompanying Consolidated Financial Statements for these matters.
On
MayApril 17,
2017, Meridian filed2018, the Company’s wholly owned subsidiary Magellan received a
complaintsubpoena from the DOJ regarding its LeadCare product line. The subpoena outlines 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 agencies and requirements and is working with the
United States District Court for the Southern District of Ohio, Western Division (Cincinnati) naming DiaSorin Inc. (“DiaSorin”) as a defendant. Meridian’s complaint alleges DiaSorin has breached the 2010 Co-Development and License Agreement (the “Agreement”) between it and Meridian relatingDOJ to promptly respond to the
co-developmentsubpoena, including responding to additional information requests that have followed receipt of
certain teststhe subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and
diagnostic products, pursuantApril 2021, DOJ issued two subpoenas calling for witnesses to
which Meridian disclosed certain trade secretstestify before a federal grand jury related to this matter. The March 2021 subpoena was issued to a former employee of Magellan, and
proprietary information.the April subpoena was issued to a current employee of Magellan. In September and October 2021, DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. The
lawsuit underlying Meridian’s complaint alleges- 27 -
that DiaSorin breachedCompany cannot predict when the Agreementinvestigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $2,803, $2,035 and used, and is currently using, Meridian’s proprietary information and therefore seeks injunctive relief and unspecified damages to protect Meridian’s intellectual property and information with respect to it diagnostics products. Approximately $1,500$1,585 of expense for attorneys’ fees related to this matter is included within the accompanying Consolidated StatementStatements of Operations for fiscal 2017.
On November 15, 2017, Barbara Forman filed a class action complaint in the United States District Court for the Southern District2021, 2020 and 2019, respectively. See “Lead Testing Matters” beginning on page 29 within MD&A.
MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Refer to “Forward-Looking Statements” following the Index in front of this Form10-K and Item 1A “Risk Factors” on Pages 15 through 26 of this Annual Report.
“Common Stock Information”
Our common stock trades on the inside back coverNASDAQ Global Select Market under the symbol VIVO.
Holders of our Common Stock
As of September 30, 2021, there were approximately 550 holders of record and approximately 24,030 beneficial owners of our common shares.
During 2019, the
Annual Report to Shareholders for fiscal 2017 and “Quarterly Financial Data (Unaudited)” relating to our dividends in Note 10 toCompany suspended the
Consolidated Financial Statements are incorporated herein by reference. Except as may otherwise be prohibited by applicable law, there are no restrictions onpayment of its quarterly cash dividend,
payments.Following the release of results for the fiscal 2017 first quarter, the board of directors reduced the fiscal 2017which had previously been established at an indicated annual cash dividend rate toof $0.50 per share (down from $0.80 per share)for fiscal 2019. The dividend was suspended as part of the Company’s regular evaluation of its capital allocation, with the action taken in order to align it with the stated policy guidelines of the payout ratiodeploy cash into new product development activities and to range between 75%preserve capital resources and 85% of each fiscal year’s net earnings. This indicated annual rate represents 75% of fiscal 2017’snon-GAAP diluted earnings per share. Theliquidity for general corporate purposes. Any declaration and amount of dividends will be determined by the board of directors in its discretion based upon its evaluation of earnings, cash flow requirements, and future business developments and opportunities, including
- 28 -
acquisitions. At its meeting on November 8, 2017,and any other factors the board of directors announced a continuation of the $0.50 indicated annual dividend rate per share for fiscal 2018.determines are relevant to its evaluation. At this time, we do not expect to resume paying cash dividends. We paid dividends of $0.575$0.25 per common share in fiscal 2017,2019.
Stock Total Return Performance
The graph below compares the cumulative5-Year
total return realized by shareholders on Meridian Bioscience, Inc.’s common stock relative to the cumulative total returns of the NASDAQ Composite index and
$0.80 per sharetwo customized peer groups of six companies and ten companies, respectively, whose individual companies are listed in footnotes 1 and 2 below. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, in the index and in each of
fiscalthe peer groups (including reinvestment of dividends) on September 30, 2016, and
fiscal 2015.As ofits relative performance is tracked through September 30, 2017, there were approximately 675 holders2021.
| 1. | The six companies included in the Company’s first customized peer group (“2020 Peer Group”) are:Bio-Rad Laboratories, Inc., bioMerieux S.A., Myriad Genetics, Inc., OraSure Technologies, Inc., Quidel Corporation, and Trinity Biotech Plc. |
| 2. | The ten companies included in the Company’s second customized peer group (“2021 Peer Group”) are:Bio-Rad Laboratories, Inc.,Bio-Techne Corporation, bioMerieux S.A., DiaSorin S.p.a., Hologic, Inc., Myriad Genetics, Inc., OraSure Technologies, Inc., Qiagen N.V., Quidel Corporation, and Trinity Biotech Plc. |
ITEM 6.
SELECTED FINANCIAL DATA
Incorporated by reference from inside front cover of the Annual Report to Shareholders for 2017.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Refer to
“Forward-Looking“Note About Forward-Looking Statements” following the Index in front of this Form
10-K
and Item 1A “Risk Factors” on Pages 15pages 11 through 2624 of this Annual Report.In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data
The purpose of
Operations:Fourth Quarter
Net earnings forManagement’s Discussion and Analysis is to provide an understanding of the fourth quarterfinancial condition, changes in consolidated financial condition and results of fiscal 2017 increased 4% to $5,726, or $0.13 per diluted share, from net earnings foroperations of Meridian Bioscience, Inc. (“Meridian”, the fourth quarter of fiscal 2016 of $5,491, or $0.13 per diluted share. The fiscal 2017 fourth quarter results include $762 of costs associated“Company”, “We”). This discussion should be read in conjunction with the transition to our new CEO, announced October 10, 2017,Consolidated Financial Statements and litigation costs associated with protecting certain intellectual property (collectively, “CEO transition and IP defense costs”) (impact on net earnings of $495, or $0.01 per diluted share). The fiscal 2016 fourth quarter results included $677 of costs associated with the restructuring of our sales and marketing leadership (impact on net earnings of $431, or $0.01 per diluted share). Consolidated revenues for the fourth quarter of fiscal 2017 totaled $49,697, an increase of 6% compared to the fourth quarter of fiscal 2016; increasing 5% on a constant-currency basis.
Showing positive signs of stabilization and a return to revenue growth in the Americas geographic region, revenues for the Diagnostics segment for the fourth quarter of fiscal 2017 increased 3% compared to the fourth quarter of fiscal 2016 (increasing 2% on a constant-currency basis), comprised of a 5% decrease in molecular assay products and a 6% increase in immunoassay andpoint-of-care lead testing products. With a 9% increase in its molecular components business and an 18% increase in its immunoassay components business, revenues
- 29 -
for our Life Science segment increased 14% in the fourth quarter of fiscal 2017 compared to the fourth quarter of fiscal 2016. On a constant-currency basis, revenues for our Life Science Segment increased 13%.
The fourth quarter revenues reflect improvement in our immunoassay product lines, most notably in the foodborne andH. pylori product families, being partially offset by decreased revenues in Magellan’s lead testing systems with venous blood samples. OurC. difficile business overall shows signs of stabilization and as a result, has also contributed to stabilization in ourillumigene molecular business. Both Life Science units performed well, reflecting the strength of new products and growth in the Asia-Pacific region.
Fiscal Year
Net earnings for fiscal 2017 decreased 33% to $21,557, or $0.51 per diluted share, from net earnings for fiscal 2016 of $32,229, or $0.76 per diluted share. Fiscal 2017 results include (i) $762 of CEO transition and IP defense costs; and (ii) a $6,628 impairment charge against Magellan goodwill (combined impact on net earnings of $7,123, or $0.17 per diluted share). Fiscal 2016 results include $677 of costs associated with the restructuring of our sales and marketing leadership and $1,481 of costs associated with our acquisition activities (combined impact on net earnings of $1,664, or $0.04 per diluted share). Consolidated revenues increased 2% to $200,771 for fiscal 2017 compared to fiscal 2016; increasing 3% on a constant-currency basis.
In fiscal 2017, revenues for the Diagnostics segment decreased 1% compared to fiscal 2016 (also 1% on a constant-currency basis). This decrease is comprised of a 13% decrease in molecular assay products and a 3% increase in immunoassay and lead testing products, including an $8,027 increase in Magellan revenues resulting from only six months of Meridian ownership during the comparable fiscal 2016 period. With an 8% increase in its molecular components business and a 15% increase in its immunoassay components business, revenues of our Life Science segment increased 12% during fiscal 2017 compared to fiscal 2016; increasing 14% on a constant-currency basis.
Magellan FDA Activities and Goodwill Impairment Charge
On May 17, 2017, the FDA issued a field safety notice advising customers to discontinue use of Magellan’s lead testing systems with venous blood samples. This field safety notice was followed by product recall notices on May 25th and June 5th. Magellan’s lead testing systems are capable of processing both capillary and venous blood samples. Magellan’s LeadCare Plus and LeadCare Ultra systems, which account for approximately 10% of Magellan’s annual revenues, are used predominantly with venous blood samples. Magellan’s LeadCare and LeadCare II systems are predominantly used with capillary blood samples.
Subsequent to the issuances of these field safety and product recall notices, the FDA completed an inspection of Magellan’s quality system, and issued its Form 483, Inspectional Observations, on June 29, 2017, which was expectedly followed by a Warning Letter issued on October 23, 2017. The Warning Letter requires periodic reporting on our remediation progress.
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As a result of these matters, we expect to experience delays in reinstating venous blood sample testing on our LeadCare products, as well as in obtaining 510(k) clearance for new Magellan products. We also expect delays in obtaining export certifications for Magellan products during the remediation period. In light of these factors and their impacts, during our third fiscal quarter, it was determined that a potential impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a “triggering event”). With the assistance of an independent valuation firm, Magellan’s fair value was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, it was determined that the carrying value of the Magellan reporting unit did, in fact, exceed its fair value. As a result, an impairment charge of $6,628, on both a pre-tax and after-tax basis, was recorded during the third quarter and is reflected as a separate operating expense line item within the accompanying Consolidated Statement of Operations for the year ended September 30, 2017. Given all of the factors considered, we do not anticipate, at this time, any further goodwill impairment charge from the Magellan acquisition.
This impairment charge does not impact our cash flow, our dividend or our bank covenants. Our outlook for Magellan’s LeadCare II testing volume continues to be healthy. In the time period since the FDA released its Safety Notification (which pertained to venous blood lead testing performed on the systems produced by Magellan), 374 new LeadCare II systems utilizing capillary blood samples have been placed in physician offices and clinics, contributing to the total number of LeadCare II placements increasing approximately 15% during fiscal 2017. These placements and ongoing placements of LeadCare IIpoint-of-care systems and related capillary blood testing are expected to drive revenue growth in 2018 and beyond.
The matters giving rise to the FDA Safety Notification occurred at Magellan prior to Meridian’s acquisition of Magellan. Meridian is committed to working diligently to strengthen Magellan’s quality system and to address the observations noted in the Form FDA 483 with the highest sense of urgency. However, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA within our contemplated time frame.notes. It should be noted that the FDA has statedterms revenue and/or revenues are utilized throughout the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) to indicate net revenue and/or net revenues. In addition, throughout the MD&A, we refer to certain product tradenames and trademarks, which are protected under applicable intellectual property laws and are our property. Solely for convenience, these tradenames and trademarks are referred to without the
or™
symbols, but such references are not intended to indicate in any way that
all LeadCare blood lead testing systems can be used with capillary blood samples,we will not assert, to the
predominant sample type used by physicians testing at thepoint-of-care. We believepoint-of-care lead testing is critical to addressing elevated lead levels among children and adults across the globe, as testing at thepoint-of-care improves compliance and facilitates patient education and intervention.Beyond the impactfullest extent of the impairment charge, revenues from LeadCare Pluslaw, our rights to these tradenames and Ultra, which utilize primarily venous blood samples, have decreased approximately $200 since receipttrademarks.
Table of the May 17th field safety notice. Remediation costs in fiscal 2017 associated with the matter were approximately $500 pre-tax, resulting in a total impact of less than $0.01 on diluted earnings per share for the year. Remediation costs in fiscal 2018 are expected to be approximately $600 pre-tax, or less than $0.01 impact on diluted earnings per share. Remediation costs relate primarily to professional fees for regulatory consultants and periodic quality system audits. In the- 31 -
course of remediation, Magellan may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of its products. At this time, we do not believe that any such notifications would impact the ability to use the LeadCare systems with capillary blood samples. In addition, at this time, we do not believe that there is any further impact on our results of operations or financial condition.
USE OFNON-GAAP MEASURES
We have supplemented our reported GAAP financial information with information on net earnings, basic earnings per share and diluted earnings per share excluding the effects of CEO transition and IP defense costs (fiscal 2017), the impairment charge against Magellan goodwill (fiscal 2017), sales & marketing leadership reorganization costs (fiscal 2016) and acquisition-related costs (fiscal 2016), each of which is anon-GAAP measure, as well as reconciliations to amounts reported under U.S. Generally Accepted Accounting Principles. We believe that this information is useful to those who read our financial statements and evaluate our operating results because:
| 1. | These measures help to appropriately evaluate and compare the results of operations from period to period by removing the impacts of thesenon-routine items; and |
| 2. | These measures are used by our management for various purposes, including evaluating performance against incentive bonus achievement targets, comparing performance from period to period in presentations to our board of directors, and as a basis for strategic planning and forecasting. |
Thesenon-GAAP measures may be different fromnon-GAAP measures used by other companies. In addition, thesenon-GAAP measures are not based on any comprehensive set of accounting rules or principles.Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should only be used to evaluate our results in conjunction with corresponding GAAP measures.
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
Net Earnings - | | | | | | | | | | | | |
U.S. GAAP basis | | $ | 21,557 | | | $ | 32,229 | | | $ | 35,540 | |
CEO transition and IP defense costs (1) | | | 495 | | | | — | | | | — | |
Goodwill impairment charge (2) | | | 6,628 | | | | — | | | | — | |
Sales & marketing leadership reorganization (1) | | | — | | | | 431 | | | | — | |
Acquisition-related costs (1) | | | — | | | | 1,233 | | | | — | |
| | | | | | | | | | | | |
Adjusted earnings | | $ | 28,680 | | | $ | 33,893 | | | $ | 35,540 | |
| | | | | | | | | | | | |
Net Earnings per Basic Common Share - | | | | | | | | | | | | |
U.S. GAAP basis | | $ | 0.51 | | | $ | 0.77 | | | $ | 0.85 | |
CEO transition and IP defense costs (1) | | | 0.01 | | | | — | | | | — | |
Goodwill impairment charge (2) | | | 0.16 | | | | — | | | | — | |
Sales & marketing leadership reorganization (1) | | | — | | | | 0.01 | | | | — | |
Acquisition-related costs (1) | | | — | | | | 0.03 | | | | — | |
| | | | | | | | | | | | |
Adjusted Basic EPS | | $ | 0.68 | | | $ | 0.81 | | | $ | 0.85 | |
| | | | | | | | | | | | |
Net Earnings per Diluted Common Share - | | | | | | | | | | | | |
U.S. GAAP basis | | $ | 0.51 | | | $ | 0.76 | | | $ | 0.85 | |
CEO transition and IP defense costs (1) | | | 0.01 | | | | — | | | | — | |
Goodwill impairment charge (2) | | | 0.16 | | | | — | | | | — | |
Sales & marketing leadership reorganization (1) | | | — | | | | 0.01 | | | | — | |
Acquisition-related costs (1) | | | — | | | | 0.03 | | | | — | |
| | | | | | | | | | | | |
Adjusted Diluted EPS (3) | | $ | 0.67 | | | $ | 0.80 | | | $ | 0.85 | |
| | | | | | | | | | | | |
|
(1) These CEO transition and IP defense costs, sales & marketing leadership reorganization costs, and acquisition-related costs are net of income tax effects of $267, $246 and $248, respectively, which were calculated using the effective tax rates of the jurisdictions in which the costs were incurred.
(2) Since the goodwill impairment charge was not deductible for tax purposes, there are no income tax effects.
(3) Net Earnings per Diluted Common Share for fiscal 2017 does not sum to the total Adjusted Diluted EPS due to rounding.
|
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REVENUE OVERVIEW
Below are analyses of the Company’s revenue, provided for each of the following:
Contents By Reportable Segment & Geographic Region
By Product Platform/Type
Revenue Overview- By Reportable Segment & Geographic Region
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease
diagnostic products in Cincinnati,
OhioOhio; Quebec City, Canada; and
as a result of the acquisition of Magellan,Modi’in, Israel; and manufacturing operations for
blood chemistry products
detecting elevated lead levels in blood in Billerica, Massachusetts (near Boston). These diagnostic test products are sold and distributed in the countries comprising North
Central and
SouthLatin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England;
and Luckenwalde,
Germany; and Sydney, Australia,Germany, and the sale and distribution of bulk antigens, antibodies,
PCR/qPCRimmunoassay blocking reagents,
specialized Polymerase Chain Reaction (“PCR”) master mixes, isothermal mixes, enzymes, nucleotides,
competent cells, and bioresearch reagents domestically and abroad, including
a sales
and business development
andfacility, with outsourced distribution
facilitiescapabilities, in
Singapore and Beijing, China to further pursue growing revenue opportunities in Asia.
Impact ofCOVID-19
Pandemic During the latter half of fiscal 2020 and throughout fiscal 2021, theCOVID-19
pandemic has had both positive and negative effects on our business. Our Life Science segment’s products have been well positioned to respond to in vitro device (“IVD”) manufacturers’ needs for reagents for molecular, rapid antigen and serology tests. Consequently, our Life Science segment grew its revenues over 100% in fiscal 2020 and delivered record operating income and margin, demonstrating what this segment could achieve at a much larger scale. This higher-than-historical level of growth in the Life Science segment continued in fiscal 2021, with full year revenues, operating income and operating margin increasing 43%, 67% and nine percentage points, respectively.
Our Diagnostics segment, on the other hand, has been negatively impacted by the health systems’ increased focus onCOVID-19
testing over traditional infectious disease testing. The impacts of theCOVID-19
pandemic are most dramatically evident in the 34% year-over-year decline in revenues from respiratory illness assays in fiscal 2021, following flat year-over-year revenue levels being experienced in fiscal 2020. Despite these recentCOVID-19
pandemic related trends, due to the many uncertainties surrounding theCOVID-19
pandemic, we can provide no assurances with respect to our views of the longevity, severity or impacts to our consolidated financial condition of the ongoingCOVID-19
pandemic. While our employee base in the U.S. has returned to workingon-site
at our facilities, we have recently implemented a hybrid work-from-home program for certain personnel, and we continue to utilize a work-from-home process as needed on abasis outside the U.S. for those employees whoseon-site
presence has been deemed to benon-essential.
We have also implemented enhanced cleaning and sanitizing procedures and provided additional personal hygiene supplies at all our sites. We have implemented policies for employees to adhere to Centers for Disease Control and Prevention (“CDC”) guidelines on social distancing, and similar guidelines by authorities outside the U.S. To date, we have been able to manufacture and distribute products globally, and all our sites have continued to operate with little, if any, impact on shipments to customers to date. As theCOVID-19
pandemic continues, along with continuing governmental restrictions which vary by locale and jurisdiction, there is an increased risk of employee absenteeism, which could materially impact our operations at one or more sites. To date, the steps we have taken, including our work-from-home processes, have not materially impacted the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls. Supply chains supporting our products have generally remained intact, providing access to sufficient inventory of the key materials needed for manufacturing. To date, delays and allocations for raw materials have been limited and have not had a material impact on our results of operations. From time to time, we identify alternative suppliers to address the risk of a current supplier’s inability to deliver materials in volumes sufficient to meet our manufacturing needs; or we may choose to purchase certain materials in bulk volumes where we have supply chain scarcity concerns. It remains possible that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations. See LeadCare product recall discussion beginning on page 29.
Product Development and Clinical Trials
Our Diagnostics segment’s new product development programs are progressing at a slower pace than normal, in part, as the prevalence of certain infectious diseases has been much lower than normal during theCOVID-19
pandemic. For example, the relative lack of a respiratory illness season in 2020-2021 has significantly impacted the availability of influenza samples, thereby affecting the pace of development of our molecular respiratory panel for the Revogene system. These matters continue to impact our timing for filing applications for product clearances with the U.S. Food and Drug Administration (“FDA”), as well as related timing of FDA clearances of such filings. Additionally, the ongoingCOVID-19
pandemic has slowed and could continue to slow down our efforts to expand our product portfolio through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market. Our Life Science segment manufactures, markets and sells a number of molecular and immunological reagents to IVD customers, including those who are making both molecular and immunoassayCOVID-19
tests. Since late in the second quarter of fiscal 2020, we have generally experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides), including a resurgence in such demand during our fiscal 2021 fourth quarter. While we are expecting a continuation of this trend for the foreseeable future, this expectation will certainly be impacted by infection rates and the responses to such levels of infection varying by country based on their individualCOVID-19
case statistics, infection rates and vaccine programs. We believe that our reagent products forCOVID-19
have applications in many alternative,non-hospital-based
channels (e.g., airports, schools, etc.). Our products are used in over 200 regulatory agency approvedCOVID-19
related assays around the world.COVID-19
related reagent revenues totaled approximately $111,900 and $71,500 for the years ended September 30, 2021 and 2020, respectively. Our Diagnostics segment manufactures, markets and sells a number of molecular, immunoassay, blood chemistry and urea breath testsfor various infectious diseases and blood-lead levels. Sales volumes for a number of these assays have been adversely affected by theCOVID-19
pandemic over the past year and half, as such assays are often used innon-critical
care settings. However, we have seen indications of a return to more normal pre-pandemic levels, including with respect to our respiratory illness assays during the fourth quarter of 2021. TheCOVID-19
pandemic also has depressed instrument orders and placements for our BreathID, Curian and Revogene platforms. Order activity for our Revogene platform was affected by the delay in obtaining emergency use authorization (“EUA”) for ourassay, as we believe customers have taken a “wait and see” approach throughout our entire EUA application process, which culminated in receipt of the EUA on November 9, 2021. This follows our voluntary withdrawal of the application on February 23, 2021 and its resubmission on June 25, 2021. Despite the situation encountered with our EUA application for theassay, we have proceeded with the process of increasing our capacity to produce these tests, as well as other tests on the Revogene system, at our facilities in Quebec and Cincinnati. Specifically, we are: (i) adding a second production line at our Quebec manufacturing facility; and (ii) installing two additional production lines in a leased facility near our corporate headquarters in Cincinnati. With approximately $10,900 expended in the year ended September 30, 2021, it is expected that these expansion efforts will be completed during calendar 2021 at a total cost of approximately $19,600, which is expected to be partially offset by the $5,500 National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative grant entered into on February 1, 2021, $1,500 of which had been received as of September 30, 2021 (see Note 14,“National Institutes of Health Contracts”
The United Kingdom (“U.K.”) left the European Union (“EU”) on January 31, 2020. While all EU rules and laws continued to apply to the U.K. through the transition period, which ended December 31, 2020, the U.K. and the EU reached a free trade agreement on December 24, 2020, which was ratified on April 28, 2021 and went into effect on May 1, 2021. The agreement includes regulatory and customs cooperation mechanisms, as well as provisions supporting open and fair competition. Under the trade agreement, the U.K. is free to set its own trade policy and can negotiate with other countries that do not currently have free trade deals with the EU. Although the full impact of the trade agreement is uncertain, it is possible that the recent changes to the trading relationship between the U.K. and the EU due to the trade agreement could result in increased cost of goods imported into and exported from the U.K., which may decrease the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the trade agreement will have on our business; however, Brexit and its related effects could potentially have an adverse impact on our consolidated financial position and results of operations.
The U.K.’s withdrawal from the EU could also adversely impact the operations of our vendors and of our other partners. Our management team has identified areas of concern and implemented strategies to help mitigate these concerns. It is possible that these strategies may not be adequate to mitigate any adverse impacts of Brexit, and that these impacts could further adversely affect our business and results of operations.
On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of the Class I voluntary recall of its LeadCare test kits for the detection of lead in blood, which it had initiated in May 2021 after identifying an ongoing issue with the testing controls included in certain manufactured lots of its LeadCare test kits. As a result of the identified issue, impacted test kit lots could potentially underestimate blood lead levels when processing patient blood samples. The Company is working closely with the FDA in its execution of the recall activities, which include Magellan notifying customers and distributors affected by the recall and providing instructions for the return of impacted test kits. Although evaluation of the recall and the related notification process is ongoing, approximately $5,100 has been estimated and accrued as of September 30, 2021, to cover the currently anticipated costs of the recall. In total, approximately $5,600 of recall-related expense has been included within the Consolidated Statement of Operations for the year ended September 30, 2021. Anticipated recall-related costs primarily include product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees and other miscellaneous costs.
As described in Item 3. “Legal Proceedings”, 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 outlines 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 agencies and 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, 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 subpoena was issued to a current employee of Magellan. In September and October 2021, DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $2,803, $2,035 and $1,585 of expense for attorneys’ fees related to this matter is included within the Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and 2019, respectively.
Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare II, LeadCare Plus and LeadCare Ultra testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of the Company’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the FDA or the CDC is necessary to protect the public health. The Company intends to fully cooperate with the FDA or CDC on anyfollow-up
based on the third-party study. During October 2019, the FDA performed afollow-up
inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. Since the inspection, we have submitted a number of written responses to the FDA regarding the five Form FDA 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64(d)(3).
During June 2021, the FDA performed an inspection of Magellan’s manufacturing facility. As a result of this inspection, the FDA issued one Form 483 observation. On August 3, 2021, FDA sent Magellan aclose-out
letter for the Warning Letter that FDA issued to Magellan on October 23, 2017. FDA’sclose-out
letter notified Magellan that FDA has completed an evaluation of Magellan’s corrective actions in response to FDA’s Warning Letter, and based on FDA’s evaluation, Magellan has addressed the issues identified in the Warning Letter. FDA’sclose-out
letter also stated that future FDA inspections of Magellan and regulatory activities will further assess the adequacy and sustainability of Magellan’s corrections. Net earnings for the fourth quarter of fiscal 2021 increased 3% to $6,657, or $0.15 per diluted share, from net earnings for the fourth quarter of fiscal 2020 of $6,493, or $0.15 per diluted share. The level of net earnings in the fourth quarter of fiscal 2021 was adversely affected by approximately $5,600, or $0.10 per diluted share, of LeadCare product recall expenses and a $4,596, or $0.08 per diluted share, upward adjustment to the fair value of acquisition consideration related to GenePOC, offsetting the impact of higher revenues and resulting gross profit. Other key events occurring in the fourth quarter of 2021 include the acquisition of the BreathTek business in July 2021 and the August 2021 settlement of the contingent acquisition consideration related to GenePOC (see Note 4,and Note 3,“Fair Value Measurements”
Consolidated revenues for the fourth quarter of fiscal 2021 totaled $76,204, an increase of 19% compared to the fourth quarter of fiscal 2020 (17% increase on a constant-currency basis).
Revenues from the Diagnostics segment for the fourth quarter of fiscal 2021 increased 15% to $34,301, compared to the fourth quarter of fiscal 2020 (also 15% increase on a constant-currency basis), comprised of a 22% increase in molecular assay products and a 14% increase innon-molecular
assay products. The fourth quarter of fiscal 2021 represents the second consecutive quarter our Diagnostics segment has shown positive revenue growth versus the same quarter of fiscal 2020, an achievement not experienced since the early stages of theCOVID-19
pandemic. Our Diagnostics segment generated an $11,900 operating loss for the fourth quarter of fiscal 2021, a $7,700 larger operating loss than the fourth quarter of fiscal 2020, largely due to the aforementioned $5,600 of LeadCare product recall expenses and $4,596 upward adjustment to the fair value of acquisition consideration related to GenePOC. With a 16% increase in revenues from molecular reagents products and a 33% increase in revenues from immunological reagents products, revenues for our Life Science segment increased 22% to $41,903 during the fourth quarter of fiscal 2021 compared to the fourth quarter of fiscal 2020. On a constant-currency basis, revenues for the Life Science segment increased 19%. Life Science segment revenues reflect an increase in demand from diagnostic test manufacturers for the reagents utilized inCOVID-19
related tests. Revenue from sales of our core Life Science segment products (other thanCOVID-19
related contributions) experienced growth of approximately $1,800, or 11%, compared to the fourth quarter of fiscal 2020. This growth resulted in large part from obtaining business fromCOVID-19
customers who are now using our products for otherrelated purposes, as well as a rebound in volumes of core immunological products. Our Life Science segment generated $23,200 of operating income, or a margin of 55%, for the fourth quarter of fiscal 2021, an increase of $6,000 from the fourth quarter of fiscal 2020. Net earnings for fiscal 2021 increased 55% to $71,407, or $1.62 per diluted share, from net earnings for fiscal 2020 of $46,186, or $1.07 per diluted share. The level of net earnings in fiscal 2021 was affected predominantly by the strong increase in revenues and operating income in our Life Science segment, stemming primarily from the demand for reagents used inCOVID-19
related tests. Consolidated revenues for fiscal 2021 totaled $317,896, an increase of 25% compared to fiscal 2020 (22% increase on a constant-currency basis).
Diagnostics segment revenues increased 5% to $127,760 in fiscal 2021 (4% increase on a constant-currency basis), comprised of a 13% decrease in molecular assay products and a 10% increase innon-molecular
assay products. Our Diagnostics segment generated an $8,100 operating loss in fiscal 2021, compared to operating income of $3,900 in fiscal 2020. This year over year decline in operating income resulted primarily from the combined effects of: (i) lower gross profit margins, as detailed in the “Gross Profit” section below; (ii) the aforementioned $5,600 of LeadCare product recall expenses in fiscal 2021; and (iii) the $6,293 decrease in the fair value of contingent acquisition consideration related to GenePOC included in fiscal 2020 and settled in fiscal 2021 (as discussed above). These factors contributing to the decline in operating margin were partially offset by the decrease in acquisition costs resulting from the Exalenz transaction in fiscal 2020. With a 66% increase in revenues from molecular reagents products and a 10% increase in revenues from immunological reagents products, revenues for our Life Science segment increased 43% to $190,136 during fiscal 2021 compared to fiscal 2020. On a constant-currency basis, revenues for the Life Science segment increased 38%. Fiscal 2021 Life Science segment revenues reflect a significant increase in sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use inCOVID-19
related PCR tests. Also contributing to the increased revenue levels during fiscal 2021 were sales of monoclonal antibody pairs used inCOVID-19
antigen tests and, to a lesser degree, recombinant antigens used inCOVID-19
antibody tests. In addition, revenue from sales of our core Life Science segment products (other thanCOVID-19
contributions) experienced growth of approximately $16,100, or approximately 26%. This growth resulted in large part from obtaining business fromCOVID-19
customers who are now using our products for otherrelated purposes, as well as a rebound in volumes in core immunological products. Our Life Science segment generated $115,300 of operating income in fiscal 2021, an increase of $46,400 over fiscal 2020. Below are analyses of the Company’s revenue, by reportable segment, provided for each of the following:
- By Product Platform/Type
Revenue Overview – By Reportable Segment & Geographic Region
Revenues for the Diagnostics segment, in the normal course of business, may be affected from
quarteryear to
quarteryear by buying patterns of major distributors
and reference laboratories, seasonality and
the severity of seasonal diseases and outbreaks
(including theCOVID-19
pandemic), and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from
quarteryear to
quarteryear by buying patterns of major
IVD manufacturing customers,
severity of disease outbreaks (including theCOVID-19
pandemic), and foreign currency exchange rates.
We believe that the overall breadthTheCOVID-19
pandemic contributed $111,900 of
new revenue for our
product lines serves to reduce the variability in consolidated revenues due to these factors.Revenues for each of our segmentsLife Science segment during fiscal 2021, and the geographic regions therein are shown below.
| | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | 2017 vs.
2016
Inc (Dec) | | | 2016 vs.
2015
Inc (Dec) | |
Diagnostics- | | | | | | | | | | | | | | | | | | | | |
Americas | | $ | 120,589 | | | $ | 123,714 | | | $ | 123,366 | | | | (3 | )% | | | — | % |
EMEA | | | 19,454 | | | | 18,424 | | | | 19,135 | | | | 6 | % | | | (4 | )% |
ROW | | | 3,478 | | | | 2,976 | | | | 3,613 | | | | 17 | % | | | (18 | )% |
| | | | | | | | | | | | | | | | | | | | |
Total Diagnostics | | | 143,521 | | | | 145,114 | | | | 146,114 | | | | (1 | )% | | | (1 | )% |
| | | | | | | | | | | | | | | | | | | | |
Life Science- | | | | | | | | | | | | | | | | | | | | |
Americas | | | 21,163 | | | | 20,651 | | | | 22,363 | | | | 2 | % | | | (8 | )% |
EMEA | | | 21,550 | | | | 19,406 | | | | 17,845 | | | | 11 | % | | | 9 | % |
ROW | | | 14,537 | | | | 10,911 | | | | 8,508 | | | | 33 | % | | | 28 | % |
| | | | | | | | | | | | | | | | | | | | |
Total Life Science | | | 57,250 | | | | 50,968 | | | | 48,716 | | | | 12 | % | | | 5 | % |
| | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 200,771 | | | $ | 196,082 | | | $ | 194,830 | | | | 2 | % | | | 1 | % |
| | | | | | | | | | | | | | | | | | | | |
% of total revenues- | | | | | | | | | | | | | | | | | | | | |
Diagnostics | | | 71 | % | | | 74 | % | | | 75 | % | | | | | | | | |
Life Science | | | 29 | % | | | 26 | % | | | 25 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | 100 | % | | | 100 | % | | | 100 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Ex-Americas | | | 29 | % | | | 26 | % | | | 25 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
- 33 -
$71,500 during fiscal 2020.
See Note 2,“Revenue
Overview- By Product Platform/TypeThe revenues generated by each of our reportable segments result primarily from the sale Recognition”
of the
following segment-specific categories of products:Diagnostics
| 1) | Molecular assays that operate on ourillumigene platform |
| 2) | Immunoassays and lead tests on multiple technology platforms |
Life Science
RevenuesConsolidated Financial Statements for each product platform/type, as well as its relative percentage of segment revenues, are shown below.
| | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | 2017 vs.
2016
Inc (Dec) | | | 2016 vs.
2015
Inc (Dec) | |
Diagnostics- | | | | | | | | | | | | | | | | | | | | |
Molecular assays | | $ | 33,463 | | | $ | 38,302 | | | $ | 40,880 | | | | (13 | )% | | | (6 | )% |
Immunoassays & lead tests | | | 110,058 | | | | 106,812 | | | | 105,234 | | | | 3 | % | | | 1 | % |
| | | | | | | | | | | | | | | | | | | | |
Total Diagnostics | | $ | 143,521 | | | $ | 145,114 | | | $ | 146,114 | | | | (1 | )% | | | (1 | )% |
| | | | | | | | | | | | | | | | | | | | |
Life Science- | | | | | | | | | | | | | | | | | | | | |
Molecular components | | $ | 22,205 | | | $ | 20,599 | | | $ | 20,601 | | | | 8 | % | | | — | % |
Immunoassay components | | | 35,045 | | | | 30,369 | | | | 28,115 | | | | 15 | % | | | 8 | % |
| | | | | | | | | | | | | | | | | | | | |
Total Life Science | | $ | 57,250 | | | $ | 50,968 | | | $ | 48,716 | | | | 12 | % | | | 5 | % |
| | | | | | | | | | | | | | | | | | | | |
% of Diagnostics revenues- | | | | | | | | | | | | | | | | | | | | |
Molecular assays | | | 23 | % | | | 26 | % | | | 28 | % | | | | | | | | |
Immunoassays & lead tests | | | 77 | % | | | 74 | % | | | 72 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Diagnostics | | | 100 | % | | | 100 | % | | | 100 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
% of Life Science revenues- | | | | | | | | | | | | | | | | | | | | |
Molecular components | | | 39 | % | | | 40 | % | | | 42 | % | | | | | | | | |
Immunoassay components | | | 61 | % | | | 60 | % | | | 58 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Life Science | | | 100 | % | | | 100 | % | | | 100 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
- 34 -
detailed revenue disaggregation information.
Following is a discussion of the revenues generated by
each of these product platforms/
types:types and/or disease states:
Diagnostics
Segment Products
Molecular Assay Products
During
The Diagnostics segment’s overall 5% growth in revenue during fiscal 2017, revenues2021 primarily results from ourillumigenemolecular platformthe combined effects of the following:
Volume growth in the gastrointestinal product family benefitting from: (i) a full year of revenue from sales of BreathID instruments and tests, acquired in the April 2020 Exalenz acquisition; and (ii) two months of revenue from sales of the BreathTek product, acquired in late July 2021;
Ongoing pricing pressure on ourstool antigen tests, which contributed approximately $2,700 of unfavorable price variance from customers in the U.S.;
Volume declines from sales of respiratory illness products,
totaled $33,463, representing a 13% decreasecomprised of tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis, among others, reflecting the decreased focus on testing for these illnesses throughout theCOVID-19
pandemic; and Volume declines from
fiscal 2016 (also 13% in constant-currency). This decrease reflectssales of blood chemistry products due to the ongoing
increased competition within the molecular-based testing market, most notably within the market forC. difficiletesting.We have nearly 1,650 customer account placements. Of these account placements, approximately 1,375 accounts have completed evaluations and validations and are regularly purchasingLeadCare product with the balance of our account placements beingrecall, which commenced in some stage of product evaluation and/or validation. Of our account placements, we have nearly 600 accounts that are regularly purchasing, evaluating and/or validating two or more assays. Increasing the number of customers utilizing two or more assays is a key objective, as we believe broader menu utilization lessens the risk of displacement by competitors.
We continue to investMay 2021 ($2,136 decrease in new product development for our molecular testing platform, and this platform now has nine commercialized tests spanning hospital acquired infections, women’s health, respiratory, sexually transmitted diseases, and tropical diseases. As of September 30, 2017, ourillumigene Malaria test has been placed in nearly 150 accounts in the EMEA region for use as a screening test for travelers returning to Europe from endemic areas in Africa. Our efforts to develop market channels in the endemic areas of Africa continue, as we work to convince policy-makers of the advantages of a more accurate molecular test to assist in efforts to eradicate malaria.
We believe that the diagnostic testing market, particularly in the U.S., is continuing to selectively move away from culture and immunoassay testing to molecular testing for diseases where there is a favorable cost/benefit position for the total cost of health care. During fiscal 2017 we experienced 4% growth in allillumigene testing categories, other than the hyper-competitiveC. difficile arena, which has stabilized in recent quarters. While this market is competitive, with molecular companies such as Cepheid and Becton Dickinson, and others such as Quidel, Nanosphere and Alere, we believe we are well-positioned. Our simple,easy-to-use,illumigene platform, with its expanding menu, requires no expensive equipment purchase and little to no maintenance cost. We believe these features, along with its small footprint and the performance of theillumigene assays, makeillumigene an attractive molecular platform for any size hospital or physician office laboratory that runs moderately-complex tests. We continue to invest in the development of additional assays for this platform and expect a test for congenital cytomegalovirus (CMV), a leading cause of deafness in infants, to be our nextFDA-cleared test on theillumigeneplatform.
- 35 -
Immunoassay and Lead Testing Products
Revenues from our Diagnostics segment’s immunoassay and lead testing products increased 3%revenue in fiscal 2017, following a 1% increase in fiscal 2016. These results reflect the current fiscal year including a full twelve months of Magellan revenue, significantly offset by decreased revenue in ourH. pylori and other immunoassay product lines.
Revenues from Magellan’s sale of products to test for elevated levels of lead in blood totaled $18,061. Compared to the twelve months ended September 30, 2016, of which the six months ended March 31, 2016 were prior to Meridian’s ownership of Magellan, these revenues increased 2%. This increase was achieved despite the effect on venous blood testing revenue of the previously-notedFDA-related activities.
During fiscal 2017, revenues from ourH. pylori products decreased 4% (also 4% in constant-currency) to $30,948, which followed an 8% increase during fiscal 2016. In fiscal 2016, we employedbulk-buy sales programs (also referred to as“stock-and-block” programs) intended to increase major customer inventory levels as a defense against potential competitors upon the expiration of our patent, as further described below. We expect ourH. pylorirevenue to continue to return to low single-digit growth in fiscal 2018. This growth expectation reflects volume growth from the ongoing conversion of serology testing to our antigen tests. We continue to believe there are ongoing benefits to be realized from our partnerships with managed care companies in promoting (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing. A significant amount of theH. pylori product revenues are sales to reference labs, whose buying patterns may not be consistent from period to period. During fiscal 2017, we also introduced capabilities to identify resistance to Clarithromycin, the antibiotic commonly used to treatH. pylori. This is currently available in an Analyte Specific Reagent (ASR) format. We believe that partnering the ability to diagnoseH. pylori and identify resistance provides a strong competitive advantage.
The patents for ourH. pylori products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to ourH. pylori products to increase in the near future, as we currently market the onlyFDA-cleared tests to detectH. pylori antigen in stool samples in the U.S. market. Such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. In order to mitigate competition, our product development pipeline includes multiple new product initiatives for the detection ofH. pylori. We are unable to provide assurances that we will be successful with any mitigation strategy or that any mitigation strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. See Item 3. “Legal Proceedings” for a discussion of the status of certain litigation related to our intellectual property.
- 36 -
During fiscal 2017, revenues from our other immunoassay products (includingC. difficile, foodborne and respiratory) decreased 7% (also 7% in constant-currency) to $58,732, following a 16% decrease in fiscal 2016. A return to growth during the second half of the fiscal year supports our belief that this portion of our business has stabilized and is positioned for future growth (5% increase during the second half of the year, following a 16% decline in the first half of the year).
Life Science Products
During fiscal 2017, revenues from our Life Science segment increased 12%, with revenues from molecular component sales increasing 8%2021, compared to fiscal 2016 and revenues from immunoassay component sales increasing 15%2020).
Life Science segmentSegment Products
The tripling of the Life Science segment’s revenues increased 5%since fiscal 2019, including the 43% year-over-year growth in revenue during fiscal 2021, primarily results from the combined effects of the following:
Unprecedented demand for the Life Science segment’s products by diagnostic test manufacturers for use inCOVID-19
related tests, resulting inreagent revenues totaling $111,900 in fiscal
2016, with revenues from molecular component sales remaining flat2021, compared to
approximately $71,500 in fiscal
20152020; and
revenues Revenue from
immunoassay component salescore Life Science products increasing
8%. Our molecular components business’ growth was negatively impacted by the movement in currency exchange rates since fiscal 2016, with revenues increasing 12% on a constant-currency basisapproximately 26% over fiscal
2016. During fiscal 2017,2020, due in large part from obtaining business fromCOVID-19
customers who are now using our
Life Science segment continued to benefit from (i) increased revenuesproducts forrelated purposes, as well as a rebound in
the steadily-expanding tropical diseasevolumes of core immunological product
family, with sales of such products doubling to approximately $2,200 in fiscal 2017; and (ii) increased revenue from sales into China, with such sales totaling approximately $5,900 during fiscal 2017 (approximately $1,000 in the molecular components business and $4,900 in the immunoassay components business) – representing an approximate 44% increase over fiscal 2016. New products, including EPIK™ miRNA Select, JetSeq™, and SensiFast™Lyo-Ready, also contributed to the increase, withincremental year-over-year revenue growth of approximately $700.sales.
Fluctuations in foreign currency exchange rates
sincein fiscal
20162021 compared to fiscal 2020 had an approximate
$1,200 unfavorable$9,200 favorable impact on fiscal
20172021 consolidated net revenues;
$400$1,300 within the Diagnostics segment and
$800$7,900 within the Life Science segment. This compares to
currency exchange rates having an approximate $1,700$1,250 unfavorable impact on consolidated net revenues in fiscal 2016; $7002020; $150 within the Diagnostics segment and $1,000$1,100 within the Life Science segment. Due to natural hedge relationships with expenses, both cost of sales and operating expenses, the overall impact of exchange rate fluctuations on net earnings was not significant during fiscal 2017, 2016 or 2015.
Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note
8 15,“Reportable Segments and Major Concentration Data”
of the
accompanying Consolidated Financial Statements.
- 37 -
Medical Device Tax
On January 1, 2013, the medical device tax established as part of the U.S. health care reform legislation became effective, and as a result, the Company made its first required tax deposit near the end of January 2013. During fiscal 2017, 2016 and 2015, the Company recorded approximately $0, $500 and $1,900, respectively, of medical device tax expense, which is reflected as a component of cost of sales in the accompanying Consolidated Statements of Operations. During December 2015, the Consolidations Appropriations Act of 2016 imposed atwo-year moratorium on this excise tax effective January 1, 2016. This moratorium expires December 31, 2017, and we are unable to predict any future legislative changes or developments related to this moratorium or excise tax.
Gross Profit:
| | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | 2017 vs.
2016
Inc (Dec) | | | 2016 vs.
2015
Inc (Dec) | |
Gross Profit | | $ | 124,833 | | | $ | 127,787 | | | $ | 121,882 | | | | (2 | )% | | | 5 | % |
Gross Profit Margin | | | 62 | % | | | 65 | % | | | 63 | % | | | -3 points | | | | +2 points | |
The overall
| | | | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2021 vs. 2020
Inc (Dec) | |
| | $ | 201,148 | | | $ | 156,248 | | | | 29 | % |
| | | 63 | % | | | 62 | % | | | 1 point | |
Overall gross profit
margin decreasemargins during
both fiscal
2017 primarily results2021 and 2020 have been favorably impacted by greater contributions from
the combined effects of (i) mix of products sold, particularly decreased contribution from our higher marginH. pylori products; (ii) customer mix; (iii) operating segment mix; and (iv) decreased production levels in certain of our production facilities designed to reduce inventory levels. The overall increase in the gross profit margin from fiscal 2015 to fiscal 2016 reflects the combined effects of (i) mix of products sold, particularly the higher revenue contribution fromH. pylori products; (ii) realization of manufacturing facility efficiencies for ourillumigene products as a result of bringingin-house certain reagent dispensing operations that were previously outsourced; (iii) manufacturing efficiencies in our Life Science
segment; (iv) favorable effectssegment’s molecular reagent products, which are some of
currency ratesour highest margin products. During fiscal 2021, which included the peak of theCOVID-19
pandemic, approximately 41% of consolidated revenues related to
sales of molecular reagent products,
compared to approximately 31% during fiscal 2020. Overall gross profit margins in fiscal 2021 have been unfavorably impacted in our Diagnostics segment by production capacityramp-up
and scrap costs in our Quebec facility, where
Revogene instruments and test devices are made, inventory reserve provisions for short-dated products stemming from depressed sales levels during theCOVID-19
pandemic, and the
purchase cost is denominated in Euros but the customer sales are billed in U.S. dollars; and (v) decreased medical device tax payments.Our overall operations consistimpacts of the salepreviously discussed LeadCare product recall (see “Lead Testing Matters” above).
Operating Expenses —
Segment Detail and
in alternative test formats, as well as bioresearch reagents, bulk antigens and antibodies, PCR/qPCR reagents, nucleotides, competent cells, and proficiency panels. Product revenue mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.- 38 -
Corporate
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 21,454 | | | $ | 21,172 | | | $ | 23,233 | | | $ | (1,916 | ) | | $ | 63,943 | |
| | | 2,275 | | | | 5,314 | | | | 11,755 | | | | 200 | | | | 19,544 | |
| | | — | | | | — | | | | 9,357 | | | | 2,080 | | | | 11,437 | |
| | | | | | | | | | | | | | | | | | | | | |
| | $ | 23,729 | | | $ | 26,486 | | | $ | 44,345 | | | $ | 364 | | | $ | 94,924 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 21,406 | | | $ | 21,430 | | | $ | 24,915 | | | $ | 5,079 | | | $ | 72,830 | |
| | | 2,505 | | | | 5,350 | | | | 13,265 | | | | — | | | | 21,120 | |
| | | — | | | | — | | | | 11,361 | | | | 2,803 | | | | 14,164 | |
| | | | | | | | | | | | | | | | | | | | | |
| | $ | 23,911 | | | $ | 26,780 | | | $ | 49,541 | | | $ | 7,882 | | | $ | 108,114 | |
| | | | | | | | | | | | | | | | | | | | | |
| (1) | Diagnostics segment fiscal 2020 reflects negative expense amount due to $6,293 adjustment to fair value of the acquisition consideration related to GenePOC. |
| (2) | LeadCare product recall expenses are included within the Diagnostics segment’s fiscal 2021 Other expenses. |
Operating
Expenses: | | | | | | | | | | | | | | | | | | | | |
| | | Research &
Development | | | Selling & Marketing | | | General &
Administrative | | | Other | | | Total Operating
Expenses | |
Fiscal 2015: | | | | | | | | | | | | | | | | | | | | |
Diagnostics | | $ | 9,625 | | | $ | 17,943 | | | $ | 19,284 | | | $ | — | | | $ | 46,852 | |
Life Science | | | 2,980 | | | | 7,658 | | | | 8,332 | | | | — | | | | 18,970 | |
| | | | | | | | | | | | | | | | | | | | |
Total 2015 Expenses | | $ | 12,605 | | | $ | 25,601 | | | $ | 27,616 | | | $ | — | | | $ | 65,822 | |
| | | | | | | | | | | | | | | | | | | | |
Fiscal 2016: | | | | | | | | | | | | | | | | | | | | |
Diagnostics | | $ | 11,130 | | | $ | 21,200 | | | $ | 22,335 | | | $ | 2,158 | | | $ | 56,823 | |
Life Science | | | 2,685 | | | | 8,671 | | | | 8,230 | | | | — | | | | 19,586 | |
| | | | | | | | | | | | | | | | | | | | |
Total 2016 Expenses | | $ | 13,815 | | | $ | 29,871 | | | $ | 30,565 | | | $ | 2,158 | | | $ | 76,409 | |
| | | | | | | | | | | | | | | | | | | | |
Fiscal 2017: | | | | | | | | | | | | | | | | | | | | |
Diagnostics | | $ | 13,166 | | | $ | 22,727 | | | $ | 24,491 | | | $ | 7,390 | | | $ | 67,774 | |
Life Science | | | 2,514 | | | | 9,374 | | | | 7,789 | | | | — | | | | 19,677 | |
| | | | | | | | | | | | | | | | | | | | |
Total 2017 Expenses | | $ | 15,680 | | | $ | 32,101 | | | $ | 32,280 | | | $ | 7,390 | | | $ | 87,451 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Research &
Development | | | Selling & Marketing | | | General &
Administrative | | | Other | | | Total Operating
Expenses | |
2015 Expenses | | $ | 12,605 | | | $ | 25,601 | | | $ | 27,616 | | | $ | — | | | $ | 65,822 | |
| | | | | | | | | | | | | | | | | | | | |
% of Revenues | | | 6 | % | | | 13 | % | | | 14 | % | | | — | % | | | 34 | % |
| | | | | |
Fiscal 2016 Increases (Decreases): | | | | | | | | | | | | | | | | | | | | |
Diagnostics | | | 1,505 | | | | 3,257 | | | | 3,051 | | | | 2,158 | | | | 9,971 | |
Life Science | | | (295 | ) | | | 1,013 | | | | (102 | ) | | | — | | | | 616 | |
| | | | | | | | | | | | | | | | | | | | |
2016 Expenses | | $ | 13,815 | | | $ | 29,871 | | | $ | 30,565 | | | $ | 2,158 | | | $ | 76,409 | |
| | | | | | | | | | | | | | | | | | | | |
% of Revenues | | | 7 | % | | | 15 | % | | | 16 | % | | | 1 | % | | | 39 | % |
% Increase | | | 10 | % | | | 17 | % | | | 11 | % | | | NMF | | | | 16 | % |
| | | | | |
Fiscal 2017 Increases (Decreases): | | | | | | | | | | | | | | | | | | | | |
Diagnostics | | | 2,036 | | | | 1,527 | | | | 2,156 | | | | 5,232 | | | | 10,951 | |
Life Science | | | (171 | ) | | | 703 | | | | (441 | ) | | | — | | | | 91 | |
| | | | | | | | | | | | | | | | | | | | |
2017 Expenses | | $ | 15,680 | | | $ | 32,101 | | | $ | 32,280 | | | $ | 7,390 | | | $ | 87,451 | |
| | | | | | | | | | | | | | | | | | | | |
% of Revenues | | | 8 | % | | | 16 | % | | | 16 | % | | | 4 | % | | | 44 | % |
% Increase | | | 13 | % | | | 7 | % | | | 6 | % | | | 242 | % | | | 14 | % |
- 39 -
Total operating expenses increased during both fiscal 2017 and fiscal 2016, resulting primarily from the combined effects of the following:
Diagnostics
Fiscal 2017 increase
Magellan goodwill impairment charge;
Incremental Magellan operating expenses due to six additional months of Meridian ownership in fiscal 2017;2021 increased $13,190 to $108,114. Major components of this increase were as follows:
$5,600 in connection with instrumentation development programs, with such elevated levelLeadCare product recall expenses within our Diagnostics segment;
$1,400 increase in purchase accounting amortization within our Diagnostics segment, stemming from both the Exalenz and BreathTek acquisitions;
a full year of spending expected to continue into fiscal 2018 as the programs are completed and transitioned to clinical trials; and
CEO transition and IP defense costs.
Fiscal 2016 increase
Addition of Magellan’s operatingadministrative expenses since the March 24, 2016 date of acquisition, which represent approximately 50% of the totalwithin our Diagnostics operating expense increase;
Increased investment in Sales & Marketing activities, including new leadership and an expansion in sales territories;
Costs incurred in connection with acquisition activities, most notablysegment related to the Exalenz acquisition of Magellan;completed in April 2020;
higher commercial insurance costs for Directors & Officers and
Costs incurred in connection with restructuring Sales Property & Marketing leadership, which relateCasualty coverages within Corporate; and
the adjustment to severance obligations for former employees.
Life Science
Fiscal 2017 increase
Increased investment in Sales & Marketing activities, including costs associated with the WFOE established in Beijing, China during fiscal 2017.
Fiscal 2016 increase
Increased investment in Sales & Marketing activities, including increased personnel, travel and marketing spending.
The amount of stock-based compensation expense reported for fiscal 2017, 2016 and 2015 was $3,381, $2,911 and $3,324, respectively. Detailsfair value of the stock-based compensation activities giving rise to these expenses are set forth in Note 6acquisition consideration as the result of the accompanying Consolidated Financial Statements.
- 40 -
settlement in fiscal 2021 resulting in a $5,384 year-over-year increase in expense within our Diagnostics segment.
Offsetting these increases was lower spending for acquisition transaction costs, stemming from the Exalenz acquisition.
Operating income
decreased 27% and 8%increased 52% in fiscal
2017 and 2016, respectively,2021, following an 88% increase in fiscal 2020, as a result of the factors discussed
above, including the Magellan goodwill impairment charge and CEO transition and IP defense costs in fiscal 2017 and the costs associated with acquisition-related activities and sales & marketing leadership reorganization in fiscal 2016.above.
Other
income and expense,
in fiscal 2017 and fiscal 2016net primarily includes interest costs on the
term loan usedCompany’s long-term borrowings and contingent grant obligations due to
fund the
acquisition of Magellan. The effective interest rate on this term loan is 2.76%. In fiscal 2015, other income and expense included $1,100 of foreign currency losses, which related primarily to a foreign subsidiary intercompany loan. This compares to $400 and $600 of foreignIsrael Innovation Authority, currency gains
and losses, and in fiscal
20172021, grant income under the RADx initiative (see Note 14,“National Institutes of Health Contracts”
and
$2,464 in fiscal
2016,2021 and 2020, respectively.
The varying levels of interest costs on the revolving credit facility reflect the following approximate levels of average debt outstanding, as detailed in Note 10,“Bank Credit Arrangements”
The effective rate for income taxes was
41%, 36%21% and
35%22% for fiscal
2017, 20162021 and
2015,2020, respectively. The
increased fiscal 2017 rate results primarily from thenon-deductibility of the Magellan goodwill impairment charge. Excluding the effects of the Magellan goodwill impairment charge, thedecline in effective tax
rates relates primarily to the increasing allocations of taxable income in certain foreign jurisdictions with tax rates lower than the U.S., particularly the U.K. Additionally, the fiscal 2021 effective rate was
35% for fiscal 2017.favorably impacted by a larger-than-prior-year effect of current year restricted share unit lapses and stock option exercises occurring on dates when the share price of Company stock was significantly higher than the share price on the date such equity awards were granted.
To the extent feasible, we have consistently followed the practice of
adjustingreviewing our prices to
reflectconsider the
impactimpacts of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. Inflation and changing prices did not have a material adverse impact on our gross margin, revenues or operating income in fiscal
2017, 20162021 or
2015.2020.
Liquidity and Capital
Resources:Resources
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets
and debt
service, consideration of acquisition plans and consideration of common share dividends.service. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities.
- 41 -
We have an investment policy that guides the holdings of our investment portfolio, which presently consists of
overnight repurchase agreements, bank savings accounts and institutional money market mutual funds. Our objectives in managing the investment portfolio are
toto: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.
Considering the various worldwidegeo-political andgeo-economic conditions (including Brexit, as more fully discussed within the “Risk Factors” section of Part 1A), we do not expect macroeconomic conditions to have a significant impact on our liquidity needs, financial condition or results of operations, although no assurances can be made in this regard.
We intend to continue to fund our working capital requirements
and dividends from current cash flows from operating activities and cash on
hand. Ifhand, and such sources are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next twelve months. However, if needed, we also have an additional source of liquidity through
the amount remaining available on our
$30,000$160,000 bank revolving credit
facility.facility, which totaled $100,000 as of September 30, 2021. The Company also maintains a shelf registration statement on file with the SEC. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period,
of time, and such conditions impact the
collectibilitycollectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services.
Fluctuations in overall stock market valuations may raise questions as to the potential impairment of goodwill and other long-lived assets. Our annual goodwill impairment review takes place as of June 30th each year, and is performed at the reporting unit level. While these annual reviewsto-date have not resulted in the recording of any impairments, a $6,628 impairment charge has been recorded on the goodwill resulting from the Magellan acquisition due to certain FDA activities related to Magellan’s lead testing system utilizing venous blood samples (see full description previously within this MD&A).
As of September 30,
2017, our stock price was $14.30 per share, compared to our book value per share of $4.02. This relationship, stock price trading at a 3.6x multiple of book value, is an indicator that the fluctuation in overall stock market valuations and its impact on our stock price has not been a triggering event for further impairment of our goodwill and other long-lived assets.As of September 30, 2017,2021, our cash and cash equivalents balance is $9,846 higherwas $49,771 or $3,743 lower than at the end of fiscal 2016.2020. This modest decrease primarily results from generating $66,865 of cash flow from operations, an increase results in large part fromof 39% over fiscal 2020, and the combined net effectsuse of (i) operating activities providing $4,132 more net cash as discussed below; (ii) lowering the quarterlyto fund certain rather significant uses of cash dividend rate resulting in $9,383 less in shareholder dividends being paid, as discussed below; and (iii) principal payments during the year, being $2,250 higher during this first full fiscal year most notably the following:
| (i) | payment of consideration holdback and contingent consideration settlement related to the fiscal 2019 GenePOC acquisition ($25,000); |
| (ii) | acquisition of the BreathTek business, net of $1,000 holdback ($18,585); |
| (iii) | funding of capital expenditures, which were primarily comprised of manufacturing expansion related to Revogene, net of $1,500 RADx grant monies received ($16,812); and |
| (iv) | net paydown on revolving credit facility and Israeli government grant obligations ($8,824 and $5,297, respectively). |
Considering these factors, our balance of net debt (defined as bank debt, government grant obligations and total contingent obligations related to acquisitions, net of cash and cash equivalentson-hand)
decreased approximately $36,300 to approximately $17,000 at September 30, 2021.
As described in Note 10,“Bank Credit Arrangements”
of the
Consolidated Financial Statements, the Company maintains a $160,000 credit facility, which is secured by substantially all our U.S. assets and includes certain restrictive financial covenants. This credit facility was amended in October 2021 to increase its capacity to $200,000 and extend its term
loan obligation.- 42 -
Net cash provided by operating activities totaled $41,355 during fiscal 2017, an 11% increase from the $37,223 provided during fiscal 2016. While reflecting the effects of the timing of payments from customers, and to suppliers and taxing authorities, this increaseOctober 25, 2026. The Company also results in large part from the net effects of (i) decreased inventory levels during fiscal 2017, compared to increased levels during fiscal 2016; and (ii) decreased accrued employee compensation costs during fiscal 2017, reflecting the payment of $407 of discretionary bonuses tonon-executives related to fiscal 2016 and the timing of regularly scheduled payroll payments. Net cash flows from operating activities and cashmaintains a shelf registration statement on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and dividends during the next 12 months.
Following the release of results for the fiscal 2017 first quarter, the board of directors reduced the fiscal 2017 indicated annual cash dividend rate to $0.50 per share (down from $0.80 per share) in order to align itfile with the stated policy guidelines of the payout ratio to range between 75% and 85% of each fiscal year’s net earnings. This indicated annual rate represents 75% of fiscal 2017’snon-GAAP diluted earnings per share.
Capital Resources
In connection with the acquisition of Magellan, the Company entered into a $60,000 five-year term loan and related interest rate swap agreement with a commercial bank, the details of which are set forth in Note 4 of the accompanying Consolidated Financial Statements. In addition, we have a $30,000 revolving credit facility with a commercial bank that expires March 31, 2021. As of November 29, 2017, there were no borrowings outstanding on this facility and we had 100% borrowing capacity available to us. We have had no borrowings outstanding under this revolving credit facility during fiscal 2017, 2016 or 2015.
SEC.
Our capital expenditures totaled
$4,467$18,312 for fiscal
20172021, $1,500 of which was offset by receipts under the RADx grant initiative (see Note 14,“National Institutes of Health Contracts”
and
which largely related to
laboratory equipment,expanding manufacturing
equipment and a new business intelligence system.capacity. During fiscal
20182022 our capital expenditures are estimated to
range betweentotal approximately
$4,000$15,000, comprised of approximately $12,000 and $3,000 in the Diagnostics and Life Science segments, respectively. Included within the Diagnostics segment capital expenditures estimate is approximately $8,700 related to
$5,000, withcompletion of the
actual amount dependent upon actual operating results manufacturing capacityscale-up
and
the phasing of certain projects.automation initiatives for Revogene assay production. Such expenditures may be funded with cash and
cash equivalents on hand, operating cash flows, and/or availability under the
$30,000$200,000 revolving credit facility discussed above.
- 43 -
Known In addition, a portion of the Diagnostics segment expansion may be funded by $4,000 remaining under the previously noted RADx grant entered into on February 1, 2021 (see Note 14,“National Institutes of Health Contracts”
Contractual
Obligations:KnownObligations
In addition to the obligations related to the above-noted revolving credit facility and the contingent government grant obligations detailed in Note 10,“Bank Credit Arrangements”
“Contingent Obligations andNon-Current
Liabilities” contractual obligations and their related due dates were as follows as of September 30,
2017: | | | | | | | | | | | | | | | | | | | | |
| | | Total | | | Less than 1
Year | | | 1-3 Years | | | 4-5 Years | | | More than
5 Years | |
Operating leases(1) | | $ | 5,593 | | | $ | 1,978 | | | $ | 2,424 | | | $ | 766 | | | $ | 425 | |
Purchase obligations(2) | | | 21,764 | | | | 18,885 | | | | 2,879 | | | | — | | | | — | |
Loan principal payments(3) | | | 54,750 | | | | 4,500 | | | | 50,250 | | | | — | | | | — | |
Scheduled interest payments(3) | | | 4,581 | | | | 1,487 | | | | 3,094 | | | | — | | | | — | |
Uncertain income tax positions liability and interest(4) | | | 682 | | | | 682 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 87,370 | | | $ | 27,532 | | | $ | 58,647 | | | $ | 766 | | | $ | 425 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | Total | | | Less than 1
Year | | | 1-3 Years | | | 4-5 Years | | | More than
5 Years | |
| | $ | 6,239 | | | $ | 2,194 | | | $ | 2,736 | | | $ | 1,244 | | | $ | 65 | |
| | | 51,295 | | | | 49,537 | | | | 1,554 | | | | 204 | | | | — | |
Acquisition price holdback (3) | | | 1,000 | | | | — | | | | 1,000 | | | | — | | | | — | |
Uncertain income tax positions liability and interest (4) | | | 870 | | | | 870 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | $ | 59,404 | | | $ | 52,601 | | | $ | 5,290 | | | $ | 1,448 | | | $ | 65 | |
| | | | | | | | | | | | | | | | | | | | | |
| (1) | Meridian and its subsidiaries are lesseesparties to a number of (i)operating lease agreements around the world, the majority of which relate to office and warehouse buildings in Ohio, Massachusetts, Florida, Australia, Belgium, France, Germany, Singapore, China and the U.K.; (ii) automobiles for use by the diagnostic direct sales forces in the U.S. and Europe; and (iii) certain office equipment such as facsimile and copier machines across all business units, under operating lease agreements that expirebuilding leases expiring at various dates. |
| (2) | Purchase obligations relate primarily to outstanding purchase orders for machinery and equipment, inventory, including instruments, service items, and research and development activities. These contractual commitments are not in excess of expected production requirements over the next twelve months. |
| (3) | These principal and interest payments relatePursuant to the $60,000 five-year term loan with a commercial bank entered into in connection withpurchase agreement related to the July 31, 2021 acquisition of Magellan,the BreathTek business, Meridian’s remaining consideration to be paid totals $1,000 and reflect the impactis comprised solely of an interest rate swap agreement with the commercial bank, which effectively converts the variable interest rate on the term loan to a fixed rate of 2.76%. The details of the loan and the interest rate swap are set forth in Note 4 of the accompanying Consolidated Financial Statements.purchase price holdback. |
| (4) | As of September 30, 2017, our liabilities for uncertain tax positions and related interest and penalties were $517 and $165, respectively. Due to inherent uncertainties in the timing of settlement of tax positions, we are unable to estimate the timing of the effective settlement of these obligations. |
Other Commitments and
Off-Balance
Sheet Arrangements:
Meridian has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related
products. Approximately 90%products, with such percentages generally ranging from approximately 3% to 10%. During fiscal 2021, royalty expense totaled approximately $5,200, with 25% and 75% of
our royalty expenses relatesuch expense relating to our Diagnostics
operating segment, where theand Life Science segments, respectively. This compares to a total of approximately $1,850 of royalty
rates range from 4%expense in fiscal 2020, with 81% and 19% relating to
8%.our Diagnostics and Life Science segments, respectively. Meridian expects that payments under these agreements will amount to approximately
$2,500$3,000 in fiscal
2018.2022.
Off-Balance
Sheet Arrangements
We
utilize foreign currency exchange forward contracts to limit exposure to volatility in foreign currency gains and losses related to financial assets denominated in other than the holding subsidiary’s functional currency. These contracts are generally settled within a30-day
time frame and are not formally designated or accounted for as accounting hedges. We also utilize interest rate swap agreements to limit exposure to volatility in the LIBOR interest rate in connection with the revolving credit facility. The interest rate swap agreements are designated and accounted for as accounting hedges (see Note 3,“Fair Value Measurements”
do not utilize special-purpose financing vehicles or have
any material undisclosed
off-balance
sheet arrangements.- 44 -
We have market risk exposure related to foreign currency transactions from our operations outside the
United States,U.S., as well as certain suppliers to our domestic businesses located outside the
United States.U.S. The foreign currencies where we have market risk exposure are the Australian dollar, British pound,
Canadian dollar, Chinese yuan, Euro, and
Singapore dollar.New Israeli shekel. Assessing foreign currency exposures is a component of our overall ongoing risk management process, with such currency risks managed as we deem appropriate.
Concentration of Customers/Products Risk
Our Diagnostics segment’s revenues from sales
through two U.S. distributorsto three customers were
29%33% and 32% of the
Diagnostics segment’s total
revenues or 21% of consolidatednet revenues for fiscal
2017.2021 and 2020, respectively, or 13% and 15% of consolidated net revenues in each fiscal year. Additionally,
five of our
three major Diagnostics segment product families
– gastrointestinal, respiratory illnesses and blood chemistry – accounted for
81%80% and 82% of our Diagnostics segment’s
third-partynet revenues during fiscal
2017,2021 and
58%2020, respectively, or 32% and 39% of
our fiscal 2017each year’s consolidated
net revenues.
Our Life Science segment’s revenues from sales
of purified antigens and reagents to
twothree diagnostics manufacturing customers were
17%22% and 30% of the
Life Science segment’s total
net revenues for fiscal
2017,2021 and
5%2020, respectively or 13% and 16% of consolidated net revenues in each fiscal year. Additionally, sales of products related toCOVID-19
accounted for 59% and 54% of our
Life Science segment’s net revenues during fiscal
20172021 and 2020, respectively, or 35% and 28% of each year’s consolidated
net revenues.
Critical Accounting Policies
:
The
consolidated financial statementsConsolidated Financial Statements included in this
Annual Report on Form
10-K
have been prepared in accordance with accounting principlesU.S. generally accepted in the United States.accounting principles. Such accounting principles require management to make judgments about estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Listed below are the accounting policies management believes to be critical to understanding the accompanying Consolidated Financial Statements, along with reference to location of the policy discussion within the accompanying financial statements.Consolidated Financial Statements. The listed policies are considered critical due to the fact that application of such polices requires the use of significant estimates and assumptions, and the carrying values of related assets and liabilities are material.
| | | | |
| | Location
Within Consolidated
Financial Statements
| | Examples of Key Estimate Assumptions |
Inventories | | Note 1(f) | | Slow-moving, excess & obsolete inventories |
| | |
Intangible AssetsGoodwill | | Note 1(h) | | Triggering events and impairment conditionsDiscounted cash flow assumptions (e.g., long-term growth rates, discount rate, EBITDA) |
| | |
| Revenue Recognition | | Note 1(i) | | Distributor price adjustments and fee accruals |
| | |
| Income Taxes | | Note 1(k)1(l) and Note 511 | | Uncertain tax positions and state apportionment factors |
- 45 -
Recent Accounting Pronouncements
:
In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers, which supersedes and replaces nearly all currently-existing U.S. GAAP revenue recognition guidance including related disclosure requirements. This guidance, including any clarification guidance thereon, will be effective for the Company beginning October 1, 2018 (fiscal 2019). The Company has prepared an inventory
A description of
its existing revenue streams and a preliminary analysis of the revenue recognition criteria applying ASU2014-09. This analysis is preliminary and our overall assessment is not yet complete. However, based on the analysis completed to date, aside from certain expanded disclosure requirements, the Company does not currently anticipate that its planned adoption of ASU2014-09 on a modified retrospective basis will have a material impact on its financial statements.In February 2016, the FASB issued ASU2016-02,Leases, which amends the accounting guidance related to leases. These changes, which are designed to increase transparency and comparability among organizations for both lessees and lessors, include, among other things, requiring recognition of lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Adoption and implementation of the guidance is not requiredpronouncements recently adopted by the Company, until the beginning of fiscal 2020, although early adoption is permitted. The Company expects to begin its assessment of the impact that adoption of this guidance will have on its financial statements in fiscal 2018.
In March 2016, the FASBas well as accounting pronouncements issued ASU2016-09,Improvements to Employee Share-Based Payment Accounting, which amends the accounting for share-based payment transactions. These changes, which are designed for simplification, involve several aspects of the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Adoption and implementation of the guidance isbut not requiredyet adopted by the Company, until the beginningare set forth in Note 1(s),
“Summary of fiscal 2018, although early adoption is permitted. The Company has assessed the impact that adoption of this guidance will have, and believes that the impact will primarily relate to the treatment Significant Accounting Policies- Recent Accounting Pronouncements”
of the
differences between stock compensation expense recorded in the Company’s financial statements and the stock compensation ultimately deducted on its tax returns. The tax effect of such differences is currently recorded in additionalpaid-in capital and reflected within the financing activities section of the statement of cash flows. Upon adoption of this guidance, these tax effects will be required to be recorded directly to income tax expense and reflected within the operating activities section of the statement of cash flows. While the impact of this guidance, which the Company plans to adopt on a prospective basis at the beginning of fiscal 2018, is dependent on numerous factors (e.g., the market price of the Company’s common stock on the equity award grant date, the exercise/lapse dates of equity awards, and the market price of the Company’s common stock on such exercise/lapse dates), based on the lapsing of a significant equity grant in November 2017, adoption is expected to increase the Company’s fiscal 2018 effective tax rate by approximately one percentage point.- 46 -
In August 2016, the FASB issued ASU2016-15,Classification of Certain Cash Receipts and Cash Payments. The update addresses certain specific cash flows and their treatment, with the objective being to reduce the existing diversity in how the items are presented and classified within the statement of cash flows. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2019, although early adoption is permitted. Adoption of this guidance is not expected to have a significant impact on the Company’s statement of cash flows.
In October 2016, the FASB issued ASU2016-16,Intra-Entity Transfers of Assets Other Than Inventory, which intends to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2019, although early adoption is permitted. While the Company has not yet completed its assessment of the impact that adoption of this guidance will have on its financial statements, in light of the levels of such transfer activity within the Company, adoption of this guidance is not expected to have a significant impact on the Company’s consolidated results of operations, cash flows or financial position.
In January 2017, the FASB issued ASUNo. 2017-04,Simplifying the Test for Goodwill Impairment, which serves to simplify the process of testing for goodwill impairment by eliminating the “Step 2” comparison of a reporting unit’simplied fair value to its carrying amount. The guidance requires an entity to compare a reporting unit’s fair value to its carrying amount, and if the carrying amount exceeds the fair value, an impairment equal to the excess carrying amount is recorded; no Step 2 implied fair value comparison is required. The Company early adopted this guidance during the third quarter of fiscal 2017, as permitted. See Note 1(h) for discussion of Magellan’s goodwill impairment.
Consolidated Financial Statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See
Capital Resources and Market Risk Exposure
and Capital Resources underabove within Item 7,
above beginning on page
29.35.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
All other supplemental schedules are omitted due to the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or Notes thereto.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange ActRule 13a-15(f).
The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2021, based on the framework and criteria in the 2013Internal Control – Integrated Framework,
The Company’s independent registered public accounting firm has issued an attestation report on the registrant’s internal control over financial reporting.
| | | | |
| | | | |
| Jack Kenny | | | | Bryan T. Baldasare |
| Chief Executive Officer | | | | Executive Vice President and |
| November 23, 2021 | | | | Chief Financial Officer |
| | | | November 23, 2021 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors
and Shareholdersof Meridian Bioscience, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”)Company) as of September 30, 2017 and 2016, and2021, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years inyear then ended, and the period ended September 30, 2017. Our audits of the basicrelated notes and consolidated financial statements included the financial statement schedule listed in the index appearing under Schedule No. II. Index to Annual Report on Form 10-K at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 23, 2021, expressed an unqualified opinion thereon.
These financial statements
and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
thesethe Company’s financial statements
and financial statement schedule based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our
auditsaudit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. Anmisstatement, whether due to error or fraud. Our audit
includesincluded performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supportingregarding the amounts and disclosures in the financial statements.
AnOur audit also
includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial
statement presentation.statements. We believe that our
audits provideaudit provides a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| | |
| | Evaluation of Goodwill Impairment for the Diagnostics Reporting Unit |
| |
Description of the Matter | | At September 30, 2021, the Company has recorded goodwill of $94.9 million within the Diagnostics reporting unit (within the Diagnostics reportable segment). As discussed in Note 1 to the consolidated financial statements, goodwill is tested for impairment annually at the beginning of the fourth quarter, or more frequently if indicators of potential impairment exist. Auditing management’s annual goodwill impairment test related to Diagnostics reporting unit was especially challenging due to the complexity of forecasting the long-term cash flows of the Diagnostics reporting unit and the estimation uncertainty of certain assumptions included within such forecasts. The estimation uncertainty was primarily due to the sensitivity of the Diagnostic reporting unit’s fair value to changes in the significant assumptions used in the income approach, such as forecasted net revenues, earnings before interest, taxes, depreciation and amortization (EBITDA) margins, long-term growth rates, and discount rates. These significant assumptions require a high degree of estimation and judgment based on an evaluation of historical performance, current industry and macroeconomic conditions. |
| | |
| |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual goodwill impairment process, including controls over management’s review of the significant assumptions described above and controls over management’s review of its financial forecasts and carrying value of the Diagnostics reporting unit. To test the estimated fair value of the Diagnostics reporting unit, we performed audit procedures that included, among others, involving an internal valuation specialist to assist in our evaluation of the methodologies and certain significant assumptions used by the Company. We assessed the reasonableness of the Company’s assumptions around forecasted net revenues, EBITDA margins, long-term growth rates, and discount rates by comparing those assumptions to recent historical performance, current economic and industry trends, and financial forecasts. We also assessed the reasonableness of estimates included in the Company’s Diagnostics reporting unit financial forecast by evaluating how such assumptions compared to economic, industry, and peer expectations. We evaluated management’s historical accuracy of forecasting Diagnostics reporting unit net revenues and EBITDA margins by comparing past forecasts to subsequent actual activity. We performed various sensitivity analyses around these significant assumptions to understand the impact on the fair value calculation. |
We have served as the Company’s auditor since 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Meridian Bioscience, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the years ended September 30, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Meridian Bioscience, Inc. and subsidiariesthe Company as of September 30, 2017 and 2016,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended September 30, 20172020 and 2019, in conformity with accounting principles generally accepted in the United States of America. Also
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We served as the Company’s auditor from 2005 to 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Meridian Bioscience, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Meridian Bioscience, Inc.’s (the Company) internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the
related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,Company maintained, in all material respects,
effective internal control over financial reporting as of September 30, 2021, based on the
information set forth therein.COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the
Company’s internal control over financial reportingconsolidated balance sheet of the Company as of September 30,
2017, based on criteria established2021, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year then ended, and the related notes and consolidated financial statement schedule listed in the
2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),Index to Annual Report on Form 10-K at Item 15 and our report dated November
29, 201723, 2021, expressed an
adverse opinion. |
/s/ GRANT THORNTON LLP |
Cincinnati, Ohio |
November 29, 2017 |
- 49 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Meridian Bioscience, Inc.
We have audited the internal control over financial reporting of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2017, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). unqualified opinion thereon.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Meridian Bioscience, Inc. and Subsidiaries
| | | | | | | | | | | | |
For the Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Net Revenues | | $ | 200,771 | | | $ | 196,082 | | | $ | 194,830 | |
Cost of Sales | | | 75,938 | | | | 68,295 | | | | 72,948 | |
| | | | | | | | | | | | |
Gross Profit | | | 124,833 | | | | 127,787 | | | | 121,882 | |
| | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | |
Research and development | | | 15,680 | | | | 13,815 | | | | 12,605 | |
Selling and marketing | | | 32,101 | | | | 29,871 | | | | 25,601 | |
General and administrative | | | 32,280 | | | | 30,565 | | | | 27,616 | |
CEO transition and IP defense costs | | | 762 | | | | — | | | | — | |
Goodwill impairment charge | | | 6,628 | | | | — | | | | — | |
Sales and marketing leadership reorganization costs | | | — | | | | 677 | | | | — | |
Acquisition-related costs | | | — | | | | 1,481 | | | | — | |
| | | | | | | | | | | | |
Total operating expenses | | | 87,451 | | | | 76,409 | | | | 65,822 | |
| | | | | | | | | | | | |
Operating Income | | | 37,382 | | | | 51,378 | | | | 56,060 | |
| | | |
Other Income (Expense): | | | | | | | | | | | | |
Interest income | | | 171 | | | | 67 | | | | 23 | |
Interest expense | | | (1,642 | ) | | | (897 | ) | | | — | |
Other, net | | | 518 | | | | 96 | | | | (1,020 | ) |
| | | | | | | | | | | | |
Total other expense | | | (953 | ) | | | (734 | ) | | | (997 | ) |
| | | | | | | | | | | | |
Earnings Before Income Taxes | | | 36,429 | | | | 50,644 | | | | 55,063 | |
| | | |
Income Tax Provision | | | 14,872 | | | | 18,415 | | | | 19,523 | |
| | | | | | | | | | | | |
Net Earnings | | $ | 21,557 | | | $ | 32,229 | | | $ | 35,540 | |
| | | | | | | | | | | | |
Earnings Per Share Data: | | | | | | | | | | | | |
Basic earnings per common share | | $ | 0.51 | | | $ | 0.77 | | | $ | 0.85 | |
Diluted earnings per common share | | $ | 0.51 | | | $ | 0.76 | | | $ | 0.85 | |
| | | |
Common shares used for basic earnings per common share | | | 42,188 | | | | 42,010 | | | | 41,659 | |
Effect of dilutive stock options and restricted share units | | | 383 | | | | 383 | | | | 353 | |
| | | | | | | | | | | | |
Common shares used for diluted earnings per common share | | | 42,571 | | | | 42,393 | | | | 42,012 | |
| | | | | | | | | | | | |
Dividends declared per common share | | $ | 0.575 | | | $ | 0.80 | | | $ | 0.80 | |
| | | |
Anti-dilutive Securities: | | | | | | | | | | | | |
Common share options and restricted share units | | | 873 | | | | 462 | | | | 551 | |
| | | | | | | | | | | | |
For the Year Ended September 30, | | | | | 2020 | | | 2019 | |
| | | | | | $ | 253,667 | | | $ | 201,014 | |
| | | | | | | 97,419 | | | | 82,286 | |
| | | | | | | | | | | | | |
| | | | | | | 156,248 | | | | 118,728 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | 23,729 | | | | 17,760 | |
| | | | | | | 26,486 | | | | 27,995 | |
General and administrative | | | | | | | 44,345 | | | | 34,044 | |
| | | | | | | 0 | | | | 0 | |
| | | | | | | 2,080 | | | | 1,583 | |
Acquisition-related costs | | | | | | | 3,890 | | | | 1,808 | |
Change in fair value of acquisition consideration and settlement | | | | | | | (6,293 | ) | | | 0 | |
| | | | | | | 687 | | | | 2,839 | |
| | | | | | | | | | | | | |
| | | | | | | 94,924 | | | | 86,029 | |
| | | | | | | | | | | | | |
| | | | | | | 61,324 | | | | 32,699 | |
| | | | |
| | | | | | | | | | | | |
| | | | | | | 142 | | | | 681 | |
| | | | | | | (2,632 | ) | | | (1,945 | ) |
| | | | | | | 0 | | | | 0 | |
| | | | | | | 459 | | | | 122 | |
| | | | | | | | | | | | | |
| | | | | | | (2,031 | ) | | | (1,142 | ) |
| | | | | | | | | | | | | |
Earnings Before Income Taxes | | | | | | | 59,293 | | | | 31,557 | |
| | | | |
| | | | | | | 13,107 | | | | 7,175 | |
| | | | | | | | | | | | | |
| | | | | | $ | 46,186 | | | $ | 24,382 | |
| | | | | | | | | | | | | �� |
| | | | | | | | | | | | |
Basic earnings per common share | | | | | | $ | 1.08 | | | $ | 0.57 | |
Diluted earnings per common share | | | | | | $ | 1.07 | | | $ | 0.57 | |
| | | | |
Common shares used for basic earnings per common share | | | | | | | 42,855 | | | | 42,571 | |
Effect of dilutive stock options and restricted share units | | | | | | | 319 | | | | 328 | |
| | | | | | | | | | | | | |
Common shares used for diluted earnings per common share | | | | | | | 43,174 | | | | 42,899 | |
| | | | | | | | | | | | | |
Dividends declared per common share | | $ | 0 | | | $ | 0 | | | $ | 0.25 | |
| | | | |
Anti-Dilutive Securities: | | | | | | | | | | | | |
| Common share options and restricted share units | | | | | | | 893 | | | | 1,129 | |
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in(in thousands)
Meridian Bioscience, Inc. and Subsidiaries
| | | | | | | | | | | | |
For the Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Net Earnings | | $ | 21,557 | | | $ | 32,229 | | | $ | 35,540 | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation adjustment | | | 1,616 | | | | (2,732 | ) | | | (2,639 | ) |
Unrealized gain (loss) on cash flow hedge | | | 1,544 | | | | (729 | ) | | | — | |
Income taxes related to items of other comprehensive income | | | (590 | ) | | | 275 | | | | — | |
| | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | 2,570 | | | | (3,186 | ) | | | (2,639 | ) |
| | | | | | | | | | | | |
Comprehensive Income | | $ | 24,127 | | | $ | 29,043 | | | $ | 32,901 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
For the Year Ended September 30, | | | | | 2020 | | | 2019 | |
| | | | | | $ | 46,186 | | | $ | 24,382 | |
Other Comprehensive Income (Loss): | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | 3,884 | | | | (802 | ) |
Unrealized gain (loss) on cash flow hedge | | | | | | | (713 | ) | | | (1,159 | ) |
Reclassification of amortization of gain on cash flow hedge | | | | | | | (308 | ) | | | (102 | ) |
Income taxes related to items of other comprehensive income (loss) | | | | | | | 252 | | | | 465 | |
| | | | | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Tax | | | | | | | 3,115 | | | | (1,598 | ) |
| | | | | | | | | | | | | |
| | | | | | $ | 49,301 | | | $ | 22,784 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
CONSOLIDATED
BALANCE SHEETS (dollars inSTATEMENTS OF CASH FLOWS (in thousands)
Meridian Bioscience, Inc. and Subsidiaries
| | | | | | | | |
As of September 30, | | 2017 | | | 2016 | |
Assets | | | | | | | | |
Current Assets: | | | | | | | | |
Cash and equivalents | | $ | 57,072 | | | $ | 47,226 | |
Accounts receivable, less allowances of $307 and $334, respectively | | | 29,106 | | | | 27,102 | |
Inventories | | | 41,493 | | | | 45,057 | |
Prepaid expenses and other current assets | | | 6,204 | | | | 7,406 | |
| | | | | | | | |
Total current assets | | | 133,875 | | | | 126,791 | |
| | | | | | | | |
Property, Plant and Equipment, at Cost: | | | | | | | | |
Land | | | 1,162 | | | | 1,155 | |
Buildings and improvements | | | 32,207 | | | | 31,487 | |
Machinery, equipment and furniture | | | 48,836 | | | | 45,085 | |
Construction in progress | | | 1,895 | | | | 1,947 | |
| | | | | | | | |
Subtotal | | | 84,100 | | | | 79,674 | |
Less: accumulated depreciation and amortization | | | 53,590 | | | | 49,224 | |
| | | | | | | | |
Net property, plant and equipment | | | 30,510 | | | | 30,450 | |
| | | | | | | | |
Other Assets: | | | | | | | | |
Goodwill | | | 54,926 | | | | 61,982 | |
Other intangible assets, net | | | 26,704 | | | | 29,855 | |
Restricted cash | | | 1,000 | | | | 1,000 | |
Deferred instrument costs, net | | | 1,368 | | | | 1,392 | |
Fair value of interest rate swap | | | 815 | | | | — | |
Deferred income taxes | | | 158 | | | | 205 | |
Other assets | | | 421 | | | | 353 | |
| | | | | | | | |
Total other assets | | | 85,392 | | | | 94,787 | |
| | | | | | | | |
Total assets | | $ | 249,777 | | | $ | 252,028 | |
| | | | | | | | |
| | | | | | | | | | | | |
For the Year Ended September 30, | | | | | 2020 | | | 2019 | |
Cash Flows From Operating Activities | | | | | | | | | | | | |
| | | | | | $ | 46,186 | | | $ | 24,382 | |
Non-cash items included in net earnings: | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | | | | | | 5,823 | | | | 5,433 | |
Amortization of intangible assets | | | | | | | 7,744 | | | | 4,531 | |
Stock compensation expense | | | | | | | 3,802 | | | | 3,251 | |
| | | | | | | 760 | | | | (817 | ) |
Losses on dispositions of long-lived assets | | | | | | | 64 | | | | 632 | |
Change in fair value of acquisition consideration and settlement | | | | | | | (6,293 | ) | | | 0 | |
Change in the following, net of acquisitions: | | | | | | | | | | | | |
| | | | | | | (971 | ) | | | (2,215 | ) |
| | | | | | | (18,977 | ) | | | 3,841 | |
Prepaid expenses and other current assets | | | | | | | (153 | ) | | | (2,143 | ) |
Accounts payable and accrued expenses | | | | | | | 7,248 | | | | (2,315 | ) |
| | | | | | | 1,435 | | | | 1,793 | |
| | | | | | | 1,308 | | | | (198 | ) |
| | | | | | | | | | | | | |
Net cash provided by operating activities | | | | | | | 47,976 | | | | 36,175 | |
| | | | | | | | | | | | | |
Cash Flows From Investing Activities | | | | | | | | | | | | |
Purchase of property, plant and equipment | | | | | | | (3,299 | ) | | | (3,797 | ) |
RADx grant proceeds offsetting cost of equipment | | | | | | | 0 | | | | 0 | |
Payment of acquisition consideration holdback | | | | | | | 0 | | | | 0 | |
Disposals of property, plant and equipment | | | | | | | 0 | | | | 669 | |
Acquisitions, net of cash acquired and holdback | | | | | | | (51,299 | ) | | | (45,324 | ) |
| | | | | | | | | | | | | |
Net cash used in investing activities | | | | | | | (54,598 | ) | | | (48,452 | ) |
| | | | | | | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | | | | | |
Proceeds from revolving credit facility | | | | | | | 50,000 | | | | 75,824 | |
Payment of acquisition consideration | | | | | | | 0 | | | | 0 | |
Payment on revolving credit facility | | | | | | | (57,000 | ) | | | 0 | |
Payment on government grant obligations | | | | | | | 0 | | | | 0 | |
Payment of debt issuance costs | | | | | | | (116 | ) | | | (489 | ) |
| | | | | | | 0 | | | | (50,250 | ) |
Proceeds from exercise of stock options | | | | | | | 3,559 | | | | 443 | |
| | | | | | | 0 | | | | (10,612 | ) |
| | | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | | | | | (3,557 | ) | | | 14,916 | |
| | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | | | | | 1,296 | | | | (1,005 | ) |
| | | | |
Net (Decrease) Increase in Cash and Cash Equivalents | | | | | | | (8,883 | ) | | | 1,634 | |
| | | | |
Cash and Cash Equivalents at Beginning of Period | | | | | | | 62,397 | | | | 60,763 | |
| | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Period | | | | | | $ | 53,514 | | | $ | 62,397 | |
| | | | | | | | | | | | | |
Supplemental Cash Flow Information:
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(dollars in(in thousands)
Meridian Bioscience, Inc. and Subsidiaries
| | | | | | | | |
As of September 30, | | 2017 | | | 2016 | |
Liabilities and Shareholders’ Equity | | | | | | | | |
Current Liabilities: | | | | | | | | |
Accounts payable | | $ | 7,719 | | | $ | 7,627 | |
Accrued employee compensation costs | | | 4,536 | | | | 7,106 | |
Current portion of acquisition consideration | | | 2,095 | | | | — | |
Other accrued expenses | | | 2,789 | | | | 2,606 | |
Current portion of long-term debt | | | 4,500 | | | | 3,750 | |
Income taxes payable | | | 1,248 | | | | 1,482 | |
| | | | | | | | |
Total current liabilities | | | 22,887 | | | | 22,571 | |
| | | | | | | | |
Non-Current Liabilities | | | | | | | | |
Acquisition consideration | | | 235 | | | | 2,383 | |
Post-employment benefits | | | 2,468 | | | | 2,305 | |
Fair value of interest rate swap | | | — | | | | 729 | |
Long-term debt | | | 50,147 | | | | 54,610 | |
Deferred income taxes | | | 4,455 | | | | 2,958 | |
| | | | | | | | |
Totalnon-current liabilities | | | 57,305 | | | | 62,985 | |
| | | | | | | | |
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, 42,207,317 and 42,106,587 issued, respectively | | | — | | | | — | |
Additionalpaid-in capital | | | 125,608 | | | | 122,356 | |
Retained earnings | | | 46,923 | | | | 49,632 | |
Accumulated other comprehensive loss | | | (2,946 | ) | | | (5,516 | ) |
| | | | | | | | |
Total shareholders’ equity | | | 169,585 | | | | 166,472 | |
| | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 249,777 | | | $ | 252,028 | |
| | | | | | | | |
| | | | | | | | |
| | | | | 2020 | |
| | | | | | | | |
| | | | | | | | |
Cash and cash equivalents | | | | | | $ | 53,514 | |
Accounts receivable, less allowances of $1,078 and $513, respectively | | | | | | | 38,512 | |
| | | | | | | 61,264 | |
Prepaid expenses and other current assets | | | | | | | 8,900 | |
| | | | | | | | | |
| | | | | | | 162,190 | |
| | | | | | | | | |
Property, Plant and Equipment: | | | | | | | | |
| | | | | | | 991 | |
Buildings and improvements | | | | | | | 32,188 | |
Machinery, equipment and furniture | | | | | | | 69,854 | |
| | | | | | | 1,200 | |
| | | | | | | | | |
| | | | | | | 104,233 | |
Less: accumulated depreciation and amortization | | | | | | | 73,113 | |
| | | | | | | | | |
Net Property, Plant and Equipment | | | | | | | 31,120 | |
| | | | | | | | | |
| | | | | | | | |
| | | | | | | 114,186 | |
Other intangible assets, net | | | | | | | 83,197 | |
| | | | | | | 6,336 | |
| | | | | | | 7,647 | |
| | | | | | | 585 | |
| | | | | | | | | |
| | | | | | | 211,951 | |
| | | | | | | | | |
| | | | | | $ | 405,261 | |
| | | | | | | | | |
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars and shares in thousands, except per share data)BALANCE SHEETS (in thousands)
Meridian Bioscience, Inc. and Subsidiaries
| | | | | | | | | | | | | | | | | | | | |
| | | Common
Shares
Issued | | | Additional
Paid-in
Capital | | | Retained
Earnings | | | Accum Other
Comp
Income
(Loss) | | | Total | |
Balance at September 30, 2014 | | | 41,622 | | | $ | 111,851 | | | $ | 48,869 | | | $ | 309 | | | $ | 161,029 | |
| | | | | | | | | | | | | | | | | | | | |
Cash dividends paid - $0.80 per share | | | — | | | | — | | | | (33,357 | ) | | | — | | | | (33,357 | ) |
Exercise of stock options | | | 187 | | | | 1,976 | | | | — | | | | — | | | | 1,976 | |
Conversion of restricted share units | | | 29 | | | | — | | | | — | | | | — | | | | — | |
Stock compensation expense | | | — | | | | 3,324 | | | | — | | | | — | | | | 3,324 | |
Net earnings | | | — | | | | — | | | | 35,540 | | | | — | | | | 35,540 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | (2,639 | ) | | | (2,639 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2015 | | | 41,838 | | | | 117,151 | | | | 51,052 | | | | (2,330 | ) | | | 165,873 | |
| | | | | | | | | | | | | | | | | | | | |
Cash dividends paid - $0.80 per share | | | — | | | | — | | | | (33,649 | ) | | | — | | | | (33,649 | ) |
Exercise of stock options | | | 152 | | | | 2,294 | | | | — | | | | — | | | | 2,294 | |
Conversion of restricted share units | | | 117 | | | | — | | | | — | | | | — | | | | — | |
Stock compensation expense | | | — | | | | 2,911 | | | | — | | | | — | | | | 2,911 | |
Net earnings | | | — | | | | — | | | | 32,229 | | | | — | | | | 32,229 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | (2,732 | ) | | | (2,732 | ) |
Hedging activity, net of tax | | | — | | | | — | | | | — | | | | (454 | ) | | | (454 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2016 | | | 42,107 | | | | 122,356 | | | | 49,632 | | | | (5,516 | ) | | | 166,472 | |
| | | | | | | | | | | | | | | | | | | | |
Cash dividends paid - $0.575 per share | | | — | | | | — | | | | (24,266 | ) | | | — | | | | (24,266 | ) |
Exercise of stock options | | | 18 | | | | (129 | ) | | | — | | | | — | | | | (129 | ) |
Conversion of restricted share units | | | 82 | | | | — | | | | — | | | | — | | | | — | |
Stock compensation expense | | | — | | | | 3,381 | | | | — | | | | — | | | | 3,381 | |
Net earnings | | | — | | | | — | | | | 21,557 | | | | — | | | | 21,557 | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | 1,616 | | | | 1,616 | |
Hedging activity, net of tax | | | — | | | | — | | | | — | | | | 954 | | | | 954 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2017 | | | 42,207 | | | $ | 125,608 | | | $ | 46,923 | | | $ | (2,946 | ) | | $ | 169,585 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | 2020 | |
Liabilities and Shareholders’ Equity | | | | | | | | |
| | | | | | | | |
| | | | | | $ | 11,969 | |
Accrued employee compensation costs | | | | | | | 16,661 | |
Accrued product recall costs | | | | | | | 0 | |
Current portion of acquisition consideration | | | | | | | 12,619 | |
Current operating lease obligations | | | | | | | 1,789 | |
Current government grant obligations | | | | | | | 600 | |
| | | | | | | 5,362 | |
| | | | | | | 3,524 | |
| | | | | | | | | |
Total Current Liabilities | | | | | | | 52,524 | |
| | | | | | | | | |
| | | | | | | | |
Acquisition consideration | | | | | | | 13,290 | |
| | | | | | | 2,493 | |
Fair value of interest rate swaps | | | | | | | 713 | |
Long-term operating lease obligations | | | | | | | 4,678 | |
| | | | | | | 68,824 | |
Government grant obligations | | | | | | | 10,524 | |
Long-term income taxes payable | | | | | | | 549 | |
| | | | | | | 3,804 | |
Other non-current liabilities | | | | | | | 233 | |
| | | | | | | | | |
Total Non-Current Liabilities | | | | | | | 105,108 | |
| | | | | | | | | |
Commitments and Contingencies | | | 0 | | | | 0 | |
| | | |
| | | | | | | | |
Preferred stock, 0 par value; 1,000,000 shares authorized; 0ne issued | | | | | | | 0— | |
Common shares, 0 par value; 71,000,000 shares authorized, 43,361,898 and 43,068,842 issued, respectively | | | | | | | 0— | |
Additional paid-in capital | | | | | | | 140,195 | |
| | | | | | | 109,294 | |
Accumulated other comprehensive income (loss) | | | | | | | (1,860 | ) |
| | | | | | | | | |
Total Shareholders’ Equity | | | | | | | 247,629 | |
| | | | | | | | | |
Total Liabilities and Shareholders’ Equity | | | | | | $ | 405,261 | |
| | | | | | | | | |
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF
CASH FLOWS (dollars in thousands)SHAREHOLDERS’ EQUITY (in thousands, except per share data)
Meridian Bioscience, Inc. and Subsidiaries
| | | | | | | | | | | | |
For the Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Cash Flows From Operating Activities | | | | | | | | | | | | |
Net earnings | | $ | 21,557 | | | $ | 32,229 | | | $ | 35,540 | |
Non-cash items included in net earnings: | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | | 4,342 | | | | 3,937 | | | | 3,470 | |
Amortization of intangible assets | | | 3,776 | | | | 2,690 | | | | 1,748 | |
Amortization of deferred instrument costs | | | 972 | | | | 1,091 | | | | 1,391 | |
Stock-based compensation | | | 3,381 | | | | 2,911 | | | | 3,324 | |
Goodwill impairment charge | | | 6,628 | | | | — | | | | — | |
Deferred income taxes | | | 1,474 | | | | (233 | ) | | | (122 | ) |
Losses on long-lived assets | | | — | | | | 659 | | | | 94 | |
Change in current assets, net of acquisition | | | 3,481 | | | | (8,115 | ) | | | (6,079 | ) |
Change in current liabilities, net of acquisition | | | (3,535 | ) | | | 2,237 | | | | 3,238 | |
Other, net | | | (721 | ) | | | (183 | ) | | | 205 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 41,355 | | | | 37,223 | | | | 42,809 | |
| | | | | | | | | | | | |
Cash Flows From Investing Activities | | | | | | | | | | | | |
Purchase of property, plant and equipment | | | (4,467 | ) | | | (4,004 | ) | | | (4,613 | ) |
Purchase of equity method investment | | | — | | | | (600 | ) | | | — | |
Proceeds from sale of assets | | | — | | | | — | | | | 1,138 | |
Purchase of intangibles and other assets | | | — | | | | — | | | | (151 | ) |
Acquisition of Magellan, net of cash acquired | | | — | | | | (62,091 | ) | | | — | |
| | | | | | | | | | | | |
Net cash used for investing activities | | | (4,467 | ) | | | (66,695 | ) | | | (3,626 | ) |
| | | | | | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | | | | | |
Dividends paid | | | (24,266 | ) | | | (33,649 | ) | | | (33,357 | ) |
Proceeds from term loan, net of issuance costs | | | — | | | | 59,860 | | | | — | |
Payments on term loan | | | (3,750 | ) | | | (1,500 | ) | | | — | |
Proceeds and tax benefits from exercises of stock options | | | 303 | | | | 2,494 | | | | 2,614 | |
| | | | | | | | | | | | |
Net cash provided by (used for) financing activities | | | (27,713 | ) | | | 27,205 | | | | (30,743 | ) |
| | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Equivalents | | | 671 | | | | (480 | ) | | | (1,514 | ) |
| | | |
Net Increase (Decrease) in Cash and Equivalents | | | 9,846 | | | | (2,747 | ) | | | 6,926 | |
| | | |
Cash and Equivalents at Beginning of Period | | | 47,226 | | | | 49,973 | | | | 43,047 | |
| | | | | | | | | | | | |
Cash and Equivalents at End of Period | | $ | 57,072 | | | $ | 47,226 | | | $ | 49,973 | |
| | | | | | | | | | | | |
Supplemental Cash Flow Information | | | | | | | | | | | | |
Cash paid for interest | | $ | 1,605 | | | $ | 879 | | | $ | — | |
Cash paid for income taxes | | $ | 12,613 | | | $ | 17,915 | | | $ | 20,168 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Common
Shares
Issued | | | Additional
Paid-in
Capital | | | Retained
Earnings | | | Accum Other
Comp
(Loss)
Income | | | Total | |
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 | | | 312 | | | | 390 | | | | — | | | | — | | | | 390 | |
Stock compensation expense | | | — | | | | 3,251 | | | | — | | | | — | | | | 3,251 | |
| | | — | | | | — | | | | 24,382 | | | | — | | | | 24,382 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | (802 | ) | | | (802 | ) |
Hedging activity, net of tax | | | — | | | | — | | | | — | | | | (944 | ) | | | (944 | ) |
| | | — | | | | — | | | | (116 | ) | | | — | | | | (116 | ) |
| | | — | | | | — | | | | (148 | ) | | | 148 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2019 | | | 42,712 | | | $ | 132,834 | | | $ | 63,108 | | | $ | (4,975 | ) | | $ | 190,967 | |
| | | | | | | | | | | | | | | | | | | | | |
Conversion of restricted share units and exercise of stock options | | | 357 | | | | 3,559 | | | | — | | | | — | | | | 3,559 | |
Stock compensation expense | | | — | | | | 3,802 | | | | — | | | | — | | | | 3,802 | |
| | | — | | | | — | | | | 46,186 | | | | — | | | | 46,186 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | 3,884 | | | | 3,884 | |
Hedging activity, net of tax | | | — | | | | — | | | | — | | | | (769 | ) | | | (769 | ) |
| | | | | | | | | | | | | | | | | | | | | |
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 | | | 293 | | | | 3,052 | | | | — | | | | — | | | | 3,052 | |
Stock compensation expense | | | — | | | | 4,156 | | | | — | | | | — | | | | 4,156 | |
| | | — | | | | — | | | | 71,407 | | | | — | | | | 71,407 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | 1,780 | | | | 1,780 | |
Hedging activity, net of tax | | | — | | | | — | | | | — | | | | 278 | | | | 278 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2021 | | | 43,362 | | | $ | 147,403 | | | $ | 180,701 | | | $ | 198 | | | $ | 328,302 | |
| | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these
consolidated financial statements.Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Meridian Bioscience, Inc. and Subsidiaries
(
dollars and shares in thousands, except per share data)
| Summary of Significant Accounting Policies |
| Nature of - Meridian is a fully-integrated life science company whose principal businesses areare: (i) the development, manufacture, sale and distribution of clinical diagnostic testtesting systems and kits, primarily for certain gastrointestinal viral,and respiratory and parasitic infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCRimmunoassay blocking reagents, specialized Polymerase Chain Reaction (“PCR”) master mixes, isothermal mixes, enzymes, nucleotides, competent cells, and bioresearch reagents used by researchers and other diagnostic manufacturers.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 che
mistry products in Billerica, Massachusetts (near Boston); 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, isothermal reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China. 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).
| Principles of Consolidation and Basis of Presentation - The consolidated financial statementsConsolidated Financial Statements include the accounts of Meridian Bioscience, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to “Meridian,” “we,” “us,” “our” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries. |
It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Consolidated Financial Statements to indicate net revenue and/or net revenues.
| The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,Consolidated Financial Statements, and the reported amounts of net revenues and expenses during the reporting period. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, government policies surrounding the containment of the ongoing COVID-19 pandemic, and changes in prices of raw materials, can have a significant effect on the results of operations. Actual results could differ from thosethe Company’s estimates. |
| Foreign Currency Translation - Assets and liabilities of foreign operations are translated using year-end exchange rates with gains or losses resulting from translation included as a separate component of accumulated other comprehensive income or loss. Revenues(loss). Net revenues and expenses are translated using exchange rates prevailing during the year. We also recognize foreign currency transaction gains and losses on certain assets and liabilities that are denominated in the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and Singapore dollarNew Israeli shekel currencies. These gains and losses are included in other income and expense(expense) in the accompanying Consolidated Statements of Operations. |
| Cash and Cash Equivalents and Investments - The primary objectives of our investment activities are to preserve capital and provide sufficient liquidity to meet operating requirements and fund strategic initiatives such as acquisitions. We maintain a written investment policy that governs the management of our investments in fixed income securities. This policy, among other things, provides that we may purchase only high credit-quality securities that have short-term ratings of at leastA-2,P-2 andF-2, and long-term ratings of at least A, Baa1 and A, by Standard & Poor’s, Moody’s and Fitch, respectively, at the time of purchase. We consider short-term investments with original maturities of 90 days or less to be cash equivalents, including overnight repurchase agreements and institutional money market funds. At times our investments of cash and cash equivalents with various high credit quality financial institutions may be in excess of the Federal Deposit Insurance Corporation (FDIC)(“FDIC”) insurance limit. |
- 58 -
Our investment portfolio includes the following components:
| | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | | September 30, 2016 | |
| | | Cash and
Equivalents | | | Other | | | Cash and
Equivalents | | | Other | |
| | | | |
Overnight repurchase agreements | | $ | — | | | $ | — | | | $ | 9,988 | | | $ | — | |
Institutional money market funds | | | 20,104 | | | | — | | | | 10,020 | | | | — | |
Cash on hand – | | | | | | | | | | | | | | | | |
Restricted | | | — | | | | 1,000 | | | | — | | | | 1,000 | |
Unrestricted | | | 36,968 | | | | — | | | | 27,218 | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 57,072 | | | $ | 1,000 | | | $ | 47,226 | | | $ | 1,000 | |
| | | | | | | | | | | | | | | | |
(f) | - Inventories are stated at the lower of cost or market.net realizable value. Cost is determined on a first-in,first-out (FIFO) (“FIFO”) basis. illumigene instruments are carried in inventory until customer placement, at which time they are transferred to deferredillumigene instrument costs, unless sold outright. Similarly, Magellan’s blood lead Diagnostic testing instruments are carried in inventory until they are sold outright or placed with a customer under Magellan’sthe customer reagent rental program, at which time they are transferred to property, plant and equipment. |
We establish reserves against cost for excess and obsolete materials, finished goods whose shelf life may expire before sale to customers, and other identified exposures.
The Company specifically considered the impact of the ongoing COVID-19 pandemic on its inventories at September 30, 2021 and 2020. Such reserves were
$2,059$4,997 and
$2,680$3,629 at September 30,
20172021 and
2016,2020, respectively. We estimate these reserves based on assumptions about future demand and market conditions. If actual demand and market conditions were to be less favorable than such estimates, additional inventory write-downs would be required and recorded in the period known.
Such adjustments would negatively affect gross profit margin and overall results of operations. | Property, Plant and Equipment - Property, plant and equipment are stated at cost. Upon retirement or other disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in net earnings. Maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line method in amounts sufficient to write-off the cost over the estimated useful lives, generally as follows: |
Buildings and improvements - 18 to 40 years
Leasehold improvements - life of the lease
Machinery, equipment and furniture - 3 to 10 years
Computer equipment and software - 3 to 5 years
Instruments under customer reagent rental arrangements - 5 years
- 59 -
Supplemental Cash Flow Information (Non-Cash Capital Expenditures)
Additions to property, plant and equipment for which cash remained unpaid
totaled $416, $236 and $108
at September 30, 2021, 2020 and 2019, respectively. | Goodwill is subject to an annual impairment review (or more frequently if impairment indicators arise) at the reporting unit level, which we perform annuallyhas historically been performed as of June 30, the endlast day of ourthe third fiscal quarter. A reporting unit is generally an operating segment or one level below an operating segment that constitutes a business for which discrete financial information is available and regularly reviewed by segment management. At September 30, 2017, we had six reporting units, fourquarter (June 30). During the third quarter of which contained goodwill (Americas Diagnostics, Bioline (molecular components), LifeScience-U.S. (immunoassay components) and Magellan). We review our reporting unit structure each year as partfiscal 2021, the Company decided to change the date of ourits annual goodwill impairment test, orassessment from June 30 to July 1. The change was made to more frequentlyclosely align the annual goodwill impairment assessment date with the Company’s annual planning and budgeting process, as well as its long-term planning and forecasting process. The Company has determined this change in accounting principle is preferable and will not affect the event of changesConsolidated Financial Statements. Pursuant to the authoritative accounting literature, in our structure. Goodwill is considered impaired iffiscal 2021 the carrying valueCompany performed a goodwill impairment assessment as of the reporting unit exceedslast day of its fair value. We have no intangible assetsfiscal 2021 third quarter (June 30), as well as July 1, to ensure that the change in goodwill impairment assessment date did not delay or avoid an impairment charge. This change is not applied retrospectively, as it is impracticable to do so because retrospective application would require application of significant estimates and assumptions with indefinite lives other than goodwill.the use of hindsight. Accordingly, the change will be applied prospectively. |
During fiscal 2017,
At September 30, 2021, we had two reporting units (Diagnostics and Life Science), both of which contained goodwill. We review our reporting unit structure annually, or more frequently if facts and circumstances warrant. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. We have 0 intangible assets with indefinite lives other than goodwill.
The historical annual impairment assessment of the Company’s goodwill as of June 30, 2021,
consisted of qualitative assessments for each of our Diagnostics and Life Science reporting units. A qualitative assessment is first performed
quantitativeto determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value using qualitative indicators. In the event that the reporting unit does not pass the qualitative assessment, the reporting unit’s carrying value is compared to its fair value, with fair value of the reporting unit estimated using market value and discounted cash flow approaches. Both our Diagnostics and Life Science reporting units satisfied the qualitative assessments as of June 30, 20172021, and no impairment was recognized. The updated annual goodwill impairment assessment of the Company’s goodwill as of July 1,
consisted of quantitative assessments for each of our
Americas Diagnostics
Bioline and Life
Science-U.S. Science reporting
units, noting the separate Magellan discussion below. As part of this assessment,units. The quantitative assessments determined fair value
as determined through a valuation performed by a third party, was calculated via both market (comparable company) and income (discounted cash flows) approaches.
The key assumptions for the market and income approaches we use to determine fair value of our reporting units are updated at least annually. Those assumptions and estimates include macroeconomic conditions, competitive activities, cost containment, market data and market multiples, discount rates, and terminal growth rates, as well as future levels of net revenues growth and operating income margins, which are based upon the Company’s strategic plan. The strategic plan is updated as part of its annual planning process and is reviewed and approved by management and the Board of Directors. The strategic plan may be revised as necessary during a fiscal year, based on changes in market conditions or other changes in the reporting units. The discount rate assumption is based on the overall after-tax rate of return required by a market participant whose weighted-average cost of capital includes both equity and debt, including a risk premium. The discount rates may be impacted by adverse changes in the macroeconomic environment, including specifically the ongoing COVID-19 pandemic, volatility in the equity and debt markets, or other facto
rs. While the Company can implement and has implemented certain strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate reporting unit fair values and could result in a decline in fair value that would trigger a future impairment charge of the reporting unit’s goodwill balance. Based upon these approaches, the fair
valuesvalue of each reporting unit exceeded
theirits carrying
values;value; therefore, each of the
Americas Diagnostics
Bioline and Life
Science-U.S. Science reporting units satisfied the quantitative assessment
for fiscal 2017.During the quarter ended June 30, 2017, the events described below occurred, indicating that impairmentat July 1, 2021. The impact of the goodwill recorded as partongoing COVID-19 pandemic has had varying impacts on the Diagnostics and Life Science reporting units, and specifically an adverse impact on the Diagnostics reporting unit. However, even in light of the Magellan acquisition had occurred.
On May 17, 2017,COVID-19 pandemic, the FDA issued a field safety notice advising customers to discontinue use of Magellan’s lead testing systems with venous blood samples. This field safety notice was followed by product recall notices on May 25th and June 5th. Magellan’s lead testing systems are capable of processing both capillary and venous blood samples. Magellan’s LeadCare Plus and LeadCare Ultra systems, which account for approximately 10% of Magellan’s annual revenues, are used predominantly with venous blood samples. Magellan’s LeadCare and LeadCare II systems are predominantly used with capillary blood samples.
Subsequent to the issuances of these field safety and product recall notices, the FDA completed an inspection of Magellan’s quality system, and issued its Form 483, Inspectional Observations, on June 29, 2017, which was expectedly followed by a Warning Letter issued on October 23, 2017. The Warning Letter requires periodic reporting on our remediation progress.
As a result of these matters, we expect to experience delays in reinstating venous blood sample testing on our LeadCare products, as well as in obtaining 510(k) clearance for new Magellan products. We also expect delays in obtaining export certifications for Magellan products during the remediation period. In light of these factors and their impacts, during our third fiscal quarter, it was determined that a potential
- 60 -
impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a “triggering event”). With the assistance of an independent valuation firm, Magellan’sestimated fair value was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, it was determined that the carrying value of the MagellanDiagnostics reporting unit, did, in fact, exceed its fair value. As a result, an impairment charge of $6,628, on both a pre-tax and after-tax basis, as calculated at July 1, 2021,
was
recorded during the third quarter and is reflected as a separate operating expense line item within the accompanying Consolidated Statement of Operations for the year ended September 30, 2017. This quantitative assessment as of May 31, 2017 was supplemented by a qualitative assessment of Magellan’s goodwill as of June 30, 2017, with such assessment indicating that no additional impairment existed.No impairments were indicated or recorded from the analyses performed for fiscal 2016 or 2015.
During fiscal 2017, goodwill decreased $7,056, reflecting (i) a $767 acquisition measurement period adjustment downward related to Magellan (Diagnostics operating segment; see Note 2); (ii) the $6,628 impairment charge related to Magellan; and (iii) a $339 increase from the currency translation adjustment on the goodwill of the Life Science segment’s Bioline Group. The increase of $39,633 in fiscal 2016 reflects the addition of $41,358 from the acquisition of Magellan and a $1,725 decrease from the currency translation adjustments related to the Bioline Group.
A summary of Meridian’s acquired intangible assets subject to amortization, as of September 30, 2017 and 2016 is as follows:
| | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
As of September 30, | | Gross
Carrying
Value | | | Accum.
Amort. | | | Gross
Carrying
Value | | | Accum.
Amort. | |
Manufacturing technologies, core products and cell lines | | $ | 22,332 | | | $ | 12,807 | | | $ | 21,921 | | | $ | 11,540 | |
Trade names, licenses and patents | | | 8,689 | | | | 4,398 | | | | 9,037 | | | | 3,947 | |
Customer lists, customer relationships and supply agreements | | | 24,562 | | | | 11,854 | | | | 24,385 | | | | 10,511 | |
Non-compete agreements | | | 720 | | | | 540 | | | | 680 | | | | 170 | |
| | | | | | | | | | | | | | | | |
| | $ | 56,303 | | | $ | 29,599 | | | $ | 56,023 | | | $ | 26,168 | |
| | | | | | | | | | | | | | | | |
The actual aggregate amortization expense for these intangible assets for fiscal 2017, 2016 and 2015 was $3,776, $2,690 and $1,748, respectively. The estimated aggregate amortization expense for these intangible assets for each of the five succeeding fiscal years is as follows: fiscal 2018 - $3,561, fiscal 2019 - $3,340, fiscal 2020 - $3,176, fiscal 2021 - $2,561 and fiscal 2022 - $2,182.
over
Long-lived assets, excluding goodwill, are reviewed for impairment when events or circumstances indicate that such assets may not be recoverable at their carrying value. Whether an event or circumstance triggers an impairment is determined by comparing an estimate of the asset’s future undiscounted cash flows to its carrying value. If impairment has occurred, it is measured by a fair-value based calculation.
- 61 -
Our ability to recover the carrying value of our
identifiable intangible assets
both identifiable intangibles and goodwill, is dependent upon the future cash flows of the related
acquired businesses and assets. We make judgments and assumptions regarding future cash flows, including
salesnet revenues levels, gross profit margins, operating expense levels, working capital levels, and capital expenditures. With respect to identifiable
intangiblesintangible assets and fixed assets, we also make judgments and assumptions regarding useful lives.
We consider the following factors in evaluating events and circumstances for possible impairment: (i) significant under-performance relative to historical or projected operating results; (ii) negative industry trends; (iii)
salesnet revenues levels of specific groups of products (related to specific identifiable intangibles); (iv) changes in overall business strategies; and (v) other factors.
If actual cash flows are less favorable than projections, this could trigger impairment of identifiable intangible assets and other long-lived assets. If impairment were to occur, this would negatively affect overall results of operations. Aside from the Magellan matter noted above, noNo triggering events have been identified by the Company for fiscal 2017, 2016 or 2015.
the years ended September 30, 2021, 2020 and 2019. | Revenue Recognition and Accounts Receivable - Revenue is generally recognized from sales when product is shipped and title has passed to the customer. Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Such fees totaled $787 in fiscal 2017. |
Revenue Recognition Policies
Revenue from contracts with customers is recognized in an amount that reflects the consideration we expect to receive in exchange for products when obligations under such contracts are satisfied. Revenue is generally recognized at a point-in-time when products are shipped, and control has passed to the Diagnostics segmentcustomer. Such contracts can include various combinations of products that are generally accounted for as distinct performance obligations.
Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Revenue is reduced at the date of sale for product price adjustments
duepayable to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals
were $4,190 at September 30, 2017 and $4,178 at September 30, 2016, and have beenare netted against accounts receivable.
Revenue for our Diagnostics segment includes revenue for ourillumigenemolecular test system. This system includes an instrument, instrument accessories
Shipping and
test kits. In markets where the test system is sold via multiple deliverable arrangements, the costhandling costs incurred after control of the
instrumentproduct is transferred to our customers are treated as fulfillment costs and
instrument accessories is deferred upon placement at a customer and amortized on a straight-line basis into cost of sales over the expected utilization period, generally three years.- 62 -
We evaluate whether each deliverable in the arrangement is a separate unit of accounting. The significant deliverables are an instrument, instrument accessories (e.g., printer) and test kits. An instrument and instrument accessories are delivered to the customer prior to the start of the customer utilization period in order to accommodate customerset-up and installation. There isde minimis consideration received from the customer at the time of instrument placement. We have determined that the instrument and instrument accessories are not a separate unitperformance obligation.
Our payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 90 days from the date of
accounting because such equipment can only be used to process and read the results from ourillumigene diagnostic tests (i.e., our instrument and test kits function together to deliver a diagnostic test result), and therefore the instrument and instrument accessories do not have standalone value to the customer. Consequently, there is no revenue allocated to the placementshipment or satisfaction of the
instrument and instrument accessories. Test kits are delivered to the customer over the utilization period of the instrument, which we estimate has a useful life of three years. Our average customer contract period, including estimated renewals, is at least equal to the estimated three-year utilization period. Revenue for the sale of test kits is recognized upon shipment and transfer of title to the customers.In markets where the test system is not sold via multiple deliverable arrangements, the cost of the instrument and instrument accessories is charged to cost of sales at the time of shipment and transfer of title to the customer. Revenue for the sales of instruments, instrument accessories and test kits is recognized upon shipment and transfer of title to the customers. In these markets, ourillumigenemolecular test system is sold to independent distributors who inventory the instruments, instrument accessories and test kits for resale toend-users.
Our products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable.
Trade accountsperformance obligation. Accounts receivable are recorded in the accompanying Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historicalwrite-off experience and known conditions that would likely lead tonon-payment. The allowance for doubtful accounts and related metrics, such as days’ sales outstanding, are reviewed monthly. Accounts with past due balances over 90 days are reviewed individually for collectibility. Customer invoices are charged off against the allowance for doubtful accounts when we believe it is probable that the invoices will not be paid.
The Company specifically considered the impact of the ongoing COVID-19 pandemic on its accounts receivable and determined there was no material impact on existing accounts receivable at September 30, 2021 2020.
Practical Expedients and Exemptions
Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.
Our diagnostic assay products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the U.S. Food and Drug Administration (“FDA”) or equivalent agencies outside the U.S. In this circumstance, the costs to replace or refund affected products would be accrued at the time a loss was probable and estimable.
We expense as incurred the costs to obtain contracts, as the amortization period would be one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities.
Reagent Rental Arrangements
Certain of our Diagnostics segment’s product platforms require the use of instruments for the tests to be processed. In many cases, a customer is given use of the instrument provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to us. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rentals”. Reagent Rentals may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not within the scope of Accounting Standards Codification (“ASC”) 606,Revenue from Contracts with Customers
For the portion of the transaction price allocated to the non-lease elements, which are principally the test kits, the related revenue is recognized at a point-in-time when control transfers.
| - Certain assets and liabilities are recorded at fair value in accordance with ASC 820-10,Fair Value Measurements and Disclosures |
| transparency and reliability of the inputs used in the valuation of such items at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). |
Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable
| Research and Development Costs - Research and development costs are charged to expense as incurred. Research and development costs include, among other things, salaries and wages for research scientists, materials and supplies used in the development of new products, costs for development of instrumentation equipment, costs for clinical trials, costs of regulatory compliance activities, and costs for facilities and equipment. |
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(k) | - The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between income for financial reporting and income for tax purposes. We prepare estimates of permanent and temporary differences between income for financial reporting purposes and income for taxta x purposes. These differences are adjusted to actual upon filing of our tax returns, typically occurring in the third and fourth quarters of the current fiscal year for the preceding fiscal year’s estimates. |
The Company has certain deferred income tax assets in select jurisdictions. The recoverability of these deferred income tax assets is assessed periodically, and valuation allowances are recognized if it is determined that it is more likely than not that the benefits will not be realized. When performing the assessment, the Company considers the ability to carryback losses to prior tax periods, future taxable income, the reversal of existing temporary differences, and tax planning strategies.
We account for uncertain tax positions using a benefit recognition model with a
two-step approach: (i) a
more-likely-than-not recognition criterion; and (ii) a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit is recorded. We recognize accrued interest related to unrecognized tax benefits as a portion of our income tax provision in the Consolidated Statements of Operations.
See Note 5.(l) | - We recognize compensation expense for all share-based awards made to employees based upon the fair value of the share-based award on the date of the grant. See Note 6(b). |
(m) | Comprehensive Income (Loss) - Comprehensive income (loss) represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders. As reflected in the accompanying Consolidated Statements of Comprehensive Income, our comprehensive income is comprised of net earnings, foreign currency translation, unrealized lossesgain (loss) on our current cash flow hedge, unrecognized gain (loss) on termination of our previous cash flow hedge, and the income taxes thereon. |
(n) | Shipping and Handling Costs - Shipping and handling costs invoiced to customers are included in net revenues. Costs to distribute products to customers, including freight costs, warehousing costs, and other shipping and handling activities are included in cost of sales. |
(o) | Non-Income Government-Assessed Taxes - We classify all non-income, government-assessed taxes (sales, use and value-added) collected from customers and remitted by us to appropriate revenue authorities, on a net basis (excluded from net revenues) in the accompanying Consolidated Statements of Operations. |
(p) | - Assets and liabilities associated with business acquisitions are recorded at fair value, using the acquisition method of accounting. The Company allocates the purchase price of acquisitions based upon the fair value of each component, which may be derived from observable or unobservable inputs and assumptions. The Company may utilize third-party valuation specialists to assist us in this allocation. Initial purchase price allocations are preliminary and subject to revision within the measurement period, generally not to exceed one year from the date of acquisition. |
| Other income (expense), net - Other income (expense), net, consists principally of transaction currency gains or losses. When a transaction is denominated in a currency other than the subsidiary’s functional currency, the Company recognizes a transaction gain or loss in other income (expense), net within the Consolidated Statements of Operations when the transaction is settled. |
| Recent Accounting Pronouncements – In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers, which supersedes and replaces nearly all currently-existing U.S. GAAP revenue recognition guidance including related disclosure requirements. This guidance, including any clarification guidance thereon, will be effective for the Company beginning October 1, 2018 (fiscal 2019). The Company has prepared an inventory of its existing revenue streams and a preliminary analysis of the revenue recognition criteria applying ASU2014-09. This analysis is preliminary and our overall assessment is not yet complete. However, based on the analysis completed to date, aside from certain expanded disclosure requirements, the Company does not currently anticipate that its planned adoption of ASU2014-09 on a modified retrospective basis will have a material impact on its financial statements. |
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On October 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13,Measurement of Credit Losses on Financial Instruments
Pronouncements Issued but Not Yet Adopted as of September 30, 2021
In
February 2016,March 2020, the FASB issued ASU
2016-02,Leases 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
amends the accounting guidance relatedmay be applied through December 31, 2022. The Company is currently evaluating ASU 2020-04 but does not expect its application to
leases. These changes, which are designed to increase transparency and comparability among organizations for both lessees and lessors, include, among other things, requiring recognition of lease assets and liabilitieshave a material impact on the
balance sheet and disclosing key information about leasing arrangements. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2020, although early adoption is permitted. The Company expects to begin its assessment of the impact that adoption of this guidance will have on its financial statements in fiscal 2018.Consolidated Financial Statements.
In
March 2016,December 2019, the FASB issued ASU
2016-09,Improvements to Employee Share-Based Payment 2019-12,Income Taxes (Topic 740): Simplifying the Accounting, which amends the for Income Taxes
share-based payment transactions. These changes, which are designedincome taxes by eliminating certain exceptions for simplification, involve several aspects ofintra-period tax allocation principles, the accountingmethodology for share-based transactions, including thecalculating income tax consequences, classificationrates in an interim period, and recognition of awards as either equity or liabilities, and classification on the statement of cash flows. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2018, although early adoption is permitted. The Company has assessed the impact that adoption of this guidance will have, and believes that the impact will primarily relate to the treatment of thedeferred taxes for outside basis differences between stock compensation expense recorded in the Company’s financial statements and the stock compensation ultimately deducted on its tax returns. The tax effect of such differences is currently recorded in additionalpaid-in capital and reflected within the financing activities section of the statement of cash flows. Upon adoption of this guidance, these tax effectsan investment, among other updates. ASU 2019-12 will be required to be recorded directly to income tax expense and reflected within the operating activities section of the statement of cash flows. While the impact of this guidance, which the Company plans to adopt on a prospective basis at the beginning of fiscal 2018, is dependent on numerous factors (e.g., the market price of the Company’s common stock on the equity award grant date, the exercise/lapse dates of equity awards, and the market price of the Company’s common stock on such exercise/lapse dates), based on the lapsing of a significant equity grant in November 2017, adoption is expected to increaseeffective for the Company’s fiscal 2018 effective tax rate by approximately one percentage point.In August 2016, the FASB issuedyear beginning on October 1, 2021.
The Companyis currently evaluating ASU2016-15,Classification of Certain Cash Receipts and Cash Payments. The update addresses certain specific cash flows and their treatment, with the objective being to reduce the existing diversity in how the items are presented and classified within the statement of cash flows. Adoption and implementation of the guidance is 2019-12
but does not
required by the Company until the beginning of fiscal 2019, although early adoption is permitted. Adoption of this guidance is not expectedexpect its application to have a
significantmaterial impact on the
Company’s statementConsolidated Financial Statements.
The following tables present our net revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics
Net Revenues by Reportable Segment & Geographic Region
| | | | | | | | | | | | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
| | $ | 101,293 | | | $ | 97,228 | | | $ | 110,109 | |
| | | 24,475 | | | | 21,826 | | | | 23,888 | |
| | | 1,992 | | | | 2,078 | | | | 2,685 | |
| | | | | | | | | | | | | |
| | | 127,760 | | | | 121,132 | | | | 136,682 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 46,063 | | | | 37,391 | | | | 19,441 | |
| | | 93,655 | | | | 58,125 | | | | 28,850 | |
| | | 50,418 | | | | 37,019 | | | | 16,041 | |
| | | | | | | | | | | | | |
| | | 190,136 | | | | 132,535 | | | | 64,332 | |
| | | | | | | | | | | | | |
| Consolidated | | $ | 317,896 | | | $ | 253,667 | | | $ | 201,014 | |
| | | | | | | | | | | | | |
Net Revenues by Product Platform/Type
| | | | | | | | | | | | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
| | $ | 19,037 | | | $ | 21,907 | | | $ | 26,283 | |
| | | 108,723 | | | | 99,225 | | | | 110,399 | |
| | | | | | | | | | | | | |
| | $ | 127,760 | | | $ | 121,132 | | | $ | 136,682 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | $ | 130,537 | | | $ | 78,431 | | | $ | 23,261 | |
| | | 59,599 | | | | 54,104 | | | | 41,071 | |
| | | | | | | | | | | | | |
| | $ | 190,136 | | | $ | 132,535 | | | $ | 64,332 | |
| | | | | | | | | | | | | |
Net Revenues by Disease State (Diagnostics only)
| | | | | | | | | | | | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
| | $ | 68,890 | | | $ | 55,040 | | | $ | 68,982 | |
Respiratory illness assays | | | 17,608 | | | | 26,694 | | | | 26,622 | |
| | | 15,398 | | | | 17,534 | | | | 18,639 | |
| | | 25,864 | | | | 21,864 | | | | 22,439 | |
| | | | | | | | | | | | | |
| | $ | 127,760 | | | $ | 121,132 | | | $ | 136,682 | |
| | | | | | | | | | | | | |
Royalty income received from a third party related to sales of
Assets Other Than Inventoryproducts, totaled approximately $6,330, which intends to improve the accounting$3,540
and for the
income tax consequencesyears ended September 30, 2021, respectively. Such revenue is included as part of
intra-entity transfers of assets other than inventory. AdoptionNon-molecular assays and
implementation of the guidance is not required by the Company until the beginning of fiscal 2019, although early adoption is permitted. While the Company has not yet completed its assessment of the impact that adoption of this guidance will have on its financial statements, in light of the levels of such transfer activityOther within the
Company, adoptionRevenue by Product Platform/Type and Revenue by Disease State tables, respectively, above.
Reagent Rental Arrangements
Revenue allocated to the excess carrying amountlease elements of Reagent Rental arrangements totaled approximately $3,710
$4,150 for the years ended September 30, 2021
, respectively. Such revenue is
recorded; no Step 2 implied fair value comparison is required. The Company early adopted this guidance during the third quarterincluded as part of
fiscal 2017, as permitted. See Note 1(h) for discussion of Magellan’s goodwill impairment.(q) | Reclassifications - Certain reclassifications have been made to the prior fiscal year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity. |
On March 24, 2016, we acquired all of the outstanding common stock of Magellan Biosciences, Inc., and its wholly-owned subsidiary Magellan Diagnostics, Inc. (collectively, “Magellan”), for $67,874, utilizing the proceeds from a new $60,000 five-year term loan and cash and equivalents on hand. An amount of the acquisition consideration totaling $2,330 remains payable to the sellers, pending the realization of tax benefits for certain net operating loss carryforwards in future tax returns, which is expected to be paid in fiscal 2018 and fiscal 2019 upon filing of our U.S. tax returns. Headquartered near Boston, Massachusetts, Magellan is a leading manufacturer ofFDA-cleared products for thepoint-of-care testing of blood to diagnose lead poisoning in children and adults.
As a result of the consideration paid exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $40,591 was originally recorded in connection with this acquisition, none of which is deductible for tax purposes. As of June 30, 2017, the goodwill recorded in connection with the acquisition was written down to $33,963 (see Note 1(h) for a discussion of the $6,628 impairment write-down). This goodwill results largely from the addition of Magellan’s complementary customer base and distribution channels, industry reputation in the U.S. as a leader in lead testing, and management talent and workforce. Our fiscal 2016 Consolidated Statement of Operations includes $1,105 of acquisition-related costs related to the Magellan acquisition, which are reflected as Operating Expenses.
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The Magellan results of operations, which are includedrevenues in our fiscal 2017 and fiscal 2016 Consolidated Statements of Operations and reported as part of the Diagnostics operating segment, include:
Operations. | (i) | $0 and $181 of cost of sales in fiscal 2017 and fiscal 2016, respectively, related to theroll-out of fair value inventory adjustments for sales of products that were in Magellan’s inventory on the date of acquisition and, therefore, were valued at fair value, rather than manufactured cost, in the opening balance sheet; and |
| (ii) | $2,736 and $1,311 of general and administrative expenses in fiscal 2017 and fiscal 2016, respectively, related to the amortization of specific identifiable intangible assets recorded on the opening balance sheet including customer relationships, technology,non-compete agreements and trade names. |
The results of Magellan included in the Company’s accompanying consolidated results are as follows, reflecting the items noted above, including the $6,628 goodwill impairment charge, and excluding interest expense on the debt secured by Meridian in connection with the transaction:
| | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2,015 | |
Net Revenues | | $ | 18,061 | | | $ | 10,034 | | | $ | — | |
Net Earnings | | $ | (5,916 | ) | | $ | 848 | | | $ | — | |
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The recognized amounts of identifiable assets acquired and liabilities assumed in the acquisition of Magellan are as follows:
| | | | | | | | | | | | |
| | | March 24,
2016
(as initially
reported) | | | Measurement
Period
Adjustments | | | March 24,
2016
(as adjusted) | |
Fair value of assets acquired - | | | | | | | | | | | | |
Cash and equivalents | | $ | 3,400 | | | $ | — | | | $ | 3,400 | |
Accounts receivable | | | 1,700 | | | | — | | | | 1,700 | |
Inventories | | | 1,400 | | | | — | | | | 1,400 | |
Other current assets | | | 300 | | | | — | | | | 300 | |
Property, plant and equipment | | | 2,800 | | | | (200 | ) | | | 2,600 | |
Goodwill | | | 42,800 | | | | (2,200 | ) | | | 40,600 | |
Other intangible assets (estimated useful life): | | | | | | | | | | | | |
Customer relationships (15 years) | | | 12,600 | | | | 300 | | | | 12,900 | |
Technology (10 years) | | | 10,600 | | | | 300 | | | | 10,900 | |
Non-compete agreements (2 years) | | | 700 | | | | — | | | | 700 | |
Trade names (approximate 9 year weighted average) | | | 3,700 | | | | (700 | ) | | | 3,000 | |
| | | | | | | | | | | | |
| | | 80,000 | | | | (2,500 | ) | | | 77,500 | |
Fair value of liabilities assumed - | | | | | | | | | | | | |
Accounts payable and accrued expenses | | | 1,600 | | | | 100 | | | | 1,700 | |
Deferred income tax liabilities | | | 10,600 | | | | (2,700 | ) | | | 7,900 | |
| | | | | | | | | | | | |
Total consideration paid (including $2,400 accrued to be paid) | | $ | 67,800 | | | $ | 100 | | | $ | 67,900 | |
| | | | | | | | | | | | |
The consolidated pro forma results of the combined entities of Meridian and Magellan, had the acquisition date been October 1, 2015, are as follows for the periods indicated:
| | | | | | | | |
| | | (UNAUDITED) | |
| | | Fiscal Year Ended September 30, | |
| | | 2017 | | | 2016 | |
Net Revenues | | $ | 200,771 | | | $ | 203,720 | |
Net Earnings | | $ | 21,557 | | | $ | 32,226 | |
These pro forma amounts have been calculated by including the results of Magellan, and adjusting the combined results to give effect to the following, as if the acquisition had been consummated on October 1, 2015, together with the consequential tax effects thereon:
| (i) | remove the effect of transaction costs incurred by the Company ($1,105 in fiscal 2016); |
| (ii) | reflect the additional depreciation and amortization that would have been charged in connection with the fair value adjustments to inventory, property, plant and equipment, and identifiable intangible assets ($1,412 in fiscal 2016); |
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| (iii) | reflect the additional stock compensation expense related to equity-based awards granted under the Company’s 2012 Stock Incentive Plan to certain Magellan employees in accordance with executed employee agreements, and to certain Meridian employees to reward them for their efforts in connection with the transaction ($95 in fiscal 2016); and |
| (iv) | reflect the additional interest expense that would have been incurred on the Company’s $60,000 term note ($789 in fiscal 2016). |
Inventories are comprised of the following:
| | | | | | | | |
As of September 30, | | 2017 | | | 2016 | |
Raw materials | | $ | 6,575 | | | $ | 7,639 | |
Work-in-process | | | 11,559 | | | | 13,146 | |
Finished goods - instruments | | | 1,460 | | | | 2,378 | |
Finished goods - kits and reagents | | | 21,899 | | | | 21,894 | |
| | | | | | | | |
Total | | $ | 41,493 | | | $ | 45,057 | |
| | | | | | | | |
(4) | Bank Credit Arrangements |
In connection with the acquisition of Magellan (see Note 2), on March 22, 2016 the Company entered into a $60,000 five-year term loan with a commercial bank. The term loan requires quarterly principal and interest payments, with interest at a variable rate tied to LIBOR, and a balloon principal payment due March 31, 2021. The required principal payments on the term loan for each of the remaining fiscal years are as follows: fiscal 2018 - $4,500, fiscal 2019 - $5,250, fiscal 2020 - $6,000, and fiscal 2021 - $39,000. In light of the term loan’s interest being determined on a variable rate basis, the fair value of the term loan at September 30, 2017 approximates the current carrying value reflected in the accompanying Consolidated Balance Sheet.
In order to
To limit exposure to volatility in the LIBOR interest rate, the Company
and the commercial bank alsohas entered into
an interest rate swap
thatagreements, which effectively
convertsconvert the variable interest rate on
$50,000 of the
term loanoutstanding revolving credit facility discussed in Note 10 to a fixed
rate of 2.76%. With an initial notional balance of $60,000, the interest rate swap was established with critical terms identical to those of the term loan, including (i) notional reduction amounts and dates; (ii) LIBOR settlement rates; (iii) rate reset dates; and (iv) term/maturity. Due to this, the interest swap has been designated as an effective cash flow hedge, with changes inrate. The fair
value reflected as a separate component of other comprehensive income in the accompanying Consolidated Statements of Comprehensive Income. At September 30, 2017 and 2016, the fair valuevalues of the interest rate swap
was an asset of $815 and a liability of $729, respectively, and is reflected as anon-current asset andnon-current liability, respectively, in the accompanying Consolidated Balance Sheets. This fair value wasagreements were determined by reference to a
third partythird-party valuation and is considered a Level 2 input within the fair value hierarchy of valuation techniques.
As indicated in Note 4, we acquired the BreathTek business and Exalenz Bioscience Ltd. (“Exalenz”) in fiscal 2021 and 2020, respectively. In the BreathTek acquisition, 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.
In the Exalenz acquisition, the fair values of the acquired accounts receivable, inventories, property plant and equipment, and other current assets, and the fair values of the assumed accounts payable and accrued expenses, were valued using Level 2 inputs, which included data points that were observable, such as appraisals or established values of comparable assets (market approach). Identifiable intangible assets and contingent consideration were valued using Level 3 inputs, which are unobservable by nature,a
nd included internal estimates of future cash flows (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. Management engaged a third-party valuation firm to assist in the determination of acquisition fair values, and specifically those considered Level 3 measurements. Management ultimately maintained oversight over the third-party valuation firm to ensure that the transaction-specific assumptions were appropriate for the Company. In connection with the acquisition of the business of GenePOC, Inc. (“GenePOC”) in fiscal 2019 and subsequent amendments to modify certain terms of the agreement related to contingent consideration achievement levels and milestone dates, the Company was required to make contingent consideration payments of up to $64,000 (originally $70,000 at the acquisition date), comprised of up to $14,000 for achievement of product development milestones (originally $20,000 at the acquisition date) and up to $50,000 for achievement of certain financial targets. The fair value for the contingent consideration recognized upon the acquisition as part of the purchase price allocation was $27,202. Giving effect to subsequent agreements to modify certain terms of the agreement related to contingent consideration achievement levels and milestone dates, the fair value of the product development milestone payments were estimated by discounting the probability-weighted contingent payments to present value and presented on the Consolidated Balance Sheets based on the Company’s anticipated date of payment at each reporting period. Assumptions used in the calculations included probability of success, duration of the earn-out and discount rate, with such calculations being updated for the effect of the previously noted amendments to the contingent consideration achievement levels and milestone dates. The fair value of the financial performance target payments was determined using a Monte Carlo simulation-based model. Assumptions used in these calculations included expected net revenues, probability of certain developments, expected expenses and discount rate. In August 2021, the Company paid $20,000 to settle the contingent consideration obligation, resulting in a $909 net gain for the year ended September 30, 2021.
The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements Using
Inputs Considered as | |
| | | | | | | | | | | | | |
Interest rate swap agreements - | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | (203 | ) | | $ | 0 | | | $ | (203 | ) | | $ | 0 | |
| | $ | (713 | ) | | $ | 0 | | | $ | (713 | ) | | $ | 0 | |
Contingent consideration - | | | | | | | | | | | | | | | | |
| | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | $ | (20,909 | ) | | $ | 0 | | | $ | 0 | | | $ | (20,909 | ) |
Supplemental Cash Flow Information (Non-Cash Acquisition Consideration)
In arriving at the $20,000 settlement payment, the acquisition consideration obligation related to acquisition of the GenePOC business decreased $909 and $6,293 during the years ended September 30, 2021 and 2020, respectively, due in large part to amendment of certain terms of the original contingent consideration achievement levels and milestone dates, as well as the settlement in August 2021.
Acquisition of BreathTek Business
On July 31, 2021 (“the BreathTek acquisition date”), we acquired the BreathTek business, a urea breath te
st for the detection of, from Otsuka America Pharmaceutical, Inc. Cash consideration totaled $19,585, subject to a $1,000 holdback, which is recorded in acquisition consideration on the 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 primarily acquired BreathTek inventories and assumed the customer relationships to supply the BreathTek product in North America. The acquired inventories and customer relationships were valued on a preliminary basis at $9,855 and $9,730, respectively, with the useful life of the customer relationships estimated at five years. The Company’s fiscal 2021 consolidated results include $3,840 of net revenues from sales of BreathTek products, which contributed approximately $1,000 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 $324 for the year ended September 30, 2021. Unaudited Pro Forma Information – BreathTek
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 2020:
| | | | | | | | |
| | 2021 | | | 2020 | |
| | $ | 337,118 | | | $ | 279,573 | |
| | | 77,270 | | | | 53,305 | |
On April 30, 2020 (“the Exalenz acquisition date”), we acquired 100% of the outstanding common shares and voting interest of Exalenz, a Modi’in, Israel based provider of the BreathID Breath Test Systems (“BreathID”), a breath test platform for the detection ofCash consideration totaled 168.6 million New Israeli Shekels (“NIS”), which equated to $48,237 at the date of closing. Including debt assumed and repaid shortly after closing, the total consideration transferred was $56,305. To finance the acquisition, the Company utilized cash and cash equivalents on hand and proceeds drawn from our revolving credit facility (see Note 10).
In anticipation of the acquisition, we executed forward currency contracts to acquire the NIS required for the acquisition. As a result, the net cash outlay for the transaction prior to the repayment of debt was $47,392. The settlement of the currency contracts resulted in an $845 gain, which is reflected within other income (expense) in the Consolidated Statement of Operations for the year ended September 30, 2020.
As a result of total consideration exceeding the fair value of the net assets acquired, goodwill in the amount of $24,459 was recorded in connection with this acquisition, none of which will be deductible for U.S. tax purposes. The goodwill results largely from our ability to market and sell the BreathID system through our established customer base and distribution channels. The Consolidated Statement of Operations for the year ended September 30, 2020,
included $3,890 of acquisition-related costs related to the Exalenz acquisition, which are reflected in operating expenses. The Company’s consolidated results include the following from Exalenz:
These results, which are reported as part of the Diagnostics segment, include amortization expense related to specific identifiable assets recorded in the purchase price allocation, including a non-compete agreement, trade name, technology and customer relationships, totaling $2,960 and $1,120 for the years ended September 30, 2021 and 2020, respectively.
The following table summarizes the final (as of April 30,2021
) fair values of the identifiable assets acquired and liabilities assumed in the acquisition of Exalenz (as of the Exalenz acquisition date): | | | | |
| | | | |
Fair value of assets acquired - | | | | |
| | $ | 5,006 | |
| | | 637 | |
| | | 4,026 | |
| | | 2,676 | |
Property, plant and equipment | | | 528 | |
| | | 24,459 | |
Other intangible assets (estimated useful life): | |
Non-compete agreement (5 years) | | | 110 | |
| | | 3,860 | |
| | | 6,120 | |
Customer relationships (10 years) | | | 20,640 | |
| | | 1,311 | |
| | | 7,119 | |
| | | | | |
| | | | 76,492 | |
| | | | | |
Fair value of liabilities assumed - | | | | |
Accounts payable and accrued expenses (including current portion of lease and government grant obligations) | | | 8,008 | |
Long-term lease obligations | | | 1,096 | |
Long-term government grant obligations | | | 10,792 | |
Other non-current liabilities | | | 291 | |
| | | | | |
| | | | 20,187 | |
| | | | | |
Total consideration paid (including $8,068 to pay off long-term debt) | | $ | 56,305 | |
| | | | | |
Unaudited Pro Forma Information – Exalenz
The following table provides the unaudited consolidated pro forma results for the periods presented as if Exalenz had been acquired as of the beginning of fiscal 2019. Pro forma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future.
| | | | | | | | |
| Year Ended September 30, | | 2020 | | | 2019 | |
| | $ | 261,131 | | | $ | 214,613 | |
| | | 45,843 | | | | 19,089 | |
| | | | | | | | |
| | | | | | | | | |
These pro forma amounts have been calculated by including the results of Exalenz and adjusting the combined results to give effect to the following, as if the acquisitions had been consummated on October 1, 2018, together with the consequential tax effects thereon:
| | | | | | | | |
| Year Ended September 30, | | 2020 | | | 2019 | |
Adjustments to Net Revenues | | | | | | | | |
Exalenz pre-acquisition revenues | | $ | 7,464 | | | $ | 13,599 | |
| | | | | | | | | |
Adjustments to Net Earnings | | | | | | | | |
Exalenz pre-acquisition net losses | | $ | (6,423 | ) | | $ | (4,006 | ) |
| | | | | | | | |
Meridian acquisition-related costs | | | 3,890 | | | | 0 | |
Exalenz transaction-related costs | | | 4,550 | | | | 0 | |
Gain on Exalenz purchase price currency contracts | | | (845 | ) | | | 0 | |
Remove net impact of non-continuing activities | | | (305 | ) | | | 1,441 | |
Incremental depreciation and amortization | | | (1,680 | ) | | | (3,027 | ) |
Incremental interest costs, net | | | (183 | ) | | | (728 | ) |
Tax effects of pro forma adjustments and recognizing benefit on resulting Exalenz losses | | | 653 | | | | 1,027 | |
| | | | | | | | | |
Total Adjustments to Net Earnings | | $ | (343 | ) | | $ | (5,293 | ) |
| | | | | | | | | |
On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of a Cla
ss 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 have reported to us that the control results are outside of specified ranges. As a result of the identified issue, impacted test kit lots could potentially underestimate blood lead levels when processing patient blood samples. Although we have not determined the root cause at this time, we currently believe that the issue relates to the plastic containers used for the treatment reagent, which are supplied by a firm in China. The Company is working 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. Although evaluation of the recall and the related notification process is ongoing, approximately $5,100 has been estimated and accrued as of September 30, 2021, to cover the currently estimated costs of the recall . In total, approximately
$5,600 of recall-related expense
has been
included within the Consolidated Statement of Operations for the year ended September 30, 2021. 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.
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 outlines 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 agencies and 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, 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 subpoena was issued to a current employee of Magellan. In September and October 2021, DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $
2,803, $
2,035and $
1,585of expense for attorneys’ fees related to this matter is included within the Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and 2019, respectively.
Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare II, LeadCare Plus and LeadCare Ultra testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of the Company’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the FDA or the Centers for Disease Control and Prevention (“CDC”) is necessary to protect the public health. The Company intends to fully cooperate with the FDA or CDC on any follow-up based on the third-party study.
During October 2019, the FDA performed a follow-up inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. Since the inspection, we have submitted a number of written responses to the FDA regarding the five Form FDA 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64(d)(3).
During June 2021, the FDA performed an inspection of Magellan’s manufacturing facility. As a result of this inspection, the FDA issued one Form 483 observation. On August 3, 2021, FDA sent Magellan a close-out letter for the Warning Letter that FDA issued to Magellan on October 23, 2017. FDA’s close-out letter notified Magellan that FDA has completed an evaluation of Magellan’s corrective actions in response to FDA’s Warning Letter, and based on FDA’s evaluation, Magellan has addressed the issues identified in the Warning Letter. FDA’s close-out letter also stated that future FDA inspections of Magellan and regulatory activities will further assess the adequacy and sustainability of Magellan’s corrections.
| Cash and Cash Equivalents |
Cash and cash equivalents are comprised of the following:
| | | | | | | | |
| As of September 30, | | | | | 2020 | |
Institutional money market funds | | | | | | $ | 1,017 | |
Cash on hand, unrestricted | | | | | | | 52,497 | |
| | | | | | | | | |
| | | | | | $ | 53,514 | |
| | | | | | | | | |
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.
Inventories are comprised of the following:
| | | | | | | | |
| As of September 30, | | | | | 2020 | |
| | | | | | $ | 11,966 | |
| | | | | | | 19,477 | |
Finished goods - instruments | | | | | | | 1,594 | |
Finished goods - kits and reagents | | | | | | | 28,227 | |
| | | | | | | | | |
| | | | | | $ | 61,264 | |
| | | | | | | | | |
| Goodwill and Other Intangible Assets, Net |
During fiscal 2021, goodwill increased $482, reflecting: (i) a $56 increase from the currency translation adjustment on goodwill in the Diagnostics segment; (ii) a $433 increase from the currency translation adjustment on goodwill in the Life Science segment; and (iii) a $7 decrease related to Exalenz, reflecting additional measurement period adjustments (see Note 4).
A summary of Meridian’s intangible assets subject to amortization is as follows.
| | | | | | | | | | | | | | | | |
| | | | | | 2020 | |
| | | | | | | | Gross
Carrying
Value | | | Accum.
Amort. | |
Manufacturing technologies, core products and cell lines | | | | | | | | | | $ | 62,363 | | | $ | 18,750 | |
Tradenames, licenses and patents | | | | | | | | | | | 18,425 | | | | 7,801 | |
Customer lists, customer relationships and supply agreements | | | | | | | | | | | 45,071 | | | | 16,210 | |
| | | | | | | | | | | 110 | | | | 11 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | $ | 125,969 | | | $ | 42,772 | |
| | | | | | | | | | | | | | | | | |
The aggregate amortization expense for these intangible assets for the years ended September 30, 2021, 2020 and 2019 was $8,776, $7,744 and $4,531, respectively. The estimated aggregate amortization expense for these intangible assets for each of the five succeeding fiscal years is as follows: fiscal 2022 - $9,940, fiscal 2023 - $9,925, fiscal 2024 - $9,920, fiscal 2025 - $9,915 and fiscal 2026 - $8,915.
The Company is party to several operating leases, the majority of which are related to office, warehouse and manufacturing space. The related operating lease assets and obligations are reflected within right-of-use assets, net, current operating lease obligations and long-term operating lease obligations on the Consolidated Balance Sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
The lease costs for these operating leases reflected in our Consolidated Statements of Operations, as well as the right-of-use assets, net obtained during these periods in exchange for operating lease liabilities, are as follows:
| | | | | | | | |
| Year Ended September 30, | | | | | 2020 | |
Lease costs within cost of sales | | | | | | $ | 597 | |
Lease costs within operating expenses | | | | | | | 1,286 | |
Right-of-use assets, net obtained in exchange for operating lease liabilities | | | | | | | 1,600 | |
| | | | | | | | | |
The amounts charged to expense under operating leases in fiscal 2019 tota
led $2,372. In addition, the Company
periodically enters into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the Consolidated Balance Sheets
and the related lease expense is immaterial for fiscal 2021 and 2020. The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The discount rate implicit within our leases is generally not determinable and, therefore, the Company uses its incremental borrowing rate as the basis for its discount rate. The weighted average remaining lease term for our operating leases and the weighted average discount rate used to measure our operating leases were as follows:
| | | | | | | | |
| As of September 30, | | | | | 2020 | |
Weighted average remaining lease term | | | | | | | 4.2 yrs. | |
| | | | | | | 3.7 | % |
| | | | | | | | | |
Maturities of lease liabilities by fiscal year for the Company’s operating lease liabilities were as follows as of September 30, 2021:
| | | | |
| | $ | 2,194 | |
| | | 1,558 | |
| | | 1,178 | |
| | | 918 | |
| | | 326 | |
| | | 65 | |
| | | | | |
| | | 6,239 | |
Less amount of lease payment representing interest | | | (317 | ) |
| | | | | |
Total present value of lease payments | | $ | 5,922 | |
| | | | | |
Supplemental Cash Flow Information (Cash Paid for Amounts Included in Measurement of Lease Liabilities)
| | | | | | | | |
| Year Ended September 30, | | | | | 2020 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
Operating cash flows from operating leases | | | | | | $ | 1,693 | |
| | | | | | | | | |
The Company maintains a
$30,000 revolving credit facility with a commercial bank
in an aggregate principal amount not to exceed $160,000, which expires
March 31, 2021. There were no borrowings outstandingin May 2024(see Note 17 for discussion ofthe
post Consolidated Balance Sheet date amendment to the revolving credit facility). Outstanding principal amounts bear interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR, resulting in an effective interest rate of 2.51% and 3.30% on
thisthe revolving credit facility
during fiscal 2021 and 2020, respectively. In light of the interest being determined on a variable rate basis, the fair value of the borrowings under the credit facility at
both September 30,
2017 or September 30, 2016.2021 and 2020 approximates the current carrying value reflected in the Consolidated Balance Sheets of $60,000 and $68,824,
respectively, which is consistent with a level 2 The term loan and revolving credit facility areis collateralized by the business assets of the Company’s U.S. subsidiaries and requirerequires compliance with financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the borrowingrevolving credit facility agreement. As of September 30, 2017,2021, the Company iswas in compliance with all covenants. The Company is also required to maintain a cash compensating balance with the bank
Supplemental Cash Flow Information (Interest Paid)
Cash paid for interest totaled $1,348, $2,690 and $1,405 in
the amount of $1,000,fiscal 2021, 2021 and
is in compliance with this requirement.2019, respectively. | (a) | Earnings before income taxes, and the related provision for income taxes for the years ended September 30, 2017, 2016 and 2015tax provision were as follows: |
| | | | | | | | | | | | |
Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Domestic | | $ | 31,885 | | | $ | 44,795 | | | $ | 50,653 | |
Foreign | | | 4,544 | | | | 5,849 | | | | 4,410 | |
| | | | | | | | | | | | |
Total earnings before income taxes | | $ | 36,429 | | | $ | 50,644 | | | $ | 55,063 | |
| | | | | | | | | | | | |
Provision (credit) for income taxes - | | | | | | | | | | | | |
Federal - | | | | | | | | | | | | |
Current | | $ | 11,262 | | | $ | 16,178 | | | $ | 16,152 | |
Temporary differences | | | | | | | | | | | | |
Fixed asset basis differences and depreciation | | | (181 | ) | | | (45 | ) | | | 50 | |
Intangible asset basis differences and amortization | | | (1,158 | ) | | | (744 | ) | | | (421 | ) |
Currentlynon-deductible expenses and reserves | | | 884 | | | | (694 | ) | | | 217 | |
Stock-based compensation | | | (635 | ) | | | 129 | | | | 126 | |
Net operating loss carryforwards utilized | | | 1,831 | | | | — | | | | — | |
Tax credit carryforwards utilized | | | 67 | | | | 41 | | | | 250 | |
Other, net | | | 99 | | | | 181 | | | | 19 | |
| | | | | | | | | | | | |
Subtotal | | | 12,169 | | | | 15,046 | | | | 16,393 | |
State and local | | | 1,900 | | | | 2,421 | | | | 2,236 | |
Foreign | | | 803 | | | | 948 | | | | 894 | |
| | | | | | | | | | | | |
Total income tax provision | | $ | 14,872 | | | $ | 18,415 | | | $ | 19,523 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Year Ended September 30, | | | | | 2020 | | | 2019 | |
| | | | | | $ | 9,068 | | | $ | 23,954 | |
| | | | | | | 50,225 | | | | 7,603 | |
| | | | | | | | | | | | | |
Total earnings before income taxes | | | | | | $ | 59,293 | | | $ | 31,557 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | $ | 1,173 | | | $ | 5,001 | |
| | | | | | | 744 | | | | (477 | ) |
| | | | | | | 1,170 | | | | 834 | |
| | | | | | | | | | | | |
| | | | | | | 10,194 | | | | 1,915 | |
| | | | | | | (174 | ) | | | (98 | ) |
| | | | | | | | | | | | | |
Total income tax provision | | | | | | $ | 13,107 | | | $ | 7,175 | |
| | | | | | | | | | | | | |
| (b) | The following is a reconciliation between the statutory U.S. income tax rate and the effective rate derived by dividing the provision for income taxestax provision by earnings before income taxes: |
| | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Computed income taxes at statutory rate | | $ | 12,750 | | | | 35.0 | % | | $ | 17,719 | | | | 35.0 | % | | $ | 19,264 | | | | 35.0 | % |
Increase (decrease) in taxes resulting from - | | | | | | | | | | | | | | | | | | | | | | | | |
State and local income taxes | | | 1,093 | | | | 3.0 | | | | 1,329 | | | | 2.6 | | | | 1,365 | | | | 2.5 | |
Foreign tax rate differences | | | (281 | ) | | | (0.8 | ) | | | (337 | ) | | | (0.7 | ) | | | (217 | ) | | | (0.4 | ) |
Qualified domestic production incentives | | | (1,012 | ) | | | (2.8 | ) | | | (1,290 | ) | | | (2.5 | ) | | | (1,197 | ) | | | (2.2 | ) |
Acquisition-related costs | | | — | | | | — | | | | 215 | | | | 0.4 | | | | — | | | | — | |
Uncertain tax position activity | | | 134 | | | | 0.4 | | | | 122 | | | | 0.2 | | | | (25 | ) | | | — | |
Goodwill impairment charge | | | 2,320 | | | | 6.4 | | | | — | | | | — | | | | — | | | | — | |
Valuation allowance | | | — | | | | — | | | | 327 | | | | 0.7 | | | | 7 | | | | — | |
Other, net | | | (132 | ) | | | (0.4 | ) | | | 330 | | | | 0.7 | | | | 326 | | | | 0.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 14,872 | | | | 40.8 | % | | $ | 18,415 | | | | 36.4 | % | | $ | 19,523 | | | | 35.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2020 | | | 2019 | |
Computed income taxes at statutory rate | | | | | | | | | | $ | 12,452 | | | | 21.0 | % | | $ | 6,627 | | | | 21.0 | % |
Increase (decrease) in taxes resulting from - | | | | | | | | | | | | | | | | | | | | | | | | |
State and local income taxes | | | | | | | | | | | 773 | | | | 1.3 | | | | 577 | | | | 1.8 | |
Foreign-Derived Intangible Income tax | | | | | | | | | | | (136 | ) | | | (0.2 | ) | | | (294 | ) | | | (0.9 | ) |
Global Intangible Low Taxed Income tax | | | | | | | | | | | 4,970 | | | | 8.4 | | | | 1,119 | | | | 3.5 | |
| | | | | | | | | | | (4,767 | ) | | | (8.0 | ) | | | (990 | ) | | | (3.1 | ) |
Foreign tax rate differences | | | | | | | | ) | | | (534 | ) | | | (0.9 | ) | | | 46 | | | | 0.1 | |
| | | | | | | | | | | 548 | | | | 0.9 | | | | — | | | | — | |
Uncertain tax position activity | | | | | | | | | | | 62 | | | | 0.1 | | | | 126 | | | | 0.4 | |
| | | | | | | | | | | 229 | | | | 0.3 | | | | 364 | | | | 1.2 | |
| | | | ) | | | | | | | 41 | | | | 0.1 | | | | (33 | ) | | | (0.1 | ) |
| | | | ) | | | | ) | | | (531 | ) | | | (0.9 | ) | | | (367 | ) | | | (1.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | $ | 13,107 | | | | 22.1 | % | | $ | 7,175 | | | | 22.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The Company’s GILTI and foreign tax credit details were as follows:
| | | | | | | | | | | | |
| Year Ended September 30, | | | | | 2020 | | | 2019 | |
| | | | | | $ | 23,666 | | | $ | 5,328 | |
Resulting permanent tax expense | | | | | | | 4,970 | | | | 1,119 | |
Offsetting foreign tax credit | | | | | | | (4,767 | ) | | | (990 | ) |
| | | | | | | | | | | | | |
| (c) | The components of net deferred tax liabilitiestaxes were as follows: |
| | | | | | | | |
As of September 30, | | 2017 | | | 2016 | |
Deferred tax assets - | | | | | | | | |
Valuation reserves andnon-deductible expenses | | $ | 1,762 | | | $ | 2,366 | |
Stock compensation expense not deductible | | | 3,367 | | | | 3,110 | |
Net operating loss and tax credit carryforwards | | | 743 | | | | 2,190 | |
Basis difference in equity-method investee | | | 302 | | | | 302 | |
Inventory basis differences | | | 1,269 | | | | 1,620 | |
Other | | | (289 | ) | | | 297 | |
| | | | | | | | |
Subtotal | | | 7,154 | | | | 9,885 | |
Less valuation allowance | | | (342 | ) | | | (342 | ) |
| | | | | | | | |
Deferred tax assets | | | 6,812 | | | | 9,543 | |
| | | | | | | | |
Deferred tax liabilities - | | | | | | | | |
Fixed asset basis differences and depreciation | | | (1,325 | ) | | | (1,526 | ) |
Intangible asset basis differences and amortization | | | (9,784 | ) | | | (10,770 | ) |
| | | | | | | | |
Deferred tax liabilities | | | (11,109 | ) | | | (12,296 | ) |
| | | | | | | | |
Net deferred tax liabilities | | $ | (4,297 | ) | | $ | (2,753 | ) |
| | | | | | | | |
| | | | | | | | |
| As of September 30, | | | | | 2020 | |
| | | | | | | | |
Valuation reserves and non-deductible expenses | | | | | | $ | 4,848 | |
Stock compensation expense not deductible | | | | | | | 1,804 | |
Net operating loss and tax credit carryforwards | | | | | | | 10,757 | |
Basis difference in equity-method investee | | | | | | | 302 | |
Inventories basis differences | | | | | | | 382 | |
| | | | | | | 207 | |
| | | | | | | | | |
| | | | | | | 18,300 | |
| | | | | | | (895 | ) |
| | | | | | | | | |
| | | | | | | 17,405 | |
| | | | | | | | | |
Deferred tax liabilities - | | | | | | | | |
Property, plant and equipment basis differences and depreciation | | | | | | | (4,269 | ) |
Intangible asset basis differences and amortization | | | | | | | (9,293 | ) |
| | | | | | | 0 | |
| | | | | | | | | |
| | | | | | | (13,562 | ) |
| | | | | | | | | |
| | | | | | $ | 3,843 | |
| | | | | | | | | |
For income tax purposes, we have recorded deferred tax assets related to operating loss and tax credit carryforwards of $179 in boththe U.S. and $12,532 in foreign jurisdictions totaling $546 and $197, respectively, as of September 30, 2017.2021, reduced by valuation reserves totaling $1,322. At September 30, 2016,2020, such deferred tax assets totaled $1,945$205 and $245, respectively.$10,552, respectively,
reduced by valuation reserves totaling $593. The operating loss carryforwards in foreign jurisdictions,
the majority of which relate to Israel, have no expiration date. The operating loss carryforwards in the U.S. expire
betweenin 2023
and 2036 at the federal level, and
between 2028 andin 2036 at the state level. The aggregate amount of federal, state and foreign operating loss carryforwards
total $552, $2,731separately totaled $118, $2,400 and
$697,$88,442, respectively, at September 30,
2017, and the AMT tax credit carryforward totals $133.2021. The use of the federal and state losses
and credits is limited by the change of ownership provisions of the Internal Revenue Code.
- 71 -
The Company has recognized a deferred tax liability of $865 and $185 at September 30, 2021 and 2020, respectively, to reflect the corporate and withholding tax impact of a presumed repatriation of foreign earnings.
The realization of deferred tax assets is dependent upon the generation of future taxable
incomeincome
in the applicable jurisdictions. We have considered the levels of currently anticipated
pre-tax income in U.S. and foreign jurisdictions in assessing the required level of the deferred tax asset valuation allowance including the characterization of the income as ordinary or capital. Taking into consideration historical and current operating results, and other factors, we believe that it is more likely than not that the net deferred tax asset of
$6,812$19,296 will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in future years if estimates of future taxable income are reduced.
Undistributed earnings reinvested indefinitely in ournon-U.S. operations were approximately $12,500 and $10,000 at September 30, 2017 and September 30, 2016, respectively. U.S. deferred tax liabilities of approximately $2,500 and $2,000 on such earnings, after consideration of foreign tax credits, have not been recorded as of September 30, 2017 and September 30, 2016, respectively.
As described in Note 1, we
We utilize a comprehensive model for the recognition, measurement, presentation and disclosure of uncertain tax positions, assuming full knowledge of all relevant facts by the applicable tax authorities. The total amount of unrecognized tax benefits at September 30,
20172021 and
September 30, 20162020 related to such positions was
$517$700 and
$502,$568, respectively, of which
$405$627 at September 30, 2021 would favorably
affectimpact the effective tax rate if recognized. We generally recognize interest and penalties related to uncertain tax positions as a component of our income tax provision. During fiscal
2017,2021 and 2020, such penalties and interest totaled
$35. During fiscal 2016, we increased our tax provision by approximately
$8 for such penalties$31 and
interest, and recorded approximately $85 to the opening balance sheet of Magellan.$20, respectively. We had approximately
$165$170 accrued for the payment of interest and penalties at September 30,
20172021, compared to
$130$138 accrued at September 30,
2016.2020. The amount of our liability for uncertain tax positions expected to be paid or settled in the next 12 months is uncertain.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Unrecognized income tax benefits beginning of year | | $ | 502 | | | $ | 238 | |
Additions for tax positions of prior years | | | 144 | | | | 264 | |
Tax examination and other settlements | | | (129 | ) | | | — | |
| | | | | | | | |
Unrecognized income tax benefits at end of year | | $ | 517 | | | $ | 502 | |
| | | | | | | | |
| | | | | | | | | | | | |
| Year Ended September 30, | | | | | 2020 | | | 2019 | |
Unrecognized income tax benefits at beginning of year | | | | | | $ | 509 | | | $ | 388 | |
Additions for tax positions of prior years | | | | | | | — | | | | 83 | |
Reductions for tax positions of prior years | | | | | | | — | | | | (38 | ) |
Additions for tax positions of current year | | | | | | | 104 | | | | 138 | |
Tax examination and other settlements | | | | | | | (45 | ) | | | (62 | ) |
| | | | | | | | | | | | | |
Unrecognized income tax benefits at end of year | | | | | | $ | 568 | | | $ | 509 | |
| | | | | | | | | | | | | |
We are subject to examination by the tax authorities in the U.S. (both federal and state) and the countries of Australia, Belgium,
Canada, China, England, France, Germany, Holland,
ItalyIsrael and
Singapore.Italy. In the U.S.,
open tax years
aresubsequent to fiscal
2014, fiscal 2015 and fiscal 2016.2017 remain open. In countries outside the U.S., open tax years generally range from fiscal
20122016 and forward. However, in Australia
Belgium and
Singapore,Belgium, the utilization of local net operating loss carryforwards extends the statute of limitations for examination well into the foreseeable future. To the extent that adjustments result from the completion of these examinations or the lapsing of statutes of limitation, they will affect tax liabilities in the period known. We believe that the results of any tax authority examinations would not have a significant adverse impact on our
consolidated financial condition or results of
operationsoperations.
Supplemental Cash Flow Information (Income Taxes Paid)
Cash paid for income taxes totaled $27,466, $9,816 and $7,840 in fiscal 2021, 2020 and 2019, respectively.
| Savings and Investment Plan - We have a profit sharing and retirement savings plan covering substantially all full-time U.S. employees. Profit sharing contributions to the plan, which are discretionary, are approved by the board of directors. The plan permits participants to contribute to the plan through salary reduction. Under terms of the plan, we match 100% of an employee’s contributions, up to a maximum match of 4% of eligible compensation (3% through December 31, 2016).compensation. Our discretionary and matching contributions to the plan, whichare recorded primarily within operating expenses, amounted to approximately $1,912, $1,631$2,869, $2,434 and $1,567, during fiscal 2017, 2016$1,979, for the years ended September 30, 2021, 2020 and 2015,2019, respectively. |
| Stock-Based Compensation Plans - During fiscal 2017, we2021, the Company had two active stock-based compensation plans, the 2004 Equity Compensation Plan, which became effective December 7, 2004, as amended (the “2004 Plan”) and the 2012 Stock Incentive Plan, which became effective January 25, 2012 (the “2012 Plan”) and the 2021 Omnibus Award Plan, which became effective January 27, 2021 (the “2021 Plan”). |
Each of the 2004
The 2021 Plan
and 2012 Planis authorized
the granting ofto grant new shares for options, restricted shares or restricted share units for up to
3,0002,839 shares,
withincluding 1,839 non-granted shares from the
non-granted portion of the 2004 2012 Plan permitted to be carried forward and added to the
20122021 Plan authorized limit. As of September 30,
2017, we2021, 71 shares have
been granted
1,442 and 1,656 shares under the
20042021 Plan,
and 2012 Plan, respectively, thereby resulting in a remaining authorized limit of
2,9022,768 shares. Options may be granted at exercise prices not less than 100% of the closing market value of the underlying common shares on the date of grant and have maximum terms up to ten years. Vesting schedules for options, restricted shares and restricted share units are established at the time of grant and may be set based on future service periods, achievement of performance targets, or a combination thereof. All options contain provisions restricting their transferability and limiting their exercise in the event of termination of employment, or the disability or death of the optionee. We recognize compensation expense for all share-based payments made to employees, based upon the fair value of the share-based payment on the date of the grant.
During fiscal 2015,years 2019 through 2021, we granted, in the aggregate for the three-year period, approximately 270823 restricted share units (with a weighted-average grant date fair valuevalues of $17.91$18.66 per share)share in fiscal 2019, $10.13 per share in fiscal 2020 and $18.81 per share in fiscal 2021) to certain employees, including CEO, Jack Kenny, as separately detailed below. The units granted in fiscal 2021, 2020 and 2019 were generally with half of each employee’s grant being time-vested restricted share units vesting in total on the fourththird anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target fordate.
During fiscal
2015. While dividend equivalents were paid on these units throughout fiscal 2015, the target for fiscal 2015 was not met and the performance-based portion of these restricted share units granted during fiscal 2015 were cancelled.Additionally, during fiscal 20152020, in connection with the extension of anMr. Kenny’s Amended and Restated Employment Agreement, effective October 1, 2019, we granted to our ChairmanMr. Kenny: (i) options to purchase approximately 198 shares of common stock of the Company (with a grant date fair value of $3.38 per share) vesting on a pro rata basis over the three years ending October 1, 2022; and Chief Executive Officer at that time (i) 25(ii) approximately 100 restricted share units (with a grant date fair value of $16.50$10.10 per share) to be earned only if specified revenue and earnings per share targets were achieved for fiscal 2015; and (ii) 100 time-vested options (with a weighted-average grant date fair value of $3.73 per share), with half vesting September 30, 2015 and half vesting September 30, 2016. As a result of100% on the fiscal 2015 performance targets being achieved,October 1, 2022, which are included within the restricted share units have been earned and the related compensation expense recorded in fiscal 2015.
During fiscal 2016, we granted approximately 370 restricted share units (with a weighted-average grant date fair value of $19.38 per share) to certain employees, generally with half of each employee’s grant being time-vested restricted share units vesting in total on the fourth anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target for fiscal 2016. While dividend equivalents were paid on these units throughout fiscal 2016, the target for fiscal 2016 was not met and the performance-based portion of these restricted share units granted during fiscal 2016 have been cancelled.
- 73 -
Additionally, during fiscal 2016 in connection with the Amended and Restated Employment Agreement described above, we granted to our Chairman and Chief Executive Officer at that time, 25 restricted share units (with a grant date fair value of $17.03 per share) to be earned only if specified revenue and earnings per share targets were achieved for fiscal 2016. As a result of the fiscal 2016 performance targets not being achieved, the restricted share units have been cancelled.
Similar to previous years, during fiscal 2017, we granted approximately 410 restricted share units (with a weighted-average grant date fair value of $16.93 per share) to certain employees, generally with half of each employee’s grant being time-vested restricted share units vesting in total on the fourth anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target for fiscal 2017. While dividend equivalents were paid on these units throughout fiscal 2017, the target for fiscal 2017 was not met and the performance-based portion of these restricted share units granted during fiscal 2017 have been cancelled.
Additionally, during fiscal 2017 in connection with the Amended and Restated Employment Agreement, we granted to our Chairman and Chief Executive Officer at the time, 25 restricted share units (with a grant date fair value of $19.09 per share) to be earned only if specified revenue and earnings per share targets were achieved for fiscal 2017. As a result of the fiscal 2017 performance targets not being achieved, the restricted share units have been cancelled.
noted above.
Giving effect to these grants, cancellations and certain other activities for restricted shares and restricted share units throughout the years, including conversions to common shares, forfeitures, and new hire and employee promotion grants, approximately
550682 restricted share units remain outstanding as of September 30,
2017,2021, with a weighted-average grant date fair value of
$19.15$14.73 per share, a weighted-average remaining vesting period of
1.921.12 years and an aggregate intrinsic value of
$7,859.$13,121. The
weighted-average grant date fair value of the approximate
9179 restricted share units that vested during fiscal
20172021 was
$19.42$15.61 per share.
- 74 -
The amount of stock-based compensation expense
reported was
$3,381, $2,911$4,156, $3,802 and
$3,324 in fiscal 2017, 2016$3,251 for the years ended September 30, 2021, 2020 and
2015,2019, respectively. The fiscal
20172021 expense is comprised of
$662$1,080 related to stock options and
$2,719$3,076 related to restricted share units; the fiscal
20162020 expense is comprised of
$560$1,006 related to stock options and
$2,351$2,796 related to restricted share
units;units ; and the fiscal
20152019 expense is comprised of
$591$542 related to stock options and
$2,733$2,709 related to restricted share units. The total income tax benefit recognized in the
income statementConsolidated Statements of Operations for these stock-based compensation arrangements was
$861, $1,100$1,516, $898 and
$1,250,$572, for
fiscal 2017, 2016the years ended September 30, 2021, 2020 and
2015,2019, respectively. As of September 30,
2017,2021, we expect future stock compensation expense for unvested options and unvested restricted share units to total
$323$902 and
$2,524,$3,438, respectively, which will be recognized during fiscal years
20182022 through
2021.2024.
We recognize
stock-based compensation expense only for the portion of shares that we expect to vest. As such, we apply estimated forfeiture rates to our
stock-based compensation expense calculations. These rates have been derived using historical forfeiture data, stratified by several employee
groups.groups, and range from 0% to 16% in each of the years ended September 30, 2021, 2020 and 2019. During
fiscal 2017, 2016the years ended September 30, 2021, 2020 and
2015,2019, we recorded
$106, $76$183, $148 and
$86,$127, respectively, in
stockstock-based compensation expense to adjust estimated forfeiture rates to actual.
We have elected to use the Black-Scholes option pricing model to determine grant-date fair value for stock options, with the following assumptions: (i) expected share price volatility based on the average of Meridian’s
historicalhistorica
l volatility over the options’ expected lives and implied volatility based on the value of tradable call options; (ii) expected life of options based on contractual lives, employees’ historical exercise behavior and employees’ historical post-vesting employment termination behavior; (iii) risk-free interest rates based on treasury rates that correspond to the expected lives of the options; and (iv) dividend yield based on the expected yield on underlying Meridian common stock.
| | | | | | | | | | | | |
Year ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Risk-free interest rates | | | 1.34 | % | | | 1.63 | % | | | 2.07 | % |
Dividend yield | | | 4.1 | % | | | 4.4 | % | | | 3.7 | % |
Life of option | | | 6.44 yrs. | | | | 6.39 yrs. | | | | 6.33 yrs. | |
Share price volatility | | | 27 | % | | | 31 | % | | | 33 | % |
Forfeitures (by employee group) | | | 0%-19 | % | | | 0%-16 | % | | | 0%-15 | % |
- 75 -
A summary of these key assumptions are as follows:
| | | | | | | | | | | | |
| | | | | 2020 | | | 2019 | |
| | | | | | | 34 | % | | | 29 | % |
| | | | | | | 6.51 yrs . | | | | 6.51 yrs . | |
| | | | | | | 1.60 | % | | | 2.99 | % |
| | | | | | | 0 | % | | | 3.3 | % |
A summary of the status of our stock option plans as of September 30,
2017,2021, and changes during the year ended September 30,
2017,2021, is presented in the table and narrative below:
| | | | | | | | | | | | | | | | |
| | | Options | | | Wtd Avg
Exercise
Price | | | Wtd Avg
Remaining
Life (Yrs) | | | Aggregate
Intrinsic
Value | |
Outstanding beginning of period | | | 780 | | | $ | 20.97 | | | | | | | | | |
Grants | | | 266 | | | | 16.38 | | | | | | | | | |
Exercises | | | (18 | ) | | | 16.54 | | | | | | | | | |
Forfeitures | | | (61 | ) | | | 18.34 | | | | | | | | | |
Cancellations | | | (25 | ) | | | 19.41 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding end of period | | | 942 | | | $ | 19.98 | | | | 6.51 | | | $ | 120 | |
| | | | | | | | | | | | | | | | |
Exercisable end of period | | | 661 | | | $ | 21.04 | | | | 5.49 | | | $ | 48 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Options | | | Wtd Avg
Exercise
Price | | | Wtd Avg
Remaining
Life (Yrs) | | | Aggregate
Intrinsic
Value | |
Outstanding beginning of period | | | 1,103 | | | $ | 14.67 | | | | | | | | | |
| | | 167 | | | | 19.28 | | | | | | | | | |
| | | (219 | ) | | | 14.48 | | | | | | | | | |
| | | (19 | ) | | | 11.46 | | | | | | | | | |
| | | (31 | ) | | | 21.85 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Outstanding end of period | | | 1,001 | | | $ | 15.31 | | | | 6.55 | | | $ | 4,299 | |
| | | | | | | | | | | | | | | | | |
Exercisable end of period | | | 598 | | | $ | 15.90 | | | | 5.44 | | | $ | 2,276 | |
| | | | | | | | | | | | | | | | | |
A summary of the status of our nonvested options as of September 30,
2017,2021, and changes during the year ended September 30,
2017,2021, is presented below:
| | | | | | | | |
| | | Options | | | Weighted-
Average
Grant Date
Fair Value | |
Nonvested beginning of period | | | 197 | | | $ | 3.64 | |
Granted | | | 266 | | | | 2.65 | |
Vested | | | (157 | ) | | | 3.15 | |
Cancelled | | | (25 | ) | | | 3.66 | |
| | | | | | | | |
Nonvested end of period | | | 281 | | | $ | 3.00 | |
| | | | | | | | |
The
| | | | | | | | |
| | | Options | | | Weighted-
Average
Grant Date
Fair Value | |
Nonvested beginning of period | | | 429 | | | $ | 3.36 | |
| | | 167 | | | | 9.18 | |
| | | (174 | ) | | | 3.59 | |
| | | (19 | ) | | | 2.83 | |
| | | | | | | | | |
| | | 403 | | | $ | 5.70 | |
| | | | | | | | | |
For the years ended September 30, 2021, 2020 and 2019: (i) the weighted average grant-date fair value of options granted was
$2.65, $3.46$9.18, $3.54 and
$3.95 for fiscal 2017, 2016 and 2015, respectively. The$3.61, respectively; (ii) the total intrinsic value of options exercised was
$9, $616$2,890, $1,585 and
$850 for fiscal 2017, 2016$62, respectively; and
2015, respectively. The(iii) the total grant-date fair value of options that vested
during fiscal 2017, 2016was $621, $528 and
2015 was $494, $474 and $571,$735, respectively.
Cash received from options exercised was
$302, $2,364$3,052, $3,559 and
$2,478$443 for
fiscal 2017, 2016the years ended September 30, 2021, 2020 and
2015,2019, respectively.
Tax expense recorded to additionalpaid-in capital from option exercises totaled $431, $70 and $502 for fiscal 2017, 2016 and 2015, respectively. | Contingent Obligations and Non-Current Liabilities |
In connection with the October 9, 2017 employmentacquisition of Exalenz (see Note 4), the Company assumed several Israeli government grant obligations. The repayment of the Company’s new Chief Executive Officer, in October 2017 we grantedgrants, along with interest incurred at varying stated fixed rates based on LIBOR at the time each grant was received (ranging from 0.58% to our new Chief Executive Officer (i) options6.60%), is not dictated by an established repayment schedule. Rather, the grants and related interest are required to purchase 100 shares of common stockbe repaid using 3% of the Company vesting onnet revenues generated from the sales of BreathID products, with repayment contingent upon the level and timing of such revenues. In addition, the grants have no collateral or financial covenant provisions generally associated with traditional borrowing instruments. Following the repayment of a pro rata basis over four years; and (ii) 13 restricted share units vesting 100% on the second anniversarysubstantial portion (approximately $5,300) of the grant. On November 8, 2017, we granted (i) 25 restricted share units vesting 100% onhigher rate grant obligations during fiscal 2021, these obligation amounts total $5,814 and $11,124 as of September 30, 2021 and 2020, with the fourth anniversary ofgrant obligations remaining at September 30, 2021, bearing interest at rates ranging from 0.58% to 2.02%.
The grant obligations are reflected in the
grant; and (ii) 25 restricted share units subject to attainment of a specified earnings target for fiscal 2018.- 76 -
(7) | Non-Current Liabilities |
TheConsolidated Balance Sheets as follows:
| | | | | | | | |
| Year Ended September 30, | | | | | 2020 | |
| | | | | | $ | 600 | |
| | | | | | | 10,524 | |
Additionally, the Company has provided certain post-employment benefits to its
Executive Chairman (formerly Chairman andformer Chief Executive
Officer)Officer, and
its Chief Commercial Officer. Thesethese obligations total
$1,680$1,676 and
$1,628$1,840 at September 30,
20172021 and
2016,2020, respectively. In addition,
we arethe Company is required by the governments of certain
of the foreign countries in which we operate to maintain a level of
reservesaccruals for potential future severance indemnity. These
reservesaccruals total
$652$754 and
$565$814 at September 30,
20172021 and
2016,2020, respectively.
(8) | National Institutes of Health Contracts |
In December 2020, the Company entered into a sub-award grant contract with the University of Massachusetts Medical School as part of the National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative to support the Company’s research and development of its diagnostic test for the SARS-CoV-2 antigen. The Company has received $1,000 under the grant contract for reimbursement of eligible research and development expenditures. These amounts are included within other income (expense) in the Consolidated Statement of Operations for the year ended September 30, 2021.
Effective February 1, 2021, the Company entered into a second grant contract under the RADx initiative, the purpose of which is to support the Company’s manufacturing production scale-up and expansion to meet the demand for COVID-19 testing. The contract is a twelve-month term service contract, with payment of up to $5,500 being made based on the Company achieving key milestones related to increasing its capacity to produce COVID-19 tests. As of September 30, 2021, $1,500 has been received related to this contract and is reflected as a reduction in the cost of equipment within construction in progress on the Consolidated Balance Sheet.
| Reportable Segments and Major Concentration Data |
Our
The Company’s reportable segments
maintain separate financial information for which results of operations are
Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio and, as a result of the acquisition of Magellan, manufacturing operations for products detecting elevated lead levels in blood in Billerica, Massachusetts (near Boston), and the sale and distribution of diagnostics products domestically and abroad. The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; Luckenwalde, Germany; and Sydney, Australia, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents domestically and abroad, including sales, business development and distribution facilities in Singapore and Beijing, China to further pursue growing revenue opportunities in Asia.Revenues from individual customers constituting 10% or more of consolidated net revenues are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Customer A | | $ | 23,029 | | | | (11 | )% | | $ | 20,246 | | | | (10 | )% | | $ | 29,155 | | | | (15 | )% |
Customer B | | $ | 18,395 | | | | (9 | )% | | $ | 19,585 | | | | (10 | )% | | $ | 25,276 | | | | (13 | )% |
Accounts receivable from these two Diagnostics distributor customers accounted for 11% and 16% of consolidated accounts receivable at September 30, 2017 and September 30, 2016, respectively. The Company’s international revenues totaled $61,936, $55,291 and $52,313 in fiscal years 2017, 2016 and 2015, respectively. Six of our product families –C. difficile,foodborne,H. pylori, respiratory, women’s health & STD, and blood lead testing – accounted for 58%, 60% and 59% of consolidated net revenues in fiscal 2017, 2016 and 2015, respectively. We currently purchaseevaluated on a sole-sourceregular basis from a U.S.by the Company’s chief operating decision maker in deciding how to allocate resources and an Italian manufacturer, respectively,in assessing performance.
The Company records the
illumipro-10 instruments on which ourillumigene molecular testing platform operates and the LeadCare instruments used to test for blood lead levels. Additionally, two direct costs of
our foodborne products sourced from another vendor accounted for 10%, 11% and 14% of third-party revenues for our Diagnostics segment in fiscal 2017, 2016 and 2015, respectively.- 77 -
Significant revenue information by country for the Diagnostics and Life Science segments is as follows. Revenues are attributedbusiness operations to the geographic area based onreportable segments, including allocations for certain corporate-wide costs such as treasury management, human resources and technology, among others. Corporate provides certain ex
e
cutive management and administrative services to each reportable segment. These services primarily include executive oversight by non-segment-specific executives, including the
locationBoard of Directors, along with certain other corporate-wide support functions such as insurance, legal and business development. The Company generally does not allocate these types of corporate expenses to
which the
product is delivered. | | | | | | | | | | | | |
Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
United States | | $ | 118,342 | | | $ | 120,826 | | | $ | 120,599 | |
Italy | | | 6,540 | | | | 6,599 | | | | 7,090 | |
Japan | | | 1,913 | | | | 1,644 | | | | 2,603 | |
France | | | 1,862 | | | | 1,605 | | | | 1,603 | |
United Kingdom | | | 1,766 | | | | 1,991 | | | | 1,964 | |
Belgium | | | 1,561 | | | | 1,501 | | | | 1,289 | |
Holland | | | 1,240 | | | | 1,188 | | | | 1,326 | |
Other countries | | | 10,297 | | | | 9,760 | | | | 9,640 | |
| | | | | | | | | | | | |
Total Diagnostics | | $ | 143,521 | | | $ | 145,114 | | | $ | 146,114 | |
| | | | | | | | | | | | |
| | | |
Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
United States | | $ | 20,493 | | | $ | 19,965 | | | $ | 21,918 | |
Germany | | | 7,266 | | | | 6,982 | | | | 5,699 | |
United Kingdom | | | 6,880 | | | | 6,410 | | | | 5,782 | |
China | | | 5,862 | | | | 4,080 | | | | 2,526 | |
Australia | | | 3,998 | | | | 3,153 | | | | 3,590 | |
France | | | 2,739 | | | | 2,167 | | | | 2,026 | |
South Korea | | | 2,425 | | | | 1,185 | | | | 406 | |
Japan | | | 1,369 | | | | 1,320 | | | | 1,158 | |
Other countries | | | 6,218 | | | | 5,706 | | | | 5,611 | |
| | | | | | | | | | | | |
Total Life Science | | $ | 57,250 | | | $ | 50,968 | | | $ | 48,716 | |
| | | | | | | | | | | | |
Identifiable assets for our Italian distribution organization were $7,712reportable segments.
Segment and
$8,782 at September 30, 2017 and 2016, respectively. At September 30, 2017, identifiable assets for the Bioline Group’s operations in the U.K., Germany and Australia totaled approximately $15,755, $6,915 and $4,376, respectively; and totaled approximately $14,973, $7,024 and $3,780, respectively, at September 30, 2016.- 78 -
SegmentCorporate information for the years ended September 30, 2017, 2016 and 2015 is as follows:
| | | | | | | | | | | | | | | | |
| | | Diagnostics | | | Life Science | | | Elim (1) | | | Total | |
Fiscal Year 2017 - | | | | | | | | | | | | | | | | |
Net revenues – | | | | | | | | | | | | | | | | |
Third-party | | $ | 143,521 | | | $ | 57,250 | | | $ | — | | | $ | 200,771 | |
Inter-segment | | | 389 | | | | 537 | | | | (926 | ) | | | — | |
Operating income | | | 23,086 | | | | 14,086 | | | | 210 | | | | 37,382 | |
Depreciation and amortization | | | 7,037 | | | | 2,053 | | | | — | | | | 9,090 | |
Capital expenditures | | | 2,554 | | | | 1,913 | | | | — | | | | 4,467 | |
Goodwill | | | 35,213 | | | | 19,713 | | | | — | | | | 54,926 | |
Other intangible assets | | | 24,973 | | | | 1,731 | | | | — | | | | 26,704 | |
Total assets | | | 180,226 | | | | 69,938 | | | | (387 | ) | | | 249,777 | |
| | | | | | | | | | | | | | | | |
Fiscal Year 2016 - | | | | | | | | | | | | | | | | |
Net revenues – | | | | | | | | | | | | | | | | |
Third-party | | $ | 145,114 | | | $ | 50,968 | | | $ | — | | | $ | 196,082 | |
Inter-segment | | | 289 | | | | 893 | | | | (1,182 | ) | | | — | |
Operating income | | | 38,202 | | | | 12,997 | | | | 179 | | | | 51,378 | |
Depreciation and amortization | | | 5,471 | | | | 2,247 | | | | — | | | | 7,718 | |
Capital expenditures | | | 2,690 | | | | 1,314 | | | | — | | | | 4,004 | |
Goodwill | | | 42,608 | | | | 19,374 | | | | — | | | | 61,982 | |
Other intangible assets | | | 27,534 | | | | 2,321 | | | | — | | | | 29,855 | |
Total assets | | | 185,446 | | | | 66,624 | | | | (42 | ) | | | 252,028 | |
| | | | | | | | | | | | | | | | |
Fiscal Year 2015 - | | | | | | | | | | | | | | | | |
Net revenues – | | | | | | | | | | | | | | | | |
Third-party | | $ | 146,114 | | | $ | 48,716 | | | $ | — | | | $ | 194,830 | |
Inter-segment | | | 334 | | | | 1,300 | | | | (1,634 | ) | | | — | |
Operating income | | | 44,136 | | | | 12,057 | | | | (133 | ) | | | 56,060 | |
Depreciation and amortization | | | 4,099 | | | | 2,510 | | | | — | | | | 6,609 | |
Capital expenditures | | | 3,112 | | | | 1,501 | | | | — | | | | 4,613 | |
Goodwill | | | 1,250 | | | | 21,099 | | | | — | | | | 22,349 | |
Other intangible assets | | | 2,364 | | | | 3,567 | | | | — | | | | 5,931 | |
Total assets | | | 119,939 | | | | 63,670 | | | | (327 | ) | | | 183,282 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | Diagnostics | | | Life Science | | | Corporate
(1) | | | Eliminations
(2) | | | Total | |
| |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 127,760 | | | $ | 190,136 | | | $ | — | | | $ | — | | | $ | 317,896 | |
| | | 351 | | | | 207 | | | | — | | | | (558 | ) | | | — | |
| | | (8,140 | ) | | | 115,250 | | | | (14,164 | ) | | | 88 | | | | 93,034 | |
Depreciation and amortization | | | 13,432 | | | | 1,854 | | | | — | | | | — | | | | 15,286 | |
| | | 15,827 | | | | 2,485 | | | | — | | | | — | | | | 18,312 | |
| | | 94,904 | | | | 19,764 | | | | — | | | | — | | | | 114,668 | |
Other intangible assets, net | | | 84,149 | | | | 2 | | | | — | | | | — | | | | 84,151 | |
| | | 339,208 | | | | 110,536 | | | | — | | | | (22 | ) | | | 449,722 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 121,132 | | | $ | 132,535 | | | $ | — | | | $ | — | | | $ | 253,667 | |
| | | 326 | | | | 261 | | | | — | | | | (587 | ) | | | — | |
| | | 3,885 | | | | 68,826 | | | | (11,437 | ) | | | 50 | | | | 61,324 | |
Depreciation and amortization | | | 11,451 | | | | 2,116 | | | | — | | | | — | | | | 13,567 | |
| | | 1,850 | | | | 1,449 | | | | — | | | | — | | | | 3,299 | |
| | | 94,855 | | | | 19,331 | | | | — | | | | — | | | | 114,186 | |
Other intangible assets, net | | | 83,179 | | | | 18 | | | | — | | | | — | | | | 83,197 | |
| | | 306,812 | | | | 98,483 | | | | — | | | | (34 | ) | | | 405,261 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 136,682 | | | $ | 64,332 | | | $ | — | | | $ | — | | | $ | 201,014 | |
| | | 462 | | | | 361 | | | | — | | | | (823 | ) | | | — | |
| | | 25,390 | | | | 17,581 | | | | (10,373 | ) | | | 101 | | | | 32,699 | |
Depreciation and amortization | | | 7,676 | | | | 2,288 | | | | — | | | | — | | | | 9,964 | |
| | | 2,049 | | | | 1,748 | | | | — | | | | — | | | | 3,797 | |
| | | 70,395 | | | | 18,846 | | | | — | | | | — | | | | 89,241 | |
Other intangible assets, net | | | 59,807 | | | | 436 | | | | — | | | | — | | | | 60,243 | |
| | | 255,169 | | | | 70,392 | | | | — | | | | (83 | ) | | | 325,478 | |
| | | | | | | | | | | | | | | | | | | | | |
| (1) | Includes Restructuring and Selected Legal Costs of $2,803, $2,080 and $2,596 for the years ended September 30, 2021, 2020 and 2019, respectively. |
| (2) | Eliminations consist of intersegmentinter-segment transactions. |
A reconciliation of
reportable segment operating
expensesincome to consolidated earnings before income taxes
for the years ended September 30, 2017, 2016 and 2015 is as follows:
| | | | | | | | | | | | |
Year Ended September 30, | | 2017 | | | 2016 | | | 2015 | |
Segment operating income | | $ | 37,382 | | | $ | 51,378 | | | $ | 56,060 | |
Interest income | | | 171 | | | | 67 | | | | 23 | |
Interest expense | | | (1,642 | ) | | | (897 | ) | | | — | |
Other, net | | | 518 | | | | 96 | | | | (1,020 | ) |
| | | | | | | | | | | | |
Consolidated earnings before income taxes | | $ | 36,429 | | | $ | 50,644 | | | $ | 55,063 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
| | | | | | $ | 3,885 | | | $ | 25,390 | |
| | | | | | | 68,826 | | | | 17,581 | |
| | | | | | | 50 | | | | 101 | |
| | | | | | | | | | | | | |
Total reportable segment operating income | | | | | | | 72,761 | | | | 43,072 | |
Corporate operating expenses | | | | | | | (11,437 | ) | | | (10,373 | ) |
| | | | | | | 142 | | | | 681 | |
| | | | | | | (2,632 | ) | | | (1,945 | ) |
RADx initiative grant income | | | | | | | 0 | | | | 0 | |
| | | | | | | 459 | | | | 122 | |
| | | | | | | | | | | | | |
Consolidated earnings before income taxes | | | | | | $ | 59,293 | | | $ | 31,557 | |
| | | | | | | | | | | | | |
Transactions between
reportable segments are accounted for at established intercompany prices for internal and management purposes with all intercompany amounts eliminated in consolidation.
the years ended September 30, 2021 and 2020, products related to COVID-19 accounted for 59% and 54%, respectively, of Life Science segment net revenues,
and 35% 28%, respectively, of consolidated net revenues. In addition, net revenues generated by the Company’s three major Diagnostics product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 32%, 39% and 57% of consolidated net revenues during the years ended September 30, 2021, 2020 and 2019, respectively.
While no individual Diagnostics or Life Science
customers accounted for greater than 10% of consolidated net revenues during the years ended September 30, 2021, 2020 and 2019, individual Diagnostics or Life Science segment customers, including their affiliates, comprising 10% or more of reportable segment net revenues were as follows:
| | | | | | | | | | | | |
| | | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
| | | 10 | % | | | 12 | % | | | 13 | % |
| | | 11 | % | | | 13 | % | | | 12 | % |
| | | 12 | % | | | 7 | % | | | 6 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 6 | % | | | 6 | % | | | 18 | % |
| | | 3 | % | | | 13 | % | | | 7 | % |
| | | 13 | % | | | 11 | % | | | 2 | % |
In addition, for the years ended September 30, 2021, 2020 and 2019, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately
44%,
48% and
42%, respectively, of Life Science segment net revenues, and
27%,
25% and
13%, respectively, of consolidated net revenues.
One Diagnostics segment customer (Customer B above) and one Life Science
customer (Customer F above) accounted for approximately 12% and 10%, respectively, of consolidated accounts receivable as of September 30, 2021. As of September 30, 2020, only Customer F above accounted for greater than 10% of consolidated accounts receivable, accounting for approximately 15%.
Net revenues generated by the Company outside of the U.S. and its territories totaled $173,475, $121,596 and $74,193 for the years ended September 30, 2021, 2020 and 2019, respectively, with net revenues by country for the Diagnostics and Life Science segments as follows (net revenues are attributed to the geographic area based on the location to which the product is delivered):
| | | | | | | | | | | | |
| | | | | 2020 | | | 2019 | |
| | | | | | $ | 95,382 | | | $ | 107,890 | |
| | | | | | | 9,797 | | | | 10,911 | |
| | | | | | | 2,238 | | | | 2,446 | |
| | | | | | | 2,312 | | | | 2,396 | |
| | | | | | | 1,440 | | | | 1,468 | |
| | | | | | | 1,183 | | | | 1,413 | |
| | | | | | | 275 | | | | 291 | |
| | | | | | | 848 | | | | 1,572 | |
| | | | | | | 7,657 | | | | 8,295 | |
| | | | | | | | | | | | | |
| | | | | | $ | 121,132 | | | $ | 136,682 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | 2020 | | | 2019 | |
| | | | | | $ | 36,689 | | | $ | 18,931 | |
| | | | | | | 14,190 | | | | 12,663 | |
| | | | | | | 2,518 | | | | 500 | |
| | | | | | | 19,047 | | | | 8,464 | |
| | | | | | | 14,765 | | | | 4,709 | |
| | | | | | | 7,242 | | | | 4,414 | |
| | | | | | | 5,579 | | | | 2,200 | |
| | | | | | | 1,908 | | | | 1,134 | |
| | | | | | | 5,957 | | | | 3,458 | |
| | | | | | | 4,067 | | | | 1,357 | |
| | | | | | | 2,819 | | | | 290 | |
| | | | | | | 3,707 | | | | 1,624 | |
| | | | | | | 2,099 | | | | 143 | |
| | | | | | | 3,027 | | | | 169 | |
| | | | | | | 3,212 | | | | 710 | |
| | | | | | | 547 | | | | 322 | |
| | | | | | | 5,162 | | | | 3,244 | |
| | | | | | | | | | | | | |
| | | | | | $ | 132,535 | | | $ | 64,332 | |
| | | | | | | | | | | | | |
In locations outside the U.S., the Company’s identifiable assets were concentrated as follows at the end of the most recent fiscal years, with no additional country’s total of assets exceeding $5,000:
| | | | | | | | |
| As of September 30, | | | | | 2020 | |
| | | | | | $ | 70,097 | |
| | | | | | | 27,373 | |
| | | | | | | 12,877 | |
| | | | | | | 9,865 | |
| | | | | | | 7,858 | |
(9) | Commitments and ContingenciesContingent Obligations |
| We have entered into various license agreements that require payment of royalties based on a specified percentage of net revenues from licensed products, with such percentages generally ranging from approximately 3% to 10%. During the sales year ended September 30, 2021, royalty expense associated with these agreements totaled approximately $5,200, with 25% and 75%of licensed products. Approximately 90% of our royalty expenses relatesuch expense relating to our Diagnostics operating segment, where the royalty rates range from 4% to 8%.and Life Science segments, respectively. These royalty expenses are recognized on anas-earned basisas the related revenues are earned and are recorded in the year earned as a component of cost of sales. Annual royalty expenses associated with these agreements weretotaled approximately $2,600, $3,134 $1,900 and $3,106$2,100 for the fiscal years ended September 30, 2017, 20162020 and 2015, respectively.2019, respectively, with approximately 80% and 85%, respectively, of such expense relating to the Diagnostics segment. |
| - Excluding the operating lease commitments reflected in Note 9(c) below, we9, we have purchase commitments primarily for inventoryinventories and service items as part of the normal course of business. Commitments made under these obligations are $18,885, $1,935 and $944$49,537 for fiscal 2018, 20192022 and 2020, respectively. No$1,758 for fiscal 2023 through fiscal 2026 . NaN purchase commitments have been made beyond fiscal 2020.2026 . |
| Operating Lease Commitments- Meridian and its subsidiaries are lessees of (i) certain office and warehouse buildings in the U.S., Europe, Australia, Singapore and China; (ii) automobiles for use by the direct sales forces in the U.S. and Europe; and (iii) certain office equipment such as facsimile and copier machines across all business units, under operating lease agreements that expire at various dates. Amounts charged to expense under operating leases were $2,140, $1,966 and $1,797 for fiscal 2017, 2016 and 2015, respectively. Operating lease commitments for each of the five succeeding fiscal years are as follows: fiscal 2018 - $1,978; fiscal 2019 - $1,325; fiscal 2020 - $609; fiscal 2021 - $490; and fiscal 2022 - $426. |
(d) | Litigation -We are a party to various litigation matters from time to time that we believe are in the normal course of business. The ultimate resolution of these routine matters is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. Additionally, the Company has also become a party to certain legal matters that are somewhat outside the normal course of business. See Item 3. “Legal Proceedings”Note 5 for a discussion of the status of certain litigation related to our intellectual property.Magellan’s DOJ matter. |
(e) | - In conjunction with certain contracts and agreements, we provide routine indemnifications related to our performance obligations. The terms of these indemnifications range in duration and in some circumstances are not explicitly defined. The maximum obligation under some such indemnifications is not explicitly stated and, as a result of our having no history of paying such indemnifications, cannot be reasonably estimated. We have not0t made any payments for these indemnifications and no0 liability is recorded at September 30, 20172021 or September 30, 2016. We believe that if we were to incur a loss on any of these matters, the loss would not have a material effect on our financial condition.2020. |
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(10) | Quarterly Financial Data (Unaudited) |
The sum
On October 25, 2021, the Company’s revolving credit facility with a commercial bank was amended primarily to: (i) increase the borrowing capacity to $200,000; (ii) extend the term to October 25, 2026; and (iii) modify the financial covenants to more closely align with the Company’s size and strategic plans. Other details of the
earnings per common share may not equal the corresponding annual amounts due to interim quarter rounding. | | | | | | | | | | | | | | | | |
For the Quarter Ended in Fiscal 2017 | | December 31 | | | March 31 | | | June 30 | | | September 30 | |
Net revenues | | $ | 46,809 | | | $ | 54,125 | | | $ | 50,140 | | | $ | 49,697 | |
Gross profit | | | 29,450 | | | | 33,531 | | | | 31,197 | | | | 30,655 | |
Net earnings | | | 6,279 | | | | 9,312 | | | | 240 | | | | 5,726 | |
Basic earnings per common share | | | 0.15 | | | | 0.22 | | | | 0.01 | | | | 0.14 | |
Diluted earnings per common share | | | 0.15 | | | | 0.22 | | | | 0.01 | | | | 0.13 | |
Cash dividends per common share | | | 0.20 | | | | 0.125 | | | | 0.125 | | | | 0.125 | |
| | | | |
For the Quarter Ended in Fiscal 2016 | | December 31 | | | March 31 | | | June 30 | | | September 30 | |
Net revenues | | $ | 47,160 | | | $ | 51,259 | | | $ | 50,665 | | | $ | 46,998 | |
Gross profit | | | 31,583 | | | | 33,572 | | | | 32,909 | | | | 29,723 | |
Net earnings | | | 8,893 | | | | 9,091 | | | | 8,754 | | | | 5,491 | |
Basic earnings per common share | | | 0.21 | | | | 0.22 | | | | 0.21 | | | | 0.13 | |
Diluted earnings per common share | | | 0.21 | | | | 0.21 | | | | 0.21 | | | | 0.13 | |
Cash dividends per common share | | | 0.20 | | | | 0.20 | | | | 0.20 | | | | 0.20 | |
credit facility remain relatively unchanged.
On November 15, 2017, a class action complaint9, 2021, notification was filed naming Meridian, its Chief Executive Officer and its Chief Financial Officer (in their capacities as such) as defendants. The complaint allegesreceived from the FDA that Meridian made false and misleading representations concerning certain lead test systems used by Magellan at or aroundemergency use authorization (“EUA”) had been granted for the timeCompany’s Revogene SARS-CoV-2 assay.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Following a request for proposal (“RFP”) process, effective December 22, 2020 (the “Effective Date”), the Audit Committee of the Board of Directors of Meridian selected Ernst & Young LLP (“EY”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended September 30, 2021. The Audit Committee dismissed Grant Thornton LLP (“Grant Thornton”), the Company’s current independent registered public accounting firm, effective as of the Effective Date.
Grant Thornton’s reports on the Company’s Consolidated Financial Statements as of and for the fiscal years ended September 30, 2020 and 2019 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal years ended September 30, 2020 and 2019, and the subsequent interim period through the Effective Date, there were: (i) no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions, between the Company and Grant Thornton, on any matters of accounting principles or practices, consolidated financial statement disclosure, or auditing scope or procedure which, if not resolved to Grant Thornton’s satisfaction, would have caused Grant Thornton to make reference thereto in their reports; and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K.
The Company requested that Grant Thornton furnish a letter addressed to the SEC stating whether or not it agrees with the above statements, and, if not, stating the respects in which it does not agree. A copy of Grant Thornton’s letter, dated December 28, 2020, was filed as Exhibit 16.1 to Meridian’s Form 8-K filed on or about December 30, 2020.
During the fiscal years ended September 30, 2020 and 2019 and the subsequent interim period through the Effective Date, neither the Company nor anyone on its behalf has consulted with EY regarding: (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s Consolidated Financial Statements, and neither a written report nor oral advice was provided to the Company that EY concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions; or (iii) any “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K.
CONTROLS AND PROCEDURES
(a)Evaluation
As of
Disclosure ControlsSeptember 30, 2021, an evaluation was completed under the supervision and
ProceduresThe term “disclosurewith the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures” as defined byprocedures pursuant to Rule 13a-15(e) of13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) refers to the controls and other procedures of a company. Based on that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated toevaluation, our management, including the Chief Executive OfficerCEO and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rule 13a-15(b), Meridian’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’sCFO, concluded that our disclosure controls and procedures were effective as of September 30, 2017. In conducting this evaluation, Meridian concluded there is a material weakness2021. There have been no changes in the design and operating effectiveness of itsour internal control over financial reporting as described below. As a resultidentified in connection with the evaluation of such evaluation andinternal control that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other factors that could significantly affect internal control subsequent to September 30, 2021.
Our internal control report is included in this
conclusion, Meridian also has concluded that its disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed in our reports filedForm 10-K after Item 8, under the
Exchange Act was recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information was accumulated and communicated to our management to allow timely decisions regarding required disclosure.Meridian’s management does not expect that its disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to simple errors or mistakes. The design of any system of controls is based in part upon certain assumptions regarding the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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(b)Management’scaption “Management’s Report on Internal Control over Financial Reporting
ManagementReporting.”
On November 19, 2021 David C. Phillips, Chairman of the Board, notified the Board of Directors that he would not be standing forre-election
at the 2022 Annual Meeting of Shareholders. Meridian is
responsiblegrateful for
establishingMr. Phillips’ 21 years of loyal service and
maintaining adequate internalwishes him well in his future endeavors. Also, effective November 19, 2021 Tony Serafini-Lamanna, Executive Vice President, Diagnostics and the Company entered into a Change in Control Agreement (“CIC Agreement”), the form of which is filed with this report as Exhibit 10.11.
The CIC agreement has an initial term ending December 31, 2021, and each year will automatically renew for an additionalone-year
term, provided however, that if a change in control
over financial reporting, as definedoccurs the term will expire no earlier than 24 calendar months after the calendar month in
Exchange Act Rule 13a-15(f).The Company’s internalwhich such change in control over financial reporting includes thoseoccurs. This agreement is the result of Management’s and the Board’s periodic review and updates of certain policies and procedurespractices. The CIC Agreement provides, among other things, that (i) pertainif a change in control occurs during the term of the CIC Agreement, and the executive’s employment is terminated either by us or by the executive, other than: (a) by us for cause; (b) by reason of death or disability; or (c) by the executive without good reason, such executive will receive a severance payment equal to: (A) a multiple of such executive’s annual base salary; (B) a multiple of executive’s target bonus amounts; and (C) earned but unused vacation time. In addition, the CIC Agreement provides that in the event that the severance and other benefits provided for in the agreement or otherwise payable to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods areexecutive would be subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluationexcise tax imposed by Section 4999 of the effectiveness of our internal control over financial reporting as of September 30, 2017, based onInternal Revenue Code, the framework and criteriabenefits under the CIC Agreement will be either delivered in the 2013Internal Control—Integrated Framework,issued by the Committee of Sponsoring Organizationsfull or delivered to a lesser extent which would result in no portion of the Treadway Commission (COSO). Based on this evaluation, we concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2017 for the reasons described below.
During the course of completing this evaluation we identified deficiencies relatedbenefits being subject to Information Technology General Controls (“ITGC”) intended to restrict access to certain data and applications, resulting in inappropriate access at both the Information Technology and end user levels within an application impacting financial reporting functions and controls.
A material weaknesssuch excise tax, whichever is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Although no material misstatements were identified in our consolidated financial statements, these control deficiencies create a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. We have concluded that these identified deficiencies, when aggregated, constitute a material weakness in internal control over financial reporting.
- 83 -
Item 8 includes the adverse audit report of the Company’s independent registered public accounting firm on Meridian’s internal control over financial reporting as of September 30, 2017.
(c)Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Meridian’s internal control over financial reporting, except as otherwise described in this Item 9A.
(d)Remediation of the Material Weakness
We have begun remediation efforts to address the control deficiencies identified, which gave risemore beneficial to the material weakness noted above. We are performing a comprehensive reviewexecutive.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our directors and officers may be found under the captions “Election of
the financial reporting applicationDirectors” and “Directors and Executive Officers” in
which the control deficiencies were identified in order to further restrict access and improve authorization protocols. Our objective is to complete remediation efforts in fiscal 2018.ITEM 9B.
OTHER INFORMATION
Not applicable.
PART III.
The information required by Items 10, 11, 12 (other than that portion set forth below), 13 and 14, of Part III are incorporated by reference from the Registrant’sour Proxy Statement for its 2018the Annual Shareholders’ Meeting of Shareholders to be filed withheld January 26, 2022 (the “Proxy Statement”). Information about our Audit Committee may be found under the Commission pursuant to Regulation 14A.
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ITEM 12.
EQUITY COMPENSATION PLAN INFORMATION
The following table presents summarycaption “Committees of the Board of Directors” in the Proxy Statement. That information asis incorporated herein by reference.
We have adopted a code of
September 30, 2017 with respectethics that applies to all of our
equity compensation plans (numberemployees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and other finance organization employees. The code of
securitiesethics is publicly available on our website atwww.meridianbioscience.com
. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K. The information in
thousands). | | | | | | | | | | | | |
Plan Category | | (a)
Number of
Securities to be
issued upon
exercise of
outstanding
options, warrants
and rights | | | (b)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights | | | (c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)) | |
Equity compensation plans approved by security holders (1) | | | 942 | | | $ | 19.975 | | | | 2,902 | |
| | | | | | | | | | | | |
Total (2) | | | 942 | | | $ | 19.975 | | | | 2,902 | |
| | | | | | | | | | | | |
(1) | 2004 Equitythe Proxy Statement set forth under the captions “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information in the Proxy Statement set forth under the captions “Security Ownership of Certain Beneficial Owners” and “Equity Compensation Plan, as amended |
2012 Stock Incentive Plan
(2) | Weighted-average remaining term of 6.51 years |
Information” is incorporated herein by reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Transactions with Related Persons” is incorporated herein by reference.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning principal accountant fees and services appears in the Proxy Statement under the headings “Principal Accounting Firm Fees” and “Committees of the Board of Directors” and is incorporated herein by reference.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES. |
All financial statements and schedules required to be filed by Item 8 of this Form and included in this report have been so identified under Item 8. No additional financial statements or schedules are being filed since the requirements of paragraph (c) under Item 15 are not applicable to Meridian.
| | |
| |
| 10.2* | | |
| |
| 10.3* | | |
| |
10.4* | | ExecutiveRestated Employment Agreement dated March 21, 2016 between Meridian and Amy Winslow (Incorporated by reference to Meridian’s Quarterly Report on Form10-Q for the Quarterly Period Ended March 31, 2016) |
| |
10.5* | | Employment Agreement datedeffective October 9, 20171, 2019 between Meridian and John P. Kenny (Incorporated by reference to Meridian’s Form8-K filed with the Securities and Exchange CommissionSEC on October 11, 2017)November 7, 2019) |
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10.6*10.4* | | Dividend Reinvestment Plan (Incorporated by reference to Meridian’s Annual Report on Form10-K for the Fiscal Year Ended September 30, 1999) |
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10.7* | | 2004 Equity Compensation Plan, amended and restated effective January 25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form10-Q for the Quarterly Period Ended December 31, 2011) |
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10.8* | | |
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10.9*10.5* | | |
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10.10*10.6* | | |
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| 10.7* | | |
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10.11*10.8* | | |
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10.12*10.9*† | | |
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10.13*10.10*† | | |
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10.14*10.11* | | |
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10.1510.12 | | Amended and Restated Credit Agreement, and Plandated as of MergerOctober 25, 2021, by and among Meridian Bioscience, Inc., Mariner Merger Sub, Inc., Magellan Biosciences, Inc.as Borrower, the Guarantors party thereto, the Lenders party thereto, PNC Bank, National Association, as administrative agent, PNC Capital Markets LLC, as joint lead arranger and Ampersand 2006 Limited Partnershipsole bookrunner, and Fifth Third Bank, National Association, as the Stockholder Representative dated as of March 24, 2016joint lead arranger and syndication agent (Incorporated by reference to Meridian’s Quarterly ReportForm 8-K filed with the SEC on Form10-Q for the Quarterly Period Ended March 31, 2016)October 29, 2021) |
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10.16 | | Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc. Meridian Life Science, Inc. and Fifth Third Bank dated August 1, 2007 (Incorporated by reference to Meridian’s Annual Report on Form10-K for the Fiscal Year Ended September 30, 2007) |
- 86 -
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10.16.1 | | Term Note among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc. Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated March 22, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form10-Q for the Fiscal Quarter Ended March 31, 2016) |
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10.16.2 | | Amended and Restated Revolving Note with Fifth Third Bank dated March 22, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form10-Q for the Fiscal Quarter Ended March 31, 2016) |
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10.16.3 | | First Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc. and Fifth Third Bank dated September 2, 2010 (Incorporated by reference to Meridian’s Annual Report on Form10-K for the Fiscal Year Ended September 30, 2010) |
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10.16.4 | | Second Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc. and Fifth Third Bank dated December 1, 2010 (Incorporated by reference to Meridian’s Quarterly Report on Form10-Q for the Fiscal Quarter Ended December 31, 2010) |
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10.16.5 | | Third Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc. and Fifth Third Bank dated September 15, 2012 (Incorporated by reference to Meridian’s Annual Report on Form10-K for the Fiscal Year Ended September 30, 2012) |
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10.16.6 | | Fifth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated April 21, 2015 (Incorporated by reference to Meridian’s Quarterly Report on Form10-Q for the Fiscal Quarter Ended June 30, 2015) |
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10.16.7 | | Sixth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated March 22, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form10-Q for the Fiscal Quarter Ended March 31, 2016) |
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10.16.8 | | Seventh Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated February 6, 2017 (Filed herewith) |
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10.16.9 | | Eighth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated July 20, 2017 (Filed herewith) |
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13 | | 2017 Annual Report to Shareholders (1) |
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14 | | Code of Ethics (Incorporated by reference to Meridian’s Annual Report on Form10-K for the Fiscal Year Ended September 30, 2003) |
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| 21 | | |
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2323.1 | | |
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| 23.2 | | |
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| 31.1 | | |
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| 31.2 | | |
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3232** | | |
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101101.INS*** | | The following financial information from Meridian Bioscience Inc.’s Annual Report on Form10-K for the fiscal year ended September 30, 2017 filed with the SEC on November 29, 2017, formattedInline XBRL Instance Document |
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| 101.SCH*** | | Inline XBRL Taxonomy Extension Schema |
| |
| 101.CAL*** | | Inline XBRL Taxonomy Extension Calculation Linkbase |
| |
| 101.DEF*** | | Inline XBRL Taxonomy Extension Definition Linkbase |
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| 101.LAB*** | | Inline XBRL Taxonomy Extension Label Linkbase |
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| 101.PRE*** | | Inline XBRL Taxonomy Extension Presentation Linkbase |
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| 104*** | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in XBRL includes: (i) Consolidated Statements of Operations for the years ended September 30, 2017, 2016 and 2015; (ii) Consolidated Statements of Comprehensive Income for the years ended September 30, 2017, 2016 and 2015; (iii) Consolidated Statements of Cash Flows for the years ended September 30, 2017, 2016 and 2015; (iv) Consolidated Balance Sheets as of September 30, 2017 and 2016; (v) Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2017, 2016 and 2015; and (vi) the Notes to Consolidated Financial StatementsExhibit 101) |
| * | Management Compensatory Contracts |
| *** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
| † | Schedules to and certain portions of these exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the 2017 Annual ReportRegistrant if publicly disclosed. The Registrant hereby agrees to Shareholders are incorporated by reference in this Form10-K as filed herewith. A supplemental paperfurnish a copy of the 2017 Annual Report to Shareholders has been furnishedany omitted schedule or other portion to the Securities and Exchange Commission for informational purposes only or will be posted on our website,www.meridianbioscience.com.SEC upon request. |
Meridian will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Meridian’s reasonable expenses in furnishing such exhibit.
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| MERIDIAN BIOSCIENCE, INC. |
| |
| By: | | |
Date: November 29, 201723, 2021 |
| Jack Kenny |
| Chief Executive Officer |
We, the undersigned directors and officers of the Registrant, hereby severally constitute Jack Kenny and
Melissa A. Lueke,Bryan T. Baldasare, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to the Annual Report on Form
10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | |
| | | | |
| | |
| | Chief Executive Officer and Director | | November 29, 201723, 2021 |
| Jack Kenny | | | | |
| | |
/s/ Melissa A. LuekeMelissa A. Lueke
Bryan T. Baldasare | | Executive Vice President, Chief | | November 23, 2021 |
| Bryan T. Baldasare | | Financial Officer and Secretary (Principal (Principal Financial and Accounting Officer) | | November 29, 2017 |
| | |
/s/ John A. Kraeutler
John A. Kraeutler
| | Executive |
| | Chairman of the Board | | November 29, 201723, 2021 |
| David C. Phillips | | | | |
| | |
/s/ James M. Anderson James M. Anderson
| | Director | | November 29, 201723, 2021 |
| James M. Anderson | | | | |
| | |
/s/ Dwight E. EllingwoodDwight E. Ellingwood
Anthony P. Bihl III | | Director | | November 29, 201723, 2021 |
| Anthony P. Bihl III | | | | |
| | |
/s/ John C. McIlwraithJohn C. McIlwraith
Dwight E. Ellingwood | | Director | | November 29, 201723, 2021 |
| Dwight E. Ellingwood | | | | |
| | |
/s/ DavidJohn C. PhillipsDavid C. Phillips
McIlwraith | | Director | | November 29, 201723, 2021 |
| John C. McIlwraith | | | | |
| | |
/s/ John M. Rice, Jr. John M. Rice, Jr.
| | Director | | November 29, 201723, 2021 |
| John M. Rice, Jr. | | | | |
| | |
/s/ Catherine A. Sazdanoff Catherine A. Sazdanoff
| | Director | | November 29, 201723, 2021 |
| Catherine A. Sazdanoff | | | | |
| | |
| | Director | | November 23, 2021 |
| Felicia Williams | | | | |
Meridian Bioscience, Inc.
Valuation and Qualifying Accounts
Years Ended September 30,
2017, 20162021, 2020 and
2015 | | | | | | | | | | | | | | | | | | | | |
Description | | Balance at
Beginning
of Period | | | Charged to
Costs and
Expenses | | | Deductions | | | Other (a) | | | Balance at
End of
Period | |
Year Ended September 30, 2017: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 334 | | | $ | 90 | | | $ | (134 | ) | | $ | 17 | | | $ | 307 | |
Inventory realizability reserves | | | 2,680 | | | | 35 | | | | (661 | ) | | | 5 | | | | 2,059 | |
Valuation allowances – deferred taxes | | | 342 | | | | — | | | | — | | | | — | | | | 342 | |
| | | | | |
Year Ended September 30, 2016: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 248 | | | $ | 139 | | | $ | (69 | ) | | $ | 16 | | | $ | 334 | |
Inventory realizability reserves | | | 2,456 | | | | 1,285 | | | | (1,072 | ) | | | 11 | | | | 2,680 | |
Valuation allowances – deferred taxes | | | 15 | | | | 327 | | | | — | | | | — | | | | 342 | |
| | | | | |
Year Ended September 30, 2015: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 272 | | | $ | 73 | | | $ | (41 | ) | | $ | (56 | ) | | $ | 248 | |
Inventory realizability reserves | | | 2,942 | | | | 208 | | | | (590 | ) | | | (104 | ) | | | 2,456 | |
Valuation allowances – deferred taxes | | | 8 | | | | 7 | | | | — | | | | — | | | | 15 | |
| | | | | | | | | | | | | | | | | | | | |
| | Balance at
Beginning
of Period | | | Charged to
Costs and
Expenses | | | Deductions | | | Other (a) | | | Balance at
End of
Period | |
Year Ended September 30, 2021: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 513 | | | $ | 583 | | | $ | (34 | ) | | $ | 16 | | | $ | 1,078 | |
Inventory realizability reserves | | | 3,629 | | | | 2,703 | | | | (1,297 | ) | | | (38 | ) | | | 4,997 | |
Valuation allowances – deferred taxes | | | 895 | | | | 729 | | | | 0 | | | | — | | | | 1,624 | |
| | | | | | |
Year Ended September 30, 2020: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 537 | | | $ | 34 | | | $ | (75 | ) | | $ | 17 | | | $ | 513 | |
Inventory realizability reserves | | | 2,441 | | | | 1,775 | | | | (564 | ) | | | (23 | ) | | | 3,629 | |
Valuation allowances – deferred taxes | | | 666 | | | | 335 | | | | (106 | ) | | | — | | | | 895 | |
| | | | | | |
Year Ended September 30, 2019: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 310 | | | $ | 347 | | | $ | (100 | ) | | $ | (20 | ) | | $ | 537 | |
Inventory realizability reserves | | | 1,971 | | | | 930 | | | | (448 | ) | | | (12 | ) | | | 2,441 | |
Valuation allowances – deferred taxes | | | 302 | | | | 364 | | | | — | | | | 0 | | | | 666 | |
| (a) | Balances reflect the effects of currency translation and in 2016, the acquisition of Magellan.translation. |
MERIDIAN BIOSCIENCE, INC.3471 River Hills DriveCincinnati, Ohio 45244IRS Employer IDNo. 31-0888197