☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2020
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Symbol(s)
on which registeredand posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulationand post such files). Yes ☒ No ☐
Large accelerated filer | Accelerated filer | |||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
Class | Outstanding January 31, | |
Common Stock, no par value |
PART I. Item 1. 1 2 3 6 7-12 Item 2. 12-20 Item 3. 2128 Item 4. 2128 PART II. Item 1. 22 Item 1A. 2228 Item 6. 2228 222829 revenue,the impact ofthe ramp upits introduction of new products or acquired products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in which ourthe Company’s customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, can result inprocess.process (including the currently ongoing study and other FDA actions regarding the Company’s LeadCare products). The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of future goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of U.S. health care legislation enacted in 2010 – the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act – and any modification or repeal of any of the provisions thereof initiated by Congress or the presidential administration, and any similar initiatives in other countries on its results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and revenues. We have identifiedThe Company can make no assurances that a material weakness in ourits internal control over financial reporting that,will not be identified in the future, which if identified and not properly corrected, could materially adversely affect ourits operations and result in material misstatements in ourits financial statements. Meridian also is subject to risks and uncertainties related to disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such asourthe Company’s filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of ourthe Company’s most recent Annual Report on Formourthe Company’s forward-looking statements.
Three Months Ended | ||||||||
December 31, | ||||||||
2017 | 2016 | |||||||
NET REVENUES | $ | 52,283 | $ | 46,809 | ||||
COST OF SALES | 20,497 | 17,770 | ||||||
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GROSS PROFIT | 31,786 | 29,039 | ||||||
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OPERATING EXPENSES | ||||||||
Research and development | 4,496 | 3,597 | ||||||
Selling and marketing | 8,842 | 7,618 | ||||||
General and administrative | 8,904 | 7,739 | ||||||
CEO transition and litigation costs | 1,483 | — | ||||||
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Total operating expenses | 23,725 | 18,954 | ||||||
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OPERATING INCOME | 8,061 | 10,085 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Interest income | 72 | 22 | ||||||
Interest expense | (395 | ) | (423 | ) | ||||
Other, net | (80 | ) | (25 | ) | ||||
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Total other expense | (403 | ) | (426 | ) | ||||
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EARNINGS BEFORE INCOME TAXES | 7,658 | 9,659 | ||||||
INCOME TAX PROVISION | 1,356 | 3,380 | ||||||
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NET EARNINGS | $ | 6,302 | $ | 6,279 | ||||
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BASIC EARNINGS PER COMMON SHARE | $ | 0.15 | $ | 0.15 | ||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.15 | $ | 0.15 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 42,263 | 42,159 | ||||||
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS | 399 | 376 | ||||||
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 42,662 | 42,535 | ||||||
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ANTI-DILUTIVE SECURITIES: | ||||||||
Common share options and restricted share units | 1,034 | 715 | ||||||
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DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.125 | $ | 0.20 | ||||
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Three Months Ended | ||||||||
December 31, | ||||||||
2020 | 2019 | |||||||
NET REVENUES | $ | 92,917 | $ | 47,421 | ||||
COST OF SALES | 31,369 | 19,770 | ||||||
GROSS PROFIT | 61,548 | 27,651 | ||||||
OPERATING EXPENSES | ||||||||
Research and development | 5,651 | 4,763 | ||||||
Selling and marketing | 7,021 | 6,728 | ||||||
General and administrative | 11,938 | 8,984 | ||||||
Change in fair value of acquisition consideration | 1,047 | 1,187 | ||||||
Restructuring costs | — | 275 | ||||||
Selected legal costs | 1,227 | 320 | ||||||
Total operating expenses | 26,884 | 22,257 | ||||||
OPERATING INCOME | 34,664 | 5,394 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Interest income | 9 | 111 | ||||||
Interest expense | (534 | ) | (767 | ) | ||||
RADx grant income | 800 | — | ||||||
Other, net | (691 | ) | (712 | ) | ||||
Total other expense, net | (416 | ) | (1,368 | ) | ||||
EARNINGS BEFORE INCOME TAXES | 34,248 | 4,026 | ||||||
INCOME TAX PROVISION | 7,469 | 1,199 | ||||||
NET EARNINGS | $ | 26,779 | $ | 2,827 | ||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.62 | $ | 0.07 | ||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.61 | $ | 0.07 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING—BASIC | 43,098 | 42,789 | ||||||
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS | 681 | 149 | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING—DILUTED | 43,779 | 42,938 | ||||||
ANTI-DILUTIVE SECURITIES: | ||||||||
Common share options and restricted share units | 258 | 1,407 | ||||||
Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
NET EARNINGS | $ | 6,302 | $ | 6,279 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | 291 | (1,423 | ) | |||||
Unrealized gain on cash flow hedge | 341 | 1,560 | ||||||
Income taxes related to items of other comprehensive income | (112 | ) | (589 | ) | ||||
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Other comprehensive income (loss), net of tax | 520 | (452 | ) | |||||
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COMPREHENSIVE INCOME | $ | 6,822 | $ | 5,827 | ||||
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Three Months Ended December 31, | ||||||||
2020 | 2019 | |||||||
NET EARNINGS | $ | 26,779 | $ | 2,827 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | 3,301 | 2,768 | ||||||
Unrealized gain on cash flow hedge | 21 | — | ||||||
Reclassification of amortization of gain on cash flow hedge | (77 | ) | (77 | ) | ||||
Income taxes related to items of other comprehensive income | 14 | 19 | ||||||
Other comprehensive income, net of tax | 3,259 | 2,710 | ||||||
COMPREHENSIVE INCOME | $ | 30,038 | $ | 5,537 | ||||
Three Months Ended December 31, | 2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net earnings | $ | 6,302 | $ | 6,279 | ||||
Non-cash items included in net earnings: | ||||||||
Depreciation of property, plant and equipment | 1,146 | 1,078 | ||||||
Amortization of intangible assets | 938 | 968 | ||||||
Amortization of deferred instrument costs | 201 | 257 | ||||||
Stock-based compensation | 1,759 | 1,884 | ||||||
Deferred income taxes | (1,624 | ) | 2,091 | |||||
Change in: | ||||||||
Accounts receivable | (2,989 | ) | 2,191 | |||||
Inventories | (2,353 | ) | (169 | ) | ||||
Prepaid expenses and other current assets | 87 | (406 | ) | |||||
Accounts payable and accrued expenses | 1,315 | (913 | ) | |||||
Income taxes payable | 497 | 44 | ||||||
Other, net | (108 | ) | (311 | ) | ||||
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Net cash provided by operating activities | 5,171 | 12,993 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of property, plant and equipment | (1,234 | ) | (1,392 | ) | ||||
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Net cash used for investing activities | (1,234 | ) | (1,392 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Dividends paid | (5,288 | ) | (8,440 | ) | ||||
Payments on term loan | (1,125 | ) | (750 | ) | ||||
Proceeds and tax benefits from exercises of stock options | — | 301 | ||||||
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Net cash used for financing activities | (6,413 | ) | (8,889 | ) | ||||
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Effect of Exchange Rate Changes on Cash and Equivalents | 115 | (662 | ) | |||||
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Net (Decrease) Increase in Cash and Equivalents | (2,361 | ) | 2,050 | |||||
Cash and Equivalents at Beginning of Period | 57,072 | 47,226 | ||||||
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Cash and Equivalents at End of Period | $ | 54,711 | $ | 49,276 | ||||
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Three Months Ended December 31, | 2020 | 2019 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net earnings | $ | 26,779 | $ | 2,827 | ||||
Non-cash items included in net earnings: | ||||||||
Depreciation of property, plant and equipment | 1,508 | 1,218 | ||||||
Amortization of intangible assets | 2,221 | 1,722 | ||||||
Stock-based compensation | 1,241 | 788 | ||||||
Deferred income taxes | (852 | ) | 419 | |||||
Change in acquisition consideration | 1,047 | 1,187 | ||||||
Change in the following: | ||||||||
Accounts receivable | (1,776 | ) | 550 | |||||
Inventories | (5,941 | ) | (3,526 | ) | ||||
Prepaid expenses and other current assets | 2,682 | 1,434 | ||||||
Accounts payable and accrued expenses | (5,826 | ) | (664 | ) | ||||
Income taxes payable | 4,032 | (464 | ) | |||||
Other, net | 6 | (203 | ) | |||||
Net cash provided by operating activities | 25,121 | 5,288 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of property, plant and equipment | (2,086 | ) | (340 | ) | ||||
Payment of acquisition consideration holdback | (5,000 | ) | — | |||||
Net cash used for investing activities | (7,086 | ) | (340 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payment on revolving credit facility | (10,000 | ) | — | |||||
Net cash used for financing activities | (10,000 | ) | — | |||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 1,644 | 1,212 | ||||||
Net Increase in Cash and Cash Equivalents | 9,679 | 6,160 | ||||||
Cash and Cash Equivalents at Beginning of Period | 53,514 | 62,397 | ||||||
Cash and Cash Equivalents at End of Period | $ | 63,193 | $ | 68,557 | ||||
December 31, 2017 (Unaudited) | September 30, 2017 | |||||||
CURRENT ASSETS | ||||||||
Cash and equivalents | $ | 54,711 | $ | 57,072 | ||||
Accounts receivable, less allowances of $306 and $307 | 32,136 | 29,106 | ||||||
Inventories | 43,644 | 41,493 | ||||||
Prepaid expenses and other current assets | 6,126 | 6,204 | ||||||
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Total current assets | 136,617 | 133,875 | ||||||
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PROPERTY, PLANT AND EQUIPMENT, at Cost | ||||||||
Land | 1,164 | 1,162 | ||||||
Buildings and improvements | 32,244 | 32,207 | ||||||
Machinery, equipment and furniture | 49,367 | 48,836 | ||||||
Construction in progress | 2,374 | 1,895 | ||||||
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Subtotal | 85,149 | 84,100 | ||||||
Less: accumulated depreciation and amortization | 54,749 | 53,590 | ||||||
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Net property, plant and equipment | 30,400 | 30,510 | ||||||
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OTHER ASSETS | ||||||||
Goodwill | 54,997 | 54,926 | ||||||
Other intangible assets, net | 25,777 | 26,704 | ||||||
Restricted cash | 1,000 | 1,000 | ||||||
Deferred instrument costs, net | 1,415 | 1,368 | ||||||
Fair value of interest rate swap | 1,156 | 815 | ||||||
Deferred income taxes | 146 | 158 | ||||||
Other assets | 443 | 421 | ||||||
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Total other assets | 84,934 | 85,392 | ||||||
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TOTAL ASSETS | $ | 251,951 | $ | 249,777 | ||||
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December 31, 2020 (Unaudited) | September 30, 2020 |
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 63,193 | $ | 53,514 | ||||
Accounts receivable, less allowances of $579 and $513, respectively | 40,936 | 38,512 | ||||||
Inventories, net | 67,243 | 61,264 | ||||||
Prepaid expenses and other current assets | 6,244 | 8,900 | ||||||
Total current assets | 177,616 | 162,190 | ||||||
PROPERTY, PLANT AND EQUIPMENT, at Cost | ||||||||
Land | 997 | 991 | ||||||
Buildings and improvements | 32,320 | 32,188 | ||||||
Machinery, equipment and furniture | 71,647 | 69,854 | ||||||
Construction in progress | 6,118 | 1,200 | ||||||
Subtotal | 111,082 | 104,233 | ||||||
Less: accumulated depreciation and amortization | 75,094 | 73,113 | ||||||
Property, plant and equipment, net | 35,988 | 31,120 | ||||||
OTHER ASSETS | ||||||||
Goodwill | 114,868 | 114,186 | ||||||
Other intangible assets, net | 80,976 | 83,197 | ||||||
Right-of-use assets, net | 6,213 | 6,336 | ||||||
Deferred income taxes | 7,714 | 7,647 | ||||||
Other assets | 555 | 585 | ||||||
Total other assets | 210,326 | 211,951 | ||||||
TOTAL ASSETS | $ | 423,930 | $ | 405,261 | ||||
CURRENT LIABILITIES Accounts payable Accrued employee compensation costs Current portion of acquisition consideration Other accrued expenses Current portion of long-term debt Income taxes payable Total current liabilities NON-CURRENT LIABILITIES Acquisition consideration Post-employment benefits Long-term debt Long-term income taxes payable Deferred income taxes Totalnon-current liabilities 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, 42,307,542 and 42,207,317 shares issued, respectively Additionalpaid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY dollarsdollar amounts in thousands) December 31,
2017
(Unaudited) September 30,
2017 $ 8,507 $ 7,719 4,801 4,536 2,095 2,095 2,795 2,789 4,500 4,500 776 1,248 23,474 22,887 235 235 2,551 2,468 49,030 50,147 854 — 2,929 4,455 55,599 57,305 — — — — 127,367 125,608 47,937 46,923 (2,426 ) (2,946 ) 172,878 169,585 $ 251,951 $ 249,777
2020
2020 $ 15,348 $ 11,969 10,581 16,661 11,303 12,619 1,835 1,789 727 600 6,052 5,362 7,985 3,524 53,831 52,524 10,653 13,290 2,494 2,493 693 713 4,513 4,678 58,824 68,824 10,495 10,524 384 549 3,007 3,804 169 233 91,232 105,108 0 0 0— 0— 0— 0— 141,395 140,195 136,073 109,294 Accumulated other comprehensive income (loss) 1,399 (1,860 ) 278,867 247,629 $ 423,930 $ 405,261
Common Shares Issued | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | ||||||||||||||||
Balance at September 30, 2017 | 42,207 | $ | 125,608 | $ | 46,923 | $ | (2,946 | ) | $ | 169,585 | ||||||||||
Cash dividends paid | — | — | (5,288 | ) | — | (5,288 | ) | |||||||||||||
Conversion of restricted share units | 100 | — | — | — | — | |||||||||||||||
Stock compensation expense | — | 1,759 | — | — | 1,759 | |||||||||||||||
Net earnings | — | — | 6,302 | — | 6,302 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | 291 | 291 | |||||||||||||||
Hedging activity, net of tax | — | — | — | 229 | 229 | |||||||||||||||
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Balance at December 31, 2017 | 42,307 | $ | 127,367 | $ | 47,937 | $ | (2,426 | ) | $ | 172,878 | ||||||||||
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Common Shares Issued | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | ||||||||||||||||
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 | 55 | (41 | ) | — | — | (41 | ) | |||||||||||||
Stock compensation expense | — | 1,241 | — | — | 1,241 | |||||||||||||||
Net earnings | — | — | 26,779 | — | 26,779 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | 3,301 | 3,301 | |||||||||||||||
Hedging activity, net of tax | — | — | — | (42) | (42 | ) | ||||||||||||||
Balance at December 31, 2020 | 43,124 | $ | 141,395 | $ | 136,073 | $ | 1,399 | $ | 278,867 | |||||||||||
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 | 116 | — | — | — | — | |||||||||||||||
Stock compensation expense | — | 788 | — | — | 788 | |||||||||||||||
Net earnings | — | — | 2,827 | — | 2,827 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | 2,768 | 2,768 | |||||||||||||||
Hedging activity, net of tax | — | — | — | (58) | (58 | ) | ||||||||||||||
Balance at December 31, 2019 | 42,828 | $ | 133,622 | $ | 65,935 | $ | (2,265) | $ | 197,292 | |||||||||||
1. | Nature of |
The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2017 Annual Report on Form10-K.
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 reported revenues.
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 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 later in fiscal 2018.
In March 2016, the FASB 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. The Company adopted this guidance in the first quarter of fiscal 2018, and as a result recorded $160 to the income tax provision, which under the previous guidance would have been recorded within additionalpaid-in capital. While the future effect of the guidance is dependent upon 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), the effect is not expected to be material.
Page 7
Reclassifications –
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.
Cash and equivalents include the following components:
December 31, 2017 | September 30, 2017 | |||||||||||||||
Cash and Equivalents | Other Assets | Cash and Equivalents | Other Assets | |||||||||||||
Institutional money market funds | $ | 20,155 | $ | — | $ | 20,104 | $ | — | ||||||||
Cash on hand - | ||||||||||||||||
Restricted | — | 1,000 | — | 1,000 | ||||||||||||
Unrestricted | 34,556 | — | 36,968 | — | ||||||||||||
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Total | $ | 54,711 | $ | 1,000 | $ | 57,072 | $ | 1,000 | ||||||||
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Inventories are comprised of the following:
December 31, 2017 | September 30, 2017 | |||||||
Raw materials | $ | 7,989 | $ | 6,575 | ||||
Work-in-process | 12,110 | 11,559 | ||||||
Finished goods - instruments | 1,271 | 1,460 | ||||||
Finished goods - kits and reagents | 22,274 | 21,899 | ||||||
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Total | $ | 43,644 | $ | 41,493 | ||||
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A summary of our acquired intangible assets subject to amortization, as of December 31, 2017 and September 30, 2017, is as follows:
December 31, 2017 | September 30, 2017 | |||||||||||||||
Gross Carrying Value | Accumulated Amortization | Gross Carrying Value | Accumulated Amortization | |||||||||||||
Manufacturing technologies, core products and cell lines | $ | 22,341 | $ | 13,117 | $ | 22,332 | $ | 12,807 | ||||||||
Trade names, licenses and patents | 8,699 | 4,632 | 8,689 | 4,398 | ||||||||||||
Customer lists, customer relationships and supply agreements | 24,586 | 12,190 | 24,562 | 11,854 | ||||||||||||
Non-compete agreements | 720 | 630 | 720 | 540 | ||||||||||||
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$ | 56,346 | $ | 30,569 | $ | 56,303 | $ | 29,599 | |||||||||
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Page 8
The actual aggregate amortization expense for these intangible assets was $938 and $968 for the three months ended December 31, 2017 and 2016, respectively. The estimated aggregate amortization expense for these intangible assets for each of the fiscal years through fiscal 2023 is as follows: remainder of fiscal 2018 – $2,628, fiscal 2019 – $3,343, fiscal 2020 – $3,178, fiscal 2021 – $2,561, fiscal 2022 – $2,182, and fiscal 2023 – $2,170.
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. To date, we have satisfied our post-Warning Letter reporting requirements with the FDA. During the first quarter of fiscal 2018, we incurred approximately $500 in Quality System remediation costs, primarily related to regulatory consultants.
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 2017 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”“the Company”). 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 apre-tax andafter-tax basis, was recorded during the fiscal 2017 third quarter. Given all of the factors considered, we do not anticipate, at this time, any further goodwill impairment charge from the Magellan acquisition.
On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “tax reform act”). In applying the tax reform act, we followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), regarding the application of ASC Topic 740 in situations where a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the tax reform act for the reporting period in which the tax reform act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the tax reform act’s enactment date and ending when a company has obtained, prepared and analyzed the information needed in order to complete the accounting requirements, but in no circumstances should the measurement period extend beyond one year from the enactment date.
We completed the accounting for the effects of the tax reform act during the quarter ended December 31, 2017, except for the effects related to theone-time deemed repatriation transition tax on unrepatriated foreign earnings (the “repatriation transition tax”). As a result, our financial statements for the quarter ended December 31, 2017 reflect these effects of the tax reform act as provisional based on a reasonable estimate of the income tax effects. We have included a provisional non-current income tax payable in the amount of $854 related to the repatriation transition tax. The provisional amount is based on tax attribute information currently available from foreign investments. We continue to gather and analyze information, including historical adjustments to earnings and profits of foreign subsidiaries, in order to complete the accounting for the effects of the estimated repatriation transition tax.
Accounting for the remaining income tax effects of the tax reform act which impact our tax provision has been substantially completed and are included in the accompanying Condensed Consolidated Financial Statements as of December 31, 2017. We recorded aone-time tax benefit of $1,695 resulting from the tax reform act, including an adjustment from there-measurement of deferred tax assets and liabilities. Thisre-measurement includes an estimate of the temporary differences expected to be realized during fiscal 2018 at a transitional blended rate of 24.5%. The remaining temporary differences werere-measured at 21%.
Page 9
In connection with the acquisition of Magellan Biosciences, Inc., and its wholly-owned subsidiary Magellan Diagnostics, Inc. (collectively, “Magellan”), 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: remainder of fiscal 2018 - $3,375, 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 December 31, 2017 approximates the current carrying value reflected in the accompanying Condensed Consolidated Balance Sheet.
In order to limit exposure to volatility in the LIBOR interest rate, the Company and the commercial bank also entered into an interest rate swap that effectively converts the variable interest rate on the term loan 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 rate swap has been designated as an effective cash flow hedge, with changes in fair value reflected as a separate component of other comprehensive income in the accompanying Condensed Consolidated Statements of Comprehensive Income. At December 31, 2017 and September 30, 2017, the fair value of the interest rate swap was $1,156 and $815, respectively, and is reflected as anon-current asset in the accompanying Condensed Consolidated Balance Sheets. This fair value was determined by reference to a third party valuation, and is considered a Level 2 input within the fair value hierarchy of valuation techniques.
In addition, the Company maintains a $30,000 revolving credit facility with a commercial bank, which expires March 31, 2021. There were no borrowings outstanding on this credit facility at December 31, 2017 or September 30, 2017.
The term loan and the revolving credit facility are collateralized by the business assets of the Company’s U.S. subsidiaries and require 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 borrowing agreement. As of December 31, 2017, the Company is in compliance with all covenants. The Company is also required to maintain a compensating cash balance with the bank in the amount of $1,000, and is in compliance with this requirement.
Meridian was formed in 1976 and functions as 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/qPCR reagents, nucleotides, competent cells, and bioresearch reagents used by researchers and other diagnostic manufacturers.
manufacturers and researchers.
levels in blood.
2. | Basis of Presentation |
7
Amounts
3. | Significant Accounting Policies |
(b) | Reclassifications – |
4. | Revenue Recognition |
Three Months Ended December 31, | ||||||||||||
2020 | 2019 | Inc (Dec) | ||||||||||
Diagnostics- | ||||||||||||
Americas | $ | 23,551 | $ | 27,735 | (15 | )% | ||||||
EMEA | 6,020 | 6,500 | (7 | )% | ||||||||
ROW | 750 | 556 | 35 | % | ||||||||
Total Diagnostics | 30,321 | 34,791 | (13 | )% | ||||||||
Life Science- | ||||||||||||
Americas | 18,755 | 4,012 | 367 | % | ||||||||
EMEA | 32,311 | 4,960 | 551 | % | ||||||||
ROW | 11,530 | 3,658 | 215 | % | ||||||||
Total Life Science | 62,596 | 12,630 | 396 | % | ||||||||
Consolidated | $ | 92,917 | $ | 47,421 | 96 | % | ||||||
Three Months Ended | ||||||||||||
2020 | 2019 | Inc | ||||||||||
Diagnostics- | ||||||||||||
Molecular assays | $ | 4,590 | $ | 6,903 | (34 | )% | ||||||
Non-molecular assays | 25,731 | 27,888 | (8 | )% | ||||||||
Total Diagnostics | $ | 30,321 | $ | 34,791 | (13 | )% | ||||||
Life Science- | ||||||||||||
Molecular reagents | $ | 46,029 | $ | 5,367 | 758 | % | ||||||
Immunological reagents | 16,567 | 7,263 | 128 | % | ||||||||
Total Life Science | $ | 62,596 | $ | 12,630 | 396 | % | ||||||
Three Months Ended December 31, | ||||||||||||
2020 | 2019 | Inc | ||||||||||
Diagnostics- | ||||||||||||
Gastrointestinal assays | $ | 15,452 | $ | 16,251 | (5 | )% | ||||||
Respiratory illness assays | 4,806 | 7,778 | (38 | )% | ||||||||
Blood chemistry assays | 4,394 | 4,951 | (11 | )% | ||||||||
Other | 5,669 | 5,811 | (2 | )% | ||||||||
Total Diagnostics | $ | 30,321 | $ | 34,791 | (13 | )% | ||||||
5. | Fair Value Measurements |
Fair Value Measurements Using Inputs Considered as | ||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Interest rate swaps - | ||||||||||||||||
As of December 31, 2020 | $ | (693 | ) | $ | 0 | $ | (693 | ) | $ | 0 | ||||||
As of September 30, 2020 | $ | (713 | ) | $ | 0 | $ | (713 | ) | $ | 0 | ||||||
Contingent consideration (GeneP OC ) | ||||||||||||||||
As of December 31, 2020 | $ | (21,956 | ) | $ | 0 | $ | 0 | $ | (21,956 | ) | ||||||
As of September 30, 2020 | $ | (20,909 | ) | $ | 0 | $ | 0 | $ | (20,909 | ) |
6. | Business Combinations |
PRELIMINARY | ||||||||||||
April 30, 2020 (as initially reported) | Measurement Period Adjustments | April 30, 2020 (as adjusted) | ||||||||||
Fair value of assets acquired - | ||||||||||||
Cash | $ | 5,006 | $ | — | $ | 5,006 | ||||||
Accounts receivable | 637 | — | 637 | |||||||||
Inventories | 4,329 | — | 4,329 | |||||||||
Other current assets | 851 | 1,825 | 2,676 | |||||||||
Property, plant and equipment | 544 | 39 | 583 | |||||||||
Goodwill | 29,288 | (4,785 | ) | 24,503 | ||||||||
Other intangible assets (estimated useful life): | ||||||||||||
Non-compete agreement (5 years) | 120 | (10 | ) | 110 | ||||||||
Trade name (10 years) | 3,540 | 320 | 3,860 | |||||||||
Technology (15 years) | 5,590 | 530 | 6,120 | |||||||||
Customer relationships (10 years) | 19,370 | 1,270 | 20,640 | |||||||||
Right-of-use | 1,358 | (47 | ) | 1,311 | ||||||||
Deferred tax assets, net | 5,566 | 1,151 | 6,717 | |||||||||
76,199 | 293 | 76,492 | ||||||||||
Fair value of liabilities assumed - | ||||||||||||
Accounts payable and accrued expenses (including current portion of lease and government grant obligations) | 7,757 | 251 | 8,008 | |||||||||
Long-term lease obligations | 1,054 | 42 | 1,096 | |||||||||
Long-term government grant obligations | 10,792 | — | 10,792 | |||||||||
Other non-current liabilities | 291 | — | 291 | |||||||||
19,894 | 293 | 20,187 | ||||||||||
Total consideration paid (including $8,068 to pay off long-term debt) | $ | 56,305 | $ | — | $ | 56,305 | ||||||
Three Months Ended December 31, | 2020 | 2019 | ||||||
Net Revenues | $ | 92,917 | $ | 51,194 | ||||
Net Earnings | $ | 26,779 | $ | 1,182 |
Three Months Ended December 31, | 2020 | 2019 | ||||||
Adjustments to Net Revenues | ||||||||
Exalenz pre-acquisition revenues | $ | 0 | $ | 3,773 | ||||
Adjustments to Net Earnings | ||||||||
Exalenz pre-acquisition net losses | $ | 0 | $ | (752 | ) | |||
Pro forma adjustments: | ||||||||
Remove net impact of non-continuing personnel, locations or activities | 0 | 101 | ||||||
Incremental depreciation and amortization | 0 | (913 | ) | |||||
Incremental interest costs, net | 0 | (391 | ) | |||||
Tax effects of pro forma adjustments and recognizing benefit on resulting Exalenz losses | 0 | 310 | ||||||
Total Adjustments to Net Earnings | $ | 0 | $ | (1,645 | ) | |||
7 . | Cash and C ash |
December 31, 2020 | September 30, 2020 | |||||||
Institutional money market funds | $ | 1,017 | $ | 1,017 | ||||
Cash on hand, unrestricted | 62,176 | 52,497 | ||||||
Total | $ | 63,193 | $ | 53,514 | ||||
8 . | Inventories , Ne t |
December 31, 2020 | September 30, 2020 | |||||||
Raw materials | $ | 13,868 | $ | 11,966 | ||||
Work-in-process | 20,874 | 19,477 | ||||||
Finished goods - instruments | 1,532 | 1,594 | ||||||
Finished goods - kits and reagents | 30,969 | 28,227 | ||||||
Total | $ | 67,243 | $ | 61,264 | ||||
9 . | Leasing Arrangements |
December 31, 2020 | ||||
2021 (represents remainder of fiscal year) | $ | 1,590 | ||
2022 | 1,873 | |||
2023 | 1,346 | |||
2024 | 1,002 | |||
2025 | 707 | |||
Thereafter | 292 | |||
Total lease payments | 6,810 | |||
Less amount of lease payments representing interest | (462 | ) | ||
Total present value of lease payments | $ | 6,348 | ||
Three Months Ended December 31, | 2020 | 2019 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 494 | $ | 387 | ||||
10. | Goodwill and Other Intangible Assets, Net |
December 31, 2020 | September 30, 2020 | |||||||||||||||
Gross Carrying Value | Accumulated Amortization | Gross Carrying Value | Accumulated Amortization | |||||||||||||
Manufacturing technologies, core products and cell lines | $ | 62,436 | $ | 19,791 | $ | 62,363 | $ | 18,750 | ||||||||
Trade names, licenses and patents | 18,510 | 8,351 | 18,425 | 7,801 | ||||||||||||
Customer lists, customer relationships and supply agreements | 45,263 | 17,186 | 45,071 | 16,210 | ||||||||||||
Government grants | 847 | 847 | 810 | 810 | ||||||||||||
Non-compete agreements | 110 | 15 | 110 | 11 | ||||||||||||
Total | $ | 127,166 | $ | 46,190 | $ | 126,779 | $ | 43,582 | ||||||||
11 . | Bank Credit Arrangements |
12. | Contingent Obligations and Non-Current Liabilities |
13. | National Institutes of Health Contract |
1 4 . | Reportable Segment and Major Customers Information |
Three Months Ended December 31, 2020 | ||||||||
Segment Revenue % | Consolidated Revenue % | |||||||
Diagnostics | ||||||||
Customer A | 10 | % | 4 | % | ||||
Customer B | 11 | % | 3 | % | ||||
Customer C | 12 | % | 4 | % | ||||
33 | % | 11 | % | |||||
Life Science | ||||||||
Customer D | 3 | % | 2 | % | ||||
Customer E | 5 | % | �� | 4 | % | |||
Customer F | 14 | % | 9 | % | ||||
22 | % | 15 | % | |||||
Three Months Ended December 31, 2019 | ||||||||
Segment Revenue % | Consolidated Revenue % | |||||||
Diagnostics | ||||||||
Customer A | 15 | % | 11 | % | ||||
Customer B | 6 | % | 4 | % | ||||
Customer C | 12 | % | 9 | % | ||||
33 | % | 24 | % | |||||
Life Science | ||||||||
Customer D | 8 | %�� | 2 | % | ||||
Customer E | 7 | % | 2 | % | ||||
15 | % | 4 | % | |||||
Diagnostics | Life Science | Eliminations(1) | Total | |||||||||||||
Three Months Ended December 31, 2017 | ||||||||||||||||
Net revenues - | ||||||||||||||||
Third-party | $ | 37,490 | $ | 14,793 | $ | — | $ | 52,283 | ||||||||
Inter-segment | 121 | 192 | (313 | ) | — | |||||||||||
Operating income | 5,291 | 2,784 | (14 | ) | 8,061 | |||||||||||
Goodwill (December 31, 2017) | 35,213 | 19,784 | — | 54,997 | ||||||||||||
Other intangible assets, net (December 31, 2017) | 24,202 | 1,575 | — | 25,777 | ||||||||||||
Total assets (December 31, 2017) | 179,943 | 72,480 | (472 | ) | 251,951 | |||||||||||
Three Months Ended December 31, 2016 | ||||||||||||||||
Net revenues - | ||||||||||||||||
Third-party | $ | 33,808 | $ | 13,001 | $ | — | $ | 46,809 | ||||||||
Inter-segment | 79 | 125 | (204 | ) | — | |||||||||||
Operating income | 6,643 | 3,267 | 175 | 10,085 | ||||||||||||
Goodwill (September 30, 2017) | 35,213 | 19,713 | — | 54,926 | ||||||||||||
Other intangible assets, net (September 30, 2017) | 24,973 | 1,731 | — | 26,704 | ||||||||||||
Total assets (September 30, 2017) | 180,226 | 69,938 | (387 | ) | 249,777 |
Diagnostics | Life Science | Corporate (1) | Eliminations (2) | Total | ||||||||||||||||
Three Months Ended December 31, 2020 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 30,321 | $ | 62,596 | $ | — | $ | — | $ | 92,917 | ||||||||||
Inter-segment | 69 | 18 | — | (87 | ) | — | ||||||||||||||
Operating income (loss) | (1,182 | ) | 39,797 | (3,963 | ) | 12 | 34,664 | |||||||||||||
Goodwill (December 31, 2020) | 94,944 | 19,924 | — | — | 114,868 | |||||||||||||||
Other intangible assets, net (December 31, 2020) | 80,966 | 10 | — | — | 80,976 | |||||||||||||||
Total assets (December 31, 2020) | 308,990 | 114,946 | — | (6 | ) | 423,930 | ||||||||||||||
Three Months Ended December 31, 2019 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 34,791 | $ | 12,630 | $ | — | $ | — | $ | 47,421 | ||||||||||
Inter-segment | 97 | 65 | — | (162 | ) | — | ||||||||||||||
Operating income (loss) | 5,141 | 2,328 | (2,087 | ) | 12 | 5,394 | ||||||||||||||
Goodwill (September 30, 2020) | 94,855 | 19,331 | — | — | 114,186 | |||||||||||||||
Other intangible assets, net (September 30, 2020) | 83,179 | 18 | — | — | 83,197 | |||||||||||||||
Total assets (September 30, 2020) | 306,812 | 98,483 | — | (34 | ) | 405,261 |
(1) | Includes Selected Legal Costs of $1,227 in the three months ended December 31, 2020 and Restructuring Costs and Selected Legal Costs of $370in the three months ended December 31, 2019. |
(2) | Eliminations consist of inter-segment transactions. |
Three Months Ended December 31, | 2020 | 2019 | ||||||
Operating income (loss) : | ||||||||
Diagnostics segment | $ | (1,182 | ) | $ | 5,141 | |||
Life Science segment | 39,797 | 2,328 | ||||||
Eliminations | 12 | 12 | ||||||
Total operating income | 38,627 | 7,481 | ||||||
Corporate expenses | (3,963 | ) | (2,087 | ) | ||||
Interest income | 9 | 111 | ||||||
Interest expense | (534 | ) | (767 | ) | ||||
RADx initiative grant income | 800 | — | ||||||
Other, net | (691 | ) | (712 | ) | ||||
Consolidated earnings before income taxes | $ | 34,248 | $ | 4,026 | ||||
1 5 . | Income Taxes |
On May 17, 2017, Meridian filed a complaint in the United States District Court
16. | Litigation Matters |
Page 11
On November 15, 2017, Barbara Forman filed 2020 and 2019, respectively.
17. | Subsequent Event |
On December 6, 2017, Michael Edelson filed a class action complaint in the United States District Court for the Southern District of Ohio naming Meridian, its Chief Executive Officer, Chief Financial Officer and certain members of Meridian’s Board of Directors and Audit Committee (in their capacities as such) as defendants. The complaint alleges that Meridian made false and misleading representations concerning certain of Magellan’s lead test systems at or around the time of Meridian’s acquisition of Magellan and subsequent thereto, and the complaint alleges that certain members of the Board of Directors and Audit Committee breached their fiduciary duties in their oversight of the Company’s public disclosures and corporate governance matters. The lawsuit underlying plaintiff’s class action complaint seeks compensatory damages, injunctive relief, equitable relief and attorneys’ fees to all members of the proposed class. Because the litigation and related discovery are in preliminary stages, we do not have sufficient information to determine or predict the ultimate outcome or estimate the range of possible losses, if any. Accordingly, no provision for litigation losses has been included within the accompanying Condensed Consolidated Statement of Operations for the fiscal quarter ended December 31, 2017.
Following
QUARTERLY HIGHLIGHTS
The first quarter of fiscal 2018 proved to be a successful quarter; a quarter highlighted by the following, the effects of which are discussed throughout this MD&A:
Page 12
RESULTS OF OPERATIONS
Three Months Ended December 31, 2017
Net earnings for the first quarter of fiscal 2018 totaled $6,302, or $0.15 per diluted share, relatively flat compared to the net earnings for the first quarter of fiscal 2017 of $6,279, or $0.15 per diluted share. The fiscal 2018 first quarter results include $1,483 of costs associated with the transition to our new CEO and litigation costs (collectively, “CEO transition and litigation costs”) (see Note 9 of the accompanying Condensed Consolidated Financial Statements), along with certainone-time tax effectsStatements and notes. It should be noted that the terms revenue and/or revenues are utilized throughout the Management’s Discussion and Analysis of the recently-enacted U.S. tax reform act. These items impacted earnings by $239, or less than $0.01 per diluted share on aFinancial Condition and Results of Operations to indicate net basis (see “USE OFNON-GAAP MEASURES” below). Consolidated revenues increased 12% to $52,283 for the first quarter of fiscal 2018 compared to the same period of the prior year (10% on a constant-currency basis).
Revenues for the Diagnostics segment for the first quarter of fiscal 2018 increased 11% compared to the first quarter of fiscal 2017 (10% on a constant-currency basis), comprised of a 12% increase in molecular assay products and a 10% increase in immunoassay and lead testing products. With a 12% increase in its molecular components business and a 15% increase in its immunoassay components business, revenues of our Life Science segment increased by 14% during the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017, increasing 12% on a constant-currency basis.
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), nearly 700 new LeadCare II systems utilizing capillary blood samples have been placed in physician offices and clinics. Quality System remediation costs in the first quarter of fiscal 2018 associated with the Magellan FDA matter totaled approximately $500pre-tax, resulting in a total impact of less than $0.01 on diluted earnings per share for the quarter. Remediation costs in the remainder of fiscal 2018 are expected to be approximately $250pre-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 course of remediation, Magellan may encounter additional matters that warrant notifications to the FDArevenue 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 anticipate any further significant 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 costs, litigation costs and certainone-time tax effects of the tax reform act, each of which is anon-GAAP measure. We have provided in the tables below reconciliations of net earnings, basic earnings per share and diluted earnings per share, with and without the effects of thesenon-routine items, for the fiscal quarters ended December 31, 2017 and December 31, 2016.
We believe that this information is useful to those who read our financial statements and evaluate our operating results because:
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.
Page 13
Three Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Net Earnings - | ||||||||
U.S. GAAP basis | $ | 6,302 | $ | 6,279 | ||||
CEO transition and litigation costs (1) | 1,080 | — | ||||||
One-time benefit from tax law change | (1,695 | ) | — | |||||
Repatriation transition tax | 854 | — | ||||||
|
|
|
| |||||
Adjusted earnings | $ | 6,541 | $ | 6,279 | ||||
|
|
|
| |||||
Net Earnings per Basic Common Share - | ||||||||
U.S. GAAP basis | $ | 0.15 | $ | 0.15 | ||||
CEO transition and litigation costs (1) | 0.03 | — | ||||||
One-time benefit from tax law change | (0.04 | ) | — | |||||
Repatriation transition tax | 0.02 | — | ||||||
|
|
|
| |||||
Adjusted Basic EPS (2) | $ | 0.15 | $ | 0.15 | ||||
|
|
|
| |||||
Net Earnings per Diluted Common Share - | ||||||||
U.S. GAAP basis | $ | 0.15 | $ | 0.15 | ||||
CEO transition and litigation costs (1) | 0.03 | — | ||||||
One-time benefit from tax law change | (0.04 | ) | — | |||||
Repatriation transition tax | 0.02 | — | ||||||
|
|
|
| |||||
Adjusted Diluted EPS (2) | $ | 0.15 | $ | 0.15 | ||||
|
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Page 14
REVENUE OVERVIEW
Below are analyses of the Company’s revenue, provided for each of the following:
Revenue Overview – By Reportable Segment & Geographic Region
Statements).
(i) | significantly higher revenues in the Life Science segment, due to supplying key molecular components and antibodies to diagnostic test manufacturers for use in COVID-19 related PCR and antibody tests (up $49,966); |
(ii) | higher research and development spending in the Diagnostics segment (up $895) under new product development programs; |
(iii) | increased cash-based incentive compensation (up $600) tied to higher revenues and profit levels; |
(iv) | increased intangible asset amortization, primarily resulting from purchase accounting amortization related to the acquisition of Exalenz in April 2020 (up $499); |
(v) | increased legal expenses related to the DOJ matter at the Billerica, Massachusetts facility (up $947) (see “Lead Testing Matters” below); and |
(vi) | the fiscal 2021 first quarter including $800 in grant income related to the National Institutes of Health RADx initiative (see Note 13 of the accompanying Condensed Consolidated Financial Statements). |
- | By Reportable Segment & Geographic Region |
- | By Product Platform/Type |
Three Months Ended December 31, | ||||||||||||
2017 | 2016 | Inc (Dec) | ||||||||||
Diagnostics - | ||||||||||||
Americas | $ | 31,462 | $ | 27,569 | 14 | % | ||||||
EMEA | 5,341 | 5,662 | (6 | )% | ||||||||
ROW | 687 | 577 | 19 | % | ||||||||
|
|
|
|
|
| |||||||
Total Diagnostics | 37,490 | 33,808 | 11 | % | ||||||||
|
|
|
|
|
| |||||||
Life Science - | ||||||||||||
Americas | 5,351 | 5,399 | (1 | )% | ||||||||
EMEA | 5,106 | 4,898 | 4 | % | ||||||||
ROW | 4,336 | 2,704 | 60 | % | ||||||||
|
|
|
|
|
| |||||||
Total Life Science | 14,793 | 13,001 | 14 | % | ||||||||
|
|
|
|
|
| |||||||
Consolidated | $ | 52,283 | $ | 46,809 | 12 | % | ||||||
|
|
|
|
|
| |||||||
% of total revenues - | ||||||||||||
Diagnostics | 72 | % | 72 | % | ||||||||
Life Science | 28 | % | 28 | % | ||||||||
|
|
|
| |||||||||
Total | 100 | % | 100 | % | ||||||||
|
|
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Ex-Americas | 30 | % | 30 | % | ||||||||
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Revenue Overview – By Product Platform/Type
The revenues generated by each of our reportable segments result primarily from the saleseverity of the following segment-specific categories
Diagnostics
new revenue for our Life Science
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Revenues segment during fiscal 2020, and approximately $43,000 during the first quarter of fiscal 2021.
Three Months Ended December 31, | ||||||||||||
2017 | 2016 | Inc (Dec) | ||||||||||
Diagnostics - | ||||||||||||
Molecular assays | $ | 8,668 | $ | 7,711 | 12 | % | ||||||
Immunoassays & lead tests | 28,822 | 26,097 | 10 | % | ||||||||
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Total Diagnostics | $ | 37,490 | $ | 33,808 | 11 | % | ||||||
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Life Science - | ||||||||||||
Molecular components | $ | 5,705 | $ | 5,116 | 12 | % | ||||||
Immunoassay components | 9,088 | 7,885 | 15 | % | ||||||||
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Total Life Science | $ | 14,793 | $ | 13,001 | 14 | % | ||||||
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% of Diagnostics revenues - | ||||||||||||
Molecular assays | 23 | % | 23 | % | ||||||||
Immunoassays & lead tests | 77 | % | 77 | % | ||||||||
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Total Diagnostics | 100 | % | 100 | % | ||||||||
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% of Life Science revenues - | ||||||||||||
Molecular components | 39 | % | 39 | % | ||||||||
Immunoassay components | 61 | % | 61 | % | ||||||||
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Total Life Science | 100 | % | 100 | % | ||||||||
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detailed revenue disaggregation information.
Diagnostics Products
Molecular Assay Products
Revenuesplatforms are important steps in addressing competitive pressures in our gastrointestinal and respiratory illness assay families. We continue to convert our existing Alethia install base to the Revogene platform for
We have over 1,650 customer account placements. Of these accountFDA’s EUA program resulted in 57 net placements over 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, we have approximately 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 invest 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 December 31, 2017, ourillumigene Malaria test has been placed in nearly 175 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. While this market is competitive, with molecular companies such as Cepheid and Becton Dickinson, and others such as Quidel, Luminex and Abbott (Alere division), we believe we are well-
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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.
Immunoassay and Lead Testing Products
Revenues from our Diagnostics segment’s immunoassay and lead testing products increased 10% inRevogene system during the first quarter of fiscal 2018. These results reflect increased revenues2021 and a total Revogene system install base of 288 systems as of December 31, 2020. In March 2020, we received clearance from the FDA for the Curian immunoassay diagnostics instrument and its first assay, a test for
During the first quarter of fiscal 2018,2021, revenues from oureach of these product categories decreased from fiscal 2020 first quarter levels as follows: (i) gastrointestinal products, which include tests forincreased 24% (22% on a constant-currency basis)which include tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis, among others, decreased 38% to $8,860, reflecting the ongoing conversion of serology testing to our antigen tests and buying patterns of certain customers. 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;$4,806; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing. A significant amountblood chemistry products, which test for elevated levels of theH. pylori product revenues are saleslead in blood, decreased 11% 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 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$4,394.
Revenues from Magellan’s sale of products to test for elevated levels of lead in blood totaled $4,159 during the fiscal 2018 first quarter. This level of revenues reflects a 20% decrease from the three-month period ended December 31, 2016, primarily resulting from (i) the effect of the prior year quarter including an international bulk kit purchase that was not repeated during the current year quarter; and (2) decreased revenue from lead testing systems utilizing venous blood samples, in connection with the FDA matter noted above.
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Life Science Products
During the first quarter of fiscal 2018,2021, revenues from our Life Science segment increased 14%396%, with revenues from molecular componentreagent sales increasing 12%758% from the comparable fiscal 20172020 quarter and revenues from immunoassay componentimmunological reagent sales increasing 15%128%. Our molecular component business’ growthLife Science segment’s revenue performance was nominally impacted by the movement in currency exchange rates since the first quarter of fiscal 2017,2020, with revenues increasing 7%387% on a constant-currency basis over the first quarter of fiscal 2017. Our Life Science segment continued2020. The increase in revenues was primarily attributable to benefit from (i) increased revenues in the steadily-expanding tropical disease product family, with sales of key molecular components such products increasing 20% over the fiscal 2017 first quarteras RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in
2020 to approximately $19,500. This growth, including an approximate 88% increase in revenue from sales into China, resulted in large part from obtaining business from
Three Months Ended December 31, | ||||||||||||
2017 | 2016 | Change | ||||||||||
Gross Profit | $ | 31,786 | $ | 29,039 | 9 | % | ||||||
Gross Profit Margin | 61 | % | 62 | % | -1 point |
Three Months Ended December 31, | ||||||||||||
2020 | 2019 | Change | ||||||||||
Gross Profit | $ | 61,548 | $ | 27,651 | 123 | % | ||||||
Gross Profit Margin | 66 | % | 58 | % | 8 points |
Operating Expenses
Research & Development | Selling & Marketing | General & Administrative | Other | Total Operating Expenses | ||||||||||||||||
Fiscal 2017 First Quarter: |
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Diagnostics | $ | 2,973 | $ | 5,494 | $ | 5,805 | $ | — | $ | 14,272 | ||||||||||
Life Science | 624 | 2,124 | 1,934 | — | 4,682 | |||||||||||||||
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Total 2017 First Quarter Expenses | $ | 3,597 | $ | 7,618 | $ | 7,739 | $ | — | $ | 18,954 | ||||||||||
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Fiscal 2018 First Quarter: |
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Diagnostics | $ | 3,737 | $ | 6,445 | $ | 6,772 | $ | 1,483 | $ | 18,437 | ||||||||||
Life Science | 759 | 2,397 | 2,132 | — | 5,288 | |||||||||||||||
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Total 2018 First Quarter Expenses | $ | 4,496 | $ | 8,842 | $ | 8,904 | $ | 1,483 | $ | 23,725 | ||||||||||
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Research & Development | Selling & Marketing | General & Administrative | Other | Total Operating Expenses | ||||||||||||||||
Fiscal 2017 First Quarter Expenses | $ | 3,597 | $ | 7,618 | $ | 7,739 | $ | — | $ | 18,954 | ||||||||||
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% of Revenues | 8 | % | 16 | % | 17 | % | — | % | 40 | % | ||||||||||
Fiscal 2018 First Quarter Increases: |
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Diagnostics | 764 | 951 | 967 | 1,483 | 4,165 | |||||||||||||||
Life Science | 135 | 273 | 198 | — | 606 | |||||||||||||||
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Fiscal 2018 First Quarter Expenses | $ | 4,496 | $ | 8,842 | $ | 8,904 | $ | 1,483 | $ | 23,725 | ||||||||||
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% of Revenues | 9 | % | 17 | % | 17 | % | 3 | % | 45 | % | ||||||||||
% Increase | 25 | % | 16 | % | 15 | % | NMF | 25 | % |
Page 18
Total operating expenses increasedmargin during the first quarter of fiscal 20182021 results primarily from the overall shift in sales mix the Company has experienced, largely as a result of the
Research & Development | Selling & Marketing | General & Administrative | Other | Total Operating Expenses | ||||||||||||||||
Fiscal 2020 First Quarter: | ||||||||||||||||||||
Diagnostics | $ | 4,175 | $ | 5,396 | $ | 4,929 | $ | 1,317 | $ | 15,817 | ||||||||||
Life Science | 588 | 1,332 | 2,338 | 95 | 4,353 | |||||||||||||||
Corporate | — | — | 1,717 | 370 | 2,087 | |||||||||||||||
Total 2020 First Quarter Expenses | $ | 4,763 | $ | 6,728 | $ | 8,984 | $ | 1,782 | $ | 22,257 | ||||||||||
Fiscal 2021 First Quarter: | ||||||||||||||||||||
Diagnostics | $ | 5,070 | $ | 5,728 | $ | 5,748 | $ | 1,047 | $ | 17,593 | ||||||||||
Life Science | 581 | 1,293 | 3,454 | — | 5,328 | |||||||||||||||
Corporate | — | — | 2,736 | 1,227 | 3,963 | |||||||||||||||
Total 2021 First Quarter Expenses | $ | 5,651 | $ | 7,021 | $ | 11,938 | $ | 2,274 | $ | 26,884 | ||||||||||
Research & Development | Selling & Marketing | General & Administrative | Other | Total Operating Expenses | ||||||||||||||||
2020 First Quarter Expenses | $ | 4,763 | $ | 6,728 | $ | 8,984 | $ | 1,782 | $ | 22,257 | ||||||||||
% of Revenues | 10 | % | 14 | % | 19 | % | 4 | % | 47 | % | ||||||||||
Fiscal 2021 Increases (Decreases): | ||||||||||||||||||||
Diagnostics | 895 | 332 | 819 | (270 | ) | 1,776 | ||||||||||||||
Life Science | (7 | ) | (39 | ) | 1,116 | (95 | ) | 975 | ||||||||||||
Corporate | — | — | 1,019 | 857 | 1,876 | |||||||||||||||
2021 First Quarter Expenses | $ | 5,651 | $ | 7,021 | $ | 11,938 | $ | 2,274 | $ | 26,884 | ||||||||||
% of Revenues | 6 | % | 8 | % | 13 | % | 2 | % | 29 | % | ||||||||||
% Increase | 19 | % | 4 | % | 33 | % | 28 | % | 21 | % |
U.S., particularly the U.K. In addition, a portion of the Diagnostics segment expansion may be funded by the previously noted $5,500 RADx grant entered into on February 1, 2021 (see Note 17 of the accompanying Condensed Consolidated Financial Statements). 2020.decreased 20%increased 543% to $8,061$34,664 for the first quarter of fiscal 2018,2021, as a result of the factors discussed above.18%22% for the first quarter of fiscal 2018,2021, compared to 35%30% for the first quarter of 2017.2020. This lower fiscal 2018 tax primarily results from the combined net impact of the following effects of the recently-enacted tax reform act (see Note 6 of the accompanying Condensed Consolidated Financial Statements):Application of an approximate 24.5% blended rate due to the lowering of the applicable rate from 35% to 21%;Recognizing aone-time $1,695 tax benefit, including there-measurement of deferred tax balances at the lower rate; andRecording a provisionalone-time $854 tax expense related to the estimated repatriation transition tax on foreign earnings.Excluding the effects of theseone-time tax effects, we expect the effective2021 tax rate forresults primarily from a significantly higher percentage of pretax income being generated in in foreign jurisdictions with tax rates lower than the fiscal year ending September 30, 2018 to approximate26%-27%.Comparative Cash Flow Analysisservice, 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.Page 19toto: (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), 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. and dividends from current cash flows from operating activities and cash on hand. 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 approximately $101,200 as of December 31, 2020. 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.Net cash provided by operating activities totaled $5,171 forthree monthsquarter of fiscal 2018, a 60% decrease2021, we generated cash flow from operations totaling $25,121. This level of cash resulted from the $12,993 provided duringachievement of record quarterly revenues, along with well-managed accounts receivable balances, including the first three monthsrequirement of advance payments in certain instances, as illustrated by an approximate 45% increase in consolidated revenues over the fourth quarter of fiscal 2017. While reflecting the timing2020 and only an approximate 6% increase in accounts receivable balances since September 30, 2020.payments from customers,inventories increased approximately $6,000 to $67,243 between September 30, 2020 and December 31, 2020. This increase was attributable to inventory builds in both our Diagnostics and Life Science segments to protect against future supply interruptions and to suppliersmeettaxing authorities, this decrease also results in large partcash equivalents balance was $63,193 or $9,679 higher than at the end of fiscal 2020. As a result of the cash generated from the net effects of (i) increased customer receivables from higher sales levels; (ii) increased inventory levelsoperations during the first quarter of fiscal 2018, largely2021, our balance of net debt (defined as bank debt, government grant obligations and total contingent obligations related to continued expansion in Asia;the acquisition of the GenePOC business, net of cash and (iii) equivalentsaccrued employee compensation costs during the first quarter of fiscal 2017, reflecting the payment of discretionary bonuses and the timing of regularly scheduled payroll payments.approximately $23,500 to approximately $28,800 at December 31, 2020. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and dividendsdebt service during the next 12twelve 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 it with the stated policy guidelines of the payout ratio to range between 75% and 85% of each fiscal year’s net earnings. Consistent with this annual indicated dividend rate, a cash dividend of $0.125 per share was declared for the first quarter of fiscal 2018, representing 83% of the quarter diluted earnings per share.7 11,in connection with the acquisition of Magellan, the Company entered intomaintains 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. In addition, we have a $30,000$160,000 revolving credit facility, which is secured by substantially all our U.S. assets and includes certain restrictive financial covenants. The Company also maintains a shelf registration statement on file with a commercial bank that expires March 31, 2021. Asthe SEC.$4,000 to $5,000 for fiscal 2018, with$18,000 and $23,000. Our Diagnostics segment capital expenditures could be as high as $20,000, depending upon the actual amount dependent upon actual operating resultslevel and timing of the phasing of certain projects.previously noted Revogene$30,000$160,000 revolving credit facility discussed above.Page 202017.2020.2017.2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2017 due to the material weakness identified in our internal control over financial reporting described below.As previously disclosed in the Company’s Annual Report on Form10-K for the fiscal year ended September 30, 2017, a material weakness was identified in the design and operating effectiveness of the Company’s internal control over financial reporting. Specifically, deficiencies were identified related 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. As a result, we concluded that the Company’s disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed in our reports filed 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.The Company has implemented and continues to implement changes to its internal control over financial reporting to remediate the control deficiencies that gave rise to the material weakness. Since the end of the fiscal year, we have taken steps to strengthen information technology security and user access controls and begin the remediation of the material weakness described above. We are working to complete our evaluation, fully implement these controls and identify the appropriate level of documentation to be maintained to evidence the effectiveness of these controls. We believe the remediation measures will strengthen our internal control over financial reporting and remediate the material weakness identified. However, as we are still assessing the design and operating effectiveness of these measures, the identified material weakness has not been fully remediated as of December 31, 2017. We will continue to monitor the effectiveness of these remediation measures and will make any changes and take such other actions that we deem appropriate.Except as described above, there20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Page 219 16,20172020 Annual Report on Form10-Q.10.1*† Chief Executive Officer Cash-Based Incentive Compensation Plan for Fiscal Year 2021 10.2*† Executive Vice President Cash-Based Incentive Compensation Plan for Fiscal Year 2021 * following financialomitted information from Meridian Bioscience Inc.’s Quarterly Report on Form10-Q foris not material and would likely cause competitive harm to the quarter ended December 31, 2017 filed withRegistrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the SEC on February 7, 2018, formatted in XBRL includes: (i) Condensed Consolidated Statements of Operations for the three months ended December 31, 2017 and 2016; (ii) Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2017 and 2016; (iii) Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2017 and 2016; (iv) Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017; (v) Condensed Consolidated Statement of Shareholders’ Equity for the three months ended December 31, 2017; and (vi) the Notes to Condensed Consolidated Financial Statementsupon request.† Date:February 7, 2018 By: Melissa A. LuekeBryan T. Baldasare Melissa A. LuekeBryan T. Baldasare 2229