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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form
10-Q

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

For the Quarterly Period Ended December 31, 2017

2020

OR

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

For the transition period from _______ to

_______

Commission file number0-14902

MERIDIAN BIOSCIENCE, INC.

Incorporated under the laws of Ohio

31-0888197

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

3471 River Hills Drive

Cincinnati, Ohio 45244

(513)
271-3700

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock, no par value
VIVO
NASDAQ Global Select Market
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically 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  ☐

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

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

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

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

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

Class

 

Outstanding January 31, 2018

2021
Common Stock, no par value 42,307,74243,145,015

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM
10-Q

      
Page(s)
 

PART I.

 
PART I.
FINANCIAL INFORMATION
  

Item 1.

 
Item 1.
Financial Statements (Unaudited)
  
 

Condensed Consolidated Statements of Operations
Three Months Ended December 31, 20172020 and 20162019

   1 
 

Condensed Consolidated Statements of Comprehensive Income
Three Months Ended December 31, 20172020 and 20162019

   2 
 

Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 20172020 and 20162019

   3 
 

Condensed Consolidated Balance Sheets
December 31, 20172020 and September 30, 20172020

   
4-5
 
 

Condensed Consolidated StatementStatements of Changes in Shareholders’ Equity
Three Months Ended December 31, 20172020 and 2019

   6 
 

Notes to Condensed Consolidated Financial Statements

   7-12
7-19
 

Item 2.

 

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

   12-20
19-28
 

Item 3.

 

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

   2128 

Item 4.

 

Item 4.
Controls and Procedures

   2128 

PART II.

 
PART II.
OTHER INFORMATION

Item 1.

Legal Proceedings

   22 

Item 1A.

 

Item 1.
Risk FactorsLegal Proceedings

   2228 

Item 6.

 

Item 1A.
ExhibitsRisk Factors

   2228 

Signature

 
Item 6.
Exhibits
   2228
Signature
29 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form
10-Q
contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “continues”, “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “signals”, “should”, “can” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian Bioscience, Inc. (“Meridian” or “the Company”) expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted earnings, sales, product demand, revenue, operating margin, other guidance and revenue,the impact of
COVID-19
on its business and prospects, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the following:
Meridian’s operating results, financial condition and continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by Meridian’s competition, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While Meridian has introduced a number of internally developed products and acquired products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly manufacturing costs associated with the 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 in
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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.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 as
COVID-19.
In addition to the factors described in this paragraph, as well as those factors identified from time to time in ourthe Company’s filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of ourthe Company’s most recent Annual Report on Form
10-K
contains a list and description of uncertainties, risks and other matters that may affect the Company. Readers should carefully review these forward-looking statements and risk factors, and not place undue reliance on ourthe Company’s forward-looking statements.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

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

   Three Months Ended 
   December 31, 
   2017  2016 

NET REVENUES

  $52,283  $46,809 

COST OF SALES

   20,497   17,770 
  

 

 

  

 

 

 

GROSS PROFIT

   31,786   29,039 
  

 

 

  

 

 

 

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   —   
  

 

 

  

 

 

 

Total operating expenses

   23,725   18,954 
  

 

 

  

 

 

 

OPERATING INCOME

   8,061   10,085 

OTHER INCOME (EXPENSE)

   

Interest income

   72  22

Interest expense

   (395)   (423) 

Other, net

   (80)   (25) 
  

 

 

  

 

 

 

Total other expense

   (403)   (426) 
  

 

 

  

 

 

 

EARNINGS BEFORE INCOME TAXES

   7,658   9,659 

INCOME TAX PROVISION

   1,356   3,380 
  

 

 

  

 

 

 

NET EARNINGS

  $6,302  $6,279 
  

 

 

  

 

 

 

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
  

 

 

  

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED

   42,662   42,535 
  

 

 

  

 

 

 

ANTI-DILUTIVE SECURITIES:

   

Common share options and restricted share units

   1,034   715
  

 

 

  

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

  $0.125  $0.20 
  

 

 

  

 

 

 

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

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollar amounts in thousands)

   

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) 
  

 

 

  

 

 

 

Other comprehensive income (loss), net of tax

   520  (452) 
  

 

 

  

 

 

 

COMPREHENSIVE INCOME

  $6,822  $5,827 
  

 

 

  

 

 

 

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

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollar amounts in thousands)

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) 
  

 

 

  

 

 

 

Net cash provided by operating activities

   5,171   12,993 
  

 

 

  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

   

Purchase of property, plant and equipment

   (1,234)   (1,392) 
  

 

 

  

 

 

 

Net cash used for investing activities

   (1,234)   (1,392) 
  

 

 

  

 

 

 

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
  

 

 

  

 

 

 

Net cash used for financing activities

   (6,413)   (8,889) 
  

 

 

  

 

 

 

Effect of Exchange Rate Changes on Cash and Equivalents

   115  (662) 
  

 

 

  

 

 

 

Net (Decrease) Increase in Cash and Equivalents

   (2,361)   2,050 

Cash and Equivalents at Beginning of Period

   57,072   47,226 
  

 

 

  

 

 

 

Cash and Equivalents at End of Period

  $54,711  $49,276 
  

 

 

  

 

 

 

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

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

ASSETS

   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 
  

 

 

   

 

 

 

Total current assets

   136,617    133,875 
  

 

 

   

 

 

 

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 
  

 

 

   

 

 

 

Subtotal

   85,149    84,100 

Less: accumulated depreciation and amortization

   54,749    53,590 
  

 

 

   

 

 

 

Net property, plant and equipment

   30,400    30,510 
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

Total other assets

   84,934    85,392 
  

 

 

   

 

 

 

TOTAL ASSETS

  $251,951   $249,777 
  

 

 

   

 

 

 

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

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollarsdollar amounts in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY

   December 31,
2017
(Unaudited)		  September 30,
2017		 

CURRENT LIABILITIES

   

Accounts payable

  $8,507  $7,719 

Accrued employee compensation costs

   4,801   4,536 

Current portion of acquisition consideration

   2,095   2,095 

Other accrued expenses

   2,795   2,789 

Current portion of long-term debt

   4,500   4,500 

Income taxes payable

   776  1,248 
  

 

 

  

 

 

 

Total current liabilities

   23,474   22,887 
  

 

 

  

 

 

 

NON-CURRENT LIABILITIES

   

Acquisition consideration

   235  235

Post-employment benefits

   2,551   2,468 

Long-term debt

   49,030   50,147 

Long-term income taxes payable

   854  —   

Deferred income taxes

   2,929   4,455 
  

 

 

  

 

 

 

Totalnon-current liabilities

   55,599   57,305 
  

 

 

  

 

 

 

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

   127,367   125,608 

Retained earnings

   47,937   46,923 

Accumulated other comprehensive loss

   (2,426)   (2,946) 
  

 

 

  

 

 

 

Total shareholders’ equity

   172,878   169,585 
  

 

 

  

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $251,951  $249,777 
  

 

 

  

 

 

 

   
December 31,
2020

(Unaudited)
   
September 30,
2020
 
CURRENT LIABILITIES
          
Accounts payable
  $15,348   $11,969 
Accrued employee compensation costs
   10,581    16,661 
Current portion of acquisition consideration
   11,303    12,619 
Current operating lease obligations
   1,835    1,789 
Current government grant obligations
   727    600 
Other accrued expenses
   6,052    5,362 
Income taxes payable
   7,985    3,524 
           
Total current liabilities
   53,831    52,524 
           
NON-CURRENT
LIABILITIES
          
Acquisition consideration
   10,653    13,290 
Post-employment benefits
   2,494    2,493 
Fair value of interest rate swaps
   693    713 
Long-term operating lease obligations
   4,513    4,678 
Long-term debt
   58,824    68,824 
Government grant obligations
   10,495    10,524 
Long-term income taxes payable
   384    549 
Deferred income taxes
   3,007    3,804 
Other
non-current
liabilities
   169    233 
           
Total
non-current
liabilities
   91,232    105,108 
           
COMMITMENTS AND CONTINGENCIES
   0    0 
   
SHAREHOLDERS’ EQUITY
          
Preferred stock, 0 par value; 1,000,000 shares authorized; NaN issued
   0—      0—   
Common shares, 0 par value; 71,000,000 shares authorized,
 
43,124,190
and
43,068,842
shares issued, respectively
   0—      0—   
Additional
paid-in
capital
   141,395    140,195 
Retained earnings
   136,073    109,294 
Accumulated other comprehensive income (loss)   1,399    (1,860) 
           
Total shareholders’ equity
   278,867    247,629 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 423,930   $ 405,261 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

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

(dollarsdollar and sharesshare amounts in thousands)

   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
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Balance at December 31, 2017

   42,307   $127,367   $47,937  $(2,426)  $172,878 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

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

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Table of Contents
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Dollars in Thousands, Except Per Share Amounts

(Unaudited)

1.
Basis
Nature of PresentationBusiness

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

Meridian Bioscience, Inc. (“Meridian” or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of December 31, 2017, the results of its operations for the three month periods ended December 31, 2017 and 2016, and its cash flows for the three month periods ended December 31, 2017 and 2016. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s fiscal 2017 Annual Report on Form 10-K. Financial information as of September 30, 2017 has been derived from the Company’s audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year.

2.Significant Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 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.

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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.

3.Cash and Equivalents

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    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $54,711   $1,000   $57,072   $1,000 
  

 

 

   

 

 

   

 

 

   

 

 

 

4.Inventories

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 
  

 

 

   

 

 

 

Total

  $43,644   $41,493 
  

 

 

   

 

 

 

5.Intangible Assets

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
  

 

 

   

 

 

   

 

 

   

 

 

 
  $56,346   $30,569   $56,303   $29,599 
  

 

 

   

 

 

   

 

 

   

 

 

 

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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.

6.Income Taxes

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

7.Bank Credit Arrangements

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.

8.Reportable Segment and Major Customers Information

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.

Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists ofof: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Magellan’sQuebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products detecting elevated lead levels in blood 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.

levels in blood.

The Life Science segment consists ofof: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany; and Sydney, Australia; and(ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, 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. 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-gen
sequencing, plant genotyping, and mutation detection, among others).

2.
Basis of Presentation
The Condensed Consolidated Financial Statements are unaudited and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information, and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the
Condensed
Consolidated Financial Statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of December 31, 2020 and the results of its operations, cash flows and shareholders’ equity for the three-month periods ended December 31, 2020 and 2019. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s fiscal 2020 Annual Report on Form
10-K
filed with the SEC on November 23, 2020.
It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Condensed Consolidated Financial Statements to indicate net revenue and/or net revenues.
The results of operations for interim periods are not necessarily indicative of the results to be expected for the year. In December 2019, the
SARS-CoV-2
virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated
COVID-19
(the disease caused by
SARS-CoV-2)
a global pandemic. In January 2021, the U.S. Department of Health and Human Services extended the public health emergency declaration for
COVID-19
into April 2021. Governments around the world have implemented lockdown and
shelter-in-place
orders, requiring many
non-essential
businesses to shut down operations, many of which remain in effect as of the date of this filing. Our business, however, was deemed “essential” and we have continued to operate, manufacture and distribute products to customers globally.
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Amounts

Table of Contents
While revenues within our Life Science segment have been positively impacted by the
COVID-19
pandemic, to date, the negative impacts of
COVID-19
on the Company have been limited to decreased demand for most of our Diagnostics segment’s products and the pausing and/or slowing of clinical trials for new product development programs, as diagnostics testing has focused primarily on
COVID-19
and critical care ailments. Although we do not expect to sustain the level of Life Science segment revenues experienced during the fiscal quarter ended December 31, 2020, over the next twelve months, we do expect current general directional trends in our revenues to continue, particularly during our second fiscal quarter ending March 31, 2021. Specifically, we expect our Life Science segment to continue to experience elevated levels of demand for
COVID-19
reagents. In addition, by the end of fiscal 2021, we expect our Diagnostics segment’s level of revenues to improve as health care facilities return to
pre-pandemic
non-critical
care testing and treatments
,
and we begin to offer COVID-19 tests. However, due to the many uncertainties surrounding the
COVID-19
pandemic, we can provide no assurances with respect to our views of the longevity, severity or impacts to our financial condition of the
COVID-19
pandemic. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein for additional discussion of the effects of the
COVID-19
pandemic on the Company and its results of operations.
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. Actual results could differ from twothose estimates.
3.
Significant Accounting Policies
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2020 Annual Report on Form
10-K
filed with the SEC on November 23, 2020 and should be referred to for a description of the Company’s significant accounting policies.
(a) Recent Accounting Pronouncements –
Pronouncements Adopted
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
, which changed the impairment model used to measure credit losses for most financial assets. Use of the new forward-looking expected credit loss model for our accounts receivable valuation, rather than the previously utilized incurred credit loss model, resulted in an immaterial impact on the Condensed Consolidated Financial Statements.
Pronouncements Issued but Not Yet Adopted as of December 31, 2020
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the LIBOR rate. The guidance provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022.
The Company continues to evaluate the impacts of this guidance but does not expect its application to have a material impact on the Condensed Consolidated Financial Statements.
In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
2019-12”).
ASU
2019-12
clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. ASU
2019-12
will be effective for the Company’s fiscal year beginning on October 1, 2021. The Company is currently evaluating the impact of ASU
2019-12
but does not
expect its application to have a material impact on the Condensed Consolidated Financial Statements.
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(b)
Reclassifications –
Certain reclassifications have been made to the prior year Condensed Consolidated Financial Statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.
4.
Revenue Recognition
Overview
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 customer. 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 for the Diagnostics distributorsegment is reduced at the date of sale for product price adjustments payable to certain distributors under local contracts.
Revenue Disaggregation
The following tables present our revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics segment only):
Revenue by Reportable Segment & Geographic Region
   
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% 
                
Revenue by Product Platform/Type
   
Three Months Ended
 
December 31,
 
   
2020
   
2019
   
Inc
 
(Dec)
 
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% 
                
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Revenue by Disease State (Diagnostics segment only)
   
Three Months Ended December 31,
 
   
2020
   
2019
   
Inc
 
(Dec)
 
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)% 
                
Reagent Rental Arrangements
Revenue allocated to the lease elements of Reagent Rental arrangements totaled approximately $880 and $1,150 in the three months ended December 31, 2020 and 2019, respectively, and is included as part of revenues in our Condensed Consolidated Statements of Operations.
5.
Fair Value Measurements
Certain assets and liabilities are recorded at fair value in accordance with Accounting Standards Codification (“ASC”) 820,
Fair Value Measurements and Disclosures
(“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the 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:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
Level 2
Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable
In order to limit exposure to volatility in the LIBOR interest rate, the Company ha
s
 entered into interest rate swap agreements, which effectively convert the variable interest rate on $50,000
of the outstanding revolving credit facility
discussed in
Note 11 to a fixed rate. The value of the interest rate swap agreements was determined by reference to a third-party valuation and is considered a Level 2 input within the fair value hierarchy of valuation techniques.
As described in Note 6, we acquired Exalenz Bioscience Ltd. (“Exalenz”) in fiscal 2020. The fair value of the acquired accounts receivable, inventories, property, plant and equipment, and other current assets and the fair value 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). Intangible assets
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were valued using Level 3 inputs, which are unobservable by nature, and 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 the preliminary purchase accounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.
In connection with the acquisition of the business of GenePOC, Inc. (“GenePOC”) in fiscal 2019 and an updated agreement, dated September 29, 2020, to amend certain terms of the agreement related to contingent consideration achievement levels and milestone dates, the Company is 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.
The fair value of the product development milestone payments is estimated by discounting the probability-weighted contingent payments to present value. Assumptions used in the calculations include probability of success, duration of the
earn-out
and discount rate, and such calculations were updated for the effect of the previously noted amendment 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 include expected revenues, probability of certain developments, expected expenses and discount rate. The ultimate settlement of contingent consideration could deviate from the current Level 3 measurement estimates based on the actual results of these financial measures.
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
 
   
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
On April 30, 2020 (“the 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 of
Helicobacter pylori.
Cash 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 11). In anticipation of the transaction, 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.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $24,503 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 platform through our established customer base and distribution channels.
Page 11
Table of Contents
The Company’s consolidated results for the three months ended December 31, 2020 include $3,098 of net revenues and $792 of net loss from Exalenz. These results, which are reported as part of the Diagnostics segment, include $800
of amortization expense related to specific identifiable assets recorded in the preliminary purchase price allocation, including a
non-compete
agreement, trade name, technology and customer relationships.
The recognized preliminary amounts of identifiable assets acquired and liabilities assumed in the acquisition of Exalenz are as follows:
   
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
assets
   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 
                
As indicated, the allocation of the purchase price is preliminary, pending final completion of valuations. As a result of further refining its estimates and assumptions since the date of the acquisition, the Company recorded measurement period adjustments to the initial opening balance sheet as shown in the table above. Adjustments were primarily made to other current assets, goodwill, other intangible assets, and deferred tax assets, etc. There were no measurement period adjustments materially impacting net earnings that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. Currently, we are primarily assessing the results of the valuation of intangible assets and the tax implications thereon. Upon completion of these analyses, any required adjustments are expected to result in an amount being reclassified among goodwill, other intangible assets and deferred taxes, as
applicable
.
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Pro Forma Information
The following table provides the
unaudited
condensed
consolidated pro forma results for the periods presented as if Exalenz had been
acquired
as of the beginning of fiscal 2020. 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.
Three Months Ended December 31,
  
2020
   
2019
 
Net Revenues
  $92,917   $51,194 
Net Earnings
  $26,779   $1,182 
These unaudited pro forma amounts have been calculated by
including
the results of Exalenz and adjusting the results to give effect to the following, as if the acquisition had been consummated on October 1, 2019, together with the consequential tax effects thereon:
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
Equivalents
Cash and
 cash
equivalents include the following:
   
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
Inventories, net are comprised of the following:
   
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 
           
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9
.
Leasing Arrangements
The Company is party to a number of 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 Condensed 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. Our Condensed Consolidated Statement
s
of Operations for the three months ended December 31, 2020 reflects lease costs for these operating leases
of $158 and $374
within cost of sales and operating expenses, respectively; and
$129 and $267
within cost of sales and operating expenses, respectively, for the three months ended December 31, 2019 . Right-of-use assets, net obtained during the three months ended December 31, 2020 and 2019, in exchange for operating lease liabilities totaled
$80 and $0, respectively.
In addition, the Company has periodically entered into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the Condensed Consolidated Balance Sheets and the related lease expense is immaterial for the three months ended December 31, 2020 and 2019.
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 weighted average remaining lease term for our operating leases as of December 31, 2020 and September 30, 2020 was
3.9
years and 4.2 years, respectively.
The discount rate implicit within our leases is generally not determinable and, therefore, the Company determines the discount rate using its incremental borrowing rate. The weighted average discount rate used to measure our operating leases as of December 31, 2020 and September 30, 2020 was
3.6
% and 3.7%, respectively.
Maturities of lease liabilities by fiscal year for the Company’s operating lease liabilities were as follows as of December 31, 2020:
   
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 
      
Supplemental cash flow information related to the Company’s operating leases are as follows:
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 
           
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10.
Goodwill and Other Intangible Assets, Net
During the three months ended December 31, 2020, goodwill increased $682, reflecting: (i) 
an additional
$37 acquisition measurement period adjustment upward related to Exalenz (Diagnostics segment; see Note 6); (ii) a $52 increase from the currency translation adjustment on
goodwill in the Diagnostics segment; and (iii) a
$593 increase from the currency translation adjustment
on
goodwill
in
the Life Science segment.
A summary of other intangible assets, net subject to amortization is as follows:
   
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 
                     
The aggregate amortization expense for these other intangible assets was
$2,221 and $1,722 for the three months ended December 31, 2020 and 2019, respectively.
The estimated aggregate amortization expense for these other intangible assets for each of the fiscal years through fiscal 2026 is as follows:
 remainder of fiscal 2021 – $6,289, fiscal 2022 – $7,993, fiscal 2023 – $7,980, fiscal 2024 – $7,976, fiscal 2025 – $7,967, and fiscal 2026 – $7,296.
11
.
Bank Credit Arrangements
In anticipation of the acquisition of the business of GenePOC, on May 24, 2019 the Company entered into a credit facility agreement with a commercial bank. The Company amended the credit facility agreement on February 19, 2020 in anticipation of the Company’s acquisition of Exalenz (see Note
6
). The credit facility expires in May 2024, and as amended makes available to the Company a revolving credit facility in an aggregate principal amount not to exceed $160,000 (originally $125,000), with outstanding principal amounts bearing 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 2.54% and 3.96%
on the revolving credit
 facility during the three months ended December 31, 2020 and 2019, respectively. Since entering into
the revolving credit
facility, three draws totaling $125,824 have been made on the credit facility, with principal repayments in January 2020, September 2020 and December 2020 of $27,000, $30,000 and $10,000, respectively, resulting in an outstanding principal balance of $58,824
and $68,824 at December 31, 2020 and September 30, 2020, respectively. The
proceeds from these draws were used to: (i) repay and settle the outstanding principal and interest due on our previously existing $60,000
five-year
term loan; and (ii) along with cash
on-hand,
fund the Exalenz and GenePOC acquisitions.
In light of the interest being determined on a variable rate basis, the fair value of the borrowings under the revolving credit facility at both December 31, 2020 and September 30, 2020 approximates the current carrying value reflected in the Condensed Consolidated Balance Sheets.
The revolving credit facility is collateralized by the business assets of the Company’s U.S. subsidiaries and requires 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 revolving credit facility agreement. As of December 31, 2020, the Company was in compliance with all covenants.
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Table of Contents
12.
Contingent Obligations and
Non-Current
Liabilities
In connection with the acquisition of Exalenz (see Note 6), the Company assumed several Israeli government grant obligations. The repayment of the grants, along with interest incurred at varying stated fixed rates based on LIBOR at the time each grant was received (ranging from 0.58% to 6.60%), is not dictated by an established repayment schedule. Rather, the grants and related interest are required to be repaid using 3% of the revenues generated from the sales of BreathID products, with the timing of 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. These obligation amounts total $11,222 and $11,124 as of December 31, 2020 and September 30, 2020,
respectively, and are reflected in the Condensed Consolidated Balance Sheets as follows:
Current liabilities
As of December 31, 2020 – $727
As of September 30, 2020 – $600
Non-current
liabilities
As of December 31, 2020 – $10,495
As of September 30, 2020 – $10,524
Additionally, the Company has provided certain post-employment benefits to its former Chief Executive Officer, and these obligations total $1,799 and $1,840 at December 31, 2020 and September 30, 2020, respectively. In addition, the Company is required by the governments of certain foreign countries in which we operate to maintain a level of accruals for potential future severance indemnity. These accruals total $867 and $814 at December 31, 2020 and September 30, 2020,
respectively
.
13.
National Institutes of Health Contract
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 anticipates receipt of approximately $1,000
under the grant contract
for reimbursement of eligible research and development expenditures, $800 of which has been recognized during the three months ended December 31, 2020 and is included within other income (expense) in the Condensed Consolidated Statement of Operations. The remaining amount of reimbursement funds due under the contact are currently expected to be received during the three months ending March 31, 2021.
1
4
.
Reportable Segment and Major Customers Information
During the three months ended December 31, 2020, products
related
to
COVID-19
accounted for approximately 45% of consolidated net revenue. In addition, during the three months ended December 31, 2020, no individual Diagnostics or Life Science segment customer accounted for 10% or more of consolidated net revenues, with 1 Diagnostics segment customer rising to such a level of concentration (11%) during the three months ended December 31, 2019.
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6
Table of Contents
Reportable segment revenues were concentrated as follows during the three months ended December 31, 2020 and 2019:
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% 
          
Accounts receivable from one of the Life Science segment customers accounted for 25%6% and 11%15% of consolidated accounts receivable at December 31, 20172020 and September 30, 2017,2020, respectively. Revenues from these two distributor customers accounted for 38% and 23%
Page 1
7
Table of the Diagnostics segment third-party revenues during the three months ended December 31, 2017 and 2016, respectively, and represented 27% and 17% of consolidated revenues for the fiscal 2018 and 2017 first quarters, respectively.

Within our Life Science segment, two diagnostic manufacturing customers accounted for 15% and 19% of the segment’s third-party revenues during the three months ended December 31, 2017 and 2016, respectively.

Contents

Segment information for the interim periods is as follows:

   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 $370
in the three months ended December 31, 2019.
(2) 
Eliminations consist of inter-segment transactions.

A reconciliation of segment operating income (loss) to consolidated earnings before income taxes for the three months ended December 31, 2020 and 2019 is as follows:
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 
         
Transactions between segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.

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Table of Contents
9.
1
5
.
Legal Matters
Income Taxes

On May 17, 2017, Meridian filed a complaint in the United States District Court

The effective rate for income taxes was 22% for the Southern Districtthree months ended December 31, 2020, compared to 30% for the three months ended December 31, 2019. This lower fiscal 2021 first quarter effective tax rate results primarily from a significantly higher percentage of Ohio, Western Division (Cincinnati) naming DiaSorin Inc.earnings before income taxes being generated in foreign jurisdictions with tax rates lower than the U.S., particularly the
United Kingdom (“DiaSorin”U.K.”).
16.
Litigation Matters
On
April 17, 2018
,
Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) as a defendant. Meridian’s complaint alleges DiaSorin has breachedregarding its LeadCare product line. The subpoena outlines documents to be produced, and the 2010Co-DevelopmentCompany is cooperating with the DOJ in this matter. The Company maintains rigorous policies and License Agreement (the “Agreement”) between itprocedures to promote compliance with applicable regulatory agencies and Meridian relating to theco-development of certain tests and diagnostic products, pursuant to which Meridian disclosed certain trade secrets and proprietary information. The lawsuit underlying Meridian’s complaint alleges that DiaSorin breached the Agreement and used,requirements and is currently using, Meridian’s proprietaryworking with the DOJ to promptly respond to the subpoena, including responding to additional information requests. The Company has executed tolling agreements to extend the statute of limitations. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately 
$
1,227
and therefore seeks injunctive relief to protect Meridian’s intellectual property and information with respect to its diagnostics products. Approximately $730 $
280
of expense for attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated StatementStatements of Operations for the fiscal quarterthree months ended December 31, 2017.

Page 11

On November 15, 2017, Barbara Forman filed 2020 and 2019, respectively.

17.
Subsequent Event
E
ffective February 1
, 2021, the Company
e
ntered into
a class action complaint insecond grant contract under the United States District CourtRADx 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 Southern District of Ohio naming Meridian,Company achieving key milestones related to increasing its Chief Executive Officer and Chief Financial Officer (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. The lawsuit underlying plaintiff’s class action complaint seeks compensatory damages, injunctive relief and attorneys’ feescapacity to all members of the proposed class. Because the litigation andproduce
COVID-19
tests. No amounts related discoveryto this contract 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 includedreflected within the accompanying Condensed Consolidated Statement of Operations for the fiscal quarter ended December 31, 2017.

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.

Statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Refer to “Forward-Looking Statements” following the Table of Contents in front of this Form
10-Q.
In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.

Following

The purpose of Management’s Discussion and Analysis is a discussion and analysis of the financial statements and other statistical data that management believes will enhance theto provide an understanding of Meridian’sthe financial condition, changes in financial condition and results of operations.operations of Meridian Bioscience, Inc. (“Meridian”, the “Company”, “We”). This discussion should be read in conjunction with the financial statements and notes thereto beginning on page 1.

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:

double-digit percentage revenue growth in both our Diagnostics and Life Science reportable segments compared to the fiscal 2017 first quarter;

significant executive leadership announcements of Mr. Jack Kenny as Meridian’s new CEO, and Mr. Jack Kraeutler continuing to serve the Company as Executive Chairman of the Board; and

U.S. Congress’ passage of the Tax Cuts and Jobs Act (the “tax reform act”).

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:

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.

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 
  

 

 

   

 

 

 

(1)These CEO transition and litigation costs are net of income tax effects of $403, which were calculated using the effective tax rates of the jurisdictions in which the costs were incurred.
(2)Neither Net Earnings per Basic Common Share nor Net Earnings per Diluted Common Share sum to their respective Adjusted EPS amounts due to rounding.

Page 14

REVENUE OVERVIEW

Below are analyses of the Company’s revenue, provided for each of the following:

revenues.
By
Reportable Segment & Geographic RegionSegments

By Product Platform/Type

Revenue Overview – By Reportable Segment & Geographic Region

Our reportable segments are Diagnostics and Life Science, withScience. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; and manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston). These diagnostic test products are sold and distributed in the countries comprising North and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). A full descriptionThe Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia.
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Table of Contents
Impact of
COVID-19
Pandemic
In December 2019, the
SARS-CoV-2
virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated
COVID-19
(the disease caused by
SARS-CoV-2)
a global pandemic. In January 2021, the United States (“U.S.”) Department of Health and Human Services extended the public health emergency declaration for
COVID-19
into April 2021. Governments around the world have implemented lockdown and
shelter-in-place
orders, requiring many
non-essential
businesses to shut down operations, many of which remain in effect as of the date of this filing. Our business, however, was deemed “essential” and we have continued to operate, manufacture and distribute products to customers globally. We have developed a comprehensive plan that enables us to maintain operational continuity with an emphasis on manufacturing, product distribution and new product development during this crisis. We continually assess
COVID-19
related developments and adjust risk mitigation planning and business continuity activities in real-time as needed.
The
COVID-19
pandemic has had both positive and negative effects on our businesses. Our Life Science segment’s products were 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 level of growth has continued to increase into fiscal 2021 for the Life Science segment, with first quarter fiscal 2021 revenue exceeding the fiscal 2020 first quarter level by nearly 400%. Our Diagnostics segment, on the other hand, reported decreased year-over-year revenues in the first quarter of fiscal 2021, a continuation of the trends experienced in the third and fourth quarters of fiscal 2020, as health systems focus on
SARS-CoV-2
testing over traditional infectious disease and blood-chemistry testing. Following signs of a recovery in our Diagnostics segment late in fiscal 2020, as evidenced by a 38% sequential quarter increase in the fourth quarter of fiscal 2020, and which continued throughout the early part of the first quarter of fiscal 2021, the recent resurgence of the pandemic resulted in first quarter fiscal 2021 Diagnostic segment revenues growing only 2% from the fourth quarter of fiscal 2020, and down 13% from the first quarter of fiscal 2020.
Employee Safety
We have implemented a work-from-home process for employees whose
on-site
presence is designated as
non-essential
to the ongoing functions of our segments manufacturing sites, distribution centers, and new product development facilities. We continue to utilize this work-from-home process as needed on a
site-by-site
basis. We also implemented enhanced cleaning and sanitizing procedures and provided additional personal hygiene supplies at all of our sites. We implemented policies for employees to adhere to the Centers for Disease Control and Prevention (“CDC”) guidelines on social distancing, and similar guidelines by authorities outside the U.S., and any employees experiencing any symptoms of
COVID-19
are required to stay home and seek medical attention. Any employee who tests positive for
COVID-19
is set forthrequired to quarantine and is not allowed to return to our facilities without a physician’s release, including a negative active infection test result. Access to our facilities by outside persons not critical to continuing our operations continues to be limited. To date, we have been able to manufacture and distribute products globally, and all our sites continue to operate, with little, if any, impact on shipments to customers to date. As the pandemic continues to spread, 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
Supply chains supporting our products remain intact, providing access to sufficient inventory of the key materials needed for manufacturing. To date, delays and allocations for certain raw materials of higher demand have been limited and have not had a material impact on our results of operations. We regularly communicate with suppliers, third-party partners, customers, health care providers and government officials in order to respond rapidly to issues as they arise. The longer the current situation continues, it is more likely 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.
Page 20
Table of Contents
Clinical Trial Delays
As a result of the pandemic, certain of our clinical trials which were underway or scheduled to begin were temporarily placed on hold. While we are seeing
“re-starts”
for certain clinical trials, the trials are being conducted at a slower pace than normal, as the prevalence of certain infectious diseases (e.g., bacterial gastrointestinal) has been much lower than historical norms during the pandemic. Such delays continue to impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the ongoing
COVID-19
pandemic has 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.
Product Demand
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 immunoassay
COVID-19
tests. Since late in the second quarter of fiscal 2020, we have experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides). Although we are unable to predict when this demand may subside, we expect revenue levels for these products to be materially higher than historical levels during at least the next six to nine months. Our products are used in over 100 approved
COVID-19
related assays around the world. COVID-related reagent revenues totaled approximately $43,000 in the fiscal 2021 first quarter, following approximately $71,500 during full year fiscal 2020.
Our Diagnostics segment manufactures, markets and sells a number of molecular, immunoassay, blood chemistry and urea breath tests
for various infectious diseases and blood-lead levels. We expect near-term sales volumes for a number of these assays to continue to be adversely affected by the
COVID-19
pandemic as such assays are often used in
non-critical
care settings. The
COVID-19
pandemic also has continued to affect our instrument placements. The launch of our Curian platform has been slower than expected as diagnostic testing sites have turned their attention to critical care testing. However, beginning in our fiscal 2020 fourth quarter and continuing through the fiscal 2021 first quarter, we have experienced an acceleration in Revogene instrument placements due to the January 2021 launch of a
SARS-CoV-2
assay (the “Revogene
COVID-19
assay”) under the FDA’s emergency use authorization (“EUA”) program, which permits sales to commence upon notification of intent to submit an EUA application. We submitted our application for EUA to the FDA on December 7, 2020 and expect to receive approval of the submission during our fiscal 2021 second quarter. In response to the high level of demand we are experiencing for the test, we are in the process of increasing our capacity to produce these tests, as well as other tests on the Revogene system. Specifically, we are: (i) adding a second production line at our Quebec City, Canada manufacturing facility; and (ii) installing two additional production lines in a leased facility near our corporate headquarters in Cincinnati, Ohio. It is expected that these expansion efforts will be completed during fiscal 2021 at a total cost of approximately $18,000, which is expected to be partially offset by the $5,500 RADx grant entered into on February 1, 2021 (see Note 817 of the accompanying Condensed Consolidated Financial Statements.

Statements).

As previously described, signs of a recovery in our Diagnostics segment were experienced late in fiscal 2020 and early in the first quarter of fiscal 2021. However, as a result of the recent resurgence of
COVID-19
infection rates, during the first quarter of fiscal 2021 Diagnostic segment revenues increased only 2% from the level achieved in the fourth quarter of fiscal 2020, and were down 13% from the first quarter of fiscal 2020. While we are expecting a modest rebound in Diagnostic segment revenues in the upcoming months, including revenue from the Revogene
COVID-19
assay, no assurances can be made in this regard.
Asset Impairment Review
Considering the economic impacts of
COVID-19,
we performed an analysis of our business to determine if there were triggering events that would require us to further test our long-lived assets for impairment. Based on our review, we do not believe that a triggering event exists at this time and, therefore, we believe that we will be able to realize the full value of our long-lived assets. As such, no impairments or other write-downs related to
COVID-19
have been recorded during the fiscal 2021 first quarter or prior year period.
Access to Capital
The impacts of
COVID-19
have adversely affected the ability of many companies to access capital and liquidity on favorable terms or at all. As of December 31, 2020, the outstanding debt balance on the Company’s revolving credit facility was $58,824, leaving $101,176 of available borrowing capacity. In addition, positive cash flows from operating activities are expected to be generated over the next twelve months, which will add to cash on hand. We
Page 21
Table of Contents
also maintain a shelf registration statement on file with the SEC. The Company believes these resources will provide sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months and expects to be in compliance with its financial covenants during this same period. However, given the unusual nature of the
COVID-19
pandemic and the rapidly changing environment, we can provide no assurances in this regard and future impacts may materialize that are not currently known.
Critical Accounting Estimates
For the three months ended December 31, 2020, there were no significant changes to our critical accounting estimates, as outlined in our Annual Report on Form
10-K
as of and for the
year-end
September 30, 2020.
Impact of Brexit
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 included 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 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 evaluated a range of possible outcomes, identified areas of concerns, 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.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2020
Net earnings for the first quarter of fiscal 2021 increased 847% to $26,779, or $0.61 per diluted share, from net earnings for the first quarter of fiscal 2020 of $2,827, or $0.07 per diluted share. The level of net earnings in the fiscal 2021 first quarter was affected by several factors, including most notably the combined net effects of the following (amounts presented on a
pre-tax
basis) and a lower effective tax rate resulting from a greater percentage of pre-tax earnings being generated in lower tax jurisdictions:
(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
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Table of Contents
(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).
Consolidated revenues for the first quarter of fiscal 2021 totaled $92,917, an increase of 96% compared to the first quarter of fiscal 2020 (93% increase on a constant-currency basis).
Revenues for the Diagnostics segment for the first quarter of fiscal 2021 decreased 13% compared to the first quarter of fiscal 2020 (14% on a constant-currency basis), comprised of a 34% decrease in molecular assay products and an 8% decrease in non-molecular assay products. As previously noted, despite the
COVID-19
pandemic continuing to dramatically slow sales of our molecular assay products during the first quarter of fiscal 2021, the acceleration of Revogene instrument placements in anticipation of the Revogene
COVID-19
assay under the FDA’s EUA program resulted in 57 net placements of our Revogene system during the first quarter of fiscal 2021 and a total Revogene system install base of 288 systems as of December 31, 2020. With a 758% increase in revenues from molecular reagents products and a 128% increase in revenues from immunological reagents products, revenues for our Life Science segment increased 396% during the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. On a constant-currency basis, revenues for the Life Science segment increased 387%. Life Science segment revenues reflect a significant increase in the sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in
COVID-19
related PCR tests. Also contributing to the record revenue levels during the first quarter of fiscal 2021 were sales of monoclonal antibody pairs used in COVID-19 antigen tests and, to a lesser degree, recombinant antigens used in
COVID-19
antibody tests. In addition, our core Life Science segment business (other than
COVID-19
contributions) experienced growth of approximately $7,000, or approximately 55%, compared to the first quarter of fiscal 2020. This growth, including an approximate 88% increase in revenues from sales into China, resulted in large part from obtaining business from
COVID-19
customers who are now using our products for other
non-COVID
related purposes, as well as a rebound in volumes in core immunological products.
Lead Testing Matters
On April 17, 2018, 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 we continue to cooperate with the DOJ in this matter, including responding to additional information requests. We have executed tolling agreements to extend the statute of limitations.
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 Magellan’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. Meridian intends to fully cooperate with the FDA as the third-party study is completed.
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. Over the last year, 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). The Warning Letter issued in October 2017 remains outstanding, pending a future FDA inspection. 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.
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Table of Contents
In the course of remediation, we may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of our 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. While we remain confident in the performance of the Magellan LeadCare testing systems using capillary samples, we do not expect that the FDA will reinstate our venous blood claims. We can provide no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation, and/or the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, injunctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business on terms substantially similar to those on which we currently operate.
REVENUE OVERVIEW
Below are analyses of the Company’s revenues, provided for each of the following:
-
By Reportable Segment & Geographic Region
-
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 quarter to quarter by buying patterns of major distributors, seasonality and the severity of seasonal diseases and outbreaks (including the
COVID-19
pandemic), and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major IVD manufacturing customers, severity of disease outbreaks and foreign currency exchange rates. We believe that the overall breadth of our product lines serves to reduce the variability in consolidated revenues due to these factors.

   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%  
  

 

 

  

 

 

  

Ex-Americas

   30%   30%  
  

 

 

  

 

 

  

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

COVID-19
pandemic contributed approximately $71,500 of products:

Diagnostics

1)Molecular assays that operate on ourillumigene platform

2)Immunoassays and lead tests on multiple technology platforms

new revenue for our Life Science

1)Molecular components

2)Immunoassay components

Page 15

Revenues segment during fiscal 2020, and approximately $43,000 during the first quarter of fiscal 2021.

See the “Revenue Disaggregation” section of Note 4,
“Revenue Recognition”
of the accompanying Condensed Consolidated Financial Statements for each product platform/type, as well as its relative percentage of segment revenues, are shown below.

   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% 
  

 

 

  

 

 

  

 

 

 

Total Diagnostics

  $37,490  $33,808   11% 
  

 

 

  

 

 

  

 

 

 

Life Science -

    

Molecular components

  $5,705  $5,116   12% 

Immunoassay components

   9,088   7,885   15% 
  

 

 

  

 

 

  

 

 

 

Total Life Science

  $14,793  $13,001   14% 
  

 

 

  

 

 

  

 

 

 

% of Diagnostics revenues -

    

Molecular assays

   23%   23%  

Immunoassays & lead tests

   77%   77%  
  

 

 

  

 

 

  

Total Diagnostics

   100%   100%  
  

 

 

  

 

 

  

% of Life Science revenues -

    

Molecular components

   39%   39%  

Immunoassay components

   61%   61%  
  

 

 

  

 

 

  

Total Life Science

   100%   100%  
  

 

 

  

 

 

  

detailed revenue disaggregation information.

Following is a discussion of the revenues generated by these product platforms/types and/or disease states:
Diagnostics Segment Products
The acquisitions of the Revogene molecular diagnostics platform and the BreathID breath test system, the development of the Curian immunoassay platform, and the expansion of the related assay-menu for each of these product platforms/types:

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

C. difficile
, Group A
Streptococcus
(“Group A Strep”) and Group B
Streptococcus
(“Group B Strep”) assays. As previously noted, despite the
COVID-19
pandemic continuing to dramatically slow sales of ourillumigene molecular platform ofassay products increased 12% to $8,668 forduring the first quarter of fiscal 2018 (also 12% on a constant-currency basis). This increase primarily reflects strong revenue growth2021, the acceleration of Revogene instrument placements in our respiratory-related products and a continuationanticipation of the revenue stabilization trend for ourC. difficile tests overRevogene
COVID-19
assay under the last four quarters.

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-

Page 16

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

H. pylori
antigen in ourH. pyloristool. We expect to begin clinical trials for the Curian
C. difficile
Common Antigen and other immunoassay product lines, partially offset by decreasedToxins A and B test in February 2021. We believe the advantages of the Curian analyzer will help protect our existing rapid test accounts, and in the case of the
C. difficile
test, provide meaningful revenue growth opportunities.
Gastrointestinal, Respiratory Illness and Blood Chemistry Assays
As previously noted, the ongoing
COVID-19
pandemic has had a negative impact on revenue levels from Magellan’s lead testingsales of our gastrointestinal, respiratory illness and blood chemistry products.

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 for

C. difficile
,
H. pylori
and certain foodborne pathogens, among others, decreased 5% to $15,452; (ii) respiratory illness products, increased 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.

Page 24
Table of operations and liquidity, including revenues and gross profit. Contents
In order to mitigate competition,combat certain of the pricing and volume pressures we face within the gastrointestinal product category, we have executed on a number of measures including: (i) entering into a strategic collaboration with DiaSorin to sell
H. pylori
tests; (ii) executing multi-year supply agreements with our product development pipeline includes multiple new product initiativestwo largest reference laboratory customers for the detection of
H. pylori.We
tests to secure volume, albeit at lower selling prices; and (iii) upon FDA clearance in March 2020, launching Curian HpSA, our first assay on the Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the acquisition of the Exalenz BreathID platform to combat competitive pressures, as we believe that we are now the only company with
FDA-cleared,
non-invasive
assays for both stool antigen and urea breath samples, providing physicians a choice in test format from a single supplier. 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.

Life Science Segment Products
During the first quarter of fiscal 2018, revenues from our other immunoassay products (includingC. difficile, foodborne and respiratory) increased 16% (14% in constant-currency) to $15,544. Although benefiting from the effects of strong seasonal respiratory sales, the extension of the growth experienced during the second half of fiscal 2017 continues to support our belief that this portion of our business has stabilized and is positioned for continued future growth.

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.

Page 17

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

COVID-19
related PCR tests, as well as sales of monoclonal antibody pairs used in antigen tests and to a lesser degree, recombinant antigens used in
COVID-19
antibody tests. COVID-related reagent revenues totaled approximately $1,300 in$43,000 during the first quarter of fiscal 2018; and (ii) increased revenue2021.
Revenue from sales into China, with such sales totalingcore Life Science segment business (other than
COVID-19
contributions) grew approximately $1,500 during first quarter of fiscal 2018 (approximately $200 in the molecular components business and $1,300 in the immunoassay components business) – representing an approximate 115% increase55% over the first quarter of fiscal 2017.

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

COVID-19
customers who are now using our products for other
non-COVID
related purposes, as well as a rebound in volumes in core immunological products.
Significant Customers

Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 814 of the accompanying Condensed Consolidated Financial Statements.

Gross Profit

   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 
The increase in gross profit decreases experienced in fiscal 2018 primarily result from the combined effects of mix of products sold and operating segment mix.

Operating Expenses

   Research &
Development		  Selling &
Marketing		  General &
Administrative		  Other  Total Operating
Expenses		 

Fiscal 2017 First Quarter:

 

Diagnostics

  $2,973  $5,494  $5,805  $—    $14,272 

Life Science

   624  2,124   1,934   —     4,682 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total 2017 First Quarter Expenses

  $3,597  $7,618  $7,739  $—    $18,954 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Fiscal 2018 First Quarter:

 

Diagnostics

  $3,737  $6,445  $6,772  $1,483  $18,437 

Life Science

   759  2,397   2,132   —     5,288 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total 2018 First Quarter Expenses

  $4,496  $8,842  $8,904  $1,483  $23,725 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   Research &
Development		  Selling &
Marketing		  General &
Administrative		  Other  Total Operating
Expenses		 

Fiscal 2017 First Quarter Expenses

  $3,597  $7,618  $7,739  $—    $18,954 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

% of Revenues

   8%   16%   17%   —  %   40% 

Fiscal 2018 First Quarter Increases:

 

Diagnostics

   764  951  967  1,483   4,165 

Life Science

   135  273  198  —     606
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Fiscal 2018 First Quarter Expenses

  $4,496  $8,842  $8,904  $1,483  $23,725 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

% 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

COVID-19
pandemic. During first quarter of fiscal 2021, approximately 50% of consolidated revenues relate to sales of molecular reagent products, which are some of our higher margin products, as compared to sales of such products comprising only approximately 11% of consolidated revenues during the first quarter of fiscal 2017, relating2020.
Page 25
Table of Contents
Operating Expenses – Segment Detail
   
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 
                          
Operating Expenses – Comparison to Prior Year Periods
   
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% 
The changes in operating expenses primarily to overall increases in spending in ourreflect the combined effects of the following:
Increased Research & Development costs, primarily reflecting the development of the molecular
SARS-CoV-2
assay and molecular gastrointestinal and respiratory panel assays for the Diagnostics segment, reflectingand the following:

•Increased R&D costs in connection with instrumentation development programs and clinical trials for ourillumigene CMV test;

Increased sales commissionaddition of research and bonus payments made in connection with increased sales levels;

Increased Quality System remediation costsdevelopment expenses related to Magellan;Exalenz, acquired in April 2020;

Increased accrualSelling & Marketing costs, primarily reflecting increased bonus and commissions paid to sustain the Diagnostics segment sales force during the downturn caused by the
COVID-19
pandemic, partially offset by the effects of cashreduced travel from restrictions imposed during the pandemic and the effect such restrictions have had on general sales and marketing activities;
Increased General & Administrative costs, primarily reflecting additional investment in incentive compensation, along with the addition of expenses (alsorelated to Exalenz, including purchase accounting amortization; and
Increased Selected Legal Costs, partially offset by a decrease in restructuring costs and a decrease in the effect of changes in the fair value of the contingent consideration obligation for the Life Science segment); and

CEO transition and litigation costs. CEO transition costs, which totaled $734, reflect compensation and benefits for our Executive Chairman (formerly Chairman and CEO) during 2018, while we also haveGenePOC business (reflected within “Other” in the compensation and benefits costsabove tables).
Page 26
Table of a new CEO. Litigation costs, which totaled $749, relate to the matters discussed in Note 9 of the accompanying Condensed Consolidated Financial Statements and Part II. Item 1 of this Quarterly Report on Form10-Q.Contents

Operating Income

Operating income 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.

Income Taxes

The effective rate for income taxes was 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; and

Recording 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%.

U.S., particularly the U.K.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Liquidity
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.

Page 19

We have an investment policy that guides the holdings of our investment portfolio, which presently consists of 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), 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 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 for

During the first three 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.
Our levels of 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 suppliersmeet
COVID-19
related demand. For our Diagnostics segment, we also have maintained inventory levels in anticipation of a return to
pre-pandemic
diagnostic testing activity. We are continuing to actively manage our inventory levels.
As of December 31, 2020, our cash and taxing 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) equivalents
on-hand)
decreased accrued 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.

Capital Resources

As described in Note 7 11,
“Bank Credit Arrangements”
of the accompanying Condensed Consolidated Financial Statements, 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.
Page 27
Table of January 31, 2018, 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 the first three months of fiscal 2018 or during the full year of fiscal 2017.

Contents

Our capital expenditures are estimated to range between approximately $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
COVID-19
assay production capacity expansion and
scale-up
efforts, and our Life Science segment capital expenditures could be as high as $3,000, reflecting manufacturing capacity expansion at various locations. Such expenditures may be funded with cash and cash equivalents on hand, operating cash flows and/or availability under the $30,000$160,000 revolving credit facility discussed above.

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).

We do not utilize any special-purpose financing vehicles or have any undisclosed
off-balance
sheet arrangements.

Page 20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk since September 30, 2017.

2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 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.

2020.

Changes in Internal Control over Financial Reporting

Except as described above, there

There were no changes in our internal control over financial reporting (as that term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Page 21

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 9 16,
“Litigation Matters”
of the accompanying Condensed Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

There have been no material changes from risk factors as previously disclosed in the Company’s fiscal 20172020 Annual Report on Form
10-K
in response to Item 1A to Part I of Form
10-K.

ITEM 6. EXHIBITS

The following exhibits are being filed or furnished as a part of this Quarterly Report on Form10-Q.

10-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
Page 28
Table of Contents
10.110.3  EmploymentAmendment to Share Purchase Agreement dated October 9, 2017as of June 3, 2019, between Apres-Demain Inc. (formerly known as GenePOC Inc.), Meridian Bioscience Canada, Inc., Apres-Demain SA in its capacity of Shareholders’ Representative, and John P. KennyMeridian
10.4*Amendment No. 3 to Share Purchase Agreement dated as of December 21, 2020, between Apres-Demain Inc. (formerly known as GenePOC Inc.), Meridian Bioscience Canada, Inc., Apres-Demain SA in its capacity of Shareholders’ Representative, and Meridian
16.1Letter from Grant Thornton LLP dated December 28, 2020 (Incorporated by reference to Meridian’sfrom the Company’s Form8-K filed with the Securities and Exchange CommissionSEC on October 11, 2017)December 30, 2020)
31.1  Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule13a-14(a)/15d-14(a)
31.2  Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule13a-14(a)/15d-14(a)
32  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101101.INS  Inline XBRL Instance Document
101.SCHInline XBRL Instance Extension Schema
101.CALInline XBRL Instance Extension Calculation Linkbase
101.DEFInline XBRL Instance Extension Definition Linkbase
101.LABInline XBRL Instance Extension Label Linkbase
101.PREInline XBRL Instance Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Certain portions of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation
S-K.
The 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.

†
Management Compensatory Agreement
SIGNATURE

Pursuant to the requirements 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.

   
MERIDIAN BIOSCIENCE, INC.
Date:February 7, 2018 
Date:
February 5, 2021
 By: 

/s/ Melissa A. Lueke

Bryan T. Baldasare
   Melissa A. LuekeBryan T. Baldasare
   

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Page 22

29