Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 20212022
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
              
to
              
Commission file
number    0-14902
LOGO
MERIDIAN BIOSCIENCE, INC.
Incorporated under the laws of Ohio
31-0888197
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513)
271-3700
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading
Symbol(s)
  
Name of each exchange
on which registered
Common Stock, no par value
  
VIVO
  
NASDAQ Global Select Market
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes
 ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer ☒  Accelerated filer ☐
Non-accelerated
filer		 ☐  Smaller reporting company ☐
Emerging growth company ☐   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding July 31, 2021
2022
Common Stock, no par value 
43,353,741
43,747,669
Table of Contents
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM
10-Q
      
Page(s)
 
PART I.
  
FINANCIAL INFORMATION
  
Item 1.
  
Financial Statements (Unaudited)
  
  
Condensed Consolidated Statements of Operations
Three and Nine Months Ended June 30, 20212022 and 20202021
   1 
  
Condensed Consolidated Statements of Comprehensive Income (Loss)
Three and Nine Months Ended June 30, 20212022 and 20202021
   2 
  
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 20212022 and 20202021
   3 
  
Condensed Consolidated Balance Sheets
June 30, 20212022 and September 30, 20202021
   4-5 
  
Condensed Consolidated Statements of Changes in Shareholders’ Equity
Three and Nine Months Ended June 30, 20212022 and 20202021
   6 
  
Notes to Condensed Consolidated Financial Statements
   7-207-18 
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   21-2919-28
Item 3.Quantitative and Qualitative Disclosures About Market Risk28
Item 4.Controls and Procedures28 
Item 3.PART II.
  
Quantitative and Qualitative Disclosures About Market RiskOTHER INFORMATION
Item 1.Legal Proceedings29
Item 1A.Risk Factors29
Item 6.Exhibits   30 
Item 4.
Controls and ProceduresSignatures
30
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
30
Item 1A.
Risk Factors
30
Item 6.
Exhibits
31
Signature
     31 
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “continues”, “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “signals”, “should”, “can” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian Bioscience, Inc. (“Meridian” or “the Company”) expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted net earnings, sales, product demand, net revenues, operating margin, other guidance and the impact of
COVID-19
on its business and prospects, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the following:
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Meridian’s operating results, financial condition and continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by Meridian’s competition, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While Meridian has introduced a number of internally developed products and acquired products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly manufacturing costs associated with its introduction of new products or acquired products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in which the Company’s customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, and in complying with the ongoing investigation of the Department of Justice described in Meridian’s reports filed with the SEC, can result in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process (including the currently ongoing study and other FDA actions regarding the Company’s LeadCare products).process. The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and that the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of future goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of 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,of current U.S. health care legislation, and any similar initiatives in other countries on itsMeridian’s results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and net revenues. The Company can make no assurances that a material weakness in its internal control over financial reporting will not be identified in the future, which if identified and not properly corrected, could materially and adversely affect its operations and result in material misstatements in its consolidated financial statements. Meridian also is subject to risks and uncertainties related to the proposed acquisition by SD Bioscensor, Inc., as well as 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.COVID-19,
including, without limitation, related supply chain interruptions. In addition to the factors described in this paragraph, as well as those factors identified from time to time in the Company’s filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of the Company’s most recent Annual Report on Form
10-K
contains a list and description of uncertainties, risks and other matters that may affect the Company. Readers should carefully review these forward-looking statements and risk factors, and not place undue reliance on the Company’s forward-looking statements.
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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
  
Nine Months Ended
 
   
June 30,
  
June 30,
 
   
2021
  
2020
  
2021
  
2020
 
NET REVENUES
  $63,511  $84,797  $241,692  $189,514 
COST OF SALES
   26,400   28,814   85,261   71,334 
   
 
 
  
 
 
  
 
 
  
 
 
 
GROSS PROFIT
   37,111   55,983   156,431   118,180 
   
 
 
  
 
 
  
 
 
  
 
 
 
OPERATING EXPENSES
                 
Research and development
   6,083   6,668   17,799   16,746 
Selling and marketing
   6,209   6,282   19,770   19,539 
General and administrative
   11,964   12,624   36,827   32,236 
Acquisition-related costs
   300   1,641   300   3,428 
Change in fair value of acquisition consideration
   (3,563)   (6,124)   (5,505)   (7,428) 
Restructuring costs
   0     93   0     620 
Selected legal costs
   438   134   2,695   1,189 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   21,431   21,318   71,886   66,330 
   
 
 
  
 
 
  
 
 
  
 
 
 
OPERATING INCOME
   15,680   34,665   84,545   51,850 
     
OTHER INCOME (EXPENSE)
                 
Interest income
   0     3   15   137 
Interest expense
   (444)   (703)   (1,450)   (2,002) 
RADx grant income
   0     0     1,000   0   
Other, net
   59   908   (1,515)   1,561 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total other income (expense)
   (385)   208   (1,950)   (304) 
   
 
 
  
 
 
  
 
 
  
 
 
 
EARNINGS BEFORE INCOME TAXES
   15,295   34,873   82,595   51,546 
     
INCOME TAX PROVISION
   3,626   7,366   17,845   11,853 
   
 
 
  
 
 
  
 
 
  
 
 
 
NET EARNINGS
  $11,669  $27,507  $64,750  $39,693 
   
 
 
  
 
 
  
 
 
  
 
 
 
BASIC EARNINGS PER COMMON SHARE
  $0.27  $0.64  $1.50  $0.93 
DILUTED EARNINGS PER COMMON SHARE
  $0.26  $0.64  $1.47  $0.92 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
   43,334   42,837   43,226   42,819 
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS
   763   436   780   219 
   
 
 
  
 
 
  
 
 
  
 
 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
   44,097   43,273   44,006   43,038 
   
 
 
  
 
 
  
 
 
  
 
 
 
ANTI-DILUTIVE SECURITIES:
                 
Common share options and restricted share units
   190   854   180   1,298 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
Three Months Ended
June 30,
  
Nine Months Ended
June 30,
 
   
2022
  
2021
  
2022
  
2021
 
NET REVENUES  $ 67,771  $ 63,511  $ 267,343  $ 241,692 
COST OF SALES   31,043   26,400   112,979   85,261 
                  
GROSS PROFIT   36,728   37,111   154,364   156,431 
                  
OPERATING EXPENSES                 
Research and development   6,043   6,083   17,928   17,799 
Selling and marketing   8,178   6,209   23,433   19,770 
General and administrative   13,149   11,964   46,364   36,827 
Acquisition and transaction related costs   4,227   300   4,295   300 
Litigation and select legal costs   11,812   438   12,601   2,695 
Change in fair value of acquisition consideration   —     (3,563)   —     (5,505) 
                  
Total operating expenses   43,409   21,431   104,621   71,886 
                  
OPERATING INCOME (LOSS)   (6,681)   15,680   49,743   84,545 
OTHER INCOME (EXPENSE)                 
Interest income   2   —     5   15 
Interest expense   (256)   (444)   (969)   (1,450) 
RADx grant income   —     —     —     1,000 
Other, net   333   59   905   (1,515) 
                  
Total other income (expense), net   79   (385)   (59)   (1,950) 
                  
EARNINGS (LOSS) BEFORE INCOME TAXES   (6,602)   15,295   49,684   82,595 
     
INCOME TAX PROVISION   736   3,626   12,930   17,845 
                  
NET EARNINGS (LOSS)  $ (7,338)  $ 11,669  $36,754  $64,750 
                  
BASIC EARNINGS (LOSS) PER COMMON SHARE  $(0.17)  $0.27  $0.84  $1.50 
DILUTED EARNINGS (LOSS) PER COMMON SHARE  $(0.16)  $0.26  $0.83  $1.47 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC   43,586   43,334   43,526   43,226 
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS   888   763   704   780 
                  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED   44,474   44,097   44,230   44,006 
                  
ANTI-DILUTIVE SECURITIES:                 
Common share options and restricted share units   79   190   188   180 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 1
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollar amounts in thousands)
 
                 
   
Three Months Ended
June 30,
  
Nine Months Ended
June 30,
 
   
2021
  
2020
  
2021
  
2020
 
NET EARNINGS
  $11,669  $27,507  $64,750  $39,693 
Other comprehensive income (loss):
                 
Foreign currency translation adjustment
   41   597   3,421   579 
Unrealized gain (loss) on cash flow hedge
   9   (390)   469   (703) 
Reclassification of amortization of gain on cash flow hedge
   0     (77)   (154)   (231) 
Income taxes related to items of other comprehensive income (loss)
   (2)   115   (68)   230 
   
 
 
  
 
 
  
 
 
  
 
 
 
Other comprehensive income (loss), net of tax
   48   245   3,668   (125) 
   
 
 
  
 
 
  
 
 
  
 
 
 
COMPREHENSIVE INCOME
  $11,717  $27,752  $68,418  $39,568 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
Three Months Ended
June 30,
  
Nine Months Ended
June 30,
 
   
2022
  
2021
  
2022
  
2021
 
NET EARNINGS (LOSS)  $ (7,338)  $ 11,669  $ 36,754  $ 64,750 
Other comprehensive income (loss):                 
Foreign currency translation adjustment   (5,166)   41   (7,044)   3,421 
Reclassification of realized gain on cash flow hedge   —     —     (935)   —   
Unrealized gain on cash flow hedge   216   9   2,201   469 
Reclassification of amortization of gain on cash flow hedge   —     —     —     (154) 
Income taxes related to items of other comprehensive income (loss)   (53)   (2)   (310)   (68) 
                  
Other comprehensive income (loss), net of tax   (5,003)   48   (6,088)   3,668 
                  
COMPREHENSIVE INCOME (LOSS)  $ (12,341)  $ 11,717  $ 30,666  $ 68,418 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 2
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
 
         
Nine Months Ended June 30,
  
2021
  
2020
 
CASH FLOWS FROM OPERATING ACTIVITIES
         
Net earnings
  $64,750  $39,693 
Non-cash
items included in net earnings:
         
Depreciation of property, plant and equipment
   4,729   3,762 
Amortization of intangible assets
   6,453   5,604 
Stock compensation expense
   3,170   2,809 
Deferred income taxes
   (35)   2,214 
Change in fair value of acquisition consideration
   (5,505)   (7,428) 
Change in the following:
         
Accounts receivable
   (2,363)   (6,352) 
Inventories
   (11,831)   (17,828) 
Prepaid expenses and other current assets
   (1,965)   68 
Accounts payable and accrued expenses
   (2,252)   4,422 
Income taxes payable
   (2,317)   3,401 
Other, net
   (448)   1,315 
   
 
 
  
 
 
 
Net cash provided by operating activities
   52,386   31,680 
   
 
 
  
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
         
Purchase of property, plant and equipment
   (16,407)   (2,471) 
Payment of acquisition consideration holdback
   (5,000)   —   
Acquisition of Exalenz, net of cash acquired
   —     (51,299) 
   
 
 
  
 
 
 
Net cash used in investing activities
   (21,407)   (53,770) 
   
 
 
  
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
         
Payment on revolving credit facility
   (18,824)   (27,000) 
Proceeds from revolving credit facility
   —     50,000 
Payment of debt issuance costs
   —     (116) 
Proceeds from exercise of stock options
   2,939   —   
   
 
 
  
 
 
 
Net cash (used in) provided by financing activities
   (15,885)   22,884 
   
 
 
  
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
   1,404   254 
   
 
 
  
 
 
 
Net Increase in Cash and Cash Equivalents
   16,498   1,048 
Cash and Cash Equivalents at Beginning of Period
   53,514   62,397 
   
 
 
  
 
 
 
Cash and Cash Equivalents at End of Period
  $70,012  $63,445 
   
 
 
  
 
 
 
   
Nine Months Ended
June 30,
 
   
2022
  
2021
 
CASH FLOWS FROM OPERATING ACTIVITIES         
Net earnings  $ 36,754  $ 64,750 
Non-cash
items included in net earnings:
         
Depreciation of property, plant and equipment   5,009   4,729 
Amortization of intangible assets   7,433   6,453 
Stock-based compensation   5,006   3,170 
Deferred income taxes   2,248   (35) 
Estimated litigation costs   10,000   —   
Change in fair value of acquisition consideration   —     (5,505) 
Change in the following:         
Accounts receivable   7,933   (2,363) 
Inventories   4,473   (11,831) 
Prepaid expenses and other current assets   (1,401)   (1,965) 
Accounts payable and accrued expenses   4,800   (2,252) 
Income taxes payable   (1,515)   (2,317) 
Other, net   (366)   (448) 
          
Net cash provided by operating activities   80,374   52,386 
          
CASH FLOWS FROM INVESTING ACTIVITIES         
Purchase of property, plant and equipment   (5,138)   (16,407) 
Acquisition, net of cash acquired and holdback   (3,750)   —   
Payment of acquisition consideration holdback   —     (5,000) 
          
Net cash used in investing activities   (8,888)   (21,407) 
          
CASH FLOWS FROM FINANCING ACTIVITIES         
Payment on revolving credit facility   (35,000)   (18,824) 
Payment of deferred financing costs   (404)   —   
Proceeds from exercise of stock options   2,438   2,939 
Employee taxes paid upon stock option exercises and net share
 

settlement of restricted share units
   (865)   —   
          
Net cash used in financing activities   (33,831)   (15,885) 
          
Effect of Exchange Rate Changes on Cash and Cash Equivalents   (3,939)   1,404 
          
Net Increase in Cash and Cash Equivalents   33,716   16,498 
Cash and Cash Equivalents at Beginning of Period   49,771   53,514 
          
Cash and Cash Equivalents at End of Period  $ 83,487  $ 70,012 
          
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 3
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
ASSETS
 
   
June 30,
2021

(Unaudited)
   
September 30,
2020
 
CURRENT ASSETS
          
Cash and cash equivalents
  $70,012   $53,514 
Accounts receivable, less allowances of $514 and $513, respectively
   42,258    38,512 
Inventories, net
   71,813    61,264 
Prepaid expenses and other current assets
   10,896    8,900 
   
 
 
   
 
 
 
Total current assets
   194,979    162,190 
   
 
 
   
 
 
 
PROPERTY, PLANT AND EQUIPMENT, at Cost
          
Land
   993    991 
Buildings and improvements
   32,372    32,188 
Machinery, equipment and furniture
   77,429    69,854 
Construction in progress
   11,555    1,200 
   
 
 
   
 
 
 
Subtotal
   122,349    104,233 
Less: accumulated depreciation and amortization
   77,669    73,113 
   
 
 
   
 
 
 
Property, plant and equipment, net
   44,680    31,120 
   
 
 
   
 
 
 
OTHER ASSETS
          
Goodwill
   115,315    114,186 
Other intangible assets, net
   76,744    83,197 
Right-of-use
assets, net
   6,384    6,336 
Deferred income taxes
   8,073    7,647 
Other assets
   395    585 
   
 
 
   
 
 
 
Total other assets
   206,911    211,951 
   
 
 
   
 
 
 
TOTAL ASSETS
  $446,570   $405,261 
   
 
 
   
 
 
 
   
June 30,
2022
(Unaudited)
   
September 30,
2021
 
CURRENT ASSETS          
Cash and cash equivalents  $83,487   $49,771 
Accounts receivable, less allowances of $1,071 and $1,078, respectively   44,911    53,568 
Inventories, net   70,105    76,842 
Prepaid expenses and other current assets   13,966    12,626 
           
Total current assets   212,469    192,807 
           
PROPERTY, PLANT AND EQUIPMENT, at Cost          
Land   976    989 
Buildings and improvements   32,917    32,765 
Machinery, equipment and furniture   79,939    78,410 
Construction in progress   9,049    9,991 
           
Subtotal   122,881    122,155 
Less: accumulated depreciation and amortization   79,712    78,941 
           
Property, plant and equipment, net   43,169    43,214 
           
OTHER ASSETS          
Goodwill   117,201    114,668 
Other intangible assets, net   76,607    84,151 
Right-of-use
assets, net
   6,680    5,786 
Deferred income taxes   8,043    8,731 
Other assets   1,759    365 
           
Total other assets   210,290    213,701 
           
TOTAL ASSETS  $ 465,928   $ 449,722 
           
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)
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
   
June 30,
2021

(Unaudited)
   
September 30,
2020
 
CURRENT LIABILITIES
          
Accounts payable
  $13,103   $11,969 
Accrued employee compensation costs
   14,026    16,661 
Current portion of acquisition consideration
   0      12,619 
Current operating lease obligations
   2,059    1,789 
Current government grant obligations
   735    600 
Other accrued expenses
   4,870    5,362 
Income taxes payable
   1,909    3,524 
   
 
 
   
 
 
 
Total current liabilities
   36,702    52,524 
   
 
 
   
 
 
 
NON-CURRENT
LIABILITIES
          
Acquisition consideration
   15,404    13,290 
Post-employment benefits
   2,314    2,493 
Fair value of interest rate swaps
   245    713 
Long-term operating lease obligations
   4,477    4,678 
Long-term debt
   50,000    68,824 
Government grant obligations
   10,512    10,524 
Long-term income taxes payable
   374    549 
Deferred income taxes
   4,195    3,804 
Other
non-current
liabilities
   191    233 
   
 
 
   
 
 
 
Total
non-current
liabilities
   87,712    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, 43,352,998 and 43,068,842 shares issued, respectively
   0—      0—   
Additional
paid-in
capital
   146,304    140,195 
Retained earnings
   174,044    109,294 
Accumulated other comprehensive income (loss)
   1,808    (1,860) 
   
 
 
   
 
 
 
Total shareholders’ equity
   322,156    247,629 
   
 
 
   
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $446,570   $405,261 
   
 
 
   
 
 
 
   
June 30,
2022
(Unaudited)
  
September 30,
2021
 
CURRENT LIABILITIES         
Accounts payable  $15,359  $11,701 
Accrued employee compensation costs   19,697   16,853 
Accrued product recall costs   2,359   5,100 
Accrued estimated litigation cost
s

   10,000   —   
Current operating lease obligations   2,025   1,990 
Current government grant obligations   1,200   638 
Other accrued expenses   7,632   7,027 
Income taxes payable   2,075   3,848 
          
Total current liabilities   60,347   47,157 
          
NON-CURRENT
LIABILITIES
         
Post-employment benefits   2,032   2,253 
Long-term operating lease obligations   4,773   3,932 
Long-term debt   25,000   60,000 
Government grant obligations   4,403   5,176 
Long-term income taxes payable   527   469 
Deferred income taxes   2,644   1,055 
Other
non-current
liabilities
   655   1,378 
          
Total
non-current
liabilities
   40,034   74,263 
          
COMMITMENTS AND CONTINGENCIES   0    0  
SHAREHOLDERS’ EQUITY         
Preferred stock, 0 par value; 1,000,000 shares authorized; 0ne issued   0—     0—   
Common shares, 0 par value; 71,000,000 shares authorized, 43,718,576 and 43,361,898 shares issued and outstanding, respectively   0—     0—   
Additional
paid-in
capital
   154,241   147,403 
Treasury stock, at cost; 9,655 shares   (259)   —   
Retained earnings   217,455   180,701 
Accumulated other comprehensive income (loss)   (5,890)   198 
          
Total shareholders’ equity   365,547   328,302 
          
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $ 465,928  $ 449,722 
          
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 Changes in Shareholders’ Equity (Unaudited)
(dollar and share amounts in thousands)
 
                     
   Common
Shares
Issued		   Additional
Paid-In

Capital		  Retained
Earnings		   Accumulated Other
Comprehensive
Income (Loss)		  Total
Shareholders’
Equity		 
THREE MONTHS ENDED JUNE 30, 2021
                       
Balance at March 31, 2021
   43,329   $145,338  $162,375   $1,760  $309,473 
Conversion of restricted share units and exercise of stock options
   24    87   —      —     87 
Stock compensation expense
   —      879   —      —     879 
Net earnings
   —      —     11,669    —     11,669 
Foreign currency translation adjustment
   —      —     —      41   41 
Hedging activity, net of tax
   —      —     —      7   7 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at June 30, 2021
   43,353   $146,304  $174,044   $1,808  $322,156 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
THREE MONTHS ENDED JUNE 30, 2020
                       
Balance at March 31, 2020
   42,831   $134,584  $75,294   $(5,345)  $204,533 
Conversion of restricted share units and exercise of stock options
   8    —     —      —     —   
Stock compensation expense
   —      1,050   —      —     1,050 
Net earnings
   —      —     27,507    —     27,507 
Foreign currency translation adjustment
   —      —     —      597   597 
Hedging activity, net of tax
   —      —     —      (352)   (352) 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at June 30, 2020
   42,839   $135,634  $102,801   $(5,100)  $233,335 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
      
   Common
Shares
Issued		   Additional
Paid-In

Capital		  Retained
Earnings		   Accumulated Other
Comprehensive
Income (Loss)		  Total
Shareholders’
Equity		 
NINE MONTHS ENDED JUNE 30, 2021
                       
Balance at September 30, 2020
   43,069   $140,195  $109,294   $(1,860)  $247,629 
Conversion of restricted share units and exercise of stock options
   284    2,939   —      —     2,939 
Stock compensation expense
   —      3,170   —      —     3,170 
Net earnings
   —      —     64,750    —     64,750 
Foreign currency translation adjustment
   —      —     —      3,421   3,421 
Hedging activity, net of tax
   —      —     —      247   247 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at June 30, 2021
   43,353   $146,304  $174,044   $1,808  $322,156 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
NINE MONTHS ENDED JUNE 30, 2020
                       
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
   127    (9)   —      —     (9) 
Stock compensation expense
   —      2,809   —      —     2,809 
Net earnings
   —      —     39,693    —     39,693 
Foreign currency translation adjustment
   —      —     —      579   579 
Hedging activity, net of tax
   —      —     —      (704)   (704) 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at June 30, 2020
   42,839   $135,634  $102,801   $(5,100)  $233,335 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
   
Common
Shares
   
Additional
Paid-In

Capital
   
Treasury Stock
  
Retained
Earnings
  
Accumulated

Other Comp.
Income (Loss)
  
Total
Shareholders’
Equity
 
   
    Sh.    
  
Amt.
 
THREE MONTHS ENDED JUNE 30, 2022
                               
Balance at March 31, 2022
   43,570   $ 150,985    (10)  $(259)  $ 224,793  $ (887)  $ 374,632 
Conversion of restricted share units and exercise of stock options   149    1,639    —     —     —     —     1,639 
Stock compensation expense   —      1,617    —     —     —     —     1,617 
Net loss   —      —      —     —     (7,338)   —     (7,338) 
Foreign currency translation adjustment   —      —      —     —     —     (5,166)   (5,166) 
Hedging activity, net of tax   —      —      —     —     —     163   163 
                                
Balance at June 30, 2022
   43,719   $ 154,241    (10)  $(259)  $ 217,455  $ (5,890)  $ 365,547 
                                
THREE MONTHS ENDED JUNE 30, 2021
                               
Balance at March 31, 2021
   43,329   $ 145,338    —    $—    $ 162,375  $1,760  $ 309,473 
Conversion of restricted share units and exercise of stock options   24    87    —     —     —     —     87 
Stock compensation expense   —      879    —     —     —     —     879 
Net earnings   —      —      —     —     11,669   —     11,669 
Foreign currency translation adjustment   —      —      —     —     —     41   41 
Hedging activity, net of tax   —      —      —     —     —     7   7 
                                
Balance at June 30, 2021
   43,353   $ 146,304    —    $—    $ 174,044  $1,808  $ 322,156 
                                
       
   
Common
Shares
Issued
   
Additional
Paid-In

Capital
   
Treasury Stock
  
Retained
Earnings
  
Accumulated

Other Comp.
Income (Loss)
  
Total
Shareholders’
Equity
 
   
Sh.
  
Amt.
 
NINE MONTHS ENDED JUNE 30, 2022
                               
Balance at September 30, 2021
   43,362   $ 147,403    —    $—    $ 180,701  $198  $ 328,302 
Conversion of restricted share units and exercise of stock options   357    1,832    (10)   (259)   —     —     1,573 
Stock compensation expense   —      5,006    —     —     —     —     5,006 
Net earnings   —      —      —     —     36,754   —     36,754 
Foreign currency translation adjustment   —      —      —     —     —     (7,044)   (7,044) 
Hedging activity, net of tax   —      —      —     —     —     956   956 
                                
Balance at June 30, 2022
   43,719   $ 154,241    (10)  $(259)  $ 217,455  $ (5,890)  $ 365,547 
                                
NINE MONTHS ENDED JUNE 30, 2021
                               
Balance at September 30, 2020
   43,069   $ 140,195    —    $—    $ 109,294  $ (1,860)  $ 247,629 
Conversion of restricted share units and exercise of stock options   284    2,939    —     —     —     —     2,939 
Stock compensation expense   —      3,170    —     —     —     —     3,170 
Net earnings   —      —      —     —     64,750   —     64,750 
Foreign currency translation adjustment   —      —      —     —     —     3,421   3,421 
Hedging activity, net of tax   —      —      —     —     —     247   247 
                                
Balance at June 30, 2021
   43,353   $ 146,304    —    $—    $ 174,044  $ 1,808  $ 322,156 
                                
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Dollars in Thousands, Except Per Share Amounts
(Unaudited)
 
1.
Nature of Business
Meridian Bioscience, Inc. (“Meridian” or “the Company”) was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic testing systems and kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, immunoassay blocking reagents, various Polymerase Chain Reaction (“PCR”) and isothermal amplification master mixes, and bioresearch reagents used by other diagnostic manufacturers and researchers.
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston);Massachusetts; and (iii) the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.
The Life Science segment consists of: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; North Brunswick, New Jersey; London, England; and Luckenwalde, Germany;
and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to pursue revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g.,
in-vitro
in vitro medical device manufacturing, microRNA detection, next-generation sequencing, plant genotyping, and mutation detection, among others).
2.
Basis of Presentation
The Condensed Consolidated Financial Statements are unaudited and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information, and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the Condensed Consolidated Financial Statements include all normal adjustments and disclosures necessary to present fairly the Company’s consolidated financial position as of June 30, 2021,2022, and the results of its operations and shareholders’ equity for the three-three and nine-month periodsnine months ended June 30, 20212022 and 2020,2021, and cash flows for the nine-month periodsnine months ended June 30, 20212022 and 2020.2021. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s fiscal 20202021 Annual Report on Form
10-K,
filed with the SEC on November 23, 2020.2021.
It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Condensed Consolidated Financial Statements to indicate net revenue and/or net revenues.
The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. Included within these estimates are those related to the ongoing impacts of the
COVID-19
pandemic, which has had both positive and negative effects on our business; generally positive effects on our Life Science segment and negative effects on our Diagnostics segment. Actual results could differ from those estimates.the estimates made by management.
 
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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 20202021 Annual Report on Form
10-K,
filed with the SEC on November 23, 20202021, and should be referred to for a description of the Company’s significant accounting policies.
(a)
Recent Accounting Pronouncements –
Pronouncements Adopted
On October 1, 2020,2021, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2016-13,2019-12,
Measurement of Credit LossesIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
on Financial Instruments2019-12”),
, which changedclarified and simplified accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the impairment model used to measure credit lossesmethodology 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, resultedcalculating income tax rates in an immaterialinterim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. Adoption of ASU
2019-12
did not have a material impact on the Condensed Consolidated Financial Statements.
Pronouncements Issued but Not Yet Adopted as of June 30, 20212022
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the London Interbank Offered Rate (“LIBOR”). The guidance provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company continues to evaluate the impacts of this guidance but does not expect its application to have a material impact on the Condensed Consolidated Financial Statements.
In December 2019, the FASBNo other new accounting pronouncements recently adopted or 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 applicationhad or are expected to have a material impact on the Condensed Consolidated Financial Statements.
(b)
Reclassifications –
Certain reclassifications have been made to the prior year Condensed Consolidated Financial Statements to conform to the current year presentation. Such reclassifications had no impact on net earnings (loss) or shareholders’ equity.
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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 segment is reduced at the date of sale for product price adjustments payable to certain distributors under local contracts.
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Table of Contents
Revenue Disaggregation
The following tables present our net revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics segment only):
RevenueNet Revenues by Reportable Segment & Geographic Region
 
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2021
   
2020
   
Inc (Dec)
  
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
                             
Americas
  $24,543   $17,575    40%  $73,367   $72,980    1% 
EMEA
   6,251    3,576    75%   18,352    16,853    9% 
ROW
   395    447    (12)%   1,740    1,498    16% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Diagnostics
   31,189    21,598    44%   93,459    91,331    2% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Life Science-
                             
Americas
   7,419    22,007    (66)%   39,661    30,638    29% 
EMEA
   15,723    26,227    (40)%   70,084    41,305    70% 
ROW
   9,180    14,965    (39)%   38,488    26,240    47% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Life Science
   32,322    63,199    (49)%   148,233    98,183    51% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Consolidated
  $63,511   $84,797    (25)%  $241,692   $189,514    28% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2022
   
2021
   
Inc (Dec)
  
2022
   
2021
   
Inc (Dec)
 
Diagnostics-                             
Americas  $38,158   $24,543    55%  $98,322   $73,367    34% 
EMEA   3,836    6,251    (39)%   17,042    18,352    (7)% 
ROW   415    395    5%   1,352    1,740    (22)% 
                              
Total Diagnostics   42,409    31,189    36%   116,716    93,459    25% 
                              
Life Science-                             
Americas   7,314    7,419    (1)%   25,833    39,661    (35)% 
EMEA   8,200    15,723    (48)%   70,188    70,084    —  % 
ROW   9,848    9,180    7%   54,606    38,488    42% 
                              
Total Life Science   25,362    32,322    (22)%   150,627    148,233    2% 
                              
Consolidated  $67,771   $63,511    7%  $267,343   $241,692    11% 
                              
RevenueNet Revenues by Product Platform/Type
 
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2021
   
2020
   
Inc (Dec)
  
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
                             
Molecular assays
  $4,383   $3,182    38%  $13,368   $17,259    (23)% 
Non-molecular
assays
   26,806    18,416    46%   80,091    74,072    8% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Diagnostics
  $31,189   $21,598    44%  $93,459   $91,331    2% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Life Science-
                             
Molecular reagents
  $20,385   $38,791    (47)%  $104,016   $55,703    87% 
Immunological reagents
   11,937    24,408    (51)%   44,217    42,480    4% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Life Science
  $32,322   $63,199    (49)%  $148,233   $98,183    51% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2022
   
2021
   
Inc (Dec)
  
2022
   
2021
   
Inc (Dec)
 
Diagnostics-                             
Molecular assays  $4,876   $4,383    11%  $14,039   $13,368    5% 
Non-molecular
assays
   37,533    26,806    40%   102,677    80,091    28% 
                              
Total Diagnostics   42,409    31,189    36%   116,716    93,459    25% 
                              
Life Science-                             
Molecular reagents   7,743    20,385    (62)%   79,531    104,016    (24)% 
Immunological reagents   17,619    11,937    48%   71,096    44,217    61% 
                              
Total Life Science   25,362    32,322    (22)%   150,627    148,233    2% 
                              
Consolidated  $67,771   $63,511    7%  $267,343   $241,692    11% 
                              
RevenueNet Revenues by Disease State (Diagnostics segment only)
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2022
   
2021
   
Inc (Dec)
  
2022
   
2021
   
Inc (Dec)
 
Diagnostics-                             
Gastrointestinal assays  $22,715   $17,844    27%  $64,704   $48,962    32% 
Respiratory illness assays   5,488    3,742    47%   21,359    12,233    75% 
Blood chemistry assays   6,431    4,254    51%   9,762    13,006    (25)% 
Other   7,775    5,349    45%   20,891    19,258    8% 
                              
Total Diagnostics  $42,409    31,189    36%  $116,716    93,459    25% 
                              
 
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2021
   
2020
   
Inc (Dec)
  
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
                             
Gastrointestinal assays
  $17,844   $9,584    86%  $48,962   $39,644    24% 
Respiratory illness assays
   3,742    5,052    (26)%   12,233    23,664    (48)% 
Blood chemistry assays
   4,254    3,364    26%   13,006    12,508    4% 
Other
   5,349    3,598    49%   19,258    15,515    24% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Diagnostics
  $31,189   $21,598    44%  $93,459   $91,331    2% 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
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Table of Contents
Royalty Income
Royalty income received from a third party related primarily to sales of
H. pylori
products, totaled approximately $1,380$2,080 and $160$1,380 in the three months ended June 30, 20212022 and 2020,2021, respectively, and $5,085$5,630 and $2,365$5,085 in the nine months ended June 30, 2022 and 2021, and 2020, respectively. Such revenueRoyalty income is included as part of
Non-molecular
assays and Other within the RevenueNet Revenues by Product Platform/Type and RevenueNet Revenues by Disease State tables, respectively, above.
Reagent Rental Arrangements
Revenue allocated to the lease elements of Reagent Rental arrangements totaled approximately $950$1,080 and $1,150$950 in the three months ended June 30, 20212022 and 2020,2021, respectively, and $2,730$2,805 and $3,400$2,730 in the nine months ended June 30, 20212022 and 2020,2021, respectively. Such revenue is included as part of net 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
To limit exposure to volatility in the LIBOR interest rate, the Company has entered into interest rate swap agreements, which effectively convert the variable interest rate on $50,000 of the outstanding revolving credit facility discussed in Note 1112 to a fixed rate. The fair values of the interest rate swap agreements were determined by reference to a third-party valuation, andwhich is considered a Level 2 input within the fair value hierarchy of valuation techniques.techniques, and totaled a $1,062 asset and a $203 liability, as of June 30, 2022 and September 30, 2021, respectively. In conjunction with the paydown of $25,000 on the revolving credit facility in March 2022, a $25,000 interest rate swap agreement was terminated, resulting in a gain of $935, which is recorded in other income (expense), net in our Condensed Consolidated Statements of Operations during the nine months ended June 30, 2022.
As describedindicated in Note 6, we acquired Exalenz Bioscience Ltd. (“Exalenz”EUPROTEIN Inc. of North Brunswick, New Jersey (EUPROTEIN”) in fiscal 2020.on April 30, 2022 and the BreathTek business on July 31, 2021. The fair values of theinventories acquired accounts receivable, inventories, property, plant and equipment, and other current assets and the fair values of the assumed accounts payable and accrued expenses were valued using Level 2 inputs, which included data points that were observable, such as appraisals or established values of comparable assets and historical sales information (market approach). IntangibleIdentifiable intangible assets, if applicable and specifically the acquired customer relationships, were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows and attrition rates (income approach). Significant increases (decreases) in any of those unobservable inputs, as of the date of the acquisition, in isolation would result in a significantly lower (higher) fair value measurement. Management engaged a third-party valuation firm to assist in the determination of the 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.
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In connection with the acquisition of the business of GenePOC, Inc. (“GenePOC”) in fiscal 2019 and subsequent amendments to modify certain terms of the agreement related to contingent consideration achievement levels and milestone dates, the Company 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 and is presented on the Condensed Consolidated Balance Sheets based on the Company’s anticipated date of payment at each reporting period. 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 amendments to the contingent consideration achievement levels and milestone dates. The fair value of the financial performance target payments was determined using a Monte Carlo simulation-based model. Assumptions used in these calculations include expected revenues, probability of certain developments, expected expenses and discount rate. The ultimate settlement of contingent consideration could deviate significantly 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 June 30, 2021
  $(245)  $0     $(245)  $0   
As of September 30, 2020
  $(713)  $0     $(713)  $0   
Contingent consideration -
                    
As of June 30, 2021
  $(15,404)  $0     $0     $(15,404) 
As of September 30, 2020
  $(20,909)  $0     $0     $(20,909) 
6.
Business Combinations
On April 30, 2020 (“2022, we acquired substantially all of the assets of EUPROTEIN for $4,250 in cash, of which $3,750 was paid at closing, with the remainder held back for final closing adjustments, which is recorded in other
non-current
liabilities on the Condensed Consolidated Balance Sheets and is payable within 18 months of the acquisition date”),date. EUPROTEIN offers custom development and production of high-quality bioresearch reagents, with a particular focus on human and other mammalian proteins and recombinant monoclonal antibodies. The acquired assets of EUPROTEIN are included within the Life Science segment and are expected to help the Company accelerate its pipeline of new immunological reagents, while expanding recombinant capabilities. The acquired assets, which are comprised of goodwill, property, plant and equipment, and inventory, were valued on April 30, 2022, on a
preliminary basis 
at $3,971, $269 and $10, respectively. The goodwill is not expected to be deductible for income tax purposes. The preliminary purchase price allocation may change in the future as the fair valuing of assets is completed.
On July 31, 2021, we acquired 100% of the outstanding common shares and voting interest of Exalenz,BreathTek business, a Modi’in, Israel based provider of the BreathID
®
Breath Test Systems (“BreathID”), aurea breath test platform for the detection of
Helicobacter pylori.H. pylori
, from Otsuka America Pharmaceutical, Inc. Cash consideration totaled 168.6 million New Israeli Shekels (“NIS”),$19,585, subject to a $1,000 holdback, which equatedis recorded in other accrued expenses on the Condensed Consolidated Balance Sheets, to $48,237 atsecure the dateselling party’s performance of closing. Including debt assumedcertain post-closing obligations
 and repaid shortly after closing,
i
s payable 15 months following the total consideration transferred was $56,305. To financeBreathTek acquisition date. As part of the acquisition, we acquired BreathTek inventories and assumed the Company utilized cashcustomer relationships to supply the BreathTek product in North America. Giving effect to purchase adjustments made during the nine months ended June 30, 2022 to increase the value of acquired inventories by approximately $100, the acquired inventories and cash equivalentscustomer relationships were valued on handJuly 31, 2021 on a preliminary basis, at $9,955 and proceeds drawn from our revolving credit facility (see Note 11). In anticipation$9,630, respectively, with the useful life 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.customer relationships estimated at five years.
As a result of total consideration exceeding the fair value of the net assets acquired, goodwill in the amount of $24,798 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.
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The Company’s consolidated results for the three and nine months ended June 30, 20212022 include approximately $5,500 and 2020 include the following$16,600, respectively, of net revenues from Exalenz:
   
Three Months
   
Nine Months
 
   
Ended June 30,
   
Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Net revenues
  $4,836   $1,308   $10,718   $1,308 
Net loss
  $(497)    (932)    (2,236)    (932) 
BreathTek product sales, which contributed approximately $1,800 and $5,000, respectively, of net earnings. These results, which are reported as part of the Diagnostics segment, include amortization expense related to specific identifiable assetsthe customer relationships recorded in the purchase price allocation including a
non-compete
agreement, trade name, technologytotaling $479 and customer relationships, totaling $720 and $2,240 for$1,439, during the three and nine months ended June 30, 2021, respectively; $448 for both the three and nine months ended June 30, 2020.2022, respectively.
The recognized amounts of identifiable assets acquired and liabilities assumed in the acquisition of Exalenz are as follows:
   
April 30,
2020
 
Fair value of assets acquired -
     
Cash
  $5,006 
Accounts receivable
   637 
Inventories
   4,026 
Other current assets
   2,676 
Property, plant and equipment
   528 
Goodwill
   24,798 
Other intangible assets (estimated useful life):
     
Non-compete
agreement (5 years)
   110 
Trade name (10 years)
   3,860 
Technology (15 years)
   6,120 
Customer relationships (10 years)
   20,640 
Right-of-use
assets
   1,311 
Deferred tax assets, net
   6,780 
   
 
 
 
    76,492 
   
 
 
 
  
Fair value of liabilities assumed -
     
Accounts payable and accrued expenses (including current portion of lease and government grant obligations)
   8,008 
Long-term lease obligations
   1,096 
Long-term government grant obligations
   10,792 
Other
non-current
liabilities
   291 
   
 
 
 
    20,187 
   
 
 
 
Total consideration paid (including $8,068 to pay off long-term debt)
  $56,305 
   
 
 
 
During the three months ended June 30, 2021, the purchase price allocation was finalized.
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Pro Forma Information
The following table provides the unaudited condensed consolidated pro forma results for the periods presented as if Exalenzthe BreathTek business had been acquired as of the beginning of fiscal 2020 (October 1, 2019). Pro forma results do not include2021:
   
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Net revenues  $67,771   $69,920   $267,343   $258,777 
Net earnings (loss)   (7,338)    13,685    36,754    69,737 
Based on the effect of any synergies achieved or anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicativenature of the results that would have occurred if the acquisition had occurred on the date indicated or that may resultEUPROTEIN business, EUPROTEIN is not expected to contribute materially to net revenues and net earnings (loss) and therefore, no amounts are included in the future.table above.
   
Three Months
Ended June 30,
   
Nine Months
Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Net revenues
  $63,511   $85,083   $241,692   $196,978 
Net earnings
   11,669    27,403    64,750    38,433 
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 June 30,
   
Nine Months
Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Adjustments to net revenues
                    
Exalenz
pre-acquisition
net revenues
  $0     $286   $0     $7,464 
   
 
 
   
 
 
   
 
 
   
 
 
 
Adjustments to net earnings
                    
Exalenz
pre-acquisition
net loss
  $0     $(4,919)   $0     $(6,423) 
Pro forma adjustments:
                    
Meridian acquisition-related costs
   0      1,641    0      3,428 
Exalenz transaction-related costs
   0      4,104    0      4,550 
Gain on Exalenz purchase price currency contracts
   0      (845)    0      (845) 
Remove net impact of
non-continuing
personnel, locations or activities
   0      (446)    0      (301) 
Incremental depreciation and amortization
   0      (240)    0      (2,064) 
Interest, net
   0      444    0      (328) 
Tax effects of pro forma adjustments and recognizing benefit on resulting Exalenz losses
   0      157    0      723 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total adjustments to net earnings
  $0     $(104)   $0     $(1,260) 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
7.
Cash and Cash EquivalentsLead Testing Matters
CashOn September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of a Class I voluntary recall of its LeadCare test kits for the detection of lead in blood, which it had initiated in May 2021. Customers generally run controls when they receive a new lot of product and cash equivalentsreport to us when the control results are outside of specified ranges. This process identified certain impacted test kit lots that could potentially underestimate blood lead levels when processing patient blood samples. Although it was initially believed that the root cause of the issue related to the plastic containers used for the treatment reagent, additional studies have indicated that the root cause related to the third-party-sourced cardboard trays that held the treatment reagent containers. Upon correction of the identified supplier issue, shipment of product resumed during February 2022. The Company continues to work closely with the FDA in its execution of the recall activities, which include notifications to customers and distributors, and providing instructions for the following:return of impacted test kits. The evaluation of the recall and the related notification process are ongoing. Of the $5,100 estimated and accrued as of September 30, 2021, to cover the estimated costs of the recall, $2,359 remains accrued and is reflected in the Condensed Consolidated Balance Sheet as of June 30, 2022. Anticipated recall-related costs, which primarily include product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees, and other miscellaneous costs are estimated based upon the most recent information available. Information utilized in the accrual estimation process includes observable inputs such as customer
on-hand
inventory data, product sales data, average sales price, and product inventory turns, among other things. Available information is subject to change as the recall period extends, and such changes will be recorded in the period known. There have been no material changes in estimates related to the LeadCare recall reserve during the three or nine months ended June 30, 2022.
As previously disclosed, on April 17, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlined documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and April 2021, the DOJ issued two subpoenas, both to former employees of Magellan, calling for witnesses to testify before a federal grand jury related to this matter. In September and October 2021, the DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. It is the Company’s understanding that multiple witnesses have testified before the federal grand jury and the DOJ’s investigation is ongoing. Discussions continue with the DOJ to explore resolution of the matter. As of June 30, 2022, in accordance with the applicable accounting guidance, the Company accrued $10,000 as an estimate of the cost to settle the LeadCare legal matter, which is reflected in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, and the ultimate resolution of the LeadCare legal matter may exceed the amount accrued at June 30, 2022 and could be material to the Condensed Consolidated Statement of Operations. Approximately $1,812 and $438 of expense for attorneys’ fees related to this matter is included in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three months ended June 30, 2022 and 2021, respectively, and $2,601 and $2,695, for the nine months ended June 30, 2022 and 2021, respectively.
Page 11
   
June 30,
2021
   
September 30,
2020
 
 
Institutional money market funds
  $1,017   $1,017 
Cash on hand, unrestricted
   68,995    52,497 
   
 
 
   
 
 
 
Total
  $70,012   $53,514 
   
 
 
   
 
 
 
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8.
Cash and Cash Equivalents
Cash and cash equivalents include the following:
   
June 30,
2022
   
September 30,
2021
 
Institutional money market funds  $1,021   $1,020 
Cash on hand, unrestricted   82,466    48,751 
           
Total  $83,487   $49,771 
           
Cash equivalents, institutional money market funds, are classified within Level 1 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The Company does not adjust the quoted market price for such financial instruments.
9.
Inventories, Net
Inventories, net, are comprised of the following:
 
  
June 30,
2021
   
September 30,
2020
 
  
June 30,
2022
   
September 30,
2021
 
Raw materials
  $18,654   $11,966   $15,920   $14,843 
Work-in-process
   23,570    19,477    21,492    25,072 
Finished goods - instruments
   1,975    1,594    2,259    2,260 
Finished goods - kits and reagents
   27,614    28,227    30,434    34,667 
  
 
   
 
         
Total
  $71,813   $61,264   $70,105   $76,842 
  
 
   
 
         
 
9.10.
Goodwill and Other Intangible Assets, Net
Goodwill is not amortized but is subject to an annual impairment test. Goodwill has been assigned to reporting units within the reportable segments. The Company assesses the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment. Impairment testing is performed at a reporting unit level. During the nine months ended June 30, 2022, goodwill increased $2,533, comprised of: (i) a $411 decrease in Diagnostics segment goodwill; and (ii) a $2,944 increase in Life Science segment goodwill. This overall net increase in goodwill reflects $3,971 of goodwill acquired in the EUPROTEIN acquisition (see Note 6), partially offset by the effects of foreign currency translation. During the three and nine months ended June 30, 2022, the Company did not observe any triggering events or substantive changes in circumstances requiring the need for an interim impairment assessment.
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A summary of other intangible assets, net, subject to amortization is as follows:
   
June 30, 2022
   
September 30, 2021
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines  $62,291   $25,369   $62,416   $22,633 
Trade names, licenses and patents   18,341    10,268    18,489    9,492 
Customer lists, customer relationships and supply agreements   54,491    22,941    54,941    19,649 
Non-compete
agreements
   110    48    110    31 
                     
Total  $135,233   $58,626   $135,956   $51,805 
                     
The aggregate amortization expense for these other intangible assets was $2,467 and $2,090 for the three months ended June 30, 2022 and 2021, respectively, and $7,433 and $6,453 for the nine months ended June 30, 2022 and 2021, respectively. The estimated aggregate amortization expense for these other intangible assets for each of the fiscal years through fiscal 2027 is as follows: remainder of fiscal 2022 – $2,480, fiscal 2023 – $9,905, fiscal 2024 – $9,900, fiscal 2025 – $9,890, fiscal 2026 – $8,900, and fiscal 2027 – $6,645.
11.
Leasing Arrangements
The Company is party to several operating leases, the majority of which are related to office, warehouse and manufacturing space. The related operating lease assets and obligations are reflected within
right-of-use
assets, net, current operating lease obligations, and long-term operating lease obligations on the 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.
The lease costs for these operating leases reflected in our Condensed Consolidated Statements of Operations, for the three and nine months ended June 30, 2021 and 2020, as well as the
right-of-use
assets, net obtained during these periods in exchange for operating lease liabilities, are as follows:
 
  
Three Months
Ended June 30,
   
Nine Months
Ended June 30,
   
Three Months
Ended June 30,
   
Nine Months
Ended June 30,
 
  
2021
   
2020
   
2021
   
2020
   
2022
   
2021
   
2022
   
2021
 
Lease costs within cost of sales
  $213   $165   $569   $424   $223   $213   $676   $569 
Lease costs within operating expenses
   390    330    1,151    889    340    390    1,086    1,151 
Right-of-use
assets, net obtained in exchange for operating lease liabilities
   381    1,394    1,073    1,616    —      381    3,021    1,073 
In addition, the Company periodically enters into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the Condensed Consolidated Balance Sheets and the related lease expense is immaterial for the three and nine months ended June 30, 20212022 and 2020.2021.
The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The discount rate implicit within our leases is generally not determinable and, therefore, the Company uses its incremental borrowing rate as the basis for its discount rate.
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The weighted average remaining lease term for our operating leases and the weighted average discount rate used to measure our operating leases as of June 30, 2021 and September 30, 2020 were as follows:
 
   
June 30,
2021
  
September 30,
2020
 
 
Weighted average remaining lease term
   3.7 years   4.2 years 
Average discount rate
   3.2%   3.7%
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June 30,
2022
  
September 30,
2021
 
Weighted average remaining lease term   4.0 years   3.6 years 
Average discount rate   3.5%   3.2%
Maturities of lease liabilities by fiscal year for the Company’s operating leases were as follows as of June 30, 2021:2022:
 
2021 (represents remainder of fiscal year)
  $613 
2022
   2,202 
2022 (represents remainder of fiscal year)  $556 
2023
   1,590    2,073 
2024
   1,213    1,696 
2025
   913    1,403 
2026   829 
Thereafter
   385    723 
  
 
     
Total lease payments
   6,916    7,280 
Less amount of lease payments representing interest
   (380)    (482) 
  
 
     
Total present value of lease payments
  $6,536   $6,798 
  
 
     
Supplemental cash flow information related to the Company’s operating leases areis as follows:
 
Nine Months Ended June 30,
  
2021
   
2020
 
  
2022
   
2021
 
Cash paid for amounts included in the measurement of lease liabilities:
            
Operating cash flows from operating leases
  $1,611   $1,213   $1,784   $1,611 
  
 
   
 
         
 
10.
Goodwill and Other Intangible Assets, Net
During the nine months ended June 30, 2021, goodwill increased $1,129, reflecting: (i) an additional $332 acquisition measurement period adjustment related to Exalenz (see Note 6); (ii) an $80 increase from the currency translation adjustment on goodwill in the Diagnostics segment; and (iii) a $717 increase from the currency translation adjustment on goodwill in the Life Science segment.
The Company has historically performed its annual goodwill impairment assessment as of the last day of the third fiscal quarter of each year (June 30). During the third quarter of fiscal 2021, the Company decided to change the date of its annual impairment assessment from June 30 to July 1. The change was made to more closely align the annual goodwill impairment assessment date with the Company’s annual planning and budgeting process, as well as its long-term planning and forecasting process. The Company has determined this change in accounting principle is preferable and will not affect the consolidated financial statements. Pursuant to the authoritative accounting literature, in fiscal 2021 the Company will perform a goodwill impairment assessment as of the last day of its fiscal 2021 third quarter (June 30), as well as July 1, to ensure that the change in goodwill impairment assessment date did not delay or avoid an impairment charge. This change is not applied retrospectively, as it is impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly, the change will be applied prospectively.
At June 30, 2021, impairment review of the Company’s goodwill consisted of a qualitative assessment for each of our Diagnostics and Life Science reporting units. A qualitative assessment is first performed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value using qualitative indicators. In the event that the reporting unit does not pass the qualitative assessment, the reporting unit’s carrying value is compared to its fair value, with fair value of the reporting unit estimated using market value and discounted cash flow approaches. Both our Diagnostics and Life Science reporting units satisfied the qualitative assessment at June 30, 2021, and no impairment was recognized. The Company will perform its July 1, 2021 goodwill impairment assessment during the fourth quarter of fiscal 2021.
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A summary of other intangible assets, net subject to amortization is as follows:
   
June 30, 2021
   
September 30, 2020
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines
  $62,451   $21,714   $62,363   $18,750 
Trade names, licenses and patents
   18,530    9,225    18,425    7,801 
Customer lists, customer relationships and supply agreements
   45,305    18,687    45,071    16,210 
Non-compete
agreements
   110    26    110    11 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $126,396   $49,652   $125,969   $42,772 
   
 
 
   
 
 
   
 
 
   
 
 
 
The aggregate amortization expense for these other intangible assets was $2,090 and $2,155 for the three months ended June 30, 2021 and 2020, respectively, and $6,453 and $5,604 for the nine months ended June 30, 2021 and 2020, 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 – $2,000, fiscal 2022 – $7,995, fiscal 2023 – $7,980, fiscal 2024 – $7,975, fiscal 2025 – $7,965, and fiscal 2026 – $7,295.
11.12.
Bank Credit Arrangements
The Company maintains a revolving credit facility with a commercial bank in an aggregate principal amount not to exceed $160,000,$200,000, which expires in May 2024.October 2026. Outstanding principal amounts bear interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR, resulting in an effective interest ratecost of 2.52%borrowing of 3.47% and 2.63%2.52% on the revolving credit facility during the three months ended June 30, 20212022 and 2020,2021, respectively, and 2.55% and 3.45% during each of the nine monthsmonth periods ended June 30, 20212022 and 2020, respectively.2021. 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 June 30, 20212022 and September 30, 2020,2021, approximates the current carrying value reflected in the Condensed Consolidated Balance Sheets.Sheets of $25,000 and $60,000, respectively, which is consistent with a level 2 fair value measurement.
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 June 30, 2021,2022, the Company was in compliance with all covenants.
 
12.13.
Contingent Obligations and
Non-Current
Liabilities
In connection with the acquisition of Exalenz (see Note 6),Bioscience Ltd. (“Exalenz”) in fiscal 2020, 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 net 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 $11,247$5,603 and $11,124$5,814 as of June 30, 20212022 and September 30, 2020,2021, respectively, andbearing interest at rates ranging from 0.58% to 2.02%.
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The grant obligations are reflected in the Condensed Consolidated Balance Sheets as follows:​​​​​​​​​​​​​​
 
   
June 30,
2021
   
September 30,
2020
 
Current liabilities
  $735   $600 
Non-current
liabilities
  $10,512   $10,524 
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June 30,
2022
   
September 30,
2021
 
Current liabilities  $1,200   $638 
Non-current
liabilities
  $4,403   $5,176 
Additionally, the Company has provided certain post-employment benefits to its former Chief Executive Officer, and these obligations total $1,730$1,570 and $1,840$1,676 at June 30, 20212022 and September 30, 2020,2021, 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 $756$641 and $814$754 at June 30, 20212022 and September 30, 2020, respectively
.
2021, respectively.
13.14.
National Institutes of Health Contracts
In December 2020, the Company entered into a
sub-award
grant contract with the University of Massachusetts Medical School as part of the National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative to support the Company’s research and development of its diagnostic test for the
SARS-CoV-2
antigen. TheDuring fiscal 2021, the Company has received $1,000 under the grant contract for reimbursement of eligible research and development expenditures. These amounts areexpenditures, which was received during the nine months ended June 30, 2021 and is included within other income (expense), net in the Condensed Consolidated Statement of Operations for the nine months ended June 30, 2021.that period.
Effective February 1, 2021,On January 25, 2022, the Company entered into a contract to amend the Company’s second grant contract under the RADx initiative, thewhich was originally effective February 1, 2021. The purpose of whichthe grant is to support the Company’s manufacturing production
scale-up
and expansion to meet the demand for
COVID-19
testing.testing, as well as the Company’s Revogene respiratory panel. The amended contract is a twelve-month term
24-month
service contract through January 2023, with payment of up to $5,500$8,000 being made based on the Company achieving key milestones related to increasing its capacity to produce
COVID-19
tests. No amountstests and the Revogene respiratory panel. As of June 30, 2022, $2,750 has been received related to this contract areand is reflected withinas a reduction in the cost of building and improvements on the Condensed Consolidated Financial Statements.Balance Sheet, in accordance with applicable accounting guidance.
14.15.
Reportable Segment and Major Customers Information
During the three and nine months ended June 30, 2021, products related to
COVID-19
accountedThe Company’s reportable segments maintain separate financial information for approximately 45% and 60%, respectively,which results of Life Science segment revenues, and 23% and 37%, respectively, of consolidated revenues. In addition,operations are evaluated on a consolidatedregular basis two Life Science segment customers (Customers Dby the Company’s chief operating decision maker in deciding how to allocate resources and E below) represented 17%in assessing performance.
The Company records the direct costs of business operations to the reportable segments, including allocations for certain corporate-wide costs such as treasury management, human resources and 11%, respectively,technology, among others. Corporate provides certain executive management and administrative services to each reportable segment. These services primarily include executive oversight by
non-segment-specific
executives, including the Board of consolidated revenues duringDirectors, along with certain other corporate-wide support functions such as insurance, legal and business development. The Company generally does not allocate these types of corporate expenses to the three months ended June 30, 2020 (1% and 2%, respectively, during the three months ended June 30, 2021), with no individual Diagnostics or Life Science segment customer accounting for 10% or more of consolidated revenues during the nine months ended June 30, 2021 and 2020.
Individual Diagnostics or Life Science segment customers, including their affiliates, comprising 10% or more of reportable segment revenues during any of the three- and nine-month periods ended June 30, 2021 and 2020 were as follows:segments.
 
   
Three Months
Ended June 30,
  
Nine Months
Ended June 30,
 
   
2021
  
2020
  
2021
  
2020
 
Diagnostics
                 
Customer A
   10%   13%   11%   11% 
Customer B
   11%   8%   10%   13% 
Customer C
   14%   5%   12%   5% 
     
Life Science
                 
Customer D
   3%   23%   4%   17% 
Customer E
   4%   14%   12%   11% 
In addition, during the three and nine months ended June 30, 2021, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately 46% and 43%, respectively, of Life Science segment revenues, and 24% and 27%, respectively, of consolidated revenues.
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15
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One Life ScienceReportable segment customer (Customer E above) accounted for 15% of consolidated accounts receivable as of September 30, 2020 (2% as of June 30, 2021).
Reportable segmentand corporate information for the interim periods is as follows:
 
   
Diagnostics
  
Life Science
   
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended June 30, 2021
 
Net revenues -
                      
Third-party
  $31,189  $32,322   $—    $—    $63,511 
Inter-segment
   100   54    —     (154)   —   
Operating income
   2,510   16,129    (2,998)   39   15,680 
Goodwill (June 30, 2021)
   95,267   20,048    —     —     115,315 
Other intangible assets, net (June 30, 2021)
   76,743   1    —     —     76,744 
Total assets (June 30, 2021)
   329,003   117,564    —     3   446,570 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
Three Months Ended June 30, 2020
                      
Net revenues -
                      
Third-party
  $21,598  $63,199   $—    $—    $84,797 
Inter-segment
   86   56    —     (142)   —   
Operating income
   (1,783)   39,305    (2,849)   (8)   34,665 
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 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
Nine Months Ended June 30, 2021
 
Net revenues -
                      
Third-party
  $93,459  $148,233   $—    $—    $241,692 
Inter-segment
   285   163    —     (448)   —   
Operating income
   3,749   92,015    (11,286)   67   84,545 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
Nine Months Ended June 30, 2020
 
Net revenues -
                      
Third-party
  $91,331  $98,183   $—    $—    $189,514 
Inter-segment
   264   176    —     (440)   —   
Operating income
   8,087   51,564    (7,832)   31   51,850 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
   
Diagnostics
   
Life Science
   
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended June 30, 2022
 
Net revenues -                       
Third-party  $42,409   $25,362   $—    $—    $67,771 
Inter-segment   67    43    —     (110)   —   
Operating income (loss)   3,278    9,088    (19,084)   37   (6,681) 
Goodwill (June 30, 2022)   94,493    22,708    —     —     117,201 
Other intangible assets, net (June 30, 2022)   76,605    2    —     —     76,607 
Total assets (June 30, 2022)   347,177    118,786    —     (35)   465,928 
                        
Three Months Ended June 30, 2021
                       
Net revenues -                       
Third-party  $31,189   $32,322   $—    $—    $63,511 
Inter-segment   100    54    —     (154)   —   
Operating income (loss)   2,717    16,078    (3,154)   39   15,680 
Goodwill (September 30, 2021)   94,904    19,764    —     —     114,668 
Other intangible assets, net (September 30, 2021)   84,149    2    —     —     84,151 
Total assets (September 30, 2021)   339,208    110,536    —     (22)   449,722 
                        
Nine Months Ended June 30, 2022
 
Net revenues -                       
Third-party  $116,716   $150,627   $—    $—    $267,343 
Inter-segment   214    130    —     (344)   —   
Operating income (loss)   3,104    75,976    (29,407)   70   49,743 
                        
Nine Months Ended June 30, 2021
 
Net revenues -                       
Third-party  $93,459   $148,233   $—    $—    $241,692 
Inter-segment   285    163    —     (448)   —   
Operating income (loss)   4,400    91,832    (11,754)   67   84,545 
                        
 
(1) 
Includes selectedlitigation and select legal costs, and acquisition and transaction related costs of $16,000 and $16,789 in the three and nine months ended June 30, 2022, respectively, and $438 and $2,695 in the three and nine months ended June 30, 2021, respectively, and $134 and $1,189 in the three and nine months ended June 30, 2020, respectively.
(2) 
Eliminations consist of inter-segment transactions.
 
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A reconciliation of reportable segment operating income to consolidated earnings (loss) before income taxes for the interim periods is as follows:
 
  
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
   
Three Months
Ended June 30,
   
Nine Months
Ended June 30,
 
  
2021
   
2020
   
2021
   
2020
   
2022
   
2021
   
2022
   
2021
 
Operating income:
                        
Diagnostics segment
  $2,510   $(1,783)   $3,749   $8,087   $3,278   $2,717   $3,104   $4,400 
Life Science segment
   16,129    39,305    92,015    51,564    9,088    16,078    75,976    91,832 
Eliminations
   39    (8)    67    31    37    39    70    67 
  
 
   
 
   
 
   
 
                 
Total segment operating income
   18,678    37,514    95,831    59,682    12,403    18,834    79,150    96,299 
Corporate operating expenses
   (2,998)    (2,849)    (11,286)    (7,832)    (19,084)    (3,154)    (29,407)    (11,754) 
Interest income
   0      3    15    137    2    —      5    15 
Interest expense
   (444)    (703)    (1,450)    (2,002)    (256)    (444)    (969)    (1,450) 
RADx initiative grant income
   0      —      1,000    —      —      —      —      1,000 
Other, net
   59    908    (1,515)    1,561    333    59    905    (1,515) 
  
 
   
 
   
 
   
 
                 
Consolidated earnings before income taxes
  $15,295   $34,873   $82,595   $51,546 
Consolidated earnings (loss) before income taxe
s

  $(6,602)   $15,295   $49,684   $82,595 
  
 
   
 
   
 
   
 
                 
Transactions between reportable segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.
Net revenues generated by the Company’s three major Diagnostics segment product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 51% and 41% of consolidated net revenues during the three months ended June 30, 2022 and 2021, respectively, and 36% and 31% during the nine months ended June 30, 2022 and 2021, respectively.
Individual Diagnostics or Life Science segment customers, including their affiliates, comprising 10% or more of reportable segment net revenues were as follows:
   
Three Months
Ended June 30,
  
Nine Months
Ended June 30,
 
   
2022
  
2021
  
2022
  
2021
 
Diagnostics
                 
Customer A   7%   10%   8%   11% 
Customer B   9%   11%   9%   10% 
Customer C   12%   14%   11%   12% 
     
Life Science
                 
Customer D   14%   9%   7%   7% 
Customer E   1%   4%   11%   12% 
Customer F   17%   3%   21%   2% 
During the three months ended June 30, 2022 and 2021, 0individual Diagnostics segment or Life Science segment customer accounted for 10% or more of consolidated net revenues. During the nine months ended June 30, 2022 and 2021, 0Diagnostics segment customer accounted for 10% or more of consolidated net revenues, while one Life Science segment customer (Customer F above) comprised 12% of consolidated net revenues during the nine months ended June 30, 2022, and 1% of consolidated net revenues during the corresponding fiscal 2021 interim period.
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In addition, during the three months ended June 30, 2022 and 2021, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately 54% and 46%, respectively, of Life Science segment net revenues, and approximately 20% and 24%, respectively, of consolidated net revenues. During the nine months ended June 30, 2022 and 2021, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately 58% and 43%, respectively, of Life Science segment net revenues, and 33% and 27%, respectively, of consolidated net revenues.
No Diagnostics or Life Science segment customer accounted for greater than 10% of consolidated accounts receivable as of June 30, 2022, while one Diagnostics segment customer (Customer B above) and one Life Science segment customer (Customer D above) accounted for approximately 12% and 10%, respectively, of consolidated accounts receivable as of September 30, 2021.
15.16.
Income Taxes
The effective rate for income taxes was approximately (11%) and 26% for the three and nine months ended June 30, 2022, respectively, and 24% and 22% for the three and nine months ended June 30, 2021, respectively, and 21% and 23% for the three and nine months ended June 30, 2020, respectively. The variation innegative effective tax rates during the three and nine months ended June 30, 2021 and 2020 related primarily to higher allocations of taxable income in the U.S. in the fiscal 2021 reporting periods compared to certain lower-rate foreign jurisdictions, particularly the United Kingdom (“U.K.”). Additionally, the nine-month period ended June 30, 2021 was favorably impacted by the effect of current year restricted share unit lapses and stock option exercises occurring on dates when the share price of Company stock was significantly higher than the share price on the date such equity awards were granted, compared to the opposite effect during the prior year period.
16.
Litigation and Regulatory Matters
On April 17, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare
®
product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and April 2021, DOJ issued two subpoenas calling for witnesses to testify before a federal grand jury related to this matter. The March 2021 subpoena was issued to a former employee of Magellan, and the April subpoena was issued to a current employee of Magellan. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $438 and $134 of expense for attorneys’ fees related to this matter is included within the Condensed Consolidated Statements of Operationsrate for the three months ended June 30, 20212022 and 2020, respectively, and approximately $2,695 and $1,145the increase in effective rates for the nine months ended June 30, 2021 and 2020, respectively.
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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 U.S. Food and Drug Administration (“FDA”) informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses2022, relate primarily 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 anticipated
non-deductibility
of the Company’spreviously discussed LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the FDA or the Centers for Disease Control and Prevention (“CDC”) is necessary to protect the public health. The Company intends to fully cooperate with the FDA or CDC on any
follow-up
based on the third-party study.
During October 2019, the FDA performed a
follow-up
inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. Since the inspection, we have submitted a number of written responses to the FDA regarding the five Form FDA 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64(d)(3)legal matter (see Note 7).
During June 2021, the FDA performed an inspection of Magellan’s manufacturing facility. The inspection followed a voluntary recall, initiated in May 2021, involving certain manufactured lots of its LeadCare II, LeadCare Plus and LeadCare Ultra products. As a result of this inspection, the FDA issued one Form 483 observation. The FDA has identified this recall, which remains ongoing, as a Class I recall, and the Company is working closely with the FDA in its execution of the recall activities. Magellan is also responding to ongoing information requests from the FDA regarding issues related to the recall. Based upon information known at this time, the recall’s impact on the Company’s consolidated financial statements is not believed to be material and no related costs are included within the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2021. On August 3, 2021, FDA sent Magellan a close-out letter for the Warning Letter that FDA issued to Magellan on October 23, 2017. FDA’s close-out letter notified Magellan that FDA has completed an evaluation of Magellan’s corrective actions in response to FDA’s Warning Letter, and based on FDA’s evaluation, Magellan has addressed the issues identified in the Warning Letter. FDA’s close-out letter also stated that future FDA inspections of Magellan and regulatory activities will further assess the adequacy and sustainability of Magellan’s corrections.
17.
Subsequent Event
On July 22, 2021,7, 2022, the Company signedentered into an Agreement and Plan of Merger (the “Merger Agreement”) with SD Biosensor, Inc., a definitive agreementcorporation with limited liability organized under the laws of the Republic of Korea (“SDB”), Columbus Holding Company, a Delaware corporation (“Parent”), and Madeira Acquisition Corp., an Ohio corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”). Meridian is informed that SJL Partners, LLC (“SJL”) is currently the sole shareholder of Parent, and SDB together with SJL will be the sole shareholders of Parent as of the closing of the Merger. Pursuant to acquire from Otsuka America Pharmaceutical, Inc. (“OAPI”the Merger Agreement, Merger Sub will merge with and into Meridian (the “Merger”) its BreathTek, with Meridian surviving the Merger as a direct wholly owned subsidiary of Parent.
At the effective time of the proposed Merger (the “Effective Time”), each share of common stock, 0 par value per share, of the Company issued and outstanding as of immediately prior to the Effective Time (other than dissenting shares or shares of the Company’s common stock held by the Company as treasury stock or owned by SDB, Merger Sub or any subsidiary of the Company or SDB) will be cancelled and cease to exist and automatically convert into the right to receive cash in an amount equal to $34.00, without interest.
®
businessConsummation of the Merger is subject to customary closing conditions, including, without limitation: (i) the absence of certain legal impediments; (ii) the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iii) approval by the holders of two thirds of the issued and outstanding shares of the Company’s common stock entitled to vote on such matter; and (iv) the condition that no adverse outcome, as defined in the U.S. and Mexico for $20,000 in cash. BreathTek is an FDA approved urea breath test for the detection of
H. pylori
. Assets to be acquired include test kit inventory, customer relationships and rightsMerger Agreement, related to the BreathTek trade name. In addition,previously discussed DOJ matter has occurred or is reasonably likely to occur.
The Merger Agreement contains certain termination rights for the Company and OAPI have entered intoSDB. The Company will be required to pay SDB a transition services agreement,termination fee of approximately
$
45,960
if we terminate the Merger Agreement under specified circumstances. In addition to the foregoing termination right, and subject to certain limitations: (i) the Company or SDB may terminate the Merger Agreement if the Merger is not consummated by January 6, 2023; and (ii) the Company and SDB may mutually agree to terminate the Merger Agreement.
The Company incurred transaction related costs of approximately $4,200 for the three and nine months ended June 30, 2022 related to the Merger, which is designed to allowrecorded in acquisition and transaction related costs in the Company to integrate the BreathTek business in a manner that provides appropriate customer support. This transaction closed on July 31, 2021. The purchase price was funded with cash and cash equivalents on hand and this acquisition will be included in our Diagnostics segment.Condensed Consolidated Statements of Operations.
 
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Table of Contents
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
In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.
The purpose of Management’s Discussion and Analysis is to provide an understanding of the financial condition, changes in financial condition and results of operations of Meridian Bioscience, Inc. (“Meridian”, the “Company”, “We”). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes. It should be noted that the terms revenue and/or revenues are utilized throughout the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) to indicate net revenue and/or net revenues. In addition, throughout the MD&A, we refer to certain product tradenames and trademarks, which are protected under applicable intellectual property laws and are our property. Solely for convenience, these tradenames and trademarks are referred to without the
®
or
™
symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent of the law, our rights to these tradenames and trademarks.
Reportable Segments
Our reportable segments are Diagnostics and Life Science. 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).Massachusetts. 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”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; North Brunswick, New Jersey; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, immunoassay blocking reagents, various Polymerase Chain Reaction (“PCR”) and isothermal amplification master mixes, 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.
Recent Developments
During
Agreement and Plan of Merger
On July 7, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SD Biosensor, Inc., a corporation with limited liability organized under the laws of the Republic of Korea (“SDB”), Columbus Holding Company, a Delaware corporation (“Parent”), and Madeira Acquisition Corp., an Ohio corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”). Meridian is informed that SJL Partners, LLC (“SJL”) is currently the sole shareholder of Parent, and SDB together with SJL will be the sole shareholders of Parent as of the closing of the Merger. Pursuant to the Merger Agreement, Merger Sub will merge with and into Meridian (the “Merger”), with Meridian surviving the Merger as a direct wholly owned subsidiary of Parent.
At the effective time of the proposed Merger (the “Effective Time”), each share of common stock, no par value per share, of the Company issued and outstanding as of immediately prior to the Effective Time (other than dissenting shares or shares of the Company’s common stock held by the Company as treasury stock or owned by SDB, Merger Sub or any subsidiary of the Company or SDB) will be cancelled and cease to exist and automatically convert into the right to receive cash in an amount equal to $34.00, without interest (the “Merger Consideration”).
Consummation of the Merger is subject to customary closing conditions, including, without limitation: (i) the absence of certain legal impediments; (ii) the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iii) approval by the holders of two thirds of the issued and outstanding shares of the Company’s common stock entitled to vote on such matter; and (iv) the condition that no adverse outcome, as defined in the Merger Agreement, related to the previously discussed DOJ matter has occurred or is reasonably likely to occur.
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The Merger Agreement contains certain termination rights for the Company and SDB. The Company will be required to pay SDB a termination fee of approximately $45,960 if we terminate the Merger Agreement under specified circumstances. In addition to the foregoing termination right, and subject to certain limitations: (i) the Company or SDB may terminate the Merger Agreement if the Merger is not consummated by January 6, 2023; and (ii) the Company and SDB may mutually agree to terminate the Merger Agreement.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, which is attached as an exhibit to our Current Report on Form
8-K
filed with the SEC on July 7, 2022.
The Company incurred transaction related costs of approximately $4,200 for the three and nine months ended June 30, 2022 related to the Merger, which is recorded in acquisition and transaction related costs in the Condensed Consolidated Statements of Operations.
Impact of
COVID-19
Pandemic
Starting in the latter half of fiscal 2020 and continuing to the first halfdate of fiscal 2021,this filing, the ongoing
COVID-19
pandemic has had both positive and negative effects on our businesses. The third quarter of fiscal 2021 represents the first quarter since the early stages of the
COVID-19
pandemic that our Diagnostics segment has shown positive revenue growth versus the same quarter in fiscal 2020. Conversely for our Life Science segment, the third quarter of fiscal 2021 represents the first quarter since the early stages of the
COVID-19
pandemic that its revenues have shown a decline compared to the same quarter in fiscal 2020.business.
Our Life Science segment’s products have been well positioned to respond to
in-vitro
in vitro device (“IVD”) manufacturers’ needsincreased demand for reagents forused in the manufacture of molecular, rapid antigen and serology tests. Consequently, through the end of the second quarter of fiscal 2022, our Life Science segment grew itsconsistently delivered significantly higher levels of net revenues over 100% in fiscal 2020 and delivered record operating income and margin, demonstrating what this segment could achieve atthan those achieved prior to the
COVID-19
pandemic, with the peak to date in such levels occurring during the second quarter of fiscal 2022. This revenue peak has been followed by a much larger scale. This higher-than-historicalsignificant decrease in the level of growth continued into the first half of fiscal 2021 for the Life Science segment before declining during the three months ended June 30, 2021. In recent months, we have experienced a decline in the demand for our Life Science segment’s reagent products used in
COVID-19
tests and as a result, our Life Science segment’s revenues during the three months ended June 30, 2021 decreased 49% from the prior year period, while the segment’ssuch revenues during the fiscal 2021
year-to-date
nine-month period increased 51% over2022 third quarter, reflecting the comparable fiscal 2020 period.softening in demand for
COVID-19
related reagents during the quarter.
Our Diagnostics segment, on the other hand, reportedhas generally been negatively impacted by health systems’ increased year-over-year revenuesfocus on
COVID-19
testing over traditional infectious disease testing. The impacts of 44% and 2% for the three- and nine-month periods ended June 30, 2021, respectively. Following decreasing year-over-year revenues
COVID-19
pandemic are most dramatically evident in the last two quarters34% year-over-year decline in revenues from respiratory illness assays in fiscal 2021, following flat year-over-year revenue levels experienced in fiscal 2020. Reflecting what we believe to be a continuation of a return to
pre-pandemic
activity levels, during the third quarter of fiscal 2020 and first two quarters2022, revenues from respiratory illness assays were 47% higher than the third quarter of fiscal 2021, these results indicate signs of a return to more normal
pre-pandemic
levels of revenuemarked improvement over the aforementioned 34% decline in all product areas except for respiratory illness products. Revenue from sales of respiratory illness assays continues to compare unfavorably to fiscal 2020, down 26% and 48% for the three and nine months ended June 30, 2021, respectively.2021.
Despite these recent
COVID-19
pandemic related trends, due to the many uncertainties surrounding the
COVID-19
pandemic, we can provide no assurances with respect to our views of the longevity or severity of the positive or negative impacts to our consolidated financial condition of the ongoing
COVID-19
pandemic.
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Employee Safety
While the majority of our employee base in the U.S. has returned to working
on-site
at our facilities, we continue to utilizehave implemented a hybrid work-from-home process as needed on a
site-by-site
basis outside the U.S.program for those employeescertain personnel whose
on-site
presence has been deemed to be
non-essential.
We have also implementedcontinue to utilize enhanced cleaning and sanitizing procedures, and providedprovide additional personal hygiene supplies at all our sites. We have implemented policies for employees to adhere to CDCCenters for Disease Control and Prevention (“CDC”) guidelines on social distancing, and similar guidelines by authorities outside the U.S. To date, we have been able to manufacture and distribute products globally, and all our sites have continued to operate with little, if any, impact on shipments to customers to date. As the
COVID-19
pandemic continues, along with continuing governmental restrictions which vary by locale and jurisdiction, there is an increased risk of employee absenteeism, which could materially impact our operations at one or more sites. To date, the steps we have taken, including our work-from-home processes, have not materially impacted the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls.
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Supply Chains
Supply chains supporting our products have generally remained intact, providing access to sufficient inventory of the key materials needed for manufacturing. To date,While we have experienced extended lead times for certain select raw materials, delays and allocations for raw materials have to date been limited and have not had a material impact on our results of operations. From time to time, we identify alternative suppliers to address the risk of a current supplier’s inability to deliver materials in volumes sufficient to meet our manufacturing needs; or we may choose to purchase certain materials in bulk volumes where we have supply chain scarcity concerns. It remains possible that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations.
We are also starting to experience input cost inflation, including materials, labor and transportation costs. Pricing actions and supply chain productivity initiatives have mitigated and are expected to continue to mitigate some of these inflationary pressures, but we may not be successful in fully offsetting these incremental costs, which could have an impact on the Company’s consolidated results of operations and cash flows during 2022 and beyond.
Product Development and Clinical Trials
Our clinical trialsDiagnostics segment’s new product development programs are progressingcontinuing to progress at a slower pace than normal, asdue in part to the prevalence of certain infectious diseases (e.g., bacterial gastrointestinal) hashaving been much lower than normal during the
COVID-19
pandemic. In addition, the relative lack of a respiratory illness season in 2020-2021 has significantly impacted the availability of influenza samples, thereby affecting the pace of development of our molecular respiratory panel for the Revogene system. These matters continue to impact our timing for filing applications for product clearances with the FDA,U.S. Food and Drug Administration (“FDA”), as well as related timing of FDA clearances of such filings. Additionally, the ongoing
COVID-19
pandemic has slowed and could continue to slow down our efforts to expand our product portfolio, through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market.
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. SinceWhile there have been
quarter-to-quarter
fluctuations in demand throughout the
COVID-19
pandemic, from late in the second quarter of fiscal 2020 through the second quarter of fiscal 2022, we havegenerally experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides). However, as expected, to date during the second half of our fiscal 2021, we have experienced a decline in the demand for our Life Science segment’s reagent products used in
COVID-19
tests, as health care systems transition to more asymptomatic testing versus the predominant symptomatic testing we saw during the peak of the
COVID-19
pandemic. While we expect a continuationdemand to continue to exceed
pre-COVID-19
pandemic levels, the significant decline in
COVID-19
related demand experienced during the third quarter of this trendfiscal 2022 is expected to continue throughout the remainder of our fiscal year ending September 30, 2021, this expectation could2022. These expectations will certainly be impacted by the recent resurgence in
COVID-19
infection rates, particularly those associated with the
COVID-19
strain commonly known as the “Delta variant”, with infection rates and the responses to such levels of infection varying by country based on their individual
COVID-19
case statistics, potential seasonality of infection rates and vaccine programs. We believe that our reagent products for
COVID-19
have applications in many alternative,
non-hospital-based
channels (e.g., airports, schools, etc.). Our products are used in over 100 regulatory agency approved
COVID-19
related assays around the world.
COVID-19
related reagent revenues totaled approximately $14,500 and $88,500 in the three and nine months ended June 30, 2021, respectively, compared to approximately $48,000 and $53,000 in the three and nine months ended June 30, 2020, respectively, and approximately $71,500 during full year fiscal 2020.
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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. Sales volumes for a number of these assays have been adversely affected by the
COVID-19
pandemic over the past year and half,two fiscal years, as such assays are often used in
non-critical
care settings. However, as previously noted, during the three months ended June 30, 2021,settings; however, we have begun to see signsseen indications of a return to more normal
pre-pandemic
levels for most of our Diagnostics segment product lines, with respiratory illness assays being the exception.levels. The
COVID-19
pandemic also has affecteddepressed instrument orders and placements for our BreathID, Curian and Revogene platforms. Recently, we are seeing higher levels of order activity for our BreathID platform. However, orderOrder activity for our Revogene platform continues to bewas affected by our pending
SARS-CoV-2
assaythe delay in obtaining emergency use authorization (“EUA”) application, which we voluntarily withdrew from the FDA on February 23, 2021 and resubmitted on June 25, 2021. We believefor our
SARS-CoV-2
assay, as customers have takentook a “wait and see” approach withthroughout our entire EUA application resubmission.process. We received the EUA on November 9, 2021, but did not begin to ship product at that time, as our
SARS-CoV-2
assay required enhancement to detect the Omicron variants of the
COVID-19
infection. We completed validation of these changes during the second quarter of fiscal 2022 and submitted the required information to the FDA. The FDA also requested the completion of additional clinical studies. Having completed the additional studies and submitting the results to the FDA, on July 28, 2022 notification was received from the FDA that it has re-authorized the EUA for the Revogene SARS-CoV-2 assay. As such, we expect to begin shipping this product before the end of our fiscal year ending September 30, 2022. Despite the situation encountered with our EUA application for the
SARS-CoV-2
assay, and the delay in shipment due to the Omicron variant related enhancements, we are inproceeded with the process of increasing our capacity to produce these tests, as well as other tests on the Revogene system,platform, at our sitesfacilities in Quebec and Cincinnati. Specifically, we are:have: (i) addingadded a second production line at our Quebec manufacturing facility; and (ii) installing two additionalinstalled a production linesline in a leased facility near our corporate headquarters in Cincinnati. It is expected thatCincinnati; and (iii) are in the process of installing an additional production line in the Cincinnati leased facility. With a gross cost of approximately $15,400 through June 30, 2022, we expect these expansion efforts willto be completed during calendar 20212022 at a total gross cost of approximately $18,000,$22,400, which is expected to be partially offset by the $5,500 RADxmonies received under the National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative grant entered into on February 1, 2021, and as amended on January 25, 2022, $2,750 of which had been received and used to offset the above gross cost as of June 30, 2022 (see Note 1314,
“National Institutes of the Condensed Consolidated Financial Statements).Health Contracts”
Critical Accounting Estimates
Aside from the change in the Company’s annual goodwill impairment assessment discussed in Note 10 of the Condensed Consolidated Financial Statements for further discussion).
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Critical Accounting Estimates
As of and for the three and nine months ended June 30, 2021,2022, 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 ended September 30, 2020.2021, filed with the SEC on November 23, 2021.
Impact of BrexitLead Testing Matters
The U.K. leftOn September 1, 2021, the European Union (“EU”) on January 31, 2020. While all EU rules and laws continued to applyCompany’s wholly owned subsidiary Magellan announced the expansion of the Class I voluntary recall of its LeadCare test kits for the detection of lead in blood, which it had initiated in May 2021 after identifying an ongoing issue in certain manufactured lots of its LeadCare test kits. As a result of the identified issue, impacted test kit lots could potentially underestimate blood lead levels when processing patient blood samples. Although it was initially believed that the root cause of the issue related to the U.K. throughplastic containers used for the transition period,treatment reagent, additional studies have indicated that the root cause related to the third-party-sourced cardboard trays that held the treatment reagent containers. Upon correction of the identified supplier issue, shipment of product resumed during February 2022. The Company continues to work closely with the FDA in its execution of the recall activities, which ended December 31, 2020,include Magellan notifying customers and distributors affected by the U.K.recall and providing instructions for the return of impacted test kits. The evaluation of the recall and the EU reached a free trade agreement on December 24, 2020, which was ratifiedrelated notification process are ongoing. Of the $5,100 estimated and accrued as of September 30, 2021 to cover the estimated costs of the recall, $2,359 remains accrued and is reflected in the Condensed Consolidated Balance Sheet as of June 30, 2022. Anticipated recall-related costs primarily include product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees and other miscellaneous costs.
As previously disclosed, on April 28, 202117, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlined documents to be produced, and went into effect on May 1, 2021. The agreement includes regulatory and customs cooperation mechanisms, as well as provisions supporting open and fair competition. Under the trade agreement, the U.K.Company is free to set its own trade policy and can negotiate with other countries that do not currently have free trade dealscooperating with the EU. AlthoughDOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory requirements and is working with the full impactDOJ to promptly respond to the subpoena, including responding to additional information requests that have followed receipt of the trade agreementsubpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and April 2021, the DOJ issued two subpoenas, both to former employees of Magellan, calling for witnesses to testify before a federal grand jury related to this matter. In September and October 2021, the DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. It is uncertain, itthe Company’s understanding that multiple witnesses have testified before the federal grand jury and the DOJ’s investigation is possibleongoing. Discussions continue with the DOJ to explore resolution of the matter. As of June 30, 2022, in accordance with the applicable accounting guidance, the Company accrued $10,000 as an estimate of the cost to settle the LeadCare legal matter, which is reflected in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, and the ultimate resolution of the LeadCare legal matter may exceed the amount accrued at June 30, 2022 and could be material to the Condensed Consolidated Statement of Operations. Approximately $1,812 and $438 of expense for attorneys’ fees related to this matter is included in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three months ended June 30, 2022 and 2021, respectively, and $2,601 and $2,695, for the nine months ended June 30, 2022 and 2021, respectively.
Having issued a Warning Letter to Magellan on October 23, 2017 related to the Billerica location’s manufacturing of LeadCare testing systems for venous blood samples (the “Warning Letter”), on August 3, 2021, the FDA sent Magellan a
close-out
letter for the Warning Letter. The FDA’s
close-out
letter notified Magellan that the recent changesFDA has completed an evaluation of Magellan’s corrective actions in response to the trading relationship betweenFDA’s Warning Letter, and based on the U.K.FDA’s evaluation, Magellan has addressed the issues identified in the Warning Letter. The FDA’s
close-out
letter also stated that future FDA inspections of Magellan and regulatory activities will further assess the EU due toadequacy and sustainability of Magellan’s corrections. For a more detailed discussion of this matter, see the trade agreement could result in increased cost“Lead Testing Matters” section beginning on page 29 of goods imported into and exported from the U.K., which may decreaseCompany’s fiscal 2021 Annual Report on Form
10-K,
filed with 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 haveSEC on our business; however, Brexit and its related effects could potentially have an adverse impact on our consolidated financial position and results of operations.November 23, 2021.
The U.K.’s withdrawal from the EU could also adversely impact the operationsPage 22
Table of our vendors and of our other partners. Our management team has evaluated a range of possible outcomes, identified areas of concern, and implemented strategies to help mitigate these concerns. It is possible that these strategies may not be adequate to mitigate any adverse impacts of Brexit, and that these impacts could further adversely affect our business and results of operations.Contents
RESULTS OF OPERATIONS
Three Months Ended June 30, 20212022
Net earnings forA net loss of $7,338, or $0.16 per diluted share, was generated during the three months ended June 30, 2021 decreased 58%third quarter of fiscal 2022, compared to $11,669 of net earnings, or $0.26 per diluted share, from net earnings forduring the third quarter of fiscal 2020 of $27,507, or $0.64 per diluted share.2021. The level of net earningsloss in the third quarter of fiscal 2021 was affected predominantly by2022 reflects primarily the overall increase in operating expenses described in the Operating Expenses section below, along with the decline in net revenues and operating income in our Life Science segment, stemming from the softening in demand for
COVID-19
related reagents during the quarter. As it relates to our Life Science segment net revenues, a significant number of our Life Science segment customers now use our molecular reagents in multiple tests, including
non-COVID-19
related tests, therefore making it increasingly difficult to accurately estimate the portion of molecular reagent sales related specifically to
COVID-19.
As a result, we are no longer reporting the portion of Life Science segment net revenues related to
COVID-19.
Such net revenues were identified and reported throughout fiscal 2021 and totaled approximately $14,500 in the third quarter of fiscal 2021.
Consolidated net revenues for the third quarter of fiscal 20212022 totaled $63,511, a decrease$67,771, an increase of 25%7% compared to the third quarter of fiscal 2020 (29%2021.
Net revenues from the Diagnostics segment for the third quarter of fiscal 2022 increased 36% compared to the third quarter of fiscal 2021, comprised primarily of an increase in sales of
non-molecular
assay products including the addition of sales of the BreathTek product, which was acquired July 31, 2021. The third quarter of fiscal 2022 represents the fifth consecutive quarter our Diagnostics segment has shown positive revenue growth versus the same quarter in the prior fiscal year. Our Diagnostics segment generated $3,278 of operating income for the third quarter of fiscal 2022, compared to $2,717 of operating income in the third quarter of fiscal 2021, reflecting the increase in net revenues and gross profit margins being offset by the increase in operating expenses described in the respective sections below.
With a 62% decrease onin net revenues from molecular reagent products and a constant-currency basis).48% increase in net revenues from immunological reagent products, net revenues for our Life Science segment decreased 22% during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. Our Life Science segment generated $9,088 of operating income for the third quarter of fiscal 2022, a decrease of $6,990 from the third quarter of fiscal 2021, primarily due to the decrease in net revenues and associated gross profit margins, resulting in large part from the immunological reagent products representing a higher percentage of net revenues, as described in the respective sections below.
Nine Months Ended June 30, 2022
Net earnings for the nine months ended June 30, 2022 decreased 43% to $36,754, or $0.83 per diluted share, from net earnings for the comparable fiscal 2021 period of $64,750, or $1.47 per diluted share. The level of net earnings in the first nine months of fiscal 2022 reflects primarily: (i) the overall increase in operating expenses described in the Operating Expenses section below; and (ii) the decrease in gross profit margins resulting from immunological reagent products representing a higher percentage of both Life Science segment and total consolidated net revenues in the fiscal 2022 period, compared to higher margin molecular reagent products in the fiscal 2021 period. As previously noted, we are no longer reporting the portion of Life Science segment net revenues related to
COVID-19,
noting that such net revenues totaled approximately $88,500 in the first nine months of fiscal 2021.
Consolidated net revenues increased 11% to $267,343 for the first nine months of fiscal 2022 compared to the same period of the prior year.
Diagnostics segment net revenues increased 25%, comprised of a 5% increase in sales of molecular assay products and a 28% increase in sales of
non-molecular
assay products including the addition of sales of the BreathTek product, which was acquired July 31, 2021. Our Diagnostics segment generated $3,104 of operating income for the first nine months of fiscal 2022, compared to $4,400 of operating income in the first nine months of fiscal 2021, reflecting the increase in net revenues being offset by the decrease in gross profit margins and increase in operating expenses described in the respective sections below.
 
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Revenues from the Diagnostics segment for the third quarter of fiscal 2021 increased 44% compared to the third quarter of fiscal 2020 (42% increase on a constant-currency basis), comprised of a 38% increase in molecular assay products and a 46% increase in
non-molecular
assay products. The third quarter of fiscal 2021 represents the first quarter since the early stages of the
COVID-19
pandemic that our Diagnostics segment has shown positive revenue growth versus the same quarter in fiscal 2020. Our Diagnostics segment generated $2,500 in operating income for the third quarter of fiscal 2021, an increase of $4,300 over the third quarter of fiscal 2020.
With a 47%24% decrease in net revenues from molecular reagent products and a 51% decrease61% increase in net revenues from immunological reagent products, revenues for our Life Science segment decreased 49% during the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. On a constant-currency basis, revenues for the Life Science segment decreased 52%. Life Science segment revenues reflect a significant decrease in the demand from diagnostic test manufacturers for the reagents utilized inincluding
COVID-19
related tests, as the demand for such tests has declined. However, revenue from sales of our core Life Science segment products, (other than
COVID-19
contributions) experienced growth of over $2,000, or approximately 15%, compared to the third quarter of 2020. This growth resulted in large part from obtaining business from
COVID-19
customers who are now using our products for other
non-COVID-19
related purposes, as well as a rebound in volumes in core immunological products. Our Life Science segment generated $16,100 of operating income for the third quarter of fiscal 2021, a decline of $23,200 from the third quarter of fiscal 2020.
Nine Months Ended June 30, 2021
Net earnings for the nine-month period ended June 30, 2021 increased 63% to $64,750, or $1.47 per diluted share, from net earnings for the comparable fiscal 2020 period of $39,693, or $0.92 per diluted share. The level of net earnings in the first nine months of fiscal 2021 was affected predominantly by the strong first half increase in revenues and operating income in our Life Science segment, stemming from the demand for
COVID-19
related reagents.
Consolidated revenues increased 28% to $241,692 for the first nine months of fiscal 2021 compared to the same period of the prior year (24% increase on a constant-currency basis).
Diagnostics segment revenues increased 2% (1% on a constant-currency basis), comprised of a 23% decrease in molecular assay products and an 8% increase in
non-molecular
assay products. Our Diagnostics segment generated operating income of $3,700 for the first nine months of fiscal 2021, a decline of $4,300 compared to the first nine months of fiscal 2020.
With an 87% increase in revenues from molecular reagent products and a 4% increase in revenues from immunological reagent products, revenues for our Life Science segment increased 51%2% during the first nine months of fiscal 20212022 compared to the same period of the prior year. On a constant-currency basis, revenues for the Life Science segment increased 44%. Life Science segment revenues during the first nine months of fiscal 2021 reflect a significant increase in sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in
COVID-19
related PCR tests. Also contributing to the increased revenue levels during the fiscal 2021
year-to-date
period 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, revenue from sales of our core Life Science segment products (other than
COVID-19
contributions) experienced growth of approximately $14,500, or approximately 33%, during the first nine months of fiscal 2021 compared to the same period of the prior year. This growth resulted in large part from obtaining business from
COVID-19
customers who are now using our products for other
non-COVID-19
related purposes, as well as a rebound in volumes in core immunological products. Our Life Science segment generated $92,000$75,976 of operating income for the first nine months of fiscal 2021, an increase2022, a decrease of over $40,000 compared to$15,856 from the first nine months of fiscal 2020.
Lead Testing Matters
During2021, primarily due to the past three fiscal years, various regulatory matters have arisen related to Magellanincrease in net revenues being offset by the decrease in gross profit margins, resulting from the aforementioned mix of products sold, and the Company’s blood lead test manufacturing facility. See Note 16 ofincrease in operating expenses, as described in the Condensed Consolidated Financial Statements for discussion of these matters.
While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we do not expect that the FDA will reinstate our venous blood claims. We can provide no assurance that the ongoing investigation and regulatory activity of the DOJ and FDA discussed in Note 16 of the Condensed Consolidated Financial Statements, 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, consolidated 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.sections below.
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REVENUE OVERVIEW
Below are analyses of the Company’s net 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 severity of seasonal diseases and outbreaks (including the ongoing
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 (specifically the ongoing
COVID-19
pandemic), and foreign currency exchange rates. The severity of the
COVID-19
pandemic contributed approximately $71,500 of new revenue for our Life Science segment during fiscal 2020 including approximately $48,000 and $53,000 in the three and nine months ended June 30, 2020, respectively. This compares to approximately $14,500 and $88,500 of such revenue during the three and nine months ended June 30, 2021, respectively.
See the “Revenue Disaggregation” section of Note 4,
“Revenue Recognition”
of the Condensed Consolidated Financial Statements for detailed revenue disaggregation information.
Following is a discussion of the net revenues generated by these product platforms/types and/or disease states:
Diagnostics Segment Products
The acquisitionsDiagnostics segment’s overall growth in net revenues of the Revogene molecular diagnostics platform36% 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 platforms are important steps in addressing competitive pressures in our gastrointestinal and respiratory illness assay families.
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 stool. We began clinical trials for the Curian
C. difficile
Common Antigen and Toxins A and B test during the second quarter of fiscal 2021 and submitted a 510(k)
pre-market
notification to the FDA for marketing clearance of Curian Campylobacter on March 31, 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 sales of our gastrointestinal, respiratory illness and blood chemistry products. Comprised of tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis, among others, the respiratory illness category in particular continues to experience significantly lower sales activity relative to the prior year, with revenues from sales of such products decreasing 26% and 48%25% during the third quarter and first nine months of fiscal 2022, respectively, compared to the same periods of fiscal 2021, respectively. However, duringprimarily results from the combined net effects of the following:
Volume growth in the gastrointestinal and
non-molecular
products benefitting from sales of the BreathTek product, acquired on July 31, 2021 (approximately $5,500 and $16,600 of net revenues from BreathTek in the third quarter and first nine months of fiscal 2021, we experienced2022, respectively);
Volume growth in sales of respiratory illness products, comprised of tests for Group A Strep, Mycoplasma pneumonia, Influenza, Pertussis and
SARS-CoV-2,
among others, reflecting an increase in the testing for these illnesses compared to the quarterly and
year-to-date
fiscal 2021 periods (total increases in respiratory illness products compared to the prior year periods of 47% and 75% in the third quarter and first nine months of fiscal 2022, respectively); and
Fluctuations in the volumes of sales activity for gastrointestinal andof blood chemistry products, forreflecting the second consecutive quarter, withongoing LeadCare product recall, which commenced in May 2021, and the resumption of product shipments in February 2022 ($2,177 increase in quarterly net revenues from each of these product categories increasing as follows compared to the third quarter of fiscal 2020: (i) gastrointestinal products, which include tests for2021, and a $3,244 decrease in fiscal
C. difficileyear-to-date
,
H. pylori
and certain foodborne pathogens, among others, increased 86%net revenues compared to $17,844; and (ii) blood chemistry products, which test for elevated levels of lead in blood, increased 26% to $4,254. During the first nine months of fiscal 2021, gastrointestinal product revenues increased 24% over the prior year period to $48,962, and blood chemistry product revenues increased 4% to $13,006. The increases in the
H. pylori
component of our gastrointestinal family of products include contributions from the BreathID urea breath platform acquired in the Exalenz acquisition on April 30, 2020.
2021).
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In order to 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) operating under a strategic collaboration with DiaSorin to sell
H. pylori
tests; (ii) executing long-term supply agreements with reference laboratory customers for
H. pylori
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 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 strategy or that any 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 third quarter of fiscal 2021, revenues from our Life Science segment decreased 49%, with revenues from molecular reagent sales decreasing 47% from the comparable fiscal 2020 quarter and revenues from immunological reagent sales decreasing 51%. Life Science segment revenues increased 51% for the first nine months of fiscal 2021, reflecting an 87% increase from molecular reagent sales and a 4% increase in immunological reagent sales. The quarterly decrease in Life Science segment revenue results primarily from the continued reduction in diagnostic test manufacturers’ demand for reagents associated with
COVID-19.
It is this demand from diagnostic test manufacturers throughout the peak of the
COVID-19
pandemic that resulted in the increase in fiscal
year-to-date
revenues. The increase resulted specifically from demand for key molecular components such as RNA master mixes and 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-19-related
reagent revenues totaled approximately $14,500 and $88,500 during the third quarter and first nine months of fiscal 2021,2022, net revenues for our Life Science segment decreased 22% and increased 2%, respectively, compared to approximately $48,000 and $53,000 in the three and nine months ended June 30, 2020, respectively.
Duringfiscal 2021 periods. While the level of net revenues during the third quarter of fiscal 2021, revenue from sales2022 reflects the significant decline in demand for
COVID-19
related reagents during the quarter, such level of our core Life Science segment products (other thanquarterly net revenues significantly outpaced the
COVID-19pre-pandemic
contributions) grew approximately 15% overlevel of net revenues generated in the third quarter of fiscal 2020 to approximately $17,500. During the first nine months2019; increasing 66% in total, 41% for molecular reagents and 79% for immunological reagents.
Page 24
Table of fiscal 2021, such revenue grew approximately 33% over the comparable fiscal 2020 period to approximately $59,000. This growth resulted in large part from obtaining business from
COVID-19Contents
customers who are now using our products for
non-COVID-19
related purposes, as well as a rebound in volumes of core immunological product sales.
Significant Customers
Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 14 15,
“Reportable Segment and Major Customers Information”
of the Condensed Consolidated Financial Statements.
Gross Profit
 
  
Three Months Ended June 30,
 
Nine Months Ended June 30,
   
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
  
2021
 
2020
 
Change
 
2021
 
2020
 
Change
   
2022
 
2021
 
Change
 
2022
 
2021
 
Change
 
Gross profit
  $37,111 $55,983    (34)%  $156,431  $118,180  32%   $36,728 $37,111  (1)%  $154,364  $156,431  (1)% 
Gross profit margin
   58%   66%   -8 points   65%   62%   +3 points    54%   58%   -4 points   58%   65%   -7 points 
The movements in
Overall gross profit margins during fiscal 2022 have been unfavorably impacted by a decline in net revenues from our Life Science segment’s molecular reagent products, which are some of our highest margin products. During the third quarter and first nine months of fiscal 2022, sales of molecular reagent products represented approximately 11% and 30%, respectively, of consolidated net revenues, compared to approximately 32% and 43% during the comparable periods of fiscal 2021, respectively.
Additionally, overall gross profit margins in fiscal 2022 have been unfavorably impacted in our Diagnostics segment by the previously discussed LeadCare product recall (see “Lead Testing Matters” above) and production capacity
ramp-up
costs at our Cincinnati and Quebec Revogene manufacturing facilities.
Operating Expenses – Segment Detail and Corporate
   
Three Months Ended June 30,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2021:
 
Diagnostics
  $5,463  $4,966  $5,933  $(3,263)  $13,099
Life Science
   620   1,243   3,315   —    5,178
Corporate
   —     —     2,716   438  3,154
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2021 Quarter)
  $6,083  $6,209  $11,964  $(2,825)  $21,431
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2022:
 
Diagnostics
  $5,228  $6,353  $7,130  $—    $18,711
Life Science
   815   1,825   2,935   39  5,614
Corporate
   —     —     3,084   16,000  19,084
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2022 Quarter)
  $6,043  $8,178  $13,149  $16,039 $43,409
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
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Table of Contents
   
Nine Months Ended June 30,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2021:
 
Diagnostics
  $16,011  $15,914  $17,790  $(5,205)  $44,510
Life Science
   1,788   3,856   9,978   —    15,622
Corporate
   —     —     9,059   2,695  11,754
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2021
Year-to-Date)
  $17,799  $19,770  $36,827  $(2,510)  $71,886
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2022:
 
Diagnostics
  $15,856  $18,040  $21,750  $—    $55,646
Life Science
   2,072   5,393   11,996   107  19,568
Corporate
   —     —     12,618   16,789  29,407
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2022
Year-to-Date)
  $17,928  $23,433  $46,364  $16,896 $104,621
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Compared to the prior year periods, operating expenses increased $21,978 to $43,409 in the third quarter of fiscal 2022 and increased $32,735 to $104,621 in the first nine months of fiscal 2022. Major components of these increases were as follows:
Increased Selling & Marketing costs in both the Diagnostics and Life Science segments, primarily reflecting the effects of filling certain open positions and the easing of certain travel and meeting restrictions imposed during the prior year in connection with the
COVID-19
pandemic;
Increased General & Administrative costs, primarily reflecting the combined effects of: (i) increased purchase accounting amortization expense; (ii) additional investment in incentive compensation tied to the Company’s financial performance; (iii) the timing of certain outside services costs; and (iv) increased commercial insurance costs for Directors & Officers and Property & Casualty coverages;
A $3,563 and $5,505 year-over-year increase in net expense within our Diagnostics segment resulting from adjustments to the fair value of acquisition consideration in the third quarter and first nine months of fiscal 2021, arerespectively;
An $11,374 and $9,906 year-over-year increase in litigation and select legal costs in the third quarter and first nine months of fiscal 2022, respectively, reflected within Corporate and primarily attributablerelated to the overall shiftspreviously discussed LeadCare legal matter (see “Lead Testing Matters” above); and
A $3,927 and $3,995 year-over-year increase in sales mixacquisition and transaction related costs in the Company has experienced in connection with the
COVID-19
pandemic. During the nine-month period ended June 30, 2021, which included the peakthird quarter and first nine months of the
COVID-19
pandemic, approximately 43% of consolidated revenuesfiscal 2022, respectively, primarily within Corporate and related to salesthe previously discussed pending acquisition (see “
Agreement and Plan of molecular reagent products, which are someMerger”
above).
Operating Income (Loss)
An operating loss of our higher margin products. This compares$6,681 was generated in the third quarter of fiscal 2022, compared to approximately 29%$15,680 of operating income during the third quarter of fiscal 2021. During the first nine months of fiscal 2020.2022, operating income totaled $49,743, a 41% decrease from the comparable fiscal 2021 period. These operating income (loss) levels result from the factors discussed above.
Income Taxes
The effective rate for income taxes was approximately (11%) and 26% for the three and nine months ended June 30, 2022, respectively, and 24% and 22% for the three and nine months ended June 30, 2021, respectively. The negative effective rate for the three months ended June 30, 2022 and the increase in effective rates for the nine months ended June 30, 2022, relate primarily to the anticipated
non-deductibility
of the previously discussed LeadCare legal matter (see “Lead Testing Matters” above).
 
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Table of Contents
As
Impact of Inflation
To the demandextent feasible, we have consistently followed the practice of reviewing our prices to consider the impacts of inflation on salaries and fringe benefits for such molecular reagent products for use in
COVID-19
test manufacturing declined duringemployees, the fiscal 2021 third quarter, such products comprisedcost of purchased materials and services, and transportation costs. Inflation and changing prices did not have a smaller relative percentage of consolidated revenue; approximately 32%material adverse impact on our gross margin, revenues or operating income in the third quarter of fiscal 2021 compared to approximately 46% in the third quarter of fiscal 2020. Additionally, the current period margins have been unfavorably impacted by production capacity
ramp-up
costs for our Quebec facility, where Revogene instruments and test devices are made.
Operating Expenses – Segment Detail
   
Three Months Ended June 30,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2020:
         
Diagnostics
  $6,129  $5,009  $6,279  $(4,387)  $13,030
Life Science
   539   1,273   3,630   (3)   5,439
Corporate
   —      —      2,715   134  2,849
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2020 Quarter)
  $6,668  $6,282  $12,624  $(4,256)  $21,318
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2021:
         
Diagnostics
  $5,463  $4,966  $6,140  $(3,263)  $13,306
Life Science
   620   1,243   3,264    —     5,127
Corporate
   —      —      2,560   438  2,998
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2021 Quarter)
  $6,083  $6,209  $11,964  $(2,825)  $21,431
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
   
Nine Months Ended June 30,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2020:
         
Diagnostics
  $15,037  $15,806  $16,853  $(3,575)  $44,121
Life Science
   1,709   3,733   8,740   195  14,377
Corporate
   —      —      6,643   1,189  7,832
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2020
Year-to-Date)
  $16,746  $19,539  $32,236  $(2,191)  $66,330
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2021:
         
Diagnostics
  $16,011  $15,914  $18,441  $(5,205)  $45,161
Life Science
   1,788   3,856   9,795    —     15,439
Corporate
   —      —      8,591   2,695  11,286
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2021
Year-to-Date)
  $17,799  $19,770  $36,827  $(2,510)  $71,886
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Operating Expenses – Comparisons to Prior Year Periods
   
Three Months Ended June 30,
 
   
Research &
Development
  
Selling &
Marketing
  
General &
Administrative
  
Other
  
Total Operating
Expenses
 
2020 Expenses
  $6,668  $6,282  $12,624  $(4,256)  $21,318
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   8%   7%   15%   (5)%   25% 
Fiscal 2021 Increases/(Decreases):
      
Diagnostics
   (666)   (43)   (139)   1,124   276
Life Science
   81   (30)   (366)   3   (312) 
Corporate
   —     —     (155)   304   149
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
2021 Expenses
  $6,083  $6,209  $11,964  $(2,825)  $21,431
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   10%   10%   19%   (4)%   34% 
% Increase (Decrease)
   (9)%   (1)%   (5)%   34%   1% 
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Table of Contents
Total operating expenses for the third quarter of fiscal 2021 show a net increase of 1%, This net increase primarily includes two components. The change in the fair value of contingent consideration was a decline of $3,563 in the 2021 quarter compared to a decline of $6,124 in the 2020 quarter, which results in an increase in net expense of $2,561 between periods. This is increase is largely offset by decreases in other operating expenses, predominantly Diagnostics segment research and development spending and corporate-wide general and administrative expenses.
   
Nine Months Ended June 30,
 
   
Research &
Development
  
Selling &
Marketing
  
General &
Administrative
  
Other
  
Total Operating
Expenses
 
2020 Expenses
  $16,746 $19,539 $32,236 $(2,191)  $66,330
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   9%   10%   17%   (1)%   35% 
Fiscal 2021 Increases/(Decreases):
      
Diagnostics
   974  108  1,588  (1,630)   1,040
Life Science
   79  123  1,055  (195)   1,062
Corporate
   —     —     1,948   1,506   3,454
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
2021 Expenses
  $17,799 $19,770 $36,827  (2,510)  $71,886
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   7%   8%   15%   (1)%   30% 
% Increase (Decrease)
   6%   1%   14%   (15)%   8% 
Total operating expenses for theor first nine months of fiscal 2021 show a net increase of 8%, This increase primarily includes three components. The change in the fair value of contingent consideration was a decline of $5,505 in2022 or fiscal 2021
year-to-date
period compared to a decline of $7,428 in the comparable fiscal 2020 period, which results in an increase in net expense of $1,923 between periods. Other operating expenses in 2021 include a full nine months of costs related to the Exalenz business acquired in April 2020, including purchase accounting amortization, and selected legal costs increased $1,506 related to our
on-going
DOJ matter.
Operating Income
Compared to the prior year periods, operating income decreased 55% to $15,680 for the third quarter of fiscal 2021 and increased 63% to $84,545 for the first nine months of fiscal 2021, as a result of the factors discussed above.
Income Taxes
The effective rate for income taxes was 24% and 22% for the three and nine months ended June 30, 2021, respectively, and 21% and 23% for the three and nine months ended June 30, 2020, respectively. The variation in effective tax rates during the three and nine months ended June 30, 2021 and 2020 related primarily to higher allocations of taxable income in the U.S. in the fiscal 2021 reporting periods compared to certain lower-rate foreign jurisdictions, particularly the U.K. Additionally, the nine-month period ended June 30, 2021 was favorably impacted by the effect of current year restricted share unit lapses and stock option exercises occurring on dates when the share price of Company stock was significantly higher than the share price on the date such equity awards were granted, compared to the opposite effect during the prior year period.2021.
Liquidity and Capital Resources
Liquidity
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets and debt service. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities.
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 to: (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.
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Table of Contents
We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand. Ifhand, and such sources are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next twelve months. However, if needed, we also have an additional source of liquidity through the amount remaining available on our $160,000$200,000 bank revolving credit facility, which totaled $110,000$175,000 as of June 30, 2021.2022. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services.
During the first nine months of fiscal 2021, we generated cash flow from operations totaling $52,386. This represents a 65% increase over the comparable prior year period, reflecting a higher level of net earnings.
Our levels of inventories increased $10,549 to $71,813 between September 30, 2020 and June 30, 2021. This increase was largely attributable to inventory builds in our Life Science segment to protect against future supply interruptions. For our Diagnostics segment, we also have continued to maintain relatively consistent inventory levels in anticipation of a return to
pre-pandemic
diagnostic testing activity. We are continuing to actively manage our inventory levels.
As of June 30, 2021,2022, our cash and cash equivalents balance was $70,012 or $16,498 higher than at$83,487, an increase of $33,716 compared to September 30, 2021. This net increase primarily results from the endcombined effects of: (i) generating $80,374 of fiscal 2020. As a result of the cash generatedflow from operations, duringan increase of 53% over the third quarter and first nine months of fiscal 2021,2021; (ii) using cash to pay down $35,000 on the revolving credit facility; and (iii) using cash to acquire property, plant and equipment ($5,138 net of RADx grant monies received) and the assets of EUPROTEIN, Inc. ($3,750) (see Note 6,
“Business Combinations”
of the Condensed Consolidated Financial Statements). In addition, the net balance of cash and cash equivalents decreased approximately $3,900 during the nine months ended June 30, 2022 as a result of the movement in foreign currency exchange rates, specifically the British pound and Euro, since September 30, 2021.
Considering these factors, our balance of netcash and cash equivalents on hand exceeded our total debt (defined as bank debt, government grant obligations and total contingent obligations related to the acquisition of the GenePOC business, net of cash and cash equivalents
on-hand)
decreasedacquisitions) by approximately $46,700 to approximately $6,600$51,400 at June 30, 2021. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next twelve months.2022.
Capital Resources
As described in Note 11,12,
“Bank Credit Arrangements”
of the Condensed Consolidated Financial Statements, the Company maintains a $160,000$200,000 revolving credit facility, which is secured by substantially all of our U.S. assets and includes certain restrictive financial covenants. The Company also maintains a shelf registration statement on file with the SEC.
OurDuring fiscal 2022, our capital expenditures are estimated to range betweentotal approximately $18,000$15,300, comprised of approximately $12,900 and $24,000 during fiscal 2021. Our$2,400 in the Diagnostics and Life Science segments, respectively. Included within the Diagnostics segment capital expenditures could be as high as $21,000, depending upon the level and timingestimate is approximately $7,000 related to completion of the previously noted Revogene
COVID-19
assay productionmanufacturing 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.automation initiatives for Revogene assay production. Such expenditures may be funded with cash and cash equivalents on hand, operating cash flows, and/or availability under the $160,000$200,000 revolving credit facility discussed above. In addition, a portion of the Diagnostics segment expansion may be funded by the remaining amounts to be received under the previously noted $5,500 RADx grant entered into on February 1, 2021, and as amended on January 25, 2022 (see Note 13 14,
“National Institutes of Health Contracts”
of the Condensed Consolidated Financial Statements for further discussion).
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Table of Contents
License Agreements
The Company has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related products. During the third quarter and first nine months of fiscal 2022, royalty expense totaled approximately $400 and $2,100, respectively, with the Diagnostics/Life Science segment split of such revenues equating to approximately 40/60 and 70/30 in the third quarter and first nine months of fiscal 2022, respectively. This compares to a total of approximately $1,500 and $4,700 of royalty expense in the third quarter and first nine months of fiscal 2021, respectively, with approximately 20% and 80% of such expense relating to our Diagnostics and Life Science segments, respectively, during both periods. The Company expects that royalty expense under these agreements will amount to approximately $2,600 in fiscal 2022, a decrease from $5,200 in fiscal 2021, largely due to raw material sourcing activities.
Off-Balance
Sheet Arrangements
We utilize foreign currency exchange forward contracts to limit exposure to volatility in foreign currency gains and losses related to financial assets denominated in other than the holding subsidiary’s functional currency. These contracts are generally settled within a
30-day
time frame and are not formally designated or accounted for as accounting hedges. We also utilize interest rate swap agreements to limit exposure to volatility in the LIBOR interest rate in connection with the revolving credit facility. The interest rate swap agreements are designated and accounted for as accounting hedges (see Note 5,
“Fair Value Measurements”
of the Condensed Consolidated Financial Statements).
We Aside from these instruments, we do not utilize any special-purpose financing vehicles or have any material undisclosed
off-balance
sheet arrangements.
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Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2021,2022, there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form
10-K
for the year ended September 30, 2020,2021, filed with the SEC on November 23, 2020.2021.
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 June 30, 2021.2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the period covered by this report.
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met. Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people or by management override. Over time, controls can become inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. 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 June 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to legal proceedings can be found in Note 16,7,
“Litigation and RegulatoryLead Testing Matters”
of the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form
10-Q
and is incorporated herein by reference.
ITEM 1A. RISK FACTORS
In addition to the other information set forthThe risk factors described in this report, careful consideration should be given to the factors discussed inPart I, Item 1A,1A. “Risk Factors” in our Annual Report on Form
10-K
for the year ended September 30, 2020, filed2021, as supplemented below, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form
10-Q
and in our other filings with the SEC, on November 23, 2020, as may be supplemented byin connection with evaluating the Company, our business, and the forward-looking statements contained in this Quarterly ReportsReport on Form
10-Q,10-Q.
any or all of which could materially affect our business, financial condition or future results. TheOther risks described therein arethat we do not the only risks facing us. Additional risks and uncertainties not currently known to us,presently know about or that we currently deem to be immaterial,presently believe are not material could also may adversely affect our business, financial condition and/or operating results. There have been no material changes with respect tous. The risk factors described below update the risk factors disclosed in Part I, Item 1A. in our 2021
10-K
to include additional information, and should be read in conjunction with the risk factors in our Annual Report on Form
10-K
for the year ended September 30, 2020, filed2021.
If the Merger contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) does not occur, it could have a material adverse effect on our business, results of operations, financial condition and stock price.
On July 7, 2022, we entered into the Merger Agreement with SD Biosensor, Inc. (“SDB”). Completion of the SECproposed Merger is subject to the satisfaction of various conditions, including the receipt of approvals from our stockholders and from government or regulatory agencies. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed on November 23, 2020,the proposed terms, within the expected timeframe, or at all. The proposed Merger gives rise to inherent risks that include:
the amount of the cash to be paid under the Merger agreement is fixed and will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock;
legal or regulatory proceedings, including regulatory approvals from governmental entities (including any conditions, limitations or restrictions placed on these approvals) and the risk that one or more governmental entities may delay or deny approval, or other matters that affect the timing or ability to complete the transaction as may be supplemented bycontemplated;
the possibility of disruption to our Quarterly Reports onbusiness, including increased costs and diversion of management time and resources;
Form 10-Q.
difficulties maintaining business and operational relationships, including relationships with clients, vendors, suppliers, distributors, resellers and other business partners;
the inability to attract and retain key personnel pending consummation of the proposed Merger;
potential stockholder litigation relating to the Merger could prevent or delay the Merger or otherwise negatively impact our business and operations;
the inability to pursue alternative business opportunities or make changes to our business pending the completion of the proposed Merger;
the requirement to pay a termination fee of $45,960 if we terminate the Merger Agreement under specified circumstances;
 
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developments beyond our control including, but not limited to, changes in domestic or global economic conditions that may affect the timing or success of the proposed Merger; and
the risk that if the proposed Merger is not completed, the market price of our common stock could decline, investor confidence could decline, stockholder litigation could be brought against us, relationships with clients, suppliers and other business partners may be adversely impacted, we may be unable to retain key personnel, and profitability may be adversely impacted due to costs incurred in connection with the proposed Merger.
Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity and supply chains.
To manage our anticipated future growth effectively, it may become necessary for us to enhance our manufacturing and supply chain capabilities, infrastructure and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth
and scale-up
of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our net revenues could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on our future consolidated financial condition and results of operations.
The Russia / Ukraine war that developed during the second quarter of fiscal year 2022 also could disrupt our supply chains. While to date this war has not caused us to experience any material negative impacts on our business, financial condition, or results of operations, we are unable to estimate the extent to which, if at all, the war could hurt our supply chains. The evolving nature of the war, related international sanctions, other potential government actions, and economic consequences of the war, including incurring higher costs to source materials due to inflation or otherwise, are factors that could disrupt supply chains throughout the world, including potentially the supply chains on which our business relies. If the Russia / Ukraine war either directly or indirectly disrupts our supply chains and we are unable to mitigate such disruption, the war could have material adverse effect on our future consolidated financial condition and results of operations.
ITEM 6. EXHIBITS
The following exhibits are being filed or furnished as a part of this Quarterly Report on Form
10-Q:
 
2.1*Agreement and Plan of Merger, dated as of July 7, 2022, by and among Meridian Bioscience, Inc., SD Biosensor, Inc., Columbus Holding Company, and Madeira Acquisition Corp. (Incorporated by reference to Meridian’s Form 8-K filed with the SEC on July 7, 2022)
10.1Form of Indemnification Agreement (Incorporated by reference to Meridian’s Form 8-K filed with the SEC on July 7, 2022)
31.1  Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
31.2  Certification of Principal FinancialAccounting Officer Pursuant to Securities Exchange Act Rule 13a-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
101.INS  Inline XBRL Instance Document
101.SCH  Inline XBRL Instance Extension Schema
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101.CAL  Inline XBRL Instance Extension Calculation Linkbase
101.DEF  Inline XBRL Instance Extension Definition Linkbase
101.LAB  Inline XBRL Instance Extension Label Linkbase
101.PRE  Inline XBRL Instance Extension Presentation Linkbase
104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
SIGNATURE
*
Certain exhibits and schedules have been omitted, and the Registrant hereby agrees to furnish a copy of any omitted exhibits or schedules upon request.
SIGNATURES
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:
August 6, 20215, 2022
  By: 
/s/ Bryan T. BaldasareAndrew S. Kitzmiller
   Bryan T. Baldasare
Executive Vice President and Chief Financial OfficerAndrew S. Kitzmiller
   
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date:
August 5, 2022
By:
/s/ Julie Smith
Julie Smith
Senior Vice President and Controller
(Principal Accounting Officer)
 
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