10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-Q

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

For the Quarterly Period Ended December 31,

2021

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

For the transition period from

Commission file number 0-14902

MERIDIAN BIOSCIENCE, INC.

Incorporated under the laws of Ohio

31-0888197

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

3471 River Hills Drive

Cincinnati, Ohio 45244

(513)

271-3700

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	VIVO	NASDAQ Global Select Market

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past

90 days.

Yes

☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such

files).

Yes

☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No

☒

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


Class		Outstanding January 31, 2022
Common Stock, no par value		43,541,412

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 Months Ended December 31, 2021 and 2020		1

	Condensed Consolidated Statements of Comprehensive Income Three Months Ended December 31, 2021 and 2020		2

	Condensed Consolidated Statements of Cash Flows Three Months Ended December 31, 2021 and 2020		3

	Condensed Consolidated Balance Sheets December 31, 2021 and September 30, 2021		4-5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended December 31, 2021 and 2020		6

	Notes to Condensed Consolidated Financial Statements		7-16

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16-23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23

Item 4.	Controls and Procedures		23

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		24

Item 1A.	Risk Factors		24

Item 6.	Exhibits		24

Signature			25

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, 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 FDA actions regarding the Company’s LeadCare products). The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and that the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of future goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of any modification or repeal of any of the provisions of current U.S. health care legislation that might be initiated by Congress or the presidential administration, and any similar initiatives in other countries on its results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and 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 adversely affect its operations and result in material misstatements in its consolidated financial statements. Meridian also is subject to risks and uncertainties related to disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as

COVID-19.

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 December 31,
	2021			2020
NET REVENUES	$	88,341		$	92,917
COST OF SALES		39,182			31,369

GROSS PROFIT		49,159			61,548

OPERATING EXPENSES
Research and development		6,194			5,651
Selling and marketing		7,741			7,021
General and administrative		14,660			11,938
Selected legal costs		281			1,227
Change in fair value of acquisition consideration		—			1,047

Total operating expenses		28,876			26,884

OPERATING INCOME		20,283			34,664

OTHER INCOME (EXPENSE)
Interest income		1			9
Interest expense		(372	)		(534	)
RADx grant income		—			800
Other, net		(161	)		(691	)

Total other expense, net		(532	)		(416	)

EARNINGS BEFORE INCOME TAXES		19,751			34,248

INCOME TAX PROVISION		4,411			7,469

NET EARNINGS	$	15,340		$	26,779

BASIC EARNINGS PER COMMON SHARE	$	0.35		$	0.62
DILUTED EARNINGS PER COMMON SHARE	$	0.35		$	0.61
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC		43,439			43,098
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS		589			681

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED		44,028			43,779

ANTI-DILUTIVE SECURITIES:
Common share options and restricted share units		425			258

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

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollar amounts in thousands)


	Three Months Ended December 31,
	2021			2020
NET EARNINGS	$	15,340		$	26,779
Other comprehensive (loss) income:
Foreign currency translation adjustment		(58	)		3,301
Unrealized gain on cash flow hedge		550			21
Reclassification of amortization of gain on cash flow hedge		—			(77	)
Income taxes related to items of other comprehensive (loss) income		(135	)		14

Other comprehensive income, net of tax		357			3,259

COMPREHENSIVE INCOME	$	15,697		$	30,038

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

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollar amounts in thousands)


	Three Months Ended December 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings	$	15,340		$	26,779
Non-cash items included in net earnings:
Depreciation of property, plant and equipment		1,700			1,508
Amortization of intangible assets		2,483			2,221
Stock-based compensation		1,903			1,241
Deferred income taxes		927			(852	)
Change in fair value of acquisition consideration		—			1,047
Change in the following:
Accounts receivable		9,424			(1,776	)
Inventories		2,093			(5,941	)
Prepaid expenses and other current assets		200			2,682
Accounts payable and accrued expenses		1,018			(5,826	)
Income taxes payable		1,113			4,032
Other, net		(646	)		6

Net cash provided by operating activities		35,555			25,121

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(1,708	)		(2,086	)
Payment of acquisition consideration holdback		—			(5,000	)

Net cash used in investing activities		(1,708	)		(7,086	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment on revolving credit facility		(10,000	)		(10,000	)
Payment of deferred financing costs		(404	)		—
Proceeds from exercise of stock options		80			—
Employee taxes paid upon net share settlement of restricted share units		(763	)		—

Net cash used in financing activities		(11,087	)		(10,000	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		198			1,644

Net Increase in Cash and Cash Equivalents		22,958			9,679
Cash and Cash Equivalents at Beginning of Period		49,771			53,514

Cash and Cash Equivalents at End of Period	$	72,729		$	63,193

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

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

ASSETS


	December 31, 2021 (Unaudited)		September 30, 2021
CURRENT ASSETS
Cash and cash equivalents	$	72,729	$	49,771
Accounts receivable, less allowances of $1,293 and $1,078, respectively		44,300		53,568
Inventories, net		74,198		76,842
Prepaid expenses and other current assets		12,426		12,626

Total current assets		203,653		192,807

PROPERTY, PLANT AND EQUIPMENT, at Cost
Land		987		989
Buildings and improvements		33,009		32,765
Machinery, equipment and furniture		79,438		78,410
Construction in progress		10,352		9,991

Subtotal		123,786		122,155
Less: accumulated depreciation and amortization		80,500		78,941

Property, plant and equipment, net		43,286		43,214

OTHER ASSETS
Goodwill		114,713		114,668
Other intangible assets, net		81,658		84,151
Right-of-use assets, net		5,431		5,786
Deferred income taxes		8,813		8,731
Other assets		1,086		365

Total other assets		211,701		213,701

TOTAL ASSETS	$	458,640	$	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


	December 31, 2021 (Unaudited)		September 30, 2021
CURRENT LIABILITIES
Accounts payable	$	16,293	$	11,701
Accrued employee compensation costs		12,029		16,853
Accrued product recall costs		4,269		5,100
Acquisition consideration		1,000		—
Current operating lease obligations		2,057		1,990
Current government grant obligations		765		638
Other accrued expenses		8,667		7,027
Income taxes payable		4,866		3,848

Total current liabilities		49,946		47,157

NON-CURRENT LIABILITIES
Acquisition consideration		—		1,000
Post-employment benefits		2,169		2,253
Long-term operating lease obligations		3,529		3,932
Long-term debt		50,000		60,000
Government grant obligations		5,068		5,176
Long-term income taxes payable		469		469
Deferred income taxes		2,067		1,055
Other non-current liabilities		173		378

Total non-current liabilities		63,475		74,263

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY
Preferred stock, no par value; 1,000,000 shares authorized; none issued		—		—
Common shares, no par value; 71,000,000 shares authorized, 43,514,258 and 43,361,898 shares issued and outstanding, respectively		—		—
Additional paid-in capital		148,623		147,403
Retained earnings		196,041		180,701
Accumulated other comprehensive income		555		198

Total shareholders’ equity		345,219		328,302

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	458,640	$	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 Shareholders’ Equity (Unaudited)

(dollar and share amounts in thousands)


	Common Shares		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance at September 30, 2021		43,362	$	147,403		$	180,701	$	198		$	328,302
Conversion of restricted share units and exercise of stock options		152		(683	)		—		—			(683	)
Stock compensation expense		—		1,903			—		—			1,903
Net earnings		—		—			15,340		—			15,340
Foreign currency translation adjustment		—		—			—		(58	)		(58	)
Hedging activity, net of tax		—		—			—		415			415

Balance at December 31, 2021		43,514	$	148,623		$	196,041	$	555		$	345,219

Balance at September 30, 2020		43,069	$	140,195		$	109,294	$	(1,860	)	$	247,629
Conversion of restricted share units and exercise of stock options		55		(41	)		—		—			(41	)
Stock compensation expense		—		1,241			—		—			1,241
Net earnings		—		—			26,779		—			26,779
Foreign currency translation adjustment		—		—			—		3,301			3,301
Hedging activity, net of tax		—		—			—		(42	)		(42	)

Balance at December 31, 2020		43,124	$	141,395		$	136,073	$	1,399		$	278,867

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”) master mixes, and bioresearch reagents used by other diagnostic manufacturers and researchers.

Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts; and (iii) the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.

The Life Science segment consists of: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany; and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to pursue revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g., in vitro medical device manufacturing, microRNA detection, next-generation sequencing, plant genotyping, and mutation detection, among others).

2.	Basis of Presentation

The Condensed Consolidated Financial Statements are unaudited and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information, and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the Condensed Consolidated Financial Statements include all normal adjustments and disclosures necessary to present fairly the Company’s consolidated financial position as of December 31, 2021, and the results of its operations, cash flows, and shareholders’ equity for the three months ended December 31, 2021 and 2020. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s fiscal 2021 Annual Report on Form

10-K,

filed with the SEC on November 23, 2021.

It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Condensed Consolidated Financial Statements to indicate net revenue and/or net revenues.

The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the 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; positive effects on our Life Science segment and negative effects on our Diagnostics segment. Actual results could differ from 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 2021 Annual Report on Form

10-K,

filed with the SEC on November 23, 2021, and should be referred to for a description of the Company’s significant accounting policies.

(a)	Recent Accounting Pronouncements –

Pronouncements Adopted

On October 1, 2021, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)

2019-12,

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

(“ASU

2019-12”),

which clarified and simplified accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. Adoption of ASU

2019-12

did not have a material impact on the Condensed Consolidated Financial Statements.

Pronouncements Issued but Not Yet Adopted as of December 31, 2021

In March 2020, the FASB issued ASU

2020-04,

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the London Interbank Offered Rate (“LIBOR”). The guidance provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company continues to evaluate the impacts of this guidance but does not expect its application to have a material impact on the Condensed Consolidated Financial Statements.

No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the Condensed Consolidated Financial Statements.

(b)	Reclassifications –

Certain reclassifications have been made to the prior year Condensed Consolidated Financial Statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.

4.	Revenue Recognition

Revenue Disaggregation

The following tables present our net revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics segment only):

Net Revenues by Reportable Segment & Geographic Region


	Three Months Ended December 31,
	2021		2020		Inc (Dec)
Diagnostics-
Americas	$	26,613	$	23,551		13	%
EMEA		6,093		6,020		1	%
ROW		498		750		(34	)%

Total Diagnostics		33,204		30,321		10	%
Life Science-
Americas		8,137		18,755		(57	)%
EMEA		28,648		32,311		(11	)%
ROW		18,352		11,530		59	%

Total Life Science		55,137		62,596		(12	)%

Consolidated	$	88,341	$	92,917		(5	)%

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Net Revenues by Product Platform/Type

Three Months Ended December 31,

2021

2020

SEC Form 10-Q filed by Meridian Bioscience Inc.