10-Q

SEC Form 10-Q filed by Meridian Bioscience Inc.

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

2022

☐	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 ☐

☒

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


Class		Outstanding January 3 0 , 2023
Common Stock, no par value		44,041,635

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, 2022 and 2021		1

	Condensed Consolidated Statements of Comprehensive Income (Loss) Three Months Ended December 31, 2022 and 2021		2

	Condensed Consolidated Statements of Cash Flows Three Months Ended December 31, 2022 and 2021		3

	Condensed Consolidated Balance Sheets December 31, 2022 and September 30, 2022		4-5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity Three Months Ended December 31, 2022 and 2021		6

	Notes to Condensed Consolidated Financial Statements		7-18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19-26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26

Item 4.	Controls and Procedures		26

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		27

Item 1A.	Risk Factors		27

Item 6.	Exhibits		27

Signatures			28

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:

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. 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, and any similar initiatives in other countries on Meridian’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 acquisition by SD Biosensor, 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, 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.

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,
	2022			2021
NET REVENUES	$	56,902		$	88,341
COST OF SALES		25,397			39,182

GROSS PROFIT		31,505			49,159

OPERATING EXPENSES
Research and development		6,177			6,194
Selling and marketing		8,294			7,741
General and administrative		11,073			14,660
Acquisition and transaction related costs		1,188			—
Litigation and select legal costs		32,888			281

Total operating expenses		59,620			28,876

OPERATING INCOME (LOSS)		(28,115	)		20,283
OTHER INCOME (EXPENSE)
Interest income		3			1
Interest expense		(148	)		(372	)
Other, net		(837	)		(161	)

Total other expense, net		(982	)		(532	)

EARNINGS (LOSS) BEFORE INCOME TAXES		(29,097	)		19,751

INCOME TAX PROVISION		724			4,411

NET EARNINGS (LOSS)	$	(29,821	)	$	15,340

BASIC EARNINGS (LOSS) PER COMMON SHARE	$	(0.68	)	$	0.35
DILUTED EARNINGS (LOSS) PER COMMON SHARE	$	(0.68	)	$	0.35
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC		43,896			43,439
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS		—			589

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED		43,896			44,028

ANTI-DILUTIVE SECURITIES:
Common share options and restricted share units		813			425

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 (Loss) (Unaudited)

(dollar amounts in thousands)


	Three Months Ended December 31,
	2022			2021

NET EARNINGS (LOSS)	$	(29,821	)	$	15,340
Other comprehensive income (loss):
Foreign currency translation adjustment		3,481			(58	)
Unrealized gain (loss) on cash flow hedge		(68	)		550
Income taxes related to items of other comprehensive income (loss)		17			(135	)

Other comprehensive income, net of tax		3,430			357

COMPREHENSIVE INCOME (LOSS)	$	(26,391	)	$	15,697

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,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	$	(29,821	)	$	15,340
Non-cash items included in net earnings (loss):
Depreciation of property, plant and equipment		1,643			1,700
Amortization of intangible assets		2,541			2,483
Stock compensation expense		1,393			1,903
Deferred income taxes		216			927
Estimated litigation costs		32,000			—
Change in the following, net of acquisition:
Accounts receivable		6,083			9,424
Inventories		(3,496	)		2,093
Prepaid expenses and other current assets		894			200
Accounts payable and accrued expenses		(10,833	)		1,018
Income taxes payable		(2,023	)		1,113
Other, net		(946	)		(646	)

Net cash (used in) provided by operating activities		(2,349	)		35,555

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(2,654	)		(1,708	)
Acquisition, net of holdback		(2,000	)		—

Net cash used in investing activities		(4,654	)		(1,708	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment on revolving credit facility		—			(10,000	)
Payment of deferred financing costs		—			(404	)
Proceeds from exercise of stock options		799			80
Employee taxes paid upon net share settlement of restricted share units		(3,323	)		(763	)

Net cash used in financing activities		(2,524	)		(11,087	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		2,172			198

Net Increase (Decrease) in Cash and Cash Equivalents		(7,355	)		22,958
Cash and Cash Equivalents at Beginning of Period		81,453			49,771

Cash and Cash Equivalents at End of Period	$	74,098		$	72,729

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, 2022 (Unaudited)		September 30, 2022
CURRENT ASSETS
Cash and cash equivalents	$	74,098	$	81,453
Accounts receivable, less allowances of $1,327 and $1,325, respectively		41,573		47,235
Inventories, net		72,663		67,814
Prepaid expenses and other current assets		13,200		14,095

Total current assets		201,534		210,597

PROPERTY, PLANT AND EQUIPMENT
Land		979		968
Buildings and improvements		33,068		32,983
Machinery, equipment and furniture		86,732		79,517
Construction in progress		5,693		10,589

Subtotal		126,472		124,057
Less: accumulated depreciation and amortization		81,051		79,199

Net property, plant and equipment		45,421		44,858

OTHER ASSETS
Goodwill		120,567		116,302
Other intangible assets, net		71,572		74,131
Right-of-use assets, net		6,041		5,850
Deferred income taxes		9,650		9,278
Other assets		1,978		2,081

Total other assets		209,808		207,642

TOTAL ASSETS	$	456,763	$	463,097

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, 2022 (Unaudited)			September 30, 2022
CURRENT LIABILITIES
Accounts payable	$	14,413		$	17,759
Accrued employee compensation costs		9,894			17,682
Accrued estimated litigation costs		42,000			10,000
Accrued product recall costs		997			1,157
Current operating lease obligations		1,954			1,830
Current government grant obligations		799			667
Other accrued expenses		6,288			5,048
Income taxes payable		2,232			3,808

Total current liabilities		78,577			57,951

NON-CURRENT LIABILITIES
Post-employment benefits		1,728			1,673
Long-term operating lease obligations		4,187			4,127
Long-term debt		25,000			25,000
Government grant obligations		4,521			4,620
Long-term income taxes payable		395			395
Deferred income taxes		1,104			578
Other non-current liabilities		712			692

Total non-current liabilities		37,647			37,085

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, 43,999,659 and 43,755,188 shares issued and outstanding, respectively		—			—
Additional paid-in capital		154,533			155,664
Treasury stock, at cost, 9,655 shares		(259	)		(259	)
Retained earnings		193,339			223,160
Accumulated other comprehensive loss		(7,074	)		(10,504	)

Total shareholders’ equity		340,539			368,061

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	456,763		$	463,097

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		Additional Paid-In Capital			Treasury Stock						Retained Earnings			Accumulated Other Comp. Income (Loss)			Total Shareholders’ Equity
	Common Shares		Additional Paid-In Capital			Sh.			Amt.			Retained Earnings			Accumulated Other Comp. Income (Loss)			Total Shareholders’ Equity
Balance at September 30, 2022		43,755	$	155,664			(10	)	$	(259	)	$	223,160		$	(10,504)		$	368,061
Conversion of restricted share units and exercise of stock options		245		(2,524	)		—			—			—			—			(2,524	)
Stock compensation expense		—		1,393			—			—			—			—			1,393
Net loss		—		—			—			—			(29,821	)		—			(29,821	)
Foreign currency translation adjustment		—		—			—			—			—			3,481			3,481
Hedging activity, net of tax		—		—			—			—			—			(51	)		(51	)

Balance at December 31, 2022		44,000	$	154,533			(10	)	$	(259	)	$	193,339		$	(7,074)		$	340,539

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

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, isothermal mixes, enzymes, nucleotides, 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; 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 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, 2022, and the results of its operations, cash flows, and shareholders’ equity for the three months ended December 31, 2022 and 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 2022 Annual Report on Form

10-K,

filed with the SEC on November 22, 2022.

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. 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 2022 Annual Report on Form

10-K,

filed with the SEC on November 22, 2022, and should be referred to for a description of the Company’s significant accounting policies.

(a)	Recent Accounting Pronouncements –

Pronouncements Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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, 2024. Application of this guidance did not 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 –

Within the notes to the Condensed Consolidated Financial Statements, certain reclassifications have been made to the prior year allocation of expenses between segments in order to conform to the current year presentation. Such reclassifications had no impact on any consolidated figures or segment net revenues.

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,
	2022		2021		Inc (Dec)
Diagnostics-
Americas	$	33,182	$	26,613		25	%
EMEA		5,694		6,093		(7	)%
ROW		490		498		(2	)%

Total Diagnostics		39,366		33,204		19	%

Life Science-
Americas		5,859		8,137		(28	)%
EMEA		6,944		28,648		(76	)%
ROW		4,733		18,352		(74	)%

Total Life Science		17,536		55,137		(68	)%

Consolidated	$	56,902	$	88,341		(36	)%

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Net Revenues by Product Platform/Type


	Three Months Ended December 31,
	2022		2021		Inc (Dec)
Diagnostics-
Molecular assays	$	4,490	$	4,752		(6	)%
Non-molecular assays		34,876		28,452		23	%

Total Diagnostics		39,366		33,204		19	%

Life Science-
Molecular reagents		7,574		31,488		(76	)%
Immunological reagents		9,962		23,649		(58	)%

Total Life Science		17,536		55,137		(68	)%

Consolidated	$	56,902	$	88,341		(36	)%

Net Revenues by Disease State (Diagnostics segment only)


	Three Months Ended December 31,
	2022		2021		Inc (Dec)
Diagnostics-
Gastrointestinal assays	$	21,273	$	21,619		(2	)%
Respiratory illness assays		6,714		6,380		5	%
Blood chemistry assays		4,620		78		5823	%
Other		6,759		5,127		32	%

Total Diagnostics	$	39,366	$	33,204		19	%

Royalty Income

Royalty income received from a third party related to sales of

H. pylori

products, totaled $1,650 and $1,040 in the three months ended December 31, 2022 and 2021, respectively. Such revenue is included as part of

Non-molecular

assays and Other within the Net Revenues by Product Platform/Type and Net Revenues by Disease State tables, respectively, above.

Reagent Rental Arrangements

Revenue allocated to the lease elements of Reagent Rental arrangements totaled $1,135 and $995 in the three months ended December 31, 2022 and 2021, respectively. Such revenue is included as part of net revenues in our Condensed Consolidated Statements of Operations.

5.	Fair Value Measurements

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 the outstanding revolving credit facility discussed in Note 12 to a fixed rate. The fair values of the interest rate swap agreements were determined by reference to a third-party valuation, which is considered a Level 2 input within the fair value hierarchy of valuation techniques.

As indicated in Note 6, we acquired Estel Biosciences, Inc. of San Diego, California (“Estel”) on October 26, 2022 and EUPROTEIN Inc. of North Brunswick, New Jersey (“EUPROTEIN”) on April 30, 2022. The fair values of inventories acquired, if applicable, were valued using Level 2 inputs, which included data points that were observable, such as established values of comparable assets and historical sales information (market approach). Identifiable intangible assets, 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.

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The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis, the carrying values for which are included within other assets of the December 31, 2022 and September 30, 2022 Condensed Consolidated Balance Sheets, respectively:


			Fair Value Measurements Using Inputs Considered as
	Carrying Value		Level 1		Level 2		Level 3

Interest rate swap agreements -
As of December 31, 2022	$	1,353	$	—	$	1,353	$	—
As of September 30, 2022	$	1,421	$	—	$	1,421	$	—

6.	Business Combinations

On October 26, 2022, we acquired substantially all of the assets of Estel for $3,500 in cash, of which $2,000 was paid at closing, with the remainder held back pending the achievement of certain milestones, which is payable within 18 months of the acquisition date. The amount held back is recorded in other accrued expenses ($1,125) and other

non-current

liabilities ($375) on the December 31, 2022 Condensed Consolidated Balance Sheet. Estel offers development and production of high-quality bioresearch reagents developed in the areas of tropical disease and autoimmune through a proprietary insect cell expression system. Based on the

timing

this transaction

, the full $3,500 of consideration represents goodwill, which is attributable to combining Estel and Meridian’s products and capabilities to give the Company’s customers access to new immunological reagents. The goodwill is included within the Life Science segment and 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.

There were no material changes in the preliminary purchase price allocation during the three months ended December 31, 2022.

On April 30, 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

accrued expenses

on the Condensed Consolidated Balance Sheets and is payable within 18 months of the acquisition 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, prepaid expenses, and inventories, were valued on April 30, 2022, on a preliminary basis at $3,947, $279, $14 and $10, respectively. The goodwill for EUPROTEIN is attributable to combining EUPROTEIN and Meridian’s products and capabilities to give the Company’s customers access to new immunological reagents. 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.

There were no material changes in the preliminary purchase price allocation during the three months ended December 31, 2022.

Based on the nature of both the Estel and EUPROTEIN businesses, Estel and EUPROTEIN are not expected to contribute materially to net revenues and net earnings

(loss).

7.	Lead Testing Matters

On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of the Class I voluntary recall of its LeadCare test kits for the detection of lead in blood, which it had initiated in May 2021 after identifying an 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 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 the second quarter of fiscal 2022. The Company continues to work closely with the U.S. Food and Drug Administration (“FDA”) in its execution

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of the recall activities, which has included Magellan notifying customers and distributors affected by the recall and providing instructions for the return of impacted test kits. Remaining accrued LeadCare product recall costs totaling approximately

$177 and $430 are reflected within the Condensed Consolidated Balance Sheets at December 31, 2022 and September 30, 2022, respectively. Anticipated recall-related costs primarily include temporary labor costs, product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees and other miscellaneous costs. 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.

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 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, 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, 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. The Company believes a loss is probable in the DOJ LeadCare legal matter and, in accordance with applicable accounting guidance, has accrued $42,000 and $10,000 as of December 31, 2022 and September 30, 2022, respectively, as an estimate of the cost to resolve the DOJ LeadCare legal matter. The increase in the estimated cost to resolve the DOJ LeadCare legal matter is based upon additional information received by the Company during discussions held with the DOJ subsequent

September 30, 2022. The $32,000 expense resulting from the increase in the accrual is reflected in litigation and select legal costs within the

Condensed

Consolidated Statement of Operations for the three months ended December

, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, and the ultimate resolution of the DOJ LeadCare legal matter may exceed the amount accrued at

December 31

, 2022 and could be material to the Company. Approximately $814 and $281 of expense for attorneys’ fees related to this matter is included within the Condensed Consolidated Statements of Operations for the three months ended December 31, 2022 and 2021, respectively.

8.	Cash and Cash Equivalents

Cash and cash equivalents are comprised of the following:


	December 31, 2022		September 30, 2022
Institutional money market funds	$	1,027	$	1,027
Cash on hand, unrestricted		73,071		80,426

Total	$	74,098	$	81,453

Cash equivalents and 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.

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9.	Inventories, Net

Inventories, net are comprised of the following:


	December 31, 2022		September 30, 2022
	December 31, 2022		September 30, 2022
Raw materials	$	18,063	$	15,726
Work-in-process		25,329		21,570
Finished goods - instruments		2,126		1,796
Finished goods - kits and reagents		27,145		28,722

Total	$	72,663	$	67,814

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 three months ended December 31, 2022, goodwill increased $4,265, comprised of: (i) a $20 increase in Diagnostics segment goodwill; and (ii) a $4,245 increase in Life Science segment goodwill. This overall net increase in goodwill reflects $3,500 of goodwill acquired in the Estel acquisition (see Note 6), along with the effects of foreign currency translation. During the three months ended December 31, 2022, the Company did not observe any triggering events or substantive changes in circumstances requiring the need for an interim impairment assessment

A summary of other intangible assets, net, subject to amortization is as follows:


	December 31, 2022				September 30, 2022
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Manufacturing technologies, core products and cell lines	$	56,380	$	21,366	$	56,289	$	20,321
Trade names, licenses and patents		18,363		10,906		18,257		10,491
Customer lists, customer relationships and supply agreements		52,829		23,779		52,703		22,363
Non-compete agreements		110		59		110		53

Total	$	127,682	$	56,110	$	127,359	$	53,228

The aggregate amortization expense for these other intangible assets was $2,541 and $2,483 for the three months ended December 31, 2022 and 2021, respectively. The estimated aggregate amortization expense for these other intangible assets for each of the fiscal years through fiscal 2028 is as follows: remainder of fiscal 2023 – $7,425, fiscal 2024

—

$9,900, fiscal 2025

—

$9,890, fiscal 2026

—

$8,900, fiscal 2027

—

$6,645, and fiscal 2028 – $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.

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The lease costs for these operating leases reflected in our Condensed Consolidated Statements of Operations, as well as the

right-of-use

assets, net obtained during these periods in exchange for operating lease liabilities, are as follows:


Three Months Ended December 31,	2022		2021
Lease costs within cost of sales	$	226	$	225
Lease costs within operating expenses		349		388
Right-of-use assets, net, obtained in exchange for operating lease liabilities		423		218

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 three months ended December 31, 2022 and 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. The weighted average remaining lease term for our operating leases and the weighted average discount rate used to measure our operating leases were as follows:


	December 31, 2022			September 30, 2022
	December 31, 2022			September 30, 2022
Weighted average remaining lease term		3.6 years			3.9 years
Average discount rate		3.5	%		3.5	%

Maturities of lease liabilities by fiscal year for the Company’s operating leases were as follows as of December 31, 2022:


2023 (represents remainder of fiscal year)	$	1,571
2024		1,796
2025		1,519
2026		796
2027		545
Thereafter		136

Total lease payments		6,363
Less amount of lease payments representing interest		(222	)

Total present value of lease payments	$	6,141

Supplemental cash flow information related to the Company’s operating leases is as follows:


Three Months Ended December 31,	2022		2021

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	580	$	627

12.	Bank Credit Arrangements

The Company maintains a revolving credit facility with a commercial bank in an aggregate principal amount not to exceed $200,000, which expires in 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 rate of 3.46% and 2.22% on the revolving credit facility during the three months ended December 31, 2022 and 2021, respectively.

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In light of the interest being determined on a variable rate basis, the fair value of the borrowings under the credit facility at both December 31, 2022 and September 30, 2022 approximates the $25,000 carrying value reflected in the Condensed Consolidated Balance Sheets, 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 December 31, 2022, the Company was in compliance with all covenants.

See Note 18 for a discussion of activities related to the Company’s bank credit arrangements occurring subsequent to the December 31, 2022 Condensed Consolidated Balance Sheet date.

13.	Contingent Obligations and Non-Current Liabilities

In connection with the acquisition of Exalenz 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, 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 $5,320 and $5,287 as of December 31, 2022 and September 30, 2022, respectively, bearing interest at rates ranging from 0.58% to 2.02%.

The grant obligations are reflected in the Condensed Consolidated Balance Sheets as follows:


	December 31, 2022		September 30, 2022
Current liabilities	$	799	$	667
Non-current liabilities	$	4,521	$	4,620

Additionally, the Company has provided certain post-employment benefits to its former Chief Executive Officer, and these obligations total $1,254 and $1,284 at December 31, 2022 and September 30, 2022, 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 $652 and $566 at December 31, 2022 and September 30, 2022, respectively.

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. The Company has received $1,000 under the grant contract for reimbursement of eligible research and development expenditures.

On January 25, 2022, the Company entered into a contract to amend the Company’s second grant contract under the RADx initiative, which was originally effective February 1, 2021. The purpose of the grant is to support the Company’s manufacturing production

scale-up

and expansion to meet the demand for

COVID-19

testing, as well as the Company’s Revogene respiratory panel. The amended contract is a

24-month

service contract through January 2023, with

a subsequent extension to January 2025 and

payment of up to $6,250 being made based on the Company achieving key milestones related to increasing its capacity to produce

COVID-19

tests and the Revogene respiratory panel. As of December 31, 2022, $2,750 has been received related to this contract and is reflected as a reduction in the cost of building and improvements on the Condensed Consolidated Balance Sheets, in accordance with applicable accounting guidance.

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15.	Reportable Segment and Major Customers Information

The Company’s reportable segments maintain separate financial information for which results of operations are evaluated on a regular basis by the Company’s chief operating decision maker in deciding how to allocate resources and 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 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 Directors, along with certain other corporate-wide support functions such as insurance, legal and business development. The Company generally does not allocate these types of corporate expenses to the reportable segments.

Reportable segment and corporate information for the interim periods is as follows:


	Diagnostics			Life Science		Corporate (1)			Eliminations (2)			Total
Three Months Ended December 31, 2022
Net revenues -
Third-party	$	39,366		$	17,536	$	—		$	—		$	56,902
Inter-segment		86			8		—			(94	)		—
Operating income (loss)		3,160			5,383		(36,693	)		35			(28,115	)
Goodwill (December 31, 2022)		94,432			26,135		—			—			120,567
Other intangible assets, net (December 31, 2022)		71,570			2		—			—			71,572
Total assets (December 31, 2022)		353,997			102,775		—			(9	)		456,763

Three Months Ended December 31, 2021
Net revenues -
Third-party	$	33,204		$	55,137	$	—		$	—		$	88,341
Inter-segment		34			55		—			(89	)		—
Operating income (loss)		(1,763	)		26,602		(4,571	)		15			20,283
Goodwill (September 30, 2022)		94,412			21,890		—			—			116,302
Other intangible assets, net (September 30, 2022)		74,129			2		—			—			74,131
Total assets (September 30, 2022)		357,630			105,511		—			(44	)		463,097

(1)	Includes acquisition and transaction related costs and litigation and select legal costs of $34,048 and $281 in the three months ended December 31, 2022 and 2021, respectively.

(2)	Eliminations consist of inter-segment transactions.

A reconciliation of reportable segment operating income (loss) to consolidated earnings

(loss)

before income taxes is as follows:


Three Months Ended December 31,	2022			2021
Operating income (loss):
Diagnostics segment	$	3,160		$	(1,763)
Life Science segment		5,383			26,602
Eliminations		35			15

Total operating income		8,578			24,854
Corporate expenses		(36,693	)		(4,571	)
Interest income		3			1
Interest expense		(148	)		(372	)
Other, net		(837	)		(161	)

Consolidated earnings (loss) before income taxes	$	(29,097	)	$	19,751

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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 57% and 32% of consolidated net revenues during the three months ended December 31, 2022 and 2021, respectively.

Three individual Diagnostics and two Life Science segment customers, including their affiliates, comprising 10% or more of reportable segment net revenues were as follows:


Three Months Ended December 31,	2022			2021

Diagnostics
Customer A		7	%		10	%
Customer B		10	%		11	%
Customer C		12	%		11	%
Life Science
Customer D		—	%		23	%
Customer E		4	%		14	%
Customer F		12	%		5	%

In addition,

one of

the Life Science segment customers, including their affiliates, identified above accounted for greater than 10% of consolidated net revenues as follows:

No individual Diagnostics segment customer accounted for greater than 10% of

consolidated

net revenues during the three months ended December 31, 2022 or 2021.

During the three months ended December 31, 2022 and 2021, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately 42% and 67%, respectively, of Life Science segment net revenues, and 13% and 42%, respectively, of consolidated net revenues.

No Diagnostics or Life Science segment customer accounted for greater than 10% of consolidated accounts receivable as of December 31,

2022

, while one Diagnostics segment customer (Customer B above) and one Life Science segment customer (

Customer F

above) accounted for approximately 12% and 11%, respectively, of consolidated accounts receivable as of September 30, 2022.

16.	Income Taxes

The effective rate for income taxes was (2%) and 22% for the three months ended December 31, 2022 and 2021, respectively. The negative effective rate for the three months ended December 31, 2022 relates primarily to the anticipated

non-deductibility

litigation and select legal costs associated with

the previously discussed DOJ LeadCare legal matter (see Note 7).

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17.	The Merger

On July 7, 2022, the Company entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, 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,” and together with SDB and Parent, the “Parent Parties”). Pursuant to the Merger Agreement, Merger Sub merged with and into Meridian (the “Merger”), with Meridian surviving the Merger as a direct wholly owned subsidiary of Parent.

On December 9, 2022, Meridian and the Parent Parties entered into a Letter Agreement (the “Letter Agreement”), modifying the Merger Agreement, such that all of the conditions to the Parent Parties’ obligation to complete the Merger have been satisfied (and are deemed to remain satisfied through the completion of the Merger), provided that Meridian is required to comply with certain covenants in the Merger Agreement through the completion of the Merger. Under the Letter Agreement, Meridian and the Parent Parties also agreed to, among other things, consummate the Merger on January 31, 2023.

On January 31, 2023, the Merger was consummated in accordance with the terms of the Merger Agreement and the Letter Agreement, and Parent, which at the time of Closing was wholly-owned and controlled by SDB, became the sole shareholder of Meridian. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Meridian’s common stock (subject to certain exceptions set forth in the Merger Agreement) was canceled and converted into the right to receive

34.00

n cash, without interest (the “Merger Consideration”). See Note 18 below regarding consummation of the Merger.

The foregoing description of the Merger, the Merger Agreement, and the Letter Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of (i) the Merger Agreement, a copy of which was filed by Meridian as Exhibit 2.1 to Meridian’s Current Report on Form

8-K

filed on July 7, 2022 and is incorporated herein by reference, and (ii) the Letter Agreement, a copy of which was filed by Meridian as Exhibit 2.1 to Meridian’s Current Report on Form

8-K

filed on December 12, 2022 and is incorporated herein by reference.

The Company incurred transaction related costs of approximately $1,160 during the three months ended December 31, 2022 related to the Merger, which is recorded in acquisition and transaction related costs in the Condensed Consolidated Statement of Operations.

18.	Subsequent Events

On January 31, 2023, the Merger was consummated in accordance with the terms of the Merger Agreement and the Letter Agreement, as described in Note 17. Upon completion of the Merger, effective January 31, 2023:

•

Meridian named Jack Kenny and Andrew Kitzmiller as the sole directors of Meridian’s Board of Directors (the “Board”), and all other previously named directors tendered their resignations and resigned from the Board effective January 31, 2023;

•

Meridian amended and restated its Articles of Incorporation and Code of Regulations in accordance with the Merger Agreement which, among other things, changed the fiscal year of the Company to an annual calendar year;

•

Meridian: (i) notified the Nasdaq Stock Market LLC (“Nasdaq”) of the consummation of the Merger, and (ii) requested that Nasdaq (A) suspend trading of Meridian’s common stock effective before the opening of trading on January 31, 2023, and (B) file with the SEC a Form 25 Notification of Removal from Listing and/or Registration to delist and deregister the Shares under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”);

•

Meridian terminated its Amended and Restated Credit Agreement, dated as of October 25, 2021, by and among Meridian, as borrower, the guarantors party thereto, the lenders party thereto, PNC Bank,

Three Months Ended December 31,

Life Science

Customer D