☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Shares, No Par Value | VIVO | The NASDAQ Stock Market LLC | ||
(NASDAQ Global Select Market) |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated | ☐ | |||||
Emerging growth company | ||||||
☐ | ||||||
MERIDIAN BIOSCIENCE, INC.
INDEX TO ANNUAL REPORT
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business” (Part I, Item 1 of this Form
Unless the context requires otherwise, references in this Annual Report on Form
In the discussion that follows, all dollar amounts and share amounts are in thousands (both tables and text), except per share data.
This Annual Report on Form
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.meridianbioscience.com) and our corporate Facebook, Instagram, LinkedIn, Twitter, Vimeo and YouTube accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission (“SEC”) filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report.
MARKET AND INDUSTRY INFORMATION
Market data used throughout this Form 10-K is based on management’s knowledge of the industry and good faith estimates of management. All of management’s estimates presented herein are based on industry sources, including analyst reports and management’s knowledge. We also relied, to the extent available, upon management’s review of independent industry surveys and publications prepared by a number of sources and other publicly available information. We are responsible for all of the disclosures in this Form 10-K and while we believe that each of the publications, studies and surveys used throughout this Form 10-K are prepared by reputable sources, we have not independently verified market and industry data from third-party sources.
All of the market data used in this Form 10-K involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the estimated market position, market opportunity and market size information included in this Form 10-K is generally reliable, such information, which in part is derived from management’s estimates and beliefs, is inherently uncertain and imprecise and has not been verified by any independent source. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 1A. Risk Factors” of Part I of this Form 10-K and elsewhere in this Form 10-K. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.
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PART I.
ITEM 1.
BUSINESS
Overview
Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic testtesting 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, PCR/qPCRimmunoassay blocking reagents, nucleotides,specialized Polymerase Chain Reaction (“PCR”) master mixes, and bioresearch reagents used by IVDother diagnostic test manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. The Company was incorporated in Ohio in 1976. Our principal corporate offices are located near Cincinnati, Ohio, USA.
Our website is
Pending 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”). 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. Consummation of the Merger is subject to customary closing conditions, including, without limitation: (i) the absence of certain legal impediments; and (ii) the condition that no Specified Outcome, as such term is defined in the Merger Agreement, related to the DOJ LeadCare legal matter (which is described in the section entitled “Legal Matter Relating to LeadCare Product Line” of Item 3. “Legal Proceedings”) has occurred or is reasonably likely to occur.
On November 21, 2022, the parties received clearance from the Committee on Foreign Investment in the United States with respect to the Merger and the transactions contemplated by 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
Reportable Segments
Our reportable segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. Detailed information related to theWe describe these reportable segments can be found in the followingthis “Business” section and in other locations withinin this Annual Report on Form
Type of Segment Information | Location within 10-K | |
Physical locations and activities | Item 2. “Properties” | |
Net revenues by geographic region | ||
Item | ||
Financial information | Item 8. “Note 15 of Consolidated Financial Statements” |
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Diagnostics Segment
Products and Markets
Prior to the onset of the COVID-19 pandemic early in 2020, our largest source of net revenues iswas clinical diagnostic products, withhistorically representing approximately two-thirds of our consolidated net revenues. However, primarily due to the effects of the COVID-19 pandemic, which led to the growth in our Life Science segment, our Diagnostics segment providing 68%provided 47% of consolidated net revenues for fiscal 2019. As2022, following 40% of September 30, 2019, our Diagnostics segment had approximately 485 employees in ten countries.
Our clinical diagnostic products provide accuracy, simplicity and speed; enable early diagnosis and treatment of common, acute medical conditions; and provide for better patient outcomes at reduced costs. We target diagnostics for disease states that: (i) are conditions where rapid diagnosis impacts patient outcomes; (ii) have opportunistic demographic and disease profiles; (iii) are underserved by current diagnostic products; and/or (iv) have difficult sample handling requirements (e.g., stool). This approach has allowed us to establish meaningful market share in our target disease states, gastrointestinal and respiratory illnesses, and tests for elevated lead levels in blood.
Our product portfolio includes over 140approximately 200 diagnostic tests and transport media, and is marketed to acute care hospitals, reference laboratories, outpatient clinics and physician office laboratories in over 70 countries around the world.
Our diagnostic assay research and development pipelineprograms are focused on menu expansion for immunoassay products includes a newour Curian and Revogene instrument that utilizes fluorescent chemistry, which improves workflowplatforms, with disease targets in the gastrointestinal and test result readability. As noted above, this new platformrespiratory areas, as well as next generation blood-chemistry testing. Currently pending clearance at the U.S. Food and Drug Administration (“FDA”) is being branded under the “Curian” name. At the end of fiscal 2019, we submitted a 510(k) application for our Curian EHEC Shiga Toxin assay. Our current new product development pipeline includes gastrointestinal and respiratory multi-plex assays on our Revogene instrument platform, and C. difficile combo common antigen and Toxins A and B, on our Curian instrument platform. In addition, we have other assays on both platforms moving through our upstream marketing assessment processes that are expected to add to the FDA for an HpSA rapid immunoassay test for use with the Curian instrument, whichdevelopment pipeline. For our BreathID platform, we are expectingactively looking at the feasibility of combining Urea and Citrica into a single sachet or pouch. We are also pursuing opportunities to introduce to the market during the second quarter of fiscal 2020. We expect to develop additional rapid immunoassay tests for use with the Curian instrument in 2020 and beyond.
The April 2020 acquisition of Exalenz Bioscience Ltd. (“Exalenz”) and the BreathID system, along with the July 2021 acquisition of the BreathTek business, strengthened our position in H. pylori testing, as these products provide an alternative testing approach versus stool antigen testing.
Market Trends
Despite the effects of the COVID-19 pandemic and the intense focus on our Revogene platform includes, among others, a gastrointestinal (“GI”) panel and a respiratory illness (“RI”) panel. We expectSARS-CoV-2 testing, we believe the 510(k) applications for the GI and RI panels to be submitted to the FDA in the latter part of fiscal 2020 and first half of fiscal 2021, respectively.
The growing global pressures to contain total health care costs have accelerated the increased use of diagnostic testing. With rapid and accurate diagnoses of infectious diseases, physicians can pinpoint appropriate therapies quickly, leading to faster recovery, shorter hospital stays and lower overall treatment cost. IDNsIntegrated Delivery Networks (“IDNs”) in our U.S. market have the goal of increasing the efficiency of health care delivery, reducing spending and improving clinical outcomes. We believe our product portfolio positions us competitively with IDNs and health care systems that are transitioning from
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We also continue to see aggregation of buying power in our U.S. market via multi-hospital group purchasing organizations (“GPOs”) and IDNs, consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and acquisition of physician practices by hospitals, health systems and
Cost containment pressures have also affected health care systems outside the U.S., particularly in Europe, where the health care systems are generally
Sales, Marketing and Distribution
Our Diagnostics segment’ssegment relies on direct sales personnel and independent distribution network consists of the following for each of the broad geographic regions we serve:
Competition
Our major competitors in molecular diagnostics are Cepheid (a Danaher business) and Becton Dickinson, both of which have systems with multiple-assay menus. We also face competition in molecular diagnostics, but to a lesser degree, from companies such as Abbott (former Alere business) and Quidel.
For blood lead testing, we believe we have the only
Research and Development
Our Diagnostics segment’s research and development personnel are organized into three
Manufacturing
Our diagnostics products are manufactured at four principal sites in Billerica, Massachusetts (blood-chemistry); Cincinnati, Ohio (immunoassays and molecular tests); Modi’in, Israel, (urea breath tests for H. pylori); and Quebec City, Quebec, Canada (molecular tests). Our immunoassay and molecular assay products require the production of highly specialized reagents, primers and enzymes.enzymes, and our BreathID and BreathTek products require the production of urea in pharmaceutical-grade form. We produce the vast majority of our own immunoassay requirements. Reagents, primers and enzymes for our Revogene molecular assay products, as well as primers for our Alethia molecular assay products, and urea for our BreathID and BreathTek systems are purchased from outside vendors. Our blood lead testing products require the production of electrical chemical sensors, which we manufacture using critical raw materials purchased from outside vendors. We believe that we have sufficient manufacturing and sourcing capacity for anticipated growth over the next several years, taking into consideration that we have the ability to add labor shifts and/or production lines as needed.
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Intellectual Property, Patents and Licenses
We own or license U.S. and foreign patents, most of which are for select products manufactured by our Diagnostics segment. These patents are used in our manufacturing processes for select products (e.g., method patents) or may relate to the design of the test device technology format (e.g., design patents). In the absence of patent protection, we may be vulnerable to competitors who successfully replicate our production and manufacturing technologies and processes. Our employees are required to sign confidentiality and
The patents forapplicable to our Alethia products, which represented 13%3%, 16%4% and 17%7% of consolidated net revenues for fiscal 2019, 20182022, 2021 and 2017,2020, respectively, arewere licensed from a third party, Eiken Chemical Co., Ltd., under a
The patents for the Revogene platform and related products acquired as part of the GenePOC business are either wholly owned or licensed from atwo third party,parties, Laval University and The Regents of California, under an exclusive license agreement. These patents are issued in the U.S., European Union (“EU”) and other countries. The term of our exclusive license agreement and the related patents currently runs until 2036,through June 15, 2034, after which we will be free to practice the patents without any restriction or royalty obligation. ForIn September 2021, the U.S. Patent and Trademark Office granted to Meridian Bioscience Canada, Inc. (a wholly owned subsidiary) and Laval University a description ofpatent for our acquisition ofcurrent Revogene test device and its microfluidic use in our Revogene instrument.
The patents for the GenePOC business, see Note 2 ofBreathID system and related urea breath test for H. pylori are either wholly owned or licensed from a third party, Oridion Medical 1987 Ltd., under an exclusive, royalty free, license agreement. The licensed and wholly owned patents are issued in the accompanying Consolidated Financial Statements.
The patents for our
Government Regulation
Our diagnostic products are regulated by the FDA as “devices” pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). While exempt Class I and Class II products do not require FDA review, non-exempt Class I and Class II devices are not expressly approved by the FDA, but, instead, are “cleared” for marketing.marketing (i.e., these products require FDA review prior to marketing clearance). Class III devices generally must receive
Each of the diagnostic products currently marketed by usMeridian in the United StatesU.S. has been cleared, approved or authorized for use by the FDA or are exempt from such requirements. The majority of such products have been cleared by the FDA pursuant to its 510(k) premarket review process, whereas our BreathTek product has been approved under the 510(k) clearanceFDA’s PMA process. In the case of our Revogene SARS-CoV-2 test, it has not been FDA cleared or approved but rather has been authorized by the FDA for emergency use under its Emergency Use Authorization (“EUA”) process, ornoting that there will likely be modifications to the regulatory requirements related to these tests in the near future when the EUA is exempt from such requirements.revoked. We believe that most but not all, products under development will be classified as Class I or II medical devices and, in the case of most of our Class I and all Class II devices, will be eligible for 510(k) clearance; however, we can make no assurances in this regard. Our urea breath test for H. pylori on the BreathID system was cleared as a Class I medical device since the urea drug component was approved by the FDA separately via the New Drug Application (“NDA”) process. Our urea breath test for H. pylori on the BreathTek system was approved by the FDA via the PMA process in 2012. Following receipt of EUA on November 9, 2021 for our original SARS-CoV-2 test, our Omicron variant enhanced SARS-CoV-2 test on the Revogene platform was submitted to the FDA under its EUA program on March 29, 2022, with EUA being granted on July 27, 2022.
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Sales of our diagnostic products in foreign countries are subject to foreign government regulation, which is similar to that of the FDA.
Following a broad range of clinical diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak. While we believe that the breadthfive-year transition period, sales of our diagnostic product lines reducesproducts in the EU are subject to new regulations under the In Vitro Diagnostics Regulation of 2017 (“IVDR”) beginning in May 2022. IVDR replaces the previous IVD Regulation (98/79/EC). In October 2021, the European Commission submitted a proposal to the European Parliament that would move back the May 2022 implementation date for diagnostic tests that are currently CE Marked to dates ranging from May 2022 (for Class A products) to May 2027 (for Class B products), depending on the risk classification of the diagnostic test. We have completed an assessment of needed remediation activities to comply with IVDR and also determined that infections subject to seasonality and sporadic outbreaks will cause significant variability in diagnostic revenues, we can make no assurance that revenuesseveral products will not be impacted period over period by such factors.
Life Science Segment
Products and Markets
Our Life Science segment focuses on the development, manufacture, saledevelops, manufactures, sells and distribution ofdistributes bulk antigens, antibodies, PCR/qPCRimmunoassay blocking reagents, specialized PCR master mixes, isothermal reagents, enzymes, nucleotides, and bioresearch reagents used predominantly by researchers,
Our Life Science segment products are marketed to IVD manufacturing customers as a source of raw materials for their immunoassay products,human clinical diagnostics tests, or as an outsourced step in their manufacturing processes. For example, we supply a number of major IVD manufacturers with proteins used to detect hepatitis A virus and rubella virus. Sales efforts are focused on multi-year supply arrangements in order to provide stability in volumes and pricing. We believe this benefits both us andIndependent distributors market our customers.
Market Trends
Major IVD manufacturing customers often have global footprints, where we are supplying reagents improveto specific manufacturing sites around the purity, yield and speedworld. IVD manufacturers in specific countries of PCR reactions. Products such as MyTaq and SensiFAST are examples of this type of PCR/qPCR reagent.
Competition
The market for bulk biomedical reagents is highly competitive. Important competitive factors includewith respect to product quality, price, customer service and reputation. We faceOur competitors, many of whichsuch as Thermo Fisher, often have greater financial, research and development, sales and marketing, and manufacturing resources, and where sole-source supply arrangements do not exist.resources. Customers also may choose to manufacture their biomedical reagents
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Research and Development
Our research and development activities for the Life Science segment is targeted around improvingfocus on molecular reagents particularly molecular reagents. For example, our Life Science segment introduced a familyfor use in PCR and isothermal chemistries in detecting both DNA and RNA. Our new product development programs are progressing through sample-specific (e.g., blood, saliva, urine, stool, and plant) mixes in both air-dryable and lyophilization-ready forms, and isothermal reagents in both air-dryable and lyophilization-ready forms. We also have enzyme development programs that meet the EU Registration, Evaluation, Authorization, and Restriction of lyophilization-ready reagents that have a number of advantages over prior generation “wet” reagents (e.g., room-temperature shipping and storage and longer shelf-life).Chemicals regulation. See “Operating Expenses” section within MD&A on page 28.
Manufacturing and Government Regulation
Our Life Science segment facilities are ISO 13485:2016 certified. Additionally,13485 certified, and where appropriate, our Life Science segment facilities comply with Regulation EC 1069:2009.
International Markets
International markets are an important source of net revenues and future growth opportunities for both of our reportable segments. For both reportable segments combined, net revenues from customers located outside of the United StatesU.S. and its territories approximated $76,000$170,000 or 38%51% of consolidated fiscal 20192022 net revenues, $73,000$173,000 or 34%55% of consolidated fiscal 20182021 net revenues, and $67,000$122,000 or 33%48% of consolidated 2020 net revenues. Since the outbreak of the COVID-19 pandemic in fiscal 2017 revenues. We2020 and throughout fiscal 2021 and 2022, a significantly higher percentage of our Life Science segment’s net revenues have been generated from international markets, and we expect to continue to look to key European and Asian markets as a source of revenue growth in the future for both business units.growth. For the Life Science segment, we have also focusedcontinue to focus resources on IVD manufacturing customers in China.China, India, Japan and Korea. To date, we have not experienced any adverse effects from the trade tensions between the United StatesU.S. and China, but we cannot be sure that we will not experience any adverse effects in the future.
Fluctuations in foreign currency exchange rates sincein fiscal 20182022 compared to fiscal 2021 had an approximate $2,200$5,200 unfavorable impact on fiscal 2019consolidated 2022 net revenues; $1,150$1,700 within the Diagnostics segment and $1,050$3,500 within the Life Science segment. This compares to
Environmental
We are in compliance with applicable portions of the federal and state hazardous waste regulations and have never been a party to any environmental proceeding.
Human Capital
As of September 30, 2022, our Diagnostics segment had approximately 515 employees in eight countries, our Life Science segment had approximately 210 employees in six countries, and Corporate and Shared Services had approximately 45 employees, all in the U.S. Approximately 57% of our employees are women. In addition, of our U.S. based employees, which represents approximately 65% of our total worldwide workforce, approximately 25% are ethnically diverse.
Below is additional demographic information about our current employee base as of September 30, 2022.
Meridian Employees | 2022 | |||
Salaried workforce | 529 | |||
Managers and above | 161 | |||
Part-time employees | 27 | |||
Average age | 43 | |||
Average length of service in years | 7 | |||
Employee turnover rate (voluntary) | 25 | % | ||
Fiscal 2022 net revenues per employee (in thousands) | $ | 432 |
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Equal Employment Opportunity Table (by number of employees) U.S. Employee Diversity as of September 30, 2022 | ||||||||||||||||||||||||||||||
Job category | Gender | White | Black/African American | Hispanic/Latino | Asian | American Indian/Alaskan Native | Two or more races | Total | ||||||||||||||||||||||
Executive/senior level officials and managers | Male | 10 | — | — | 1 | — | — | 11 | ||||||||||||||||||||||
Female | 2 | — | 1 | — | — | — | 3 | |||||||||||||||||||||||
First/mid-level officials and managers | Male | 47 | 5 | 2 | 2 | — | — | 56 | ||||||||||||||||||||||
Female | 40 | 3 | — | 4 | — | — | 47 | |||||||||||||||||||||||
Professionals | Male | 51 | 6 | 3 | 4 | — | 2 | 66 | ||||||||||||||||||||||
Female | 65 | 10 | 6 | 10 | — | 3 | 94 | |||||||||||||||||||||||
All other | Male | 74 | 7 | 4 | 9 | — | — | 94 | ||||||||||||||||||||||
Female | 84 | 14 | 7 | 13 | — | 2 | 120 | |||||||||||||||||||||||
Total | Male | 182 | 18 | 9 | 16 | — | 2 | 227 | ||||||||||||||||||||||
Female | 191 | 27 | 14 | 27 | — | 5 | 264 |
We believe that developing a diverse, equitable and inclusive culture is critical to continuing to attract and retain the top talent necessary to deliver on our growth strategy. As such, we continue to invest in the creation of a work environment where our employees can feel inspired to deliver their workplace best every day. We continue to expand our Human Resources Information System (“HRIS”) and other systems to track key human capital metrics, including workforce demographics, diversity, turnover, engagement, and training data.
Diversity, Equity and Inclusion
In 2020, we initiated the “One Meridian Inclusion Diversity and Equity Team,” which is comprised of a group of employees around the world and led by Dr. Lourdes Weltzien, Executive Vice President, Life Science, and Melissa McCarey, Vice President, Global Human Resources. Consistent with its mission statement, this team is providing topical programs throughout the year, in an effort to promote awareness so we can encourage and support an environment in which all employees feel included and empowered to achieve their best.
Compensation and Benefits
We strive to provide pay, benefits, and services that are competitive to market and create incentives to attract and retain employees globally. Our compensation packages include market-competitive pay, cash bonuses, health care and retirement benefits, paid time off, and family leave, among others, depending upon locale. We are focused on pay equity globally and are striving to close the gap in pay among similar roles and responsibilities in certain locations within our organization, after accounting for legitimate business factors that can explain differences, such as performance, time at grade level, and tenure. We intend to conduct market surveys every two years to assess market compensation levels from a total compensation perspective. We also continue to advance transparency in our pay and representation data by complying with all applicable statutory filing requirements.
Communication and Engagement
We strongly believe that Meridian’s success depends on employees understanding how their work contributes to the Company’s overall strategy. To this end, we utilize a variety of channels to facilitate open and direct communication, including: (i) One Meridian Company-wide intranet; (ii) quarterly CEO update videos; (iii) open forums or town hall meetings with executives; (iv) regular ongoing update communications; and (v) employee engagement surveys.
Health, Wellness and Safety
We are committed to the safety of our employees and communities, and safety in our operations, our product development activities and our supplier partnerships. Our ultimate goal is to achieve zero serious injuries through continued investment in, and focus on, our core safety programs and injury-reduction initiatives. We provide access to a variety of innovative, flexible, and convenient health and wellness tools.
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ITEM 1A.
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition, cash flows and/or future results. Any one of these factors could cause our actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition and/or operating results.
Risk Factors Summary
Risks Affecting GrowthRelated to Our Strategy
If the Merger contemplated by the Merger Agreement does not occur, it could have a material adverse effect on our business, results of operations, financial condition and Profitabilitystock price.
Our financial condition, results of operations and cash flows could be adversely affected by outbreaks of disease, such as the COVID-19 pandemic.
Net revenues for our BusinessDiagnostics segment may be impacted by our reliance upon large customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Net revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.
Intense competition could adversely affect our profitability and operating results.
• | We expect to continue facing increased competition resulting from the expiration of our H. pylori patents. |
Risks Related to our Intellectual Property
We may be unable to protect or obtain adequate patent protection for intellectual property that we utilize or intend to utilize.
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Risks Related to our Operations
We may be unable to develop new products and services or acquire products and services on favorable terms.
We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities could adversely affect our business and operating results.
We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity and supply chains.
Increased prices for, poor quality of, or extended inability to source raw materials or services used in our products, and supply chain disruptions, could adversely affect profitability.
Risks Related to Legal, Regulatory and International Matters
We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.
If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
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We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the U.S., and failure to comply with these laws could harm our business and the price of our common stock.
We could be adversely affected by health care reform legislation.
Efforts to reduce the U.S. federal deficit could adversely affect our results of operations.
Global market, political, environmental, and economic conditions, including those related to the financial markets, could have a material adverse effect on our operating results, financial condition, and liquidity.
We depend on international net revenues, and our operating results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.
New tariffs and other trade measures could adversely affect our operating results.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products.
Risks Related to Our Common Stock
The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation.
Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
The authority of our board to issue preferred stock and the effects of certain provisions of Ohio corporation law may discourage takeover bids.
General Risk Factors
One or more cybersecurity incidents may adversely impact our financial condition, results of operations and/or reputation.
Our business could be negatively affected if we are unable to attract, hire and retain key personnel.
Our bank credit agreement imposes restrictions with respect to our operations, which could adversely impact our business.
Risks Related to Our Strategy
If the Merger contemplated by 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 noted above within the “Pending Merger” section of Item 1. “Business.” Completion of the proposed Merger is subject to the satisfaction of various conditions. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed 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, or other matters that affect the timing or ability to complete the transaction as contemplated;
the possibility of disruption to our business, including increased costs and diversion of management time and resources;
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;
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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;
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 and general disruption to our business.
Our financial condition, results of operations and cash flows could be adversely affected by outbreaks of disease, such as the COVID-19 pandemic.
Any outbreak of contagious diseases, such as COVID-19, or other adverse public health developments, could have material and adverse effects on our business operations. Such adverse effects could include diversion or prioritization of health care resources away from the conduct of diagnostic testing, disruptions of or restrictions on the ability of laboratories to process our tests, and delays or difficulties with respect to patients accessing our tests, including those resulting from an inability to travel as a result of quarantines or other restrictions resulting from such outbreaks. As COVID-19 continues to affect individuals and businesses around the globe, we may experience disruptions that could severely impact our business, including:
decreased volume of testing and related sales of certain of our Diagnostics segment products as a result of disruptions to health care providers and limitations on the ability of providers to administer tests;
disruptions or restrictions on the ability of the Company’s, our collaborators’, or our suppliers’ personnel to travel, and temporary closures of our facilities, or the facilities of our collaborators or suppliers;
limitations on employee resources that would otherwise be focused on the development of our products, the processing of our diagnostic tests, and/or the conduct of our clinical trials, because of illness of employees or their families, or requirements imposed on employees to avoid contact with large groups of people; and
delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.
In addition, the continued spread of COVID-19 globally could adversely affect our manufacturing and supply chains. Parts of our direct and indirect supply chains are located overseas, including in China, and may accordingly be subject to disruption. Additionally, our results of operations could be adversely affected to the extent that COVID-19 or any other epidemic harms our business or the economy in general either domestically or in any other region in which we do business. The extent to which COVID-19 affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19, and the actions to contain COVID-19 or treat its impact, among others, which could have an adverse effect on our business, results of operations and financial condition. Over the course of the COVID-19 pandemic, we have generally seen a slowing of our assay instrument placements and sales of related test kits, as diagnostic testing sites turned their attention to critical care testing. We are unable to predict when expected sales volume levels for our instruments and related test kits will return. Also, as a result of the COVID-19 pandemic, certain clinical trials related to our products which were underway or scheduled to begin were temporarily placed on hold. Such delays have impacted our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the COVID-19 pandemic slowed efforts to expand our product portfolio through acquisition opportunities, impacting the speed with which we are able to bring additional products to market.
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Net revenues for our Diagnostics segment may be impacted by our reliance upon large customers in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions.
Key Distributors
Our Diagnostics segment’s net revenues from sales through three customers, including two key distributors, were approximately 29%, 33% and 32% of the Diagnostics segment’s total net revenues for 2022, 2021 and 2020, respectively, or approximately 13%, 13% and 15%, respectively, of each year’s consolidated net revenues. The loss of any one of these customers could negatively impact our net revenues and results of operations unless suitable alternatives were timely found or in the case of distributor customers, lost sales to one distributor were absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future selling, general and administrative expenses.
In addition, buying patterns of these customers may fluctuate from quarter to quarter, potentially leading to uneven concentration levels on a quarterly basis.
Seasonal Factors and Sporadic Outbreaks
Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak or the COVID-19 pandemic. While we believe that the breadth of our Diagnostics segment product lines normally reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in Diagnostics segment net revenues, the COVID-19 pandemic has had a significant adverse impact on our Diagnostics segment net revenues since it began in fiscal 2020. Accordingly, we can make no assurance that net revenues will not be negatively impacted period over period by such factors.
Changing Diagnostic Market Conditions
Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of GPOs and IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and/or IDNs, which could adversely affect our results of operations.
Net revenues for our Life Science segment may be impacted by customer concentrations and buying patterns.
Our Life Science segment’s net revenues from three diagnostic manufacturing customers were 31%, 20% and 24% of the Life Science segment’s total net revenues for 2022, 2021 and 2020, respectively. Sales to these three diagnostic manufacturing customers comprised 17%, 12% and 13% of consolidated net revenues for 2022, 2021 and 2020, respectively. In addition, in excess of 10% of the Life Science segment’s total net revenues has historically been concentrated among a number of other significant customers. Any significant alteration of buying patterns from these customers resulting from the decline in COVID-19 related demand, or otherwise, could adversely affect our period over period net revenues and results of operations.
Intense competition could adversely affect our profitability and operating results.
The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small start-up companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors.
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We expect to continue facing increased competition resulting from the expiration of our H. pylori patents.
The patents for our stool antigen H. pylori products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. As a result, competition with respect to our stool antigen H. pylori products, products which currently represent approximately 5% of our total net revenues has increased, adversely impacting our selling prices for these products, and/or our ability to retain business at prices acceptable to us. To mitigate certain of the pricing and volume pressures we face within the gastrointestinal product category, we have: (i) operated under a strategic collaboration agreement with DiaSorin to sell H. pylori tests; (ii) adjusted selling prices to secure volume; and (iii) upon FDA clearance in March 2020, launched 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 and BreathTek products to mitigate competitive pressures, as these systems provide an alternative to stool antigen testing. 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 net revenues and gross profit.
Risks Related to Our Intellectual Property
We may be unable to protect or obtain adequate patent protection for intellectual property that we utilize or intend to utilize.
In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses, or proprietary or patented technologies, in the future.
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Litigation over intellectual property rights is prevalent in the life science and diagnostic industries. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our future results of operations and liquidity, including net revenues and gross profit.
Risks Related to Our Operations
We may be unable to develop new products or acquire products on favorable terms.
The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and services that incorporate technological advances, meet customer requirements, and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations.
In addition, we must regularly allocate considerable resources to research and development of new or acquired products, services and technologies, and protecting intellectual property. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a productproject in which we have invested substantial resources, any of which could adversely affect our results of operations.
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We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make.
One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional operating costs, disrupted operations, challenges in employee retention, and increased risk of asset impairments if future net revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s net earnings and financial results.
The effective tax rate of the Company may be negatively impacted by changes in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
We are subject to income taxes in the U.S. and various other global jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings by jurisdiction and the valuation of deferred tax assets and liabilities. Recently, the current U.S. presidential administration committed to tax reform, and if enacted, the impact could be material to our tax provision and value of deferred tax assets and liabilities. We recognize deferred tax assets and liabilities based on the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Significant judgment is required in determining our provision for income taxes. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or lost salesall of a deferred tax asset will not be realized. If we are unable to one distributor were absorbed by another distributor. Findinggenerate sufficient future taxable income, if there is a suitable alternative on satisfactory terms may pose challengesmaterial change in the actual effective tax rates, or if there is a change to the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance against our deferred tax assets, which could result in a material increase in our industry’s competitive environment. As an alternative, weeffective tax rate.
Changes in tax laws or tax rulings could expandhave a material impact on our effortseffective tax rate. Many countries in the EU, as well as several other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantlyexisting tax laws. Certain proposals could include recommendations that could increase our future selling, generaltax obligations in those countries where we do business. Any changes in the taxation of our activities in such jurisdictions may result in a material increase in our effective tax rate.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and administrative expenses.
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We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business.
Raw Materials and Components
Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components in FDA-cleared products. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained.
We utilize third-party manufacturers for certain of our instrumentation. One third party manufactures our proprietary Alethia Incubator/Reader (instrument), a component of our Alethia molecular system, and an additional third party manufactures our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories,If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidationit may take as long as 12 months to transfer instrument manufacturing. An interruption in the U.S. health care industry has also led to the creationmanufacturing of group purchasing organizations (“GPOs”) and IDNs that aggregate buying power for hospital groups and put pressurethese instruments could have a material adverse effect on our selling prices. Dueresults of operations.
Additionally, one third party manufactures a certain reagent for use with our Alethia assays. While alternative suppliers exist, we elect to such consolidation,utilize this third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our results of operations.
Finished Products
We outsource the manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturing in-house.
Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining adequate inventory levels, supplier qualification procedures, supplier audits, site visits, and frequent communication. Additionally, we have identified potential alternate suppliers.
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 enter intoachieve 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 (the “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 War either directly or indirectly disrupts our supply chains and we are unable to mitigate such disruption, the War could have a material adverse effect on our future consolidated financial condition and results of operations.
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Increased prices for, poor quality of, or extended inability to source raw materials or services used in our products, and supply chain disruptions, could adversely affect profitability.
Our profitability is affected by the prices of the raw materials used in the manufacture of our products. These prices fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel-related delivery costs, competition, import duties, tariffs, currency exchange rates, and, in some cases, government regulation. Significant increases in the prices of raw materials, services and transportation costs, similar to the inflationary increases we have experienced since the second half of fiscal 2021, that cannot be recovered through increases in the price of our products and/or sustain contractual oroffset by savings in other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and/or IDNs, whichareas, could adversely affect our results of operations.
We cannot guarantee that the prices we are paying for raw materials today will continue in the future, or that the marketplace will continue to support current prices for our products, or that such prices can be adjusted to fully or partially offset raw material price increases in the future. Any increases in prices resulting from a tightening supply of these or other commodities could adversely affect our profitability. We do not engage in hedging transactions for raw material purchases, but we do enter into some fixed-price supply contracts.
Our dependency upon regular deliveries of supplies and the quality of those supplies upon delivery from particular suppliers means that interruptions, stoppages, or deterioration of quality in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. Several of the raw materials used in the manufacture of our products currently are procured from a single source. In some cases, we also outsource certain services to suppliers, including but not limited to, engineering, assembly, shipping, and commissioning services. If a supplier were unable to deliver these materials or services, or if the quality of these materials or services declined, for an extended period of time as a result of financial difficulties, catastrophic events affecting their facilities, or other factors, including recent supply chain disruptions we have experienced, or if we were unable to negotiate acceptable terms for the supply of materials or services with these suppliers, our business could be adversely affected by health care reform legislation.
Risks Related to Legal, Regulatory and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small
We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations.
Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or approvals, or timely clearances or approvals, to market future products in the United StatesU.S. and other countries. Costs and difficulties in complying with laws and regulations administered by the U.S. Food and Drug Administration,FDA, the U.S. Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control and Prevention (“CDC”), or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing products.
Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and costscost of approvals difficult to predict. Failure to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to manufacture or sell products, and other civil or criminal sanctions.
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If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted.
Our diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products. The FDA may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the facility’s written response and may
FDA enforcement actions, which include seizure, injunction, criminal prosecution, and civil penalties, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, salesnet revenues and profitability.
We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product, or any of its components, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our business, consolidated financial condition and results of operations.
As described in Item 3. “Legal Proceedings”, on April 17, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the United StatesU.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlinesoutlined documents to be produced, and we arethe Company is cooperating with the DOJ in this matter. We maintainThe Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and areis working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. Werequests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. WeIn 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. As of September 30, 2022, in accordance with applicable accounting guidance, the Company believes a loss is probable in the DOJ LeadCare legal matter and has accrued $10,000 as an estimate of the cost to resolve the DOJ LeadCare legal matter, which is reflected in litigation and select legal costs within the Consolidated Statement of Operations for the year ended September 30, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, orand the ultimate resolution of the DOJ LeadCare legal matter may exceed the amount accrued at September 30, 2022 and could be material to the Company. Expense for attorneys’ fees related to this matter totaling $3,510, $2,803 and $2,035 is included within the Consolidated Statements of Operations for the years ended September 30, 2022, 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 potential impact on Meridian.
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 principalremediation 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).
During June 2021, the FDA performed an inspection of Magellan’s manufacturing facilities and/or third-party manufacturing facilities would adversely affectfacility. As a result of this inspection, the FDA issued one Form 483 observation. On August 3, 2021, FDA sent Magellan a close-out letter for the Warning Letter that FDA issued to Magellan on October 23, 2017. The 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.
We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the U.S., and failure to comply with these laws could harm our business and operating results.
As a public company listed in the U.S., we incur significant legal, accounting and services is dependent on the uninterrupted and efficient operation of these facilities.other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board (“PCAOB”) and the NASDAQ Global Select Market, may increase our legal and financial compliance costs and/or make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If we currently rely on a small number of third-party manufacturersfail to produce certain ofcomply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us, and our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilitiesbusiness may be harmed.
We could be adversely affected by power failures,health care reform legislation.
Third-party payers for medical products and services, including state, federal and foreign governments, are increasingly concerned about escalating health care costs and can indirectly affect the pricing or natural or other disasters suchthe relative attractiveness of our products by regulating the maximum amount of reimbursement they will provide for diagnostic testing services. Following years of increasing pressure, during 2010 the U.S. government enacted comprehensive health care reform with the enactment of the Patient Protection and Affordable Care Act, as earthquakes, floods, tornadoes or terrorist threats. Although we carryamended by the Health Care and Education Reconciliation Act, which made changes that significantly impact the pharmaceutical and medical device industries. The Protecting Access to Medicare Act of 2014 requires applicable laboratories to report all private payor reimbursement rates and the volumes for each test they perform. The statute requires that Medicare establish reimbursement rates based on the weighted median of private insurance reimbursement rates effective January 1, 2017. The new Medicare rates would be subject to protect against certain business interruptions ata maximum reduction of 10% a year for the initial three-year period and a maximum of 15% a year for the subsequent three-year period. There is no limit on the amount of potential rate increases. As a result, some of our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruptioncustomers in the Company’s or a third-party supplier’s manufacturing capabilities could materially andU.S. may experience lower Medicare reimbursement rates for our products, which may adversely affect our operating results.business, financial condition and results of operations. We are seeing some effect on the reimbursement rates for our products. If reimbursement amounts for diagnostic testing services decrease further in the future, such decreases may reduce the amount that will be reimbursed to hospitals or physicians for such services and consequently, could place constraints on the levels of overall pricing, which could have a material effect on our net revenues and results of operations.
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Additional state and federal health care reform measures may be adopted in the future, any of which could have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the U.S. government has in the past considered, is currently considering, and may in the future consider, health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public reimbursement for health care services. Further, state and local governments, as well as a number of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the U.S. or elsewhere, and current uncertainty about whether and how changes may be implemented, could have a negative impact on the demand for our products. We dependare unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what effect such policies would have on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruptionour business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers.
Efforts to reduce the U.S. federal deficit could adversely affect our business.
Any reductions in government health care spending or research funding in an effort to reduce the U.S. federal deficit could result in reduced demand for our products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components in
Global market, political, environmental, and upon its commercialization duringeconomic conditions, including those related to the first half of fiscal 2020, an additional third party will manufacture our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the United States. If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instrumentsfinancial markets, could have a material adverse effect on our operating results.results, financial condition, and liquidity.
Our business is sensitive to changes in general economic, political and environmental conditions, both inside and outside the U.S. Conditions such as the following, among others, may create additional risk to our results of operations: (i) continuing uncertainties in the eurozone; (ii) the effects of climate change regulation; (iii) the global effects of the ongoing COVID-19 pandemic, including the Emergency Temporary Standard (“ETS”) COVID-19 workplace vaccination and testing mandate from the Occupational Safety and Health Administration (“OSHA”); (iv) unanticipated implications from the voluntary exit of the U.K. from the EU; and (v) uncertainties in China and emerging markets.
Instability in the global economy and financial markets can adversely affect our business in several ways, including limiting our customers’ ability to obtain sufficient credit or pay for our products within the terms of sale. Competition could further intensify among the manufacturers and distributors with whom we compete for volume and market share, resulting in lower net revenue due to steeper discounts and product mix-down. In particular, if certain key or sole suppliers were to become capacity constrained or insolvent, it could result in a reduction or interruption in supplies or a significant increase in the price of supplies.
The U.K. left the EU on January 31, 2020. While all EU rules and laws continued to apply to the U.K. through the transition period, which ended December 31, 2020, the U.K. and the EU reached a free trade agreement on December 24, 2020, which was ratified on April 28, 2021 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. is free to set its own trade policy and can negotiate with other countries that do not currently have free trade deals with the EU. Although the full impact of the trade agreement is uncertain, it is possible that the recent changes to the trading relationship between the U.K. and the EU due to the trade agreement could result in increased cost of goods imported into and exported from the U.K., which may decrease the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the trade agreement will have on our business; however, Brexit and its related effects could potentially have an adverse impact on our consolidated financial condition, and results of operations.
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We depend on international net revenues, and our operating results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets.
We sell products and services into approximately 70 countries. For fiscal 2022, approximately one-third of our consolidated net revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates for use withthe Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and New Israeli shekel. In addition, we have manufacturing operations, suppliers, and employees located outside the U.S. Since our Alethia assays. While alternative suppliers exist,growth strategy depends in part on our ability to further penetrate markets outside the U.S., we electexpect to utilize this third party exclusivelycontinue to increase our revenue and presence outside the U.S., including in orderemerging markets.
Our international business is subject to maintain consistencyrisks that are often encountered in our materials, which is critical in complying with FDA regulatory requirements. An non-U.S. operations, including:
interruption in the manufacturingtransportation of these reagentsmaterials to us and finished goods to our customers, including conditions where recovery from natural disasters may be delayed due to country-specific infrastructure and resources;
differences in terms of sale, including payment terms;
local product preferences and product requirements;
changes in a country’s or region’s political or economic condition, including with respect to safety and health issues;
trade protection measures and import or export licensing requirements;
unexpected changes in laws or regulatory requirements, including unfavorable changes with respect to tax, trade or sanctions compliance matters;
limitations on ownership and on repatriation of earnings and cash;
difficulty in staffing and managing widespread operations;
differing labor regulations;
difficulties in enforcing contract and property rights under local law;
difficulties in implementing restructuring actions on a timely or comprehensive basis; and
differing protection of intellectual property.
Such risks may be more likely or pronounced in emerging markets, where our operations may be subject to greater uncertainty due to increased volatility associated with the developing nature of their economic, legal, and governmental systems.
If we are unable to successfully manage the risks associated with expanding our global business or to adequately manage operational fluctuations, it could have a material adverse effectadversely affect our business, consolidated financial condition, or results of operations.
New tariffs and other trade measures could adversely affect our operating results.
The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include countries from which we import components or raw materials. We are currently not aware of any new import duties imposed on our operating results.
Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental actions related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, manufacturers, suppliers and/or the economic environments in which we find another supplier or bring manufacturing
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If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products.
The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We currently carry product liability insurance at a level we believe is commercially reasonable, although there is no assurance that it will be adequate to cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related to our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business.
Risks Related to Our Common Stock
The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation.
The market price of our common stock may be subject to significant fluctuations due to numerous factors, including but not limited to the risks described in this “Risk Factors” section. In addition, the stock market in general, the NASDAQ Global Market and the market for diagnostics companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our consolidated financial condition and results of operations.
Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest.
In recent years, proxy contests and other forms of stockholder activism have been directed against numerous public companies. If a proxy contest or an unsolicited takeover proposal is made with respect to us, we could incur significant costs in defending our company, which would have an adverse effect on our financial results. Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of our company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
The authority of our board to issue preferred stock and the effects of certain provisions of Ohio corporation law may discourage takeover bids.
Our board of directors has the authority to issue up to one million shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of such shares without any future vote or action by the shareholders. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company that have not been negotiated with the board of directors. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, sales of substantial amounts of shares in the public market could adversely affect the market price of our common stock and our ability to raise additional capital at a price favorable to us.
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General Risk Factors
One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation.
Our operations involve the use of multiple systems that process, store and transmit sensitive information about our customers, suppliers, employees, financial position, operating results and strategies. We face global cybersecurity risks and threats on a continual and ongoing basis, which include, but are not limited to, attempts to access systems and information, computer viruses, or denial-of-service attacks. These risks and threats range from uncoordinated individual attempts to sophisticated and targeted measures. While we are not aware of any material cyber-attacks or breaches of our systems to date, we have and continue to implement measures to safeguard our systems and information and mitigate potential risks, including employee training around phishing, malware and other cyber risks, but there is no assurance that wesuch actions will resume the paymentbe sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems, compromise sensitive information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of dividends.
Our business could be negatively affected if we are unable to attract, hire and retain key personnel.
Our future success depends on our continued ability to attract, hire and retain highly qualified personnel, including our executive officers and scientific, technical, sales and marketing employees, and their ability to manage growth successfully. If such key employees were to leave and we were unable to obtain adequate replacements, our results of operations could be adversely affected.
Our bank credit agreement imposes restrictions with respect to our operations, which could adversely impact our business.
Our bank credit agreement contains a number of financial position,covenants that require us to meet certain financial ratios and operating results.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate offices infectious disease Diagnostics manufacturing facility, and infectious disease Diagnostics research and development facility are located in four buildings totaling approximately 117,000 square feet on approximately seven acres of land in the Village of Newtown, a suburb of Cincinnati, Ohio. These properties are owned by us. Our blood-chemistryNewtown campus includes sites for diagnostic test manufacturing and distribution, immunoassay research and development operationsand administrative functions. Our Newtown campus also includes a new facility where we are located in an approximately 30,000 square foot leased facilityexpanding and automating our Revogene diagnostic test device manufacturing. We also have diagnostic test manufacturing and distribution sites in Billerica, Massachusetts (blood-chemistry), Modi’in, Israel (BreathID and our
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Our Life Science operations are conducted in several facilities in Memphis, Tennessee; Boca Raton, Florida; North Brunswick, New Jersey; London, England; Luckenwalde, Germany; Sydney, Australia; and Beijing, China. Our facilityManufacturing of molecular reagents occurs in our London and Luckenwalde sites. Manufacturing of immunoassay reagents occurs in our Memphis Tennessee consists of two buildings totaling approximately 44,000 square feet and is owned by us. Our leased facility in Boca Raton Florida contains approximately 7,500 square feet of manufacturing space. Following are details ofsites. Our sites in London and North Brunswick also include our other Life Science facilities, all of which are leased: London – approximately 19,500 square feet of sales, warehouse, distribution,primary research and development manufacturing and administrative office space; Luckenwalde – approximately 10,500 square feet of sales, warehouse and manufacturing space; Sydney – approximately 5,000 square feet of sales and warehouse space; Beijing – less than 1,000 square feet of sales and business development space.
ITEM 3.
LEGAL PROCEEDINGS
We are a party to various litigation matters that we believe are in the normal course of business.business, including matters related to the previously discussed pending merger. Aside from the matters discussed below, the ultimate resolution of these matters is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows, and no material provision has been made in the accompanying Consolidated Financial Statements for these matters.
Legal Matter Relating to corporate governance matters and attorneys’ fees. On October 9, 2019, Court granted plaintiff’s motion for voluntary dismissal. Accordingly, no provision for litigation losses has been included within the accompanying Consolidated Statements of Operations for fiscal 2019, 2018 or 2017.
On April 17, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the United StatesU.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlinesoutlined 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.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. As of September 30, 2022, in accordance with applicable accounting guidance, the Company believes a loss is probable in the DOJ LeadCare legal matter and has accrued $10,000 as an estimate of the cost to resolve the DOJ LeadCare legal matter, which is reflected in litigation and select legal costs within the Consolidated Statement of Operations for the year ended September 30, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, or its potential impact onand the ultimate resolution of the DOJ LeadCare legal matter may exceed the amount accrued at September 30, 2022 and could be material to the Company. Approximately $1,585 and $775 of expenseExpense for attorneys’ fees related to this matter totaling $3,510, $2,803 and $2,035 is included within the accompanying Consolidated Statements of Operations for fiscal 2019the years ended September 30, 2022, 2021 and 2018,2020, respectively.
Litigation Relating to the Merger
On OctoberSeptember 9, 2018,2022, a purported shareholder of the Company filed an action against the Company and DiaSorin Inc. entered into a strategic collaboration to sell DiaSorin’s
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ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the NASDAQ Global Select Market under the symbol VIVO.
Holders of our Common Stock
As of September 30, 2019,2022, there were approximately 600490 holders of record and approximately 10,55023,850 beneficial owners of our common shares.
Dividends
During 2019, the Company suspended the payment of itsa quarterly cash dividend which had previously been established at an indicated annual cash dividend rate of $0.50 per share for each of fiscal 2019, 2018 and 2017. The dividend was suspended as part of the Company’s regular evaluation of its capital allocation, with the action taken in order to deploy cash into new product development activities for the Revogene molecular diagnostic platform, as well as the Curian and PediaStat platforms, among other investments, and to preserve capital resources and liquidity for general corporate purposes. TheAny declaration and amount of
Stock Total Return Performance
The graph below matchescompares the cumulative
Bio-Rad
An investment of $100 (with reinvestment of all dividends) is assumed to which certain companies may engage in businesses in which we engage, and the extent to which we and/or our investors consider certain companies to be direct or indirect competitors. The graph assumes that the value of the investmenthave been made in our common stock, in eachthe index and in the peer group (including reinvestment of dividends) was $100 on September 30, 20142017, and tracks itits relative performance is tracked through September 30, 2019.2022.
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ITEM 6.
Income Statement Information (Amounts in thousands, except per share data) | ||||||||||||||||||||
For the Year Ended September 30, | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
Net revenues | $ | 201,014 | $ | 213,571 | $ | 200,771 | $ | 196,082 | $ | 194,830 | ||||||||||
Gross profit | 118,325 | 130,697 | 124,292 | 127,212 | 121,882 | |||||||||||||||
Operating income | 32,699 | 31,584 | 37,382 | 51,378 | 56,060 | |||||||||||||||
Net earnings | 24,382 | 23,849 | 21,557 | 32,229 | 35,540 | |||||||||||||||
Basic earnings per share | $ | 0.57 | $ | 0.56 | $ | 0.51 | $ | 0.77 | $ | 0.85 | ||||||||||
Diluted earnings per share | $ | 0.57 | $ | 0.56 | $ | 0.51 | $ | 0.76 | $ | 0.85 | ||||||||||
Cash dividends declared per share | $ | 0.250 | $ | 0.500 | $ | 0.575 | $ | 0.800 | $ | 0.800 | ||||||||||
Book value per share | $ | 4.47 | $ | 4.14 | $ | 4.02 | $ | 3.95 | $ | 3.96 | ||||||||||
Balance Sheet Information | ||||||||||||||||||||
As of September 30, | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
Current assets | $ | 144,761 | $ | 139,053 | $ | 133,875 | $ | 126,791 | $ | 119,422 | ||||||||||
Current liabilities | 20,914 | 24,173 | 22,887 | 22,571 | 15,251 | |||||||||||||||
Total assets | 325,478 | 251,377 | 249,777 | 252,028 | 183,282 | |||||||||||||||
Long-term debt obligations | 75,824 | 50,180 | 54,647 | 58,360 | — | |||||||||||||||
Shareholders’ equity | 190,967 | 175,418 | 169,585 | 166,472 | 165,873 |
INTENTIONALLY OMITTED
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Refer to “Note About Forward-Looking Statements” following the Index in front of this Form1112 through 2025 of this Annual Report.
In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.
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The purpose of Management’s Discussion and Analysis is to provide an understanding of the financial condition, changes in consolidated financial condition and results of operations of Meridian Bioscience, Inc. (“Meridian”, the “Company”, “We”).
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). 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; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, immunoassay blocking reagents, specialized Polymerase Chain Reaction (“PCR”) master mixes, isothermal mixes, enzymes, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia.
Recent Developments
Agreement and Plan of 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”). 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; and (ii) the condition that no Specified Outcome, as such term is defined in the Merger Agreement, related to the DOJ LeadCare legal matter (which is described in the section entitled “Legal Matter Relating to LeadCare Product Line” of Item 3. “Legal Proceedings”) has occurred or is reasonably likely to occur.
On November 21, 2022, the parties received clearance from the Committee on Foreign Investment in the United States with respect to the Merger and the transactions contemplated by the Merger Agreement.
The Merger Agreement contains certain termination rights for the fourthCompany and SDB. 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.
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The Company incurred transaction related costs of approximately $6,800 in the year ended September 30, 2022 related to the Merger, which is recorded in acquisition and transaction related costs in the Consolidated Statements of Operations.
Impact of COVID-19 Pandemic
Starting in the latter half of fiscal 2020 and continuing to the date of this filing, the ongoing COVID-19 pandemic has had both positive and negative effects on our business.
Our Life Science segment’s products were well positioned to respond to in vitro device (“IVD”) manufacturers’ increased demand for reagents used in the manufacture of molecular, rapid antigen and serology tests. Consequently, through the end of the second quarter of fiscal 2019 decreased 24% to $4,103, or $0.10 per diluted share, from net earnings for the fourth quarter of fiscal 2018 of $5,434, or $0.13 per diluted share. The fiscal 2019 fourth quarter results include $1,714 of costs associated with acquisition activities, restructuring activities and selected legal proceedings (combined impact on net earnings of $1,296, or $0.03 per diluted share). The fiscal 2018 fourth quarter results include $4,576 of costs associated with restructuring activities and selected legal proceedings, along with certain
Our Diagnostics segment, on the other hand, has generally been negatively impacted by health systems’ increased focus on COVID-19 testing over traditional infectious disease testing. The impacts of the COVID-19 pandemic are most dramatically evident in the 34% 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 fiscal 2022, net revenues from our respiratory illness assays were 51% higher than fiscal 2021, a marked improvement over the aforementioned 34% decline in fiscal 2021.
Despite these recent COVID-19 pandemic related trends, due to the fourthmany 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.
Employee Safety
While the majority of our employee base has returned to working on-site at our facilities, we have implemented a hybrid work-from-home program for certain personnel whose on-site presence has been deemed to be non-essential. We also continue to utilize enhanced cleaning and sanitizing procedures, and provide additional personal hygiene supplies at all our sites. We have implemented policies for employees to adhere to Centers 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. 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.
Supply Chains
Supply chains supporting our products have generally remained intact, providing access to sufficient inventory of the key materials needed for manufacturing. 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.
Since the second half of fiscal 2021, we have experienced 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 results of operations and cash flows in the future.
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Product Development and Clinical Trials
Our Diagnostics segment’s new product development programs are continuing to progress at a slower pace than normal, due in part to the prevalence of certain infectious diseases having been lower than normal during the COVID-19 pandemic. These matters continue to impact our timing for filing applications for product clearances with the 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, 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. While there have been quarter-to-quarter fluctuations in demand throughout the COVID-19 pandemic, from late in the second quarter of fiscal 2018. On a constant-currency basis, revenues2020 through the second quarter of fiscal 2022, we generally experienced unprecedented demand for our Life Science Segment increased 9%.
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 two fiscal years, as such assays are often used in non-critical care settings; however, we have seen indications of a return to more normal pre-pandemic levels. The COVID-19 pandemic also has depressed instrument orders and placements for our BreathID, Curian and Revogene platforms. Order activity for our Revogene platform was affected by the delay in obtaining emergency use authorization (“EUA”) for our SARS-CoV-2 assay, as customers took a “wait and see” approach throughout our entire EUA application 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 2019 compared2022 and submitted the required information to fiscal 2018, increasing 3% on a constant-currency basis.
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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 Safety Notification related to Magellan’s LeadCare
As also previously disclosed and set forthdescribed in Item 3. “Legal Proceedings”, on April 17, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the United StatesU.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlinesoutlined documents to be produced, and we continue to cooperatethe Company is cooperating with the DOJ in this matter,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. Werequests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations.
Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare
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During October 2019, the FDA performed a
During June 2021, the FDA performed an inspection of Magellan’s manufacturing facility. As a result of this inspection, the FDA issued one Form 483 observation. 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.
Results of Operations
Fourth Quarter
Net earnings for the fourth quarter of fiscal 2022 decreased 14% to $5,705, or $0.13 per diluted share, from net earnings for the fourth quarter of fiscal 2021 of $6,657, or $0.15 per diluted share. The level of net earnings in the fourth quarter of fiscal 2022 results primarily from the decline in net revenues and operating income in our Life Science segment, stemming from the continued 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. This development makes it increasingly difficult to accurately estimate the portion of molecular reagent sales related specifically to COVID-19. As a result, we are actively working. While we remain committedno longer reporting the portion of Life Science segment net revenues related to strengthening Magellan’s quality systemCOVID-19. Such net revenues were identified and ensuring that all aspectsreported throughout fiscal 2021 and totaled approximately $23,300 in the fourth quarter of fiscal 2021. By contrast, the fourth quarter of fiscal 2021 was adversely affected by approximately $5,600, or $0.10 per diluted share, of LeadCare product recall expenses and a $4,596, or $0.08 per diluted share, upward adjustment to the fair value of acquisition consideration related to the acquisition of the systembusiness of GenePOC, Inc. (“GenePOC”) (i.e., incremental expense), offsetting the impact of higher net revenues and resulting gross profit.
Consolidated net revenues for the fourth quarter of fiscal 2022 totaled $65,675, a decrease of 14% compared to the fourth quarter of fiscal 2021.
Net revenues from the Diagnostics segment for the fourth quarter of fiscal 2022 increased 14% to $39,187, compared to the fourth quarter of fiscal 2021, comprised of a 22% increase in non-molecular assay products, partially offset by a 27% decrease in molecular assay products. Non-molecular assay product sales include the addition of sales of the BreathTek product, which was acquired July 31, 2021. The fourth quarter of fiscal 2022 represents the sixth consecutive quarter our Diagnostics segment has shown positive revenue growth versus the same quarter in the prior fiscal year. Our Diagnostics segment generated a $122 operating loss for the fourth quarter of fiscal 2022, compared to an operating loss of $11,680 in the fourth quarter of fiscal 2021, largely due to the fiscal 2021 fourth quarter including $5,600 of LeadCare product recall expenses and $4,596 upward adjustment to the fair value of acquisition consideration related to the acquisition of the business of GenePOC (i.e., incremental expense) (see Note 3, “Fair Value Measurements” of the Consolidated Financial Statements).
With a 53% decrease in net revenues from molecular reagents products and an 8% decrease in net revenues from immunological reagents products, net revenues for our Life Science segment decreased 37% to $26,488 during the fourth quarter of fiscal 2022 compared to the fourth quarter of fiscal 2021. Our Life Science segment generated $10,064 of operating income, or a margin of 38%, for the fourth quarter of fiscal 2022, a decrease of $13,118 from $23,182, or a margin of 55%, achieved in the fourth 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.
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Fiscal Year
Net earnings for fiscal 2022 decreased 41% to $42,459, or $0.96 per diluted share, from net earnings for fiscal 2021 of $71,407, or $1.62 per diluted share. The level of net earnings in 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 $111,900 in full compliance, we can provide no assurance that our remediation efforts will be successfulfiscal 2021.
Consolidated net revenues for fiscal 2022 totaled $333,018, an increase of 5% compared to fiscal 2021.
Diagnostics segment net revenues increased 22% to $155,903 in fiscal 2022, comprised of a degree acceptable27% increase in non-molecular assay products including the addition of sales of the BreathTek product, which was acquired July 31, 2021, partially offset by a 5% decrease in molecular assay products. Our Diagnostics segment generated operating income of $2,982 in fiscal 2022, compared to an operating loss of $7,280 in fiscal 2021. This year over year improvement in operating income resulted primarily from the combined effects of: (i) the Diagnostics segment’s increase in net revenues; and (ii) fiscal 2021 including $5,600 of LeadCare product recall expenses. These factors contributing to the improvement in operating margin were partially offset by the FDA.
With a 30% decrease in net revenues from molecular reagents products and a 43% increase in net revenues from immunological reagents products, including COVID-19 related products, net revenues for our Life Science segment decreased 7% to $177,115 during fiscal 2019, 2018 and 2017, we incurred approximately $1,8002022 compared to fiscal 2021. Our Life Science segment generated $86,040 of operating income in aggregate remediation costs,fiscal 2022, a decrease of $28,974 from fiscal 2021, primarily related to regulatory consultants and studies required to reinstate our venous blood sample claim. In the course of remediation, we may encounter additional matters that warrant notificationsdue to the FDA and/or customers regardingdecrease in net revenues and gross profit margins, resulting from the useaforementioned mix of our products. At this time, we do not believe that any such notifications would impactproducts sold, and the ability to use the LeadCare systems with capillary blood samples.
REVENUE OVERVIEW
Below are analyses of the Company’s revenue,net revenues, by reportable segment, provided for each of the following:
- By Geographic Region
- By Product Platform/Type
Revenue Overview-Overview – By Reportable Segment & Geographic Region
Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarteryear to quarteryear by buying patterns of major distributors and reference laboratories, seasonality and the 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 quarteryear to quarteryear by buying patterns of major IVD manufacturing customers, severity of disease outbreaks (specifically the ongoing COVID-19 pandemic), and foreign currency exchange rates.
See the “Revenue Disaggregation” section of Note 1,
Following is a discussion of the net revenues generated by these product platforms/types and/or disease states:
Diagnostics Segment Products
The acquisitionDiagnostics segment’s overall 22% growth in net revenues during fiscal 2022 primarily results from the combined effects of the Revogene molecular diagnostics platform,following:
Volume growth in the developmentgastrointestinal product family, including the benefit of a full year of net revenues from sales of the Curian immunoassay platform, and the expansionBreathTek product, acquired in late July 2021 (total increase in gastrointestinal product revenue of the related assay-menu for each27% in fiscal 2022, including approximately $23,100 of these platforms are important stepsnet revenues from BreathTek);
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Volume growth in addressing competitive pressures in our gastrointestinal andsales of respiratory illness assay families. We are actively converting our existing Alethia install base to the Revogene platform for
Volume declines from sales of blood chemistry products due to the ongoing LeadCare product recall, which commenced in May 2021, with shipment of product resuming in the second quarter of fiscal 2022 (approximately $1,200 decrease in net revenues in fiscal 2018. These revenue levels reflect a lighter 2018 – 2019 respiratory season, as2022, compared to the particularly strong 2017 – 2018 respiratory season, as measured by the rate of laboratory-confirmed influenza hospitalizations (published by the CDC).
• | Ongoing pricing pressure on our H. pylori stool antigen tests, which contributed approximately $2,200 of unfavorable price variance from customers in the U.S. |
Life Science Segment Products
During fiscal 2019,2022, net revenues from ourfor the Life Science segment increased 2%, withdecreased 7% from fiscal 2021. While the level of net revenues from molecular reagent sales decreasing 5% compared toduring fiscal 2018 and2022 reflects the significant decline in demand for COVID-19 related reagents during the last half of fiscal year 2022, such level of net revenues from immunological reagent sales increasing 6%. Life Science segmentsignificantly outpaced the net revenues increased 10%generated in fiscal 2018, with revenues from molecular reagent sales increasing 12% compared to fiscal 20172020 (partial pandemic) and revenues from immunological reagent sales increasing 9%. Our Life Science segment’s growth was impacted by the movement in currency exchange rates since fiscal 2018, with revenues increasing 3% on a constant-currency basis over fiscal 2018. During fiscal 2019 our Life Science segment continued to benefit from sales into China, with such sales totaling approximately $8,400 during fiscal(pre-pandemic) as follows:
Fiscal 2020
Increased 34% in total; 17% for molecular reagents and 58% for immunological reagents
Fiscal 2019 – representing an approximate 1% increase over fiscal 2018.
Increased 175% in total; 295% for molecular reagents and 108% for immunological reagents
Foreign Currency
Fluctuations in foreign currency exchange rates sincein fiscal 20182022 compared to fiscal 2021 had an approximate $2,200$5,200 unfavorable impact on fiscal 20192022 consolidated net revenues; $1,150$1,700 within the Diagnostics segment and $1,050$3,500 within the Life Science segment. This compares to
Significant Customers
Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 915, “Reportable Segments and Major Concentration Data” of the accompanying Consolidated Financial Statements.
2019 | 2018 | 2017 | 2019 vs. 2018 Inc (Dec) | 2018 vs. 2017 Inc (Dec) | ||||||||||||||||
Gross Profit | $ | 118,325 | $ | 130,697 | $ | 124,292 | (9 | %) | 5 | % | ||||||||||
Gross Profit Margin | 59 | % | 61 | % | 62 | % | -2 points | -1 point |
Additionally, overall gross profit margin decreasemargins 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.
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Operating Expenses—Segment Detail and Corporate
Research & Development | Selling & Marketing | General & Administrative | Other (1) | Total Operating Expenses | ||||||||||||||||
Fiscal 2021: | ||||||||||||||||||||
Diagnostics | $ | 21,406 | $ | 21,430 | $ | 24,055 | $ | 5,079 | $ | 71,970 | ||||||||||
Life Science | 2,505 | 5,350 | 13,501 | — | 21,356 | |||||||||||||||
Corporate | — | — | 11,985 | 2,803 | 14,788 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total 2021 Expenses | $ | 23,911 | $ | 26,780 | $ | 49,541 | $ | 7,882 | $ | 108,114 | ||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Fiscal 2022: | ||||||||||||||||||||
Diagnostics | $ | 21,424 | $ | 24,268 | $ | 28,563 | $ | 759 | $ | 75,014 | ||||||||||
Life Science | 2,911 | 7,005 | 14,176 | 152 | 24,244 | |||||||||||||||
Corporate | — | — | 14,409 | 20,298 | 34,707 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total 2022 Expenses | $ | 24,335 | $ | 31,273 | $ | 57,148 | $ | 21,209 | $ | 133,965 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Product recall expenses are included within the Diagnostics segment’s fiscal 2021 other expenses, while the Diagnostics segment’s fiscal 2022 other expenses include an adjustment to the accrual for such product recall costs. |
Operating expenses in fiscal 2022 increased $25,851 to $133,965. Major components of this increase 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 fiscal 2019the prior years in connection with the COVID-19 pandemic;
Increased General & Administrative costs, primarily results fromreflecting the combined effects of: (i) previously-noted pricing changes within our
Research & Development | Selling & Marketing | General & Administrative | Other | Total Operating Expenses | ||||||||||||||||
Fiscal 2017: | ||||||||||||||||||||
Diagnostics | $ | 13,433 | $ | 22,942 | $ | 13,268 | $ | 6,628 | $ | 56,271 | ||||||||||
Life Science | 2,603 | 9,446 | 7,493 | — | 19,542 | |||||||||||||||
Corporate | — | — | 10,335 | 762 | 11,097 | |||||||||||||||
Total 2017 Expenses | $ | 16,036 | $ | 32,388 | $ | 31,096 | $ | 7,390 | $ | 86,910 | ||||||||||
Fiscal 2018: | ||||||||||||||||||||
Diagnostics | $ | 13,742 | $ | 25,002 | $ | 19,397 | $ | 4,032 | $ | 62,173 | ||||||||||
Life Science | 3,047 | 9,466 | 8,111 | 1,240 | 21,864 | |||||||||||||||
Corporate | — | — | 7,297 | 7,779 | 15,076 | |||||||||||||||
Total 2018 Expenses | $ | 16,789 | $ | 34,468 | $ | 34,805 | $ | 13,051 | $ | 99,113 | ||||||||||
Fiscal 2019: | ||||||||||||||||||||
Diagnostics | $ | 14,711 | $ | 23,058 | $ | 19,191 | $ | 3,446 | $ | 60,406 | ||||||||||
Life Science | 3,237 | 5,388 | 6,034 | 188 | 14,847 | |||||||||||||||
Corporate | — | — | 7,777 | 2,596 | 10,373 | |||||||||||||||
Total 2019 Expenses | $ | 17,948 | $ | 28,446 | $ | 33,002 | $ | 6,230 | $ | 85,626 | ||||||||||
Research & Development | Selling & Marketing | General & Administrative | Other | Total Operating Expenses | ||||||||||||||||
2017 Expenses | $ | 16,036 | $ | 32,388 | $ | 31,096 | $ | 7,390 | $ | 86,910 | ||||||||||
% of Revenues | 8 | % | 16 | % | 15 | % | 4 | % | 43 | % | ||||||||||
Fiscal 2018 Increases (Decreases): | ||||||||||||||||||||
Diagnostics | 309 | 2,060 | 6,129 | (2,596 | ) | 5,902 | ||||||||||||||
Life Science | 444 | 20 | 618 | 1,240 | 2,322 | |||||||||||||||
Corporate | — | — | (3,038 | ) | 7,017 | 3,979 | ||||||||||||||
2018 Expenses | $ | 16,789 | $ | 34,468 | $ | 34,805 | $ | 13,051 | $ | 99,113 | ||||||||||
% of Revenues | 8 | % | 16 | % | 16 | % | 6 | % | 46 | % | ||||||||||
% Increase | 5 | % | 6 | % | 12 | % | 77 | % | 14 | % | ||||||||||
Fiscal 2019 Increases (Decreases): | ||||||||||||||||||||
Diagnostics | 969 | (1,944 | ) | (206 | ) | (586 | ) | (1,767 | ) | |||||||||||
Life Science | 190 | (4,078 | ) | (2,077 | ) | (1,052 | ) | (7,017 | ) | |||||||||||
Corporate | — | — | 480 | (5,183 | ) | (4,703 | ) | |||||||||||||
2019 Expenses | $ | 17,948 | $ | 28,446 | $ | 33,002 | $ | 6,230 | $ | 85,626 | ||||||||||
% of Revenues | 9 | % | 14 | % | 16 | % | 3 | % | 43 | % | ||||||||||
% Increase (Decrease) | 7 | % | (17 | %) | (5 | %) | (52 | %) | (14 | %) |
A $6,548 increase in acquisition and net earnings results achieved, along with increased Quality System remediationtransaction related costs, related to Magellan;
A $10,707 increase in Item 3. “Legal Proceedings”litigation and select legal costs, reflected within Corporate and primarily related to the previously discussed LeadCare legal matter (see “Lead Testing Matters” above).
Offsetting these increases was a $5,946 total net decrease in product recall costs within our Diagnostics segment, primarily related to the LeadCare product recall initiated in fiscal 2021.
Operating Income
Operating income increased 4%decreased 42% in fiscal 2019,2022, following a 15% decrease52% increase in fiscal 2018,2021, as a result of the factors discussed above, including the acquisition-related, restructuring and selected legal costs in each of the fiscal years and the Magellan goodwill impairment charge in fiscal 2017.
Other Income and Expense
Other income and expense, in fiscal 2019, 2018 and 2017 includesnet primarily includes: (i) interest costs on the Company’s long-term borrowings which are comprisedand contingent grant obligations due to the Israel Innovation Authority; (ii) grant income under the RADx initiative (fiscal 2021; see Note 14, “National Institutes of Health Contracts” of the following during theseConsolidated Financial Statements); (iii) a $935 gain on the termination of interest rate swap contracts (fiscal 2022); and (iv) net currency gains and losses. Interest costs related to the revolving credit facility with a commercial bank were $1,057 and $1,420 in fiscal years:
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Income Taxes
The effective rate for income taxes was 23%,22% and 21% and 41% for fiscal 2019, 20182022 and 2017,2021, respectively. TheseThe increase in effective tax rates reflectprimarily results from the combined effect of various componentsanticipated non-deductibility of the previously discussed DOJ LeadCare legal matter (see “Lead Testing Matters” above), partially offset by various tax reform act (see Note 6,
Impact of Inflation
To the extent feasible, we have consistently followed the practice of adjustingreviewing our prices to reflectconsider the impactimpacts of inflation on salaries and fringe benefits for employees, and the cost of purchased materials and services.services, and transportation costs. Inflation and changing prices did not have a material adverse impact on our gross margin, net revenues or operating income in fiscal 2019, 20182022 or 2017.
Liquidity and Capital Resources
Liquidity
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets and debt service, and consideration of common share dividends.service. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities.
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.
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 $125,000$200,000 bank revolving credit facility, which totaled approximately $49,200$175,000 as of September 30, 2019.2022. The Company also maintains a shelf registration statement on file with the SEC. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period, of time, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services.
As of September 30, 2019,2022, our cash and cash equivalents balance is $62,397 or $2,634 higher than at the endwas $81,453, an increase of fiscal 2018.$31,682 compared to September 30, 2021. This net increase primarily results in large part from the combined net effects of: (i) generating $82,361 of cash flowsflow from operating activities being more than sufficientoperations, an increase of 23% over fiscal 2021; (ii) using cash to cover capital expenditures, shareholder dividends for two quarterspay down $35,000 on the revolving credit facility; (iii) using cash to acquire property, plant and debt service. Netequipment ($7,365 net of RADx grant monies received); and (iv) acquiring EUPROTEIN, Inc. ($3,750) (see Note 4, “Business Combinations” of the Consolidated Financial Statements). In addition, the net balance of cash flows from operating activities and cash equivalents was reduced by approximately $5,300 as of September 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 cash and cash equivalents on hand are anticipatedexceeded our total debt (defined as bank debt, government grant obligations and obligations related to be adequate to fund working capital requirements, capital expenditures and debt service during the next 12 months.
Capital Resources
As described in Note 5,
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Our capital expenditures totaled $3,797$8,615 for fiscal 20192022, $1,250 of which was offset by receipts under the RADx grant initiative (see Note 14, “National Institutes of Health Contracts” of the Consolidated Financial Statements), and werewhich largely related to laboratory andexpanding manufacturing equipment.capacity. During fiscal 20202023, our capital expenditures are estimated to range betweentotal approximately $4,000 to $5,000, with$10,000, comprised of approximately $6,500 and $3,500 in the actual amount dependent upon actual operating resultsDiagnostics and the phasing of certain projects.Life Science segments, respectively. Such expenditures may be funded with cash and cash equivalents on hand, operating cash flows, and/or availability under the $125,000$200,000 revolving credit facility discussed above.
Contractual Obligations
Among the Company’s contractual obligations as of September 30, 2022 were the following (reflected along with the Note to the obligations related to the revolving credit facility noted above and detailed in Note 5,
(i) | operating leases (Note 9, “Leasing Arrangements”) |
(ii) | the revolving credit facility (Note 10, “Bank Credit Arrangements”) |
(iii) | uncertain income tax positions (Note 11, “Income Taxes”) |
(iv) | contingent government grant obligations (Note 13, “Contingent Obligations and Non-Current Liabilities”) |
The Company’s knownadditional contractual obligations and their related due dates were as follows as of September 30, 2019:
Total | Less than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | ||||||||||||||||
Operating leases (1) | $ | 6,567 | $ | 1,528 | $ | 3,711 | $ | 1,145 | $ | 183 | ||||||||||
Purchase obligations (2) | 14,995 | 14,203 | 737 | 55 | — | |||||||||||||||
Acquisition price holdback and contingent consideration (3) | 75,000 | — | 75,000 | — | — | |||||||||||||||
Uncertain income tax positions liability and interest (4) | 511 | 511 | — | — | — | |||||||||||||||
Total | $ | 97,073 | $ | 16,242 | $ | 79,448 | $ | 1,200 | $ | 183 | ||||||||||
Total | Less than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | ||||||||||||||||
Purchase obligations (1) | $ | 41,291 | $ | 40,182 | $ | 1,104 | $ | 5 | $ | — | ||||||||||
Acquisition price holdback (2) | 1,500 | 1,000 | 500 | — | — | |||||||||||||||
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| |||||||||||
Total | $ | 42,791 | $ | 41,182 | $ | 1,604 | $ | 5 | $ | — | ||||||||||
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(1) |
Purchase obligations relate primarily to outstanding purchase orders for machinery and equipment, inventory, including instruments, service items, and research and development activities. These contractual commitments are not in excess of expected production requirements over the next twelve months. |
Pursuant to the purchase |
Other Commitments and Off-Balance Sheet Arrangements
License Agreements
Meridian has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related products. Approximately 84%products, with such percentages generally ranging from approximately 3% to 10%. During fiscal 2022, royalty expense totaled approximately $2,300, with 40% and 60% of our royalty expenses relatesuch expense relating to our Diagnostics operating segment, where theand Life Science segments, respectively. This compares to a total of approximately $5,200 of royalty rates range from 3%expense in fiscal 2021, with 25% and 75% relating to 8%.our Diagnostics and Life Science segments, respectively. Meridian expects that payments under these agreements will amount to approximately $2,100$700 in fiscal 2020.
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 Juneholding 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 3, 2019 acquisition“Fair Value Measurements” of the business of GenePOC are set forth in Note 2,
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Market Risk Exposure
Foreign Currency Risk
We have market risk exposure related to foreign currency transactions from our operations outside the United States,U.S., as well as certain suppliers to our domestic businesses located outside the United States.U.S. The foreign currencies where we have market risk exposure are the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and Euro.New Israeli shekel. Assessing foreign currency exposures is a component of our overall ongoing risk management process, with such currency risks managed as we deem appropriate.
Concentration of Customers/Products Risk
Our Diagnostics segment’s net revenues from sales through two U.S. distributorsto three customers were 26%29% and 33% of the Diagnostics segment’s total revenues or 18% of consolidatednet revenues for fiscal 2019.2022 and 2021, respectively, or 13% of consolidated net revenues in each fiscal year. Additionally, our three major Diagnostics segment product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 84%82% and 80% of our Diagnostics segment’s third-partynet revenues during fiscal 2019,2022 and 57%2021, respectively, or 39% and 32% of our fiscal 2019each year’s consolidated net revenues.
Our Life Science segment’s net revenues from sales of purified antigens and reagents to twothree diagnostics manufacturing customers were 24%31% and 20% of the Life Science segment’s total net revenues for fiscal 2019,2022 and 8%2021, respectively, or 17% and 12% of ourconsolidated net revenues in each fiscal 2019 consolidated revenues.
Critical Accounting Policies
The consolidated financial statementsConsolidated Financial Statements included in this Annual Report on Form
Accounting Policy | Location Within Consolidated Financial Statements | |||
Financial Statements | Examples of Key Estimate Assumptions | |||
Note | ||||
Revenue Recognition | Note 1(i) | |||
Distributor price adjustments and fee accruals | ||||
Income Taxes | ||||
Note 1(l) and Note | Uncertain |
Recent Accounting Pronouncements
A description of accounting pronouncements recently adopted by the Company, as well as accounting pronouncements issued but not yet adopted by the Company, are set forth in Note 1(q)1(s), “Summary of Significant Accounting Policies- Recent Accounting Pronouncements” of the accompanying Consolidated Financial Statements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Capital Resources and Market Risk Exposure and Capital Resources underabove within Item 7, above beginning on page 24.37.
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/s/ Jack Kenny | /s/ | |||
Jack Kenny | ||||
Chief Executive Officer | Executive Vice President and | |||
November | Chief Financial Officer | |||
November |
LeadCare legal matter | ||
Description of the Matters | As discussed in Note 5, at September 30, 2022, the Company has accrued $10.0 million as an estimate of the cost to settle the LeadCare legal matter with the U.S. Department of Justice (“DOJ”). As background, the Company’s wholly owned subsidiary Magellan Biosciences, Inc. (Magellan) received a subpoena from the DOJ regarding its LeadCare product line. The subpoena outlined documents to be produced, and the Company is and has been cooperating with the DOJ’s investigation in this matter and discussions continue with the DOJ to explore resolution of the matter. As of September 30, 2022, the Company believes it is probable that it had incurred a loss related to the resolution of the LeadCare legal matter and has accrued for its estimate of the cost to settle the LeadCare legal matter with the DOJ. |
Auditing management’s accounting for and disclosure of the estimated loss contingency from the LeadCare legal matter is especially challenging as evaluating the probability and amount of loss is subjective and requires judgment due in part to the uncertain nature of when the LeadCare legal matter will be resolved or the outcome of the investigation, and the ultimate resolution of the LeadCare legal matter. | ||
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification, evaluation and disclosure of loss contingencies, including the Company’s assessment and measurement of the estimate of the probable cost and liability. To test the assessment of the probability of incurrence of a loss and the estimated loss, to the extent it was reasonably estimable, we performed audit procedures that included, among others, reviewing related correspondence with external legal counsel and the DOJ, reviewing legal counsel confirmation letters, assessing scope and cost estimates the Company used in determination for its estimate of the cost to settle the LeadCare legal matter, and searching for other available information that might indicate new or contrary facts related to the matter. |
For the Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||
Net Revenues | $ | 201,014 | $ | 213,571 | $ | 200,771 | ||||||
Cost of Sales | 82,689 | 82,874 | 76,479 | |||||||||
Gross Profit | 118,325 | 130,697 | 124,292 | |||||||||
Operating Expenses: | ||||||||||||
Research and development | 17,948 | 16,789 | 16,036 | |||||||||
Selling and marketing | 28,446 | 34,468 | 32,388 | |||||||||
General and administrative | 33,002 | 34,805 | 31,096 | |||||||||
Acquisition-related costs | 1,808 | — | — | |||||||||
Restructuring costs | 2,839 | 8,706 | 134 | |||||||||
Selected legal costs | 1,583 | 4,345 | 628 | |||||||||
Goodwill impairment charge | — | — | 6,628 | |||||||||
Total operating expenses | 85,626 | 99,113 | 86,910 | |||||||||
Operating Income | 32,699 | 31,584 | 37,382 | |||||||||
Other Income (Expense): | ||||||||||||
Interest income | 681 | 418 | 171 | |||||||||
Interest expense | (1,945 | ) | (1,520 | ) | (1,642 | ) | ||||||
Other, net | 122 | (102 | ) | 518 | ||||||||
Total other expense | (1,142 | ) | (1,204 | ) | (953 | ) | ||||||
Earnings Before Income Taxes | 31,557 | 30,380 | 36,429 | |||||||||
Income Tax Provision | 7,175 | 6,531 | 14,872 | |||||||||
Net Earnings | $ | 24,382 | $ | 23,849 | $ | 21,557 | ||||||
Earnings Per Share Data: | ||||||||||||
Basic earnings per common share | $ | 0.57 | $ | 0.56 | $ | 0.51 | ||||||
Diluted earnings per common share | $ | 0.57 | $ | 0.56 | $ | 0.51 | ||||||
Common shares used for basic earnings per common share | 42,571 | 42,325 | 42,188 | |||||||||
Effect of dilutive stock options and restricted share units | 328 | 429 | 383 | |||||||||
Common shares used for diluted earnings per common share | 42,899 | 42,754 | 42,571 | |||||||||
Dividends declared per common share | $ | 0.250 | $ | 0.500 | $ | 0.575 | ||||||
Anti-dilutive Securities: | ||||||||||||
Common share options and restricted share units | 1,129 | 1,007 | 873 |
For the Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||
Net Earnings | $ | 24,382 | $ | 23,849 | $ | 21,557 | ||||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustment | (802 | ) | (1,075 | ) | 1,616 | |||||||
Unrealized gain (loss) on cash flow hedge | (1,159 | ) | 907 | 1,544 | ||||||||
Amortization of gain on cash flow hedge | (102 | ) | — | — | ||||||||
Income taxes related to items of other comprehensive income | 465 | (263 | ) | (590 | ) | |||||||
Other comprehensive income (loss), net of tax | (1,598 | ) | (431 | ) | 2,570 | |||||||
Comprehensive Income | $ | 22,784 | $ | 23,418 | $ | 24,127 | ||||||
For the Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||
Cash Flows From Operating Activities | ||||||||||||
Net earnings | $ | 24,382 | $ | 23,849 | $ | 21,557 | ||||||
Non-cash items included in net earnings: | ||||||||||||
Depreciation of property, plant and equipment | 5,433 | 4,491 | 4,342 | |||||||||
Amortization of intangible assets | 4,531 | 3,433 | 3,776 | |||||||||
Amortization of deferred instrument costs | — | 764 | 972 | |||||||||
Stock-based compensation | 3,251 | 3,402 | 3,381 | |||||||||
Goodwill impairment charge | — | — | 6,628 | |||||||||
Deferred income taxes | (817 | ) | (300 | ) | 1,474 | |||||||
Losses on dispositions of long-lived assets | 632 | — | — | |||||||||
Change in the following, net of acquisition: | ||||||||||||
Accounts receivable | (2,314 | ) | (4,447 | ) | (1,211 | ) | ||||||
Inventories | 3,841 | (1,142 | ) | 3,467 | ||||||||
Prepaid expenses and other current assets | (2,044 | ) | 323 | 1,225 | ||||||||
Accounts payable and accrued expenses | (2,315 | ) | 4,124 | (3,151 | ) | |||||||
Income taxes payable | 1,793 | (524 | ) | (384 | ) | |||||||
Other, net | (542 | ) | 810 | (721 | ) | |||||||
Net cash provided by operating activities | 35,831 | 34,783 | 41,355 | |||||||||
Cash Flows From Investing Activities | ||||||||||||
Purchase of property, plant and equipment | (3,797 | ) | (4,201 | ) | (4,467 | ) | ||||||
Disposal s of property, plant and equipment | 669 | — | — | |||||||||
Acquisition of GenePOC business | (45,324 | ) | — | — | ||||||||
Net cash used for investing activities | (48,452 | ) | (4,201 | ) | (4,467 | ) | ||||||
Cash Flows From Financing Activities | ||||||||||||
Dividends paid | (10,612 | ) | (21,170 | ) | (24,266 | ) | ||||||
Proceeds from revolving credit facility | 75,824 | — | — | |||||||||
Payment of debt issuance costs | (489 | ) | — | — | ||||||||
Payments on term loan | (50,250 | ) | (4,500 | ) | (3,750 | ) | ||||||
Proceeds and tax benefits from exercises of stock options | 787 | 187 | 303 | |||||||||
Payment of acquisition consideration | — | (2,110 | ) | — | ||||||||
Net cash provided by (used for) financing activities | 15,260 | (27,593 | ) | (27,713 | ) | |||||||
Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash | (1,005 | ) | (298 | ) | 671 | |||||||
Net Increase in Cash and Equivalents and Restricted Cash | 1,634 | 2,691 | 9,846 | |||||||||
Cash and Equivalents and Restricted Cash at Beginning of Period | 60,763 | 58,072 | 48,226 | |||||||||
Cash and Equivalents and Restricted Cash at End of Period | $ | 62,397 | $ | 60,763 | $ | 58,072 | ||||||
Cash and Equivalents | $ | 62,397 | $ | 59,763 | $ | 57,072 | ||||||
Restricted Cash | — | 1,000 | 1,000 | |||||||||
Cash and Equivalents and Restricted Cash at End of Period | $ | 62,397 | $ | 60,763 | $ | 58,072 | ||||||
As of September 30, | 2019 | 2018 | ||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and equivalents | $ | 62,397 | $ | 59,763 | ||||
Accounts receivable, less allowances of $537 and $310, respectively | 35,608 | 32,336 | ||||||
Inventories | 39,617 | 41,993 | ||||||
Prepaid expenses and other current assets | 7,139 | 4,961 | ||||||
Total current assets | 144,761 | 139,053 | ||||||
Property, Plant and Equipment, at Cost: | ||||||||
Land | 982 | 1,160 | ||||||
Buildings and improvements | 31,904 | 32,444 | ||||||
Machinery, equipment and furniture | 64,155 | 50,606 | ||||||
Construction in progress | 522 | 1,631 | ||||||
Subtotal | 97,563 | 85,841 | ||||||
Less: accumulated depreciation and amortization | 66,996 | 55,846 | ||||||
Net property, plant and equipment | 30,567 | 29,995 | ||||||
Other Assets: | ||||||||
Goodwill | 89,241 | 54,637 | ||||||
Other intangible assets, net | 60,243 | 23,113 | ||||||
Restricted cash | — | 1,000 | ||||||
Deferred instrument costs, net | — | 1,239 | ||||||
Fair value of interest rate swap | — | 1,722 | ||||||
Deferred income taxes | 156 | 130 | ||||||
Other assets | 510 | 488 | ||||||
Total other assets | 150,150 | 82,329 | ||||||
Total assets | $ | 325,478 | $ | 251,377 | ||||
As of September 30, | 2019 | 2018 | ||||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 7,238 | $ | 6,260 | ||||
Accrued employee compensation costs | 7,938 | 9,195 | ||||||
Other accrued expenses | 3,758 | 3,133 | ||||||
Current portion of long-term debt | — | 5,250 | ||||||
Income taxes payable | 1,980 | 335 | ||||||
Total current liabilities | 20,914 | 24,173 | ||||||
Non-Current Liabilities: | ||||||||
Acquisition consideration | 32,202 | — | ||||||
Post-employment benefits | 2,500 | 2,646 | ||||||
Long-term debt | 75,824 | 44,930 | ||||||
Long-term income taxes payable | 549 | 441 | ||||||
Deferred income taxes | 2,522 | 3,769 | ||||||
Total non-current liabilities | 113,597 | 51,786 | ||||||
Commitments and Contingencies | ||||||||
Shareholders’ Equity: | ||||||||
Preferred stock, no par value; 1,000,000 shares authorized; NaN issued | — | — | ||||||
Common shares, no par value; 71,000,000 shares authorized, 42,712,296 and 42,399,962 issued, respectively | — | — | ||||||
Additional paid-in capital | 132,834 | 129,193 | ||||||
Retained earnings | 63,108 | 49,602 | ||||||
Accumulated other comprehensive loss | (4,975 | ) | (3,377 | ) | ||||
Total shareholders’ equity | 190,967 | 175,418 | ||||||
Total liabilities and shareholders’ equity | $ | 325,478 | $ | 251,377 | ||||
Common Shares Issued | Additional Paid-in Capital | Retained Earnings | Accum Comp Income (Loss) | Total | ||||||||||||||||
B alance at September 30, 2016 | 42,107 | $ | 122,356 | $ | 49,632 | $ | (5,516 | ) | $ | 166,472 | ||||||||||
Cash dividends paid - $0.575 per share | — | — | (24,266 | ) | — | (24,266 | ) | |||||||||||||
Conversion of restricted share units and exercise of stock options | 100 | (129 | ) | — | — | (129 | ) | |||||||||||||
Stock compensation expense | — | 3,381 | — | — | 3,381 | |||||||||||||||
Net earnings | — | — | 21,557 | — | 21,557 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | 1,616 | 1,616 | |||||||||||||||
Hedging activity, net of tax | — | — | — | 954 | 954 | |||||||||||||||
Balance at September 30, 2017 | 42,207 | 125,608 | 46,923 | (2,946 | ) | 169,585 | ||||||||||||||
Cash dividends paid - $0.500 per share | — | — | (21,170 | ) | — | (21,170 | ) | |||||||||||||
Conversion of restricted share units and ex ercise of stock options | 193 | 183 | — | — | 183 | |||||||||||||||
Stock compensation expense | — | 3,402 | — | — | 3,402 | |||||||||||||||
Net earnings | — | — | 23,849 | — | 23,849 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | (1,075 | ) | (1,075 | ) | |||||||||||||
Hedging activity, net of tax | — | — | — | 644 | 644 | |||||||||||||||
Balance at September 30, 2018 | 42,400 | 129,193 | 49,602 | (3,377 | ) | 175,418 | ||||||||||||||
Cash dividends paid - $0.250 per share | — | — | (10,612 | ) | — | (10,612 | ) | |||||||||||||
Conversion of restricted share units and exercise of stock options | 312 | 390 | — | — | 390 | |||||||||||||||
Stock compensation expense | — | 3,251 | — | — | 3,251 | |||||||||||||||
Net earnings | — | — | 24,382 | — | 24,382 | |||||||||||||||
Foreign currency translation adjustment | — | — | — | (802 | ) | (802 | ) | |||||||||||||
Hedging activity, net of tax | — | — | — | (944 | ) | (944 | ) | |||||||||||||
Adoption of ASU 2014-09 | — | — | (116 | ) | — | (116 | ) | |||||||||||||
Adoption of ASU 2018-02 | — | — | (148 | ) | 148 | — | ||||||||||||||
�� | ||||||||||||||||||||
Balance at September 30, 2019 | 42,712 | $ | 132,834 | $ | 63,108 | $ | (4,975 | ) | $ | 190,967 | ||||||||||
For the Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Net Revenues | $ | 333,018 | $ | 317,896 | $ | 253,667 | ||||||
Cost of Sales | 144,662 | 116,748 | 97,419 | |||||||||
Gross Profit | 188,356 | 201,148 | 156,248 | |||||||||
Operating Expenses: | ||||||||||||
Research and development | 24,335 | 23,911 | 23,729 | |||||||||
Selling and marketing | 31,273 | 26,780 | 26,486 | |||||||||
General and administrative | 57,148 | 49,541 | 44,345 | |||||||||
Product recall costs (adjustment) | (350 | ) | 5,596 | — | ||||||||
Acquisition and transaction related costs | 6,940 | 392 | 3,890 | |||||||||
Litigation and select legal costs | 13,510 | 2,803 | 2,080 | |||||||||
Restructuring costs | 1,109 | — | 687 | |||||||||
Change in fair value of acquisition consideration and settlement | — | (909 | ) | (6,293 | ) | |||||||
Total Operating Expenses | 133,965 | 108,114 | 94,924 | |||||||||
Operating Income | 54,391 | 93,034 | 61,324 | |||||||||
Other Income (Expense): | ||||||||||||
Interest income | 17 | — | 142 | |||||||||
Interest expense | (1,189 | ) | (1,878 | ) | (2,632 | ) | ||||||
RADx grant income | — | 1,000 | — | |||||||||
Other, net | 1,098 | (1,705 | )�� | 459 | ||||||||
Total Other Expense, Net | (74 | ) | (2,583 | ) | (2,031 | ) | ||||||
Earnings Before Income Taxes | 54,317 | 90,451 | 59,293 | |||||||||
Income Tax Provision | 11,858 | 19,044 | 13,107 | |||||||||
Net Earnings | $ | 42,459 | $ | 71,407 | $ | 46,186 | ||||||
Earnings Per Share Data: | ||||||||||||
Basic earnings per common share | $ | 0.97 | $ | 1.65 | $ | 1.08 | ||||||
Diluted earnings per common share | $ | 0.96 | $ | 1.62 | $ | 1.07 | ||||||
Common shares used for basic earnings per common share | 43,583 | 43,259 | 42,855 | |||||||||
Effect of dilutive stock options and restricted share units | 792 | 753 | 319 | |||||||||
Common shares used for diluted earnings per common share | 44,375 | 44,012 | 43,174 | |||||||||
Anti-Dilutive Securities: | ||||||||||||
Common share options and restricted share units | 154 | 203 | 893 |
For the Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Net Earnings | $ | 42,459 | $ | 71,407 | $ | 46,186 | ||||||
Other Comprehensive Income (Loss): | ||||||||||||
Foreign currency translation adjustment | (11,929 | ) | 1,780 | 3,884 | ||||||||
Recognition of gains on cash flow hedges | (935 | ) | (154 | ) | (308 | ) | ||||||
Unrealized gain (loss) on cash flow hedge | 2,560 | 510 | (713 | ) | ||||||||
Income taxes related to items of other comprehensive income (loss) | (398 | ) | (78 | ) | 252 | |||||||
Other Comprehensive Income (Loss), Net of Tax | (10,702 | ) | 2,058 | 3,115 | ||||||||
Comprehensive Income | $ | 31,757 | $ | 73,465 | $ | 49,301 | ||||||
For the Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Cash Flows From Operating Activities | ||||||||||||
Net earnings | $ | 42,459 | $ | 71,407 | $ | 46,186 | ||||||
Non-cash items included in net earnings: | ||||||||||||
Depreciation of property, plant and equipment | 6,599 | 6,510 | 5,823 | |||||||||
Amortization of intangible assets | 9,912 | 8,776 | 7,744 | |||||||||
Stock compensation expense | 6,900 | 4,156 | 3,802 | |||||||||
Deferred income taxes | (1,101 | ) | (3,835 | ) | 760 | |||||||
Estimated litigation costs | 10,000 | — | — | |||||||||
Change in fair value of acquisition consideration and settlement | — | (909 | ) | (6,293 | ) | |||||||
Change in the following, net of acquisitions: | ||||||||||||
Accounts receivable | 4,564 | (12,766 | ) | (971 | ) | |||||||
Inventories | 5,223 | (7,800 | ) | (18,977 | ) | |||||||
Prepaid expenses and other current assets | (1,553 | ) | (3,711 | ) | (153 | ) | ||||||
Accounts payable and accrued expenses | 1,038 | 6,346 | 7,248 | |||||||||
Income taxes payable | 565 | (329 | ) | 1,435 | ||||||||
Other, net | (2,245 | ) | (980 | ) | 1,372 | |||||||
Net cash provided by operating activities | 82,361 | 66,865 | 47,976 | |||||||||
Cash Flows From Investing Activities | ||||||||||||
Purchase of property, plant and equipment | (8,615 | ) | (18,312 | ) | (3,299 | ) | ||||||
RADx grant proceeds offsetting cost of equipment | 1,250 | 1,500 | — | |||||||||
Acquisitions, net of cash acquired and holdback | (3,750 | ) | (18,585 | ) | (51,299 | ) | ||||||
Payment of acquisition consideration holdback | — | (5,000 | ) | — | ||||||||
�� | ||||||||||||
Net cash used in investing activities | (11,115 | ) | (40,397 | ) | (54,598 | ) | ||||||
Cash Flows From Financing Activities | ||||||||||||
Payment on revolving credit facility | (35,000 | ) | (18,824 | ) | (57,000 | ) | ||||||
Proceeds from revolving credit facility | — | 10,000 | 50,000 | |||||||||
Payment of acquisition consideration | — | (20,000 | ) | — | ||||||||
Payment on government grant obligations | — | (5,297 | ) | — | ||||||||
Payment of debt issuance costs | (404 | ) | — | (116 | ) | |||||||
Proceeds from exercise of stock options | 2,450 | 3,052 | 3,559 | |||||||||
Employee taxes paid upon stock option exercises and net share settlement of restricted share units | (1,349 | ) | — | — | ||||||||
Net cash used in financing activities | (34,303 | ) | (31,069 | ) | (3,557 | ) | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (5,261 | ) | 858 | 1,296 | ||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 31,682 | (3,743 | ) | (8,883 | ) | |||||||
Cash and Cash Equivalents at Beginning of Period | 49,771 | 53,514 | 62,397 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 81,453 | $ | 49,771 | $ | 53,514 | ||||||
As of September 30, | 2022 | 2021 | ||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 81,453 | $ | 49,771 | ||||
Accounts receivable, less allowances of $1,325 and $1,078, respectively | 47,235 | 53,568 | ||||||
Inventories, net | 67,814 | 76,842 | ||||||
Prepaid expenses and other current assets | 14,095 | 12,626 | ||||||
Total Current Assets | 210,597 | 192,807 | ||||||
Property, Plant and Equipment: | ||||||||
Land | 968 | 989 | ||||||
Buildings and improvements | 32,983 | 32,765 | ||||||
Machinery, equipment and furniture | 79,517 | 78,410 | ||||||
Construction in progress | 10,589 | 9,991 | ||||||
Subtotal | 124,057 | 122,155 | ||||||
Less: accumulated depreciation and amortization | 79,199 | 78,941 | ||||||
Net Property, Plant and Equipment | 44,858 | 43,214 | ||||||
Other Assets: | ||||||||
Goodwill | 116,302 | 114,668 | ||||||
Other intangible assets, net | 74,131 | 84,151 | ||||||
Right-of-use assets, net | 5,850 | 5,786 | ||||||
Deferred income taxes | 9,278 | 8,731 | ||||||
Other assets | 2,081 | 365 | ||||||
Total Other Assets | 207,642 | 213,701 | ||||||
Total Assets | $ | 463,097 | $ | 449,722 | ||||
As of September 30, | 2022 | 2021 | ||||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 17,759 | $ | 11,701 | ||||
Accrued employee compensation costs | 17,682 | 16,853 | ||||||
Accrued estimated litigation costs | 10,000 | — | ||||||
Accrued product recall costs | 1,157 | 5,100 | ||||||
Current operating lease obligations | 1,830 | 1,990 | ||||||
Current government grant obligations | 667 | 638 | ||||||
Other accrued expenses | 5,048 | 7,027 | ||||||
Income taxes payable | 3,808 | 3,848 | ||||||
Total Current Liabilities | 57,951 | 47,157 | ||||||
Non-Current Liabilities: | ||||||||
Post-employment benefits | 1,673 | 2,253 | ||||||
Long-term operating lease obligations | 4,127 | 3,932 | ||||||
Long-term debt | 25,000 | 60,000 | ||||||
Government grant obligations | 4,620 | 5,176 | ||||||
Long-term income taxes payable | 395 | 469 | ||||||
Deferred income taxes | 578 | 1,055 | ||||||
Other non-current liabilities | 692 | 1,378 | ||||||
Total Non-Current Liabilities | 37,085 | 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, 43,755,188 and 43,361,898 issued, respectively | — | — | ||||||
Additional paid-in capital | 155,664 | 147,403 | ||||||
Treasury stock, at cost, 9,655 shares | (259 | ) | — | |||||
Retained earnings | 223,160 | 180,701 | ||||||
Accumulated other comprehensive income (loss) | (10,504 | ) | 198 | |||||
Total Shareholders’ Equity | 368,061 | 328,302 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 463,097 | $ | 449,722 | ||||
Common Shares | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comp. Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||
Sh. | Amt. | |||||||||||||||||||||||||||
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 | 357 | 3,559 | — | — | — | — | 3,559 | |||||||||||||||||||||
Stock compensation expense | — | 3,802 | — | — | — | — | 3,802 | |||||||||||||||||||||
Net earnings | — | — | — | — | 46,186 | — | 46,186 | |||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | 3,884 | 3,884 | |||||||||||||||||||||
Hedging activity, net of tax | — | — | — | — | — | (769 | ) | (769 | ) | |||||||||||||||||||
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 | 293 | 3,052 | — | — | — | — | 3,052 | |||||||||||||||||||||
Stock compensation expense | — | 4,156 | — | — | — | — | 4,156 | |||||||||||||||||||||
Net earnings | — | — | — | — | 71,407 | — | 71,407 | |||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | 1,780 | 1,780 | |||||||||||||||||||||
Hedging activity, net of tax | — | — | — | — | — | 278 | 278 | |||||||||||||||||||||
Balance at September 30, 2021 | 43,362 | $ | 147,403 | — | $ | — | $ | 180,701 | $ | 198 | $ | 328,302 | ||||||||||||||||
Conversion of restricted share units and exercise of stock options | 393 | 1,361 | (10 | ) | (259 | ) | — | — | 1,102 | |||||||||||||||||||
Stock compensation expense | — | 6,900 | — | — | — | — | 6,900 | |||||||||||||||||||||
Net earnings | — | — | — | — | 42,459 | — | 42,459 | |||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | (11,929 | ) | (11,929 | ) | |||||||||||||||||||
Hedging activity, net of tax | — | — | — | — | — | 1,227 | 1,227 | |||||||||||||||||||||
Balance at September 30, 2022 | 43,755 | $ | 155,664 | (10 | ) | $ | (259 | ) | $ | 223,160 | $ | (10,504 | ) | $ | 368,061 | |||||||||||||
(1) | Summary of Significant Accounting Policies |
(a) | - |
(b) | Principles of Consolidation and Basis of Presentation - |
(c) | Use of Estimates - |
Foreign Currency Translation - Assets and liabilities of foreign operations are translated using year-end exchange rates with gains or losses resulting from translation included as a separate component of accumulated other comprehensive income |
(e) | Cash and Cash Equivalents - |
September 30, 2019 | September 30, 2018 | |||||||||||||||
Cash and Equivalents | Other | Cash and Equivalents | Other | |||||||||||||
Institutional money market funds | $ | 20,913 | $ | — | $ | 20,421 | $ | — | ||||||||
Cash on hand – | ||||||||||||||||
Restricted | — | — | — | 1,000 | ||||||||||||
Unrestricted | 41,484 | — | 39,342 | — | ||||||||||||
Total | $ | 62,397 | $ | — | $ | 59,763 | $ | 1,000 | ||||||||
(f) | Inventories first-in, first-out |
(g) | Property, Plant and Equipment write-off the cost over the estimated useful lives, generally as follows: |
(h) | Intangible Assets |
2019 | 2018 | |||||||||||||||
As of September 30, | Gross Carrying Value | Accum. Amort. | Gross Carrying Value | Accum. Amort. | ||||||||||||
Manufacturing technologies, core products and cell lines | $ | 56,193 | $ | 15,096 | $ | 22,297 | $ | 13,974 | ||||||||
Tradenames, licenses and patents | 14,494 | 6,094 | 8,647 | 5,267 | ||||||||||||
Customer lists, customer relationships and supply agreements | 24,274 | 14,110 | 24,461 | 13,051 | ||||||||||||
Government grants | 814 | 232 | — | — | ||||||||||||
$ | 95,775 | $ | 35,532 | $ | 55,405 | $ | 32,292 | |||||||||
(i) | Revenue Recognition and Accounts Receivable |
Balance at September 30, 2018 | New Revenue Standard Adjustment | Balance at October 1, 2018 | ||||||||||
PROPERTY, PLANT AND EQUIPMENT | ||||||||||||
$ | 50,606 | $ | 8,696 | $ | 59,302 | |||||||
(55,846 | ) | (7,611 | ) | (63,457 | ) | |||||||
OTHER ASSETS | ||||||||||||
1,239 | (1,239 | ) | — | |||||||||
NON-CURRENT LIABILITIES | ||||||||||||
(3,769 | ) | 38 | (3,731 | ) | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||
(49,602 | ) | 116 | (49,486 | ) |
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||
2019 | 2018 | 2017 | Inc (Dec) | Inc (Dec) | ||||||||||||||||
Diagnostics- | ||||||||||||||||||||
Americas | $ | 110,135 | $ | 123,916 | $ | 117,161 | (11 | )% | 6 | % | ||||||||||
EMEA | 23,865 | 23,922 | 22,594 | — | % | 6 | % | |||||||||||||
ROW | 2,682 | 2,616 | 3,766 | 3 | % | (31 | )% | |||||||||||||
Total Diagnostics | 136,682 | 150,454 | 143,521 | (9 | )% | 5 | % | |||||||||||||
Life Science- | ||||||||||||||||||||
Americas | 19,443 | 21,080 | 20,265 | (8 | )% | 4 | % | |||||||||||||
EMEA | 29,157 | 24,715 | 22,365 | 18 | % | 11 | % | |||||||||||||
ROW | 15,732 | 17,322 | 14,620 | (9 | )% | 18 | % | |||||||||||||
Total Life Science | 64,332 | 63,117 | 57,250 | 2 | % | 10 | % | |||||||||||||
Consolidated | $ | 201,014 | $ | 213,571 | $ | 200,771 | (6 | )% | 6 | % | ||||||||||
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||
2019 | 2018 | 2017 | Inc (Dec) | Inc (Dec) | ||||||||||||||||
Diagnostics- | ||||||||||||||||||||
Molecular assays | $ | 26,231 | $ | 33,709 | $ | 33,712 | (22 | )% | — | % | ||||||||||
Immunoassays & blood chemistry assays | 110,451 | 116,745 | 109,809 | (5 | )% | 6 | % | |||||||||||||
Total Diagnostics | $ | 136,682 | $ | 150,454 | $ | 143,521 | (9 | )% | 5 | % | ||||||||||
Life Science- | ||||||||||||||||||||
Molecular reagents | $ | 23,261 | $ | 24,533 | $ | 21,966 | (5 | )% | 12 | % | ||||||||||
Immunological reagents | 41,071 | 38,584 | 35,284 | 6 | % | 9 | % | |||||||||||||
Total Life Science | $ | 64,332 | $ | 63,117 | $ | 57,250 | 2 | % | 10 | % | ||||||||||
2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||
2019 | 2018 | 2017 | Inc (Dec) | Inc (Dec) | ||||||||||||||||
Diagnostics- | ||||||||||||||||||||
Gastrointestinal assays | $ | 68,977 | $ | 78,803 | $ | 79,022 | (12 | )% | — | % | ||||||||||
Respiratory illness assays | 26,622 | 28,911 | 23,881 | (8 | )% | 21 | % | |||||||||||||
Blood chemistry assays | 19,082 | 19,109 | 18,212 | — | % | 5 | % | |||||||||||||
Other | 22,001 | 23,631 | 22,406 | (7 | )% | 5 | % | |||||||||||||
Total Diagnostics | $ | 136,682 | $ | 150,454 | $ | 143,521 | (9 | )% | 5 | % | ||||||||||
(j) | Fair Value Measurements ASC 820, . ASCFair Value Measurements and Disclosures |
Fair Value Measurements Using Inputs Considered as | ||||||||||||||||
As of September 31, 2019 | Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Contingent consideration | $ | $ | $ | $ | 27,200 |
(k) | Research and Development Costs |
(l) | Income Taxes The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between income for financial reporting and income for tax purposes. We prepare estimates of permanent and temporary differences between income for financial reporting purposes and income for tax purposes. These differences are adjusted to actual upon filing of our tax returns, typically occurring in the third and fourth quarters of the current fiscal year for the preceding fiscal year’s estimates. |
(m) | Stock-Based Compensation |
(n) | Comprehensive Income (Loss) The primary component of accumulated comprehensive income (loss) is cumulative currency translation adjustments, which totaled ($11,794) and $135 at September 30, 2022 and 2021, respectively. |
(o) | Shipping and Handling Costs |
(p) | Non-Income Government-Assessed Taxes |
(q) | Acquisition s - Assets and liabilities associated with business acquisitions are recorded at fair value, using the acquisition method of accounting. The Company allocates the purchase price of acquisitions based upon the fair value of each component, which may be derived from observable or unobservable inputs and assumptions. The Company may utilize third-party valuation specialists to assist us in this allocation. Initial purchase price allocations are preliminary and subject to revision within the measurement period, generally not to exceed one year from the date of acquisition. |
(r) | Other expense, net From time to time, the Company enters into short-term (generally 30 days or less) foreign currency forward contracts to manage its exposure to certain foreign currencies. These foreign currency forward contracts are not designated as hedging instruments and, therefore, all changes in fair value and the settlement of the foreign current forward contracts is recorded in other expense, net within the Consolidated Statement of Operations. For the years ended September 30, 2022, 2021 and 2020, we recognized losses of approximately $2,100, $100, and $0, respectively related to foreign currency forward contracts. |
(s) | Recent Accounting Pronouncements |
Reclassifications |
(2) | Revenue Recognition |
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Diagnostics- | ||||||||||||
Americas | $ | 132,175 | $ | 101,293 | $ | 97,228 | ||||||
EMEA | 22,135 | 24,475 | 21,826 | |||||||||
ROW | 1,593 | 1,992 | 2,078 | |||||||||
Total Diagnostics | 155,903 | 127,760 | 121,132 | |||||||||
Life Science- | ||||||||||||
Americas | 33,062 | 46,063 | 37,391 | |||||||||
EMEA | 81,305 | 93,655 | 58,125 | |||||||||
ROW | 62,748 | 50,418 | 37,019 | |||||||||
Total Life Science | 177,115 | 190,136 | 132,535 | |||||||||
Consolidated | $ | 333,018 | $ | 317,896 | $ | 253,667 | ||||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Diagnostics- | ||||||||||||
Molecular assays | $ | 18,177 | $ | 19,037 | $ | 21,907 | ||||||
Non-molecular assays | 137,726 | 108,723 | 99,225 | |||||||||
Total Diagnostics | 155,903 | 127,760 | 121,132 | |||||||||
Life Science- | ||||||||||||
Molecular reagents | 91,816 | 130,537 | 78,431 | |||||||||
Immunological reagents | 85,299 | 59,599 | 54,104 | |||||||||
Total Life Science | 177,115 | 190,136 | 132,535 | |||||||||
Consolidated | $ | 333,018 | $ | 317,896 | $ | 253,667 | ||||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Diagnostics- | ||||||||||||
Gastrointestinal assays | $ | 87,568 | $ | 68,890 | $ | 55,040 | ||||||
Respiratory illness assays | 26,632 | 17,608 | 26,694 | |||||||||
Blood chemistry assays | 14,189 | 15,398 | 17,534 | |||||||||
Other | 27,514 | 25,864 | 21,864 | |||||||||
Total Diagnostics | $ | 155,903 | $ | 127,760 | $ | 121,132 | ||||||
(3) | Fair Value Measurements |
Fair Value Measurements Using Inputs Considered as | ||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Interest rate swap agreements - | ||||||||||||||||
As of September 30, 2022 | $ | 1,421 | $ | — | $ | 1,421 | $ | — | ||||||||
As of September 30, 2021 | $ | (203 | ) | $ | — | $ | (203 | ) | $ | — |
(4) | Business Combinations |
Year Ended September 30, | 2022 | 2021 | ||||||
Net revenues | $ | 23,100 | $ | 3,840 | ||||
Net earnings | 7,500 | 1,000 | ||||||
PRELIMINARY | ||||||||||||
June 3, 2019 (as initially reported) | Measurement Period Adjustments | June 3, 2019 (as adjusted) | ||||||||||
Fair value of assets acquired - | ||||||||||||
Accounts receivable | $ | 58 | $ | (1 | ) | $ | 57 | |||||
Inventories | 1,617 | (106 | ) | 1,511 | ||||||||
Other current assets | 77 | 7 | 84 | |||||||||
Property, plant and equipment | 1,520 | (96 | ) | 1,424 | ||||||||
Goodwill | 34,482 | 100 | 34,582 | |||||||||
Other intangible assets (estimated useful life): | ||||||||||||
License agreement (10 years) | 5,990 | — | 5,990 | |||||||||
Technology (15 years) | 34,040 | 96 | 34,136 | |||||||||
Government grant (1.33 years) | 800 | — | 800 | |||||||||
78,584 | — | 78,584 | ||||||||||
Fair value of liabilities assumed - | ||||||||||||
Accounts payable and accrued expenses | 1,082 | (24 | ) | 1,058 | ||||||||
Total consideration paid (including contingent consideration currently estimated at $27,200) | $ | 77,502 | $ | 24 | $ | 77,526 | ||||||
Year Ended September 30, | 2022 | 2021 | ||||||
Net revenues | $ | 333,018 | $ | 337,118 | ||||
Net earnings | 42,459 | 77,066 | ||||||
(5) | Lead Testing Matters |
Year Ended September 30, | 2019 | 2018 | ||||||
Net Revenues | $ | 201,222 | $ | 213,753 | ||||
Net Earnings | $ | 16,093 | $ | 9,407 |
(6) | Cash and Cash Equivalents |
As of September 30, | 2022 | 2021 | ||||||
Institutional money market funds | $ | 1,027 | $ | 1,020 | ||||
Cash on hand, unrestricted | 80,426 | 48,751 | ||||||
Total | $ | 81,453 | $ | 49,771 | ||||
(7) | Inventories, Net |
As of September 30, | 2022 | 2021 | ||||||
Raw materials | $ | 15,726 | $ | 14,843 | ||||
Work-in-process | 21,570 | 25,072 | ||||||
Finished goods - instruments | 1,796 | 2,260 | ||||||
Finished goods - kits and reagents | 28,722 | 34,667 | ||||||
Total | $ | 67,814 | $ | 76,842 | ||||
(8) | Goodwill and Other Intangible Assets, Net |
2022 | 2021 | |||||||||||||||
As of September 30, | Gross Carrying Value | Accum. Amort. | Gross Carrying Value | Accum. Amort. | ||||||||||||
Manufacturing technologies, core products and cell lines | $ | 56,289 | $ | 20,321 | $ | 64,867 | $ | 25,084 | ||||||||
Tradenames, licenses and patents | 18,257 | 10,491 | 18,489 | 9,492 | ||||||||||||
Customer lists, customer relationships and supply agreements | 52,703 | 22,363 | 54,941 | 19,649 | ||||||||||||
Non-compete agreements | 110 | 53 | 110 | 31 | ||||||||||||
$ | 127,359 | $ | 53,228 | $ | 138,407 | $ | 54,256 | |||||||||
Year Ended September 30, | 2019 | 2018 | ||||||
Adjustments to Net Revenues | ||||||||
GenePOC pre-acquisition revenues | $ | 208 | $ | 182 | ||||
Adjustments to Net Earnings | ||||||||
GenePOC pre-acquisition net loss | $ | (9,578 | ) | $ | (12,775 | ) | ||
Pro forma adjustments: | ||||||||
Meridian acquisition-related costs | 1,808 | — | ||||||
1,245 | — | |||||||
non-continuing personnel, locationsor activities | 1,576 | 2,552 | ||||||
(2,344 | ) | (3,499 | ) | |||||
(743 | ) | (977 | ) | |||||
(253 | ) | 257 | ||||||
Total Adjustments to Net Earnings | $ | (8,289 | ) | $ | (14,442 | ) | ||
(9) | Leasing Arrangements |
Year Ended September 30, | 2022 | 2021 | ||||||
Lease costs within cost of sales | $ | 905 | $ | 795 | ||||
Lease costs within operating expenses | 1,406 | 1,542 | ||||||
Right-of-use assets, net obtained in exchange for operating lease liabilities | 3,068 | 1,073 | ||||||
As of September 30, | 2022 | 2021 | ||||||
Weighted average remaining lease term | 3.9 yrs. | 3.6 yrs. | ||||||
Average discount rate | 3.5 | % | 3.2 | % | ||||
2023 | $ | 1,952 | ||
2024 | 1,614 | |||
2025 | 1,343 | |||
2026 | 780 | |||
2027 | 536 | |||
Thereafter | 135 | |||
Total lease payments | 6,360 | |||
Less amount of lease payment representing interest | (403 | ) | ||
Total present value of lease payments | $ | 5,957 | ||
2019 | 2018 | |||||||
Severance, other termination benefits and related costs | $ | 2,046 | $ | 5,012 | ||||
Lease and other contract termination fees | 54 | 353 | ||||||
Loss on fixed asset disposals and inventory scrap | 528 | 225 | ||||||
Other | 211 | 742 | ||||||
Total | $ | 2,839 | $ | 6,332 | ||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
Operating cash flows from operating leases | $ | 2,338 | $ | 2,228 | $ | 1,693 | ||||||
As of September 30, | 2019 | 2018 | ||||||
Severance, other termination benefits and related costs | $ | 1,010 | $ | 987 | ||||
Lease and other contract termination fees | 12 | 33 | ||||||
Other | 114 | 6 | ||||||
Total | $ | 1,136 | $ | 1,026 | ||||
(10) |
As of September 30, | 2019 | 2018 | ||||||
Raw materials | $ | 7,455 | $ | 6,689 | ||||
Work-in-process | 11,504 | 12,098 | ||||||
Finished goods - instruments | 935 | 1,191 | ||||||
Finished goods - kits and reagents | 19,723 | 22,015 | ||||||
Total | $ | 39,617 | $ | 41,993 | ||||
Bank Credit Arrangements |
(11) | Income Taxes |
(a) | Earnings before income taxes, and the related |
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Domestic | $ | (14,012 | ) | $ | 11,354 | $ | 9,068 | |||||
Foreign | 68,329 | 79,097 | 50,225 | |||||||||
Total earnings before income taxes | $ | 54,317 | 90,451 | 59,293 | ||||||||
Provision (benefit) for income taxes - | ||||||||||||
Federal - | ||||||||||||
Current | $ | (460 | ) | $ | 4,431 | $ | 1,173 | |||||
Deferred | (1,125 | ) | (2,595 | ) | 744 | |||||||
State and local | 451 | 1,163 | 1,170 | |||||||||
Foreign - | ||||||||||||
Current | 13,316 | 16,305 | 10,194 | |||||||||
Deferred | (324 | ) | (260 | ) | (174 | ) | ||||||
Total income tax provision | $ | 11,858 | $ | 19,044 | $ | 13,107 | ||||||
Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||
Domestic | $ | 23,954 | $ | 27,787 | $ | 31,885 | ||||||
Foreign | 7,603 | 2,593 | 4,544 | |||||||||
Total earnings before income taxes | $ | 31,557 | $ | 30,380 | $ | 36,429 | ||||||
Provision (credit) for income taxes - | ||||||||||||
Federal - | ||||||||||||
Current | $ | 5,001 | $ | 6,030 | $ | 11,262 | ||||||
Temporary differences | ||||||||||||
Fixed asset basis differences and depreciation | 288 | 410 | (181 | ) | ||||||||
Intangible asset basis differences and amortization | (797 | ) | (4,052 | ) | (1,158 | ) | ||||||
Currently non-deductible expenses and reserves | 241 | 1,206 | 884 | |||||||||
Stock-based compensation | (109 | ) | 1,379 | (635 | ) | |||||||
Net operating loss carryforwards utilized | 69 | 61 | 1,831 | |||||||||
Tax credit carryforwards utilized | — | 181 | 67 | |||||||||
Other, net | (169 | ) | (148 | ) | 99 | |||||||
Subtotal | 4,524 | 5,067 | 12,169 | |||||||||
State and local | 834 | 1,066 | 1,900 | |||||||||
Foreign | 1,817 | 398 | 803 | |||||||||
Total income tax provision | $ | 7,175 | $ | 6,531 | $ | 14,872 | ||||||
(b) | The following is a reconciliation between the statutory U.S. income tax rate and the effective rate derived by dividing the |
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||||||||||||||
Computed income taxes at statutory rate | $ | 11,407 | 21.0 | % | $ | 18,995 | 21.0 | % | $ | 12,452 | 21.0 | % | ||||||||||||
Increase (decrease) in taxes resulting from - | ||||||||||||||||||||||||
State and local income taxes | 362 | 0.7 | 1,204 | 1.3 | 773 | 1.3 | ||||||||||||||||||
Foreign-Derived Intangible Income tax | — | — | (563 | ) | (0.6 | ) | (136 | ) | (0.2 | ) | ||||||||||||||
Global Intangible Low Taxed Income (“GILTI”) tax | 6,924 | 12.7 | 8,061 | 8.9 | 4,970 | 8.4 | ||||||||||||||||||
Foreign tax credit | (6,572 | ) | (12.1 | ) | (7,802 | ) | (8.6 | ) | (4,767 | ) | (8.0 | ) | ||||||||||||
Foreign tax rate differences | (1,679 | ) | (3.1 | ) | (869 | ) | (1.0 | ) | (534 | ) | (0.9 | ) | ||||||||||||
DOJ LeadCare legal matter accrual | 2,100 | 3.9 | — | — | — | — | ||||||||||||||||||
Uncertain tax position activity | 166 | 0.3 | 205 | 0.2 | 62 | 0.1 | ||||||||||||||||||
Valuation allowance | (197 | ) | (0.4 | ) | 729 | 0.8 | 229 | 0.3 | ||||||||||||||||
Stock-based compensation | 825 | 1.5 | (498 | ) | (0.5 | ) | 41 | 0.1 | ||||||||||||||||
Transaction costs | — | — | — | — | 548 | 0.9 | ||||||||||||||||||
Unrepatriated earnings | (1,148 | ) | (2.1 | ) | 680 | 0.8 | 185 | 0.3 | ||||||||||||||||
Other, net | (330 | ) | (0.6 | ) | (1,098 | ) | (1.2 | ) | (716 | ) | (1.2 | ) | ||||||||||||
$ | 11,858 | 21.8 | % | $ | 19,044 | 21.1 | % | $ | 13,107 | 22.1 | % | |||||||||||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
U.S. GILTI inclusion | $ | 32,971 | $ | 38,384 | $ | 23,666 | ||||||
Resulting permanent tax expense | 6,924 | 8,061 | 4,970 | |||||||||
Offsetting foreign tax credit | (6,572 | ) | (7,802 | ) | (4,767 | ) |
(c) | The components of net deferred taxes were as follows: |
Year Ended September 30, | 2019 | 2018 | 2017 | ||||||||||||||||||||||
Computed income taxes at statutory rate | $ | 6,627 | 21.0 | % | $ | 7,443 | 24.5 | % | $ | 12,750 | 35.0 | % | |||||||||||||
Increase (decrease) in taxes resulting from - | |||||||||||||||||||||||||
State and local income taxes | 577 | 1.8 | 982 | 3.2 | 1,093 | 3.0 | |||||||||||||||||||
U.S. tax law change | — | — | (2,655 | ) | (8.7 | ) | — | — | |||||||||||||||||
One-time repatriation tax | — | — | 876 | 2.9 | — | — | |||||||||||||||||||
Foreign-Derived Intangible Income tax | (294 | ) | (0.9 | ) | — | — | — | — | |||||||||||||||||
Global Intangible Low Taxed Income tax | 1,119 | 3.6 | — | — | — | — | |||||||||||||||||||
Foreign tax credit | (990 | ) | (3.1 | ) | (15 | ) | — | (57 | ) | (0.2 | ) | ||||||||||||||
Foreign tax rate differences | 46 | 0.1 | (104 | ) | (0.3 | ) | (281 | ) | (0.8 | ) | |||||||||||||||
Qualified domestic production incentives | — | — | (550 | ) | (1.8 | ) | (1,012 | ) | (2.8 | ) | |||||||||||||||
Uncertain tax position activity | 126 | 0.4 | (62 | ) | (0.2 | ) | 134 | 0.4 | |||||||||||||||||
Goodwill impairment charge | — | — | — | — | 2,320 | 6.4 | |||||||||||||||||||
Valuation allowance | 106 | 0.3 | (40 | ) | (0.1 | ) | — | — | |||||||||||||||||
Stock-based compensation | (33 | ) | (0.1 | ) | 447 | 1.4 | — | — | |||||||||||||||||
Other, net | (109 | ) | (0.4 | ) | 209 | 0.6 | (75 | ) | (0.2 | ) | |||||||||||||||
$ | 7,175 | 22.7 | % | $ | 6,531 | 21.5 | % | $ | 14,872 | 40.8 | % | ||||||||||||||
As of September 30, | 2022 | 2021 | ||||||
Deferred tax assets - | ||||||||
Valuation reserves and non-deductible expenses | $ | 4,274 | $ | 4,939 | ||||
Stock compensation expense not deductible | 2,609 | 2,276 | ||||||
Net operating loss and tax credit carryforwards | 12,108 | 12,711 | ||||||
Intangible asset basis differences and amortization | 1,254 | 505 | ||||||
Unrepatriated earnings | 1,205 | — | ||||||
Other | 1,357 | 1,512 | ||||||
Subtotal | 22,807 | 21,943 | ||||||
Less valuation allowance | (1,427 | ) | (1,624 | ) | ||||
Deferred tax assets | 21,380 | 20,319 | ||||||
Deferred tax liabilities - | ||||||||
Property, plant and equipment basis differences and depreciation | (5,540 | ) | (4,778 | ) | ||||
Intangible asset basis differences and amortization | (6,218 | ) | (7,000 | ) | ||||
Unrepatriated earnings | (922 | ) | (865 | ) | ||||
Deferred tax liabilities | (12,680 | ) | (12,643 | ) | ||||
Net deferred tax assets | $ | 8,700 | $ | 7,676 | ||||
As of September 30, | 2019 | 2018 | ||||||
Deferred tax assets - | ||||||||
Valuation reserves and non-deductible expenses | $ | 1,253 | $ | 1,473 | ||||
Stock compensation expense not deductible | 2,158 | 2,033 | ||||||
Net operating loss and tax credit carryforwards | 494 | 433 | ||||||
Basis difference in equity-method investee | 302 | 302 | ||||||
Inventory basis differences | 289 | 383 | ||||||
Other | 125 | (530 | ) | |||||
Subtotal | 4,621 | 4,094 | ||||||
Less valuation allowance | (408 | ) | (302 | ) | ||||
Deferred tax assets | 4,213 | 3,792 | ||||||
Deferred tax liabilities - | ||||||||
Fixed asset basis differences and depreciation | (2,205 | ) | (1,913 | ) | ||||
Intangible asset basis differences and amortization | (4,374 | ) | (5,518 | ) | ||||
Deferred tax liabilities | (6,579 | ) | (7,431 | ) | ||||
Net deferred tax liabilities | $ | (2,366 | ) | $ | (3,639 | ) | ||
2019 | 2018 | |||||||
Unrecognized income tax benefits at beginning of year | $ | 262 | $ | 517 | ||||
Additions for tax positions of prior years | 83 | — | ||||||
Reductions for tax positions of prior years | (100 | ) | — | |||||
Additions for tax positions of current year | 138 | — | ||||||
Tax examination and other settlements | — | (161 | ) | |||||
Expiration of statute of limitations | — | (94 | ) | |||||
Unrecognized income tax benefits at end of year | $ | 383 | $ | 262 | ||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Unrecognized income tax benefits at beginning of year | $ | 700 | $ | 568 | $ | 509 | ||||||
Additions for tax positions of prior years | — | 34 | — | |||||||||
Reductions for tax positions of prior years | — | — | — | |||||||||
Additions for tax positions of current year | 138 | 138 | 104 | |||||||||
Tax examination and other settlements | (64 | ) | (40 | ) | (45 | ) | ||||||
Unrecognized income tax benefits at end of year | $ | 774 | $ | 700 | $ | 568 | ||||||
(12) | Employee Benefits |
(a) | Savings and Investment Plan |
(b) | Stock-Based Compensation Plans |
Year ended September 30, | 2019 | 2018 | 2017 | |||||||||
Risk-free interest rates | 2.99 | % | 2.10 | % | 1.34 | % | ||||||
Dividend yield | 3.3 | % | 3.3 | % | 4.1 | % | ||||||
Life of option | 6.51 yrs. | 6.47 yrs. | 6.44 yrs. | |||||||||
Share price volatility | 29 | % | 30 | % | 27 | % | ||||||
Forfeitures (by employee group) | 0%-16 | % | 0%-16 | % | 0%-19 | % |
Year ended September 30, | 2022 | 2021 | 2020 | |||||||||
Share price volatility | 51%-59% | 53%-59 | % | 34 | % | |||||||
Life of option | 4.00-7.06 yrs. | 4.00-7.47 yrs. | 6.51 yrs. | |||||||||
Risk-free interest rates | 0.95%-1.73% | 0.26%-0.79 | % | 1.60 | % | |||||||
Dividend yield | 0% | 0 | % | 0 | % |
Options | Wtd Avg Exercise Price | Wtd Avg Remaining Life (Yrs) | Aggregate Intrinsic Value | |||||||||||||
Outstanding beginning of period | 1,095 | $ | 17.56 | |||||||||||||
Grants | 77 | 16.07 | ||||||||||||||
Exercises | (30 | ) | 15.13 | |||||||||||||
Forfeitures | (52 | ) | 15.03 | |||||||||||||
Cancellations | (100 | ) | 20.48 | |||||||||||||
Outstanding end of period | 990 | $ | 17.36 | 6.37 | $ | 1 | ||||||||||
Exercisable end of period | 782 | $ | 17.99 | 5.86 | $ | — | ||||||||||
Options | Wtd Avg Exercise Price | Wtd Avg Remaining Life (Yrs) | Aggregate Intrinsic Value | |||||||||||||
Outstanding beginning of period | 1,001 | $ | 15.31 | |||||||||||||
Grants | 163 | 19.52 | ||||||||||||||
Exercises | (186 | ) | 13.27 | |||||||||||||
Forfeitures | — | — | ||||||||||||||
Cancellations | (9 | ) | 20.26 | |||||||||||||
Outstanding end of period | 969 | $ | 16.55 | 6.19 | $ | 14,515 | ||||||||||
Exercisable end of period | 612 | $ | 16.62 | 4.97 | $ | 9,124 | ||||||||||
Options | Weighted- Average Grant Date Fair Value | |||||||
Nonvested beginning of period | 389 | $ | 3.24 | |||||
Granted | 77 | 3.61 | ||||||
Vested | (205 | ) | 3.39 | |||||
Forfeitures | (52 | ) | 3.25 | |||||
Nonvested end of period | 209 | $ | 3.24 | |||||
Options | Weighted- Average Grant Date Fair Value | |||||||
Nonvested beginning of period | 403 | $ | 5.70 | |||||
Granted | 163 | 9.26 | ||||||
Vested | (209 | ) | 5.73 | |||||
Forfeitures | — | — | ||||||
Nonvested end of period | 357 | $ | 7.30 | |||||
(13) | Contingent Obligations and Non-Current Liabilities |
Year Ended September 30, | 2022 | 2021 | ||||||
Current liabilities | $ | 667 | $ | 638 | ||||
Non-current liabilities | 4,620 | 5,176 |
(14) | National Institutes of Health Contracts |
(15) | Reportable Segments and Major Concentration Data |
Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||||||||||||||
Customer A | $ | 18,096 | | (9 | )% | $ | 21,162 | (10 | )% | $ | 22,397 | (11 | )% | |||||||||||
Customer B | $ | 17,350 | | (9 | )% | $ | 22,490 | (11 | )% | $ | 17,825 | (9 | )% |
Diagnostics | Life Science | Corporate (1) | Eliminations (2) | Total | ||||||||||||||||
Fiscal 2022 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 155,903 | $ | 177,115 | $ | — | $ | — | $ | 333,018 | ||||||||||
Inter-segment | 255 | 138 | — | (393 | ) | — | ||||||||||||||
Operating income (loss) | 2,982 | 86,040 | (34,707 | ) | 76 | 54,391 | ||||||||||||||
Depreciation and amortization | 14,708 | 1,803 | — | — | 16,511 | |||||||||||||||
Capital expenditures | 6,882 | 1,733 | — | — | 8,615 | |||||||||||||||
Goodwill | 94,412 | 21,890 | — | — | 116,302 | |||||||||||||||
Other intangible assets, net | 74,129 | 2 | — | — | 74,131 | |||||||||||||||
Total assets | 357,630 | 105,511 | — | (44 | ) | 463,097 | ||||||||||||||
Fiscal 2021 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 127,760 | $ | 190,136 | $ | — | $ | — | $ | 317,896 | ||||||||||
Inter-segment | 351 | 207 | — | (558 | ) | — | ||||||||||||||
Operating income (loss) | (7,280 | ) | 115,014 | (14,788 | ) | 88 | 93,034 | |||||||||||||
Depreciation and amortization | 13,432 | 1,854 | — | — | 15,286 | |||||||||||||||
Capital expenditures | 15,827 | 2,485 | — | — | 18,312 | |||||||||||||||
Goodwill | 94,904 | 19,764 | — | — | 114,668 | |||||||||||||||
Other intangible assets, net | 84,149 | 2 | — | — | 84,151 | |||||||||||||||
Total assets | 339,208 | 110,536 | — | (22 | ) | 449,722 | ||||||||||||||
Fiscal 2020 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 121,132 | $ | 132,535 | $ | — | $ | — | $ | 253,667 | ||||||||||
Inter-segment | 326 | 261 | — | (587 | ) | — | ||||||||||||||
Operating income (loss) | 5,276 | 68,893 | (12,895 | ) | 50 | 61,324 | ||||||||||||||
Depreciation and amortization | 11,451 | 2,116 | — | — | 13,567 | |||||||||||||||
Capital expenditures | 1,850 | 1,449 | — | — | 3,299 | |||||||||||||||
Goodwill | 94,855 | 19,331 | — | — | 114,186 | |||||||||||||||
Other intangible assets, net | 83,179 | 18 | — | — | 83,197 | |||||||||||||||
Total assets | 306,812 | 98,483 | — | (34 | ) | 405,261 | ||||||||||||||
Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||
United States | $ | 105,648 | $ | 120,555 | $ | 114,494 | ||||||
Italy | 10,898 | 10,398 | 9,004 | |||||||||
France | 2,442 | 2,353 | 1,845 | |||||||||
United Kingdom | 2,397 | 2,340 | 1,778 | |||||||||
Puerto Rico | 2,276 | 1,054 | 730 | |||||||||
Japan | 1,571 | 1,307 | 2,421 | |||||||||
Belgium | 1,465 | 1,711 | 1,507 | |||||||||
Holland | 1,411 | 1,454 | 1,290 | |||||||||
Other countries | 8,574 | 9,282 | 10,452 | |||||||||
Total Diagnostics | $ | 136,682 | $ | 150,454 | $ | 143,521 | ||||||
(1) | Includes acquisition and transaction related costs, litigation and select legal costs and restructuring costs totaling $20,298, $2,803 and $2,080 for the years ended September 30, 2022, 2021 and 2020, respectively |
.(2) | Eliminations consist of inter-segment transactions. |
Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||
United States | $ | 18,936 | 20,468 | $ | 19,595 | |||||||
Germany | 12,664 | 8,108 | 7,406 | |||||||||
China | 8,460 | 8,347 | 5,898 | |||||||||
United Kingdom | 4,714 | 5,201 | 5,579 | |||||||||
Spain | 4,415 | 4,187 | 3,209 | |||||||||
Australia | 3,461 | 3,631 | 4,002 | |||||||||
France | 2,200 | 2,040 | 1,792 | |||||||||
Japan | 1,624 | 1,932 | 1,375 | |||||||||
Italy | 1,357 | 971 | 700 | |||||||||
South Korea | 1,134 | 2,044 | 2,308 | |||||||||
Other countries | 5,367 | 6,188 | 5,386 | |||||||||
Total Life Science | $ | 64,332 | $ | 63,117 | $ | 57,250 | ||||||
Diagnostics | Life Science | Corporate (1) | Eliminations (2) | Total | ||||||||||||||||
Fiscal 2019 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 136,682 | $ | 64,332 | $ | — | $ | — | $ | 201,014 | ||||||||||
Inter-segment | 462 | 361 | — | (823 | ) | — | ||||||||||||||
Operating income | 22,399 | 20,572 | (10,373 | ) | 101 | 32,699 | ||||||||||||||
Depreciation and amortization | 7,676 | 2,288 | — | — | 9,964 | |||||||||||||||
Capital expenditures | 2,049 | 1,748 | — | — | 3,797 | |||||||||||||||
Goodwill | 70,395 | 18,846 | — | — | 89,241 | |||||||||||||||
Other intangible assets, net | 59,807 | 436 | — | — | 60,243 | |||||||||||||||
Total assets | 255,169 | 70,392 | — | (83 | ) | 325,478 | ||||||||||||||
Fiscal 2018 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 150,454 | $ | 63,117 | $ | — | $ | — | $ | 213,571 | ||||||||||
Inter-segment | 392 | 397 | — | (789 | ) | — | ||||||||||||||
Operating income | 32,569 | 13,799 | (15,076 | ) | 292 | 31,584 | ||||||||||||||
Depreciation and amortization | 6,557 | 2,131 | — | — | 8,688 | |||||||||||||||
Capital expenditures | 2,477 | 1,724 | — | — | 4,201 | |||||||||||||||
Goodwill | 35,213 | 19,424 | — | — | 54,637 | |||||||||||||||
Other intangible assets, net | 22,068 | 1,045 | — | — | 23,113 | |||||||||||||||
Total assets | 180,978 | 70,341 | — | 58 | 251,377 | |||||||||||||||
Fiscal 2017 | ||||||||||||||||||||
Net revenues - | ||||||||||||||||||||
Third-party | $ | 143,521 | $ | 57,250 | $ | — | $ | — | $ | 200,771 | ||||||||||
Inter-segment | 389 | 537 | — | (926 | ) | — | ||||||||||||||
Operating income | 34,124 | 14,086 | (11,097 | ) | 269 | 37,382 | ||||||||||||||
Depreciation and amortization | 7,037 | 2,053 | — | — | 9,090 | |||||||||||||||
Capital expenditures | 2,554 | 1,913 | — | — | 4,467 | |||||||||||||||
Goodwill | 35,213 | 19,713 | — | — | 54,926 | |||||||||||||||
Other intangible assets, net | 24,973 | 1,731 | — | — | 26,704 | |||||||||||||||
Total assets | 180,226 | 69,938 | — | (387 | ) | 249,777 |
Year Ended September 30, | 2019 | 2018 | 2017 | |||||||||
Segment operating income | $ | 43,072 | $ | 46,660 | $ | 48,479 | ||||||
Corporate expenses | (10,373 | ) | (15,076 | ) | (11,097 | ) | ||||||
Interest income | 681 | 418 | 171 | |||||||||
Interest expense | (1,945 | ) | (1,520 | ) | (1,642 | ) | ||||||
Other, net | 122 | (102 | ) | 518 | ||||||||
Consolidated earnings before income taxes | $ | 31,557 | $ | 30,380 | $ | 36,429 | ||||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Operating income (loss): | ||||||||||||
Diagnostics segment | $ | 2,982 | $ | (7,280 | ) | $ | 5,276 | |||||
Life Science segment | 86,040 | 115,014 | 68,893 | |||||||||
Eliminations | 76 | 88 | 50 | |||||||||
Total reportable segment operating income | 89,098 | 107,822 | 74,219 | |||||||||
Corporate operating expenses | (34,707 | ) | (14,788 | ) | (12,895 | ) | ||||||
Interest income | 17 | — | 142 | |||||||||
Interest expense | (1,189 | ) | (1,878 | ) | (2,632 | ) | ||||||
RADx initiative grant income | — | 1,000 | — | |||||||||
Other, net | 1,098 | (1,705 | ) | 459 | ||||||||
Consolidated earnings before income taxes | $ | 54,317 | $ | 90,451 | $ | 59,293 | ||||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
Diagnostics | ||||||||||||
Customer A | 8 | % | 10 | % | 12 | % | ||||||
Customer B | 10 | % | 11 | % | 13 | % | ||||||
Customer C | 11 | % | 12 | % | 7 | % | ||||||
Life Science | ||||||||||||
Customer D | 3 | % | 3 | % | 13 | % | ||||||
Customer E | 10 | % | 13 | % | 11 | % | ||||||
Customer F | 18 | % | 4 | % | — | % |
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
U.S. and territories | $ | 130,101 | $ | 99,636 | $ | 95,382 | ||||||
Italy | 9,741 | 12,240 | 9,797 | |||||||||
United Kingdom | 3,972 | 2,197 | 2,312 | |||||||||
Belgium | 1,339 | 1,554 | 1,440 | |||||||||
Holland | 1,051 | 1,279 | 1,183 | |||||||||
Other countries | 9,699 | 10,854 | 11,018 | |||||||||
Total Diagnostics | $ | 155,903 | $ | 127,760 | $ | 121,132 | ||||||
Year Ended September 30, | 2022 | 2021 | 2020 | |||||||||
South Korea | $ | 33,642 | $ | 9,242 | $ | 1,908 | ||||||
U.S. and territories | 32,450 | 44,785 | 36,689 | |||||||||
Germany | 17,969 | 18,460 | 14,190 | |||||||||
China | 15,368 | 13,559 | 19,047 | |||||||||
United Kingdom | 12,882 | 13,097 | 14,765 | |||||||||
France | 11,948 | 10,733 | 5,579 | |||||||||
Spain | 11,134 | 12,593 | 7,242 | |||||||||
Finland | 10,317 | 17,936 | 2,518 | |||||||||
Turkey | 7,858 | 7,281 | 2,819 | |||||||||
Japan | 6,591 | 6,532 | 3,707 | |||||||||
Australia | 4,312 | 9,115 | 5,957 | |||||||||
Italy | 3,735 | 7,516 | 4,067 | |||||||||
Czech Republic | 1,926 | 922 | 601 | |||||||||
India | 1,257 | 5,558 | 2,099 | |||||||||
Switzerland | 1,119 | 632 | 758 | |||||||||
Other countries | 4,607 | 12,175 | 10,589 | |||||||||
Total Life Science | $ | 177,115 | $ | 190,136 | $ | 132,535 | ||||||
As of September 30, | 2022 | 2021 | ||||||
Israel | $ | 71,536 | $ | 80,416 | ||||
United Kingdom | 27,927 | 30,027 | ||||||
Germany | 16,734 | 22,293 | ||||||
Canada | 15,875 | 15,236 | ||||||
Italy | 7,225 | 6,921 |
(16) | Commitments and |
(a) | Royalty Commitments - |
(b) | Purchase Commitments - |
(c) | Litigation |
Indemnifications |
(17) | Pending Merger |
For the Quarter Ended in Fiscal 2019 | December 31 | March 31 | June 30 | September 30 | ||||||||||||
Net revenues | $ | 51,480 | $ | 50,248 | $ | 48,440 | $ | 50,846 | ||||||||
Gross profit | 31,572 | 29,338 | 28,259 | 29,156 | ||||||||||||
Net earnings | 8,106 | 7,094 | 5,079 | 4,103 | ||||||||||||
Basic earnings per common share | 0.19 | 0.17 | 0.12 | 0.10 | ||||||||||||
Diluted earnings per common share | 0.19 | 0.17 | 0.12 | 0.10 | ||||||||||||
Cash dividends per common share | 0.125 | 0.125 | — | — | ||||||||||||
For the Quarter Ended in Fiscal 2018 | December 31 | March 31 | June 30 | September 30 | ||||||||||||
Net revenues | $ | 52,283 | $ | 56,451 | $ | 51,737 | $ | 53,100 | ||||||||
Gross profit | 32,010 | 34,569 | 31,962 | 32,156 | ||||||||||||
Net earnings | 6,302 | 5,288 | 6,825 | 5,434 | ||||||||||||
Basic earnings per common share | 0.15 | 0.12 | 0.16 | 0.13 | ||||||||||||
Diluted earnings per common share | 0.15 | 0.12 | 0.16 | 0.13 | ||||||||||||
Cash dividends per common share | 0.125 | 0.125 | 0.125 | 0.125 | ||||||||||||
(18) | Subsequent Event |
ITEM 9B.
OTHER INFORMATION
Not applicable.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III.
The information required by Items 10, 11, 12, 13 and 14 of Part III will be provided within a separate filing within 120 days of the Company’s Board of Directors adopted an amendment to its Amended and Restated Code of Regulations for the purpose of facilitating virtual meetings of shareholders.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES. |
All financial statements and schedules required to be filed by Item 8 of this Form and included in this report have been so identified under Item 8. No additional financial statements or schedules are being filed since the requirements of paragraph (c) under Item 15 are not applicable to Meridian.
(b) | (3) EXHIBITS. |
Exhibit | Description of Exhibit | |||
2.1 | Agreement and Plan of Merger, dated as of July 7, 2022, by and among Meridian, SD Biosensor, Inc., Columbus Holding Company, and Madeira Acquisition Corp. (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 7, 2022) | |||
3.1 | ||||
3.2 | ||||
4.1 | ||||
10.1* | ||||
10.2* | ||||
10.3* | ||||
10.4* | ||||
10.5* | ||||
- 75 -
10.14* | ||||
10.15 | ||||
21 | ||||
23.1 | ||||
23.2 | Consent of Independent Registered Public Accounting Firm (Filed herewith) | |||
31.1 | ||||
31.2 | ||||
32** | ||||
101.INS*** | ||||
Inline XBRL Instance Document | ||||
101.SCH*** | ||||
Inline XBRL Taxonomy Extension Schema |
- 76 -
101.CAL*** | ||||
Inline XBRL Taxonomy Extension Calculation Linkbase | ||||
101.DEF*** | ||||
Inline XBRL Taxonomy Extension Definition Linkbase | ||||
101.LAB*** | ||||
Inline XBRL Taxonomy Extension Label Linkbase | ||||
101.PRE*** | ||||
Inline XBRL Taxonomy Extension Presentation Linkbase | ||||
104*** | ||||
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Management Compensatory Contracts |
** | Furnished, not filed |
*** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
† | Schedules to and certain portions of these exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted schedule or other portion to the SEC upon request. |
Meridian will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Meridian’s reasonable expenses in furnishing such exhibit.
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
- 77 -
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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. | ||
By: | ||
/s/ Jack Kenny | ||
Date: November | ||
Jack Kenny | ||
Chief Executive Officer |
We, the undersigned directors and officers of the Registrant, hereby severally constitute Jack Kenny and Bryan T. Baldasare,Andrew S. Kitzmiller, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to the Annual Report on Form
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Capacity | Date | ||||
/s/ Jack Kenny | Chief Executive Officer and Director | November | ||||
Jack Kenny | ||||||
/s/ Andrew S. Kitzmiller | ||||||
Executive Vice President and Chief | November | |||||
Financial Officer | ||||||
/s/ Julie Smith | Senior Vice President and Controller | November 22, 2022 | ||||
(Principal Accounting Officer) | ||||||
/s/ John C. McIlwraith | Chairman of the Board | November | ||||
/s/ James M. Anderson | Director | November | ||||
James M. Anderson | ||||||
/s/ Anthony P. Bihl III | Director | November 22, 2022 | ||||
/s/ Dwight E. Ellingwood | Director | November 22, 2022 | ||||
/s/ John M. Rice, Jr. | Director | November | ||||
John M. Rice, Jr. | ||||||
/s/ Catherine A. Sazdanoff | Director | November | ||||
Catherine A. Sazdanoff | ||||||
/s/ Felicia Williams | Director | November | ||||
Felicia Williams |
- 7378 -
Description | Balance at Beginning of Period | Charged to Costs and Expenses | Deductions | Other (a) | Balance at End of Period | |||||||||||||||
Year Ended September 30, 2019: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 310 | $ | 347 | $ | (100 | ) | $ | (20 | ) | $ | 537 | ||||||||
Inventory realizability reserves | 1,971 | 774 | (448 | ) | (12 | ) | 2,285 | |||||||||||||
Valuation allowances – deferred taxes | 302 | 106 | — | — | 408 | |||||||||||||||
Year Ended September 30, 2018: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 307 | $ | 39 | $ | (32 | ) | $ | (4 | ) | $ | 310 | ||||||||
Inventory realizability reserves | 2,059 | 321 | (405 | ) | (4 | ) | 1,971 | |||||||||||||
Valuation allowances – deferred taxes | 342 | — | (40 | ) | — | 302 | ||||||||||||||
Year Ended September 30, 2017: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 334 | $ | 90 | $ | (134 | ) | $ | 17 | $ | 307 | |||||||||
Inventory realizability reserves | 2,680 | 35 | (661 | ) | 5 | 2,059 | ||||||||||||||
Valuation allowances – deferred taxes | 342 | — | — | — | 342 |
Description | Balance at Beginning of Period | Charged to Costs and Expenses | Deductions | Other (a) | Balance at End of Period | |||||||||||||||
Year Ended September 30, 2022: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 1,078 | $ | 946 | $ | (662 | ) | $ | (37 | ) | $ | 1,325 | ||||||||
Inventory realizability reserves | 4,997 | 5,121 | (3,882 | ) | (104 | ) | 6,132 | |||||||||||||
Valuation allowances – deferred taxes | 1,624 | 666 | (760 | ) | (103 | ) | 1,427 | |||||||||||||
Year Ended September 30, 2021: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 513 | $ | 583 | $ | (34 | ) | $ | 16 | $ | 1,078 | |||||||||
Inventory realizability reserves | 3,629 | 2,703 | (1,297 | ) | (38 | ) | 4,997 | |||||||||||||
Valuation allowances – deferred taxes | 895 | 729 | — | — | 1,624 | |||||||||||||||
Year Ended September 30, 2020: | ||||||||||||||||||||
Allowance for doubtful accounts | $ | 537 | $ | 34 | $ | (75 | ) | $ | 17 | $ | 513 | |||||||||
Inventory realizability reserves | 2,441 | 1,775 | (564 | ) | (23 | ) | 3,629 | |||||||||||||
Valuation allowances – deferred taxes | 666 | 335 | (106 | ) | — | 895 |
(a) | Balances reflect the effects of currency translation. |