Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2020March 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
              
to
              
Commission file
number    0-14902
MERIDIAN BIOSCIENCE, INC.
Incorporated under the laws of Ohio
31-0888197
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513)
(513) 271-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, no par value
 
VIVO
 
NASDAQ Global Select Market
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     
Yes  
☒
    No  
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     
Yes  
☒
    No  
☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 
☐
☒		  
Accelerated filer
☒
Non-accelerated
 filer
☐
Smaller reporting company
 ☐
    
Non-accelerated filer☐Smaller reporting company☐
   
Emerging growth company
 ☐   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
☐
    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding July 31, 2020April 30, 2021
Common Stock, no par value
 
42,862,598
43,330,038
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM
10-Q
Page(s)
     
Page(s)
PART I.
FINANCIAL INFORMATION
Item 1.
  
Item 1.
Financial Statements (Unaudited)
  
  
Condensed Consolidated Statements of Operations
Three and NineSix Months Ended June 30,March 31, 2021 and 2020 and 2019
1
   1 
Condensed Consolidated Statements of Comprehensive Income
Three and NineSix Months Ended June 30,March 31, 2021 and 2020 and 2019
2
   2 
Condensed Consolidated Statements of Cash Flows
NineSix Months Ended June 30,March 31, 2021 and 2020 and 2019
3
   3 
Condensed Consolidated Balance Sheets
June 30, 2020March 31, 2021 and September 30, 20192020
4-5
   4-5 
Condensed Consolidated Statements of Changes in Shareholders’ Equity
Three and NineSix Months Ended June 30,March 31, 2021 and 2020 and 2019
6
   6 
Notes to Condensed Consolidated Financial Statements
7-22
   7-20 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22-31
   21-30 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
31
   30 
Item 4.
Controls and Procedures
31
   30 
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
   
31 
Item 1.
Legal Proceedings
32
Item 1A.
Risk Factors
32
   
Item 6.
Exhibits
32
31 
Signature
Item 6.
  
Exhibits
31
Signature
33
32
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “continues”, “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “signals”, “should”, “can” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian Bioscience, Inc. (“Meridian” or “the Company”) expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted net earnings, sales, product demand, revenuenet revenues, operating margin, other guidance and the impact of
COVID-19
on ourits business and prospects, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the following:
Meridian’s operating results, financial condition and continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by Meridian’s competition, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While Meridian has introduced a number of internally developed products and acquired products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly manufacturing costs associated with its introduction of new products or acquired products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in which ourthe Company’s customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, can result in
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in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process (including the currently ongoing study and other FDA actions regarding the Company’s LeadCare products). The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of future goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of U.S. health care legislation enacted in 2010 – the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act – and any modification or repeal of any of the provisions thereof initiated by Congress or the presidential administration, and any similar initiatives in other countries on its results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and net revenues. In the past, the Company has identified a material weakness in our internal control over financial reporting, which has been remediated, but theThe Company can make no assurances that a material weakness in its internal control over financial reporting will not be identified in the future, which if identified and not properly corrected, could materially adversely affect ourits operations and result in material misstatements in ourits consolidated financial statements. Meridian also is subject to risks and uncertainties related to disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus disease
COVID-19.
In addition to the factors described in this paragraph, as well as those factors identified from time to time in ourthe Company’s filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of ourthe Company’s most recent Annual Report on Form
10-K
contains a list and description of uncertainties, risks and other matters that may affect the Company. Readers should carefully review these forward-looking statements and risk factors, and not place undue reliance on ourthe Company’s forward-looking statements.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(dollar and share amounts in thousands, except per share data)
 
   
Three Months Ended
  
Nine Months Ended
 
 
June 30,
  
June 30,
 
 
2020
  
2019
  
2020
  
2019
 
NET REVENUES
 $
84,797
  $
48,440
  $
189,514
  $
150,168
 
COST OF SALES
  
28,945
   
20,181
   
71,768
   
60,999
 
                 
GROSS PROFIT
  
55,852
   
28,259
   
117,746
   
89,169
 
                 
OPERATING EXPENSES
            
Research and development
  
6,743
   
4,594
   
16,953
   
12,294
 
Selling and marketing
  
6,261
   
6,747
   
19,459
   
21,221
 
General and administrative
  
12,439
   
8,002
   
31,675
   
24,288
 
Acquisition-related costs
  
1,641
   
473
   
3,428
   
1,445
 
Change in fair value of contingent consideration obligation
  
(6,124
)   
—  
   
(7,428
)   
—  
 
Restructuring costs
  
93
   
1,801
   
620
   
1,701
 
Selected legal costs
  
134
   
178
   
1,189
   
1,370
 
                 
Total operating expenses
  
21,187
   
21,795
   
65,896
   
62,319
 
                 
OPERATING INCOME
  
34,665
   
6,464
   
51,850
   
26,850
 
                 
OTHER INCOME (EXPENSE)
            
Interest income
  
3
   
194
   
137
   
547
 
Interest expense
  
(703
)   
(448
)   
(2,002
)   
(1,158
) 
Other, net
  
908
   
268
   
1,561
   
(38
) 
                 
Total other income (expense)
  
208
   
14
   
(304
)   
(649
) 
                 
EARNINGS BEFORE INCOME TAXES
  
34,873
   
6,478
   
51,546
   
26,201
 
                 
INCOME TAX PROVISION
  
7,366
   
1,399
   
11,853
   
5,922
 
                 
NET EARNINGS
 $
27,507
  $
5,079
  $
39,693
  $
20,279
 
                 
BASIC EARNINGS PER COMMON SHARE
 $
0.64
  $
0.12
  $
0.93
  $
0.48
 
DILUTED EARNINGS PER COMMON SHARE
 $
0.64
  $
0.12
  $
0.92
  $
0.47
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
 -
BASIC
  
42,837
   
42,639
   
42,819
   
42,526
 
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS
  
436
   
271
   
219
   
381
 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
 -
DILUTED
  
43,273
   
42,910
   
43,038
   
42,907
 
                 
ANTI-DILUTIVE SECURITIES:
            
Common share options and restricted share units
  
854
   
1,215
   
1,298
   
1,073
 
                 
DIVIDENDS DECLARED PER COMMON SHARE
 $
—  
  $
—  
  $
—  
  $
0.250
 
                 
   
Three Months Ended
  
Six Months Ended
 
   
March 31,
  
March 31,
 
   
2021
  
2020
  
2021
  
2020
 
NET REVENUES
  $85,264  $57,296  $178,181  $104,717 
COST OF SALES
   27,492   22,750   58,861   42,520 
                  
GROSS PROFIT
   57,772   34,546   119,320   62,197 
                  
OPERATING EXPENSES
                 
Research and development
   6,065   5,315   11,716   10,078 
Selling and marketing
   6,540   6,529   13,561   13,257 
General and administrative
   12,925   10,628   24,863   19,612 
Acquisition-related costs
   —   1,787   —   1,787 
Change in fair value of acquisition consideration
   (2,989)   (2,491)   (1,942)   (1,304) 
Restructuring costs
   —     252     —   527 
Selected legal costs
   1,030   735   2,257   1,055 
                  
Total operating expenses
   23,571   22,755   50,455   45,012 
                  
OPERATING INCOME
   34,201   11,791   68,865   17,185 
                 
OTHER INCOME (EXPENSE)
                 
Interest income
   6   23   15   134 
Interest expense
   (472)   (532)   (1,006)   (1,299) 
RADx grant income
   200   —     1,000   —   
Other, net
   (883)   1,365   (1,574)   653 
                  
Total other income (expense)
   (1,149)   856   (1,565)   (512) 
                  
EARNINGS BEFORE INCOME TAXES
   33,052   12,647   67,300   16,673 
                 
INCOME TAX PROVISION
   6,750   3,288   14,219   4,487 
                  
NET EARNINGS
  $26,302  $9,359  $53,081  $12,186 
                  
BASIC EARNINGS PER COMMON SHARE
  $0.61  $0.22  $1.23  $0.28 
DILUTED EARNINGS PER COMMON SHARE
  $0.60  $0.22  $1.21  $0.28 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
—
BASIC
   43,244   42,830   43,171   42,810 
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS
   878   138   789   143 
                  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
—
DILUTED
   44,122   42,968   43,960   42,953 
                  
ANTI-DILUTIVE SECURITIES:
                 
Common share options and restricted share units
   166   1,635   169   1,520 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 1
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(dollar amounts in thousands)
 
Three Months Ended
  
Nine Months Ended
 
 
June 30,
  
June 30,
 
 
2020
  
2019
  
2020
  
2019
 
NET EARNINGS
 $
27,507
  $
5,079
  $
39,693
  $
20,279
 
Other comprehensive income (loss):
            
Foreign currency translation adjustment
  
597
   
1,692
   
579
   
1,353
 
Unrealized loss on cash flow hedge
  
(390
)  
(297
)  
(703
)  
(1,184
)
Reclassification of gain on cash flow hedge
  
(77
)  
—  
   
(231
)  
—  
 
Income taxes related to items of other comprehensive income
  
115
   
222
   
230
   
445
 
                 
Other comprehensive income (loss), net of tax
  
245
   
1,617
   
(125
)  
614
 
                 
COMPREHENSIVE INCOME
 $
27,752
  $
6,696
  $
39,568
  $
20,893
 
                 
   
Three Months
 
Ended
  
Six Months Ended
 
   
March 31,
  
March 31,
 
   
2021
  
2020
  
2021
  
2020
 
NET EARNINGS
  $26,302  $9,359  $53,081  $12,186 
Other comprehensive income (loss):
                 
Foreign currency translation adjustment
   79   (2,786)   3,380   (18) 
Unrealized gain (loss) on cash flow hedge   439   (313)   460   (313) 
Reclassification of amortization of gain on cash flow hedge
   (77)   (77)   (154)   (154) 
Income taxes related to items of other comprehensive income (loss)   (80)   96   (66)   115 
                  
Other comprehensive income (loss), net of tax
   361   (3,080)   3,620   (370) 
                  
COMPREHENSIVE INCOM
E
  $26,663  $6,279  $56,701  $11,816 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 2
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
   
Six Months Ended March 31,
  
2021
  
2020
 
CASH FLOWS FROM OPERATING ACTIVITIES
         
Net earnings
  $53,081  $12,186 
Non-cash
items included in net earnings:
         
Depreciation of property, plant and equipment
   3,072   2,439 
Amortization of intangible assets
   4,363   3,449 
Stock compensation expense   2,291   1,759 
Deferred income taxes
   (777)   656 
Change in fair value of acquisition consideration   (1,942)   (1,304) 
Change in the following:
         
Accounts receivable
   (5,267)   (4,950) 
Inventories
   (12,185)   (2,511) 
Prepaid expenses and other current assets
   1,440   1,278 
Accounts payable and accrued expenses
   77   1,621 
Income taxes payable
   (2,698)   400 
Other, net
   36   692 
          
Net cash provided by operating activities   41,491   15,715 
          
CASH FLOWS FROM INVESTING ACTIVITIES
         
Purchase of property, plant and equipment
   (11,955)   (1,543) 
Payment of acquisition consideration holdback
   (5,000)   —   
          
Net cash used in investing activities   (16,955)   (1,543) 
          
CASH FLOWS FROM FINANCING ACTIVITIES
         
Payment on revolving credit facility
   (18,824)   (27,000) 
Payment of debt issuance costs
   —     (116) 
Proceeds from exercise of stock options
   2,852   —   
          
Net cash used in financing activities   (15,972)   (27,116) 
          
Effect of Exchange Rate Changes on Cash and Cash Equivalents
   1,296   97 
          
Net Increase (Decrease) in Cash and Cash Equivalents
   9,860   (12,847) 
Cash and Cash Equivalents at Beginning of Period
   53,514   62,397 
          
Cash and Cash Equivalents at End of Period
  $63,374  $49,550 
          
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 23
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)Balance Sheets
(dollar amounts in thousands)
ASSETS
 
Nine Months Ended June 30,
 
2020
  
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES
      
Net earnings
 $
39,693
  $
20,279
 
Non-cash
items included in net earnings:
      
Depreciation of property, plant and equipment
  
3,762
   
3,984
 
Amortization of intangible assets
  
5,604
   
2,778
 
Stock-based compensation
  
2,809
   
2,728
 
Deferred income taxes
  
2,214
   
(852
)
Loss on disposition and write-down of fixed assets
  
—  
   
220
 
Change in accrued contingent consideration
  
(7,428
)  
—  
 
Change in the following, net of acquisitions:
      
Accounts receivable
  
(6,352
)  
1,014
 
Inventories
  
(17,828
)  
(67
)
Prepaid expenses and other current assets
  
68
   
(1,849
)
Accounts payable and accrued expenses
  
4,422
   
(1,703
)
Income taxes payable
  
3,401
   
1,402
 
Other, net
  
1,315
   
583
 
         
Net cash provided by operating activities
  
31,680
   
28,517
 
         
CASH FLOWS FROM INVESTING ACTIVITIES
      
Purchase of property, plant and equipment
  
(2,471
)  
(3,314
)
Acquisition of Exalenz
, net of cash acquired
  
(51,299
)  
—  
 
Acquisition of GenePOC business
  
—
   
(45,239
)
         
Net cash used for investing activities
  
(53,770
)  
(48,553
)
         
CASH FLOWS FROM FINANCING ACTIVITIES
      
Dividends paid
  
—  
   
(10,612
)
Payment on revolving credit facility
  
(27,000
)  
—  
 
Proceeds from revolving credit facility
  50,000   
75,824
 
Payment of debt issuance costs
  
(116
)  
(489
)
Payments on term loan
  
—  
   
(50,250
)
Proceeds from exercise of stock options
  
—  
   
443
 
         
Net cash
p
rovided by
financing activities
  
22,884
   
14,916
 
         
Effect of Exchange Rate Changes on Cash and Equivalents
  
254
   
(451
)
         
Net Increase (Decrease) in Cash and Equivalents
  
1,048
   
(5,571
)
Cash and Equivalents at Beginning of Period
  
62,397
   
60,763
 
         
Cash and Equivalents at End of Period
 $
63,445
  $
55,192
 
         
   
March 31,
     
  
2021
   
September 30,
 
  
(Unaudited)
   
    
2020
    
 
CURRENT ASSETS
          
Cash and cash equivalents  $63,374   $53,514 
Accounts receivable, less allowances of $505 and $513, respectively
   44,895    38,512 
Inventories, net
   72,534    61,264 
Prepaid expenses and other current assets
   7,491    8,900 
           
Total current assets
   188,294    162,190 
           
PROPERTY, PLANT AND EQUIPMENT, at Cost
          
Land
   991    991 
Buildings and improvements
   32,326    32,188 
Machinery, equipment and furniture
   74,173    69,854 
Construction in progress
   10,779    1,200 
           
Subtotal
   118,269    104,233 
Less: accumulated depreciation and amortization
   76,303    73,113 
           
Property, plant and equipment, net
   41,966    31,120 
           
OTHER ASSETS
          
Goodwill
   115,296    114,186 
Other intangible assets, net
   78,834    83,197 
Right-of-use
assets, net
   6,297    6,336 
Deferred income taxes
   8,017    7,647 
Other assets
   465    585 
           
Total other assets
   208,909    211,951 
           
TOTAL ASSETS
  $439,169   $405,261 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 34
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
ASSETS
 
June 30,
2020
(Unaudited)
  
September 30,
2019
 
CURRENT ASSETS
      
Cash and equivalents
 $
63,445
  $
62,397
 
Accounts receivable, less allowances of $527 and $537, respectively
  
42,384
   
35,608
 
Inventories
  
60,468
   
39,617
 
Prepaid expenses and other current assets
  
7,909
   
7,139
 
         
Total current assets
  
174,206
   
144,761
 
         
PROPERTY, PLANT AND EQUIPMENT, at Cost
      
Land
  
986
   
982
 
Buildings and improvements
  
32,132
   
31,904
 
Machinery, equipment and furniture
  
67,563
   
64,155
 
Construction in progress
  
1,455
   
522
 
         
Subtotal
  
102,136
   
97,563
 
Less: accumulated depreciation and amortization
  
71,328
   
66,996
 
         
Net property, plant and equipment
  
30,808
   
30,567
 
         
OTHER ASSETS
      
Goodwill
  
118,567
   
89,241
 
Other intangible assets, net
  
83,363
   
60,243
 
Right-of-use
assets
  
6,472
   
—  
 
Deferred income taxes
  
5,701
   
156
 
Other assets
  
670
   
510
 
         
Total other assets
  
214,773
   
150,150
 
         
TOTAL ASSETS
 $
419,787
  $
325,478
 
         
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
 
(dollar amounts in thousands)
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
   
   
March 31,
   
September 30,
 
   
2021
   
2020
 
   
(Unaudited)
   
        
 
CURRENT LIABILITIES
          
Accounts payable
  $16,714   $11,969 
Accrued employee compensation costs
   12,634    16,661 
Current portion of acquisition consideration
   11,296    12,619 
Current operating lease obligations
   1,892    1,789 
Current government grant obligations
   608    600 
Other accrued expenses
   5,664    5,362 
Income taxes payable
   1,502    3,524 
           
Total current liabilities
   50,310    52,524 
           
NON-CURRENT
LIABILITIES
          
Acquisition consideration
   7,671    13,290 
Post-employment benefits
   2,429    2,493 
Fair value of interest rate swaps
   254    713 
Long-term operating lease obligations
   4,555    4,678 
Long-term debt
   50,000    68,824 
Government grant obligations
   10,537    10,524 
Long-term income taxes payable
   374    549 
Deferred income taxes
   3,389    3,804 
Other
non-current
liabilities
   177    233 
           
Total
non-current
liabilities
   79,386    105,108 
           
COMMITMENTS AND CONTINGENCIES
0     0  
         
SHAREHOLDERS’ EQUITY
          
Preferred stock, 0 par value; 1,000,000 shares authorized; NaN issued
   0—      0—   
Common shares, 0 par value; 71,000,000 shares authorized, 43,329,294 and 43,068,842
shares issued, respectively
   0—      0—   
Additional
paid-in
capital
   145,338    140,195 
Retained earnings
   162,375    109,294 
Accumulated other comprehensive income (loss)
   1,760    (1,860) 
           
Total shareholders’ equity
   309,473    247,629 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $439,169   $405,261 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 45
Table of Contents
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance SheetsStatements of Changes in Shareholders’ Equity (Unaudited)
(dollar and share amounts in thousands)
      
   Common
Shares
Issued		   Additional
Paid-In

Capital		  Retained
Earnings		   Accumulated
Other
Comprehensive
Income (Loss)		  Total
Shareholders’
Equity		 
THREE MONTHS ENDED MARCH 31, 2021
                       
Balance at December 31, 2020
   43,124   $141,395  $136,073   $1,399  $278,867 
Conversion of restricted share units and exercise of stock options
   205    2,893   —      —     2,893 
Stock compensation expense
   —      1,050   —      —     1,050 
Net earnings
   —      —     26,302    —     26,302 
Foreign currency translation adjustment
   —      —     —      79   79 
Hedging activity, net of tax
   —      —     —      282   282 
                        
Balance at March 31, 2021
   43,329   $145,338  $162,375   $1,760  $309,473 
                        
THREE MONTHS ENDED MARCH 31, 2020
                       
Balance at December 31, 2019
   42,828   $133,622  $65,935   $(2,265)  $197,292 
Conversion of restricted share units and exercise of stock options
   3    (9)   —      —     (9) 
Stock compensation expense
   —      971   —      —     971 
Net earnings
   —      —     9,359    —     9,359 
Foreign currency translation adjustment
   —      —     —      (2,786)   (2,786) 
Hedging activity, net of tax
   —      —     —      (294)   (294) 
                        
Balance at March 31, 2020
   42,831   $134,584  $75,294   $(5,345)  $204,533 
                        
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
June 30,
2020
(Unaudited)
  
September 30,
2019
 
CURRENT LIABILITIES
      
Accounts payable
 $
13,492
  $
7,238
 
Accrued employee compensation costs
  
12,408
   
7,938
 
Current portion of acquisition consideration
  
5,000
   
—
 
Current operating lease obligations
  
1,827
   
—  
 
Current government grant obligations
  
577
   
—  
 
Other accrued expenses
  
4,856
   
3,758
 
Income taxes payable
  
5,341
   
1,980
 
         
Total current liabilities
  
43,501
   
20,914
 
         
NON-CURRENT
LIABILITIES
      
Acquisition consideration
  
19,774
   
32,202
 
Post-employment benefits
  
2,450
   
2,500
 
Fair value of interest rate swaps
  
703
   
—  
 
Long-term operating lease obligations
  
4,887
   
—  
 
Long-term debt
  
98,824
   
75,824
 
Government grant obligations
  
10,596
   — 
Long-term income taxes payable
  
549
   
549
 
Deferred income taxes
  
4,711
   
2,522
 
Other
non-current
liabilities
  
457
   
—  
 
         
Total
non-current
liabilities
  
142,951
   
113,597
 
         
COMMITMENTS AND CONTINGENCIES
    
         
SHAREHOLDERS’ EQUITY
      
Preferred stock, 0 par value; 1,000,000 shares authorized; 0ne issued
  
—  
   
—  
 
Common shares, 0 par value; 71,000,000 shares authorized, 42,839,088 and 42,712,296 shares issued, respectively
  
—  
   
—  
 
Additional
paid-in
capital
  
135,634
   
132,834
 
Retained earnings
  
102,801
   
63,108
 
Accumulated other comprehensive loss
  
(5,100
)  
(4,975
)
         
Total shareholders’ equity
  
233,335
   
190,967
 
         
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 $
419,787
  $
325,478
 
         
   Common
Shares
Issued		   Additional
Paid-In

Capital		  Retained
Earnings		   Accumulated
Other
Comprehensive
Income (Loss)		  Total
Shareholders’
Equity		 
SIX MONTHS ENDED MARCH 31, 2021
                       
Balance at September 30, 2020
   43,069   $140,195  $109,294   $(1,860)  $247,629 
Conversion of restricted share units and exercise of stock options   260    2,852   —      —     2,852 
Stock compensation expense
   —      2,291   —      —     2,291 
Net earnings
   —      —     53,081    —     53,081 
Foreign currency translation adjustment
   —      —     —      3,380   3,380 
Hedging activity, net of tax
   —      —     —      240   240 
                        
Balance at March 31, 2021
   43,329   $145,338  $162,375   $1,760  $309,473 
                        
SIX MONTHS ENDED MARCH 31, 2020
                       
Balance at September 30, 2019
   42,712   $132,834  $63,108   $(4,975)  $190,967 
Conversion of restricted share units and exercise of stock options
   119    (9)   —      —     (9) 
Stock compensation expense
   —      1,759   —      —     1,759 
Net earnings
   —      —     12,186    —     12,186 
Foreign currency translation adjustment
   —      —     —      (18)   (18) 
Hedging activity, net of tax
   —      —     —      (352)   (352) 
                        
Balance at March 31, 2020
   42,831   $134,584  $75,294   $(5,345)  $204,533 
                        
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5
Table of Contents
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollar and share amounts in thousands, except per share data)
 
 
Common
Shares
Issued
  
Additional
Paid-In

Capital
  
Retained
Earnings
  
Accumulated Other
Comprehensive
Income (Loss)
  
Total
Shareholders’
Equity
 
THREE MONTHS ENDED JUNE 30, 2020
Balance at March 31, 2020
  
42,831
  $
134,584
  $
75,294
  $
(5,345)
  $
204,533
 
Conversion of restricted share units
  
8
   
—  
   
—  
   
—  
   
—  
 
Stock compensation expense
  
—  
   
1,050
   
—  
   
—  
   
1,050
 
Net earnings
  
—  
   
—  
   
27,507
   
—  
   
27,507
 
Foreign currency translation adjustment
  
—  
   
—  
   
—  
   
597
   
597
 
Hedging activity, net of tax
  
—  
   
—  
   
—  
   
(352)
   
(352)
 
                     
Balance at June 30, 2020
  
42,839
  $
135,634
  $
102,801
  $
(5,100)
  $
233,335
 
                     
THREE MONTHS ENDED JUNE 30, 2019
Balance at March 31, 2019
  
42,515
  $
131,951
  $
54,074
  $
(4,380)
  $
181,645
 
Conversion of restricted share units and exercise of stock options
  
156
   
—  
   
—  
   
—  
   
—  
 
Stock compensation expense
  
—  
   
360
   
—  
   
—  
   
360
 
Net earnings
  
—  
   
—  
   
5,079
   
—  
   
5,079
 
Foreign currency translation adjustment
  
—  
   
—  
   
—  
   
1,692
   
1,692
 
Hedging activity, net of tax
  
—  
   
—  
   
—  
   
(223)
   
(223)
 
Adoption of ASU
2018-02
  
—  
   
—  
   
(148)
   
148
   
—  
 
                     
Balance at June 30, 2019
  
42,671
  $
132,311
  $
59,005
  $
(2,763)
  $
188,553
 
                     
 
Common
Shares
Issued
  
Additional
Paid-In

Capital
  
Retained
Earnings
  
Accumulated Other
Comprehensive
Income (Loss)
  
Total
Shareholders’
Equity
 
NINE MONTHS ENDED JUNE 30, 2020
Balance at September 30, 2019
  
42,712
  $
132,834
  $
63,108
  $
(4,975)
  $
190,967
 
Conversion of restricted share units
  
127
   
(9)
   
—  
   
—  
   
(9)
 
Stock compensation expense
  
—  
   
2,809
   
—  
   
—  
   
2,809
 
Net earnings
  
—  
   
—  
   
39,693
   
—  
   
39,693
 
Foreign currency translation adjustment
  
—  
   
—  
   
—  
   
579
   
579
 
Hedging activity, net of tax
  
—  
   
—  
   
—  
   
(704)
   
(704)
 
                     
Balance at June 30, 2020
  
42,839
  $
135,634
  $
102,801
  $
(5,100)
  $
233,335
 
                     
NINE MONTHS ENDED JUNE 30, 2019
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
  
271
   
390
   
—  
   
—  
   
390
 
Stock compensation expense
  
—  
   
2,728
   
—  
   
—  
   
2,728
 
Net earnings
  
—  
   
—  
   
20,279
   
—  
   
20,279
 
Foreign currency translation adjustment
  
—  
   
—  
   
—  
   
1,353
   
1,353
 
Hedging activity, net of tax
  
—  
   
—  
   
—  
   
(887)
   
(887)
 
Adoption of ASU
2014-09
  
—  
   
—  
   
(116)
   
—  
   
(116)
 
Adoption of ASU
2018-02
  
—  
   
—  
   
(148)
   
148
   
—  
 
                     
Balance at June 30, 2019
  
42,671
  $
132,311
  $
59,005
  $
(2,763)
  $
188,553
 
                     
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 6
Table of Contents
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Dollars in Thousands, Except Per Share Amounts
(Unaudited)
 
1.
Nature of Business
Meridian Bioscience, Inc. (“Meridian” or “the Company”) was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic testing systems and kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, immunoassay blocking reagents, various Polymerase Chain Reaction (“PCR”) master mixes, and bioresearch reagents used by other diagnostic manufacturers and researchers.
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston); and (iii) the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.
The Life Science segment consists of: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany; and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to pursue revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g.,
in-vitro
medical device manufacturing, microRNA detection, next-generation sequencing, plant genotyping, and mutation detection, among others).
2.
Basis of Presentation
The interim condensed consolidated financial statementsCondensed Consolidated Financial Statements are unaudited and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles generally accepted in the United States of America(“GAAP”) for interim financial information, and the rules and regulations of the Securities and Exchange Commission.Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principlesGAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statementsCondensed Consolidated Financial Statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of June 30, 2020,March 31, 2021 and the results of its operations, cash flows and shareholders’ equity for the three- and nine-month
six-month
periods ended June 30, 2020March 31, 2021 and 2019, and its cash flows for the nine-month periods ended June 30, 2020 and 2019.2020. These statementsCondensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s fiscal 20192020 Annual Report on Form
10-K.10-K
filed with the SEC on November 23, 2020.
It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Condensed Consolidated Financial
information as of September 30, 2019 has been derived from the Company’s audited consolidated financial statements. Statements to indicate net revenue and/or net revenues.
The results of operations for interim periods are not necessarily indicative of the results to be expected for the year. In December 2019, the
SARS-CoV-2
virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated
COVID-19
(the disease caused by
SARS-CoV-2)
a global pandemic. GovernmentsIn April 2021, the U.S. Department of Health and Human Services extended the public health emergency declaration for
COVID-19.
During the past year, governments around the world have implemented lockdown and
shelter-in-place
orders, requiring many
non-essential
businesses to shut down operations, throughout a substantial portion of the last five months, somemany of which remain in effect as of the date of this filing. The Company’sOur business, however, was deemed “essential” and we have continued to operate, manufacture and distribute our products to customers globally.
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Table of Contents
While revenues within our Life Science segment have been positively impacted by the
COVID-19
pandemic, to-date,to date, the negative impacts of
COVID-19
on the Company have been limited to decreased demand for certainmost of our Diagnostics segment’s products and the pausing and/or slowing of clinical trials for new product development programs, as diagnostics testing over the last year has focused primarily on
COVID-19
and critical care ailments. AlthoughFor the second half of our fiscal 2021, we do not expect to sustain the level ofdemand for our Life Science revenuessegment’s reagent products used in
COVID-19
tests will be lower than that experienced during the fiscal quartersix months ended June 30, 2020, over the next twelve months, we do expect current general directional trends in our revenues to continue. Specifically, we expect our Life Science segment to continue to experience elevated levels of demand for
COVID-19
reagents, but we also expect our Diagnostics segment’s level of revenues to improveMarch 31, 2021, as health care facilities returnsystems transition to
pre-pandemic
non-critical
care more asymptomatic testing and treatments.versus the predominant symptomatic testing we have seen over the last year. However, duethis varies by country based on their individual
COVID-19
case statistics. Due to the many uncertainties surrounding the
COVID-19
pandemic, we can provide no assurances with respect to our views of the longevity, severity or impacts to our financial condition of the
COVID-19
pandemic. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein for additional discussion of the effects of the
COVID-19
pandemic on the Company and its results of
operations.
The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statement
s
 and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
 
2.
3.
Significant Accounting Policies
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 20192020 Annual Report on Form
10-K
filed with the SEC on November 23, 2020 and should be referred to for a description of the Company’s current significant accounting policies, withpolicies.
(a) Recent Accounting Pronouncements –
Pronouncements Adopted
On October 1, 2020, the exceptionCompany adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2016-13,
Measurement of Revenue RecognitionCredit Losses
on Financial Instruments
, which changed the impairment model used to measure credit losses for most financial assets. Use of the new forward-looking expected credit loss model for our accounts receivable valuation, rather than the previously utilized incurred credit loss model, resulted in an immaterial impact on the Condensed Consolidated Financial Statements.
Pronouncements Issued but Not Yet Adopted as of March 31, 2021
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the LIBOR rate. The guidance provides practical expedients and Fair Value Measurements,exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which are set forth below.may be applied through December 31, 2022. The Company continues to evaluate the impacts of this guidance but does not expect its application to have a material impact on the Condensed Consolidated Financial Statements.
In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
2019-12”).
ASU
2019-12
clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. ASU
2019-12
will be effective for the Company’s fiscal year beginning on October 1, 2021. The Company is currently evaluating the impact of ASU
2019-12
but does not expect its application to have a material impact on the Condensed Consolidated Financial Statements.
 
(b)
Reclassifications –
Certain reclassifications have been made to the prior year Condensed Consolidated Financial Statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.
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Table of Contents
(a) Revenue Recognition –
Revenue Disaggregation
The following tables present our revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics only), noting that “Non-molecular assays” is comprised of traditional immunoassays, blood chemistry assays and urea breath tests:​​​​​​​
Revenue by Reportable Segment & Geographic Region
 
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
 
2020
  
2019
  
Inc (Dec)
  
2020
  
2019
  
Inc (Dec)
 
Diagnostics-
                  
Americas
 $
  17,575
  $
  27,356
   
(36
)% $
  72,980
  $84,042   
(13
)%
EMEA
  
3,576
   
5,076
   
(30
)%  
16,853
   
17,427
   
(3
)%
ROW
  
447
   
686
   
(35
)%  
1,498
   
1,814
   
(17
)%
                         
Total Diagnostics
  
21,598
   
33,118
   
(35
)%  91,331   
103,283
   
(12
)%
                         
Life Science-
  
            
   
            
   
          
   
            
   
            
   
          
 
Americas
  
22,015
   
4,369
   
404
%  
30,642
   
14,347
   
114
%
EMEA
  
26,070
   
6,389
   
308
%  
40,977
   
21,608
   
90
%
ROW
  
15,114
   
4,564
   
231
%  
26,564
   
10,930
   
143
%
                         
Total Life Science
  
63,199
   
15,322
   
312
%  
98,183
   
46,885
   
109
%
                         
Consolidated
 $
  84,797
  $
  48,440
   
75
% $
  189,514
  $
  150,168
   
26
%
                         
4.
Revenue Recognition
Revenue by Product Platform/Type
 
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
 
2020
  
2019
  
Inc (Dec)
  
2020
  
2019
  
Inc (Dec)
 
Diagnostics-
                  
Molecular assays
 $
3,182
  $
5,894
   
(46
)% $
  17,259
  $
20,208
   
(15
)%
Non
-m
olecular assays
  
18,416
   
27,224
   
(32
)%  
74,072
   
83,075
   
(11
)
%
                         
Total Diagnostics
 $
  21,598
  $
  33,118
   
(35
)% $
91,331
  $
  103,283
   
(12
)%
                         
Life Science-
                  
Molecular reagents
 $
  38,784
  $
5,495
   
606
% $
  55,691
  $
17,495
   
218
%
Immunological reagents
  
24,415
   
9,827
   
148
%  
42,492
   
29,390
   
45
%
                         
Total Life Science
 $
  63,199
  $
  15,322
   
312
% $
  98,183
  $
46,885
   
109
%
                         
Revenue by Disease State (Diagnostics only)
 
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
 
2020
  
2019
  
Inc (Dec)
  
2020
  
2019
  
Inc (Dec)
 
Diagnostics-
                  
Gastrointestinal assays
 $
  9,584
  $
  17,232
   
(44
)% $
  39,644
  $
52,024
   
(24
)%
Respiratory illness assays
  
5,052
   
5,708
   
(11
)%  
23,664
   
21,242
   
11
%
Blood chemistry assays
  
3,364
   
4,666
   
(28
)
%		  
12,508
   
13,364
   
(6
)%
Other
  
3,598
   
5,512
   
(35
)%  
15,515
   
16,653
   
(7
)%
                         
Total Diagnostics
 $
  21,598
  $
  33,118
   
(35
)% $
  91,331
  $
  103,283
   
(12
)%
                         
Overview
Page 8
Table of Contents
Revenue Policies
Product Sales
Revenue from contracts with customers is recognized in an amount that reflects the consideration we expect to receive in exchange for products when obligations under such contracts are satisfied. Revenue is generally recognized at a
point-in-time
when products are shipped, and control has passed to the customer. Such contracts can include various combinations of products that are generally accounted for as distinct performance obligations.
Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Revenue for the Diagnostics segment is reduced at the date of sale for product price adjustments payable to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided
Revenue Disaggregation
The following tables present our revenues disaggregated by distributors, historical statistics, current trends,major geographic region, major product platform and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals are netted against accounts receivable.disease state (Diagnostics segment only):
Revenue by Reportable Segment & Geographic Region
   
Three Months Ended March 31,
  
Six Months Ended March 31,
 
   
2021
   
2020
   
Inc (Dec)
  
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
                             
Americas
  $25,290   $27,670    (9)%  $48,824   $55,405    (12)% 
EMEA
   6,071    6,777    (10)%   12,101    13,277    (9)% 
ROW
   588    495    19%   1,345    1,051    28% 
                              
Total Diagnostics
   31,949    34,942    (9)%   62,270    69,733    (11)% 
                              
Life Science-
                             
Americas
   13,550    4,612    194%   32,296    8,623    275% 
EMEA
   21,773    9,946    119%   54,066    14,907    263% 
ROW
   17,992    7,796    131%   29,549    11,454    158% 
                              
Total Life Science
   53,315    22,354    139%   115,911    34,984    231% 
                              
Consolidated  $85,264   $57,296    49%  $178,181   $104,717    70% 
                              
Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation.
Revenue by Product Platform/Type
Our payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from
30 to 90 days from the date of shipment or satisfaction of the performance obligation
. Trade accounts receivable are recorded in the accompanying Condensed Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical
write-off
experience and known conditions that would likely lead to
non-payment.
Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid.
Practical Expedients and Exemptions
Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.
Our diagnostic assay products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable.
We expense as incurred the costs to obtain contracts, as the amortization period would be one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities.
Reagent Rental Arrangements
Certain of our Diagnostics segment’s product platforms require the use of instruments for the tests to be processed. In many cases, a customer is given use of the instrument provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to us. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rentals”. Reagent Rentals may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not within the scope of Accounting Standards Codification (“ASC”) 606,
Revenue from Contracts with Customers
but rather ASC 842,
Leases
. Accordingly, we first allocate the transaction price between the lease elements and the
non-lease
elements based on estimates of relative standalone selling prices. Lease revenue is derived solely from the sale of consumables and is therefore recognized monthly as earned, which coincides with the transfer of control of the
non-lease
elements.
For the portion of the transaction price allocated to the
non-lease
elements, which are principally the test kits, the related revenue is recognized at a
point-in-time
when control transfers.
   
Three Months Ended March 31,
  
Six Months Ended March 31,
 
   
2021
   
2020
   
Inc (Dec)
  
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
                             
Molecular assays
  $4,395   $7,238    (39)%  $8,985   $14,077    (36)% 
Non-molecular
assays
   27,554    27,704    (1)%   53,285    55,656    (4)% 
                              
Total Diagnostics
  $31,949   $34,942    (9)%  $62,270   $69,733    (11)% 
                              
Life Science-
                             
Molecular reagents
  $37,752   $11,534    227%  $83,776   $16,902    396% 
Immunological reagents
   15,563    10,820    44%   32,135    18,082    78% 
                              
Total Life Science
  $53,315   $22,354    139%  $115,911   $34,984    231% 
                              
 
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Table of Contents
Revenue by Disease State (Diagnostics segment only)
   
Three Months Ended March 31,
  
Six Months Ended March 31,
 
   
2021
   
2020
   
Inc (Dec)
  
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
                             
Gastrointestinal assays
  $ 15,666   $ 14,014    12%  $ 31,118   $ 30,060    4% 
Respiratory illness assays
   3,686    10,863    (66)%   8,492    18,612    (54)% 
Blood chemistry assays
   4,358    4,194    4%   8,753    9,142    (4)% 
Other
   8,239    5,871    40%   13,907    11,919    17% 
                              
Total Diagnostics  $31,949   $34,942    (9)%  $62,270   $69,733    (11)% 
                              
Royalty Income
Royalty income received from DiaSorin, which primarily related to sales of
H. pylori
products, totaled approximately $2,845 and $1,280 in the three months ended March 31, 2021 and 2020, respectively, and $3,705 and $2,205 in the six months ended March 31, 2021 and 2020, respectively. Such revenue is included as part of
Non-molecular
assays and Other within the Revenue by Product Platform/Type and Revenue by Disease State tables, respectively, above.
Reagent Rental Arrangements
Revenue allocated to the lease elements of these Reagent Rental arrangements totaled approximately $1,150$900 and $1,100$1,125 in the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $3,400$1,780 and $3,2002,250 in the ninesix months ended June 30,March 31, 2021 and 2020, and 2019, respectively.
Such revenue is included as part of net revenues in our Condensed Consolidated Statements of Operations.
(b)
5.
Fair Value Measurements –
Certain assetsasset
s
 and liabilities are recorded at fair value in accordance with ASC
820-10,
Accounting Standards Codification (“ASC”) 820,
Fair Value Measurements and Disclosures
(“ASC 820”). ASC
820-10
820 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC
820-10
820 establishes a three-level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of the inputs used in the valuation of such items at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
Level 2
Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable
T
o limit exposure to volatility in the LIBOR interest rate, the Company has entered into interest rate swap agreements, which effectively convert the variable interest rate on $50,000 of the outstanding revolving credit facility discussed in Note 11 to a fixed rate.
The fair values of the interest rate swap agreements were determined by reference to a third-party valuation and is considered a Level 2 input within the fair value hierarchy of valuation techniques.
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Table of Contents
As described in Note 3,6, we acquired
Exalenz
and
the business of GenePOC Bioscience Ltd. (“Exalenz”) in
April 2020 and June
2019
, respectively
. fiscal 2020. The fair valuevalues of the acquired accounts receivable, inventories, property, plant and equipment, and other current assets and the fair valuevalues of the assumed accounts payable and accrued expenses approximated their carrying value at the acquisition date. Inventories, property, plant and equipment, intangiblewere valued using Level 2 inputs, which included data points that were observable, such as appraisals or established values of comparable assets and contingent consideration(market approach). Intangible assets were valued using Level 3 inputs.
In connection withinputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). Significant increases (decreases) in any of those unobservable inputs, as of the date of the acquisition, of Exalenz and as disclosed in Note 3,isolation would result in a significantly lower (higher) fair value measurement. Management engaged a third-party valuation firm to assist in the Company assumed a numberdetermination of Israeli government grant obligations, which have been recognized in the preliminary purchase accounting opening balance at their face value totaling $11,108. The fair value ofvalues, and specifically those considered Level 3 measurements. Management ultimately oversees the obligations is expectedthird-party valuation firm to be finalized prior to December 31, 2020 and at such time, any required adjustment toensure that the then-current carrying value will be recorded as an adjustment totransaction-specific assumptions are appropriate for the goodwill recognized on the transaction. The liabilities are considered to be Level 2 financial liabilities that will be
re-measured
each reporting period The face value of the obligations as of June 30, 2020 totals $11,173, which is reflected on the Condensed Consolidated Balance Sheet within current liabilities ($577) and
non-current
liabilities ($10,596).Company.
In connection with the acquisition of the business of GenePOC, and
 an agreementInc. (“GenePOC”) in principle, pending finalization,fiscal 2019 and subsequent amendments to amendmodify certain terms of the agreement related to contingent consideration achievement levels and milestone dates,
as described in Note 3, the Company is required to make contingent consideration payments of up to
$
64,000 (originally
$70,000 
$70,000 at the acquisition date)
, comprised of up to $14,000 for achievement of product development milestones
(originally (originally $20,000 at the acquisition date)
and up to $50,000 for achievement of certain financial targets. The fair value for the contingent paymentsconsideration recognized upon the acquisition as part of the purchase accounting opening balance sheet totaledprice allocation was $27,202. The fair value of the product development milestone payments wasis estimated by discounting the probability-weighted contingent payments to present value. Assumptions used in the calculations
include probability of success, duration of the
earn-out
and discount rate.rate, and such calculations were updated for the effect of the previously noted amendment
s
to the contingent consideration achievement levels and milestone dates. The fair value of the financial performance target payments was determined using a Monte Carlo simulation-based model. Assumptions used in these calculations
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Table of Contents
include expected revenue,revenues, probability of certain product development programs,developments, expected expenses and discount rate. The ultimate settlement of contingent consideration could deviate
significantly from
the current Level 3 measurement estimates, based on the actual results of these financial measures. The liability is considered to be a Level 3 financial liability that is
re-measured
each reporting period. Giving effect to the previously noted expected amendment to the contingent consideration achievement levels and milestone dates, such
re-measurement
resulted in a value of $19,774 as of June 30, 2020.
The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis:
 
 
  
 
 
  
Fair Value Measurements Using
Inputs Considered as
 
 
  
Carrying
Value
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
Interest rate swaps (see Note 9) -
  
   
  
   
  
   
  
   
As of June 30, 2020
  
$
(703
)
  
$
—  
 
  
$
(703
) 
  
$
—  
 
As of September 30, 2019
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
Contingent consideration -
  
   
  
   
  
   
  
   
As of June 30, 2020
  
$
(19,774
)
  
$
—  
 
  
$
—  
 
  
$
(19,774
) 
As of September 30, 2019
  
$
(27,202
)
  
$
—  
 
  
$
—  
 
  
$
(27,202
) 
Government grant obligations -
  
   
  
   
  
   
  
   
As of June 30, 2020
  
$
(11,173
)
  
$
—  
 
  
$
(11,173
) 
  
$
—  
 
As of September 30, 2019
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
       
Fair Value Measurements Using
Inputs Considered as
 
   
Carrying

Value
   
Level 1
   
Level 2
   
Level 3
 
Interest rate swaps -
               
As of March 31, 2021
  $(254)  $0     $(254)  $0   
As of September 30, 2020
  $(713)  $0     $(713)  $0   
Contingent consideration -               
As of March 31, 2021
  $(18,967)  $0     $0     $(18,967) 
As of September 30, 2020
  $(20,909)  $0     $0     $(20,909) 
 
(c)
6.
Recent Accounting Pronouncements –
Business Combinations
Pronouncements Adopted
On October 1, 2019, the Company adopted ASC 842,
Leases
. ASC 842 was issued to increase transparency and comparability among entities by recognizing
right-of-use
assets (“ROU assets”) and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The Company elected to adopt ASC 842 effective October 1, 2019 using the modified retrospective transition method, which was applied to leases that existed or will be entered into on or after such date, with no adjustment made to prior comparative periods. The comparative periods presented herein reflect the former lease accounting guidance and the required comparative disclosures are included in Note 7,
“Leasing Arrangements”
. There was no cumulative-effect adjustment to beginning retained earnings as a result of adopting ASC 842, and additional operating lease ROU assets and obligations of approximately $5,880 were recognized as of October 1, 2019. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. The Company elected the package of practical expedients permitted under the new guidance to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to October 1, 2019. Additionally, the elections were made to not use hindsight to determine lease terms and to not separate
non-lease
components within the lease portfolio. See Note 7 for further information.
Pronouncements Issued but Not Yet Adopted as of June 30, 2020
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the LIBOR rate. The guidance provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company plans to apply this guidance to such transactions and modifications of arrangements but does not expect application to have a material impact on financial condition, results of operations or cash flows.
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Table of Contents
In June 2016, the FASB issued ASU
2016-13,
Measurement of Credit Losses
on Financial Instruments
, which changes the impairment model used to measure credit losses for most financial assets. We will be required to use a new forward-looking expected credit loss model that will replace the existing incurred credit loss model for our accounts receivable. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years (fiscal 2021 for the Company), with early adoption permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.
(d)
Reclassifications –
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.
3.
Business Combinations
Acquisition of Exalenz
On April 30, 2020 (“the acquisition date”), we acquired 100%
100
% of the outstanding common shares and voting interest of Exalenz, Bioscience Ltd. (“Exalenz”), a Modi’in, Israel based provider of the
BreathID
®
Breath Test Systems (“BreathID”), a urea breath test platform for the detection of
Helicobacter pylori.
Cash consideration totaled
168.6
 million New Israeli Shekels (“NIS”), which equated to $48,237 $
48,237
at the date of closing. Including debt assumed and repaid shortly after closing, the total consideration transferred was $56,305.$
56,305
. To finance the acquisition, wethe Company utilized cash and cash equivalents on hand and proceeds drawn from our revolving credit facility (see Note 9)
11).
In anticipation of the transaction, we executed forward currency contracts to acquire the NIS required for the acquisition. As a result, the net cash outlay for the transaction prior to the repayment of debt was $47,392. The settlement of the currency contracts resulted in an $845 gain, which is reflected within other income in the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2020.$
47,392
.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $29,288 $24,827
was recorded in connection with this acquisition, none of which will be deductible for U.S. tax purposes. The goodwill results largely from our ability to market and sell the BreathID systemplatform through our established customer base and distribution channels. The Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2020 included $1,641 and $3,428, respectively, of acquisition-related costs, which are reflected in operating expenses.
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Table of Contents
The Company’s consolidated results for both the three and ninesix months ended June 30, 2020March 31, 2021 include $1,308 of net revenuesthe following from Exalenz:
   
Three
Months Ended

March 31,
2021
   
Six
Months Ended

March 31,
2021
 
Net revenues
  $2,784   $5,882 
Net loss  $(947)   $(1,739) 
           
These results for the three and $932 of net loss from Exalenz since the date of acquisition. These results,six months ended March 31, 2021, which are reported as part of the Diagnostics segment, include $448$720 and
 $1,520
, respectively, of 
amortization ofexpense related to specific identifiable assets recorded in the opening balance sheet,preliminary purchase price allocation, including a
non-compete
agreement, trade name, technology and customer relationships.
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Table of Contents
The recognized preliminary amounts of identifiable assets acquired and liabilities assumed in the acquisition of
Exalenz
are as follows:
 
PRELIMINARY
 
Fair value of assets acquired -
   
Cash
 $
5,006
 
Accounts receivable
  
637
 
Inventories
  
4,329
 
Other current assets
  
851
 
Property, plant and equipment
  
544
 
Goodwill
  
29,288
 
Other intangible assets (estimated useful life):
   
Non-compete agreement (5 years)
  
120
 
Trade name
 
(10 years)
  
3,540
 
Technology (15 years)
  
5,590
 
Customer relationships
(10 years)
  
19,370
 
     
Right-of-use assets
  
1,358
 
Deferred tax assets, net
  
5,566
 
     
 
  
76,199
 
  
Fair value of liabilities assumed -
  
   
Accounts payable and accrued expenses (including current portion of lease and government grant obligations)
  
 
7,757
 
Long-term lease obligations
  
 
1,054
 
Long-term government grant obligations
  
 
10,792
 
Other
non-current
liabilities
  
 
291
 
 
  
 
 
 
 
  
 
19,894
 
 
  
 
 
 
Total consideration paid (including $8,068 to payoff long-term debt)
  
$
56,305
 
 
  
 
 
 
   
PRELIMINARY
 
   
April 30,
2020

(as initially
reported)
   
Measurement
Period
Adjustments
   
April 30,
2020

(as adjusted)
 
Fair value of assets acquired -
               
Cash
  $5,006   $—     $5,006 
Accounts receivable
   637    —      637 
Inventories
   4,329    (296)    4,033 
Other current assets
   851    1,825    2,676 
Property, plant and equipment
   544    (16)    528 
Goodwill
   29,288    (4,461)    24,827 
Other intangible assets (estimated useful life):
               
Non-compete
agreement (5 years)
   120    (10)    110 
Trade name (10 years)
   3,540    320    3,860 
Technology (15 years)
   5,590    530    6,120 
Customer relationships (10 years)
   19,370    1,270    20,640 
Right-of-use
assets
   1,358    (47)    1,311 
Deferred tax assets, net
   5,566    1,178    6,744 
                
    76,199    293    76,492 
                
             
Fair value of liabilities assumed -               
Accounts payable and accrued expenses (including current portion of lease and government grant obligations)
   7,757    251    8,008 
Long-term lease obligations
   1,054    42    1,096 
Long-term government grant obligations
   10,792    ��      10,792 
Other
non-current
liabilities
   291    —      291 
                
    19,894    293    20,187 
                
Total consideration paid (including $8,068 to pay off long-term debt)
  $56,305   $—     $56,305 
                
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Table of Contents
As indicated, the allocation of the purchase price is preliminary, pending final completion of valuations. As a result of further refining its estimates and assumptions since the date of the acquisition, the Company recorded measurement period adjustments to the initial opening balance sheet as shown in the table above. Adjustments were primarily made to other current assets, goodwill, other intangible assets, and deferred tax assets. There were no measurement period adjustments materially impacting net earnings that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. Currently, we are primarily assessing: (i) the realizability of and the tax rate applicable to Israeli net operating loss carryforwards available to us; (ii) the fair value of the Israeli government grant obligations; and (iii)assessing the results of the valuation of intangible assets.assets and the tax implications thereon. Upon completion of these analyses, any required adjustments are expected to result in an amount being reclassified fromamong goodwill, toother intangible assets and deferred taxes, and government grant obligations, as applicable.
Acquisition of Business of GenePOC
On June 3, 2019,
we acquired the business of GenePOC Inc. (“GenePOC”), a Quebec City, Quebec Province, Canada based provider of molecular diagnostic instruments and assays. The purchase agreement originally contemplated a maximum total consideration of up
to $120,000, which was estimated at a total fair value of $77,526 as
of the acquisition date. During the quarter ended June 30, 2020, an agreement in principle, pending finalization, was reached to amend certain terms of the original contingent consideration achievement levels and milestone dates, such that the total consideration will be no greater than
$114,000
.
Pursuant to the purchase agreement, as expected to be amended, the maximum consideration is comprised of the following:
(i)
a
 $50,000 cash payment on June 3, 2019, subject to a working capital adjustment and a holdback of $5,000 to secure selling party’s performance of certain post-closing obligations;
(ii)
one
$4,000 installment 
and
o
ne $10,000 installment
contingent upon the achievement of certain product development milestones if achieved by September 30, 2022
(originally two $10,000 installments contingent upon the achievement of certain product development milestones if achieved by September 30, 2020
and March 31, 2021, respectively
)
; and
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Table of Contents
(iii)
up to $50,000 of contingent consideration payable if certain financial performance targets are achieved during the twelve-month period ending September 30, 2022.
As previously noted, the fair value of the contingent consideration identified in (ii) and (iii) above was $27,202 and $19,774 as of the acquisition date and June 30, 2020, respectively.
The total of the holdback identified in (i) above and the currently estimated value of the contingent consideration identified in (ii) and (iii) above are reflected within the accompanying Condensed Consolidated Balance Sheets as of June 30, 2020 as follows:
Current liabilities
- $5,000
Reflects anticipated settlement of the holdback amount in the first quarter of fiscal 2021.
Non-current liabilities
- $19,774
Reflects anticipated settlement of the first product milestone payment in the fourth quarter of fiscal 2021, the second product milestone payment in the fourth quarter of fiscal 2021 and financial performance targets payments in the first quarter of fiscal 2023.
To finance the acquisition, we utilized cash and equivalents on hand and proceeds drawn from our revolving credit facility. As a result of estimated total consideration exceeding the fair value of the net assets acquired, goodwill in the
amount
of $34,582 was
recorded in connection with this acquisition, most of which will be deductible for U.S. tax purposes ratably over 15 years. The goodwill results largely from our ability to market and sell GenePOC’s technology and instrument platform through our established customer base and distribution channels.
The recognized final amounts of identifiable assets acquired and liabilities assumed in the
acquisition
of the GenePOC business are as follows:
Fair value of assets acquired -
   
Accounts receivable
 $
57
 
Inventories
  
1,511
 
Other current assets
  
84
 
Property, plant and equipment
  
1,424
 
Goodwill
  
34,582
 
Other intangible assets (estimated useful life):
   
License agreement (10 years)
  
5,990
 
Technology (15 years)
  
34,136
 
Government grant (1.33 years)
  
800
 
     
  
78,584
 
Fair value of liabilities assumed -
   
Accounts payable and accrued expenses
  
1,058
 
     
Total consideration paid (including contingent
C
onsideration originally estimated at $27,202)
 $
77,526
 
     
Pro Forma Information (Exalenz and GenePOC)
The following table provides the unaudited condensed consolidated pro forma results for the periods presented as if both Exalenz and the business of GenePOC had been acquired as of the beginning of fiscal 2019.2020 (October 1, 2019). Pro forma results do not include the effect of any synergies achieved or anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the
acquisition
had occurred on the date indicated or that may result in the future.
   
Three Months
Ended March 31,
   
Six Months
Ended March 31,
 
   
2021
   
2020
   
2021
   
2020
 
Net revenues
  $85,264   $60,701   $178,181   $111,895 
Net earnings
  $26,302   $8,064   $53,081   $9,246 
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Table of Contents
 
Three Months Ended
June 30,
  
Nine Months Ended
June 30,
 
 
2020
  
2019
  
2020
  
2019
 
Net Revenues
 $
85,083
  $
52,319
  $
196,978
  $
160,887
 
Net Earnings
 $
28,189
  $
(9
)  $
39,376
  $
5,093
 
These unaudited pro forma amounts have been calculated by including the results of
Exalenz
and GenePOC, and adjusting the combined results to give effect to the following, as if the acquisitionsacquisition had been consummated on October 1, 2018,2019, together with the consequential tax effects thereon:
 
Three Months Ended
 
June 30,
  
Nine Months Ended
June 30,
 
 
2020
  
2019
  
2020
  
2019
 
Adjustments to Net Revenues
        
Exalenz and GenePOC pre-acquisition revenues
 $
286
  $
3,879
  $
7,464
  $
10,719
 
                 
Adjustments to Net Earnings
            
Exalenz and GenePOC pre-acquisition net losses
 $
(4,919
) $
(3,486
) $
(6,398
) $
(12,924
)
Pro forma adjustments:
            
Meridian acquisition-related costs
  
1,641
   
—  
   
3,428
   
—  
 
Exalenz and GenePOC transaction-related costs
  
4,104
   
—  
   
4,550
   
—  
 
Remove net impact of non-continuing personnel, locations or activities
  
(447
)   
457
   
(305
)   
2,949
 
Incremental depreciation and amortization
  
(224
)  
(1,739
)  
(2,016
)  
(4,787
)
Incremental interest costs, net
  
444
   
(599
)  
(183
)  
(1,346
)
Tax effects of pro forma adjustments and recognizing benefit on resulting Exalenz losses
  
83
   
279
   
607
   
922
 
                 
Total Adjustments to Net Earnings
 $
682
  $
(5,088
) $
(317
) $
(15,186
)
                 
4.
Restructuring
During the second quarter of fiscal 2018, the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and Life Science, supported by a global corporate team. Since that time and as part of this plan, certain functions and locations within both business units have been streamlined, including: (i) the elimination of certain
executive
management and commercial sales positions; (ii) the closing of Life Science locations in Taunton, Massachusetts and Singapore, the operations of which were transferred to our locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio. Further restructuring costs were incurred in fiscal 2019 and the first nine months of fiscal 2020, as refinements to each business unit’s cost structure continued to be made and the Company incurred severance payment obligations relating to the transition of its previous chief financial officer. 
As a result of these activities, restructuring costs
totaling $
93
and
$
1,801
were recorded during the three
months
ended June 30, 2020 and 2019, respectively, 
and $
620
   
Three Months
Ended March 31,
   
Six Months Ended
March 31,
 
   
2021
   
2020
   
2021
   
2020
 
Adjustments to net revenues
                    
Exalenz pre-acquisition net revenues
  $0     $3,405   $0     $7,178 
                     
Adjustments to net earnings
                    
Exalenz pre-acquisition net loss
  $0     $(752)   $0     $(1,504) 
Pro forma adjustments:
                    
Remove net impact of
non-continuing
personnel, locations or
activities
   0      490    0      591 
Incremental depreciation and amortization
   0      (911)    0      (1,824) 
Incremental interest costs, net
   0      (381)    0      (772) 
Tax effects of pro forma adjustments and recognizing benefit on
resulting Exalenz losses
   0      259    0      569 
                     
Total adjustments to net earnings  $0     $(1,295)   $0     $(2,940) 
                     
 
and $1,701 during the nine months ended June 30, 2020 and 2019, respectively.
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A reconciliation of the changes in the liabilities associated with the restructuring charges from September 30, 2019 through June 30, 2020 is as
follows
:
 
Employee
Separation
and
Related
Costs
  
Lease and
Other
Contract
Termination
Fees
  
Other
  
Total
 
Balance at September 30, 2019
 $
1,010
  $
12
  $
114
  $
1,136
 
Restructuring charges
  
575
   
86
   
—
   
661
 
Reversal of prior period accruals
  
(41
)  
—
   
—
   
(41
)
Payments
  
(1,515
)  
(98
)  
(114
)  
(1,727
)
      ��          
Balance at June 30, 2020
 $
29
  $
—  
  $
—  
  $
29
 
                 
5.
7.
Cash and Cash Equivalents
Cash and cash equivalents include the following:
 
June 30,
2020
  
September 30,
2019
 
Institutional money market funds
 $
1,016
  $
20,913
 
Cash on hand, unrestricted
  
62,429
   
41,484
 
         
Total
 $
63,445
  $
62,397
 
         
   
March 31,
2021
   
September 30,
2020
 
Institutional money market funds
  $1,017   $1,017 
Cash on hand, unrestricted
   62,357    52,497 
           
Total
  $63,374   $53,514 
           
6.
8.
Inventories, Net
Inventories, net are comprised of the following:
 
June 30,
2020
  
September 30,
2019
 
Raw materials
 $
10,712
  $
7,455
 
Work-in-process
  
17,515
   
11,504
 
Finished goods - instruments
  
2,002
   
935
 
Finished goods - kits and reagents
  
30,239
   
19,723
 
         
Total
 $
60,468
  $
39,617
 
         
   
March 31,
2021
   
September 30,
2020
 
Raw materials
  $18,706   $11,966 
Work-in-process
   22,987    19,477 
Finished goods - instruments
   1,933    1,594 
Finished goods - kits and reagents
   28,908    28,227 
           
Total
  $72,534   $61,264 
           
7.
9.
Leasing Arrangements
The Company is party to a number of operating leases, the majority of which are related to office, warehouse and manufacturing space. The related operating lease assets and obligations are reflected within
right-of-use
assets, net, current operating lease obligations and long-term operating lease obligations on the Condensed Consolidated Balance Sheet.Sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. Our
The lease costs for these operating leases reflected in 
our Condensed Consolidated Statements of Operations for the three and six months ended June 30,March 31, 2021 and 2020, reflectas well as the right-of-use assets, net obtained during these periods in exchange for operating lease costs for these operating leases of $165 and $330 within
cost of sales and operating expenses, respectively; and
liabilities, are as follows: 
$
424
and $
889
within cost of sales and operating expenses, respectively, for the nine months ended June 
30
, 2020.
   
Three Months
Ended March 31,
   
Six Months
Ended March 31,
 
   
2021
   
2020
   
2021
   
2020
 
Lease costs within cost of sales
  $198   $130   $356   $259 
Lease costs within operating expenses
   387    292    761    559 
Right-of-use
assets, net obtained in exchange for operating lease liabilities
   612    222    692    222 
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In addition, the Company has periodically enteredenters into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the balance sheetCondensed Consolidated Balance Sheets and the related lease expense is immaterial for the three and ninesix months ended June 30,March 31, 2021 and 2020.
The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The discount rate implicit within our leases is generally not
Page 14
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determin
a
ble and, therefore, the Company uses its incremental borrowing rate as the basis for its discount rate. The weighted average remaining lease term for our operating leases as of June 30, 2020 was 4.3 years.
The discount rate implicit within our leases is generally not determinable and therefore, the Company determines the discount rate using its incremental borrowing rate. The weighted average discount rate used to measure our operating leases as of JuneMarch 31, 2021 and September 30, 2020 was 3.7%.were as follows:
   
March 31,
2021
  
September 30,
2020
 
 
Weighted average remaining lease term
   3.8 years   4.2 years 
Average discount rate
   3.4%   3.7%
Maturities of lease liabilities by fiscal year for the Company’s operating leases
were
as follows as of March 31, 2021:
    
2021 (represents remainder of fiscal year)
  $1,108 
2022
   2,016 
2023
   1,482 
2024
   1,108 
2025
   806 
Thereafter
   331 
      
Total lease payments
   6,851 
Less amount of lease payments representing interest
   (404) 
      
Total present value of lease payments
  $6,447 
      
Supplemental cash flow information related to the Company’s operating leases are as follows:
   
Three Months
Ended June 30,
   
Nine Months
Ended
 
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
            
Operating cash flows from operating leases
 $
435
  $
— 
  $
1,213
  $
—
 
                 
Maturities of lease liabilities by fiscal year for the Company’s operating lease liabilities were as follows as of June 30, 2020:
   
June 30,
2020
 
Remainder of 2020
 $
522
 
2021
  
2,011
 
2022
  
1,647
 
2023
  
1,179
 
2024
  
928
 
Thereafter
  
916
 
     
Total lease payments
  
7,203
 
Less amount of lease payment representing interest
  
(489
)
     
Total present value of lease payments
 $
6,714
 
     
      
Six Months Ended March 31,
  
2021
    
2020
 
Cash paid for amounts included in the measurement of lease liabilities:
           
Operating cash flows from operating leases
  $1,072    $778 
            
10.
Goodwill and Other Intangible Assets, Net
During the
As of September 30, 2019, future minimum lease payments under noncancelable operating leases were as follows:six
months ended March 31, 2021, goodwill increased $1110, reflecting: (i) an additional $361 acquisition measurement period adjustment related to Exalenz (Diagnostics segment; see Note 6); (ii) a $67 increase from the currency translation adjustment on goodwill in the Diagnostics segment; and (iii) a $682 increase from the currency translation adjustment on goodwill in the Life Science segment.
   
September 30,
2019
 
2020
 $
1,528
 
2021
  
1,451
 
2022
  
1,293
 
2023
  
967
 
2024
  
712
 
Thereafter
  
616
 
     
Total
 $
6,567
 
     
 
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15
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8.
Intangible Assets
Considering the economic impacts of
COVID-19,
we performed an analysis of our business to determine if there were triggering events that would require us to further test our long-lived assets for impairment. Based on our review, we do not believe that a triggering event exists at this time and, therefore, we believe that we will be able to realize the full value of our long-lived assets. As
such
, no impairments or other write-downs related to
COVID-19
have been recorded during fiscal 2020.
In addition, we have conducted our annual goodwill impairment test as of June 30, 2020 by performing a qualitative assessment pursuant to ASU
2011-08
for each reporting unit. Our qualitative assessment indicates that it is not more likely than not that the fair values of our reporting units are less than their carrying values. Accordingly, a quantitative impairment test for
goodwill
is not required.
A summary of our acquiredother intangible assets, net subject to
amortization
, as of June 30, 2020 and September 30, 2019, including the assets acquired in the Exalenz transaction (see Note 3), is as follows:
   
June 30, 2020
   
September 30, 2019
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines
 $
  61,782
  $
  17,755
  $
  56,193
  $
  15,096
 
Trade names, licenses and patents
  
18,045
   
7,291
   
14,494
   
6,094
 
Customer lists, customer relationships and supply agreements
  
43,666
   
15,349
   
24,274
   
14,110
 
Government grants
  
794
   
645
   
814
   
232
 
Non-compete
agreements
   120   4   —     —  
                 
Total
 $
  
 
124,407
  $
 41,044
  $
  95,775
  $
  35,532
 
                 
   
March 31, 2021
   
September 30, 2020
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines
  $62,446   $20,756   $62,363   $18,750 
Trade names, licenses and patents
   18,524    8,813    18,425    7,801 
Customer lists, customer relationships and supply agreements
   45,287    17,944    45,071    16,210 
Government grants
   858    858    810    810 
Non-compete
agreements
   110    20    110    11 
                     
Total
  $127,225   $48,391   $126,779   $43,582 
                     
The actual aggregate amortization expense for these other intangible assets
was $
2,155
$2,142 and $
1,120
$1,727 for
the three months ended June 30,March 31, 2021 and 2020, respectively
, and 2019, respectively,
 
$4,363
and
and $
5,604
and $
2,778
for3,449
for the ninesix months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The estimated aggregate amortization expense for these other intangible assets for each of the fiscal years through fiscal 20252026 is as follows: remainder of
 fiscal 2020 – $
2,106
, fiscal 2021 –
$
7,318
,4,210, fiscal 2022 – $
6,941
,$8,000, fiscal 2023 – $
6,928
,$7,975, fiscal 2024 – $
6,924
, and$7,975, fiscal 2025 – $
6,914
.$7,950, and fiscal 2026 – $7,300.
9.
11.
Bank CreditCred
i
t Arrangements
In anticipation of the acquisition of the business of GenePOC, (see Note 3), on May 24, 2019 we
,
the Company entered into a credit facility agreement with a commercial bank, which webank. The Company amended the credit facility agreement on February 19, 2020
,
in anticipation of the Company’s acquisition of Exalenz acquisition (see Note 3)6). The credit facility expires
in
May 2024,
,
and as amended makes available to the Company a revolving credit facility in an aggregate principal amount not to
exceed
$
160,000
(originally $
125,000
)
$160,000 (originally $125,000), with
outstanding principal amounts bearing interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR, resulting in an effective interest rate of 2.63%2.60% and 3.45%4.15% on the revolving credit facility during the
three months
ended March 31, 2021 and nine2020,
 respectively,
 and 
 2.57% and 4.04% during the six months ended June 30,March 31, 2021 and 2020, respectively. Since entering into the revolving credit facility, through June 30, 2020, three draws totaling $125,824 have been made on the credit facility, with aprincipal repayments in January 2020, principal repaymentSeptember 2020, December 2020 and February 2021 of $27,000, $30,000, $10,000 and $8,824, respectively, resulting in an outstanding principal balance of $98,824$50,000 and $68,824 at JuneMarch 31, 2021 and September 30, 2020.2020, respectively. The proceeds from these draws were used to: (i) repay and settle the outstanding principal and interest due on our previously existing $60,000 five-year term loan; and (ii) along with cash
on-hand,
fund the Exalenz and GenePOC acquisitions. In light of the interest being determined on a variable rate basis, the fair value of the borrowings under the revolving credit facility at Juneboth March 31, 2021 and September 30,
2020,
approximates the current carrying value reflected in the accompanying Condensed Consolidated Balance Sheet.Sheets.
The revolving credit facility is collateralized by the business assets of the Company’s U.S. subsidiaries and requires compliance with financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the revolving credit facility agreement. As of March 31, 2021, the Company was in compliance with all covenants.
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Table of Contents
12.
Contingent Obligations and
Non-Current
Liabilities
In connection with the acquisition of Exalenz (see Note 6), the Company assumed several Israeli government grant obligations. The repayment of the grants, along with interest incurred at varying stated fixed rates based on LIBOR at the time each grant was received (ranging from 0.58% to 6.60%), is not dictated by an established repayment schedule. Rather, the grants and related interest are required to be repaid using 3% of the revenues generated from the sales of BreathID products, with the timing of repayment contingent upon the level and timing of such revenues. In addition, the grants have no collateral or financial covenant provisions generally associated with traditional borrowing instruments. These obligation amounts total $11,145 and $11,124 as of March 31, 2021 and September 30, 2020, respectively, and are reflected in the Condensed Consolidated Balance Sheets as follows:
   
March 31,

2021
   
September 30,
2020
 
Current liabilities
  $608   $600 
Non-current
liabilities
  $10,537   $10,524 
Additionally, the Company has provided certain post-employment benefits to its former Chief Executive Officer, and these obligations total $1,748 and $1,840 at March 31, 2021 and September 30, 2020, respectively. In addition, the Company is required by the governments of certain foreign countries in which we operate to maintain a level of accrual
s
 for potential future severance indemnity. These accruals total $853 and $814 at March 31, 2021 and September 30, 2020, respectively.
13.
National Institutes of Health Contracts
In December 2020, the Company entered into a
sub-award
grant contract with the University of Massachusetts Medical School as part of the National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative to support the Company’s research and development of its diagnostic test for the
SARS-CoV-2
antigen. During the three and six months ended March 31, 2021, the Company
recorded
$200 and $1,000, respectively, under the grant contract for reimbursement of elig
i
ble research and development expenditures. These amounts are included within other income (expense) in the Condensed Consolidated Statements of Operations.
Effective February 1, 2021, the Company entered into a second grant contract under the RADx initiative, the purpose of which is to support the Company’s manufacturing production
scale-up
and expansion to meet the demand for
COVID-19
testing. The contract is a twelve-month term service contract, with payment of up to $5,500 being made based on the Company achieving key milestones related to increasing its capacity to produce
COVID-19
tests. No amounts related to this contract are reflected within the Condensed Consolidated Financial Statements.
14.
Reportable Segment and Major Customers Information
During the three and six months ended March 31, 2021, products related to
COVID-19
accounted for approximately 58% and 64%,
 respectively, of Life Science segment revenues, and 37% and 41%, respectively, of consolidated revenues. In addition, during the three and six months ended March 31, 2021 and 2020, no individual Diagnostics or Life Science segment customer accounted for
10% or more of consolidated  revenues.
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Individual Diagnostics or Life Science segment customers, including their affiliates, comprising 10% or more of reportable segment revenues during any of the three- and
six-month
periods ended March 31, 2
0
21 and 2020 were as follows:
  
   
Three Months
Ended March 31,
  
Six Months
Ended March 31,
 
   
 2021 
  
2020 
  
 2021 
  
2020 
 
Diagnostics
                 
Customer A
   10%   9%   11%   11% 
Customer B
   10%   13%   10%   14% 
Customer C
   11%   5%   11%   5% 
                  
                  
Life Science
                 
Customer D
   9%   13%   6%   11% 
Customer E
   9%   5%   14%   4% 
                  
In addition, during both the three and six mo
n
ths ended March 31, 2021, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately 48% and 30% of Life Science segment revenues and consolidated revenues, respectively.
Two Life Science segment customers accounted for the following significant percentages of consolidated accounts receivable:
   
March 31,
2021
   
September 30,
2020
 
Customer D
  10%   8% 
Customer E
  3%   15% 
          
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Table of Contents
of fixed charges, as defined in the credit facility agreement. As of June 30, 2020, the Company is in compliance with all covenants.
In order to limit exposure to volatility in the LIBOR interest rate, during March 2020 and June 2020 the Company and the commercial bank entered into three interest rate swap agreements that effectively converted the variable interest rate
on
$
50,000
of the outstanding principal to a fixed rate
of
2.16
%
(at the current credit spread) beginning June 24, 2020, the effective date of the most recent swap agreement. With an initial notional balance
 of
$
50,000
,
the interest rate swap agreements were established with critical terms identical to borrowings under the credit facility, including:
(i) one-month
LIBOR settlement rates, as to be elected by the Company throughout the remaining term of the credit facility; (ii) rate reset dates; and (iii) term/maturity. Consequently, the interest rate swaps have been designated as effective cash flow hedges, with changes in fair values reflected as a separate component of other comprehensive income in the accompanying Condensed Consolidated Statements of Comprehensive Income. At June 30, 2020, the fair value of the interest rate swaps was reported as a liability
of $
703
,
which is reflected as a
non-current
liability in the accompanying Condensed Consolidated Balance Sheet. This fair value was determined by information provided by the counterparty and is considered a Level 2 input within the fair value hierarchy of valuation techniques.
In connection with the Company’s term loan repayment in May 2019, the Company also settled the interest rate swap that had been entered into to limit exposure to volatility in the term loan’s LIBOR interest rate. At the time of settlement, the Company received a cash payment in an amount equal to
the
 $563
then-current fair value of the interest rate swap. Accordingly, there is no balance for this interest rate swap reflected within assets or liabilities within the accompanying Consolidated Balance Sheets as of June 30, 2020 or September 30, 2019. The fair value of the swap that had been reflected within a separate component of other comprehensive income in the accompanying Consolidated Statements of Comprehensive Income, as a result of the interest rate swap having been designated as an effective cash flow hedge, is being released ratably into income through March 31, 2021, the interest rate swap’s original term.
The balance reflected within accumulated other comprehensive income related to the interest rate swap agreements associated with both the current credit facility and the former term loan totaled $473 and $461 at June 30, 2020 and September 30, 2019, respectively.
10.
Reportable Segments and Major Customers Information
Meridian was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic test 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/qPCR reagents, nucleotides, and bioresearch reagents used by researchers and other diagnostic manufacturers.
Our reportable segments are Diagnostics and Life Science. The
Diagnostics
segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio, Quebec City, Canada, and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston); and (iii) the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.
The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g.,
in-vitro
medical device manufacturing, microRNA detection,
next-gen
sequencing, plant genotyping, and mutation detection, among others).
Amounts due from 2 Diagnostics distributor customers accounted for 1% and 13% of consolidated accounts receivable at June 30, 2020 and September 30, 2019, respectively. Revenues from these two distributor customers accounted for 21% and 18% of the Diagnostics segment third-party revenues during the three months ended June 30, 2020 and 2019, respectively, and 24% and 26% during the nine-month periods ended June 30, 2020 and 2019, respectively. These distributors represented 5% and 12% of consolidated revenues for the fiscal 2020 and 2019 third quarters, respectively, and 12% and 18% for the respective
year-to-date
nine-month periods.
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Amounts due from 3 diagnostic manufacturing customers accounted
for
41
% of
consolidated accounts receivable at June 30, 2020. Revenue from these three diagnostic manufacturing customers accounted
for
36
% and
20
% of
the Life Science segment’s third-party revenues during the three months ended June 30, 2020 and 2019, respectively,
and
30
% and
25
% during
the nine months ended June 30, 2020 and 2019, respectively. These customers
represented
27
% and
6
% of
consolidated revenues for the fiscal 2020 and 2019 third quarters,
respectively
, and
15
% and
8
% for the respective
year-to-date
nine-month periods.
Segment information for the interiminte
r
im periods is as follows:
 
Diagnostics
  
Life Science
  
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended June 30, 2020
 
Net revenues -
               
Third-party
 $
21,598
  $
63,199
  $
—  
  $
—  
  $
84,797
 
Inter-segment
  
86
   
56
   
—  
   
(142
)  
—  
 
Operating income
  
(2,731
)   
40,253
   
(2,849
)  
(8
)   
34,665
 
Goodwill (June 30, 2020)
  
99,652
   
18,915
   
—  
   
—  
   
118,567
 
Other intangible assets, net (June 30, 2020)
  
83,304
   
59
   
—  
   
—  
   
83,363
 
Total assets (June 30, 2020)
  
303,439
   
116,353
   
—  
   
(5
)  
419,787
 
                     
Three Months Ended June 30, 2019
               
Net revenues -
               
Third-party
 $
33,118
  $
15,322
  $
—  
  $
—  
  $
48,440
 
Inter-segment
  
146
   
44
   
—  
   
(190
)  
—  
 
Operating income
  
5,731
   
3,639
   
(2,929
)  
23
   
6,464
 
Goodwill (September 30, 2019)
  
70,395
   
18,846
   
—  
   
—  
   
89,241
 
Other intangible assets, net (September 30, 2019)
  
59,807
   
436
   
—  
   
—  
   
60,243
 
Total assets (September 30, 2019)
  
255,169
   
70,392
   
—  
   
(83
)  
325,478
 
                     
Nine Months Ended June 30, 2020
 
Net revenues -
               
Third-party
 $
91,331
  $
98,183
  $
—  
  $
—  
  $
189,514
 
Inter-segment
  
264
   
176
   
—  
   
(440
)  
—  
 
Operating income
  
6,469
   
53,182
   
(7,832
)  
31
   
51,850
 
                     
Nine Months Ended June 30, 2019
 
Net revenues -
               
Third-party
 $
103,283
  $
46,885
  $
—  
  $
—  
  $
150,168
 
Inter-segment
  
398
   
273
   
—  
   
(671
)  
—  
 
Operating income
  
22,330
   
12,906
   
(8,450
)  
64
   
26,850
 
                     
   
Diagnostics
   
Life Science
   
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended March 31, 2021
 
Net revenues -
                       
Third-party
  $31,949   $53,315   $—    $—    $85,264 
Inter-segment
   116    91    —     (207)   —   
Operating income
   2,421    36,089    (4,325)   16   34,201 
Goodwill (March 31, 2021)
   95,283    20,013    —     —     115,296 
Other intangible assets, net (March 31, 2021)
   78,832    2    —     —     78,834 
Total assets (March 31, 2021)
   313,271    125,947    —     (49)   439,169 
                        
Three Months Ended March 31, 2020
     ��                 
Net revenues -
                       
Third-party
  $34,942   $22,354   $—    $—    $57,296 
Inter-segment
   81    55    —     (136)   —   
Operating income
   4,729    9,931    (2,896)   27   11,791 
Goodwill (September 30, 2020)
   94,855    19,331    —     —     114,186 
Other intangible assets, net (September 30, 2020)
   83,179    18    —     —     83,197 
Total assets (September 30, 2020)
   306,812    98,483    —     (34)   405,261 
                        
Six Months Ended March 31, 2021
 
Net revenues -
                       
Third-party
  $62,270   $115,911   $—    $—    $178,181 
Inter-segment
   185    109    —     (294)   —   
Operating income
   1,239    75,886    (8,288)   28   68,865 
                        
Six Months Ended March 31, 2020
 
Net revenues -
                       
Third-party
  $69,733   $34,984   $—    $—    $104,717 
Inter-segment
   178    120    —     (298)   —   
Operating income
   9,870    12,259    (4,983)   39   17,185 
(1)
Includes Restructuring Costsselected legal costs of 
$1,030 and Selected Legal Costs of $134 and $1,080 $2,257
in the three and six months ended June 30, 2020 and 2019,March 31, 2021, respectively, and $1,189restructuring costs and $2,272 selected legal costs of
$685 and $1,055
in the ninethree and six months ended June 30,March 31, 2020, and 2019, respectively.
(2)
Eliminations consist of inter-segment transactions.
Page
20
19
Table of Contents
A reconciliation of reportable segment operating income to consolidated earnings before income taxes for the three and nine months ended June 30, 2020 and 2019interim periods is as follows:
   
Three Months

Ended June 30,
  
Nine Months

Ended June 30,
 
   
2020
  
2019
  
2020
  
2019
 
Segment operating income
 $
  37,514
  $
9,393
  $
59,682
  $
35,300
 
Corporate operating expenses
  
(2,849
)  
(2,929
)  
(7,832
)  
(8,450
)
Interest income
  
3
   
194
   
137
   
547
 
Interest expense
  
(703
)  
(448
)  
(2,002
)  
(1,158
)
Other, net
  
908
   
268
   
1,561
   
(38
)
                 
Consolidated earnings before income taxes
 $
34,873
  $
6,478
  $
51,546
  $
26,201
 
                 
   Three Months Ended   Six Months Ended 
   
March 31,
   
 March 31,
 
   
2021
   
2020
   
2021
   
2020
 
Operating income:                    
Diagnostics segment
  $2,421   $4,729   $1,239   $9,870 
Life Science segment
   36,089    9,931    75,886    12,259 
Eliminations
   16    27    28    39 
                     
Total operating income
   38,526    14,687    77,153    22,168 
Corporate operating expenses
   (4,325)    (2,896)    (8,288)    (4,983) 
Interest income
   6    23    15    134 
Interest expense
   (472)    (532)    (1,006)    (1,299) 
RADx initiative grant income
   200    —      1,000    —   
Other, net
   (883)    1,365    (1,574)    653 
                     
Consolidated earnings before income taxes
  $33,052   $12,647   $67,300   $16,673 
                     
Transactions betweenbetw
e
en reportable segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.consolidation
.
11.
15.    
Income
Taxes
The effective rate for inco
m
e taxes was 20% and 21%
for the three and six months ended March 31, 2021, respectively, and 
26% and 27%
 for the three and six months ended March 31, 2020. The lower fiscal 2021 effective tax rates result primarily from the combined effects of the following: (i) a significantly higher percentage of earnings before income taxes being generated in foreign jurisdictions with tax rates lower than the U.S., particularly the United Kingdom (“U.K.”); (ii) the non-deductibility of a significant portion of the acquisition-related costs related to Exalenz; and (iii) the tax impact of restricted share unit lapses and stock option exercises occurring on dates when the share price of Company stock was significantly higher than the share price on the date such equity awards were granted. 
16.    
Litigation
Matters
On November 15, 2017, Barbara Forman filed a class action complaint in the United States District Court for the Southern District of Ohio (the Court) naming Meridian, its former Chief Executive Officer and former Chief Financial Officer (in their capacities as such) as defendants. An amended complaint was filed on April 16, 2018 and the Company believes the essential elements of the amended complaint are the same. On July 9, 2019, a settlement was reached with the plaintiff that provides for a $2,100 payment by the Company. On October 9, 2019, the Court granted a motion for preliminary approval of the settlement, and on November 7, 2019, the settlement amount was paid from the Company’s directors and officers insurance policy into a plaintiff escrow account. After a final approval hearing on March 16, 2020, on March 17, 2020, the Court issued an order and judgment approving the settlement.
The 30-day appeal period lapsed on April 17, 2020. Because the settlement was a covered claim under our directors and officers insurance policy, no provision for litigation losses has been included within the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2020 or June 30, 2019.
On December 6, 2017, Michael Edelson filed a derivative complaint in the United States District Court for the Southern District of Ohio naming Meridian, its former Chief Executive Officer, former Chief Financial Officer and certain members of Meridian’s Board of Directors and Audit Committee (in their capacities as such) as defendants. The complaint alleges that Meridian made false and misleading representations concerning certain of Magellan’s lead test systems at or around the time of Meridian’s acquisition of Magellan and subsequent thereto, and the complaint alleges that certain members of the Board of Directors and Audit Committee breached their fiduciary duties in their oversight of the Company’s public disclosures and corporate governance matters. The complaint sought compensatory damages, equitable relief relating to corporate governance matters and attorneys’ fees. On October 9, 2019, the Court granted plaintiff’s motion for voluntary dismissal. Accordingly, no provision for litigation losses has been included within the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2020 or June 30, 2019.
On April 17, 2018, Meridian’s wholly-owned subsidiary,
Magellan Diagnostics, Inc. receivedr
e
ceived a subpoena from the United StatesU.S. Department of Justice (“DOJ”) regarding its LeadCareLeadCare® product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. The Company has executed multiple tolling agreements to extend the statute of limitations. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $134
$1,030 and $170 $725
of expense for attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated Statements of Operations for the three months ended June 30,March 31, 2021 and 2020, respectively, and June 30, 2019, respectively; approximately $1,145
$2,257 and $1,270 $1,005
for the ninesix months ended June 30,March 31, 2021 and 2020, and June 30, 2019, respectively.
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12.
Subsequent Event
During the quarter ended June 30, 2020, the Company sourced through a U.S.-based distributor a COVID-19 antibody test from a U.S.-based manufacturer of rapid diagnostic tests. As of June 30, 2020, the Company had inventory on hand of approximately $900 and had made deposits for future inventory receipts of approximately $2,600. In addition, during the quarter the Diagnostics segment sold approximately $700 of this product. During July 2020, the manufacturer of this product voluntarily removed it from further sale in the U.S. market. Prior to the voluntary withdrawal by the manufacturer, this product was saleable in the U.S. market under the FDA’s Emergency Use Authorization (EUA) authority. As this condition arose subsequent to June 30, 2020, and did not exist as of June 30, 2020, any related charge that the Company would take would be recorded in its fourth fiscal quarter. At this time, the Company is unable to predict its ability to recover the advance deposits made and is evaluating its ability to sell the inventory in markets outside the U.S. To date, the Company has not received any significant product returns for sales made during the third fiscal quarter, nor are material returns expected in the future.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Refer to “Forward-Looking Statements” following the Table of Contents in front of this Form
10-Q.
In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.
The purpose of Management’s Discussion and Analysis is to provide an understanding of Meridian’sthe financial condition, changes in financial condition and results of operations.operations of Meridian Bioscience, Inc. (“Meridian”, the “Company”, “We”). This discussion should be read in conjunction with the financial statementsCondensed Consolidated Financial Statements and notes. It should be noted that the terms revenue and/or revenues are utilized throughout the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) to indicate net revenue and/or net revenues. In addition, throughout the MD&A, we refer to certain product tradenames and trademarks, which are protected under applicable intellectual property laws and are our property. Solely for convenience, these tradenames and trademarks are referred to without the
®
or
™
symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent of the law, our rights to these tradenames and trademarks.
Reportable Segments
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; and manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston). 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, various Polymerase Chain Reaction (“PCR”) master mixes, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia.
Impact of
COVID-19
Pandemic
In December 2019, the
SARS-CoV-2
virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated
COVID-19
(the disease caused by
SARS-CoV-2)
a global pandemic. GovernmentsIn April 2021, the United States (“U.S.”) Department of Health and Human Services extended the public health emergency declaration for
COVID-19.
During the past year, governments around the world have implemented lockdown and
shelter-in-place
orders, requiring many
non-essential
businesses to shut down operations, throughout a substantial portion of the last five months, somemany of which remain in effect as of the date of this filing. Our business, however, was deemed “essential” and we have continued to operate, manufacture and distribute products to customers globally. We have developed a comprehensive plan that enables us to maintain operational continuity with an emphasis on manufacturing, product distribution and new product development during this crisis. We continually assess
COVID-19
related developments and adjust risk mitigation planning and business continuity activities in real-time as needed.
The
COVID-19
pandemic has had both positive and negative effects on our businesses. Our Life Science segment’s products were well positioned to respond to
in-vitro
device (“IVD”) manufacturers’ needs for reagents for molecular, rapid antigen and serology tests. Consequently, our Life Science segment grew its revenues over 100% in fiscal 2020 and delivered record operating income and margin, demonstrating what this segment could achieve at a much larger scale. This higher-than-historical level of growth continued into the first half of fiscal 2021 for the Life Science segment, with revenue for the three and six months ended March 31, 2021 exceeding the comparable fiscal 2020 periods by approximately 140% and 230%, respectively. Our Diagnostics segment, on the other hand, reported decreased year-over-year revenues in the both the first and second quarters of fiscal 2021, a continuation of the trends experienced in the third and fourth quarters of fiscal 2020, as health systems focus on
SARS-CoV-2
testing over traditional infectious disease and blood-chemistry testing. Following signs of a recovery in our Diagnostics segment late in fiscal 2020, as evidenced by a 38% sequential quarter increase in the fourth quarter of fiscal 2020, and which continued throughout the early part of the first quarter of fiscal 2021, the recent volatility in
COVID-19
infection rates has resulted in sequential quarter growth in Diagnostic segment revenues of only 2% and 5% in the first and second quarters of fiscal 2021, respectively.
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Table of Contents
Employee Safety
We have implemented work-from-home processes on a
site-by-site
In
mid-March
2020, we instituted a work from home processbasis for employees whose
on-site
presence is designated as
non-essential
to the ongoing functions of our manufacturing sites, distribution centers, and new product development facilities, but the majority of our employees are now once again performingfacilities. We continue to utilize this work-from-home process as needed on a
day-to-daysite-by-site
work responsibilities
on-site.
basis. We also implemented enhanced cleaning and sanitizing procedures and provided additional personal hygiene supplies at all of our sites. We implemented policies for employees to adhere to the Centers for Disease Control and Prevention (“CDC”) guidelines on social distancing, and similar guidelines by authorities outside the U.S., and any employees experiencing any symptoms of
COVID-19
are required to stay home and encouraged to seek medical attention. Any employee who tests positive for
COVID-19
is required to quarantine and is not allowed to return to our facilities without a physician’s release, including a negative active infection test result. Access to our facilities by outside persons not critical to continuing our operations continues to be limited based on necessity.limited. To date, we have been able to manufacture and distribute products globally, and all of our sites continue to operate without interruption.with little, if any, impact on shipments to customers to date. As the pandemic continues, to spread over time, along with continuedcontinuing 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 homework-from-home processes, throughout a substantial portion of the quarter, have not materially impacted the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls.
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Table of Contents
Supply Chains
Currently and as anticipated for the near future, the supplySupply chains supporting our products remain intact, providing access to sufficient inventory of the key materials needed for manufacturing. To date, delays and allocations for certain raw materials of higher demand have been limited and have not had a material impact on our results of operations. We are regularly communicatingcommunicate with our suppliers, third-party partners, customers, health care providers and government officials in order to respond rapidly to issues as they arise. The longer the current situation continues, it is more likely that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations.
Clinical Trial Delays
As a result of the pandemic, certain of our clinical trials which were underway or scheduled to begin were temporarily placed on hold during the quarter. Wehold. While we are beginningcontinuing to see
“re-starts”
for suchcertain clinical trials, albeitthe trials are being conducted at a slower pace than normal.normal, as the prevalence of certain infectious diseases (e.g., bacterial gastrointestinal) has been much lower than normal during the pandemic. Such delays continue to impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the ongoing
COVID-19
pandemic has and could continue to slow down our efforts to expand our product portfolio through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market.
Product Demand
Our Life Science segment manufactures, markets and sells a number of immunoassaymolecular and molecularimmunological reagents to IVD customers, including those who are making both molecular and immunoassay
COVID-19
tests. DuringSince late in the last month of our second quarter and throughout our third quarter of fiscal 2020, we have experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides), and such demand has continued into. For the second half of our fourth fiscal quarter, albeit at a lower level than the third quarter. Although we are unable to predict when this demand may subside,2021, we expect revenue levelsdemand for thesereagent products used in
COVID-19
tests will be lower than we experienced in our second quarter of fiscal 2021, as health care systems transition to be materially higher than historical levels duringmore asymptomatic testing versus the next 12 to 18 months. In addition, during Aprilpredominant symptomatic testing we announcedhave seen over the launch of several recombinant antigens critical for the development of antibody testslast year. However, this varies by country based on their individual
COVID-19
case statistics, infection rates and vaccine programs. We believe that our reagent products for
COVID-19
and experienced significant demand for such products throughout our third quarter.have applications in many alternative,
non-hospital-based
channels (e.g., airports, schools, etc.). Our products are currently being used in over 45 Covid-19 100 approved
COVID-19
related assays around the world. During July, we announced the launch of antibody pairs critical for the development of antigen tests for
COVID-19
and have seen strong sampling activity. Our reagent product portfolio is now able to address the broad test platform needs of
COVID-19
test manufacturers. COVID-relatedrelated reagent revenues weretotaled approximately $48,000$31,000 and $74,000 in the three and six months ended March 31, 2021, respectively, following approximately $71,500 during the quarter and approximately $53,000 during the nine-month
year-to-date
period.full year fiscal 2020.
Our Diagnostics segment manufactures, markets and sells a number of molecular, immunoassay, blood chemistry and urea breath tests
for various infectious diseases and blood-lead levels. We expect near-term salesSales volumes for a number of these assays to continue to behave been adversely affected by the
COVID-19
pandemic over the past year, as such assays are often used in
non-critical
care settings. In addition, theThe
COVID-19
pandemic also has continued to greatly slowaffect our instrument placements,placements. The launch of our Curian platform has been slower than expected, as diagnostic testing sites have turned their attention to critical care testing. ThroughoutOn the third quarter, our shipmentother hand, as a result of Diagnostic products was approximately 65%announcing the development of expected volume levels. Given the nature of our diagnostic assays (i.e., infectious disease and blood-lead), we expect to return to expected sales volume levels within the next six to nine months, assuming health care facilities return to normal,
pre-pandemic
operations in the near term. However, no assurances can be made in this regard.
a
Asset Impairment ReviewSARS-CoV-2
Considering the economic impacts of
COVID-19,
we performed an analysis of our business to determine if there were triggering events that would require us to further test our long-lived assets for impairment. Based on our review, we do not believe that a triggering event exists at this time and, therefore, we believe that we will be able to realize the full value of our long-lived assets. As such, no impairments or other write-downs related to
COVID-19
have been recorded during fiscal 2020. In addition, we performed our annual test for goodwill impairment as of June 30, 2020 by performing a qualitative assessment pursuant to ASU
2011-08
for each reporting unit. Our qualitative assessment indicated that it is not more likely than not that the fair values of our reporting units are less than their carrying values. Accordingly, a quantitative impairment test for goodwill was not required.
See Note 12,
“Subsequent Event”
of the accompanying Condensed Consolidated Financial Statements for discussion related to certain inventory and advance deposits.assay (the “Revogene
 
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Table of Contents
AccessCOVID-19
assay”) and subsequently submitting an application for the test to Capitalthe FDA on December 7, 2020 under its emergency use authorization (“EUA”) program, beginning in our fiscal 2020 fourth quarter and continuing through the first quarter of fiscal 2021, we experienced an acceleration in Revogene instrument orders and placements. However, based upon a
mid-February
2021 discussion with the FDA related to certain information contained within the EUA application, on February 23, 2021, we announced our withdrawal of the EUA application and our intention to conduct a
Limit-of-Detection
bridging study and an updated clinical validation study, with the intention of
re-submitting
The impacts ofan EUA application for the Revogene
COVID-19
have adversely affected the ability of many companies to access capital and liquidity on favorable terms or at all. As of June 30, 2020, the Company’s outstanding debt balance on its revolving credit facility was $98,824, leaving $61,176 of available borrowing capacity. In addition,assay, which we expect to generate positive cash flows from operating activitiesoccur in June 2021. We will not resume shipments of the Revogene
COVID-19
assay until FDA EUA clearance. Understandably, these events resulted in a slow-down in orders for the Revogene system that were related to the anticipated COVID-19 assay. We believe this slow-down to be temporary, as potential customers take a “wait and see” approach while we work toward
re-submission
of our EUA application. In response to the high level of demand we have experienced since announcing development of the test, we are in the process of increasing our capacity to produce these tests, as well as other tests on the Revogene system. Specifically, we are: (i) adding a second production line at our Quebec City, Canada manufacturing facility; and (ii) installing two additional production lines in a leased facility near our corporate headquarters in Cincinnati, Ohio. It is expected that these expansion efforts will be completed during fiscal 2021 at a total cost of approximately $18,000, which is expected to be partially offset by the $5,500 RADx grant entered into on February 1, 2021 (see Note 13 of the Condensed Consolidated Financial Statements).
Critical Accounting Estimates
For the three and six months ended March 31, 2021, there were no significant changes to our critical accounting estimates, as outlined in our Annual Report on Form
10-K
as of and for the year ended September 30, 2020.
Impact of Brexit
The United Kingdom (“U.K.”) left the European Union (“EU”) on January 31, 2020. While all EU rules and laws continued to apply to the U.K. through the transition period, which ended December 31, 2020, the U.K. and the EU reached a free trade agreement on December 24, 2020, which was ratified on April 28, 2021 and goes 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 elevated levelsU.K., which may decrease the profitability of revenues experienced during our third fiscal quarteroperations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and overmay decrease the next twelve months, which will add to cash on hand. As a result,profitability of our operations. A weaker British pound versus the Company believes it has sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months and expectsU.S. dollar may also cause local currency results of our operations to be in compliance withtranslated into fewer U.S. dollars during a reporting period. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the trade agreement will have on our business; however, Brexit and its related effects could potentially have an adverse impact on our financial covenants during this same period. However, givenposition and results of operations.
The U.K.’s withdrawal from the unusual natureEU could also adversely impact the operations of the
COVID-19
pandemicour vendors and the rapidly changing environment, we can provide no assurances in this regardof our other partners. Our management team has evaluated a range of possible outcomes, identified areas of concerns, and futureimplemented strategies to help mitigate these concern. It is possible that these strategies may not be adequate to mitigate any adverse impacts may materializeof Brexit, and that are not currently known.these impacts could further adversely affect our business and results of operations.
RESULTS OF OPERATIONS
Three and NineSix Months Ended June 30, 2020March 31, 2021
Net earnings for the thirdsecond quarter of fiscal 20202021 increased 442%181% to $27,507,$26,302, or $0.64$0.60 per diluted share, from net earnings for the thirdsecond quarter of fiscal 20192020 of $5,079,$9,359, or $0.12$0.22 per diluted share. ForNet earnings for the nine-month
six-month
period ended June 30, 2020,March 31, 2021 increased 336% to $53,081, or $1.21 per diluted share, from net earnings were $39,693,for the comparable fiscal 2020 period of $12,186, or $0.92$0.28 per diluted share. The level of net earnings in the thirdsecond quarter (“QTD”) and first ninesix months (“YTD”) of fiscal 20202021 were affected by several factors, including most notably the combined effects of the following (amounts presented on a
pre-tax
basis): and a lower effective tax rate resulting in large part from a greater percentage of
pre-tax
earnings being generated in lower tax jurisdictions:
 
Page 23
Table of Contents
 (i)
significantly higher revenue in the Life Science operating segment, due to supplying key molecular components and recombinant antigensreagents to diagnostic test manufacturers for use in
COVID-19
related PCR and antibody tests;immunoassay tests (up $30,961 QTD; up $80,927 YTD);
 
 (ii)
higher research and development spending in the Diagnostics segment ($2,337(up $745 QTD; $5,068up $1,640 YTD) under new product development programs;
 
 (iii)
increased cash-based incentive compensation ($2,327intangible asset amortization, primarily resulting from intangible amortization related to the acquisition of Exalenz in April 2020 (up $491 QTD; $4,897up $990 YTD) tied to higher revenue and profit levels;;
 
 (iv)
increased intangible asset amortization, primarily resulting from purchase accounting amortizationdecreased acquisition-related costs, as compared to those related to the acquisitions of Exalenz and the GenePOC businesstransaction in April 2020 (down $1,787 both QTD and June 2019, respectively ($996 QTD; $2,711 YTD);
 
 (v)
increased acquisition-related costs in connection with the fiscal 2020 Exalenz transaction, as compared to thoselegal expenses related primarily to the GenePOC transaction in fiscal 2019 ($1,168DOJ matter at the Billerica, Massachusetts facility (up $295 QTD; $1,983up $1,202 YTD);
 
 (vi)
a decrease in the fair valuefiscal 2021 periods including grant income related to the National Institutes of Health RADx initiative ($200 QTD; $1,000 YTD) (see Note 13 of the earnout obligation for the acquisition of the GenePOC business ($6,124 QTD; $7,428 YTD)Condensed Consolidated Financial Statements); and
 
 (vii)
higherthe change from net currency gains relatedin the fiscal 2020 periods to foreignnet currency losses in the fiscal 2021 periods ($1,0422,286 change QTD; $399$2,250 change YTD), with both periods including an $845 gain realizedresulting primarily from movement in the execution of forward currency contracts in connection with the Exalenz acquisition (see Note 3 of the accompanying Condensed Consolidated Financial Statements).British pound exchange rate.
Consolidated revenues for the thirdsecond quarter of fiscal 2021 totaled $85,264, an increase of 49% compared to the second quarter of fiscal 2020 totaled $84,797, an increase of 75% compared to the third quarter of fiscal 2019 (76%(45% increase on a constant-currency basis).
Revenues forfrom the Diagnostics segment for the thirdsecond quarter of fiscal 2021 decreased 9% compared to the second quarter of fiscal 2020 decreased 35% compared to the third quarter of fiscal 2019 (also 35%(10% decrease on a constant-currency basis), comprised of a 46%39% decrease in molecular assay products and a 32%1% decrease in immunoassay and blood chemistry
non-molecular
assay products. As previouslyReflecting the factors noted the
COVID-19
pandemic dramatically slowedin the placement ofProduct Demand section above, our molecular assay products during the quarter, resulting in 2
1
 Revogene
®
systems being installed during the third quarter of fiscal 2020 and a total Revogene system install base of 169 systemsinstalled based totaled 325 at March 31, 2021, as of June 30,compared to 288 at December 31, 2020.
With a 606%227% increase in revenues from molecular reagents products and a 148%44% increase in revenues from immunological reagents products, revenues for our Life Science segment increased 312%139% during the thirdsecond quarter of fiscal 20202021 compared to the thirdsecond quarter of fiscal 2019.2020. On a constant-currency basis, revenues for the Life Science segment increased 317%129%. Life Science segment revenues reflect a significant increase in the sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in
COVID-19
related PCR tests, including an approximate 250% increase in revenue from sales into China.tests. Also contributing to the recordincreased revenue levels during the second quarter of fiscal 2021 were sales of monoclonal antibody pairs used in
COVID-19
antigen tests and, to a lesser degree, recombinant antigens used in
COVID-19
antibody tests. In addition, our core Life Science segment business (other than
COVID-19
contributions) experienced growth of approximately $5,000, or approximately 32%, compared to the second quarter of 2020. This growth, including an approximate 83% increase in revenues from sales into China, resulted in large part from obtaining business from
COVID-19
customers who are now using our products for other
non-COVID
related purposes, as well as a rebound in volumes in core immunological products.
Consolidated revenues increased 70% to $178,181 for the first six months of fiscal 2021 compared to the same period of the prior year (67% increase on a constant-currency basis). On a reportable segment basis, Diagnostics segment revenues decreased 11% (12% decrease on a constant-currency basis) and Life Science segment revenues increased 231% (222% increase on a constant-currency basis). The drivers of the fiscal
year-to-date
revenue levels are consistent with the drivers that resulted in the quarterly revenue levels, as detailed above and within the Revenue Overview section below.
Lead Testing Matters
On April 17, 2018, Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare product line, which outlined documents to be produced. Since that time, we have received and responded to additional related information requests and executed tolling agreements to extend the statute of limitations. In March and April 2021, DOJ issued two subpoenas calling for witnesses to testify before a federal grand jury related to this matter. The March 2021 subpoena was issued to a former employee of Magellan, and the April 2021 subpoena was issued to a current employee of Magellan. At this time, we do not know the outcome of this matter, however, we continue to cooperate with the DOJ.
 
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Consolidated revenues increased 26% to $189,514 for the first nine months of fiscal 2020 compared to the same period of the prior year (27% increase on a constant-currency basis). On an operating segment basis, Diagnostics revenues decreased 12% (11% decrease on a constant-currency basis) and Life Science revenues increased 109% (112% increase on a constant-currency basis).
Lead Testing Matters
On June 29, 2017, the United States Food and Drug Administration (“FDA”), in connection with its Safety Notification related to Magellan’s LeadCare testing systems for venous blood samples, issued to Magellan its Form 483, Inspectional Observations. The FDA issued a related Warning Letter on October 23, 2017. On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we continue to cooperate with the DOJ in this matter, including responding to additional information requests. We have executed multiple tolling agreements to extend the statute of limitations.
Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare
®
II, LeadCare
®
Plus
™
and LeadCare Ultra
®
testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of Magellan’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information including review by an FDA Advisory Committee, to determine whether further action by the FDA or the CDC is necessary to protect the public health. Meridian intends to fully cooperate with the FDA as the third-party study and Advisory Committee review areis completed.
During October 2019, the FDA performed a
follow-up
inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. In November 2019, we submitted to the FDA our written responses to the five Form FDA 483 observations and have implemented a remediation plan that we are actively working. In calendar 2020
to-date,
we submitted to the FDA four additional written responses to the Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. Over the last year, we have submitted a number of written responses to the FDA regarding the five Form FDA 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64 (d) (3). The Warning Letter issued in October 2017 remains outstanding, pending a future FDA inspection. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA.
In the course of remediation, we may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of our products. At this time, we do not believe that any such notifications would impact the ability to use the LeadCare systems with capillary blood samples. While we remain confident in the performance of the Magellan LeadCare testing systems using capillary samples, we do not expect that the FDA will reinstate our venous blood claims. We can provide no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation, and/or the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, injunctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business on terms substantially similar to those on which we currently operate.
REVENUE OVERVIEW
Below are analyses of the Company’s revenue,revenues, provided for each of the following:
 
 -
By Reportable Segment & Geographic Region
 
 -
By Product Platform/Type
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Revenue Overview- By Reportable Segment & Geographic Region
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, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia.
Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and severity of seasonal diseases and outbreaks (including the
COVID-19
pandemic), and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major IVD manufacturing customers, severity of disease outbreaks and foreign currency exchange rates. The severity of the
COVID-19
pandemic contributed approximately $71,500 of new revenue for our Life Science segment during fiscal 2020, and approximately $31,000 and $74,000 during the second quarter and first six months of fiscal 2021, respectively.
See the “Revenue Disaggregation” section of Note 2,4,
“Significant Accounting Policies”Revenue Recognition”
of the accompanying Condensed Consolidated Financial Statements for detailed revenue disaggregation information.
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Table of Contents
Following is a discussion of the revenues generated by these product platforms/types and/or disease states:
Diagnostics Segment Products
The acquisitionacquisitions of the Revogene molecular diagnostics platform and the BreathID breath test system, the development of the Curian
®
immunoassay platform, and the expansion of the related assay-menu for each of these platforms are important steps in addressing competitive pressures in our gastrointestinal and respiratory illness assay families. We are actively convertingcontinue to convert our existing Alethia
®
install base to the Revogene platform for the
C. difficile
, Group A
Streptococcus
(“Group A Strep”) and Group B
Streptococcus
(“Group B Strep”) assays. As previouslyReflecting the factors noted the
COVID-19
pandemic dramatically slowedin the placement ofProduct Demand section above, our molecular instruments and related assay products during the quarter, resulting in 21 Revogene systems being installed during the third quarter of fiscal 2020 and a total Revogene system install base of 169 systemsinstalled based totaled 325 at March 31, 2021, as of June 30,compared to 288 at December 31, 2020.
In March 2020, we received clearance from the FDA for the Curian immunoassay diagnostics instrument and its first assay, a test for
H. pylori
antigen in stool. We began clinical trials for the Curian
C. difficile
Common Antigen and Toxins A and B test during the second quarter of fiscal 2021 and submitted a 510(k)
pre-market
notification to the FDA for marketing clearance of Curian Campylobacter on March 31, 2021. We believe the advantages of the Curian analyzer will help protect our existing rapid test accounts.accounts, and in the case of the
C. difficile
test, provide meaningful revenue growth opportunities.
Gastrointestinal, Respiratory Illness and Blood Chemistry Assays
DuringAs previously noted, the thirdongoing
COVID-19
pandemic has had a negative impact on revenue levels from sales of our gastrointestinal, respiratory illness and blood chemistry products. Comprised of tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis, among others, the respiratory illness category in particular continues to experience significantly lower sales activity relative to the prior year, with revenues from sales of such products decreasing 66% and 54% during the second quarter and first ninesix months of fiscal 2020,2021, respectively. However, during the second quarter of fiscal 2021, we began to experience an increase in sales activity for gastrointestinal and blood chemistry products, with revenues from oureach of these product categories increasing as follows compared to the second quarter of fiscal 2020: (i) gastrointestinal products, which include tests for
C. difficile
,
H. pylori
and certain foodborne pathogens, among others, totaled $9,584increased 12% to $15,666; and $39,644, respectively. These revenue(ii) blood chemistry products, which test for elevated levels represent 44%of lead in blood, increased 4% to $4,358. During the first six months of fiscal 2021, gastrointestinal product revenues increased 4% over the prior year period to $31,118, and 24% decreases for thisblood chemistry product categoryrevenues decreased 4% to $8,753. The increases in the
H. pylori
component of our gastrointestinal family of products include contributions from the fiscal 2019 quarterly andBreathID urea breath platform acquired in the Exalenz acquisition on April 30, 2020.
year-to-date
periods, respectively. In additionorder to combat certain of the
COVID-19
pandemic adversely affecting volumes in this product category, these decreases also result from the competitive pricing and volume pressures we continue to face within thisthe gastrointestinal product category. Wecategory, we have executed multi-yearon a number of measures including: (i) entering into a strategic collaboration with DiaSorin to sell
H. pylori
tests; (ii) executing supply agreements with our two largest reference laboratory customers for
H. pylori
tests to secure volume, albeit at lower selling prices. We continue to believe there are ongoing benefits to be realized from: (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods;prices; and (iii) physician behavior movement away from serology-based testing.
Contributing to the competitive pressures being faced in this product category, the patents for our
H. pylori
products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our
H. pylori
products to continue to increase, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We intend for our Curian HpSA
®
assay, cleared by theupon FDA clearance in March 2020, tolaunching Curian HpSA, our first assay on the Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We maintain a strategic collaboration with DiaSorin to sell
H. pylori
tests. We also expect the acquisition of the Exalenz BreathID platform to combat competitive pressures, as we believe that we are now the only company with
FDA-cleared,
non-invasive
assays for both stool antigen and urea breath samples, allowingproviding physicians a choice
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in test format.format from a single supplier. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit.
Respiratory Illness Assays
Revenues for our respiratory illness products, which include tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis, among others, decreased 11% during the third quarter of fiscal 2020, primarily reflecting the
COVID-19
pandemic’s negative effect on demand. Revenues from such products increased 11% for first nine months of fiscal 2020, primarily reflecting volume increases in Group A Strep, Influenza and Mycoplasma related products from a very strong respiratory season.
Blood Chemistry Assays
Revenues from our sale of products to test for elevated levels of lead in blood decreased 28% during the third quarter of fiscal 2020 to $3,364 and decreased 6% for the fiscal
year-to-date
period to $12,508. Since the latter part of March, we have experienced lower demand for our blood-lead test as a result of the
COVID-19
pandemic. However, we have seen shipments to our largest independent distributor return to
pre-pandemic
levels during the latter part of June and through the entire month of July.
Life Science Segment Products
During the thirdsecond quarter of fiscal 2020,2021, revenues from our Life Science segment increased 312% to a record level, compared to the fiscal 2019 third quarter,139%, with revenues from molecular reagent sales increasing 606%227% from the comparable fiscal 2020 quarter and revenues from immunological reagent sales increasing 148%44%. Life Science segment revenues increased 109%231% for the first ninesix months of fiscal 2020,2021, reflecting a 218%396% increase in revenues from molecular reagent sales and a 45%78% increase in immunological reagent sales. Our Life Science segment’s revenue growthperformance was slightlynominally impacted by the movement in currency exchange rates since the fiscal 20192020 reporting periods, with revenues increasing 317%129% and 112%222% on a constant-currency basis over the thirdsecond quarter and first ninesix months of fiscal 2019, respectively, on a constant-currency basis.2020, respectively. The increase in revenues was primarily attributable to the increased demand forsales of key molecular components such as RNA master mixes and dNTPs fromto diagnostic test manufacturers for use in
COVID-19
related PCR tests, as well as sales of
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monoclonal antibody pairs used in antigen tests and to a lesser degree, recombinant antigens used in
COVID-19
antibody tests. Largely as a resultCOVID-related reagent revenues totaled approximately $31,000 and $74,000 during the second quarter and first six months of thisfiscal 2021, respectively.
During the second quarter of fiscal 2021, revenue from our core Life Science segment business (other than
COVID-19
related demand,contributions) grew approximately 32% over the second quarter of fiscal 2020 to approximately $22,000. During the first six months of fiscal 2021, such revenue grew approximately 42% over the comparable fiscal 2020 period to approximately $41,600. This growth, including an approximate 83% and 85% increase in revenue from sales into China totaled approximately $9,500 for the third quarter of fiscal 2020, an approximate 250% increase over the comparable fiscal 2019 quarter. For the first nine months of fiscal 2020, revenue from sales into China totaled approximately $16,600, or approximately 225% over the comparable fiscal 2019 period. COVID-related reagent revenues were approximately $48,000 during the quarter and approximately $53,000 during the nine-monthfiscal
year-to-date
period.period, respectively, resulted in large part from obtaining business from
COVID-19
customers who are now using our products for
As it pertains to non-COVID-19 non-COVID
related products, revenues from onepurposes, as well as a rebound in volumes of our top IVD manufacturing customers was down during the quarter ended June 30, 2020. However, such revenues from a number of our remaining top IVD manufacturing customers returned to more normal levels during the quarter. It remains unclear whether the fiscal 2020 year-to-date shortfall experienced from these customers will be overcome throughout the remainder of the fiscal year.
core immunological product sales.
Significant Customers
Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 10,
“Reportable Segments and Major Customers Information”
14 of the accompanying Condensed Consolidated Financial Statements.
Gross Profit
   
Three Months Ended March 31,
  
Six Months Ended March 31,
 
   
2021
  
2020
  
Change
  
2021
  
2020
  
Change
 
Gross profit
  $57,772 $34,546    67%  $119,320  $62,197  92% 
Gross profit margin
   68%   60%   8 points   67%   59%   8 points 
The increase in gross profit margin during the second quarter and first six months of fiscal 2021 results primarily from the overall shift in sales mix the Company has experienced, largely as a result of the
COVID-19
pandemic. During the second quarter and first six months of fiscal 2021, approximately 44% and 47%, respectively, of consolidated revenues relate to sales of molecular reagent products by our Life Science segment, which are some of our higher margin products, as compared to sales of such products comprising approximately 20% and 16% of consolidated revenues during the second quarter and first six months of fiscal 2020, respectively.
Operating Expenses – Segment Detail
   
Three Months Ended March 31,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2020:
         
Diagnostics
  $4,733  $5,401  $5,645  $(505)  $15,274
Life Science
   582   1,128   2,772   103  4,585
Corporate
   —     —     2,211   685  2,896
                        
Total Expenses (2020 Quarter)
  $5,315  $6,529  $10,628  $283 $22,755
                        
Fiscal 2021:
         
Diagnostics
  $5,478  $5,220  $6,553  $(2,989)  $14,262
Life Science
   587   1,320   3,077   —    4,984
Corporate
   —     —     3,295   1,030  4,325
                        
Total Expenses (2021 Quarter)
  $6,065  $6,540  $12,925  $(1,959)  $23,571
                        
 
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Table of Contents
   
Six Months Ended March 31,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2020:
         
Diagnostics
  $8,908  $10,797  $10,574  $812 $31,091
Life Science
   1,170   2,460   5,110   198  8,938
Corporate
   —     —     3,928   1,055  4,983
                        
Total Expenses (2020
Year-to-Date)
  $10,078  $13,257  $19,612  $2,065 $45,012
                        
Fiscal 2021:
         
Diagnostics
  $10,548  $10,948  $12,301  $(1,942)  $31,855
Life Science
   1,168   2,613   6,531   —    10,312
Corporate
   —     —     6,031   2,257  8,288
                        
Total Expenses (2021
Year-to-Date)
  $11,716  $13,561  $24,863  $315 $50,455
                        
Gross Profit
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2020
  
2019
  
Change
  
2020
  
2019
  
Change
 
Gross Profit
  $ 55,852 $ 28,259  98%  $ 117,746 $ 89,169  32% 
Gross Profit Margin
   66%   58%   8 points   62%   59%   3 points 
The gross profit margin increases experienced in the third quarter and first nine months of fiscal 2020 result primarily from the positive impacts of a significantly higher percentage of the Life Science segment’s revenue relating to sales of molecular products and the segment’s manufacturing of larger-than-normal batch sizes for the RNA master mixes, both in response to the
COVID-19
pandemic demand, partially offset by the combined effects of: (i) previously-noted pricing changes within our
H. pylori
product line; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; and (iii) production capacity
ramp-up
costs for our Quebec facility where Revogene instruments and test devices are made.
Operating Expenses – Segment DetailComparisons to Prior Year Periods
 
   
Three Months Ended June 30,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2019:
         
Diagnostics
  $ 3,855  $ 5,525  $3,830  $ 1,372 $ 14,582
Life Science
   739   1,222   2,323   —    4,284
Corporate
   —     —     1,849   1,080  2,929
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2019 Quarter)
  $
 
4,594		   $ 6,747  $8,002  $ 2,452 $ 21,795 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2020:
         
Diagnostics
  $ 6,192  $ 4,996  $7,055  $ (4,387)  $ 13,856
Life Science
   551   1,265   2,669   (3)   4,482
Corporate
   —     —     2,715   134  2,849
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2020 Quarter)
  $
 
6,743		   $ 6,261  $ 12,439  $ (4,256)  $21,187 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
   
Three Months Ended March 31,
 
   
Research &
Development
  
Selling &
Marketing
  
General &
Administrative
  
Other
  
Total Operating
Expenses
 
2020 Expenses
  $5,315 $6,529 $10,628 $283 $22,755
% of Revenues
   9%   11%   19%   -%   40% 
Fiscal 2021 Increases/(Decreases):
      
Diagnostics
   745  (181)   908  (2,484)   (1,012) 
Life Science
   5  192  305  (103)   399
Corporate
   —    —    1,084  345  1,429
                     
2021 Expenses
  $6,065 $6,540 $12,925 $(1,959)  $23,571
                     
% of Revenues
   7%   8%   15%   (2)%   28% 
% Increase (Decrease)
   14%   -%   22%   NMF   4% 
 
  
Nine Months Ended June 30,
   
Six Months Ended March 31,
 
  
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
 
Total Operating
Expenses
   
Research &
Development
 
Selling &
Marketing
 
General &
Administrative
 
Other
 
Total Operating
Expenses
 
Fiscal 2019:
         
2020 Expenses
  $10,078 $13,257 $19,612 $2,065  $45,012
% of Revenues
   10%   13%   19%   2%   43% 
Fiscal 2021 Increases/(Decreases):
      
Diagnostics
  $ 10,141  $ 17,048  $ 11,632  $ 2,219 $ 41,040   1,640  151  1,727  (2,754)   764
Life Science
   2,153   4,173   6,478   25 12,829   (2)   153  1,421  (198)   1,374
Corporate
   —     —     6,178   2,272 8,450   —    —    2,103   1,202   3,305
  
 
   
 
   
 
   
 
  
 
                 
Total Expenses (2019
Year-to-Date)
  $
 
12,294		   $ 21,221  $ 24,288  $ 4,516 $ 62,319 
2021 Expenses
  $11,716 $13,561 $24,863  315  $50,455
  
 
   
 
   
 
   
 
  
 
                 
Fiscal 2020:
         
Diagnostics
  $ 15,209  $ 15,709  $ 17,946  $ (3,575)  $ 45,289
Life Science
   1,744   3,750   7,086   195 12,775
Corporate
   —     —     6,643   1,189 7,832
  
 
   
 
   
 
   
 
  
 
 
Total Expenses (2020
Year-to-Date)
  $
 
16,953		   $ 19,459  $ 31,675  $ (2,191)  $ 65,896 
  
 
   
 
   
 
   
 
  
 
 
% of Revenues
   7%   8%   14%   —%   28% 
% Increase (Decrease)
   16%   2%   27%   (85)%   12% 
The changes in operating expenses primarily reflect the combined effects of the following:
1)
Increased Research & Development costs, primarily reflecting the development of the molecular
SARS-CoV-2
assay and molecular gastrointestinal and respiratory panel assays for the Diagnostics segment, and the addition of research and development expenses related to Exalenz, acquired in April 2020;
 
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Table of Contents
Operating Expenses – Comparisons to Prior Year Periods
   
Three Months Ended June 30,
 
   
Research &
Development
  
Selling &
Marketing
  
General &
Administrative
  
Other
  
Total Operating
Expenses
 
2019 Expenses
  $
 
4,594		  $ 6,747 $8,002 $ 2,452 $ 21,795 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   9%   14%   17%   5%   45% 
Fiscal 2020 Increases/(Decreases):
 
Diagnostics
   2,337  (529)   3,225  (5,759)   (726) 
Life Science
   (188)   43  346  (3)   198
Corporate
   —    —    866  (946)   (80) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
2020 Expenses
  $
 
6,743		  $ 6,261 $ 12,439 $ (4,256)  $ 21,187 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   8%   7%   15%   (5)%   25% 
% Increase (Decrease)
   47 %   (7)%   55%   (274) %   (3) % 
2)
Increased Selling & Marketing costs, primarily reflecting increased bonus and commissions paid early in fiscal 2021 to sustain the Diagnostics segment sales force during the downturn caused by the
COVID-19
pandemic, substantially offset by the effects of reduced travel from restrictions imposed during the pandemic and the effect such restrictions have had on general sales and marketing activities;
 
   
Nine Months Ended June 30,
 
   
Research &
Development
  
Selling &
Marketing
  
General &
Administrative
  
Other
  
Total Operating
Expenses
 
2019 Expenses
  $
 
12,294		  $ 21,221 $ 24,288 $ 4,516 $ 62,319 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   8%   14%   16%   3%   41% 
Fiscal 2020 Increases/(Decreases):
 
Diagnostics
   5,068  (1,339)   6,314  (5,794)   4,249
Life Science
   (409)   (423)   608  170  (54) 
Corporate
   —    —    465  (1,083)   (618) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
2020 Expenses
  $
 
16,953		  $ 19,459 $ 31,675  (2,191)  $ 65,896 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% of Revenues
   9%   10%   17%   (1)%   35% 
% Increase (Decrease)
   38 %   (8) %   30 %   (149)%   6 % 
The changes in operating expenses primarily reflect the following:
Increased Research & Development costs, primarily for the development of the Revogene system GI
3)
Increased General & Administrative costs, primarily reflecting the addition of expenses related to Exalenz, including purchase accounting amortization, along with additional investment in incentive compensation; and RI panel assays for the Diagnostics operating segment;
 
Decreased Selling & Marketing costs, primarily reflecting the effects of travel and assembly restrictions imposed during the
COVID-19
pandemic and the effect such restrictions have had on general sales and marketing activities;
Increased General & Administrative costs, primarily reflecting additional investment in incentive compensation, along with the purchase accounting amortization from the acquisitions of Exalenz and the GenePOC business; and
Increased acquisition and restructuring costs, along with a decrease in fair value of the contingent consideration obligation for the GenePOC business, all of which are reflected within “Other” in the above tables.
4)
Decreased Acquisition and Restructuring Costs and a decrease in the effect of changes in the fair value of the contingent consideration obligation for the GenePOC business, partially offset by increased Selected Legal Costs (reflected within “Other” in the above tables).
Operating Income
OperatingCompared to the prior year periods, operating income increased 436%190% to $34,665$34,201 for the thirdsecond quarter of fiscal 20202021 and increased 93%301% to $51,850$68,865 for the first ninesix months of fiscal 2020,2021, as a result of the factors discussed above.
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Income Taxes
The effective rate for income taxes was 21%20% and 23%21% for the third quarterthree and first ninesix months of fiscal 2020,ended March 31, 2021, respectively, compared to 22%26% and 23% during27% for the corresponding periods inthree and six months ended March 31, 2020, respectively. These lower fiscal 2019. While relatively comparable to the fiscal 2019 rates, the fiscal 20202021 effective tax rates reflectresult primarily from the combined effects of the following: (i) a significantly higher percentage of pretaxearnings before income taxes being generated in foreign jurisdictions with tax rates lower than the U.S., particularly the United Kingdom;U.K.; (ii) the
non-deductibility
of a significant portion of the acquisition-related costs related to Exalenz; and (iii) the tax impact of restricted share units lapsingunit lapses and stock option exercises occurring on a datedates when the share price of Company stock was significantly lowerhigher than the share price on the date the restricted share unitssuch equity awards were granted. In accordance with current applicable guidance, the tax effect of this difference is recorded directly to income tax expense. We expect our effective tax rate for the full fiscal year to approximate 23% to 24%.
Liquidity and Capital Resources
Liquidity
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets and debt service. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities.
We have an investment policy that guides the holdings of our investment portfolio, which presently consists of bank savings accounts and institutional money market mutual funds. Our objectives in managing the investment portfolio are to: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.
We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through the amount remaining available on our $160,000 bank revolving credit facility, which totaled approximately $61,200$110,000 as of June 30, 2020.March 31, 2021. 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.
During the first six months of fiscal 2021, we generated cash flow from operations totaling $41,491. This level of cash resulted from the achievement of record fiscal
year-to-date
revenues, along with well-managed accounts receivable balances, including the requirement of advance payments in certain instances, as illustrated by an approximate 33% increase in second quarter fiscal 2021 consolidated revenues over the fourth quarter of fiscal 2020 and only an approximate 17% increase in accounts receivable balances since September 30, 2020.
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Our levels of inventoryinventories increased approximately $19,500$11,000 to $60,468$72,534 between September 30, 2020 and March 31, 2020 and June 30, 2020.2021. This increase was largely attributable to both reduced revenue levels in our Diagnostics segment and inventory builds in our Life Science segment to protect against future supply interruptions and to meet
COVID-19
related demand. For our Diagnostics segment, we also have maintained inventory levels in anticipation of a return to
pre-pandemic
diagnostic testing activity. We are continuing to actively managingmanage our inventory levels and are expecting reductions during our fourth fiscal quarter.levels.
As of June 30, 2020,March 31, 2021, our cash and cash equivalents balance was $63,445$63,374 or $8,253 higher than at the end of the fiscal 2019 third quarter, and $1,048$9,860 higher than at the end of fiscal 2019.2020. As a result of the cash generated from operations during the second quarter and first ninesix months of fiscal 2020 and the financing activities related to the Exalenz acquisition, since the beginning of fiscal 2020,2021, our balance of net debt (defined as bank debt, government grant obligations and total contingent obligations related to the acquisition of the GenePOC business, net of cash and cash equivalents
on-hand)
has increaseddecreased approximately $25,700$35,600 to approximately $71,300$16,700 at June 30, 2020.March 31, 2021. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next twelve months.
The impacts of
COVID-19
have adversely affected the capital markets and the ability of many companies to access capital and liquidity on favorable terms or at all. The Company believes it has sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months and expects to be in compliance with its financial covenants during this same period. However, given the unusual nature of the
COVID-19
pandemic and the rapidly changing environment, we can provide no assurances in this regard and future impacts may materialize that are not currently known.
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In April 2019, we suspended the payment of our quarterly cash dividend. The dividend was suspended as part of our regular evaluation of 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.
Capital Resources
As described in Note 9,11,
“Bank Credit Arrangements”
of the accompanying Condensed Consolidated Financial Statements, and above, the Company maintains a $160,000 revolving credit facility, which is secured by substantially all our U.S. assets and includes certain restrictive financial covenants. The Company also maintains a shelf registration statement on file with the SEC.
Our capital expenditures are estimated to range between approximately $18,000 and $24,000. Our Diagnostics segment capital expenditures could be as high as $21,000, depending upon the level and timing of the previously noted Revogene
COVID-19
assay production capacity expansion and
scale-up
efforts, and our Life Science segment capital expenditures could be as high as $3,000, to $4,000 for fiscal 2020, with the actual amount dependent upon actual operating results and the phasing of certain projects.reflecting manufacturing capacity expansion at various locations. Such expenditures may be funded with cash and cash equivalents on hand, operating cash flows and/or availability under the $160,000 revolving credit facility discussed above.
In addition, a portion of the Diagnostics segment expansion may be funded by the previously noted $5,500 RADx grant entered into on February 1, 2021 (see Note 13 of the Condensed Consolidated Financial Statements).
We do not utilize any special-purpose financing vehicles or have any undisclosed
off-balance
sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, both directly and indirectly, such as interest rate movement. To the extent the Company deems it to be appropriate, derivative instruments and hedging activities are used as a risk management tool to mitigate the potential impact of certain risks, primarily interest rate risk.
The Company uses various types of derivative instruments including, but not limited to, interest rate swaps. The Company formally assesses, designates, and documents as a hedge of an underlying exposure each qualifying derivative instrument that will be accounted for as an accounting hedge at inception. Additionally, the Company assesses, both at inception and at least quarterly thereafter, whether the financial instruments used in the hedging transactions are effective at offsetting changes in either the fair values or cash flows of the underlying exposures.
Noting the above, other than the impact of the recent outbreak of
COVID-19
on our business and results of operations as discussed elsewhere in this report, thereThere have been no material changes in the Company’s exposure to market risk since September 30, 2019.2020.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2020.March 31, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2020.March 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended June 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11,16,
“Litigation Matters”
of the accompanying Condensed Consolidated Financial Statements.
ITEM 1A. RISK FACTORS
There have been no material changes from risk factors as previously disclosed in the Company’s fiscal 20192020 Annual
Report on Form
10-K
in response to Item 1A to Part I of Form
10-K,10-K.
as supplemented by our subsequent quarterly reports on Form
10-Q.
Risk factors included in such subsequent quarterly reports on Form
10-Q
are incorporated by reference herein.
ITEM 6. EXHIBITS
The following exhibits are being filed or furnished as a part of this Quarterly Report on Form
10-Q:
 
10.1Meridian Bioscience, Inc. 2021 Omnibus Award Plan (incorporated by reference to Exhibit 10 to the Company’s Registration Statement on Form S-8 (File No. 333-252538) filed with the Securities and Exchange Commission on January 29, 2021)
31.1  Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
31.2  Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS  Inline XBRL Instance Document
101.SCH  Inline XBRL Instance Extension Schema
101.CAL  Inline XBRL Instance Extension Calculation Linkbase
101.DEF  Inline XBRL Instance Extension Definition Linkbase
101.LAB  Inline XBRL Instance Extension Label Linkbase
101.PRE  Inline XBRL Instance Extension Presentation Linkbase
104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
   
MERIDIAN BIOSCIENCE, INC.
Date:
AugustMay 7, 20202021
  By: 
/s/ Bryan T. Baldasare
   Bryan T. Baldasare
   
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
 
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